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INANCIAL
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RONTIERS
KC I
NDIA
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UND
July 31, 2013
(Unaudited)
1.) ORGANIZATION:
New Frontiers KC India Fund (the "Fund") is a non-diversified series of the New Frontiers Trust (the "Trust"), an open-end investment company under the Investment Company Act of 1940, as amended. The Trust was organized in Ohio as a business trust on November 18, 2010 and may offer an unlimited number of shares of beneficial interest in a number of separate series, each series representing a distinct fund with its own investment objectives and policies. At present, there is one series authorized by the Trust. The Fund commenced operations on February 24, 2011 and the Fund commenced investing in accordance with its objectives on May 17, 2011. The Fund's investment objective is to seek long-term capital appreciation. The investment advisor to the Fund is New Frontiers Advisory Group, LLC (the “Advisor”).
2.) SIGNIFICANT ACCOUNTING POLICIES:
SECURITY VALUATION:
All investments in securities are recorded at their estimated fair value, as described in Note 3.
FEDERAL INCOME TAXES:
The Fund’s policy is to comply with the requirements of the Internal Revenue Code that are applicable to regulated investment companies and to distribute all of its taxable income to shareholders. Therefore, no federal income tax provision is required. It is the Fund’s policy to distribute annually, prior to the end of the calendar year, dividends sufficient to satisfy excise tax requirements of the Internal Revenue Code. This Internal Revenue Code requirement may cause an excess of distributions over the book year-end accumulated income. In addition, it is the Fund’s policy to distribute annually, after the end of the fiscal year, any remaining net investment income and net realized capital gains.
The Fund recognizes the tax benefits of certain 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 liability for unrecognized tax benefits should be recorded related to uncertain tax positions taken on returns filed for open tax years 2011 and 2012, or expected to be taken in the Fund’s 2013 tax returns. The Fund identifies its major tax jurisdictions as U.S. Federal tax authorities; 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. The Fund recognizes interest and penalties, if any, related to unrecognized tax benefits as income tax expense in the statement of operations. During the six month period ended July 31, 2013, the Fund did not incur any interest or penalties.
FOREIGN TAXES:
The Fund is subject to a tax imposed on short-term capital gains on securities of issuers domiciled in India. The Fund records an estimated deferred tax liability for securities that have been held for less than one year at the end of the reporting period, assuming those positions were disposed of at the end of the period. In determining the estimated deferred tax liability, the Fund considers any available capital loss carryforwards. Realized losses on the sale of securities of issuers domiciled in India can be carried forward for eight years to offset potential future short-term realized capital gains. As of July 31, 2013, the Fund estimated that there was $0 for such potential future India capital gains taxes.
SHARE VALUATION:
The net asset value per share of the Fund is calculated daily by dividing the total value of the Fund’s assets, less liabilities, by the number of shares outstanding, rounded to the nearest cent. The offering and redemption price per share is equal to the net asset value per share, except that shares of the Fund are subject to a redemption fee of 1% if redeemed after holding them for 90 days or less. During the six month period ended July 31, 2013, proceeds from redemption fees amounted to $0.
FOREIGN CURRENCY:
Investment securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts based on the exchange rate of such currencies against U.S. dollars on the date of valuation. Purchases and sales of investment securities and income and expense items denominated in foreign currencies are translated into U.S. dollar amounts at the exchange rate in effect on the respective dates of such transactions.
2013 Semi-Annual Report 8
Notes to Financial Statements (Unaudited) - continued
The Fund does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions, and the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund's books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in the fair values of assets and liabilities, other than investments in securities at fiscal period end, resulting from changes in exchange rates.
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions to shareholders, which are determined in accordance with income tax regulations, are recorded on the ex-dividend date.
The treatment for financial reporting purposes of distributions made to shareholders during the period from net investment income or net realized capital gains may differ from their ultimate treatment for federal income tax purposes. These differences are caused primarily by differences in the timing of the recognition of certain components of income, expense, or realized capital gain for federal income tax purposes. Where such differences are permanent in nature, they are reclassified in the components of the net assets based on their ultimate characterization for federal income tax purposes. Any such reclassifications will have no effect on net assets, results of operations, or net asset value per share of the Fund.
USE OF ESTIMATES:
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“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 reporting period. Actual results could differ from those estimates.
OTHER:
The Fund records security transactions based on the trade date. Dividend income is generally recognized on the ex-dividend date. Dividend income for certain issuers headquartered in India may not be recorded until approved by the shareholders (which may occur after the ex-dividend date) if, in the judgment of management, such dividends are not reasonably determined as of the ex-dividend date. Interest income is recognized on an accrual basis. The Fund uses the specific identification method in computing gain or loss on the sale of investment securities. Discounts and premiums on securities purchased are amortized over the life of the respective securities. Withholding taxes on foreign dividends have been provided for in accordance with the Fund's understanding of the applicable country's tax rules and rates.
CONCENTRATION OF RISK:
The Fund will invest primarily in the securities of Indian companies, and as a result, the value of its shares will be significantly affected by political, economic, regulatory and other developments in India, as well as changes in the status of India's relation with other countries. Investments in India generally are considered to be more speculative than investments in more developed markets of the world, and therefore may be subject to a greater risk of loss.
3.) SECURITIES VALUATIONS:
The Fund utilizes various methods to measure the fair value of its investments on a recurring basis. 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 instrument on an inactive market, prices for similar instruments, interest rates, prepayment speeds, credit risk, yield curves, default rates and similar data.
2013 Semi-Annual Report 9
Notes to Financial Statements (Unaudited) - continued
Level 3 - Unobservable inputs for the asset or liability, to the extent relevant observable inputs are not available, representing the Fund’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.
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 - India)
. Equity securities are carried at fair value. The market quotation used for common stocks, including those listed on the NASDAQ National Market System, is the last sale price on the date on which the valuation is made or, in the absence of sales, at the closing bid price. Foreign securities are usually valued on the basis of the most recent closing price of the foreign markets on which such securities principally trade. Over-the-counter securities will be valued on the basis of the bid price at the close of each business day. Generally, if the security is traded in an active market and is valued at the last sale price, the security is categorized as a level 1 security. When the security position is not considered to be part of an active market or when the security is valued at the bid price, the position is generally categorized as level 2. When market quotations are not readily available, when the Advisor determines the last bid price does not accurately reflect the current value or when restricted securities are being valued, such securities are valued as determined in good faith by the Advisor, in conformity with guidelines adopted by and subject to review of the Board of Trustees (the “Trustees”) and are categorized in level 2 or level 3, when appropriate.
The Fund may invest in portfolio securities that are primarily listed on foreign exchanges or other markets that trade on weekends and other days when the Fund does not price its shares. As a result, the market value of these investments may change on days when the Fund does not calculate the value of such investments. In this regard, it should be noted that the National Stock Exchange of India is generally open Monday through Friday from 9:15 a.m. until 3:30 p.m., India time (10:45 p.m. until 5:00 a.m., Eastern time), except for certain holidays recognized by the exchange or the Indian government. Events affecting the value of foreign investments may occur between the time at which they are determined and when the Fund calculates its NAV, which is normally the close of trading on the New York Stock Exchange (the “NYSE”). If such events render market quotations unreliable, and the impact of such events can be reasonably determined, the investments will be valued at their fair value as determined in conformity with guidelines adopted by and subject to review of the Trustees. The fair value of a security held by the Fund may be determined using the services of third-party pricing services or such securities are valued as determined in good faith by the Advisor, in conformity with guidelines adopted by and subject to review of the Trustees and are typically categorized in level 2 or level 3, when appropriate.
Money market funds.
Shares of money market funds are valued at a net asset value of $1.00 and are classified in level 1 of the fair value hierarchy.
Fixed income securities.
Fixed income 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 value of such securities. A pricing service utilizes electronic data processing techniques based on yield spreads relating to securities with similar characteristics to determine prices for normal institutional-size trading units of debt securities without regard to sale or bid prices. When prices are not readily available from a pricing service, or when restricted or illiquid securities are being valued, securities are valued at fair value as determined in good faith by the Advisor, subject to review of the Trustees. Short-term investments in fixed income securities with maturities of less than 60 days when acquired, or which subsequently are within 60 days of maturity, are valued by using the amortized cost method of valuation. Generally, fixed income securities are categorized as level 2.
2013 Semi-Annual Report 10
Notes to Financial Statements (Unaudited) - continued
In accordance with the Trust's good faith pricing guidelines, the Advisor is required to consider all appropriate factors relevant to the value of securities for which it has determined other pricing sources are not available or reliable as described above. There is no single procedure for determining fair value, since fair value depends upon the circumstances of each individual case. As a general principle, the current fair value of an issue of securities being valued by the Advisor would appear to be the amount which the owner might reasonably expect to receive for them upon their current sale. Methods which are in accordance with this principle may, for example, be based on (i) a multiple of earnings; (ii) a discount from market of a similar freely traded security (including a derivative security or a basket of securities traded on other markets, exchanges or among dealers); or (iii) yield to maturity with respect to debt issues, or a combination of these and other methods.
Foreign securities held by the Fund may be traded on days and at times when the NYSE is closed. Accordingly, the NAV of the Fund may be significantly affected on days when shareholders have no access to the Fund.
The following table summarizes the inputs used to value the Fund’s assets measured at fair value as of July 31, 2013:
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Valuation Inputs of Assets
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Level 1
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Level 2
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Level 3
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Total
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Common Stocks (India)
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$2,026,959
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$0
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$0
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$2,026,959
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Money Market Funds
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42,940
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0
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0
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42,940
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Total
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$2,069,899
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$0
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$0
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$2,069,899
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Refer to the Fund’s Schedule of Investments for a listing of securities by industry. The Fund did not hold any level 3 assets during the six month period ended July 31, 2013. There were no transfers into or out of the levels during the six month period ended July 31, 2013. It is the Fund’s policy to consider transfers into or out of the levels as of the end of the reporting period.
The Fund did not invest in derivative instruments during the six month period ended July 31, 2013.
4.) INVESTMENT ADVISORY AGREEMENT AND RELATED PARTY TRANSACTIONS:
The Fund has entered into an investment advisory agreement (“Management Agreement”) with the Advisor. Under the terms of the Fund's Management Agreement, the Advisor manages the Fund's investments subject to approval of the Board of Trustees and pays all of the expenses of the Fund except brokerage fees and commissions, transaction charges of the Fund's custodian on Fund trades, taxes, borrowing costs (such as (a) interest and (b) dividend expenses on securities sold short), 12b-1 fees and such extraordinary or non-recurring expenses as may arise, including litigation to which the Fund may be a party and indemnification of the Trustees and officers with respect thereto. As compensation for its management services and agreement to pay the Fund's expenses, the Fund is obligated to pay the Advisor a fee (based on average daily net assets) computed and accrued daily and paid monthly at the following annual rates: 2.00% on the first $500 million in assets, 1.75% for the assets over $500 million up to $1 billion, and 1.55% for assets in excess of $1 billion.
For the six month period ended July 31, 2013, the Advisor earned management fees totaling $22,763. The Fund owed the Advisor $3,679 as of July 31, 2013 for management fees earned for the six month period ended July 31, 2013.
The Fund has adopted a plan pursuant to Rule 12b-1 under the 1940 Act (the "Plan"). The Fund pays the Advisor for certain distribution and promotion expenses related to marketing shares of the Fund pursuant to the Plan. Under the terms of the Plan, the amount payable annually by the Fund would be 0.25% of its average daily net assets. At present, the Plan is not implemented, although the Trustees may do so at any time upon notice to shareholders.
An officer and a shareholder of the Advisor is also an officer and a Trustee of the Trust. These individuals may receive benefits from the Advisor resulting from management and services fees paid to the Advisor by the Fund.
The Trustees who are not interested persons of the Fund were each paid Trustees’ fees of $1,000 plus travel and related expenses for the six month period ended July 31, 2013. Under the Management Agreement, the Advisor pays these fees.
5.) CAPITAL SHARES:
The Trust is authorized to issue an unlimited number of shares of beneficial interest. Paid in capital at July 31, 2013 was $2,580,952 representing 263,872 shares outstanding.
2013 Semi-Annual Report 11
Notes to Financial Statements (Unaudited) - continued
6.) PURCHASES AND SALES OF SECURITIES:
For the six month period ended July 31, 2013, purchases and sales of investment securities other than U.S. Government obligations and short-term investments aggregated $195,777 and $0, respectively. Purchases and sales of U.S. Government obligations aggregated $0 and $0, respectively.
7.) SECURITY TRANSACTIONS:
For Federal income tax purposes, the cost of investments owned at July 31, 2013 was $2,375,111. At July 31, 2013, the composition of unrealized appreciation (the excess of value over tax cost) and depreciation (the excess of tax cost over value) on investments was as follows:
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Appreciation
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(Depreciation)
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Net Appreciation (Depreciation)
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$248,623
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($553,835)
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($305,212)
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8.) 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 a fund, under Section 2(a)(9) of the Investment Company Act of 1940. As of July 31, 2013, National Financial Services, LLC, located at 200 Liberty Street, New York, New York for the benefit of their clients, beneficially held, in aggregate 63.22% of the shares of the Fund, and therefore may be deemed to control the Fund. Also, as of July 31, 2013, Band & Co., located at 1555 North Rivercenter Drive, Suite 302, Milwaukee, Wisconsin for the benefit of their clients, beneficially held, in aggregate 30.15% of the shares of the Fund, and therefore may be deemed to control the Fund.
9.) DISTRIBUTIONS TO SHAREHOLDERS:
There were no distributions paid during the six month period ended July 31, 2013 and the fiscal year ended January 31, 2013.
10.) SUBSEQUENT EVENTS
On August 26, 2013, the Board of Trustees of the New Frontiers KC India Fund has concluded, based on the recommendation of the Fund’s adviser in light of difficult market conditions in India and due to the relatively small size of the Fund, it is in the best interests of the Fund and its shareholders that the Fund cease operations. The Board has determined to close the Fund and redeem all remaining outstanding shares on September 26, 2013.
Effective August 26, 2013, the Fund will no longer pursue its stated investment objective and will enter the liquidation basis of accounting. The Fund will begin liquidating its portfolio and will invest in cash equivalents such as money market funds until all shares have been redeemed. Any required distributions of income and capital gains will be distributed as soon as practicable to shareholders and reinvested in additional shares, unless you have previously requested payment in cash. Shares of the Fund are otherwise not available for purchase. The Fund’s adviser, New Frontiers Advisory Group, LLC has agreed to pay closing-related expenses.
2013 Semi-Annual Report 12
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2013 Semi-Annual Report 13
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Board of Trustees
Gerald A. Fallon
Rakesh Mehra
Richard C. Ruhland
Robert Warren, Jr.
Investment Advisor
New Frontiers Advisory Group, LLC
Legal Counsel
Thompson Hine LLP
Custodian
Union Bank, N.A.
Dividend Paying Agent,
Shareholders' Servicing Agent,
Transfer Agent
Mutual Shareholder Services, LLC
Administrator
Premier Fund Solutions, Inc.
Independent Registered Public Accounting Firm
Cohen Fund Audit Services, Ltd.
Distributor
Rafferty Capital Markets, LLC
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This report is provided for the general information of the shareholders of the New
Frontiers KC India Fund. This report is not intended for distribution to prospective
investors in the Fund, unless preceded or accompanied by an effective prospectus.
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N
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F
RONTIERS
KC I
NDIA
F
UND
30195 Chagrin Blvd., Suite 118N
Pepper Pike, OH 44124