Washington, D.C. 20549
116 South Franklin Street, Post Office Box 69, Rocky Mount, North Carolina 27802
(Address of principal executive offices) (Zip code)
A. Vason Hamrick
116 South Franklin Street, Post Office Box 69, Rocky Mount, North Carolina 27802
Item 1. REPORTS TO STOCKHOLDERS.
| 1. | Organization and Significant Accounting Policies |
The Wisdom Fund (the “Fund”) is a series fund. The Fund is part of the New Providence Investment Trust (the “Trust”), which was organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940 (the “1940 Act”), as amended, as an open-ended management investment company. The Fund is classified as a “diversified” company as defined in the 1940 Act.
The Wisdom Fund commenced operations February 16, 1999. The investment objective of the Fund is to seek maximum total returns consisting of any combination of capital appreciation, realized and unrealized gains, and income under the constantly varying market conditions.
The Board of Trustees of the Trust (the “Trustees”) approved, on October 7, 1999, a plan to authorize two new classes of shares designated as Class B Shares and Class C Shares. On November 16, 1999, the Class B Shares and Class C Shares became effective. The Fund has an unlimited number of authorized shares, which are divided into four classes – Institutional Class Shares, Investor Class Shares, Class B Shares and Class C Shares.
Each class of shares has equal rights as to assets of the Fund, and the classes are identical except for differences in their sales charge structures and ongoing distribution and service fees. Income, expenses (other than distribution and service fees, which are not attributable to the Institutional Class Shares), and realized and unrealized gains or losses on investments are allocated to each class of shares based upon its relative net assets. All classes have equal voting privileges, except where otherwise required by law or when the Trustees determine that the matter to be voted on affects only the interests of the shareholders of a particular class.
The following is a summary of significant accounting policies consistently followed by the Funds. The policies are in conformity with accounting principles generally accepted in the United States of America. In June 2009, the Financial Accounting Standards Board (“FASB”) codified its standards and accounting principles for the financial statements issued for years ending after September 15, 2009. Herein, the Funds will make reference to accounting principles generally accepted in the United States issued by FASB as Accounting Standards Codification (“ASC”).
Investment Valuation
The Fund’s investments in securities are carried at value. Securities listed on an exchange or quoted on a national market system are valued at the last sales price as of 4:00 p.m. Eastern Time. Securities traded in the NASDAQ over-the-counter market are generally valued at the NASDAQ Official Closing Price. Other securities traded in the over-the-counter market and listed securities for which no sale was reported on that date are valued at the most recent bid price. Securities and assets for which representative market quotations are not readily available or which cannot be accurately valued using the Fund’s normal pricing procedures are valued at fair value as determined in good faith under policies approved by the Trustees. Fair value pricing may be used, for example, in situations where (i) a portfolio security is so thinly traded that there have been no transactions for that security over an extended period of time; (ii) the exchange on which the portfolio security is principally traded closes early; or (iii) trading of the portfolio security is halted during the day and does not resume prior to the Fund’s net asset value calculation. A portfolio security’s “fair value” price may differ from the price next available for that portfolio security using the Fund’s normal pricing procedures. Investment companies are valued at net asset value. Instruments with maturities of 60 days or less are valued at amortized cost, which approximates market value.
Fair Value Measurement
The Fund has adopted ASC Topic 820, Fair Value Measurements, effectively December 1, 2008. ASC Topic 820 defines fair value, establishes a frame work for measuring fair value and expands disclosure about fair value measurements.
Various inputs are used in determining the value of the Fund's investments. These inputs are summarized in the three broad levels listed below:
| a. | Level 1: quoted prices in active markets for identical securities |
WISDOM FUND
Notes to Financial Statements
(Unaudited)
For the six month period ended November 30, 2009
| b. | Level 2: other significant observable inputs (including quoted prices for similar securities, interest rates, credit risk, etc.) |
| c. | Level 3: significant unobservable inputs (including the Fund’s own assumptions in determining fair value of investments) |
The Fund has adopted FASB guidance updating ASC Topic 820 titled, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability have Significantly Decreased and Identifying Transactions that are not Orderly” which provides guidance on determining when there has been a significant decrease in the volume and level of activity for an asset or liability, when a transaction that is not orderly, and how that information must be incorporated into fair value measurement. The guidance emphasizes that even if there has been a significant decrease in volume and level of activity for an asset or liability and regardless of the valuation techniques used, the objective of a fair value measurement remains the same.
An Investment asset’s or liability’s level within the fair value hierarchy is based on the lowest level input, individually or in aggregate, that is significant to fair value measurement.
The valuation techniques used by the Fund to measure fair value during the six month period ending November 30, 2009 maximized the use of observable inputs and minimized the use of unobservable inputs.
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The following is a summary of the inputs used in valuing the Fund's assets:
| Assets | | Total | | Level 1 | | Level 2 | | Level 3 |
| Common Stocks | $ | 11,860,858 | $ | 11,860,858 | $ | - | $ | - |
| Exchange Traded Funds | | 243,568 | | 243,568 | | - | | - |
| Investment Company | | 533,111 | | - | | 533,111 | | - |
| Total | $ | 12,637,537 | $ | 12,104,426 | $ | 533,111 | $ | - |
Investment Transactions and Investment Income
Investment transactions are accounted for as of the date purchased or sold (trade date). Dividend income is recorded on the ex-dividend date. Certain dividends from foreign securities will be recorded as soon as the Trust is informed of the dividend if such information is obtained subsequent to the ex-dividend date. Interest income is recorded on the accrual basis and includes amortization of discounts and premiums. Gains and losses are determined on the identified cost basis, which is the same basis used for federal income tax purposes.
Option Writing
When the Fund writes an option, an amount equal to the premium received by the Fund is recorded as a liability and is subsequently adjusted to the current fair value of the option written. Premiums received from writing options that expire unexercised are treated by the Fund on the expiration date as realized gains from investments. The difference between the premium and the amount paid on effecting a closing purchase transaction, including brokerage commissions, is also treated as a realized gain or loss (depending on if the premium is less than the amount paid for the closing purchase transaction). If a call option is exercised, the premium is added to the proceeds from the sale of the underlying security or currency in determining whether the Fund had realized a gain or loss. If a put option is exercised, the premium reduces the cost basis of the securities purchased by the Fund. The Fund, as the writer of an option, bears the market risk of an unfavorable change in the price of the security underlying the written option.
Expenses
The Fund bears expenses incurred specifically on its behalf as well as a portion of general expenses, which are allocated according to methods approved annually by the Trustees.
WISDOM FUND
Notes to Financial Statements
(Unaudited)
For the six month period ended November 30, 2009
Dividend Distributions
The Fund may declare and distribute dividends from net investment income (if any) quarterly. Distributions from capital gains (if any) are generally declared and distributed annually. The Fund may also make a supplemental distribution subsequent to the end of its fiscal year. Dividends and distributions to shareholders are recorded on the ex-dividend date.
Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in the net assets from operations during the reported period. Actual results could differ from those estimates.
Federal Income Taxes
No provision for income taxes is included in the accompanying financial statements, as the Fund intends to distribute to shareholders all taxable investment income and realized gains and otherwise complies with the requirements of Subchapter M of the Internal Revenue Code applicable to regulated investment companies.
| 2. | Transactions with Affiliates |
Advisor
Atlanta Investment Counsel, LLC (“AIC”) served as investment advisor to the Fund until November 30, 2009. The Fund paid a monthly advisory fee to AIC based upon the annual rate of 0.50% of the first $500 million of the Fund’s average daily net assets and 0.40% of all assets over $500 million. Prior to November 30, 2009, pursuant to an expense limitation agreement, AIC agreed to voluntarily waive all or a portion of its fee and to reimburse expenses of the Fund to limit total Fund operating expenses to a maximum of 1.75% of the average daily net assets of the Fund’s Institutional Class Shares, Investor Class Shares, Class B Shares and Class C Shares, exclusive of interest, taxes, brokerage fees and commissions, extraordinary expenses, and payments, if any, under a Rule 12b-1 Plan. Beginning December 1, 2009 AIC has agreed, pursuant to the expense limitation agreement, to reimburse the Fund to limit total Fund operating expenses to a maximum of 1.75%, as described below, for the portion of expenses that may not be covered by the expense waiver agreement (described below). Acquired fund fees and expenses are also excluded from the limit to total Fund operating expenses. There can be no assurances that the foregoing voluntary fee waivers or reimbursements will continue. For the fiscal year end 2008, there were no expenses reimbursed, but the advisory fees were waived in the amount of $777. For the fiscal year end 2009, reimbursed expenses amounted to 44,320 and advisory fees waived amounted to $59,386. For the six month period ended November 30, 2009, reimbursed expenses amounted to $39,050 and advisory fees waived amounted to $30,638. The current term of the expense limitation agreement runs through May 31, 2010.
Jacob Asset Management of New York, LLC (“JAM”) began serving as Interim Investment Advisor (“Interim Investment Advisor”) to the Fund on December 1, 2009. The Fund pays a monthly advisory fee to JAM based upon the annual rate of 0.50% of the first $500 million of the Fund’s average daily net assets and 0.40% of all assets over $500 million. Beginning December 1, 2009, JAM agreed, pursuant to an expense waiver agreement, to voluntarily waive all or a portion of its fee to limit total Fund operating expenses to a maximum of 1.75% of the average daily net assets of the Fund’s Institutional Class Shares, Investor Class Shares, Class B Shares and Class C Shares, exclusive of interest, taxes, brokerage fees and commissions, extraordinary expenses, and payments, if any, under a Rule 12b-1 Plan. Acquired fund fees and expenses are also excluded from the limit to total Fund operating expenses.
The Fund may, at a later date, reimburse AIC or JAM for the management fees waived or limited, and/or other expenses assumed and paid by the Advisor or interim Advisor pursuant to the expense limitation agreement during any of the previous three (3) fiscal years provided that the Fund has reached a sufficient asset size to permit such reimbursement to be made without causing the total annual expense ratio of the Fund to exceed 1.75%, as stated above.
Administrator
The Fund pays a monthly administration fee to The Nottingham Company (the “Administrator”) based upon the average daily net assets of the respective share class and calculated at the annual rates shown in the schedule provided below. The Administrator also receives a fee to procure and pay the custodian for the Fund, additional compensation for fund
WISDOM FUND
Notes to Financial Statements
(Unaudited)
For the six month period ended November 30, 2009
accounting and recordkeeping service and additional compensation for certain costs involved with the daily valuation of securities and as reimbursement for out-of-pocket expenses (which are immaterial in amount). A breakdown of these fees is provided in the following table.
| Administration Fees (a) | Custody Fees (b) | Fund Accounting Fees (monthly) | Fund Accounting Asset Based Fees | |
Average Net Assets | Annual Rate | Average Net Assets | Annual Rate | Average Net Assets | Annual Rate | Blue Sky Administration Fees (annual) |
First $50 Million Next $50 Million Over $100 Million | 0.125% 0.100% 0.075% | First $100 Million Over $100 Million | 0.020% 0.009% | $4,500 | All Assets | 0.01% | $150 per state per class |
(a) Subject to a minimum fee of $2,000 per month.
(b) Subject to a minimum fee of $400 per month.
Compliance Services
The Nottingham Compliance Services, LLC, (“NCS, LLC”) a wholly owned affiliate of The Nottingham Company, provides services which assists the Trust’s Chief Compliance Officer in monitoring and testing the policies and procedures of the Trust as required by Rule 38a-1 of the Securities and Exchange Commission. It receives compensation for this service at an annual rate of $7,750.
Transfer Agent
Nottingham Shareholder Services, LLC (the “Transfer Agent”) serves as transfer, dividend paying, and shareholder servicing agent for the Fund. It receives compensation for its services based upon a fee of $15 per shareholder per year, subject to a minimum fee of $1,500 per month, plus $500 per month for each additional class of shares.
Distributor
Capital Investment Group, Inc. (the “Distributor”) serves as the Fund’s principal underwriter and distributor. The Distributor receives sales charges imposed on share purchases and re-allocates a portion of such charges to dealers through whom the sale was made, if any. For the six month period ended November 30, 2009, the Distributor retained sales charges in the amount of $77.
Certain Trustees and officers of the Trust are also employees and/or officers of the Advisor, the Administrator, NCS, LLC, the Transfer Agent, or the Distributor.
| 3. | Distribution and Service Fees |
The Trustees, including a majority of the Trustees who are not “interested persons” of the Trust as defined in the 1940 Act, adopted distribution and service plans (the “Plans”) pursuant to Rule 12b-1 of the 1940 Act applicable to the Investor Class Shares, Class B Shares and Class C Shares. The 1940 Act regulates the manner in which a regulated investment company may assume costs of distributing and promoting the sales of its shares and servicing of its shareholder accounts. The Plan provides that the Fund may incur certain costs, which may not exceed 0.25% per annum of the average daily net assets of the Investor Class Shares or 1.00% per annum of the average daily net assets of the Class B or Class C Shares for each year elapsed subsequent to adoption of the Plans, for payment to the Distributor and others for items such as advertising expenses, selling expenses, commissions, travel, or other expenses reasonably intended to result in sales of Investor Class Shares, Class B Shares and Class C Shares in the Fund or support servicing of those classes’ shareholder accounts. The Fund incurred $2,920, $21,524, and $12,193, in distribution and service fees under the Plans with respect to Investor Class Shares, Class B Shares, and Class C Shares, respectively, for the six month period ended November 30, 2009.
WISDOM FUND
Notes to Financial Statements
(Unaudited)
For the six month period ended November 30, 2009
| 4. | Purchases and Sales of Investment Securities |
The aggregate cost of purchases and proceeds from sales of investment securities, excluding short-term securities, are shown below:
| Six Month Period Ended | Purchases of Securities | Proceeds from Sales of Securities |
| November 30, 2009 | $423,615 | $1,303,748 |
There were no purchases of long-term U.S. Government Obligations for either Fund during the six month period ended November 30, 2009.
Distributions are determined in accordance with Federal income tax regulations, which differ from generally accepted accounting principles, and, therefore, may differ significantly in amount or character from net investment income and realized gains for financial reporting purposes. Financial reporting records are adjusted for permanent book/tax differences to reflect tax character but are not adjusted for temporary differences.
Management reviewed the tax positions in the open tax years of 2006, 2007, 2008, and 2009 and determined that the implementation of ASC Topic 740 “Accounting for Uncertainty in Income Taxes” had no impact on the Fund’s net assets or results of operations. As of and during the six month ended November 30, 2009, the Fund does not have a liability for uncertain tax positions. 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, the Fund did not incur any interest or penalties.
Distributions during the six month period or fiscal years ended were characterized for tax purposes as follows:
| | November 30, 2009 | May 31, 2009 |
| Ordinary Income | $ 4,173 | $ 49,788- |
| Long-term capital gain | - | 1,141,787 |
At November 30, 2009, the tax-basis cost of investments for federal income tax purposes were as follows:
| Cost of Investments | $ | 12,731,927 |
| | | |
| Unrealized Appreciation | $ | 1,488,102 |
| Unrealized Depreciation | | (1,582,492) |
| Net Unrealized Depreciation | | (94,390) |
WISDOM FUND
Notes to Financial Statements
(Unaudited)
For the six month period ended November 30, 2009
| 6. | Capital Share Transactions |
For the six month period or fiscal year ended | Institutional Class | Investor Class |
November 30, 2009 | May 31, 2009 (a) | November 30, 2009 | May 31, 2009 (a) |
| Transactions in Capital Shares | | | | |
| | Shares sold | 7,221 | 16,410 | 34,707 | 55,751 |
| | Reinvested distributions | 424 | 39,341 | 147 | 28,567 |
| | Shares repurchased | (9,575) | (38,296) | (22,360) | (174,793) |
| Net Increase (Decrease) in Capital Shares | (1,930) | 17,455 | 12,494 | (90,475) |
| Shares Outstanding, Beginning of Year | 415,110 | 397,655 | 312,890 | 403,365 |
| Shares Outstanding, End of Year | 413,180 | 415,110 | 325,384 | 312,890 |
For the six month period or fiscal year ended | Class B | Class C |
November 30, 2009 | May 31, 2009 (a) | November 30, 2009 | May 31, 2009 (a) |
| Transactions in Capital Shares | | | | |
| | Shares sold | 2,075 | 8,548 | 118 | 21,696 |
| | Reinvested distributions | - | 61,433 | - | 36,166 |
| | Shares repurchased | (147,129) | (230,022) | (50,725) | (215,033) |
| Net Decrease in Capital Shares | (145,054) | (160,041) | (50,607) | (157,171) |
| Shares Outstanding, Beginning of Year | 665,617 | 825,658 | 368,687 | 525,858 |
| Shares Outstanding, End of Year | 520,563 | 665,617 | 318,080 | 368,687 |
(a) Audited.
| 7. | Commitments and Contingencies |
Under the Trust’s organizational documents, its officers and Trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund enters into contracts with its vendors and others that provide for 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. The Fund expects that risk of loss to be remote.
In accordance with the adoption of ASC Topic 855, Subsequent Events, and in preparing these financial statements, the Fund has evaluated the need for disclosures and/or adjustments resulting from subsequent events through the date of issuance of these financial statements. This evaluation did not result in any subsequent events that necessitated disclosures and/or adjustments.
The Trust has entered an Interim Investment Advisory Agreement with Jacob Asset Management of New York, LLC (“JAM”), a Delaware limited liability company, registered as an investment adviser under the Investment Advisers Act of 1940, as amended. The Interim Advisory Agreement was approved by the Board of Trustees of the Trust at a Special Meeting of the Board of Trustees held on November 23, 2009, and JAM began serving as Investment Advisor to the Fund beginning December 1, 2009. The Board also approved, subject to shareholder approval, a proposed Agreement and Plan of Reorganization (“Reorganization”) under which the Fund would be reorganized into a newly-formed mutual fund within the Jacob Funds family called the Jacob Wisdom Fund. Therefore, the Fund will soon hold a special meeting of shareholders to consider approval of the reorganization. If approved, the Reorganization is expected to take place on or about February 12, 2010.
WISDOM FUND
Additional Information (Unaudited)
For the six month period ended November 30, 2009
| 1. | Proxy Voting Policies and Voting Record |
A copy of the Trust’s Proxy Voting and Disclosure Policy and the Advisor’s Proxy Voting and Disclosure Policy are included in Appendix B to the Fund’s Statement of Additional Information and are available, (1) without charge, upon request, by calling 1-800-773-3863 and (2) on the SEC’s website at http://www.sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available (1) without charge, upon request, by calling the Fund at the number above and (2) on the SEC’s website at http://www.sec.gov.
| 2. | Quarterly Portfolio Holdings |
The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Fund’s Forms N-Q are available on the SEC’s website at http://www.sec.gov. You may review and make copies at the SEC’s Public Reference Room in Washington, D.C. You may also obtain copies after paying a duplicating fee by writing the SEC’s Public Reference Section, Washington, D.C. 20549-0102 or by electronic request to publicinfo@sec.gov, or is available without charge, upon request, by calling the fund at 1-800-773-3863. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 202-942-8090.
| 3. | Renewal of the Investment Advisory Agreement |
Atlanta Investment Counsel, LLC (“AIC”) served as investment advisor to the Fund pursuant to an Investment Advisory Agreement until November 30, 2009. At the annual meeting of the Fund’s Board of Trustees on October 22, 2009, the Trustees unanimously approved the renewal of the Investment Advisory Agreement for another year. In considering whether to approve the renewal of the Investment Advisory Agreement, the Trustees reviewed and considered the information they deemed reasonably necessary, including the following material factors: (i) the nature, extent, and quality of the services provided by AIC; (ii) the investment performance of the Fund and AIC; (iii) the costs of the services to be provided and profits to be realized by the Advisor and its affiliates from the relationship with the Fund; (iv) the extent to which economies of scale would be realized as the Fund grows and whether advisory fee levels reflect those economies of scale for the benefit of the Fund’s investors; (v) AIC’s practices regarding brokerage and portfolio transactions; and (vi) AIC’s practices regarding possible conflicts of interest.
At the meeting, the Trustees reviewed various informational materials including, without limitation, the Investment Advisory Agreement for the Fund; a memorandum from AIC to the Trustees containing information about AIC, its business, its finances, its personnel, its services to the Fund, and comparative expense ratio information for other mutual funds with a objective or strategy similar to the Fund; and a memorandum from the Fund’s legal counsel that summarized the fiduciary duties and responsibilities of the Board of Trustees in reviewing and approving the Investment Advisory Agreement, including the types of information and factors that should be considered in order to make an informed decision.
In considering the nature, extent, and quality of the services provided by AIC, the Trustees reviewed the responsibilities of the Advisor under the Investment Advisory Agreement. The Trustees considered the services being provided by the Advisor to the Fund including, without limitation, the quality of its investment advisory services since the Fund’s inception (including research and recommendations with respect to portfolio securities), its procedures for formulating investment recommendations and assuring compliance with the Fund’s investment objectives and limitations, its coordination of services for the Fund among the Fund’s service providers, and its efforts to promote the Fund, grow the Fund’s assets, and assist in the distribution of Fund shares. The Trustees noted that the Trust’s principal executive officer, principal financial officer, president, treasurer, and chief compliance officer is an employee of the Advisor and serves the Trust without additional compensation. After reviewing the foregoing information and further information in the memorandum from the Advisor (e.g., the Advisor’s Form ADV and descriptions of the Advisor’s business and compliance program), the Board of Trustees concluded that the nature, extent, and quality of the services provided by the Advisor were satisfactory and adequate for the Fund.
WISDOM FUND
Additional Information (Unaudited)
For the six month period ended November 30, 2009
In considering the investment performance of the Fund and the Advisor, the Trustees compared the short and long-term performance of the Fund with the performance of its benchmark index, comparable funds with similar objectives managed by other investment advisors, and applicable peer group data. The Trustees also considered the consistency of the Advisor’s management of the Fund with its investment objective and policies. After reviewing the short and long-term investment performance of the Fund, the Advisor’s experience managing the Fund, the fact that the Fund is the Advisor’s only client, the Advisor’s historical investment performance, and other factors, the Board of Trustees concluded that the investment performance of the Fund and the Advisor was satisfactory.
In considering the costs of the services to be provided and profits to be realized by the Advisor and its affiliates from the relationship with the Fund, the Trustees evaluated the Advisor’s staffing, personnel, and methods of operating; the Advisor’s compliance policies and procedures; the financial condition of the Advisor; the level of commitment to the Fund and the Advisor by the principals of the Advisor; the asset level of the Fund; and the overall expenses of the Fund, including certain prior fee waivers and reimbursements by the Advisor on behalf of the Fund. The Trustees reviewed the financial statements for the Advisor and discussed the financial stability and profitability of the firm. The Trustees reviewed the Fund’s Expense Limitation Agreement with the Advisor, and discussed the Advisor’s prior fee waivers under the Expense Limitation Agreement. The Trustees also considered potential benefits for the Advisor in managing the Fund, including promotion of the Advisor’s name, the ability for the Advisor to place small accounts into the Fund, and the potential for the Advisor to generate soft dollars from certain of the Fund’s trades. The Trustees then compared the fees and expenses of the Fund (including the management fee) to other funds comparable in terms of the type of fund, the nature of its investment strategy, and its style of investment management, among other factors. The Trustees determined that the management fee was lower than some of the comparable funds and higher than others, while the net expense ratio was higher than the comparable funds. The Trustees also determined that the management fee was lower than the peer group average, but the net expense ratio was higher than the peer group average. The Trustees noted that the Fund was much smaller than the industry average. Following this comparison and upon further consideration and discussion of the foregoing, the Board of Trustees concluded that the fees to be paid to the Advisor by the Fund were fair and reasonable in relation to the nature and quality of the services provided by the Advisor.
In considering the extent to which economies of scale would be realized as the Fund grows and whether advisory fee levels reflect those economies of scale for the benefit of the Fund’s investors, the Trustees considered that the Fund’s fee arrangements with the Advisor involved both the management fee and the Expense Limitation Agreement. The Trustees noted that the Fund utilizes breakpoints in its advisory fee schedule and determined that the Fund’s shareholders would benefit from economies of scale as the Fund grows. The Trustees noted that the Fund’s shareholders would receive benefits from the Expense Limitation Agreement if the Fund’s assets were to decrease or the Fund’s expenses were to increase beyond the cap set by the Expense Limitation Agreement. The Trustees noted that the Fund’s shareholders also benefited from economies of scale under the Fund’s agreements with service providers other than the Advisor. Following further discussion of the Fund’s asset levels, expectations for growth and levels of fees, the Board of Trustees determined that the Fund’s fee arrangements were fair and reasonable in relation to the nature and quality of the services provided by the Advisor.
In considering the Advisor’s practices regarding brokerage and portfolio transactions, the Trustees reviewed the Advisor’s standards, and performance in utilizing those standards, for seeking best execution for Fund portfolio transactions. The Trustees also considered the anticipated portfolio turnover rate for the Fund; the process by which evaluations are made of the overall reasonableness of commissions paid; the method and basis for selecting and evaluating the broker-dealers used; any anticipated allocation of portfolio business to persons affiliated with the Advisor; and the extent to which the Fund allocates portfolio business to broker-dealers who provide research, statistical, or other services (“soft dollars”). After further review and discussion, the Board of Trustees determined that the Advisor’s practices regarding brokerage and portfolio transactions were satisfactory.
In considering the Advisor’s practices regarding conflicts of interest, the Trustees evaluated the potential for conflicts of interest and considered such matters as the experience and ability of the advisory personnel assigned to the Fund (currently a single individual); the basis of decisions to buy or sell securities for the Fund and other accounts and the method for bunching portfolio securities transactions should the Advisor add new accounts; and the substance and administration of the Advisor’s code of ethics. Following further
WISDOM FUND
Additional Information (Unaudited)
For the six month period ended November 30, 2009
consideration and discussion, the Board of Trustees indicated that the Advisor’s standards and practices relating to the identification and mitigation of possible conflicts of interests were satisfactory.
Based upon all of the foregoing considerations, the Board of Trustees, including a majority of the Independent Trustees, approved the renewal of the Investment Advisory Agreement for the Fund.
| 4. | Approval of the Interim Investment Advisory Agreement |
The Fund has entered an Interim Investment Advisory Agreement with Jacob Asset Management of New York, LLC (“JAM”). The Interim Advisory Agreement was approved by the Fund’s Board of Trustees at a special meeting held on November 23, 2009. The Board also approved, subject to shareholder approval, a proposed Agreement and Plan of Reorganization under which the Fund would be reorganized into a newly-formed mutual fund within the Jacob family of mutual funds called the Jacob Wisdom Fund. Therefore, the Fund will soon hold a special meeting of shareholders to consider approval of the reorganization. If approved, the reorganization is expected to take place on or about February 12, 2010.
At the special meeting of the Fund’s Board of Trustees on November 23, 2009, the Trustees unanimously approved the Interim Investment Advisory Agreement. In considering whether to approve agreement, the Trustees reviewed and considered the information they deemed reasonably necessary, including the following material factors: (i) the nature, extent, and quality of the services provided by JAM; (ii) the investment performance of JAM; (iii) the costs of the services to be provided and profits to be realized by JAM and its affiliates from the relationship with the Fund; (iv) the extent to which economies of scale would be realized as the Fund grows and whether advisory fee levels reflect those economies of scale for the benefit of the Fund’s investors; (v) JAM’s practices regarding brokerage and portfolio transactions; and (vi) JAM’s practices regarding possible conflicts of interest.
At the meeting, the Trustees reviewed various informational materials including, without limitation, the Interim Investment Advisory Agreement for the Fund; a memorandum from JAM to the Trustees containing information about JAM, its business, its finances, its personnel, its services to the Fund, and comparative expense ratio information for other mutual funds with a objective or strategy similar to the Fund; and a memorandum from the Fund’s legal counsel that summarized the fiduciary duties and responsibilities of the Board of Trustees in reviewing and approving the Interim Investment Advisory Agreement, including the types of information and factors that should be considered in order to make an informed decision.
In considering the nature, extent, and quality of the services provided by JAM, the Trustees reviewed the services to be provided by JAM to the Fund including, without limitation, its procedures for formulating investment recommendations and assuring compliance with the Fund’s investment objectives and limitations, its coordination of services for the Fund among the Fund’s service providers, and its efforts to promote the Fund, grow the Fund’s assets, and assist in the distribution of Fund shares. The Trustees noted that a proposed Vice President for the Trust was an employee of JAM and would serve the Trust without additional compensation. After reviewing the foregoing information and further information in the JAM Memorandum (e.g., JAM’s Form ADV and descriptions of JAM’s business and compliance programs), the Board of Trustees concluded that the nature, extent, and quality of the services provided by JAM were satisfactory and adequate for the Fund.
In considering the investment performance of JAM, the Trustees reviewed the performance of Alexander Capital Management, an affiliate of JAM, in managing institutional accounts with a large-cap focus. The Trustees compared the short and long-term performance of a composite of the institutional accounts with the performance of their benchmark index. The Trustees also considered anticipated changes to the Fund’s investment portfolio and their consistency with the Fund’s investment objective and policies. After discussing the investment performance of JAM and Alexander Capital Management, their experience managing investment portfolios, and other factors, the Board of Trustees concluded that the investment performance of JAM was satisfactory.
WISDOM FUND
Additional Information (Unaudited)
For the six month period ended November 30, 2009
Item 2. CODE OF ETHICS.
Not applicable.
Item 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable.
Item 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable.
Item 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
Item 6. SCHEDULE OF INVESTMENTS.
A copy of Schedule I - Investments in securities of unaffiliated issuers as of the close of the reporting period is included as part of the report to shareholders filed under Item 1 of this Form.
Not applicable.
Not applicable.
Item 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS.
Item 11. CONTROLS AND PROCEDURES.
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.
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.
