(AL FRANK MUTUAL FUNDS LOGO)

 

 

Beginning on January 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of the Fund’s shareholder reports like this one will no longer be sent by mail, unless you specifically request paper copies of the reports. Instead, the reports will be made available on the Fund’s website www.alfrankfunds.com, and you will be notified by mail each time a report is posted and provided with a website link to access the report.

 

If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. You may elect to receive shareholder reports and other communications from the Fund electronically or to continue receiving paper copies of shareholder reports, which are available free of charge, by contacting your financial intermediary (such as a broker-dealer or bank) or, if you are a direct investor, by following the instructions included with paper Fund documents that have been mailed to you.

 

 

Al Frank Fund
PORTFOLIO REVIEW (Unaudited)
June 30, 2019

 

The Fund’s performance figures* for the periods ended June 30, 2019, compared to its benchmark:

 

         Annualized
               Since Inception  Since Inception
   Six Months  One Year  Five Year  Ten Year  (1/2/98)  (4/30/06)
Al Frank Fund - Investor Class**  13.22%  4.22%  5.31%  12.23%  9.90%  N/A
Al Frank Fund - Advisor Class***  13.39%  4.51%  5.58%  12.51%  N/A  5.77%
S&P 500® Total Return Index****  18.54%  10.42%  10.71%  14.70%  7.28%  8.60%
Russell 3000® Index*****  16.05%  7.34%  7.31%  13.14%  7.22%  6.73%

 

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 an 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, 2019 prospectus. After fee waivers, the Fund’s total annual operating expenses are 1.49% for the Investor Class and 1.24% for the Advisor Class, respectively.

 

**Commencement of operations on January 2, 1998.

 

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

 

****The S&P 500® Index is a broad based unmanaged capitalization-weighted index of 500 stocks designed to represent the broad domestic market. You cannot invest directly in an index.

 

*****The Russell 3000® Index measures the performance of the largest 3,000 U.S. companies determined by total market capitalization. You cannot invest directly in an index.

 

Holdings By Asset Class as of June 30, 2019  % of Net Assets 
Information Technology   21.53%
Financials   16.20%
Industrials   12.74%
Consumer Discretionary   11.54%
Health Care   10.01%
Communication Services   7.06%
Consumer Staples   5.57%
Materials   5.21%
Energy   5.05%
Real Estate   3.52%
Other, Cash & Cash Equivalents   1.57%
    100.00%

 

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

1

 

Al Frank Fund
SCHEDULE OF INVESTMENTS at June 30, 2019 (Unaudited)

 

Shares      Value 
     COMMON STOCKS - 98.43%     
     COMMUNICATION SERVICES - 7.06%     
     Internet - 1.41%     
 1,000   Alphabet, Inc. (a)  $1,080,910 
           
     Media - 4.08%     
 30,000   Comcast Corp. - Class A   1,268,400 
 13,250   Walt Disney Co.   1,850,230 
         3,118,630 
     Telecommunications - 1.57%     
 17,000   AT&T, Inc.   569,670 
 11,000   Verizon Communications, Inc.   628,430 
         1,198,100 
     Total Communication Services (Cost $2,651,486)   5,397,640 
           
     CONSUMER DISCRETIONARY - 11.54%     
     Auto Manufacturers - 1.14%     
 22,500   General Motors Co.   866,925 
           
     Auto Parts & Equipment - 0.70%     
 35,000   Goodyear Tire & Rubber Co.   535,500 
           
     Home Builders - 1.69%     
 39,456   MDC Holdings, Inc.   1,293,368 
           
     Home Furnishings - 1.21%     
 6,500   Whirlpool Corp.   925,340 
           
     Leisure Time - 1.75%     
 11,000   Royal Caribbean Cruises Ltd.   1,333,310 
           
     Retail - 5.05%     
 20,000   Designer Brands, Inc.   383,400 
 14,000   Foot Locker, Inc.   586,880 
 12,000   Kohl’s Corp.   570,600 
 25,000   Tapestry, Inc.   793,250 
 9,000   Target Corp.   779,490 
 11,500   Williams-Sonoma, Inc.   747,500 
         3,861,120 
     Total Consumer Discretionary (Cost $6,352,707)   8,815,563 
           
     CONSUMER STAPLES - 5.57%     
     Agriculture - 1.47%     
 27,500   Archer-Daniels-Midland Co.   1,122,000 
           
     Food - 1.87%     
 25,000   Kroger Co.   542,750 
 11,000   Tyson Foods, Inc. - Class A   888,140 
         1,430,890 

 

See accompanying notes to financial statements.

2

 

Al Frank Fund
SCHEDULE OF INVESTMENTS at June 30, 2019 (Unaudited)(Continued)

 

Shares      Value 
     Retail - 2.23%     
 8,900   Walgreens Boots Alliance, Inc.  $486,563 
 11,000   Wal-Mart, Inc.   1,215,390 
         1,701,953 
     Total Consumer Staples (Cost $2,584,487)   4,254,843 
           
     ENERGY - 5.05%     
     Oil & Gas - 3.28%     
 12,400   Exxon Mobil Corp.   950,212 
 12,000   HollyFrontier Corp.   555,360 
 18,000   Total SA - ADR   1,004,220 
         2,509,792 
     Oil & Gas Services - 0.70%     
 13,500   Schlumberger Ltd.   536,490 
           
     Transportation - 1.07%     
 65,000   Ship Finance International Ltd. (b)   813,150 
           
     Total Energy (Cost $3,322,066)   3,859,432 
           
     FINANCIALS - 16.20%     
     Banks - 11.19%     
 30,000   Bank of America Corp.   870,000 
 18,000   Bank of New York Mellon Corp.   794,700 
 29,000   BB&T Corp.   1,424,770 
 30,000   Fifth Third Bancorp.   837,000 
 4,500   Goldman Sachs Group, Inc.   920,700 
 15,000   JPMorgan Chase & Co.   1,677,000 
 60,000   Old National Bancorp   995,400 
 7,500   PNC Financial Services Group, Inc.   1,029,600 
         8,549,170 
     Diversified Financial Services - 1.54%     
 13,000   Capital One Financial Corp.   1,179,620 
           
     Insurance - 3.47%     
 10,000   Axis Capital Holdings Ltd. (b)   596,500 
 18,000   MetLife, Inc.   894,060 
 11,500   Prudential Financial, Inc.   1,161,500 
         2,652,060 
     Total Financials (Cost $6,832,173)   12,380,850 
           
     HEALTH CARE - 10.01%     
     Biotechnology - 2.82%     
 8,500   Amgen, Inc.   1,566,380 
 2,500   Biogen Idec, Inc. (a)   584,675 
         2,151,055 

 

See accompanying notes to financial statements.

3

 

Al Frank Fund
SCHEDULE OF INVESTMENTS at June 30, 2019 (Unaudited)(Continued)

 

Shares      Value 
     Health Care Products - 2.93%     
 11,500   Abbott Laboratories  $967,150 
 7,000   Medtronic PLC   681,730 
 5,000   Zimmer Biomet Holdings, Inc.   588,700 
         2,237,580 
     Health Care Services - 0.00% ^     
 1   Encompass Health Corp.   63 
           
     Pharmaceuticals - 4.26%     
 11,200   Cardinal Health, Inc.   527,520 
 6,702   CVS Health Corp.   365,192 
 7,500   Johnson & Johnson   1,044,600 
 8,000   Merck & Co, Inc.   670,800 
 15,000   Pfizer, Inc.   649,800 
         3,257,912 
     Total Health Care (Cost $5,627,819)   7,646,610 
           
     INDUSTRIALS - 12.74%     
     Airlines - 1.19%     
 16,000   Delta Air Lines, Inc.   908,000 
           
     Commercial Services - 1.52%     
 12,000   ManpowerGroup, Inc.   1,159,200 
           
     Construction & Engineering - 0.57%     
 11,666   Arcosa, Inc.   438,992 
           
     Machinery- Construction & Mining - 1.43%     
 8,000   Caterpillar, Inc.   1,090,320 
           
     Machinery- Diversified - 2.91%     
 5,500   Cummins, Inc.   942,370 
 7,750   Deere & Co.   1,284,252 
         2,226,622 
     Miscellaneous Manufacturing - 2.59%     
 15,000   Eaton Corp. PLC   1,249,200 
 35,000   Trinity Industries, Inc.   726,250 
         1,975,450 
     Transportation - 2.53%     
 4,500   FedEx Corp.   738,855 
 6,000   Norfolk Southern Corp.   1,195,980 
         1,934,835 
     Total Industrials (Cost $5,868,192)   9,733,419 

 

See accompanying notes to financial statements.

4

 

Al Frank Fund
SCHEDULE OF INVESTMENTS at June 30, 2019 (Unaudited)(Continued)

 

Shares      Value 
     INFORMATION TECHNOLOGY - 21.53%     
     Computers - 5.47%     
 7,500   Apple, Inc.  $1,484,400 
 7,100   International Business Machines Corp.   979,090 
 11,000   NetApp, Inc.   678,700 
 22,000   Seagate Technology PLC (b)   1,036,640 
         4,178,830 
     Electronics - 2.97%     
 15,500   Benchmark Electronics, Inc.   389,360 
 47,100   Corning, Inc.   1,565,133 
 10,000   Jabil, Inc.   316,000 
         2,270,493 
     Internet - 1.02%     
 36,000   Symantec Corp.   783,360 
           
     Semiconductors - 5.84%     
 40,000   Cohu, Inc.   617,200 
 23,000   Intel Corp.   1,101,010 
 2,900   Lam Research Corp.   544,736 
 50,000   Marvell Technology Group Ltd.   1,193,500 
 13,200   QUALCOMM, Inc.   1,004,124 
         4,460,570 
     Software - 3.64%     
 11,000   Microsoft Corp.   1,473,560 
 23,000   Oracle Corp.   1,310,310 
         2,783,870 
     Telecommunications - 2.59%     
 21,500   Cisco Systems, Inc.   1,176,695 
 30,000   Juniper Networks, Inc.   798,900 
         1,975,595 
     Total Information Technology (Cost $8,331,800)   16,452,718 
           
     MATERIALS - 5.21%     
     Chemicals - 2.87%     
 8,000   Albemarle Corp.   563,280 
 10,000   Celanese Corp. - Class A   1,078,000 
 22,000   The Mosaic Company   550,660 
         2,191,940 
     Forest Products & Paper - 1.16%     
 20,500   International Paper Co.   888,060 
           
     Mining - 1.18%     
 23,500   Newmont Goldcorp. Corp.   904,045 
           
     Total Materials (Cost $3,308,869)   3,984,045 

 

See accompanying notes to financial statements.

5

 

Al Frank Fund
SCHEDULE OF INVESTMENTS at June 30, 2019 (Unaudited)(Continued)

 

Shares      Value 
     REAL ESTATE - 3.52%     
     Real Estate Investment Trusts (REITS) - 3.52%     
 9,100   Digital Realty Trust, Inc.  $1,071,889 
 50,000   Kimco Realty Corp.   924,000 
 40,000   Physicians Realty Trust   697,600 
     Total Real Estate (Cost $2,346,780)   2,693,489 
           
     TOTAL COMMON STOCKS (Cost $47,226,379)   75,218,609 
           
     SHORT-TERM INVESTMENT - 1.54%     
     Money Market Fund - 1.54%     
 1,179,850   Fidelity Investments Money Market Funds - Government Portfolio - Class I, to yield 2.25% (c)   1,179,850 
     TOTAL SHORT-TERM INVESTMENT (Cost $1,179,850)   1,179,850 
           
     Total Investments (Cost $48,406,229) - 99.97%  $76,398,459 
     Other assets less liabilities: 0.03%   19,964 
     NET ASSETS: 100.00%  $76,418,423 

 

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 June 30, 2019.

 

See accompanying notes to financial statements.

6

 

Al Frank Fund
STATEMENT OF ASSETS AND LIABILITIES (Unaudited)
June 30, 2019

 

ASSETS    
Investment securities:     
At cost  $48,406,229 
At value  $76,398,459 
Receivable for Fund shares sold   1,000 
Dividends and interest receivable   147,913 
Prepaid expenses & other assets   8,354 
TOTAL ASSETS   76,555,726 
      
LIABILITIES     
Payable for Fund shares redeemed   24,239 
Investment advisory fees payable   49,753 
Distribution (12b-1) fees payable   15,155 
Payable to Related Parties   16,993 
Accrued expenses and other liabilities   31,163 
TOTAL LIABILITIES   137,303 
NET ASSETS  $76,418,423 
      
Net Assets Consist Of:     
Paid in capital  $44,706,664 
Accumulated Earnings   31,711,759 
NET ASSETS  $76,418,423 
      
Net Asset Value Per Share:     
Investor Class Shares:     
Net Assets  $71,030,879 
Shares of beneficial interest outstanding ($0 par value, unlimited shares authorized)   3,026,610 
Net asset value (Net Assets ÷ Shares Outstanding), offering price and redemption price per share (a)  $23.47 
      
Advisor Class Shares:     
Net Assets  $5,387,544 
Shares of beneficial interest outstanding ($0 par value, unlimited shares authorized)   228,912 
Net asset value (Net Assets ÷ Shares Outstanding), offering price and redemption price per share (a)  $23.54 

 

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

 

See accompanying notes to financial statements.

7

 

Al Frank Fund
STATEMENT OF OPERATIONS (Unaudited)
For the Six Months Ended June 30, 2019

 

INVESTMENT INCOME     
Dividends  $1,098,175 
Interest   16,836 
TOTAL INVESTMENT INCOME   1,115,011 
      
EXPENSES     
Investment advisory fees   386,117 
Distribution (12b-1) fees:     
Investor Class   89,820 
Registration fees   36,200 
Transfer agent fees   25,340 
Administration fees   21,186 
Fund accounting fees   17,394 
Shareholder reporting expense   16,480 
Trustees’ fees   12,322 
Legal fees   8,883 
Third party administrative servicing fees   7,348 
Compliance officer fees   6,706 
Audit fees   6,516 
Custody fees   5,249 
Insurance expense   2,172 
Other expenses   2,715 
TOTAL EXPENSES   644,448 
      
Less: Fees waived by the Adviser   (75,725)
      
NET EXPENSES   568,723 
NET INVESTMENT INCOME   546,288 
      
REALIZED AND UNREALIZED GAIN ON INVESTMENTS     
Net realized gain from investments   3,081,825 
Net change in unrealized appreciation on investments   5,994,242 
      
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS   9,076,067 
      
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS  $9,622,355 

 

See accompanying notes to financial statements.

8

 

Al Frank Fund
STATEMENTS OF CHANGES IN NET ASSETS

 

   For the Six Months Ended   For the 
   June 30, 2019   Year Ended 
   (Unaudited)   December 31, 2018 
         
FROM OPERATIONS          
Net investment income  $546,288   $860,658 
Net realized gain on investments   3,081,825    5,841,646 
Net change in unrealized appreciation/(depreciation) of investments   5,994,242    (13,021,779)
Net increase/(decrease) in net assets resulting from operations   9,622,355    (6,319,475)
           
DISTRIBUTIONS TO SHAREHOLDERS          
Total Distributions Paid          
Investor Class       (493,805)
Advisor Class       (6,610,378)
Net decrease in net assets from distributions to shareholders       (7,104,183)
           
FROM SHARES OF BENEFICIAL INTEREST          
Proceeds from shares sold          
Investor Class   816,754    811,203 
Advisor Class   130,225    208,068 
Net asset value of shares issued in reinvestment of distributions          
Investor Class       6,447,755 
Advisor Class       489,920 
Payments for shares redeemed          
Investor Class   (7,108,032)   (9,963,628)
Advisor Class   (449,821)   (1,149,505)
Redemption fee proceeds          
Investor Class   43    60 
Advisor Class   3    5 
Net decrease in net assets from shares of beneficial interest   (6,610,828)   (3,156,122)
           
TOTAL INCREASE/(DECREASE) IN NET ASSETS   3,011,527    (16,579,780)
           
NET ASSETS          
Beginning of Period   73,406,896    89,986,676 
End of Period  $76,418,423   $73,406,896 

 

See accompanying notes to financial statements.

9

 

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

 

   For the Six Months Ended   For the 
   June 30, 2019   Year Ended 
   (Unaudited)   December 31, 2018 
         
SHARE ACTIVITY - INVESTOR CLASS          
Shares sold   36,537    32,583 
Shares reinvested       296,858 
Shares redeemed   (309,262)   (403,523)
Net decrease in shares of beneficial interest outstanding   (272,725)   (74,082)
           
SHARE ACTIVITY - ADVISOR CLASS          
Shares sold   5,994    8,245 
Shares reinvested       22,525 
Shares redeemed   (19,582)   (45,051)
Net decrease in shares of beneficial interest outstanding   (13,588)   (14,281)

 

See accompanying notes to financial statements.

10

 

Al Frank Fund
FINANCIAL HIGHLIGHTS
 
Per Share Data and Ratios for a Share of Beneficial Interest Outstanding Throughout Each Period

 

   Investor Class 
   Six Months Ended   Year Ended   Year Ended   Year Ended   Year Ended   Year Ended 
   June 30, 2019   December 31,   December 31,   December 31,   December 31,   December 31, 
   (Unaudited)   2018   2017   2016   2015   2014 
Net asset value, beginning of year  $20.72   $24.79   $23.27   $21.13   $24.67   $26.24 
Activity from investment operations:                              
Net investment income (1)   0.16    0.25    0.32    0.29    0.24    0.28 
Net realized and unrealized gain/(loss) on investments   2.59    (2.16)   3.79    3.03    (1.83)   1.13 
Total from investment operations   2.75    (1.91)   4.11    3.32    (1.59)   1.41 
Less distributions from:                              
Net investment income       (0.25)   (0.31)   (0.30)   (0.23)   (0.31)
From net realized gain on investments       (1.91)   (2.28)   (0.88)   (1.69)   (2.67)
From return of capital                   (0.03)    
Total distributions       (2.16)   (2.59)   (1.18)   (1.95)   (2.98)
Paid in capital from redemption fees (5)   0.00    0.00    0.00    0.00    0.00    0.00 
Net asset value, end of year  $23.47   $20.72   $24.79   $23.27   $21.13   $24.67 (6)
Total return (2)   13.22% (10)   (8.10)% (8)   17.76%   15.62%   (6.32)%   5.43% (7)
Net assets, at end of year (000s)  $71,031   $68,373   $83,611   $69,119   $71,470   $86,670 
Ratio of gross expenses to average net assets (3)(4)   1.69% (9)   1.64%   1.61%   1.64%   1.58%   1.57%
Ratio of net expenses to average net assets (4)   1.49% (9)   1.49%   1.50%   1.51%   1.49%   1.49%
Ratio of net investment income to average net assets (4)   1.40% (9)   0.98%   1.28%   1.33%   0.96%   1.04%
Portfolio turnover rate   1.49% (10)   16.28%   22.16%   7.99%   12.38%   17.85%

 

 

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

 

(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 principles generally accepted in the U.S.

 

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

 

(8)Includes adjustments in accordance with accounting principles generally accepted in the United States and consequently the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset values and returns for shareholder transactions.

 

(9)Annualized for periods less than one full year.

 

(10)Not annualized.

 

See accompanying notes to financial statements.

11

 

Al Frank Fund
FINANCIAL HIGHLIGHTS
 
Per Share Data and Ratios for a Share of Beneficial Interest Outstanding Throughout Each Period

 

   Advisor Class 
   Six Months Ended   Year Ended   Year Ended   Year Ended   Year Ended   Year Ended 
   June 30, 2019   December 31,   December 31,   December 31,   December 31,   December 31, 
   (Unaudited)   2018   2017   2016   2015   2014 
Net asset value, beginning of year  $20.76   $24.83   $23.30   $21.16   $24.71   $26.27 
Activity from investment operations:                              
Net investment income (1)   0.19    0.31    0.38    0.35    0.29    0.35 
Net realized and unrealized gain/(loss) on investments   2.59    (2.15)   3.80    3.03    (1.82)   1.14 
Total from investment operations   2.78    (1.84)   4.18    3.38    (1.53)   1.49 
Less distributions from:                              
Net investment income       (0.32)   (0.37)   (0.36)   (0.30)   (0.38)
From net realized gain on investments       (1.91)   (2.28)   (0.88)   (1.69)   (2.67)
From return of capital                   (0.03)    
Total distributions       (2.23)   (2.65)   (1.24)   (2.02)   (3.05)
Paid in capital from redemption fees (5)   0.00    0.00    0.00    0.00    0.00    0.00 
Net asset value, end of year  $23.54   $20.76   $24.83   $23.30   $21.16   $24.71 
Total return (2)   13.39% (7)   (7.83)%   18.05%   15.87%   (6.09)%   5.73%
Net assets, at end of year (000s)  $5,388   $5,033   $6,376   $2,673   $2,820   $4,098 
Ratio of gross expenses to average net assets (3)(4)   1.44% (6)   1.39%   1.36%   1.39%   1.32%   1.32%
Ratio of net expenses to average net assets (4)   1.24% (6)   1.24%   1.25%   1.26%   1.24%   1.24%
Ratio of net investment income to average net assets (4)   1.64% (6)   1.23%   1.52%   1.59%   1.21%   1.28%
Portfolio turnover rate   1.49% (7)   16.28%   22.16%   7.99%   12.38%   17.85%

 

 

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

 

(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)Annualized for periods less than one full year.

 

(7)Not annualized.

 

See accompanying notes to financial statements.

12

 

Al Frank Fund
NOTES TO FINANCIAL STATEMENTS at June 30, 2019 (Unaudited)

 

NOTE 1 – ORGANIZATION

 

The Al Frank Fund (the “Fund”) is a diversified series of Northern Lights Fund Trust II (the “Trust”), which is registered under the Investment Company Act of 1940, as amended, (the “1940 Act”) as an open-end management investment company. The investment objective of the Al Frank Fund is long-term capital appreciation. The Al Frank Fund Investor and Advisor Classes commenced operations on January 2, 1998, and April 30, 2006, respectively.

 

Advisor Class Shares are offered primarily to qualified registered investment advisers, financial advisors and investors such as pension and profit sharing plans, employee benefit trusts, endowments, foundations and corporations. Advisor Class Shares may be purchased through certain financial intermediaries and mutual fund supermarkets that charge their customers transaction or other fees with respect to their customers’ investment in the Fund. The Fund may also be purchased by qualified investors directly through the Fund’s Transfer Agent. Wrap account programs established with broker-dealers or financial intermediaries may purchase Advisor Class Shares only if the program for which the shares are being acquired will not require the Fund to pay any type of distribution or administration payment to any third-party. A registered investment advisor may aggregate all client accounts investing in the Fund to meet the Advisor Class Shares investment minimum.

 

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES

 

The following is a summary of significant accounting policies followed by the Fund in preparation of its financial statements. These policies are in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of financial statements 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 income and expenses for the period. Actual results could differ from those estimates. The Fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standard Codification Topic 946 “Financial Services Investment Companies” including FASB Accounting Standard Update “ASU” 2013-08.

 

A.Security Valuation: All investments in securities are recorded at their estimated fair value, as described in Note 3.

 

B.Federal Income Taxes: It is the Fund’s policy to continue to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of their taxable income to shareholders. Therefore, no provision for Federal income taxes has been recorded.

 

 The Fund recognizes the tax benefits of uncertain tax positions only where the position is “more likely than not” to be sustained assuming examination by tax authorities. Management has analyzed the Fund’s tax positions and has concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions taken on returns filed for open tax years ended December 31, 2016 to December 31, 2018, or expected to be taken in the Fund’s December 31, 2019 year-end tax returns. The Fund identifies its major tax jurisdictions as U.S. Federal and the state of Ohio. The Fund is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next twelve months.

 

C.Security Transactions, Income and Distributions: Security transactions are accounted for on the trade date. Realized gains and losses on securities sold are determined on the basis of identified cost. Interest income is recorded on an accrual basis. Dividend income and distributions to shareholders are recorded on the ex-dividend date. Withholding taxes on foreign dividends have been provided for in accordance with the Fund’s understanding of the applicable country’s tax rules and rates.

 

 Investment income, expenses (other than those specific to the class of shares), and realized and unrealized gains and losses on investments are allocated to the separate classes of the Fund’s shares based upon their

13

 

Al Frank Fund
NOTES TO FINANCIAL STATEMENTS at June 30, 2019 (Unaudited)(Continued)

 

 relative net assets on the date income is earned or expenses, realized and unrealized gains and losses are incurred. The Fund distributes substantially all net investment income, if any, and net realized capital gains, if any, annually. The amount of dividends and distributions to shareholders from net investment income and net realized capital gains is determined in accordance with Federal income tax regulations, which differs from accounting principles generally accepted in the United States of America. To the extent these book/tax differences are permanent, such amounts are reclassified within the capital accounts based on their Federal tax treatment. Dividends and distributions to shareholders are recorded on ex-dividend date.

 

D.Redemption Fees: The Fund charges a 2% redemption fee to shareholders who redeem shares held for 60 days or less. Such fees are retained by the Fund and accounted for as an addition to paid-in capital. For the six months ended June 30, 2019, the Al Frank Fund assessed $46 in redemption fees.

 

E.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, taking into consideration the nature and type of expense and the relative size of the fund in the Trust.

 

F.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 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.

 

NOTE 3 – SECURITIES 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 (“NOCP”). 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. Investments valued in currencies other than the U.S. dollar are converted to U.S. dollars using exchange rates obtained from pricing services. Investments in open-end investment companies are valued at net asset value. 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 Trust’s Board of Trustees (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) 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 valuation committee is composed of one or more representatives from each of the (i) Trust, (ii) administrator, and (iii) 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

14

 

Al Frank Fund
NOTES TO FINANCIAL STATEMENTS at June 30, 2019 (Unaudited)(Continued)

 

between bid and 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; and (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 a 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 fair value of all of their investments on a recurring basis. GAAP establishes the 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 have 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.

15

 

Al Frank Fund
NOTES TO FINANCIAL STATEMENTS at June 30, 2019 (Unaudited)(Continued)

 

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The following tables summarize the inputs used as of June 30, 2019 for the Fund’s assets measured at fair value:

 

Al Frank Fund
Common Stocks  Level 1   Level 2   Level 3   Total 
Communication Services  $5,397,640   $   $   $5,397,640 
Consumer Discretionary   8,815,563            8,815,563 
Consumer Staples   4,254,843            4,254,843 
Energy   3,859,432            3,859,432 
Financials   12,380,850            12,380,850 
Health Care   7,646,610            7,646,610 
Industrials   9,733,419            9,733,419 
Information Technology   16,452,718            16,452,718 
Materials   3,984,045            3,984,045 
Real Estate   2,693,489            2,693,489 
Total Common Stocks   75,218,609            75,218,609 
Short-Term Investment                    
Money Market Fund   1,179,850            1,179,850 
Total Short-Term Investment   1,179,850            1,179,850 
Total Investments  $76,398,459   $   $   $76,398,459 

 

There were no Level 3 securities held in the Fund during the six months ended June 30, 2019.

 

NOTE 4 – INVESTMENT ADVISORY AGREEMENT AND TRANSACTIONS WITH RELATED PARTIES

 

Kovitz Investment Group Partners, LLC serves as the Fund’s investment adviser (the “Adviser”).

 

Pursuant to an investment advisory agreement with the Fund (the “Advisory Agreement”), the Adviser, under the oversight of the Board, directs the daily operations of the Fund and supervises the performance of administrative and professional services provided by others. As compensation for its services, the Fund pays the Adviser a management fee, computed and accrued daily and paid monthly, at an annual rate of 1.00% of the Fund’s average daily net assets.

 

For the six months ended June 30, 2019, the Adviser earned $386,117 in Advisory Fees.

 

Pursuant to a written contract (the “Waiver Agreement”), the Adviser has agreed, at least until April 30, 2020, to waive a portion of its advisory fee. and has agreed to reimburse the Fund for other expenses to the extent necessary so that the total expenses incurred by the Fund (excluding any front-end or contingent deferred loads, brokerage fees and commissions, acquired fund fees and expenses, borrowing costs, (such as interest and dividend expense on securities sold short) taxes and extraordinary expenses such as litigation) do not exceed 1.49% and 1.24% of the Fund’s average net assets for Investor Class and Advisor Class shares, respectively. Any such reduction made by the Adviser in its fees or payment of expenses which are the Fund’s obligation are subject to reimbursement by the Fund to the Adviser, if so requested by the Adviser, in subsequent fiscal years only if the aggregate amount actually paid by the Fund toward the operating expenses for such fiscal year (taking into account the reimbursement) would not cause the Fund to exceed the expense limitation in effect at the time of the waiver or currently in effect, whichever is lower. The Adviser is permitted to receive reimbursement from the Fund for fees it waived and Fund expenses it paid only if reimbursement is made within three years from the date the fees and expenses were initially waived or reimbursed. Any such reimbursement is also contingent upon the Board’s review and approval at the time the reimbursement is made. Such reimbursement may not be paid prior to the Fund’s payment of current ordinary operating expenses. For the six months ended June 30, 2019, the Adviser waived its fees in the amount of $75,725.

16

 

Al Frank Fund
NOTES TO FINANCIAL STATEMENTS at June 30, 2019 (Unaudited)(Continued)

 

Cumulative expenses subject to recapture pursuant to the aforementioned conditions expire as follows:

 

  12/31/2019   12/31/2020   12/31/2021 
  $94,767   $85,266   $133,701 
               

As of December 31, 2018, $68,226 of previously waived fees expired unrecouped.

 

Distributor- The distributor for the Fund is Northern Lights Distributors LLC (the “Distributor”) and acts as the Fund’s principal underwriter in a continuous public offering of the Fund’s shares. The Board has adopted the Trust’s Master Distribution and Shareholder Servicing Plan for Investor Class shares (the “Investor Class Plan”) pursuant to Rule 12b-1 under the 1940 Act to pay for ongoing distribution-related activities or shareholder services. Under the Investor Class Plan, the Fund is permitted to pay a fee at an annual rate of 0.25% of the average daily net assets of the Fund’s Investor Class shares. The Fund pays the Distributor to provide compensation for ongoing distribution-related activities or services and/or maintenance of the Fund’s shareholder accounts, not otherwise required to be provided by the Adviser. The Plan is a compensation plan, which means that compensation is provided regardless of 12b-1 expenses incurred. For the six months ended June 30, 2019, the Al Frank Fund Investor Class shares incurred 12b-1 fees of $89,820. For the six months ended June 30, 2019, the Al Frank Fund Investor Class shares paid the Distributor underwriting fees of $0.

 

In addition, certain affiliates of the Distributor provide services to the Fund as follows:

 

Gemini Fund Services, LLC (“GFS”), – GFS, an affiliate of the Distributor, provides administration, fund accounting, and transfer agent services to the Trust. Pursuant to separate servicing agreements with GFS, the Fund pays GFS customary fees for providing administration, fund accounting and transfer agency services to the Fund. Certain officers of the Trust are also officers of GFS, and are not paid any fees directly by the Fund for serving in such capacities.

 

Northern Lights Compliance Services, LLC (“NLCS”) – NLCS, an affiliate of GFS and the Distributor, 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 Fund.

 

Blu Giant, LLC (“Blu Giant”) – Blu Giant, an affiliate of GFS and the Distributor, 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 Fund.

 

On February 1, 2019, NorthStar Financial Services Group, LLC, the parent company of GFS and its affiliated companies including NLD, NLCS and Blu Giant (collectively, the “Gemini Companies”), sold its interest in the Gemini Companies to a third party private equity firm that contemporaneously acquired Ultimus Fund Solutions, LLC (an independent mutual fund administration firm) and its affiliates (collectively, the “Ultimus Companies”). As a result of these separate transactions, the Gemini Companies and the Ultimus Companies are now indirectly owned through a common parent entity, The Ultimus Group, LLC.

 

NOTE 5 – PURCHASES AND SALES OF SECURITIES

 

For the six months ended June 30, 2019, the cost of purchases and the proceeds from sales of securities, excluding short-term securities, for the Fund was $1,124,437 and $6,693,369, respectively.

17

 

Al Frank Fund
NOTES TO FINANCIAL STATEMENTS at June 30, 2019 (Unaudited)(Continued)

 

NOTE 6 – AGGREGATE UNREALIZED APPRECIATION & DEPRECIATION – TAX BASIS

 

Cost for Federal Tax purposes  $48,314,813 
      
Unrealized Appreciation  $29,613,270 
Unrealized Depreciation   (1,529,624)
Tax Net Unrealized Appreciation   28,083,646 

 

NOTE 7 – DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF CAPITAL

 

The tax character of portfolio distributions paid for the following years was as follows:

 

   Fiscal Year Ended   Fiscal Year Ended 
   December 31, 2018   December 31, 2017 
Ordinary Income  $817,098   $1,139,552 
Long-Term Capital Gain   6,263,668    7,463,654 
Return of Capital   23,417     
   $7,104,183   $8,603,206 
           

As of December 31, 2018, the components of accumulated earnings/(deficit) on a tax basis were as follows:

 

Undistributed   Undistributed   Post October Loss   Capital Loss   Other       Total 
Ordinary   Long-Term   and   Carry   Book/Tax   Unrealized   Accumulated 
Income   Gains   Late Year Loss   Forwards   Differences   Appreciation   Earnings 
$   $   $   $   $   $22,089,404   $22,089,404 
                                 

The difference between book basis and tax basis undistributed net investment income/(loss), accumulated net realized gain/(loss), and unrealized appreciation/(depreciation) from investments is primarily attributable to the tax deferral of losses on wash sales and adjustments for return of capital distributions from C-Corporations.

 

Permanent book and tax differences, primarily attributable to return of capital distributions, resulted in reclassification for the year ended December 31, 2018 as follows:

 

Paid     
In   Accumulated 
Capital   Earnings (Losses) 
$(23,417)  $23,417 

 

NOTE 8 – NEW ACCOUNTING PRONOUNCEMENTS

 

In August 2018, the FASB issued Accounting Standards Update (“ASU”) No. 2018-13, which changes certain fair value measurement disclosure requirements. The new ASU, in addition to other modifications and additions, removes the requirement to disclose the amount and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, and the policy for the timing of transfers between levels. For investment companies, the amendments are effective for financial statements issued for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is allowed and the Fund has adopted these amendments early.

 

NOTE 9 – SUBSEQUENT EVENT

 

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.

18

 

Al Frank Fund
EXPENSE EXAMPLES at June 30, 2019 (Unaudited)

 

Generally, shareholders of mutual funds incur two types of costs: (1) transaction costs, redemption fees, and exchange fees, and (2) ongoing costs, including management fees, distribution and/or service fees, and other Fund expenses. 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 in both the Investor Class and the Advisor Class at the beginning of the period and held for the entire period (1/1/19 6/30/19).

 

Actual Expenses

 

The first line of the tables below provides information about actual account values and actual expenses, with actual net expenses being limited to 1.49% and 1.24% per the operating expenses limitation agreement for the Al Frank Fund Investor Class and Advisor Class, respectively. Although the Fund does not charge a sales load or transaction fees, you will be assessed fees for outgoing wire transfers, returned checks, and stop payment orders at prevailing rates charged by Gemini Fund Services, LLC, the Funds’ transfer agent. The Example below includes, but is not limited to, management fees, 12b-1 fees, fund accounting, custody and transfer agent fees. You may use the information in the first line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period’’ to estimate the expenses you paid on your account during this period.

 

Hypothetical Example for Comparison Purposes