* The gross expense ratio shown is from the Fund's prospectus dated March 30, 2015.
MAI Energy Infrastructure and MLP Fund
Notes to Financial Statements
1. Organization and Significant Accounting Policies
The MAI Energy Infrastructure and MLP Fund (the "Fund") is a series of the Leeward Investment Trust (the "Trust"). The Trust, originally the Hanna Investment Trust, was organized as a Delaware statutory trust on July 30, 2010. The Hanna Investment Trust was subsequently named the Vertical Capital Investors Trust on February 7, 2014. The current name of the Trust, known as the Leeward Investment Trust, was effective on July 1, 2015. The Trust is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end management investment company.
The Fund is a separate non-diversified series of the Trust and commenced operations on December 16, 2014. The investment objective of the Fund is to seek long-term capital appreciation and current income through a diversified portfolio. The Fund seeks to achieve its investment objective by investing primarily in investments in energy infrastructure and master limited partnerships ("MLP").
The Fund currently has an unlimited number of authorized shares, which are divided into two classes - Institutional Class Shares and Advisor Class Shares. Each class of shares has equal rights as to assets of the Fund, and the classes are identical except that the Advisor Class Shares are subject to distribution and service fees which are further discussed in Note 3. Income, expenses (other than distribution and service fees), and realized and unrealized gains or losses on investments are allocated to each class of shares based upon its relative net assets. All classes have equal voting privileges, except where otherwise required by law or when the Board of Trustees ("Trustee") determines that the matter to be voted on affects only the interests of the shareholders of a particular class.
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"). The Fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board ("FASB") Accounting Standards Codification Topic 946 Financial Services – Investment Companies.
Investment Valuation
All investments in securities are recorded at their estimated fair value, as described below (Fair Value Measurement).
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:
Level 1: quoted prices in active markets for identical securities
Level 2: other significant observable inputs (including quoted prices for similar securities and identical securities in inactive markets, interest rates, credit risk, etc.)
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.
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.
A description of the valuation techniques applied to the Fund's major categories of investments measured at fair value on a recurring basis follows.
(Continued)
MAI Energy Infrastructure and MLP Fund
Notes to Financial Statements
Equity securities (common stock, preferred stock, exchange-traded products). 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 (the "OTC") 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. To the extent these securities are actively traded and valuation adjustments are not applied, they are categorized in level 1 of the fair value hierarchy. Preferred stock and other equities traded on inactive markets or valued by reference to similar instruments are categorized in level 2.
Corporate bonds. Debt securities may be valued at prices supplied by the Fund's pricing agent based on broker or dealer supplied valuations or matrix pricing, a method of valuing securities by reference to the value of other securities with similar characteristics, such as rating, interest rate, and maturity. Most corporate bonds are categorized in level 2 of the fair value hierarchy.
Option contracts. Option contracts listed on an exchange or quoted on a national market system are valued at the mean of the most recent bid and ask prices as of 4:00 p.m. Eastern Time. Option contracts for which no sale was reported on that date are valued at the mean of the most recent ask price and zero. To the extent these contracts are actively traded and valuation adjustments are not applied, they are categorized in level 1 of the fair value hierarchy. Option contracts traded on inactive markets or valued by reference to similar instruments are categorized in level 2 of the fair value hierarchy. (See Note 4 for additional disclosure on Derivative Financial Instruments.)
Limited Partnerships. The Fund may invest in limited partnerships ("LPs"). LPs 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. LPs traded in the over-the-counter market and LPs for which no sale was reported on that date are valued at the most recent bid price. To the extent the LPs are actively traded and valuation adjustments are not applied, they are categorized in level 1 of the fair value hierarchy. To the extent the LPs are traded on inactive markets or valued by reference to similar instruments, they are categorized in level 1 of the fair value hierarchy.
Master limited partnerships. The Fund may invest in master limited partnerships ("MLPs"). MLPs are limited partnerships that are publicly traded on an exchange. It combines the tax benefits of a limited partnership with the liquidity of publicly traded securities. MLPs are valued at their respective net asset values as reported by the partnership. Most MLPs are categorized in level 1 of the fair value hierarchy.
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 November 30, 2015 for the Fund's assets measured at fair value:
| MAI Energy Infrastructure and MLP Fund | | |
| Investments in Securities (a) | | Total | | Level 1 | | Level 2 | | Level 3 |
| Assets | | | | | | | | |
| Common Stocks (b) | $ | 1,042,444 | $ | 1,042,444 | $ | - | $ | - |
| Corporate Bond | | 114,550 | | - | | 114,550 | | - |
| Limited Partnerships | | 475,535 | | 475,535 | | - | | - |
| Master Limited Partnerships | | 251,881 | | 251,881 | | - | | - |
| Total Assets | $ | 1,884,410 | $ | 1,769,860 | $ | 114,550 | $ | - |
| | | | | | | | | |
| (a) | The Fund had no significant transfers into or out of Level 1, 2, or 3 during the period from December 16, 2014 (Date of Initial Public Investment) through November 30, 2015. It is the Fund's policy to record transfers at the end of the period. |
| (a) | Refer to the Schedule of Investments for a breakdown by Sector. |
Concentrations of Risk
The Fund seeks to achieve its investment objective by investing primarily in shares of MLPs and the energy infrastructure industry. As a result of the Fund investing primarily in the energy industry, it will, therefore, be susceptible to adverse economic, environmental or regulatory occurrences affecting the energy industry. The principal risks of investing in the Fund include: MLP risk, industry specific risk, energy industry concentration risks, concentration risk, liquidity risk, equity securities of MLPs risk, investment company and Regulated Investment Company ("RIC") compliance risk, MLP tax risk, regulatory risk, model risk, general market risk, sector risk, cash flow risk, and new fund risk.
(Continued)
MAI Energy Infrastructure and MLP Fund
Notes to Financial Statements – Continued
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/amortization of discounts and premiums. Realized gains and losses are determined on the identified cost basis, which is the same basis used for Federal income tax purposes. Payments received from certain investments held by the Fund, like the MLPs, may be comprised of dividends, capital gains, and return of capital. The Fund estimates the expected classification of such payments, which was 100% for the period ended November 30, 2015. The payments may be reclassified upon receipt of information from the issuer. Reclassifications of return of capital as of November 30, 2015 are disclosed in the Statement of Operations.
Expenses
The Fund bears expenses incurred specifically on its behalf as well as a portion of Trust level expenses. Fund expenses are allocated based on the average net assets of each share class. Trust level expenses are allocated equally among each Fund in the Trust.
Distributions
The Fund may declare and distribute dividends from net investment income (if any), quarterly. 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 the 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.
2. Transactions with Related Parties and Service Providers
Advisor
For the period from December 16, 2014 (Date of Initial Public Investment) through June 30, 2015, Vertical Capital Asset Management, LLC ("VCAM") served as the advisor to the Fund. During this period, MAI Capital Management, LLC served as the Sub-Advisor to the Fund. The Fund pays a monthly fee to the Advisor calculated at the annual rate of 1.00% of the Fund's average daily net assets. For the period from December 16, 2014 (Date of Initial Public Investment) through June 30, 2015, $41,798 in advisory fees were incurred by the Fund, and all fees were waived by VCAM.
Effective July 1, 2015, VCAM tendered its resignation as advisor to the Fund. MAI Capital Management, LLC (the "Advisor" or "MAI") would continue to provide advisory services to the Fund and would serve as an interim investment advisor to the Fund, following approval from the shareholders of the Fund. For the period from July 1, 2015 through November 30, 2015, $35,497 in advisory fees were incurred by the Fund, and all fees were waived by the Advisor.
VCAM and MAI have each entered into a contractual agreement (the "Expense Limitation Agreement") with the Trust, on behalf of the Fund, under which it has agreed to waive or reduce its fees and to assume other expenses of the Fund, if necessary, in amounts that limit the Fund's total operating expenses (exclusive of interest, taxes, brokerage commissions, borrowing costs, fees and expenses of other investment companies in which the Fund invests, other expenditures which are capitalized in accordance with GAAP, other extraordinary expenses not incurred in the ordinary course of the Fund's business, and amounts, if any, payable under a Rule 12b-1 distribution plan) to not more than 1.50% of the average daily net assets of the Fund for the current fiscal period. The current term of the Expense Limitation Agreement remains in effect until the Fund liquidates on December 23, 2015 (see Note 5). For the period from December 16, 2014 (Date of Initial Public Investment) through June 30, 2015, VCAM reimbursed the Fund for $59,847. For the period from July 1, 2015 through November 30, 2015, the Advisor reimbursed the Fund for $88,457. The Advisor cannot recoup from the Fund any amounts paid by the Advisor under the Expense Limitation Agreement.
(Continued)
MAI Energy Infrastructure and MLP Fund
Notes to Financial Statements – Continued
Administrator
The Fund pays a monthly fee to The Nottingham Company (the "Administrator") based upon the average daily net assets of the Fund and is subject to a minimum of $2,000 per month. The Fund paid $23,034 to the Administrator for the fiscal period ended November 30, 2015. The payable balance due to the Administrator as of the period ended November 30, 2015 was $66.
Fund Accounting Services
The Fund pays a monthly fee to The Nottingham Company as its Fund Accounting Services Provider. Under the terms of the Fund Accounting and Administration Agreement, the Fund Accounting Service Provider calculates the daily net asset value per share and maintains the financial books and records for the Fund. The Fund paid $32,265 to the Administrator for the fiscal period ended November 30, 2015 for its Fund Accounting services.
Compliance Services
Cipperman Compliance Services, LLC provides services as the Trust's Chief Compliance Officer. Cipperman Compliance Services, LLC is entitled to receive customary fees from the Fund for their services pursuant to the Compliance Services agreement with the Fund. During the fiscal period ended November 30, 2015, the Fund incurred $21,638 in compliance fees.
Transfer Agent
The Nottingham Shareholder Services, LLC ("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 Fund pursuant to the Transfer Agent's fee arrangements with the Trust. The Fund paid $25,766 to the Transfer Agent for the fiscal period ended November 30, 2015.
Distributor
Capital Investment Group, Inc. (the "Distributor") serves as the Fund's principal underwriter and distributor. The Distributor receives $5,000 per year paid in monthly installments for services provided and expenses assumed. The Fund incurred $6,694 of fees by Capital Investment Group, Inc. for the fiscal period ended November 30, 2015.
Trustees
The Board of Trustees consists of one Independent Trustee who also serves as the Chairman of the Board of Trustees. For the period from December 16, 2014 (Date of Initial Public Investment) through November 30, 2015, the Fund incurred $6,708 in Trustee fees. Certain officers of the Fund are also officers of the Administrator, Transfer Agent, and the Advisor.
3. Distribution and Service Fees
The sole Trustee, who is not an "interested person" of the Trust as defined in the 1940 Act and who has no direct or indirect financial interest in such plan or in any agreement related to such plan, adopted a distribution plan pursuant to Rule 12b-1 of the 1940 Act (the "Plan"). The 1940 Act regulates the manner in which a regulated investment company may assume expenses of distributing and promoting the sales of its shares and servicing of its shareholder accounts. The Plan provides that the Advisor Class Shares may incur certain expenses, which may not exceed 0.25% per annum, respectively, of the average daily net assets of the Advisor Class for each year elapsed subsequent to adoption of the Plan, for payment to the Distributor and others for items such as advertising expenses, selling expenses, commissions, travel or other expenses reasonably intended to result in sales of shares of the Advisor Class, or support servicing of shareholder accounts. For the period ended November 30, 2015, $692 in fees were incurred by the Advisor Class Shares. The payable balance for distribution and service fees for the Advisor Class Shares as of the period ended November 30, 2015 was $25.
(Continued)
MAI Energy Infrastructure and MLP Fund
Notes to Financial Statements – Continued
4. 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 value of the contract, is included in the net assets. Realized gain (loss) and unrealized appreciation (depreciation) on these derivatives for the period are included in the Statement of Operations. The contract amounts listed in the table below serve as an indicator of the volume of derivative activity in the Fund.
Writing Covered Call Options and Purchasing Put Options
The Fund will not write call options on securities unless the underlying securities are held in the Fund's portfolio, or if the Fund is entitled to them in deliverable forms without further payment or after segregating cash in the amount of any further payment.
The Fund will not purchase put options on securities unless the underlying securities are held in the Fund's portfolio.
Option contracts ("options") are rights to buy or sell a security for a specified price during a specified period. The seller of the option receives a payment, or premium, from the buyer, which the seller keeps regardless of whether the buyer uses (or exercises) the option. Options can trade on exchanges or in the OTC market and may be bought or sold on a wide variety of securities.
The Fund may buy and/or sell the following types of options:
Call Options – A call option gives the buyer (holder) the right to buy the underlying security from the seller (writer) of the option. The Fund may use call options in the following ways:
| 1. | Buy call options on a security in anticipation of an increase in the value of the underlying security. |
| 2. | Sell call options on a security to generate income from premiums, and in anticipation of a decrease in the value of the underlying security. If the Fund writes a call option on a security that it owns and the call options is exercised, the Fund must deliver the underlying security to the buyer and foregoes any possible profit from an increase in the market price of the underlying security over the exercise price plus the premium received. |
Put Options – A put options gives the holder the right to sell the security to the writer of the option. The Fund may buy or sell put options on a security in anticipation of a decrease in the value of the underlying security. The Fund cannot currently write put options.
The Fund may also buy, sell, or write options, as needed, to close out existing option positions.
(Continued)
MAI Energy Infrastructure and MLP Fund
Notes to Financial Statements – Continued
A summary of option contracts written by the Fund during the initial period ended November 30, 2015 were as follows:
| | | Written Call Options | |
| | Number of Contracts | | Premiums Received |
| Options Outstanding, Beginning of Period | - | | $ | - |
| Options written | 628 | | | 129,930 |
| Options closed | (234) | | | (55,277) |
| Options exercised | - | | | - |
| Options expired | (394) | | | (74,653) |
| Options Outstanding, End of Period | - | | $ | - |
There were no derivative instruments outstanding as of November 30, 2015, and the amounts of realized and changes in unrealized gains and losses on derivative instruments during the period as disclosed in the Statement of Operations serve as indicators of the volume of derivative activity for the Fund as shown in the options contracts table above.
The following table sets forth the effect of the option contracts for the initial period ended November 30, 2015:
| Derivative Type | Location | Gains (Losses) |
| Equity Contracts – written options | Net realized gain from options written | $ 127,591 |
| | | |
| Equity Contracts – written options | Change in unrealized appreciation on options written | $ - |
5. Fund Liquidation
On November 23, 2015, at the recommendation of MAI, the Trust's Board of Trustees (the "Board") approved the closing and subsequent liquidation of the Fund. The Board determined that the dissolution and liquidation of the Fund were in the best interests of the Fund and its shareholders. Accordingly, the Fund ceased operations, liquidated its assets, and distributed the liquidation proceeds to shareholders of record on December 23, 2015 (the "Liquidation Date").
Effective at the close of business on November 23, 2015, the Fund was closed to purchases by new shareholders and additional purchases by existing shareholders. The planned liquidation of the Fund caused the Fund to increase its cash holdings and deviate from its investment objectives and strategies as stated in the Fund's Prospectus. Prior to the Liquidation Date, Fund shareholders may have redeemed (sold) their shares in the manner described in the Prospectus under "Redeeming Shares." Shareholders remaining in the Fund just prior to, or on, the Liquidation Date incurred increased transaction fees incurred in connection with the disposition of the Fund's portfolio holdings.
If no action was taken by a Fund shareholder prior to the Liquidation Date, the Fund distributed to such shareholder, on or promptly after the Liquidation Date, a liquidating cash distribution equal in value to the shareholder's interest in the net assets of the Fund as of the Liquidation Date. The liquidating cash distribution to shareholders was treated as payment in exchange for their shares. The liquidation of shares may be treated as a taxable event.
(Continued)
MAI Energy Infrastructure and MLP Fund
Notes to Financial Statements – Continued
6. Purchases and Sales of Investment Securities
For the initial period ended November 30, 2015, 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 |
| $20,377,799 | $14,052,838 |
7. Beneficial Ownership
The beneficial ownership, either directly or indirectly, of 25% or more of the voting securities of a fund creates a presumption of control of a fund, under Section 2(a)(9) of the Investment Company Act of 1940. As of November 30, 2015, D.J. McManus Foundation, Inc. owned 19.33% of the Fund, and a related party, Jason D. McManus owned 6.48% of the Fund. Collectively, D.J. McManus Foundation, Inc. and Jason D. McManus could be deemed to have a controlling interest in the Fund.
8. Federal Income Tax
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. There were no such reclassifications as of November 30, 2015.
Management reviewed the Fund's tax positions taken on federal income tax returns for the open tax period ended November 30, 2015. As of and during the initial period ended November 30, 2015, 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 initial period, the Fund did not incur any interest or penalties.
Distributions during the initial period ended November 30, 2015 were characterized for tax purposes as follows:
At November 30, 2015, the tax-basis cost of investments and components of distributable earnings were as follows:
| Cost of Investments | | $2,873,020 |
| | | |
| Unrealized Appreciation | $ | - |
| Unrealized Depreciation | | (988,610) |
| Net Unrealized Depreciation | | (988,610) |
| | | |
| Undistributed Net Investment Income | | 17,745 |
| Accumulated Net Capital Losses | | (1,056,720) |
| Other Book/Tax Differences | | (2,158,215) |
| | | |
| Accumulated Deficit | $ | (4,185,800) |
| | | |
The difference between book-basis and tax-basis net unrealized appreciation (depreciation) is attributable to tax deferral of losses from wash sales and the deferral of post-October losses totaling $2,158,215.
(Continued)
MAI Energy Infrastructure and MLP Fund
Notes to Financial Statements – Continued
Capital Loss Carryforwards
Under the Regulated Investment Company Modernization Act of 2010 ("the Modernization Act"), net capital losses recognized in tax years beginning after December 22, 2010 may be carried forward indefinitely, and the character of the losses is retained as short‐term and/or long‐term. Under the law in effect prior to the Modernization Act, net capital losses were carried forward for eight years and treated as short‐term. These losses no longer expire. Short-term capital loss carryforwards totaled $1,056,720.
9. Commitments and Contingencies
Under the Trust's organizational documents, its officers and Trustee 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 Trust entered into contracts with its service providers, on behalf of the Fund, 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. The Fund expects risk of loss to be remote.
10. Subsequent Events
GAAP requires the Fund to recognize in the financial statements the effects of all subsequent events that provide additional evidence about conditions that existed as of the date of the Statement of Assets and Liabilities. For non-recognized subsequent events that must be disclosed to keep the financial statements from being misleading, the Fund is required to disclose the nature of the event as well as an estimate of its financial effect, or a statement that such an estimate cannot be made.
Effective at the close of business on December 23, 2015, the Fund liquidated and distributed a cash distribution equal in value to the shareholder's interest in the net assets of the Fund as of the Liquidation Date. The liquidating cash distribution to shareholders was treated as payment in exchange for their shares. The Fund paid the following per share net investment income distributions as of December 23, 2015:
| | Institutional Class Shares | Advisor Class Shares |
| Net Investment Income per share | $1.20039 | $1.20039 |
1. Proxy Voting Policies and Voting Record
A copy of the Trust's Proxy Voting and Disclosure Policy and the Advisor's Disclosure Policy are included as Appendix B to the Fund's Statement of Additional Information and are available, without charge, upon request, by calling 800-773-3863, and on the website of the Securities and Exchange Commission ("SEC") at sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent period ended June 30 is 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 Portolio 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 are 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.
3. Tax Information
We are required to advise you within 60 days of the Fund's fiscal year-end regarding federal tax status of certain distributions received by shareholders during each fiscal year. The following information is provided for the Fund's initial period ended November 30, 2015.
During the initial period ended November 30, 2015, the Fund paid $58,441 in ordinary income distributions and no long-term capital gain distributions.
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, and (2) ongoing costs, including investment advisory fees; distribution (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 as indicated below.
Actual Expenses – The first line of the table below provides information about the 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 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 last 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 annual rate of return of 5% 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 by comparing this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
(Continued)
MAI Energy Infrastructure and MLP Fund
Additional Information
(Unaudited)
| Institutional Class Shares | Beginning Account Value June 1, 2015 | Ending Account Value November 30, 2015 | Expenses Paid During Period* |
Actual Hypothetical (5% annual return before expenses) | | | |
| $1,000.00 | $ 652.30 | $6.23 |
| $1,000.00 | $1,017.52 | $7.61 |
*Expenses are equal to the average account value over the period multiplied by the Fund's annualized expense ratio, multiplied by 183/365 (to reflect the six month period).
| Advisor Class Shares | Beginning Account Value June 1, 2015 | Ending Account Value November 30, 2015 | Expenses Paid During Period* |
Actual Hypothetical (5% annual return before expenses) | | | |
| $1,000.00 | $ 651.00 | $7.24 |
| $1,000.00 | $1,016.30 | $8.84 |
*Expenses are equal to the average account value over the period multiplied by the Fund's annualized expense ratio, multiplied by 183/365 (to reflect the six month period).
5. Special Meeting of Shareholders
At a meeting of the shareholders on November 6, 2015, the Advisor received the necessary shareholder votes for approval of the Investment Advisory Agreement. A total of 1,188,048.093 shares of the Fund were entitled to vote at the shareholder meeting. The holders of 386,042.410 shares entitled to vote for the Fund were present in person or were represented by proxy at the meeting. The percentage of shares present totaled 32.49%. The amount of shares that voted for the approval totaled 383,823.410. The amount of shares that withheld totaled 2,219.000, or 0.19%. No shareholders abstained from the vote. 207,981.637 shares were necessary for quorum, so the Fund received the necessary votes.
6. Approval of Advisory Agreement
The Advisor supervises the Fund's investments pursuant to an Investment Advisory Agreement. At a special meeting of the Fund's Board of Trustees on June 5, 2015, the sole Independent Trustee approved the Investment Advisory Agreement effective from July 1, 2015 and would remain in effect until the close of the Fund on December 23, 2015. In considering whether to approve the Investment Advisory Agreement, the Trustee reviewed and considered the information they deemed reasonably necessary, including the following material factors: (i) the nature, extent, and quality of the services provided by the Advisor; (ii) the costs of the services to be provided and profits to be realized by the Advisor and its affiliates from the relationship with the Fund; (iii) the extent to which economies of scale would be realized as the Fund grows and whether advisory fee levels reflect those economies of scale for the benefit of the Fund's investors; (iv) the Advisor's practices regarding brokerage and portfolio transactions; and (v) the Advisor's practices regarding possible conflicts of interest.
At the meeting, the Trustee reviewed various informational materials, including the Investment Advisory Agreement for the Fund and a memorandum from the Advisor to the Trustees containing information about the advisory firm and its business. The memorandum provided information about the Advisor's finances, personnel, services to the Fund, investment advice, fees, and compliance program. It also contained information on Fund expenses, including comparative expense ratio information for other mutual funds with strategies similar to the Fund. The Trustee also reviewed the services to be provided by MAI Capital Management, LLC ("MAI" or "Advisor") to the Fund, including, without limitation, the anticipated quality of its investment advisory services (including research and recommendations with respect to portfolio securities); its procedures for formulating investment recommendations and assuring compliance with the investment objectives, policies, and limitations of the Fund and its efforts to promote the Fund, grow the assets of the Fund, and otherwise assist in the distribution of the Fund's shares. The Trustee also noted that MAI had previously provided sub-advisory services through an Investment Sub-Advisory Agreement with Vertical Capital Asset Management, LLC and wished to continue to provide services to the Fund. After reviewing the foregoing information and further information in the memorandum from MAI (i.e., descriptions of MAI's business, MAI's compliance programs, and MAI's registration documents on file with the Securities and Exchange Commission), the Board of Trustees concluded that the nature, extent, and quality of the services provided by MAI would be satisfactory and adequate for the Fund.
(Continued)
MAI Energy Infrastructure and MLP Fund
Additional Information
(Unaudited)
In considering the investment performance of the Advisor, the Trustee noted that the Fund's prior performance was attributable to the Fund's investment sub-advisor. Thus, the ability of the Trustee to consider the investment performance of the Fund with respect to MAI was limited. Given these circumstances, the Trustee reviewed the performance of the Fund since inception, as MAI, former sub-advisor to the Fund, would continue to provide advisory services to the Fund. It was noted that the Fund's performance since inception underperformed its peers. The Trustee noted the Fund's limited performance history (less than one year), as well as the overall market trends in the energy industry during the limited history of the Fund. Thus, after considering the Fund's investment performance since inception (with its limited performance history), MAI's continuation to provide advisory services, and other factors, the Board concluded that the investment performance of the Fund and MAI was satisfactory.
In considering the costs of the services to be provided and profits to be realized by the Advisor and its affiliates from the relationship with the Fund, including any indirect benefits derived by the Advisor from the relationship with the Fund, the Trustee first noted that the management fee for the Fund would be 1.00% of the average daily net assets. In considering the profitability of MAI in providing the services contemplated under the Investment Advisory Agreement, the Board of Trustees considered the nature of the services to be provided by MAI. In particular, the Trustee noted that, as presented at the Board Meeting, MAI would be responsible for pursuing the Fund's investment strategy by investing in a diversified portfolio of investments in energy infrastructure and master limited partnerships. The Trustee reviewed and discussed the financial stability and profitability of MAI. The Trustee also noted that the owners of MAI would provide a letter of financial support to ensure that MAI had sufficient capital to provide advisory services to the Fund. The Trustee then compared the fees and expenses of the Fund (including the management fee) to other funds comparable in terms of the type of the Fund, the mature of its investment strategy, and its style of investment management, among other factors. It was noted that the proposed management fee would be similar to those of comparable funds and the expense ratio under the proposed Investment Advisory Agreement would be comparable to those of the comparable funds. The Trustee pointed out that the Fund was much smaller than the industry average and the comparable funds had been identified. The Trustee also noted that the Fund had limited history of operations and had not reached the breakeven point so that the Fund's expenses were being subsidized. Following further consideration and discussion of the foregoing, the Board of Trustees concluded that the fees to be paid to the Advisor by the Fund were fair and reasonable in relation to the nature and quality of the services provided by the Advisor and that they reflected charges that were within a range of what could have been negotiated at arm's length.
In considering the extent to which economies of scale would be realized as the Fund grows and whether the advisory fee levels reflect these economies of scale for the benefit of the Fund's investors, the Trustee reviewed the Fund's fee arrangements with the Advisor. The Trustee noted that the Fund had only recently commenced operations and, consequently, it had limited operational history with which to evaluate the realization of economies of scale. The Trustee reviewed the fee arrangements for breakpoints or other provisions that would allow the Fund's shareholders to benefit from economies of scale as the Fund grows. The Trustee determined that the maximum management fee would stay the same when the Fund reaches higher asset levels and, therefore, did not reflect economies of scale. The Trustee noted that Fund was in a start-up phase and economies of scale were unlikely to be achievable in the near future. It was pointed out that breakpoints in the advisory fee could be reconsidered in the future. The Trustee noted that the Fund will benefit from economies of scale under the agreement with the Fund's Administrator since it utilized breakpoints. The Trustee also noted that MAI was contractually bound to limit the Fund's expenses through an Expense Limitation Agreement. The Trustee determined that these arrangements provided potential savings for the benefit of the Fund's shareholders. Following further discussion of the Fund's asset levels, expectations for growth, and fee levels, the Board of Trustees determined that the Fund's fee arrangements were fair and reasonable in relation to the nature and quality of the services provided by the Advisor.
(Continued)
MAI Energy Infrastructure and MLP Fund
Additional Information
(Unaudited)
In considering the Advisor's practices regarding brokerage and portfolio transactions, the Trustee reviewed the Advisor's practices regarding brokerage and portfolio transactions; and the Trustee considered MAI's standards, and performance in utilizing those standards, for seeking best execution for the Fund's portfolio transactions. The Trustee also considered the projected portfolio turnover rate for the Fund; the method and basis for selecting and evaluating the broker-dealers used; the process by which evaluations are made of the overall reasonableness of commissions paid; the method and basis for selecting and evaluations the broker-dealers used; any anticipated allocation of portfolio business to broker-dealers who provide research, statistical, or other services (soft dollars). After further review and discussion, the Board determined that the Advisor's practices regarding brokerage and portfolio transactions were satisfactory.
In considering the Advisor's practices regarding possible conflicts of interest, the Trustee evaluated the potential for conflicts of interest and considered such matters as the experience and ability of the advisory personnel assigned to the Fund, the basis of decisions to buy or sell securities for the Fund, and the substance and administration of the Advisor's code of ethics. The Trustee also considered possible conflicts arising from personnel of MAI being associated with the Fund's administrator. Following further consideration and discussion, the Board of Trustees indicated that the Advisor's standards and practices relating to the identification and mitigation of potential conflicts of interests were satisfactory.
Based upon all of the foregoing considerations, the Board of Trustees, carried by a vote of the sole Independent Trustee, approved the Investment Advisory Agreement for the Fund.
6. Information about Trustees and Officers
The business and affairs of the Fund and the Trust are managed under the direction of the Board of Trustees of the Trust. Information concerning the Trustee and officers of the Trust and Fund is set forth below. Generally, each Trustee and officer serves an indefinite term or until certain circumstances such as their resignation, death, or otherwise as specified in the Trust's organizational documents. Any Trustee may be removed at a meeting of shareholders by a vote meeting the requirements of the Trust's organizational documents. The Statement of Additional Information of the Fund includes additional information about the Trustees and officers and is available, without charge, upon request by calling the Fund at 1-800-773-3863. The address of each Trustee and officer, unless otherwise indicated below, is 116 South Franklin Street, Rocky Mount, North Carolina 27804. The Independent Trustee received aggregate compensation of $5,875 during the initial period ended November 30, 2015 from the Fund for his services to the Fund and Trust.
Name, Age
and Address | Position
held with
Funds or Trust | Length of Time Served | Principal Occupation
During Past 5 Years | Number of Portfolios in Fund Complex Overseen by Trustee | Other Directorships
Held by Trustee
During Past 5 Years |
| Independent Trustees |
Theo H. Pitt, Jr.
Age: 79 | Independent Trustee | Since 9/10 | Senior Partner, Community Financial Institutions Consulting (financial consulting) since 1999; Partner, Pikar Properties (real estate) since 2001. | 2 | Independent Trustee of World Funds Trust for its twelve series, Gardner Lewis Investment Trust for its two series, Starboard Investment Trust for its twenty-eight series and Hillman Capital Management Investment Trust for its one series (all registered investment companies). |
(Continued)
MAI Energy Infrastructure and MLP Fund
Additional Information
(Unaudited)
Name, Age
and Address | Position
held with
Funds or Trust | Length of Time Served | Principal Occupation
During Past 5 Years | Number of Portfolios in Fund Complex Overseen by Trustee | Other Directorships
Held by Trustee
During Past 5 Years |
| Other Officers |
Katherine M. Honey
Age: 42 | President | Since 06/15 | EVP of The Nottingham Company since 2008. | n/a | n/a |
Ashley E. Harris
Age: 31 | Treasurer and Assistant Secretary | Since 06/15 | Fund Accounting Manager and Financial Reporting, The Nottingham Company since 2008. | n/a | n/a |
Matthew J. Beck
Age: 27 | Secretary | Since 06/15 | General Counsel of The Nottingham Company since 2014. | n/a | n/a |
John Canning
Age: 45 | Chief Compliance Officer | Since 8/14 | Managing Director, Cipperman Compliance Services, LLC (2011-present). Formerly, Director of Mutual Fund Administration of Nationwide Fund Group (2008-2011). | n/a | n/a |
MAI Energy Infrastructure and MLP Fund
is a series of
Leeward Investment Trust
For Shareholder Service Inquiries: | For Investment Advisor Inquiries: |
| |
Nottingham Shareholder Services, LLC | MAI Capital Management, LLC |
116 South Franklin Street | 1360 East 9th Street |
Post Office Drawer 4365 | Suite 1100 |
Rocky Mount, North Carolina 27803 | Cleveland, Ohio 44114 |
| | |
| Telephone: | Telephone: |
| | |
| 800-773-3863 | 800-773-3863 |
| | |
| World Wide Web @: | World Wide Web @: |
| | |
| ncfunds.com | ncfunds.com |
Item 2. CODE OF ETHICS.
| (a) | The registrant, as of the end of the period covered by this report, has adopted a code of ethics that applies to its Principal Executive Officer(s), Principal Financial Officer(s), and Principal Accounting Officer(s), or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party. |
| (b) | There have been no substantive amendments during the period covered by this report. |
| (c) | The registrant has not granted, during the period covered by this report, any waivers, including an implicit waiver. |
| (d)(1) | A copy of the code of ethics that applies to the registrant's Principal Executive Officers and Principal Financial Officers is filed pursuant to Item 12.(a)(1) below. |
Item 3. AUDIT COMMITTEE FINANCIAL EXPERT.
At this time, the registrant believes that the collective knowledge and experience provided by the members of the audit committee together offer the registrant adequate oversight for the registrant's level of financial complexity.
Item 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
| (a) | Audit Fees – Audit fees billed for the registrant for the fiscal year ended November 30, 2015 are reflected in the table below. These amounts represent aggregate fees billed by the registrant's independent accountant, BBP, LLC ("Accountant"), in connection with the annual audits of the registrant's financial statements and for services normally provided by the Accountant in connection with the registrant's statutory and regulatory filings for those fiscal years. |
| Fund | 2015 |
| MAI Energy Infrastructure and MLP Fund | $13,000 |
| (b) | Audit-Related Fees – There were no additional fees billed in the fiscal year ended November 30, 2015 for assurance and related services by the Accountant that were reasonably related to the performance of the audit of the registrant's financial statements that were not reported under paragraph (a) of this Item. |
| (c) | Tax Fees – The tax fees billed in each of the fiscal year ended November 30, 2015 for professional services rendered by the Accountant for tax compliance, tax advice, and tax planning are reflected in the table below. These services were for the completion of each fund's federal and state income tax returns, excise tax returns, and assistance with distribution calculations. |
| Fund | 2015 |
| MAI Energy Infrastructure and MLP Fund | $4,000 |
| (d) | All Other Fees – There were no other fees paid to the Accountant which were not disclosed in Items (a) through (c) above during the last fiscal year. |
| (e) (1) | The registrant's Board of Trustees pre-approved the engagement of the Accountant for the last fiscal year at an audit committee meeting of the Board of Trustees called for such purpose; and will pre-approve the Accountant for each fiscal year thereafter at an audit committee meeting called for such purpose. The charter of the audit committee states that the audit committee should pre-approve any audit services and, when appropriate, evaluate and pre-approve any non-audit services provided by the Accountant to the registrant and to pre-approve, when appropriate, any non-audit services provided by the Accountant to the registrant's investment adviser, or any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant if the engagement relates directly to the operations and financial reporting of the registrant. |
| (2) | There were no services as described in each of paragraph (b) through (d) of this Item that were approved by the audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X. |
| (g) | Aggregate non-audit fees billed by the Accountant to the registrant for services rendered for the fiscal year ended November 30, 2015 were $13,000 and $4,000, respectively. There were no fees billed by the Accountant for non-audit services rendered to the registrant's investment adviser, or any other entity controlling, controlled by, or under common control with the registrant's investment adviser. |
Item 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
Item 6. SCHEDULE OF INVESTMENTS.
A copy of the schedule of investments of unaffiliated issuers as of the close of the reporting period is included as part of the report to shareholders filed under Item 1 of this Form.
Item 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
Item 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
Item 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
Item 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
Item 11. CONTROLS AND PROCEDURES.
| (a) | The Principal Executive Officer/Principal Financial Officer has concluded that the registrant's disclosure controls and procedures are effective based on his evaluation of the disclosure controls and procedures as of a date within 90 days of the filing of this report. |
| (b) | There were no changes in the registrant's internal control over financial reporting that occurred during the registrant's second fiscal quarter of the period covered by this report that have materially affected, or are reasonably likely to materially affect, the registrant's internal control over financial reporting. |
Item 12. EXHIBITS.
| (a)(1) | Code of Ethics required by Item 2 of Form N-CSR is filed herewith as Exhibit 12.(a)(1). |
| (a)(2) | Certifications required by Item 12.(a)(2) of Form N-CSR are filed herewith as Exhibit 12.(a)(2). |
| (b) | Certifications required by Item 12.(b) of Form N-CSR are filed herewith as Exhibit 12.(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.
Leeward Investment Trust
| By: (Signature and Title) | /s/ Katherine M. Honey |
Date: February 5, 2016 | Katherine M. Honey President and Principal Executive Officer MAI Energy Infrastructure and MLP Fund |
| | |
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: (Signature and Title) | /s/ Katherine M. Honey |
Date: February 5, 2016 | Katherine M. Honey President and Principal Executive Officer MAI Energy Infrastructure and MLP Fund |
| | |
| By: (Signature and Title) | /s/ Ashley E. Harris |
Date: February 5, 2016 | Ashley E. Harris Treasurer and Principal Financial Officer MAI Energy Infrastructure and MLP Fund |
| | |
