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)
4 Overlook Point Lincolnshire, IL 60069
(Address of principal executive offices) (Zip code)
Douglas S. Keith, 4 Overlook Point, 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, 2017
Date of reporting period: June 30, 2017
Item 1. Reports to Stockholders.
HEWITT SERIES TRUST
SHAREHOLDER EXPENSES
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, 2017 to June 30, 2017.
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
(1/01/17) | | | Ending
Account Value
(6/30/17) | | | Annualized
Expense Ratio† | | | Expenses Paid
During Period* (1/01/17 to
6/30/17) | |
Actual | | $ | 1,000.00 | | | $ | 1,000.20 | | | | 0.66 | % | | $ | 3.27 | |
Hypothetical (5% return before expenses) | | $ | 1,000.00 | | | $ | 1,021.52 | | | | 0.66 | % | | $ | 3.31 | |
| † | | 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 (181 days) and divided by the number of days in the year (365 days) to reflect the one-half year period. |
1
HEWITT MONEY MARKET FUND
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2017 (Unaudited)
| | | | |
ASSETS | |
Investment: | |
In Treasury Money Market Master Portfolio (“Master Portfolio”), at fair value (Note 1) | | $ | 547,185,079 | |
Receivables: | |
Withdrawals from Master Portfolio | | | 1,685,813 | |
Income dividends | | | 6,407 | |
| | | | |
Total Assets | | $ | 548,877,299 | |
| | | | |
LIABILITIES | |
Payables: | |
Capital shares redeemed | | | 1,685,813 | |
Administration fees | | | 589,743 | |
Accrued shareholder servicing fees | | | 345,240 | |
Accrued trustees fees | | | 9,182 | |
Other accrued expenses | | | 202,141 | |
| | | | |
Total Liabilities | | | 2,832,119 | |
| | | | |
NET ASSETS | | $ | 546,045,180 | |
| | | | |
Net assets consist of: | |
Paid-in capital | | $ | 546,027,334 | |
Accumulated net realized gain | | | 17,846 | |
| | | | |
NET ASSETS | | $ | 546,045,180 | |
| | | | |
Shares outstanding | | | 546,026,222 | |
| | | | |
Net asset value and offering price per share | | $ | 1.00 | |
| | | | |
See Notes to Financial Statements.
2
HEWITT MONEY MARKET FUND
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 2017 (Unaudited)
| | | | |
NET INVESTMENT INCOME ALLOCATED FROM MASTER PORTFOLIO | |
Interest | | $ | 2,378,104 | |
Expenses1 | | | (235,693 | ) |
| | | | |
Net investment income allocated from Master Portfolio | | | 2,142,411 | |
| | | | |
FUND EXPENSES (Note 4) | |
Administration fees | | | 1,849,908 | |
Shareholder servicing fees | | | 840,867 | |
Printing costs | | | 57,023 | |
Registration costs | | | 49,598 | |
Trustees fees | | | 41,897 | |
Audit fees | | | 17,460 | |
Legal fees | | | 29,684 | |
Fund accounting and transfer agent fee | | | 39,539 | |
Miscellaneous | | | 366 | |
| | | | |
Total fund expenses | | | 2,926,342 | |
| | | | |
Fees reimbursed by Hewitt Associates LLC (Note 4) | | | (925,737 | ) |
| | | | |
Total net expenses | | | 2,000,605 | |
| | | | |
NET INVESTMENT INCOME | | | 141,806 | |
| | | | |
REALIZED GAIN (LOSS) ALLOCATED FROM MASTER PORTFOLIO | |
Net realized gain | | | 15,630 | |
| | | | |
Net gain on investments | | | 15,630 | |
| | | | |
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS | | $ | 157,436 | |
| | | | |
| 1 | Net of investment advisory fee waivers by the Master Portfolio’s investment adviser in the amount of $105,471. |
See Notes to Financial Statements.
3
HEWITT MONEY MARKET FUND
STATEMENTS OF CHANGES IN NET ASSETS
| | | | | | | | |
| | | For The
Six Months Ended
June 30, 2017
(Unaudited) | | | For The
Year Ended
December 31, 2016 | |
INCREASE (DECREASE) IN NET ASSETS | |
Operations: | |
Net investment income | | $ | 141,806 | | | $ | 386,272 | |
Net realized gain | | | 15,630 | | | | 88,484 | |
| | | | | | | | |
Net increase in net assets resulting from operations | | | 157,436 | | | | 474,756 | |
| | | | | | | | |
Distributions to shareholders: | |
From net investment income | | | (141,806 | ) | | | (386,305 | ) |
From net realized gain | | | – | | | | (87,113 | ) |
| | | | | | | | |
Total distributions to shareholders | | | (141,806 | ) | | | (473,418 | ) |
| | | | | | | | |
Capital share transactions (Note 6): | |
Net capital share transactions | | | (171,863,640 | ) | | | (52,436,473 | ) |
Net increase (decrease) in net assets resulting from capital share transactions | | | (171,863,640 | ) | | | (52,436,473 | ) |
| | | | | | | | |
Increase (Decrease) in net assets | | | (171,848,010 | ) | | | (52,435,135 | ) |
NET ASSETS: | |
Beginning of Period | | | 717,893,190 | | | | 770,328,325 | |
| | | | | | | | |
End of Period | | $ | 546,045,180 | | | $ | 717,893,190 | |
| | | | | | | | |
Undistributed net investment income included in net assets at end of period | | | – | | | | – | |
| | | | | | | | |
See Notes to Financial Statements.
4
HEWITT MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Six Months
Ended
June 30, 2017
(Unaudited) | | | Year Ended
Dec. 31, 2016 | | | Year Ended
Dec. 31, 2015 | | | Year Ended
Dec. 31, 2014 | | | Year Ended
Dec. 31, 2013 | | | Year Ended
Dec. 31, 2012 | |
Net asset value, beginning of period | | $ | 1.00 | | | $ | 1.00 | | | $ | 1.00 | | | $ | 1.00 | | | $ | 1.00 | | | $ | 1.00 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Income from investment operations: | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income | | | 0.00 | 1 | | | 0.00 | 1 | | | 0.00 | 1 | | | 0.00 | 1 | | | 0.00 | 1 | | | 0.00 | 1 |
Net realized gain (loss) | | | 0.00 | 1 | | | 0.00 | 1 | | | 0.00 | 1 | | | 0.00 | 1 | | | 0.00 | 1 | | | 0.00 | 1 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total from investment operations | | | 0.00 | | | | 0.00 | | | | 0.00 | | | | 0.00 | | | | 0.00 | | | | 0.00 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Less distributions from: | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income | | | (0.00 | )1 | | | (0.00 | )1 | | | (0.00 | )1 | | | (0.00 | )1 | | | (0.00 | )1 | | | (0.00 | )1 |
Net realized gain | | | – | | | | (0.00 | )1 | | | (0.00 | )1 | | | (0.00 | )1 | | | (0.00 | )1 | | | (0.00 | )1 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total distributions | | | (0.00 | ) | | | (0.00 | ) | | | (0.00 | ) | | | (0.00 | ) | | | (0.00 | ) | | | (0.00 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net asset value, end of period | | $ | 1.00 | | | $ | 1.00 | | | $ | 1.00 | | | $ | 1.00 | | | $ | 1.00 | | | $ | 1.00 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total return | | | 0.02 | %2 | | | 0.06 | % | | | 0.03 | % | | | 0.02 | % | | | 0.03 | % | | | 0.03 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Ratios/Supplemental data: | | | | | | | | | | | | | | | | | | | | | | | | |
Net assets, end of period (000s) | | $ | 546,045 | | | $ | 717,893 | | | $ | 770,327 | | | $ | 834,305 | | | $ | 835,508 | | | $ | 689,795 | |
Ratio of net expenses to average net assets3,4 | | | 0.66 | %5 | | | 0.40 | % | | | 0.25 | % | | | 0.21 | % | | | 0.24 | % | | | 0.32 | % |
Ratio of expenses to average net assets prior to waived fees and reimbursed expenses3 | | | 0.97 | %5 | | | 0.95 | % | | | 0.96 | % | | | 0.97 | % | | | 0.98 | % | | | 0.97 | % |
Ratio of net investment income to average net assets3,4 | | | 0.04 | %5 | | | 0.05 | % | | | 0.03 | % | | | 0.02 | % | | | 0.02 | % | | | 0.02 | % |
Ratio of net investment income (loss) to average net assets prior to waived fees and reimbursed expenses3 | | | (0.27 | )%5 | | | (0.50 | )% | | | (0.68 | )% | | | (0.74 | )% | | | (0.72 | )% | | | (0.63 | )% |
| 1 | Rounds to less than $0.01 or ($0.01). |
| 3 | Ratios reflect the expenses of both the Fund and the Master Portfolio into which the Fund invests. |
| 4 | Ratios for the six months ended June 30, 2017 and the years ended December 31, 2016, 2015, 2014, 2013 and 2012 include waived fees in an amount sufficient to ensure that the seven day yield of the Fund does not fall below 0% (Note 4). |
See Notes to Financial Statements.
5
HEWITT SERIES TRUST
NOTES TO FINANCIAL STATEMENTS (Unaudited)
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.
The Fund invests all of its assets in the Treasury Money 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 (7.00% of total Master Portfolio net assets as of June 30, 2017).
| 2. | Significant Accounting Policies |
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 (“U.S. GAAP”). The preparation of the financial statements in conformity with U.S. 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.
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 the share class based on its relative net assets.
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.
Indemnifications
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.
6
HEWITT SERIES TRUST
NOTES TO FINANCIAL STATEMENTS – (continued)
| 3. | Investment Valuation and Fair Value Measurement |
U.S. 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 the Treasury Money Market Master Portfolio at fair value based on the Fund’s proportionate interest in the net assets of the Master Portfolio. Valuation of securities held by the Master Portfolio is discussed in Note 3 of the Master Portfolio’s Notes to Financial Statements, which are included elsewhere in this report.
The determination of what constitutes an “observable” input may require significant judgment by the Fund. As of June 30, 2017, 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 3 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.
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.
| 4. | 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, 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, 2017, Hewitt Associates reimbursed the Fund $925,737 for expenses related to this agreement.
Under the Administration Agreement, the Fund will be obligated to reimburse Hewitt for any fees waived and expenses absorbed, but only if the reimbursement is made within three years from the date waived or absorbed and only to the extent that the reimbursement does not cause the total ordinary operating expenses of the Fund to exceed its expense limitation. The expense limitations of the Fund may not be modified or terminated without the approval of the Board of Trustees. For the six months ended June 30, 2017, no reimbursement was required for any fees waived or expenses absorbed related to this agreement.
7
HEWITT SERIES TRUST
NOTES TO FINANCIAL STATEMENTS – (continued)
On December 31, 2016, reimbursements subject to possible future recoupment under the expense limitation agreement are as follows:
| | | | | | | | |
| 2017 | | 2018 | | | 2019 | |
| $15,806,552 | | $ | 9,757,761 | | | $ | 3,969,185 | |
Hewitt Associates and BlackRock Advisors, LLC (“BAL”) have entered into a sub-administration agreement, pursuant to which BAL 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 BAL a fee equal to 0.015% 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.
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, 2017.
As of December 31, 2016, the tax year-end of the Fund, the Fund had no tax basis net capital loss carryforward.
Management has reviewed the tax positions as of June 30, 2017, 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, 2016. 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.
8
HEWITT SERIES TRUST
NOTES TO FINANCIAL STATEMENTS – (concluded)
| 6. | Capital Share Transactions |
As of June 30, 2017, 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, 2017 (Unaudited) | | | Year Ended
December 31, 2016 | |
| | | Shares | | | Amount | | | Shares | | | Amount | |
Shares Issued and Redeemed: | | | | | | | | | | | | | | | | |
Shares sold | | | 105,528,494 | | | $ | 105,528,494 | | | | 314,331,753 | | | $ | 314,331,753 | |
Shares issued in reinvestments of dividends | | | 147,201 | | | | 147,201 | | | | 474,397 | | | | 474,397 | |
Shares redeemed | | | (277,539,335 | ) | | | (277,539,335 | ) | | | (367,242,623 | ) | | | (367,242,623 | ) |
| | | | | | | | | | | | | | | | |
Net decrease | | | (171,863,640 | ) | | $ | (171,863,640 | ) | | | (52,436,473 | ) | | $ | (52,436,473 | ) |
| | | | | | | | | | | | | | | | |
Management’s evaluation of the impact of all subsequent events on the Fund’s financial statements was completed through the date the financial statements were issued and the following items were noted:
Effective July 1, 2017 the Fund pays Hewitt Associates a monthly fee calculated at an annual rate of 0.45% 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, brokerage commissions and extraordinary expenses) on an annual basis, exceed 0.85% 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%.
Effective July 31, 2017, the Trust and its sole series, the Fund was rebranded. On that date, all references in the prospectus and Statement of Additional Information to “Hewitt Series Trust” as the name of the Trust was replaced with “Alight Series Trust” or “Alight Series Trust (formerly known as Hewitt Series Trust)”, and all references in the prospectus and Statement of Additional Information to “Hewitt Money Market Fund” was replaced with “Alight Money Market Fund” or “Alight Money Market Fund (formerly known as Hewitt Money Market Fund)”. There are no other changes to the Trust or the Fund.
9
HEWITT SERIES TRUST
PROXY VOTING
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 December 31, 2016. 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).
10
HEWITT SERIES TRUST
ADDITIONAL INFORMATION
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.
11
TREASURY MONEY MARKET MASTER PORTFOLIO
PORTFOLIO INFORMATION
June 30, 2017 (Unaudited)
| | | | |
| Portfolio Composition | | Percent of
Net Assets | |
U.S. Treasury Obligations | | | 50 | % |
Repurchase Agreements | | | 43 | |
Other Assets Less Liabilities | | | 7 | |
| | | | |
Total | | | 100 | % |
| | | | |
12
TREASURY MONEY MARKET MASTER PORTFOLIO
SCHEDULE OF INVESTMENTS
June 30, 2017 (Unaudited)
(Percentages shown are based on Net Assets)
| | | | | | | | |
| U.S. Treasury Obligations | | Par
(000) | | | Value | |
U.S. Treasury Bills(a): | | | | | | | | |
0.63%, 7/13/17 | | $ | 108,535 | | | $ | 108,512,593 | |
0.84%, 7/20/17 | | | 593,680 | | | | 593,424,157 | |
0.63%, 8/10/17 | | | 100,000 | | | | 99,931,111 | |
0.68%, 8/24/17 | | | 80,000 | | | | 79,919,600 | |
0.85%, 9/07/17 | | | 55,775 | | | | 55,687,030 | |
0.92%, 9/28/17 | | | 96,386 | | | | 96,170,350 | |
0.97%, 10/12/17 | | | 81,570 | | | | 81,348,288 | |
0.96%, 10/19/17 | | | 58,000 | | | | 57,832,525 | |
0.97%, 10/26/17 | | | 102,000 | | | | 101,683,418 | |
0.99%, 11/02/17 | | | 135,000 | | | | 134,546,625 | |
1.03%, 11/09/17 | | | 40,000 | | | | 39,852,261 | |
1.03%, 11/16/17 | | | 7,715 | | | | 7,685,056 | |
1.09%, 12/07/17 | | | 57,245 | | | | 56,974,470 | |
1.12%, 12/14/17 | | | 197,985 | | | | 196,980,499 | |
1.14%, 12/21/17 | | | 400,000 | | | | 397,847,112 | |
1.15%, 12/28/17 | | | 30,000 | | | | 29,831,250 | |
U.S. Treasury Notes: | | | | | | | | |
0.88%, 7/15/17 | | | 105,255 | | | | 105,260,165 | |
0.50%, 7/31/17 | | | 65,955 | | | | 65,953,302 | |
0.88% – 4.75%, 8/15/17 | | | 13,635 | | | | 13,694,330 | |
0.63%, 8/31/17 | | | 25,520 | | | | 25,519,025 | |
1.00%, 9/15/17 | | | 130,000 | | | | 130,050,976 | |
1.17%, 10/31/17(b) | | | 59,036 | | | | 59,047,567 | |
0.88% – 4.25%, 11/15/17 | | | 205,415 | | | | 205,379,360 | |
0.88%, 1/31/18 | | | 49,900 | | | | 49,855,409 | |
1.27%, 1/31/18(b) | | | 158,320 | | | | 158,354,555 | |
3.50%, 2/15/18 | | | 50,355 | | | | 51,139,582 | |
0.75%, 2/28/18 | | | 27,365 | | | | 27,336,113 | |
1.00%, 3/15/18 | | | 65,000 | | | | 65,034,077 | |
2.88%, 3/31/18 | | | 50,000 | | | | 50,659,198 | |
1.19%, 4/30/18(b) | | | 259,030 | | | | 259,100,628 | |
1.17%, 7/31/18(b) | | | 52,020 | | | | 52,017,897 | |
1.17%, 10/31/18(b) | | | 143,455 | | | | 143,449,373 | |
1.14%, 1/31/19(b) | | | 56,535 | | | | 56,575,864 | |
1.07%, 4/30/19(b) | | | 117,720 | | | | 117,712,521 | |
Total U.S. Treasury Obligations – 50.0% | | | | 3,774,366,287 | |
| | | | | | | | |
| | | | | |
Value | |
Total Repurchase Agreements – 42.5% | | | $ | 3,213,493,000 | |
Total Investments (Cost – $6,987,859,287*) – 92.5% | | | | 6,987,859,287 | |
Other Assets Less Liabilities – 7.5% | | | | 562,606,559 | |
| | | | | | | | |
Net Assets – 100.0% | | | | | | $ | 7,550,465,846 | |
| | | | | | | | |
Notes to Schedule of Investments
| * | Cost for U.S. federal income tax purposes. |
| (a) | Rates are discount rates or a range of discount rates paid at the time of purchase. |
| (b) | Variable rate security. Rate as of period end. |
See Notes to Financial Statements.
13
TREASURY MONEY MARKET MASTER PORTFOLIO
SCHEDULE OF INVESTMENTS – (continued)
June 30, 2017 (Unaudited)
(Percentages shown are based on Net Assets)
Repurchase Agreements
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Repurchase Agreements | | | Collateral | |
| Counterparty | | Coupon
Rate | | | Purchase
Date | | | Maturity
Date | | | Par
(000) | | | at Value
(000) | | | Proceeds
including
Interest | | | Position | | Original Par | | | Position received, at
Value | |
Bank of Montreal | | | 1.06 | % | | | 6/30/17 | | | | 7/03/17 | | | $ | 113,993 | | | $ | 113,993 | | | $ | 114,003,069 | | | U.S. Treasury Obligations, 0.63% to 3.00%, due 1/31/19 to 11/15/44 | | $ | 113,989,700 | | | $ | 116,272,930 | |
Bank of Nova Scotia | | | 1.10 | % | | | 6/30/17 | | | | 7/03/17 | | | | 390,000 | | | | 390,000 | | | | 390,035,750 | | | U.S. Treasury Obligations, 0.13% to 3.38%, due 4/30/18 to 8/15/45 | | | 390,962,700 | | | | 397,836,525 | |
BNP Paribas Securities Corp. | | | 1.01 | % | | | 6/30/17 | | | | 7/03/17 | | | | 250,000 | | | | 250,000 | | | | 250,021,042 | | | U.S. Treasury Obligation, 2.13%, due 12/31/22 | | | 252,532,800 | | | | 255,000,045 | |
| | | 1.10 | % | | | 6/30/17 | | | | 7/03/17 | | | | 105,000 | | | | 105,000 | | | | 105,009,625 | | | U.S. Treasury Obligations, 0.00% to 3.50%, due 8/31/17 to 2/15/45 | | | 116,676,122 | | | | 107,100,002 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total BNP Paribas Securities Corp | | | $ | 355,000 | | | | | | | | | | | | | $ | 362,100,047 | |
Citigroup Global Markets, Inc. | | | 1.08 | %1 | | | 6/30/17 | | | | 7/03/17 | | | | 215,000 | | | | 215,000 | | | | 215,019,350 | | | U.S. Treasury Obligations, 1.00% to 6.25%, due 8/31/19 to 5/15/30 | | | 171,089,182 | | | | 219,300,077 | |
Credit Agricole Corp. | | | 1.06 | %1 | | | 6/30/17 | | | | 7/03/17 | | | | 595,000 | | | | 595,000 | | | | 595,052,558 | | | U.S. Treasury Obligations,
0.38% to 2.25%, due
1/31/19 to 11/15/24 | | | 592,788,089 | | | | 606,900,068 | |
HSBC Securities (USA), Inc. | | | 1.07 | % | | | 6/30/17 | | | | 7/03/17 | | | | 90,000 | | | | 90,000 | | | | 90,008,025 | | | U.S. Treasury Obligations, 2.00% to 2.50%, due 2/28/21 to 5/15/46 | | | 92,723,800 | | | | 91,801,529 | |
| | | 1.07 | %2 | | | 6/30/17 | | | | 7/03/17 | | | | 200,000 | | | | 200,000 | | | | 200,017,833 | | | U.S. Treasury Obligations, 1.63% to 2.50%, due 11/15/22 to 5/15/46 | | | 215,765,409 | | | | 204,002,762 | |
| | | 1.04 | % | | | 6/28/17 | | | | 7/05/17 | | | | 66,500 | | | | 66,500 | | | | 66,513,448 | | | U.S. Treasury Obligation, 2.00%, due 2/28/21 | | | 66,580,000 | | | | 67,830,396 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total HSBC Securities (USA), Inc. | | | $ | 356,500 | | | | | | | | | | | | | $ | 363,634,687 | |
Merrill Lynch, Pierce, Fenner & Smith, Inc. | | | 1.08 | % | | | 6/30/17 | | | | 7/03/17 | | | | 10,000 | | | | 10,000 | | | | 10,000,900 | | | U.S. Treasury Obligation, 2.13%, due 8/15/21 | | | 9,968,400 | | | | 10,200,013 | |
Mitsubishi UFJ Securities USA, Inc. | | | 1.05 | % | | | 6/30/17 | | | | 7/03/17 | | | | 250,000 | | | | 250,000 | | | | 250,021,875 | | | U.S. Treasury Obligations, 0.00% to 8.88%, due 9/30/17 to 5/15/45 | | | 285,332,600 | | | | 255,000,021 | |
Morgan Stanley & Co. LLC | | | 1.00 | % | | | 6/30/17 | | | | 7/03/17 | | | | 15,000 | | | | 15,000 | | | | 15,001,250 | | | U.S. Treasury Obligations, 2.38% to 8.88%, due 8/15/17 to 2/15/37 | | | 11,992,900 | | | | 15,300,002 | |
See Notes to Financial Statements.
14
TREASURY MONEY MARKET MASTER PORTFOLIO
SCHEDULE OF INVESTMENTS – (concluded)
June 30, 2017 (Unaudited)
(Percentages shown are based on Net Assets)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Repurchase Agreements | | | Collateral | |
| Counterparty | | Coupon
Rate | | | Purchase
Date | | | Maturity
Date | | | Par
(000) | | | at Value
(000) | | | Proceeds
including
Interest | | | Position | | Original Par | | | Position received, at
Value | |
Natixis North America LLC | | | 1.08 | %2 | | | 6/30/17 | | | | 7/03/17 | | | $ | 100,000 | | | $ | 100,000 | | | $ | 100,009,000 | | | U.S. Treasury Obligations, 1.38% to 8.13%, due 6/30/18 to 8/15/45 | | $ | 97,745,500 | | | $ | 102,000,004 | |
RBC Capital Markets LLC | | | 1.06 | % | | | 6/30/17 | | | | 7/03/17 | | | | 13,000 | | | | 13,000 | | | | 13,001,148 | | | U.S. Treasury Obligations, 0.00% to 4.63%, due 4/15/20 to 2/15/44 | | | 10,935,600 | | | | 13,260,005 | |
TD Securities (USA) LLC | | | 1.13 | % | | | 6/30/17 | | | | 7/03/17 | | | | 800,000 | | | | 800,000 | | | | 800,075,333 | | | U.S. Treasury Obligations, 0.00% to 4.38%, due 7/20/17 to 5/15/46 | | | 758,665,200 | | | | 816,000,002 | |
Total | | | $ | 3,213,493 | | | | | | | | | | | | | $ | 3,277,804,381 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 1 | Traded in a joint account. |
| 2 | Variable rate security. Rate as of period end and maturity is the date the principal owed can be recovered through demand. |
Fair Value Hierarchy as of Period End
Various inputs are used in determining the fair value of investments. For information about the Master Portfolio’s policy regarding valuation of investments, refer to the Notes to Financial Statements.
The following table summarizes the Master Portfolio’s investments categorized in the disclosure hierarchy:
| | | | | | | | | | | | | | | | |
| | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
Assets: | | | | | | | | | | | | | | | | |
Investments: | | | | | | | | | | | | | | | | |
Short-Term Securities1 | | | – | | | $ | 6,987,859,287 | | | | – | | | $ | 6,987,859,287 | |
| 1 | See above Schedule of Investments for values in each security type. |
During the six months ended June 30, 2017, there were no transfers between levels.
See Notes to Financial Statements.
15
TREASURY MONEY MARKET MASTER PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2017 (Unaudited)
| | | | |
ASSETS | |
Investments at value – unaffiliated1 | | $ | 3,774,366,287 | |
Repurchase agreements, at value2 | | | 3,213,493,000 | |
Cash | | | 1,526,916 | |
Receivables: | | | | |
Interest – unaffiliated | | | 4,609,330 | |
Investments sold | | | 558,595,139 | |
| | | | |
Total assets | | | 7,552,590,672 | |
| | | | |
LIABILITIES | |
Payables: | |
Investment advisory fees | | | 419,029 | |
Withdrawals to investors | | | 1,685,813 | |
Trustees’ fees | | | 10,847 | |
Professional fees | | | 9,137 | |
| | | | |
Total liabilities | | | 2,124,826 | |
| | | | |
NET ASSETS | | $ | 7,550,465,846 | |
| | | | |
NET ASSETS CONSIST OF | |
Investors’ capital | | | 7,550,465,846 | |
| | | | |
NET ASSETS | | $ | 7,550,465,846 | |
| | | | |
| |
1 Investments at cost – unaffiliated | | $ | 3,774,366,287 | |
| | | | |
2 Repurchase agreements at cost – unaffiliated | | $ | 3,213,493,000 | |
| | | | |
See Notes to Financial Statements.
16
TREASURY MONEY MARKET MASTER PORTFOLIO
STATEMENT OF OPERATIONS
Six Months Ended June 30, 2017 (Unaudited)
| | | | |
INVESTMENT INCOME | |
Interest – unaffiliated | | $ | 22,713,669 | |
| | | | |
EXPENSES | |
Investment advisory | | | 3,109,804 | |
Independent Trustees | | | 27,796 | |
Professional | | | 12,051 | |
| | | | |
Total expenses | | | 3,149,651 | |
Less fees waived by the Manager | | | (972,788 | ) |
| | | | |
Total expenses after fees waived | | | 2,176,863 | |
| | | | |
NET INVESTMENT INCOME | | | 20,536,806 | |
| | | | |
REALIZED GAIN | |
Net realized gain from investments – unaffiliated | | | 118,764 | |
| | | | |
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS | | $ | 20,655,570 | |
| | | | |
See Notes to Financial Statements.
17
TREASURY MONEY MARKET MASTER PORTFOLIO
STATEMENTS OF CHANGES IN NET ASSETS
| | | | | | | | |
| | | Six Months Ended
June 30, 2017
(Unaudited) | | | Year Ended
December 31, 2016 | |
INCREASE (DECREASE) IN NET ASSETS: | | | | | | | | |
Operations | |
Net investment income | | $ | 20,536,806 | | | $ | 16,164,773 | |
Net realized gain | | | 118,764 | | | | 727,811 | |
| | | | | | | | |
Net increase in net assets resulting from operations | | | 20,655,570 | | | | 16,892,584 | |
| | | | | | | | |
Capital Transactions | |
Proceeds from contributions | | | 48,609,982,944 | | | | 83,703,130,631 | |
Value of withdrawals | | | (47,147,238,044 | ) | | | (81,103,139,118 | ) |
| | | | | | | | |
Net increase in net assets derived from capital transactions | | | 1,462,744,900 | | | | 2,599,991,513 | |
| | | | | | | | |
NET ASSETS | |
Total increase in net assets | | | 1,483,400,470 | | | | 2,616,884,097 | |
Beginning of period | | | 6,067,065,376 | | | | 3,450,181,279 | |
| | | | | | | | |
End of period | | $ | 7,550,465,846 | | | $ | 6,067,065,376 | |
| | | | | | | | |
See Notes to Financial Statements.
18
TREASURY MONEY MARKET MASTER PORTFOLIO
FINANCIAL HIGHLIGHTS
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Six Months
Ended
June 30, 2017
(Unaudited) | | | Year Ended December 31, | |
| | | | 2016 | | | 2015 | | | 2014 | | | 2013 | | | 2012 | |
Total Return | |
Total return | | | 0.32 | %1 | | | 0.32 | % | | | 0.03 | % | | | 0.00 | % | | | 0.02 | % | | | 0.06 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Ratios to Average Net Assets | |
Total expenses | | | 0.10 | %2 | | | 0.10 | % | | | 0.10 | % | | | 0.10 | % | | | 0.10 | % | | | 0.10 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total expenses after fees waived | | | 0.07 | %2 | | | 0.07 | % | | | 0.07 | % | | | 0.06 | % | | | 0.06 | % | | | 0.07 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income | | | 0.66 | %2 | | | 0.31 | % | | | 0.04 | % | | | 0.00 | % | | | 0.02 | % | | | 0.08 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Supplemental Data | |
Net assets, end of period (000) | | $ | 7,550,466 | | | $ | 6,067,065 | | | $ | 3,450,181 | | | $ | 3,857,554 | | | $ | 2,738,199 | | | $ | 2,613,824 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
See Notes to Financial Statements.
19
TREASURY MONEY MARKET MASTER PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Unaudited)
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. Treasury Money Market Master Portfolio (a “Master Portfolio” and together, the “Master Portfolio”), is a series of MIP. The Master Portfolio is classified as diversified. MIP is organized as a Delaware statutory trust. The financial statements and these accompanying notes relate to one series of MIP.
Treasury Money Market Master Portfolio operates as a “government money market fund” under Rule 2a-7 under the 1940 Act. The Master Portfolio is not subject to liquidity fees or temporary suspensions of redemptions due to declines in the Master Portfolio’s weekly liquid assets.
The Master Portfolio, together with certain other registered investment companies advised by BlackRock Fund Advisors (the “Manager”) or its affiliates, are included in a complex of open-end funds referred to as the Equity-Liquidity Complex.
| 2. | Significant Accounting Policies: |
The financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”), which may require management to make estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. The Master Portfolio is considered an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies. Below is a summary of significant accounting policies:
Investment Transactions and Income Recognition: 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 an accrual basis.
Recent Accounting Standards: In March 2017, the Financial Accounting Standards Board issued Accounting Standards Update “Premium Amortization of Purchased Callable Debt Securities” which amends the amortization period for certain purchased callable debt securities. Under the new guidance, the premium amortization of purchased callable debt securities that have explicit, non-contingent call features and are callable at fixed prices will be amortized to the earliest call date. The guidance will be applied on a modified retrospective basis and is effective for fiscal years, and their interim periods, beginning after December 15, 2018. Management is currently evaluating the impact of this guidance to the Master Portfolio.
Indemnifications: In the normal course of business, the Master Portfolio enters into contracts that contain a variety of representations that provide general indemnification. The Master Portfolio’s maximum exposure under these arrangements is unknown because it involves future potential claims against the Master Portfolio, which cannot be predicted with any certainty.
Other: Expenses directly related to the Master Portfolio are charged to the Master Portfolio. Other operating expenses shared by several funds, including other funds managed by the Manager, are prorated among those funds on the basis of relative net assets or other appropriate methods.
20
TREASURY MONEY MARKET MASTER PORTFOLIO
NOTES TO FINANCIAL STATEMENTS – (continued)
Through May 31, 2016, the Master Portfolio had an arrangement with its custodian whereby credits were earned on uninvested cash balances, which could be used to reduce custody fees and/or overdraft charges. Credits previously earned have been utilized until December 31, 2016. Under current arrangements effective June 1, 2016, the Master Portfolio no longer earn credits on uninvested cash, and may incur charges on uninvested cash balances and overdrafts, subject to certain conditions.
| 3. | Investment Valuation and Fair Value Measurements: |
Investment Valuation Policies: U.S. 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 NAV per share at $1.00, although there is no assurance that it will be able to do so on a continuing basis.
Fair Value Hierarchy: Various inputs are used in determining the fair value of investments. These inputs to valuation techniques are categorized into a fair value hierarchy consisting of three broad levels for financial statement purposes as follows:
| | • | | Level 1 – Unadjusted price quotations in active markets/exchanges for identical assets or liabilities that the Master Portfolio has the ability to access |
| | • | | 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) |
The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3. The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the fair value hierarchy classification is determined based on the lowest level input that is significant to the fair value measurement in its entirety.
Changes in valuation techniques may result in transfers into or out of an assigned level within the hierarchy. In accordance with the Master Portfolio’s policy, transfers between different levels of the fair value 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 investments and is not necessarily an indication of the risks associated with investing in those securities.
21
TREASURY MONEY MARKET MASTER PORTFOLIO
NOTES TO FINANCIAL STATEMENTS – (continued)
| 4. | Securities and Other Investments: |
Repurchase Agreements: Repurchase agreements are commitments to purchase 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 eligible collateral subject to the agreement and in value no less than the agreed upon repurchase amount. Pursuant to the custodial undertaking associated with a tri-party repurchase arrangement, an unaffiliated third party custodian maintains accounts to hold collateral for the Master Portfolio and its counterparties. Typically, the Master Portfolio and counterparty are not permitted to sell, re-pledge or use the collateral absent a default by the counterparty or the Master Portfolio, respectively. The Master Portfolio, along with other registered investment companies advised by the Manager, may transfer uninvested cash into a single joint trading account which is then invested in one or more 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.
Repurchase agreements are entered into by the Master Portfolio under Master Repurchase Agreements (each, an “MRA”). The MRA permits the Master Portfolio, under certain circumstances including an event of default (such as bankruptcy or insolvency), to offset payables and/or receivables with collateral held by and/or posted to the counterparty. As a result, one single net payment is created. Bankruptcy or insolvency laws of a particular jurisdiction may impose restrictions on or prohibitions against such a right of offset in the event of the MRA counterparty’s bankruptcy or insolvency. Based on the terms of the MRA, the Master Portfolio receives securities as collateral with a market value in excess of the repurchase price at maturity. Upon a bankruptcy or insolvency of the MRA counterparty, the Master Portfolio would recognize a liability with respect to such excess collateral. The liability reflects the Master Portfolio’s obligation under bankruptcy law to return the excess to the counterparty.
| 5. | Investment Advisory Agreement and Other Transactions with Affiliates: |
The PNC Financial Services Group, Inc. is the largest stockholder and an affiliate of BlackRock, Inc. (“BlackRock”) for 1940 Act purposes.
Investment Advisory/Administration: MIP, on behalf of the Master Portfolio, entered into an Investment Advisory Agreement with the Manager, the Master Portfolio’s investment adviser, an indirect, wholly-owned subsidiary of BlackRock, to provide investment advisory services. The Manager is responsible for the management of the Master Portfolio’s portfolio and provides the 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 equal to 0.10% of the average daily value of the Master Portfolio’s net assets.
MIP, on behalf of the Master Portfolio, entered into an Administration Agreement with BlackRock Advisors, LLC (“BAL”), which has agreed to provide general administration services (other than investment advice and related portfolio activities). BAL, in consideration thereof, has agreed to bear all of the Master Portfolio’s ordinary operating 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.
22
TREASURY MONEY MARKET MASTER PORTFOLIO
NOTES TO FINANCIAL STATEMENTS – (continued)
BAL is not entitled to compensation for providing administration services to the Master Portfolio, for so long as BAL is entitled to compensation for providing administration services to corresponding feeder funds that invest substantially all of their assets in the Master Portfolio, or BAL (or an affiliate) receives investment advisory fees from the Master Portfolio.
Waivers/Reimbursements: The Manager contractually agreed to waive a portion of its investment advisory fees equal to the annual rate of 0.03% of the average daily value of the Master Portfolio’s net assets through April 30, 2018.The Manager has also voluntarily agreed to waive its investment advisory fees by the amount of investment advisory fees to enable the feeders that invest in the Master Portfolio to maintain minimum levels of daily net investment income. The Manager may discontinue the voluntary waiver at any time. For the six months ended June 30, 2017, the amounts waived are included in fees waived by the Manager in the Statement of Operations are as follows:
| | | | |
Treasury Money Market Master Portfolio | | $ | 932,941 | |
Interfund Lending: In accordance with an exemptive order (the “Order”) from the U.S. Securities and Exchange Commission, the Master Portfolio may participate in a joint lending and borrowing facility for temporary purposes (the “Interfund Lending Program”), subject to compliance with the terms and conditions of the Order, and to the extent permitted by the Master Portfolio’s investment policies and restrictions. The Master Portfolio is currently permitted to borrow and lend under the Interfund Lending Program.
A lending BlackRock fund may lend in aggregate up to 15% of its net assets, but may not lend more than 5% of its net assets to any one borrowing fund through the Interfund Lending Program. A borrowing BlackRock fund may not borrow through the Interfund Lending Program or from any other source more than 33 1/3% of its total assets (or any lower threshold provided for by the fund’s investment restrictions). If a borrowing BlackRock fund’s total outstanding borrowings exceed 10% of its total assets, each of its outstanding interfund loans will be subject to collateralization of at least 102% of the outstanding principal value of the loan. All interfund loans are for temporary or emergency purposes and the interest rate to be charged will be the average of the highest current overnight repurchase agreement rate available to a lending fund and the bank loan rate, as calculated according to a formula established by the Board.
During the period ended June 30, 2017, the Master Portfolio did not participate in the Interfund Lending Program.
Officers and Trustees: The fees and expenses of 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 Master Portfolio’s independent registered public accounting firm (together, the “independent expenses”) are paid directly by the Master Portfolio. BAL has contractually agreed to reimburse the Master Portfolio or provide an offsetting credit against the administration fees paid by the Master Portfolio in an amount equal to these independent expenses through April 30, 2018. For the six months ended June 30, 2017, the amount waived were as follows:
| | | | |
Treasury Money Market Master Portfolio | | $ | 39,847 | |
Certain officers and/or trustees of MIP are officers and/or directors of BlackRock or its affiliates.
23
TREASURY MONEY MARKET MASTER PORTFOLIO
NOTES TO FINANCIAL STATEMENTS – (continued)
| 6. | Income Tax Information: |
The Master Portfolio is classified as a partnership for U.S. 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 and unrealized gains and losses of the Master Portfolio. Therefore, no U.S. 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 U.S. 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 U.S. federal tax returns generally remains open for each of the four years ended December 31, 2016. 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 has analyzed tax laws and regulations and their application to the Master Portfolio as of June 30, 2017, inclusive of the open tax return years, and does not believe that there are any uncertain tax positions that require recognition of a tax liability in the Master Portfolio’s financial statements.
Inventories of municipal bonds held by brokers and dealers may decrease, which would lessen their ability to make a market in these securities. Such a reduction in market making capacity could potentially decrease the Master Portfolio’s ability to buy or sell bonds. As a result, the Master Portfolio may sell a security at a lower price, sell other securities to raise cash, or give up an investment opportunity, any of which could have a negative impact on performance. If the Master Portfolio needed to sell large blocks of bonds, those sales could further reduce the bonds’ prices and impact performance.
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 to meet all its obligations, including the ability to pay principal and interest when due (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 of securities owned by the Master Portfolio. Changes arising from the general economy, the overall market and local, regional or global political and/or social instability, as well as currency, interest rate and price fluctuations, may also affect the securities’ value.
Counterparty Credit Risk: Similar to issuer credit risk, the Master Portfolio may be exposed to counterparty credit risk, or the risk that an entity may fail to or be unable to perform on its commitments related to unsettled or open transactions. The Master Portfolio manages counterparty credit risk by entering into transactions only with counterparties that the Manager believes have the financial resources to honor their 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 approximately their value recorded in the Statement of Assets and Liabilities, less any collateral held by the Master Portfolio.
24
TREASURY MONEY MARKET MASTER PORTFOLIO
NOTES TO FINANCIAL STATEMENTS – (concluded)
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 additional disclosure in the financial statements.
25
TREASURY MONEY MARKET MASTER PORTFOLIO
DISCLOSURE OF INVESTMENT ADVISORY AGREEMENT
The Board of Trustees of Master Investment Portfolio (the “Master Fund”) met in person on April 20, 2017 (the “April Meeting”) and May 24-25, 2017 (the “May Meeting”) to consider the approval of the investment advisory agreement (the “Agreement”) between the Master Fund, on behalf of Money Market Master Portfolio and Treasury Money Market Master Portfolio (each, a “Master Portfolio” and collectively, the “Master Portfolios”), each a series of the Master Fund, and BlackRock Fund Advisors (the “Manager” or “BlackRock”), the Master Fund’s investment advisor. Each of BlackRock Cash Funds: Institutional and BlackRock Cash Funds: Treasury (each, a “Portfolio” and collectively, the “Portfolios”), each a series of BlackRock Funds III (the “Fund”), is a “feeder” fund that invests all of its investable assets in the corresponding Master Portfolio. Accordingly, the Board of Trustees of the Fund also considered the approval of the Agreement with respect to each Master Portfolio. For simplicity: (a) the Board of Trustees of the Master Fund and the Board of Trustees of the Fund are referred to herein collectively as the “Board,” and the members are referred to as “Board Members;” and (b) the shareholders of each Portfolio and the interest holders of each Master Portfolio are referred to as “shareholders.”
ACTIVITIES AND COMPOSITION OF THE BOARD
On the date of the May Meeting, the Board consisted of thirteen individuals, eleven of whom were not “interested persons” of the Master Fund or the 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 or the Fund, as pertinent, 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 Chair of the Board is an Independent Board Member. 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, a fifth one-day meeting to consider specific information surrounding the consideration of renewing the Agreement, and additional in-person and telephonic meetings as needed. In connection with this year-long deliberative process, the Board assessed, among other things, the nature, extent and quality of the services provided to the Master Portfolios and the Portfolios by BlackRock, BlackRock’s personnel and affiliates, including (as applicable) investment management; administrative and shareholder services; the oversight of fund service providers; marketing; risk oversight; compliance; and ability to meet 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 Portfolios, the Portfolios and their shareholders. BlackRock also furnished additional information to the Board in response to specific questions from the Board. This additional information is discussed further below in the section titled “Board Considerations in Approving the Agreement.” Among the matters the Board considered were: (a) investment performance for one-year, three-year,
26
TREASURY MONEY MARKET MASTER PORTFOLIO
DISCLOSURE OF INVESTMENT ADVISORY AGREEMENT – (continued)
five-year, ten-year and/or since inception periods, as applicable, against peer funds, applicable benchmark, and performance metrics, as applicable, as well as senior management’s and portfolio managers’ analysis of the reasons for any over-performance or underperformance relative to its peers, benchmarks, and other performance metrics, as applicable; (b) fees, including advisory, administration, if applicable, and other amounts paid to BlackRock and its affiliates by the Master Portfolios and/or the Portfolios for services; (c) the Master Portfolios’ and/or the Portfolios’ operating expenses and how BlackRock allocates expenses to the Master Portfolios and the Portfolios; (d) the resources devoted to, risk oversight of, and compliance reports relating to, implementation of each Master Portfolio’s and Portfolio’s investment objective(s), policies and restrictions, and meeting regulatory requirements; (e) the Master Fund’s and the Fund’s adherence to its respective 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 and/or the Fund’s valuation and liquidity procedures; (k) an analysis of management fees for products with similar investment mandates across the open-end fund, exchange-traded fund (“ETF”), closed-end fund, sub-advised mutual fund, separately managed account, collective investment trust, and institutional separate account product channels, as applicable, and the similarities and differences between these products and the services provided as compared to the Master Portfolios and/or the Portfolios; (l) BlackRock’s compensation methodology for its investment professionals and the incentives and accountability it creates, along with investment professionals’ investments in the fund(s) they manage; and (m) periodic updates on BlackRock’s business.
BOARD CONSIDERATIONS IN APPROVING THE AGREEMENT
The Approval Process: Prior to the April Meeting, the Board requested and received materials specifically relating to the Agreement. The Board is continuously engaged in a process with its independent legal counsel and BlackRock to review 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 Broadridge Financial Solutions, Inc. (“Broadridge”) on fees and expenses of each Master Portfolio and Portfolio, as applicable, as compared with a peer group of funds as determined by Broadridge (“Expense Peers”) and the investment performance of each Portfolio as compared with a peer group of funds as determined by Broadridge1; (b) information on the profits realized by BlackRock and its affiliates pursuant to the Agreement and a discussion of fall-out benefits to BlackRock and its affiliates; (c) a general analysis provided by BlackRock concerning investment management fees charged to other clients, such as institutional clients, sub-advised mutual funds, ETFs, closed-end funds and separately managed accounts under similar investment mandates, as well as the performance of such other clients, as applicable; (d) review of non-management fees; (e) the existence, impact and sharing of potential economies of scale; (f) a summary of aggregate amounts paid by each Master Portfolio and/or Portfolio to BlackRock; and (g) sales and redemption data regarding each Portfolio’s shares.
At the April Meeting, the Board reviewed materials relating to its consideration of the Agreement. As a result of the discussions that occurred during the April Meeting, and as a culmination of the Board’s year-long deliberative
27
| 1 | Funds are ranked by Broadridge in quartiles, ranging from first to fourth, where first is the most desirable quartile position and fourth is the least desirable. |
TREASURY MONEY MARKET MASTER PORTFOLIO
DISCLOSURE OF INVESTMENT ADVISORY AGREEMENT – (continued)
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 Meeting.
At the May Meeting, the Board of the Master Fund, including the Independent Board Members, approved the continuation of the Agreement between the Manager and the Master Fund with respect to each Master Portfolio for a one-year term ending June 30, 2018. The Board of the Fund, including the Independent Board Members, also considered the continuation of the Agreement with respect to each Master Portfolio and found the Agreement to be satisfactory. In approving the continuation of the Agreement, the Board of the Master Fund considered: (a) the nature, extent and quality of the services provided by BlackRock; (b) the investment performance of each Master Portfolio and Portfolio; (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 Portfolios and the Portfolios; (d) each Portfolio’s costs to investors compared to the costs of Expense Peers and performance compared to the relevant performance metrics as previously discussed; (e) the sharing of potential economies of scale; (f) fall-out benefits to BlackRock and its affiliates as a result of its relationship with the Master Portfolios and the Portfolios; and (g) other factors deemed relevant by the Board Members.
The Board also considered other matters it deemed important to the approval process, such as other payments made to BlackRock or its affiliates, securities lending and cash management, services related to the valuation and pricing of portfolio holdings of each 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 determinative, 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 each Portfolio. Throughout the year, the Board compared each Portfolio’s performance to the performance of a comparable group of mutual funds, relevant benchmark, and performance metrics, as applicable. The Board met with BlackRock’s senior management personnel responsible for investment activities, including the senior investment officers. The Board also reviewed the materials provided by each Master Portfolio’s portfolio management team discussing the pertinent Master Portfolio’s performance and the Master Portfolio’s investment objective(s), strategies and outlook.
The Board considered, among other factors, with respect to BlackRock: the number, education and experience of investment personnel generally and each Master Portfolio’s portfolio management team; BlackRock’s research capabilities; investments by portfolio managers in the funds they manage; portfolio trading capabilities; use of technology; commitment to compliance; credit analysis capabilities; risk analysis and oversight capabilities; and the 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 each Master Portfolio’s portfolio management team and BlackRock’s ability to attract and retain high-quality talent and create performance incentives.
In addition to investment advisory services, the Board considered the quality of the administrative and other non-investment advisory services provided to each Master Portfolio and Portfolio. BlackRock and its affiliates
28
TREASURY MONEY MARKET MASTER PORTFOLIO
DISCLOSURE OF INVESTMENT ADVISORY AGREEMENT – (continued)
provide the Master Portfolios and the Portfolios with certain administrative, shareholder and other services (in addition to any such services provided to the Master Portfolios and the Portfolios by third parties) and officers and other personnel as are necessary for the operations of the Master Portfolios and the Portfolios. In particular, BlackRock and its affiliates provide the Master Portfolios and the Portfolios with administrative services including, among others: (i) preparing disclosure documents, such as the prospectus, the summary prospectus (as applicable), the statement of additional information and periodic shareholder reports; (ii) oversight of daily accounting and pricing; (iii) preparing periodic filings with regulators; (iv) overseeing and coordinating the activities of other service providers; (v) organizing Board meetings and preparing the materials for such Board meetings; (vi) providing legal and compliance support; (vii) furnishing analytical and other support to assist the Board in its consideration of strategic issues such as the merger, consolidation or repurposing of certain open-end funds; and (viii) performing other administrative functions necessary for the operation of the Master Portfolios and the Portfolios, such as tax reporting, fulfilling regulatory filing requirements and call center services. The Board reviewed the structure and duties of BlackRock’s fund administration, shareholder services, and legal & compliance departments and considered BlackRock’s policies and procedures for assuring compliance with applicable laws and regulations.
| | B. | The Investment Performance of the Master Portfolios, the Portfolios and BlackRock |
The Board, including the Independent Board Members, also reviewed and considered the performance history of each Master Portfolio and Portfolio, as applicable. The Board noted that each Portfolio’s investment results correspond directly to the investment results of the corresponding Master Portfolio. In preparation for the April Meeting, the Board was provided with reports independently prepared by Broadridge, which included a comprehensive analysis of each Fund’s performance. The Board also reviewed a narrative and statistical analysis of the Broadridge data that was prepared by BlackRock. In connection with its review, the Board received and reviewed information regarding the investment performance of each Portfolio as compared to other funds in its applicable Broadridge category. The Board was provided with a description of the methodology used by Broadridge to select peer funds and periodically meets with Broadridge representatives to review its methodology. The Board was provided with information on the composition of the Broadridge performance universes and expense universes. The Board and its Performance Oversight and Contract Committee regularly review, and meet with Master Portfolio management to discuss, the performance of each Master Portfolio and Portfolio, as applicable, throughout the year.
In evaluating performance, the Board recognized that the performance data reflects a snapshot of a period as of a particular date and that selecting a different performance period could produce significantly different results. Further, the Board recognized that it is possible that long-term performance can be adversely affected by even one period of significant underperformance so that a single investment decision or theme has the ability to affect long-term performance disproportionately.
The Board noted that for each of the one-, three- and five-year periods reported, each of BlackRock Cash Funds: Institutional and BlackRock Cash Funds: Treasury ranked in the first quartile against its Broadridge Performance Universe. The Board reviewed the performance within the context of the low yield environment that has existed over the past several years.
The quartile standing of each Portfolio in its Broadridge peer group takes into account the Portfolio’s current yield only. BlackRock has reviewed with the Board that a money market fund can only be understood holistically,
29
TREASURY MONEY MARKET MASTER PORTFOLIO
DISCLOSURE OF INVESTMENT ADVISORY AGREEMENT – (continued)
accounting for current yield and risk. While the Board reviews each Master Portfolio’s current yield performance, it also examines the liquidity, duration, and credit quality of the Master Portfolio’s portfolio. In the Board’s view, BlackRock’s money market funds have performed well over the one-, three- and five-year periods given BlackRock’s emphasis on preserving capital and seeking as high a level of current income as is consistent with liquidity while simultaneously managing risk.
| | 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 Portfolios and the Portfolios |
The Board, including the Independent Board Members, reviewed each Master Portfolio’s contractual advisory fee rate compared with the other funds in the corresponding Portfolio’s Broadridge category. The contractual advisory fee rate is shown before taking into account any reimbursements or fee waivers. The Board also compared each Portfolio’s total expense ratio, as well as each Master Portfolio’s actual advisory fee rate, to those of other funds in the corresponding Portfolio’s Broadridge category. The total expense ratio represents a fund’s total net operating expenses, including any 12b-1 or non 12b-1 service fees. The total expense ratio gives effect to any expense reimbursements or fee waivers that benefit a fund, and the actual advisory fee rate gives effect to any advisory fee reimbursements or waivers that benefit a fund. The Board considered the services provided and the fees charged by BlackRock and its affiliates to other types of clients with similar investment mandates, as applicable, including institutional accounts and sub-advised mutual funds (including mutual funds sponsored by third parties).
The Board received and reviewed statements relating to BlackRock’s financial condition. The Board reviewed BlackRock’s profitability methodology and was also provided with a profitability analysis that detailed the revenues earned and the expenses incurred by BlackRock for services provided to the Master Portfolios and the Portfolios. The Board reviewed BlackRock’s profitability with respect to each Master Portfolio and Portfolio, as applicable, and other funds the Board currently oversees for the year ended December 31, 2016 compared to available aggregate profitability data provided for the prior two years. The Board reviewed BlackRock’s profitability with respect to certain other U.S. fund complexes managed by the Manager 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 the Manager, the types of funds managed, precision of expense allocations and business mix. As a result, calculating and comparing profitability at individual fund levels is difficult.
The Board noted that, in general, individual fund or product line profitability of other advisors is not publicly available. The Board reviewed BlackRock’s overall operating margin, in general, compared to that of certain 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.
In addition, the Board considered the cost of the services provided to the Master Portfolios and the Portfolios by BlackRock, and BlackRock’s and its affiliates’ profits relating to the management and distribution of the Master Portfolios and the Portfolios 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 of managing the Master Portfolios and the
30
TREASURY MONEY MARKET MASTER PORTFOLIO
DISCLOSURE OF INVESTMENT ADVISORY AGREEMENT – (continued)
Portfolios to the relevant Master Portfolio or Portfolio, as pertinent. The Board may receive and review information from independent third parties as part of its annual evaluation. The Board 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 further considered factors including but not limited to BlackRock’s commitment of time, assumption of risk and liability profile in servicing the Master Portfolios and the Portfolios in contrast to what is required of BlackRock with respect to other products with similar investment mandates across the open-end fund, ETF, closed-end fund, sub-advised mutual fund, separately managed account, collective investment trust and institutional separate account product channels, as applicable.
The Board noted that Money Market Master Portfolio’s contractual advisory fee rate ranked in the first quartile, and that the actual advisory fee rate and the corresponding Portfolio’s total expense ratio each ranked in the first quartile, relative to the corresponding Portfolio’s Expense Peers.
The Board noted that Treasury Money Market Master Portfolio’s contractual advisory fee rate ranked in the first quartile, and that the actual advisory fee rate and the corresponding Portfolio’s total expense ratio ranked in the third and second quartiles, respectively, relative to the corresponding Portfolio’s Expense Peers.
The Board reviewed each Master Portfolio’s/Portfolio’s expenses within the context of the low yield environment and consequent expense waivers and reimbursements. The Board also noted that BlackRock has contractually agreed to waive a portion of the advisory fees for each Master Portfolio. The Board further noted that BlackRock and its affiliates have contractually agreed to reimburse or otherwise compensate each Master Portfolio/Portfolio for the fees and expenses of the Independent Board Members, counsel to the Independent Board Members and the Master Portfolio’s/Portfolio’s independent registered public accounting firm. The Board additionally noted that, to enable each Master Portfolio/Portfolio to maintain minimum levels of daily net investment income, BlackRock and each Master Portfolio’s/Portfolio’s administrator have voluntarily agreed to waive a portion of its fees and/or reimburse the Master Portfolio’s/Portfolio’s operating expenses as necessary. This waiver and/or reimbursement may be discontinued at any time without notice.
The Board, including the Independent Board Members, considered the extent to which economies of scale might be realized as the assets of the Master Portfolios and the Portfolios increase, as well as the existence of expense caps, as applicable. The Board also considered the extent to which the Master Portfolios and the Portfolios benefit from such economies in a variety of ways and whether there should be changes in the advisory fee rate or breakpoint structure in order to enable the Master Portfolios and the Portfolios to more fully participate in these economies of scale. The Board considered each Master Portfolio’s asset levels and whether the current fee schedule was appropriate.
| | 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 Portfolios and the Portfolios, both tangible and intangible, such as BlackRock’s ability to leverage its investment professionals
31
TREASURY MONEY MARKET MASTER PORTFOLIO
DISCLOSURE OF INVESTMENT ADVISORY AGREEMENT – (concluded)
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 Portfolios and the Portfolios, 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.
In connection with its consideration of the Agreement, the Board also received information regarding BlackRock’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.
The Board noted the competitive nature of the open-end fund marketplace, and that shareholders are able to redeem their Portfolio shares if they believe that the pertinent Portfolio’s and/or Master Portfolio’s fees and expenses are too high or if they are dissatisfied with the performance of the Portfolio.
Conclusion
The Board of the Master Fund, including the Independent Board Members, approved the continuation of the Agreement between the Manager and the Master Fund, with respect to each Master Portfolio, for a one-year term ending June 30, 2018. Based upon its evaluation of all of the aforementioned factors in their totality, the Board of the Master Fund, including the Independent Board Members, was satisfied that the terms of the Agreement were fair and reasonable and in the best interest of each Master Portfolio and its shareholders. The Board of the Fund, including the Independent Board Members, also considered the continuation of the Agreement with respect to each Master Portfolio and found the Agreement to be satisfactory. In arriving at its decision to approve the Agreement, the Board of the Master Fund 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 Portfolios 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.
32
TREASURY MONEY MARKET MASTER PORTFOLIO
OFFICERS AND TRUSTEES
Rodney D. Johnson, Chair of the Board and Trustee
Susan J. Carter, Trustee
Collette Chilton, Trustee
Neil A. Cotty, Trustee
Cynthia A. Montgomery, Trustee
Joseph P. Platt, Trustee
Robert C. Robb, Jr., Trustee
Mark Stalnecker, Trustee
Kenneth L. Urish, Trustee
Claire A. Walton, Trustee
Frederick W. Winter, Trustee
Barbara G. Novick, Trustee
John M. Perlowski, Trustee, President and Chief Executive Officer
Thomas Callahan, Vice President
Jennifer McGovern, Vice President
Neal J. Andrews, Chief Financial Officer
Jay M. Fife, Treasurer
Charles Park, Chief Compliance Officer
Fernanda Piedra, Anti-Money Laundering Compliance Officer
Benjamin Archibald, Secretary
Investment Advisor
BlackRock Fund Advisors
San Francisco, CA 94105
Administrator
BlackRock Advisors LLC
Wilmington, DE 19809
Custodian and Accounting Agent
State Street Bank and Trust Company
Boston, MA 02111
Independent Registered Public
Accounting Firm
PricewaterhouseCoopers LLP
Philadelphia, PA 19103
Distributor
BlackRock Investments, LLC
New York, NY 10022
Legal Counsel
Sidley Austin LLP
New York, NY 10019
Address of the Trust/MIP
400 Howard Street
San Francisco, CA 945105
Transfer Agent
State Street Bank and
Trust Company
North Quincy, MA 20171
33
Hewitt Series Trust
Hewitt Money Market Fund
Semi-Annual Report
June 30, 2017
(Unaudited)
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/ Jeremy Fritz |
| | | | Jeremy Fritz |
| | | | President |
| | |
| Date: | | | | 8/29/17 |
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/ Jeremy Fritz |
| | | | Jeremy Fritz |
| | | | President |
| | |
| Date: | | | | 8/29/17 |
| | | | |
| By: | | | | /s/ Douglas S. Keith |
| | | | Douglas S. Keith |
| | | | Treasurer, Chief Financial Officer and Chief Compliance Officer |
| | |
| Date: | | | | 8/29/17 |
