For May 2017 the fund was down approximately 4.7% net of all fees and expenses. By way of comparison,
the S&P 500 was up approximately 1.4% while the Russell 2000 was down approximately 2.0%. Year to
date the fund is down approximately 13.4% net while the S&P 500 is up approximately 8.7% and the
Russell 2000 is up approximately 1.5%. Since inception on June 1, 2011 the fund is up approximately 96.8%
net while the S&P 500 is up approximately 103.9% and the Russell 2000 is up approximately 75.7%. Since
inception the fund has compounded at approximately 12.0% annually vs 12.6% for the S&P 500 and 9.9%
for the Russell 2000. (The S&P and Russell performances are based on their “Total Returns” indices which
include reinvested dividends.) As always, investors will receive the fund’s exact performance figures from
its outside administrator within a week or two; meanwhile, I continue to waive the annual management
fee until we regain our high-water mark.

Needless to say this year’s performance has been extremely disappointing, yet the fund has been down
more than this before (between 2014 and 2015) and subsequently went on to recover that downdraft and
set a new all-time high NAV, and I have every intention that it will do so again. Since inception we’re just
a hair below the performance of the S&P 500 (and have outperformed the Russell 2000) despite holding
numerous large short positions during one of the biggest bull markets in history. In hindsight these shorts
cost us a lot of performance, but the multi-year money-printing environment in which we’re investing has
created a de facto bubble in asset prices (and the debt-fueled economic conditions that drive those
prices), and I don’t want to be "too net long" when that bubble bursts.

By many metrics the U.S. stock market’s current valuation was topped only in 1929 and 1999-2000,
making this the most difficult part of a market cycle for a long-short value fund such as ours, with few
stocks cheap enough to buy while seemingly solid short candidates continue to climb higher. Although
the S&P 500’s current Shiller PE is an absurdly high 29, one must acknowledge that it hit almost 33 just
before the 1929 crash and 44 just before the 2000 crash, and in neither of those instances were central
banks (ECB/BOJ/BOE/SNB) printing well over $100 billion a month as they are now, nor (as they are now)
were major worldwide real interest rates almost universally negative. On the other hand, during neither
of those eras was total U.S. debt (household, commercial and government) anywhere near as high relative
to GDP as it is now, which—if you think of the U.S. on an “enterprise value” basis-- may make today’s
equity market at least as overvalued as it was at either of those peaks:

The rest of the letter is below:

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