Ancora Income Fund (the “Income Fund”), Ancora Equity Fund (the “Equity Fund”), Ancora Special Opportunity Fund (the “Special Opportunity Fund”) and Ancora Bancshares (the “Bancshares”) (each, a “Fund” and collectively, the “Funds”) are each a separate series of Ancora Trust (the “Trust”), an Ohio business trust under a Declaration of Trust dated August 20, 2003. The Trust’s Declaration of Trust permits the Trust to issue an unlimited number of shares of beneficial interest representing interests in separate funds of securities, and it permits the Trust to offer separate classes of each such series. The Income Fund’s investment objective is to obtain a high level of income, with a secondary objective of capital appreciation. The Equity Fund’s investment objective is obtaining a high total return, a combination of income and capital appreciation in the value of its shares. The Special Opportunity Fund’s investment objective is obtaining a high total return. The Bancshares’s investment objective is obtaining a high total return. Each Fund is an “open-end” management investment company as defined in the Investment Company Act of 1940, as amended (the “1940 Act”). Each Fund, other than Bancshares, is a “diversified” company as defined in the 1940 Act. The Board of Trustees (the “Board”) of the Trust has authorized that shares of the Funds may be offered in two classes: Class C and Class D. Class C and Class D shares are identical, except as to minimum investment requirements and the services offered to and expenses borne by each class. Class C shares are a no-load share class. Class D shares are offered continuously at net asset value. There is a redemption fee for Class D of Bancshares of 1.75% in the first year declining to 1.00% in the second year and eliminated thereafter. Each class is subject to a different distribution and shareholder service fee. Income and realized/unrealized gains or losses are allocated to each class based on relative net assets. The investment advisor of the Funds is Ancora Advisors LLC (the “Advisor”).
The following is a summary of significant accounting policies followed by the Funds in the preparation of their financial statements.
Ancora Trust
Notes to the Financial Statements
June 30, 2005 – continued
(Unaudited)
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES – continued
the Funds intend to distribute their net realized long term capital gains and net realized short term capital gains, if any, at least once a year.
Other - The Funds follow industry practice and record security transactions on the trade date. The specific identification method is used for determining gains or losses for financial statements and income tax purposes. Dividend income is recorded on the ex-dividend date and interest income is recorded on an accrual basis. Discounts and premiums on securities purchased are amortized or accreted using the effective interest method.
NOTE 3. FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust retains Ancora Advisors LLC (the “Advisor”) to manage the Funds’ investments. As sole member of the Advisor, Richard A. Barone, Chairman of the Trust, is regarded to control the Advisor for purposes of the 1940 Act. Under the terms of the Investment Advisory Agreement, (the “Agreement”), the Advisor manages the Funds’ investments in accordance with the stated policies of the Funds, subject to approval of the Board. The Advisor makes investment decisions for each Fund and places the purchase and sale orders for portfolio transactions. As compensation for management services, the Income Fund, Equity Fund and Special Opportunity Fund are obligated to pay the Advisor a fee computed and accrued daily and paid monthly at an annual rate of 1.00% of the average daily net assets of the Fund. The Bancshares is obligated to pay the Advisor a fee computed and accrued daily and paid monthly at an annual rate of 1.50% of the average daily net assets of the Fund. For the six months ended June 30, 2005, the Advisor earned fees of $62,816 from the Income Fund, $48,995 from the Equity Fund, $41,023 from the Special Opportunity Fund and $20,252 from the Bancshares. The Advisor has voluntarily agreed to waive management fees in order to limit total annual operating expenses for the Income Fund to 2.00% for Class C shares and 1.75% for Class D Shares. These waivers may be discontinued at any time. For the six months ended June 30, 2005, the Advisor waived fees of $20,989 for the Income Fund. In addition, the Advisor is contractually obligated to waive its management fee and/or reimburse a Fund in the amount, if any, for the Equity Fund, Special Opportunity Fund and Bancshares, by which each Fund’s total annual operating expenses for the period ended December 31, 2005 exceed 5.00% of the average net assets of such Fund. For the six months ended June 30, 2005, the Advisor waived fees of $1,596 for the Bancshares. At June 30, 2005, payables to the Advisor were $4,146, $11,406, $9,230, and $2,994 for the Income Fund, Equity Fund, Special Opportunity Fund, and Bancshares, respectively.
The Funds have adopted a Distribution and Shareholder Servicing Plan (each such plan, a “Distribution Plan”) pursuant to Rule 12b-1 under the Investment Company Act of 1940 for each class of shares authorized. The principal activities for which payments will be made include (i) compensation of securities dealers (including Ancora Securities Inc.) and others for distribution services and (ii) advertising. In addition, each of the Funds shall pay service fees pursuant to agreements with dealers (including Ancora Securities Inc.) or other servicers. Richard A. Barone, Chairman of the Trust and controlling shareholder of Ancora Capital, Inc., the parent company of Ancora Securities Inc., has an indirect financial interest in the operation of the Plan.
Ancora Trust
Notes to the Financial Statements
June 30, 2005 – continued
(Unaudited)
NOTE 3. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - continued
For the six months ended June 30, 2005 the fees paid were as follows:
The Funds have entered into an Administration Agreement with Ancora Capital, Inc. Pursuant to the Administration Agreement, each of the Funds will pay an administration fee equal to 0.10% of average net assets of each Fund monthly. Under the Administration Agreement, Ancora Capital, Inc. will assist in maintaining office facilities, furnish clerical services, prepare and file documents with the Securities Exchange Commission, coordinate the filing of tax returns, assist with the preparation of the Funds’ Annual and Semi-Annual Reports to shareholders, monitor the Funds’ expense accruals and pay all expenses, monitor the Funds’ sub-chapter M status, maintain the Funds’ fidelity bond, monitor each Funds’ compliance with such Funds’ policies and limitations as set forth in the Prospectus and Statement of Additional Information and generally assist in the Funds’ operations. For the six months ended June 30, 2005, Ancora Capital Inc. earned $6,141 from the Income Fund, $4,932 from the Equity Fund, $4,102 from the Special Opportunity Fund, and $1,349 from Bancshares. As of June 30, 2005, Ancora Capital Inc. was owed $1,101, $1,173, $923, and $222 by the Income Fund, Equity Fund, Special Opportunity Fund, and Bancshares, respectively, for administrative services.
The Funds’ Board of Trustees have determined that any portfolio transaction for any of the Funds may be effected through Ancora Securities Inc., if, in the Advisor’s judgment, the use of Ancora Securities Inc. is likely to result in price and execution at least as favorable as those of other qualified brokers, and if, in the transaction, Ancora Securities Inc. charges the Fund a commission rate consistent with those charged by Ancora Securities Inc. to comparable unaffiliated customers in similar transactions. For the six months ended June 30, 2005, Ancora Securities Inc. received commissions on security transactions of $23,666 for the Income Fund, $5,937 for the Equity Fund, $7,170 for the Special Opportunity Fund, and $1,104 for Bancshares.
Ancora Trust
Notes to the Financial Statements
June 30, 2005 – continued
(Unaudited)
NOTE 3. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - continued
Effective June 30, 2005, the Trust retains Ancora Securities, Inc. (the “Distributor”), to act as the principal distributor of its shares. The Distributor is an affiliate of the Advisor and serves without compensation.
NOTE 4. INVESTMENTS
For the six months ended June 30, 2005, purchases and sales of investment securities, other than short-term investments and short-term U.S. government obligations were as follows:
At June 30, 2005, the costs of securities, for federal income tax purposes was $13,412,542, $12,247,068, $10,788,998 and $2,336,254 for the Income Fund, Equity Fund, Special Opportunity Fund and Bancshares, respectively. As of June 30, 2005, the net unrealized appreciation of investments for tax purposes was as follows:
NOTE 5. 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 the fund, under Section 2(a)(9) of the Investment Company Act of 1940. As of June 30, 2005 Pershing & Company owned, for the benefit of its customers, the following percentages of the outstanding shares:
Ancora Trust
Notes to the Financial Statements
June 30, 2005 – continued
(Unaudited)
NOTE 6. CAPITAL LOSS CARRYFORWARDS
At December 31, 2004, the Income Fund had available for federal tax purposes an unused capital loss carryforward of $83,133, which expires in 2012. To the extent this carryforward is used to offset future capital gains, it is probable that the amount offset will not be distributed to shareholders.
NOTE 7. DISTRIBUTIONS TO SHAREHOLDERS
Ancora Income Fund Class C and Class D. For the period ended December 31, 2004, the Fund paid monthly distributions of net investment income totaling $0.50 per share to Class C and $0.50 per share to Class D shareholders.
Ancora Special Opportunity Fund Class C and Class D. For the period ended December 31, 2004, the Fund paid distributions of short term capital gains totaling $0.12 per share to Class C and $0.12 per share to Class D shareholders.
For the period ended December 31, 2004, no distributions were paid from the Equity Fund or the Bancshares to shareholders.
The tax character of distributions paid during the period ended December 31, 2004 is as follows:
As of December 31, 2004, the components of distributable earnings on a tax basis were as follows:
The difference between book basis and tax basis unrealized appreciation is attributable to the tax deferral of losses on wash sales.
Ancora Income Fund Class C and Class D. For the six months ended June 30, 2005, the Fund paid monthly distributions of net investment income totaling $0.25 per share, or $234,243, to Class C shareholders and $0.25 per share, or $91,311, to Class D shareholders.
Ancora Trust
Notes to the Financial Statements
June 30, 2005 – continued
(Unaudited)
NOTE 7. DISTRIBUTIONS TO SHAREHOLDERS - continued
Ancora Special Opportunity Fund Class C and Class D. For the six months ended June 30, 2005, the Fund paid distributions of short term capital gains totaling $0.0875 per share, or $62,821, to Class C shareholders and $0.0875 per share, or $52,805, to Class D shareholders.
For the six months ended June 30, 2005, no distributions were paid from the Equity Fund or Bancshares to shareholders.
NOTE 8. SUBSEQUENT EVENTS
Effective July 1, 2005, the Funds’ Transfer Agent and Fund Accountant has changed to Mutual Shareholder Services LLC.
PROXY VOTING
A description of the policies and procedures that the Funds use to determine how to vote proxies relating to portfolio securities and information regarding how the Fund voted those proxies during the twelve month period ended June 30, 2005, is available without charge upon request by (1) calling the Funds at (866) 626-2672; and (2) from Funds’ documents filed with the Securities and Exchange Commission ("SEC") on the SEC's website at www.sec.gov.
RENEWAL OF MANAGEMENT AGREEMENT
At a meeting on February 9, 2005, the Board of Trustees renewed the Management Agreement with Ancora Advisers LLC. The Board considered the fairness and reasonableness of the terms of the Management Agreement with respect to each Fund. The Board considered the factors discussed below, among others. No single factor determined whether the Board approved the Management Agreement; rather, the Board made its decision based on a totality of the circumstances.
Nature, Extent and Quality of Services
The Board concluded that the Advisor has a high level of expertise in managing assets of the type held by the Funds and that the services provided by the Advisor to the Funds are of high quality.
With respect to Ancora Income Fund, the Board considered that the Fund is actively managed compared to other income funds. The Board also noted that the Advisor seeks to obtain better results than a typical income fund might expect by diligently seeking out convertible securities that become available at a price lower than their underlying value. With respect to Ancora Equity Fund and Ancora Special Opportunity Fund, the Board considered that both Funds are actively managed.
The Board noted that the management fee for Ancora Bancshares is 1.5%; however, the Board noted that the Fund will be actively managed. The Board also noted that since most community banks are not followed by analysts, all research will be originated internally, e.g., the Advisor will conduct interviews of management and directors of community banks and evaluate a bank’s performance in the community it is intended to serve. The Board noted that Robert N. Barone, co-portfolio manager of the Fund and a prior Professor of Economics, started a bank in 1985 and ran it successfully until he sold it in 1998.
Comparisons
The Board also reviewed information regarding management fees charged by advisers to other smaller funds. This chart showed that the 1.0% management fee charged to the Funds other than Ancora Bancshares is below the median fee paid by other comparably sized funds, and the 1.5% fee charged to Ancora Bancshares is approximately the median fee paid by comparably sized funds. In light of these comparisons, the Board concluded that the terms of the Management Agreement are fair and reasonable. The Board also noted that the Advisor does not benefit from any “soft dollar” or similar arrangements with respect to the Funds.
Investment Performance
Generally, for the year 2004 the Funds performed close to or above the comparable indexes. The only exception was Ancora Bancshares, which was underinvested at the commencement of operations and therefore missed a run-up in prices of bank stocks in 2004.
Cost and Profitability
The Board also considered the profitability of the Management Agreement to the Advisor and to Ancora Securities, Inc., an affiliate of the Advisor. The Board noted that the Funds are not expected to have substantial assets for some time, and, therefore, it is not anticipated that the Management Agreement will be particularly profitable to the Advisor. The Board reviewed cost data showing that the profits made by the Adviser and its affiliates in respect of their activities on behalf of the Funds were
quite modest. The Board noted that at this time the Advisor’s compensation is not high relative to the experience of the Advisor and the nature and quality of the services performed by the Advisor.
With respect to Ancora Securities, Inc., the Board considered the reasonableness of brokerage commissions paid. The Board determined that the commissions paid to Ancora Securities, Inc. are reasonable relative to the market rates. Moreover, the volume of such commissions was not significant.
Economies of Scale
The Board noted that at this time, the fee structure does not account for the benefit of economies of scale because the Funds have insufficient assets for economies of scale to be realized. Currently, the fee structure provides for a flat percentage rate. Once assets under management grow to substantially higher levels, economies of scale may begin to take effect and benefit the Advisor. At such future time, it may be appropriate for the Board to review the fee structure to determine whether the management fees as a percent of assets under management might be reduced. The Board noted that any such discussion was premature at this time since assets would have to grow substantially above current levels before economies of scale would be realized for the Advisor.
Other Factors
The Board also noted that the Management Agreement is terminable by either party on 60 days notice. The Board noted that, pursuant to the requirements of the 1940 Act, it would regularly review the terms of the Management Agreement in light of changing conditions and seek to amend or terminate the Management Agreement as necessary.
After its consideration of the above, the Board concluded that the terms of the Management Agreement continued to be fair and reasonable and in the
best interests of each Fund and its shareholders.
DIRECTORS
Richard A. Barone
Raj Aggarwal
Donald Lerner
Anne Peterson Ogan
OFFICERS
Richard A. Barone, Chairman and Treasurer
Bradley Zucker, Secretary
INVESTMENT ADVISOR
Ancora Advisors LLC
One Chagrin Highlands
2000 Auburn Drive,
Suite 430
Cleveland, OH 44122
DISTRIBUTOR
Ancora Securities, Inc.
One Chagrin Highlands
2000 Auburn Drive,
Suite 430
Cleveland, OH 44122
INDEPENDENT ACCOUNTANTS
Cohen McCurdy, Ltd.
826 Westpoint Pkwy., Suite 1250
Westlake, OH 44145
LEGAL COUNSEL
McDonald Hopkins Co., LPA
2100 Bank One Center
600 Superior Avenue E.
Cleveland, OH 44114
CUSTODIAN
U.S. Bank N.A.
425 Walnut Street
Cincinnati, OH 45202
TRANSFER AGENT
AND FUND ACCOUNTANT
Mutual Shareholder Services, LLC
8869 Brecksville Road, Suite C
Brecksville, OH 44141
This report is intended only for the information of shareholders or those who have received the Funds’ prospectus which contains information about the Funds’ management fees and expenses. Please read the prospectus carefully before investing.
The Funds’ Statement of Additional Information includes additional information about the Funds and is available upon request at no charge by calling the Funds.
Distributed by Ancora Securities, Inc., Member NASD.
FUND HOLDINGS – (Unaudited)
1As a percent of net assets
The Fund’s investment objective is to obtain a high level of income, with a secondary objective of capital appreciation. The Fund pursues its income objective by investing primarily in income-producing securities.
1As a percent of net assets
The Fund’s investment objective is to obtain a high total return, a combination of income and capital appreciation in the value of its shares. The Fund pursues this objective by investing in publicly traded equity securities.
FUND HOLDINGS – (Unaudited) – continued
1As a percent of net assets
The Fund’s investment objective is to obtain a high total return. The Fund pursues this objective by seeking out and investing in companies which the Advisor believes have the potential for superior returns.
1As a percent of net assets
The Funds investment objective is to obtain a high total return. The Fund pursues this objective by investing primarily in companies in a group of related industries that provide financial services.
ABOUT YOUR FUND'S EXPENSES - (Unaudited)
As a shareholder of the Funds, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, reinvested dividends, or other distributions; redemption fees; and exchange fees; and (2) ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other Fund expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Funds and to compare these costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from January 1, 2005 through June 30, 2005.
Actual Expenses
The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Funds’ actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Funds’ actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Funds and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), redemption fees, or exchange fees. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Ancora Income Fund - Class C | Beginning Account Value January 1, 2005 | Ending Account Value June 30, 2005 | Expenses Paid During Period* January 1 – June 30, 2005 |
Actual | $1,000.00 | $1,012.20 | $9.98 |
Hypothetical (5% return before expenses) | $1,000.00 | $1,014.88 | $9.99 |
* Expenses are equal to the Fund’s Class C annualized expense ratio of 2.00%, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the partial year period).
Ancora Income Fund - Class D | Beginning Account Value January 1, 2005 | Ending Account Value June 30, 2005 | Expenses Paid During Period* January 1 – June 30, 2005 |
Actual | $1,000.00 | $1,013.20 | $8.74 |
Hypothetical (5% return before expenses) | $1,000.00 | $1,016.12 | $8.75 |
* Expenses are equal to the Fund’s Class D annualized expense ratio of 1.75%, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the partial year period).
ABOUT YOUR FUND'S EXPENSES - (Unaudited) – continued
Ancora Equity Fund – Class C | Beginning Account Value January 1, 2005 | Ending Account Value June 30, 2005 | Expenses Paid During Period* January 1 – June 30, 2005 |
Actual | $1,000.00 | $990.20 | $14.41 |
Hypothetical (5% return before expenses) | $1,000.00 | $1,010.31 | $14.55 |
* Expenses are equal to the Fund’s Class C annualized expense ratio of 2.92%, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the partial year period).
Ancora Equity Fund – Class D | Beginning Account Value January 1, 2005 | Ending Account Value June 30, 2005 | Expenses Paid During Period* January 1 – June 30, 2005 |
Actual | $1,000.00 | $992.90 | $10.87 |
Hypothetical (5% return before expenses) | $1,000.00 | $1,013.88 | $10.99 |
* Expenses are equal to the Fund’s Class D annualized expense ratio of 2.20%, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the partial year period).
Ancora Special Opportunity Fund – Class C | Beginning Account Value January 1, 2005 | Ending Account Value June 30, 2005 | Expenses Paid During Period* January 1 – June 30, 2005 |
Actual | $1,000.00 | $950.00 | $14.70 |
Hypothetical (5% return before expenses) | $1,000.00 | $1,009.72 | $15.15 |
* Expenses are equal to the Fund’s Class C annualized expense ratio of 3.04%, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the partial year period).
Ancora Special Opportunity Fund – Class D | Beginning Account Value January 1, 2005 | Ending Account Value June 30, 2005 | Expenses Paid During Period* January 1 – June 30, 2005 |
Actual | $1,000.00 | $952.00 | $11.66 |
Hypothetical (5% return before expenses) | $1,000.00 | $1,012.84 | $12.03 |
* Expenses are equal to the Fund’s Class D annualized expense ratio of 2.41%, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the partial year period).
Ancora Bancshares – Class D | Beginning Account Value January 1, 2005 | Ending Account Value June 30, 2005 | Expenses Paid During Period* January 1 – June 30, 2005 |
Actual | $1,000.00 | $952.60 | $24.21 |
Hypothetical (5% return before expenses) | $1,000.00 | $1,000.00 | $24.79 |
* Expenses are equal to the Fund’s Class D annualized expense ratio of 5.00%, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the partial year period).
