This report and the financial statements contained herein are submitted for the general information of the shareholders of The Hillman Fund ("Fund"). The Fund's shares are not deposits or obligations of, or guaranteed by, any depository institution. The Fund's shares are not insured by the FDIC, Federal Reserve Board or any other agency, and are subject to investment risks, including possible loss of principal amount invested. Neither the Fund nor the Fund's distributor is a bank.
The Hillman Fund is distributed by Capital Investment Group, Inc., Member FINRA/SIPC, 17 100 E. Six Forks Road, Suite 200, Raleigh, NC, 27609. There is no affiliation between The Hillman Fund, including its principals, and Capital Investment Group, Inc.
This Semi-Annual Report was first distributed to shareholders on or about May 30, 2016.
The Hillman Fund
Notes to Financial Statements
(Unaudited)
1. | Organization and Significant Accounting Policies |
The Hillman Fund (the "Fund"), formerly known as The Hillman Focused Advantage Fund, is a series of the Hillman Capital Management Investment Trust (the "Trust"), which was organized on July 14, 2000 as a Delaware Business Statutory Trust and is registered under the Investment Company Act of 1940, (the "1940 Act"), as amended, as an open-ended management investment company. The Fund is a separate diversified series of the Trust.
The Fund commenced operations on December 29, 2000. The investment objective of the Fund is to seek long-term capital appreciation.
The following is a summary of significant accounting policies consistently followed by the Fund. The policies are in conformity with accounting principles generally accepted in the United States of America ("GAAP").
Investment Valuation
Securities listed on an exchange or quoted on a national market system are valued at the last sales price as of 4:00 p.m. Eastern Time. Securities traded in the NASDAQ over-the-counter market are generally valued at the NASDAQ Official Closing Price. Other securities traded in the over-the-counter market and listed securities for which no sale was reported on that date are valued at the most recent bid price. Securities and assets for which representative market quotations are not readily available (e.g., if the exchange on which the security is principally traded closes early or if trading of the particular security is halted during the day and does not resume prior to the Fund's net asset value calculation) or which cannot be accurately valued using the Fund's normal pricing procedures are valued at fair value as determined in good faith under policies approved by the Board of Trustees. A security's "fair value" price may differ from the price next available for that security using the Fund's normal pricing procedures. Instruments with maturities of 60 days or less are valued at amortized cost, which approximates market value.
Option Valuation
Exchange-listed options are valued at the mean of the bid and ask prices as reported on their primary exchange as of 4:00 p.m. Eastern Time (the "Valuation Time"). For purposes of determining the primary exchange for each exchange-traded portfolio option the following shall apply: (i) if the option is traded on the Chicago Board Options Exchange ("CBOE"), the CBOE shall be considered the primary exchange for such option, unless the Advisor instructs the Administrator in writing to use a different exchange as the primary exchange for such option; and (ii) if the option does not trade on the CBOE, the Advisor shall instruct the Administrator in writing as to the primary exchange for such option. An option may be valued using Fair Valuation when (i) the option does not trade on the valuation date; and (ii) reliable last quoted bid and ask prices as of the Valuation Time are not readily available.
Fair Value Measurement
Various inputs are used in determining the value of the Fund's investments. These inputs are summarized in the three broad levels listed below:
| a. | Level 1: quoted prices in active markets for identical securities |
| b. | Level 2: other significant observable inputs (including quoted prices for similar securities and identical securities in inactive markets, interest rates, credit risk, etc.) |
| c. | Level 3: significant unobservable inputs (including the Fund's own assumptions in determining fair value of investments) |
The availability of observable inputs can vary from security to security and is affected by a wide variety of factors, including, for example, the type of security, whether the security is new and not yet established in the marketplace, the liquidity of markets, and other characteristics particular to the security. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3.
(Continued)
The Hillman Fund
Notes to Financial Statements
(Unaudited)
The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement falls in its entirety, is determined based on the lowest level input that is significant to the fair value measurement in its entirety.
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The following table summarizes the inputs as of March 31, 2016 for the Fund's investments:
| | | |
| Investments in Securities (a) | | Total | | Level 1 | | Level 2 | | Level 3 |
Assets Common Stocks* | $ | 30,476,546 | $ | 30,476,546 | $ | - | $ | - |
| Short-Term Investment | | 1,976,744 | | 1,976,744 | | - | | - |
| Total Assets | $ | 32,453,290 | $ | 32,453,290 | $ | - | $ | - |
| | | | | | | | | |
Liabilities Options Written | $ | 250,525 | $ | - | $ | 250,525 | $ | - |
| Total Liabilities | $ | 250,525 | $ | - | $ | 250,525 | $ | - |
| | | | | | | | | |
(a) The Fund did not hold any Level 3 securities during the period. There were no transfers into or out of Level 1 and Level 2 during the year. It is the Fund's policy to recognize transfers into or out of Level 1 and Level 2 at the end of the reporting period.
*For a detailed breakout by sector, please refer to the Schedule of Investments.
Investment Transactions and Investment Income
Investment transactions are accounted for as of the date purchased or sold (trade date). Dividend income is recorded on the ex-dividend date. Interest income is recorded on the accrual basis and includes accretion and amortization of discounts and premiums using the effective interest method. Gains and losses are determined on the identified cost basis, which is the same basis used for Federal income tax purposes.
Expenses
The Administrator bears all operating expenses of the Fund not specifically assumed by the Fund.
Distributions
The Fund may declare and distribute dividends from net investment income (if any) annually. Distributions from capital gains (if any) are generally declared and distributed annually. Dividends and distributions to shareholders are recorded on ex-date.
Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in the net assets from operations during the reporting period. Actual results could differ from those estimates.
Federal Income Taxes
No provision for income taxes is included in the accompanying financial statements, as the Fund intends to distribute to shareholders all taxable investment income and realized gains and otherwise comply with Subchapter M of the Internal Revenue Code applicable to regulated investment companies.
The Hillman Fund
Notes to Financial Statements
(Unaudited)
Option Writing
When the Fund writes an option, an amount equal to the premium received by the Fund is recorded as a liability and is subsequently adjusted to the current fair value of the option written. Premiums received from writing options that expire unexercised are treated by the Fund on the expiration date as realized gains from options written. The difference between the premium and the amount paid on effecting a closing purchase transaction, including brokerage commissions, is also treated as a realized gain or loss (depending on if the premium is more or less than the amount paid for the closing purchase transaction). If a call option is exercised, the premium is added to the proceeds from the sale of the underlying security in determining whether the Fund has realized a gain or loss. If a put option is exercised, the premium reduces the cost basis of the securities purchased by the Fund. The Fund, as the writer of an option, bears the market risk of an unfavorable change in the price of the security underlying the written option. Written options are non-income producing securities.
A summary of option contracts written by the Fund during the period ended March 31, 2016 were as follows:
| | | Call Options | | | | Put Options | |
| | Number of Contracts | | Premiums Received | | Number of Contracts | | Premiums Received |
Options Outstanding, Beginning of Period | - | | $ | - | | 480 | | $ | 53,565 |
| Options written | 1,622 | | 186,195 | | 3,690 | | 362,022 |
| Options closed | - | | - | | - | | - |
| Options exercised | (987) | | (77,341) | | (1,179) | | (117,447) |
| Options expired | (300) | | (36,234) | | (1,931) | | (195,018) |
| Options Outstanding, End of Period | 335 | | $ | 75,620 | | 1,060 | | $ | 103,122 |
Derivative Financial Instruments
The Fund may invest in derivative financial instruments (derivatives) in order to manage risk or gain exposure to various other investments or markets. Derivatives may contain various risks including the potential inability of the counterparty to fulfill their obligations under the terms of the contract, the potential for an illiquid secondary market, and the potential for market movements which may expose the Fund to gains or losses in excess of the amounts shown on the Statement of Assets and Liabilities.
Derivatives are marked to market daily based upon quotations from market makers or the Fund's independent pricing services and the Fund's net benefit or obligation under the contract, as measured by the fair market value of the contract, is included in the net assets. Realized gain and loss and unrealized appreciation and depreciation on these derivatives for the year are included in the Statement of Operations and serve as an indicator of the volume of derivative activity in the Fund.
The table above discloses the derivative instruments outstanding as of March 31, 2016.
The following table sets forth the effect of the derivative instruments on the Statement of Assets and Liabilities as of March 31, 2016:
| Derivative Type | Location | | Value |
| Options Written | Liabilities-Options written, at value | | $ 250,525 |
The Hillman Fund
Notes to Financial Statements
(Unaudited)
The following table sets forth the effect of the option contracts on the Statement of Operations for the period ended March 31, 2016:
| Derivative Type | Location | Gains (Losses) |
| Equity Contracts – written options | Net realized gain from options written | $ 231,252 |
| | | |
| Equity Contracts – written options | Change in unrealized depreciation on options written | $ (46,235) |
The following table presents the Fund's liabilities available for offset under a master netting arrangement of collateral pledged as of March 31, 2016.
Gross Amounts of Assets Presented in the Statement of Assets & Liabilities |
| | Gross Amounts of Recognized Liabilities | Financial Instruments Pledged | Cash Collateral Pledged | Net Amount of Assets |
Description of Liability: | | | | |
Options Written | $250,525 | $250,525 | $ - | $ - |
Total | $250,525 | $250,525 | $ - | $ - |
| | | | | |
2. | Transactions with Affiliates |
Advisor
The Fund pays monthly advisory fees to Hillman Capital Management, Inc. (the "Advisor") based upon the average daily net assets and calculated at an annual rate of 1.00%. For the period ended March 31, 2016, the Fund incurred advisory fees in the amount of $169,965.
Administrator
Fund Accounting and Administration Agreement: The Nottingham Company ("Administrator") provides the Fund with administrative, fund accounting, and compliance services. The Administrator receives compensation from the Fund at a maximum annual rate of 0.499%, with lower fees at higher asset levels, and is responsible for the coordination and payment of vendor services and other Fund expenses for such compensation. Pursuant to this arrangement, the Administrator pays the following expenses: (i) compensation and expenses of any employees of the Trust and of any other persons rendering any services to the Fund; (ii) clerical and shareholder service staff salaries; (iii) office space and other office expenses; (iv) fees and expenses incurred by the Fund in connection with membership in investment company organizations; (v) fees and expenses of counsel to the Trustees who are not interested persons of the Fund and Trust; (vi) fees and expenses of counsel to the Fund and Trust engaged to assist with preparation of Fund and Trust documents and filings and provide other ordinary legal services; (vii) fees and expenses of independent public accountants to the Fund, including fees and expense for tax preparation; (viii) expenses of registering shares under federal and state securities laws; (ix) insurance expenses; (x) fees and expenses of the custodian, shareholder servicing, dividend disbursing and transfer agent, administrator, distributor, and accounting and pricing services agents of the Fund; (xi) compensation for a chief compliance officer for the Trust; (xii) expenses, including clerical expenses, of issue, sale, redemption, or repurchase of shares of the Fund; (xiii) the cost of preparing and distributing reports and notices to shareholders; (xiv) the cost of printing or preparing prospectuses and statements of additional information for delivery to the Fund's current shareholders; (xv) the cost of printing or preparing documents, statements or reports to shareholders; and (xvi) other expenses not specifically assumed by the Fund or Advisor. The Administrator cannot recoup from the Fund any Fund expenses in excess of the administration fees payable under the Fund Accounting and Administration Agreement. For the period ended March 31, 2016, the Fund incurred administration fees in the amount of $84,812.
(Continued)
The Hillman Fund
Notes to Financial Statements
(Unaudited)
Operating Plan: The Advisor has entered into an Operating Plan with the Administrator under which it has agreed make the following payments to the Administrator: (i) when the Fund's assets are below $40 million, the Advisor pays the Administrator a fee based on the daily average net assets of the Fund; and (ii) when the consolidated fee collected by the Administrator is less than a designated minimum operating cost, then the Advisor pays the Administrator a fee that makes up the difference. The Advisor is also obligated to pay the following Fund expenses under the Operating Plan: (i) marketing, distribution, and servicing expenses related to the sale or promotion of Fund shares that the Fund is not authorized to pay pursuant to the Investment Company Act; (ii) expenses incurred in connection with the organization and initial registration of shares of the Fund; (iii) expenses incurred in connection with the dissolution and liquidation of the Fund; (iv) expenses related to shareholder meetings and proxy solicitations; (v) fees and expenses related to legal, auditing, and accounting services that are outside of the scope of ordinary services; and (vi) hiring employees and retaining advisers and experts as contemplated by Rule 0-1(a)(7)(vii) of the Investment Company Act.
The Operating Plan may be terminated by either party at the conclusion of the then current term upon: (i) written notice of non-renewal to the other party not less than sixty days prior to the end of the term, or (ii) mutual written agreement of the parties. The Advisor cannot recoup from the Fund any amounts paid by the Advisor to the Administrator under the Operating Plan. If the Operating Plan is terminated when the Fund is at lower asset levels, the Administrator would likely need to terminate the Fund Accounting and Administration Agreement in order to avoid incurring expenses without reimbursement from the Advisor. Unless other expense limitation arrangements were put in place, the Fund's expenses would likely increase.
Compliance Services
Cipperman Compliance Services, LLC provides services as the Trust's Chief Compliance Officer for monitoring and testing the policies and procedures of the Trust in conjunction with requirements under Rule 38a-1 of the 1940 Act. Cipperman Compliance Services, LLC is entitled to receive compensation from the Administrator pursuant to the Compliance Services agreement with the Fund.
Transfer Agent
Nottingham Shareholder Services, LLC (the "Transfer Agent") serves as transfer, dividend paying, and shareholder servicing agent for the Fund. For its services, the Transfer Agent is entitled to receive compensation from the Administrator pursuant to the Administrator's fee arrangements with the Fund.
Distributor
Capital Investment Group, Inc. (the "Distributor") serves as the Fund's principal underwriter and distributor. For its services, the Distributor is entitled to receive compensation from the Administrator pursuant to the Administrator's fee arrangements with the Fund.
Certain officers of the Trust may also be officers of the Administrator.
3. | Purchases and Sales of Investment Securities |
For the period ended March 31, 2016, the aggregate cost of purchases and proceeds from sales of investment securities (excluding short-term securities) were as follows:
Purchases of Securities | | Proceeds from Sales of Securities |
| $6,610,911 | | $10,244,269 |
There were no long-term purchases or sales of U.S Government Obligations during the period ended March 31, 2016.
Distributions are determined in accordance with Federal income tax regulations, which differ from GAAP, and, therefore, may differ significantly in amount or character from net investment income and realized gains for financial reporting purposes. Financial reporting records are adjusted for permanent book/tax differences to reflect tax character but are not adjusted for temporary differences. Permanent differences do not have an effect on the net asset values of the Fund.
The Hillman Fund
Notes to Financial Statements
(Unaudited)
Management reviewed the Fund's tax positions to be taken on Federal income tax returns for the open tax years of 2013, 2014, 2015, and as of and during the period ended March 31, 2016, and determined that the Fund does not have a liability for uncertain tax positions. The Fund recognizes interest and penalties, if any, related to unrecognized tax benefits as income tax expense in the Statement of Operations. During the period, the Fund did not incur any interest or penalties.
Distributions during the period or fiscal year ended were characterized for tax purposes as follows:
| | Period Ended March 31, 2016 | Year Ended September 30, 2015 |
| Ordinary Income | $185,373 | $155,724 |
At March 31, 2016, the tax-basis cost of investments and components of distributable earnings (deficit) were as follows:
| Cost of Investments | | $ 32,608,111 |
| | | |
| Unrealized Appreciation | | 3,385,664 |
| Unrealized Depreciation | | (3,791,010) |
| Net Unrealized Depreciation | $ | (405,346) |
| | | |
| | | | | | |
5. | Commitments and Contingencies |
Under the Trust's organizational documents, its officers and Trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund enters into contracts with its vendors and others that provide for general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund. However, based on experience, the Fund expects the risk of loss to be remote.
The Fund has evaluated the need for disclosures and/or adjustments resulting from subsequent events through the date of issuance of these financial statements. This evaluation did not result in any subsequent events that necessitated disclosures and/or adjustments.
The Hillman Fund
Additional Information
(Unaudited)
1. | Proxy Voting Policies and Voting Record |
A copy of the Trust's Proxy Voting and Disclosure Policy and the Advisor's Proxy Voting and Disclosure Policy are included as Appendix B to the Fund's Statement of Additional Information and are available, (1) without charge, upon request, by calling 800-773-3863 and (2) on the Securities and Exchange Commission's ("SEC") website at sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 will be available (1) without charge, upon request, by calling the Fund at the number above and (2) on the SEC's website at sec.gov.
2. | Quarterly Portfolio Holdings |
The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Fund's Forms N-Q is available on the SEC's website at sec.gov. You may review and make copies at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 800-SEC-0330. You may also obtain copies without charge, upon request, by calling the Fund at 800-773-3863.
We are required to advise you within 60 days of the Fund's fiscal year-end regarding the Federal tax status of certain distributions received by shareholders during each fiscal year. The following information is provided for the Fund's fiscal six month period ended March 31, 2016.
During the period, no long-term capital gain distributions were paid from the Fund.
Dividend and distributions received by retirement plans such as IRAs, Keogh-type plans, and 403(b) plans need not be reported as taxable income. However, many retirement plans may need this information for their annual information meeting.
4. | Schedule of Shareholder Expenses |
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, reinvested dividends, or other distributions; redemption fees; and exchange fees; and (2) ongoing costs, including management fees; distribution [and/or service] (12b-1) fees; and other Fund expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual 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 October 1, 2015 through March 31, 2016.
Actual Expenses – The first line of 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 (e.g., an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line 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 of 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.
(Continued)
The Hillman Fund
Additional Information
(Unaudited)
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), redemption fees, or exchange fees. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
| | Beginning Account Value October 1, 2015 | Ending Account Value March 31, 2016 | Expenses Paid During Period* |
Actual Hypothetical (5% annual return before expenses) | | | |
| $1,000.00 | $ 1,091.90 | $7.87 |
| $1,000.00 | $ 1,017.55 | $7.59 |
*Expenses are equal to the average account value over the period multiplied by the Fund's annualized expense ratio of 1.50%, multiplied by 183/366 (to reflect the one-half year period).
