1. Significant Accounting Policies
Wright Current Income Fund ("WCIF") (the "Fund") is a diversified portfolio of The Wright Managed Income Trust (the "Trust"), an open-end, management investment company that is registered under the Investment Company Act of 1940, as amended (the "1940 Act"). WCIF seeks a high level of current income consistent with moderate fluctuations of principal.
The Funds are investment companies and follow accounting and reporting guidance under Financial Accounting Standards Board("FASB") Accounting Standards Codification ("ASC") Topic 946, "Financial Services-Investment Companies". The following is a summary of significant accounting policies consistently followed by the Trust in the preparation of their financial statements. The policies are in conformity with accounting principles generally accepted in the United States of America ("GAAP").
A. Investment Valuations – Debt obligations, including listed securities and securities for which quotations are readily available, will normally be valued on the basis of reported trades or market quotations provided by third party pricing services, when these prices are representative of the securities' market values. For debt securities where market quotations are not readily available, the pricing services will use various techniques that consider factors including, but not limited to, prices or yields of securities with similar characteristics, benchmark yields, broker/dealer quotes, issuer spreads, as well as industry and economic events. Short-term debt securities with a remaining maturity of sixty days or less are generally valued at amortized cost, which approximates market value. If short-term debt securities are acquired with a remaining maturity of more than sixty days, they will be valued by a pricing service as described above. Investments for which valuations or market quotations are not readily available or are deemed unreliable are valued at fair value using methods determined in good faith by or at the direction of the Trustees of the Fund in a manner that most fairly reflects the security's value, or the amount that the Fund might reasonably expect to receive for the security upon its current sale in the ordinary course. Each such determination is based on a consideration of all relevant factors, which are likely to vary from one pricing context to another. These factors may include, but are not limited to, the type of security, the existence of any contractual restrictions on the security's disposition, the price and extent of public trading in similar securities of the issuer or of comparable companies, quotations or relevant information obtained from broker-dealers or other market participants, information obtained from the issuer, analysts, and/or the appropriate stock exchange (for exchange-traded securities), an analysis of the company's financial condition, and an evaluation of the forces that influence the issuer and the market(s) in which the security is purchased and sold.
B. Investment Transactions – Investment transactions for financial statement purposes are accounted for on a trade date basis. Realized gains and losses on investments sold are determined on the basis of identified cost.
C. Income – Dividend income is recorded on the ex-dividend date. However, if the ex-dividend date has passed, certain dividends from foreign securities are recorded as the Fund is informed of the ex-dividend date. Interest income is recorded on the basis of interest accrued, adjusted for amortization of premium and accretion of discount.
Paydown gains and losses are included in interest income.
D. Federal Taxes – The Fund's policy is to comply with the provisions of the Internal Revenue Code (the "Code") applicable to regulated investment companies and to distribute to shareholders each year substantially all of its net investment income and all or substantially all of its net realized capital gains. Accordingly, no provision for federal income or excise tax is necessary. At December 31, 2016, WCIF, for federal income tax purposes, had $2,521,549 available short term capital loss carryforwards and $2,373,580 available long term capital loss carryforwards that have no expiration date which will reduce the Fund's taxable income arising from future net realized gain on investment transactions, if any, to the extent permitted by the Code, and thus will reduce the amount of the distributions to shareholders, which would otherwise be necessary to relieve the Fund of any liability for federal income or excise tax.
As of June 30, 2017, the Fund had no uncertain tax positions that would require financial statement recognition, de-recognition, or disclosure. The Fund's federal tax returns filed in the 3-year period ended December 31, 2016, remain subject to examination by the Internal Revenue Service.
E. Expenses – The majority of expenses of the Trust are directly identifiable to the Fund. Expenses which are not readily identifiable to a specific Fund are allocated taking into consideration, among other things, the nature and type of expense and the relative size of the Funds.
F. Use of 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 income and expense during the reporting period. Actual results could differ from those estimates.
G. Indemnifications – Under the Fund's organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the Fund, and shareholders are indemnified against personal liability for the obligations of the Fund. Additionally, in the normal course of business, the Fund enters into agreements with service providers that may contain indemnification clauses. The Fund's maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred.
H. Interim Financial Statements – The interim financial statements relating to June 30, 2017, and for the six months then ended have not been audited by an independent registered public accounting firm, but in the opinion of Fund management, reflect all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of the financial statements.
2. Distributions to Shareholders
The net investment income of the Fund is determined daily, and substantially all of the net investment income so determined is declared daily as a dividend to shareholders of record at the time of declaration. Distributions are generally paid monthly. Distributions of net realized capital gains (reduced by available capital loss carryforwards from prior years, if any) are made at least annually. Shareholders may reinvest income and capital gain distributions in additional shares of the same Fund at the net asset value as of the reinvestment date or, at the election of the shareholder, receive distributions in cash. The Fund distinguishes between distributions on a tax basis and a financial reporting basis. GAAP requires that only distributions in excess of tax basis earnings and profits be reported in the financial statements as a return of capital. Permanent differences between book and tax accounting relating to distributions are reclassified to paid-in capital.
As of December 31, 2016, the components of distributable earnings (accumulated losses) on a tax basis were as follows:
| Â | Â | Â | WCIF | Â |
| Capital loss carryforward | Â | $ | (4,895,129 | ) |
| Unrealized (depreciation) | Â | Â | (558,520 | ) |
| Total | Â | $ | (5,453,649 | ) |
The difference between components of distributable earnings (accumulated losses) on a tax basis and the amounts reflected in the Statements of Assets and Liabilities are primarily due to premium amortization and paydown gain (loss).
3. Investment Adviser Fee and Other Transactions with Affiliates
The investment adviser fee is earned by Wright Investor Services, Inc. ("Wright") as compensation for investment advisory services rendered to the Fund. The fees are computed at annual rates of the Fund's average daily net assets as noted below, and are payable monthly.
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| Annual Advisory Fee Rates |
| Fund | Under $100 Million | $100 Million to $250 Million | $250 Million to $500 Million | $500 Million to $1 Billion | Over $1 Billion |
| WCIF | 0.45% | 0.44% | 0.42% | 0.40% | 0.35% |
For the period ended June 30, 2017, the fee and the effective annual rate, as a percentage of average daily net assets for the Fund was as follows:
| Fund | Investment Adviser Fee | Effective Annual Rate |
| WCIF | $121,893 | 0.45% |
The administrator fee is earned by Wright for administering the business affairs of the Fund. The fee is computed at an annual rate of 0.09% of the average daily net assets up to $100 million for WCIF, and 0.05% of average daily net assets over $100 million. Atlantic Fund Administration, LLC (d/b/a Atlantic Fund Services) ("Atlantic") serves as sub-administrator of the Fund to perform certain services of the administrator as may be agreed upon between the administrator and sub-administrator. The sub-administration fee is paid by Wright.
For the period ended June 30, 2017, the administrator fee for WCIF amounted to $24,379.
Certain Trustees and officers of the Trust are Trustees or officers of the above organizations and/or of the Fund's principal underwriter. Except as to Trustees of the Trust who are not employees of Atlantic or Wright, Trustees and officers receive remuneration for their services to the Trust out of the fees paid to Atlantic and Wright. The Trustees are compensated by the Trust in conjunction with the Wright Managed Equity Trust, rather than on a per Trust or per Fund basis. Quarterly retainer fees are paid in the amount of $4,000 to the Lead Trustee, $3,500 to the Secretary of Independent Trustees, and $3,000 each to the remaining Trustees. In addition, each Trustee will be paid a fee of $1,500 for each regular Board meeting attended. Each Trustee is also reimbursed for all reasonable out-of-pocket expenses incurred in connection with his duties as a Trustee, including travel and related expenses incurred in attending Board meetings. The amount of Trustees' fees attributable to the Fund is disclosed in the Fund's Statement of Operations.
4. Distribution and Service Plans
The Trust has in effect a Distribution Plan (the "Plan") pursuant to Rule 12b-1 of the 1940 Act. The Plan provides that the Fund will pay Wright Investors' Service Distributors, Inc. ("WISDI"), the principal underwriter, a wholly-owned subsidiary of The Winthrop Corporation and an affiliate of Wright, a distribution fee of 0.25% of the average daily net assets of the Fund for distribution services and facilities provided to the Fund by WISDI. Distribution fees paid or accrued to WISDI for the period ended June 30, 2017, for WCIF were $67,718.
In addition, the Trustees have adopted a service plan (the "Service Plan") which allows the Fund to reimburse the principal underwriter for payments to intermediaries for providing account administration and personal and account maintenance services to their customers who are beneficial owners of the Fund's shares. The combined amount of service fees payable under the Service Plan and Rule 12b-1 distribution fees may not exceed 0.25% annually of the Fund's average daily net assets. For the period ended June 30, 2017, the Fund did not accrue or pay any service fees.
Pursuant to an Expense Limitation Agreement, Wright and WISDI have agreed to waive all or a portion of their fees and reimburse expenses to the extent that total annual operating expenses exceed 1.00% of the average daily net assets of WCIF, through April 30, 2018 (excluding interest, taxes, brokerage commissions, other expenditures which are capitalized in accordance with GAAP, and other extraordinary expenses not incurred in the ordinary course of the Fund's business). Thereafter, the waiver and reimbursement may be changed or terminated at any time. In addition, Wright and WISDI have voluntarily agreed to further limit the total annual expenses of WCIF to 0.90% of its average daily net assets. Such voluntary limitation may be
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terminated at any time. Pursuant to these agreements and voluntary limitation, Wright waived and/or reimbursed investment adviser fees of $18,132 for WCIF. WISDI waived distribution fees of $67,718 for WCIF.
5. Investment Transactions
Purchases and sales (including maturities and paydowns) of investments, other than short-term obligations, were as follows:
| Six Months Ended June 30, 2017 |
| Â | WCIF |
| Purchases - | Â |
| Non-U.S. Government & Agency Obligations | $ - |
| U.S. Government & Agency Obligations | 731,083 |
| Sales - | Â |
| Non-U.S. Government & Agency Obligations | $ 38,000 |
| U.S. Government & Agency Obligations | 8,172,639 |
6. Shares of Beneficial Interest
The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest (without par value). Transactions in Fund shares were as follows:
| Â | Â | December 31, 2017 | 36525 | Â | Â | Â | 42916 | # | # | Â | Â | Â | Â | 42735 | Â |
| Â | Â | Â | Six Months Ended June 30, 2017 | Â | Year Ended December 31, 2016 |
| Â | Â | Â | Shares | Â | Â | Â | Amount | Â | Â | Shares | Â | Â | Â | Amount | Â |
| Â | WCIF | Â | Â | Â | Â | Â | Â | Â | Â | Â | Â | Â | Â | Â |
| Â | Sold | 429,064 | Â | Â | $ | 3,874,714 | Â | Â | 1,648,494 | Â | Â | $ | 15,446,094 | Â |
| Â | Issued to shareholders in payment of distributions declared | 40,944 | Â | Â | Â | 369,329 | Â | Â | 96,715 | Â | Â | Â | 903,089 | Â |
| Â | Redemptions | (1,211,106 | ) | Â | Â | (10,934,058 | ) | Â | (2,447,720 | ) | Â | Â | (22,741,935 | ) |
| Â | Net decrease | (741,098 | ) | Â | $ | (6,690,015 | ) | Â | (702,511 | ) | Â | $ | (6,392,752 | ) |
| Â | Â | Â | Â | Â | Â | Â | Â | Â | Â | Â | Â | Â | Â | Â | Â |
7. Federal Income Tax Basis of Investments
The cost and unrealized appreciation (depreciation) of the investment securities owned at June 30, 2017, as computed on a federal income tax basis, were as follows:
| Â | Six Months Ended June 30, 2017 |
| Â | WCIF | Â |
| Aggregate cost | $ | 51,423,059 | Â | Â |
| Gross unrealized appreciation | $ | 444,729 | Â | Â |
| Gross unrealized depreciation | Â | (414,207 | ) | Â |
| Net unrealized depreciation | $ | 30,522 | Â | Â |
8. Line of Credit
The Fund participates with other funds managed by Wright in a committed $10 million unsecured line of credit agreement with Union Bank of California, N.A. ("Union Bank"). The Fund may temporarily borrow from the line
of credit to satisfy redemption requests or settle investment transactions. Interest is charged to the Fund based on its borrowings at an amount above the LIBOR rate. Because the line of credit is not available exclusively to the Fund, it may be unable to borrow some or all of the Fund's requested amounts at any particular time. As of June 30, 2017, the Fund had no outstanding balance pursuant to this line of credit.The average borrowings and average interest rate (based on days with outstanding balances) for the period ended June 30, 2017, were as follows:
| Â | WCIF |
| Average borrowings | $405,608 |
| Average interest rate | 1.78% |
9. Fair Value Measurements
Under GAAP for fair value measurements, a three-tier hierarchy to prioritize the assumptions, referred to as inputs, is used in valuation techniques to measure fair value. The three-tier hierarchy of inputs is summarized in the three broad levels listed below.
• Level 1 – quoted prices in active markets for identical investments
• Level 2 – other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.)
• Level 3 – significant unobservable inputs (including a fund's own assumptions in determining the fair value of investments)
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
At June 30, 2017, the inputs used in valuing the Fund's investments, which are carried at value, were as follows:
WCIF Asset Description | Quoted Prices in Active Markets for Identical Assets (Level 1) | Â Significant Other Observable Inputs (Level 2) | Â Significant Unobservable Inputs (Level 3) | Total |
| Agency Mortgage-Backed Securities | Â $ | Â - | Â $ | Â 47,425,997 | Â $ | Â - | Â $ | Â 47,425,997 |
| Other U.S. Government Guaranteed | Â | Â - | Â | Â 1,579,383 | Â | Â - | Â | Â 1,579,383 |
| Short-Term Investments | Â | - | Â | 2,448,201 | Â | - | Â | 2,448,201 |
| Total Investments | $ | - | $ | 51,453,581 | $ | - | $ | 51,453,581 |
The level classification by major category of investments is the same as the category presentation in the Fund's Portfolio of Investments.
There were no transfers among Level 1, Level 2 and Level 3 for the period ended June 30, 2017.
10. 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.
11. Review for Subsequent Events
In connection with the preparation of the financial statements of the Fund as of and for the period ended June 30, 2017, events and transactions subsequent to June 30, 2017, have been evaluated by the Fund's management for possible adjustment and/or disclosure. Management has not identified any subsequent events requiring financial statement disclosure as of the date these financial statements were issued.
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Board of Trustees
Annual Approval of the Investment Advisory Agreement
The investment advisory agreement between Wright Managed Equity Trust and Wright Managed Income Trust (the "Trusts"), on behalf of the series of the Trusts (the "Funds"), and Wright Investors' Service, Inc. ("Wright") must be renewed at least annually by the vote of the Trustees, including a majority of the Trustees who are not parties to the agreement or "interested persons" of any party thereto (the "Independent Trustees").
In March 2017 (the "March Meeting"), the Independent Trustees and the interested Trustee (together, the "Board") met in person joined by representatives of Wright and others to give consideration to information bearing on the approval of the investment advisory agreement between the Trusts, on behalf of each Fund, and Wright. The Independent Trustees and independent legal counsel to the Independent Trustees ("Independent Legal Counsel") also met separately from the interested Trustee, representatives of Wright, and others in order to further consider such information. A description of the conclusion of the Board in approving the investment advisory agreement follows.
The Board was presented with a wide range of information to assist in their deliberations. These materials included comparative performance of each Fund with appropriate benchmarks, including the average return within the applicable Morningstar category. The comparative performance for each Fund was presented for all periods available as of the end of the calendar year and for compound annual rates for various cumulative periods ended December 31, 2016. The materials also included comparative investment advisory fees and expenses of each Fund, both before and after any fee waivers or expense limitations, with an appropriate peer group of funds.
The materials also included a copy of the proposed investment advisory agreements and other information regarding the fee arrangement, including the structure of the investment advisory fee, the method of computing that fee, the expense limitations in place, potential economies of scale resulting from increases in the size of each Fund, and the extent to which it could later be appropriate for some portion of the benefit of these economies of scale to be shared with each Fund's shareholders. The Independent Trustees also received a memorandum from Independent Legal Counsel concerning their responsibilities with respect to the approval of the investment advisory agreement.
The Board was also presented information concerning the following:
| · | the terms of the proposed investment advisory agreement, including the fees payable under the agreement, and expense limitations for each Fund; |
| · | the manner in which each Fund's shares would be distributed and the presence of a distribution fee that could be paid by the Fund; |
| · | the nature and extent of the services to be provided by Wright, including information about the investment strategies and policies of the Funds; |
| · | the personnel of Wright responsible for managing each Fund; |
| · | the compliance program of Wright; |
| · | the financial condition and stability of Wright; |
| · | the potential for Wright to derive benefits that are ancillary to serving as an investment adviser to the Funds; and |
| · | the profitability of Wright from the advisory fee to be paid by each Fund. |
At the March Meeting, the Board reviewed, considered and discussed, among themselves and with Wright, and separately with Independent Legal Counsel, among other things, the information described above. The Trustees also considered the overall reputation, capabilities, and commitment of Wright to provide high-quality service to the Funds.
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After full consideration of the factors discussed above, the Board, including the Independent Trustees, unanimously approved the investment advisory agreement. In making its approval, the Board concluded that the nature, extent and quality of services provided by Wright supported the renewal of the agreement. The Board also concluded that the investment performance of each Fund was such that the agreement should continue. In addition, the Board concluded that fees paid by a Fund to Wright appeared to be acceptable in light of the nature, extent and quality of the services provided by Wright. Further, the Board concluded that Wright's profitability in providing services under the investment advisory agreement did not appear unreasonably high in light of the nature, extent and quality of the services provided by the Wright. Finally, the Board concluded that the investment advisory agreement in some measure shares economies of scale with shareholders. In approving the renewal of the investment advisory agreement, the Board, including the Independent Trustees, did not identify any single factor as controlling, and generally attributed different weights to various factors for the various Funds.
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The Wright Managed Blue Chip Investment Funds
Wright Investors' Service, Inc.
Wright Investors' Service Distributors, Inc.
Important Notice Regarding Delivery of Shareholders Documents
The Securities and Exchange Commission (the "SEC") permits funds to deliver only one copy of shareholder documents, including prospectuses, proxy statements and shareholder reports, to fund investors with multiple accounts at the same residential or post office box address. This practice is often called "householding" and it helps eliminate duplicate mailings to shareholders.
Wright, or your financial adviser, may household the mailing of your documents indefinitely unless you instruct Wright, or your financial adviser, otherwise.
If you would prefer that your Wright documents not be householded, please contact Wright at (800) 555-0644, or your financial adviser.
Your instructions that householding not apply to delivery of your Wright documents will be effective within 30 days of receipt by Wright or your financial adviser.
Portfolio Holdings
In accordance with rules established by the SEC, the Funds send semi-annual and annual reports to shareholders that contain a complete list of portfolio holdings as of the end of the second and fourth quarters, respectively, within 60 days of quarter-end and after filing with the SEC. The Funds also disclose complete portfolio holdings as of the end of the first and third fiscal quarters on Form N-Q, which is filed with the SEC within 60 days of quarter-end. The Funds' complete portfolio holdings as reported in annual and semi-annual reports and on Form N-Q are available for viewing on the SEC website at http://www.sec.gov and may be reviewed and copied at the SEC's public reference room (information on the operation and terms of usage of the SEC public reference room is available at http://sec.gov/info/edgar/prrules.htm or by calling (800) SEC-0330). After filing, the Funds' portfolio holdings as reported in annual and semi-annual reports are also available on Wright's website at www.wrightinvestors.com and are available upon request at no additional cost by contacting Wright at (800) 555-0644.
Proxy Voting Policies and Procedures
From time to time funds are required to vote proxies related to the securities held by the funds. The Wright Managed Blue Chip Investment Funds vote proxies according to a set of policies and procedures approved by the Funds' Board. You may obtain a description of these policies and procedures and information on how the Funds voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 without charge, upon request, by calling (800) 555-0644. This description is also available on the SEC website at http://www.sec.gov.
