NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2013
1. SIGNIFICANT ACCOUNTING POLICIES
The NYSA Fund (the “Fund”) is a non-diversified series of the NYSA Series Trust (the “Trust”). The Trust, registered as an open-end management investment company under the Investment Company Act of 1940, as amended (the “1940 Act”), 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 (the “Advisor”) purchased the initial shares of the Fund at $10 per share. The Fund began the public offering of shares on May 12, 1997.
The following is a summary of the Fund's significant accounting policies followed by the Fund in the preparation of its financial statements. These policies are in conformity with accounting principles generally accepted in the United States of America (GAAP):
Securities Valuation
– Equity securities generally are valued by using market quotations, but may be valued on the basis of prices furnished by a pricing service when the Advisor believes such prices accurately reflect the fair market value of such securities. Securities that are traded on any stock exchange or on the NASDAQ over-the-counter market are generally valued by the pricing service at the last quoted sale price. Lacking a last sale price, an equity security is generally valued by the pricing service at its last bid price. When market quotations are not readily available, or the Advisor determines that the market quotation or the price provided by the pricing service does not accurately reflect the current market value, or when restricted or illiquid securities are being valued, such securities are valued as determined in good faith by the Board of Trustees. The Board has adopted guidelines for good faith pricing, and has delegated to the Advisor the responsibility for determining fair value prices, subject to review by the Board of Trustees.
The following table sets forth a summary of the changes in the fair value of the Fund’s level 3 investments for the year ended March 31, 2013:
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Investments
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Balance Beginning at April 1, 2012
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$ 315,795
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Net Realized Gain/Loss on Sale of Investments
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(200,000)
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Net Change in Unrealized Appreciation on Investments Held at Year End
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197,800
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Net Transferred out of Level 3
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-
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Net Transferred into Level 3
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-
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Balance End at March 31, 2013
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$ 313,595
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See the Fund’s Schedule of Investments for details on investments and levels.
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
– Distributions to shareholders arising from net investment income and net realized capital gains, if any, are distributed at least once each year and are recorded on the ex-dividend date. The amount of distributions from net investment income and net realized gains are determined in accordance with federal income tax regulations, which may differ from accounting principles generally accepted in the United States of America. These “book/tax” differences are temporary in nature and are primarily due to losses deferred due to wash sales. For the year ended March 31, 2013, the Fund did not pay any distributions to its shareholders.
Use of Estimates
– The preparation of financial statements in conformity with generally accepted accounting principles 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.
Management has evaluated subsequent events through the date the financial statements were issued and determined no events require additional disclosure.
Federal Income Taxes
– It is the Fund's policy to comply with the special provisions of the Internal Revenue Code applicable to regulated investment companies. As provided therein, in any fiscal year in which the Fund so qualifies and distributes at least 90% of its taxable net income, the Fund (but not the shareholders) will be relieved of federal income tax on the income distributed. Accordingly, no provision for income taxes has been made.
In order to avoid imposition of the excise tax applicable to regulated investment companies, it is the Fund's intention to declare as dividends in each calendar year at least 98% of its net investment income (earned during the calendar year) and 98% of its net realized capital gains (earned during the twelve months ended October 31) plus undistributed amounts from prior years.
Reclassifications -
In accordance with GAAP, the Fund has recorded a reclassification in the capital accounts. As of March 31, 2013, the Fund recorded permanent book/tax differences of $59,627 from net investment loss to paid-in capital. These reclassifications have no impact on the net asset value of the Fund and are designed generally to present undistributed income and net realized gains on a tax basis, which is considered to be more informative to shareholders.
2. INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales and maturities of investment securities, other than short-term investments, amounted to $3,357,447 and $3,225,394, respectively, for the year ended March 31, 2013.
3. TRANSACTIONS WITH AFFILIATES
Advisory Agreement -
Under the terms of an Advisory Agreement, the Fund pays the Advisor 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 year ended March 31, 2013, Advisory Fees were $19,948 in which, $2,579 was voluntarily waived by the Advisor. At March 31, 2013, the Fund owed the Advisor $3,047.
For the year ended March 31, 2013, compliance fees of $18,100 were paid to the Fund’s Chief Compliance Officer, who also serves as secretary of the Fund.
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 Advisor, were $21,552, for the year ended March 31, 2013.
Implementation of a Service Fee Plan -
The Fund has adopted a Service Fee Plan, pursuant to which the Fund will incur expenses of up to 0.25% per year of the Fund’s 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 year ended March 31, 2013, $4,987 was paid to the Underwriter for reimbursement of expenses in connection with shareholder accounts.
4. CONTROL OWNERSHIP
The beneficial ownership, either directly or indirectly, of more than 25% of the voting securities of a fund creates a presumption of control of the fund, under Section 2(a)(9) of the Investment Company Act of 1940. As of March 31, 2013, National Financial Services, for the benefit of others, in aggregate owned approximately 65.82% of the Fund.
5. OTHER INVESTMENTS
Restricted Securities
- The investment in 84,332 shares of Transluminal Technologies, LLC common stock, the sale of which is restricted, has been valued by the Board of Trustees at $3.60 per share. This valuation was made after considering certain pertinent factors, including the results of operations of Transluminal Technologies LLC and any recent offerings in its common stock. No quoted market price exists for Transluminal Technologies LLC common stock. It is possible that the estimated fair value 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 in a private placement from ESPSCO Syracuse LLC (“ESPSCO”) originally in the amount of $100,000. The security has been valued by the Board of Trustees at $10,000. This valuation was made after considering certain pertinent factors, including the results of operations of ESPSCO and the default on an interest payment during the year ended March 31, 2012. The Fund did collect $6,668 in interest during the year ended March 31, 2013.
6. TAX MATTERS
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, 2013, the following represents that tax basis capital gains and losses and undistributed ordinary income:
Undistributed ordinary income $ -
Capital loss carry forwards expiring:
+
3/31/2014 $ 267,408
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, 2013, the tax basis components of unrealized appreciation (depreciation) and cost of investment securities were as follows:
Gross unrealized appreciation on investment securities $ 192,241
Gross unrealized depreciation on investment securities
($ 337,692)
Net unrealized depreciation on investment securities
($ 145,451)
Cost of investment securities * $ 2,331,456
* The difference between the book cost and tax cost of investments represents disallowed wash sales for tax purposes.
+ 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.
In December 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (“ASU”) No. 2011-11 (the “Pronouncement”) related to disclosures about offsetting assets and liabilities. The amendments in this ASU require an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. The ASU is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. The Pronouncement requires retrospective application for all comparative periods presented. Management is currently evaluating the impact that this Pronouncement may have on the Fund’s financial statements.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of
Trustees of NYSA Fund,
a Series of NYSA Series Trust
We have audited the accompanying statement of assets and liabilities of NYSA Fund, a Series of NYSA Series Trust (the “Fund”), including the schedule of investments, as of March 31, 2013 and the related statement of operations for the year then ended, statements of changes in net assets for each of the two years in the period then ended, and 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 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 was 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, 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 and cash owned as of March 31, 2013, 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 NYSA Fund, a Series of NYSA Series Trust as of March 31, 2013, 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 accounting principles generally accepted in the United States of America.