Blu Giant, LLC

 

(AL FRANK LOGO)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  2017
   
  Annual Report
   
  AL FRANK FUND
   
   
   
   
   

 

 

Dear Shareholders,

 

As Auld Lang Syne was warming up to welcome in 2018, it was fascinating to hear all of the negativity from folks bidding good riddance to the year just ended. To be sure, 2017 had its share of disconcerting headlines, with the Year in Review section of The Wall Street Journal offering Sexual Misconduct Rocks Media, Politics and Election Probe Rattles White House and Shootings Stun Las Vegas, Tiny Texas Town and A Year of Costly Disasters (Hurricanes Harvey, Irma & Maria, Severe Storms and Wildfires) and North Korea Raises Tensions.

 

Clearly, we understand that the political climate is also extremely polarized, but at the risk of sounding insensitive, bad news happens every year. For example, 12 months ago we wrote: “No doubt, there was no shortage of concerns in 2016 (as has been the case every year), starting almost from day one as the worst first week in history (the Dow Jones Industrial Average skidded 6.2%, or more than 1,000 points) supposedly portended an ugly year for equities. Worries were hardly alleviated over the ensuing five weeks, with the percentage losses hitting double-digits in February on fears that a Chinese economic slowdown would kill global growth, while here at home, many were spooked by sub-par GDP growth, uncertainty in regard to Federal Reserve monetary policy and question marks about the health of corporate profits. And that was all before the shocking Brexit vote and the unexpected Trump victory, both of which were widely thought to be black-swan events that would lead to massive stock market losses.”

 

Despite all those headwinds, equities enjoyed a very nice 2016, with the S&P 500 climbing 11.95%, the Russell 3000 advancing 12.72% and the Russell 3000 Value index (R3KV) leaping 18.38%, all on a total return basis. Not surprisingly, those handsome 2016 gains helped convince supposed market experts that returns on stocks would be much more muted in 2017, with the consensus of 18 Wall Street strategists, according to analysis by Birinyi Associates compiled at the start of last year, warning that only a 5.5% increase for the S&P 500 was expected.

 

Certainly, given recent and current extraordinarily low interest rates, a 5.5% return would hardly have been the end of the world, so we hope that most investors had the courage to stick with equities, remembering that one of the secrets to success in stocks is not to get scared out of them. After all, when the total returns were tabulated for 2017, the S&P actually soared 21.83% and the Russell 3000 jumped 21.13%.

 

Alas, the Value stock gauges, after winning the performance race in 2016, lagged well behind Growth in 2017. Still, given that returns on the Al Frank Fund for 2017 north of 17% topped those of most of the Value benchmarks, we really cannot complain too much, especially given our lack of exposure to top-performing expensive names that a Value approach would not be expected to hold. Believe it or not, big Info Tech companies Alphabet (aka Google) with a two-class-combined 70 basis point contribution to total return, Facebook (62 bps) and Visa (30 bps), as well as Consumer Discretionary titan Amazon (72 bps), account for most, if not all, of our return gap versus the Russell 3000.

1

 

Al Frank Fund Average Annual Total Return as of 12/31/2017

 

  Al Frank Fund Al Frank Fund Russell 3000®  
  Investor Class * Advisor Class** Index S&P 500® Index
1 year 17.76% 18.05% 21.13% 21.83%
5 years 13.01% 13.29% 15.58% 15.79%
10 years 6.41% 6.69% 8.60% 8.50%
Since Inception 1.2.98 10.45%   7.39% 7.17%
Since Inception 4.30.06   6.14% 8.56% 8.58%

 

Past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that the investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance of the Fund may be lower or higher than the performance quoted. Performance data for the most recent month-end is available at www.alfrankfunds.com. The Fund’s total annual operating expenses are 1.64% for the Investor Class and 1.39% for the Advisor Class, respectively, per the May 1, 2017 prospectus. Pursuant to an operating expense limitation agreement between AFAM Capital, Inc. (the “Adviser”) and the Fund, the Adviser has agreed to waive its fees and/or absorb expenses of the Fund to ensure that Total Annual Fund Operating Expenses for the Fund do not exceed 1.49% and 1.24% of the Fund’s average net assets, for Investor Class and Advisor Class shares, respectively, through April 30, 2018.

 

Returns reflect the reinvestment of dividends and capital gains. Fee waivers are in effect. In the absence of fee waivers, returns would be reduced. The performance data and graphs above do not reflect the deduction of taxes that a shareholder may pay on dividends, capital gain distributions, or redemption of Fund shares. Performance data shown does not reflect the 2.00% redemption fee imposed on shares held 60 days or less. If it did, returns would be reduced.

 

*Commencement of operations 01/02/1998

 

**Commencement of operations 04/30/2006

 

The following attribution analysis illustrates some of the reasons why the Fund performed as it did during 2017 relative to its benchmarks, the Russell 3000® Index and the S&P 500® Index.

 

During this timeframe, VALUX benefited from allocation to and stock selection within the Industrials, Energy, Consumer Staples and Telecommunications Services sectors, along with an underweight position in Utilities and Real Estate. In addition to the lack of exposure to highly valued “FANG” stocks (i.e. Facebook, Amazon, Netflix and Google), which led to relative underperformance versus the benchmarks in the Information Technology and Consumer Discretionary sectors, relatively weak stock picking within the Financial sector detracted from relative performance. Also, our modest cash position was a drag on both relative and absolute performance during 2017.

 

Looking at specific stocks, the top five positions that had the greatest positive impact on the portfolio during 2017 were Apple, Caterpillar, Aetna, Deere and HollyFrontier. On the other side of the ledger, Axis Capital, Oceaneering International, Archer-Daniels-Midland, Target and Mosaic had the largest negative impact.

2

 

Top Holdings, Sector Weights and Market Capitalization Weights for VALUX as of 12/31/17 were as follows:

 

(Unaudited)

 

Company Name  % Market
Value^
  Sector  % Market
Value^
  Market Cap  % Market
Value^
Apple Inc  2.60%  Information Technology  21.37%  Giant  46.33%
Intel Corp  2.47%  Consumer Discretionary  17.12%  Large  33.83%
Corning Inc  2.18%  Financials  16.65%  Medium  15.00%
JPMorgan Chase & Co  2.07%  Industrials  13.67%  Small  4.84%
Aetna Inc  2.05%  Health Care  11.84%  Micro  0%
Microsoft Corp  2.04%  Energy  6.57%      
Prudential Financial Inc  1.93%  Consumer Staples  5.61%      
Amgen Inc  1.90%  Materials  4.04%      
Caterpillar Inc  1.88%  Real Estate  2.47%      
Walt Disney Co/The  1.83%  Telecommunication Services  0.66%      
Deere & Co  1.78%            
BB&T Corp  1.75%            
Cisco Systems Inc  1.74%            
Eaton Corp PLC  1.71%            
Seagate Technology PLC  1.64%            

 

^Excludes short-term investments.

 

**********

 

We know that we will not always be able to outperform the benchmarks in the short run, especially as our focus is always on the long-term prospects of the Funds and the stocks contained therein. As such, we remain pleased with our long-term performance comparisons. For example, as of 12/31/17, the Al Frank Fund – Investor Class (VALUX) has enjoyed a 10.45% annualized rate of return since its inception on January 2, 1998, compared to a 7.39% annualized return for the Russell 3000® Index and a 7.17% annualized return for the S&P 500® Index over the same period.

 

Remember that we seek broad diversification with exposure across nearly all market sectors. Also, as the charts above illustrate, we remain very much an all-cap manager, with representation in small, mid, large and giant-caps. We have always been equal opportunity stock pickers, free to go where we believe the bargains reside. In fact, in recent years we have moved more toward largercap holdings, given the opportunities we believe were presented by the relatively inexpensive valuations that were created as a result of small and mid-cap stocks dramatically outperforming since the turn of the millennium. Continued support for the shift can be found in the December 2017 S&P Indices Market Attributes report. Standard & Poor’s states that the price return since December 1999 on the Large-Cap S&P 500® Index has been +81.97% through December 31, 2017, compared to +327.41% for the S&P MidCap 400® Index and +373.36% for the S&P SmallCap 600® Index. And on the valuation side, Standard & Poor’s shows a price to earnings ratio of 21.4 times 2017 estimated earnings for the S&P 500® Index versus a P/E of 24.3 for the S&P MidCap 400® Index and 28.5 for the S&P SmallCap 600® Index.

 

**********

3

 

While 2018 had been off to a terrific start, volatility picked up considerably in February, so we offer the friendly reminder that the road ahead will not always be smooth. Indeed, 5% sell-offs, 10% correction and even 20% Bear Markets are very much normal occurrences on the long-term investment journey, even as they are often overlooked when viewed through a longer-term lens.

 

That said, we think the primary catalysts for last year’s rally—an improving economic backdrop, both in the U.S. and overseas, and healthier corporate profits—remain positive underpinnings for the year ahead, so we retain our optimism for equities in general and the performance of our stocks in particular. The outlook for global economic growth for both 2018 and 2019 was raised in late-January by two-tenths of a percent by the International Monetary Fund, which also ratcheted up its GDP estimates for the U.S. by four-tenths of a percentage point for 2018 and six-tenths of a percentage point for 2019. Of course, the new IMF U.S. growth forecasts for this year of 2.7% and for next year of 2.5%, though better than the respective 2.5% and 2.1% that the Federal Reserve was suggesting in the middle of December, might actually prove to be conservative. After all, we learned from Uncle Sam that its first guess for Q4 GDP growth (which had very little tax-related benefit) was 2.6%.

 

And, we would vehemently argue that the gains seen since the passage of the Tax Cuts and Jobs Act in mid-December 2017 are very much reasonable, given that profits for much of Corporate America are likely to increase significantly simply with the stroke of a pen. Further, we believe that valuations for our holdings are reasonable (the P/E ratio on VALUX was 18.4 as of 1/26/18), especially given the historically low interest rate environment—it is important to recognize that the average Federal Funds rate since 1971 has been 5.27%, compared to the present range of 1.25% to 1.50%, while the current 1.8% dividend yield on the S&P 500 still compares nicely to the current 2.9% yield on the 10-Year U.S. Treasury.

 

In Conclusion

 

We have braced ourselves for increased volatility, and we know that many are suggesting that the long-awaited pullback is imminent, but we have long been comfortable with our basic risk mitigation tools of patiently buying and seeking to harvest a broadly diversified portfolio of undervalued stocks, generally of dividend-paying companies, while modestly ebbing and flowing our cash position. True, we would love to avoid the next big downturn, but we know that more money has been lost in anticipation of a correction than has been lost in the corrections themselves. Only by accepting that these events are a normal part of the process can we seek to achieve overall long-term returns that assist investors in meeting their financial goals.

 

**********

 

We pride ourselves on our educational heritage and we are always striving to keep shareholders and prospective shareholders abreast of our thinking. While many are receiving our philosophical musings via their subscriptions to The Prudent Speculator newsletter, we encourage those who are not subscribers to e-mail us at info@alfrank.com for additional information and to sign up for our free electronic offerings.

4

 

All of us at Al Frank Asset Management thank you for your continued loyalty and patronage. We appreciate the faith you have shown in us, and Jason and I are proud to say that we continue to invest our own money right alongside our shareholders in our Fund.

 

Sincerely,

 

John Buckingham & Jason Clark

 

The Russell 3000 Index measures the performance of 3,000 publicly held US companies based on total market capitalization, which represents approximately 98% of the investable US equity market.

 

The S&P 500 Index (Large Cap Equity) measures the performance of the large capitalization sector of the U.S. equity market and is considered one of the best representations of the domestic economy.

 

The S&P MidCap 400 Index is a stock market index from S&P Dow Jones Indices. The index serves as a barometer for the U.S. mid-cap equities sector and is the most widely followed mid-cap index in existence.

 

The S&P SmallCap 600 Index is a stock market index from Standard & Poor’s. It covers roughly the small-cap range of US stocks, using a capitalization-weighted index.

 

046-AFAM-2/2/2018

 

3153-NLD-2/2/2018

5

 

Al Frank Fund
PORTFOLIO REVIEW (Unaudited)
December 31, 2017

 

The Fund’s performance figures* for the periods ended December 31, 2017, compared to its benchmark:

 

    Annualized
        Annualized Ten Since Inception Since Inception
  One Year Three Year Five Year Year (1/2/98) (4/30/06)
Al Frank Fund - Investor Class** 17.76% 8.43% 13.01% 6.41% 10.45% N/A
Al Frank Fund - Advisor Class*** 18.05% 8.71% 13.29% 6.69% N/A 6.14%
Russell 3000® Index**** 21.13% 11.12% 15.58% 8.60% 7.39% 8.56%
S&P 500® Total Return Index***** 21.83% 11.41% 15.79% 8.50% 7.17% 8.58%

 

Comparison of the Change in Value of a $10,000 Investment

 

(LINE GRAPH)

 

Returns reflect the reinvestment of dividends and capital gains. Fee waivers are in effect. In the absence of fee waivers, returns would have been reduced. The performance data and graphs above do not reflect the deduction of taxes that a shareholder may pay on dividends, capital gain distributions, or redemption of Fund shares. Performance data shown does not reflect the 2.00% redemption fee imposed on shares held 60 days or less. If it did, returns would have been reduced.

 

*Past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that the investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance of the Fund may be lower or higher than the performance quoted. Performance data for the most recent month-end is available at www.alfrankfunds.com. The Fund’s total annual operating expenses are 1.64% for the Investor Class and 1.39% for the Advisor Class, respectively, per the May 1, 2017 prospectus. After fee waivers, the Fund’s total annual operating expenses are 1.51% for the Investor Class and 1.26% for the Advisor Class, respectively.

 

**Commencement of operations on January 2, 1998.

 

***Commencement of operations on April 30, 2006.

 

****The Russell 3000® Index measures the performance of the largest 3,000 U.S. companies determined by total market capitalization.

 

*****The S&P 500® Index is a broad based unmanaged capitalization-weighted index of 500 stocks designed to represent the broad domestic market.

 

Holdings By Asset Class as of December 31, 2017  % of Net Assets 
Information Technology   20.89%
Consumer Discretionary   16.73%
Financials   16.27%
Industrials   13.36%
Health Care   11.57%
Energy   6.42%
Consumer Staples   5.48%
Materials   3.95%
Real Estate   2.42%
Telecommunication Services   0.65%
Other, Cash & Cash Equivalents   2.26%
    100.00%

 

Please refer to the Schedule of Investments in this annual report for a detailed analysis of the Fund’s holdings.

6

 

Al Frank Fund
SCHEDULE OF INVESTMENTS at December 31, 2017

 

Shares      Value 
     COMMON STOCKS - 97.74%     
     CONSUMER DISCRETIONARY - 16.73%     
           
     Auto Manufacturers - 1.02%     
 22,500   General Motors Co.  $922,275 
           
     Auto Parts & Equipment - 1.26%     
 35,000   Goodyear Tire & Rubber Co.   1,130,850 
           
     Hotels, Restaurants & Leisure - 1.59%     
 12,000   Royal Caribbean Cruises Ltd.   1,431,360 
           
     Household Durables - 2.75%     
 43,200   M.D.C. Holdings, Inc.   1,377,216 
 6,500   Whirlpool Corp.   1,096,160 
         2,473,376 
     Media - 3.35%     
 35,000   Comcast Corp. - Class A   1,401,750 
 15,000   Walt Disney Co.   1,612,650 
         3,014,400 
     Multiline Retail - 0.81%     
 13,500   Kohl’s Corp.   732,105 
           
     Specialty Retail - 5.95%     
 45,000   American Eagle Outfitters, Inc.   846,000 
 31,000   DSW, Inc. - Class A   663,710 
 14,000   Foot Locker, Inc.   656,320 
 13,000   NIKE, Inc.   813,150 
 27,000   Tapestry, Inc.   1,194,210 
 9,000   Target Corp.   587,250 
 11,500   Williams-Sonoma, Inc.   594,550 
         5,355,190 
     Total Consumer Discretionary (Cost $8,903,969)   15,059,556 
           
     CONSUMER STAPLES - 5.48%     
     Discount Stores - 2.50%     
 7,000   CVS Health Corp.   507,500 
 4,300   Walgreens Boots Alliance, Inc.   312,266 
 14,500   Wal-Mart Stores, Inc.   1,431,875 
         2,251,641 
     Food Products - 2.98%     
 27,500   Archer-Daniels-Midland Co.   1,102,200 
 25,000   Kroger Co.   686,250 
 11,000   Tyson Foods, Inc. - Class A   891,770 
         2,680,220 
     Total Consumer Staples (Cost $3,113,077)   4,931,861 

 

See accompanying notes to financial statements.

7

 

Al Frank Fund
SCHEDULE OF INVESTMENTS at December 31, 2017 (Continued)

 

Shares      Value 
     ENERGY - 6.42%     
     Energy Equipment & Services - 0.53%     
 15,000   Baker Hughes, Inc.  $474,600 
           
     Marine Shipping - 1.12%     
 65,000   Ship Finance International Ltd. (b)   1,007,500 
           
     Oil, Gas & Consumable Fuels - 3.99%     
 12,400   Exxon Mobil Corp.   1,037,136 
 28,000   HollyFrontier Corp.   1,434,160 
 20,300   Total SA - ADR   1,122,184 
         3,593,480 
     Oilfield Services/Equipment - 0.78%     
 19,500   National Oilwell Varco, Inc.   702,390 
           
     Total Energy (Cost $4,936,929)   5,777,970 
           
     FINANCIALS - 16.27%     
     Capital Markets - 1.08%     
 18,000   Bank of New York Mellon Corp.   969,480 
           
     Commercial Banks - 8.73%     
 31,000   BB&T Corp.   1,541,320 
 13,000   Capital One Financial Corp.   1,294,540 
 30,000   Fifth Third Bancorp.   910,200 
 40,500   ING Groep NV   747,630 
 60,000   Old National Bancorp   1,047,000 
 7,500   PNC Financial Services Group, Inc.   1,082,175 
 20,300   Wells Fargo & Co.   1,231,601 
         7,854,466 
     Diversified Financial Services - 2.02%     
 17,000   JPMorgan Chase & Co.   1,817,980 
           
     Insurance - 3.85%     
 17,000   Axis Capital Holdings Ltd. (b)   854,420 
 18,000   MetLife, Inc.   910,080 
 14,800   Prudential Financial, Inc.   1,701,704 
         3,466,204 
     Investment Banks/Brokers - 0.59%     
 2,100   Goldman Sachs Group, Inc.   534,996 
           
     Total Financials (Cost $7,239,846)   14,643,126 

 

See accompanying notes to financial statements.

8

 

Al Frank Fund
SCHEDULE OF INVESTMENTS at December 31, 2017 (Continued)

 

Shares      Value 
     HEALTH CARE - 11.57%     
     Biotechnology - 3.30%     
 9,600   Amgen, Inc.  $1,669,440 
 2,000   Biogen Idec, Inc. (a)   637,140 
 9,300   Gilead Sciences, Inc.   666,252 
         2,972,832 
     Health Care Products - 0.63%     
 7,000   Medtronic PLC   565,250 
           
     Health Care Providers & Services - 2.01%     
 10,000   Aetna, Inc.   1,803,900 
 1   Encompass Health Corp.   50 
         1,803,950 
     Pharmaceuticals - 5.63%     
 18,700   Abbott Laboratories   1,067,209 
 10,000   Johnson & Johnson   1,397,200 
 4,000   McKesson Corp.   623,800 
 6,300   Merck & Co, Inc.   354,501 
 6,300   Pfizer, Inc.   228,186 
 4,000   Sanofi   172,000 
 4,000   Shire PLC   620,480 
 5,000   Zimmer Biomet Holdings, Inc.   603,350 
         5,066,726 
     Total Health Care (Cost $7,048,902)   10,408,758 
           
     INDUSTRIALS - 13.36%     
     Airlines - 1.00%     
 16,000   Delta Air Lines, Inc.   896,000 
           
     Construction & Engineering - 3.54%     
 10,500   Caterpillar, Inc.   1,654,590 
 15,000   Fluor Corp.   774,750 
 30,000   Tutor Perini Corp. (a)   760,500 
         3,189,840 
     Farm - 1.74%     
 10,000   Deere & Co.   1,565,100 
           
     Human Resource & Employment Services - 1.26%     
 9,000   ManpowerGroup, Inc.   1,134,990 
           
     Machinery - 3.12%     
 19,000   Eaton Corp. PLC   1,501,190 
 35,000   Trinity Industries, Inc.   1,311,100 
         2,812,290 

 

See accompanying notes to financial statements.

9

 

Al Frank Fund
SCHEDULE OF INVESTMENTS at December 31, 2017 (Continued)

 

Shares      Value 
     Road & Rail - 2.70%     
 4,500   FedEx Corp.  $1,122,930 
 9,000   Norfolk Southern Corp.   1,304,100 
         2,427,030 
     Total Industrials (Cost $7,045,678)   12,025,250 
           
     INFORMATION TECHNOLOGY - 20.89%     
     Communications Equipment - 2.33%     
 40,000   Cisco Systems, Inc.   1,532,000 
 20,000   Juniper Networks, Inc.   570,000 
         2,102,000 
     Computers & Peripherals - 5.19%     
 13,500   Apple, Inc.   2,284,605 
 17,000   NetApp, Inc.   940,440 
 34,500   Seagate Technology PLC   1,443,480 
         4,668,525 
     Electronic Equipment, Instruments & Components - 2.93%     
 15,500   Benchmark Electronics, Inc. (a)   451,050 
 60,000   Corning, Inc.   1,919,400 
 10,000   Jabil, Inc.   262,500 
         2,632,950 
     IT Services - 1.21%     
 7,100   International Business Machines Corp.   1,089,282 
           
     Semiconductors & Semiconductor Equipment - 3.83%     
 47,000   Intel Corp.   2,169,520 
 20,000   Marvell Technology Group Ltd.   429,400 
 13,200   QUALCOMM, Inc.   845,064 
         3,443,984 
     Software - 5.40%     
 29,000   CA, Inc.   965,120 
 21,000   Microsoft Corp.   1,796,340 
 23,000   Oracle Corp.   1,087,440 
 36,000   Symantec Corp.   1,010,160 
         4,859,060 
     Total Information Technology (Cost $9,329,952)   18,795,801 
           
     MATERIALS - 3.95%     
     Chemicals - 2.26%     
 13,000   Celanese Corp. - Class A   1,392,040 
 25,000   The Mosaic Company   641,500 
         2,033,540 
     Metals & Mining - 1.69%     
 23,500   Newmont Mining Corp.   881,720 
 205,000   Yamana Gold, Inc. (b)   639,600 
         1,521,320 
     Total Materials (Cost $2,811,471)   3,554,860 

 

See accompanying notes to financial statements.

10

 

Al Frank Fund
SCHEDULE OF INVESTMENTS at December 31, 2017 (Continued)

 

Shares      Value 
     REAL ESTATE - 2.42%     
     Real Estate Investment Trusts (REITS) - 2.42%     
 9,100   Digital Realty Trust, Inc.  $1,036,490 
 30,000   Kimco Realty Corp.   544,500 
 33,000   Physicians Realty Trust   593,670 
     Total Real Estate (Cost 1,967,881)   2,174,660 
           
     TELECOMMUNICATION SERVICES - 0.65%     
     Diversified Telecommunication Services - 0.65%     
 11,000   Verizon Commnunications, Inc.   582,230 
     Total Telecommunication Services (Cost $536,600)   582,230 
           
     TOTAL COMMON STOCKS (Cost $52,934,305)   87,954,072 
           
     SHORT-TERM INVESTMENT - 2.14%     
     Money Market Fund - 2.14%     
 1,927,440   Fidelity Investments Money Market Funds - Government Portfolio - Class I, to yield 1.14% (c)   1,927,440 
     TOTAL SHORT-TERM INVESTMENT (Cost $1,927,440)   1,927,440 
           
           
     Total Investments (Cost $54,861,745) - * 99.88%  $89,881,512 
     Other assets less liabilities: 0.12%   105,164 
     NET ASSETS: 100.00%  $89,986,676 

 

*Represents cost for financial reporting purposes. Aggregate cost for federal tax purposes is $54,714,012 and differs from fair value by net unrealized appreciation (depreciation) of securities as follows:

 

Unrealized Appreciation:  $36,755,350 
Unrealized Depreciation:   (1,587,850)
Net Unrealized Appreciation:  $35,167,500 

 

ADR - American Depositary Receipt

 

^Represents less than 0.005%

 

(a)Non-income producing security.

 

(b)U.S. traded security of a foreign issuer.

 

(c)Rate shown is the 7-day annualized yield as of December 31, 2017.

 

See accompanying notes to financial statements.

11

 

Al Frank Fund
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2017

 

ASSETS     
Investment securities:     
At cost  $54,861,745 
At value  $89,881,512 
Cash   22,750 
Receivable for Fund shares sold   600 
Dividends and interest receivable   156,934 
Prepaid expenses & other assets   38,191 
TOTAL ASSETS   90,099,987 
      
LIABILITIES     
Payable for Fund shares redeemed   12,914 
Investment advisory fees payable   67,002 
Distribution (12b-1) fees payable   18,596 
Payable to Related Parties   1,528 
Accrued expenses and other liabilities   13,271 
TOTAL LIABILITIES   113,311 
NET ASSETS  $89,986,676 
      
Net Assets Consist Of:     
Paid in capital  $54,497,031 
Undistributed net investment income   147,733 
Accumulated net realized gain/(loss) from security investments   322,145 
Net unrealized appreciation of investments   35,019,767 
NET ASSETS  $89,986,676 
      
Net Asset Value Per Share:     
Investor Class Shares:     
Net Assets  $83,611,105 
Shares of beneficial interest outstanding ($0 par value, unlimited shares authorized)   3,373,417 
Net asset value (Net Assets ÷ Shares Outstanding), offering price and redemption price per share (a)  $24.79 
      
Advisor Class Shares:     
Net Assets  $6,375,571 
Shares of beneficial interest outstanding ($0 par value, unlimited shares authorized)   256,781 
Net asset value (Net Assets ÷ Shares Outstanding), offering price and redemption price per share (a)  $24.83 

 

(a)Redemptions of shares held less than 60 days may be assessed a redemption fee of 2.00%.

 

See accompanying notes to financial statements.

12

 

Al Frank Fund
STATEMENT OF OPERATIONS
For the Year Ended December 31, 2017

 

INVESTMENT INCOME     
Dividends (Foreign Taxes Withheld $8,055)  $2,276,337 
Interest   14,394 
TOTAL INVESTMENT INCOME   2,290,731 
      
EXPENSES     
Investment advisory fees   822,350 
Distribution (12b-1) fees:     
Investor Class   193,239 
Transfer agent fees   39,588 
Registration fees   54,576 
Legal fees   44,465 
Administration fees   35,935 
Non 12b-1 shareholder servicing   3,392 
Fund accounting fees   28,352 
Shareholder reporting expense   29,225 
Trustees’ fees   19,610 
Audit fees   13,725 
Compliance officer fees   11,430 
Custody fees   6,359 
Insurance expense   4,493 
Other expenses   3,767 
TOTAL EXPENSES   1,310,506 
      
Less: Fees waived by the Adviser   (85,266)
      
NET EXPENSES   1,225,240 
NET INVESTMENT INCOME   1,065,491 
      
REALIZED AND UNREALIZED GAIN ON INVESTMENTS     
Net realized gain from security investments   6,931,673 
Net change in unrealized appreciation on investments   5,866,087 
      
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS   12,797,760 
      
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS  $13,863,251 

 

See accompanying notes to financial statements.

13

 

Al Frank Fund
STATEMENTS OF CHANGES IN NET ASSETS

 

   For the   For the 
   Year Ended   Year Ended 
   December 31, 2017   December 31, 2016 
           
FROM OPERATIONS          
Net investment income  $1,065,491   $935,704 
Net realized gain on investments   6,931,673    3,589,462 
Net change in unrealized appreciation of investments   5,866,087    5,509,980 
Net increase in net assets resulting from operations   13,863,251    10,035,146 
           
DISTRIBUTIONS TO SHAREHOLDERS          
From net investment income:          
Investor Class   (948,613)   (850,818)
Advisor Class   (86,781)   (42,507)
From net realized gains:          
Investor Class   (7,033,202)   (2,520,455)
Advisor Class   (534,610)   (105,160)
Net decrease in net assets from distributions to shareholders   (8,603,206)   (3,518,940)
           
FROM SHARES OF BENEFICIAL INTEREST          
Proceeds from shares sold          
Investor Class   1,574,296    1,812,908 
Advisor Class   2,918,863    110,165 
Proceeds from shares issued in connection with acquisition of Al Frank Dividend Value Fund (See Note 7)          
Investor Class   14,375,873     
Advisor Class   1,044,483     
Net asset value of shares issued in reinvestment of distributions          
Investor Class   7,796,852    3,264,764 
Advisor Class   588,596    146,312 
Payments for shares redeemed          
Investor Class   (14,255,106)   (13,668,043)
Advisor Class   (1,110,033)   (679,915)
Redemption fee proceeds          
Investor Class   109    741 
Advisor Class   7    64 
Net increase/(decrease) in net assets from shares of beneficial interest   12,933,940    (9,013,004)
           
TOTAL INCREASE IN NET ASSETS   18,193,985    (2,496,798)
           
NET ASSETS          
Beginning of Year   71,792,691    74,289,489 
End of Year*  $89,986,676   $71,792,691 
* Includes undistributed net investment income of:  $147,733   $105,706 

 

See accompanying notes to financial statements.

14

 

Al Frank Fund
STATEMENTS OF CHANGES IN NET ASSETS (Continued)

 

   For the   For the 
   Year Ended   Year Ended 
   December 31, 2017   December 31, 2016 
         
SHARE ACTIVITY - INVESTOR CLASS          
Shares sold   64,249    83,486 
Shares issued in connection with acquisition of Al Frank Dividend Value Fund (See Note 7)   599,467     
Shares reinvested   317,979    138,045 
Shares redeemed   (579,102)   (632,643)
Net increase/(decrease) in shares of beneficial interest outstanding   402,593    (411,112)
           
SHARE ACTIVITY - ADVISOR CLASS          
Shares sold   118,654    5,620 
Shares issued in connection with acquisition of Al Frank Dividend Value Fund (See Note 7)   43,454     
Shares reinvested   23,966    6,179 
Shares redeemed   (44,037)   (30,315)
Net increase/(decrease) in shares of beneficial interest outstanding   142,037    (18,516)

 

See accompanying notes to financial statements.

15

 

Al Frank Fund
FINANCIAL HIGHLIGHTS

 

Per Share Data and Ratios for a Share of Beneficial Interest Outstanding Throughout Each Year

 

   Investor Class 
   Year Ended   Year Ended   Year Ended   Year Ended   Year Ended 
   December 31,   December 31,   December 31,   December 31,   December 31, 
   2017   2016   2015   2014   2013 
Net asset value, beginning of year  $23.27   $21.13   $24.67   $26.24   $22.25 
Activity from investment operations:                         
Net investment income (1)   0.32    0.29    0.24    0.28    0.26 
Net realized and unrealized gain/(loss) on investments   3.79    3.03    (1.83)   1.13    7.77 
Total from investment operations   4.11    3.32    (1.59)   1.41    8.03 
Less distributions from:                         
Net investment income   (0.31)   (0.30)   (0.23)   (0.31)   (0.28)
From net realized gain on investments   (2.28)   (0.88)   (1.69)   (2.67)   (3.76)
From return of capital           (0.03)        
Total distributions   (2.59)   (1.18)   (1.95)   (2.98)   (4.04)
Paid in capital from redemption fees (5)   0.00    0.00    0.00    0.00    0.00 
Net asset value, end of year  $24.79   $23.27   $21.13   $24.67 (6)  $26.24 
Total return (2)   17.76%   15.62%   (6.32)%   5.43% (7)   37.06%
Net assets, at end of year (000s)  $83,611   $69,119   $71,470   $86,670   $88,602 
Ratio of gross expenses to average net assets (3)(4)   1.61%   1.64%   1.58%   1.57%   1.55%
Ratio of net expenses to average net assets (4)   1.50%   1.51%   1.49%   1.49%   1.49%
Ratio of net investment income to average net assets (4)   1.28%   1.33%   0.96%   1.04%   1.00%
Portfolio turnover rate   22.16%   7.99%   12.38%   17.85%   18.70%

 

 
(1)Per share amounts calculated using the average shares method, which more appropriately presents the per share data for the period.

 

(2)Total returns shown exclude the effect of applicable redemption fees. Had the Adviser not waived a portion of the Fund’s expenses, total returns would have been lower.

 

(3)Represents the ratio of expenses to average net assets absent fee waivers and/or expense reimbursements by the Adviser.

 

(4)Does not include the expenses of other investment companies in which the Fund invests.

 

(5)Amount represents less than $0.005 per share.

 

(6)The NAV and offering price shown above differs from the traded NAV on December 31, 2014 due to financial statement rounding and/or financial statement adjustments made in accordance with accounting principals generally accepted in the U.S.

 

(7)Total return was calculated using the adjusted NAV on December 31, 2014.

 

See accompanying notes to financial statements.

16

 

Al Frank Fund
FINANCIAL HIGHLIGHTS

 

Per Share Data and Ratios for a Share of Beneficial Interest Outstanding Throughout Each Year

 

   Advisor Class 
   Year Ended   Year Ended   Year Ended   Year Ended   Year Ended 
   December 31,   December 31,   December 31,   December 31,   December 31, 
   2017   2016   2015   2014   2013 
Net asset value, beginning of year  $23.30   $21.16   $24.71   $26.27   $22.27 
Activity from investment operations:                         
Net investment income (1)   0.38    0.35    0.29    0.35    0.33 
Net realized and unrealized gain/(loss) on investments   3.80    3.03    (1.82)   1.14    7.78 
Total from investment operations   4.18    3.38    (1.53)   1.49    8.11 
Less distributions from: