NOTES TO FINANCIAL STATEMENTS
December 31, 2019 (Unaudited)
1. ORGANIZATION
EntrepreneurShares™ Series Trust, a Delaware statutory trust (the “Trust”), was formed on July 1, 2010, and has
authorized capital of unlimited shares of beneficial interest. The Trust is an open-end management investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”), and is authorized to issue multiple series and
classes of shares. The ERShares Global Fund formerly known as the EntrepreneurShares Global Fund (the “Global Fund”), the ERShares US Small Cap Fund formerly known as the Entrepreneur U.S. Small Cap Fund (the “US Small Cap Fund”), and the
ERShares US Large Cap Fund formerly known as the Entrepreneur U.S. Large Cap Fund (the “US Large Cap Fund”) (each separately a “Fund”, or collectively, “the Funds”) are each classified as a “diversified” series, as defined in the 1940 Act. The
Funds are investment companies and, accordingly, follow the investment company accounting and reporting guidance of the Financial Accounting Standards Board Accounting Standards Codification Topic 946 – Investment Companies. The Global Fund
commenced operations on November 11, 2010. The US Small Cap Fund commenced operations on December 17, 2013. The US Large Cap Fund commenced operations on June 30, 2014.
The investment objective of the Global Fund is long-term capital appreciation. The Global Fund seeks to achieve its objective by investing in equity securities of global companies with market
capitalizations that are above $300 million at the time of initial purchase and possess entrepreneurial characteristics, as determined by EntrepreneurShares, LLC, the Global Fund’s Sub-Advisor, and Seaport Global Advisors, LLC formerly known as
Weston Capital Advisors, LLC, the Global Fund’s investment advisor. Dr. Joel M. Shulman has been the Global Fund’s portfolio manager since November 11, 2010 and Managing Director of the Advisor and President of the Sub-Advisor.
The investment objective of the US Small Cap Fund is long-term capital appreciation. The US Small Cap Fund seeks to achieve its objective by investing at least 80% of its net assets (plus any
borrowing for investment purposes) in equity securities of U.S. companies with market capitalization that are above $300 million at the time of initial purchase and possess entrepreneurial characteristics, as determined by Capital Impact
Advisors, LLC, the US Small Cap Fund’s investment advisor. Dr. Joel M. Shulman has been the US Small Cap Fund’s portfolio manager since December 17, 2013 and Chief Executive Officer of the Advisor.
The investment objective of the US Large Cap Fund is long-term capital appreciation. The US Large Cap Fund seeks to achieve its objective by investing in equity securities of U.S. companies with
market capitalizations that are above $5 billion at the time of initial purchase and possess entrepreneurial characteristics, as determined by Capital Impact Advisors, LLC, the US Large Cap Fund’s investment advisor. Dr. Joel M. Shulman has been
the US Large Cap Fund’s portfolio manager since June 30, 2014 and is Managing Director of the Advisor.
The Global Fund, US Small Cap Fund and the US Large Cap Fund offer one share class, the Institutional Class. Effective January 10, 2013, the Global Fund ceased offering Retail Class shares to the
public. The remaining Retail Class shares were converted into Institutional Class shares. Effective June 30, 2017, the US Small Cap Fund ceased offering Retail Class shares to the public. As described in the Prospectus, the Institutional Class
shares do not have a 12b-1 fee. The US Small Cap Fund Retail Class shares were subject to a 0.25% distribution fee of average daily net assets. On July 31, 2017, the US Small Cap Fund Retail Class shares were liquidated at the net asset value.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently followed by the Funds in the preparation of their financial statements. These policies are in conformity with accounting
principles generally accepted in the United States of America (“U.S. GAAP”).
Investment Valuation
The following is a summary of the Funds’ pricing procedures. It is intended to be a general discussion and may not necessarily reflect all pricing procedures followed by the Funds.
In determining the net asset value (“NAV”) of the Funds’ shares, securities that are listed on a national securities exchange (other than the National Association of Securities Dealers’ Automatic
Quotation System (“NASDAQ”)) are valued at the last sale price on the day the valuation is made. Securities that are traded on NASDAQ under one of its three listing tiers,
EntrepreneurShares Series Trust
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 2019 (Unaudited)
NASDAQ Global Select Market, NASDAQ Global Market and NASDAQ Capital Market, are valued at the NASDAQ Official Closing Price. Price information on listed securities is taken from the exchange where
the security is primarily traded. Securities which are listed on an exchange but which are not traded on the valuation date are valued at the most recent bid price.
Unlisted securities held by the Funds are valued at the average of the quoted bid and ask prices in the over-the-counter market. Securities and other assets for which market quotations are not
readily available are valued at their fair value as determined in good faith under procedures established by and under the general supervision and responsibility of the EntrepreneurShares Series Trust Board of Trustees (the “Board”). Investments
in registered open-end investment companies other than exchange-traded funds are valued at the reported NAV.
Short-term investments with 61 days or more to maturity at time of purchase are valued at fair market value through the 61st day prior to maturity, based on quotations received from market makers or
other appropriate sources; thereafter, they are generally valued at amortized cost. There is no definitive set of circumstances under which the Funds may elect to use fair value procedures to value a security. Types of securities that the Funds
may hold for which fair value pricing might be required include, but are not limited to: (a) illiquid securities, including restricted securities and private placements for which there is no public market; (b) options not traded on a securities
exchange; (c) securities of an issuer that has entered into a restructuring; (d) securities whose trading has been halted or suspended, as permitted by the Securities and Exchange Commission (the “SEC”); (e) foreign securities, if an event or
development has occurred subsequent to the close of the foreign market and prior to the close of regular trading on the New York Stock Exchange that would materially affect the value of the security; and (f) fixed income securities that have gone
into default and for which there is not a current market value quotation.
Valuing securities at fair value involves greater reliance on judgment than securities that have readily available market quotations. There can be no assurance that the Funds could obtain the fair
value price assigned to a security upon sale.
Securities that are not listed on an exchange are valued by the Funds’ Advisors, under the supervision of the Board. There is no single standard for determining the fair value of a security. Rather,
in determining the fair value of a security, the Advisors and the Board take into account the relevant factors and surrounding circumstances, which may include: (1) the nature and pricing history (if any) of the security; (2) whether any dealer
quotations for the security are available; (3) possible valuation methodologies that could be used to determine the fair value of the security; (4) the recommendation of the portfolio manager of the Funds with respect to the valuation of the
security; (5) whether the same or similar securities are held by other funds managed by the Advisors or other funds and the method used to price the security in those funds; (6) the extent to which the fair value to be determined for the security
will result from the use of data or formulae produced by third parties independent of the Advisors; and (7) the liquidity or illiquidity of the market for the security.
Fair Value Measurement
The Funds have adopted authoritative fair valuation accounting standards which establish an authoritative definition of fair value and set out a hierarchy for measuring fair value. These standards
require additional disclosures about the various inputs and valuation techniques used to develop the measurements of fair value, a discussion of changes in valuation techniques and related inputs during the year and expanded disclosure of
valuation levels for major security types. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3
measurements). The three levels of the fair value hierarchy are as follows:
|
|
Level 1:
|
Unadjusted quoted prices in active markets for identical assets that the Funds have the ability to access at the measurement date;
|
|
|
|
|
|
|
Level 2:
|
Observable inputs other than quoted prices included in Level 1 that are observable for the asset either directly or indirectly. These inputs may include quoted prices for identical
instruments on inactive markets, quoted prices for similar instruments, interest rates, prepayment spreads, credit risk, yield curves, default rates, and similar data;
|
EntrepreneurShares Series Trust
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 2019 (Unaudited)
|
|
Level 3:
|
Significant unobservable inputs for the asset to the extent that relevant observable inputs are not available, representing the Funds’ own assumptions that a market participant would use in
valuing the asset, and would be based on the best information available.
|
Inputs are used in applying the various valuation techniques and broadly refer to the assumptions that market participants use to make valuation decisions, including assumptions about risk. Inputs
may include price information, volatility statistics, specific and broad credit data, liquidity statistics, and other factors. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is
significant to the fair value measurement. However, the determination of what constitutes “observable” requires significant judgment by the Funds. The Funds consider observable data to be that market data which is readily available, regularly
distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market. The categorization of a financial instrument within the hierarchy is based upon the pricing
transparency of the instrument and does not necessarily correspond to the Funds’ perceived risk of that instrument.
Investments whose values are based on quoted market prices in active markets, and are therefore classified within Level 1, include active listed equities and real estate investment trusts, and
certain money market securities. Investments that trade in markets that are not considered to be active, but are valued based on quoted market prices, dealer quotations or alternative pricing sources supported by observable inputs are classified
within Level 2. Investments classified within Level 3 have significant unobservable inputs, as they trade infrequently or not at all. During the fiscal period ended December 31, 2019, the Funds did not hold any instrument which used significant
unobservable inputs (Level 3) in determining fair value. The tables below are a summary of the inputs used to value the Funds’ investments as of December 31, 2019.
Global Fund
|
Investments at Fair Value*
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Common Stocks
|
|
$
|
59,170,179
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
59,170,179
|
|
|
Short-Term Investments
|
|
|
3,938,893
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,938,893
|
|
|
Total Investments
|
|
$
|
63,109,072
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
63,109,072
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US Small Cap Fund
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments at Fair Value*
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Common Stocks
|
|
$
|
151,697,089
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
151,697,089
|
|
|
Short-Term Investments
|
|
|
32,587,758
|
|
|
|
—
|
|
|
|
—
|
|
|
|
32,587,758
|
|
|
Total Investments
|
|
$
|
184,284,847
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
184,284,847
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US Large Cap Fund
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments at Fair Value*
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Common Stocks
|
|
$
|
134,751,745
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
134,751,745
|
|
|
Short-Term Investments
|
|
|
9,957,111
|
|
|
|
—
|
|
|
|
—
|
|
|
|
9,957,111
|
|
|
Total Investments
|
|
$
|
144,708,856
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
144,708,856
|
|
* For further information regarding security characteristics, please see the Schedules of Investments.
Use of Estimates and Indemnifications
The preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts and disclosures in these financial
statements. Actual results could differ from those estimates.
In the normal course of business, the Trust, on behalf of the Funds, enters into contracts that contain a variety of representations which provide general indemnifications. The Trust’s maximum
exposure under these arrangements is unknown; however, the Trust has not had claims or losses pursuant to these contracts and the Trust expects any risk of loss to be remote.
EntrepreneurShares Series Trust
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 2019 (Unaudited)
Federal Income Taxes
The Funds intend to continue to qualify as a “regulated investment company” under Sub-chapter M of the Internal Revenue Code of 1986, as amended. If so qualified, the Funds will not be subject to
federal income tax to the extent it distributes substantially all of their net investment income and net realized gains to shareholders.
The Funds have reviewed all open tax years and major jurisdictions and concluded that the Funds did not have any tax positions that did not meet the “more-likely-than-not” threshold of being
sustained by the applicable tax authority for the period ended December 31, 2019. The Funds would recognize interest and penalties, if any, related to uncertain tax benefits in the Statements of Operations. During the period ended December 31,
2019, the Funds did not incur any interest or penalties. Tax returns filed within the prior three years remain subject to examination by Federal and State tax authorities.
Distribution to Shareholders
The Funds intend to continue to distribute to its shareholders any net investment income and any net realized long or short-term capital gains, if any, at least annually. Distributions are recorded
on the ex-dividend date. The Funds may periodically make reclassifications among certain of its capital accounts as a result of the characterization of certain income and realized gains determined annually in accordance with federal tax
regulations that may differ from U.S. GAAP.
Foreign Currency Transactions
The Funds’ books and records are maintained in U.S. dollars. Foreign currency denominated transactions (i.e., fair value of investment securities, assets and liabilities, purchases and sales of
investment securities and income and expenses) are translated into U.S. dollars at the current rate of exchange. The Funds isolate portions of the results of operations resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held. Such fluctuations are reflected as net realized and unrealized gain or loss on transactions and translations in the Statements of Operations.
Investment Transactions and Investment Income
Investment transactions are recorded on the trade date. Dividend income, less any foreign tax withheld, is recognized on the ex-dividend date and interest income is recognized on an accrual basis,
including amortization/accretion of premiums or discounts. Net realized gains or losses are determined using the best tax identification method.
Securities Lending
The Funds may lend portfolio securities constituting up to 33-1/3% of its total assets (as permitted by the 1940 Act) to unaffiliated broker-dealers, banks or other recognized institutional
borrowers of securities, provided that the borrower at all times maintains cash, U.S. government securities or equivalent collateral or provides an irrevocable letter of credit in favor of the Fund equal in value to at least 102% of the value of
loaned domestic securities and 105% of the value of loaned foreign securities on a daily basis. During the time portfolio securities are on loan, the borrower pays the lending Fund an amount equivalent to any dividends or interest paid on such
securities, and such Fund may receive an agreed-upon amount of interest income from the borrower who delivered equivalent collateral or provided a letter of credit. Loans are subject to termination at the option of a Fund or the borrower. A Fund
may pay reasonable administrative and custodial fees in connection with a loan of portfolio securities and may pay a negotiated portion of the interest earned on the cash or equivalent collateral to the borrower or placing broker. A Fund does not
have the right to vote securities on loan, but could terminate the loan and regain the right to vote if that were considered important with respect to the investment.
The primary risk in securities lending is a default by the borrower during a sharp rise in price of the borrowed security resulting in a deficiency in the collateral posted by the borrower. The
Funds will seek to minimize this risk by requiring that the value of the securities loaned be computed each day and additional collateral be furnished each day if required.
EntrepreneurShares Series Trust
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 2019 (Unaudited)
At December 31, 2019, the value of securities loaned and cash collateral received are as follows:
|
|
|
Value of Securities Loaned
|
|
|
Cash Collateral Received
|
|
|
Global Fund
|
|
$
|
1,980,265
|
|
|
$
|
2,030,463
|
|
|
US Small Cap Fund
|
|
$
|
27,797,275
|
|
|
$
|
28,376,776
|
|
|
US Large Cap Fund
|
|
$
|
7,981,470
|
|
|
$
|
8,142,158
|
|
Securities purchased via reinvestment of cash collateral received as part of the securities lending program consisted of institutional money market funds with overnight and continuous maturities.
Disclosures about Offsetting Assets and Liabilities
Requires an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial
position. The guidance requires retrospective application for all comparative periods presented. Management has evaluated the impact on the financial statement disclosures and determined that there is no effect. As there are no master netting
arrangements relating to the Funds’ participation in securities lending, and all amounts related to securities lending are presented gross on the Funds’ Statement of Assets and Liabilities, no additional disclosures have been made on behalf of
the Funds. Please reference the Securities Lending Note for additional disclosures related to securities lending, including collateral related to securities on loan.
3. AGREEMENTS
Global Fund’s Investment Advisory Agreement
Seaport Global Advisors, LLC, a related party of the Global Fund, oversees the performance of the Global Fund and is responsible for overseeing the management of the investment portfolio of the
Global Fund. These services are provided under the terms of an investment advisory agreement between the Trust and Seaport Global Advisors, LLC, pursuant to which Seaport Global Advisors, LLC receives an annual advisory fee equal to 1.25% of the
Global Fund’s average net assets.
Through November 1, 2020, the Advisor has agreed to waive and/or reimburse the Global Fund for its advisory fee, and to the extent necessary, bear other expenses, to limit the total annualized
expenses (excluding borrowing and investment-related costs and fees, taxes, extraordinary expenses and fees and expenses of underlying funds) of the Institutional Class shares of the Global Fund to the amounts of 1.70% per annum of net assets
attributable to such shares of the Global Fund.
Seaport Global Advisors, LLC shall be permitted to recover expenses it has borne subsequent to the effective date of this agreement (whether through reduction of its advisory fee or otherwise) in
later periods to the extent that the Global Fund’s expenses fall below the annual rates set forth above, given that such a rate is not greater than the rate that was in place at the time of the waiver, provided, however, that the Global Fund is
not obligated to pay any such reimbursed fees more than three years after the end of the fiscal year in which the expense was borne by Seaport Global Advisors, LLC .
Sub-Advisory services are provided to the Global Fund, pursuant to an agreement between Seaport Global Advisors, LLC and EntrepreneurShares, LLC (the “Sub-Advisor”). Under the terms of this
sub-advisory agreement, Seaport Global Advisors, LLC, not the Global Fund, compensates the Sub-Advisor based on the Global Fund’s average net assets. Certain officers of Seaport Global Advisors, LLC are also officers of the Sub-Advisor. Dr.
Shulman is a majority owner of both Seaport Global Advisors, LLC and the Sub-Advisor.
US Small Cap Fund and US Large Cap Fund Investment Advisory Agreement
Capital Impact Advisors, LLC, a related party of the US Small Cap Fund and the US Large Cap Fund, oversees the performance of the US Small Cap Fund and the US Large Cap Fund and is responsible for
overseeing the management of the investment portfolio of the US Small Cap Fund and the US Large Cap Fund. These services are provided under the terms of investment advisory agreements between the Trust and Capital Impact Advisors, LLC, pursuant
to which Capital Impact Advisors, LLC receives an annual advisory fee equal to 0.75% of the US Small Cap Fund’s average net assets and 0.65% of the US Large Cap Fund’s average net assets.
EntrepreneurShares Series Trust
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 2019 (Unaudited)
Through November 1, 2020 for the US Small Cap Fund and the US Large Cap Fund, Capital Impact Advisors, LLC has agreed to waive and/or reimburse the US Small Cap Fund and the US Large Cap Fund for
its advisory fee, and to the extent necessary, bear other expenses, to limit the total annualized expenses (excluding borrowing and investment-related costs and fees, taxes, extraordinary expenses and fees and expenses of underlying funds) of the
Institutional Class shares of the US Small Cap Fund to the amounts of 0.85% per annum of net assets attributable to such shares of the US Small Cap Fund and 0.75% per annum of net assets attributable to shares of the US Large Cap Fund. Capital
Impact Advisors, LLC shall be permitted to recover expenses it has borne subsequent to the effective date of this agreement (whether through reduction of its advisory fee or otherwise) in later periods to the extent that the US Small Cap Fund or
the US Large Cap Fund’s expenses fall below the annual rates set forth above, given that such a rate is not greater than the rate that was in place at the time of the waiver, provided, however, that the US Small Cap Fund and the US Large Cap Fund
are not obligated to pay any such reimbursed fees more than three years after the end of the fiscal year in which the expense was borne by Capital Impact Advisors, LLC.
Waived fees subject to recovery by year of expiration are as follows:
US Small Cap and US Large Cap/Capital Impact Advisors, LLC
|
|
Year of Expiration
|
|
Potential Recovery
|
|
|
|
|
|
US Small Cap Fund
|
|
|
US Large Cap Fund
|
|
|
|
6/30/2020
|
|
$
|
77,461
|
|
|
$
|
70,689
|
|
|
|
6/30/2021
|
|
|
69,215
|
|
|
|
70,676
|
|
|
|
6/30/2022
|
|
|
58,897
|
|
|
|
56,945
|
|
|
|
6/30/2023
|
|
|
30,928
|
|
|
|
31,579
|
|
|
|
Total
|
|
$
|
236,501
|
|
|
$
|
229,889
|
|
4. DISTRIBUTION PLAN
The Trust has adopted distribution and service (Rule 12b-1) plans (the “Plan”) for the Funds’ Retail Class shares (not available for sale at this time) and the Global Fund’s Class A shares (not
available for sale at this time). The Plan allows the Funds to use up to 0.25% of the average daily net assets attributable to the Retail Class shares of the Funds to pay sales, distribution, and other fees for the sale of that share class and
for services provided to holders of Retail Class shares. The Plan allows the Global Fund to use up to 0.25% of the average daily net assets attributable to the Class A shares to pay sales, distribution, and other fees for the sale of that class
and for services provided to holders of Class A shares. Because these fees are paid out of the Funds’ assets, over time, these fees will increase the cost of an investment in Retail Class or Class A shares, as applicable, and may cost the
shareholder more than paying other types of sales charges. The Funds’ Institutional Class shares are not subject to any distribution and service (Rule 12b-1) fees.
5. INCOME TAXES
The Funds plan to distribute substantially all of the net investment income and net realized gains that it has realized on the sale of securities. These income and gains distributions will generally
be paid once each year, on or before December 31. The character of distributions made during the year from net investment income or net realized gains may differ from the characterization for federal income tax differences in the recognition of
income, expense or gain items for financial reporting and tax reporting purposes.
EntrepreneurShares Series Trust
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 2019 (Unaudited)
The tax character of distributions paid during the year ended June 30, 2019 and the year ended June 30, 2018 was as follows:
|
|
|
|
Global Fund
|
|
|
US Small Cap Fund
|
|
|
US Large Cap Fund
|
|
|
|
Distribution paid from:
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
Ordinary income*
|
|
$
|
909,544
|
|
|
$
|
1,398,039
|
|
|
$
|
5,656,660
|
|
|
$
|
2,117,103
|
|
|
$
|
611,730
|
|
|
$
|
2,287,030
|
|
|
|
Long-term capital gains
|
|
|
586,867
|
|
|
|
1,636,833
|
|
|
|
18,957,000
|
|
|
|
10,609,112
|
|
|
|
1,679,617
|
|
|
|
7,877,079
|
|
|
|
Total distributions paid
|
|
$
|
1,496,411
|
|
|
$
|
3,034,872
|
|
|
$
|
24,613,660
|
|
|
$
|
12,726,215
|
|
|
$
|
2,291,347
|
|
|
$
|
10,164,109
|
|
|
|
*For federal income tax purposes, distribution of short-term capital gains are treated as ordinary income distributions.
|
The Funds designate long-term capital gain dividends, pursuant to Internal Revenue Code Section 852(b)(3), the amount necessary to reduce the earnings and profits for the Fund related to net capital
gains to zero for the tax year ended June 30, 2019.
As of June 30, 2019, the cost of investments, gross unrealized appreciation and depreciation of investments and distributable income for tax purposes are:
|
|
|
|
|
|
|
US Small
|
|
|
US Large
|
|
|
|
|
|
Global Fund
|
|
|
Cap Fund
|
|
|
Cap Fund
|
|
|
|
Cost of investments
|
|
$
|
57,499,857
|
|
|
$
|
146,649,563
|
|
|
$
|
93,726,087
|
|
|
|
Unrealized appreciation
|
|
|
10,936,136
|
|
|
|
42,538,193
|
|
|
|
46,756,620
|
|
|
|
Unrealized depreciation
|
|
|
(3,549,510
|
)
|
|
|
(10,682,825
|
)
|
|
|
(3,325,782
|
)
|
|
|
Unrealized appreciation/
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
depreciation on foreign currency
|
|
|
(130
|
)
|
|
|
13
|
|
|
|
10
|
|
|
|
Net unrealized appreciation
|
|
|
7,386,496
|
|
|
|
31,855,381
|
|
|
|
43,430,848
|
|
|
|
Undistributed ordinary income
|
|
|
—
|
|
|
|
17,472
|
|
|
|
—
|
|
|
|
Undistributed long-term capital gain
|
|
|
1,776,572
|
|
|
|
9,056,046
|
|
|
|
101,204
|
|
|
|
Distributable income
|
|
|
1,776,572
|
|
|
|
9,073,518
|
|
|
|
101,204
|
|
|
|
Other accumulated gain (loss)
|
|
|
—
|
|
|
|
(117,631
|
)
|
|
|
—
|
|
|
|
Total accumulated gain
|
|
$
|
9,163,068
|
|
|
$
|
40,811,268
|
|
|
$
|
43,532,052
|
|
The table above differs from the financial statements due to timing differences related to the deferral of losses primarily due to wash sales.
As of June 30, 2019, the US Small Cap Fund had $117,631 of post-October capital losses, which are deferred until July 1, 2019 for tax purposes. Net capital losses incurred after October 31 and
within the taxable year are deemed to arise on the first day of the Fund’s next taxable year.
EntrepreneurShares Series Trust
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 2019 (Unaudited)
6. CAPITAL SHARE TRANSACTIONS
The Trust has authorized capital of unlimited shares of no par value which may be issued in more than one class or series. Currently, the Trust consists of three series, the Funds. Transactions in
shares of the Funds were as follows:
|
|
|
Six Months Ended
|
|
|
Year Ended
|
|
|
|
|
December 31, 2019
|
|
|
June 30, 2019
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
Global Fund
|
|
|
|
|
|
|
|
Institutional Class
|
|
|
|
|
|
|
|
Shares sold
|
|
|
26,370
|
|
|
|
226,399
|
|
|
Shares issued on reinvestment
|
|
|
87,859
|
|
|
|
82,118
|
|
|
Shares redeemed
|
|
|
(440,436
|
)
|
|
|
(192,415
|
)
|
|
Net increase (decrease) in capital share transactions
|
|
|
(326,207
|
)
|
|
|
116,102
|
|
|
|
|
|
|
|
|
|
|
|
|
US Small Cap Fund
|
|
|
|
|
|
|
|
|
|
Institutional Class
|
|
|
|
|
|
|
|
|
|
Shares sold
|
|
|
214,556
|
|
|
|
1,891,948
|
|
|
Shares issued on reinvestment
|
|
|
823,831
|
|
|
|
2,376,836
|
|
|
Shares redeemed
|
|
|
(656,024
|
)
|
|
|
(2,065,299
|
)
|
|
Net increase in capital share transactions
|
|
|
382,363
|
|
|
|
2,203,485
|
|
|
|
|
|
|
|
|
|
|
|
|
US Large Cap Fund
|
|
|
|
|
|
|
|
|
|
Institutional Class
|
|
|
|
|
|
|
|
|
|
Shares sold
|
|
|
132,659
|
|
|
|
600,454
|
|
|
Shares issued on reinvestment
|
|
|
534,727
|
|
|
|
187,109
|
|
|
Shares redeemed
|
|
|
(519,016
|
)
|
|
|
(431,882
|
)
|
|
Net increase in capital share transactions
|
|
|
148,370
|
|
|
|
355,681
|
|
7. RELATED PARTIES
At December 31, 2019, certain officers of the Trust were also employees of the Advisors. However, these officers were not compensated directly by the Funds. Refer to Note 1 for more information.
8. BENEFICIAL OWNERSHIP
The beneficial ownership, either directly or indirectly, of more than 25% of the voting securities of a fund creates a presumption of control of a fund, under Section 2(a)(9) of the 1940 Act. As of
December 31, 2019, for the benefit of its shareholders, MAC & Co., held 66.3% of the total Global Fund shares outstanding. As of December 31, 2019, for the benefit of its shareholders, MAC & Co., an affiliate of the US Small Cap Fund,
held 86.8% of the total US Small Cap Fund shares outstanding. As of December 31, 2019, for the benefit of its shareholders, MAC & Co., an affiliate of the US Large Cap Fund, held 92.0% of the total US Large Cap Fund shares outstanding.
9. INVESTMENT TRANSACTIONS
During the period ended December 31, 2019, the aggregate purchases and sales of securities (excluding in-kind transactions and short-term securities) were:
|
|
|
|
|
|
US Small
|
|
|
US Large
|
|
|
|
|
Global Fund
|
|
|
Cap Fund
|
|
|
Cap Fund
|
|
|
Purchases:
|
|
$
|
2,754
|
|
|
$
|
40,091,096
|
|
|
$
|
34,235,852
|
|
|
Sales:
|
|
$
|
5,577,553
|
|
|
$
|
37,807,703
|
|
|
$
|
34,671,105
|
|
The Funds did not have any purchases or sales of U.S. Government Securities.
EntrepreneurShares Series Trust
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 2019 (Unaudited)
10. MARKET RISK
The prices of the securities, particularly the common stocks, in which the Funds invest may decline for a number of reasons. The price declines of common stocks, in particular, may be steep, sudden,
and/ or prolonged. Adverse market conditions, sometimes in response to general economic or industry news, may cause the prices of the Funds’ holdings to fall as part of a broad market decline. The financial crisis in the U.S. and foreign
economies over the past several years, including the European sovereign debt crisis, has resulted, and may continue to result, in an unusually high degree of volatility in the financial markets, both U.S. and foreign, and in the NAV of many
mutual funds, including to some extent the Funds. Global economies and financial markets are becoming increasingly interconnected, which increases the possibilities that conditions in one country or region may adversely affect issuers in another
country or region, which may adversely affect securities held by the Funds.
11. FOREIGN INVESTMENT RISK
The Global Fund generally invests a significant portion of its total assets in securities principally traded in markets outside the U.S. The foreign markets in which the Global Fund invests in are
sometimes open on days when the New York Stock Exchange (“NYSE”) is not open and the Global Fund does not calculate its NAV, and sometimes are not open on days when the NYSE is open and the Global Fund does calculate its NAV. Even on days on
which both the foreign market and the NYSE are open, several hours may pass between the time when trading in the foreign market closes and the time at which the Global Fund calculates its NAV. That is generally the case for markets in Europe,
Asia, Australia and other far eastern markets; the regular closing time of foreign markets in North and South America is generally the same as the closing time of the NYSE and the time at which the Global Fund calculate its NAV.
Foreign stocks, as an asset class, may underperform U.S. stocks, and foreign stocks may be more volatile than U.S. stocks. Risks relating to investment in foreign securities (including, but not
limited to, depository receipts and participation certificates) include: currency exchange rate fluctuation; less available public information about the issuers of securities; less stringent regulatory standards; lack of uniform accounting,
auditing and financial reporting standards; and country risk including less liquidity, high inflation rates, unfavorable economic practices and political instability. The risks of foreign investments are typically greater in emerging and less
developed markets.
12. ACCOUNTING PRONOUNCEMENTS
On October 17, 2018, the SEC adopted changes to Regulation S-X to simplify the reporting of information by registered investment companies in financial statements. The amendments require
presentation of the total, rather than the components, of distributable earnings on the on the Statement of Assets and Liabilities and also require presentation of the total, rather than the components, of distributions to shareholders, if any,
on the Statements of Changes in Net Assets. These Regulation S-X amendments are reflected in the Funds’ financial statements for the period ended December 31, 2019.
13. SUBSEQUENT EVENTS EVALUATION
Management has performed an evaluation of subsequent events through the date the financial statements were available to be issued and has determined that no additional items require recognition or
disclosure for the Funds.
EntrepreneurShares Series Trust
ADDITIONAL INFORMATION
December 31, 2019 (Unaudited)
1. RENEWAL OF THE INVESTMENT ADVISORY AGREEMENTS
On September 17, 2019, all of the Trustees of EntrepreneurShares Series Trust (the “Trust”) met to discuss, among other things, the continuation of the investment advisory and sub-advisory
agreements, if applicable, for the ERShares Entrepreneur 30 ETF (the “Entrepreneur 30 ETF”), the ERShares Global Fund (the “Global Fund”), the ERShares US Small Cap Fund (the “Small Cap Fund”), and the ERShares US Large Cap
Fund (the “Large Cap Fund”) (collectively referred to as the “Funds”). In preparation for the meeting they reviewed materials addressing the review and consideration of the investment advisory agreements (the “Agreements”),
which included a Gartenberg Memo to the Board of Trustees (the “Board”) from legal counsel, 15(c) analyses for the Funds, and the returns of each Fund and the Fund’s benchmark indices provided in the quarterly Board materials. The
Trustees noted that the investment advisory agreement for the ERShares Non-US Small Cap ETF agreement was not up for renewal in 2019, but will be in 2020.
Weston Capital Advisors, LLC (“Weston”) is the Global Fund’s investment advisor, and EntrepreneurShares, LLC (“EntrepreneurShares”) is the Global Fund’s investment sub-advisor.
Capital Impact Advisors, LLC (“Capital Impact Advisors”) is the investment advisor to the Entrepreneur 30 ETF, the Small Cap Fund, and the Large Cap Fund. Weston, EntrepreneurShares, and Capital Impact Advisors are referred to herein as
the “Advisers,” and the investment advisory agreements for the Entrepreneur 30 ETC Global Fund, the Small Cap Fund, and the Large Cap Fund, along with the sub-advisory agreement for the Global Fund, are referred to herein as the “Advisory
Agreements.” The Advisers are responsible for management of the investment portfolio of the Funds, and for overall management of the Funds’ business and affairs pursuant to the Advisory Agreements.
At the meeting, the Trustees had ample opportunity to consider matters they deemed relevant in considering the approval of the Advisory Agreements, and to request any additional information they
considered reasonably necessary to their deliberations, without undue time constraints. In addition to the materials requested by the Trustees in connection with their consideration of the continuation of the Advisory Agreements, the Trustees
received materials in advance of each regular quarterly meeting of the Board of Trustees that provided information relating to the services provided by the Advisers.
In advance of the meeting, the Advisers sent detailed information to the Trustees to assist them in their evaluation of the Advisory Agreements. This information included, but was not limited to, a
memorandum that summarized the legal standards applicable to the Trustees’ consideration of the Advisory Agreements; information regarding the Advisers’ personnel and investment process; comparative information relating to the Funds’ management
fees and other expenses of the Funds; information regarding fees paid and other payments; information on the Advisers’ profitability; financial information about the Advisers; information about brokerage commissions; comparative information
relating to the Funds’ performance; information about sales and redemptions of the Funds; information about amounts paid to financial intermediaries; information about the Funds’ compliance program; and other information the Trustees believed was
useful in evaluating the approval of the Advisory Agreements.
All of the factors discussed by the Trustees were considered as a whole, and were considered separately by the members of the Board of Trustees who are not deemed “interested persons” (as that term
is defined by the Investment Company Act of 1940) of the Funds (the “Independent Trustees”), meeting in executive session. The factors were viewed in their totality by the Trustees, with no single factor being the principal or
determinative factor in the Trustees’ determination of whether to approve the continuation of the Advisory Agreements. The Trustees recognized that the management and fee arrangements for the Funds are the result of years of review and
discussion between the Independent Trustees and the Advisers, that certain aspects of such arrangements may receive greater scrutiny in some years than in others and that the Trustees’ conclusions may be based, in part, on their consideration of
these same arrangements and information received during the course of the year and in prior years.
EntrepreneurShares Series Trust
ADDITIONAL INFORMATION (Continued)
December 31, 2019 (Unaudited)
The material determinations of the Board of Trustees, including all of the Independent Trustees, are described below:
Nature and Quality of Investment Advisory Services
The Trustees concluded that the nature, extent and quality of the investment advisory services provided to the Funds by the Advisers are good, and that the nature and extent of the services provided
by the Advisers are appropriate to assure that the Fund’s operations are conducted in compliance with applicable laws, rules and regulations. They believe that the following factors, among others, support these conclusions: (1) the Advisers
maintain sufficient staff and resources to support the Funds, which allows the Advisers to meet the investment objectives of the Funds; (2) the Advisers have engaged service providers to the Funds, who provide administrative and distribution
services on behalf of the Funds and are overseen by the Advisers, that have strong backgrounds and experience in the mutual fund industry; and (3) past actions of the Advisers demonstrate the Advisers’ active oversight of service providers to the
Funds, as they have taken actions to ensure that such service providers are performing well, and have, when necessary, replaced service providers who do not perform well.
Comparative Fees and Expenses
The Trustees concluded that the advisory fees and net expense ratios of the Funds were reasonable, and they believe that the following factors, among others, support these conclusions: (1) the
long-term returns of the Funds are generally positive when compared to peers; and (2) the Funds are still relatively small in assets under management when compared to their peer groups, and the Advisers are subsidizing the expenses of the Funds
to ensure the Funds remain competitive with other funds.
Comparison of Fee Structures of Other Accounts
The Trustees concluded that the differential in advisory fees between the Funds and the separate accounts managed by the Advisers is reasonable, and concluded that the fee rates charged to the Funds
in comparison to those charged to the Advisers’ other clients are reasonable. They believe that the following factors, among others, support these conclusions: (1) the services performed by the Advisers for the Funds generally require a higher
level of service and compliance oversight than the services performed for the separate accounts; (2) the Advisers provide tailored investment advisory services to the Funds in order to accommodate the cash flow volatility presented by the
purchases and redemptions of shareholders; and (3) increasingly investors in the Funds invest through brokerage platforms (intermediaries), with fewer investors going directly to the Funds’ transfer agent, and the Advisers absorb a significant
portion of the costs associated with these intermediaries (as a result, the cost of obtaining, retaining and servicing shareholders for the Funds is significantly higher than the costs for separate accounts).
Performance
The Trustees concluded that the performance of the Funds has generally been good on a relative basis and on an absolute basis, with periods of underperformance. When the Funds have underperformed,
the Trustees have discussed the reasons with the Advisers at length, and ensures that the Advisers have in place plans to improve performance, and historically the efforts of the Advisers have resulted in improvement. They continue to believe
that the Advisers’ discipline should lead to favorable results in the long-term, and concluded that renewal of the Advisory Agreements was in the best interest of the Funds’ shareholders. They believe that the following factors, among others,
support these conclusions: (1) the Advisers manage the Funds in a manner that is materially consistent with their stated investment objective and style; and (2) the long-term returns of the Funds are generally positive in comparison to the peer
group.
EntrepreneurShares Series Trust
ADDITIONAL INFORMATION (Continued)
December 31, 2019 (Unaudited)
Costs and Profitability
The Trustees recognized that it is difficult to make comparisons of profitability from investment advisory contracts. This is because comparative information is not generally publicly available and
is affected by numerous factors, including the structure of the particular adviser, the type of clients it advises, its business mix, and numerous assumptions regarding allocations and the adviser’s capital structure and cost of capital. The
Trustees concluded that the level of profitability realized by the Advisers from their provision of services to the Funds is reasonable, and, as noted above, that the overall expense ratios and investment advisory fees were fair and reasonable.
They believe that the following factors, among others, support these conclusions: (1) taking into account the intermediary fees that the Advisers pay in connection with managing the Funds, the cost of obtaining, retaining and servicing
shareholders for the Funds is significantly higher than the costs for separate accounts; (2) the Advisers expend significant resources and revenue to manage and distribute the Funds; and (3) the Advisers are subsidizing the expenses of the Funds
to ensure the Funds remain competitive with other funds.
Economies of Scale
The Trustees concluded that the current fees were appropriate at foreseeable asset levels without the need for breakpoints. They believe that the following factors, among others, support these
conclusions: (1) based on the materials reviewed at the meeting and the size of the Funds, the Funds have not realized economies of scale; and (2) many of the Funds’ expenses increase as the Funds’ assets grow, such as the intermediary service
fees and the costs of conducting research to explore additional investments.
Fall-Out Benefits
The Trustees concluded that the other benefits realized by the Advisers from their relationship with the Funds were reasonable. They believe that the following factors, among others, support this
conclusion: (1) while the Advisers may derive ancillary benefits from their association with the Funds in the form of proprietary and third party research products and services received from broker dealers that execute portfolio trades for the
Funds, the Trustees determined such products and services have been used for legitimate purposes relating to the Funds by providing assistance in the investment decision-making process; and (2) while managing the Funds may have provided more
visibility for the Advisers in the industry in general, the primary focus of this visibility has been the Funds, and it has been beneficial to the Funds.
Conclusion
After reviewing the material provided for the meeting, management’s presentation, as well as other information regularly provided at the Board’s quarterly meetings throughout the year regarding the
quality of services provided by the Advisers, the performance of the Funds, expense information, regulatory compliance issues, trading information and related matters and other factors deemed relevant by the Board, the Trustees, including all of
the Independent Trustees, concluded that the Advisory Agreements are fair and reasonable and that the continuation of the Advisory Agreement is in the best interest of the Funds and their shareholders. Accordingly, the Trustees, including the
Independent Trustees voting separately, approved the continuation of the Advisory Agreements.
EntrepreneurShares Series Trust
ADDITIONAL INFORMATION (Continued)
December 31, 2019 (Unaudited)
2. AVAILABILITY OF QUARTERLY PORTFOLIO HOLDINGS SCHEDULES
The Funds file complete schedules of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q, which is available on the SEC’s website at www.sec.gov. The
Funds’ Form N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. For information on the Public Reference Room call 1-800-SEC-0330. In addition, the Funds’ Form N-Q is available without charge, upon request, by
calling 1-877-271-8811.
3. PROXY VOTING POLICIES AND PROCEDURES AND PROXY VOTING RECORD
A description of the Funds’ proxy voting policies and procedures and information regarding how the Funds voted proxies relating to portfolio securities during the most recent 12 month period ended
June 30, is available without charge, upon request, by (1) calling 1-877-271-8811 or (2) on the SEC’s website at www.sec.gov.
4. HOUSEHOLDING
To reduce expenses, each Fund generally mails only one copy of its prospectus and each annual and semi-annual report to those addresses shared by two or more accounts and to shareholders that such
Fund reasonably believes are from the same family and household. This is referred to as “householding.” If you wish to discontinue householding and would like to receive individual copies of these documents, please call us at 1-877-271-8811. Once
a Fund receives notice to stop householding, the Fund will begin sending individual copies 30 days after receiving requests. This policy does not apply to account statements.
(This Page Intentionally Left Blank.)
ERShares Global Fund Investment Advisor
Seaport Global Advisors, LLC
175 Federal Street, Suite #875
Boston, MA 02110
ERShares Global Fund Investment Sub-Advisor
EntrepreneurShares, LLC
175 Federal Street, Suite #875
Boston, MA 02110
ERShares US Small Cap Fund and ERShares US Large Cap Fund Investment Advisor
Capital Impact Advisors, LLC
175 Federal Street, Suite #875
Boston, MA 02110
Independent Registered Public Accounting Firm
RSM US LLP
919 East Main Street, Suite 1800
Richmond, VA 23219
Custodian
UMB Bank, N.A.
928 Grand Boulevard, 5th Floor
Kansas City, MO 64106
Distributor
Foreside Fund Services, LLC
Three Canal Plaza, Suite 100
Portland, ME 04101
Administrator, Accountant, Transfer Agent and Dividend Disbursing Agent
UMB Fund Services, Inc.
235 West Galena Street
Milwaukee, WI 53212
Counsel
Foley & Lardner LLP
777 East Wisconsin Avenue
Milwaukee, WI 53202
This report should be accompanied or preceded by a prospectus.
The Funds’ Statement of Additional Information contains additional information about the
Funds’ trustees and is available without charge upon request by calling 1-877-271-8811.