July 7, 2014

Dear Investors,

While the markets experienced a second significant correction in April, this was followed by another impressive recovery. That said, the earlier damage in small cap and technology stocks was severe. This has led to a difficult period for the funds versus our peers, as we tend to emphasize both smaller and more aggressive names. On the bright side, these declines have given us opportunities to add some long followed companies to the funds at more attractive prices. We still have the belief that these recent market corrections are indeed more valuation based, rather than foreshadowing any particular weakening in the broader economy or individual company fundamentals. Our intention is to continue being constructive in our portfolio adjustments to attempt to take advantage of any increased volatility.

Jacob Internet Fund

The Internet fund added two new holdings in the quarter: Amazon and Twitter. Amazon, obviously a well-known company, is one that we have admired for a long time. The most recent 30% correction in the stock had finally given us a window of opportunity to initiate a position at a price that we feel gives us a much better risk/reward going forward. While Amazon continues to invest in new products and services at a rapid clip, we find ourselves increasingly confident that their dominance in e-commerce will grow and endure, regardless of shifts in the technology landscape.

Twitter, one of the top social media companies on the Internet, has crossed the threshold of just being another product or service into becoming a utility-like network serving a vast online audience. Even though there have been questions regarding their maturing user growth, Twitter is still severely under monetized versus its peers, and should be able to grow its revenue base substantially from current levels. As with Amazon, Twitter also experienced a sizable correction this year (over 50%), that makes it a compelling investment.

Jacob Small Cap Fund

The Small Cap fund only added one new position in the quarter: Yelp. This has been a holding in the Internet fund for some time, but its market cap had been too large to be considered in Small Cap. Again, the correction we had intra quarter, cut the valuation in half and brought it back within the Small Cap range. Even with a roller coaster year for the markets, Yelp's business has consistently put up very impressive growth metrics and has widened its presence around the world. Yelp's user generated content model will likely lead to accelerating margin growth with sizable increases in earnings before income, taxes, depreciation and amortization (EBITDA) and cash flow for the next several years.

Jacob Micro Cap Growth Fund

The Micro Cap fund added two new positions in the quarter: BioAmber and Nanosphere. BioAmber has created a technology that will produce an economically competitive non-petroleum form of succinic acid, which is a key ingredient in many everyday products, such as plastics and food additives. The company, already producing sizeable amounts of this environmentally friendly succinic acid in a manufacturing facility in France, is in the process of building a much larger plant in Ontario. While already having an impressive assortment of partners and customers who have committed to buying its products, it is also exploring the use of its proprietary technology in other large chemical markets.

Nanosphere has created molecular testing platform (Verigene) to help hospitals more quickly and accurately diagnose and treat patients suffering a wide variety of viral and bacterial ailments. The company has an attractive razor/razor blade business model where they are paid for each test run on a blood culture. It recently added to its broad array of products with the FDA approval of its enteric (stomach) bacterial test. Going forward, the fuller panel including the diagnosis of key stomach viruses should be approved this summer and meaningfully expand their market opportunity. The company's leading edge technology has been adopted by over 200 hospitals to date and will increasingly be seen as a critical tool to fight an emerging health crisis where increasing antibiotics resistance and new superbugs are becoming the norm.

Jacob Wisdom Fund

The Wisdom fund added one new holding in the quarter: Liberty Global. The company is the largest triple-service (video, voice, and internet) cable operator in the international market, providing services in over 14 countries with strong positions in the UK, Germany, the Netherlands and Belgium. Liberty Global is a play on the consolidation of the European cable TV market and specifically a play on those consolidators that can offer a competitive three way service.

Given recent moves, Liberty Global appears to be looking to acquire entertainment content itself rather than simply content rights. This should provide it with a hedge against likely future increases in content costs, driven by the growth in the number of competing platforms for the delivery of entertainment in an online world. There is also the possibility that any number of the large telecom players in Europe could acquire the company. With or without a future acquisition, we believe Liberty Global is still an attractively-priced, solid investment that generates substantial cash flows as a stand-alone company.

Ryan Jacob
Portfolio Manager
Jacob Internet Fund
Jacob Small Cap Growth Fund

Darren Chervitz
Portfolio Manager
Jacob Micro Cap Growth Fund

Frank Alexander
Portfolio Manager
Jacob Wisdom Fund

Mutual fund investing involves risk. Principal loss is possible. There are specific risks inherent in investing in the Internet area, particularly with respect to smaller capitalized companies and the high volatility of internet stocks. All four funds may invest in foreign securities, which involve greater volatility and political, economic and currency risks, and differences in accounting methods. These risks are greater in emerging markets. The Small Cap Fund, Internet Fund and Wisdom Fund will invest in smaller companies, which involve additional risks, such as limited liquidity and greater volatility. The Wisdom Fund may invest in Real Estate Investment Trusts (REITs) which may be affected by economic, legal, cultural, environmental or technological factors that affect property values, rents or occupancies of real estate related to the Fund's holdings. Investments in debt securities typically decrease in value when interest rates rise. This risk is usually greater for longer-term debt securities. The market value of convertible securities tends to decline as interest rates increase and, conversely, to increase as interest rates decline. In addition, convertible securities generally offer lower interest or dividend yields than non-convertible securities of similar quality.

Investments in micro capitalization companies may involve greater risks, as these companies tend to have limited product lines, markets and financial or managerial resources. Micro cap stocks often also have a more limited trading market, such that the Adviser may not be able to sell stocks at an optimal time or price. In addition, less frequently-traded securities may be subject to more abrupt price movements than securities of larger capitalized companies.

Any tax or legal information provided is merely a summary of our understanding and interpretation of some of the current income tax regulations and is not exhaustive. Investors must consult their tax advisor or legal counsel for advice and information concerning their particular situation. Neither the Fund nor any of its representatives may give legal or tax advice.

The information provided herein represents the opinion of Jacob Mutual Funds and is not intended to be a forecast of future events, a guarantee of future results, nor investment advice.

Earnings Before Income, Tax, Depreciation & Amortization (EBITDA) is net income with interest, taxes , depreciation and amortization added back to it, and can be used to analyze and compare profitability between companies and industries.

Cash Flow measures the cash generating capabilities of a company by adding non-cash charges and interest expense to pretax income.

Please refer to the prospectus located at for more complete information including risks, fees and expenses.

Click here to view the holdings for the Jacob Internet Fund, as of July 31, 2014.
Click here to view the holdings for the Jacob Small Cap Growth Fund, as of July 31, 2014.
Click here to view the holdings for the Jacob Micro Cap Growth Fund, as of July 31, 2014.
Click here to view the holdings for the Jacob Wisdom Fund, as of July 31, 2014.

Please note that these holdings are subject to change and should not be considered a recommendation to buy or sell any security.

Must be preceded or accompanied by a prospectus.

Quasar Distributors, LLC, Distributor 7/14