January 31 14
20.6
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-08885
Hewitt Series Trust
(Exact name of registrant as specified in charter)
| 100 Half Day Road Lincolnshire, IL | 60069 | |
| (Address of principal executive offices) | (Zip code) |
Andrea W. Armstrong, 100 Half Day Road, Lincolnshire, IL 60069
(Name and address of agent for service)
Registrant’s telephone number, including area code: (847) 295-5000
Date of fiscal year end: December 31, 2012
Date of reporting period: June 30, 2012
Item 1. Reports to Stockholders.
SHAREHOLDER EXPENSES (Unaudited)
As a shareholder of the Hewitt Money Market Fund (the “Fund”), you incur ongoing costs, including management fees and other fund expenses. The following example is intended to help you understand your ongoing costs (in dollars and cents) of investing in the Fund and to compare these costs with the ongoing costs of investing in other money market funds.
The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from January 1, 2012 to June 30, 2012.
Actual Expenses
The first line under the Fund in the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line for the Fund under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line under the Fund in the table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only. Therefore, the second line under the Fund in the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds.
Hewitt Money Market Fund | Beginning Account Value (1/1/12) | Ending Account Value (6/30/12) | Annualized Expense Ratio† | Expenses Paid During Period* (1/1/12 to 6/30/12) | ||||||||||||
Actual | $ | 1,000.00 | $ | 1,000.10 | 0.31 | % | $ | 1.54 | ||||||||
Hypothetical (5% return before expenses) | 1,000.00 | 1,023.30 | 0.31 | 1.56 | ||||||||||||
| † | This ratio includes the Fund’s share of expenses charged to the corresponding Master Portfolio into which the Fund invests. |
| * | Expenses are calculated using the Fund’s annualized expense ratio (as disclosed in the table), multiplied by the average account value for the period, multiplied by the number of days in the period (182 days) and divided by the number of days in the year (366 days) to reflect the one-half year period. |
1
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2012 (Unaudited)
ASSETS | ||||
Investment: | ||||
In Money Market Master Portfolio (“Master Portfolio”), at fair value (Note 1) | $ | 555,802,845 | ||
Receivables: | ||||
Administration fees (Note 2) | 128,121 | |||
Due from Hewitt Financial Services LLC (Note 2) | 984 | |||
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Total Assets | 555,931,950 | |||
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LIABILITIES | ||||
Accrued Trustees fees | 18,895 | |||
Accrued shareholder servicing fees | 316,498 | |||
Other accrued expenses | 125,769 | |||
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Total Liabilities | 461,162 | |||
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NET ASSETS | $ | 555,470,788 | ||
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Net assets consist of: | ||||
Paid-in capital | $ | 555,454,679 | ||
Undistributed net investment income | 220 | |||
Accumulated net realized gain | 15,889 | |||
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NET ASSETS | $ | 555,470,788 | ||
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Shares outstanding | 555,453,566 | |||
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Net asset value and offering price per share | $ | 1.00 | ||
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See Notes to Financial Statements.
2
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 2012 (Unaudited)
NET INVESTMENT INCOME ALLOCATED FROM MASTER PORTFOLIO | ||||
Interest | $ | 921,267 | ||
Expenses1 | (193,002 | ) | ||
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Net investment income allocated from Master Portfolio | 728,265 | |||
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FUND EXPENSES (Note 2) | ||||
Administration fees | 1,515,314 | |||
Shareholder servicing fees | 689,178 | |||
Fund accounting & transfer agent fees | 44,879 | |||
Legal fees | 24,661 | |||
Audit fees | 12,983 | |||
Printing costs | 53,791 | |||
Registration costs | 57,321 | |||
Trustees fees | 26,987 | |||
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Total fund expenses | 2,425,114 | |||
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Fees reimbursed by Hewitt Associates LLC (Note 2) | (1,762,000 | ) | ||
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Total Net Expenses | 663,114 | |||
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NET INVESTMENT INCOME | 65,151 | |||
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REALIZED GAIN (LOSS) ALLOCATED FROM MASTER PORTFOLIO | ||||
Net realized gain | 13,938 | |||
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Net gain on investments | 13,938 | |||
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NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS | $ | 79,089 | ||
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| 1 | Net of investment advisory fee waivers by the Master Portfolio’s investment adviser in the amount of $86,058. |
See Notes to Financial Statements.
3
STATEMENTS OF CHANGES IN NET ASSETS
| For the Six Months Ended June 30, 2012 (Unaudited) | For the Year Ended December 31, 2011 | |||||||
INCREASE (DECREASE) IN NET ASSETS | ||||||||
Operations: | ||||||||
Net investment income | $ | 65,151 | $ | 107,307 | ||||
Net realized gain | 13,938 | 32,884 | ||||||
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Net increase in net assets resulting from operations | 79,089 | 140,191 | ||||||
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Distributions to shareholders: | ||||||||
From net investment income | (64,931 | ) | (107,307 | ) | ||||
From net realized gain | — | (62,746 | ) | |||||
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Total distributions to shareholders | (64,931 | ) | (170,053 | ) | ||||
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Capital share transactions (Note 3): | ||||||||
Net capital share transactions | 1,680,250 | 149,956,688 | ||||||
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Net increase in net assets resulting from capital share transactions | 1,680,250 | 149,956,688 | ||||||
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Increase in net assets | 1,694,408 | 149,926,826 | ||||||
NET ASSETS: | ||||||||
Beginning of Period | 553,776,380 | 403,849,554 | ||||||
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End of Period | $ | 555,470,788 | $ | 553,776,380 | ||||
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Undistributed net investment income included in net assets at end of period | $ | 220 | $ | — | ||||
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See Notes to Financial Statements.
4
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
| Six Months Ended Jun. 30, 2012 (Unaudited) | Year Ended Dec. 31, 2011 | Year Ended Dec. 31, 2010 | Year Ended Dec. 31, 2009 | Year Ended Dec. 31, 2008 | Year Ended Dec. 31, 2007 | |||||||||||||||||||
Net asset value, beginning of period | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | ||||||||||||
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Income from investment operations: | ||||||||||||||||||||||||
Net investment income | 0.00 | 1 | 0.00 | 1 | 0.00 | 1 | 0.00 | 1 | 0.02 | 0.04 | ||||||||||||||
Net realized gain (loss) | 0.00 | 1 | 0.00 | 1 | 0.00 | 1 | 0.00 | 1 | (0.00 | )1 | 0.00 | 1 | ||||||||||||
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Total from investment operations | 0.00 | 0.00 | 0.00 | 0.00 | 0.02 | 0.04 | ||||||||||||||||||
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Less distributions from: | ||||||||||||||||||||||||
Net investment income | (0.00 | )1 | (0.00 | )1 | (0.00 | )1 | (0.00 | )1 | (0.02 | ) | (0.04 | ) | ||||||||||||
Net realized gain | — | (0.00 | )1 | — | — | — | — | |||||||||||||||||
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Total distributions | (0.00 | ) | (0.00 | ) | (0.00 | ) | (0.00 | ) | (0.02 | ) | (0.04 | ) | ||||||||||||
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Net asset value, end of period | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | ||||||||||||
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Total return | 0.01 | %2 | 0.03 | % | 0.02 | % | 0.07 | % | 2.00 | % | 4.48 | % | ||||||||||||
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Ratios/Supplemental data: | ||||||||||||||||||||||||
Net assets, end of period (000s) | $ | 555,471 | $ | 553,776 | $ | 403,850 | $ | 321,371 | $ | 343,696 | $ | 268,290 | ||||||||||||
Ratio of net expenses to average net assets3,4,5 | 0.31 | % | 0.27 | % | 0.31 | % | 0.48 | % | 0.96 | % | 0.95 | % | ||||||||||||
Ratio of expenses to average net assets prior to waived fees and reimbursed expenses3,4 | 0.98 | % | 0.98 | % | 1.02 | % | 1.04 | % | 1.05 | % | 1.06 | % | ||||||||||||
Ratio of net investment income to average net assets3,4,5 | 0.02 | % | 0.02 | % | 0.02 | % | 0.07 | % | 1.94 | % | 4.38 | % | ||||||||||||
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(loss) to average net assets prior to waived fees and reimbursed expenses3,4 | (0.65 | )% | (0.70 | )% | (0.68 | )% | (0.49 | )% | 1.85 | % | 4.27 | % | ||||||||||||
| 1 | Rounds to less than $0.01 or ($0.01). |
| 2 | Not annualized. |
| 3 | Annualized for periods of less than one year. Ratios reflect the expenses of both the Fund and the Master Portfolio into which the Fund invests. |
| 4 | Ratios for the year ended December 31, 2009 and December 31, 2008 include 0.03% and 0.01%, respectively, of expenses associated with the Fund’s participation in the U.S. Treasury’s Temporary Guarantee Program. |
| 5 | Ratios for the year ended December 31, 2009 include waived fees in an amount sufficient to ensure that the seven day yield of the Fund does not fall below 0% (Note 2). |
See Notes to Financial Statements.
5
NOTES TO FINANCIAL STATEMENTS (Unaudited)
| 1. | Summary of Significant Accounting Policies |
Hewitt Money Market Fund (the “Fund”) is a diversified series of Hewitt Series Trust (the “Trust”), an open-end management investment company registered under the Investment Company Act of 1940, as amended. The Trust was established as a Delaware statutory trust organized pursuant to a Declaration of Trust on July 7, 1998.
Under the Fund’s organizational documents, the officers and trustees are indemnified against certain liabilities that may arise out of the performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts with service providers that contain general 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, based on experience, the Fund expects the risk of loss to be remote.
The following significant accounting policies are consistently followed by the Trust in the preparation of its financial statements in conformity with accounting principles generally accepted in the United States of America (“US GAAP”). The preparation of the financial statements in conformity with US GAAP requires management to make certain 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 revenue and expenses during the reporting period. Actual results could differ from those estimates.
Investment Policy and Security Valuation
US GAAP defines fair value as the price the Fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. The Fund’s policy is to fair value its financial instruments at market value. The Fund records its investment in its corresponding Master Portfolio at fair value based on the Fund’s proportionate interest in the net assets of the respective Master Portfolio. Valuation of securities held by the Master Portfolio is discussed in Note 1 of the Master Portfolio’s Notes to Financial Statements, which are included elsewhere in this report.
The Fund invests all of its assets in the Money Market Master Portfolio (the “Master Portfolio”) of Master Investment Portfolio (“MIP”). The Master Portfolio has the same or substantially similar investment objective as the Fund. The value of the Fund’s investment in the Master Portfolio reflects the Fund’s interest in the net assets of the Master Portfolio (1.48% of total Master Portfolio net assets as of June 30, 2012).
The determination of what constitutes an “observable” input may require significant judgment by the Fund. As of June 30, 2012, the Fund’s investment in the Master Portfolio was classified as Level 2. The level of a value determined for an investment within the fair value hierarchy is based upon the pricing transparency of the investment and does not necessarily correspond to the Fund’s perceived risk of its investment in the Master Portfolio, nor the level of the investments held within the Master Portfolio.
The Fund believes more relevant disclosure regarding fair value measurements relate to the investment portfolio of the Master Portfolio, which can be found in Note 1 of the Master Portfolio’s Notes to Financial Statements and are included elsewhere in this report.
The performance of the Fund is directly affected by the performance of the Master Portfolio. The financial statements of the Master Portfolio, including the Schedule of Investments, accompanied by an unaudited summarized tabular presentation, are included elsewhere in this report and should be read in conjunction with the Fund’s financial statements.
6
HEWITT SERIES TRUST
NOTES TO FINANCIAL STATEMENTS (Unaudited) – (continued)
The Fund seeks to maintain a constant net asset value of $1.00 per share for each of the classes of shares. There is no assurance that the Fund will meet this objective.
Security Transactions and Income Recognition
For financial reporting purposes, contributions to and withdrawals from the Master Portfolio are accounted on a trade date basis. The Fund records daily its proportionate share of its Master Portfolio’s income, expenses and realized gains and losses. In addition, the Fund accrues its own expenses. Income, expenses and realized gains and losses are allocated daily to each class based on its relative net assets.
Federal Income Taxes
The Fund is treated as a separate entity for federal income tax purposes. It is the policy of the Trust that the Fund continue to qualify as a regulated investment company by complying with the provisions under Subchapter M of the Internal Revenue Code of 1986, as amended, applicable to regulated investment companies, and to distribute substantially all of its investment company taxable income and any net realized gains (after taking into account any capital loss carryforwards) sufficient to relieve it from all, or substantially all, federal income and excise taxes. Accordingly, no provision for federal taxes was required at June 30, 2012.
As of December 31, 2011, the tax year-end of the Fund, the Fund had no tax basis net capital loss carryforwards.
Management has reviewed the tax positions as of June 30, 2012, inclusive of the prior three open tax return years, and has determined that no provision for income tax is required in the Fund’s financial statements. The statute of limitations on the Fund’s U.S. federal tax returns remains open for each of the four years ended December 31, 2011. The statutes of limitations on the Fund’s state and local tax returns may remain open for an additional year depending upon the jurisdiction. Management does not believe there are any uncertain tax positions that require recognition of a tax liability.
Dividends and Distributions to Shareholders
Dividends to shareholders from net investment income of the Fund are declared daily and distributed monthly. Distributions to shareholders from capital gains, if any, are declared and distributed annually, generally in December.
Due to the timing of dividends and distributions and the differences in accounting for income and realized gains (losses) for financial statement and federal income tax purposes, the fiscal year in which amounts are distributed may differ from the year in which the income and realized gains (losses) were recorded by the Fund.
| 2. | Agreements and Other Transactions with Affiliates |
Hewitt Associates LLC (“Hewitt Associates”) provides administrative services to the Fund. The Fund pays Hewitt Associates a monthly fee calculated at an annual rate of 0.55% of the Fund’s average daily net assets for these services. Hewitt Associates has contractually agreed to waive its fees or absorb expenses of the Fund in an amount equal to the greater of (A) the amount by which the total ordinary operating expenses (excluding interest,
7
HEWITT SERIES TRUST
NOTES TO FINANCIAL STATEMENTS (Unaudited) – (concluded)
brokerage commissions and extraordinary expenses) on an annual basis, exceed 0.95% of the average daily net assets of the Fund or (B) an amount sufficient to ensure that the seven day yield of the Fund does not fall below 0%. Hewitt Associates may not modify or terminate this waiver agreement without approval of the Board of Trustees of the Trust. For the six months ended June 30, 2012, Hewitt Associates reimbursed the Fund $1,762,000 for expenses related to this agreement.
Hewitt Associates and BlackRock Institutional Trust Company, N.A. (“BTC”) have entered into a sub-administration agreement, pursuant to which BTC provides services to the Fund and its shareholders, including maintenance of books and records; preparation of reports; and other administrative support services. For the services under this sub-administration agreement, Hewitt Associates pays BTC a fee equal to 0.03% of the average daily net assets of the Fund.
Hewitt Financial Services LLC (“HFS”), an affiliate of Hewitt Associates, serves as the Distributor of the Fund. HFS does not receive a fee from the Fund for its distribution services.
HFS also serves as the Shareholder Servicing Agent for the Fund. As Shareholder Servicing Agent, HFS is responsible for maintaining records showing the number of shares of the Fund owned by investors who have purchased shares through HFS. In addition, HFS sends all shareholder communications relating to the Fund to shareholders or arranges for these materials to be sent. For these services, the Fund pays HFS a monthly fee calculated at an annual rate of 0.25% of the Fund’s average daily net assets.
The Fund pursues its investment objectives by investing in the Master Portfolio, which is a series of MIP. The Master Portfolio has the same investment objectives and substantially the same investment policies as the Trust. BlackRock Fund Advisors (“BFA”) serves as the Master Portfolio’s investment adviser. As such, the Trust does not itself have an investment adviser.
| 3. | Capital Share Transactions |
As of June 30, 2012, there was an unlimited number of shares of $0.001 par value capital stock authorized by the Fund. Transactions in capital shares of the Fund were as follows:
| Six Months Ended June 30, 2012 (Unaudited) | Year Ended December 31, 2011 | |||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||
Shares Issued and Redeemed: | ||||||||||||||||
Shares sold | 135,601,869 | $ | 135,601,869 | 323,503,152 | $ | 323,503,152 | ||||||||||
Shares issued in reinvestments of dividends | 89,875 | 89,875 | 153,373 | 153,373 | ||||||||||||
Shares redeemed | (134,011,494 | ) | (134,011,494 | ) | (173,699,837 | ) | (173,699,837 | ) | ||||||||
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Net increase | 1,680,250 | $ | 1,680,250 | 149,956,688 | $ | 149,956,688 | ||||||||||
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| 4. | Subsequent Events |
Management has evaluated the impact of all subsequent events on the Fund through the date the financial statements were available to be issued, and has determined that there were no subsequent events requiring adjustment or disclosure in the financial statements.
8
PROXY VOTING (Unaudited)
The Fund filed with the Securities and Exchange Commission (the “Commission”) Form N-PX with the complete proxy voting record for the 12 months ended June 30, 2012. The Fund did not hold any voting securities and accordingly did not vote any proxies during the reporting period. Because the Fund invests exclusively in non-voting securities, the Fund is not required to describe the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities. The Form filed is available (i) without charge, upon request, by calling the Fund toll-free at 1-800-890-3200, and (ii) on the Commission’s website at (www.sec.gov).
9
ADDITIONAL INFORMATION (Unaudited)
The Fund files its complete schedule of portfolio holdings with the Commission for the first and third quarters of each fiscal year on Form N-Q. The Fund’s Forms N-Q are available on the Commission’s website at www.sec.gov. The Fund’s Forms N-Q may be reviewed and copied at the Commission’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330.
10
as of June 30, 2012 (Unaudited)
Portfolio Composition | Percent of Net Assets | |||
Commercial Paper | 29 | % | ||
Certificates of Deposit | 22 | |||
Repurchase Agreements | 21 | |||
U.S. Government Sponsored Agency Obligations | 17 | |||
U.S. Treasury Obligations | 5 | |||
Time Deposits | 5 | |||
Corporate Notes | 1 | |||
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Total | 100 | % | ||
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11
SCHEDULE OF INVESTMENTS (Unaudited)
June 30, 2012
(Percentages shown are based on Net Assets)
| Par | ||||||||
Certificates of Deposit | (000) | Value | ||||||
Euro | ||||||||
Mitsubishi UFJ Trust and Banking Corp., UK, | ||||||||
0.43%, 8/02/12 | $ | 300,000 | $ | 300,000,000 | ||||
Mizuho Corporate Bank Ltd., London, | ||||||||
0.44%, 9/14/12 | 474,000 | 474,000,000 | ||||||
National Australia Bank Ltd., London(a): | ||||||||
0.47%, 12/20/12 | 300,000 | 300,000,000 | ||||||
0.45%, 1/16/13 | 212,000 | 212,000,000 | ||||||
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Yankee(b) | ||||||||
Bank of Montreal, Chicago: | ||||||||
0.21%, 8/29/12 | 150,000 | 150,000,000 | ||||||
0.20%, 8/29/12 | 150,000 | 150,000,000 | ||||||
Bank of Tokyo-Mitsubishi UFJ Ltd., New York: | ||||||||
0.37%, 7/11/12 | 400,000 | 400,000,000 | ||||||
0.35%, 7/12/12 | 4,600 | 4,600,000 | ||||||
Barclays Bank Plc, New York, | ||||||||
0.59%, 7/13/12 | 501,000 | 501,000,000 | ||||||
Canadian Imperial Bank of Commerce, New York, | ||||||||
0.33%, 1/02/13(a) | 553,015 | 553,015,000 | ||||||
Mizuho Corporate Bank Ltd., New York, | ||||||||
0.34%, 8/08/12 | 550,000 | 550,000,000 | ||||||
Natixis, New York, | ||||||||
0.48%, 8/01/12 | 828,000 | 828,000,000 | ||||||
Rabobank Nederland, New York: | ||||||||
0.61%, 8/07/12 | 250,000 | 250,000,000 | ||||||
0.61%, 8/08/12 | 500,000 | 500,000,000 | ||||||
0.65%, 4/24/13(a) | 285,500 | 285,500,000 | ||||||
0.62%, 5/09/13(a) | 225,000 | 225,000,000 | ||||||
Societe Generale NY, | ||||||||
0.51%, 8/03/12 | 853,000 | 853,000,000 | ||||||
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Certificates of Deposit | (000) | Value | ||||||
Sumitomo Mitsui Banking Corp., New York: | ||||||||
0.40%, 9/10/12 | $ | 490,000 | $ | 490,000,000 | ||||
0.39%, 9/12/12 | 580,000 | 580,000,000 | ||||||
Sumitomo Trust & Banking Co. Ltd., New York, | ||||||||
0.20%, 7/19/12 | 350,000 | 350,000,000 | ||||||
Svenska Handelsbanken, New York, | ||||||||
0.26%, 8/17/12 | 215,000 | 215,000,000 | ||||||
Westpac Banking Corp., New York, | ||||||||
0.34%, 1/04/13(a) | 99,000 | 99,000,000 | ||||||
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Total Certificates of Deposit – 22.0% |
| 8,270,115,000 | ||||||
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Commercial Paper | ||||||||
Alpine Securitization Corp.(c): | ||||||||
0.21%, 7/10/12 | 100,000 | 99,994,750 | ||||||
0.22%, 7/18/12 | 170,000 | 169,982,339 | ||||||
Antalis US Funding Corp.(c): | ||||||||
0.47%, 7/24/12 | 1,000 | 999,700 | ||||||
0.58%, 8/02/12 | 580,100 | 579,800,926 | ||||||
ANZ National International Ltd., London(c): | ||||||||
0.52%, 8/03/12 | 200,000 | 199,904,667 | ||||||
0.52%, 8/07/12 | 100,000 | 99,946,556 | ||||||
Atlantis One Funding Corp.(c): | ||||||||
0.46%, 7/09/12 | 300,000 | 299,969,333 | ||||||
0.36%, 9/10/12 | 199,000 | 198,858,710 | ||||||
0.53%, 10/12/12 | 200,000 | 199,696,722 | ||||||
Barclays Bank Plc, US Collateralized CP Notes Series 2010-1 | ||||||||
0.35%, 8/09/12(c) | 250,000 | 249,905,208 | ||||||
Barton Capital Corp.(c): | ||||||||
0.43%, 7/06/12 | 150,000 | 149,991,042 | ||||||
0.52%, 8/01/12 | 100,000 | 99,955,222 | ||||||
0.53%, 8/02/12 | 250,000 | 249,882,222 | ||||||
See Notes to Financial Statements.
12
MONEY MARKET MASTER PORTFOLIO
SCHEDULE OF INVESTMENTS (Unaudited) – (continued)
June 30, 2012
(Percentages shown are based on Net Assets)
Commercial Paper | Par (000) | Value | ||||||
Cancara Asset Securitisation Ltd., | ||||||||
0.40%, 7/19/12(c) | $ | 150,000 | $ | 149,970,000 | ||||
Collateralized CP Co. LLC, | ||||||||
0.35%, 8/10/12(c) | 350,000 | 349,863,889 | ||||||
Commonwealth Bank of | ||||||||
0.32%, 9/19/12 | 250,000 | 250,000,000 | ||||||
0.38%, 1/14/13 | 380,000 | 380,000,000 | ||||||
DNB Bank ASA, | ||||||||
0.32%, 8/13/12(c) | 280,000 | 279,892,978 | ||||||
Erste Abwicklungsanstalt(c): | ||||||||
0.38%, 8/21/12 | 50,000 | 49,973,083 | ||||||
0.44%, 9/25/12 | 50,000 | 49,947,444 | ||||||
0.48%, 10/24/12 | 100,000 | 99,846,667 | ||||||
0.48%, 10/26/12 | 100,000 | 99,844,000 | ||||||
0.52%, 11/26/12 | 50,000 | 49,893,111 | ||||||
0.60%, 1/22/13 | 50,000 | 49,829,167 | ||||||
0.60%, 2/11/13 | 100,000 | 99,625,000 | ||||||
0.64%, 2/21/13 | 50,000 | 49,791,111 | ||||||
0.65%, 2/28/13 | 150,000 | 149,344,583 | ||||||
HSBC Bank Plc, | ||||||||
0.51%, 11/28/12(c) | 390,000 | 389,171,250 | ||||||
Kells Funding LLC(c): | ||||||||
0.56%, 7/02/12 | 50,000 | 49,999,222 | ||||||
0.56%, 7/02/12 | 75,000 | 74,998,833 | ||||||
0.61%, 7/06/12 | 100,000 | 99,991,528 | ||||||
0.54%, 7/25/12 | 50,000 | 49,982,000 | ||||||
0.54%, 9/06/12 | 200,000 | 199,799,000 | ||||||
0.60%, 9/12/12 | 48,000 | 47,941,600 | ||||||
0.54%, 9/20/12 | 135,000 | 134,835,975 | ||||||
0.50%, 10/23/12 | 75,000 | 74,881,250 | ||||||
0.59%, 11/09/12 | 200,000 | 199,570,611 | ||||||
Matchpoint Master Trust, | ||||||||
0.45%, 8/03/12(c) | 135,000 | 134,944,313 | ||||||
Mont Blanc Capital Corp., | ||||||||
0.44%, 8/01/12(c) | 83,000 | 82,968,552 | ||||||
Nieuw Amsterdam Receivables Corp.(c): | ||||||||
0.45%, 7/10/12 | 50,000 | 49,994,375 | ||||||
0.45%, 7/11/12 | 50,000 | 49,993,750 | ||||||
Commercial Paper | Par (000) | Value | ||||||
Nordea North America Inc.(c): | ||||||||
0.61%, 8/07/12 | $ | 161,600 | $ | 161,498,686 | ||||
0.26%, 8/16/12 | 435,000 | 434,858,262 | ||||||
NRW. BANK, | ||||||||
0.25%, 7/11/12(c) | 365,000 | 364,974,653 | ||||||
Oversea-Chinese Banking Corp. Ltd., | ||||||||
0.57%, 8/13/12(c) | 200,000 | 199,863,833 | ||||||
Royal Park Investments Funding Corp.(c): | ||||||||
0.70%, 7/09/12 | 150,000 | 149,976,667 | ||||||
0.70%, 7/16/12 | 41,000 | 40,988,042 | ||||||
0.70%, 7/24/12 | 100,000 | 99,955,278 | ||||||
0.90%, 8/31/12 | 13,000 | 12,980,175 | ||||||
Scaldis Capital LLC(c): | ||||||||
0.55%, 7/16/12 | 470,000 | 469,892,292 | ||||||
0.50%, 7/23/12 | 519,000 | 518,841,417 | ||||||
Starbird Funding | ||||||||
0.45%, 7/06/12 | 180,000 | 179,988,750 | ||||||
0.45%, 7/10/12 | 95,000 | 94,989,313 | ||||||
Thames Asset Global Securitization No 1 Inc.(c): | ||||||||
0.50%, 7/02/12 | 124,976 | 124,974,264 | ||||||
0.45%, 7/11/12 | 138,000 | 137,982,750 | ||||||
0.48%, 7/18/12 | 73,005 | 72,988,452 | ||||||
Victory Receivables Corp.(c): | ||||||||
0.20%, 7/11/12 | 100,000 | 99,994,444 | ||||||
0.20%, 7/13/12 | 116,853 | 116,845,210 | ||||||
Westpac Banking Corp.: | ||||||||
0.48%, 7/10/12(a) | 350,000 | 350,000,000 | ||||||
0.50%, 8/01/12(c) | 50,000 | 49,978,472 | ||||||
0.50%, 8/03/12(c) | 75,000 | 74,965,625 | ||||||
Westpac Securities NZ Ltd.: | ||||||||
0.56%, 7/05/12(c) | 120,000 | 119,992,533 | ||||||
0.53%, 7/18/12(c) | 250,000 | 249,937,431 | ||||||
0.63%, 4/15/13(a) | 300,000 | 300,000,000 | ||||||
Windmill Funding Corp., | ||||||||
0.45%, 7/20/12(c) | 150,000 | 149,964,375 | ||||||
|
| |||||||
Total Commercial Paper – 29.0% |
| 10,922,211,613 | ||||||
|
| |||||||
See Notes to Financial Statements.
13
MONEY MARKET MASTER PORTFOLIO
SCHEDULE OF INVESTMENTS (Unaudited) – (continued)
June 30, 2012
(Percentages shown are based on Net Assets)
Corporate Notes | Par (000) | Value | ||||||
JPMorgan Chase Bank NA, | ||||||||
0.54%, 5/17/13(a) | $ | 250,725 | $ | 250,725,000 | ||||
|
| |||||||
Total Corporate Notes – 0.6% |
| 250,725,000 | ||||||
|
| |||||||
Time Deposits | ||||||||
Bank of Nova Scotia, | ||||||||
0.11%, 7/02/12 | 1,000,000 | 1,000,000,000 | ||||||
Northern Trust Co. Ltd., | ||||||||
0.06%, 7/02/12 | 600,000 | 600,000,000 | ||||||
Svenska Handelsbanken AB, | ||||||||
0.10%, 7/02/12 | 200,000 | 200,000,000 | ||||||
|
| |||||||
Total Time Deposits – 4.8% |
| 1,800,000,000 | ||||||
|
| |||||||
U.S. Government Sponsored Agency Obligations |
| |||||||
Fannie Mae, | ||||||||
4.75%, 2/21/13 | 70,304 | 72,363,898 | ||||||
Fannie Mae Discount Notes(c): | ||||||||
0.12%, 8/27/12 | 200,000 | 199,962,000 | ||||||
0.12%, 9/04/12 | 50,000 | 49,989,167 | ||||||
Fannie Mae Variable Rate Notes(a): | ||||||||
0.27%, 8/23/12 | 200,000 | 200,005,914 | ||||||
0.32%, 1/10/13 | 250,000 | 249,973,373 | ||||||
0.38%, 5/17/13 | 304,000 | 303,917,792 | ||||||
0.21%, 11/08/13 | 170,000 | 169,930,124 | ||||||
0.22%, 6/20/14 | 425,000 | 424,833,438 | ||||||
Federal Farm Credit Banks Variable Rate Notes(a): | ||||||||
0.16%, 6/18/13 | 66,000 | 66,000,000 | ||||||
0.19%, 3/07/14 | 40,000 | 39,993,786 | ||||||
Federal Home Loan Bank: | ||||||||
0.24%, 9/20/12 | 250,000 | 250,053,080 | ||||||
1.75%, 12/14/12 | 81,700 | 82,273,533 | ||||||
0.17%, 1/24/13 | 44,910 | 44,910,562 | ||||||
0.16%, 1/25/13 | 144,000 | 143,960,238 | ||||||
U.S. Government Sponsored Agency Obligations | Par (000) | Value | ||||||
0.13%, 2/01/13 | $ | 200,000 | $ | 199,944,478 | ||||
0.17%, 2/06/13 | 294,500 | 294,494,689 | ||||||
0.16%, 2/06/13 | 200,000 | 199,984,682 | ||||||
0.17%, 2/13/13 | 100,000 | 99,998,208 | ||||||
0.23%, 5/17/13 | 120,000 | 119,986,075 | ||||||
0.24%, 5/21/13 | 100,000 | 99,987,470 | ||||||
0.23%, 5/29/13 | 50,000 | 49,989,417 | ||||||
Federal Home Loan Bank Discount Notes(c): | ||||||||
0.16%, 11/02/12 | 125,000 | 124,932,188 | ||||||
0.14%, 11/30/12 | 175,000 | 174,894,444 | ||||||
0.21%, 5/21/13 | 100,000 | 99,811,000 | ||||||
Federal Home Loan Bank Variable Rate Notes(a): | ||||||||
0.20%, 4/12/13 | 114,500 | 114,486,589 | ||||||
0.32%, 7/08/13 | 50,000 | 50,000,000 | ||||||
Freddie Mac Discount Notes(c): | ||||||||
0.12%, 7/24/12 | 200,000 | 199,984,667 | ||||||
0.17%, 9/18/12 | 250,000 | 249,906,736 | ||||||
0.12%, 10/11/12 | 325,000 | 324,889,500 | ||||||
0.14%, 12/03/12 | 150,000 | 149,906,354 | ||||||
Freddie Mac Variable Rate Notes(a): | ||||||||
0.20%, 3/21/13 | 270,040 | 269,961,440 | ||||||
0.38%, 9/03/13 | 227,900 | 227,845,954 | ||||||
0.18%, 9/13/13 | 884,785 | 884,139,935 | ||||||
0.21%, 11/04/13 | 309,000 | 308,958,582 | ||||||
|
| |||||||
Total U.S. Government Sponsored Agency Obligations – 17.4% |
| 6,542,269,313 | ||||||
|
| |||||||
U.S. Treasury Obligations |
| |||||||
U.S. Treasury Bill(c): | ||||||||
0.13%, 8/23/12 | 160,000 | 159,969,231 | ||||||
0.14%, 9/06/12 | 250,000 | 249,935,562 | ||||||
0.14%, 11/08/12 | 140,000 | 139,929,222 | ||||||
U.S. Treasury Note: | ||||||||
1.38%, 10/15/12 | 200,000 | 200,736,811 | ||||||
0.38%, 10/31/12 | 300,000 | 300,271,589 | ||||||
1.38%, 11/15/12 | 250,000 | 251,183,169 | ||||||
See Notes to Financial Statements.
14
MONEY MARKET MASTER PORTFOLIO
SCHEDULE OF INVESTMENTS (Unaudited) – (continued)
June 30, 2012
(Percentages shown are based on Net Assets)
U.S. Treasury Obligations | Par (000) | Value | ||||||
3.38%, 11/30/12 | $ | 175,000 | $ | 177,357,132 | ||||
1.38%, 3/15/13 | 280,000 | 282,289,442 | ||||||
1.13%, 6/15/13 | 120,000 | 121,008,142 | ||||||
|
| |||||||
Total U.S. Treasury Obligations –5.0% |
| 1,882,680,300 | ||||||
|
| |||||||
Repurchase Agreements | ||||||||
BNP Paribas Securities Corp. 0.19%, 7/02/12 (Purchased on 6/29/12 to be repurchased at $250,003,958, collateralized by various U.S. government obligations, 4.50%, due 7/15/39 to 6/20/41, par and fair value of $350,000,595 and $255,000,001, respectively) | 250,000 | 250,000,000 | ||||||
BNP Paribas Securities Corp. 0.20%, 7/02/12 (Purchased on 6/29/12 to be repurchased at $310,005,167, collateralized by various corporate debt obligations, 0.59% to 7.88%, due 10/23/12 to 5/22/22, par and fair value of $298,648,073 and $319,300,001, respectively) | 310,000 | 310,000,000 | ||||||
Repurchase Agreements | Par (000) | Value | ||||||
Citigroup Global Markets Inc., 0.16%, 7/02/12 (Purchased on 6/29/12 to be repurchased at $850,011,333, collateralized by various U.S. Treasury obligations, 0.25% to 3.13%, due 3/31/14 to 5/15/21, par and fair value of $827,292,200 and $867,000,048, respectively) | $ | 850,000 | $ | 850,000,000 | ||||
Citigroup Global Markets Inc., 0.30%, 7/02/12 (Purchased on 6/29/12 to be repurchased at $69,001,725, collateralized by U.S. Treasury obligations, 4.50%, due 5/15/38, par and fair value of $50,941,300 and $70,380,129, respectively) | 69,000 | 69,000,000 | ||||||
Citigroup Global Markets Inc., 0.45%, 7/02/12 (Purchased on 6/29/12 to be repurchased at $190,007,125, collateralized by various U.S. government obligations, U.S. Treasury obligations and municipal obligations, 0.00% to 7.94%, due 8/15/19 to 12/01/41, par and fair value of $194,919,800 and $204,451,097, respectively) | 190,000 | 190,000,000 | ||||||
See Notes to Financial Statements.
15
MONEY MARKET MASTER PORTFOLIO
SCHEDULE OF INVESTMENTS (Unaudited) – (continued)
June 30, 2012
(Percentages shown are based on Net Assets)
Repurchase Agreements | Par (000) | Value | ||||||
Citigroup Global Markets Inc., 0.55%, 7/02/12 (Purchased on 6/29/12 to be repurchased at $250,011,458, collateralized by various U.S. government obligations, 0.00% to 4.50%, due 6/28/13 to 12/19/31, par and fair value of $244,231,000 and $255,000,302, respectively) | $ | 250,000 | $ | 250,000,000 | ||||
Credit Suisse Securities (USA) LLC, 0.78%, 8/03/12 (Purchased on 6/29/12 to be repurchased at $150,113,750, collateralized by various corporate debt obligations, 0.36% to 7.09%, due 2/15/32 to 9/25/47, par and fair value of $602,825,455 and $172,500,260, respectively) | 150,000 | 150,000,000 | ||||||
Deutsche Bank Securities Inc., 0.20%, 7/02/12 (Purchased on 6/29/12 to be repurchased at $874,014,567, collateralized by various U.S. Treasury obligations, 1.50% to 6.00%, due 11/30/13 to 8/15/40, par and fair value of $782,656,762 and $891,480,007, respectively) | 874,000 | 874,000,000 | ||||||
Repurchase Agreements | Par (000) | Value | ||||||
Goldman Sachs & Co., 0.18%, 7/03/12 (Purchased on 6/29/12 to be repurchased at $200,004,000, collateralized by various U.S. government sponsored agency obligations, 2.43% to 5.65%, due 7/01/37 to 6/01/42, par and fair value of $224,259,896 and $204,000,000, respectively) | $ | 200,000 | $ | 200,000,000 | ||||
Goldman Sachs & Co., 0.19%, 7/05/12 (Purchased on 6/29/12 to be repurchased at $875,027,708, collateralized by various U.S. government obligations, 2.10% to 6.50%, due 1/01/18 to 7/01/42, par and fair value of $2,225,360,651 and $892,500,000, respectively) | 875,000 | 875,000,000 | ||||||
Goldman Sachs & Co., 0.20%, 7/06/12 (Purchased on 6/29/12 to be repurchased at $750,029,167, collateralized by various U.S. government obligations, 2.18% to 9.00%, due 5/01/17 to 7/01/42, par and fair value of $1,411,499,942 and $765,000,000, respectively) | 750,000 | 750,000,000 | ||||||
See Notes to Financial Statements.
16
MONEY MARKET MASTER PORTFOLIO
SCHEDULE OF INVESTMENTS (Unaudited) – (continued)
June 30, 2012
(Percentages shown are based on Net Assets)
Repurchase Agreements | Par (000) | Value | ||||||
HSBC Securities (USA) Inc., 0.18%, 7/02/12 (Purchased on 6/29/12 to be repurchased at $200,003,000, collateralized by various corporate debt obligations, 0.68% to 0.71%, due 3/21/19 to 8/15/21, par and fair value of $222,950,000 and $210,000,676, respectively) | $ | 200,000 | $ | 200,000,000 | ||||
JPMorgan Securities LLC, 0.45%, 7/02/12 (Purchased on 6/29/12 to be repurchased at $60,002,250, collateralized by various corporate debt obligations, 0.99% to 6.63%, due 4/01/16 to 11/07/23, par and fair value of $62,637,000 and $63,000,379, respectively) | 60,000 | 60,000,000 | ||||||
Merrill Lynch, Pierce, Fenner & Smith Inc., 0.15%, 7/02/12 (Purchased on 6/29/12 to be repurchased at $300,003,750, collateralized by various U.S. Treasury obligations, 0.63% to 2.25%, due 7/15/14 to 11/30/17, par and fair value of $297,654,300 and $306,000,104, respectively) | 300,000 | 300,000,000 | ||||||
Repurchase Agreements | Par (000) | Value | ||||||
Merrill Lynch, Pierce, Fenner, & Smith Inc., 0.20%, 7/02/12 (Purchased on 6/29/12 to be repurchased at $800,013,333, collateralized by various U.S. government obligations, 0.54% to 7.00%, due 9/15/20 to 6/16/43, par and fair value of $1,307,514,251 and $824,000,000, respectively) | $ | 800,000 | $ | 800,000,000 | ||||
Merrill Lynch, Pierce, Fenner & Smith Inc., 0.25%, 7/02/12 (Purchased on 6/29/12 to be repurchased at $100,002,083, collateralized by various U.S. government obligations, 3.50% to 4.00%, due 1/01/32 to 12/01/40, par and fair value of $107,482,438 and $102,000,001, respectively) | 100,000 | 100,000,000 | ||||||
See Notes to Financial Statements.
17
MONEY MARKET MASTER PORTFOLIO
SCHEDULE OF INVESTMENTS (Unaudited) – (continued)
June 30, 2012
(Percentages shown are based on Net Assets)
Repurchase Agreements | Par (000) | Value | ||||||
Morgan Stanley & Co. LLC, 0.16%, 7/02/12 (Purchased on 6/29/12 to be repurchased at $221,972,960, collateralized by various U.S. Treasury obligations, 0.00% to 3.63%, due 10/04/12 to 2/15/21, par and fair value of $214,095,100 and $226,409,525, respectively) | $ | 221,970 | $ | 221,970,000 | ||||
Morgan Stanley & Co. LLC, 0.18%, 7/05/12 (Purchased on 6/29/12 to be repurchased at $500,015,000, collateralized by various U.S. government obligations, 2.22% to 6.50%, due 10/01/14 to 6/01/42, par and fair value of $908,676,593 and $510,000,001, respectively) | 500,000 | 500,000,000 | ||||||
Morgan Stanley & Co. LLC, 0.18%, 7/02/12 (Purchased on 6/29/12 to be repurchased at $90,001,350, collateralized by various U.S. government obligations, 3.50%, due 6/01/42, par and fair value of $86,906,432 and $91,800,000, respectively) | 90,000 | 90,000,000 | ||||||
Repurchase Agreements | Par (000) | Value | ||||||
Morgan Stanley & Co. LLC, 0.23%, 7/02/12 (Purchased on 6/29/12 to be repurchased at $125,002,396, collateralized by various U.S. government obligations, 0.00% to 6.50%, due 8/01/25 to 7/01/42, par and fair value of $125,916,722 and $127,500,001, respectively) | $ | 125,000 | $ | 125,000,000 | ||||
RBS Securities Inc., 0.17%, 7/02/12 (Purchased on 6/29/12 to be repurchased at $120,001,700, collateralized by various U.S. government obligations, 2.20% to 5.90%, due 11/01/33 to 7/01/42, par and fair value of $234,252,061and $122,400,348, respectively) | 120,000 | 120,000,000 | ||||||
RBS Securities Inc., 0.25%, 7/02/12 (Purchased on 6/29/12 to be repurchased at $140,002,917, collateralized by various U.S. government obligations, 3.50% to 4.00%, due 1/01/27 to 4/01/42, par and fair value of $135,191,431 and $142,803,480, respectively) | 140,000 | 140,000,000 | ||||||
See Notes to Financial Statements.
18
MONEY MARKET MASTER PORTFOLIO
SCHEDULE OF INVESTMENTS (Unaudited) – (continued)
June 30, 2012
(Percentages shown are based on Net Assets)
Repurchase Agreements | Par (000) | Value | ||||||
Wells Fargo Bank Co. 0.20%, 7/02/12 (Purchased on 6/29/12 to be repurchased at $320,005,333, collateralized by various corporate debt obligations, 0.00% to 12.75%, due 7/15/12 to 7/25/48, par and fair value of $4,064,832,432 and $335,077,883, respectively) | $ | 320,000 | $ | 320,000,000 | ||||
|
| |||||||
Total Repurchase Agreements –20.6% | 7,744,970,000 | |||||||
|
| |||||||
Total Investments (Cost – $37,412,971,226*) – 99.4% | 37,412,971,226 | |||||||
Other Assets in Excess of Liabilities – 0.6% | 210,070,205 | |||||||
|
| |||||||
Net Assets – 100.0% | $37,623,041,431 | |||||||
|
| |||||||
| * | Cost for federal income tax purposes. |
| (a) | Variable rate security. Rate shown is as of report date. |
| (b) | Issuer is a US branch of a foreign domiciled bank. |
| (c) | Rates shown are discount rates or a range of discount rates at the time of purchase. |
| • | Fair Value Measurements – Various inputs are used in determining the fair value of investments. These inputs to valuation techniques are categorized into a disclosure hierarchy consisting of three broad levels for financial reporting purposes as follows: |
| • | Level 1 – unadjusted price quotations in active markets/exchanges for identical assets and liabilities |
| • | Level 2 – other observable inputs (including, but not limited to: quoted prices for similar assets or liabilities in markets that are active, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates) or other market-corroborated inputs) |
| • | Level 3 – unobservable inputs based on the best information available in the circumstances, to the extent observable inputs are not available (including the Master Portfolio’s own assumptions used in determining the fair value of investments) |
Changes in valuation techniques may result in transfers into or out of an assigned level within the disclosure hierarchy. In accordance with the Master Portfolio’s policy, transfers between different levels of the fair value disclosure hierarchy are deemed to have occurred as of the beginning of the reporting period. The categorization of a value determined for investments is based on the pricing transparency of the investment and is not necessarily an indication of the risks associated with investing in those securities. For information about the Master Portfolio’s policy regarding valuation of investments and other significant accounting policies, please refer to Note 1 of the Notes to Financial Statements.
The following table summarizes the Master Portfolio’s investments categorized in the disclosure hierarchy as of June 30, 2012:
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets: | ||||||||||||||||
Investments: | ||||||||||||||||
Short-Term Securities1 | — | $ | 37,412,971,226 |
| — |
| $ | 37,412,971,226 | ||||||||
|
|
|
|
|
|
|
| |||||||||
| 1 | See above Schedule of Investments for values in each security type. |
See Notes to Financial Statements.
19
MONEY MARKET MASTER PORTFOLIO
SCHEDULE OF INVESTMENTS (Unaudited) – (concluded)
June 30, 2012
Certain of the Master Portfolio’s assets are held at carrying amount which approximates fair value for financial statement purposes. As of June 30, 2012, cash in the amount of $2,050 would be categorized as Level 1 within the disclosure hierarchy.
There were no transfers between levels during the period ended June 30, 2012.
See Notes to Financial Statements.
20
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2012 (Unaudited)
ASSETS | ||||
Investments at value – unaffiliated1 | $ | 29,668,001,226 | ||
Repurchase agreements – unaffiliated2 | 7,744,970,000 | |||
Investments sold receivable | 199,990,000 | |||
Contributions receivable from investors | 438 | |||
Cash | 2,050 | |||
Interest receivable | 12,348,797 | |||
|
| |||
Total assets | 37,625,312,511 | |||
|
| |||
LIABILITIES | ||||
Investment advisory fees payable | 2,130,607 | |||
Professional fees payable | 50,945 | |||
Trustees’ fees payable | 89,528 | |||
|
| |||
Total liabilities | 2,271,080 | |||
|
| |||
NET ASSETS | $ | 37,623,041,431 | ||
|
| |||
NET ASSETS CONSIST OF | ||||
Investors’ capital | $ | 37,623,041,431 | ||
|
| |||
1 Investments at cost – unaffiliated | $ | 29,668,001,226 | ||
|
| |||
2 Repurchase agreements at cost – unaffiliated | $ | 7,744,970,000 | ||
|
| |||
See Notes to Financial Statements.
21
STATEMENT OF OPERATIONS
Six Months Ended June 30, 2012 (Unaudited)
INVESTMENT INCOME | ||||
Income | $ | 59,372,992 | ||
|
| |||
Total income | 59,372,992 | |||
|
| |||
EXPENSES | ||||
Investment advisory | 17,771,602 | |||
Professional | 36,306 | |||
Independent Trustees | 172,232 | |||
|
| |||
Total expenses | 17,980,140 | |||
Less fees waived by advisor | (5,540,019 | ) | ||
|
| |||
Total expenses after fees waived | 12,440,121 | |||
|
| |||
NET INVESTMENT INCOME | 46,932,871 | |||
|
| |||
REALIZED GAIN | ||||
Net realized gain from investments | 912,542 | |||
|
| |||
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS | $ | 47,845,413 | ||
|
|
See Notes to Financial Statements.
22
STATEMENTS OF CHANGES IN NET ASSETS
| Six Months Ended | ||||||||
| June 30, 2012 | Year Ended | |||||||
| (Unaudited) | December 31, 2011 | |||||||
INCREASE (DECREASE) IN NET ASSETS: | ||||||||
Operations | ||||||||
Net investment income | $ | 46,932,871 | $ | 60,329,486 | ||||
Net realized gain | 912,542 | 1,791,140 | ||||||
|
|
|
| |||||
Net increase in net assets resulting from operations | 47,845,413 | 62,120,626 | ||||||
|
|
|
| |||||
Capital transactions | ||||||||
Proceeds from contributions | 35,304,682,955 | 52,848,164,282 | ||||||
Value of withdrawals | (26,257,533,486 | ) | (44,389,795,004 | ) | ||||
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|
|
| |||||
Net increase in net assets derived from capital transactions | 9,047,149,469 | 8,458,369,278 | ||||||
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NET ASSETS | ||||||||
Total increase in net assets | 9,094,994,882 | 8,520,489,904 | ||||||
Beginning of period | 28,528,046,549 | 20,007,556,645 | ||||||
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End of period | $ | 37,623,041,431 | $ | 28,528,046,549 | ||||
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See Notes to Financial Statements.
23
FINANCIAL HIGHLIGHTS
| Six Months | ||||||||||||||||||||||||
| Ended | ||||||||||||||||||||||||
| June 30, 2012 | Year Ended December 31, | |||||||||||||||||||||||
| (Unaudited) | 2011 | 2010 | 2009 | 2008 | 2007 | |||||||||||||||||||
Total Investment Return | ||||||||||||||||||||||||
Total investment return | 0.14 | %1 | 0.23 | % | 0.27 | % | 0.48 | % | 2.90 | %2 | 5.40 | % | ||||||||||||
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Ratios to Average Net Assets | ||||||||||||||||||||||||
Total expenses | 0.10 | %3 | 0.10 | % | 0.10 | % | 0.10 | % | 0.10 | % | 0.10 | % | ||||||||||||
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Total expenses after fees waived | 0.07 | %3 | 0.07 | % | 0.07 | % | 0.07 | % | 0.07 | % | 0.07 | % | ||||||||||||
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Net investment income | 0.26 | %3 | 0.22 | % | 0.26 | % | 0.48 | % | 2.88 | % | 5.23 | % | ||||||||||||
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Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period (000) | $ | 37,623,041 | $ | 28,528,047 | $ | 20,007,557 | $ | 21,134,748 | $ | 22,488,961 | $ | 31,492,404 | ||||||||||||
| 1 | Aggregate total investment return. |
| 2 | For the year ended December 31, 2008, 0.01% of the total return consists of purchases of securities by BlackRock Fund Advisors (“BFA” or the “Manager”) at prices in excess of the securities’ then current fair value. Excluding these items, total return would have been 2.89%. |
| 3 | Annualized. |
See Notes to Financial Statements.
24
NOTES TO FINANCIAL STATEMENTS (Unaudited)
| 1. | Organization and Significant Accounting Policies: |
Master Investment Portfolio (“MIP”) is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. MIP is organized as a Delaware statutory trust. The financial statements and these accompanying notes relate only to Money Market Master Portfolio (the “Master Portfolio”). The Master Portfolio’s financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”), which may require management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.
The following is a summary of significant accounting policies followed by the Master Portfolio:
Valuation: US GAAP defines fair value as the price the Master Portfolio would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. The Master Portfolio’s investments are valued under the amortized cost method which approximates current market value in accordance with Rule 2a-7 under the 1940 Act. Under this method, investments are valued at cost when purchased and thereafter, a constant proportionate accretion of discounts and amortization of premiums are recorded until the maturity of the security. The Master Portfolio seeks to maintain its net asset value per share at $1.00, although there is no assurance that it will be able to do so on a continuing basis.
Repurchase Agreements: The Master Portfolio may invest in repurchase agreements. In a repurchase agreement, the Master Portfolio purchases a security from a counterparty who agrees to repurchase the same security at a mutually agreed upon date and price. On a daily basis, the counterparty is required to maintain collateral subject to the agreement and in value no less than the agreed repurchase amount. The agreements are conditioned upon the collateral being deposited under the Federal Reserve book entry system or held in a segregated account by the Master Portfolio’s custodian or designated sub-custodians under tri-party repurchase agreements. In the event the counterparty defaults and the fair value of the collateral declines, the Master Portfolio could experience losses, delays and costs in liquidating the collateral.
Investment Transactions and Investment Income: For financial reporting purposes, investment transactions are recorded on the dates the transactions are entered into (the trade dates). Realized gains and losses on investment transactions are determined on the identified cost basis. Interest income, including amortization and accretion of premiums and discounts on debt securities, is recognized on the accrual basis.
Income Taxes: The Master Portfolio is classified as a partnership for federal income tax purposes. As such, each investor in the Master Portfolio is treated as the owner of its proportionate share of net assets, income, expenses and realized gains and losses of the Master Portfolio. Therefore, no federal income tax provision is required. It is intended that the Master Portfolio’s assets will be managed so an investor in the Master Portfolio can satisfy the requirements of Subchapter M of the Internal Revenue Code of 1986, as amended.
The Master Portfolio files US federal and various state and local tax returns. No income tax returns are currently under examination. The statute of limitations on the Master Portfolio’s US federal tax returns remains open for the four years ended December 31, 2011. The statutes of limitations on the Master Portfolio’s state and local tax returns may remain open for an additional year depending upon the jurisdiction. Management does not believe there are any uncertain tax positions that require recognition of a tax liability.
25
MONEY MARKET MASTER PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Unaudited) – (continued)
Recent Accounting Standard: In December 2011, the Financial Accounting Standards Board issued guidance that will expand current disclosure requirements on the offsetting of certain assets and liabilities. The new disclosures will be required for investments and derivative financial instruments subject to master netting or similar agreements which are eligible for offset in the Statements of Assets and Liabilities and will require an entity to disclose both gross and net information about such investments and transactions in the financial statements. The guidance is effective for financial statements with fiscal years beginning on or after January 1, 2013, and interim periods within those fiscal years. Management is evaluating the impact of this guidance on the Master Portfolio’s financial statement disclosures.
Other: Expenses directly related to the Master Portfolio are charged to the Master Portfolio.
| 2. | Investment Advisory Agreement and Other Transactions with Affiliates: |
The PNC Financial Services Group, Inc. (“PNC”) is the largest stockholder and an affiliate for 1940 Act purposes, of BlackRock, Inc. (“BlackRock”).
MIP, on behalf of the Master Portfolio, entered into an Investment Advisory Agreement (the “Investment Advisory Agreement”) with the Manager, the Master Portfolio’s investment advisor, an indirect, wholly owned subsidiary of BlackRock, to provide investment advisory and administration services. Pursuant to the Investment Advisory Agreement with MIP, the Manager is responsible for the management of the Master Portfolio’s investments and provides the necessary personnel, facilities, equipment and certain other services necessary to the operations of the Master Portfolio. For such services, the Master Portfolio pays the Manager a monthly fee at an annual rate of 0.10% of the average daily value of the Master Portfolio’s net assets. The Manager has contractually agreed to waive 0.03% of its investment advisory fees through April 30, 2013. The Manager has also voluntarily agreed to waive investment advisory fees to enable the Master Portfolio to maintain a minimum daily net investment income dividend. The Manager may discontinue the voluntary waiver at anytime. For the six months ended June 30, 2012, the amount included in fees waived by advisor in the Statement of Operations is $5,331,481.
The fees and expenses of the MIP’s trustees who are not “interested persons” of MIP, as defined in the 1940 Act (“Independent Trustees”), counsel to the Independent Trustees and the MIP’s independent registered public accounting firm (together, the “independent expenses”) are paid directly by the Master Portfolio. The Manager has contractually agreed to cap the expenses of the Master Portfolio at the rate at which the Master Portfolio pays an advisory fee to the Manager by providing an offsetting credit against the investment advisory fees paid by the Master Portfolio in an amount equal to the independent expenses. These contractual waivers are effective through April 30, 2013. The amounts waived are included in fees waived by advisor in the Statement of Operations. For the six months ended June 30, 2012, such waiver amounted to $208,538.
MIP entered into administration services arrangement with BlackRock Institutional Trust Company, N.A. (“BTC”), which has agreed to provide general administration services (other than investment advice and related portfolio activities), BTC may delegate certain of its administration duties to sub-administrators. BTC, in consideration thereof, has agreed to bear all of the Master Portfolio’s and MIP’s ordinary expenses excluding, generally, investment advisory fees, distribution fees, brokerage and other expenses related to the execution of portfolio transactions, extraordinary expenses and certain other expenses which are borne by the Master Portfolio.
26
MONEY MARKET MASTER PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Unaudited) – (concluded)
BTC is not entitled to compensation for providing administration services to the Master Portfolio, for so long as BTC is entitled to compensation for providing administration services to corresponding feeder funds that invest substantially all of their assets in the Master Portfolio, or BTC (or an affiliate) receives investment advisory fees from the Master Portfolio.
Certain officers and/or trustees of MIP are officers and/or directors of BlackRock or its affiliates.
| 3. | Borrowings: |
The Master Portfolio, along with certain other funds managed by the Manager and its affiliates, is a party to a $500 million credit agreement with a group of lenders. The Master Portfolio may borrow under the credit agreement to fund shareholder redemptions. Effective November 2011 to November 2012, the credit agreement has the following terms: a commitment fee of 0.065% per annum based on the Master Portfolio’s pro rata share of the unused portion of the credit agreement and interest at a rate equal to the higher of (a) the one-month LIBOR plus 0.80% per annum or (b) the Fed Funds rate plus 0.80% per annum on amounts borrowed. In addition, administration and arrangement fees were allocated to the Master Portfolio based on its net assets as of October 31, 2011. The Master Portfolio’s commitment, administration and arrangement fees were paid by the investment advisor. The Master Portfolio did not borrow under the credit agreement during the six months ended June 30, 2012.
| 4. | Market and Credit Risk: |
In the normal course of business, the Master Portfolio invests in securities and enter into transactions where risks exist due to fluctuations in the market (market risk) or failure of the issuer of a security to meet all of its obligations (issuer credit risk). The value of securities held by the Master Portfolio may decline in response to certain events, including those directly involving the issuers whose securities are owned by the Master Portfolio; conditions affecting the general economy; overall market changes; local, regional or global political, social or economic instability; and currency and interest rate and price fluctuations. Similar to issuer credit risk, the Master Portfolio may be exposed to counterparty credit risk, or the risk that an entity with which the Master Portfolio has unsettled or open transactions may fail to or be unable to perform on its commitments. The Master Portfolio manages counterparty risk by entering into transactions only with counterparties that it believes has the financial resources to honor its obligations and by monitoring the financial stability of those counterparties. Financial assets, which potentially expose the Master Portfolio to market, issuer and counterparty credit risks, consist principally of financial instruments and receivables due from counterparties. The extent of the Master Portfolio’s exposure to market, issuer and counterparty credit risks with respect to these financial assets is generally approximated by their value recorded in the Master Portfolio’s Statement of Assets and Liabilities, less any collateral held by the Master Portfolio.
| 5. | Subsequent Events: |
Management has evaluated the impact of all subsequent events on the Master Portfolio through the date the financial statements were issued and has determined that there were no subsequent events requiring adjustment or disclosure in the financial statements.
27
DISCLOSURE OF INVESTMENT ADVISORY AGREEMENT
The Board of Trustees (the “Board,” and the members of which are referred to as “Board Members”) of Master Investment Portfolio (the “Master Fund”) met on April 17, 2012 and May 15-16, 2012 to consider the approval of the Master Fund’s investment advisory agreement (the “Agreement”) with BlackRock Fund Advisors (“BlackRock”), the Master Fund’s investment advisor, on behalf of the Money Market Master Portfolio (the “Master Portfolio”), a series of the Master Fund.
Activities and Composition of the Board
The Board consists of fourteen individuals, twelve of whom are not “interested persons” of the Master Fund as defined in the Investment Company Act of 1940, as amended (the “1940 Act”) (the “Independent Board Members”). The Board Members are responsible for the oversight of the operations of the Master Fund and perform the various duties imposed on the directors of investment companies by the 1940 Act. The Independent Board Members have retained independent legal counsel to assist them in connection with their duties. The Co-Chairs of the Board are each Independent Board Members. The Board has established five standing committees: an Audit Committee, a Governance and Nominating Committee, a Compliance Committee, a Performance Oversight and Contract Committee and an Executive Committee, each of which is chaired by an Independent Board Member and composed of Independent Board Members (except for the Executive Committee, which also has one interested Board Member).
The Agreement
Pursuant to the 1940 Act, the Board is required to consider the continuation of the Agreement on an annual basis. The Board has four quarterly meetings per year, each extending over two days, and a fifth meeting to consider specific information surrounding the consideration of renewing the Agreement. In connection with this process, the Board assessed, among other things, the nature, scope and quality of the services provided to the Master Portfolio by BlackRock, its personnel and its affiliates, including investment management, administrative and shareholder services, oversight of fund accounting and custody, marketing services, risk oversight, compliance and assistance in meeting applicable legal and regulatory requirements.
The Board, acting directly and through its committees, considers at each of its meetings, and from time to time as appropriate, factors that are relevant to its annual consideration of the renewal of the Agreement, including the services and support provided by BlackRock to the Master Portfolio and its shareholders. Among the matters the Board considered were: (a) investment performance of an affiliated feeder fund that invests all of its investable assets in the Master Portfolio (the “representative feeder fund”) for one-, three- and five-year periods, as applicable, against peer funds, and applicable benchmarks, if any, as well as senior management’s and portfolio managers’ analysis of the reasons for any over performance or underperformance against its peers and/or benchmark, as applicable; (b) fees, including advisory, administration, if applicable, and other amounts paid to BlackRock and its affiliates by the Master Portfolio for services, such as marketing and distribution, call center and fund accounting; (c) Master Portfolio operating expenses and how BlackRock allocates expenses to the Master Portfolio; (d) the resources devoted to, risk oversight of, and compliance reports relating to, implementation of the Master Portfolio’s investment objective, policies and restrictions; (e) the Master Fund’s compliance with its Code of Ethics and other compliance policies and procedures; (f) the nature, cost and character of non-investment management services provided by BlackRock and its affiliates; (g) BlackRock’s and other service providers’ internal controls and risk and compliance oversight mechanisms; (h) BlackRock’s implementation of the proxy voting policies approved by the Board; (i) execution quality of portfolio transactions; (j) BlackRock’s implementation of the Master Fund’s valuation and liquidity procedures; (k) an analysis of management fees for products with similar investment
28
MASTER INVESTMENT PORTFOLIO
DISCLOSURE OF INVESTMENT ADVISORY AGREEMENT – (continued)
objectives across the open-end fund, exchange traded fund (“ETF”), closed-end fund and institutional account product channels, as applicable; (l) BlackRock’s compensation methodology for its investment professionals and the incentives it creates; and (m) periodic updates on BlackRock’s business.
The Board has engaged in an ongoing strategic review with BlackRock of opportunities to consolidate funds and of BlackRock’s commitment to investment performance. In addition, the Board requested, to the extent reasonably possible, an analysis of the risk and return relative to selected funds in peer groups. BlackRock provides information to the Board in response to specific questions. These questions covered issues such as profitability, investment performance and management fee levels. The Board considered the importance of: (i) managing fixed income assets with a view toward preservation of capital; (ii) portfolio managers’ investments in the funds they manage; (iii) BlackRock’s controls surrounding the coding of quantitative investment models; and (iv) BlackRock’s oversight of relationships with third party service providers.
Board Considerations in Approving the Agreement
The Approval Process: Prior to the April 17, 2012 meeting, the Board requested and received materials specifically relating to the Agreement. The Board is engaged in a process with its independent legal counsel and BlackRock to review periodically the nature and scope of the information provided to better assist its deliberations. The materials provided in connection with the April meeting included (a) information independently compiled and prepared by Lipper, Inc. (“Lipper”) on fees and expenses of the Master Portfolio and the representative feeder fund, as applicable, and the investment performance of the representative feeder fund as compared with a peer group of funds as determined by Lipper (collectively, “Peers”); (b) information on the profitability of the Agreement to BlackRock and a discussion of fall-out benefits to BlackRock and its affiliates; (c) a general analysis provided by BlackRock concerning investment management fees (a combination of the advisory fee and the administration fee, if any) charged to other clients, such as institutional clients, ETFs and closed-end funds, under similar investment mandates, as well as the performance of such other clients, as applicable; (d) the existence, impact and sharing of economies of scale; (e) a summary of aggregate amounts paid by the Master Portfolio to BlackRock; and (f) if applicable, a comparison of management fees to similar BlackRock open-end funds, as classified by Lipper.
At an in-person meeting held on April 17, 2012, the Board reviewed materials relating to its consideration of the Agreement. As a result of the discussions that occurred during the April 17, 2012 meeting, and as a culmination of the Board’s year-long deliberative process, the Board presented BlackRock with questions and requests for additional information. BlackRock responded to these requests with additional written information in advance of the May 15-16, 2012 Board meeting.
At an in-person meeting held on May 15-16, 2012, the Board, including all the Independent Board Members, unanimously approved the continuation of the Agreement between BlackRock and the Master Fund with respect to the Master Portfolio for a one-year term ending June 30, 2013. In approving the continuation of the Agreement, the Board considered: (a) the nature, extent and quality of the services provided by BlackRock; (b) the investment performance of the Master Portfolio and BlackRock; (c) the advisory fee and the cost of the services and profits to be realized by BlackRock and its affiliates from their relationship with the Master Portfolio; (d) economies of scale; (e) fall-out benefits to BlackRock as a result of its relationship with the Master Portfolio; and (f) other factors deemed relevant by the Board Members.
The Board also considered other matters it deemed important to the approval process, such as payments made to BlackRock or its affiliates relating to securities lending, services related to the valuation and pricing of portfolio
29
MASTER INVESTMENT PORTFOLIO
DISCLOSURE OF INVESTMENT ADVISORY AGREEMENT – (continued)
holdings of the Master Portfolio, direct and indirect benefits to BlackRock and its affiliates from their relationship with the Master Portfolio and advice from independent legal counsel with respect to the review process and materials submitted for the Board’s review. The Board noted the willingness of BlackRock personnel to engage in open, candid discussions with the Board. The Board did not identify any particular information as controlling, and each Board Member may have attributed different weights to the various items considered.
| A. | Nature, Extent and Quality of the Services Provided by BlackRock |
The Board, including the Independent Board Members, reviewed the nature, extent and quality of services provided by BlackRock, including the investment advisory services and the resulting performance of the Master Portfolio. Throughout the year, the Board compared the representative feeder fund’s performance to the performance of a comparable group of mutual funds and/or the performance of a relevant benchmark, if any. The Board met with BlackRock’s senior management personnel responsible for investment operations, including the senior investment officers. The Board also reviewed the materials provided by the portfolio management team discussing the performance of the representative feeder fund and the Master Portfolio’s investment objective, strategies and outlook.
The Board considered, among other factors, the number, education and experience of BlackRock’s investment personnel generally and the Master Portfolio’s portfolio management team, investments by portfolio managers in the funds they manage, BlackRock’s portfolio trading capabilities, BlackRock’s use of technology, BlackRock’s commitment to compliance, BlackRock’s credit analysis capabilities, BlackRock’s risk analysis and oversight capabilities and BlackRock’s approach to training and retaining portfolio managers and other research, advisory and management personnel. The Board engaged in a review of BlackRock’s compensation structure with respect to the Master Portfolio’s portfolio management team and BlackRock’s ability to attract and retain high-quality talent and create performance incentives.
In addition to advisory services, the Board considered the quality of the administrative and non-investment advisory services provided to the Master Portfolio. BlackRock and its affiliates provide the Master Portfolio with certain administrative, shareholder and other services (in addition to any such services provided to the Master Portfolio by third parties) and officers and other personnel as are necessary for the operations of the Master Portfolio. In particular, BlackRock and its affiliates provide the Master Portfolio with the following administrative services, including, among others: (i) preparing disclosure documents, such as the prospectus, the statement of additional information and periodic shareholder reports; (ii) assisting with daily accounting and pricing; (iii) overseeing and coordinating the activities of other service providers; (iv) organizing Board meetings and preparing the materials for such Board meetings; (v) providing legal and compliance support; and (vi) performing other administrative functions necessary for the operation of the Master Portfolio, such as tax reporting, fulfilling regulatory filing requirements and call center services. The Board reviewed the structure and duties of BlackRock’s fund administration, accounting, legal and compliance departments and considered BlackRock’s policies and procedures for assuring compliance with applicable laws and regulations.
| B. | The Investment Performance of the Master Portfolio and BlackRock |
The Board, including the Independent Board Members, also reviewed and considered the performance history of the Master Portfolio. The Board noted that the Master Portfolio’s investment results correspond directly to the investment results of the representative feeder fund. In preparation for the April 17, 2012 meeting, the Board worked with its independent counsel, BlackRock and Lipper to develop a template for, and was provided with,
30
MASTER INVESTMENT PORTFOLIO
DISCLOSURE OF INVESTMENT ADVISORY AGREEMENT – (continued)
reports independently prepared by Lipper, which included a comprehensive analysis of the representative feeder fund’s performance. The Board also reviewed a narrative and statistical analysis of the Lipper data that was prepared by BlackRock, which analyzed various factors that affect Lipper’s rankings. In connection with its review, the Board received and reviewed information regarding the investment performance of the representative feeder fund as compared to funds in the representative feeder fund’s applicable Lipper category. The Board was provided with a description of the methodology used by Lipper to select peer funds and periodically meets with Lipper representatives to review their methodology. The Board and the Board’s Performance Oversight and Contract Committee regularly review, and meet with Master Portfolio management to discuss, the performance of the Master Portfolio and the representative feeder fund, as applicable, throughout the year.
The Board noted that, in general, the representative feeder fund performed better than its Peers in that the representative feeder fund’s performance was at or above the median of its Lipper Performance Universe in each of the one-, three- and five-year periods reported.
| C. | Consideration of the Advisory/Management Fees and the Cost of the Services and Profits to be Realized by BlackRock and its Affiliates from their Relationship with the Master Portfolio |
The Board, including the Independent Board Members, reviewed the Master Portfolio’s contractual advisory fee rate compared with the other funds in the representative feeder fund’s Lipper category. It also compared the representative feeder fund’s total expense ratio, as well as the Master Portfolio’s actual advisory fee rate, to those of other funds in the representative feeder fund’s Lipper category. The Board considered the services provided and the fees charged by BlackRock to other types of clients with similar investment mandates, including separately managed institutional accounts.
The Board received and reviewed statements relating to BlackRock’s financial condition and profitability with respect to the services it provided the Master Portfolio. The Board was also provided with a profitability analysis that detailed the revenues earned and the expenses incurred by BlackRock for services provided to the Master Portfolio. The Board reviewed BlackRock’s profitability with respect to the Master Portfolio and other funds the Board currently oversees for the year ended December 31, 2011 compared to available aggregate profitability data provided for the years ended December 31, 2010 and December 31, 2009. The Board reviewed BlackRock’s profitability with respect to other fund complexes managed by BlackRock and/or its affiliates. The Board reviewed BlackRock’s assumptions and methodology of allocating expenses in the profitability analysis, noting the inherent limitations in allocating costs among various advisory products. The Board recognized that profitability may be affected by numerous factors including, among other things, fee waivers and expense reimbursements by Black-Rock, the types of funds managed, expense allocations and business mix, and the difficulty of comparing profitability as a result of those factors.
The Board noted that, in general, individual fund or product line profitability of other advisors is not publicly available. The Board considered BlackRock’s operating margin, in general, compared to the operating margin for leading investment management firms whose operations include advising open-end funds, among other product types. In addition, the Board considered, among other things, certain third party data comparing BlackRock’s operating margin with that of other publicly-traded asset management firms. The Board considered the differences between BlackRock and these other firms, including the contribution of technology at BlackRock, BlackRock’s expense management and the relative product mix.
31
MASTER INVESTMENT PORTFOLIO
DISCLOSURE OF INVESTMENT ADVISORY AGREEMENT – (continued)
In addition, the Board considered the cost of the services provided to the Master Portfolio by BlackRock, and BlackRock’s and its affiliates’ profits relating to the management and distribution of the Master Portfolio and the other funds advised by BlackRock and its affiliates. As part of its analysis, the Board reviewed BlackRock’s methodology in allocating its costs to the management of the Master Portfolio. The Board also considered whether BlackRock has the financial resources necessary to attract and retain high quality investment management personnel to perform its obligations under the Agreement and to continue to provide the high quality of services that is expected by the Board.
The Board noted that the Master Portfolio’s contractual advisory fee ratio was lower than or equal to the median contractual advisory fee ratio paid by the representative feeder fund’s Peers, in each case before taking into account any expense reimbursements or fee waivers. The Board also noted that BlackRock has contractually agreed to waive a portion of the advisory fees of the Master Portfolio and that BlackRock and its affiliates have agreed to provide an offsetting credit against certain expenses incurred by the Master Portfolio. BlackRock has voluntarily agreed to waive a portion of its fees and/or reimburse operating expenses to enable the Master Portfolio to maintain minimum levels of daily net investment income. This waiver and/or reimbursement may be discontinued at any time without notice.
| D. | Economies of Scale |
The Board, including the Independent Board Members, considered the extent to which economies of scale might be realized as the assets of the Master Portfolio increase, as well as the existence of expense caps. The Board also considered the extent to which the Master Portfolio benefits from such economies and whether there should be changes in the advisory fee rate or structure in order to enable the Master Portfolio to participate in these economies of scale, for example through the use of breakpoints in the advisory fee based upon the asset level of the Master Portfolio. In its consideration, the Board took into account the existence of expense caps and further considered the continuation and/or implementation, as applicable, of such caps.
| E. | Other Factors Deemed Relevant by the Board Members |
The Board, including the Independent Board Members, also took into account other ancillary or “fall-out” benefits that BlackRock or its affiliates may derive from their respective relationships with the Master Portfolio, both tangible and intangible, such as BlackRock’s ability to leverage its investment professionals who manage other portfolios and risk management personnel, an increase in BlackRock’s profile in the investment advisory community, and the engagement of BlackRock’s affiliates as service providers to the Master Portfolio, including for administrative, distribution, securities lending and cash management services. The Board also considered BlackRock’s overall operations and its efforts to expand the scale of, and improve the quality of, its operations. The Board also noted that BlackRock may use and benefit from third party research obtained by soft dollars generated by certain registered fund transactions to assist in managing all or a number of its other client accounts. The Board further noted that it had considered the investment by BlackRock’s funds in ETFs without any offset against the management fees payable by the funds to BlackRock.
In connection with its consideration of the Agreement, the Board also received information regarding Black-Rock’s brokerage and soft dollar practices. The Board received reports from BlackRock which included information on brokerage commissions and trade execution practices throughout the year.
32
MASTER INVESTMENT PORTFOLIO
DISCLOSURE OF INVESTMENT ADVISORY AGREEMENT – (concluded)
Conclusion
The Board of the Master Fund, including all the Independent Board Members, unanimously approved the continuation of the Agreement between BlackRock and the Master Fund with respect to the Master Portfolio for a one-year term ending June 30, 2013. Based upon its evaluation of all of the aforementioned factors in their totality, the Board, including the Independent Board Members, was satisfied that the terms of the Agreement were fair and reasonable and in the best interest of the Master Portfolio and its shareholders. In arriving at its decision to approve the Agreement, the Board did not identify any single factor or group of factors as all-important or controlling, but considered all factors together, and different Board Members may have attributed different weights to the various factors considered. The Independent Board Members were also assisted by the advice of independent legal counsel in making this determination. The contractual fee arrangements for the Master Portfolio reflect the results of several years of review by the Board Members and predecessor Board Members, and discussions between such Board Members (and predecessor Board Members) and BlackRock. As a result, the Board Members’ conclusions may be based in part on their consideration of these arrangements in prior years.
33
OFFICERS AND TRUSTEES
Ronald W. Forbes, Co-Chair of the Board and Trustee
Rodney D. Johnson, Co-Chair of the Board and Trustee
David O. Beim, Trustee
Dr. Matina S. Horner, Trustee
Herbert I. London, Trustee
Ian A. MacKinnon, Trustee1
Cynthia A. Montgomery, Trustee
Joseph P. Platt, Trustee
Robert C. Robb, Jr., Trustee
Toby Rosenblatt, Trustee
Kenneth L. Urish, Trustee
Frederick W. Winter, Trustee
Paul L. Audet, Trustee
Henry Gabbay, Trustee
John M. Perlowski, President and Chief Executive Officer
Richard Hoerner, CFA, Vice President
Brendan Kyne, Vice President
Simon Mendelson, Vice President
Christopher Stavrakos, CFA, Vice President
Neal Andrews, Chief Financial Officer
Jay Fife, Treasurer
Brian Kindelan, Chief Compliance Officer and Anti-Money Laundering Officer
Benjamin Archibald, Secretary2
| 1 | Effective May 14, 2012, Ian A. MacKinnon became a Director of the Trust/MIP. |
| 2 | Effective May 16, 2012, Ira P. Shapiro resigned as Secretary of the Trust/MIP and Benjamin Archibald became Secretary of the Trust/MIP. |
Investment Advisor
BlackRock Fund Advisors
San Francisco, CA 94105
Administrator
BlackRock Advisors LLC
Wilmington, DE 19809
Custodian, Transfer Agent and Accounting Agent
State Street Bank and Trust Company
Boston, MA 02110
Transfer Agent
State Street Bank and Trust Company
Boston, MA 02110
Accounting Agent
State Street Bank and Trust Company
Boston, MA 02110
Distributor
BlackRock Investments, LLC
New York, NY 10022
Legal Counsel
Sidley Austin LLP
New York, NY 10019
Independent Registered Public Accounting Firm
PricewaterhouseCoopers LLP
New York, NY 10017
Address of the Trust/MIP
400 Howard Street
San Francisco, CA 94105
34
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| 12 | ||||
| 21 | ||||
| 22 | ||||
| 23 | ||||
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| 25 | ||||
| 28 | ||||
| 34 | ||||
Item 2. Code of Ethics.
Not applicable to this filing.
Item 3. Audit Committee Financial Expert.
Not applicable to this filing.
Item 4. Principal Accountant Fees and Services.
Not applicable to this filing.
Item 5. Audit Committee of Listed Registrants.
Not applicable to this filing.
Item 6. Schedule of Investments.
The information required by this Item 6 is included as part of the report to shareholders under Item 1 of this Form N-CSR.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
Not applicable to the Registrant.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
Not applicable to the Registrant.
Item 9. Purchases of Equity Securities by Closed-End Management Investment Companies and Affiliated Purchasers.
Not applicable to the Registrant.
Item 10. Submission of Matters to a Vote of Security Holders.
The Registrant does not have, and has not previously had, procedures by which shareholders may recommend nominees to the Board of Trustees of Hewitt Series Trust.
Item 11. Controls and Procedures.
(a) Based on an evaluation of the disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, the “Disclosure Controls”) as of a date within 90 days prior to the filing date (the “Filing Date”) of this Form N-CSR (the “Report”), the Registrant’s principal executive and principal financial officers have concluded that the Disclosure Controls are effectively designed to ensure that information required to be disclosed by the registrant in the Report is recorded, processed, summarized and reported by the Filing Date, including ensuring that information required to be disclosed in the Report is accumulated and communicated to the registrant’s management, including the registrant’s principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
(b) There were no changes in the registrant’s internal controls over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or are reasonably likely to materially affect, the registrant’s internal control over financial reporting.
Item 12. Exhibits.
(a) | (1) | Not applicable. | ||
| (2) | Certifications pursuant to Rule 30a-2 under the Investment Company Act of 1940 (17 CFR 270.30a-2), attached hereto as Exhibits (a)(2)(i) and (a)(2)(ii) | |||
| (3) | Not applicable. | |||
(b) | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, attached hereto as Exhibit (b) | |||
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Hewitt Series Trust | ||
| By: | /s/ Andrea W. Armstrong | |
| Andrea W. Armstrong | ||
| President | ||
| Date: | 8/29/12 | |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities, and on the dates indicated.
| By: | /s/ Andrea W. Armstrong | |
| Andrea W. Armstrong | ||
| President | ||
| Date: | 8/29/12 | |
| By: | /s/ Douglas S. Keith | |
| Douglas S. Keith | ||
| CCO, CFO and Treasurer | ||
| Date: | 8/29/12 | |