wilmington trust collective investment trust multi … · 2019-05-02 · we have audited the...

WILMINGTON TRUST COLLECTIVE INVESTMENT TRUST

MULTI-MANAGER MID CAP VALUE FUND

FINANCIAL STATEMENTS

DECEMBER 31, 2018

WITH

INDEPENDENT AUDITOR'S REPORT

Wilmington Trust Collective Investment Trust

MULTI-MANAGER MID CAP VALUE FUND

CONTENTS Independent Auditor's Report ..................................................................................................................................................................... 1 Statement of Assets and Liabilities ............................................................................................................................................................ 3 Statement of Operations ............................................................................................................................................................................ 3 Statement of Changes in Net Assets.......................................................................................................................................................... 4 Financial Highlights .................................................................................................................................................................................... 5 Schedule of Investments ............................................................................................................................................................................ 6 Notes to the Financial Statements............................................................................................................................................................ 12

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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 Multi-Manager Mid Cap Value Fund (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 December 31, 2018, and the related statements of operations and changes in net assets, and the financial highlights for the year then ended, 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 December 31, 2018, and the results of its operations, and changes in its net assets and its financial highlights for the year then ended, in accordance with accounting principles generally accepted in the United States of America.

www.hogantaylor.com

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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 year ended December 31, 2018, 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, 2019

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Firm Signature


See Notes to the Financial Statements. 3

AssetsInvestments in securities, at fair value (cost $23,583,921) 22,138,935$ Receivable for investment securities sold 8,860 Receivable for fund units sold 19,469 Accrued interest, dividends and tax reclaim receivable 25,882 Receivable for reimbursement 18,249 Total assets 22,211,395 Liabilities and Net AssetsPayable for investment securities purchased 9,022 Payable for fund units redeemed 28,330 Accrued expenses 39,679 Total liabilities 77,031 Net assets 22,134,364$

Investment incomeDividends (net of withholding taxes of $83) 407,829$ Interest 18,304 Total investment income 426,133 ExpensesTrustee, management and service provider fees 28,278 Professional fees and other operating expenses 23,934 Total expenses 52,212 Net investment income 373,921 Realized and unrealized gain (loss) on investments Net realized gain on investments 1,665,552 Net change in unrealized depreciation on investments (4,437,558) Net realized and unrealized loss on investments (2,772,006) Net decrease in net assets resulting from operations (2,398,085)$

December 31, 2018

Statement of OperationsFor the year ended December 31, 2018

Statement of Assets and Liabilities

Multi-Manager Mid Cap Value Fund



Increase (decrease) in net assets resulting from operationsNet investment income 373,921$ Net realized gain on investments 1,665,552 Net change in unrealized depreciation on investments (4,437,558) Net decrease in net assets resulting from operations (2,398,085)

Fund unit transactionsProceeds from units issuedClass 0IM 3,324,842 Class 35 653,948 Class 60 173,394 Class R 80,228 Class R6 809,626 Total proceeds from units issued 5,042,038 Value of units redeemedClass 0IM (12,244,887) Class 35 (710,916) Class 60 (111,978) Class R (256,711) Class R6 (365,984) Total value of units redeemed (13,690,476) Decrease in net assets resulting from fund unit transactions (8,648,438) Decrease in net assets (11,046,523) Net assets, beginning of year 33,180,887 Net assets, end of year 22,134,364$

Statement of Changes in Net AssetsFor the year ended December 31, 2018




Per Unit Operating Performance Class 0IM Class 35 Class 60 Class R Class R6Net asset value, beginning of year 29.78$ 29.15$ 28.04$ 28.91$ 29.61$ Income (loss) from investment operations: Net investment income (1) 0.41 0.18 0.10 0.28 0.32

Net realized and unrealized loss on investments (1) (3.35) (3.26) (3.12) (3.24) (3.34) Total loss from investment operations (2.94) (3.08) (3.02) (2.96) (3.02) Net asset value, end of year 26.84$ 26.07$ 25.02$ 25.95$ 26.59$

Total Return (9.87%) (10.57%) (10.77%) (10.24%) (10.20%)Supplemental DataRatio to average net assets:

Expenses 0.11% 0.88% 1.14% 0.52% 0.50% Net investment income 1.39% 0.64% 0.40% 0.97% 1.07%Fund Unit ActivityUnits, beginning of year 1,015,177 65,876 5,488 14,326 15,567 Issued 112,044 22,730 6,381 2,777 27,256 Redeemed (410,964) (23,796) (4,067) (8,775) (12,535) Units, end of year 716,257 64,810 7,802 8,328 30,288 (1) Based on average units outstanding.


Financial HighlightsFor the year ended December 31, 2018




Schedule of Investments December 31, 2018

Principal

Amount or FairShares Cost Value

Collective Fund - 10.0%BlackRock Mid Capitalization Equity Index Fund F 28,049 2,265,528$ 2,207,616$

Common Stocks - 74.1%Basic Materials - 1.9%

Albemarle Corporation 2,261 248,365 174,255 International Paper Company 2,352 126,743 94,927 PPG Industries, Inc. 1,383 148,836 141,384

Total Basic Materials 523,944 410,566

Consumer, Cyclical - 5.9%Aptiv PLC 818 71,171 50,364 Autoliv, Inc. 488 43,933 34,272 Carter's, Inc. 2,470 245,895 201,601 Kohl's Corporation 1,613 66,793 107,006 Mohawk Industries, Inc. 1,933 374,787 226,084 PVH Corp. 2,409 296,522 223,917 Ross Stores, Inc. 3,648 301,295 303,514 The Wendy's Company 5,641 86,364 88,056 WABCO Holdings Inc. 627 77,476 67,302

Total Consumer, Cyclical 1,564,236 1,302,116

Consumer, Non-cyclical - 14.6%AmerisourceBergen Corporation 723 60,253 53,791 Baxter International, Inc. 1,563 101,776 102,877 Becton, Dickinson and Company 1,470 296,426 331,220 Brown-Forman Corporation Class B 1,445 70,481 68,753 Cal-Maine Foods, Inc. 2,308 108,341 97,628 Charles River Laboratories International, Inc. 957 100,897 108,313 Church & Dwight Co., Inc. 763 35,780 50,175 DENTSPLY SIRONA Inc. 11,471 485,759 426,836 Ecolab Inc. 451 61,352 66,455 Euronet Worldwide, Inc. 4,305 378,764 440,746 Globus Medical Inc. Class A 808 36,451 34,970 Hologic, Inc. 1,231 48,216 50,594 Humana Inc. 384 87,283 110,008 Laboratory Corporation of America Holdings 1,375 196,665 173,745 Molson Coors Brewing Company Class B 2,915 272,131 163,706 Sanderson Farms, Inc. 3,994 423,332 396,564 Spectrum Brands Holdings, Inc. 1,219 122,349 51,503 STERIS PLC 785 58,466 83,877 Sysco Corporation 531 30,604 33,272 Universal Health Services, Inc. Class B 1,393 160,791 162,368




Schedule of Investments (continued) December 31, 2018

Principal


Common Stocks - 74.1% (continued)Consumer, Non-cyclical - 14.6% (continued)

Varian Medical Systems, Inc. 1,049 102,928$ 118,862$ Zimmer Biomet Holdings, Inc. 1,028 121,006 106,624

Total Consumer, Non-cyclical 3,360,051 3,232,887

Energy - 2.6%Anadarko Petroleum Corporation 2,126 123,226 93,204 Baker Hughes, a GE company 1,659 39,498 35,669 Cimarex Energy Co. 1,606 162,735 99,010 Hess Corporation 1,556 73,179 63,018 National Oilwell Varco, Inc. 2,054 69,240 52,788 Patterson-UTI Energy, Inc. 5,158 111,411 53,385 Pioneer Natural Resources Company 1,210 201,476 159,139 WPX Energy, Inc. 1,391 26,249 15,788

Total Energy 807,014 572,001

Financial - 20.4%Aflac Incorporated 799 29,889 36,402 Air Lease Corporation 7,064 289,081 213,403 Arch Capital Group Ltd. 4,773 148,446 127,535 BankUnited, Inc. 2,719 95,313 81,407 Brown & Brown, Inc. 6,941 152,260 191,294 CBRE Group, Inc. Class A 10,453 358,110 418,538 Chubb Limited 263 35,501 33,974 CIT Group Inc. 3,019 140,684 115,537 East West Bancorp, Inc. 4,067 226,825 177,037 Everest Re Group, Ltd. 762 171,618 165,933 Fidelity National Financial, Inc. 7,661 229,974 240,862 Fifth Third Bancorp 2,965 76,203 69,766 First Republic Bank California 2,437 226,705 211,775 Loews Corporation 3,193 150,706 145,345 MetLife, Inc. 4,887 220,008 200,661 Northern Trust Corporation 2,837 254,732 237,145 PacWest Bancorp 2,585 128,776 86,029 Regions Financial Corporation 5,047 69,951 67,529 Reinsurance Group of America, Incorporated 1,682 244,689 235,867 SEI Investments Co. 4,288 229,669 198,106 The Allstate Corporation 1,452 119,424 119,979 The Charles Schwab Corporation 847 37,885 35,176 The Travelers Companies, Inc. 2,222 281,173 266,085 UMB Financial Corporation 2,756 195,002 168,033 Unum Group 8,123 319,016 238,654 Valley National Bancorp 14,918 155,181 132,472





Principal


Common Stocks - 74.1% (continued)Financial - 20.4% (continued)

White Mountains Insurance Group, Ltd. 116 97,219$ 99,492$ Willis Towers Watson Public Limited Company 828 99,361 125,740 W.R. Berkley Corporation 455 31,632 33,629 Zions Bancorporation, National Association 1,304 66,920 53,125

Total Financial 4,881,953 4,526,530

Industrial - 18.6%Acuity Brands, Inc. 478 74,710 54,946 Agilent Technologies, Inc. 4,097 239,758 276,384 Amphenol Corporation Class A 2,911 244,474 235,849 AptarGroup, Inc. 364 29,200 34,241 Carlisle Companies Incorporated 2,354 243,760 236,624 Cummins Inc. 589 83,813 78,714 Deere & Company 411 58,051 61,309 Eagle Materials Inc. 1,027 79,076 62,678 EMCOR Group, Inc. 2,813 192,313 167,908 Graco Inc. 819 37,577 34,275 Harris Corporation 872 95,500 117,415 Hexcel Corporation 4,839 262,829 277,468 Hub Group, Inc. Class A 803 27,457 29,767 IDEX Corporation 1,754 195,304 221,460 Jacobs Engineering Group Inc. 7,182 429,321 419,860 J.B. Hunt Transport Services, Inc. 709 83,276 65,965 JELD-WEN Holding, Inc. 2,032 57,705 28,875 Kansas City Southern 1,793 162,194 171,142 Keysight Technologies, Inc. 5,478 269,857 340,074 Lindsay Corporation 33 3,027 3,176 Owens Corning 2,360 172,650 103,793 Packaging Corporation of America 1,347 130,553 112,421 Republic Services, Inc. 2,336 148,238 168,402 Roper Technologies, Inc. 573 128,890 152,716 Ryder System, Inc. 292 19,981 14,060 Sealed Air Corporation 4,977 217,350 173,399 Simpson Manufacturing Co., Inc. 1,446 79,652 78,272 Stanley Black & Decker, Inc. 605 84,366 72,443 Stericycle Inc. 1,543 121,811 56,613 TE Connectivity Ltd. 459 34,587 34,714 Wabtec Corporation 1,835 137,430 128,909 Waters Corporation 366 71,373 69,046 Werner Enterprises, Inc. 1,088 32,901 32,140

Total Industrial 4,248,984 4,115,058





Principal


Common Stocks - 74.1% (continued)Technology - 5.4%

Amdocs Limited 2,195 134,505$ 128,583$ Analog Devices, Inc. 492 43,248 42,228 Applied Materials, Inc. 5,380 200,639 176,141 Black Knight, Inc. 1,360 49,023 61,282 Cerner Corporation 3,235 194,379 169,643 Check Point Software Technologies Ltd. 494 49,080 50,709 Fidelity National Information Services, Inc. 1,648 91,815 169,002 Genpact Limited 9,018 252,579 243,396 Leidos Holdings, Inc. 778 41,685 41,016 MKS Instruments, Inc. 281 19,899 18,155 NCR Corporation 4,131 157,160 95,343

Total Technology 1,234,012 1,195,498

Utilities - 4.7%Ameren Corporation 2,962 161,213 193,211 American Electric Power Company, Inc. 2,409 164,169 180,049 American Water Works Company, Inc. 1,892 149,714 171,737 Aqua America, Inc. 948 31,165 32,412 Connecticut Water Service, Inc. 1,896 125,132 126,786 FirstEnergy Corp. 1,183 45,411 44,422 Middlesex Water Company 609 24,639 32,490 SJW Group 4,764 260,614 264,974

Total Utilities 962,057 1,046,081 Total Common Stocks 17,582,251 16,400,737

Depositary Receipts - 2.5%Consumer, Non-cyclical - 1.8%

Henkel AG & Co. KGaA 676 82,920 66,491 Smith & Nephew PLC 8,875 310,732 331,748

Total Consumer, Non-cyclical 393,652 398,239

Industrial - 0.7%ABB Ltd. 1,757 34,756 33,401 Schneider Electric S.E. 9,697 139,494 131,103

Total Industrial 174,250 164,504 Total Depositary Receipts 567,902 562,743

Money Market Fund - 4.6%State Street Institutional U.S. Government Money Market Fund 1,025,563 1,025,563 1,025,563





Principal


Preferred Stocks - 2.7%Financial - 1.5%

MetLife, Inc., 4% 3,051 74,356$ 63,857$ Northern Trust Corporation, 5.85% 6,602 177,092 163,796 W. R. Berkley Corporation, 5.625%, due 4/30/2053 4,515 110,332 102,265

Total Financial 361,780 329,918

Utilities - 1.2%PG&E Corporation, 6% 2,666 71,096 51,147 SCE Trust VI, 5% 11,519 267,153 209,531

Total Utilities 338,249 260,678 Total Preferred Stocks 700,029 590,596

Real Estate Investment Trusts - 6.1%Financial - 6.1%

Alexandria Real Estate Equities, Inc. 1,873 225,873 215,845 American Campus Communities, Inc. 2,690 126,473 111,339 Equinix, Inc. (REIT) 630 258,418 222,113 Equity Commonwealth 8,794 267,224 263,908 Healthcare Realty Trust Incorporated 2,189 71,039 62,255 Invitation Homes Inc. 5,434 118,290 109,115 Mid-America Apartment Communities, Inc. 3,836 375,331 367,105

Total Real Estate Investment Trusts 1,442,648 1,351,680 Total Investments - 100% 23,583,921$ 22,138,935 Liabilities in Excess of Other Assets - (0.0%) (4,571) Net Assets - 100% 22,134,364$

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 December 31, 2018 (see Note 3):

Level 1 Level 2 Level 3 Total

Collective Fund measured atnet asset value* -$ -$ -$ 2,207,616$

Common Stocks 16,400,737 - - 16,400,737 Depositary Receipts 562,743 - - 562,743 Money Market Fund 1,025,563 - - 1,025,563 Preferred Stocks 590,596 - - 590,596 Real Estate Investment Trusts 1,351,680 - - 1,351,680 Total 19,931,319$ -$ -$ 22,138,935$

Fair Value Measurements





*Certain investments that are measured at fair value using the net asset value per share (or its equivalent) as a practical expedient have not been categorized in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the Statement of Assets and Liabilities. During the year ended December 31, 2018, 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 year. Supplementary Information: Total investment purchases, sales proceeds, and realized gain for the year ended December 31, 2018, were:

Purchases Sales Realizedat Cost Proceeds Gain

Investments 31,998,093$ 38,459,491$ 1,665,552$



Notes to the Financial Statements

December 31, 2018

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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 (the "Code"), and a group trust within the meaning of Rev. Rul. 81-100, 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") serves as the Trustee of the Trust. The Trustee is responsible for maintaining and administering the Trust and the Multi-Manager Mid Cap Value Fund (the "Fund") and also serves as the investment adviser (the "Investment Adviser") 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 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. Not all funds within the Trust are presented herein. The Fund consists of three active sleeves and a passive index fund sleeve (the "sleeves"), each of which maintains its own separate investment guidelines and restrictions. The passive sleeve invests in the BlackRock Mid Capitalization Equity Index Fund F, a collective investment fund managed by BlackRock Institutional Trust Company, N.A. (the "Underlying Fund Manager"). The investment objective of the Fund is to generate a total return in excess of the Russell Mid Cap Value Index benchmark over a full market cycle. WTNA has engaged Hahn Capital Management, LLC and Wells Capital Management, Inc. as model portfolio providers for two of the active sleeves and Nuance Investments, LLC as sub-advisor to the third active sleeve (the "Sub-Advisors") to provide investment advice and recommendations with respect to investment of the Fund's assets. While the Trustee generally relies on the Sub-Advisors to manage the Fund's assets, the Trustee maintains ultimate fiduciary authority over the management of and investments made in the Fund. The Sub-Advisors are engaged pursuant to a sub-advisory agreement. Note 2 – Significant Accounting Policies The 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. 946.



Notes to the Financial Statements (continued)

December 31, 2018

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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 sponsor to provide a five-day written notice for withdrawals which 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:

Investments in Collective Funds – Some Funds may hold investments in units of other funds within the Trust or similar funds for which other unrelated entities are trustee. The Trustee or unrelated trustee estimates the fair value of investments in collective funds that have calculated net asset value per unit in accordance with the specialized accounting guidance for investment companies. Accordingly, as a practical expedient, investments in other such funds are valued at their net asset value as reported by the investee funds. The Funds have the ability to redeem their investments in the collective funds at net asset value without restrictions. Where one fund invests in another fund within the Trust, the Trustee fee allocated to the investment by such investee fund is waived. Money Market Funds – Investments in money market funds are valued at the daily closing net asset value of the respective fund. 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.




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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. 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 unit class based on the units outstanding for the fee class in proportion to the total outstanding units. 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 that the Trust is exempt from federal income taxation under Section 501(a) of the Code. Accordingly, no federal income tax provision is required. Subsequent Events – The Trustee has evaluated the effect of subsequent events on the Fund's financial statements through April 30, 2019, 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 investments.

• Level 2 – Other significant observable inputs (including quoted prices for similar investments, published net asset values, interest rates, credit risk, and others).




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• Level 3 – Significant unobservable inputs (including the Trustee's own assumptions in determining the fair value of investments).

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 December 31, 2018, in valuing the Fund's assets carried at fair value is included in Note 2. The aggregate fair value of the investments in the Fund, by input level used as of December 31, 2018, is included following the Fund's Schedule of Investments. Note 4 – Fees and Expenses Trustee, Estimated Blended Sub-Advisory and Underlying Fund Management, 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

Estimated Blended Sub-Advisory and Underlying Fund Management Fees

Service Provider Fee

Class 0IM 3 0 0 Class 35 13 30 35 Class 60 13 30 60 Class R 13 30 0 Class R6 10 30 0

Trustee Fee – The Trustee receives an annual fee for trustee and administrative services provided to the Fund. Trustee fees, 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 Trustee fees for the year ended December 31, 2018, 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 sponsor. Portions of external fees are paid to the Sub-Advisors and Underlying Fund Manager for investment advisory services provided to the respective fund sleeve. 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 and Underlying Fund Management Fees – The Sub-Advisors and Underlying Fund Manager are compensated for their investment advisory services provided to the Fund. Management 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.




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Plans in Class 0IM (or their plan sponsors) paid a management fee to the Sub-Advisors and Managers of the underlying funds of 30 basis points based on the month-end values of the fund. These fees are not reflected in the Fund's expense ratio. For Class 0IM, the actual expense ratio including management fees incurred would be 41 basis points. Service Provider Fee – 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 Exchange-Traded 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:

• Convertible Securities. Investments in convertible securities may be subject to increased interest rate risks, rising in value as interest rates decline and falling in value when interest rates rise, in addition to their market value depending on the performance of the common stock of the issuer. Convertible securities which are typically unrated or rated lower than other debt obligations, are secondary to debt obligations in order of priority during a liquidation in the event the issuer defaults.

• 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 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




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currency positions may increase currency risk because actual currency exposure may be substantially different from that suggested by the Fund's holdings.

• 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.

• Financial Sectors. Concentrating assets in the financial sector may be susceptible to general movements in the bond market and are subject to interest rate and credit risk.

• 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.

• High Portfolio Turnover. Active trading may create high portfolio turnover, or a turnover of 100% or more,

resulting in increased transaction costs. These higher costs may have an adverse impact on 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.

• 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.




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• 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.

• Mid-Cap. Concentrating assets in mid-capitalization stocks may subject the Fund to the risk that those

stocks underperform other capitalizations or the market as a whole. Mid-cap companies may be subject to increased liquidity risk compared with large-cap companies and may experience greater price volatility than do those securities because of more limited product lines or financial resources, among other factors.

• Multi-Manager. Multi-Manager Funds consist of multiple specialized "sleeves," each holding investments

recommended by different sub-advisors. The sleeves' individual investing styles may not complement each other. This can result in both higher portfolio turnover and enhanced or reduced concentration in a particular region, country, industry, or investing style compared with an investment in a single sub-advised fund.

• Preferred Stocks. Investments in preferred stocks may be subject to the risks of deferred distribution

payments, involuntary redemptions, subordination to debt instruments, a lack of liquidity compared with common stocks, limited voting rights, and sensitivity to interest rate changes.

• 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.

wilmington trust collective investment trust multi … · 2019-05-02 · we have audited the...

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