SHARESPOST 100 FUND
Notes to the Financial Statements (Continued)
June 30, 2015 (Unaudited)
3. Fair valuation measurements — (continued)
The following is a summary of quantitative information about significant unobservable valuation inputs for Level 3 Fair Value Measurements for investments held as of June 30, 2015:
Type of Level 3
Investment | Fair Value as of
June 30, 2015 | Valuation
Technique | Unobservable
Inputs | Range (Avg) |
Common stock in
private companies | $23,909,901 | Market Approach | Precedent Transactions | N/A |
| | | | | |
| | | Income Approach | Revenue Multiples | 1.2 - 9.4 (4.2) |
| | | | Stage Discount Rates | 10.0% - 30.0% (20.1%) |
| | | | Execution Discount Rates | 15.0% - 70.0% (41.2%) |
| | | | Discounts For Lack of Marketability | 15.0% - 15.0% (15.1%) |
Preferred stock in
private companies | 9,060,057 | Market Approach | Precedent Transactions | N/A |
| | | | | |
| | | Income Approach | Revenue Multiples | 1.2 - 4.4 (2.5) |
| | | | Stage Discount Rates | 20.0% - 30.0% (24.6%) |
| | | | Execution Discount Rates | 25.0% - 70.0% (43.6%) |
| | | | Discounts For Lack of Marketability | 15.0% - 16.0% (15.1%) |
To the extent the revenue multiples increase, there is a corresponding increase in valuation; while as discount rates increase, there is a decrease in valuation.
4. Expense limitation agreement
The Investment Adviser has contractually agreed to reimburse the Fund so that its total annual operating expenses, excluding interest, taxes, brokerage commissions and other expenses that are capitalized in accordance with GAAP, and other extraordinary costs, such as litigation and other expenses not incurred in the ordinary course of the Fund’s business, do not exceed 2.50% of the Fund’s average net assets per year, through May 1 2016.
Under the terms of the Expense Limitation Agreement, at any time that the expenses of the Fund are less than the expense limitation, the Investment Adviser retains the right to seek reimbursement for any fees previously waived and/or expenses previously assumed, to the extent that such reimbursement will not cause the Fund’s annualized expenses to exceed 2.50% of its average net assets on an annualized basis. The Fund is not obligated to reimburse the Investment Adviser for fees previously waived or expenses previously assumed by the Investment Adviser more than three years before the date of such reimbursement. For the periods ended December 31, 2013, December 31, 2014 and June 30, 2015 the expenses contractually waived in the amounts of $568,778, $1,208,322 and $522,174, respectively, are subject to possible recoupment by the Investment Adviser through December 31, 2016, December 31, 2017 and December 31, 2018, respectively. The Investment Adviser had elected to provide a voluntary waiver of expenses such that the Fund’s NAV remains at $20 per share until the time of the public share issuance on March 25, 2014. For the periods ended December 31, 2013 and December 31, 2014, voluntarily waived expenses in the amount of $1,062 and $575, respectively, are not subject to recoupment by the Investment Adviser.
As of June 30, 2015, as disclosed on the Statement of Assets and Liabilities, the net receivable from the Investment Adviser for expense reimbursements was $182,218.
SHARESPOST 100 FUND
Notes to the Financial Statements (Continued)
June 30, 2015 (Unaudited)
5. Investment advisory agreement
The Fund has entered into an Investment Advisory Agreement with the Investment Adviser, pursuant to which the Investment Adviser provides general investment advisory services for the Fund. For providing these services, the Investment Adviser receives a fee from the Fund, accrued daily and paid monthly, at an annual rate equal to 1.90% of the Fund’s average daily net assets. For the period ending June 30, 2015, the Fund accrued $338,557 in investment advisory fees.
Certain officers and Trustees of the Fund are also officers of the Investment Adviser. None of the Fund officers or interested Trustees receives any compensation from the Fund.
6. Capital share transactions
The Fund Shares will be continuously offered under Rule 415 under the Securities Act of 1933, as amended. As of June 30, 2015, the Fund had registered 25,000,000 shares on a continuous basis at an initial NAV of $20.00 per share, plus any applicable sales load. Investors may purchase shares each business day without any sales charge at a price equal to the NAV per share next determined after receipt of a purchase order. Any sales load will be deducted from the proceeds to the Fund.
The Fund’s shares are not redeemable each business day, are not listed for trading on an exchange, and no secondary market currently exists for Fund shares. As an interval fund and as described in the Fund’s Prospectus, the Fund will make quarterly repurchase offers of 5% of the total number of shares outstanding at their NAV less any repurchase fee, unless postponed in accordance with regulatory requirements, and each repurchase pricing shall occur no later than the 14th day after the repurchase request deadline, or the next business day if the 14th day is not a business day. Rule 23c-3 of the 1940 Act permits repurchases between 5% and 25% of the Fund’s outstanding shares at NAV.
In every full quarter since the commencement of operations, the Fund has offered shareholders the opportunity to participate in this program. During the period ended June 30, 2015, the Fund had Repurchase Offers as follows:
Summary of Repurchase Offers – 1/1/15 through 6/30/15
| Repurchase Pricing Date | Repurchase Offer Amount | % of Shares
Tendered | Number of
Shares Tendered |
| 3/25/2015 | 5% | 0.37% | 4,630.492 |
| 6/25/2015 | 5% | 1.22% | 25,547.980 |
7. Purchases and sales of securities
Purchases and sales of investments, excluding short-term obligations, for the period ended June 30, 2015, were $17,024,735 and $867,220, respectively.
8. Federal tax information
At June 30, 2015, gross unrealized appreciation and depreciation of investments, based on cost for federal income tax purposes were as follows:
| Cost of investments | | $ | 51,017,135 | |
| Gross unrealized appreciation | | | 4,423,787 | |
| Gross unrealized depreciation | | | (521,541 | ) |
| Net unrealized appreciation on investments | | $ | 3,902,246 | |
SHARESPOST 100 FUND
Notes to the Financial Statements (Continued)
June 30, 2015 (Unaudited)
8. Federal tax information — (continued)
As of December 31, 2014, the components of accumulated earnings on a tax basis were as follows:
| Undistributed ordinary income | | $ | — | |
| Undistributed long-term capital gains | | | — | |
| Tax accumulated earnings | | | — | |
| Accumulated capital and other losses | | | (78,394 | ) |
| Net unrealized gain | | | 1,669,380 | |
| Total accumulated earnings | | $ | 1,590,986 | |
The fund had a net capital loss carryforward of:
| Short-term Non-Expiring | | $ | 78,394 | |
| Long-term Non-Expiring | | | — | |
| | | $ | 78,394 | |
To the extent that a fund may realize future net capital gains, those gains will be offset by any of its unused capital loss carryforward. Future capital loss carryover utilization in any given year may be subject to Internal Revenue Code limitations.
9. Contingencies
In the normal course of business, the Fund will enter into contracts that contain a variety of representations which provide general indemnifications. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. However, the Fund expects the risk of loss to be remote. Such agreements are subject to the issuer’s approval. As of June 30, 2015, the Fund has not entered into agreements to purchase investments.
10. Offering Price Per Share
A maximum front-end sales charge of 5.75% is imposed on purchases of the Fund’s shares. For the period ended June 30, 2015, the Fund was advised that various broker dealers received $127,040 of sales charges from sales of the Fund’s shares.
11. Subsequent events
Management of the Fund has evaluated events occurring after June 30, 2015, and through the date the financials were available to be issued, to determine whether any subsequent events would require adjustment to or disclosure in the financial statements. No subsequent events requiring adjustment to or disclosure within the financial statements were noted.
SHARESPOST 100 FUND
Additional Information
June 30, 2015 (Unaudited)
Proxy voting — A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities and information regarding how the Fund voted proxies during the 12 month period ended June 30, 2015, are available without charge upon request by (1) calling the Fund at 1-800-834-8707 and (2) from Fund documents filed with the Securities and Exchange Commission (“SEC”) on the SEC’s website at www.sec.gov.
Portfolio holdings — The Fund files a complete schedule of investments with the SEC for the first and third quarter of each fiscal year on Form N-Q. The Fund’s first and third fiscal quarters end on March 31st, and September 30th. The Form N-Q filing must be made within 60 days of the end of the quarter, and the Fund’s first Form N-Q was filed with the SEC on May 26, 2015. The Fund’s Form N-Q is available on the SEC’s website at http://sec.gov, or they may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC (call 1-800-732-0330 for information on the operation of the Public Reference Room). You may also obtain copies by calling the Fund at 1-800-834-8707.
Consideration for the approval of the Investment Advisory agreement — At a meeting held on May 12, 2015, the Board of Trustees of the Fund (including the independent Trustees voting separately) approved the extension of the Investment Advisory Agreement (the “Agreement”) with SP Investments Management, LLC (the “Adviser”). Counsel to the Independent Trustees summarized the memorandum provided by such counsel for the Board’s consideration, noting all of the requirements set forth in sections 15(a), 15(c), and 36(b) of the Investment Company Act of 1940, regarding the Board’s fiduciary duty.
Fund management then reviewed and summarized the Adviser’s responses to questions transmitted to the Adviser by the Board prior to the meeting.
As part of its evaluation, the Board, including the Independent Trustees, considered, among other things, the following factors: (1) the nature, extent and quality of the services provided by the Adviser; (2) the investment performance of the Fund; (3) the cost of the services provided and the profits realized by the Adviser from its relationship with the Fund; (4) the extent to which economies of scale would be realized as the Fund grows and whether fee levels reflect these economies of scale for the benefit of Fund shareholders; and (5) any other benefits derived or anticipated to be derived and identified by the Adviser from its relationship with the Fund.
The Board reviewed the nature, extent and quality of the services provided under the Agreement by the Adviser. The Board noted that the Adviser is planning for staff increases and is evaluating and refining its compensation packages, to make them more standardized and clear, as the Fund and Adviser continue to grow. The Board noted that the Adviser has developed experience with regard to the operation of the Fund’s interval structure. The Board considered the financial resources of the Adviser and its parent, and staffing required to manage the Fund and provide oversight of the Fund’s third-party service providers.
In considering the investment performance of the Fund and the Adviser, the Board reviewed information provided by the Adviser relating to the Fund’s performance since the Fund’s inception on March 25, 2014 through March 31, 2015. Mr. Weber explained the difficulty in determining a peer group for the Fund in light of its unusual asset class and structure, and explained to the Independent Trustees the methodology by which the Adviser selected the comparator funds. The Board noted that the Fund outperformed both benchmark indices during the relevant period. The Board considered the Adviser’s information that, as of March 31, 2015, the Fund was the fourth best performing fund in its Morningstar category. The Board also considered the Adviser’s point that there is a relatively small universe of funds that pursue investment strategies broadly similar to the Fund that also have an interval structure, and that the Fund’s investment strategy is similar to that of certain business development companies.
In considering the cost of the services provided and the profits realized by the Adviser from its relationship with the Fund, the Board considered the advisory fees paid to the Adviser under the Agreement on an annualized basis since the Fund’s inception. The Board also considered the advisory fees and total expense ratio of the Fund compared to those of the funds contained in its peer group. Mr. Weber noted that some comparator funds are charging a base management fee of 2% of net assets with a 20% of profits performance fee, while the Fund charges 1.9% of net assets and no performance fee. The Fund’s net expense ratio is also much lower at 2.5% compared to the other funds, which have net expense ratios of between 3.13% and 6.9%. The Board noted that: (1) the Fund’s advisory fee and net expense ratio is the lowest of the funds included in the Fund’s peer group; (2) the Adviser does not charge
SHARESPOST 100 FUND
Additional Information (Continued)
June 30, 2015 (Unaudited)
the Fund a performance fee; and (3) the Adviser has agreed to limit the total expenses for the Fund through an expense limitation agreement. The Board considered the overall profits realized by the Adviser in connection with the operation of the Fund and the financial resources of the Adviser’s parent entity.
The Board considered whether the Adviser has realized, or will realize, economies of scale with respect to the management of the Fund and whether the Fund’s fee levels reflect such economies of scale. In this regard, the Board considered that the Adviser has entered into an expense limitation agreement with the Fund, under which the Adviser has agreed to limit the total expenses of the Fund, including organizational expenses. The Board also noted that, due to implementation of the expense limitation agreement, there were no breakpoints at this time. Mr. Weber did however note that the Fund is in a rapid growth phase which at some point may lower the gross expense ratio below the 2.5% expense limitation cap, which could add additional economy of scale savings to the shareholders in the future.
The Board considered whether the Adviser or its affiliates may derive any indirect or “fall-out” benefits from their relationship with the Fund. Such benefits may include the Adviser’s ability to leverage its investment personnel or infrastructure to manage other accounts, and that the Adviser manages one other non-discretionary special purpose private investment vehicle, other than the Fund.
The Independent Trustees determined to go into executive session to further discuss the considerations for extension of the Agreement.
The Board reviewed these considerations and determined, taking into account the factors described and such other matters deemed relevant, with no one factor being decisive, that the Agreement was fair and reasonable.
Board of Trustees
Sven Weber
Robert J. Boulware
Mark Radcliff
Investment Adviser
SP Investments Management, LLC
1370 Willow Road,
Menlo Park, CA 94025
Dividend Paying Agent, Custodian, Transfer Agent
UMB Fund Services
235 West Galena Street
Milwaukee, WI 53212
Distributor
Foreside Fund Services, LLC
3 Canal Plaza #100
Portland, ME 04101
Independent Auditors
KPMG
550 South Hope Street, Suite 1500
Los Angeles, CA 90071
This report has been prepared for the general information of the shareholders. It is not authorized for distribution to prospective investors unless preceded or accompanied by a current prospectus. The Fund’s prospectus contains more complete information about the objectives, policies, expenses and risks of the Funds. The Fund is not a bank deposit, not FDIC insured and may lose value. Please read the prospectus carefully before investing or sending money.
This report contains certain forward looking statements which are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. Forward looking statements generally include words such as ‘‘believes’’, ‘‘expects’’, ‘‘anticipates’’ and other words of similar import. Such risks and uncertainties include, among other things, the Risk Factors noted in the Fund’s filings with the Securities and Exchange Commission. The Fund undertakes no obligation to update any forward looking statement.
Item 2. Code of Ethics.
Not applicable to semi-annual reports.
Item 3. Audit Committee Financial Expert.
Not applicable to semi-annual reports.
Item 4. Principal Accountant Fees and Services.
Not applicable to semi-annual reports.
Item 5. Audit Committee of Listed Registrants.
Not applicable.
Item 6. Schedule of Investments.
Included as part of the report to shareholders filed under Item 1 of this Form N-CSR.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
Not applicable to semi-annual reports.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
Not applicable to semi-annual reports.
Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.
