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 811-55408
Ameritor Security Trust
(Exact name of registrant as specified in charter)
4400 MacArthur Blvd NW, Suite 301, Washington, DC 20007
(Address of principal executive offices) (Zip code)
Ameritor Financial Corporation
4400 MacArthur Blvd NW, Suite 301, Washington, DC 20007
(Name and address of agent for service)
Registrant's telephone number, including area code: 202-625-6000
Date of fiscal year end: 06/30/2011
Date of reporting period: 06/30/2011
Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget ("OMB") control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. ss. 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
Dear Shareholder:
As of the fiscal year ended June 30, 2011 the Fund had shares 2,370,737.60 outstanding, and each share had an audited Net Asset Value (“NAV”) of $ 0.10. This NAV compares with an audited NAV of $0.12 at June 30, 2010 and an unaudited NAV of $0.13 per share at December 31, 2010.
During the year ended June 30, 2011, Ameritor Financial Corp., the Fund’s Advisor, was responsible for management of the Fund’s portfolio. As portfolio manager, Ms. Carole Kinney has generally continued her investment strategy of using fundamental analysis to identify securities she believes are undervalued and which have the potential for capital appreciation, as well as those that have a history of paying dividends in ever increasing amounts. We believe that the yield afforded by these stocks works to offset, to a substantial degree, the market risk associated with volatility.
The Fund’s portfolio of securities had an unrealized gain of $44,230 which equated to a market value 20.96% greater than the original cost. However, taking into account Fund expenses, which we must, the Fund was down 16.67%. This compares to a gain of 26.34% for the Russell 2000 Index, and a 21.95% gain for the S&P 500 Index, neither of which have expenses. During this period the market has been difficult to navigate due to the growing deficit, high unemployment and gridlock in Washington leading to uncertainty on the horizon. The Fund’s somewhat poor performance was largely the result of these factors.
Our portfolio strengths and gains are attributable primarily to our exposure in oils, minerals and computers. Communications, e-commerce and banks have been lagging. We had neutral, or nearly neutral, performance in building products, medical and retail sectors.
The market has started to firm, although not without a bit of a roller coaster ride. This current market weakness is based mainly upon investor sentiment regarding the prospects for slower-than-expected economic growth. However, we still believe the probability that the U.S. will slip into another recession is very small. The credit downgrade by Standard & Poors of the long-term Treasury bonds is not a significant concern, because the conditions that "caused" the downgrade are well-known, and have been in place for quite a while. A default would have been a truly significant event, but that situation has been avoided, and is highly unlikely to ever actually occur.
In our opinion, we should maintain our current positions and strategy, since we believe the market downturn is nearly over. Our primary reason for taking this position is that there is no one, big catalyst overhanging the market that would cause a further significant collapse of equity values, like we saw in 2000 with the bursting of the technology bubble, or in 2008 with the near collapse of the banking system. These recent lower valuations are a reflection of investor fears of a possible recession, but our economic work puts a much higher probability on continued economic growth, albeit at a somewhat slower rate than we had previously forecast. The problems being experienced in the weaker European economies will not have a serious impact on our markets, and may actually be of some benefit as global funds flow from riskier European markets to more stable U.S. markets.
So, we believe it is best to stay with our current strategy, remain invested and diversified, and let the market volatility play itself out. Valuations will recover over time, and risks of further deterioration in the near-term, although real, are fairly low.
As you no doubt are aware, Congress and the regulatory agencies, primarily as the result of the Sarbanes/Oxley Act, have put extra expense burdens on all mutual funds. These expenses are unimportant to larger institutions from a percentage standpoint, but we smaller funds are subject to the same oversight rules while operating with a much smaller asset base. These expenses impact heavily on the Fund’s performance. We are making every effort to reduce our expenses and we will continue to do so in all respects. We also continue to explore avenues which may be available to increase the Fund’s assets which in turn would operate to reduce the overall expense ratio and increase the Fund’s performance.
The performance data quoted represents past performance and investment return and principle value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than the original cost. Please remember that past performance does not guarantee future results and current performance may be higher or lower than the performance data quoted.
Our thanks to our Board and our many shareholders for their support during our many years of operation.
Very truly yours,
Jerome Kinney
President
JK:md
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees and
Shareholders of Ameritor Security Trust Fund
Washington, D.C.
We have audited the accompanying statement of assets and liabilities, including the schedule of portfolio investments, of Ameritor Security Trust Fund as of June 30, 2011 and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of June 30, 2011, by correspondence with the custodian. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Ameritor Security Trust Fund as of June 30, 2011, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended in conformity with auditing standards generally accepted in the United States of America.
TAIT, WELLER & BAKER LLP
Philadelphia, Pennsylvania
August 26, 2011
Performance Graph
The following graph provides a comparison of the change in the value of a $10,000 investment in the Fund and same investment in the S & P 500 Index for each fiscal year from June 30, 2001 to June 30, 2011.
| * | Past performance is not predictive of future performance. |
| ** | S & P 500 Index is adjusted to reflect the reinvestment of dividends. |
Returns reflect reinvestment of dividends and capital gains distributions. The performance data and graph do not reflect the deduction of taxes that a shareholder may pay on dividends, capital gains distributions, or redemption of Fund shares. Indices do not incur expenses and are not available for investment.
| AMERITOR SECURITY TRUST FUND |
| SCHEDULE OF PORTFOLIO INVESTMENTS |
| June 30, 2011 |
| | | | | | | | |
| Number | | | | | | | Market |
| of Shares | | Description | | | | Value |
| | | | | | | | |
| | | COMMON STOCKS | | 106.73% | | |
| | | | | | | | |
| | | AEROSPACE | | 3.74% | | |
| 100 | | United Technologies, Corp. | | | $ 8,851 |
| | | | | | | | |
| | | BANKS | | | 3.40% | | |
| 101 | | HSBC Holdings PLC - ADR | | | 5,012 |
| 200 | | Bank of America, Corp. | | | | 2,192 |
| 20 | | Citigroup, Inc. | | | | 833 |
| | | | | | | | 8,037 |
| | | | | | | | |
| | | BEVERAGES | | 1.49% | | |
| 50 | | Pepsico, Inc. | | | | 3,522 |
| | | | | | | | |
| | | BUILDING PRODUCTS | | 0.77% | | |
| 50 | | Home Depot, Inc. | | | | 1,811 |
| | | | | | | | |
| | | CABLE TV | | 1.07% | | |
| 100 | | Comcast, Corp. | | | | 2,534 |
| | | | | | | | |
| | | CELLULAR TELCOM | | 2.79% | | |
| 100 | | Verizon Communications | | | | 3,723 |
| 500 | | Alcatel Lucent ADR * | | | | 2,885 |
| | | | | | | | 6,608 |
| | | | | | | | |
| | | COAL | | | 4.90% | | |
| 150 | | Alliance Resource, LP. | | | | 11,617 |
| | | | | | | | |
| | | COMMUNICATIONS | | 0.66% | | |
| 100 | | Cisco Systems, Inc. | | | | 1,561 |
| 29 | | Nortel Networks, Corp. * | | | | 1 |
| | | | | | | | 1,562 |
| | | | | | | | |
| | | COMPUTERS & OFFICE EQUIPMENT | 10.87% | | |
| 150 | | International Business Machines, Corp. | | | 25,732 |
| | | | | | | | |
| | | E-COMMERCE | | 0.89% | | |
| 150 | | Nutrisystem, Inc. | | | | 2,109 |
| AMERITOR SECURITY TRUST FUND |
| SCHEDULE OF PORTFOLIO INVESTMENTS (continued) |
| June 30, 2011 |
| Number | | | | | | | Market |
| of Shares | | Description | | | | Value |
| | | COMMON STOCKS (continued) | | | |
| | | ELECTRIC/POWER | | 1.12% | | |
| 50 | | Consolidated Edison, Inc. | | | | $ 2,662 |
| | | | | | | | |
| | | ELECTRONIC COMPUTERS | 27.65% | | |
| 190 | | Apple, Inc. * | | | | 63,777 |
| 100 | | Dell, Inc. * | | | | 1,667 |
| | | | | | | | 65,444 |
| | | | | | | | |
| | | FINANCE | | | 0.85% | | |
| 100 | | Western Union, Co. | | | | 2,003 |
| | | | | | | | |
| | | MACHINERY | | 4.64% | | |
| 100 | | Flowserve, Corp. | | | | 10,989 |
| | | | | | | | |
| | | MANUFACTURING | | 5.23% | | |
| 100 | | Honeywell International, Inc. | | | 5,959 |
| 100 | | Ingersoll Rand, Co. Ltd. CL-A | | | 4,541 |
| 100 | | General Electric, Co. | | | | 1,886 |
| | | | | | | | 12,386 |
| | | | | | | | |
| | | MEDICAL | | | 11.15% | | |
| 100 | | Johnson & Johnson | | | | 6,652 |
| 100 | | Amgen, Inc. * | | | | 5,835 |
| 100 | | Medtronic, Inc. | | | | 3,853 |
| 100 | | Novartis AG - ADR | | | | 6,111 |
| 50 | | Wellpoint, Inc. | | | | 3,939 |
| | | | | | | | 26,390 |
| | | | | | | | |
| | | METALS | | | 3.24% | | |
| 100 | | Freeport McMoran Copper | | | | 5,290 |
| 150 | | Alcoa, Inc. | | | | | 2,379 |
| | | | | | | | 7,669 |
| | | | | | | | |
| | | MINERALS | | 3.21% | | |
| 750 | | Northern Dynasty Minerals * | | | 7,605 |
| | | | | | | | |
| AMERITOR SECURITY TRUST FUND |
| SCHEDULE OF PORTFOLIO INVESTMENTS (continued) |
| June 30, 2011 | | | | | | | |
| | | | | | | | |
| Number | | | | | | | Market |
| of Shares | | Description | | | | Value |
| | | COMMON STOCKS (continued) | | | |
| | | OFFICE SUPPLIES | | 0.67% | | |
| 100 | | Staples, Inc. | | | | $ 1,580 |
| | | | | | | | |
| | | OIL & GAS | | 12.85% | | |
| 100 | | Schlumberger, Ltd. | | | | 8,640 |
| 100 | | Occidental Petroleum, Corp. | | | 10,404 |
| 150 | | Canadian Natural Resources | | | 6,279 |
| 100 | | Halliburton, Co. | | | | 5,100 |
| | | | | | | | 30,423 |
| | | | | | | | |
| | | OIL & GAS | | 1.67% | | |
| 100 | | Nabors Industries, Ltd. * | | | | 2,464 |
| 50 | | Chesapeake Energy, Corp. | | | | 1,485 |
| | | | | | | | 3,949 |
| | | | | | | | |
| | | RETAIL | | | 2.91% | | |
| 50 | | Walmart Stores, Inc. | | | | 2,657 |
| 100 | | Walgreen, Co. | | | | 4,246 |
| | | | | | | | 6,903 |
| | | | | | | | |
| | | SAVINGS & LOAN | | 0.02% | | |
| 450 | | Washington Mutual, Inc. | | | | 58 |
| | | | | | | | |
| | | SEMICONDUCTORS | | 0.94% | | |
| 100 | | Intel, Corp. | | | | 2,216 |
| | | | | | | | |
| | | Total Common Stock (Cost $208,430) | | | $ 252,660 |
| | | | | | | | |
| | | SHORT TERM INVESTMENTS | 1.09% | | |
| 2,573 | | Wells Fargo Institutional Money Market Fund (Cost $2,573) | | $ 2,573 |
| | | | | | | | |
| | | TOTAL INVESTMENTS | | | | |
| | | (Cost: $211,003)** | | 107.82% | | $ 255,233 |
| | | Other Net Assets | | -7.82% | | (18,507) |
| | | NET ASSETS | | 100.00% | | $ 236,726 |
| | | | | | | | |
| * Non-income producing | | | | | | |
| **Cost for Federal income tax purposes is $211,032 and net unrealized appreciation consists of: |
| | | | | | | | |
| | | Gross unrealized appreciation | $99,717 | | |
| | | Gross unrealized depreciation | (55,516) | | |
| | | Net unrealized appreciation | $44,201 | | |
| See Notes to Financial Statements | | | | | |
| AMERITOR SECURITY TRUST FUND |
| STATEMENT OF ASSETS AND LIABILITIES |
| June 30, 2011 |
| ASSETS | | | |
| Investments at value (identified cost of $211,003) (Notes 1 & 4) | | $ | 255,233 | |
| Cash | | | 12 | |
| Due from affiliates | | | 5 | |
| Dividends receivable | | | 192 | |
| Prepaid insurance | | | 683 | |
| | | | | |
| Total assets | | | 256,125 | |
| | | | | |
| | | | | |
| LIABILITIES | | | | |
| Payable to affiliates | | | 6,663 | |
| Other accrued expenses | | | 12,736 | |
| Total liabilities | | | 19,399 | |
| | | | | |
| NET ASSETS | | $ | 236,726 | |
| | | | | |
| NET ASSET VALUE, OFFERING AND REDEMPTION | | | | |
PRICE PER SHARE ($236,726/2,370,738 shares outstanding) | | $ | 0.10 | |
| COMPONENTS OF NET ASSETS | | | | |
| At June 30, 2011, there was an unlimited amount of no par value | | | | |
| shares of beneficial interest and the components of net assets are (Note 1): | | | | |
| Paid-in capital | | $ | 381,300 | |
| Accumulated net realized losses on investments | | | (188,804 | ) |
| Net unrealized appreciation of investments | | | 44,230 | |
| Net assets | | $ | 236,726 | |
See Notes to Financial Statements
| AMERITOR SECURITY TRUST FUND |
| STATEMENT OF OPERATIONS |
| |
| YEAR ENDED JUNE 30, 2011 |
| INVESTMENT INCOME | | | | | | |
| Dividends (net of foreign withholding of $43) | | | | | $ | 4,727 | |
| Interest | | | | | | 26 | |
| | | | | | | 4,753 | |
| | | | | | | | |
| EXPENSES | | | | | | | |
| Administrative services (Note 2) | | $ | 60,000 | | | | | |
| Legal and audit fees | | | 10,757 | | | | | |
| Transfer agent fees (Note 2) | | | 22,130 | | | | | |
| Accounting fees | | | 23,217 | | | | | |
| Investment advisory fees (Note 2) | | | 2,866 | | | | | |
| Custody fees | | | 3,035 | | | | | |
| Directors | | | 4,404 | | | | | |
| Miscellaneous | | | 12,452 | | | | | |
| Total expenses | | | | | | | 138,861 | |
| | | | | | | | | |
| | | | | | | | | |
| Net Investment Loss | | | | | | | (134,108 | ) |
| | | | | | | | | |
| | | | | | | | | |
| NET REALIZED AND UNREALIZED GAINS/LOSSES ON | | | | | |
| INVESTMENTS: | | | | | | | | |
| Net realized loss on investments | | | | | | | (15,793 | ) |
| Net increase in unrealized appreciation on investments | | | | | | | 99,401 | |
| Net gain on investments | | | | | | | 83,608 | |
| Net decrease in net assets resulting from operations | | | | | | $ | (50,500 | ) |
See Notes to Financial Statements
| AMERITOR SECURITY TRUST FUND |
| |
| STATEMENTS OF CHANGES IN NET ASSETS |
| | | Year ended | | | Year ended | |
| | | June 30, 2011 | | | June 30, 2010 | |
| | | | | | | |
| OPERATIONS | | | | | | |
| Net investment loss | | $ | (134,108 | ) | | $ | (133,487 | ) |
| Net realized loss on investments | | | (15,793 | ) | | | (33,733 | ) |
| Change in unrealized appreciation/(depreciation) of investments | | | 99,401 | | | | 104,388 | |
| Net decrease in net assets resulting from operations | | | (50,500 | ) | | | (62,832 | ) |
| | | | | | | | | |
| | | | | | | | | |
| CAPITAL SHARE TRANSACTIONS (NOTE 3) | | | | | | | | |
| Net decrease in net assets resulting from capital share | | | | | | | | |
| transactions | | | (5,079 | ) | | | (3,604 | ) |
| Net decrease in net assets | | | (55,579 | ) | | | (66,436 | ) |
| Net assets at beginning of year | | | 292,305 | | | | 358,741 | |
| | | | | | | | | |
NET ASSETS at the end of the year | | $ | 236,726 | | | $ | 292,305 | |
See Notes to Financial Statements
| AMERITOR SECURITY TRUST FUND |
| FINANCIAL HIGHLIGHTS |
| |
| FOR A SHARE OUTSTANDING THROUGHOUT THE YEAR |
| | | Year Ended | | | Year Ended | | | Year ended | | | Year ended | | | Year ended | |
| | | June 30 2011 | | | June 30 2010 | | | June 30 2009 | | | June 30 2008 | | | June 30 2007 | |
| Per Share Operating Performance | | | | | | | | | | | | | | | |
| Net asset value, beginning of year | | $ | 0.12 | | | $ | 0.15 | | | $ | 0.28 | | | $ | 0.37 | | | $ | 0.41 | |
| Income from investment operations- | | | | | | | | | | | | | | | | | | | | |
| Net investment (loss) | | | (0.06 | ) | | | (0.06 | ) | | | (0.05 | ) | | | (0.05 | ) | | | (0.05 | ) |
| Net realized and unrealized gain (loss) on investments | | | 0.04 | | | | 0.03 | | | | (0.08 | ) | | | (0.04 | ) | | | 0.01 | |
| Total from investment operations | | | (0.02 | ) | | | (0.03 | ) | | | (0.13 | ) | | | (0.09 | ) | | | (0.04 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| Net asset value, end of year | | $ | 0.10 | | | $ | 0.12 | | | $ | 0.15 | | | $ | 0.28 | | | $ | 0.37 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total Return | | | (16.67 | %) | | | (20.00 | %) | | | (46.43 | %) | | | (24.32 | %) | | | (9.76 | %) |
| | | | | | | | | | | | | | | | | | | | | |
| Ratios/Supplemental Data | | | | | | | | | | | | | | | | | | | | |
| Net assets, end of year (000's) | | $ | 237 | | | $ | 292 | | | $ | 358 | | | $ | 724 | | | $ | 961 | |
| Ratio to average net assets | | | | | | | | | | | | | | | | | | | | |
| Expense ratio | | | 48.45 | % | | | 38.24 | % | | | 30.77 | % | | | 17.10 | % | | | 16.36 | % |
| Net loss | | | (46.79 | %) | | | (36.47 | %) | | | (28.75 | %) | | | (15.42 | %) | | | (12.85 | %) |
| Portfolio turnover rate | | | 0 | % | | | 0 | % | | | 7 | % | | | 15 | % | | | 140 | % |
See Notes to Financial Statements
AMERITOR SECURITY TRUST FUND
NOTES TO FINANCIAL STATEMENTS
| (1) | ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES |
Ameritor Security Trust Fund, (the “Fund”), is registered under the Investment Company Act of 1940, as amended, as a non-diversified, open-end investment company. The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements.
| | A. | Security Valuation – The Fund’s investments in securities are carried at value. Securities listed on an exchange or quoted on a national market system are valued at the last sales price as of 4:00 p.m. New York time on the day of valuation. Other securities traded in over-the-counter market and listed securities for which no sale was reported on that date are valued at the most recent bid price. Securities for which market quotations are not readily available, if any, are valued by using an independent pricing service or by following procedures approved by the Board of Trustees. Short-term investments are valued at amortized cost which approximates value. |
As described in note A, the Fund utilizes various methods to measure the fair value of most of its investments on a recurring basis. U.S. GAAP establishes a hierarchy that prioritizes inputs to valuation methods. The three levels of inputs are:
Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities that the Fund 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 instruments on an active market, prices for similar instruments, interest rates, prepayment speeds, credit risk, yield curves, default rates and similar data.
Level 3 – Unobservable inputs for the assets or liability, to the extent relevant observable inputs are not available, representing the company’s own assumptions about the assumptions a market participant would use in valuing the asset or liability, and 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.
AMERITOR SECURITY TRUST FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
The following is a summary, by category of Level, of inputs used to value the Fund’s investments as of June 30, 2011:
| | | Balance | | | | | | | | | | |
| | | June 30, 2011 | | | Level 1 | | | Level 2 | | | Level 3 | |
| Exchange traded common stocks | | $ | 252,660 | | | $ | 252,660 | | | $ | 0 | | | $ | 0 | |
| Money market securities | | | 2,573 | | | | 2,573 | | | | 0 | | | | 0 | |
| Total asset measured at fair value | | $ | 255,233 | | | $ | 255,233 | | | $ | 0 | | | $ | 0 | |
The Industry classifications of Level 1 Investments are included in the Schedule of Portfolio Investments.
| | B. | Income Taxes – The Fund intends to comply with the requirements of the Internal Revenue Code necessary to qualify as a regulated investment company and to make the requisite distributions of income and capital gains to its shareholders sufficient to relieve it from all or substantially all federal income taxes. Therefore no federal income tax provision is required. Accounting principles generally accepted in the United States of America require that permanent differences between financial reporting and tax reporting be reclassified between various components of net assets. At June 30, 2011, for Federal income tax purposes, the Fund had a capital loss carryforward of $174,145 of which $56,819 expires in fiscal year 2012 $33,812 expires in fiscal year 2015, $79,904 expires in 2018, and $3,610 expires in 2019 to offset future realized gains. As a result of the passage of Regulated Investment Company Modernization Act of 2010, losses incurred in the fiscal years beginning after December 22, 2010 will retain their character, short-term or long-term, and will have no expiration date. |
The Fund recognizes the tax benefits of uncertain tax positions only where the position is “more likely than not” to be sustained assuming examination by tax authorities. Management has analyzed the Fund’s tax positions, and has concluded that no tax liability for unrecognized tax benefits should be recorded related to uncertain tax positions taken on returns filed for open tax years (2008-2010), or expected to be taken in the Fund’s 2011 tax returns. The Fund identifies its major tax jurisdictions as U.S. Federal, and District of Columbia where the Fund makes significant investments; however the Fund 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 twelve months.
| | C. | Distributions to Shareholders – No distributions were paid in fiscal years 2010 or 2011. As of June 30, 2011, the components of distributable earnings (accumulated loss) on a tax basis of the Fund were as follows: |
| Other accumulated losses | | $ | (14,630 | ) |
| Capital loss carryforward | | | (174,145 | ) |
| Unrealized appreciation | | | 44,201 | |
| | | $ | (144,574 | ) |
| | D. | Investment Transactions – Investment transactions are recorded on the trade date. Realized gains and losses are determined by using the specific identification cost method. Interest income is recorded daily on the accrual basis. Dividend income is recorded on the ex-dividend date. |
AMERITOR SECURITY TRUST FUND
NOTES TO FINANCIAL STATEMENTS – (Continued)
| | E. | Use of Estimates – The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amount of assets, liabilities, expenses and revenues reported in the financial statements. Actual results could differ from those estimates. |
| | F. | Reclassification of Capital Accounts – Accounting Principles generally accepted in the United States ofAmerica require that certain components of net assets relating to permanent differences be reclassified between financial and tax reporting. These reclassifications have no effect on net assets or net asset value per share. For the year ended June 30, 2011 the Fund decreased paid in capital by $134,108 and decreased accumulated net investment loss by $134,108. |
| (2) | INVESTMENT ADVISORY FEE AND OTHER RELATED PARTY TRANSACTIONS |
The investment advisory agreement with Ameritor Financial Corporation (“AFC”), an affiliate, provides for a fee based on 1% of the first $35,000,000 of the average daily net assets of the Fund, 7/8 of 1% on the next $35,000,000 and ¾ of 1% on all sums in excess thereof. In addition to the investment advisory fee, AFC received fees from the Fund for the performance of delegated services, (dividend disbursing agent and transfer agent) as defined in the Trust Indenture, as amended. The fee for such services was computed on the basis of the number of shareholder accounts calculated as of the last business day of each month at an annual rate of $20.00 per account.
The administrative agreement with AFC provides administrative services to and is generally responsible for the overall management and day-to-day operations of the Fund. As compensation for these services, AFC receives a fee at the annual rate of 0.20% of the Fund’s average daily net assets. The contract also provides that the aggregate fees for the aforementioned administration, accounting and recordkeeping services shall not be less than $5,000 per month.
Certain officers and trustees of the Fund are “affiliated persons” of the Investment Adviser, as defined by the Investment Company Act of 1940.
The Fund Indenture does not specify a limit to the number of shares which may be issued. Transactions in Fund shares were as follows:
| | | Year Ended | | | Year Ended | |
| | | June 30, 2011 | | | June 30,2010 | |
| | | Shares | | | Amount | | | Shares | | | Amount | |
| | | | | | | | | | | | | |
| Shares redeemed | | | (41,704 | ) | | $ | (5,079 | ) | | | (23,180 | ) | | $ | (3,604 | ) |
| Net decrease | | | (41,704 | ) | | $ | (5,079 | ) | | | (23,180 | ) | | $ | (3,604 | ) |
| Shares outstanding | | | | | | | | | | | | | | | | |
| Beginning of year | | | 2,412,442 | | | | | | | | 2,435,622 | | | | | |
| End of year | | | 2,370,738 | | | | | | | | 2,412,442 | | | | | |
AMERITOR SECURITY TRUST FUND
NOTES TO FINANCIAL STATEMENTS – (Continued)
| (4) | PURCHASE AND SALE OF SECURITIES |
During the year ended June 30, 2011, purchases and proceeds from sales of investment securities were $222 and $123,196, respectively. Cost of securities for income tax purposes was $211,032 at June 30, 2011. Net unrealized appreciation of investments aggregated $44,201, which relates to gross unrealized appreciation of $99,717 and gross unrealized depreciation of $55,516.
The Fund has evaluated the need for additional disclosures and/or adjustments resulting from subsequent events through the date the financial statements were issued. Based on this evaluation, no adjustments were required to the financial statements.
| (6) | New Accounting Pronouncement |
In May 2011 the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) No. 2011-04 “Amendments to Achieve Common Fair Value Measurements and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards (“IFRS”). ASU 2011-04 includes common requirements for measurement of and disclosure about fair value between U.S. GAAP and IFRS. ASU 2011-04 will require reporting entities to disclose the following information for fair value measurements categorized within Level 3 of the fair value hierarchy: quantitative information about the unobservable inputs used in the fair value measurement, the valuation processes used by the reporting entity, and a narrative description of the sensitivity of the fair value measurement to changes in unobservable inputs and the interrelationships between those unobservable inputs. In addition, ASU 2011-04 will require reporting entities to make disclosures about amounts and reasons for all transfers in and out of Level 1 and Level 2 fair value measurements. The new and revised disclosures are effective for interim periods beginning after December 15, 2011. At this time, management is evaluating the implications of ASU 2011-04 and its impact on the financial statements.
AMERITOR SECURITY TRUST FUND
SUPPLEMENTAL INFORMATION (unaudited)
VOTING PROXIES ON FUND PORTFOLIO SECURITIES
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to securities held in the Fund’s portfolio is available, without charge and upon request, by calling 1-202-625-2112 or on the SEC’s website at www.sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the year ended June 30, 2011 is available on or through the SEC’s website at www.sec.gov.
QUARTERLY PORTFOLIO HOLDINGS
The Fund files with the SEC a complete schedule of its portfolio holdings, as of the close of the first and third quarters of its fiscal year, on “Form N-Q”. These filings are available, without charge and upon request, by calling 1-202-625-2112 or on the SEC’s website at www.sec.gov. The Fund’s Forms N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330.
AMERITOR SECURITY TRUST FUND
TRUSTEES AND OFFICERS (UNAUDITED)
The following table sets forth certain information concerning the Trustees and officers of the Fund.
| (1) | (2) | (3) | (4) | (5) | (6) |
Name Address and Age | Position(s) Held with Fund | Term of Office and Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios in Fund Complex Overseen by Trustee | Other Directorships Held by Trustee |
| Non-Interested Trustee |
Richard P. Ellison 1410 Coventry Lane Alexandria, VA 22304 Age 80 | Non-Interested Trustee | 11 Years Served Term is For Life | President and Chief Executive Officer of Intervest Financial Corp. | 1 | Potomac Group Homes; Boat America |
James I. Schwartz 14801Pennfield Circle #307 Silver Spring, MD 20906 Age 84 | Non- Interested Trustee | 8 Year Served Term is For Life | Retired President Capital City Savings & Loan And Schwartz & Co. | 1 | None |
| Interested Trustee And Officers |
Carole S. Kinney 8020 Thornley Court Bethesda, MD 20817 Age 65 | Trustee, Secretary, and Chairman of the Fund | 11 Years served Term is For life | Chairman of the Board of Ameritor Financial Corporation Since 1998 | 1 | None |
Jerome Kinney 8020 Thornley Court Bethesda, MD 20817 Age 81 | President | 11 Years served Term=1 year | Founder and President, Jerome F. Kinney Company (builder); President and CEO, Ameritor Financial Corporation | 1 | None |
AMERITOR SECURITY TRUST FUND
EXPENSE EXAMPLES (UNAUDITED)
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, Security Trust and (2) ongoing costs, including management fees and other fund expenses. These examples are 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. Each example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2011 to June 30, 2011.
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 the 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 each 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 a Fund and other funds. To do so, compare these 5% hypothetical examples with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs. Therefore, the second line in 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 | | | Expenses Paid | |
| | | Account Value | | | Account Value | | | During Period | |
| | | 1/1/11 | | | 6/30/11 | | | 1/1/11 – 6/30/11* | |
| | | | | | | | | | |
| Actual | | $ | 1,000.00 | | | $ | 769.23 | | | $ | 213.41 | |
| Hypothetical (5% return before expenses) | | $ | 1,000.00 | | | $ | 1.050.00 | | | $ | 247.28 | |
| * | Expenses are equal to the Fund’s annual expense ratio of 48.45% multiplied by the average account value over the period multiplied by 181/365 (to reflect the one-half year period). |
Ameritor Financial Corporation
Ameritor Security Trust
Privacy Policy
At Ameritor, we recognize the importance of protecting the personal and financial information of Fund shareholders. We consider each shareholder’s personal information to be private and confidential. The following describes the practices followed by Ameritor to protect Fund shareholders’ privacy.
Ameritor may obtain nonpublic personal information about you from the following sources:
| | · | Information we receive from you on applications, forms, and other information you provide to us in writing, by telephone, electronically or by any other means; and |
| | · | Information about your transactions with us or others. |
Ameritor will collect and use Fund shareholder personal information only to service shareholder accounts. This information may be used by Ameritor in connection with providing services or financial products requested by Fund shareholders. We will not disclose any nonpublic personal information about you to anyone, except as permitted by law.
Ameritor restricts access to your personal and account information to those employees who need to know that information to provide products or services to you. We maintain physical, electronic, and procedural safeguards to guard your nonpublic personal information.
Even if you are no longer a Fund shareholder, Ameritor’s Privacy Policy will continue to apply to you.
AMERITOR SECURITY TRUST 4400 MacArthur Blvd, #301 Washington, D.C. 20007-2521 1-800-424-8570 202-625-6000 Washington, D.C. area |
Transfer Agent
Ameritor Financial Corporation
4400 MacArthur Blvd, #301
Washington, D.C. 20007-2521
Custodian
USBank
Two Liberty Place,
Suite 2000
Philadelphia, PA 19102
Independent Registered Public Accounting Firm Tait, Weller & Baker LLP 1818 Market Street, Suite 2400 Philadelphia, PA 19103 |
For more information about
Ameritor Security Trust,
account information or daily
Net Asset Values, call:
Shareholder Services
1-800-424-8570
202-625-6000 Washington, D.C. area
ITEM 2. CODE OF ETHICS.
(a) The registrant has, as of the end of the period covered by this report, adopted a code of ethics that applies to the registrant's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party.
(b) During the period covered by this report, there were no amendments to any provision of the code of ethics.
(c) During the period covered by this report, there were no waivers or implicit waivers of a provision of the code of ethics.
(d) The registrant's code of ethics is filed herewith.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The registrant's Board of Trustees has determined that Richard Ellison, a member of the registrant's Board of Trustees and Audit Committee, qualifies as an audit committee financial expert. Mr. Ellison is "independent" as that term is defined in paragraph (a)(2) of this item's instructions.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) Audit Fees. The aggregate fees billed for each of the last two fiscal years for professional services rendered by the registrant's principal accountant for the audit of the registrant's annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years were $9,000 and $9,000 for fiscal years ended June 30, 2010 and 2011, respectively.
(b) Audit Related Fees. The aggregate fees billed in each of the last two fiscal years for assurance and related services by the registrant's principal accountant that are reasonably related to the performance of the audit of the registrant's financial statements and not reported under paragraph (a) of this item were $0 and $0 for the fiscal years ended June 30, 2010 and 2011, respectively.
(c) Tax Fees. The aggregate fees billed in each of the last two fiscal years for professional services rendered by the principal accountant for tax compliance were $1,500 and $1,500 for the fiscal years ended June 30, 2010 and 2011, respectively.
(d) All Other Fees. The aggregate fees billed in each of the last two fiscal years for products and services provided by the registrant's principal accountant, other than the services reported in paragraphs (a) through (c) of this Item were $0 and $0 for the fiscal years ended June 30, 2010 and 2011, respectively.
(e)(1) The audit committee does not have pre-approved policies and procedures. Instead, the audit committee or sub-audit committee approves on a case-by-case basis each audit or non-audit service before the accountant is engaged by the registrant.
(e)(2) There were no services described in each of paragraphs (b) through (d) of this item that were approved by the audit committee pursuant to paragraph (c)(7)(i)(C) Rule 2-01 of Regulation S-X.
(f) Not applicable. The percentage of hours expended on the principal accountant's engagement to audit the registrant's financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant's full-time, permanent employees was zero percent (0%).
(g) All non-audit fees billed by the registrant's accountant for services rendered to the Fund for the fiscal years ended June 30, 2010 and June 30, 2011 are disclosed in (b)-(d) above. There were no audit or non-audit services performed by the registrant's account for the registrant's adviser.
(h) Not applicable.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS
Included in Annual 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 SECURITY HOLDERS
There have been no material changes to the procedures by which shareholders may recommend nominees to the registrant's board of directors, where those changes were implemented after the registrant last provided disclosure in response to the requirements of Item 7(d)(2)(ii)(G) of Schedule 14A (17 CFR 240.14a-101).
ITEM 11. CONTROLS AND PROCEDURES.
AMERITOR FUNDS
Disclosure Controls and Procedures
Adopted Pursuant to Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934 and Rule 30a-3 Under the Investment Company Act of 1940
Ameritor Security Trust and Ameritor Investment Fund (the "Funds"), hereby establish these disclosure controls and procedures ("Disclosure Procedures") pursuant to Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934 ("Exchange Act") and Rule 30a-3 under the Investment Company Act of 1940 (the "1940 Act"). The Disclosure Procedures are designed to ensure that all information that the Funds are required to disclose in their shareholder reports (the "Reports") filed with the Securities and Exchange Commission ("SEC") pursuant to Section 13(a) or Section 15(d) of the Exchange Act is recorded, processed, summarized and reported within the time period specified in applicable SEC rules and forms. The Disclosure Procedures also support the certifications that the Funds' principal officers must sign and submit with each Report filed with the SEC, and the required disclosures in the Reports about the Funds' internal controls.
The overriding goals of these Disclosure Procedures are:
| • | To promote the timely accumulation and communication of information the Funds are required to disclose in their Reports; and |
| • | To promote reliable and accurate disclosure in the Reports. |
| II. | Roles and Expectations of Fund Service Providers |
The Funds rely on their service providers to perform substantially all tasks related to the Funds' ongoing business operations, including preparing and filing the Reports and preparing the information included in the Reports. The Funds' strongest control for promoting timely and accurate disclosures, therefore, is appropriate and reasonable oversight of their service providers. Accordingly, the Funds encourage each service provider involved in the process of preparing or filing a Report or preparing the information included in a Report ("Service Provider") to adopt its own internal controls and procedures governing, as applicable, the preparation and filing of Reports and the recording, processing, generation and translation of information that it provides to the Funds for inclusion in any Report ("Service Provider Procedures").
In particular, the Funds expect each Service Provider to:
Provide Procedures - provide to the Funds' President a copy of its Service Provider Procedures, if any;
Provide Amendments to Procedures - promptly provide to the Funds' President a copy of any substantive changes or amendments to the Service Provider Procedures;
Report Violations - promptly report to the Funds' President any material violations of the Service Provider Procedures (and any corrective actions taken);
Report Important Matters - promptly report to the Funds' President any material misstatements or omissions or unfair presentations in any Report; any suspected fraud relating to a Report; and any complaints about, or suspected or perceived weaknesses, problems or breakdowns in, the Disclosure Procedures, the Service Provider Procedures or any other internal controls related to the Funds, a Report or Fund disclosure matters;
Create Due Diligence Files - create and maintain a due diligence file, and other appropriate documentation and records for each Report; and
Submit Requested Information - submit on a timely basis information, certifications or other documents related to a Report or Fund disclosure matters as the Funds, through their President, may reasonably request.
| III. | Monitoring of Disclosure Controls |
Roles and Responsibilities. The President is primarily responsible for the proper functioning of the Disclosure Procedures and for evaluating the Disclosure Procedures under Section V below. To discharge these broad responsibilities, the President will communicate with and generally oversee the Service Providers regarding Fund disclosure matters and matters relating to the preparation and filing of Reports.
Oversight of and Coordination with Service Providers. The President will coordinate with the Service Providers on an ongoing basis regarding the Funds' disclosure obligations, the Disclosure Procedures and the Service Provider Procedures.
Review of Service Provider Procedures. The President will ask each Service Provider to provide a copy of its Service Provider Procedures, and any substantive changes or amendments to the Procedures as they are adopted. The President will initially and periodically thereafter review the Service Provider Procedures and any substantive changes or amendments thereto.
| IV. | Material Misstatements/Omissions; Unfair Presentations; Fraud |
If the President discovers or is informed about a suspected material misstatement or omission, or an unfair presentation, in a Report, or suspected fraud in relation to a Report, the President or his delegate will investigate (or cause an appropriate Service Provider to investigate) the matter, focusing on the effectiveness of applicable controls and procedures and consulting with Service Providers or others as appropriate regarding corrective actions.
The President will prepare a report about any such investigations (and the related findings and conclusions). The President will consider appropriate next steps, such as investigating further or reporting the matter to the Audit Committee.
| V. | Evaluating the Disclosure Procedures |
Conducting the Evaluation. The President will evaluate, with the participation of and input from, as applicable, the Service Providers, the Audit Committee, and the Funds' independent auditor ("Outside Auditors"), the effectiveness of the design and operation of these Disclosure Procedures and the Service Provider Procedures. This evaluation must be completed within 90 days before any Report is filed with the SEC.
Feedback on Controls. The Funds' President, in performing the functions of a Chief Financial Officer, will ask the Audit Committee to alert the President about any weaknesses, problems or complaints regarding financial internal controls that it receives. The President will ask each Service Provider to give notification of any weaknesses, problems or complaints regarding financial internal controls that it receives.
Resolving Any Deficiencies in Controls. The President will promptly investigate and resolve any suspected or perceived weaknesses, problems or complaints in the design and operation of the financial internal controls, or any suspected fraud in relation to a Report on internal controls. Appropriate records will be created and maintained regarding the investigation and resolution of any such matters.
The President will consider any deficiencies in the Disclosure Procedures, and will determine the appropriate actions to take in order to resolve such deficiencies. In making this determination, the President should consider discussing these matters further with the Audit Committee, outside legal counsel, and/or the Outside Auditors. At a minimum, however, the President will disclose to the Audit Committee and the Outside Auditors:
Significant Deficiencies - any significant deficiencies in the design or operation of the Disclosure Procedures (or those of Service Providers), including any financial internal controls that adversely affect the Funds' ability to record, process, summarize and report financial data, and identify any material weakness in financial internal controls; and
Fraud - any fraud, whether or not material, that involves management, a Service Provider or a Service Provider's employees who have a significant role in the Funds' financial internal controls, as well as any material weakness identified in the Funds' financial internal controls.
Recordkeeping. The President will maintain appropriate records supporting compliance with these Disclosure Procedures and records generated or received pursuant to these Disclosure Procedures. Specifically, all substantive determinations, judgments or actions taken in relation to these Disclosure Procedures will be documented. All substantive documents created, distributed or received in relation to these Disclosure Procedures will be maintained by the President for the Funds' records.
Amendments. The President may amend these Disclosure Procedures from time to time as appropriate. The President will report to the Board regarding any substantive amendments to these Disclosure Procedures.
Use of Experts. The President may consult with outside legal counsel or any other external experts as necessary or appropriate in furtherance of the goals of the Disclosure Procedures.
Delegation. When these Disclosure Procedures require a particular person to perform a task (other than actually signing the certification), it is understood that the person may reasonably delegate that task to another appropriate party.
Adopted: September 2003
ITEM 12. EXHIBITS
(a)(1) Code of Ethics required to be disclosed under item 2 is attached hereto.
(a)(2) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto.
(b) Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 is attached hereto.
SIGNATURES
[See General Instruction F]
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.
(Registrant) Ameritor Security Trust
| By (Signature and Title)* | /s/ Jerome Kinney, |
| | President and Treasurer |
Date August 30, 2011
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/ Jerome Kinney, |
| | President and Treasurer |
Date August 30, 2011
