Ultra Short Prime Fund
Notes to Financial Statements
1. Organization and Significant Accounting Policies
The Ultra Short Prime 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 commenced operations on November 16, 2016. The investment objective of the Fund is to provide capital preservation, a high degree of liquidity, and a high level of current income. The Fund seeks to achieve its investment objective by investing in a diversified group of high quality fixed income instruments and other short-term obligations denominated in U.S. dollars, including but not limited to certificates of deposit, banker's acceptances, commercial paper, corporate bonds or notes, municipal securities, supranational securities, and repurchase agreements. Chandler Asset Management, Inc. (the "Advisor") will target investing in securities with remaining maturities of 397 days or less. During certain economic conditions, the Advisor may invest up to 10% of the Fund's net assets in securities with maturities in excess of 397 days. At least 80% of the Fund's assets will be invested in government plus corporate fixed income debt rated A/A1 or better under normal economic conditions.
Shares in the Fund are issued solely in private placement transactions that do not involve any "public offering" within the meaning of the Securities Act of 1933. All investments in the Fund are made without a sales load. Investment in the Fund may only be made by a state, its political subdivisions, or any agency or instrumentality of a state or its political subdivisions; other investment companies; or certain other entities which are "accredited investors," as that term is defined under the Securities Act of 1933.
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
The Fund's investments in securities are carried at value. 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 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.
With respect to any portion of a Fund's assets that may be invested in other mutual funds, the value of the Fund's shares is based on the NAV of the shares of the other mutual funds in which the Fund invests. The valuation methods used by mutual funds in pricing their shares, including the circumstances under which they will use fair value pricing and the effects of using fair value pricing, are included in the prospectuses of such funds. To the extent a Fund invests a portion of its assets in non-registered investment vehicles, the Fund's shares in the non-registered vehicles are fair valued at NAV.
With respect to a Fund's assets invested directly in securities, the Fund's investments are generally valued at current market prices. Equity securities, debt securities, options and futures are generally valued at the official closing price or, if none, the last reported sales price on the primary exchange or market on which they are listed (closing price). Equity securities and debt securities that are not traded primarily on an exchange are generally valued at the quoted bid price obtained from a broker-dealer.
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Ultra Short Prime Fund
Notes to Financial Statements
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: unadjusted 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.
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 June 30, 2017 for the Fund's assets measured at fair value:
| | | |
| Investments in Securities (a) | | Total | | Level 1 | | Level 2 | | Level 3 |
| Assets | | | | | | | | |
| Certificates of Deposit | $ | 6,196,328 | $ | - | $ | 6,196,328 | $ | - |
| Commercial Paper | | 9,909,776 | | - | | 9,909,776 | | - |
| Corporate Bonds | | 10,930,636 | | - | | 10,930,636 | | - |
| Federal Agency Obligations | | 6,873,860 | | - | | 6,873,860 | | - |
| Asset-Backed Security | | 121,264 | | - | | 121,264 | | - |
| Supranational Agency Obligations | | 1,229,770 | | - | | 1,229,770 | | - |
| Short-Term Investment | | 583,268 | | 583,268 | | - | | - |
| Total Assets | $ | 35,844,902 | $ | 583,268 | $ | 35,261,634 | $ | - |
| | | | | | | | | |
| (a) | The Fund had no transfers into or out of Level 1, 2, or 3 during the fiscal period ended June 30, 2017. The Fund did not hold any Level 3 securities during the period. The Fund recognizes transfers at the end of each reporting period. |
Investment Transactions and Investment Income
Investment transactions are accounted for as of the date purchased or sold (trade date). Dividend income and expense are recorded on the ex-dividend date. Interest income is recorded on the accrual basis and includes accretion/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 Fund bears expenses incurred specifically on its behalf as well as a portion of general expenses, which are allocated according to methods reviewed annually by the Trustees.
Distributions
The Fund may declare and distribute dividends from net investment income, if any, monthly. The Fund generally declares and distributes capital gains, if any, annually. Dividends and distributions to shareholders are recorded on ex-date.
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Ultra Short Prime Fund
Notes to Financial Statements
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
The Fund pays a monthly fee to the Advisor calculated at the annual rate of 0.09% of the Fund's average daily net assets on the first $500 million and 0.06% of the Fund's average daily net assets for assets over $500 million. For the fiscal period from November 16, 2016 (Commencement of Operations) through June 30, 2017, $15,088 in advisory fees were incurred by the Fund, of which $15,088 was waived by the Advisor and $45,889 was reimbursed to the Fund by the Advisor and the Administrator.
The Advisor and the Administrator have 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, 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 0.165% 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 October 31, 2017. While there can be no assurance that the Expense Limitation Agreement will continue after that date, it is expected to continue from year-to-year thereafter. The Advisor is responsible for 60% of any amount in excess of the Expense Limitation of 0.165% of the Fund, and the Administrator is responsible for 40% of any amount in excess of the Expense Limitation of 0.165% of the Fund.
Administrator
The Fund pays a monthly fee to the Fund's administrator, The Nottingham Company ("the Administrator"), based upon the average daily net assets of the Fund and calculated at the annual rates as shown in the schedule below which is subject to a minimum of $2,000 per month.
A breakdown of these fees is provided in the following table.
| Administration Fees* | Custody Fees* | Fund Accounting Fees (monthly) | Fund Accounting Fees (annual) | Blue Sky Administration Fees (annual) |
Average Net Assets | Annual Rate | Average Net Assets | Annual Rate |
| All asset levels | 0.03% | All asset levels | 0.75% | $2,000 | 0.02% | $150 per state |
| | | *Minimum monthly fees of $2,000 for Administration. |
| | |
The Fund incurred $14,925 in administration fees, $14,926 in fund accounting fees, and $1,349 in custody fees for the fiscal period from November 16, 2016 (Commencement of Operations) through June 30, 2017.
Compliance Services
Barge Consulting, LLC provides services as the Trust's Chief Compliance Officer. Barge Consulting, LLC is entitled to receive customary fees from the Fund for their services pursuant to the Compliance Services agreement with the Fund.
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Ultra Short Prime Fund
Notes to Financial Statements
Transfer Agent
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 Fund.
Certain officers of the Trust may also be officers of the Advisor or the Administrator.
3. Purchases and Sales of Investment Securities
For the fiscal period ended June 30, 2017, the aggregate cost of purchases and proceeds from sales of investment securities (excluding short-term securities and securities sold short) were as follows:
| Purchases of Securities | Proceeds from Sales of Securities (excluding Maturities) |
| $191,526,051 | $ 677,962 |
There were no long-term purchases or sales of U.S Government Obligations during the fiscal period ended June 30, 2017.
4. 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. The general ledger is adjusted for permanent book/tax differences to reflect tax character but is not adjusted for temporary differences.
Management has reviewed the Fund's tax positions to be taken on the federal income tax returns and, during the open period ended June 30, 2017, 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 fiscal period from November 16, 2016 (Commencement of Operations) through June 30, 2017, the Fund did not incur any interest or penalties.
Distributions during the period ended were characterized for tax purposes as follows:
| | June 30, 2017 |
| Ordinary Income | $ 121,155 |
For the fiscal period ended June 30, 2017, the following reclassifications were made:
| Undistributed Net Investment Income | $ 333 |
| Accumulated Net Realized Gain | | (333) |
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Ultra Short Prime Fund
Notes to Financial Statements
At June 30, 2017, the tax-basis cost of investments and components of distributable earnings were as follows:
Cost of Investments | $ | 35,852,057 |
| | | |
| Gross Unrealized Appreciation | $ | 1,226 |
| Gross Unrealized Depreciation | | (8,381) |
| Net Unrealized Depreciation | $ | (7,155) |
| | | |
| Undistributed Ordinary Income | | 333 |
| Undistributed Long-Term Gains | | 5 |
| | | |
| Accumulated Deficit | $ | (6,817) |
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 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.
6. New Accounting Pronouncement
In October 2016, the U.S. Securities and Exchange Commission ("SEC") issued a new rule, Investment Company Reporting Modernization, which, among other provisions, amends Regulation S-X to require standardized enhanced disclosures, particularly related to derivatives, in investment company financial statements. The compliance date for the amendments to Regulation S-X is for reporting periods ending after August 1, 2017. Management has reviewed the requirements and believes the adoption of the amendments to Regulation S-X will not have a material impact on the Fund's financial statements and related disclosures.
7. Concentration of Risk
At various times, the Fund may have cash, cash collateral, and due from broker balances that exceed federally insured limits. It is the opinion of management that the solvency of the financial institutions is not of a particular concern at the time.
8. Subsequent Events
The Funds have evaluated the need for disclosures and/or adjustments resulting from subsequent events through the date of issuance of these financial statements.
Distributions
Per share distributions during the subsequent period for record date July 28, 2017 and pay date July 31, 2017 were as follows:
| | July 31, 2017 |
| Ordinary Income | $ 29,058 |
Management has concluded there are no additional matters, other than those noted above, requiring recognition or disclosure.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders,
Trustees, and
Audit Committee of
Ultra Short Prime Fund
We have audited the accompanying statement of assets and liabilities of the (the "Fund"), including the schedule of investments, as of June 30, 2017, and the related statements of operations, the statements of changes in net assets and the financial highlights for fiscal period from November 15, 2016 (Commencement of Operations) to June 30, 2017. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of June 30, 2017, by correspondence with the custodian and brokers. We believe that our audit provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the as of June 30, 2017, the results of its operations and its changes in its net assets, its cash flow and the financial highlights for fiscal period from November 15, 2016 (Commencement of Operations) to June 30, 2017 in conformity with accounting principles generally accepted in the United States of America.
BrookWeiner L.L.C.
Chicago, Illinois
August 23, 2017
