Nysa Fund
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2014 (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
Nysa Fund (“Fund”) is a non-diversified series of Nysa Series Trust (“Trust”), an open-end management investment company registered under the Investment Company Act of 1940, as amended (“1940 Act”). The Trust was organized as a Massachusetts business trust on November 20, 1996. The Fund was capitalized on February 18, 1997, when affiliates of Pinnacle Advisors LLC (“Adviser”) purchased the initial shares of the Fund at $10 per share. The Fund began the public offering of shares on May 12, 1997. The Fund’s investment objective is to provide long-term capital growth.
The following is a summary of the Fund's significant accounting policies followed by the Fund in the preparation of its financial statements. These policies are in conformity with accounting principles generally accepted in the United States of America (“GAAP”):
Security Valuation – All investments in securities are recorded at their estimated fair value, as described in Note 2.
Investment Income – Dividend income is recorded on the ex-dividend date. Interest income is accrued as earned.
Security Transactions – Security transactions are accounted for on trade date. Realized gains and losses on security transactions are determined on a specific identification basis.
Distributions to Shareholders – Dividends to shareholders from net investment income or capital gains, if any, are paid annually as required to comply with federal excise tax requirements. Distributions to shareholders are determined in accordance with income tax regulations and recorded on the ex-dividend date.
Use of Estimates – The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the period. Actual results could differ from those estimates.
Subsequent Events -Management has evaluated the impact of all subsequent events on the Fund through the issuance of these financial statements and has noted no such events requiring disclosure.
Federal Income Taxes – The Fund’s policy is to continue to comply with requirements of the Internal Revenue Code that are applicable to regulated investment companies, and distribute all the Fund’s taxable income to its shareholders. The Fund also intends to distribute sufficient net investment income and net capital gains if any, so that the Fund will not be subject to excise tax on undistributed income and gains. Therefore, no federal income tax or excise provision is required.
The Fund recognizes the tax benefits of uncertain tax positions only when the position is more likely than not to be sustained, assuming examination by tax authorities. Management has analyzed the Fund’s tax positions and concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions taken on returns filed for open tax years (2010 – 2013) or expected to be taken in the Fund’s 2014 tax returns. The Fund identifies its major tax jurisdictions as U.S. federal and where the Fund makes significant investments. Management is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next 12 months.
2. SECURITIES VALUATIONS
Processes and Structure
The Fund’s Board of Trustees has adopted guidelines for valuing securities including in circumstances in which market quotes are not readily available and has delegated to the Adviser the responsibility for determining fair value prices, subject to review by the Board of Trustees.
Hierarchy of Fair Value Inputs
The Fund utilizes various methods to measure the fair value of most of their investments on a recurring basis. GAAP establishes a hierarchy that prioritizes inputs to valuation techniques used to measure fair value. The three levels of inputs are as follows:
•
Level 1. Unadjusted quoted prices in active markets for identical assets or liabilities that the company has the ability to access.
•
Level 2. Observable inputs other than quoted prices included in level 1 that are observable for the asset or liability either directly or indirectly. These inputs may include quoted prices for the identical instrument on an inactive market, prices for similar instruments, interest rates, prepayment speeds, credit risk, yield curves, default rates, and similar data.
•
Level 3. Unobservable inputs for the asset or liability to the extent that relevant observable inputs are not available, representing the company's own assumptions about the assumptions that a market participant would use in valuing the asset or liability, and that would be based on the best information available.
The availability of observable inputs can vary from security to security and is affected by a wide variety of factors, including, for example, the type of security, whether the security is new and not yet established in the marketplace, the liquidity of markets, and other characteristics particular to the security. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in level 3.
The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement falls in its entirety is determined based on the lowest level input that is significant to the fair value measurement in its entirety.
Fair Value Measurements
A description of the valuation techniques applied to the Fund’s major categories of assets and liabilities measured at fair value on a recurring basis follows.
Equity securities (common stocks). Securities traded on a national securities exchange (or reported on the NASDAQ national market) are stated (1) at the last quoted sales price (with securities traded on the NASDAQ NMS and Small Cap Markets valued at the NASDAQ Official Closing Price) or, in the absence of a sale, (2) at the last bid. To the extent these securities are actively traded, and valuation adjustments are not applied, they are categorized in level 1 of the fair value hierarchy.
Short term investments. Short term investments are valued using amortized cost, which approximates fair value. These securities will be categorized in level 1 of the fair value hierarchy.
Restricted Securities – Restricted or illiquid securities do not have readily available market quotations or the Adviser determines that the market quotation or the price provided by the pricing service does not accurately reflect the current market value, such securities are valued as determined in good faith by the Board of Trustees. The Board has adopted Portfolio Securities Valuation Procedures that, among other things, provide guidelines for the valuation of portfolio securities and delegate the responsibility for determining the fair value of securities for which market quotations are not readily available to a Valuation Committee, subject to review and oversight by the Board of Trustees (“Board”). Restricted securities are categorized in level 3 of the fair value hierarchy.
The following table summarizes the inputs used to value each Fund’s assets and liabilities measured at fair value as of September 30, 2014:
| | | | |
| Financial Instruments—Assets |
Categories | Level 1 | Level 2 | Level 3 + | Fair Value |
| | | | |
Common Stocks | $ 2,117,151 | $ - | $ 450,577 | $ 2,567,728 |
Short-Term Investments: | | | | |
Huntington Money Market Fund IV | 3,005 | - | - | 3,005 |
| $ 2,120,156 | $ - | $ 450,577 | $ 2,570,733 |
The following table sets forth a summary of the changes in the fair value of the Fund’s level 3 investments for the year ended September 30, 2014:
| | |
| | Investments |
Balance Beginning at April 1, 2014 | $ 400,577 |
Net Realized Gain/(Loss) on Sale of Investments | (-) |
Net Purchases and Sales | 50,000 |
Balance End at September 30, 2014 | $ 450,577 |
See the Fund’s schedule of investments for details on investments and levels.
There were no significant transfers into or out of Level 1 or Level 2 during the period. It is the Fund’s policy to recognize transfers into and out of Level 1, Level 2, or Level 3 at the end of the reporting period.
3. INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales and maturities of investment securities, other than short-term investments, amounted to $1,083,521 and $821,203, respectively, for the six months ended September 30, 2014.
4. TRANSACTIONS WITH AFFILIATES
Advisory Agreement -Under the terms of an Advisory Agreement, the Fund pays the Adviser a fee, which is computed and accrued daily and paid monthly, at an annual rate of 1.00% of its average daily net assets up to $100 million; 0.95% of such assets from $100 million to $200 million; and 0.85% of such assets in excess of $200 million. For the six months ended September 30, 2014, Advisory Fees were $14,768 of which, $11,076 was voluntarily waived by the Adviser. At September 30, 2014, the Fund owed the Adviser $3,383.
Portfolio Transactions - Commissions paid by the Fund are based on the per transaction commission charge then in effect for the execution of a transaction for the Fund by the investment advisor. Commissions paid to Pinnacle Investments, Inc., an affiliate of the Adviser, were $3,212, for the six months ended September 30, 2014.
Implementation of a Service Fee Plan - The Fund has adopted a Service Fee Plan, pursuant to which the Fund is permitted to incur expenses of up to 0.25% per year of the Fund’s average daily net assets. Under the Service Fee Plan, the Fund is permitted to reimburse Pinnacle Investments, LLC, the Underwriter, for a portion of its expenses incurred in servicing shareholder accounts. For the six months ended September 30, 2014, $3,692 was paid to the Underwriter for reimbursement of expenses in connection with shareholder accounts. No fees were outstanding for the six months ended September 30, 2014.
5. CONTROL OWNERSHIP
The beneficial ownership, either directly or indirectly, of more than 25% of the voting securities shares 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 September 30, 2014, National Financial Services, for the benefit of others, in aggregate owned approximately 92.13% shares of the Fund.
6. OTHER INVESTMENTS
Restricted Securities – The Fund purchased 84,332 units of Transluminal Technologies, LLC in an offering exempt from registration under the Securities Act of 1933, as amended. As such, the units are subject to restrictions such as transferability. Also, no market quotations are available for the purpose of valuing this portfolio holding. As of September 30, 2014, the Board valued the units of Transluminal Technologies, LLC at $4.75 per unit, having taken into consideration certain pertinent factors, including the results of operations and any recent offerings of Transluminal Technologies, LLC. Because there are no market quotations for this security, it is possible that the valuation assigned by the Board may differ significantly from the amount that might be ultimately realized in near term and the difference could be material.
The Fund also purchased a debt security from Central New York Raceway Park, Inc. in an offering exempt from the registration requirements of the Securities Act of 1933, as amended, originally in the amount of $50,000. As such, the units are subject to restrictions such as transferability. Also, no market quotations are available for the purpose of valuing this portfolio holding. As of September 30, 2014, the Board valued the units of Central New York Raceway Park, Inc. at $2.00 per unit, having taken into consideration certain pertinent factors, including the results of operations and any recent offerings of Central New York Raceway Park, Inc. Because there are no market quotations for this security, it is possible that the valuation assigned by the Board may differ significantly from the amount that might be ultimately realized in near term and the difference could be material.
7. INCOME TAXES
The Fund’s tax basis capital gains and losses and undistributable ordinary income are determined only at the end of each fiscal year. For tax purposes, as of March 31, 2014, the following represents that tax basis capital gains and losses and undistributed ordinary income:
Undistributed ordinary income
$ -
Capital loss carry forwards expiring:
3/31/2018
$ 574,625
No Expiration Short Term 43,836
No Expiration Long Term 485,154
$ 1,103,615
During the year ended March 31, 2014, the Fund had net capital loss carry forward amounts expire of $267,408 which was reclassified from accumulated undistributed realized loss on investments to paid in capital.
The Fund is a regulated investment company (as defined in internal revenue code section 851) and is subject to special rules under IRC section 1212 regarding capital loss carry backs and carryovers. These rules prohibit the corporation from carrying back capital losses to any year in which it was a regulated investment company, while allowing capital loss carryovers to eight taxable years (not the usual three) succeeding the loss year. For taxable years beginning after December 22, 2010, regulated investment companies are permitted unlimited carry forwards of net capital losses. Such losses retain their character as either short- or long-term capital losses.
Net capital losses that occurred before December 23, 2010, continue to be treated as short term, and expire according to their original schedule. Such losses are not available to offset capital gains until all net capital losses occurring after December 22, 2010, have been utilized. As a result, some net capital loss carryovers that originated prior to December 23, 2010 may expire.
As of March 31, 2014, the tax basis components of unrealized appreciation (depreciation) and cost of investment securities were as follows:
Gross unrealized appreciation on investment securities
$ 731,127
Gross unrealized depreciation on investment securities
( 279,050)
Net unrealized depreciation on investment securities
$ 452,077
Cost of investment securities
$ 2,478,123
+ The capital loss carryforward will be used to offset any capital gains realized by the Fund in future years through the expiration date. The Fund will not make distributions from capital gains while a capital loss carryforward remains.
8. CAPITAL SHARE TRANSACTIONS
The Fund is authorized to issue an unlimited number of no par value shares of separate series. The total paid-in-capital was $4,132,200, as of September 30, 2014. Transactions in capital for the six months ended September 30, 2014 and the year ended March 31, 2014 were as follows:
| | | | | |
| Six Months Ended September 30, 2014 | | Year Ended March 31, 2014 |
| Shares | Amount | | Shares | Amount |
Shares sold | 67,822 | $ 497,975 | | 213,885 | $ 1,550,358 |
Shares redeemed | (21,474) | (153,521) | | (184,838) | (1,355,485) |
Net increase | 46,348 | $ 344,454 | | 29,047 | $ 194,873 |
Nysa Fund
Expense Illustration
September 30, 2014 (Unaudited)
Expense Example
As a shareholder of the Nysa Fund , you incur ongoing costs which typically consist of 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, April 1, 2014 through September 30, 2014.
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 Fund’s actual expense ratio and an assumed rate of return of 5% per year 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 this Fund 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.
* Mr. Masella served as an Independent Trustee from 1997 – 2011.
1 Mr. Williamson was elected to serve as a trustee at a meeting of the Board of Trustees held on March 29, 2013 to fill the vacancy created by the resignation of John Dobek on that date.
2 Mr. Cuculich, an employee of both Pinnacle Capital Advisors, LLC and Pinnacle Capital Management, LLC, has served as the Fund’s Portfolio Manager since February 1, 2013.
Effective September 19, 2014, Susan O’Conner resigned her position as Secretary. The Board accepted her resignation.
Item 2. Code of Ethics. Not applicable.
Item 3. Audit Committee Financial Expert.
(a) The registrant’s Board of Trustees has determined that it does not have an audit committee financial expert serving on its audit committee. At this time, the registrant believes that the experience provided by each member of the audit committee together offer the registrant adequate oversight for the registrant’s level of financial complexity.
Item 4. Principal Accountant Fees and Services. Not applicable.
Item 5. Audit Committee of Listed Companies. Not applicable.
Item 6. Schedule of Investments.
Not applicable – schedule filed with Item 1.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Funds. Not applicable.
Item 8. Portfolio Managers of Closed-End Funds. Not applicable.
Item 9. Purchases of Equity Securities by Closed-End Funds. Not applicable.
Item 10. Submission of Matters to a Vote of Security Holders.
The registrant has not adopted procedures by which shareholders may recommend nominees to the registrant's board of trustees.
Item 11. Controls and Procedures.
(a) The registrant’s president and chief financial officer concluded that the disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940 (the “Act”)) were effective as of a date within 90 days of the filing date of this report, based on the evaluation of these controls and procedures required by Rule 30a-3(b) under the Act.
(b) There were no changes in the registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the Act) 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) Code of Ethics. Not Applicable.
(a)(2) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.
(b) Certification pursuant to Section 906 Certification of the Sarbanes-Oxley Act of 2002. Filed herewith.
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.
The NYSA Series Trust
By /s/Robert Cuculich
*Robert Cuculich
President
Date November 21, 2014
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 /s/Robert Cuculich
*Robert Cuculich
President
Date November 21, 2014
By /s/Benjamin R. Quilty
*Benjamin R. Quilty
Chief Financial Officer
Date November 21, 2014
* Print the name and title of each signing officer under his or her signature.
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