UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-21606
---------
Tilson Investment Trust
-----------------------
(Exact name of registrant as specified in charter)
145 East 57th Street, Suite 1100, New York, New York 10022
----------------------------------------------------------
(Address of principal executive offices) (Zip code)
Julian G. Winters
116 South Franklin Street, Post Office Box 69, Rocky Mount, North Carolina 27802
- --------------------------------------------------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area code: 252-972-9922
------------
Date of fiscal year end: October 31
----------
Date of reporting period: April 30, 2005
--------------
Item 1. Reports to Stockholders.
________________________________________________________________________________
Tilson Focus Fund
Tilson Dividend Fund
________________________________________________________________________________
a series of the Tilson Investment Trust
Semi-Annual Report
(Unaudited)
For the Period from
March 16, 2005 (Date of Initial Public Investment)
To April 30, 2005
INVESTMENT ADVISOR
T2 Partners Management LP
145 East 57th Street, Suite 1100
New York, NY 10022
TILSON FUNDS
116 South Franklin Street
Post Office Drawer 4365
Rocky Mount, North Carolina 27803-0365
1-888-484-5766
DISTRIBUTOR
Capital Investment Group, Inc.
Post Office Drawer 4365
Rocky Mount, North Carolina 27803-0365
1-800-430-3863
This report and the financial statements contained herein are submitted for the
general information of the shareholders of the Tilson Funds (the "Funds"). This
report is not authorized for distribution to prospective investors in the Funds
unless preceded or accompanied by an effective prospectus. Mutual fund shares
are not deposits or obligations of, or guaranteed by, any depository
institution. Shares are not insured by the FDIC, Federal Reserve Board or any
other agency, and are subject to investment risks, including possible loss of
principal amount invested. Neither of the Funds nor the Funds' distributor is a
bank.
- --------------------------------------------------------------------------------
Investment in the Tilson Funds ("Funds") is subject to investment risks,
including the possible loss of some or all of the principal amount invested.
There can be no assurance that the Funds will be successful in meeting its
investment objective. Generally, the Funds will be subject to the following
additional risks: market risk, management style risk, sector focus risk, foreign
securities risk, non-diversified fund risk, portfolio turnover risk, credit
risk, interest rate risk, maturity risk, investment grade securities risk, junk
bonds or lower-rated securities risk, derivative instruments risk and real
estate securities risk. More information about these risks and other risks can
be found in the Funds' prospectus. When the Funds sell covered call options, the
Funds give up additional appreciation in the stock above the strike price since
there is the obligation to sell the stock at the covered call option's strike
price.
The performance information quoted in this semi-annual report represents past
performance, which is not a guarantee of future results. Investment return and
principal value of an investment will fluctuate so that an investor's shares,
when redeemed, may be worth more or less than their original cost. Current
performance may be lower or higher than the performance data quoted. The
performance data reflects the maximum sales load and/or fee charges applicable.
An investor may obtain performance data current to the most recent month-end by
visiting www.nottinghamco.com.
An investor should consider the investment objectives, risks, and charges and
expenses of the Funds carefully before investing. The prospectus contains this
and other information about the Funds. A copy of the prospectus is available at
www.nottinghamco.com or by calling Shareholder Services at 1-888-4TILSON
(1-888-484-5766). The prospectus should be read carefully before investing.
- --------------------------------------------------------------------------------
Stated performance in the Funds was achieved at some or all points during the
year by waiving or reimbursing part of the Funds' total expenses to ensure
shareholders did not absorb expenses significantly greater than the industry
norm.
Fund Expenses
________________________________________________________________________________
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, which may include redemption fees for shares redeemed within one year and
(2) ongoing costs, including management fees and other Fund expenses. This
example is intended to help you understand your ongoing costs (in dollars) of
investing in the Fund 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 as
indicated below.
Actual Expenses - The first line of the table below provides information about
the 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 Fund's actual expense ratio and an assumed annual rate of
return of 5% before expenses, which is not the Fund's 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 Fund and other
funds by comparing this 5% hypothetical example with the 5% hypothetical
examples that appear in the shareholder reports of 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
redemption fees for shares redeemed within one year. 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.
Beginning Ending
Tilson Focus Fund Account Value Account Value Expenses Paid
Expense Example November 1, 2004 April 30, 2005 During Period*
Actual $1,000.00 $971.00 $2.37
Hypothetical (5% return before expenses) $1,000.00 $1,030.50 $2.44
Beginning Ending
Tilson Dividend Fund Account Value Account Value Expenses Paid
Expense Example November 1, 2004 April 30, 2005 During Period*
Actual $1,000.00 $978.00 $2.38
Hypothetical (5% return before expenses) $1,000.00 $1,030.50 $2.44
* Expenses are equal to the Funds' annualized expense ratio of 1.95% multiplied
by the average account value over the period, multiplied by the number of days
in the most recent fiscal half-year divided by 365 (to reflect the semi-annual
period).
Tilson Funds
________________________________________________________________________________
June 27, 2005
Dear Tilson Funds investor,
Allow us to introduce ourselves and welcome you to our funds. We are Whitney
Tilson and Glenn Tongue of T2 Partners Management LP, the investment advisor of
the Tilson Focus Fund, and Zeke Ashton and Matthew Richey of Centaur Capital
Partners LP, the sub-investment advisor of the Tilson Dividend Fund. We are
delighted that you have chosen to invest with us and will strive to earn your
continued confidence and trust.
We are jointly writing the first part of this initial letter to you, seeking to
communicate to you our strategy and investment philosophy, as well as our goals
and expectations.
Relationship With Our Investors
While investors can enter and exit our fund every day the market is open, we
view our relationship as a long-term partnership. We have no interest in
short-term-oriented investors who are looking for a quick profit, which is why
we impose a 2% withdrawal penalty for investors who redeem in the first year
(payable to the fund, not to us). While we hope to do well every calendar year,
the time it takes for the earth to circle the sun does not necessarily coincide
with how long it takes for our investments to work out, so we evaluate ourselves
- - and urge you to evaluate us - on a three- to five-year time horizon, which,
not coincidentally, is our general investment horizon when we purchase a stock.
Investment Philosophy
We are value investors. Simply put, we try to buy companies that are being
valued by the stock market at substantially less than our conservative estimate
of their intrinsic value. Note that we said "companies" not "stocks" - that's
because we view the purchase of a stock not as a piece of paper to be traded, in
the hopes that some other investor will buy it from us at a higher price in the
future, but rather a fractional ownership stake in a business that has a certain
intrinsic value, defined as the future free cash flows the business will
generate in its lifetime, discounted back to the present.
We do not try to predict what new industry sector or technology will be popular
with investors in the immediate future. Instead, what we do is very simple in
concept, yet very difficult in practice: we study business after business -
hundreds of them each year - and attempt to value them. Our analysis involves,
among other things, four steps:
1) Circle of competence. Do we understand the company and its industry
deeply? Can we make reasonable projections about the company's future?
We try to keep it simple. Our best investment ideas can usually be
explained in a short paragraph.
2) Company and industry evaluation. Is this a good business? Does it have
sustainable competitive advantages, high returns on capital, solid,
steady growth, a healthy balance sheet and strong free cash flow? Is
this a good industry? Are the trends favorable? What are the
competitive dynamics?
3) Evaluation of management. Are they good operators? Are they good
capital allocators? Are they trustworthy? We believe that the
executive officers of many publicly-traded companies have given in to
(or in some case, encouraged) a culture of excess that effectively
re-allocates the vast majority of any value created by the business to
executives and other insiders, while common stock investors receive
only a token portion of the value to which they, as the majority
owners of the business, are entitled. Excessive executive
compensation, abusive stock option policies, obsession with the
current stock price rather than the business, aggressive accounting
practices, and the reckless pursuit of unprofitable growth are just a
few of the red flags that can indicate an unhealthy corporate culture.
Companies that either encourage or allow a culture of excess will
usually destroy value for their investors (though the executives
usually come out just fine).
We believe that shareholders tend to benefit most over time from
investing in companies where the embedded culture emphasizes ethical
stewardship of shareholder value, enlightened corporate governance,
financial conservatism, thrift, and prudent, careful allocation of
capital. We generally prefer investing in companies where the top
executives own significant amounts of stock (as opposed to options),
maintain reasonable compensation structures that are aligned with
value creation for shareholders, and have a demonstrated track record
of successful value creation and effective capital allocation.
4) Finally and most importantly: Is the stock really cheap? Why?
For a business we can understand and estimate its future cash flows, we
calculate a range of intrinsic value using realistic and conservative
assumptions. We then compare this estimate to the stock price. In nearly all
cases, the stock is either close to being fairly valued or significantly
overvalued, but on very rare occasions we find situations in which the stock
appears to be significantly undervalued.
At this point, we typically do a great deal more work, testing our assumptions
and calculations and trying to figure out why our opinion of the company is so
different than that of the market. At this stage, we're typically looking for an
edge - some proprietary insight or bit of information that's not widely known.
The market is extremely efficient, so usually when we find a stock that
initially appears cheap, further analysis reveals that it's cheap for good
reasons and we don't invest. But every once in a while, we develop a great deal
of conviction that we're right and the market is wrong, and we do invest.
In a competitive market with so many smart investors with so much capital all
searching for undervalued stocks, finding true bargains is difficult. To
increase our chances of finding undervalued companies to invest in, we cast a
wide net and don't limit ourselves arbitrarily to certain industries, companies
of a certain size, or stocks that are labeled "growth" or "value" by others. If
there's a common theme to what we buy, it's that the stocks tend to be either
unknown or unloved. Regarding the former, there are more than 5,000 publicly
traded stocks in the U.S. alone that have no coverage from any Wall Street
analysts. These companies generally tend to be small and in mundane industries,
and often their stocks are fairly illiquid. Because they are so far off the
radar screen of the investment herd, we believe such stocks can be substantially
undervalued.
Sometimes, however, the greatest bargains are lying in plain sight: well-known
companies with dozens of analysts following them, but which are encountering
difficulties. The investment herd, with its overwhelming focus on the short
term, can often over-react to what prove to be temporary difficulties, allowing
us to buy the stock of extremely high-quality businesses at attractive prices.
The key, of course, is correctly differentiating between companies that are
experiencing temporary problems - a good example was McDonald's in early 2003 -
from those that are permanently impaired, such as Winn-Dixie, which after a long
decline went into bankruptcy not long ago.
Time Horizon
We believe that one of our greatest advantages is that we invest with a three-
to five-year time horizon, while many investment managers are focused on
quarterly or even monthly returns. Sometimes stocks trade at half of what
everyone agrees they are worth because there's no obvious "catalyst" to close
the valuation discrepancy. That's okay with us. If we're convinced that a stock
is trading for half of its intrinsic value, and that value is not deteriorating,
then we tend not to worry about the lack of an obvious catalyst. Our experience
is that the market can be irrational in the short term, but it tends to be quite
efficient over time, so severely undervalued stocks eventually become fairly
valued.
Risk
Unlike many other investors, who view risk as short-term stock price
fluctuations, we define risk as the permanent loss of capital, so we believe
that buying with a large margin of safety is the best way to mitigate risk. We
are more than happy to accept the possibility that our stocks may decline
modestly in the short term if we believe that they are likely to increase in
value substantially in the long run.
To quote Ben Graham, the father of value investing, in his classic book, The
Intelligent Investor: "Price fluctuations have only one significant meaning for
the true investor. They provide him with an opportunity to buy wisely when
prices fall sharply and to sell wisely when they advance a great deal. At other
times he will do better if he forgets about the stock market and pays attention
to...the operating results of his companies."
Communication
We seek to treat you that way we would want to be treated were our positions
reversed. To that end, we intend to communicate openly in our quarterly letters,
in which we will discuss the funds' performance, some of our positions, our
successes and failures. (Rest assured that there will be plenty of the latter,
as predicting the future is a difficult and uncertain task. But we expect to
have our share of the former as well.)
What We Ask from You
We have managed private investment partnerships for a number of years, and
thought very hard before launching mutual funds. We'd like to highlight what we
believe are four basic drawbacks of mutual funds, and share with you our
thoughts on how you can help us to minimize their negative effects.
1) We cannot lock up our capital. In our private partnerships, investors
may withdraw all or part of their investment only at certain
agreed-upon intervals, which gives us the luxury of a stable base of
capital. This, in turn, allows us to invest in illiquid or unpopular
securities, which we believe are often cheaper for this very reason.
We ask you to behave as if your capital were locked up for an extended
period, rather than like typical mutual fund investors, who pour money
in after a period of strong performance and then panic and yank it out
after a down period - precisely the opposite of what one should do.
2) Investors can see our performance every day. This can lead to a
short-term orientation, which we believe is not healthy or
appropriate. If you find yourself checking our funds' performance more
than once a month, we're probably not for you.
3) We have to disclose our holdings in the mutual funds at specified
intervals. We would prefer to disclose our investments at a time of
our choosing for two reasons: a) As Warren Buffett wrote in the
Berkshire Hathaway Owner's Manual, "good investment ideas are rare,
valuable and subject to competitive appropriation"; and b) We don't
like the feeling of people looking over our shoulders. Our approach
often results in our buying stocks that may be very unpopular,
controversial, or misunderstood because it is under such conditions
that we believe the markets tend to offer the best values. This is
difficult enough to do in private, much less under a public spotlight,
so if you see a "problem" stock in our portfolio, please don't send an
email berating us or demanding an explanation.
4) We expect to have a far greater number of investors over time in the
mutual funds than we have had in our partnerships, and this will
invariably translate into more emails and calls asking us for general
investment advice, our opinions on current or potential holdings of
the funds, etc. We don't have the time or staff to respond personally
to such requests, nor would it be fair to our other investors to do
so. You are welcome to send us emails with comments regarding our
funds, but we ask your understanding that we are unable to respond
personally, though we do read them all.
For general information and customer service questions, we ask you to
use our shareholder services number (1-888-4TILSON). We do encourage
you to contact us directly if you encounter any customer
service-related issues that are not resolved to your satisfaction.
Alignment of Interests
We, along with many of our friends and family, are investors in the funds
alongside you, and we intend to be meaningful investors in the funds over time.
While this is no guarantee that we will produce satisfactory results, it does
ensure that our interests are aligned strongly. We never forget that our clients
count on us to try to protect and grow their capital over time, and we derive
great satisfaction from knowing that doing our job well means enabling our
clients to reach their financial goals. We thank you for your trust and
confidence, and we look forward to reporting our progress to you in future
letters.
Tilson Focus Fund
________________________________________________________________________________
The Tilson Focus Fund
[This section is written by Whitney Tilson and Glenn Tongue, the co-managers of
the Tilson Focus Fund.]
In addition to the general principles outlined above, we wanted to share some
information specifically about the Tilson Focus Fund.
First, our objective is maximum long-term capital appreciation, so we are
indifferent whether a stock pays a dividend or not. We are simply seeking
significantly undervalued stocks - generally ones we believe are trading at no
more than half of their intrinsic value.
Second, we are focus investors, which means that we concentrate the fund in our
very best investment ideas. To us, it makes no sense whatsoever to own more than
100 different stocks - about average for a typical mutual fund. Why would we buy
our 101st-favorite stock when we could invest more in one of our top-10 ideas?
We expect that the Tilson Focus Fund will usually have only 12-25 positions.
Such concentration may make the fund more volatile than the market over short
periods of time, but we believe it also affords us a better chance of beating
the market over long periods of time.
To quote one of our favorite investors, Philip Fisher, from his book, Common
Stocks and Uncommon Profits: "Investors have been so oversold on diversification
that fear of having too many eggs in one basket has caused them to put far too
little into companies they thoroughly know and far too much in others about
which they know nothing at all. It never seems to occur to them that buying a
company without having sufficient knowledge of it may be even more dangerous
than having inadequate diversification."
Finally, in general we manage the fund as a long-only version of our private
investment partnerships. This means if we decide to buy a 5% position in, say,
Berkshire Hathaway stock, it will usually be a 5% position across all of our
funds, both our private partnerships and the Tilson Focus Fund. If we decide to
short a stock in our partnerships, however, this position will not be included
in the Tilson Focus Fund. Our partnerships also occasionally invest in certain
highly illiquid securities, which may likewise not be suitable selections for
the Tilson Focus Fund.
Tilson Focus Fund Holdings
We have been able to find a number of attractive investments. As of April 30th,
the end of our most recent fiscal quarter, the fund's largest holdings were:
1) 9.6%: Stock and calls of Wal-Mart (WMT)
2) 8.0%: Stock and calls of Costco (COST)
3) 7.0%: Stock of Berkshire Hathaway (B shares) (BRK.B)
4) 6.7%: Stock of Sears Holdings (SHLD)
5) 5.2%: Stock of Freescale Semiconductor (FSL)
6) 4.9%: Stock of CKE Restaurants (CKR)
7) 4.4%: Stock and calls of Wendy's (WEN)
8) 3.4%: Stock and calls of Whirlpool (WHR)
9) 2.6%: Stock of USA Mobility (USMO)
10) 2.3%: Stock and calls of Anheuser Busch (BUD)
Wal-Mart
Over time, we will discuss many of our holdings, so let's start with our largest
position and one of our current favorites: Wal-Mart. We've seen the same
negative headlines you undoubtedly have, but there is little doubt in our minds
that this company is an "inevitable," the term Buffett used in his 1996 annual
letter to Berkshire Hathaway shareholders to define companies that "will
dominate their fields worldwide for an investment lifetime. Indeed, their
dominance will probably strengthen." Wal-Mart's competitive advantage with
respect to information, logistics, sourcing and distribution, combined with its
distinct corporate culture, makes it likely that 10 (if not 20 or more) years
from now, Wal-Mart will be the dominant discount and food retailer in the United
States. It also has a decent chance of extending that dominance to many areas
outside of North America.
We think Wal-Mart's stock is attractive at today's price under $50 per share.
Over the next five years, we believe Wal-Mart will grow sales at 10-12% annually
Tilson Focus Fund
________________________________________________________________________________
(7-8% growth from new stores plus 3-4% same-store sales growth), margins will
continue to expand slightly, and the company will buy back at least 2% of its
stock each year (assuming it remains undervalued). This translates into 12-14%
annual earnings per share growth and similar growth in the stock price, assuming
the P/E multiple remains constant - a conservative assumption given the multiple
is at its lowest in eight years. Even more attractive than Wal-Mart stock, we
believe, are long-dated call options, so our 9.6% position is comprised of 4.4%
stock with the balance consisting of $45 and $50 strike price January 2007 call
options.
LEAP Call Options
You can see that we own long-dated call options on a number of other stocks, so
this warrants further discussion. Long-dated call options (also known as
Long-term Equity AnticiPation Securities, or LEAPS) can be an attractive way to
invest in a company under certain circumstances. Without boring you with too
much detail, option prices are primarily a function of the price of the
underlying security and its perceived volatility. The less volatile the stock -
all other things being equal - the lower the price of the call option. With
perceived volatility near all-time lows for most of this year, call-option
prices are, in general, at historically low levels and, we believe, are in some
cases disconnected from the intrinsic value of the underlying security.
Let's look at Wal-Mart's options. We own a 4.2% position in the January 2007 $45
calls, which we purchased for $7.41. As of the end of April, Wal-Mart stock was
at $47.14 and the options had nearly 21 months until expiration. If the stock
rises in line with the 14% annual earnings growth that we expect over this
period, it will be at approximately $59 in January 2007. At this point, the $45
strike price options would be worth $14 ($59 - $45), nearly double what we paid
for them, vs. a 25% return from holding the stock. Of course, we could be wrong.
If the stock is flat or only up slightly before the options expire, we will lose
most of our investment - that's why we also own the stock, in case we're wrong
on the timing.
Under normal circumstances we avoid options for a variety of good reasons:
they're illiquid, the bid-ask spreads are wide, and it's always dangerous to
have time working against you. It's hard enough to be right on the direction of
a stock's movement, much less being right on the timing as well, so buying a lot
of time is important. Despite these risks, however, in today's world of
ultra-low volatility, long-dated call options can offer outstanding value.
To conclude, we want to thank you once again for your confidence and support and
look forward to a long partnership.
Sincerely yours,
/s/ Whitney Tilson /s/ Glenn Tongue
Whitney Tilson and Glenn Tongue
Tilson Focus Fund
Schedule of Investments
(Unaudited)
As of April 30, 2005
- ------------------------------------------------------------------------------------------------------------------------------------
Market Value Market Value
Shares (Note 1) Shares (Note 1)
- ----------------------------------------------------------------- ----------------------------------------------------------------
COMMON STOCKS - 51.13% * Anheuser-Busch Companies, 01/20/2007
Strike $45.00 4,000 $ 23,508
Beverages - 0.78% * Anheuser-Busch Companies, 01/20/2007
Anheuser-Busch Companies 500 $ 23,435 Strike $50.00 7,000 23,100
----------
* Costco Wholesale Corp., 01/20/2007
Diversified Financial Services - 0.82% Strike $35.00 6,000 58,800
Freddie Mac 400 24,608 * Freddie Mac, 01/20/2007
----------
Strike $65.00 3,000 26,100
Home Furnishings - 2.99% * Laboratory Corp., 01/20/2007
Whirlpool Corporation 1,450 89,987 Strike $40.00 1,000 13,000
----------
* McDonald's Corporation, 01/20/2007
Insurance - 8.16% Strike $30.00 4,000 14,000
American International Group Inc. 700 35,595 * Pfizer Inc., 01/20/2007
* Berkshire Hathaway Inc. 75 209,851 Strike $25.00 5,000 23,000
----------
245,446 * Wal-Mart Stores Inc., 01/20/2007
----------
Oil & Gas - 1.29% Strike $45.00 16,700 121,910
Kerr-McGee Corporation 500 38,800 * Wal-Mart Stores Inc., 01/20/2007
----------
Strike $50.00 7,000 33,600
Pharmaceuticals - 1.26% * Wendy's International Inc., 01/20/2007
Pfizer, Inc. 1,400 38,038 Strike $35.00 7,000 77,700
----------
* Wendy's International Inc., 01/20/2007
Real Estate Investment Trust - 0.17% Strike $40.00 3,800 31,920
* First Union Real Estate Equity & * Whirlpool Corporation, 01/20/2007
Mortgage Investments 1,300 5,148 Strike $60.00 1,000 10,800
---------- -----------
Retail - 27.79% Total Call Options Purchased
* CKE Restaurants, Inc. 10,000 148,400 (Cost $496,913) 484,478
-----------
Costco Wholesale Corp. 4,500 182,610
Foot Locker Inc. 2,500 66,650 INVESTMENT COMPANIES - 9.50%
McDonald's Corporation 2,800 82,068 Evergreen Institutional Money Market
* Sears Holdings Corporation 1,500 202,860 Fund 142,974 142,974
Wal-Mart Stores, Inc. 2,800 131,992 Merrimac Cash Series Nottingham
Wendy's International, Inc. 500 21,465 Shares 142,974 142,974
---------- -----------
836,045
----------
Semiconductors - 5.23% Total Investment Company - (Cost 285,948) 285,948
-----------
* Freescale Semiconductor, Inc. 8,400 157,248
----------
Total Investments (Cost $2,337,962) - 76.74% $ 2,308,523
Telecommunications - 2.64% Other Assets less Liabilities - 23.26% 699,840
-----------
* USA Mobility, Inc. 2,650 79,342
----------
Net Assets - 100.00% $ 3,008,363
-----------
Total Common Stocks (Cost $1,555,101) 1,538,097
----------
*Non-income producing investment.
CALL OPTIONS PURCHASED - 16.11%
* Kerr-McGee Corporation, 10/22/2005
Strike $60.00 1,600 27,040
(Continued)
Tilson Focus Fund
Schedule of Investments
(Unaudited)
As of April 30, 2005
________________________________________________________________________________
- -----------------------------------------------------------------
Summary of Investments by Industry
Assets
Industry Value
- -----------------------------------------------------------------
Beverages 2.33% $ 70,043
Diversified Financial Services 1.69% 50,708
Home Furnishings 3.35% 100,787
Insurance 8.16% 245,446
Investment Company 9.50% 285,948
Oil & Gas 2.19% 65,840
Medical 0.43% 13,000
Pharmaceuticals 2.03% 61,038
Real Estate Investment Trust 0.17% 5,148
Retail 39.02% 1,173,975
Semiconductors 5.23% 157,248
Telecommunications 2.64% 79,342
- -----------------------------------------------------------------
Total 76.74% $ 2,308,523
See Notes to Financial Statements
Tilson Dividend Fund
________________________________________________________________________________
Tilson Dividend Fund
[This section is written by Zeke Ashton and Matthew Richey, the co-managers of
the Tilson Dividend Fund.]
The Tilson Dividend Fund is designed for investors seeking long-term capital
appreciation through common stocks but desire a higher income yield than that
traditionally available from diversified stock portfolios or broad index
vehicles such as the S&P Total Return 500 Index (commonly known as the "S&P
500"). We follow two major guidelines in selecting investments for the Tilson
Dividend Fund - we want to own securities that we believe are both undervalued
and offer satisfactory capital appreciation potential, so we require each and
every position we take to pay us cash to own it, whether through cash dividends,
bond interest, or in combination with our use of covered call options.
The Benefits of Dividends
Virtually every study of equity returns over long periods of time validates the
notion that dividends increase returns and reduce risk in a diversified
portfolio. According to financial research firm Ibbotson Associates' Risk Premia
Over Time, dividends accounted for approximately 42% of the 10.4% compounded
annual return from large-cap U.S. stocks, or 4.3% annually, for the period
spanning from 1926 to 2003.
The benefits of high-dividend-paying stocks typically become most obvious during
flat or down markets for stock prices, as they generate steady income and have
historically proven to be much more resilient to sell-offs than
non-dividend-paying stocks. For example, during the severe downturn from March
2000 to November 8, 2002, those stocks in the S&P 500 that paid dividends lost
only 13% on average vs. a 31% average decline for their non-dividend-paying
peers.
Building a Portfolio of Undervalued, Dividend Paying Stocks
In the Tilson Dividend Fund, it is our intention to build a portfolio of stocks
we believe are undervalued that also pay higher dividend yields than the market
average. While we generally prefer to purchase stocks that we believe are priced
at no more than 2/3 of our conservative estimate of fair value, we may be
willing to pay up to 80% of our value estimate to purchase securities of
companies that we believe are of exceptional quality and where the dividend
yield is high, is secured by a strong balance sheet and profitability, and is
likely to grow over time. Because of the time-consuming research process we
follow, we expect that once fully invested, the fund will hold between 15 and 25
dividend-paying securities that combine to produce a weighted average yield that
is significantly higher than broad market indices.
The Use of Covered Call Options to Generate Income
We add another ingredient to our portfolio with the purchase of low or
non-dividend paying stocks that we believe are significantly undervalued. For
these investments, we essentially "create our own" dividends through the sale of
call options on part or all of the position. Generally, we sell options that
require us to sell our shares at higher prices than the current market price,
with the option periods generally lasting anywhere between four and twelve
months. The option premiums that we receive for committing ourselves to the
future sale can generate meaningful income for the fund, with annualized income
yields often far higher than those available from dividend-paying stocks. In the
event that the stock falls, stays flat, or rises in price but does not exceed
the price at which our options are struck before the option expiration date, we
will do better by selling the covered call option than by simply holding the
stock. In essence, then, selling the call options ensures that we get paid while
we wait for the stock to appreciate in value.
Of course, there is no free lunch in investing, and the covered call option
strategy is no exception. If our stock runs up past the option strike price, the
option holder will exercise the option to purchase our shares at the agreed-upon
price. Our profits in this scenario will be limited to the difference between
the purchase price and the strike price, plus the premium received. Even in this
case, the annualized return on the position is generally quite attractive.
We only purchase stocks for our covered call strategy that we believe are
significantly undervalued. We then decide how much of the position to "cover"
based on a combination of our assessment of the profit potential of the stock
and the attractiveness of the option premiums. In cases where we believe the
stock is an exceptionally good value and the option premiums offered are low, we
will sell options on only the proportion required to produce an annualized yield
that would meet our minimum income requirements for the dividend portfolio. On
the opposite end of the spectrum, we may fully cover the position if there are
very attractive option premiums or if the stock price is nearing our estimate of
fair value. In most cases, however, we will leave some portion of the position
uncovered in order to retain some profit potential should the stocks rise
dramatically in price. We will generally fully cover the position or sell any
uncovered shares once the stock has risen to the high end of our estimated fair
value range for the underlying business.
Tilson Dividend Fund
________________________________________________________________________________
We expect that the number of securities held in the covered call option portion
of the portfolio will vary depending upon the availability of compelling
opportunities, likely ranging between 10 and 20 holdings. Combined with the
dividend stock holdings, we would expect to hold anywhere from 25 to 45 security
positions at any one time.
Other Income-Producing Investments
While we intend to devote the vast majority of our time and effort to
identifying compelling investments that fall into either the dividend stock or
covered call category, we may also invest in other income producing securities
from time to time, most likely high-yield corporate and convertible bonds.
Expected Portfolio Behavior
We believe that combining two powerful income-producing equity strategies with
our value orientation in one fund will produce a combination of satisfactory
returns with modest risk and modest volatility. We believe that during negative
and flat markets the fund is likely to outperform. In rapidly rising markets,
however, the fund is unlikely to beat the market averages, though we would still
hope to generate positive returns in such markets. You should also be aware that
the fund's performance may not be correlated with the stock market, particularly
over short time periods.
In addition, it should be noted that because the fund's holdings will generate
dividend income, option premiums, and some investment turnover as a result of
our covered call strategy, we expect that the fund will generate taxable income
for our investors. While we will make every effort to keep unnecessary and
unproductive turnover to a minimum, the Tilson Dividend Fund will be
particularly well-suited for use in tax advantaged accounts such as IRAs.
Tilson Dividend Fund Holdings
As of the end of April, we had invested just over 40% of the cash available to
us. It is our intention to build our positions slowly and patiently, and we
expect that it could take us up to a year to invest all of the fund's assets,
depending upon what opportunities the market throws our way for the balance of
the year.
We built initial positions in eight stocks that met our criteria for undervalued
dividend-paying securities, which are listed below in order of our fiscal
quarter ending April 30th position size:
1) 3.5%: Sleep Country Canada Income Fund (Z-U CN)
2) 2.7%: Atlantic Tele-Network (ANK)
3) 2.6%: Industrias Bachoco S.A. (IBA)
4) 2.2%: Bandag (BDG)
5) 2.2%: Kinder Morgan (KMI)
6) 1.7%: Advanced Fiber Technologies Income Fund (AFT-U CN)
7) 1.7%: Ark Restaurants (ARKR)
8) 0.8%: Birner Dental Management (BDMS)
In addition, we established common stock and covered call positions in seven low
or non-dividend paying stocks that met our criteria for that strategy. The seven
stocks that we purchased as part of our covered call portfolio are listed below,
along with the approximate percentage of the position associated with covered
call options (e.g., we own 1,000 shares of Laboratory Corporation of America and
have sold covered call options on 300 shares, so we're 30% covered):
1) 4.2%: Newmont Mining (NEM) (84% covered)
2) 2.9%: Laboratory Corporation of America (LH) (30% covered)
3) 2.7%: Netgear (NTGR) (76% covered)
4) 2.4%: Costco (COST) (30% covered)
5) 2.0%: EPIQ Systems (EPIQ) (30% covered)
6) 1.6%: Netflix (NFLX) (100% covered)
7) 1.4%: Cree (CREE) (100% covered)
We expect to provide you with short profiles of many of the fund's portfolio
investments in our next quarterly letter, so we will limit ourselves to
discussing two investments here.
Tilson Dividend Fund
________________________________________________________________________________
Bandag
Bandag is a supplier of re-tread replacement tires and rubber, selling its
products primarily to large trucking fleets through an affiliated distribution
network of 985 franchised tire service centers. The company is not a fast
grower, but it does occupy a leadership role in a profitable and necessary
industry that does not attract much in the way of new competition. The company
is also exceptionally well capitalized, consistently generates excess cash from
its business, and pays out a large dividend which has been consistently
increased over time. The management strikes us as rational and conservative, and
because they own a large amount of stock, would appear to be strongly aligned
with their shareholders.
Perhaps due to its lack of exciting growth prospects and the somewhat cyclical
nature of its business, Bandag does not appeal to growth or momentum-oriented
investors. This explains why the stock is available at reasonable prices, and we
believe that Bandag shares represent excellent value at our recent purchase
prices. Bandag represents a typical choice for our value investing dividend
strategy - a strong, well managed and profitable company that lacks the market
sizzle required to become a hot market favorite, but one that has delivered
plenty of steak in the form of earnings and dividends for patient investors over
a long period of time.
Costco
Our decision to purchase shares of Costco Wholesale in late April is a good
example of how we intend for our covered call strategy to work. Costco, as you
probably know, runs a popular warehouse-style discount retail business, and is
perhaps one of the biggest success stories in retail. We have followed the story
for quite some time, and got an excellent purchase opportunity in late April
when the stock declined by more than 10% intraday when the company announced
that a spike in gasoline prices would temporarily affect profit margins.
Typically the stocks of exceptional businesses are only available at reasonable
prices in the wake of disappointing news, so it is our job to determine whether
the news represents a material impairment of the business or just a short-term
hiccup. For Costco, we came to the firm conclusion that the latter was the case,
so we were delighted to purchase shares in what we consider to be a world-class
company with a strong competitive position and an outstanding management team
and culture at attractive prices.
While Costco does pay a small dividend, we felt that it was not a generous
enough payout to qualify as a high dividend payer, so we sold just enough call
options on it to produce an acceptable level of income for the fund.
We thank you for your investment in the Tilson Dividend Fund, and look forward
to updating you on our progress in future letters.
Sincerely yours,
/s/ Zeke Ashton /s/ Matt Richey
Zeke Ashton and Matt Richey
Tilson Dividend Fund
Schedule of Investments
(Unaudited)
As of April 30, 2005
- ------------------------------------------------------------------------------------------------------------------------------------
Market Value Market Value
Shares (Note 1) Shares (Note 1)
- ----------------------------------------------------------------- ----------------------------------------------------------------
COMMON STOCKS - 29.46% FOREIGN COMMON STOCKS - 5.23%
Auto Parts & Equipment - 2.24% Canadian - 5.23%
Bandag, Incorporated 1,000 $ 38,600 Investment Company - 5.23%
-----------
Advanced Fiber Technologies
Food - 2.60% Income Fund 6,500 $ 29,961
u Industrias Bachoco S.A. 2,800 44,800 Sleep Country Canada
-----------
Income Fund 4,100 60,117
Healthcare - Services - 3.72%
Birner Dental Management 554 14,576 FOREIGN COMMON STOCKS (Cost $92,274) 90,078
-----------
* Laboratory Corporation of America
Holdings 1,000 49,500 INVESTMENT COMPANIES - 6.52%
-----------
64,076 Evergreen Institutional Money Market
----------- Fund 56,142 56,142
Internet - 1.61%
* Netflix Inc. 2,400 27,744 Merrimac Cash Series Nottingham
----------- Shares 56,142 56,142
Mining - 4.19%
Newmont Mining Corporation 1,900 72,143 Total Investment Company (Cost $112,284) 112,284
----------- -----------
Pipelines - 2.22% Total Investments (Cost $703,837) - 41.21% $ 709,403
Kinder Morgan, Inc. 500 38,230 Other Assets less Liabilities - 58.79% 1,011,801
----------- -----------
Retail - 4.06% Net Assets - 100.00% $ 1,721,204
===========
Ark Restaurants Corp. 1,000 29,260
Costco Wholesale
Corporation 1,000 40,580 Summary of Investments by Industry
-----------
69,840
----------- % of Net
Semiconductors - 1.41% Industry Assets Value
----------------------------------------------------------------
* Cree, Inc. 1,000 24,190 Auto Parts & Equipment 2.24% $ 38,600
-----------
Canadian Investment Company 5.23% 90,078
Software - 2.03% Food 2.60% 44,800
* EPIQ Systems, Inc. 2,300 34,891 Healthcare - Services 3.72% 64,076
-----------
Internet 1.61% 27,744
Telecommunications - 5.38% Investment Company 6.52% 112,284
Atlantic Tele-Network, Inc. 1,500 45,750 Mining 4.19% 72,143
* Netgear, Inc. 2,900 46,777 Pipelines 2.22% 38,230
-----------
92,527 Retail 4.06% 69,840
-----------
Semiconductors 1.41% 24,190
Total Common Stocks (Cost $499,279) 507,041 Software 2.03% 34,891
-----------
Telecommunications 5.38% 92,527
----------------------------------------------------------------
Total 41.21% $ 709,403
(Continued)
Tilson Dividend Fund
Call Options Written
(Unaudited)
As of April 30, 2005
- --------------------------------------------------------------------------------
- ---------------------------------------------------------------------
Shares
Subject to
Call Market Value
- ---------------------------------------------------------------------
Common Stocks, Expiration Date, Exercise Price
* Cree, Inc., September 17, 2005
Strike $25.00 500 $ 1,125
* Netgear, Inc., September 17, 2005
Strike $15.00 700 1,750
* EPIQ Systems, Inc., October 22, 2005
Strike $15.00 700 980
* Laboratory Corporation of America Holdings, November
19, 2005 Strike $50.00 300 900
* Netflix Inc., December 17, 2005
Strike $12.50 1,200 1,320
* Netflix Inc., December 17, 2005
Strike $15.00 1,200 660
* Netgear, Inc., December 17, 2005
Strike $15.00 1,500 4,500
* Costco Wholesale Corporation, January 21, 2006
Strike $45.00 300 510
* Cree, Inc., January 21, 2006
Strike $25.00 500 1,750
* Newmont Mining Corporation, January 21, 2006
Strike $50.00 1,600 1,600
--------
Total (Premiums Received $11,458) $ 15,095
--------
* Non-income producing investment.
u ADR's.
The following acronyms and abbreviations are used in this portfolio:
ADR - American Depositary Receipt
SA - Sociedad Anonima (Mexican)
See Notes to Financial Statements
Tilson Funds
Statements of Assets and Liabilities
(Unaudited)
Focus Dividend
As of April 30, 2005 Fund Fund
- ------------------------------------------------------------------------------------------------------------------------------------
Assets:
Investments, at cost $ 1,841,049 $ 703,837
Investments, at value $ 1,824,045 $ 709,403
Call options purchased, at value 484,478 0
(Cost $496,913)
Cash 969,348 934,614
Receivables:
Investments sold 0 40,080
Fund shares sold 0 73,644
Income, at cost 0 1,249
Income, at value 422 1,244
Transaction losses 754 0
Prepaid expenses 35,837 31,490
Due from affiliates:
Advisor (note 2) 20,994 22,916
Total Assets 3,335,878 1,813,391
Liabilities:
Call options written, at value 0 15,095
(Premiums received $11,458)
Payables:
Investments purchased 325,448 75,121
Accrued expenses 2,067 1,971
Total Liabilities 327,515 92,187
Net Assets $ 3,008,363 $ 1,721,204
Net Assets Consist of:
Capital (par value and paid in surplus) 3,045,811 1,722,772
Accumulated net investment loss (3,674) (75)
Accumulated net realized loss on investments and foreign currency translations (4,335) (3,417)
Net unrealized (depreciation)/appreciation on investments and
translation of assets and liabilities in foreign currencies (29,439) 1,924
Total Net Assets $ 3,008,363 $ 1,721,204
Shares Outstanding, no par value (unlimited authorized shares) 309,737 172,446
Net Asset Value, Offering Price and Redemption Price Per Share $ 9.71 $ 9.98
See Notes to Financial Statements.
Tilson Funds
Statements of Operations
(Unaudited)
For the Period from March 16, 2005 (Date of Initial Public Investment) Focus Dividend
to April 30, 2005 Fund Fund
- ------------------------------------------------------------------------------------------------------------------------------------
Investment Income:
Dividends $ 709 $ 1,598
Total Income 709 1,598
Expenses:
Administration fees (note 2) 386 148
Transfer agent fees (note 2) 2,613 2,210
Fund accounting fees (note 2) 3,350 3,337
Compliance services fees (note 2) 977 977
Custody fees (note 2) 586 557
Other accounting fees (note 2) 2,526 2,891
Legal fees 2,096 2,096
Audit and tax preparation fees 2,711 2,385
Registration and filing administration fees 972 828
Registration and filing expenses 5,276 5,276
Shareholder servicing expenses 678 678
Printing expenses 616 616
Trustees' fees and meeting expenses 1,110 1,110
Securities pricing fees 247 247
Other operating expenses 1,233 1,233
Total Expenses 25,377 24,589
Expenses reimbursed by advisor (note 2) (20,994) (22,916)
Net Expenses 4,383 1,673
Net Investment Loss (3,674) (75)
Net Realized and Unrealized Loss on Investments:
Net realized loss from investment transactions and foreign currency translations (1,410) (4,733)
Net realized loss from closing of option contracts (2,925) 0
Net realized gain from securities sold short 0 1,316
Change in unrealized appreciation on investments and
translation of assets and liabilities in foreign currencies (29,439) 1,924
Net Realized and Unrealized Loss on Investments (33,774) (1,493)
Net Decrease in Net Assets Resulting from Operations $ (37,448) $ (1,568)
See Notes to Financial Statements.
Tilson Funds
Statements of Changes in Net Assets
(Unaudited)
For the Period from March 16, 2005 (Date of Initial Public Investment) Focus Dividend
to April 30, 2005 Fund Fund
- ------------------------------------------------------------------------------------------------------------------------------------
Operations:
Net investment loss $ (3,674) $ (75)
Net realized loss from investment transactions and foreign currency translations (1,410) (4,733)
Net realized loss from closing of option contracts (2,925) 0
Net realized gain from securities sold short 0 1,316
Change in unrealized appreciation on investments and
translation of assets and liabilities in foreign currencies (29,439) 1,924
Net Decrease in Net Assets Resulting from Operations (37,448) (1,568)
Capital Share Transactions: (note 6)
Shares sold 3,045,811 1,773,171
Shares repurchased 0 (50,399)
Increase from Capital Share Transactions 3,045,811 1,722,772
Net Increase in Net Assets 3,008,363 1,721,204
Net Assets:
Beginning of Period 0 0
End of Period $ 3,008,363 $ 1,721,204
Accumulated Net Investment Loss $ (3,674) $ (75)
See Notes to Financial Statements
Tilson Funds
Financial Highlights
(Unaudited)
For the Period from March 16, 2005 (Date of Initial Public Investment) Focus Dividend
to April 30, 2005 Fund Fund
- ------------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $ 10.00 $ 10.00
Income from Investment Operations:
Net investment loss (0.01) 0.00
Net realized and unrealized loss on securities and
foreign currency translations (0.28) (0.02)
Total from Investment Operations (0.29) (0.02)
Net Asset Value, End of Period $ 9.71 $ 9.98
Total Return (2.90)% (0.20)%
Net Assets, End of Period (in thousands) $ 3,008 $ 1,721
Average Net Assets for the Period (in thousands) $ 1,789 $ 688
Gross Expenses to Average Net Assets 11.52 %(a) 29.04 %(a)
Net Expenses to Average Net Assets 1.95 %(a) 1.95 %(a)
Net Investment Loss to Average Net Assets (1.70)%(a) (0.08)%(a)
Portfolio Turnover Rate 28.30 % 17.19 %
(a) Annualized.
See Notes to Financial Statements.
Tilson Funds
Notes to Financial Statements (Unaudited)
________________________________________________________________________________
1. Organization and Significant Foreign Currency Translation
Accounting Policies Portfolio securities and other assets
and liabilities denominated in foreign
The Tilson Focus Fund, and the Tilson currencies are translated into U.S.
Dividend Fund (collectively the dollars based on the exchange rate of
"Funds" and individually a "Fund") are such currencies against U.S. dollars
series funds. The Funds are part of on the date of valuation. Purchases
The Tilson Investment Trust (the and sales of securities and income
"Trust"), which was organized as a as items denominated in foreign
a Delaware statutory trust and is currencies are translated into U.S.
registered under the Investment dollars at the exchange rate in effect
Company Act of 1940 (the "1940 Act"), on the transaction date.
as amended, as an open-ended
management investment company. Each of The Funds do not separately report the
the Funds in this report are effect of changes in foreign exchange
classified as a non-diversified as rates from changes in market prices on
defined in the 1940 Act. securities held. Such changes are
included in net realized and
The Tilson Focus Fund commenced unrealized gain or loss from
operations on March 16, 2005. The investments.
investment objective of the Fund is to
seek long-term capital appreciation Realized foreign exchange gains or
through investment in equity losses arise from sales of foreign
securities of medium and large currencies, currency gains or losses
capitalization companies, consisting realized between the trade and
primarily of common and preferred settlement dates on securities
stocks and securities convertible into transactions and the difference
common stocks. between the recorded amounts of
dividends, interest, and foreign
The Tilson Dividend Fund commenced withholding taxes, and the U.S. dollar
operations on March 16, 2005. The equivalent of the amounts actually
investment objective of the Fund is to received or paid. Net unrealized
invest in common stocks of companies foreign exchange gains and losses
that the Advisors believe to be arise from changes in foreign exchange
undervalued in their respective rates on foreign denominated assets
markets, but which also offer high and liabilities other than investments
dividend yields relative to the in securities held at the end of the
average yields of the broad market. reporting period.
The following accounting policies have Investment Transactions and Investment
been consistently followed by the Income
Funds and are in conformity with Investment transactions are accounted
accounting principles generally for as of the date purchased or sold
accepted in the United States of (trade date). Dividend income is
America in the investment company recorded on the ex-dividend date.
industry. Certain dividends from foreign
securities will be recorded as soon as
Investment Valuation the Trust is informed of the dividend
The Funds' investments in securities if such information is obtained
are carried at value. Securities subsequent to the ex-dividend date.
listed on an exchange or quoted on a Interest income is recorded on the
national market system are valued at accrual basis and includes
the last sales price as of 4:00 p.m. amortization of discounts and
Eastern Time. Other securities traded premiums. Gains and losses are
in the over-the-counter market and determined on the identified cost
listed securities for which no sale basis, which is the same basis used
was reported on that date are valued for federal income tax purposes.
at the most recent bid price.
Securities and assets for which Option Writing
representative market quotations are When the Funds write an option, an
not readily available (e.g., if the amount equal to the premium received
exchange on which the portfolio by the Funds is recorded as a
security is principally traded closes liability and is subsequently adjusted
early or if trading of the particular to the current fair value of the
portfolio security is halted during option written. Premiums received from
the day and does not resume prior to writing options that expire
the Funds' net asset value unexercised are treated by the Funds
calculation) or which cannot be on the expiration date as realized
accurately valued using the Funds' gains from investments. The difference
normal pricing procedures are valued between the premium and the amount
at fair value as determined in good paid on effecting a closing purchase
faith under policies approved by the transaction, include brokerage
Trustees. A portfolio security's "fair commissions, is also treated as a
value" price may differ from the price realized gain or loss (depending on if
next available for that portfolio the premium is less than the amount
security using the Funds' normal paid for the closing purchase
pricing procedures. Instruments with transaction). If a call option is
maturities of 60 days or less are exercised, the premium is added to the
valued at amortized cost, which proceeds from the sale of the
approximates market value. underlying security or currency in
determining whether the Funds have
realized a gain or loss. If a put
(Continued)
Tilson Funds
Notes to Financial Statements (Unaudited)
________________________________________________________________________________
option is exercised, the premium performance of their duties to the
reduces the cost basis of the Funds. In addition, in the normal
securities purchased by the Funds. The course of business, the Funds entered
Funds, as the writer of an option, into contracts with their vendors and
bear the market risk of an unfavorable others that provide for general
change in the price of the security indemnifications. The Funds' maximum
underlying the written option. exposure under these arrangements is
unknown, as this would involve future
Expenses claims that may be made against the
The Funds bear expenses incurred Funds. The Funds expect that risk of
specifically on its behalf as well as loss to be remote.
a portion of general expenses, which
are allocated according to methods Proxy Voting Policies and Voting
approved annually by the Trustees. Record
A copy of the Trust's Proxy Voting and
Dividend Distributions Disclosure Policy and the Advisor's
The Funds may declare and distribute Proxy Voting and Disclosure Policy are
dividends from net investment income included as Appendix B to the Funds'
(if any) at the end of each calendar Statement of Additional Information
quarter. Distributions from capital and is available, without charge, upon
gains (if any) are generally declared request, by calling 1-800-773-3863.
and distributed annually. Information regarding how the Funds
voted proxies relating to portfolio
Estimates securities during the most recent will
The preparation of financial be available (1) without charge, upon
statements in conformity with request, by calling the Funds at the
accounting principles generally number above and (2) on the SEC's
accepted in the United States of website at http://www.sec.gov.
America requires management to make
estimates and assumptions that affect Quarterly Portfolio Holdings
the amount of assets, liabilities, The Funds file its complete schedule
expenses and revenues reported in the of portfolio holdings with the SEC for
financial statements. Actual results the first and third quarters of each
could differ from those estimates. fiscal year on Form N-Q. The Funds'
Forms N-Q are available on the SEC's
Fees on Redemptions website at http://www.sec.gov. You may
The Funds charge a redemption fee of review and make copies at the SEC's
2.00% of the amount redeemed on Public Reference Room in Washington,
redemptions of Funds' shares occurring D.C. You may also obtain copies after
within one year following the issuance paying a duplicating fee by writing
of such shares. The Redemption Fee is the SEC's Public Reference Section,
not a fee to finance sales or sales Washington, D.C. 20549-0102 or by
promotion expenses, but is paid to the electronic request to
Funds to defray the costs of publicinfo@sec.gov, or is available
liquidating an investor and without charge, upon request, by
discouraging short-term trading of the calling the Fund at 1-800-773-3863.
Funds' shares. No Redemption Fee will Information on the operation of the
be imposed on the redemption of shares Public Reference Room may be obtained
representing dividends or capital by calling the SEC at 202-942-8090.
gains distributions, or on amounts
representing capital appreciation of 2. Agreements
shares. There were no redemptions fees
collected by either Fund for the Advisor (Both Funds)
period ended April 30, 2005. The Funds pay a monthly advisory fee
to T2 Partners Management L.P. (the
Federal Income Taxes "Advisor") based upon the average
No provision for income taxes is daily net assets of each Fund. The
included in the accompanying financial Advisor has entered into contractual
statements, as the Funds intend to agreements ("Expense Limitation
distribute to shareholders all taxable Agreement") with the Funds under which
investment income and realized gains it has agreed to reduce the amount of
and otherwise comply with Subchapter M the investment advisory fee to be paid
of the Internal Revenue Code to the Advisor by the Funds for
applicable to regulated investment certain months and to assume other
companies. expenses of each of the Funds, if
necessary, in an amount that limits
Indemnifications the Funds' total operating expenses
Under the Funds' organizational (exclusive of interest, taxes,
documents, its officers and Trustees brokerage fees and commissions,
are indemnified against certain investment advisory and/or variable
liabilities arising out of the performance incentive fees paid to the
(Continued)
Tilson Funds
Notes to Financial Statements (Unaudited)
________________________________________________________________________________
Advisor, extraordinary expenses, and multiplying 1.50% by the average net
payments, if any, under a Rule 12b-1 assets of the Focus Fund for the
Plan) to not more than a specified fiscal year to date divided by the
percentage of the average daily assets number of days in the year multiplied
of each Fund for the current fiscal by the number of days in the calendar
year. There can be no assurance the month. The Performance Fee is
Expense Limitation Agreement will calculated by multiplying the
continue in the future. The expense "Performance Adjustment Rate" (as
limitation percentages, as of the described below) by the average daily
period ended April 30, 2005, were net assets of the Focus Fund over the
0.45% for each fund. The expenses Measuring Period. While the
reimbursed for this period are $20,994 Performance Fee is calculated on the
and $22,916, for the Focus Fund and 12-month Measuring Period, it is
Dividend Fund, respectively. pro-rated to a monthly payment to
correspond with the Focus Fund's
On December 17, 2004 the Board monthly payment of the Variable
reviewed information necessary to Advisory Fee.
approve the initial Investment
Advisory Agreement. The Advisor The Performance Adjustment Rate will
reviewed with the Board the Advisor's vary with the Focus Fund's performance
Form ADV, its financial strength, its as compared to the performance of the
financial capability, and other Wilshire 5000 Index as published on
information. the close of the market on the last
day of the Measuring Period, with
In deciding on whether to approve the dividends reinvested, and will range
Advisory Agreement, the Trustees from (0.45%) to 0.45%. The Performance
considered numerous factors, Adjustment Rate will be calculated at
including: (i) the nature, extent, and 4.50% of the cumulative difference
quality of the services provided by between the performance of the Focus
the Advisor; (ii) the Advisor's Fund and that of the Wilshire 5000
personnel and methods of operating; Index over the Measuring Period,
(iii) overall expenses of the Funds except that no performance adjustment
including the Expense Limitation will be paid if the cumulative
Agreement between the Trust on behalf difference between the Focus Fund's
of the Funds and the Advisor; (iv) the performance and that of the Wilshire
financial condition of the Advisor; 5000 index is +/- 2.00%. The factor of
(v) the Advisor's investment strategy 4.50% is derived from the fact that
for the Funds; and (vi) with respect the Advisor will achieve the maximum /
to the Dividend Fund, the Advisor's minimum Performance Adjustment Rate
investment sub-advisory contract with when the cumulative total return
the Sub-Advisor ("Sub-Advisory difference between the Focus Fund and
Agreement"), including the services the Wilshire 5000 Index is +/- 10.00%
being provided by the Sub-Advisor. over the Measuring Period (i.e., 0.45%
divided by 10.00%=4.50%). To
Based upon its evaluation of the illustrate this point, if the Wilshire
information, materials and factors 5000 Index returned 5.00% over the
described above, the Trustees Measuring Period, the Focus Fund would
concluded for the Funds: (i) that the have to return at least 15.00% in
terms of the Investment Advisory order for the Advisor to receive the
Agreement were reasonable and fair; maximum Variable Advisory Fee of
(ii) that the fees paid to the Advisor 1.95%. Conversely, if the Wilshire
under the Advisory Agreement and the 5000 Index returned the same 5.00%
Funds' expense ratio as compared to over the Measuring Period, the Advisor
similar funds were reasonable and would receive the minimum Variable
fair; (iii) that they were satisfied Advisory Fee of 1.05% if the Focus
with the Advisor's proposed services, Fund returned (5.00%) or less. The
personnel, and investment strategy; Focus Fund will use natural rounding
(iv) that they were satisfied with the to two decimal places regarding
Sub-Advisor Agreement, with respect to performance differences and
the Dividend Fund; and (v) that this calculations of the Performance Fee.
was in the best interest of the Trust
and the Funds to enter the Advisor Advisor (Dividend Fund)
Agreement. Therefore, the Trustees, As full compensation for the
including the Trustees who are not investment advisory services provided
party to the Advisory Agreement of to the Dividend Fund, the Advisor
interested persons of the Advisor, receives monthly compensation based on
unanimously approved the Advisory the Dividend Fund's average daily net
Agreement for the Fund for an initial assets at the annual rate of 1.50%.
two-year period.
Sub-Advisor (Dividend Fund)
Advisor (Focus Fund) The Dividend Fund's sub-advisor is
The Variable Advisory Fee is comprised Centaur Capital Partners, L.P.,
of two component fees: (i) a fixed ("Sub-Advisor"). The Sub-Advisor
rate of 1.50% of the average daily net serves in that capacity pursuant to an
assets of the Focus Fund ("Fulcrum investment sub-advisory contract with
Fee") and (ii) a performance incentive the Advisor as approved by the
fee ("Performance Fee"). Trustees. The Sub-Advisor, with
oversight from the Advisor, makes
The Fulcrum Fee is calculated by day-to-day investment decision for the
(Continued)
Tilson Funds
Notes to Financial Statements (Unaudited)
________________________________________________________________________________
Dividend Fund and selects Administrator
broker-dealers for executing portfolio The Funds pay a monthly administration
transactions, subject to the brokerage fee to The Nottingham Company (the
policies established by the Trustees. "Administrator") based upon the
average daily net assets of each Fund
For its sub-advisory services to the and calculated at the annual rates as
Dividend Fund, the Sub-Advisor shown in the following schedule which
receives from the Advisor quarterly is subject to a minimum of $2,000 per
compensation based on the Dividend month per Fund. The Administrator also
Fund's average daily net assets at the receives a fee to procure and pay the
rate of 0.75% less certain of the custodian for the Funds, additional
Advisor's marketing and operating compensation for fund accounting and
expenses, as agreed to between the recordkeeping services, and additional
Advisor and Sub-Advisor. The compensation for certain costs
Sub-Advisor has also agreed to allow involved with the daily valuation of
the Advisor to withhold from that securities and as reimbursement for
compensation up to one-half of the out-of-pocket expenses (which are
Advisor's expenses under the Expense immaterial in amount). A breakdown of
Limitation Agreement as it relates to these is provided in the schedule
the Dividend Fund. The Dividend Fund below.
does not pay a direct fee to the
Sub-Advisor.
- ------------- ----------------------- ---------- ---------------------- ---------- -------------- --------------- ------------------
Administration Fees Custody fees Fund Fund
Average Net Annual Average Net Annual Accounting Accounting Blue Sky
Assets Rate Assets Rate Fees Fees* Administration
(monthly) Fees (annual)
- ------------- ----------------------- ---------- ---------------------- ---------- -------------- --------------- ------------------
All Funds First $50 million 0.175% First $100 million 0.02% $2,250 0.01% $150 per state
Next $50 million 0.150% Over $100 million 0.009%
Next $50 million 0.125%
Next $50 million 0.100%
Over $200 million 0.075%
- ------------- ----------------------- ----------- --------------------- ---------- -------------- --------------- ------------------
*Fees are based on all assets.
Compliance Services Advisor, the Distributor or the
The Nottingham Compliance Services, Administrator.
LLC, a fully owned affiliate of The
Nottingham Company, provides services 3. Purchases and Sales of Investment
which assists the Trust's Chief Securities
Compliance Officer in monitoring and
testing the policies and procedures of For the period ended April 30, 2005,
the Trust in conjunction with the aggregate cost of purchases and
requirements under Rule 38a-1 of the proceeds from sales of investment
Securities and Exchange Commission. It securities (excluding short-term
receives compensation for this service securities) were as follows:
at an annual rate of $7,750.
-------------- ------------ ----------
Transfer Agent Proceeds
North Carolina Shareholder Services, Purchases from
LLC ("Transfer Agent") serves as of Sales of
transfer, divided paying, and Fund Securities Securities
shareholder servicing agent for the -------------- ------------ ----------
Funds. It receives compensation for Focus Fund $2,328,477 $272,128
its services based upon $15 per -------------- ------------ ----------
shareholder per year, subject to a Dividend Fund $ 628,938 $ 45,427
minimum fee of $1,500 per month. -------------- ------------ ----------
Certain Trustees and officers of the There were no long-term purchases or
Trust are also officers of the sales of U.S Government Obligations
during the period ended April 30,
2005.
(Continued)
Tilson Funds
Notes to Financial Statements (Unaudited)
________________________________________________________________________________
4. Options Written
- -------------------------------------------------------------------------------- ----------------------- ---------------------------
Option Contracts Written by the Trust for the Period ended
April 30, 2005 (Dividend Fund only). Number of Options Option Premiums
- -------------------------------------------------------------------------------- ----------------------- ---------------------------
Options Outstanding, Beginning of Period 0 $ 0
Options written 111 15,478
Options closed (26) (4,020)
Options exercised 0 0
Options expired 0 0
Options Outstanding, End of Period 85 $ 11,458
- -------------------------------------------------------------------------------- ----------------------- ---------------------------
5. Federal Income Tax appreciation and depreciation of
investment securities for federal
The aggregate cost of investments and income tax purposes as of April 30,
the composition of unrealized 2005, are shown in table below.
- ------------------------------- --------------------------------- ---------------------------------- -------------------------------
Aggregate Gross Aggregate Gross
Fund Federal Tax Cost Unrealized Appreciation Unrealized Depreciation
- ------------------------------- --------------------------------- ---------------------------------- -------------------------------
Focus Fund $2,337,962 $36,281 ($65,720)
Dividend Fund $ 692,379 $19,049 ($17,125)
- ------------------------------- --------------------------------- ---------------------------------- -------------------------------
The amount of dividends and transactions, net investment losses
distributions from net investment and capital loss carry-forwards.
income and net realized capital gains Permanent differences such as tax
are determined in accordance with returns of capital and net investment
federal income tax regulations which losses, if any, would be reclassified
may differ from generally accepted against capital. There were no
accounting principles. These dividends or distributions of net
differences are due to differing investment income or net realized
treatments for items such as net gains paid by either Fund during the
short-term gains, deferral of wash period ending April 30, 2005.
sale losses, foreign currency
6. Capital Share Transactions
- --------------------------------------------------------------------- -------------------------------- -----------------------------
Period from March 16, 2005 (Date of Initial Public Investment)
to April 30, 2005 Focus Fund Dividend Fund
- --------------------------------------------------------------------- -------------------------------- -----------------------------
Transactions in Fund Shares 309,737 177,441
Shares sold
Reinvested distributions 0 0
Shares repurchased 0 (4,995)
Net Increase/(Decrease) in Capital Share Transactions 309,737 172,446
Shares Outstanding, Beginning of Period 0 0
Shares Outstanding, End of Period 309,737 172,446
- --------------------------------------------------------------------- -------------------------------- -----------------------------
________________________________________________________________________________
Tilson Focus Fund
Tilson Dividend Fund
________________________________________________________________________________
a series of the Tilson Investment Trust
This Report has been prepared for shareholders
and may be distributed to others only if
preceded or accompanied by a current
prospectus.
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 the schedule of investments 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.
Item 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
Item 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
Item 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
Item 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS.
Not applicable.
Item 11. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive officer and principal financial
officer have concluded that the registrant's disclosure controls and
procedures are effective based on their evaluation of these disclosure
controls and procedures as of a date within 90 days of the filing of this
report.
(b) There were no changes in the registrant's internal control over financial
reporting that occurred during the registrant's second fiscal quarter of
the period covered by this report that have materially affected, or are
reasonably likely to materially affect, the registrant's internal control
over financial reporting.
Item 12. EXHIBITS.
(a)(1) Not applicable.
(a)(2) Certifications required by Item 12.(a)(2) of Form N-CSR are filed
herewith as Exhibit 12.(a)(2).
(a)(3) Not applicable.
(b) Certifications required by Item 12.(b) of Form N-CSR are filed herewith
as Exhibit 12.(b).
SIGNATURES
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.
Tilson Investment Trust
By: (Signature and Title) /s/ Whitney R. Tilson
____________________________________________________
Whitney R. Tilson
Trustee, President, and Principal Executive Officer
Date: June 28, 2005
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.
By: (Signature and Title) /s/ Whitney R. Tilson
____________________________________________________
Whitney R. Tilson
Trustee, President, and Principal Executive Officer
Tilson Investment Trust
Date: June 28, 2005
By: (Signature and Title) /s/ Glenn H. Tongue
____________________________________________________
Glenn H. Tongue
Vice President, Treasurer, and
Principal Financial Officer
Tilson Investment Trust
Date: June 28, 2005