UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
INVESTMENT COMPANY ACT FILE NUMBER 811-23080
THE COMMUNITY DEVELOPMENT FUND
(Exact name of registrant as specified in charter)
________
6255 Chapman Field Drive Miami, Florida 33156
(Address of principal executive offices) (Zip code)
Kenneth H. Thomas. Ph.D.
Community Development Fund Advisors, LLC
6255 Chapman Field Drive
Miami, Florida 33156
(Name and address of agent for service)
Copy To:
John J. O'Brien, Esquire
Morgan, Lewis & Bockius LLP
1701 Market Street
Philadelphia, PA 19103
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 1-844-445-4405
DATE OF FISCAL YEAR END: DECEMBER 31, 2016
DATE OF REPORTING PERIOD: DECEMBER 31, 2016
ITEM 1. REPORTS TO STOCKHOLDERS.
THE
COMMUNITY
[LOGO OMITTED] DEVELOPMENT FUND
HELPING DEVELOP AMERICA'S COMMUNITIES
THE COMMUNITY DEVELOPMENT FUND
ANNUAL REPORT
December 31, 2016
THE COMMUNITY DEVELOPMENT FUND DECEMBER 31, 2016
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TABLE OF CONTENTS
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Shareholder Letter .......................................................... 1
Schedule of Investments ..................................................... 4
Statement of Assets and Liabilities ......................................... 6
Statement of Operations ..................................................... 7
Statement of Changes in Net Assets .......................................... 8
Financial Highlights ........................................................ 9
Notes to Financial Statements ............................................... 10
Report of Independent Registered Public Accounting Firm ..................... 19
Trustees and Officers of The Community Development Fund ..................... 20
Disclosure of Fund Expenses ................................................. 22
Notice to Shareholders ...................................................... 24
The Fund files its complete schedule of investments of fund holdings with
the Securities and Exchange Commission (the "Commission") for the first
and third quarters of each fiscal year on Form N-Q within sixty days of the
period end. The Fund's N-Q forms are available on the Commission's website at
http://www.sec.gov, and may be reviewed and copied at the Commission's Public
Reference Room in Washington, DC. Information on the operation of the Public
Reference Room may be obtained by calling 1-800-SEC-0330.
A description of the policies and procedures that the Fund uses to determine
how to vote proxies relating to fund securities, as well as information
relating to how the Fund voted proxies relating to fund securities will be
available (i) without charge, upon request, by calling 1-844-445-4405; and (ii)
on the Commission's website at http://www.sec.gov.
THIS REPORT HAS BEEN PREPARED FOR SHAREHOLDERS AND MAY BE DISTRIBUTED TO OTHERS
ONLY IF PRECEDED OR ACCOMPANIED BY AN EFFECTIVE PROSPECTUS.
THE COMMUNITY DEVELOPMENT FUND DECEMBER 31, 2016
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SHAREHOLDER LETTER
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Dear Shareholders:
On behalf of the Board of Trustees of The Community Development Fund ("Fund"),
I am pleased to present the Fund's Annual Report to Shareholders for the year
ended December 31, 2016.
This will be remembered as our inaugural year with the launching of the Fund on
April 29, 2016. Although the Fund had only completed eight months of operations
through year-end, it was successful in identifying and purchasing securities
that financed community development activities, most particularly affordable
housing, throughout the nation.
The Fund's first full quarter of operations for the period ending September 30,
2016 reported a quarterly total return of 0.48% compared to 0.46% for the
Bloomberg Barclays U.S. Aggregate Bond Index ("Index") over the same period.
The following quarter, ending December 31, 2016, was one of the most volatile
in recent times for financial markets, due in large part to the election of
President Donald Trump on November 8, which was a surprise to most political
forecasters and polling organizations. The Federal Reserve's Open Market
Committee increased its Federal Funds target rate by 0.25% the following month.
Although the stock market did well in the fourth quarter, the opposite was true
for the bond market, with the Index falling by 2.98%, its worst quarterly
performance since the third quarter of 1981. The Fund fell by even more, 3.53%,
during that quarter. The Fund's performance for the entire eight months of
operations through December 31, 2016, was a decline of 1.89%, compared to a
decline of 0.75% for the Index.
The main reason for this difference is the fact that the Fund holds almost all
(89%) of its assets in AAA-rated investments and cash (11%), compared to the
Index with nearly 30% of its assets in AA-rated to BBB-rated investments (and
no cash)*. These higher risk investments for the Index compared favorably to
the Fund's investments for the overall period ending December 31, 2016. Also,
all the Fund's non-cash investments are in Mortgage Backed Securities ("MBS"),
compared to only 30% for the Index. Because MBS have a negative "convexity," a
measure of interest-rate sensitivity, compared to the positive convexity of the
Index, the Fund's returns were more adversely impacted by the rapid increase in
interest rates in the fourth quarter.
* ALL RATINGS ARE PROVIDED BY STANDARD AND POOR'S, MOODY'S AND FITCH GROUP.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
1
THE COMMUNITY DEVELOPMENT FUND DECEMBER 31, 2016
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SHAREHOLDER LETTER
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Both the Fund's adviser, Community Development Fund Advisors, LLC, and its
sub-adviser, Logan Circle Partners L.P., continue to work together seeking to
improve the Fund's performance in an environment of likely increasing interest
rates.
We thank you, our shareholders, for your investment in the Fund, and we
genuinely appreciate your continued confidence and support.
Sincerely,
Kenneth H. Thomas, Ph.D.
Chairman, Board of Trustees of the Fund
President, Community Development Fund Advisors, LLC
DEFINITION OF COMPARATIVE INDEX
BLOOMBERG BARCLAYS US AGGREGATE BOND INDEX is an index generally representing
fixed-rate, investment-grade government bonds, corporate debt securities,
mortgage-backed securities, and asset-backed securities with minimum maturity
dates of at least one year.
THIS REPRESENTS THE MANAGERS' ASSESSMENT OF THE FUND AND MARKET ENVIRONMENT AT
A SPECIFIC POINT IN TIME AND SHOULD NOT BE RELIED UPON BY THE READER AS
RESEARCH OR INVESTMENT ADVICE.
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND DOES NOT GUARANTEE
FUTURE RESULTS. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL
FLUCTUATE SO THAT AN INVESTOR'S SHARES WHEN REDEEMED MAY BE WORTH MORE OR LESS
THAN THEIR ORIGINAL COST AND CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN
THE PERFORMANCE QUOTED. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH
END, PLEASE CALL 1-844-445-4405.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
2
THE COMMUNITY DEVELOPMENT FUND DECEMBER 31, 2016
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GROWTH OF A $1,000,000 INVESTMENT (UNAUDITED)
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN FOR
THE PERIOD ENDED DECEMBER 31, 2016+
--------------------------------------------------------------------------------
Cumulative Inception to Date*
--------------------------------------------------------------------------------
-1.89%
--------------------------------------------------------------------------------
[LINE GRAPH OMITTED - PLOT POINTS AS FOLLOWS]
--------------------------------------------------------------------------------
4/29/16 12/31/16
--------------------------------------------------------------------------------
The Community Development Fund $100,000 $992,459
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Bloomberg Barclays US Aggregate Bond Index $100,000 $981,052
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+ IF THE ADVISER HAD NOT WAIVED A PORTION OF ITS FEE, THE FUND'S RETURN
WOULD HAVE BEEN LOWER.
* THE FUND COMMENCED OPERATIONS ON APRIL 29, 2016.
THE PERFORMANCE DATA QUOTED HEREIN REPRESENTS PAST PERFORMANCE AND THE RETURN
AND VALUE OF AN INVESTMENT IN THE FUND WILL FLUCTUATE SO THAT, WHEN REDEEMED,
MAY BE WORTH LESS THAN ITS ORIGINAL COST. PAST PERFORMANCE IS NO GUARANTEE OF
FUTURE PERFORMANCE AND SHOULD NOT BE CONSIDERED AS A REPRESENTATION OF THE
FUTURE RESULTS OF THE FUND. THE FUND'S PERFORMANCE ASSUMES THE REINVESTMENT OF
ALL DIVIDENDS AND ALL CAPITAL GAINS. INDEX RETURNS ASSUME REINVESTMENT OF
DIVIDENDS AND, UNLIKE A FUND'S RETURNS, DO NOT REFLECT ANY FEES OR EXPENSES. IF
SUCH FEES AND EXPENSES WERE INCLUDED IN THE INDEX RETURNS, THE PERFORMANCE
WOULD HAVE BEEN LOWER. PLEASE NOTE THAT ONE CANNOT INVEST DIRECTLY IN AN
UNMANAGED INDEX. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH END,
PLEASE CALL 1-844-445-4405.
THE GROSS OPERATING EXPENSE RATIO IS 1.93% AND THE NET OPERATING EXPENSE RATIO
IS 1.00%. CONTRACTUAL FEE WAIVERS TO THE NET EXPENSES ARE IN EFFECT UNTIL
APRIL 30, 2017. ANY ADDITIONAL WAIVERS ARE VOLUNTARY AND CAN BE DISCONTINUED AT
ANY TIME. IN THE ABSENCE OF CURRENT FEE WAIVERS TOTAL RETURN WOULD BE REDUCED.
THERE ARE NO ASSURANCES THAT THE FUND WILL MEET ITS STATED OBJECTIVES.
THE FUND'S HOLDINGS AND ALLOCATIONS ARE SUBJECT TO CHANGE BECAUSE IT IS
ACTIVELY MANAGED AND SHOULD NOT BE CONSIDERED RECOMMENDATIONS TO BUY INDIVIDUAL
SECURITIES.
RETURNS SHOWN DO NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD
PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
3
THE COMMUNITY DEVELOPMENT FUND DECEMBER 31, 2016
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SCHEDULE OF INVESTMENTS
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SECTOR WEIGHTINGS+ (UNAUDITED):
45.9% FNMA Single Family
25.4% Money Market Fund
18.5% GNMA Single Family
5.7% FGLMC Single Family
4.5% FNMA Other
+ Percentages based on total investments.
FACE MARKET
DESCRIPTION AMOUNT VALUE
--------------------------------------------------------------------------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 89.2%
FGLMC SINGLE FAMILY -- 6.9%
Pool Q41874, 3.00%, 07/01/2046 .............. $ 2,063,883 $ 2,051,524
------------
FNMA OTHER -- 5.2%
Pool AM5986, 3.44%, 06/01/2026 .............. 1,100,000 1,133,306
Pool 469683, 3.54%, 11/01/2021 .............. 413,217 435,186
------------
1,568,492
------------
FNMA SINGLE FAMILY -- 55.0%
Pool AS7484, 3.00%, 06/01/2046 .............. 1,035,826 1,030,393
Pool BC0962, 3.00%, 06/01/2046 .............. 2,028,380 2,017,252
Pool AS7476, 3.00%, 07/01/2046 .............. 1,067,834 1,061,976
Pool AS7647, 3.00%, 07/01/2046 .............. 1,034,032 1,028,359
Pool AS7653, 3.00%, 07/01/2046 .............. 1,606,518 1,597,705
Pool AS8262, 3.00%, 10/01/2046 .............. 1,034,374 1,028,700
Pool BC4723, 3.00%, 10/01/2046 .............. 1,939,923 1,929,280
Pool AS8465, 3.00%, 12/01/2046 .............. 1,013,576 1,008,016
Pool TBA, 3.50%, 01/01/2041 ................. 1,715,000 1,757,741
Pool TBA, 4.00%, 11/15/2034 ................. 3,760,000 3,952,920
------------
16,412,342
------------
GNMA SINGLE FAMILY -- 22.1%
Pool G2 AT5238, 3.00%, 06/20/2046 ........... 1,049,997 1,064,434
Pool G2 AU1724, 3.00%, 06/20/2046 ........... 1,078,386 1,093,354
Pool G2 AU1835, 3.00%, 08/20/2046 ........... 993,595 1,007,256
Pool G2 AS5883, 3.50%, 06/20/2046 ........... 1,606,458 1,671,867
Pool G2 AU1762, 3.50%, 07/20/2046 ........... 1,708,933 1,779,085
------------
6,615,996
------------
TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS
(COST $27,393,713) ........................... 26,648,354
------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
4
THE COMMUNITY DEVELOPMENT FUND DECEMBER 31, 2016
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SCHEDULE OF INVESTMENTS (CONCLUDED)
--------------------------------------------------------------------------------
FACE MARKET
DESCRIPTION AMOUNT VALUE
--------------------------------------------------------------------------------
SHORT-TERM INVESTMENT -- 30.5%
MONEY MARKET FUND -- 30.5%
Fidelity Institutional Government Portfolio,
Class I, 0.40% (A)(B) ...................... $ 9,092,988 $ 9,092,988
------------
TOTAL SHORT-TERM INVESTMENT
(COST $9,092,988) ........................... 9,092,988
------------
TOTAL INVESTMENTS
(COST $36,486,701) -- 119.7% ................ 35,741,342
------------
OTHER ASSETS AND LIABILITIES -- (19.7)% ..... (5,881,341)
------------
NET ASSETS -- 100.0% ........................ $ 29,860,001
============
(A) THE RATE REPORTED IS THE 7-DAY EFFECTIVE YIELD AS OF DECEMBER 31, 2016.
(B) SECURITY, OR A PORTION THEREOF, HAS BEEN PLEDGED AS COLLATERAL ON TO BE
ANNOUNCED SECURITIES.
FGLMC -- FEDERAL GOVERNMENT LOAN MORTGAGE CORPORATION
FNMA -- FEDERAL NATIONAL MORTGAGE ASSOCIATION
GNMA -- GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
TBA -- TO BE ANNOUNCED
The following table sets forth information about the level within the fair
value hierarchy at which the Fund's investments are measured at December 31,
2016.
LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
---------- ----------- ------- -----------
Investments in Securities
U.S. Government & Agency
Obligations $ -- $26,648,354 $ -- $26,648,354
Short-Term Investment 9,092,988 -- -- 9,092,988
---------- ----------- ------- -----------
Total Investments in Securities $9,092,988 $26,648,354 $ -- $35,741,342
========== =========== ======= ===========
Amounts designated as "--" are $0.
For the period ended December 31, 2016, there were no transfers between Level
1, Level 2 and Level 3 assets and liabilities. All transfers, if any, are
recognized by the Fund at the end of the period.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
5
THE COMMUNITY DEVELOPMENT FUND DECEMBER 31, 2016
--------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
--------------------------------------------------------------------------------
ASSETS:
Investments (Cost $36,486,701) .................................. $ 35,741,342
Cash and cash equivalents ....................................... 17,054
Receivable for investment securities sold ....................... 12,941,155
Interest and dividends receivable ............................... 55,793
Receivable from Investment Adviser (Note 5) ..................... 21,972
------------
TOTAL ASSETS ................................................. 48,777,316
------------
LIABILITIES:
Payable for investment securities purchased ..................... 18,647,299
Distributions Payable ........................................... 183,063
Chief Compliance Officer fees payable (Note 3) .................. 15,000
Payable due to Administrator (Note 4) ........................... 11,250
CRA servicing fees payable (Note 4) ............................. 4,898
Payable due to Trustees ......................................... 2,000
Other accrued expenses .......................................... 53,805
------------
TOTAL LIABILITIES ............................................ 18,917,315
------------
NET ASSETS ...................................................... $ 29,860,001
============
NET ASSETS CONSIST OF:
Paid-in capital ................................................. $ 30,805,316
Accumulated net realized loss on investments .................... (199,956)
Net unrealized depreciation on investments ...................... (745,359)
------------
NET ASSETS ...................................................... $ 29,860,001
============
NET ASSET VALUE, Offering and Redemption Price Per Share --
Class A shares (unlimited authorization - no par value)
($29,860,001 / 3,086,677 shares) ............................... $ 9.67
============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
6
THE COMMUNITY DEVELOPMENT FUND FOR THE PERIOD ENDED
DECEMBER 31, 2016
--------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends ........................................................ $ 19,397
Interest ......................................................... 242,406
----------
Total investment income ....................................... 261,803
----------
EXPENSES
Accounting and administration fees (Note 4) ...................... 90,000
Investment advisory fees (Note 5) ................................ 53,426
Chief Compliance Officer fees (Note 3) ........................... 45,333
CRA servicing fees (Note 4) ...................................... 35,617
Trustees' fees and expenses ...................................... 4,000
Transfer Agent fees .............................................. 27,402
Legal fees ....................................................... 24,000
Printing fees .................................................... 15,514
Audit fees ....................................................... 14,000
Custodian fees ................................................... 8,996
Registration fees ................................................ 3,319
Other ............................................................ 24,081
----------
TOTAL EXPENSES ................................................ 345,688
----------
LESS:
Investment advisory fees waived (Note 5) ......................... (53,426)
Reimbursement from Investment Adviser (Note 5) ................... (114,171)
----------
NET EXPENSES .................................................. 178,091
----------
NET INVESTMENT INCOME ............................................ 83,712
----------
NET REALIZED GAIN ON:
Investments ..................................................... 141,014
NET CHANGE IN UNREALIZED APPRECIATION/(DEPRECIATION) ON:
Investments ..................................................... (745,359)
----------
NET REALIZED AND UNREALIZED LOSS ................................. (604,345)
----------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS ............. $ (520,633)
===========
* THE FUND COMMENCED OPERATIONS ON APRIL 29, 2016.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
7
THE COMMUNITY DEVELOPMENT FUND DECEMBER 31, 2016
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STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
FOR THE
PERIOD ENDED
DECEMBER 31,
2016*
------------
OPERATIONS:
Net investment income ....................................... $ 83,712
Net realized gain on investments ............................ 141,014
Net change in unrealized appreciation/(depreciation)
on investments ............................................. (745,359)
-----------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS ........ (520,633)
-----------
DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income ....................................... (103,138)
Net realized gains .......................................... (321,623)
-----------
TOTAL DIVIDENDS AND DISTRIBUTIONS ........................... (424,761)
-----------
CAPITAL SHARE TRANSACTIONS:
Issued ...................................................... 30,500,000
Reinvestment of dividends ................................... 205,395
-----------
INCREASE FROM CAPITAL SHARE TRANSACTIONS .................... 30,705,395
-----------
TOTAL INCREASE IN NET ASSETS ................................ 29,760,001
-----------
NET ASSETS:
Beginning of period ......................................... 100,000
-----------
End of period ............................................... $29,860,001
===========
Undistributed net investment income ......................... $ --
===========
SHARES TRANSACTIONS:
Issued ...................................................... 3,055,573
Reinvestment of dividends ................................... 21,104
-----------
Net increase in shares outstanding .......................... 3,076,677
===========
* THE FUND COMMENCED OPERATIONS ON APRIL 29, 2016.
AMOUNTS DESIGNATED AS "--" ARE $0.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
8
THE COMMUNITY DEVELOPMENT FUND DECEMBER 31, 2016
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FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
SELECTED PER SHARE DATA & RATIOS
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
FOR THE
PERIOD ENDED
DECEMBER 31,
2016*
-------------
Net asset value, beginning of period ............................. $ 10.00
-------
INCOME/(LOSS) FROM OPERATIONS:(1)
Net investment income .......................................... 0.03
Net realized and unrealized loss on investments ................ (0.22)
-------
Total loss from operations ..................................... (0.19)
-------
DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income .......................................... (0.04)
Net realized gains ............................................. (0.10)
Return of capital .............................................. (0.00)^
-------
Total dividends and distributions ................................ (0.14)
-------
Net asset value, end of period ................................... $ 9.67
=======
TOTAL RETURN+ .................................................... (1.89)%
=======
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period ($ Thousands) ........................ $29,860
Ratio of expenses to average net assets (including
waivers and reimbursements) .................................... 1.00%(2)
Ratio of expenses to average net assets (excluding
waivers and reimbursements) .................................... 1.93%(2)
Ratio of net investment income to average net assets ........... 0.47%(2)
Portfolio turnover rate ........................................ 85%(3)
* THE FUND COMMENCED OPERATIONS ON APRIL 29, 2016.
^ AMOUNT REPRESENTS LESS THAN $(0.005).
(1) PER SHARE CALCULATIONS WERE PERFORMED USING AVERAGE SHARES FOR THE PERIOD.
(2) ANNUALIZED.
(3) PORTFOLIO TURNOVER IS FOR THE PERIOD INDICATED AND HAS NOT BEEN
ANNUALIZED.
+ TOTAL RETURN IS FOR THE PERIOD INDICATED AND HAS NOT BEEN ANNUALIZED.
RETURN SHOWN DOES NOT REFLECT THE DEDUCTIONS OF TAXES THAT A SHAREHOLDER
WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES. TOTAL
RETURN WOULD HAVE BEEN LOWER HAD THE ADVISER NOT WAIVED ITS FEE AND/OR
REIMBURSED OTHER EXPENSES.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
9
THE COMMUNITY DEVELOPMENT FUND DECEMBER 31, 2016
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
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1. ORGANIZATION
The Community Development Fund (the "Fund") is an open-end investment company
that was established as a Delaware statutory trust pursuant to a Certificate of
Trust dated August 12, 2011. The Trust's Agreement and Declaration of Trust
permits the Trust to operate separate series ("portfolios") of units of
beneficial interest ("shares") and separate classes of portfolios. Currently,
the Trust offers one class of shares. The investment objectives of the Fund are
to provide current income consistent with the preservation of capital and
enable institutional investors that are subject to regulatory examination under
the Community Reinvestment Act of 1977, as amended, (the "CRA") to claim
favorable regulatory consideration of their investment. Community Development
Fund Advisors, LLC (the "Adviser"), was organized under the laws of the State
of Delaware as a limited liability company on July 25, 2011 and is also
registered with the Securities and Exchange Commission ("SEC") as an investment
adviser under the Investment Advisors Act of 1940 (the "1940 Act"). Logan
Circle Partners L.P. (the "Sub-Adviser") manages the Fund's assets under the
direction of the Adviser.
2. SIGNIFICANT ACCOUNTING POLICIES
The following are significant accounting policies, which are consistently
followed in the preparation of the financial statements of the Fund:
USE OF ESTIMATES -- The Fund is an investment company that applies the
accounting and reporting guidance issued in Topic 946 by the U.S. Financial
Accounting Standards Board ("FASB"). The preparation of financial
statements in conformity with U.S. generally accepted accounting principles
("U.S. GAAP") requires management to make estimates and assumptions that
affect the fair value of assets, the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amount of increases and
decreases in net assets from operations during the reporting period. Actual
results could differ from those estimates and such differences could be
material.
SECURITY VALUATION -- Investments in securities traded on a national
securities exchange are valued at the last reported bid price. Debt
securities are valued by using market bid quotations or independent pricing
services which use bid prices provided by market makers or estimates of
values obtained from yield data relating to instruments or securities with
similar characteristics.
10
THE COMMUNITY DEVELOPMENT FUND DECEMBER 31, 2016
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
The Fund's board of trustees has adopted methods for valuing securities
including in circumstances in which market quotes are not readily
available, and has delegated authority to the Fund's investment adviser to
apply those methods in making fair value determinations, subject to board
oversight. The investment adviser has established a Valuation Committee
(the "Valuation Committee") to administer, implement, and oversee the fair
valuation process, and to make fair value decisions. The Valuation
Committee regularly reviews its own fair value decisions, as well as
decisions made under its standing instructions to the investment adviser's
valuation teams. The Valuation Committee reviews changes in fair value
measurements from period to period and may, as deemed appropriate, update
the fair valuation guidelines to better reflect the results of comparisons
of fair value determinations with actual trade prices and address new or
evolving issues. The Valuation Committee reports any changes to the fair
valuation guidelines to the board of trustees with supplemental information
to support the changes. The Fund's board and audit committee also regularly
review reports that describe fair value determinations and methods.
The Fund utilizes various methods to measure the fair value of most of its
investments on a recurring basis. GAAP establishes a hierarchy prioritizes
inputs to valuation techniques used to measure fair value. The three levels
of inputs are as follows:
o Level 1 -- Unadjusted quoted prices in active markets for identical
assets or liabilities that the Fund has the ability to access.
o Level 2 -- Observable inputs other than quoted prices included in
Level 1 that are observable for the asset or liability either directly
or indirectly. These inputs may include quoted prices for the
identical instrument on an inactive market, prices for similar
instruments, interest rates, prepayment speeds, credit risk, yield
curves, default rates, and similar data.
o Level 3 -- Unobservable inputs for the asset or liability to the
extent that relevant observable inputs are not available, representing
the Fund's own assumptions about the assumptions that a market
participant would use in valuing the asset or liability, and that
would be based on the best information available.
11
THE COMMUNITY DEVELOPMENT FUND DECEMBER 31, 2016
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
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.
For the period ended December 31, 2016, there have been no significant
changes to the Fund's fair valuation methodology.
MORTGAGE-BACKED TO-BE-ANNOUNCED SECURITIES -- The Fund may enter into
mortgage-backed to-be-announced securities ("TBAs"). These derivative
financial instruments are subject to varying degrees of market and credit
risk. TBAs provide for the delayed delivery of the underlying instrument.
The contractual or notional amounts related to these financial instruments
adjusted for unrealized market valuation gains or losses are recorded on a
trade date basis. The credit risk related to settlements is limited to the
unrealized market valuation gains or losses recorded in the statement of
operations. Market risk is substantially dependent upon the value of the
underlying financial instruments and is affected by market forces such as
volatility and changes in interest rates.
SECURITY TRANSACTIONS, DIVIDEND AND INVESTMENT INCOME -- Security
transactions are accounted for on the date the securities are purchased or
sold. Realized gains and losses on sales of investments are determined on
the basis of the identified cost for both financial statement and federal
income tax purposes. Dividend income is recognized on the ex-dividend date
or as soon as information is available to the Fund. Interest income is
recognized on an accrual basis.
Amortization and accretion are calculated using the effective interest
method. Amortization of premiums and discounts are included in interest
income.
12
THE COMMUNITY DEVELOPMENT FUND DECEMBER 31, 2016
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
DETERMINATION OF NET ASSET VALUE AND CALCULATION OF EXPENSES -- In
calculating the net asset value ("NAV") per share of the Fund, investment
income, realized and unrealized gains and losses, and expenses are
allocated daily to each share based upon the proportion of net assets of
each share.
FEDERAL INCOME TAXES -- It is the Fund's intention to qualify as a
regulated investment company for Federal income tax purposes by complying
with the appropriate provisions of Subchapter M of the Code. Accordingly,
no provision for Federal income taxes has been made in the financial
statements.
The Fund evaluates tax positions taken or expected to be taken in the
course of preparing the Fund's tax returns to determine whether it is
"more-likely-than-not" (i.e., greater than 50-percent) that each tax
position will be sustained upon examination by a taxing authority based on
the technical merits of the position. Tax positions deemed to meet the
more-likely-than-not threshold are recorded as a tax benefit in the current
year. The Fund did not record any tax provision in the current period.
However, management's conclusions regarding tax positions taken may be
subject to review and adjustment at a later date based on factors
including, but not limited to, examination by tax authorities (i.e., the
initial open tax year end, as applicable), on-going analysis of and changes
to tax laws, regulations and interpretations thereof.
As of and during the period ended December 31, 2016, the Fund did not have
a liability for any unrecognized tax benefits. The Fund recognizes interest
and penalties, if any, related to unrecognized tax benefits as income tax
expense in the Statement of Operations. During the period ended December
31, 2016, the Fund did not incur any interest or penalties.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- Dividends from net
investment income are declared and paid monthly. Distributable net realized
capital gains, if any, are declared and distributed at least annually.
Distributions to shareholders are recorded on the ex-dividend date. Income
and capital gain distributions are determined in accordance with income tax
regulations, which may differ from U.S. GAAP.
SECURITIES PURCHASED ON A DELAYED DELIVERY BASIS -- The Fund may purchase
securities on a delayed delivery basis, with payment and delivery scheduled
for a future date. These transactions are subject to market
13
THE COMMUNITY DEVELOPMENT FUND DECEMBER 31, 2016
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
fluctuations and are subject to the risk that the value at delivery may be
more or less than the trade date purchase price. Although the Fund will
generally purchase these securities with the intention of holding the
securities, it may sell the securities before the settlement date. The Fund
will set aside liquid assets, or engage in other appropriate measures, to
cover its obligations with respect to these securities.
3. TRANSACTIONS WITH AFFILIATES
Certain officers of the Trust are also officers of SEI Investments Global Funds
Services (the "Administrator"), a wholly owned subsidiary of SEI Investments
Company, and/or Foreside Fund Officer Services, LLC, an affiliate of the
Distributor. Such officers are paid no fees by the Trust, other than the Chief
Compliance Officer ("CCO") as described below, for serving as officers of the
Trust.
A portion of the services provided by the CCO and his staff, who are employees
of Foreside Fund Officer Services, LLC, are paid for by the Trust as incurred.
The services include regulatory oversight of the Trust's advisors and service
providers, as required by SEC regulations. The CCO's services and fees have
been approved by and are reviewed by the Board.
4. ADMINISTRATION, CRA SERVICING, DISTRIBUTION, CUSTODIAN AND TRANSFER
AGENT AGREEMENTS
The Fund and the Administrator are parties to an Administration Agreement under
which the Administrator provides administrative services to the Fund. For these
services, the Administrator is paid an asset based fee, which will vary
depending on the number of share classes and the average daily net assets of
the Fund, subject to a minimum. For the period ended December 31, 2016, the
Fund paid $90,000 for these services.
The Fund has adopted a CRA servicing plan (the "CRA Servicing Plan") with
respect to Class A Shares that allows such shares to pay the Adviser a fee in
connection with the ongoing CRA recordkeeping and compliance services provided
to shareholders at an annual rate of up to 0.20% of average daily net assets of
the Class A Shares. For the period ended December 31, 2016, the Class A Shares
incurred $35,617 of CRA servicing fees, an effective rate of 0.20%.
The Fund has adopted a Distribution Plan pursuant to Rule 12b-1 under the 1940
Act, with respect to its Class A Shares. The Distribution Plan allows the Fund
to pay fees for the sale and distribution of Class A Shares and for shareholder
services provided to the holders of Class A Shares. Under the
14
THE COMMUNITY DEVELOPMENT FUND DECEMBER 31, 2016
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
Distribution Plan, the Fund may pay its distributor up to 0.25% per year of the
Fund's average daily net assets attributable to its Class A Shares. For the
period ended December 31, 2016, the Class A Shares did not incur any
Distribution fees.
UMB Bank, N.A., (the "Custodian") serves as the Fund's Custodian pursuant to a
custody agreement. UMB Fund Services, Inc. (the "Transfer Agent") serves as the
Fund's Transfer Agent pursuant to a transfer agency agreement.
5. INVESTMENT ADVISORY AGREEMENT
Under the terms of an investment advisory agreement, the Adviser provides or
arranges for a third party sub-adviser to provide investment advisory services
to the Fund. For its advisory services, the Adviser receives a fee, which is
calculated daily and paid monthly, at an annual rate of 0.30% of the Fund's
average daily net assets. The Adviser has contractually agreed to reduce fees
and reimburse expenses to the extent necessary to keep Total Annual Fund
Operating Expenses (excluding interest, taxes, brokerage commissions and other
costs and expenses relating to the securities that are purchased and sold by
the Fund, acquired fund fees and expenses, and other non-routine expenses not
incurred in the ordinary course of such Fund's business (collectively,
"excluded expenses")) from exceeding 1.00% of the Fund's average daily net
assets until April 30, 2017 (the "expense cap"). In addition, if at any point
Total Annual Fund Operating Expenses (not including excluded expenses) are
below the expense cap, the Adviser may recover all or a portion of its fee
reductions or expense reimbursements within a three-year period from the year
in which it reduced its fee or reimbursed expenses if the Fund's Total Annual
Fund Operating Expenses are below the expense cap that was in place at the time
of such fee reductions or expense reimbursements. This agreement may be
terminated: (i) by the Board for any reason at any time; or (ii) by the
Adviser, upon ninety (90) days' prior written notice to the Trust, effective as
of the close of business on April 30, 2017. For period ended December 31, 2016,
the Fund paid $53,426 for these services. As of December 31, 2016, fees which
were previously waived and/or reimbursed by the Adviser which may be subject to
possible future reimbursement, up to the expense cap in place at the time the
expenses were waived and/or reimbursed to the Adviser were $167,597, expiring
in 2019.
The Adviser pays the Sub-Adviser a fee out of its advisory fee which is based
on a percentage of the average monthly market value of the assets managed by
the Sub-Adviser.
15
THE COMMUNITY DEVELOPMENT FUND DECEMBER 31, 2016
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
6. INVESTMENT TRANSACTIONS
The aggregate purchases and sales and maturities of investments, excluding
short-term investments, by the Fund for the period ended December 31, 2016,
were as follows:
PURCHASES:
U.S. Government ............ $30,425,626
SALES AND MATURITIES:
U.S. Government ........... $21,962,394
7. FEDERAL TAX INFORMATION
The amount and character of income and capital gain distributions to be paid,
if any, are determined in accordance with Federal income tax regulations, which
may differ from U.S. GAAP. As a result, net investment income/(loss) and net
realized gain/(loss) on investment transactions for a reporting period may
differ significantly from distributions during such period. These book/tax
differences may be temporary or permanent. To the extent these differences are
permanent in nature, they are charged or credited to undistributed net
investment income/(loss), accumulated net realized gain/(loss) or paid-in
capital, as appropriate, in the period that the differences arise.
Accordingly, the following permanent differences primarily attributable to the
reclassification of paydowns have been reclassified to/(from) the following
accounts during the year ended December 31, 2016:
UNDISTRIBUTED NET ACCUMULATED NET
INVESTMENT INCOME REALIZED LOSS PAID-IN CAPITAL
----------------- --------------- ---------------
$19,426 $(19,347) $(79)
These reclassifications are due to differences between GAAP and tax treatment
of paydown gains and losses and tax reclasses of distributions, they have no
impact on net assets or net asset value per share.
The tax character of dividends and distributions declared during the last
fiscal year were as follows:
ORDINARY INCOME
---------------
2016 ............... $424,761
16
THE COMMUNITY DEVELOPMENT FUND DECEMBER 31, 2016
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
As of December 31, 2016, the components of distributable earnings on a tax
basis were as follows:
Post-October Losses* ................ $(199,956)
Unrealized Depreciation ............. (745,359)
----------
Total Accumulated Losses $(945,315)
* UNDER CURRENT TAX LAW, CAPITAL LOSSES REALIZED AFTER OCTOBER 31 AND PRIOR
TO THE FUND'S FISCAL YEAR MAY BE DEFERRED AS OCCURRING ON THE FIRST DAY OF
THE FOLLOWING FISCAL YEAR.
The Federal tax cost and aggregate gross unrealized appreciation and
depreciation for the investments held by the Fund at December 31, 2016, were as
follows:
AGGREGATE GROSS AGGREGATE GROSS NET
FEDERAL UNREALIZED UNREALIZED UNREALIZED
TAX COST APPRECIATION DEPRECIATION DEPRECIATION
----------- ---------------- --------------- ------------
$36,486,701 $18,959 $(764,318) $(745,359)
8. RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS
As with all mutual funds, a shareholder of the Fund is subject to the risk that
his or her investment could lose money. The Fund is subject to the principal
risks noted below, any of which may adversely affect the Fund's net asset value
and ability to meet its investment objective.
CREDIT RISK
The Fund had significant holdings in Fannie Mae, Freddie Mac and GNMA
mortgage-backed securities. Investments in these issues may be at risk that the
issuer of a security or the counterparty to a contract will default or
otherwise become unable to honor a financial obligation.
9. INDEMNIFICATIONS
In the normal course of business, the Fund enters into contracts that provide
general indemnifications. The Fund's maximum exposure under these arrangements
is dependent on future claims that may be made against the Fund and, therefore,
cannot be established; however, based on experience, the risk of loss from such
claims is considered remote.
10. UNDERLYING INVESTMENT IN OTHER INVESTMENT COMPANIES
The Fund currently invests a portion of its assets in the Fidelity
Institutional Government Portfolio, Class I (the "Fidelity Fund"). The Fidelity
Fund invests at least 99.5% of its total assets in cash, U.S. Government
securities and/or
17
THE COMMUNITY DEVELOPMENT FUND DECEMBER 31, 2016
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
--------------------------------------------------------------------------------
repurchase agreements that are collateralized fully. The investment objective of
the Fidelity Fund is current income with liquidity and stability of principal.
The Fund may redeem its investment from the Fidelity Fund at any time if the
Advisor determines that it is in the best interest of the Fund and its
shareholders to do so.
The performance of the Fund may be directly affected by the performance of the
Fidelity Fund. The financial statements of the Fidelity Fund, including the
portfolio of investments, can be found at the Security and Exchange
Commission's website www.sec.gov and should be read in conjunction with the
Fund's financial statements. As of December 31, 2016 the percentage of the
Funds' net assets invested in the Fidelity Fund was 30.5%.
11. OTHER
At December 31, 2016, 62% of total shares outstanding were held by 3 record
shareholders each owning 10% or greater of the aggregate total shares
outstanding. These shareholders were comprised of omnibus accounts that were
held on behalf of various shareholders.
12. REGULATORY MATTERS
In October 2016, the Securities and Exchange Commission (the "SEC") released
its Final Rule on Investment Company Reporting Modernization (the "Rule"). The
Rule which introduces two new regulatory reporting forms for investment
companies -- Form N-PORT and Form N-CEN -- also contains amendments to
Regulation S-X which impact financial statement presentation, particularly the
presentation of derivative investments. Although still evaluating the impact of
the Rule, management believes that many of the Regulation S-X amendments are
consistent with the Portfolio's current financial statement presentation and
expects that the Portfolio will be able to comply with the Rule's Regulation
S-X amendments by the August 1, 2017 compliance date.
13. SUBSEQUENT EVENTS
The Fund has evaluated the need for disclosures and/or adjustments resulting
from subsequent events through the date the financials were issued. Based on
this evaluation, no disclosures and/or adjustments were required to the
financial statements.
18
THE COMMUNITY DEVELOPMENT FUND DECEMBER 31, 2016
--------------------------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
--------------------------------------------------------------------------------
To the Board of Trustees and Shareholders of
The Community Development Fund
We have audited the accompanying statement of assets and liabilities of The
Community Development Fund (the "Fund"), including the schedule of investments,
as of December 31, 2016, and the related statement of operations, the statement
of changes in net assets, and the financial highlights for the period April 29,
2016 (commencement of operations) to December 31, 2016. 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 includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 2016, by correspondence
with the custodian and brokers or by other appropriate audit procedures where
replies from brokers were not received. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audit provides 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
Community Development Fund as of December 31, 2016, the results of its
operations, the changes in its net assets, and its financial highlights for the
period April 29, 2016 to December 31, 2016, in conformity with accounting
principles generally accepted in the United States of America.
TAIT, WELLER & BAKER LLP
Philadelphia, Pennsylvania
February 27, 2017
19
THE COMMUNITY DEVELOPMENT FUND DECEMBER 31, 2016
--------------------------------------------------------------------------------
TRUSTEES AND OFFICERS OF THE FUND (UNAUDITED)
--------------------------------------------------------------------------------
Information pertaining to the Trustees and Officers of the Trust is set forth
below. Trustees who are not deemed to be "interested persons" of the Trust as
defined in the 1940 Act are referred to as "Independent Trustees." The Trust's
Statement of Additional Information ("SAI") includes additional information
about the Trustees and Officers. The SAI may be obtained without charge by
calling 1-844-445-4405.
---------------------------------------------------------------------------------------------------------------
NUMBER OF
PRINCIPAL PORTFOLIOS IN
NAME, POSITION(S) TERM OF OFFICE OCCUPATION(S) TRUST COMPLEX
ADDRESS, HELD WITH AND LENGTH OF DURING PAST OVERSEEN BY OTHER DIRECTORSHIPS
YEAR OF BIRTH THE COMPANY TIME SERVED(1) FIVE YEARS TRUSTEE HELD BY TRUSTEE
---------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEE
---------------------------------------------------------------------------------------------------------------
Kenneth H. President, Since 2015 Bank Consultant 1 Board member of the
Thomas, Ph.D. Chief Executive (August 1975 -- NorthEast Community
(1947) Officer and Present). Bank, NorthEast
Secretary Community Bancorp,
Inc., and NorthEast
Community Bancorp,
MHC.
---------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
---------------------------------------------------------------------------------------------------------------
Antonio L. Argiz Since 2015 Chairman of the 1 None.
(1952) Board and CEO of
Morrison, Brown,
Argiz & Farra, LLC
("MBAF").
---------------------------------------------------------------------------------------------------------------
Ronald Lindhart Since 2015 Chief Executive, 1 None.
(1956) Banking Strategies
International, LLC,
Since 2012.
---------------------------------------------------------------------------------------------------------------
(1) EACH TRUSTEE SHALL HOLD OFFICE DURING THE LIFETIME OF THIS TRUST UNTIL THE
ELECTION AND QUALIFICATION OF HIS OR HER SUCCESSOR, OR UNTIL HE OR SHE
SOONER DIES, RESIGNS OR IS REMOVED IN ACCORDANCE WITH THE TRUST'S
DECLARATION OF TRUST.
20
THE COMMUNITY DEVELOPMENT FUND DECEMBER 31, 2016
--------------------------------------------------------------------------------
TRUSTEES AND OFFICERS OF THE FUND (UNAUDITED) (CONCLUDED)
--------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------
NUMBER OF
PRINCIPAL PORTFOLIOS IN
NAME, POSITION(S) TERM OF OFFICE OCCUPATION(S) TRUST COMPLEX
ADDRESS, HELD WITH AND LENGTH OF DURING PAST OVERSEEN BY OTHER DIRECTORSHIPS
YEAR OF BIRTH THE COMPANY TIME SERVED(1) FIVE YEARS TRUSTEE HELD BY TRUSTEE
---------------------------------------------------------------------------------------------------------------
OFFICERS
---------------------------------------------------------------------------------------------------------------
Kenneth H. President, Since 2015 Bank Consultant N/A Board member
Thomas, Ph.D. Chief Executive (August 1975 -- of the NorthEast
(1947) Officer and Present). Community
Secretary Bank, NorthEast
Community
Bancorp, Inc.,
and NorthEast
Community
Bancorp, MHC.
---------------------------------------------------------------------------------------------------------------
James Nash Chief Since 2015 Foreside Fund N/A None.
(1981) Compliance Officer Services,
Officer and LLC, Fund Chief
Anti-Money Compliance Officer
Laundering (January 2016 --
Officer Present); JPMorgan
Chase & Co., Senior
Associate, Regulatory
Administration
Advisor (June 2014
-- January 2016); and
Linedata Services,
Product Analyst
(July 2011 -- June
2014).
---------------------------------------------------------------------------------------------------------------
Eric Treasurer and Since 2015 Director of Fund N/A None.
Kleinschmidt Chief Financial Accounting, SEI
(1968) Officer Investments (2004 --
Present).
---------------------------------------------------------------------------------------------------------------
(1) EACH TRUSTEE SHALL HOLD OFFICE DURING THE LIFETIME OF THIS TRUST UNTIL THE
ELECTION AND QUALIFICATION OF HIS OR HER SUCCESSOR, OR UNTIL HE OR SHE
SOONER DIES, RESIGNS OR IS REMOVED IN ACCORDANCE WITH THE TRUST'S
DECLARATION OF TRUST.
21
THE COMMUNITY DEVELOPMENT FUND DECEMBER 31, 2016
--------------------------------------------------------------------------------
DISCLOSURE OF FUND EXPENSES (UNAUDITED)
--------------------------------------------------------------------------------
All mutual funds have operating expenses. As a shareholder of a mutual fund,
your investment is affected by these ongoing costs, which include (among
others) costs for fund management, administrative services, and shareholder
reports like this one. It is important for you to understand the impact of
these costs on your investment returns.
Operating expenses such as these are deducted from the mutual fund's gross
income and directly reduce its final investment return. These expenses are
expressed as a percentage of the mutual fund's average net assets; this
percentage is known as the mutual fund's expense ratio.
The following examples use the expense ratio and are intended to help you
understand the ongoing costs (in dollars) of investing in your Fund and to
compare these costs with those of other mutual funds. The examples are based on
an investment of $1,000 made at the beginning of the period shown and held for
the entire period from July 1, 2016 to December 31, 2016.
The table on the next page illustrates your Fund's costs in two ways:
ACTUAL FUND RETURN. This section helps you to estimate the actual expenses after
fee waivers that your Fund incurred over the period. The "Expenses Paid During
Period" column shows the actual dollar expense cost incurred by a $1,000
investment in the Fund, and the "Ending Account Value" number is derived from
deducting that expense cost from the Fund's gross investment return.
You can use this information, together with the actual amount you invested in
the Fund, to estimate the expenses you paid over that period. Simply divide
your ending starting account value by $1,000 to arrive at a ratio (for example,
an $8,600 account value divided by $1,000 = 8.6), then multiply that ratio by
the number shown for your Fund under "Expenses Paid During Period."
HYPOTHETICAL 5% RETURN. This section helps you compare your Fund's costs with
those of other mutual funds. It assumes that the Fund had an annual 5% return
before expenses during the year, but that the expense ratio (Column 3) for the
period is unchanged. This example is useful in making comparisons because the
Securities and Exchange Commission requires all mutual funds to make this 5%
calculation. You can assess your Fund's comparative cost by comparing the
hypothetical result for your Fund in the "Expenses Paid During Period" column
with those that appear in the same charts in the shareholder reports for other
mutual funds.
22
THE COMMUNITY DEVELOPMENT FUND DECEMBER 31, 2016
--------------------------------------------------------------------------------
DISCLOSURE OF FUND EXPENSES (UNAUDITED) (CONCLUDED)
--------------------------------------------------------------------------------
NOTE: Because the return is set at 5% for comparison purposes -- NOT your
Fund's actual return -- the account values shown may not apply to your specific
investment.
--------------------------------------------------------------------------------
BEGINNING ENDING EXPENSES
ACCOUNT ACCOUNT ANNUALIZED PAID
VALUE VALUE EXPENSE DURING
7/1/16 12/31/16 RATIOS PERIOD*
--------------------------------------------------------------------------------
ACTUAL FUND RETURN
Class A Shares .......... $1,000.00 $ 969.40 1.00% $4.95
HYPOTHETICAL 5% RETURN
Class A Shares .......... 1,000.00 1,020.11 1.00 5.08
--------------------------------------------------------------------------------
* EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO MULTIPLIED BY
THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 184/366 (TO
REFLECT THE ONE-HALF YEAR PERIOD).
23
THE COMMUNITY DEVELOPMENT FUND DECEMBER 31, 2016
--------------------------------------------------------------------------------
NOTICE TO SHAREHOLDERS (UNAUDITED)
--------------------------------------------------------------------------------
FEDERAL INCOME TAX INFORMATION
At December 31, 2016, The Community Development Fund hereby designates $424,682
as ordinary income dividends. The Community Development Fund designates $0 as
corporate dividends received deduction. In addition, The Community Development
Fund designated $0 as long-term capital gain distributions for the purpose of
the dividend paid deduction on its Federal income tax return.
As created by the Jobs and Growth Tax Relief Reconciliation Act of 2003, the
amount of dividend income that qualifies as "Qualifying Dividend Income" is $0
for The Community Development Fund. It is the intention for the Fund to
designate the maximum amount permitted by law.
As created by the American Jobs Creation Act of 2004, "Qualified Interest
Income" represents the amount of qualifying interest that is exempt from U.S.
Withholding tax when paid to foreign investors. The Community Development Fund
hereby designates $184,419 as qualified interest income.
As created by the American Jobs Creation Act of 2004, "Short-Term Capital Gain
Dividends" represents the amount of short-term capital gain distributions that
is exempt from U.S withholding tax when paid to foreign investors. The
Community Development Fund hereby designates $321,621 as short term capital
gain dividends.
U.S. Government Interest represents the amount of interest that was derived
from direct U.S. Government obligations and distributed during the fiscal year.
This amount is reflected as a percentage of ordinary income. Generally,
interest from direct U.S. Government obligations is exempt from state income
tax. However, for shareholders of the Portfolio who are residents of
California, Connecticut and New York, the statutory threshold requirements were
not satisfied to permit exemption of these amounts for state income. The
Community Development Fund hereby designates $2,103 as U.S. government
interest.
The information reported herein may differ from the information and
distributions taxable to the shareholders for the calendar year ending December
31, 2016. Complete information will be computed and reported in conjunction
with your Form 1099-DIV.
24
[This Page Intentionally Left Blank]
FUND INFORMATION
REGISTERED OFFICE P.O. Box 2175
Milwaukee, WI 53201
INVESTMENT ADVISER Community Development Fund Advisors, LLC
6255 Chapman Field Drive
Miami, Florida 33156
DISTRIBUTOR Foreside Fund Services, LLC
Three Canal Plaza, Suite 100
Portland, ME 04101
ADMINISTRATOR SEI Investments Global Funds Services
One Freedom Valley Drive
Oaks, PA 19456
LEGAL COUNSEL Morgan, Lewis & Bockius LLP
1701 Market Street
Philadelphia, PA 19103
CUSTODIAN UMB Bank, N.A.
1010 Grand Avenue
Kansas City, Missouri 64106
TRANSFER AGENT UMB Fund Services, Inc.
235 West Galena Street
Milwaukee, WI 53212
INDEPENDENT REGISTERED Tait, Weller & Baker LLP
PUBLIC ACCOUNTING FIRM 1818 Market Street
Philadelphia, PA 19103
COMMUNITY
DEVELOPMENT www.CommunityDevelopmentFund.com
[LOGO OMITTED] FUND ADVISORS 6255 Chapman Field Drive, Miami, FL 33156
HELPING DEVELOP AMERICA'S COMMUNITIES T: 305.663.0100 800.203.0209 F: 305.665.2203
ITEM 2. CODE OF ETHICS.
The Registrant has adopted a code of ethics that applies to the Registrant's
principal executive officer, principal financial officer, comptroller or
principal accounting officer or any person who performs a similar function.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
(a) (1) The Registrant's Board of Trustees has determined that the Registrant
has an audit committee financial expert serving on the audit committee.
(a) (2) The audit committee financial expert Antonio L. Argiz is an independent
trustee as defined in Form N-CSR Item 3 (a) (2)
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Fees billed by Tait, Weller & Baker LLP related to the Registrant.
Tait, Weller & Baker LLP billed the Registrant aggregate fees for services
rendered to the Registrant for the fiscal year 2016 as follows:
--------------------------------------------------------------------------------
FISCAL 2016
--------------------------------------------------------------------------------
All fees and All fees and All other fees
services to the services to and services to
Registrant that service service
were pre- affiliates that affiliates that
approved were pre- did not require
approved pre-approval
--------------------------------------------------------------------------------
(a) Audit $12,000 $0 N/A
Fees
--------------------------------------------------------------------------------
(b) Audit- $0 $0 N/A
Related
Fees
--------------------------------------------------------------------------------
(c) Tax $2,000 $0 N/A
Fees
--------------------------------------------------------------------------------
(d) All $0 $0 N/A
Other
Fees
--------------------------------------------------------------------------------
(e)(1) The Trust's Audit Committee has adopted, and the Board of Trustees has
ratified, an Audit and Non-Audit Services Pre-Approval Policy (the "Policy"),
which sets forth the procedures and the conditions pursuant to which services
proposed to be performed by the independent auditor of the Trust may be
pre-approved .
(e)(2) Percentage of fees billed applicable to non-audit services pursuant to
waiver of pre-approval requirement were as follows:
--------------------------------------------
FISCAL 2016
--------------------------------------------
Audit-Related Fees 0%
--------------------------------------------
Tax Fees 0%
--------------------------------------------
All Other Fees 0%
--------------------------------------------
(f) Not Applicable.
(g) The aggregate non-audit fees and services billed by Tait, Weller & Baker
LLP for the fiscal year 2016 were $2,000.
(h) During the past fiscal year, Registrant's principal accountant provided
certain non-audit services to Registrant's investment adviser or to entities
controlling, controlled by, or under common control with Registrant's
investment adviser that provide ongoing services to Registrant that were not
subject to pre-approval pursuant to paragraph (c)(7)(ii) of Rule 2-01 of
Regulation S-X. The Audit Committee of Registrant's Board of Trustees reviewed
and considered these non-audit services provided by Registrant's principal
accountant to Registrant's affiliates, including whether the provision of these
non-audit services is compatible with maintaining the principal accountant's
independence.
ITEMS 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS
Schedule of Investments 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 COMPANY AND
AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no changes to the procedures by which shareholders may
recommend nominees to the Registrant's Board of Trustees during the period
covered by this report.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The Registrant's principal executive and principal financial officers, or
persons performing similar functions, have concluded that the Registrant's
disclosure controls and procedures (as defined in Rule 30a-3(c) under the Act
(17 CFR 270.30a -3(c))) as of a date within 90 days of the filing date of the
report, are effective based on the evaluation of these controls and procedures
required by Rule 30a-3(b) under the Act (17 CFR 270.30a -3(b)) and Rules
13a-15(b) or 15d-15(b) under the Exchange Act (17 CFR 240.13a -15(b) or 240.15d
-15(b)).
(b) There has been no change in the Registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the Act (17 CFR 270.30a
-3(d)) that occurred during the second fiscal quarter of the period covered by
this report that has materially affected, or is reasonably likely to materially
affect, the Registrant's internal control over financial reporting.
ITEMS 12. EXHIBITS.
(a)(1) Code of Ethics attached hereto.
(a)(2) A separate certification for the principal executive officer and the
principal financial officer of the Registrant as required by Rule 30a-2(a)
under the Investment Company Act of 1940 Act, as amended (17 CFR 270.30a
-2(a)), are filed herewith.
(b) Officer certifications as required by Rule 30a-2(b) under the Investment
Company Act of 1940, as amended (17 CFR 270.30a -2(b)) also accompany this
filing as exhibits.
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.
(Registrant) The Community Development Fund
By (Signature and Title) /s/ Kenneth H. Thomas, Ph.D.
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Kenneth H. Thomas, Ph.D., President
Date: March 9, 2017
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/ Kenneth H. Thomas, Ph.D.
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Kenneth H. Thomas, Ph.D., President
Date: March 9, 2017
By (Signature and Title) /s/ Eric Kleinschmidt
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Eric Kleinschmidt
Treasurer & CFO
Date: March 9, 2017