NOTES
TO FINANCIAL STATEMENTS (Unaudited)
October 31, 2012
1. ORGANIZATION
The PTA Comprehensive Alternatives Fund (the “Fund”), formerly known as the
Long-Short Fund and the Bull Path Long-Short Fund, is a diversified series of
shares of beneficial interest of Northern Lights Fund Trust (the “Trust”), a
statutory trust organized under the laws of the State of Delaware on January 19,
2005, and is registered under the Investment Company Act of 1940, as amended
(the "1940 Act"), as an open-end management investment company. The Fund seeks
to provide long-term capital appreciation.
The Fund currently offers three classes of shares; Class A, Class C and Class I
shares. Class C and Class I shares are offered at net asset value. Class A
shares are offered at net asset value plus a maximum sales charge of 5.75%.
Each class represents an interest in the same assets of the Fund and classes
are identical except for differences in their ongoing service and distribution
charges. 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. The Fund’s income, expenses (other than class specific
distribution fees) and realized and unrealized gains and losses are allocated
proportionately each day based upon the relative net assets of each class.
On May 29, 2009, the Fund received in-kind capital contributions of securities
and cash valued at $1,061,389 in exchange for 59,932 shares. For federal income
tax purposes, the transaction was non-taxable to the Fund.
2. SIGNIFICANT ACCOUNTING POLICIES
A Fund may hold securities, such as private placements, 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 at their fair market value as determined using
the “fair value” procedures approved by the Board. The Board has delegated
execution of these procedures to a fair value team composed of one or more
officers from each of the (i) Trust, (ii) administrator, and (iii) adviser
and/or sub-adviser. The team may also enlist third party consultants such
as an audit firm or financial officer of a security issuer on an as-needed basis
to assist in determining a security-specific fair value. 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 Value Team and Valuation Process
. This team is composed of one
or more officers from each of the (i) Trust, (ii) administrator, and (iii)
adviser and/or sub-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 or sub-adviser,
PTA COMPREHENSIVE ALTERNATIVES FUND
NOTES
TO FINANCIAL STATEMENTS (Continued) (Unaudited)
October 31, 2012
the prices or values available do not represent the fair value of the
instrument. Factors which may cause the adviser or sub-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 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 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 placements or non-traded securities are valued via inputs from the
adviser or sub-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 or
sub-adviser is unable to obtain a current bid from such independent dealers or
other independent parties, the fair value team 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 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 October 31, 2012 for the Fund’s
assets and liabilities measured at fair value:
|
|
|
|
|
|
|
Assets *
|
Level 1
|
Level 2
|
Level 3
|
Total
|
|
Common
Stocks
|
$ 1,003,558
|
$ -
|
$ -
|
$ 1,003,558
|
|
Mutual Funds
|
708,517
|
-
|
-
|
708,517
|
|
Exchange
Traded Funds
|
601,319
|
-
|
-
|
601,319
|
|
Bonds &
Notes
|
-
|
1,651,718
|
-
|
1,651,718
|
|
Preferred
Stocks
|
-
|
1,096,352
|
-
|
1,096,352
|
|
Short-Term
Investments
|
3,605,074
|
-
|
-
|
3,605,074
|
|
Total
|
$ 5,918,468
|
$ 2,748,070
|
$ -
|
$ 8,666,538
|
|
Liabilities
|
Level 1
|
Level 2
|
Level 3
|
Total
|
|
Securities
Sold Short
|
$ 2,143,864
|
$ -
|
$ -
|
$ 2,143,864
|
|
Total
|
$ 2,143,864
|
$ -
|
$ -
|
$ 2,143,864
|
*Refer to the Portfolio of Investments for industry classification.
The Fund did not hold any Level 3 securities during the period. It is the
Fund’s policy to consider transfers into or out of Level 1 or Level 2 as of the
end of the reporting period. There were no transfers into or out of Level 1 and
2 during the current period presented.
Security transactions and related income –
Security transactions are
accounted for on 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. 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.
PTA COMPREHENSIVE ALTERNATIVES FUND
NOTES
TO FINANCIAL STATEMENTS (Continued) (Unaudited)
October 31, 2012
Exchange Traded Funds –
The Fund may invest in exchange traded funds
(“ETFs”). ETFs are a type of index fund bought and sold on a securities
exchange. An ETF trades like common stock and represents a fixed portfolio of
securities designed to track the performance and dividend yield of a particular
domestic or foreign market index. A Fund may purchase an ETF to temporarily
gain exposure to a portion of the U.S. or a foreign market while awaiting
purchase of underlying securities. The risks of owning an ETF generally reflect
the risks of owning the underlying securities they are designed to track,
although the lack of liquidity on an ETF could result in it being more volatile.
Additionally, ETFs have fees and expenses that reduce their value.
Short Sales –
A "short sale" is a transaction in which the Fund sells a
security it does not own but has borrowed in anticipation that the market price
of that security will decline. The fund is obligated to replace the security
borrowed by purchasing it on the open market at a later date. If the price of
the security sold short increases between the time of the short sale and the
time the Fund replaces the borrowed security, the Fund will incur a loss,
unlimited in size. Conversely, if the price declines, the Fund will realize a
gain, limited to the price at which the Fund sold the security short.
Dividends and distributions to shareholders –
Dividends from net
investment income, if any, are declared and paid annually. Distributable net
realized capital gains, if any, are declared and distributed annually.
Dividends to shareholders from net investment income and distributions from net
realized gains are recorded on ex-dividend date and 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 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’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 the open tax years
2010-2011 or expected to be taken in the Fund’s 2012 tax return. The Fund
identifies its major tax jurisdictions as U.S. Federal and Nebraska State. The
Fund recognizes interest and penalties, if any, related to unrecognized tax
benefits as income tax expense in the Statements of Operations. During the
period, the Fund did not incur any interest or penalties. Generally, tax
authorities can examine tax returns filed for the last three years.
PTA COMPREHENSIVE ALTERNATIVES FUND
NOTES
TO FINANCIAL STATEMENTS (Continued) (Unaudited)
October 31, 2012
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 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
Fund expects the risk of loss due to these warranties and indemnities to be
remote.
3. INVESTMENT TRANSACTIONS
For the six months ended October 31, 2012, cost of purchases and proceeds from
sales of portfolio securities, other than short-term investments amounted to
$6,721,059 and $3,506,989, respectively.
4. INVESTMENT ADVISORY AGREEMENT / TRANSACTIONS WITH AFFILIATES
The business activities of the Fund are overseen by the Board, which is
responsible for the overall management of the Fund. PTA Comprehensive
Alternatives serves as the Funds’ Investment Advisor (the “Advisor”). The Fund
has employed Gemini Fund Services, LLC (“GFS”) to provide
administration, fund accounting, and transfer agent services. A Trustee and
certain officers of the Fund are also officers of GFS, and are not paid any fees
directly by the Fund for serving in such capacities.
Pursuant to an Advisory Agreement with the Fund, the Advisor, 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 and the related expenses borne by the Advisor,
the Fund pays the Advisor a management fee, computed and accrued daily and paid
monthly, at an annual rate of 1.25% of the Fund’s average daily net assets. The
Advisor manages a portion of the Fund’s portfolio directly and allocates the
remaining balance of the Fund’s assets to the Fund’s sub-advisors. The Fund’s
sub-advisors are SSI Investment Management and Coe Capital Management, LLC. The
Advisor pays each of the sub-advisors a portion of its advisory fee.
Pursuant to a written contract (the “Waiver Agreement”), the Advisor has agreed
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 (exclusive of any front-end or contingent deferred sales loads, taxes,
leverage interest, brokerage commissions, expenses incurred in connection with
any merger or reorganization, dividend expense on securities sold short,
acquired fund fees and expenses or extraordinary expenses, such as litigation)
do not exceed 2.23%, 2.98% and 1.98% per annum of the Fund’s average daily net
assets for the Class A, Class C and Class I shares, respectively. During the six
months ended October 31, 2012 the Advisor waived fees totaling $48,841 and
reimbursed fees totaling $40,101.
PTA COMPREHENSIVE ALTERNATIVES FUND
NOTES
TO FINANCIAL STATEMENTS (Continued) (Unaudited)
October 31, 2012
If the Advisor waives any fee or reimburses any expense pursuant to the Waiver
Agreement, and the Fund's Operating Expenses attributable to the Class A, Class
C and Class I shares are subsequently less than their respective expense
limitation, the Advisor shall be entitled to reimbursement by the Fund for such
waived fees or reimbursed expenses provided that such reimbursement does not
cause the Fund's expenses to exceed their respective expense limitation. If
Fund Operating Expenses attributable to the Class A, Class C and Class I shares
subsequently exceed their respective expense limitation per annum of the Fund's
average daily net assets, the reimbursements shall be suspended. The Advisor may
seek reimbursement only for expenses waived or paid by it during the three
fiscal years prior to such reimbursement; provided, however, that such expenses
may only be reimbursed to the extent they were waived or paid after the date of
the Waiver Agreement (or any similar agreement). As of October 31, 2012 there
was $265,528 of fee waiver reimbursements subject to recapture. $176,586 is
subject to recapture by April 30, 2015 and $88,942 is subject to recapture by
April 30, 2016.
The Board has adopted a Distribution Plan and Agreement (the “Plan”) pursuant to
Rule 12b-1 under the 1940 Act. The Plan provides that a monthly service and/or
distribution fee is calculated by the Fund at an annual rate of 0.25% of its
average daily net assets for Class A shares and 1.00% of its average daily net
assets for Class C shares and is paid to Northern Lights Distributors, LLC (the
“Distributor”) to provide compensation for ongoing shareholder servicing and
distribution-related activities or services and/or maintenance of the Fund’s
shareholder accounts not otherwise required to be provided by the Advisor.
During the six months ended October 31, 2012, pursuant to the Plan, the Class A
Shares paid $937 and the Class C Shares paid $357.
The Distributor acts as the Fund’s principal underwriter in a continuous public
offering of the Fund’s shares and is an affiliate of GFS.
Trustees - Effective April 1, 2012, with the approval of the Board, the Fund
pays its pro rata share of a total fee of $21,500 per quarter for the Northern
Lights Fund Trust to each Trustee who is not affiliated with the Trust or
Advisor. Previously, the Fund paid its pro rata share of a total fee of $17,500
per quarter for the Northern Lights Fund Trust to each Trustee who is not
affiliated with the Trust or Adviser. The Fund pays the chairperson of the Audit
committee its pro rata share of an additional $2,500 per quarter. The
“interested persons” who serve as Trustees of the Trust receive no compensation
for their services as Trustees. None of the executive officers receive
compensation from the Trust.
Pursuant to separate servicing agreements with GFS, the Fund pays GFS customary
fees for providing administration, fund accounting, custody administration and
transfer agency services to the Fund. GFS provides a Principal Executive
Officer and a Principal Financial Officer to the Fund.
In addition, certain affiliates of GFS provide ancillary services to the Fund as
follows:
PTA COMPREHENSIVE ALTERNATIVES FUND
NOTES
TO FINANCIAL STATEMENTS (Continued) (Unaudited)
October 31, 2012
Northern Lights Compliance Services, LLC (“NLCS”)
- NLCS, an affiliate
of GFS, 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.
Gemcom, LLC (“Gemcom”)
- Gemcom, an affiliate of GFS, 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, Gemcom receives
customary fees from the Fund.
5. CONTROL OWNERSHIP
The beneficial ownership, either directly or indirectly, of more than 25% of the
voting securities of a Fund creates presumption of control of the Fund, under
Section 2(a)9 of the Investment Company Act of 1940. As of October 31, 2012,
American Enterprise Investment Services held 51.37% and 92.28% of the Fund’s
Class A and Class C shares respectively and LPL Financial held 87.40% of the
Fund’s Class I shares.
6. DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF CAPITAL
The tax character of Fund distributions for the following periods was as
follows:
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
Fiscal Year Ended
|
|
|
|
April 30, 2012
|
|
April 30, 2011
|
|
Ordinary
Income
|
|
$ -
|
|
$ 277,679
|
|
Long-Term
Capital Gain
|
|
-
|
|
-
|
As of April 30, 2012, the components of accumulated earnings/(deficit) on a tax
basis were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Undistributed
|
|
Undistributed
|
|
Post October
|
|
Capital
|
|
Unrealized
|
|
Total
|
|
Ordinary
|
|
Long-Term
|
|
and Late
|
|
Loss Carry
|
|
Appreciation/
|
|
Accumulated
|
|
Income
|
|
Gains
|
|
Losses
|
|
Forwards
|
|
(Depreciation)
|
|
Earnings/(Deficits)
|
|
$ -
|
|
$ -
|
|
$ (31,725)
|
|
$ (1,056,128)
|
|
$ (31,453)
|
|
$ (1,119,306)
|
The difference between book basis and tax basis unrealized appreciation is
primarily attributable to the tax deferral of losses on wash sales.
Late year losses incurred after December 31 within the fiscal year are deemed to
arise on the first business day of the following fiscal year for tax purposes.
The Fund incurred and elected to defer such late year losses of $31,725.
The Regulated Investment Company Modernization Act of 2010 (the “Act”) was
enacted on December 22, 2010. The Act makes changes to several tax rules
impacting the Fund. Although the Act provides several benefits, including
unlimited carryover on future capital losses, there may be greater likelihood
that all or a portion of the Portfolio’s pre-enactment capital loss carryovers
may expire without being utilized due to the fact that post-enactment capital
losses get utilized before pre-enactment capital loss carryovers.
At April 30, 2012, the Fund had capital loss carry forwards for federal income
tax purposes available to offset future capital gains as follows:
|
|
|
|
|
|
|
|
|
Short-term
|
|
Long-term
|
|
Total
|
|
Expiration
|
|
$ 497,895
|
|
$ -
|
|
$ 497,895
|
|
4/30/2019
|
|
530,026
|
|
28,207
|
|
558,233
|
|
Non-expiring
|
|
$ 1,027,921
|
|
$ 28,207
|
|
$ 1,056,128
|
|
|
PTA COMPREHENSIVE ALTERNATIVES FUND
NOTES
TO FINANCIAL STATEMENTS (Continued) (Unaudited)
October 31, 2012
Permanent book and tax differences primarily attributable to net operating
losses and distributions in excess, resulted in reclassification for the period
ended April 30, 2012 as follows: a decrease in paid in capital of $148,245 and a
decrease in accumulated net investment loss of $149,829 and an increase in
accumulated net realized loss from security transactions of $1,584.
7. NEW ACCOUNTING PRONOUNCEMENT
In December 2011, FASB issued ASU No. 2011-11 related to disclosures about
offsetting assets and liabilities. The amendments in this ASU require an entity
to disclose information about offsetting and related arrangements to enable
users of its financial statements to understand the effect of those arrangements
on its financial position. The ASU is effective for annual reporting
periods beginning on or after January 1, 2013, and interim periods within those
annual periods. The guidance requires retrospective application for all
comparative periods presented. Management is currently evaluating the
impact this amendment may have on the Fund’s financial statements.
8. SUBSEQUENT EVENTS
The Fund is required to recognize in the financial statements the effects of all
subsequent events that provide additional evidence about conditions that existed
at the date of the Statement of Assets and Liabilities. For non-recognized
subsequent events that must be disclosed to keep the financial statements from
being misleading, the Fund is required to disclose the nature of the event as
well as an estimate of its financial effect, or a statement that such an
estimate cannot be made.
Approval of Advisory Agreement – PTA Comprehensive Alternatives Fund
*
In connection with the June 22, 2011 meeting of the Board of Trustees (the
“Board” or the “Trustees”) of the Northern Lights Fund Trust (the “Trust”),
including a majority of the Trustees who are not interested persons of the Trust
or interested persons to the investment advisory agreement, discussed the
approval of an investment advisory agreement between Preservation Trust
Advisors, LLC (“PTA” or the “Adviser”) and the Trust, on behalf of the PTA
Comprehensive Alternatives Fund (the “Fund”).
Nature, Extent and Quality of Services
. A presentation was given by
representatives of PTA regarding the investment experience of Christopher Wolf,
the proposed portfolio manager for the Fund, as well as the investment
experience of the officers and support staff of PTA. The representatives also
discussed expanding the alternative investment strategies of the Fund beyond a
long-short strategy as well as PTA's qualification to manage such strategies.
The Trustees discussed the extent of PTA's research capabilities and the
experience of its asset management personnel. The Trustees noted that PTA has
adopted a compliance program to monitor and review investment decisions and to
prevent and detect violations of a Fund's investment policies and limitations,
as well as federal securities laws. The Trustees concluded that PTA has the
ability to provide a level of service consistent with the Board's expectations.
Performance
. Because PTA had not yet commenced managing the Fund, the
Trustees could not consider the Fund's investment performance. However, the
Board, including the Independent Trustees, considered the past performance of
Cogo Wolf Asset Management, LLC ("Cogo"), which shares key personnel with PTA,
including Mr. Wolf. The Trustees reviewed the performance of a private fund,
with an investment strategy substantially similar to that of the Fund, for which
Cogo serves as investment adviser. The Trustees concluded that the prior
performance information was helpful, but not directly comparable to the Fund.
Based upon the totality of investment experience of PTA and its key employees,
the Board concluded that PTA has the potential to deliver favorable performance.
Fees and Expenses
. The Board noted that PTA would charge a 1.25% annual
advisory fee based on the average net assets of the Fund, the same as the fee
previously paid to Bull Path. The Trustees concluded that the Fund's advisory
fee and expense ratio were acceptable in light of the quality of the services
the Fund expected to receive from the Adviser, and the level of fees paid by
funds in a long-short strategy peer group.
Economies of Scale
. The Board considered whether there will be economies
of scale in respect of the management of the Fund and whether there is potential
for realization of any economies of scale. It was noted that because of the
Fund's size, economies of scale were unlikely to be realized in the near future
and were not a relevant consideration. After discussion, the Trustees stated
that the officers will monitor the Fund's asset level, and, if economies of
scale become a relevant consideration, they would re-evaluate the Fund's
advisory fee when the New Management Agreement is considered for renewal.
Profitability
. The Board considered the anticipated profits to be
realized by PTA in connection with the operation of the Fund and whether the
amount of profit is a fair entrepreneurial profit for the management of the
Fund. They also considered the profits realized by PTA from other activities
related to the Fund. The Trustees noted that PTA has agreed to waive part or all
of its management fees and reimburse the Fund for expenses to limit the amount
of the Fund's normal operating expenses (exclusive of any taxes, interest,
brokerage commissions, dividend expense on securities sold short, acquired fund
fees and expenses, or extraordinary expenses such as litigation or
reorganization costs) such that they will not exceed 1.98% for Class I shares,
2.98% for Class C shares and 2.23% for Class A shares. The Board noted that
because of that agreement and the Fund's size, any profits earned by PTA were
expected to be reasonable.
Conclusion
. Having requested and received such information from PTA as
the Board believed to be reasonably necessary to evaluate the terms of the New
Management Agreement, and as assisted by the advice of independent counsel, the
Board, including the Independent Trustees, determined that the proposed New
Management Agreement is in the best interests of the Fund and its shareholders.
Accordingly, the Board of Trustees, by separate vote of the Independent
Trustees and the entire Board of Trustees, unanimously approved the New
Management Agreement and voted to recommend it to shareholders for approval.
*Due to the timing of the contract renewal schedule, these deliberations may or
may not relate to the current performance results of the Fund.
Approval of the Sub-Advisory Agreements – PTA Comprehensive Alternatives Fund
*
In
connection with a regular meeting held on December 14, 2011, the Board of
Trustees (the “Board”) of the Northern Lights Fund Trust (the “Trust”),
including a majority of the Trustees who are not interested persons of the
Trust or interested persons of any party to the sub-advisory agreement (the
“Independent Trustees”), discussed the approval of the sub-advisory agreements
(the “Sub-Advisory Agreements”) between Coe Capital Management (“Coe”) and SSI
Investment Management (each a “Sub-Adviser” and collectively the “Sub-Advisers”)
and the Trust, on behalf of PTA Comprehensive Alternatives Fund (the “Fund”).
In considering the Sub-Advisory Agreements, the Board received materials
specifically relating to the Sub-Advisory Agreements from the Sub-Advisers.
Matters considered by the Board, including the Independent Trustees, in
connection with its approval of the Sub-Advisory Agreement include the
following:
Nature, Extent and Quality of Services.
The Trustees discussed the extent
of each Sub-Adviser’s operations, the quality of it compliance infrastructure
and the experience of each Sub-Adviser firm’s fund management personnel. The
Board then reviewed financial information about each firm provided by each
Sub-Adviser. The Trustees concluded that each Sub-Adviser has the ability to
provide a level of service consistent with the Board’s expectations.
Performance.
Because each Sub-Adviser was not yet advising the Fund, the
Trustees concluded that the Funds investment performance was not a significant
factor to their deliberations. However, the Board, including the Independent
Trustees, considered each Sub-Adviser’s past performance with its separately
managed accounts. The Board concluded that each Sub-Adviser has the potential to
deliver favorable performance.
Fees
and Expenses.
The Board noted that Coe proposed to charge an annual
sub-advisory fee of 1.00% based on the average net assets of the portion of the
applicable PTA Fund managed by the Sub-Adviser, and that SSI proposed to charge
an annual sub-advisory fee of 1.00% based on the average net assets of the
portion of the PTA managed by the firm. The Board also compared the
sub-advisory fees to the fees charged by each Sub-Adviser for its separate. The
Trustees concluded that the sub-advisory fees under each Sub-Advisory Agreement,
as applicable, were reasonable.
Economies of Scale.
The Board, including the Independent Trustees,
considered whether there will be economies of scale in respect of the management
of the Fund and whether there is potential for realization of any further
economies of scale. After discussion, it was the consensus of the Board that,
based on the anticipated size of the Fund for the initial two years of the
Sub-Advisory Agreements, economies of scale was not a relevant consideration.
Profitability.
The Board, including the Independent Trustees, considered
the anticipated profits to be realized by each Sub-Adviser in connection with
the operation of the Fund, based on the materials provided to the Board, and
whether the amount of profit is a fair entrepreneurial profit for the management
of the Fund. They also considered the profits to be realized by the
Sub-Advisers from other activities related to the Fund. The Trustees concluded
that because of the Fund’s expected asset levels, they were satisfied that each
Sub-Adviser’s level of profitability from its relationship with the Fund would
not be excessive.
Conclusion.
Having requested and received such information from the
sub-advisers as the Board believed to be reasonably necessary to evaluate the
terms of the proposed Sub-Advisory Agreements, and as assisted by the advice of
independent counsel, the Board, including the Independent Trustees, concluded
that approval of the Sub-Advisory Agreements is in the best interests of NLFT
and the shareholders of the Fund.
*Due to
the timing of the contract renewal schedule, these deliberations may or may not
relate to the current performance results of the Fund.
PTA
COMPREHENSIVE ALTERNATIVES FUND
EXPENSE EXAMPLES
October 31, 2012 (Unaudited)
As a shareholder of PTA Comprehensive Alternatives Fund, you incur two types of
costs: (1) transaction costs, including contingent deferred sales charges
(CDSCs) and redemption fees; (2) ongoing costs, including management fees;
distribution and/or service (12b-1) fees; and other Fund expenses. This example
is intended to help you understand your ongoing costs (in dollars) of investing
in The Long-Short 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 from May 1, 2012 through October 31, 2012.
Actual Expenses
The “Actual Expenses” line in the table below provides 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” line in the table below provides information about
hypothetical account values and hypothetical expenses based on PTA Comprehensive
Alternatives 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
contingent deferred 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.
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Actual
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Hypothetical
(5% return before expenses)
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Fund’s Annualized
Expense Ratio
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Beginning
Account Value
5/1/12
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Ending
Account Value
10/31/12
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Expenses
Paid During Period*
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Ending
Account Value
10/31/12
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Expenses
Paid During
Period*
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PTA Comprehensive Alternatives Fund
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Class I
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2.56%
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$1,000.00
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$993.20
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$17.84
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$1,007.24
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$17.96
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Class A
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2.81%
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$1,000.00
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$992.00
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$14.11
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$1,011.04
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$14.24
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Class C
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3.56%
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$1,000.00
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$988.60
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$17.80
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$1,007.24
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$17.96
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*Expenses are equal to the average account value over the period, multiplied by
the Portfolio’s annualized expense ratio, multiplied by the number of days in
the period (184) divided by the number of days in the fiscal year (365).
PRIVACY NOTICE
NORTHERN LIGHTS FUND TRUST
Rev. August 2011
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FACTS
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WHAT DOES NORTHERN LIGHTS FUND TRUST DO WITH YOUR PERSONAL INFORMATION?
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Why?
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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.
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What?
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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.
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How?
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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.
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Reasons we can share your personal information:
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Does Northern Lights Fund Trust share information?
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Can you limit this sharing?
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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.
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YES
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NO
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For our marketing purposes -
to offer our products and services to you.
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NO
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We don’t share
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For joint marketing with other financial companies.
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NO
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We don’t share
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For our affiliates’ everyday business purposes -
information about your transactions and records.
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NO
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We don’t share
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For our affiliates’ everyday business purposes -
information about your credit worthiness.
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NO
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We don’t share
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For nonaffiliates to market to you
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NO
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We don’t share
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QUESTIONS?
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Call 1-402-493-4603
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PRIVACY NOTICE
NORTHERN LIGHTS FUND TRUST
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What we do:
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How does Northern Lights Fund Trust protect my personal information?
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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.
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How does Northern Lights Fund Trust collect my personal information?
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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.
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Why can’t I limit all sharing?
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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.
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Definitions
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Affiliates
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Companies related by common ownership or control. They can be financial and nonfinancial companies.
·
Northern Lights Fund Trust has no affiliates.
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Nonaffiliates
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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.
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Joint marketing
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A formal agreement between nonaffiliated financial companies
that together market financial products or services to you.
·
Northern Lights Fund Trust does not jointly market
.
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PROXY VOTING POLICY
Information regarding how the Funds voted proxies relating to portfolio
securities for the most recent period ended June 30 as well as a description of
the policies and procedures that the Funds use to determine how to vote proxies
is available without charge, upon request, by calling 1-888-899-2726 or by
referring to the Securities and Exchange Commission’s (“SEC”) website at
http://www.sec.gov.
PORTFOLIO HOLDINGS
The Funds file their complete schedules of portfolio holdings with the SEC for
the first and third quarters of each fiscal year on Form N-Q. Form N-Q is
available on the SEC’s website at http://www.sec.gov and may be reviewed and
copied at the SEC’s Public Reference Room in Washington, DC (1-800-SEC-0330).
The information on Form N-Q is available without charge, upon request, by
calling 1-888-899-2726.
INVESTMENT ADVISOR
Preservation Trust Advisors
One Embarcadero Center, Suite 1140
San Francisco, CA 94111
ADMINISTRATOR
Gemini Fund Services, LLC
450 Wireless Blvd.
Hauppauge, New York 11788
LEGAL
Thompson Hine, LLP
41 South High Street, Suite 1700
Columbus, OH 43215