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 811-21720
Northern Lights Fund Trust
(Exact name of registrant as specified in charter)
225 Pictoria Drive, Suite 450 Cincinnati, OH 45246
(Address of principal executive offices) (Zip code)
Stephanie Shearer, Gemini Fund Services, LLC.
80 Arkay Drive Suite 110, Hauppauge, NY 11788
(Name and address of agent for service)
Registrant's telephone number, including area code: 631-470-2600
Date of fiscal year end: 9/30
Date of reporting period: 3/31/22
Item 1. Reports to Stockholders.
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| Semi-Annual Report |
| March 31, 2022 |
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| 1-877-413-3228 |
| www.13DActivistFund.com |
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| Distributed by Foreside Financial Services, LLC |
| Member FINRA |
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This report is authorized for distribution only to shareholders and to others who have received a
copy of the Prospectus. |
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TO THE SHAREHOLDERS OF THE 13D ACTIVIST FUND
MARCH 31, 2022
The six months ending March 31, 2022, 13D Activist Fund class I shares (DDDIX) returned 0.52%, net of fees and expenses (versus -2.22% for the Russell 2500)1,2 . This was a very strong period of relative performance due, in part, to two of the expected tailwinds we have been talking about for some time – the rotation from growth to value and the end of the pandemic allowing activists to start working on a backlog of catalysts. In the last three quarters of 2021 there were a total of 22 new material 13D filings, and in just the first quarter of 2022 there were 17. Moreover, in the first quarter we added more new positions than any quarter since the first year of the Fund. Value investing is back, and activists are value investors who are their own catalysts to close the valuation gap. This is particularly important in down or flat markets where investors cannot rely solely on the market for their returns. This is evidenced by the Fund’s downside capture metrics: for the trailing twelve months, the Fund had a downside capture ratio of just 72.96% despite capturing almost all of the upside (98.11% upside capture ratio) and over the last 10 years, it captured only 91.83% of the downside while delivering 98.60% of the upside3.
In addition to the tailwinds we are seeing from the growth/value rotation and the end of COVID, we believe the ESG movement and SPAC-mania are all positive factors for shareholder activism well into the future, and we still strongly believe that to be true 4. But a new factor has arisen this quarter that we believe could benefit shareholder activism in the United States more than any other single factor or event in the past 15 years – the Securities and Exchange Commission (“SEC”) mandate of a universal proxy card.
On November 17, 2021, the SEC adopted final rules that will require parties in a contested election to use universal proxy cards for all shareholder meetings held after August 31, 2022. Under the new rules, both the company and the activist will be required to use proxy cards that include the names of all director nominees presented for election at a shareholder meeting, giving shareholders, for the first time, the ability to vote by proxy for their preferred mix of company and activist nominees.
Under the current proxy voting regime, each of the company and the activist has their own proxy card mailed to shareholders with their own nominees on it. The activist’s nominees are never on the company’s card and the company’s nominees are not necessarily on the activist’s card. I say “not necessarily” because the SEC short slate rule allows an activist to include some of the company’s nominees on the activist’s card in order to fill up the full slate, but not all of them. Even with the short slate rule, shareholders cannot vote for their desired combination of company and activist nominees in a contested election unless they actually attend the meeting in
| 1 | Returns are shown for the Fund’s Class I share class (DDDIX) net of fees and expenses. Past performance does not guarantee future results. The fund performance data quoted here represents past performance. Current performance may be lower or higher than the performance data quoted above. Investment return and principal value will fluctuate, so that shares, when redeemed, may be worth more or less than their original cost. There is no guarantee that any investment strategy will achieve its objectives, generate profits, or avoid losses. For the most recent month end performance information, visit www.13DActivistFund.com or call 1-877-413-3228. |
| 2 | The Russell 2500 Index is a broad index, featuring 2,500 stocks that cover the small- and mid-cap market capitalizations. The Russell 2500 is a market cap weighted index that includes the smallest 2,500 companies covered in the Russell 3000 universe of United States-based listed equities |
| 3 | Upside/Downside Capture ratios are calculated for the trailing 10 years. These ratios measure the fund performance in up/ down markets relative to the performance of the Russell 2500 TR. An up/down market is defined as any period where the market’s return is greater/less than zero. Source: Morningstar as of 3/31/2022. |
| 4 | ESG – Environmental, Social, and Governance; SPAC – Special Purpose Acquisition Companies |
person and split their votes by ballot, something very few shareholders do today. The new rules will allow shareholders to vote by proxy for a mix of all directors up for election without the need to attend the meeting in person.
Universal ballots have been used in Canada for many years and the topic has been a major conversation in the US activist community for more than 10 years, when the SEC first became serious about potentially adopting it. It will now be adopted and will be a major boon for activists and a huge benefit for all shareholders. It will most definitely make proxy fights less expensive and less complicated and make it easier for shareholders with less activist experience to successfully elect director candidates. It should certainly make it easier for activists to get minority board representation, which is what they seek in 95%+ of activist engagements, but could make it a little more challenging for them to get majority control of the board, something that is rarely sought after and should be difficult.
Overall, this is a huge win for shareholders and activists and not a welcome change for corporate boards. As pioneering activist investor Barry Rosenstein said to us in March of 2012: “Having a universal ballot will also lead to a better board because it gives shareholders a greater choice, a larger selection of competent nominees and an ability to mix and match their votes. The only ones that it hurts are inferior directors.” Consistent with this, premier activist defense attorney and creator of the poison pill, Marty Lipton, told us in December of 2011 that he is not for universal ballots because he did not believe it was necessary to “supplement the activists’ toolbox.” One thing is clear however, universal ballots are good for shareholders in that it gives them the most flexibility in putting together the most optimal board. Accordingly, institutional investors like State Street and CalSTRS have told us they wholly support universal ballots.
Starting in August of 2022, we expect to see (i) more shareholders nominate directors because of universal ballots, (ii) experienced activists have more confidence that they will win at least some board representation in a proxy fight, which should lead to a much larger number of settlements and (iii) a lot more companies with shareholder representatives on the Board. All three of these things are huge positives for shareholder activism and we believe will have an overwhelming positive effect on the entire strategy of shareholder activism and corporate engagement.
We hope to continue to bring to our investors over the next fiscal year and beyond the outsized returns that we believe an activist strategy offers.
Ken Squire
13D Activist Fund
PORTFOLIO REVIEW (Unaudited)
March 31, 2022
The Fund’s performance figures* for the periods ended March 31, 2022, compared to its benchmark:
| | | | | | Inception** - | Inception*** - | |
| Annualized Average Returns: | Six Months | One Year | Five Year | Ten Year | March 31, 2022 | March 31, 2022 | NAV |
| 13D Activist Fund - Class A | 0.38% | 4.80% | 12.10% | 12.87% | 13.81% | N/A | $25.85 |
| 13D Activist Fund - Class A w/ load | -5.38% | -1.23% | 10.77% | 12.20% | 13.16% | N/A | $27.43 |
| 13D Activist Fund - Class C | 0.01% | 4.01% | 11.26% | N/A | N/A | 12.27% | $25.07 |
| 13D Activist Fund - Class C w/ CDSC | -0.90% | 3.06% | 11.26% | N/A | N/A | 12.27% | — |
| 13D Activist Fund - Class I | 0.52% | 5.04% | 12.38% | 13.15% | 14.11% | N/A | $26.65 |
| Russell 2500 Total Return Index **** | -2.22% | 0.34% | 11.57% | 12.09% | 13.20% | 12.69% | N/A |
| * | The performance data quoted is historical. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance data quoted. The principal value and investment return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. The returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or on the redemptions of Fund shares. Returns greater than one year are annualized. The Fund’s total annual operating expenses are 1.76%, 2.51% and 1.51%, including AFFE of 0.01% for each share class, for Class A, C and I shares, respectively, per the January 28, 2022 Prospectus. Class A Shares are subject to a maximum sales charge of 5.75% on purchases. Class A and Class C shares are subject to a contingent deferred sales charge of up to 1.00%. This material must be proceeded or accompanied by a Prospectus. Please read it carefully before investing. |
For performance information current to the most recent month-end, please call 1-877-413-3228.
| ** | Inception date for Class A and Class I shares is December 28, 2011. |
| *** | Inception for Class C shares date is December 11, 2012. |
| **** | The Russell 2500 Total Return Index is a broad index, featuring 2,500 stocks that cover the small- and mid-cap market capitalizations. It is a market cap-weighted index that includes the smallest 2,500 companies covered in the Russell 3000 universe of US-based listed equities. This index has been selected because it is more reflective of the Fund’s portfolio holdings. Investors cannot invest directly in an index or benchmark. |
AFFE - Acquired Fund Fees and Expenses
| Portfolio Composition as of March 31, 2022 | |
| | |
| Top 10 Holdings By Industry | | % of Net Assets | |
| Biotech & Pharma | | | 11.9 | % |
| Software | | | 9.9 | % |
| Aerospace & Defense | | | 9.2 | % |
| Technology Services | | | 5.5 | % |
| Asset Management | | | 4.8 | % |
| Retail - Consumer Staples | | | 4.7 | % |
| Chemicals | | | 4.3 | % |
| Real Estate Owners & Developers | | | 4.3 | % |
| Automotive | | | 4.2 | % |
| Renewable Energy | | | 4.1 | % |
| Other Industries, Cash & Cash Equivalents | | | 37.1 | % |
| | | | 100.0 | % |
Holdings are subject to change.
Please refer to the Schedule of Investments in this semi-annual report for a detailed listing of the Fund’s holdings.
| 13D ACTIVIST FUND |
| SCHEDULE OF INVESTMENTS (Unaudited) |
| March 31, 2022 |
| Shares | | | | | Fair Value | |
| | | | | COMMON STOCKS — 96.2% | | | | |
| | | | | AEROSPACE & DEFENSE - 9.2% | | | | |
| | 316,164 | | | Howmet Aerospace, Inc. | | $ | 11,362,934 | |
| | 187,000 | | | Mercury Systems, Inc.(a) | | | 12,052,150 | |
| | | | | | | | 23,415,084 | |
| | | | | ASSET MANAGEMENT - 4.8% | | | | |
| | 180,000 | | | Janus Henderson Group plc | | | 6,303,599 | |
| | 306,358 | | | Pershing Square Tontine Holdings Ltd.(a) | | | 6,093,461 | |
| | | | | | | | 12,397,060 | |
| | | | | AUTOMOTIVE - 4.2% | | | | |
| | 61,629 | | | Autoliv, Inc. | | | 4,710,921 | |
| | 333,600 | | | Dana, Inc. | | | 5,861,352 | |
| | | | | | | | 10,572,273 | |
| | | | | BIOTECH & PHARMA - 11.9% | | | | |
| | 364,220 | | | Alkermes plc(a) | | | 9,582,628 | |
| | 1,900,000 | | | Amarin Corp plc - ADR(a) | | | 6,251,000 | |
| | 310,631 | | | Elanco Animal Health, Inc.(a) | | | 8,104,363 | |
| | 528,190 | | | Ironwood Pharmaceuticals, Inc.(a) | | | 6,644,630 | |
| | | | | | | | 30,582,621 | |
| | | | | CHEMICALS - 4.3% | | | | |
| | 212,145 | | | Olin Corporation | | | 11,090,941 | |
| | | | | | | | | |
| | | | | COMMERCIAL SUPPORT SERVICES - 4.0% | | | | |
| | 275,447 | | | Aramark | | | 10,356,807 | |
| | | | | | | | | |
| | | | | FOOD - 3.4% | | | | |
| | 258,924 | | | AppHarvest, Inc.(a) | | | 1,391,717 | |
| | 224,699 | | | TreeHouse Foods, Inc.(a) | | | 7,248,789 | |
| | | | | | | | 8,640,506 | |
| | | | | HEALTH CARE FACILITIES & SERVICES - 2.4% | | | | |
| | 257,763 | | | Mednax, Inc.(a) | | | 6,052,275 | |
| | | | | | | | | |
| | | | | HOME & OFFICE PRODUCTS - 2.5% | | | | |
| | 304,212 | | | Newell Brands, Inc. | | | 6,513,179 | |
| | | | | | | | | |
See accompanying notes to financial statements.
| 13D ACTIVIST FUND |
| SCHEDULE OF INVESTMENTS (Unaudited) (Continued) |
| March 31, 2022 |
| Shares | | | | | Fair Value | |
| | | | | COMMON STOCKS — 96.2% (Continued) | | | | |
| | | | | INSURANCE - 0.9% | | | | |
| | 176,777 | | | eHealth, Inc.(a) | | $ | 2,193,803 | |
| | | | | | | | | |
| | | | | INTERNET MEDIA & SERVICES - 3.5% | | | | |
| | 107,000 | | | GoDaddy, Inc., Class A(a) | | | 8,955,900 | |
| | | | | | | | | |
| | | | | LEISURE FACILITIES & SERVICES - 3.1% | | | | |
| | 75,537 | | | Papa John’s International, Inc. | | | 7,952,535 | |
| | | | | | | | | |
| | | | | METALS & MINING - 0.8% | | | | |
| | 79,008 | | | Arconic Corporation(a) | | | 2,024,185 | |
| | | | | | | | | |
| | | | | PUBLISHING & BROADCASTING - 2.8% | | | | |
| | 710,919 | | | Pearson plc - ADR | | | 7,087,862 | |
| | | | | | | | | |
| | | | | REAL ESTATE OWNERS & DEVELOPERS - 4.3% | | | | |
| | 106,067 | | | Howard Hughes Corporation (The)(a) | | | 10,989,602 | |
| | | | | | | | | |
| | | | | RENEWABLE ENERGY - 4.1% | | | | |
| | 131,311 | | | Enviva, Inc. | | | 10,393,266 | |
| | | | | | | | | |
| | | | | RETAIL - CONSUMER STAPLES - 4.7% | | | | |
| | 76,600 | | | Dollar Tree, Inc.(a) | | | 12,267,490 | |
| | | | | | | | | |
| | | | | RETAIL - DISCRETIONARY - 2.0% | | | | |
| | 31,934 | | | Asbury Automotive Group, Inc.(a) | | | 5,115,827 | |
| | | | | | | | | |
| | | | | SOFTWARE - 9.9% | | | | |
| | 198,768 | | | ACI Worldwide, Inc.(a) | | | 6,259,204 | |
| | 252,639 | | | Evolent Health, Inc., Class A(a) | | | 8,160,240 | |
| | 450,000 | | | LivePerson, Inc.(a) | | | 10,989,001 | |
| | | | | | | | 25,408,445 | |
| | | | | TECHNOLOGY HARDWARE - 2.6% | | | | |
| | 75,118 | | | Seagate Technology Holdings plc | | | 6,753,108 | |
See accompanying notes to financial statements.
| 13D ACTIVIST FUND |
| SCHEDULE OF INVESTMENTS (Unaudited) (Continued) |
| March 31, 2022 |
| Shares | | | | | Fair Value | |
| | | | | COMMON STOCKS — 96.2% (Continued) | | | | |
| | | | | TECHNOLOGY SERVICES - 5.5% | | | | |
| | 273,468 | | | Green Dot Corporation, Class A(a) | | $ | 7,514,901 | |
| | 60,416 | | | Insight Enterprises, Inc.(a) | | | 6,483,845 | |
| | | | | | | | 13,998,746 | |
| | | | | WHOLESALE - CONSUMER STAPLES - 2.2% | | | | |
| | 148,450 | | | US Foods Holding Corporation(a) | | | 5,586,174 | |
| | | | | | | | | |
| | | | | WHOLESALE - DISCRETIONARY - 3.1% | | | | |
| | 175,600 | | | LKQ Corporation | | | 7,973,996 | |
| | | | | | | | | |
| | | | | TOTAL COMMON STOCKS (Cost $203,682,404) | | | 246,321,685 | |
| | | | | | | | | |
| | | | | SHORT-TERM INVESTMENTS — 5.8% | | | | |
| | | | | MONEY MARKET FUNDS - 5.8% | | | | |
| | 14,820,202 | | | First American Government Obligations Fund, Class X, 0.18% (Cost $14,820,202)(b) | | | 14,820,202 | |
| | | | | | | | | |
| | | | | TOTAL INVESTMENTS - 102.0% (Cost $218,502,606) | | $ | 261,141,887 | |
| | | | | LIABILITIES IN EXCESS OF OTHER ASSETS - (2.0)% | | | (5,021,296 | ) |
| | | | | NET ASSETS - 100.0% | | $ | 256,120,591 | |
| ADR | - American Depositary Receipt |
| PLC | - Public Limited Company |
| (a) | Non-income producing security. |
| (b) | Interest rate disclosed is the seven day effective yield as of March 31, 2022. |
See accompanying notes to financial statements.
| 13D Activist Fund |
| STATEMENT OF ASSETS AND LIABILITIES (Unaudited) |
| March 31, 2022 |
| ASSETS | | | |
| Investment securities: | | | |
| At cost | | $ | 218,502,606 | |
| At fair value | | $ | 261,141,887 | |
| Receivable for tax reclaims | | | 252,406 | |
| Dividends and interest receivable | | | 187,905 | |
| Receivable for Fund shares sold | | | 76,396 | |
| Other assets | | | 5,000 | |
| TOTAL ASSETS | | | 261,663,594 | |
| | | | | |
| LIABILITIES | | | | |
| Payable for Fund shares redeemed | | | 5,198,177 | |
| Investment advisory fees payable | | | 325,346 | |
| Distribution (12b-1) fees payable | | | 19,480 | |
| TOTAL LIABILITIES | | | 5,543,003 | |
| NET ASSETS | | $ | 256,120,591 | |
| | | | | |
| Net Assets Consist Of: | | | | |
| Paid in capital | | $ | 175,653,986 | |
| Accumulated earnings | | | 80,466,605 | |
| NET ASSETS | | $ | 256,120,591 | |
| | | | | |
| Net Asset Value Per Share: | | | | |
| Class A Shares: | | | | |
| Net Assets | | $ | 32,639,281 | |
| Shares of beneficial interest outstanding ($0 par value, unlimited shares authorized) | | | 1,262,608 | |
| Net Asset Value (Net Assets / Shares Outstanding) and redemption price per share (a) | | $ | 25.85 | |
| Maximum offering price per share (maximum sales charge of 5.75%) | | $ | 27.43 | |
| | | | | |
| Class C Shares: | | | | |
| Net Assets | | $ | 15,369,275 | |
| Shares of beneficial interest outstanding ($0 par value, unlimited shares authorized) | | | 613,020 | |
| Net Asset Value (Net Assets / Shares Outstanding), offering price and redemption price per share (b) | | $ | 25.07 | |
| | | | | |
| Class I Shares: | | | | |
| Net Assets | | $ | 208,112,035 | |
| Shares of beneficial interest outstanding ($0 par value, unlimited shares authorized) | | | 7,808,548 | |
| Net Asset Value (Net Assets / Shares Outstanding), offering price and redemption price per share | | $ | 26.65 | |
| (a) | For certain purchases of $1 million or more, a 1.00% contingent deferred sales charge (“CDSC”) may apply to redemptions made within twelve months of purchase. |
| (b) | Purchases are subject to a 1.00% CDSC of the purchase price on shares redeemed during the first twelve months after their purchase. |
See accompanying notes to financial statements.
| 13D Activist Fund |
| STATEMENT OF OPERATIONS (Unaudited) |
| For the Six Months Ended March 31, 2022 |
| INVESTMENT INCOME | | | |
| Dividends (net of $2,484 foreign taxes withheld) | | $ | 1,254,118 | |
| Interest | | | 2,153 | |
| TOTAL INVESTMENT INCOME | | | 1,256,271 | |
| | | | | |
| EXPENSES | | | | |
| Investment advisory fees (Note 5) | | | 1,993,559 | |
| Distribution (12b-1) fees - Class A (Note 5) | | | 40,013 | |
| Distribution (12b-1) fees - Class C (Note 5) | | | 77,325 | |
| TOTAL EXPENSES | | | 2,110,897 | |
| NET INVESTMENT LOSS | | | (854,626 | ) |
| | | | | |
| REALIZED AND UNREALIZED GAIN (LOSS) | | | | |
| Net realized gain (loss) from: | | | | |
| Investments | | | 39,488,923 | |
| Foreign currency translations | | | (3,101 | ) |
| | | | 39,485,822 | |
| Net change in unrealized appreciation (depreciation) of: | | | | |
| Investments | | | (37,232,800 | ) |
| Foreign currency translations | | | 538 | |
| | | | (37,232,262 | ) |
| | | | | |
| NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS AND FOREIGN CURRENCY | | | 2,253,560 | |
| | | | | |
| NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS | | $ | 1,398,934 | |
See accompanying notes to financial statements.
| 13D Activist Fund |
| STATEMENTS OF CHANGES IN NET ASSETS |
| | | For the Six Months | | | For the Year | |
| | | Ended | | | Ended | |
| | | March 31, 2022 | | | September 30, 2021 | |
| | | (Unaudited) | | | | |
| FROM OPERATIONS | | | | | | | | |
| Net investment loss | | $ | (854,626 | ) | | $ | (1,842,128 | ) |
| Net realized gain on investments and foreign currency transactions | | | 39,485,822 | | | | 28,869,805 | |
| Net change in unrealized appreciation (depreciation) of investments and foreign currency translations | | | (37,232,262 | ) | | | 62,672,675 | |
| Net increase in net assets resulting from operations | | | 1,398,934 | | | | 89,700,352 | |
| | | | | | | | | |
| DISTRIBUTIONS TO SHAREHOLDERS | | | | | | | | |
| Total distributions paid: | | | | | | | | |
| Class A | | | (2,925,918 | ) | | | (1,788,279 | ) |
| Class C | | | (1,436,679 | ) | | | (866,372 | ) |
| Class I | | | (20,013,459 | ) | | | (12,492,982 | ) |
| Net decrease in net assets from distributions to shareholders | | | (24,376,056 | ) | | | (15,147,633 | ) |
| | | | | | | | | |
| FROM SHARES OF BENEFICIAL INTEREST | | | | | | | | |
| Proceeds from shares sold: | | | | | | | | |
| Class A | | | 3,903,640 | | | | 3,024,818 | |
| Class C | | | 170,494 | | | | 410,759 | |
| Class I | | | 14,078,869 | | | | 24,771,896 | |
| Reinvestment of distributions to shareholders: | | | | | | | | |
| Class A | | | 2,776,652 | | | | 1,676,527 | |
| Class C | | | 1,402,392 | | | | 838,110 | |
| Class I | | | 17,167,969 | | | | 10,595,861 | |
| Payments for shares redeemed: | | | | | | | | |
| Class A | | | (2,778,125 | ) | | | (4,515,356 | ) |
| Class C | | | (700,267 | ) | | | (2,004,043 | ) |
| Class I | | | (32,572,311 | ) | | | (20,682,650 | ) |
| Net increase in net assets resulting from shares of beneficial interest | | | 3,449,313 | | | | 14,115,922 | |
| | | | | | | | | |
| TOTAL INCREASE (DECREASE) IN NET ASSETS | | | (19,527,809 | ) | | | 88,668,641 | |
| | | | | | | | | |
| NET ASSETS | | | | | | | | |
| Beginning of Period | | | 275,648,400 | | | | 186,979,759 | |
| End of Period | | $ | 256,120,591 | | | $ | 275,648,400 | |
See accompanying notes to financial statements.
| 13D Activist Fund |
| STATEMENTS OF CHANGES IN NET ASSETS (Continued) |
| | | For the Six Months | | | For the Year | |
| | | Ended | | | Ended | |
| | | March 31, 2022 | | | September 30, 2021 | |
| | | (Unaudited) | | | | |
| SHARE ACTIVITY | | | | | | |
| Shares Sold: | | | | | | |
| Class A | | | 143,426 | | | | 110,144 | |
| Class C | | | 6,791 | | | | 15,143 | |
| Class I | | | 519,031 | | | | 877,376 | |
| Shares Reinvested: | | | | | | | | |
| Class A | | | 106,222 | | | | 70,919 | |
| Class C | | | 55,191 | | | | 36,110 | |
| Class I | | | 637,504 | | | | 437,303 | |
| Shares Redeemed: | | | | | | | | |
| Class A | | | (104,256 | ) | | | (171,743 | ) |
| Class C | | | (26,969 | ) | | | (79,409 | ) |
| Class I | | | (1,215,185 | ) | | | (776,648 | ) |
| Net increase in shares of beneficial interest outstanding | | | 121,755 | | | | 519,195 | |
See accompanying notes to financial statements.
| 13D Activist Fund |
| FINANCIAL HIGHLIGHTS |
| |
| Per Share Data and Ratios for a Share of Beneficial Interest Outstanding Throughout Each Period Presented |
| | | Class A | |
| | | For the Six Months | | | For the Year | | | For the Year | | | For the Year | | | For the Year | | | For the Year | |
| | | Ended | | | Ended | | | Ended | | | Ended | | | Ended | | | Ended | |
| | | March 31, 2022 | | | September 30, 2021 | | | September 30, 2020 | | | September 30, 2019 | | | September 30, 2018 | | | September 30, 2017 | |
| | | (Unaudited) | | | | | | | | | | | | | | | | |
| Net asset value, beginning of period | | $ | 28.24 | | | $ | 20.28 | | | $ | 20.35 | | | $ | 22.41 | | | $ | 19.98 | | | $ | 16.84 | |
| Activity from investment operations: | | | | | | | | | | | | | | | | | | | | | | | | |
| Net investment income (loss) (1) | | | (0.11 | ) | | | (0.24 | ) | | | 0.56 | | | | (0.07 | ) | | | (0.19 | ) | | | (0.17 | ) |
| Net realized and unrealized gain (loss) on investments and foreign currency | | | 0.25 | | | | 9.86 | | | | 0.14 | | | | (1.02 | ) | | | 2.99 | | | | 3.31 | |
| Total from investment operations | | | 0.14 | | | | 9.62 | | | | 0.70 | | | | (1.09 | ) | | | 2.80 | | | | 3.14 | |
| Paid-in-Capital from redemption fees (1) | | | — | | | | — | | | | — | | | | — | | | | 0.00 | (2) | | | 0.00 | (2) |
| Less distributions from: | | | | | | | | | | | | | | | | | | | | | | | | |
| Net investment income | | | — | | | | (0.57 | ) | | | — | | | | — | | | | — | | | | — | |
| Net realized gains | | | (2.53 | ) | | | (1.09 | ) | | | (0.77 | ) | | | (0.97 | ) | | | (0.37 | ) | | | — | |
| Total distributions | | | (2.53 | ) | | | (1.66 | ) | | | (0.77 | ) | | | (0.97 | ) | | | (0.37 | ) | | | — | |
| Net asset value, end of period | | $ | 25.85 | | | $ | 28.24 | | | $ | 20.28 | | | $ | 20.35 | | | $ | 22.41 | | | $ | 19.98 | |
| Total return (3) | | | 0.38 | % (4) | | | 49.02 | % | | | 3.25 | % | | | (4.78 | )% | | | 14.26 | % | | | 18.65 | % |
| Net assets, end of period (000s) | | $ | 32,639 | | | $ | 31,549 | | | $ | 22,472 | | | $ | 41,925 | | | $ | 55,099 | | | $ | 50,628 | |
| Ratio of expenses to average net assets | | | 1.75 | % (5) | | | 1.75 | % | | | 1.75 | % | | | 1.75 | % | | | 1.75 | % | | | 1.75 | % |
| Ratio of net investment income (loss) to average net assets | | | (0.80 | )% (5) | | | (0.89 | )% | | | 2.77 | % | | | (0.37 | )% | | | (0.86 | )% | | | (0.91 | )% |
| Portfolio Turnover Rate | | | 42 | % (4) | | | 60 | % | | | 119 | % | | | 108 | % | | | 83 | % | | | 80 | % |
| (1) | Per share amounts calculated using average shares method, which appropriately presents the per share data for the period. |
| (2) | Amount represents less than $0.01 per share. |
| (3) | Total return shown excludes the effect of applicable sales load and redemption fees. |
See accompanying notes to financial statements.
| 13D Activist Fund |
| FINANCIAL HIGHLIGHTS |
| |
| Per Share Data and Ratios for a Share of Beneficial Interest Outstanding Throughout Each Period Presented |
| | | Class C | |
| | | For the Six Months | | | For the Year | | | For the Year | | | For the Year | | | For the Year | | | For the Year | |
| | | Ended | | | Ended | | | Ended | | | Ended | | | Ended | | | Ended | |
| | | March 31, 2022 | | | September 30, 2021 | | | September 30, 2020 | | | September 30, 2019 | | | September 30, 2018 | | | September 30, 2017 | |
| | | (Unaudited) | | | | | | | | | | | | | | | | |
| Net asset value, beginning of period | | $ | 27.56 | | | $ | 19.82 | | | $ | 20.05 | | | $ | 22.25 | | | $ | 19.99 | | | $ | 16.98 | |
| Activity from investment operations: | | | | | | | | | | | | | | | | | | | | | | | | |
| Net investment income (loss) (1) | | | (0.20 | ) | | | (0.42 | ) | | | 0.35 | | | | (0.22 | ) | | | (0.35 | ) | | | (0.31 | ) |
| Net realized and unrealized gain (loss) on investments and foreign currency | | | 0.24 | | | | 9.63 | | | | 0.19 | | | | (1.01 | ) | | | 2.98 | | | | 3.32 | |
| Total from investment operations | | | 0.04 | | | | 9.21 | | | | 0.54 | | | | (1.23 | ) | | | 2.63 | | | | 3.01 | |
| Paid-in-Capital from redemption fees (1) | | | — | | | | — | | | | — | | | | — | | | | 0.00 | (2) | | | 0.00 | (2) |
| Less distributions from: | | | | | | | | | | | | | | | | | | | | | | | | |
| Net investment income | | | — | | | | (0.38 | ) | | | — | | | | — | | | | — | | | | — | |
| Net realized gains | | | (2.53 | ) | | | (1.09 | ) | | | (0.77 | ) | | | (0.97 | ) | | | (0.37 | ) | | | — | |
| Total distributions | | | (2.53 | ) | | | (1.47 | ) | | | (0.77 | ) | | | (0.97 | ) | | | (0.37 | ) | | | — | |
| Net asset value, end of period | | $ | 25.07 | | | $ | 27.56 | | | $ | 19.82 | | | $ | 20.05 | | | $ | 22.25 | | | $ | 19.99 | |
| Total return (3) | | | 0.01 | % (4) | | | 47.88 | % | | | 2.47 | % | | | (5.47 | )% | | | 13.39 | % | | | 17.73 | % |
| Net assets, end of period (000s) | | $ | 15,369 | | | $ | 15,930 | | | $ | 12,015 | | | $ | 18,515 | | | $ | 26,351 | | | $ | 24,361 | |
| Ratio of expenses to average net assets | | | 2.50 | % (5) | | | 2.50 | % | | | 2.50 | % | | | 2.50 | % | | | 2.50 | % | | | 2.50 | % |
| Ratio of net investment income (loss) to average net assets | | | (1.56 | )% (5) | | | (1.64 | )% | | | 1.77 | % | | | (1.11 | )% | | | (1.61 | )% | | | (1.66 | )% |
| Portfolio Turnover Rate | | | 42 | % (4) | | | 60 | % | | | 119 | % | | | 108 | % | | | 83 | % | | | 80 | % |
| (1) | Per share amounts calculated using average shares method, which appropriately presents the per share data for the period. |
| (2) | Amount represents less than $0.01 per share. |
| (3) | Total return shown excludes the effect of applicable redemption fees. |
See accompanying notes to financial statements.
| 13D Activist Fund |
| FINANCIAL HIGHLIGHTS |
| |
| Per Share Data and Ratios for a Share of Beneficial Interest Outstanding Throughout Each Period Presented |
| | | Class I | |
| | | For the Six Months | | | For the Year | | | For the Year | | | For the Year | | | For the Year | | | For the Year | |
| | | Ended | | | Ended | | | Ended | | | Ended | | | Ended | | | Ended | |
| | | March 31, 2022 | | | September 30, 2021 | | | September 30, 2020 | | | September 30, 2019 | | | September 30, 2018 | | | September 30, 2017 | |
| | | (Unaudited) | | | | | | | | | | | | | | | | |
| Net asset value, beginning of period | | $ | 29.00 | | | $ | 20.81 | | | $ | 20.81 | | | $ | 22.83 | | | $ | 20.30 | | | $ | 17.07 | |
| Activity from investment operations: | | | | | | | | | | | | | | | | | | | | | | | | |
| Net investment income (loss) (1) | | | (0.08 | ) | | | (0.17 | ) | | | 0.54 | | | | (0.02 | ) | | | (0.13 | ) | | | (0.12 | ) |
| Net realized and unrealized gain (loss) on investments and foreign currency | | | 0.26 | | | | 10.09 | | | | 0.23 | | | | (1.03 | ) | | | 3.03 | | | | 3.35 | |
| Total from investment operations | | | 0.18 | | | | 9.92 | | | | 0.77 | | | | (1.05 | ) | | | 2.90 | | | | 3.23 | |
| Paid-in-Capital from redemption fees (1) | | | — | | | | — | | | | — | | | | — | | | | 0.00 | (2) | | | 0.00 | (2) |
| Less distributions from: | | | | | | | | | | | | | | | | | | | | | | | | |
| Net investment income | | | — | | | | (0.64 | ) | | | — | | | | — | | | | — | | | | — | |
| Net realized gains | | | (2.53 | ) | | | (1.09 | ) | | | (0.77 | ) | | | (0.97 | ) | | | (0.37 | ) | | | — | |
| Total distributions | | | (2.53 | ) | | | (1.73 | ) | | | (0.77 | ) | | | (0.97 | ) | | | (0.37 | ) | | | — | |
| Net asset value, end of period | | $ | 26.65 | | | $ | 29.00 | | | $ | 20.81 | | | $ | 20.81 | | | $ | 22.83 | | | $ | 20.30 | |
| Total return (3) | | | 0.52 | % (4) | | | 49.32 | % | | | 3.52 | % | | | (4.50 | )% | | | 14.53 | % | | | 18.92 | % |
| Net assets, end of period (000s) | | $ | 208,112 | | | $ | 228,170 | | | $ | 152,494 | | | $ | 259,697 | | | $ | 309,486 | | | $ | 224,900 | |
| Ratio of expenses to average net assets | | | 1.50 | % (5) | | | 1.50 | % | | | 1.50 | % | | | 1.50 | % | | | 1.50 | % | | | 1.50 | % |
| Ratio of net investment income (loss) to average net assets | | | (0.55 | )% (5) | | | (0.64 | )% | | | 2.62 | % | | | (0.11 | )% | | | (0.60 | )% | | | (0.65 | )% |
| Portfolio Turnover Rate | | | 42 | % (4) | | | 60 | % | | | 119 | % | | | 108 | % | | | 83 | % | | | 80 | % |
| (1) | Per share amounts calculated using average shares method, which appropriately presents the per share data for the period. |
| (2) | Amount represents less than $0.01 per share. |
| (3) | Total return shown excludes the effect of applicable redemption fees. |
See accompanying notes to financial statements.
13D Activist Fund
NOTES TO FINANCIAL STATEMENTS (Unaudited)
March 31, 2022
The 13D Activist Fund (the “Fund”) is a non-diversified series of shares of beneficial interest of Northern Lights Fund Trust (the “Trust”), a trust organized under the laws of the State of Delaware on January 19, 2005, and registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The investment adviser of the Fund is 13D Management LLC (the “Adviser”), a registered investment adviser under the Investment Advisers Act of 1940, as amended. The Fund’s investment objective is capital appreciation. The Fund currently offers three classes of shares: Class A, Class C and Class I shares. The Fund’s Class A and Class I commenced operations on December 28, 2011; Class C commenced operations on December 11, 2012. Class A Shares are subject to a maximum sales charge of 5.75% on purchases. Class A and C shares are subject to a contingent deferred sales charge of up to 1.00%. There are no sales charges on reinvested distributions. All classes of shares have equal voting privileges except that each class has exclusive voting rights with respect to its service and/or distribution plans. Fund level income and expenses, and realized and unrealized capital gains and losses are allocated to each class of shares based on their relative assets within the Fund. Class specific expenses are allocated to that share class.
| 2. | SIGNIFICANT ACCOUNTING POLICIES |
The following is a summary of 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”). The Fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 946 “Financial Services – Investment Companies” and Accounting Standards Update (“ASU”) 2013-08.
Security Valuation – Securities listed on an exchange are valued at the last reported sale price at the close of the regular trading session of the primary exchange on the business day the value is being determined, or in the case of securities listed on NASDAQ at the NASDAQ Official Closing Price. In the absence of a sale, such securities shall be valued at the mean between the current bid and ask prices on the day of valuation. Debt securities (other than short-term obligations) are valued each day by an independent pricing service approved by the Trust’s Board of Trustees (the “Board”) based on methods that include consideration of: yields or prices of securities of comparable quality, coupon, maturity and type, indications as to values from dealers, and general market conditions or market quotations from a major market maker in the securities. Investments valued in currencies other than the U.S. dollar are converted to U.S. dollars using- exchange rates obtained from pricing services. The independent- pricing service does not distinguish between smaller sized bond positions known as “odd lots” and larger institutional sized bond positions known as “round lots”. The Fund may fair value a particular bond if the adviser does not believe that the round lot value provided by the independent pricing service reflects fair value of the Fund’s holding. Short-term debt obligations having 60 days or less remaining until maturity, at time of purchase, may be valued at amortized cost. Investments in open-end investment companies are valued at net asset value.
The Fund may hold securities, such as private investments, interests in commodity pools, other non-traded securities or temporarily illiquid securities, for which market quotations are not readily available or are determined to be unreliable. These securities will be valued using the “fair value” procedures approved by the Board. The Board has delegated execution of these procedures to a fair value committee composed of one or more representatives from each of the (i) Trust, (ii) administrator, and (iii) the Adviser. The committee may also enlist third party consultants such as a valuation specialist at a public accounting firm, valuation consultant or financial officer of a security issuer on an as-needed basis to assist in determining a security-specific fair value. The Board has also engaged a third party valuation firm to attend valuation meetings held by the Trust, review minutes of such meetings and report to the Board on a quarterly basis. The Board reviews and ratifies the execution of this process and the resultant fair value prices at least quarterly to assure the process produces reliable results.
Fair Valuation Process – As noted above, the fair value committee is comprised of one or more representatives from each of the (i) Trust, (ii) administrator, and (iii) the Adviser. The applicable investments are valued collectively via inputs from each of these groups. For example, fair value determinations are required for the following securities: (i) securities for which market quotations are insufficient or not readily available on a particular business day (including securities for which there is a short and temporary lapse in the provision of a price by the regular pricing source), (ii) securities for which, in the judgment of the adviser, the prices or values available do not represent the fair value of the instrument. Factors which may cause the adviser to make such a judgment include, but are not limited to, the following: only a bid price or an asked price is available; the spread between bid and
13D Activist Fund
NOTES TO FINANCIAL STATEMENTS (Unaudited)(Continued)
March 31, 2022
asked prices is substantial; the frequency of sales; the thinness of the market; the size of reported trades; and actions of the securities markets, such as the suspension or limitation of trading; (iii) securities determined to be illiquid; (iv) securities with respect to which an event that will affect the value thereof has occurred (a “significant event”) since the closing prices were established on the principal exchange on which they are traded, but prior to the Fund’s calculation of its net asset value. Specifically, interests in commodity pools or managed futures pools are valued on a daily basis by reference to the closing market prices of each futures contract or other asset held by a pool, as adjusted for pool expenses. Restricted or illiquid securities, such as private investments or non-traded securities are valued via inputs from the adviser based upon the current bid for the security from two or more independent dealers or other parties reasonably familiar with the facts and circumstances of the security (who should take into consideration all relevant factors as may be appropriate under the circumstances). If the adviser is unable to obtain a current bid from such independent dealers or other independent parties, the fair value committee shall determine the fair value of such security using the following factors: (i) the type of security; (ii) the cost at date of purchase; (iii) the size and nature of the Fund’s holdings; (iv) the discount from market value of unrestricted securities of the same class at the time of purchase and subsequent thereto; (v) information as to any transactions or offers with respect to the security; (vi) the nature and duration of restrictions on disposition of the security and the existence of any registration rights; (vii) how the yield of the security compares to similar securities of companies of similar or equal creditworthiness; (viii) the level of recent trades of similar or comparable securities; (ix) the liquidity characteristics of the security; (x) current market conditions; and (xi) the market value of any securities into which the security is convertible or exchangeable.
The Fund utilizes various methods to measure the fair value of all of its investments on a recurring basis. GAAP establishes a hierarchy that prioritizes inputs to valuation methods. The three levels of input are:
Level 1 – Unadjusted quoted prices in active markets for identical assets and 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 in an inactive market, prices for similar instruments, interest rates, prepayment speeds, credit risk, yield curves, default rates and similar data.
Level 3 – Unobservable inputs for the asset or liability, to the extent 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.
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The following table summarizes the inputs used as of March 31, 2022 for the Fund’s investments measured at fair value:
| Assets* | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
| Common Stock | | $ | 246,321,685 | | | $ | — | | | $ | — | | | $ | 246,321,685 | |
| Short-Term Investments | | | 14,820,202 | | | | — | | | | — | | | | 14,820,202 | |
| Total Investments | | $ | 261,141,887 | | | $ | — | | | $ | — | | | $ | 261,141,887 | |
The Fund did not hold any Level 2 or Level 3 securities during the period.
| * | Refer to the Schedule of Investments for industry classifications. |
Foreign Currency Translations – The accounting records of the Fund are maintained in U.S. dollars. Investment securities and other assets and liabilities denominated in a foreign currency, and income receipts and expense payments, are translated into U.S. dollars using the prevailing exchange rate at the London market close. Purchases and sales of securities are translated into U.S. dollars at the contractual currency rates established at the approximate time of the trade.
13D Activist Fund
NOTES TO FINANCIAL STATEMENTS (Unaudited)(Continued)
March 31, 2022
Net realized gains and losses on foreign currency transactions represent net gains and losses from currency realized between the trade and settlement dates on securities transactions and the difference between income accrued versus income received. The effects of changes in foreign currency exchange rates on investments in securities are included with the net realized and unrealized gain or loss on investment securities.
Forward Foreign Currency Contracts – As foreign securities are purchased, the Fund generally enters into forward currency exchange contracts in order to hedge against foreign currency exchange rate risks. The market value of the contract fluctuates with changes in currency exchange rates. The contract is marked-to-market daily and the change in market value is recorded by the Fund as an unrealized gain or loss. As foreign securities are sold, a portion of the contract is generally closed and the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. Realized gains and losses from contract transactions are included as a component of net realized gains (losses) from forward foreign currency contracts in the Statement of Operations. For the six months ended March 31, 2022, the Fund did not have any realized gains and losses on forward foreign currency contracts.
Security Transactions and Related Income – Security transactions are accounted for on the trade date. Interest income is recognized on an accrual basis. Discounts are accreted and premiums are amortized on securities purchased over the lives of the respective securities. Dividend income is recorded on the ex-dividend date. Realized gains or losses from sales of securities are determined by comparing the identified cost of the security lot sold with the net sales proceeds.
Dividends and Distributions to Shareholders – Dividends from net investment income and distributions from net realized capital gains, if any, are declared and paid annually. Dividends and distributions to shareholders are recorded on the ex-dividend date. Dividends from net investment income and distributions from net realized gains are determined in accordance with federal income tax regulations, which may differ from GAAP. These “book/tax” differences are considered either temporary (e.g., deferred losses, capital loss carryforwards) or permanent in nature. To the extent these differences are permanent in nature, such amounts are reclassified within the composition of net assets based on their federal tax-basis treatment; temporary differences do not require reclassification. Any such reclassifications will have no effect on net assets, results of operations, or net asset values per share of the Fund.
Federal Income Tax – It is the Fund’s policy to continue to qualify as a regulated investment company by complying with the provisions of Subchapter M of the Internal Revenue Code that are applicable to regulated investment companies and to distribute substantially all of its taxable income and net realized gains to shareholders. Therefore, no federal income tax provision is required.
The Fund recognizes the tax benefits of uncertain tax positions only when the position is “more likely than not” to be sustained assuming examination by tax authorities. Management has analyzed the Fund 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 the open tax years of 2018 through 2020, or expected to be taken in the Fund’s September 30, 2021 tax returns. The Fund identifies its major tax jurisdictions as U.S. Federal, Ohio and foreign jurisdictions where the Fund makes significant investments. 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.
Use of Estimates – The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates.
Expenses – Expenses of the Trust that are directly identifiable to a specific fund are charged to that fund. Expenses, which are not readily identifiable to a specific fund, are allocated in such a manner as deemed equitable (as determined by the Board), taking into consideration the nature and type of expense and the relative sizes of the funds in the Trust.
Indemnification – The Trust indemnifies its officers and Trustees for certain liabilities that may arise from the performance of their duties to the Trust. Additionally, in the normal course of business, the Fund enters into contracts that contain a variety of representations and warranties and which provide general indemnities. The Fund’s maximum exposure under these arrangements
13D Activist Fund
NOTES TO FINANCIAL STATEMENTS (Unaudited)(Continued)
March 31, 2022
is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. However, based on experience, the risk of loss due to these warranties and indemnities appears to be remote.
Market and Geopolitical Risk – The increasing interconnectivity between global economies and financial markets increases the likelihood that events or conditions in one region or financial market may adversely impact issuers in a different country, region or financial market. Securities in the Fund may underperform due to inflation (or expectations for inflation), interest rates, global demand for particular products or resources, natural disasters, pandemics, epidemics, terrorism, regulatory events and governmental or quasi-governmental actions. The occurrence of global events similar to those in recent years, such as terrorist attacks around the world, natural disasters, social and political discord or debt crises and downgrades, among others, may result in market volatility and may have long term effects on both the U.S. and global financial markets. It is difficult to predict when similar events affecting the U.S. or global financial markets may occur, the effects that such events may have and the duration of those effects. Any such event(s) could have a significant adverse impact on the value and risk profile of the Fund. The current novel coronavirus (COVID-19) global pandemic and the aggressive responses taken by many governments, including closing borders, restricting international and domestic travel, and the imposition of prolonged quarantines or similar restrictions, as well as the forced or voluntary closure of, or operational changes to, many retail and other businesses, has had negative impacts, and in many cases severe negative impacts, on markets worldwide. It is not known how long such impacts, or any future impacts of other significant events described above, will or would last, but there could be a prolonged period of global economic slowdown, which may impact your investment. Therefore, the Fund could lose money over short periods due to short-term market movements and over longer periods during more prolonged market downturns. During a general market downturn, multiple asset classes may be negatively affected. Changes in market conditions and interest rates can have the same impact on all types of securities and instruments. In times of severe market disruptions you could lose your entire investment.
Management Risk – The net asset value of the Fund changes daily based on the performance of the securities in which it invests. The ability of the Fund to meet its investment objective is directly related to the adviser’s allocation of the Fund’s assets using its activist strategy. The adviser’s objective judgments, based on investment strategy, about the attractiveness and potential appreciation of particular investments in which the Fund invests may prove to be incorrect and there is no guarantee that the adviser’s investment strategy will produce the desired results. The adviser’s activist strategy may result in the Fund’s returns being more volatile than funds that pursue more conservative strategies.
Non-Diversification Risk – The Fund is a non-diversified investment company, which makes the value of the Fund’s shares more susceptible to certain risks than shares of a diversified investment company. The Fund has a greater potential to realize losses upon the occurrence of adverse events affecting a particular issuer. As a non-diversified fund, the Fund may invest greater than 5% of its total assets in the securities of one or more issuers. Because a relatively high percentage of the assets of the Fund may be invested in the securities of a limited number of issuers, the value of shares of the Fund may be more sensitive to any single economic, business, political or regulatory occurrence than the value of shares of a diversified investment company. This fluctuation, if significant, may affect the performance of the Fund.
| 3. | INVESTMENT TRANSACTIONS |
For the six months ended March 31, 2022, cost of purchases and proceeds from sales of portfolio securities, other than short-term investments, amounted to $105,534,813 and $112,943,643, respectively.
| 4. | AGGREGATE UNREALIZED APPRECIATION AND DEPRECIATION |
At March 31, 2022, the tax cost of investments and unrealized appreciation (depreciation) is as follows:
| | | | | | Gross Unrealized | | | Gross Unrealized | | | Net Unrealized | |
| Fund | | Tax Cost | | | Appreciation | | | Depreciation | | | Appreciation | |
| 13D Activist Fund | | $ | 219,286,018 | | | $ | 55,145,136 | | | $ | (13,289,267 | ) | | $ | 41,855,869 | |
13D Activist Fund
NOTES TO FINANCIAL STATEMENTS (Unaudited)(Continued)
March 31, 2022
| 5. | INVESTMENT ADVISORY AGREEMENT AND TRANSACTIONS WITH RELATED PARTIES |
Pursuant to the investment advisory agreement (the “Advisory Agreement”) between the Adviser and the Trust, on behalf of the Fund, the Adviser pays all operating expenses of the Fund, except for the fee payments under the Advisory Agreement, brokerage fees and commissions, indirect costs of investing in other investment companies, taxes, borrowing costs (such as (a) interest and (b) dividend expenses on securities sold short), such extraordinary or non-recurring expenses as may arise, including litigation to which the Fund may be a party and indemnification of the Trust’s Trustees and officers with respect thereto, and authorized expenses pursuant to Rule 12b-1 under the 1940 Act. Under the terms of the Advisory Agreement, the Fund pays the Adviser a monthly fee calculated at an annual rate of 1.50% of the Fund’s average daily net assets. For the six months ended March 31, 2022 the Adviser earned advisory fees of $1,993,559.
The Trust, with respect to the Fund, has adopted the Trust’s Master Distribution and Shareholder Servicing Plans for each of the Class A and Class C shares (the “Plans”), pursuant to Rule 12b-1 of the 1940 Act. Class I does not have a Plan. The Plans provide that a monthly service and/or distribution fee is calculated by the Fund at an annual rate 0.25% and 1.00% of its average daily net assets of Class A and Class C shares, respectively. Pursuant to the Plans, the Fund may compensate the securities dealers or other financial intermediaries, financial institutions, investment advisers, and others for activities primarily intended to result in the sale of Fund shares and for maintenance and personal service provided to existing shareholders. The Plans further provide for periodic payments to brokers, dealers and other financial intermediaries, including insurance companies, for providing shareholder services and for promotional and other sales-related costs. For the six months ended March 31, 2022, the Class A and Class C shares incurred distribution fees in the amount of $40,013 and $77,325, respectively.
Ultimus Fund Solutions, LLC (“UFS”) – UFS provides administration, fund accounting, and transfer agent services to the Trust. Pursuant to separate servicing agreements with UFS, the Adviser pays UFS customary fees for providing administration, fund accounting and transfer agency services to the Fund. Certain officers of the Trust are also officers of UFS, and are not paid any fees directly by the Fund for serving in such capacities.
In addition, certain affiliates of UFS provide services to the Fund as follows:
Northern Lights Compliance Services, LLC (“NLCS”) - NLCS, an affiliate of UFS, provides a Chief Compliance Officer to the Trust, as well as related compliance services, pursuant to a consulting agreement between NLCS and the Trust. Under the terms of such agreement, NLCS receives customary fees from the Adviser.
Blu Giant, LLC (“Blu Giant”) – Blu Giant, an affiliate of UFS, provides EDGAR conversion and filing services as well as print management services for the Fund on an ad-hoc basis. For the provision of these services, Blu Giant receives customary fees from the Adviser.
Each Trustee who is not affiliated with the Trust or an adviser to a fund within the Trust receives quarterly fees. For the six months ended March 31, 2022, the Trustees received fees in the amount of $7,742, with respect to the Fund, paid by the Adviser.
| 6. | DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF CAPITAL |
The tax character of fund distributions paid for the year ended September 30, 2021 and September 30, 2020 was as follows:
| | | Fiscal Year Ended | | | Fiscal Year Ended | |
| | | September 30, 2021 | | | September 30, 2020 | |
| Ordinary Income | | $ | 5,454,856 | | | $ | 369,089 | |
| Long-Term Capital Gain | | | 9,692,777 | | | | 12,317,453 | |
| | | $ | 15,147,633 | | | $ | 12,686,542 | |
13D Activist Fund
NOTES TO FINANCIAL STATEMENTS (Unaudited)(Continued)
March 31, 2022
During the fiscal year ended September 30, 2021, the Fund utilized tax equalization which is the use of earnings and profits distributions to shareholders on redemption of shares as part of the dividends paid deduction for income tax purposes. The Fund utilized equalization in the amount of $1,330,634. Net investment income and net realized gains(losses), as disclosed on the Statements of Operations and net assets were not affected by these reclassifications.
As of September 30, 2021, the components of accumulated earnings/(deficit) on a tax basis were as follows:
| Undistributed | | | Undistributed Long- | | | Unrealized Appreciation/ | | | Total Accumulated | |
| Ordinary Income | | | Term Gains | | | (Depreciation) | | | Earnings/(Deficits) | |
| $ | 5,024,600 | | | $ | 19,330,996 | | | $ | 79,088,131 | | | $ | 103,443,727 | |
The difference between book basis and tax basis accumulated net realized gains and unrealized appreciation is primarily attributable to the tax deferral of losses on wash sales and adjustments for partnerships. The unrealized appreciation in the table above includes unrealized foreign currency losses of $538.
Permanent book and tax differences, primarily attributable to the tax adjustments for equalization credits, resulted in reclassifications for the Fund for the year ended September 30, 2021 as follows:
| | | | Accumulated | |
| Paid In Capital | | | Earnings (Losses) | |
| $ | 1,330,634 | | | $ | (1,330,634 | ) |
Subsequent events after the date of the Statement of Assets and Liabilities have been evaluated through the date the financial statements were issued. Management has determined that no events or transactions occurred requiring adjustment or disclosure in the financial statements.
13D Activist Fund
EXPENSE EXAMPLES (Unaudited)
March 31, 2022
As a shareholder of the 13D Activist Fund (the “Fund”), you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchases of Class A shares and contingent deferred sales charges on certain sales of Class A and Class C shares; (2) ongoing costs, including management fees; distribution and/or service (12b-1) fees. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period presented below.
Actual Expenses
The “Actual” lines in the table below provide information about actual account values and actual expenses. You may use the information below, 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 table under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The “Hypothetical” lines in the table below provide information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balances or expenses you paid for the period. You may use this information to compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of 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, such as sales charges (loads), or redemption fees. Therefore, 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 | | Fund’s Annualized |
| Actual | | 10/1/21 | | 3/31/22 | | 10/1/21-3/31/22* | | Expense Ratio |
| Class A | | $1,000.00 | | $1,003.80 | | $8.74 | | 1.75% |
| Class C | | $1,000.00 | | $1,000.10 | | $12.47 | | 2.50% |
| Class I | | $1,000.00 | | $1,005.20 | | $7.50 | | 1.50% |
| | | Beginning | | Ending | | Expenses Paid | | |
| Hypothetical | | Account Value | | Account Value | | During Period | | Fund’s Annualized |
| (5% return before expenses) | | 10/1/21 | | 3/31/22 | | 10/1/21-3/31/22* | | Expense Ratio |
| Class A | | $1,000.00 | | $1,016.21 | | $8.80 | | 1.75% |
| Class C | | $1,000.00 | | $1,012.47 | | $12.54 | | 2.50% |
| Class I | | $1,000.00 | | $1,017.45 | | $7.54 | | 1.50% |
| * | Expenses are equal to the average account value over the period, multiplied by the Fund’s annualized expense ratio, multiplied by the number of days in the period (182) divided by the number of days in the fiscal year (365). |
13D Activist Fund
SUPPLEMENTAL INFORMATION (Unaudited)
March 31, 2022
13D Activist Fund (Adviser – 13D Management LLC) *
In connection with the regular meeting held on November 9-10 & 12, 2021 of the Board of Trustees (the “Trustees” or the “Board”) of the Northern Lights Fund Trust (the “Trust”), including a majority of the Trustees who are not “interested persons,” as that term is defined in the Investment Company Act of 1940, as amended, discussed the re-approval of an investment advisory agreement (the “Advisory Agreement”) between 13D Management LLC (the “Adviser”) and the Trust, with respect to the 13D Activist Fund (the “Fund” or “13D”). In considering the re-approval of the Advisory Agreement, the Board received materials specifically relating to the Advisory Agreement.
The Trustees were assisted by independent legal counsel throughout the Advisory Agreement review process. The Trustees relied upon the advice of independent legal counsel and their own business judgment in determining the material factors to be considered in evaluating the Advisory Agreement and the weight to be given to each such factor. The conclusions reached by the Trustees were based on a comprehensive evaluation of all of the information provided and were not the result of any one factor. Moreover, each Trustee may have afforded different weight to the various factors in reaching his conclusions with respect to the Advisory Agreement.
Nature, Extent and Quality of Service. The Trustees noted that the Adviser was founded in December 2011 and had approximately $296 million in assets under management. The Trustees further noted that the Adviser’s assets under management had increased by approximately $90 million since the prior year’s renewal of the investment advisory agreement. The Trustees reviewed the professional backgrounds of the key personnel responsible for advising the Fund and acknowledged their experience with federal securities law, private equity and 13D filings. The Trustees discussed the Adviser’s investment process and observed that it was based on analyzing the contents of 13D filings. They noted that in making investment decisions, the Adviser considered the track records of shareholder activists and the type of activist strategies employed to assess each activist’s probability of success. The Trustees commented that the Adviser focused on the 13D filings of companies with over $1 billion in market capitalization, that it believed to be the most compelling based on its analysis. They noted the Adviser attempted to mitigate risk through specialized research and diversification across shareholder activists and activist strategies. The Trustees acknowledged that the Adviser selected broker-dealers based on several factors including, the ability to negotiate competitive commission rates for full service trading. They expressed their appreciation of the Adviser’s continued devotion of its resources to the compliance and operation of the firm. The Trustees concluded that the Adviser continued to provide quality service to the Fund and its shareholders.
Performance. The Trustees noted the Fund’s investment objective and strategy and acknowledged that the Fund was a four-star Morningstar fund. They observed that the Fund outperformed its Morningstar category median and benchmark for the one-year, five-year, and since-inception periods. The Trustees noted that the Fund performed well in comparison to the Adviser selected peer group that consisted of funds that employed an activist strategy. They reviewed the Fund’s Sharpe and Sortino ratios and acknowledged that the ratios were consistently in the 2nd or 3rd quartile for the three-year, five-year, and since-inception periods. The Trustees noted that the
13D Activist Fund
SUPPLEMENTAL INFORMATION (Unaudited) (Continued)
March 31, 2022
Fund’s Standard Deviation, when considered with the Fund’s performance, indicated that the Adviser was taking calculated risks and providing value to the Fund’s shareholders. The Trustees concluded that the Adviser continued to provide shareholders with solid long-term performance.
Fees and Expenses. The Trustees noted the Adviser was paid a unitary advisory fee of 1.50% and was responsible for paying all of the Fund’s ordinary operating expenses, including, but not limited to, administrative, fund accounting, transfer agency, custody, audit and legal fees. They acknowledged that the total advisory fee of 1.50% was higher than the median advisory fee and net expense ratios of the peer group and Morningstar category. The Trustees, after considering the total advisory fee, noted that the Fund was a specialty equity fund that offered investors access to a strategy that is normally found only in hedge funds. The Trustees concluded that the total advisory fee charged by the Adviser was not unreasonable.
Profitability. The Trustees reviewed the profitability analysis provided by the Adviser, and considered the Adviser’s analysis of the liquidity, business, and regulatory risks associated with managing the Fund. The Trustees acknowledged that the Fund provided investors a unique investment opportunity that required a high level of expertise and specialty research. They agreed that the Adviser’s profits in terms of actual dollars and percentage were not unreasonable. The Trustees concluded that excessive profitability was not a concern at this time.
Economies of Scale. The Trustees considered whether economies of scale had been realized in connection with the advisory services provided to the Fund. They noted that based on the Fund’s current asset size, the absence of breakpoints was acceptable at this time and they agreed to continue to monitor the Fund’s asset levels and revisit the matter as the Fund continued to grow.
Conclusion. Having requested and received such information from the Adviser as the Trustees believed to be reasonably necessary to evaluate the terms of the Advisory Agreement, and as assisted by the advice of counsel, the Trustees concluded that renewal of the Advisory Agreement was in the best interests of the Fund and its shareholders.
| * | Due to the timing of the contract renewal schedule, these deliberations may or may not relate to the current performance results of the Fund. |
PRIVACY NOTICE
Northern Lights Fund Trust
Rev. April 2021
| FACTS | WHAT DOES NORTHERN LIGHTS FUND TRUST DO WITH YOUR PERSONAL INFORMATION? |
| Why? | Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some, but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal information. Please read this notice carefully to understand what we do. |
| What? | The types of personal information we collect and share depends on the product or service that you have with us. This information can include: ● Social Security number and wire transfer instructions ● account transactions and transaction history ● investment experience and purchase history When you are no longer our customer, we continue to share your information as described in this notice. |
| How? | All financial companies need to share customers’ personal information to run their everyday business. In the section below, we list the reasons financial companies can share their customers’ personal information; the reasons Northern Lights Fund Trust chooses to share; and whether you can limit this sharing. |
Reasons we can share your
personal information: | Does Northern Lights Fund Trust
share information? | Can you limit this sharing? |
| For our everyday business purposes - such as to process your transactions, maintain your account(s), respond to court orders and legal investigations, or report to credit bureaus. | YES | NO |
| For our marketing purposes - to offer our products and services to you. | NO | We don’t share |
| For joint marketing with other financial companies. | NO | We don’t share |
| For our affiliates’ everyday business purposes - information about your transactions and records. | NO | We don’t share |
| For our affiliates’ everyday business purposes - information about your credit worthiness. | NO | We don’t share |
| For nonaffiliates to market to you | NO | We don’t share |
| QUESTIONS? | Call 1-631-490-4300 |
PRIVACY NOTICE
Northern Lights Fund Trust
| What we do: |
How does Northern Lights Fund Trust protect my personal information? | To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include computer safeguards and secured files and buildings. Our service providers are held accountable for adhering to strict policies and procedures to prevent any misuse of your nonpublic personal information. |
How does Northern Lights Fund Trust collect my personal information? | We collect your personal information, for example, when you ● open an account or deposit money ● direct us to buy securities or direct us to sell your securities ● seek advice about your investments We also collect your personal information from others, such as credit bureaus, affiliates, or other companies. |
Why can’t I limit all sharing? | Federal law gives you the right to limit only: ● sharing for affiliates’ everyday business purposes – information about your creditworthiness. ● affiliates from using your information to market to you. ● sharing for nonaffiliates to market to you. State laws and individual companies may give you additional rights to limit sharing. |
| Definitions |
| Affiliates | Companies related by common ownership or control. They can be financial and nonfinancial companies. ● Northern Lights Fund Trust does not share with our affiliates. |
| Nonaffiliates | Companies not related by common ownership or control. They can be financial and nonfinancial companies. ● Northern Lights Fund Trust does not share with nonaffiliates so they can market to you. |
| Joint marketing | A formal agreement between nonaffiliated financial companies that together market financial products or services to you. ● Northern Lights Fund Trust doesn’t jointly market. |
PROXY VOTING POLICY
Information regarding how the Fund voted proxies relating to portfolio securities for the most recent twelve month period ended June 30 as well as a description of the policies and procedures that the Fund uses to determine how to vote proxies is available without charge, upon request, by calling 1-877-413-3228 or by referring to the Securities and Exchange Commission’s (“SEC”) website at http://www.sec.gov.
PORTFOLIO HOLDINGS
The Fund files a complete schedule of portfolio holdings with the Securities and Exchange Commission (the “SEC”) for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT, within sixty days after the end of the period. Form N-PORT reports are available at the SEC’s website at www.sec.gov.
INVESTMENT ADVISER
13D Management LLC
152 West 57th Street, 41st Floor
New York, NY 10019
ADMINISTRATOR
Ultimus Fund Solutions, LLC
225 Pictoria Drive, Suite 450
Cincinnati, OH 45246
13DAF-SAR22
(a) Include a copy of the report transmitted to stockholders pursuant to Rule 30e-1 under the Act (17 CFR 270.30e-1).
(b) Include a copy of each notice transmitted to stockholders in reliance on Rule 30e-3 under the Act (17 CFR 270.30e-3) that contains disclosures specified by paragraph (c)(3) of that rule. Not applicable.
Item 2. Code of Ethics. Not applicable.
Item 3. Audit Committee Financial Expert. Not applicable.
Item 4. Principal Accountant Fees and Services. Not applicable.
Item 5. Audit Committee of Listed Companies. Not applicable to open-end investment companies.
Item 6. Schedule of Investments. Schedule of investments in securities of unaffiliated issuers is included under Item 1.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Funds. Not applicable to open-end investment companies.
Item 8. Portfolio Managers of Closed-End Management Investment Companies. Not applicable to open-end investment companies.
Item 9. Purchases of Equity Securities by Closed-End Funds. Not applicable to open-end investment companies.
Item 10. Submission of Matters to a Vote of Security Holders. None
Item 11. Controls and Procedures.
(a) Based on an evaluation of the Registrant’s disclosure controls and procedures as of a date within 90 days of filing date of this Form N-CSR, the principal executive officer and principal financial officer of the Registrant have concluded that the disclosure controls and procedures of the Registrant are reasonably designed to ensure that the information required in filings on Form N-CSR is recorded, processed, summarized, and reported by the filing date, including that information required to be disclosed is accumulated and communicated to the Registrant’s management, including the Registrant’s principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
(b) There were no significant changes in the Registrant’s internal control over financial reporting that occurred during the Registrant’s last fiscal half-year that have materially affected, or are reasonably likely to materially affect, the Registrant’s internal control over financial reporting.
Item 12. Disclosure of Securities Lending Activities for Closed-End Management Investment Companies. Not Applicable.
Item 13. Exhibits.
(a)(1) Not applicable.
(a)(2) Certifications required by Section 302 of the Sarbanes-Oxley Act of 2002 (and Item 11(a)(2) of Form N-CSR) are filed herewith.
(a)(3) Not applicable for open-end investment companies.
(b) Certifications required by Section 906 of the Sarbanes-Oxley Act of 2002 (and Item 11(b) of Form N-CSR) are filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) Northern Lights Fund Trust
By (Signature and Title)
/s/ Kevin E. Wolf
Kevin E. Wolf, Principal Executive Officer/President
Date 6/3/22
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/ Kevin E. Wolf
Kevin E. Wolf, Principal Executive Officer/President
Date 6/3/22
By (Signature and Title)
/s/ James Colantino
James Colantino, Principal Financial Officer/Treasurer
Date 6/3/22
