Form N-CSR NORTHERN LIGHTS FUND For: Jun 30
united
states
securities and exchange commission
washington, d.c. 20549
form n-csr
certified shareholder report of registered management
investment companies
Investment Company Act file number 811-22655
Northern Lights Fund Trust III
(Exact name of registrant as specified in charter)
225 Pictoria Drive, Suite 450, Cincinnati, OH 45246
(Address of principal executive offices) (Zip code)
Eric Kane
80 Arkay Drive, Hauppauge, NY 11788
(Name and address of agent for service)
Registrant's telephone number, including area code: 631-470-2600
Date of fiscal year end: 6/30
Date of reporting period: 6/30/19
Item 1. Reports to Stockholders.
Swan Defined Risk Fund |
Class A – SDRAX |
Class C – SDRCX |
Class I – SDRIX |
Class Y – SDRYX |
Swan Defined Risk Emerging Markets Fund |
Class A – SDFAX |
Class C – SDFCX |
Class I – SDFIX |
Class Y – SDFYX |
Swan Defined Risk Foreign Developed Fund |
Class A – SDJAX |
Class C – SDJCX |
Class I – SDJIX |
Class Y – SDJYX |
Swan Defined Risk Growth Fund |
Class A – SDAAX |
Class C – SDACX |
Class I – SDAIX |
Class Y – SDAYX |
Swan Defined Risk U.S. Small Cap Fund |
Class A – SDCAX |
Class C – SDCCX |
Class I – SDCIX |
Class Y – SDCYX |
Annual Report |
June 30, 2019 |
1-877-896-2590 |
www.swandefinedriskfunds.com |
Distributed by Northern Lights Distributors, LLC |
Member FINRA |
Beginning on January 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of the Funds 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 Funds website www.swandefinedriskfunds.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 Funds electronically 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.
Swan Defined Risk Fund |
Swan Defined Risk Emerging Markets Fund |
Swan Defined Risk Foreign Developed Fund |
Swan Defined Risk Growth Fund |
Swan Defined Risk U.S. Small Cap Fund |
SHAREHOLDER LETTER
June 30, 2019
Fiscal Year Annual Review
Dear Shareholders,
The flagship Swan Defined Risk Fund Class I Institutional (SDRIX) shares returned 1.96% net-of-fees (includes the reinvestment of dividends and capital gains) for the fiscal year ended June 30, 2019. Comparatively, the benchmark S&P 500 Total Return Index1 rose 10.42% over the same time frame. This result was substantially below our investment objective of capturing approximately 50% of the upside performance in the benchmark. There were a few key determinants that caused this outcome. First, the equally-weighted Select Sector SPDR ETF positions (financial and real estate considered one sector) held in the SDRIX core equity portfolio trailed the cap-weighted S&P 500 index by approximately 1.59%. This was mostly due to the outperformance in the technology (XLK) sector, which comprises 21% of the cap-weighted S&P 500 index, vs 10% equal weight in the SDRIX portfolio. The second factor behind the underperformance of the SDRIX portfolio vs the benchmark was a 4.42% decrease in the value of the hedge (long SPX LEAPS put options). This cost of carry was in-line with our expectations given the magnitude of the increase in the S&P 500 index. Overall, the hedged equity (eleven Select Sector SPDR ETFs + SPX LEAPS put options) component of the SDRIX portfolio returned 2.66% for the fiscal year ended June 30, 2019. The performance of the options income portfolio component was slightly negative, with a 0.70% loss for the fiscal year ended June 30, 2019. Options income was negatively impacted by the sharp increase in market volatility during the fourth calendar
1 | A total return index is a type of equity index that tracks the capital gains of a group of stocks over time, and assumes that any cash distributions, such as dividends, are reinvested back into the index. |
1
quarter of 2018. The fund distributed a share dividend of $0.117 per share on December 21, 2018. This distribution originated from dividend income received from the 11 Select Sector Spider ETFs held in the fund over the prior year.
The Swan Defined Risk Emerging Markets Fund Class I Institutional (SDFIX) shares returned -1.47% net-of-fees (includes reinvestment of dividends and capital gains) for the fiscal year ended June 30, 2019. In comparison, the benchmark MSCI Emerging Markets (Gross) Index returned 1.61% over the same time frame. This performance was below our expectation for capturing 50% of the upside performance in the benchmark and was due to a slight drag from the portfolio hedge and a modest loss in options income. The hedged equity component of the SDFIX portfolio (EEM and IEMG ETFs + EEM LEAPS put options) declined 0.60% during the prior fiscal year. The hedge component (EEM LEAPS put options) decreased 0.21% amid a modest increase in the portfolio ETF holdings. The options income component of the SDFIX portfolio returned -0.87% during the fiscal year ended June 30, 2019. The negative return for options income was mostly attributable to heightened volatility in EEM over the past fiscal year. The fund distributed a share dividend of $0.059 per share on December 21, 2018. This distribution originated from dividend income received from the 2 ETFs (EEM and IEMG) held in the fund over the prior year.
The Swan Defined Risk Foreign Developed Fund Class I Institutional (SDJIX) shares returned -0.71% net-of-fees (includes reinvestment of dividends and capital gains) for the fiscal year ended June 30, 2019. In comparison, the MSCI EAFE (Gross) Index (EAFE – Europe, Australia, Far East) returned 1.60% over the same time frame. This performance was below our expectation for capturing 50% of the upside performance in the benchmark. This result was primarily due to a modest loss in options income. The hedged equity component of the SDJIX portfolio (EFA ETF + EFA LEAPS put options) returned 0.45% during the fiscal year ended June 30, 2019. The hedge component (EFA LEAPS put options) contributed 0.72% to the portfolio, stemming from gains realized during the re-hedge in December 2018. The options income component of the SDJIX portfolio returned -1.16% during the fiscal year ended June 30, 2019. The loss in options income was primarily attributable to the sustained drop in the underlying EFA during the 4th calendar quarter of 2018. Finally, the fund distributed a share dividend of $0.117 on December 21, 2018. This distribution originated from dividend income received from the EFA ETF held in the fund over the prior year.
2
The Swan Defined Risk U.S. Small Cap Fund Class I Institutional (SDCIX) shares returned -3.53% net-of-fees (includes the reinvestment of dividends and capital gains) for the fiscal year ended June 30, 2019. In comparison, the Russell 2000 Total Return Index returned -3.31% over the same time frame. This performance was within expectations for a small downward move in the underlying RUT index. The hedged equity component of the SDCIX portfolio (IWM ETF + RUT LEAPS put options) decreased 2.10% during the fiscal year ended June 30, 2019. The hedge component (RUT LEAPS put options) contributed 2.22% to the portfolio, stemming from gains realized during the re-hedge in December 2018. The options income component of the SDCIX portfolio returned -1.43% for the fiscal year ended June 30, 2019. Options income was negatively impacted by the sustained downturn in the RUT index during the 4th calendar quarter of 2018.
The Swan Defined Risk Growth Fund Class I Institutional (SDAIX) shares returned 13.80% net-of-fees (includes the reinvestment of dividends and capital gains) for the six months since the funds inception on December 27, 2018. In comparison, the benchmark S&P 500 Total Return Index2 rose 18.54% over the same six-month period ended June 30, 2019. We were pleased with this performance that yielded a 76% upside capture ratio relative to the benchmark. The hedged equity component of the SDAIX portfolio (IVV ETF + SPX LEAPS put options) returned 13.99% for the six months ended June 30, 2019. The hedge component (SPX LEAPS put options) decreased 4.48%, stemming from the healthy gain in the S&P 500 index. The options income component of the SDAIX was flat, with a return of 0.15%. Options income was held up by the markets sustained upswing during the first six months of calendar year 2019.
Strategy
The fundamental investment objective of the Defined Risk strategy is to deliver consistent, tax efficient returns over a full market cycle with a simple, three-step process. First, we purchase and hold an ETF or basket of ETFs that represent a broad range of stocks to ensure diversification. Second, we hedge the notional value of the ETFs through the purchase of corresponding LEAPS put options.3 At certain times, we may even buy additional shorter-term puts to supplement the long-term LEAPs put options. We allocate up to 10% of the portfolio to the combined hedge at the time of initial purchase. Finally, we proportionally write shorter-term options premium against the long ETFs and LEAPS puts in an effort to mitigate the cost of carry associated with
2 | A total return index is a type of equity index that tracks the capital gains of a group of stocks over time, and assumes that any cash distributions, such as dividends, are reinvested back into the index. |
3 | LEAPS - Long-term Equity AnticiPation Securities have the same characteristics as standard options, but with expiration dates up to three years in the future. |
3
the hedge. Premiums received from writing short-term options represent income-type positions that are designed to take advantage of risk premia4 and time decay. We believe a smoother ride with lower volatility and greater absolute downside risk management can help investors to stay the course towards reaching their long-term investment goals.
Swan has managed this strategy for over 20 years as a way of addressing the systematic market risk posed by the occasional but inevitable bear market. We combine tax-efficient, low-cost exposure to the broad equity markets with long-dated put options that manage risk against major market downturns. Although our strategy can be vulnerable to short-term episodes such as the fourth quarter 2018 market drawdown, the strategy has been highly effective in mitigating risk against cyclical bear markets with a sustained drop of 18% or greater. We have taken measures to address this localized event risk by buying shorter term risk mitigation and dialing back risk in selling short-term options premium. Most investors try to manage risk with timing and diversification. However, consistently timing the unknown is very difficult and you cant diversify market risk away. Therefore, we choose to keep market timing to a minimum and directly attack market risk by including assets that have an inverse correlation to the markets – long put options. In the Swan Defined Risk Fund, we maintain an equity portfolio that equally weights eleven sectors of the S&P 500 through the Select SPDR ETFs, which we rebalance regularly. In the long-term, our experience has shown that an equal-weight sector strategy has outperformed a cap-weighted because it forces you to continually buy low and sell high. Also, we avoid the risk of actively trying to pick winning stocks or sectors. As we have experienced in the prior two years, the equal-weight strategy has underperformed, but at some point, the momentum will run out. For the other four funds in the Swan Fund Family, we buy one or two ETF securities that directly relates to the related strategy (i.e., IWM for Swan U.S. Small Cap).
In short, our goal at Swan is to provide investors with a proven solution to managing non-diversifiable market risk across all asset classes, which provides Swan DRS investors a superior investment experience. We take a long-term view and define success as greater absolute and risk-adjusted returns over a full market cycle (i.e., a bull and bear market).
Outlook
Looking ahead, it appears that equity markets are priced to perfection despite some known risks which may materialize in the near future. These include rising trade protectionism around the world, slowing global economic growth and an increasing probability of a hard Brexit in late October 2019. With U.S. company earnings overall flat from a year ago, the current earnings multiple expansion is being driven primarily by the
4 | Risk Premia as it relates to options is a condition in which implied volatility is greater than historical volatility. |
4
Federal Reserves return to monetary policy accommodation. This policy reversal from January 2019 appears to be in response to plunging bond yields in developed markets outside the U.S, an inverted U.S. Treasury yield curve and strong, persistent encouragement from the White Houses current occupant. Given these crosscurrents and prevailing uncertainties, investors need a strategy to handle both upside and especially downside scenarios. Therefore, we believe this is an opportune time to consider hedged equity, particularly the Swan Family of Funds that can diversify risk by category (Swan Defined Risk Fund, Swan Defined Risk Growth Fund and Swan Defined Risk U.S. Small Cap Fund) and geography (Swan Defined Risk Emerging Markets Fund and Swan Defined Risk Foreign Developed Fund), as a substantive portion of an investors portfolio.
We appreciate your trust and confidence in our mutual funds and look forward to our next communication with our shareholders. We are working diligently toward our primary objectives of managing risks to investment capital and seeking better than average returns in the hedged equity fund class.
6769-NLD-08/09/2019
Best Regards,
Randy Swan
President
5
SWAN DEFINED RISK FUND
PORTFOLIO REVIEW (Unaudited)
June 30, 2019
The Funds performance figures* for the periods ended June 30, 2019, as compared to its benchmarks:
Annualized | Annualized | Annualized | |||
One Year | Five Year | Since Inception (a) | Since Inception (b) | Since Inception (c) | |
Swan Defined Risk Fund - Class A | 1.67% | 2.46% | 4.36% | N/A | N/A |
Swan Defined Risk Fund - Class A with Load | (3.94)% | 1.31% | 3.51% | N/A | N/A |
Swan Defined Risk Fund - Class C | 0.96% | 1.71% | N/A | 3.50% | N/A |
Swan Defined Risk Fund - Class I | 1.96% | 2.73% | 4.63% | N/A | N/A |
Swan Defined Risk Fund - Class Y | N/A | N/A | N/A | N/A | 9.53% |
S&P 500 Total Return Index (d) | 10.42% | 10.71% | 13.86% | 13.39% | 19.43% |
Bloomberg Barclays Capital U.S. Aggregate Bond Index (e) | 7.87% | 2.95% | 2.46% | 2.54% | 6.42% |
Swan Defined Risk Fund Blended Index (f) | 9.87% | 7.75% | 9.35% | 9.11% | 14.27% |
Comparision of the Change in Value of a $10,000 Investment
* | The performance data quoted is historical. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance data quoted. The principal value and investment return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. The returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or on the redemptions of Fund shares. The total operating expenses as stated in the fee table to the Funds prospectus dated December 14, 2018 are 1.52%, 2.27% and 1.27% for the Class A, C and I shares respectively. The total operating expenses before any fee waivers, as stated in the fee table to the Funds prospectus dated November 2, 2018 as supplemented December 14, 2018, is 1.27%, for the Class Y shares. The Funds adviser has contractually agreed to waive its fees and reimburse expenses of the Fund, at least until December 14, 2019, to ensure that Total Annual Operating Expenses After Fee Waiver and Reimbursement (exclusive of any taxes, interest, brokerage commission, dividend expense on securities sold short, acquired fund fees and expenses, or extraordinary expenses such as litigation or reorganization costs) will not exceed 1.01% of average daily net assets attributable to Class Y shares. These fee waivers and expense reimbursements are subject to possible recoupment from the Fund within three years after the fees have been waived or reimbursed, if such recoupment can be achieved within the foregoing expense limits or the expense limits in place at the time of recoupment, whichever is less. This agreement may be terminated only by the Trusts Board of Trustees on 60 days written notice to the Funds adviser. Class A shares are subject to a maximum sales charge of up to 5.50% imposed on purchases. For performance information current to the most recent month-end, please call 1-877-896-2590. |
(a) | Inception date for Class A and Class I is July 30, 2012. |
(b) | Inception date for Class C is October 18, 2012. |
(c) | Inception date for Class Y is December 27, 2018. |
(d) | The S&P 500 Total Return Index is an unmanaged free-float capitalization-weighted index which measures the performance of 500 large-cap common stocks actively traded in the United States. Index returns assume reinvestment of dividends. Investors may not invest in the Index directly; unlike the Funds returns, the Index does not reflect any fees or expenses. |
(e) | The Bloomberg Barclays Capital U.S. Aggregate Bond Index is an unmanaged index comprised of U.S. investment grade, fixed rate bond market securities, including government, government agency, corporate and mortgage-backed securities between one and ten years. Index returns assume reinvestment of dividends. Investors may not invest in the Index directly. Unlike the Funds returns, the Index does not reflect any fees or expenses. |
(f) | The Swan Defined Risk Fund Blended Index is a composite of 60% S&P 500 Total Return Index and 40% Bloomberg Barclays Capital U.S. Aggregate Bond Index. |
Portfolio Composition as of June 30, 2019 | ||||
Holdings by Asset Type | % of Net Assets | |||
Exchange-Traded Funds | 93.3 | % | ||
Purchased Put Options | 6.7 | % | ||
Short-Term Investments | 2.4 | % | ||
Purchased Call Options | 1.6 | % | ||
Put Options Written | (1.5 | )% | ||
Call Options Written | (2.3 | )% | ||
Liabilities in Excess of other Assets | (0.2 | )% | ||
100.0 | % |
Please refer to the Portfolio of Investments in this shareholder report for a detailed listing of the Funds holdings.
6
SWAN DEFINED RISK EMERGING MARKETS FUND
PORTFOLIO REVIEW (Unaudited)
June 30, 2019
The Funds performance figures* for the periods ended June 30, 2019, as compared to its benchmarks:
Annualized | |||
One Year | Since Inception (a) | Since Inception (b) | |
Swan Defined Risk Emerging Markets Fund - Class A | (1.72)% | 0.87% | N/A |
Swan Defined Risk Emerging Markets Fund - Class A with Load | (7.16)% | (0.38)% | N/A |
Swan Defined Risk Emerging Markets Fund - Class C | (2.44)% | 0.14% | N/A |
Swan Defined Risk Emerging Markets Fund - Class I | (1.47)% | 1.10% | N/A |
Swan Defined Risk Emerging Markets Fund - Class Y | N/A | N/A | 3.76% |
MSCI Emerging Markets Index (c) | 1.61% | 5.08% | 12.33% |
Bloomberg Barclays Capital U.S. Aggregate Bond Index (d) | 7.87% | 2.86% | 6.42% |
Swan Defined Risk Emerging Markets Fund Blended Index (e) | 2.58% | 2.79% | 9.21% |
Comparision of the Change in Value of a $10,000 Investment
* | The performance data quoted is historical. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance data quoted. The principal value and investment return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. The returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or on the redemptions of Fund shares. The Funds total operating expenses, before any fee waivers, as stated in the fee table to the Funds prospectus dated December 14, 2018 are 2.30%, 3.05% and 2.05% for the Class A, C and I shares, respectively. The Funds total operating expenses, before any fee waivers, as stated in the fee table to the Funds prospectus dated November 2, 2018 as supplemented December 14, 2018, is 2.05% for Class Y shares. Class A shares are subject to a maximum sales charge of up to 5.50% imposed on purchases. The Funds adviser has contractually agreed to waive its fees and reimburse expenses of the Fund, at least until December 14, 2019 to ensure that Total Annual Fund Operating Expenses After Fee Waiver and Reimbursement (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) will not exceed 1.65%, 2.40%, 1.40% and 1.01% of average daily net assets attributable to Class A, Class C, Class I, and Class Y shares, respectively. These fee waivers and expense reimbursements are subject to possible recoupment from the Fund within three years after the fees have been waived or reimbursed, if such recoupment can be achieved within the foregoing expense limits or the expense limits in place at the time of recoupment, whichever is less. This agreement may be terminated only by the Trusts Board of Trustees on 60 days written notice to the Funds adviser. For performance information current to the most recent month-end, please call 1-877-896-2590. |
(a) | Inception date for Class A, C and I is December 30, 2014. |
(b) | Inception date for Class Y is December 27, 2018. |
(c) | The MSCI Emerging Markets Index captures large and mid cap representation across 23 Emerging Markets (EM) countries. With 822 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in each country. Index returns assume reinvestment of dividends. Investors may not invest in the Index directly; unlike the Funds returns, the Index does not reflect any fees or expenses. |
(d) | The Bloomberg Barclays Capital U.S. Aggregate Bond Index is an unmanaged index comprised of U.S. investment grade, fixed rate bond market securities, including government, government agency, corporate and mortgage-backed securities between one and ten years. Index returns assume reinvestment of dividends. Investors may not invest in the Index directly. Unlike the Funds returns, the Index does not reflect any fees or expenses. |
(e) | The Swan Defined Risk Emerging Markets Fund Blended Index is a composite of 60% MSCI Emerging Markets Index and 40% Bloomberg Barclays Capital U.S. Aggregate Bond Index. |
Portfolio Composition as of June 30, 2019 | ||||
Holdings by Asset Type | % of Net Assets | |||
Exchange-Traded Funds | 92.6 | % | ||
Purchased Put Options | 7.1 | % | ||
Short-Term Investments | 1.7 | % | ||
Purchased Call Options | 0.9 | % | ||
Put Options Written | (1.0 | )% | ||
Call Options Written | (1.9 | )% | ||
Other Assets in Excess of Liabilities | 0.6 | % | ||
100.0 | % |
Please refer to the Portfolio of Investments in this shareholder report for a detailed listing of the Funds holdings.
7
SWAN DEFINED RISK FOREIGN DEVELOPED FUND
PORTFOLIO REVIEW (Unaudited)
June 30, 2019
The Funds performance figures* for the periods ended June 30, 2019, as compared to its benchmarks:
Annualized | |||
One Year | Since Inception (a) | Since Inception (b) | |
Swan Defined Risk Foreign Developed Fund - Class A | (0.91)% | 2.18% | N/A |
Swan Defined Risk Foreign Developed Fund - Class A with Load | (6.39)% | 0.55% | N/A |
Swan Defined Risk Foreign Developed Fund - Class C | (1.69)% | 1.43% | N/A |
Swan Defined Risk Foreign Developed Fund - Class I | (0.71)% | 2.43% | N/A |
Swan Defined Risk Foreign Developed Fund - Class Y | N/A | N/A | 6.54% |
MSCI EAFE Index (c) | 1.60% | 6.67% | 16.71% |
Bloomberg Barclays Capital U.S. Aggregate Bond Index (d) | 7.87% | 3.57% | 6.42% |
Swan Defined Risk Foreign Developed Fund Blended Index (e) | 4.35% | 5.61% | 12.59% |
Comparision of the Change in Value of a $10,000 Investment
* | The performance data quoted is historical. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance data quoted. The principal value and investment return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. The returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or on the redemptions of Fund shares. The Funds total operating expenses, before any fee waivers, as stated in the fee table to the Funds prospectus dated December 14, 2018 are 2.26%, 3.01% and 2.01% for the Class A, C and I shares, respectively. The Funds total operating expenses, before any fee waivers, as stated in the fee table to the Funds prospectus dated November 2, 2018 as supplemented December 14, 2018, is 2.01% for Class Y shares. Class A shares are subject to a maximum sales charge of up to 5.50% imposed on purchases. The Funds adviser has contractually agreed to waive its fees and reimburse expenses of the Fund, at least until December 14, 2019 to ensure that Total Annual Fund Operating Expenses After Fee Waiver and Reimbursement (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) will not exceed 1.65%, 2.40%, 1.40%, and 1.02% of average daily net assets attributable to Class A, Class C, Class I, and Class Y shares, respectively. These fee waivers and expense reimbursements are subject to possible recoupment from the Fund within three years after the fees have been waived or reimbursed, if such recoupment can be achieved within the foregoing expense limits or the expense limits in place at the time of recoupment, whichever is less. This agreement may be terminated only by the Trusts Board of Trustees on 60 days written notice to the Funds adviser. For performance information current to the most recent month-end, please call 1-877-896-2590. |
(a) | Inception date for Class A, C and I is December 29, 2015. |
(b) | Inception date for Class Y is December 27, 2018. |
(c) | The MSCI EAFE Index is a stock market index that is designed to measure the equity market performance of developed markets outside of the U.S. & Canada. Index returns assume reinvestment of dividends. Investors may not invest in the Index directly; unlike the Funds returns, the Index does not reflect any fees or expenses. |
(d) | The Bloomberg Barclays Capital U.S. Aggregate Bond Index is an unmanaged index comprised of U.S. investment grade, fixed rate bond market securities, including government, government agency, corporate and mortgage-backed securities between one and ten years. Index returns assume reinvestment of dividends. Investors may not invest in the Index directly. Unlike the Funds returns, the Index does not reflect any fees or expenses. |
(e) | The Swan Defined Risk Foreign Developed Fund Blended Index is a composite of 60% MSCI EAFE Index and 40% Bloomberg Barclays Capital U.S. Aggregate Bond Index. |
Portfolio Composition as of June 30, 2019 | ||||
Holdings by Asset Type | % of Net Assets | |||
Exchange-Traded Funds | 93.8 | % | ||
Purchased Put Options | 5.1 | % | ||
Short-Term Investments | 2.1 | % | ||
Purchased Call Options | 0.9 | % | ||
Put Options Written | (0.9 | )% | ||
Call Options Written | (1.5 | )% | ||
Other Assets in Excess of Liabilities | 0.5 | % | ||
100.0 | % |
Please refer to the Portfolio of Investments in this shareholder report for a detailed listing of the Funds holdings.
8
SWAN DEFINED RISK GROWTH FUND
PORTFOLIO REVIEW (Unaudited)
June 30, 2019
The Funds performance figures* for the periods ended June 30, 2019, as compared to its benchmarks:
Since Inception (a) | |
Swan Defined Risk Growth Fund - Class A | 13.80% |
Swan Defined Risk Growth Fund - Class A with Load | 7.56% |
Swan Defined Risk Growth Fund - Class C | 13.80% |
Swan Defined Risk Growth Fund - Class I | 13.80% |
Swan Defined Risk Growth Fund - Class Y | 14.00% |
S&P 500 Total Return Index (b) | 19.43% |
Bloomberg Barclays Capital U.S. Aggregate Bond Index (c) | 6.42% |
Swan Defined Risk Growth Fund Blended Index (d) | 14.27% |
Comparision of the Change in Value of a $10,000 Investment
* | The performance data quoted is historical. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance data quoted. The principal value and investment return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. The returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or on the redemptions of Fund shares. The Funds total operating expenses, before any fee waivers, as stated in the fee table to the Funds prospectus dated December 14, 2018 are 2.12%, 2.87% and 1.87% for the Class A, C and I shares, respectively. The Funds total operating expenses, before any fee waivers, as stated in the fee table to the Funds prospectus dated November 2, 2018 as supplemented December 14, 2018, is 1.87% for class Y shares. Class A shares are subject to a maximum sales charge of up to 5.50% imposed on purchases. The Funds adviser has contractually agreed to waive its fees and reimburse expenses of the Fund, at least until October 31, 2020 to ensure that Total Annual Fund Operating Expenses After Fee Waiver and Reimbursement (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) will not exceed 1.65%, 2.40%, 1.40%, and 1.02% of average daily net assets attributable to Class A, Class C, Class I and Class Y shares, respectively. These fee waivers and expense reimbursements are subject to possible recoupment from the Fund within three years after the fees have been waived or reimbursed, if such recoupment can be achieved within the foregoing expense limits or the expense limits in place at the time of recoupment, whichever is less. This agreement may be terminated only by the Trusts Board of Trustees on 60 days written notice to the Funds adviser. For performance information current to the most recent month-end, please call 1-877-896-2590. |
(a) | Inception date is December 27, 2018. |
(b) | The S&P 500 Total Return Index is an unmanaged free-float capitalization-weighted index which measures the performance of 500 large-cap common stocks actively traded in the United States. Index returns assume reinvestment of dividends. Investors may not invest in the Index directly; unlike the Funds returns, the Index does not reflect any fees or expenses. |
(c) | The Bloomberg Barclays Capital U.S. Aggregate Bond Index is an unmanaged index comprised of U.S. investment grade, fixed rate bond market securities, including government, government agency, corporate and mortgage-backed securities between one and ten years. Index returns assume reinvestment of dividends. Investors may not invest in the Index directly. Unlike the Funds returns, the Index does not reflect any fees or expenses. |
(d) | The Swan Defined Risk Growth Fund Blended Index is a composite of 60% S&P 500 Total Return Index and 40% Bloomberg Barclays Capital U.S. Aggregate Bond Index. |
Portfolio Composition as of June 30, 2019 | ||||
Holdings by Asset Type | % of Net Assets | |||
Exchange-Traded Funds | 84.3 | % | ||
Short-Term Investments | 9.6 | % | ||
Purchased Call Options | 6.4 | % | ||
Purchased Put Options | 4.8 | % | ||
Put Options Written | (0.7 | )% | ||
Call Options Written | (4.0 | )% | ||
Liabilities in Excess of other Assets | (0.4 | )% | ||
100.0 | % |
Please refer to the Portfolio of Investments in this shareholder report for a detailed listing of the Funds holdings.
9
SWAN DEFINED RISK U.S. SMALL CAP FUND
PORTFOLIO REVIEW (Unaudited)
June 30, 2019
The Funds performance figures* for the periods ended June 30, 2019, as compared to its benchmarks:
Annualized | |||
One Year | Since Inception (a) | Since Inception (b) | |
Swan Defined Risk U.S. Small Cap Fund - Class A | (3.79)% | 5.24% | N/A |
Swan Defined Risk U.S. Small Cap Fund - Class A with Load | (9.08)% | 3.55% | N/A |
Swan Defined Risk U.S. Small Cap Fund - Class C | (4.52)% | 4.47% | N/A |
Swan Defined Risk U.S. Small Cap Fund - Class I | (3.53)% | 5.49% | N/A |
Swan Defined Risk U.S. Small Cap Fund - Class Y | N/A | N/A | 10.68% |
Russell 2000 Total Return Index (c) | (3.31)% | 10.47% | 18.53% |
Bloomberg Barclays Capital U.S. Aggregate Bond Index (d) | 7.87% | 3.57% | 6.42% |
Swan Defined Risk U.S. Small Cap Fund Blended Index (e) | 1.77% | 8.08% | 13.86% |
Comparision of the Change in Value of a $10,000 Investment
* | The performance data quoted is historical. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance data quoted. The principal value and investment return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. The returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or on the redemptions of Fund shares. The Funds total operating expenses, before any fee waivers, as stated in the fee table to the Funds prospectus dated December 14, 2018 are 2.12%, 2.87% and 1.87% for the Class A, C and I shares, respectively. The Funds total operating expenses, before any fee waivers, as stated in the fee table of the Funds prospectus dated November 2, 2018 as supplemented December 14, 2018, is 1.87%, for class Y shares. Class A shares are subject to a maximum sales charge of up to 5.50% imposed on purchases. The Funds adviser has contractually agreed to waive its fees and reimburse expenses of the Fund, at least until December 14, 2019 to ensure that Total Annual Fund Operating Expenses After Fee Waiver and Reimbursement (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) will not exceed 1.65%, 2.40%, 1.40%, and 1.02% of average daily net assets attributable to Class A, Class C, Class I, and Class Y shares, respectively. These fee waivers and expense reimbursements are subject to possible recoupment from the Fund within three years after the fees have been waived or reimbursed, if such recoupment can be achieved within the foregoing expense limits or the expense limits in place at the time of recoupment, whichever is less. This agreement may be terminated only by the Trusts Board of Trustees on 60 days written notice to the Funds adviser. For performance information current to the most recent month-end, please call 1-877-896-2590. |
(a) | Inception date for Class A, C and I is December 29, 2015. |
(b) | Inception date for Class Y is December 27, 2018. |
(c) | The Russell 2000 Total Return Index is an unmanaged market capitalization-weighted index which measures the performance of the small-cap sector of the U.S. stock market. Index returns assume reinvestment of dividends. Investors may not invest in the Index directly; unlike the Funds returns, the Index does not reflect any fees or expenses. |
(d) | The Bloomberg Barclays Capital U.S. Aggregate Bond Index is an unmanaged index comprised of U.S. investment grade, fixed rate bond market securities, including government, government agency, corporate and mortgage-backed securities between one and ten years. Index returns assume reinvestment of dividends. Investors may not invest in the Index directly. Unlike the Funds returns, the Index does not reflect any fees or expenses. |
(e) | The Swan Defined Risk U.S. Small Cap Fund Blended Index is a composite of 60% Russell 2000 Total Return Index and 40% Bloomberg Barclays Capital U.S. Aggregate Bond Index. |
Portfolio Composition as of June 30, 2019 | ||||
Holdings by Asset Type | % of Net Assets | |||
Exchange-Traded Funds | 93.8 | % | ||
Purchased Put Options | 5.6 | % | ||
Short-Term Investments | 1.2 | % | ||
Purchased Call Options | 0.9 | % | ||
Put Options Written | (0.8 | )% | ||
Call Options Written | (1.5 | )% | ||
Other Assets in Excess of Liabilities | 0.8 | % | ||
100.0 | % |
Please refer to the Portfolio of Investments in this shareholder report for a detailed listing of the Funds holdings.
10
SWAN DEFINED RISK FUND |
PORTFOLIO OF INVESTMENTS |
June 30, 2019 |
Shares | Fair Value | |||||||
EXCHANGE-TRADED FUNDS - 93.3% | ||||||||
EQUITY FUNDS - 93.3% | ||||||||
3,885,427 | Communication Services Select Sector SPDR Fund | $ | 191,240,717 | |||||
1,621,783 | Consumer Discretionary Select Sector SPDR Fund ^ | 193,316,534 | ||||||
3,351,641 | Consumer Staples Select Sector SPDR Fund ^ | 194,629,793 | ||||||
2,892,020 | Energy Select Sector SPDR Fund ^ | 184,250,594 | ||||||
5,626,923 | Financial Select Sector SPDR Fund ^ | 155,303,075 | ||||||
2,016,495 | Health Care Select Sector SPDR Fund ^ | 186,808,097 | ||||||
2,504,011 | Industrial Select Sector SPDR Fund ^ | 193,860,532 | ||||||
3,461,912 | Materials Select Sector SPDR Fund ^ | 202,521,852 | ||||||
1,010,060 | Real Estate Select Sector SPDR Fund ^ | 37,139,906 | ||||||
2,507,156 | Technology Select Sector SPDR Fund ^ | 195,658,454 | ||||||
3,236,696 | Utilities Select Sector SPDR Fund ^ | 193,004,182 | ||||||
TOTAL EXCHANGE-TRADED FUNDS (Cost - $1,382,065,951) | 1,927,733,736 |
Contracts * | Expiration Date | Exercise Price | Notional Value | |||||||||||||||
PURCHASED OPTIONS - 8.3% | ||||||||||||||||||
PURCHASED CALL OPTIONS - 1.6% | ||||||||||||||||||
1,626 | S&P 500 Index + | 7/12/2019 | $ | 3,140 | $ | 510,564,000 | $ | 44,715 | ||||||||||
1,624 | S&P 500 Index + | 7/12/2019 | 3,150 | 511,560,000 | 40,600 | |||||||||||||
784 | S&P 500 Index + | 7/19/2019 | 2,840 | 222,656,000 | 8,925,840 | |||||||||||||
784 | S&P 500 Index + | 7/19/2019 | 2,890 | 226,576,000 | 5,664,400 | |||||||||||||
250 | S&P 500 Index + | 11/15/2019 | 2,850 | 71,250,000 | 4,172,500 | |||||||||||||
250 | S&P 500 Index + | 11/15/2019 | 3,050 | 76,250,000 | 1,171,250 | |||||||||||||
749 | S&P 500 Index + | 12/31/2019 | 2,875 | 215,337,500 | 12,358,500 | |||||||||||||
749 | S&P 500 Index + | 12/31/2019 | 3,175 | 237,807,500 | 1,610,350 | |||||||||||||
TOTAL CALL OPTIONS PURCHASED (Cost - $20,442,566) | 33,988,155 | |||||||||||||||||
PURCHASED PUT OPTIONS - 6.7% | ||||||||||||||||||
1,802 | S&P 500 Index + | 7/19/2019 | 2,325 | 418,965,000 | 58,565 | |||||||||||||
1,583 | S&P 500 Index + | 8/16/2019 | 2,835 | 448,780,500 | 4,361,165 | |||||||||||||
1,504 | S&P 500 Index + | 9/20/2019 | 2,575 | 387,280,000 | 1,955,200 | |||||||||||||
1,408 | S&P 500 Index + | 9/30/2019 | 2,250 | 316,800,000 | 506,880 | |||||||||||||
1,408 | S&P 500 Index + | 9/30/2019 | 2,650 | 373,120,000 | 3,006,080 | |||||||||||||
1,063 | S&P 500 Index + | 12/31/2019 | 2,475 | 263,092,500 | 2,795,690 | |||||||||||||
1,572 | S&P 500 Index + | 12/31/2019 | 2,850 | 448,020,000 | 13,762,860 | |||||||||||||
1,063 | S&P 500 Index + | 12/31/2019 | 3,025 | 321,557,500 | 16,152,285 | |||||||||||||
3,030 | S&P 500 Index + | 12/18/2020 | 2,500 | 757,500,000 | 28,588,050 | |||||||||||||
799 | S&P 500 Index + | 12/18/2020 | 2,800 | 223,720,000 | 13,503,100 | |||||||||||||
2,863 | S&P 500 Index + | 12/18/2020 | 2,850 | 815,955,000 | 53,037,075 | |||||||||||||
TOTAL PUT OPTIONS PURCHASED (Cost - $232,609,016) | 137,726,950 | |||||||||||||||||
TOTAL PURCHASED OPTIONS (Cost - $253,051,582) | 171,715,105 |
Shares | ||||||||
SHORT-TERM INVESTMENTS - 2.4% | ||||||||
MONEY MARKET FUNDS - 2.4% | ||||||||
23,780,831 | Dreyfus Treasury Cash Management - Institutional Class, 2.21% ** | 23,780,831 | ||||||
25,520,501 | Goldman Sachs Financial Square Funds - Treasury Instruments Fund - Institutional Class, 1.93% ^ ** | 25,520,501 | ||||||
TOTAL SHORT TERM INVESTMENTS (Cost - $49,301,332) | 49,301,332 | |||||||
TOTAL INVESTMENTS - 104.0% (Cost - $1,684,418,865) | $ | 2,148,750,173 | ||||||
CALL OPTIONS WRITTEN - (2.3)% (Proceeds - $41,210,508) | (48,447,960 | ) | ||||||
PUT OPTIONS WRITTEN - (1.5)% (Proceeds - $63,530,403) | (30,005,070 | ) | ||||||
LIABILITIES IN EXCESS OF OTHER ASSETS - (0.2)% | (3,353,451 | ) | ||||||
NET ASSETS - 100.0% | $ | 2,066,943,692 |
Contracts * | Expiration Date | Exercise Price | Notional Value | |||||||||||||||
OPTIONS WRITTEN - (3.8)% | ||||||||||||||||||
CALL OPTIONS WRITTEN - (2.3)% | ||||||||||||||||||
1,568 | S&P 500 Index + | 7/19/2019 | $ | 2,865 | $ | 449,232,000 | $ | 14,496,160 | ||||||||||
6,566 | S&P 500 Index + | 9/20/2019 | 3,060 | 2,009,196,000 | 14,445,200 | |||||||||||||
1,626 | S&P 500 Index + | 9/20/2019 | 3,105 | 504,873,000 | 1,861,770 | |||||||||||||
1,624 | S&P 500 Index + | 9/20/2019 | 3,115 | 505,876,000 | 1,599,640 | |||||||||||||
500 | S&P 500 Index + | 11/15/2019 | 2,950 | 147,500,000 | 4,952,500 | |||||||||||||
1,498 | S&P 500 Index + | 12/31/2019 | 3,025 | 453,145,000 | 11,092,690 | |||||||||||||
TOTAL CALL OPTIONS WRITTEN (Proceeds - $41,210,508) | 48,447,960 | |||||||||||||||||
PUT OPTIONS WRITTEN - (1.5)% | ||||||||||||||||||
1,583 | S&P 500 Index + | 8/16/2019 | 2,810 | 444,823,000 | 3,696,305 | |||||||||||||
1,504 | S&P 500 Index + | 9/20/2019 | 2,475 | 372,240,000 | 1,218,240 | |||||||||||||
1,603 | S&P 500 Index + | 9/20/2019 | 2,550 | 408,765,000 | 1,851,465 | |||||||||||||
1,639 | S&P 500 Index + | 9/20/2019 | 2,625 | 430,237,500 | 2,704,350 | |||||||||||||
2,816 | S&P 500 Index + | 9/30/2019 | 2,450 | 689,920,000 | 2,421,760 | |||||||||||||
1,572 | S&P 500 Index + | 12/31/2019 | 2,500 | 393,000,000 | 4,495,920 | |||||||||||||
2,126 | S&P 500 Index + | 12/31/2019 | 2,750 | 584,650,000 | 13,617,030 | |||||||||||||
TOTAL PUT OPTIONS WRITTEN (Proceeds - $63,530,403) | 30,005,070 | |||||||||||||||||
TOTAL OPTIONS WRITTEN (Proceeds - $104,740,911) | $ | 78,453,030 | ||||||||||||||||
SPDR - Standard & Poors Depositary Receipts
^ | All or a portion of the security is held as collateral for written call and put options. |
* | Each option contract allows the holder of the option to purchase or sell 100 shares of the underlying security. |
+ | Non-income producing security. |
** | Money market fund; interest rate reflects seven-day effective yield on June 30, 2019. |
See accompanying notes to financial statements.
11
SWAN DEFINED RISK EMERGING MARKETS FUND |
PORTFOLIO OF INVESTMENTS |
June 30, 2019 |
Shares | Fair Value | |||||||
EXCHANGE-TRADED FUNDS - 92.6% | ||||||||
EQUITY FUND - 92.6% | ||||||||
335,810 | iShares Core MSCI Emerging Markets ETF | $ | 17,274,066 | |||||
591,713 | iShares MSCI Emerging Markets ETF ^ | 25,390,405 | ||||||
TOTAL EXCHANGE TRADED FUNDS (Cost - $39,226,341) | 42,664,471 |
Contracts * | Expiration Date | Exercise Price | Notional Value | |||||||||||||||
PURCHASED OPTIONS - 8.0% | ||||||||||||||||||
PURCHASED CALL OPTIONS - 0.9% | ||||||||||||||||||
16 | S&P 500 Index + | 7/19/2019 | $ | 2,840.00 | $ | 4,544,000 | $ | 182,160 | ||||||||||
16 | S&P 500 Index + | 7/19/2019 | 2,890.00 | 4,624,000 | 115,600 | |||||||||||||
5 | S&P 500 Index + | 11/15/2019 | 2,850.00 | 1,425,000 | 83,450 | |||||||||||||
5 | S&P 500 Index + | 11/15/2019 | 3,050.00 | 1,525,000 | 23,425 | |||||||||||||
TOTAL CALL OPTIONS PURCHASED (Cost - $219,113) | 404,635 | |||||||||||||||||
PURCHASED PUT OPTIONS - 7.1% | ||||||||||||||||||
1,102 | iShares MSCI Emerging Markets ETF + | 9/20/2019 | 37.00 | 4,077,400 | 25,346 | |||||||||||||
400 | iShares MSCI Emerging Markets ETF + | 9/20/2019 | 39.00 | 1,560,000 | 16,000 | |||||||||||||
1,502 | iShares MSCI Emerging Markets ETF + | 9/20/2019 | 43.00 | 6,458,600 | 217,790 | |||||||||||||
1,080 | iShares MSCI Emerging Markets ETF + | 9/30/2019 | 34.00 | 3,672,000 | 19,980 | |||||||||||||
1,080 | iShares MSCI Emerging Markets ETF + | 9/30/2019 | 38.00 | 4,104,000 | 34,560 | |||||||||||||
4,993 | iShares MSCI Emerging Markets ETF + | 1/15/2021 | 39.00 | 19,472,700 | 1,318,152 | |||||||||||||
4,982 | iShares MSCI Emerging Markets ETF + | 1/15/2021 | 40.00 | 19,928,000 | 1,556,875 | |||||||||||||
35 | S&P 500 Index + | 8/16/2019 | 2,835.00 | 9,922,500 | 96,425 | |||||||||||||
TOTAL PUT OPTIONS PURCHASED (Cost - $5,930,995) | 3,285,128 | |||||||||||||||||
TOTAL PURCHASED OPTIONS (Cost - $6,150,108) | 3,689,763 |
Shares | ||||||||
SHORT-TERM INVESTMENTS - 1.7% | ||||||||
MONEY MARKET FUND - 1.7% | ||||||||
800,032 | Dreyfus Treasury Cash Management - Institutional Class, 2.21% ** | 800,032 | ||||||
TOTAL SHORT TERM INVESTMENTS (Cost - $800,032) | ||||||||
TOTAL INVESTMENTS - 102.3% (Cost - $46,176,481) | $ | 47,154,266 | ||||||
CALL OPTIONS WRITTEN - (1.9)% (Proceeds - $680,988) | (865,146 | ) | ||||||
PUT OPTIONS WRITTEN - (1.0)% (Proceeds - $1,018,270) | (461,014 | ) | ||||||
OTHER ASSETS IN EXCESS OF LIABILITIES - 0.6% | 256,117 | |||||||
NET ASSETS - 100.0% | $ | 46,084,223 |
Contracts * | Expiration Date | Exercise Price | Notional Value | |||||||||||||||
OPTIONS WRITTEN - (2.9)% | ||||||||||||||||||
CALL OPTIONS WRITTEN - (1.9)% | ||||||||||||||||||
9,797 | iShares MSCI Emerging Markets ETF + | 9/20/2019 | $ | 45.50 | $ | 44,576,350 | $ | 470,256 | ||||||||||
32 | S&P 500 Index + | 7/19/2019 | 2,865.00 | 9,168,000 | 295,840 | |||||||||||||
10 | S&P 500 Index + | 11/15/2019 | 2,950.00 | 2,950,000 | 99,050 | |||||||||||||
TOTAL CALL OPTIONS WRITTEN (Proceeds - $680,988) | 865,146 | |||||||||||||||||
PUT OPTIONS WRITTEN - (1.0)% | ||||||||||||||||||
9,797 | iShares MSCI Emerging Markets ETF + | 9/20/2019 | 36.00 | 35,269,200 | 166,549 | |||||||||||||
3,004 | iShares MSCI Emerging Markets ETF + | 9/20/2019 | 40.00 | 12,016,000 | 165,220 | |||||||||||||
2,160 | iShares MSCI Emerging Markets ETF + | 9/30/2019 | 36.00 | 7,776,000 | 47,520 | |||||||||||||
35 | S&P 500 Index + | 8/16/2019 | 2,810.00 | 9,835,000 | 81,725 | |||||||||||||
TOTAL PUT OPTIONS WRITTEN (Proceeds - $1,018,270) | 461,014 | |||||||||||||||||
TOTAL OPTIONS WRITTEN (Proceeds - $1,699,258) | $ | 1,326,160 | ||||||||||||||||
ETF - Exchange-Traded Fund
MSCI - Morgan Stanley Capital International
^ | All or a portion of the security is held as collateral for written call and put options. |
* | Each option contract allows the holder of the option to purchase or sell 100 shares of the underlying security. |
+ | Non-income producing security. |
** | Money market fund; interest rate reflects seven-day effective yield on June 30, 2019. |
See accompanying notes to financial statements.
12
SWAN DEFINED RISK FOREIGN DEVELOPED FUND |
PORTFOLIO OF INVESTMENTS |
June 30, 2019 |
Shares | Fair Value | |||||||
EXCHANGE-TRADED FUND - 93.8% | ||||||||
EQUITY FUND - 93.8% | ||||||||
592,900 | iShares MSCI EAFE ETF ^ | $ | 38,971,317 | |||||
TOTAL EXCHANGE-TRADED FUND - (Cost - $35,822,664) | ||||||||
Contracts * | Expiration Date | Exercise Price | Notional Value | |||||||||||||||
PURCHASED OPTIONS - 6.0% | ||||||||||||||||||
PURCHASED CALL OPTIONS - 0.9% | ||||||||||||||||||
15 | S&P 500 Index + | 7/19/2019 | $ | 2,840 | $ | 4,260,000 | $ | 170,775 | ||||||||||
15 | S&P 500 Index + | 7/19/2019 | 2,890 | 4,335,000 | 108,375 | |||||||||||||
5 | S&P 500 Index + | 11/15/2019 | 2,850 | 1,425,000 | 83,450 | |||||||||||||
5 | S&P 500 Index + | 11/15/2019 | 3,050 | 1,525,000 | 23,425 | |||||||||||||
TOTAL CALL OPTIONS PURCHASED (Cost - $209,298) | 386,025 | |||||||||||||||||
PURCHASED PUT OPTIONS - 5.1% | ||||||||||||||||||
1,198 | iShares MSCI EAFE ETF + | 12/20/2019 | 57 | 6,828,600 | 51,514 | |||||||||||||
1,198 | iShares MSCI EAFE ETF + | 12/20/2019 | 63 | 7,547,400 | 167,720 | |||||||||||||
2,977 | iShares MSCI EAFE ETF + | 1/15/2021 | 60 | 17,862,000 | 851,422 | |||||||||||||
2,817 | iShares MSCI EAFE ETF + | 1/15/2021 | 61 | 17,183,700 | 887,355 | |||||||||||||
135 | iShares MSCI EAFE ETF + | 1/15/2021 | 65 | 877,500 | 55,687 | |||||||||||||
1 | MSCI EAFE Index + | 12/20/2019 | 1,600 | 160,000 | 890 | |||||||||||||
1 | MSCI EAFE Index + | 12/20/2019 | 1,800 | 180,000 | 3,015 | |||||||||||||
31 | S&P 500 Index + | 8/16/2019 | 2,835 | 8,788,500 | 85,405 | |||||||||||||
TOTAL PUT OPTIONS PURCHASED (Cost - $3,964,581) | 2,103,008 | |||||||||||||||||
TOTAL PURCHASED OPTIONS (Cost - $4,173,879) | 2,489,033 |
Shares | ||||||||
SHORT-TERM INVESTMENTS - 2.1% | ||||||||
MONEY MARKET FUND - 2.1% | ||||||||
877,982 | Dreyfus Treasury Cash Management - Institutional Class, 2.21% ** | 877,982 | ||||||
TOTAL SHORT TERM INVESTMENTS (Cost - $877,982) | ||||||||
TOTAL INVESTMENTS - 101.9% (Cost - $40,874,525) | $ | 42,338,332 | ||||||
CALL OPTIONS WRITTEN - (1.5)% (Proceeds - $358,889) | (630,142 | ) | ||||||
PUT OPTIONS WRITTEN - (0.9)% (Proceeds - $786,561) | (374,519 | ) | ||||||
OTHER ASSETS IN EXCESS OF LIABILITIES - 0.5% | 226,024 | |||||||
NET ASSETS - 100.0% | $ | 41,559,695 |
Contracts * | Expiration Date | Exercise Price | Notional Value | |||||||||||||||
OPTIONS WRITTEN - (2.4)% | ||||||||||||||||||
CALL OPTIONS WRITTEN - (1.5)% | ||||||||||||||||||
2,938 | iShares MSCI EAFE ETF + | 9/20/2019 | $ | 68 | $ | 19,978,400 | $ | 155,714 | ||||||||||
2,723 | iShares MSCI EAFE ETF + | 9/20/2019 | 69 | 18,788,700 | 98,028 | |||||||||||||
30 | S&P 500 Index + | 7/19/2019 | 2,865 | 8,595,000 | 277,350 | |||||||||||||
10 | S&P 500 Index + | 11/15/2019 | 2,950 | 2,950,000 | 99,050 | |||||||||||||
TOTAL CALL OPTIONS WRITTEN (Proceeds - $358,889) | 630,142 | |||||||||||||||||
PUT OPTIONS WRITTEN - (0.9)% | ||||||||||||||||||
1,437 | iShares MSCI EAFE ETF + | 9/20/2019 | 58 | 8,334,600 | 25,866 | |||||||||||||
2,869 | iShares MSCI EAFE ETF + | 9/20/2019 | 60 | 17,214,000 | 86,070 | |||||||||||||
2,396 | iShares MSCI EAFE ETF + | 12/20/2019 | 60 | 14,376,000 | 186,888 | |||||||||||||
2 | MSCI EAFE Index + | 12/20/2019 | 1,700 | 340,000 | 3,310 | |||||||||||||
31 | S&P 500 Index + | 8/16/2019 | 2,810 | 8,711,000 | 72,385 | |||||||||||||
TOTAL PUT OPTIONS WRITTEN (Proceeds - $786,561) | 374,519 | |||||||||||||||||
TOTAL OPTIONS WRITTEN (Proceeds - $1,145,450) | $ | 1,004,661 | ||||||||||||||||
EAFE - Europe, Australasia and Far East
ETF - Exchange-Traded Fund
MSCI - Morgan Stanley Capital International
^ | All or a portion of the security is held as collateral for written call and put options. |
* | Each option contract allows the holder of the option to purchase or sell 100 shares of the underlying security. |
+ | Non-income producing security. |
** | Money market fund; interest rate reflects seven-day effective yield on June 30, 2019. |
See accompanying notes to financial statements.
13
SWAN DEFINED RISK GROWTH FUND |
PORTFOLIO OF INVESTMENTS |
June 30, 2019 |
Shares | Fair Value | |||||||
EXCHANGE-TRADED FUND - 84.3% | ||||||||
EQUITY FUND - 84.3% | ||||||||
11,000 | iShares Core S&P 500 ETF ^ | $ | 3,242,250 | |||||
TOTAL EXCHANGE-TRADED FUND - (Cost - $3,031,926) | ||||||||
Contracts * | Expiration Date | Exercise Price | Notional Value | |||||||||||||||
PURCHASED OPTIONS - 11.2% | ||||||||||||||||||
PURCHASED CALL OPTIONS - 6.4% | ||||||||||||||||||
3 | S&P 500 Index + | 7/5/2019 | $ | 3,400 | $ | 1,020,000 | $ | 45 | ||||||||||
3 | S&P 500 Index + | 7/12/2019 | 3,140 | 942,000 | 82 | |||||||||||||
3 | S&P 500 Index + | 7/12/2019 | 3,150 | 945,000 | 75 | |||||||||||||
1 | S&P 500 Index + | 7/19/2019 | 2,840 | 284,000 | 11,385 | |||||||||||||
1 | S&P 500 Index + | 7/19/2019 | 2,890 | 289,000 | 7,225 | |||||||||||||
4 | S&P 500 Index + | 12/18/2020 | 2,775 | 1,110,000 | 129,280 | |||||||||||||
1 | S&P 500 Index + | 12/18/2020 | 2,925 | 292,500 | 22,835 | |||||||||||||
2 | S&P 500 Index + | 12/18/2020 | 3,075 | 615,000 | 29,500 | |||||||||||||
4 | S&P 500 Index + | 12/18/2020 | 3,150 | 1,260,000 | 45,480 | |||||||||||||
TOTAL CALL OPTIONS PURCHASED (Cost - $160,666) | 245,907 | |||||||||||||||||
PURCHASED PUT OPTIONS - 4.8% | ||||||||||||||||||
2 | S&P 500 Index + | 7/19/2019 | 2,325 | 465,000 | 65 | |||||||||||||
2 | S&P 500 Index + | 8/16/2019 | 2,835 | 567,000 | 5,510 | |||||||||||||
1 | S&P 500 Index + | 9/20/2019 | 2,675 | 267,500 | 2,090 | |||||||||||||
2 | S&P 500 Index + | 9/30/2019 | 2,490 | 498,000 | 2,060 | |||||||||||||
1 | S&P 500 Index + | 9/30/2019 | 2,550 | 255,000 | 1,360 | |||||||||||||
1 | S&P 500 Index + | 12/31/2019 | 2,475 | 247,500 | 2,630 | |||||||||||||
1 | S&P 500 Index + | 12/31/2019 | 3,025 | 302,500 | 15,195 | |||||||||||||
1 | S&P 500 Index + | 12/18/2020 | 2,575 | 257,500 | 10,985 | |||||||||||||
3 | S&P 500 Index + | 12/18/2020 | 2,625 | 787,500 | 36,360 | |||||||||||||
4 | S&P 500 Index + | 12/18/2020 | 2,750 | 1,100,000 | 61,580 | |||||||||||||
3 | S&P 500 Index + | 12/18/2020 | 2,775 | 832,500 | 48,405 | |||||||||||||
TOTAL PUT OPTIONS PURCHASED (Cost - $221,307) | 186,240 | |||||||||||||||||
TOTAL OPTIONS PURCHASED (Cost - $381,973) | 432,147 |
Shares | ||||||||
SHORT-TERM INVESTMENTS - 9.6% | ||||||||
MONEY MARKET FUNDS - 9.6% | ||||||||
347,123 | Dreyfus Treasury Cash Management - Institutional Class, 2.21% ** | 347,123 | ||||||
21,308 | Goldman Sachs Financial Square Funds - Treasury Instruments Fund - Institutional Class, 1.93% ^ ** | 21,308 | ||||||
TOTAL SHORT TERM INVESTMENTS (Cost - $368,431) | 368,431 | |||||||
TOTAL INVESTMENTS - 105.1% (Cost - $3,782,330) | $ | 4,042,828 | ||||||
CALL OPTIONS WRITTEN - (4.0)% (Proceeds - $118,193) | (153,385 | ) | ||||||
PUT OPTIONS WRITTEN - (0.7)% (Proceeds - $47,999) | (28,370 | ) | ||||||
LIABILITIES IN EXCESS OF OTHER ASSETS - (0.4)% | (15,733 | ) | ||||||
NET ASSETS - 100.0% | $ | 3,845,340 |
Contracts * | Expiration Date | Exercise Price | Notional Value | |||||||||||||||
OPTIONS WRITTEN - (4.7)% | ||||||||||||||||||
CALL OPTIONS WRITTEN - (4.0)% | ||||||||||||||||||
2 | S&P 500 Index + | 7/19/2019 | $ | 2,865 | $ | 573,000 | $ | 18,490 | ||||||||||
2 | S&P 500 Index + | 7/31/2019 | 2,900 | 580,000 | 15,140 | |||||||||||||
1 | S&P 500 Index + | 7/31/2019 | 3,040 | 304,000 | 820 | |||||||||||||
11 | S&P 500 Index + | 9/20/2019 | 3,060 | 3,366,000 | 24,200 | |||||||||||||
3 | S&P 500 Index + | 9/20/2019 | 3,105 | 931,500 | 3,435 | |||||||||||||
3 | S&P 500 Index + | 9/20/2019 | 3,115 | 934,500 | 2,955 | |||||||||||||
4 | S&P 500 Index + | 12/18/2020 | 3,100 | 1,240,000 | 54,280 | |||||||||||||
1 | S&P 500 Index + | 12/18/2020 | 3,225 | 322,500 | 8,505 | |||||||||||||
2 | S&P 500 Index + | 12/18/2020 | 3,350 | 670,000 | 9,880 | |||||||||||||
4 | S&P 500 Index + | 12/18/2020 | 3,400 | 1,360,000 | 15,680 | |||||||||||||
TOTAL CALL OPTIONS WRITTEN (Proceeds - $118,193) | 153,385 | |||||||||||||||||
PUT OPTIONS WRITTEN - (0.7)% | ||||||||||||||||||
2 | S&P 500 Index + | 8/16/2019 | 2,810 | 562,000 | 4,670 | |||||||||||||
1 | S&P 500 Index + | 9/20/2019 | 2,525 | 252,500 | 1,025 | |||||||||||||
3 | S&P 500 Index + | 9/20/2019 | 2,550 | 765,000 | 3,465 | |||||||||||||
3 | S&P 500 Index + | 9/20/2019 | 2,625 | 787,500 | 4,950 | |||||||||||||
1 | S&P 500 Index + | 9/30/2019 | 2,275 | 227,500 | 400 | |||||||||||||
2 | S&P 500 Index + | 9/30/2019 | 2,340 | 468,000 | 1,050 | |||||||||||||
2 | S&P 500 Index + | 12/31/2019 | 2,750 | 550,000 | 12,810 | |||||||||||||
TOTAL PUT OPTIONS WRITTEN (Proceeds - $47,999) | 28,370 | |||||||||||||||||
TOTAL OPTIONS WRITTEN (Proceeds - $166,192) | $ | 181,755 | ||||||||||||||||
ETF - Exchange Traded Fund
^ | All or a portion of the security is held as collateral for written call and put options. |
* | Each option contract allows the holder of the option to purchase or sell 100 shares of the underlying security. |
+ | Non-income producing security. |
** | Money market fund; interest rate reflects seven-day effective yield on June 30, 2019. |
See accompanying notes to financial statements.
14
SWAN DEFINED RISK U.S. SMALL CAP FUND |
PORTFOLIO OF INVESTMENTS |
June 30, 2019 |
Shares | Fair Value | |||||||
EXCHANGE-TRADED FUND - 93.8% | ||||||||
EQUITY FUND - 93.8% | ||||||||
251,000 | iShares Russell 2000 ETF ^ | $ | 39,030,500 | |||||
TOTAL EXCHANGE-TRADED FUND - (Cost - $32,860,643) | ||||||||
Contracts * | Expiration Date | Exercise Price | Notional Value | |||||||||||||||
PURCHASED OPTIONS - 6.5% | ||||||||||||||||||
PURCHASED CALL OPTIONS - 0.9% | ||||||||||||||||||
15 | S&P 500 Index + | 7/19/2019 | $ | 2,840 | $ | 4,260,000 | $ | 170,775 | ||||||||||
15 | S&P 500 Index + | 7/19/2019 | 2,890 | 4,335,000 | 108,375 | |||||||||||||
5 | S&P 500 Index + | 11/15/2019 | 2,850 | 1,425,000 | 83,450 | |||||||||||||
5 | S&P 500 Index + | 11/15/2019 | 3,050 | 1,525,000 | 23,425 | |||||||||||||
34 | S&P 500 Index + | 7/12/2019 | 3,140 | 10,676,000 | 935 | |||||||||||||
34 | S&P 500 Index + | 7/12/2019 | 3,150 | 10,710,000 | 850 | |||||||||||||
TOTAL CALL OPTIONS PURCHASED (Cost - $211,347) | 387,810 | |||||||||||||||||
PURCHASED PUT OPTIONS - 5.6% | ||||||||||||||||||
34 | Russell 2000 Index + | 9/20/2019 | 1,520 | 5,168,000 | 105,570 | |||||||||||||
136 | Russell 2000 Index + | 12/18/2020 | 1,350 | 18,360,000 | 801,720 | |||||||||||||
88 | Russell 2000 Index + | 12/18/2020 | 1,400 | 12,320,000 | 627,880 | |||||||||||||
27 | Russell 2000 Index + | 12/18/2020 | 1,550 | 4,185,000 | 325,350 | |||||||||||||
49 | Russell 2000 Index + | 12/20/2019 | 1,580 | 7,742,000 | 363,580 | |||||||||||||
32 | S&P 500 Index + | 8/16/2019 | 2,835 | 9,072,000 | 88,160 | |||||||||||||
TOTAL PUT OPTIONS PURCHASED (Cost - $4,202,342) | 2,312,260 | |||||||||||||||||
TOTAL OPTIONS PURCHASED (Cost - $4,413,689) | 2,700,070 |
Shares | ||||||||
SHORT-TERM INVESTMENTS - 1.2% | ||||||||
MONEY MARKET FUND - 1.2% | ||||||||
502,946 | Dreyfus Treasury Cash Management - Institutional Class, 2.21% ** | 502,946 | ||||||
TOTAL SHORT TERM INVESTMENTS (Cost - $502,946) | ||||||||
TOTAL INVESTMENTS - 101.5% (Cost - $37,777,278) | $ | 42,233,516 | ||||||
CALL OPTIONS WRITTEN - (1.5)% (Proceeds - $408,309) | (607,540 | ) | ||||||
PUT OPTIONS WRITTEN - (0.8)% (Proceeds - $596,155) | (336,865 | ) | ||||||
OTHER ASSETS IN EXCESS OF LIABILITIES - 0.8% | 310,952 | |||||||
NET ASSETS - 100.0% | $ | 41,600,063 |
Contracts * | Expiration Date | Exercise Price | Notional Value | |||||||||||||||
OPTIONS WRITTEN - (2.3)% | ||||||||||||||||||
CALL OPTIONS WRITTEN - (1.5)% | ||||||||||||||||||
124 | Russell 2000 Index + | 9/20/2019 | $ | 1,660 | $ | 20,584,000 | $ | 158,720 | ||||||||||
30 | S&P 500 Index + | 7/19/2019 | 2,865 | 8,595,000 | 277,350 | |||||||||||||
34 | S&P 500 Index + | 9/20/2019 | 3,105 | 10,557,000 | 38,930 | |||||||||||||
34 | S&P 500 Index + | 9/20/2019 | 3,115 | 10,591,000 | 33,490 | |||||||||||||
10 | S&P 500 Index + | 11/15/2019 | 2,950 | 2,950,000 | 99,050 | |||||||||||||
TOTAL CALL OPTIONS WRITTEN (Proceeds - $408,309) | 607,540 | |||||||||||||||||
PUT OPTIONS WRITTEN - (0.8)% | ||||||||||||||||||
34 | Russell 2000 Index + | 9/20/2019 | 1,360 | 4,624,000 | 24,650 | |||||||||||||
124 | Russell 2000 Index + | 9/20/2019 | 1,370 | 16,988,000 | 98,580 | |||||||||||||
49 | Russell 2000 Index + | 12/20/2019 | 1,420 | 6,958,000 | 138,915 | |||||||||||||
32 | S&P 500 Index + | 8/16/2019 | 2,810 | 8,992,000 | 74,720 | |||||||||||||
TOTAL PUT OPTIONS WRITTEN (Proceeds - $596,155) | 336,865 | |||||||||||||||||
TOTAL OPTIONS WRITTEN (Proceeds - $1,004,464) | $ | 944,405 | ||||||||||||||||
ETF - Exchange-Traded Fund
^ | All or a portion of the security is held as collateral for written call and put options. |
* | Each option contract allows the holder of the option to purchase or sell 100 shares of the underlying security. |
+ | Non-income producing security. |
** | Money market fund; interest rate reflects seven-day effective yield on June 30, 2019. |
See accompanying notes to financial statements.
15
SWAN FUNDS |
STATEMENTS OF ASSETS AND LIABILITIES |
June 30, 2019 |
Swan Defined Risk | Swan Defined Risk | Swan Defined Risk | Swan Defined Risk | |||||||||||||||||
Swan Defined Risk | Emerging Markets | Foreign Developed | Growth | U.S. Small Cap | ||||||||||||||||
Fund | Fund | Fund | Fund | Fund | ||||||||||||||||
ASSETS | ||||||||||||||||||||
Investment securities: | ||||||||||||||||||||
Investments, at cost | $ | 1,684,418,865 | $ | 46,176,481 | $ | 40,874,525 | $ | 3,782,330 | $ | 37,777,278 | ||||||||||
Investments, at value | 2,148,750,173 | 47,154,266 | 42,338,332 | 4,042,828 | 42,233,516 | |||||||||||||||
Cash held at broker | — | 324,847 | 307,638 | 3 | 409,712 | |||||||||||||||
Receivable for Fund shares sold | 1,194,469 | 1,108 | 10,182 | — | 582 | |||||||||||||||
Dividends and interest receivable | 22,667 | 1,258 | 1,412 | 588 | 638 | |||||||||||||||
Prepaid expenses and other assets | 148,683 | 28,288 | 25,920 | 12,469 | 20,836 | |||||||||||||||
TOTAL ASSETS | 2,150,115,992 | 47,509,767 | 42,683,484 | 4,055,888 | 42,665,284 | |||||||||||||||
LIABILITIES | ||||||||||||||||||||
Options written, at value (Premiums received - $104,740,911, $1,699,258, $1,145,450, $166,192 and $1,004,464, respectively) | 78,453,030 | 1,326,160 | 1,004,661 | 181,755 | 944,405 | |||||||||||||||
Payable for Fund shares repurchased | 2,399,930 | 47,092 | 81,041 | — | 77,056 | |||||||||||||||
Investment advisory fees payable | 1,701,502 | 25,470 | 13,886 | 3,441 | 18,615 | |||||||||||||||
Distribution (12b-1) fees payable | 218,409 | 3,145 | 1,635 | — | 1,867 | |||||||||||||||
Payable to related parties | 110,158 | 4,456 | 4,400 | 3,948 | 4,966 | |||||||||||||||
Accrued expenses and other liabilities | 289,271 | 19,221 | 18,166 | 21,404 | 18,312 | |||||||||||||||
TOTAL LIABILITIES | 83,172,300 | 1,425,544 | 1,123,789 | 210,548 | 1,065,221 | |||||||||||||||
NET ASSETS | $ | 2,066,943,692 | $ | 46,084,223 | $ | 41,559,695 | $ | 3,845,340 | $ | 41,600,063 | ||||||||||
NET ASSETS CONSIST OF: | ||||||||||||||||||||
Paid in capital | $ | 1,820,323,900 | $ | 46,978,247 | $ | 42,299,646 | $ | 3,648,099 | $ | 39,069,943 | ||||||||||
Accumulated earnings (loss) | 246,619,792 | (894,024 | ) | (739,951 | ) | 197,241 | 2,530,120 | |||||||||||||
NET ASSETS | $ | 2,066,943,692 | $ | 46,084,223 | $ | 41,559,695 | $ | 3,845,340 | $ | 41,600,063 | ||||||||||
NET ASSET VALUE PER SHARE: | ||||||||||||||||||||
Class A Shares: | ||||||||||||||||||||
Net Assets | $ | 240,274,208 | $ | 3,959,431 | $ | 2,453,815 | $ | 11 | $ | 2,206,491 | ||||||||||
Shares of beneficial interest outstanding ($0 par value, unlimited shares authorized) | 18,765,512 | 401,726 | 239,619 | 1 | 185,156 | |||||||||||||||
Net asset value (Net Assets ÷ Shares Outstanding) and offering price per share | $ | 12.80 | $ | 9.86 | $ | 10.24 | $ | 11.38 | (a) | $ | 11.92 | |||||||||
Maximum offering price per share (maximum sales charge of 5.50%) | $ | 13.54 | $ | 10.43 | $ | 10.84 | $ | 12.04 | $ | 12.61 | ||||||||||
Class C Shares : | ||||||||||||||||||||
Net Assets | $ | 204,574,697 | $ | 2,808,640 | $ | 1,402,827 | $ | 11 | $ | 1,743,927 | ||||||||||
Shares of beneficial interest outstanding ($0 par value, unlimited shares authorized) | 16,267,050 | 292,709 | 138,646 | 1 | 150,035 | |||||||||||||||
Net asset value (Net Assets ÷ Shares Outstanding), redemption price and offering price per share | $ | 12.58 | $ | 9.60 | $ | 10.12 | $ | 11.38 | (a) | $ | 11.62 | |||||||||
Class I Shares: | ||||||||||||||||||||
Net Assets | $ | 1,622,056,509 | $ | 39,206,015 | $ | 37,596,251 | $ | 3,610,126 | $ | 37,533,578 | ||||||||||
Shares of beneficial interest outstanding ($0 par value, unlimited shares authorized) | 126,139,770 | 3,954,915 | 3,668,628 | 317,226 | 3,126,297 | |||||||||||||||
Net asset value (Net Assets ÷ Shares Outstanding), redemption price and offering price per share | $ | 12.86 | $ | 9.91 | $ | 10.25 | $ | 11.38 | $ | 12.01 | ||||||||||
Class Y Shares: | ||||||||||||||||||||
Net Assets | $ | 38,278 | $ | 110,137 | $ | 106,802 | $ | 235,192 | $ | 116,067 | ||||||||||
Shares of beneficial interest outstanding ($0 par value, unlimited shares authorized) | 2,975 | 11,081 | 10,404 | 20,627 | 9,655 | |||||||||||||||
Net asset value (Net Assets ÷ Shares Outstanding), redemption price and offering price per share (a) | $ | 12.87 | $ | 9.94 | $ | 10.27 | $ | 11.40 | $ | 12.02 | ||||||||||
(a) | Net assets divided by shares outstanding does not equal net asset value due to rounding. |
See accompanying notes to financial statements.
16
SWAN FUNDS |
STATEMENTS OF OPERATIONS |
For the Year or Period Ended June 30, 2019 |
Swan Defined Risk | Swan Defined Risk | Swan Defined Risk | ||||||||||||||||||
Swan Defined Risk | Emerging Markets | Foreign Developed | Swan Defined Risk | U.S. Small Cap | ||||||||||||||||
Fund | Fund | Fund | Growth Fund (a) | Fund | ||||||||||||||||
INVESTMENT INCOME | ||||||||||||||||||||
Dividends | $ | 49,850,799 | $ | 1,021,122 | $ | 1,200,152 | $ | 23,425 | $ | 674,188 | ||||||||||
Interest | 325,109 | 13,443 | 9,553 | 2,038 | 12,062 | |||||||||||||||
TOTAL INVESTMENT INCOME | 50,175,908 | 1,034,565 | 1,209,705 | 25,463 | 686,250 | |||||||||||||||
EXPENSES | ||||||||||||||||||||
Investment advisory fees | 25,588,065 | 492,530 | 434,798 | 10,977 | 469,335 | |||||||||||||||
Distribution (12b-1) fees: | ||||||||||||||||||||
Class A | 734,311 | 12,012 | 6,141 | — | 4,818 | |||||||||||||||
Class C | 2,323,175 | 30,675 | 14,891 | — | 17,581 | |||||||||||||||
Third party administrative servicing fees | 1,374,273 | 30,446 | 30,484 | 247 | 30,959 | |||||||||||||||
Administration fees | 951,023 | 26,950 | 24,640 | 5,192 | 26,522 | |||||||||||||||
Accounting services fees | 306,843 | 14,467 | 14,258 | 6,249 | 14,520 | |||||||||||||||
Custodian fees | 287,916 | 7,501 | 8,501 | 3,740 | 11,501 | |||||||||||||||
Transfer agent fees | 265,151 | 41,587 | 41,087 | 16,963 | 40,587 | |||||||||||||||
Printing and postage expenses | 218,918 | 10,001 | 8,987 | 10,527 | 7,487 | |||||||||||||||
Insurance expense | 81,874 | 1,291 | 1,193 | — | 1,134 | |||||||||||||||
Interest expense | 69,771 | 48,203 | 87,503 | — | 55,510 | |||||||||||||||
Registration fees | 66,512 | 41,206 | 41,206 | 7,993 | 33,706 | |||||||||||||||
Compliance officer fees | 61,898 | 13,666 | 13,666 | 5,980 | 13,166 | |||||||||||||||
Audit fees | 20,369 | 17,868 | 17,867 | 17,474 | 17,867 | |||||||||||||||
Trustees fees and expenses | 20,007 | 19,507 | 20,007 | 7,479 | 20,007 | |||||||||||||||
Legal fees | 15,015 | 14,002 | 15,501 | 19,920 | 15,501 | |||||||||||||||
Other expenses | 5,136 | 4,500 | 5,994 | 3,786 | 5,994 | |||||||||||||||
TOTAL EXPENSES | 32,390,257 | 826,412 | 786,724 | 116,527 | 786,195 | |||||||||||||||
Less: Fees waived/reimbursed by the Advisor | (12 | ) | (46,345 | ) | (69,822 | ) | (101,331 | ) | (51,616 | ) | ||||||||||
TOTAL NET EXPENSES | 32,390,245 | 780,067 | 716,902 | 15,196 | 734,579 | |||||||||||||||
NET INVESTMENT INCOME (LOSS) | 17,785,663 | 254,498 | 492,803 | 10,267 | (48,329 | ) | ||||||||||||||
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, OPTIONS PURCHASED AND OPTIONS WRITTEN | ||||||||||||||||||||
Net realized gain (loss) on: | ||||||||||||||||||||
Investments | 183,944,773 | 86,594 | (738,479 | ) | — | (983,180 | ) | |||||||||||||
Options purchased | (193,571,237 | ) | 1,617,414 | 646,173 | (55,971 | ) | 1,367,991 | |||||||||||||
Options written | 84,075,753 | 693,904 | 642,284 | (1,990 | ) | 203,792 | ||||||||||||||
Net realized gain (loss) on investments, options purchased and options written | 74,449,289 | 2,397,912 | 549,978 | (57,961 | ) | 588,603 | ||||||||||||||
Net change in unrealized appreciation (depreciation) on: | ||||||||||||||||||||
Investments | (58,581,697 | ) | (653,545 | ) | (260,795 | ) | 210,324 | (1,866,033 | ) | |||||||||||
Options purchased | (26,388,154 | ) | (3,173,479 | ) | (1,472,744 | ) | 50,174 | (1,044,095 | ) | |||||||||||
Options written | 12,840,648 | 334,323 | 96,423 | (15,563 | ) | 52,537 | ||||||||||||||
Net change in unrealized appreciation (depreciation) on investments, options purchased and options written | (72,129,203 | ) | (3,492,701 | ) | (1,637,116 | ) | 244,935 | (2,857,591 | ) | |||||||||||
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND OPTIONS WRITTEN | 2,320,086 | (1,094,789 | ) | (1,087,138 | ) | 186,974 | (2,268,988 | ) | ||||||||||||
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS | $ | 20,105,749 | $ | (840,291 | ) | $ | (594,335 | ) | $ | 197,241 | $ | (2,317,317 | ) | |||||||
(a) | Swan Defined Risk Growth Fund commenced operations December 27, 2018. |
See accompanying notes to financial statements.
17
SWAN DEFINED RISK FUND |
STATEMENTS OF CHANGES IN NET ASSETS |
For the | For the | |||||||
Year Ended | Year Ended | |||||||
June 30, 2019 (a) | June 30, 2018 | |||||||
FROM OPERATIONS | ||||||||
Net investment income | $ | 17,785,663 | $ | 22,908,148 | ||||
Net realized gain (loss) on investments, options purchased and options written | 74,449,289 | (190,677,950 | ) | |||||
Net change in unrealized appreciation (depreciation) on investments, options purchased and options written | (72,129,203 | ) | 288,343,322 | |||||
Net increase in net assets resulting from operations | 20,105,749 | 120,573,520 | ||||||
DISTRIBUTIONS TO SHAREHOLDERS | ||||||||
From net investment income: | ||||||||
Class A | — | (2,078,222 | ) | |||||
Class I | — | (19,134,180 | ) | |||||
Total distributions paid * | ||||||||
Class A | (1,998,377 | ) | — | |||||
Class I | (20,033,035 | ) | — | |||||
Net decrease in net assets resulting from distributions to shareholders | (22,031,412 | ) | (21,212,402 | ) | ||||
FROM SHARES OF BENEFICIAL INTEREST | ||||||||
Proceeds from shares sold: | ||||||||
Class A | 42,606,274 | 130,629,913 | ||||||
Class C | 32,187,219 | 75,335,179 | ||||||
Class I | 513,637,763 | 1,132,620,508 | ||||||
Class Y | 37,097 | — | ||||||
Net asset value of shares issued in reinvestment of distributions: | ||||||||
Class A | 1,645,068 | 1,653,605 | ||||||
Class I | 15,569,764 | 14,850,885 | ||||||
Payments for shares redeemed: | ||||||||
Class A | (137,554,498 | ) | (165,282,156 | ) | ||||
Class C | (75,917,959 | ) | (51,701,961 | ) | ||||
Class I | (1,273,604,888 | ) | (987,186,978 | ) | ||||
Net increase (decrease) in net assets from shares of beneficial interest | (881,394,160 | ) | 150,918,995 | |||||
TOTAL INCREASE (DECREASE) IN NET ASSETS | (883,319,823 | ) | 250,280,113 | |||||
NET ASSETS | ||||||||
Beginning of Year | 2,950,263,515 | 2,699,983,402 | ||||||
End of Year ** | $ | 2,066,943,692 | $ | 2,950,263,515 | ||||
SHARE ACTIVITY | ||||||||
Class A: | ||||||||
Shares Sold | 3,374,804 | 10,322,973 | ||||||
Shares Reinvested | 142,307 | 127,593 | ||||||
Shares Redeemed | (10,976,992 | ) | (13,037,293 | ) | ||||
Net decrease in shares of beneficial interest outstanding | (7,459,881 | ) | (2,586,727 | ) | ||||
Class C: | ||||||||
Shares Sold | 2,577,827 | 6,044,255 | ||||||
Shares Redeemed | (6,189,187 | ) | (4,176,381 | ) | ||||
Net increase (decrease) in shares of beneficial interest outstanding | (3,611,360 | ) | 1,867,874 | |||||
Class I: | ||||||||
Shares Sold | 40,667,397 | 88,968,935 | ||||||
Shares Reinvested | 1,342,187 | 1,142,376 | ||||||
Shares Redeemed | (101,899,792 | ) | (77,789,145 | ) | ||||
Net increase (decrease) in shares of beneficial interest outstanding | (59,890,208 | ) | 12,322,166 | |||||
Class Y: | ||||||||
Shares Sold | 2,975 | — | ||||||
Net increase in shares of beneficial interest outstanding | 2,975 | — | ||||||
(a) | Class Y Shares commenced operations December 27, 2018. |
* | Distributions from net investment income and net realized capital gains are combined for the year ended June 30, 2019. See New Accounting Pronouncements in the Notes to Financial Statements for more information. The dividends and distributions to shareholders for the year ended June 30, 2018 have not been reclassified to conform to the current period presentation. |
** | Net Assets- End of Period includes undistributed net investment income of $8,728,676 as of June 30, 2018. |
See accompanying notes to financial statements.
18
SWAN DEFINED RISK EMERGING MARKETS FUND |
STATEMENTS OF CHANGES IN NET ASSETS |
For the | For the | |||||||
Year Ended | Year Ended | |||||||
June 30, 2019 (a) | June 30, 2018 | |||||||
FROM OPERATIONS | ||||||||
Net investment income | $ | 254,498 | $ | 257,924 | ||||
Net realized gain (loss) on investments, options purchased and options written | 2,397,912 | (3,096,420 | ) | |||||
Net change in unrealized appreciation (depreciation) on investments, options purchased and options written | (3,492,701 | ) | 2,937,994 | |||||
Net increase (decrease) in net assets resulting from operations | (840,291 | ) | 99,498 | |||||
DISTRIBUTIONS TO SHAREHOLDERS | ||||||||
From net realized gains: | ||||||||
Class A | — | (153,307 | ) | |||||
Class C | — | (49,894 | ) | |||||
Class I | — | (716,568 | ) | |||||
Total paid distributions * | ||||||||
Class A | (13,084 | ) | — | |||||
Class I | (245,078 | ) | — | |||||
Net decrease in net assets resulting from distributions to shareholders | (258,162 | ) | (919,769 | ) | ||||
FROM SHARES OF BENEFICIAL INTEREST | ||||||||
Proceeds from shares sold: | ||||||||
Class A | 1,536,901 | 5,349,134 | ||||||
Class C | 694,141 | 2,068,006 | ||||||
Class I | 10,954,763 | 21,322,399 | ||||||
Class Y | 117,930 | — | ||||||
Net asset value of shares issued in reinvestment of distributions: | ||||||||
Class A | 11,558 | 136,799 | ||||||
Class C | — | 43,128 | ||||||
Class I | 228,090 | 689,557 | ||||||
Payments for shares redeemed: | ||||||||
Class A | (2,487,761 | ) | (4,575,375 | ) | ||||
Class C | (869,578 | ) | (373,417 | ) | ||||
Class I | (14,230,794 | ) | (7,845,442 | ) | ||||
Class Y | (9,005 | ) | — | |||||
Net increase (decrease) in net assets from shares of beneficial interest | (4,053,755 | ) | 16,814,789 | |||||
TOTAL INCREASE (DECREASE) IN NET ASSETS | (5,152,208 | ) | 15,994,518 | |||||
NET ASSETS | ||||||||
Beginning of Year | 51,236,431 | 35,241,913 | ||||||
End of Year ** | $ | 46,084,223 | $ | 51,236,431 | ||||
SHARE ACTIVITY | ||||||||
Class A: | ||||||||
Shares Sold | 154,522 | 502,958 | ||||||
Shares Reinvested | 1,214 | 12,714 | ||||||
Shares Redeemed | (252,129 | ) | (438,500 | ) | ||||
Net increase (decrease) in shares of beneficial interest outstanding | (96,393 | ) | 77,172 | |||||
Class C: | ||||||||
Shares Sold | 72,613 | 197,854 | ||||||
Shares Reinvested | — | 4,084 | ||||||
Shares Redeemed | (89,810 | ) | (36,013 | ) | ||||
Net increase (decrease) in shares of beneficial interest outstanding | (17,197 | ) | 165,925 | |||||
Class I: | ||||||||
Shares Sold | 1,103,827 | 1,987,273 | ||||||
Shares Reinvested | 23,859 | 63,730 | ||||||
Shares Redeemed | (1,437,659 | ) | (742,070 | ) | ||||
Net increase (decrease) in shares of beneficial interest outstanding | (309,973 | ) | 1,308,933 | |||||
Class Y: | ||||||||
Shares Sold | 11,966 | — | ||||||
Shares Redeemed | (885 | ) | — | |||||
Net increase in shares of beneficial interest outstanding | 11,081 | — | ||||||
(a) | Class Y Shares commenced operations December 27, 2018. |
* | Distributions from net investment income and net realized capital gains are combined for the year ended June 30, 2019. See New Accounting Pronouncements in the Notes to Financial Statements for more information. The dividends and distributions to shareholders for the year ended June 30, 2018 have not been reclassified to conform to the current period presentation. |
** | Net Assets- End of Period includes undistributed net investment income of $257,488 as of June 30, 2018. |
See accompanying notes to financial statements.
19
SWAN DEFINED RISK FOREIGN DEVELOPED FUND |
STATEMENTS OF CHANGES IN NET ASSETS |
For the | For the | |||||||
Year Ended | Year Ended | |||||||
June 30, 2019 (a) | June 30, 2018 | |||||||
FROM OPERATIONS | ||||||||
Net investment income | $ | 492,803 | $ | 582,353 | ||||
Net realized gain (loss) on investments, options purchased and options written | 549,978 | (2,415,207 | ) | |||||
Net change in unrealized appreciation (depreciation) on investments, options purchased and options written | (1,637,116 | ) | 1,662,206 | |||||
Net decrease in net assets resulting from operations | (594,335 | ) | (170,648 | ) | ||||
DISTRIBUTIONS TO SHAREHOLDERS | ||||||||
From net investment income: | ||||||||
Class A | — | (27,636 | ) | |||||
Class C | — | (5,353 | ) | |||||
Class I | — | (357,036 | ) | |||||
From net realized gains: | ||||||||
Class A | — | (81,052 | ) | |||||
Class C | — | (25,395 | ) | |||||
Class I | — | (808,733 | ) | |||||
Total paid distributions * | ||||||||
Class A | (16,829 | ) | — | |||||
Class C | (2,257 | ) | — | |||||
Class I | (461,977 | ) | — | |||||
Net decrease in net assets resulting from distributions to shareholders | (481,063 | ) | (1,305,205 | ) | ||||
FROM SHARES OF BENEFICIAL INTEREST | ||||||||
Proceeds from shares sold: | ||||||||
Class A | 1,521,518 | 1,889,073 | ||||||
Class C | 95,513 | 1,390,307 | ||||||
Class I | 9,535,410 | 20,842,277 | ||||||
Class Y | 112,436 | — | ||||||
Net asset value of shares issued in reinvestment of distributions: | ||||||||
Class A | 14,094 | 103,339 | ||||||
Class C | 2,130 | 28,443 | ||||||
Class I | 444,110 | 1,143,308 | ||||||
Payments for shares redeemed: | ||||||||
Class A | (1,870,515 | ) | (2,324,928 | ) | ||||
Class C | (276,103 | ) | (294,799 | ) | ||||
Class I | (13,764,027 | ) | (6,198,556 | ) | ||||
Class Y | (8,967 | ) | — | |||||
Net increase (decrease) in net assets from shares of beneficial interest | (4,194,401 | ) | 16,578,464 | |||||
TOTAL INCREASE (DECREASE) IN NET ASSETS | (5,269,799 | ) | 15,102,611 | |||||
NET ASSETS | ||||||||
Beginning of Year | 46,829,494 | 31,726,883 | ||||||
End of Year ** | $ | 41,559,695 | $ | 46,829,494 | ||||
SHARE ACTIVITY | ||||||||
Class A: | ||||||||
Shares Sold | 150,157 | 173,332 | ||||||
Shares Reinvested | 1,480 | 9,411 | ||||||
Shares Redeemed | (184,317 | ) | (218,807 | ) | ||||
Net decrease in shares of beneficial interest outstanding | (32,680 | ) | (36,064 | ) | ||||
Class C: | ||||||||
Shares Sold | 9,449 | 128,139 | ||||||
Shares Reinvested | 225 | 2,610 | ||||||
Shares Redeemed | (27,880 | ) | (27,953 | ) | ||||
Net increase (decrease) in shares of beneficial interest outstanding | (18,206 | ) | 102,796 | |||||
Class I: | ||||||||
Shares Sold | 933,359 | 1,905,132 | ||||||
Shares Reinvested | 46,650 | 104,032 | ||||||
Shares Redeemed | (1,367,254 | ) | (578,258 | ) | ||||
Net increase (decrease) in shares of beneficial interest outstanding | (387,245 | ) | 1,430,906 | |||||
Class Y: | ||||||||
Shares Sold | 11,281 | — | ||||||
Shares Redeemed | (877 | ) | — | |||||
Net increase in shares of beneficial interest outstanding | 10,404 | — | ||||||
(a) | Class Y Shares commenced operations December 27, 2018. |
* | Distributions from net investment income and net realized capital gains are combined for the year ended June 30, 2019. See New Accounting Pronouncements in the Notes to Financial Statements for more information. The dividends and distributions to shareholders for the year ended June 30, 2018 have not been reclassified to conform to the current period presentation. |
** | Net Assets- End of Period includes undistributed net investment income of $452,753 as of June 30, 2018. |
See accompanying notes to financial statements.
20
SWAN DEFINED RISK GROWTH FUND |
STATEMENT OF CHANGES IN NET ASSETS |
For the | ||||
Period Ended | ||||
June 30, 2019 (a) | ||||
FROM OPERATIONS | ||||
Net investment income | $ | 10,267 | ||
Net realized loss on investments, options purchased and options written | (57,961 | ) | ||
Net change in unrealized appreciation on investments, options purchased and options written | 244,935 | |||
Net increase in net assets resulting from operations | 197,241 | |||
FROM SHARES OF BENEFICIAL INTEREST | ||||
Proceeds from shares sold: | ||||
Class A | 10 | |||
Class C | 10 | |||
Class I | 3,429,239 | |||
Class Y | 221,150 | |||
Payments for shares redeemed: | ||||
Class I | (2,310 | ) | ||
Net increase in net assets from shares of beneficial interest | 3,648,099 | |||
TOTAL INCREASE IN NET ASSETS | 3,845,340 | |||
NET ASSETS | ||||
Beginning of Period | — | |||
End of Period | $ | 3,845,340 | ||
SHARE ACTIVITY | ||||
Class A: | ||||
Shares Sold | 1 | |||
Net increase in shares of beneficial interest outstanding | 1 | |||
Class C: | ||||
Shares Sold | 1 | |||
Net increase in shares of beneficial interest outstanding | 1 | |||
Class I: | ||||
Shares Sold | 317,428 | |||
Shares Redeemed | (202 | ) | ||
Net increase in shares of beneficial interest outstanding | 317,226 | |||
Class Y: | ||||
Shares Sold | 20,627 | |||
Net increase in shares of beneficial interest outstanding | 20,627 | |||
(a) | Swan Defined Risk Growth Fund commenced operations December 27, 2018. |
See accompanying notes to financial statements.
21
SWAN DEFINED RISK U.S. SMALL CAP FUND |
STATEMENTS OF CHANGES IN NET ASSETS |
For the | For the | |||||||
Year Ended | Year Ended | |||||||
June 30, 2019 (a) | June 30, 2018 | |||||||
FROM OPERATIONS | ||||||||
Net investment loss | $ | (48,329 | ) | $ | (187,558 | ) | ||
Net realized gain (loss) on investments, options purchased and options written | 588,603 | (2,564,761 | ) | |||||
Net change in unrealized appreciation (depreciation) on investments, options purchased and options written | (2,857,591 | ) | 5,422,601 | |||||
Net increase (decrease) in net assets resulting from operations | (2,317,317 | ) | 2,670,282 | |||||
FROM SHARES OF BENEFICIAL INTEREST | ||||||||
Proceeds from shares sold: | ||||||||
Class A | 1,767,364 | 1,221,534 | ||||||
Class C | 199,709 | 1,072,824 | ||||||
Class I | 13,199,510 | 20,852,889 | ||||||
Class Y | 123,614 | — | ||||||
Payments for shares redeemed: | ||||||||
Class A | (925,429 | ) | (488,798 | ) | ||||
Class C | (158,745 | ) | (701,640 | ) | ||||
Class I | (18,551,044 | ) | (4,967,554 | ) | ||||
Class Y | (8,788 | ) | — | |||||
Net increase (decrease) in net assets from shares of beneficial interest | (4,353,809 | ) | 16,989,255 | |||||
TOTAL INCREASE (DECREASE) IN NET ASSETS | (6,671,126 | ) | 19,659,537 | |||||
NET ASSETS | ||||||||
Beginning of Year | 48,271,189 | 28,611,652 | ||||||
End of Year * | $ | 41,600,063 | $ | 48,271,189 | ||||
SHARE ACTIVITY | ||||||||
Class A: | ||||||||
Shares Sold | 147,118 | 101,646 | ||||||
Shares Redeemed | (78,856 | ) | (40,722 | ) | ||||
Net increase in shares of beneficial interest outstanding | 68,262 | 60,924 | ||||||
Class C: | ||||||||
Shares Sold | 16,832 | 90,655 | ||||||
Shares Redeemed | (13,452 | ) | (58,922 | ) | ||||
Net increase in shares of beneficial interest outstanding | 3,380 | 31,733 | ||||||
Class I: | ||||||||
Shares Sold | 1,074,040 | 1,727,755 | ||||||
Shares Redeemed | (1,566,343 | ) | (411,173 | ) | ||||
Net increase (decrease) in shares of beneficial interest outstanding | (492,303 | ) | 1,316,582 | |||||
Class Y: | ||||||||
Shares Sold | 10,377 | — | ||||||
Shares Redeemed | (722 | ) | — | |||||
Net increase in shares of beneficial interest outstanding | 9,655 | — | ||||||
(a) | Class Y Shares commenced operations December 27, 2018. |
* | Distributions from net investment income and net realized capital gains are combined for the year ended June 30, 2019. See New Accounting Pronouncements in the Notes to Financial Statements for more information. The dividends and distributions to shareholders for the period ended June 30, 2018 have not been reclassified to conform to the current period presentation. |
* | Net Assets- End of Period includes undistributed net investment loss of $243,880 as of June 30, 2018. |
See accompanying notes to financial statements.
22
SWAN DEFINED RISK FUND |
FINANCIAL HIGHLIGHTS |
Per Share Data and Ratios for a Share of Beneficial Interest Outstanding Throughout Each Year
Class A | ||||||||||||||||||||
For the | For the | For the | For the | For the | ||||||||||||||||
Year Ended | Year Ended | Year Ended | Year Ended | Year Ended | ||||||||||||||||
June 30, 2019 | June 30, 2018 | June 30, 2017 | June 30, 2016 | June 30, 2015 | ||||||||||||||||
Net asset value, beginning of year | $ | 12.68 | $ | 12.22 | $ | 11.69 | $ | 11.84 | $ | 11.73 | ||||||||||
Activity from investment operations: | ||||||||||||||||||||
Net investment income (1) | 0.07 | 0.08 | 0.13 | 0.08 | 0.06 | |||||||||||||||
Net realized and unrealized gain (loss) on investments, options purchased and options written | 0.13 | 0.45 | 0.55 | (0.17 | ) | 0.09 | ||||||||||||||
Total from investment operations | 0.20 | 0.53 | 0.68 | (0.09 | ) | 0.15 | ||||||||||||||
Less distributions from: | ||||||||||||||||||||
Net investment income | (0.08 | ) | (0.07 | ) | (0.15 | ) | (0.06 | ) | (0.04 | ) | ||||||||||
Total distributions | (0.08 | ) | (0.07 | ) | (0.15 | ) | (0.06 | ) | (0.04 | ) | ||||||||||
Net asset value, end of year | $ | 12.80 | $ | 12.68 | $ | 12.22 | $ | 11.69 | $ | 11.84 | ||||||||||
Total return (2) | 1.67 | % | 4.33 | % | 5.82 | % | (0.70 | )% | 1.31 | % | ||||||||||
Net assets, at end of year (000s) | $ | 240,274 | $ | 332,552 | $ | 351,964 | $ | 227,453 | $ | 139,333 | ||||||||||
Ratio of expenses to average net assets (3) | 1.40 | % | 1.39 | % | 1.41 | % | 1.42 | % | 1.44 | % | ||||||||||
Ratio of net investment income to average net assets (3,4) | 0.59 | % | 0.62 | % | 1.09 | % | 0.69 | % | 0.51 | % | ||||||||||
Portfolio Turnover Rate | 14 | % | 9 | % | 6 | % | 18 | % | 0 | % |
(1) | Per share amounts calculated using the average shares method. |
(2) | Total return assumes reinvestment of all dividends and distributions, if any. |
(3) | Does not include the expenses of other investment companies in which the Fund invests. |
(4) | Recognition of investment income by the Fund is affected by the timing and declaration of dividends by the underlying investment companies in which the Fund invests. |
See accompanying notes to financial statements.
23
SWAN DEFINED RISK FUND |
FINANCIAL HIGHLIGHTS |
Per Share Data and Ratios for a Share of Beneficial Interest Outstanding Throughout Each Year
Class C | ||||||||||||||||||||
For the | For the | For the | For the | For the | ||||||||||||||||
Year Ended | Year Ended | Year Ended | Year Ended | Year Ended | ||||||||||||||||
June 30, 2019 | June 30, 2018 | June 30, 2017 | June 30, 2016 | June 30, 2015 | ||||||||||||||||
Net asset value, beginning of year | $ | 12.46 | $ | 12.03 | $ | 11.53 | $ | 11.69 | $ | 11.63 | ||||||||||
Activity from investment operations: | ||||||||||||||||||||
Net investment income (loss) (1) | (0.02 | ) | (0.02 | ) | 0.06 | (0.00 | ) (2) | (0.02 | ) | |||||||||||
Net realized and unrealized gain (loss) on investments, options purchased and options written | 0.14 | 0.45 | 0.52 | (0.16 | ) | 0.08 | ||||||||||||||
Total from investment operations | 0.12 | 0.43 | 0.58 | (0.16 | ) | 0.06 | ||||||||||||||
Less distributions from: | ||||||||||||||||||||
Net investment income | — | — | (0.08 | ) | — | — | ||||||||||||||
Total distributions | — | — | (0.08 | ) | — | — | ||||||||||||||
Net asset value, end of year | $ | 12.58 | $ | 12.46 | $ | 12.03 | $ | 11.53 | $ | 11.69 | ||||||||||
Total return (3) | 0.96 | % | 3.57 | % | 5.01 | % | (1.37 | )% | 0.52 | % | ||||||||||
Net assets, at end of year (000s) | $ | 204,575 | $ | 247,668 | $ | 216,627 | $ | 143,657 | $ | 89,802 | ||||||||||
Ratio of expenses to average net assets (4) | 2.15 | % | 2.14 | % | 2.15 | % | 2.17 | % | 2.19 | % | ||||||||||
Ratio of net investment income (loss) to average net assets (4,5) | (0.15 | )% | (0.09 | )% | 0.47 | % | (0.03 | )% | (0.21 | %) | ||||||||||
Portfolio Turnover Rate | 14 | % | 9 | % | 6 | % | 18 | % | 0 | % |
(1) | Per share amounts calculated using the average shares method. |
(2) | Amount is less than $0.01. |
(3) | Total return assumes reinvestment of all dividends and distributions, if any. |
(4) | Does not include the expenses of other investment companies in which the Fund invests. |
(5) | Recognition of investment income (loss) by the Fund is affected by the timing and declaration of dividends by the underlying investment companies in which the Fund invests. |
See accompanying notes to financial statements.
24
SWAN DEFINED RISK FUND |
FINANCIAL HIGHLIGHTS |
Per Share Data and Ratios for a Share of Beneficial Interest Outstanding Throughout Each Year
Class I | ||||||||||||||||||||
For the | For the | For the | For the | For the | ||||||||||||||||
Year Ended | Year Ended | Year Ended | Year Ended | Year Ended | ||||||||||||||||
June 30, 2019 | June 30, 2018 | June 30, 2017 | June 30, 2016 | June 30, 2015 | ||||||||||||||||
Net asset value, beginning of year | $ | 12.74 | $ | 12.27 | $ | 11.73 | $ | 11.88 | $ | 11.76 | ||||||||||
Activity from investment operations: | ||||||||||||||||||||
Net investment income (1) | 0.10 | 0.11 | 0.18 | 0.11 | 0.10 | |||||||||||||||
Net realized and unrealized gain (loss) on investments, options purchased and options written | 0.14 | 0.46 | 0.53 | (0.17 | ) | 0.09 | ||||||||||||||
Total from investment operations | 0.24 | 0.57 | 0.71 | (0.06 | ) | 0.19 | ||||||||||||||
Less distributions from: | ||||||||||||||||||||
Net investment income | (0.12 | ) | (0.10 | ) | (0.17 | ) | (0.09 | ) | (0.07 | ) | ||||||||||
Total distributions | (0.12 | ) | (0.10 | ) | (0.17 | ) | (0.09 | ) | (0.07 | ) | ||||||||||
Net asset value, end of year | $ | 12.86 | $ | 12.74 | $ | 12.27 | $ | 11.73 | $ | 11.88 | ||||||||||
Total return (2) | 1.96 | % | 4.63 | % | 6.08 | % | (0.48 | )% | 1.57 | % | ||||||||||
Net assets, at end of year (000s) | $ | 1,622,057 | $ | 2,370,044 | $ | 2,131,392 | $ | 1,409,040 | $ | 1,072,320 | ||||||||||
Ratio of expenses to average net assets (3) | 1.15 | % | 1.14 | % | 1.16 | % | 1.17 | % | 1.19 | % | ||||||||||
Ratio of net investment income to average net assets (3,4) | 0.82 | % | 0.86 | % | 1.48 | % | 0.92 | % | 0.81 | % | ||||||||||
Portfolio Turnover Rate | 14 | % | 9 | % | 6 | % | 18 | % | 0 | % |
(1) | Per share amounts calculated using the average shares method. |
(2) | Total return assumes reinvestment of all dividends and distributions, if any. |
(3) | Does not include the expenses of other investment companies in which the Fund invests. |
(4) | Recognition of investment income by the Fund is affected by the timing and declaration of dividends by the underlying investment companies in which the Fund invests. |
See accompanying notes to financial statements.
25
SWAN DEFINED RISK FUND |
FINANCIAL HIGHLIGHTS |
Per Share Data and Ratios for a Share of Beneficial Interest Outstanding Throughout the Period
Class Y | ||||
For the | ||||
Period Ended | ||||
June 30, 2019 (1) | ||||
Net asset value, beginning of period | $ | 11.75 | ||
Activity from investment operations: | ||||
Net investment income (2) | 0.14 | |||
Net realized and unrealized gain on investments, options purchased and options written | 0.98 | |||
Total from investment operations | 1.12 | |||
Net asset value, end of period | $ | 12.87 | ||
Total return (3,4) | 9.53 | % | ||
Net assets, at end of period (000s) | $ | 38 | ||
Ratio of gross expenses to average net assets (5,6) | 1.15 | % | ||
Ratio of net expenses to average net assets (5,6) | 1.01 | % | ||
Ratio of net investment income to average net assets (6,7) | 2.22 | % | ||
Portfolio Turnover Rate (4) | 14 | % |
(1) | The Swan Defined Risk Funds Class Y shares commenced operations on December 27, 2018. |
(2) | Per share amounts calculated using the average shares method. |
(3) | Total return assumes reinvestment of all dividends and distributions, if any. |
(4) | Not annualized. |
(5) | Does not include the expenses of other investment companies in which the Fund invests. |
(6) | Annualized. |
(7) | Recognition of investment income by the Fund is affected by the timing and declaration of dividends by the underlying investment companies in which the Fund invests. |
See accompanying notes to financial statements.
26
SWAN DEFINED RISK EMERGING MARKETS FUND |
FINANCIAL HIGHLIGHTS |
Per Share Data and Ratios for a Share of Beneficial Interest Outstanding Throughout Each Period
Class A | ||||||||||||||||||||
For the | For the | For the | For the | For the | ||||||||||||||||
Year Ended | Year Ended | Year Ended | Year Ended | Period Ended | ||||||||||||||||
June 30, 2019 | June 30, 2018 | June 30, 2017 | June 30, 2016 | June 30, 2015 (1) | ||||||||||||||||
Net asset value, beginning of period | $ | 10.06 | $ | 9.98 | $ | 9.15 | $ | 10.09 | $ | 10.00 | ||||||||||
Activity from investment operations: | ||||||||||||||||||||
Net investment income (loss) (2) | 0.03 | 0.06 | (0.02 | ) | 0.02 | 0.09 | ||||||||||||||
Net realized and unrealized gain (loss) on investments, options purchased and options written | (0.20 | ) | 0.23 | 1.06 | (0.89 | ) | (0.00 | ) (3) | ||||||||||||
Total from investment operations | (0.17 | ) | 0.29 | 1.04 | (0.87 | ) | 0.09 | |||||||||||||
Less distributions from: | ||||||||||||||||||||
Net investment income | (0.03 | ) | — | — | (0.07 | ) | — | |||||||||||||
Net realized gains | — | (0.21 | ) | (0.21 | ) | — | — | |||||||||||||
Total distributions | (0.03 | ) | (0.21 | ) | (0.21 | ) | (0.07 | ) | — | |||||||||||
Net asset value, end of period | $ | 9.86 | $ | 10.06 | $ | 9.98 | $ | 9.15 | $ | 10.09 | ||||||||||
Total return (4) | (1.72 | )% | 2.73 | % | 11.65 | % | (8.57 | )% | 0.90 | % (5) | ||||||||||
Net assets, at end of period (000s) | $ | 3,959 | $ | 5,010 | $ | 4,201 | $ | 2,867 | $ | 2,890 | ||||||||||
Ratio of gross expenses to average net assets (6,9) | 1.84 | % | 1.67 | % | 1.90 | % | 2.29 | % | 2.97 | % (7) | ||||||||||
Ratio of net expenses to average net assets (6,9) | 1.75 | % | 1.65 | % | 1.66 | % | 1.65 | % | 1.65 | % (7) | ||||||||||
Ratio of net investment income (loss) to average net assets (6,8,9) | 0.31 | % | 0.53 | % | (0.21 | )% | 0.21 | % | 1.85 | % (7) | ||||||||||
Portfolio Turnover Rate | 45 | % | 7 | % | 3 | % | 62 | % | 40 | % (5) | ||||||||||
(1) | The Swan Defined Risk Emerging Markets Funds Class A shares commenced operations on December 30, 2014. |
(2) | Per share amounts calculated using the average shares method. |
(3) | Amount is less than $0.01. |
(4) | Total return assumes reinvestment of all dividends and distributions, if any. Had the advisor not waived a portion of its fees, total returns would have been lower. |
(5) | Not annualized. |
(6) | Does not include the expenses of other investment companies in which the Fund invests. |
(7) | Annualized. |
(8) | Recognition of investment income (loss) by the Fund is affected by the timing and declaration of dividends by the underlying investment companies in which the Fund invests. |
(9) | Excluding interest expense, the following ratios would have been: |
Gross expenses to average net assets (6) | 1.74 | % | 1.67 | % | 1.90 | % | 2.29 | % | 2.97 | % (7) | ||||||||||
Net expenses to average net assets (6) | 1.65 | % | 1.65 | % | 1.66 | % | 1.65 | % | 1.65 | % (7) | ||||||||||
Net investment income (loss) to average net assets (6,8) | 0.41 | % | 0.53 | % | (0.21 | )% | 0.21 | % | 1.85 | % (7) |
See accompanying notes to financial statements.
27
SWAN DEFINED RISK EMERGING MARKETS FUND |
FINANCIAL HIGHLIGHTS |
Per Share Data and Ratios for a Share of Beneficial Interest Outstanding Throughout Each Period
Class C | ||||||||||||||||||||
For the | For the | For the | For the | For the | ||||||||||||||||
Year Ended | Year Ended | Year Ended | Year Ended | Period Ended | ||||||||||||||||
June 30, 2019 | June 30, 2018 | June 30, 2017 | June 30, 2016 | June 30, 2015 (1) | ||||||||||||||||
Net asset value, beginning of period | $ | 9.84 | $ | 9.84 | $ | 9.09 | $ | 10.06 | $ | 10.00 | ||||||||||
Activity from investment operations: | ||||||||||||||||||||
Net investment income (loss) (2) | (0.03 | ) | (0.03 | ) | (0.09 | ) | (0.02 | ) | 0.10 | |||||||||||
Net realized and unrealized gain (loss) on investments, options purchased and options written | (0.21 | ) | 0.24 | 1.05 | (0.91 | ) | (0.04 | ) | ||||||||||||
Total from investment operations | (0.24 | ) | 0.21 | 0.96 | (0.93 | ) | 0.06 | |||||||||||||
Less distributions from: | ||||||||||||||||||||
Net investment income | — | — | — | (0.04 | ) | — | ||||||||||||||
Net realized gains | — | (0.21 | ) | (0.21 | ) | — | — | |||||||||||||
Total distributions | — | (0.21 | ) | (0.21 | ) | (0.04 | ) | — | ||||||||||||
Net asset value, end of period | $ | 9.60 | $ | 9.84 | $ | 9.84 | $ | 9.09 | $ | 10.06 | ||||||||||
Total return (3) | (2.44 | )% | 1.95 | % | 10.84 | % | (9.28 | )% | 0.60 | % (4) | ||||||||||
Net assets, at end of period (000s) | $ | 2,809 | $ | 3,049 | $ | 1,417 | $ | 739 | $ | 523 | ||||||||||
Ratio of gross expenses to average net assets (5,8) | 2.59 | % | 2.42 | % | 2.65 | % | 3.05 | % | 3.72 | % (6) | ||||||||||
Ratio of net expenses to average net assets (5,8) | 2.50 | % | 2.40 | % | 2.41 | % | 2.40 | % | 2.40 | % (6) | ||||||||||
Ratio of net investment income (loss) to average net assets (5,7,8) | (0.31 | )% | (0.31 | )% | (1.03 | )% | (0.26 | )% | 2.05 | % (6) | ||||||||||
Portfolio Turnover Rate | 45 | % | 7 | % | 3 | % | 62 | % | 40 | % (4) |
(1) | The Swan Defined Risk Emerging Markets Funds Class C shares commenced operations on December 30, 2014. |
(2) | Per share amounts calculated using the average shares method. |
(3) | Total return assumes reinvestment of all dividends and distributions, if any. Had the advisor not waived a portion of its fees, total returns would have been lower. |
(4) | Not annualized. |
(5) | Does not include the expenses of other investment companies in which the Fund invests. |
(6) | Annualized. |
(7) | Recognition of investment income (loss) by the Fund is affected by the timing and declaration of dividends by the underlying investment companies in which the Fund invests. |
(8) | Excluding interest expense, the following ratios would have been: |
Gross expenses to average net assets (5) | 2.49 | % | 2.42 | % | 2.65 | % | 3.05 | % | 3.72 | % (6) | ||||||||||
Net expenses to average net assets (5) | 2.40 | % | 2.40 | % | 2.41 | % | 2.40 | % | 2.40 | % (6) | ||||||||||
Net investment income (loss) to average net assets (5,8) | (0.21 | )% | (0.31 | )% | (1.03 | )% | (0.26 | )% | 2.05 | % (6) |
See accompanying notes to financial statements.
28
SWAN DEFINED RISK EMERGING MARKETS FUND |
FINANCIAL HIGHLIGHTS |
Per Share Data and Ratios for a Share of Beneficial Interest Outstanding Throughout Each Period
Class I | ||||||||||||||||||||
For the | For the | For the | For the | For the | ||||||||||||||||
Year Ended | Year Ended | Year Ended | Year Ended | Period Ended | ||||||||||||||||
June 30, 2019 | June 30, 2018 | June 30, 2017 | June 30, 2016 | June 30, 2015 (1) | ||||||||||||||||
Net asset value, beginning of period | $ | 10.12 | $ | 10.02 | $ | 9.16 | $ | 10.10 | $ | 10.00 | ||||||||||
Activity from investment operations: | ||||||||||||||||||||
Net investment income (2) | 0.06 | 0.06 | 0.00 | (3) | 0.06 | 0.06 | ||||||||||||||
Net realized and unrealized gain (loss) on investments, options purchased and options written | (0.21 | ) | 0.25 | 1.07 | (0.91 | ) | 0.04 | (4) | ||||||||||||
Total from investment operations | (0.15 | ) | 0.31 | 1.07 | (0.85 | ) | 0.10 | |||||||||||||
Less distributions from: | ||||||||||||||||||||
Net investment income | (0.06 | ) | — | — | (0.09 | ) | — | |||||||||||||
Net realized gains | — | (0.21 | ) | (0.21 | ) | — | — | |||||||||||||
Total distributions | (0.06 | ) | (0.21 | ) | (0.21 | ) | (0.09 | ) | — | |||||||||||
Net asset value, end of period | $ | 9.91 | $ | 10.12 | $ | 10.02 | $ | 9.16 | $ | 10.10 | ||||||||||
Total return (5) | (1.47 | )% | 2.92 | % | 11.97 | % | (8.40 | )% | 1.00 | % (6) | ||||||||||
Net assets, at end of period (000s) | $ | 39,206 | $ | 43,178 | $ | 29,624 | $ | 15,878 | $ | 14,084 | ||||||||||
Ratio of gross expenses to average net assets (7,10) | 1.59 | % | 1.42 | % | 1.65 | % | 2.04 | % | 2.72 | % (8) | ||||||||||
Ratio of net expenses to average net assets (7,10) | 1.50 | % | 1.40 | % | 1.41 | % | 1.40 | % | 1.40 | % (8) | ||||||||||
Ratio of net investment income to average net assets (7,9,10) | 0.60 | % | 0.59 | % | 0.03 | % | 0.64 | % | 1.10 | % (8) | ||||||||||
Portfolio Turnover Rate | 45 | % | 7 | % | 3 | % | 62 | % | 40 | % (6) | ||||||||||
(1) | The Swan Defined Risk Emerging Markets Funds Class I shares commenced operations on December 30, 2014. |
(2) | Per share amounts calculated using the average shares method. |
(3) | Amount is less than $0.01 |
(4) | Realized and unrealized gain per share does not correlate to the aggregate of the net realized and unrealized gain in the Statements of Operations for the period ended June 30, 2015, primarily due to the timing of the sales and repurchases of the Funds shares in relation to the fluctuating values for the Funds portfolio. |
(5) | Total return assumes reinvestment of all dividends and distributions, if any. Had the advisor not waived a portion of its fees, total returns would have been lower. |
(6) | Not annualized. |
(7) | Does not include the expenses of other investment companies in which the Fund invests. |
(8) | Annualized. |
(9) | Recognition of investment income (loss) by the Fund is affected by the timing and declaration of dividends by the underlying investment companies in which the Fund invests. |
(10) | Excluding interest expense, the following ratio would have been: |
Gross expenses to average net assets (7) | 1.49 | % | 1.42 | % | 1.65 | % | 2.04 | % | 2.72 | % (8) | ||||||||||
Net expenses to average net assets (7) | 1.40 | % | 1.40 | % | 1.41 | % | 1.40 | % | 1.40 | % (8) | ||||||||||
Net investment income to average net assets (7,9) | 0.70 | % | 0.59 | % | 0.03 | % | 0.64 | % | 1.10 | % (8) | ||||||||||
See accompanying notes to financial statements.
29
SWAN DEFINED RISK EMERGING MARKETS FUND |
FINANCIAL HIGHLIGHTS |
Per Share Data and Ratios for a Share of Beneficial Interest Outstanding Throughout the Period
Class Y | ||||
For the | ||||
Period Ended | ||||
June 30, 2019 (1) | ||||
Net asset value, beginning of period | $ | 9.58 | ||
Activity from investment operations: | ||||
Net investment income (2) | 0.06 | |||
Net realized and unrealized gain on investments, options purchased and options written | 0.30 | |||
Total from investment operations | 0.36 | |||
Net asset value, end of period | $ | 9.94 | ||
Total return (3,4) | 3.76 | % | ||
Net assets, at end of period (000s) | $ | 110 | ||
Ratio of gross expenses to average net assets (5,6,8) | 1.59 | % | ||
Ratio of net expenses to average net assets (5,6,8) | 1.11 | % | ||
Ratio of net investment income to average net assets (6,7,8) | 1.14 | % | ||
Portfolio Turnover Rate (4) | 45 | % | ||
(1) | The Swan Defined Risk Emerging Markets Funds Class Y shares commenced operations on December 27, 2018. |
(2) | Per share amounts calculated using the average shares method. |
(3) | Total return assumes reinvestment of all dividends and distributions, if any. |
(4) | Not annualized. |
(5) | Does not include the expenses of other investment companies in which the Fund invests. |
(6) | Annualized. |
(7) | Recognition of investment income by the Fund is affected by the timing and declaration of dividends by the underlying investment companies in which the Fund invests. |
(8) | Excluding interest expense, the following ratio would have been: |
Gross expenses to average net assets (5,6) | 1.49 | % | ||
Net expenses to average net assets (5,6) | 1.01 | % | ||
Net investment income to average net assets (6,7) | 1.24 | % | ||
See accompanying notes to financial statements.
30
SWAN DEFINED RISK FOREIGN DEVELOPED FUND |
FINANCIAL HIGHLIGHTS |
Per Share Data and Ratios for a Share of Beneficial Interest Outstanding Throughout Each Period
Class A | ||||||||||||||||
For the | For the | For the | For the | |||||||||||||
Year Ended | Year Ended | Year Ended | Period Ended | |||||||||||||
June 30, 2019 | June 30, 2018 | June 30, 2017 | June 30, 2016 (1) | |||||||||||||
Net asset value, beginning of period | $ | 10.42 | $ | 10.60 | $ | 9.85 | $ | 10.00 | ||||||||
Activity from investment operations: | ||||||||||||||||
Net investment income (2) | 0.09 | 0.08 | 0.09 | 0.31 | ||||||||||||
Net realized and unrealized gain (loss) on investments, options purchased and options written | (0.19 | ) | 0.06 | 0.81 | (0.46 | ) | ||||||||||
Total from investment operations | (0.10 | ) | 0.14 | 0.90 | (0.15 | ) | ||||||||||
Less distributions from: | ||||||||||||||||
Net investment income | (0.08 | ) | (0.08 | ) | (0.08 | ) | — | |||||||||
Net realized gains | — | (0.24 | ) | (0.07 | ) | — | ||||||||||
Total distributions | (0.08 | ) | (0.32 | ) | (0.15 | ) | — | |||||||||
Net asset value, end of period | $ | 10.24 | $ | 10.42 | $ | 10.60 | $ | 9.85 | ||||||||
Total return (3) | (0.91 | )% | 1.13 | % | 9.25 | % | (1.50 | )% (4) | ||||||||
Net assets, at end of period (000s) | $ | 2,454 | $ | 2,838 | $ | 3,270 | $ | 2,098 | ||||||||
Ratio of gross expenses to average net assets (5,8) | 2.01 | % | 1.96 | % | 2.14 | % | 5.29 | % (6) | ||||||||
Ratio of net expenses to average net assets (5,8) | 1.85 | % | 1.86 | % | 1.76 | % | 1.78 | % (6) | ||||||||
Ratio of net investment income to average net assets (5,7,8) | 0.91 | % | 0.73 | % | 0.94 | % | 6.09 | % (6) | ||||||||
Portfolio Turnover Rate | 10 | % | 4 | % | 0 | % | 0 | % (4) | ||||||||
(1) | The Swan Defined Risk Foreign Developed Fund commenced operations on December 29, 2015. |
(2) | Per share amounts calculated using the average shares method. |
(3) | Total return assumes reinvestment of all dividends and distributions, if any. Had the advisor not waived a portion of its fees, total returns would have been lower. |
(4) | Not annualized. |
(5) | Does not include the expenses of other investment companies in which the Fund invests. |
(6) | Annualized. |
(7) | Recognition of investment income by the Fund is affected by the timing and declaration of dividends by the underlying investment companies in which the Fund invests. |
(8) | Excluding interest expense, the following ratios would have been: |
Gross expenses to average net assets (5) | 1.81 | % | 1.75 | % | 2.01 | % | 5.16 | % (6) | ||||||||
Net expenses to average net assets (5) | 1.65 | % | 1.65 | % | 1.63 | % | 1.65 | % (6) | ||||||||
Net investment income to average net assets (5,7) | 1.11 | % | 0.94 | % | 1.06 | % | 6.22 | % (6) | ||||||||
See accompanying notes to financial statements.
31
SWAN DEFINED RISK FOREIGN DEVELOPED FUND |
FINANCIAL HIGHLIGHTS |
Per Share Data and Ratios for a Share of Beneficial Interest Outstanding Throughout Each Period
Class C | ||||||||||||||||
For the | For the | For the | For the | |||||||||||||
Year Ended | Year Ended | Year Ended | Period Ended | |||||||||||||
June 30, 2019 | June 30, 2018 | June 30, 2017 | June 30, 2016 (1) | |||||||||||||
Net asset value, beginning of period | $ | 10.31 | $ | 10.54 | $ | 9.82 | $ | 10.00 | ||||||||
Activity from investment operations: | ||||||||||||||||
Net investment income (2) | 0.02 | 0.09 | 0.10 | 0.23 | ||||||||||||
Net realized and unrealized gain (loss) on investments, options purchased and options written | (0.20 | ) | (0.03 | ) | 0.72 | (0.41 | ) | |||||||||
Total from investment operations | (0.18 | ) | 0.06 | 0.82 | (0.18 | ) | ||||||||||
Less distributions from: | ||||||||||||||||
Net investment income | (0.01 | ) | (0.05 | ) | (0.03 | ) | — | |||||||||
Net realized gains | — | (0.24 | ) | (0.07 | ) | — | ||||||||||
Total distributions | (0.01 | ) | (0.29 | ) | (0.10 | ) | — | |||||||||
Net asset value, end of period | $ | 10.12 | $ | 10.31 | $ | 10.54 | $ | 9.82 | ||||||||
Total return (3) | (1.69 | )% | 0.38 | % | 8.46 | % | (1.80 | )% (4) | ||||||||
Net assets, at end of period (000s) | $ | 1,403 | $ | 1,617 | $ | 570 | $ | 172 | ||||||||
Ratio of gross expenses to average net assets (5,8) | 2.76 | % | 2.71 | % | 2.89 | % | 6.04 | % (6) | ||||||||
Ratio of net expenses to average net assets (5,8) | 2.60 | % | 2.61 | % | 2.51 | % | 2.53 | % (6) | ||||||||
Ratio of net investment income to average net assets (5,7,8) | 0.19 | % | 0.87 | % | 0.94 | % | 4.62 | % (6) | ||||||||
Portfolio Turnover Rate | 10 | % | 4 | % | 0 | % | 0 | % (4) | ||||||||
(1) | The Swan Defined Risk Foreign Developed Fund commenced operations on December 29, 2015. |
(2) | Per share amounts calculated using the average shares method. |
(3) | Total return assumes reinvestment of all dividends and distributions, if any. Had the advisor not waived a portion of its fees, total returns would have been lower. |
(4) | Not annualized. |
(5) | Does not include the expenses of other investment companies in which the Fund invests. |
(6) | Annualized. |
(7) | Recognition of investment income by the Fund is affected by the timing and declaration of dividends by the underlying investment companies in which the Fund invests. |
(8) | Excluding interest expense, the following ratios would have been: |
Gross expenses to average net assets (5) | 2.56 | % | 2.50 | % | 2.76 | % | 5.91 | % (6) | ||||||||
Net expenses to average net assets (5) | 2.40 | % | 2.40 | % | 2.38 | % | 2.40 | % (6) | ||||||||
Net investment income to average net assets (5,7) | 0.39 | % | 1.08 | % | 1.07 | % | 4.75 | % (6) | ||||||||
See accompanying notes to financial statements.
32
SWAN DEFINED RISK FOREIGN DEVELOPED FUND |
FINANCIAL HIGHLIGHTS |
Per Share Data and Ratios for a Share of Beneficial Interest Outstanding Throughout Each Period
Class I | ||||||||||||||||
For the | For the | For the | For the | |||||||||||||
Year Ended | Year Ended | Year Ended | Period Ended | |||||||||||||
June 30, 2019 | June 30, 2018 | June 30, 2017 | June 30, 2016 (1) | |||||||||||||
Net asset value, beginning of period | $ | 10.45 | $ | 10.62 | $ | 9.86 | $ | 10.00 | ||||||||
Activity from investment operations: | ||||||||||||||||
Net investment income (2) | 0.12 | 0.16 | 0.21 | 0.22 | ||||||||||||
Net realized and unrealized gain (loss) on investments, options purchased and options written | (0.20 | ) | 0.01 | 0.72 | (0.36 | ) | ||||||||||
Total from investment operations | (0.08 | ) | 0.17 | 0.93 | (0.14 | ) | ||||||||||
Less distributions from: | ||||||||||||||||
Net investment income | (0.12 | ) | (0.10 | ) | (0.10 | ) | — | |||||||||
Net realized gains | — | (0.24 | ) | (0.07 | ) | — | ||||||||||
Total distributions | (0.12 | ) | (0.34 | ) | (0.17 | ) | — | |||||||||
Net asset value, end of period | $ | 10.25 | $ | 10.45 | $ | 10.62 | $ | 9.86 | ||||||||
Total return (3) | (0.71 | )% | 1.44 | % | 9.52 | % | (1.40 | )% (4) | ||||||||
Net assets, at end of period (000s) | $ | 37,596 | $ | 42,374 | $ | 27,887 | $ | 4,538 | ||||||||
Ratio of gross expenses to average net assets (5,8) | 1.76 | % | 1.71 | % | 1.89 | % | 5.04 | % (6) | ||||||||
Ratio of net expenses to average net assets (5,8) | 1.60 | % | 1.61 | % | 1.51 | % | 1.53 | % (6) | ||||||||
Ratio of net investment income to average net assets (5,7,8) | 1.18 | % | 1.44 | % | 2.02 | % | 4.51 | % (6) | ||||||||
Portfolio Turnover Rate | 10 | % | 4 | % | 0 | % | 0 | % (4) | ||||||||
(1) | The Swan Defined Risk Foreign Developed Fund commenced operations on December 29, 2015. |
(2) | Per share amounts calculated using the average shares method. |
(3) | Total return assumes reinvestment of all dividends and distributions, if any. Had the advisor not waived a portion of its fees, total returns would have been lower. |
(4) | Not annualized. |
(5) | Does not include the expenses of other investment companies in which the Fund invests. |
(6) | Annualized. |
(7) | Recognition of investment income by the Fund is affected by the timing and declaration of dividends by the underlying investment companies in which the Fund invests. |
(8) | Excluding interest expense, the following ratios would have been: |
Gross expenses to average net assets (5) | 1.56 | % | 1.50 | % | 1.76 | % | 4.91 | % (6) | ||||||||
Net expenses to average net assets (5) | 1.40 | % | 1.40 | % | 1.38 | % | 1.40 | % (6) | ||||||||
Net investment income to average net assets (5,7) | 1.38 | % | 1.65 | % | 2.15 | % | 4.64 | % (6) | ||||||||
See accompanying notes to financial statements.
33
SWAN DEFINED RISK FOREIGN DEVELOPED FUND |
FINANCIAL HIGHLIGHTS |
Per Share Data and Ratios for a Share of Beneficial Interest Outstanding Throughout the Period
Class Y | ||||
For the | ||||
Period Ended | ||||
June 30, 2019 (1) | ||||
Net asset value, beginning of period | $ | 9.64 | ||
Activity from investment operations: | ||||
Net investment income (2) | 0.23 | |||
Net realized and unrealized gain on investments, options purchased and options written | 0.40 | |||
Total from investment operations | 0.63 | |||
Net asset value, end of period | $ | 10.27 | ||
Total return (3,4) | 6.54 | % | ||
Net assets, at end of period (000s) | $ | 107 | ||
Ratio of gross expenses to average net assets (5,6,8) | 1.76 | % | ||
Ratio of net expenses to average net assets (5,6,8) | 1.22 | % | ||
Ratio of net investment income to average net assets (6,7,8) | 4.41 | % | ||
Portfolio Turnover Rate (4) | 10 | % | ||
(1) | The Swan Defined Risk Foreign Developed Funds Class Y shares commenced operations on December 27, 2018. |
(2) | Per share amounts calculated using the average shares method. |
(3) | Total return assumes reinvestment of all dividends and distributions, if any. |
(4) | Not annualized. |
(5) | Does not include the expenses of other investment companies in which the Fund invests. |
(6) | Annualized. |
(7) | Recognition of investment income (loss) by the Fund is affected by the timing and declaration of dividends by the underlying investment companies in which the Fund invests. |
(8) | Excluding interest expense, the following ratios would have been: |
Gross expenses to average net assets (5,6) | 1.56 | % | ||
Net expenses to average net assets (5,6) | 1.02 | % | ||
Net investment income to average net assets (6,7) | 4.61 | % | ||
See accompanying notes to financial statements.
34
SWAN DEFINED RISK GROWTH FUND |
FINANCIAL HIGHLIGHTS |
Per Share Data and Ratios for a Share of Beneficial Interest Outstanding Throughout the Period
Class A | ||||
For the | ||||
Period Ended | ||||
June 30, 2019 (1) | ||||
Net asset value, beginning of period | $ | 10.00 | ||
Activity from investment operations: | ||||
Net investment income (2,3) | 0.00 | |||
Net realized and unrealized gain on investments, options purchased and options written | 1.38 | |||
Total from investment operations | 1.38 | |||
Net asset value, end of period | $ | 11.38 | ||
Total return (4,5) | 13.80 | % | ||
Net assets, at end of period | $ | 11 | ||
Ratio of gross expenses to average net assets (6,7) | 10.73 | % | ||
Ratio of net expenses to average net assets (6,7) | 1.65 | % | ||
Ratio of net investment income to average net assets (6,7,8) | 0.00 | % | ||
Portfolio Turnover Rate (5) | 0 | % | ||
(1) | The Swan Defined Risk Growth Fund Class A commenced operations on December 27, 2018. |
(2) | Per share amounts calculated using the average shares method. |
(3) | Amount is less than $0.01 |
(4) | Total return assumes reinvestment of all dividends and distributions, if any. Had the advisor not waived a portion of its fees, total returns would have been lower. |
(5) | Not annualized. |
(6) | Does not include the expenses of other investment companies in which the Fund invests. |
(7) | Annualized. |
(8) | Recognition of investment loss by the Fund is affected by the timing and declaration of dividends by the underlying investment companies in which the Fund invests. |
See accompanying notes to financial statements.
35
SWAN DEFINED RISK GROWTH FUND |
FINANCIAL HIGHLIGHTS |
Per Share Data and Ratios for a Share of Beneficial Interest Outstanding Throughout the Period
Class C | ||||
For the | ||||
Period Ended | ||||
June 30, 2019 (1) | ||||
Net asset value, beginning of period | $ | 10.00 | ||
Activity from investment operations: | ||||
Net investment income (2,3) | 0.00 | |||
Net realized and unrealized gain on investments, options purchased and options written | 1.38 | |||
Total from investment operations | 1.38 | |||
Net asset value, end of period | $ | 11.38 | ||
Total return (4,5) | 13.80 | % (4) | ||
Net assets, at end of period | $ | 11 | ||
Ratio of gross expenses to average net assets (6,7) | 11.48 | % (6) | ||
Ratio of net expenses to average net assets (6,7) | 2.40 | % (6) | ||
Ratio of net investment income to average net assets (6,7,8) | 0.00 | % (6) | ||
Portfolio Turnover Rate (5) | 0 | % (4) | ||
(1) | The Swan Defined Risk Growth Fund Class C commenced operations on December 27, 2018. |
(2) | Per share amounts calculated using the average shares method. |
(3) | Amount is less than $0.01 |
(4) | Total return assumes reinvestment of all dividends and distributions, if any. Had the advisor not waived a portion of its fees, total returns would have been lower. |
(5) | Not annualized. |
(6) | Does not include the expenses of other investment companies in which the Fund invests. |
(7) | Annualized. |
(8) | Recognition of investment loss by the Fund is affected by the timing and declaration of dividends by the underlying investment companies in which the Fund invests. |
See accompanying notes to financial statements.
36
SWAN DEFINED RISK GROWTH FUND |
FINANCIAL HIGHLIGHTS |
Per Share Data and Ratios for a Share of Beneficial Interest Outstanding Throughout the Period
Class I | ||||
For the | ||||
Period Ended | ||||
June 30, 2019 (1) | ||||
Net asset value, beginning of period | $ | 10.00 | ||
Activity from investment operations: | ||||
Net investment income (2,3) | 0.05 | |||
Net realized and unrealized gain on investments, options purchased and options written | 1.33 | |||
Total from investment operations | 1.38 | |||
Net asset value, end of period | $ | 11.38 | ||
Total return (4,5) | 13.80 | % | ||
Net assets, at end of period (000s) | $ | 3,610 | ||
Ratio of gross expenses to average net assets (6,7) | 10.48 | % | ||
Ratio of net expenses to average net assets (6,7) | 1.40 | % | ||
Ratio of net investment income to average net assets (6,7,8) | 0.88 | % | ||
Portfolio Turnover Rate (5) | 0 | % | ||
(1) | The Swan Defined Risk Growth Fund Class I commenced operations on December 27, 2018. |
(2) | Per share amounts calculated using the average shares method. |
(3) | Amount is less than $0.01 |
(4) | Total return assumes reinvestment of all dividends and distributions, if any. Had the advisor not waived a portion of its fees, total returns would have been lower. |
(5) | Not annualized. |
(6) | Does not include the expenses of other investment companies in which the Fund invests. |
(7) | Annualized. |
(8) | Recognition of investment loss by the Fund is affected by the timing and declaration of dividends by the underlying investment companies in which the Fund invests. |
See accompanying notes to financial statements.
37
SWAN DEFINED RISK GROWTH FUND |
FINANCIAL HIGHLIGHTS |
Per Share Data and Ratios for a Share of Beneficial Interest Outstanding Throughout the Period
Class Y | ||||
For the | ||||
Period Ended | ||||
June 30, 2019 (1) | ||||
Net asset value, beginning of period | $ | 10.00 | ||
Activity from investment operations: | ||||
Net investment income (2,3) | 0.08 | |||
Net realized and unrealized gain on investments, options purchased and options written | 1.32 | |||
Total from investment operations | 1.40 | |||
Net asset value, end of period | $ | 11.40 | ||
Total return (4,5) | 14.00 | % | ||
Net assets, at end of period (000s) | $ | 235 | ||
Ratio of gross expenses to average net assets (6,7) | 10.48 | % | ||
Ratio of net expenses to average net assets (6,7) | 1.02 | % | ||
Ratio of net investment income to average net assets (6,7,8) | 0.41 | % | ||
Portfolio Turnover Rate (5) | 0 | % | ||
(1) | The Swan Defined Risk Growth Fund Class Y commenced operations on December 27, 2018. |
(2) | Per share amounts calculated using the average shares method. |
(3) | Amount is less than $0.01 |
(4) | Total return assumes reinvestment of all dividends and distributions, if any. Had the advisor not waived a portion of its fees, total returns would have been lower. |
(5) | Not annualized. |
(6) | Does not include the expenses of other investment companies in which the Fund invests. |
(7) | Annualized. |
(8) | Recognition of investment loss by the Fund is affected by the timing and declaration of dividends by the underlying investment companies in which the Fund invests. |
See accompanying notes to financial statements.
38
SWAN DEFINED RISK U.S. SMALL CAP FUND |
FINANCIAL HIGHLIGHTS |
Per Share Data and Ratios for a Share of Beneficial Interest Outstanding Throughout Each Period
Class A | ||||||||||||||||
For the | For the | For the | For the | |||||||||||||
Year Ended | Year Ended | Year Ended | Period Ended | |||||||||||||
June 30, 2019 | June 30, 2018 | June 30, 2017 | June 30, 2016 (1) | |||||||||||||
Net asset value, beginning of period | $ | 12.39 | $ | 11.55 | $ | 10.28 | $ | 10.00 | ||||||||
Activity from investment operations: | ||||||||||||||||
Net investment loss (2) | (0.04 | ) | (0.09 | ) | (0.10 | ) | (0.06 | ) | ||||||||
Net realized and unrealized gain (loss) on investments, options purchased and options written | (0.43 | ) | 0.93 | 1.40 | 0.34 | |||||||||||
Total from investment operations | (0.47 | ) | 0.84 | 1.30 | 0.28 | |||||||||||
Less distributions from: | ||||||||||||||||
Return of capital | — | — | (0.03 | ) | — | |||||||||||
Total distributions | — | — | (0.03 | ) | — | |||||||||||
Net asset value, end of period | $ | 11.92 | $ | 12.39 | $ | 11.55 | $ | 10.28 | ||||||||
Total return (3) | (3.79 | )% | 7.27 | % | 12.70 | % | 2.80 | % (4) | ||||||||
Net assets, at end of period (000s) | $ | 2,206 | $ | 1,448 | $ | 646 | $ | 26 | ||||||||
Ratio of gross expenses to average net assets (5,8) | 1.88 | % | 1.93 | % | 2.16 | % | 4.86 | % (6) | ||||||||
Ratio of net expenses to average net assets (5,8) | 1.77 | % | 1.80 | % | 1.76 | % | 1.76 | % (6) | ||||||||
Ratio of net investment loss to average net assets (5,7,8) | (0.34 | )% | (0.80 | )% | (0.89 | )% | (1.25 | )% (6) | ||||||||
Portfolio Turnover Rate | 17 | % | 1 | % | 0 | % | 0 | % (4) | ||||||||
(1) | The Swan Defined Risk U.S. Small Cap Fund commenced operations on December 29, 2015. |
(2) | Per share amounts calculated using the average shares method. |
(3) | Total return assumes reinvestment of all dividends and distributions, if any. Had the advisor not waived a portion of its fees, total returns would have been lower. |
(4) | Not annualized. |
(5) | Does not include the expenses of other investment companies in which the Fund invests. |
(6) | Annualized. |
(7) | Recognition of investment loss by the Fund is affected by the timing and declaration of dividends by the underlying investment companies in which the Fund invests. |
(8) | Excluding interest expense, the following ratios would have been: |
Gross expenses to average net assets (5) | 1.76 | % | 1.78 | % | 2.05 | % | 5.46 | % (6) | ||||||||
Net expenses to average net assets (5) | 1.65 | % | 1.65 | % | 1.65 | % | 1.65 | % (6) | ||||||||
Net investment loss to average net assets (5,7) | (0.22 | )% | (0.65 | )% | (0.78 | )% | (1.14 | )% (6) | ||||||||
See accompanying notes to financial statements.
39
SWAN DEFINED RISK U.S. SMALL CAP FUND |
FINANCIAL HIGHLIGHTS |
Per Share Data and Ratios for a Share of Beneficial Interest Outstanding Throughout Each Period
Class C | ||||||||||||||||
For the | For the | For the | For the | |||||||||||||
Year Ended | Year Ended | Year Ended | Period Ended | |||||||||||||
June 30, 2019 | June 30, 2018 | June 30, 2017 | June 30, 2016 (1) | |||||||||||||
Net asset value, beginning of period | $ | 12.17 | $ | 11.44 | $ | 10.25 | $ | 10.00 | ||||||||
Activity from investment operations: | ||||||||||||||||
Net investment loss (2) | (0.12 | ) | (0.17 | ) | (0.17 | ) | (0.10 | ) | ||||||||
Net realized and unrealized gain (loss) on investments, options purchased and options written | (0.43 | ) | 0.90 | 1.39 | 0.35 | |||||||||||
Total from investment operations | (0.55 | ) | 0.73 | 1.22 | 0.25 | |||||||||||
Less distributions from: | ||||||||||||||||
Return of capital | — | — | (0.03 | ) | — | |||||||||||
Total distributions | — | — | (0.03 | ) | — | |||||||||||
Net asset value, end of period | $ | 11.62 | $ | 12.17 | $ | 11.44 | $ | 10.25 | ||||||||
Total return (3) | (4.52 | )% | 6.38 | % | 11.94 | % | 2.50 | % (4) | ||||||||
Net assets, at end of period (000s) | $ | 1,744 | $ | 1,785 | $ | 1,314 | $ | 234 | ||||||||
Ratio of gross expenses to average net assets (5,8) | 2.63 | % | 2.68 | % | 2.91 | % | 5.61 | % (6) | ||||||||
Ratio of net expenses to average net assets (5,8) | 2.52 | % | 2.55 | % | 2.51 | % | 2.51 | % (6) | ||||||||
Ratio of net investment loss to average net assets (5,7,8) | (1.05 | )% | (1.41 | )% | (1.50 | )% | (2.04 | )% (6) | ||||||||
Portfolio Turnover Rate | 17 | % | 1 | % | 0 | % | 0 | % (4) | ||||||||
(1) | The Swan Defined Risk U.S. Small Cap Fund commenced operations on December 29, 2015. |
(2) | Per share amounts calculated using the average shares method. |
(3) | Total return assumes reinvestment of all dividends and distributions, if any. Had the advisor not waived a portion of its fees, total returns would have been lower. |
(4) | Not annualized. |
(5) | Does not include the expenses of other investment companies in which the Fund invests. |
(6) | Annualized. |
(7) | Recognition of investment loss by the Fund is affected by the timing and declaration of dividends by the underlying investment companies in which the Fund invests. |
(8) | Excluding interest expense, the following ratios would have been: |
Gross expenses to average net assets (5) | 2.51 | % | 2.53 | % | 2.80 | % | 6.21 | % (6) | ||||||||
Net expenses to average net assets (5) | 2.40 | % | 2.40 | % | 2.40 | % | 2.40 | % (6) | ||||||||
Net investment loss to average net assets (5,7) | (0.93 | )% | (1.26 | )% | (1.38 | )% | (1.93 | )% (6) | ||||||||
See accompanying notes to financial statements.
40
SWAN DEFINED RISK U.S. SMALL CAP FUND |
FINANCIAL HIGHLIGHTS |
Per Share Data and Ratios for a Share of Beneficial Interest Outstanding Throughout Each Period
Class I | ||||||||||||||||
For the | For the | For the | For the | |||||||||||||
Year Ended | Year Ended | Year Ended | Period Ended | |||||||||||||
June 30, 2019 | June 30, 2018 | June 30, 2017 | June 30, 2016 (1) | |||||||||||||
Net asset value, beginning of period | $ | 12.45 | $ | 11.58 | $ | 10.28 | $ | 10.00 | ||||||||
Activity from investment operations: | ||||||||||||||||
Net investment loss (2) | (0.01 | ) | (0.05 | ) | (0.05 | ) | (0.06 | ) | ||||||||
Net realized and unrealized gain (loss) on investments, options purchased and options written | (0.43 | ) | 0.92 | 1.39 | 0.34 | |||||||||||
Total from investment operations | (0.44 | ) | 0.87 | 1.34 | 0.28 | |||||||||||
Less distributions from: | ||||||||||||||||
Net investment income | — | — | (0.01 | ) | — | |||||||||||
Return of capital | — | — | (0.03 | ) | — | |||||||||||
Total distributions | — | — | (0.04 | ) | — | |||||||||||
Net asset value, end of period | $ | 12.01 | $ | 12.45 | $ | 11.58 | $ | 10.28 | ||||||||
Total return (3) | (3.53 | )% | 7.51 | % | 13.08 | % | 2.80 | % (4) | ||||||||
Net assets, at end of period (000s) | $ | 37,534 | $ | 45,038 | $ | 26,651 | $ | 6,412 | ||||||||
Ratio of gross expenses to average net assets (5,8) | 1.63 | % | 1.68 | % | 1.91 | % | 4.61 | % (6) | ||||||||
Ratio of net expenses to average net assets (5,8) | 1.52 | % | 1.55 | % | 1.51 | % | 1.51 | % (6) | ||||||||
Ratio of net investment loss to average net assets (5,7,8) | (0.06 | )% | (0.45 | )% | (0.47 | )% | (1.05 | )% (6) | ||||||||
Portfolio Turnover Rate | 17 | % | 1 | % | 0 | % | 0 | % (4) | ||||||||
(1) | The Swan Defined Risk U.S. Small Cap Fund commenced operations on December 29, 2015. |
(2) | Per share amounts calculated using the average shares method. |
(3) | Total return assumes reinvestment of all dividends and distributions, if any. Had the advisor not waived a portion of its fees, total returns would have been lower. |
(4) | Not annualized. |
(5) | Does not include the expenses of other investment companies in which the Fund invests. |
(6) | Annualized. |
(7) | Recognition of investment loss by the Fund is affected by the timing and declaration of dividends by the underlying investment companies in which the Fund invests. |
(8) | Excluding interest expense, the following ratios would have been: |
Gross expenses to average net assets (5) | 1.51 | % | 1.53 | % | 1.80 | % | 5.21 | % (6) | ||||||||
Net expenses to average net assets (5) | 1.40 | % | 1.40 | % | 1.40 | % | 1.40 | % (6) | ||||||||
Net investment income (loss) to average net assets (5,7) | 0.06 | % | (0.30 | )% | (0.37 | )% | (0.94 | )% (6) | ||||||||
See accompanying notes to financial statements.
41
SWAN DEFINED RISK U.S. SMALL CAP FUND |
FINANCIAL HIGHLIGHTS |
Per Share Data and Ratios for a Share of Beneficial Interest Outstanding Throughout the Period
Class Y | ||||
For the | ||||
Period Ended | ||||
June 30, 2019 (1) | ||||
Net asset value, beginning of period | $ | 10.86 | ||
Activity from investment operations: | ||||
Net investment income (2) | 0.03 | |||
Net realized and unrealized gain on investments, options purchased and options written | 1.13 | |||
Total from investment operations | 1.16 | |||
Net asset value, end of period | $ | 12.02 | ||
Total return (3,4) | 10.68 | % | ||
Net assets, at end of period (000s) | $ | 116 | ||
Ratio of gross expenses to average net assets (5,6,8) | 1.63 | % | ||
Ratio of expenses to average net assets (5,6,8) | 1.14 | % | ||
Ratio of net investment income to average net assets (5,6,7,8) | 0.52 | % | ||
Portfolio Turnover Rate (4) | 17 | % | ||
(1) | The Swan Defined Risk U.S. Small Cap Funds Class Y shares commenced operations on December 27, 2018. |
(2) | Per share amounts calculated using the average shares method. |
(3) | Total return assumes reinvestment of all dividends and distributions, if any. |
(4) | Not annualized. |
(5) | Does not include the expenses of other investment companies in which the Fund invests. |
(6) | Annualized. |
(7) | Recognition of investment income (loss) by the Fund is affected by the timing and declaration of dividends by the underlying investment companies in which the Fund invests. |
(8) | Excluding interest expense, the following ratios would have been: |
Gross expenses to average net assets (5,6) | 1.51 | % | ||
Net expenses to average net assets (5,6) | 1.02 | % | ||
Net investment income to average net assets (5,6,7) | 0.64 | % | ||
See accompanying notes to financial statements.
42
SWAN FUNDS |
NOTES TO FINANCIAL STATEMENTS |
June 30, 2019 |
1. | ORGANIZATION |
The Swan Defined Risk Fund, Swan Defined Risk Emerging Markets Fund, Swan Defined Risk Foreign Developed Fund, Swan Defined Risk Growth Fund and the Swan Defined Risk U.S. Small Cap Fund, each a Fund and together, the Funds, are each a diversified series of shares of beneficial interest of Northern Lights Fund Trust III (the Trust), a Delaware statutory trust organized on December 5, 2011. The Trust is registered under the Investment Company Act of 1940, as amended (the 1940 Act), as an open-end management investment company.
The investment objectives of the Funds are as follows:
Swan Defined Risk Fund – To seek income and growth of capital
Swan Defined Risk Emerging Markets Fund – To seek income and growth of capital
Swan Defined Risk Foreign Developed Fund – To seek income and growth of capital
Swan Defined Risk Growth Fund – To seek income and growth of capital
Swan Defined Risk U.S. Small Cap Fund – To seek income and growth of capital
Each Fund offers four classes of shares: Class A, Class C, Class I and Class Y shares. The Swan Defined Risk Funds Class A shares and Class I shares commenced operations on July 30, 2012, Class C shares on October 18, 2012, and Class Y shares on December 27, 2018. The Swan Defined Risk Emerging Markets Funds Class A, Class C and Class I shares commenced operations on December 30, 2014 and Class Y shares on December 27, 2018. The Swan Defined Risk Foreign Developed Funds and the Swan Defined Risk U.S. Small Cap Funds Class A, Class C and Class I shares commenced operations on December 29, 2015 and Class Y shares on December 27, 2018. The Swan Defined Risk Growth Funds Class A, Class C, Class I and Class Y shares commenced operations on December 27, 2018. Class A shares of each Fund are offered at net asset value plus a maximum sales charge of 5.50%. Class I and Class C shares of each Fund are offered at net asset value. Each class of the Funds represents an interest in the same assets of the respective Fund and classes are identical except for differences in their distribution charges, sales charges, and minimum investment levels. All classes of shares have equal voting privileges except that each class has exclusive voting rights with respect to its service and/or distribution plans. Fund level income and expenses, and realized and unrealized capital gains and losses are allocated to each class of shares based on their relative net assets within each Fund. Class specific expenses are allocated to that share class.
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
The following is a summary of significant accounting policies followed by the Funds in preparation of their financial statements. These policies are in conformity with accounting principles generally accepted in the United States of America (GAAP). 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. The Funds are investment companies and accordingly follow the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946 Financial Services – Investment Companies.
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. Futures and future options are valued at the final settled price or, in the absence of a settled price, at the last sale price on the day of valuation. Debt securities (other than short-term obligations) are valued each day by an independent pricing service approved by the Trusts Board of Trustees (the Board) based on methods which include consideration of: yields or prices of securities of comparable quality, coupon, maturity and type, indications as to values from dealers, and general market conditions or market quotations from a major market maker in the securities. Investments valued in currencies other than the U.S. dollar are converted to U.S. dollars using exchange rates obtained from pricing services. Short-term debt obligations having 60 days or less remaining until maturity, at time of purchase, may be valued at amortized cost. Options contracts listed on a securities exchange or board of trade for which market quotations are readily available shall be valued at the last quoted sales price or, in the absence of a sale, at the mean between the current bid and ask prices on the day of valuation. Option contracts not listed on a securities exchange or board of trade for which over-the-counter market quotations are readily available shall be valued
43
SWAN FUNDS |
NOTES TO FINANCIAL STATEMENTS (Continued) |
June 30, 2019 |
at the mean between the current bid and ask prices on the day of valuation. Index options shall be valued at the mean between the current bid and ask prices on the day of valuation.
Valuation of Underlying Funds – The Funds may invest in portfolios of open-end or closed-end investment companies (the underlying funds). Underlying open-end investment companies are valued at their respective net asset values as reported by such investment companies. The underlying funds value securities in their portfolios for which market quotations are readily available at their market values (generally the last reported sale price) and all other securities and assets at their fair value by the methods established by the boards of the underlying funds. The shares of many closed- end investment companies, after their initial public offering, frequently trade at a price per share, which is different than the net asset value per share. The difference represents a market premium or market discount of such shares. There can be no assurances that the market discount or market premium on shares of any closed-end investment company purchased by the Funds will not change.
The Funds may hold securities, such as private investments, interests in commodity pools, other non-traded securities or temporarily illiquid securities, for which market quotations are not readily available or are determined to be unreliable. These securities will be valued using the fair value procedures approved by the Board. The Board has delegated execution of these procedures to a fair value committee composed of one or more representatives from each of the (i) Trust, (ii) administrator, and (iii) advisor and/or sub-advisor. 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 reviews and ratifies the execution of this process and the resultant fair value prices at least quarterly to assure the process produces reliable results.
Fair Valuation Process – As noted above, the fair value committee is composed of one or more representatives from each of the (i) Trust, (ii) administrator, and (iii) advisor and/or sub-advisor. 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 advisor and/or sub-advisor, the prices or values available do not represent the fair value of the instrument. Factors which may cause the advisor and/or sub-advisor 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; 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 the Funds calculation of their net asset values. 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 advisor and/or sub-advisor 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 advisor and/or sub-advisor 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 applicable Funds 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 Funds utilize various methods to measure the fair value of all of their investments on a recurring basis. GAAP establishes a hierarchy that prioritizes inputs to valuation methods. The three levels of input are:
Level 1 – Unadjusted quoted prices in active markets for identical assets and liabilities that a Fund has the ability to access.
Level 2 – Observable inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These inputs may include quoted prices for the identical instrument in an inactive market, prices for similar instruments, interest rates, prepayment speeds, credit risk, yield curves, default rates and similar data.
44
SWAN FUNDS |
NOTES TO FINANCIAL STATEMENTS (Continued) |
June 30, 2019 |
Level 3 – Unobservable inputs for the asset or liability, to the extent relevant observable inputs are not available, representing a Funds own assumptions about the assumptions a market participant would use in valuing the asset or liability, and would be based on the best information available.
The availability of observable inputs can vary from security to security and is affected by a wide variety of factors, including, for example, the type of security, whether the security is new and not yet established in the marketplace, the liquidity of markets, and other characteristics particular to the security. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3.
The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement falls in its entirety, is determined based on the lowest level input that is significant to the fair value measurement in its entirety.
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The following tables summarize the inputs used as of June 30, 2019 for the Funds investments measured at fair value:
Swan Defined Risk Fund
Assets * | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Exchange-Traded Funds | $ | 1,927,733,736 | $ | — | $ | — | $ | 1,927,733,736 | ||||||||
Purchased Call Options | — | 33,988,155 | — | 33,988,155 | ||||||||||||
Purchased Put Options | — | 137,726,950 | — | 137,726,950 | ||||||||||||
Short-Term Investments | 49,301,332 | — | — | 49,301,332 | ||||||||||||
Total | $ | 1,977,035,068 | $ | 171,715,105 | $ | — | $ | 2,148,750,173 | ||||||||
Liabilities * | ||||||||||||||||
Call Options Written | $ | — | $ | 48,447,960 | $ | — | $ | 48,447,960 | ||||||||
Put Options Written | — | 30,005,070 | — | 30,005,070 | ||||||||||||
Total | $ | — | $ | 78,453,030 | $ | — | $ | 78,453,030 |
Swan Defined Risk Emerging Markets Fund
Assets * | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Exchange-Traded Funds | $ | 42,664,471 | $ | — | $ | — | $ | 42,664,471 | ||||||||
Purchased Call Options | — | 404,635 | — | 404,635 | ||||||||||||
Purchased Put Options | 1,577,288 | 1,707,840 | — | 3,285,128 | ||||||||||||
Short-Term Investments | 800,032 | — | — | 800,032 | ||||||||||||
Total | $ | 45,041,791 | $ | 2,112,475 | $ | — | $ | 47,154,266 | ||||||||
Liabilities * | ||||||||||||||||
Call Options Written | $ | 470,256 | $ | 394,890 | $ | — | $ | 865,146 | ||||||||
Put Options Written | 331,769 | 129,245 | — | 461,014 | ||||||||||||
Total | $ | 802,025 | $ | 524,135 | $ | — | $ | 1,326,160 |
Swan Defined Risk Foreign Developed Fund
Assets * | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Exchange-Traded Funds | $ | 38,971,317 | $ | — | $ | — | $ | 38,971,317 | ||||||||
Purchased Call Options | — | 386,025 | — | 386,025 | ||||||||||||
Purchased Put Options | 1,019,142 | 1,083,866 | — | 2,103,008 | ||||||||||||
Short-Term Investments | 877,982 | — | — | 877,982 | ||||||||||||
Total | $ | 40,868,441 | $ | 1,469,891 | $ | — | $ | 42,338,332 | ||||||||
Liabilities * | ||||||||||||||||
Call Options Written | $ | 155,714 | $ | 474,428 | $ | — | $ | 630,142 | ||||||||
Put Options Written | 25,866 | 348,653 | — | 374,519 | ||||||||||||
Total | $ | 181,580 | $ | 823,081 | $ | — | $ | 1,004,661 |
45
SWAN FUNDS |
NOTES TO FINANCIAL STATEMENTS (Continued) |
June 30, 2019 |
Swan Defined Risk Growth Fund
Assets * | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Exchange-Traded Funds | $ | 3,242,250 | $ | — | $ | — | $ | 3,242,250 | ||||||||
Purchased Call Options | — | 245,907 | — | 245,907 | ||||||||||||
Purchased Put Options | — | 186,240 | — | 186,240 | ||||||||||||
Short-Term Investments | 368,431 | — | — | 368,431 | ||||||||||||
Total | $ | 3,610,681 | $ | 432,147 | $ | — | $ | 4,042,828 | ||||||||
Liabilities * | ||||||||||||||||
Call Options Written | $ | — | $ | 153,385 | $ | — | $ | 153,385 | ||||||||
Put Options Written | — | 28,370 | — | 28,370 | ||||||||||||
Total | $ | — | $ | 181,755 | $ | — | $ | 181,755 |
Swan Defined Risk U.S. Small Cap Fund
Assets * | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Exchange-Traded Funds | $ | 39,030,500 | $ | — | $ | — | $ | 39,030,500 | ||||||||
Purchased Call Options | — | 387,810 | — | 387,810 | ||||||||||||
Purchased Put Options | — | 2,312,260 | — | 2,312,260 | ||||||||||||
Short-Term Investments | 502,946 | — | — | 502,946 | ||||||||||||
Total | $ | 39,533,446 | $ | 2,700,070 | $ | — | $ | 42,233,516 | ||||||||
Liabilities * | ||||||||||||||||
Call Options Written | $ | — | $ | 607,540 | $ | — | $ | 607,540 | ||||||||
Put Options Written | — | 336,865 | — | 336,865 | ||||||||||||
Total | $ | — | $ | 944,405 | $ | — | $ | 944,405 |
The Funds did not hold any Level 3 securities during the period.
* | Please refer to the Portfolio of Investments for Classification. |
Security Transactions and Investment Income – Investment security transactions are accounted for on a trade date basis. Cost is determined and gains and losses are based upon the specific identification method for both financial statement and federal income tax purposes. Dividend income is recorded on the ex-dividend date and interest income is recorded on an accrual basis. Purchase discounts and premiums on securities are accreted and amortized over the life of the respective securities.
Option Transactions – The Funds are subject to equity price risk in the normal course of pursuing their investment objectives and may purchase or sell options to help hedge against risk. When a Fund writes an option, an amount equal to the premium received is included in the statement of assets and liabilities as a liability. The amount of the liability is subsequently marked-to-market to reflect the current market value of the option. If an option expires on its stipulated expiration date or if a Fund enters into a closing purchase transaction, a gain or loss is realized. If a written call option is exercised, a gain or loss is realized for the sale of the underlying security and the proceeds from the sale are increased by the premium originally received. If a written put option is exercised, the purchase cost of the underlying security is reduced by the premium originally received. As a writer of an option, the Funds have no control over whether the option will be exercised and, as a result, retains the market risk of an unfavorable change in the price of the security underlying the written option.
The Funds may purchase put and call options. Put options are purchased to hedge against a decline in the value of securities held in a Funds portfolio. If such a decline occurs, the put options will permit a Fund to sell the securities underlying such options at the exercise price, or to close out the options at a profit. The premium paid for a put or call option plus any transaction costs will reduce the benefit, if any, realized by a Fund upon exercise of the option, and, unless the price of the underlying security rises or declines sufficiently, the option may expire worthless to the applicable Fund. In addition, in the event that the price of the security in connection with which an option was purchased moves in a direction favorable to a Fund, the benefits realized by the applicable Fund as a result of such favorable movement will be reduced by the amount of the premium paid for the option and related transaction costs. Written and purchased options are non-income producing securities. With purchased options, there is minimal counterparty risk to a Fund since these options are exchange traded and the exchanges clearinghouse, as counterparty to all exchange traded options, guarantees against a possible default.
46
SWAN FUNDS |
NOTES TO FINANCIAL STATEMENTS (Continued) |
June 30, 2019 |
Distributions to Shareholders – Distributions from net investment income, if any, are declared and paid at least annually and are recorded on the ex-dividend date. The Funds will declare and pay net realized capital gains, if any, annually. The character of income and gains to be distributed is determined in accordance with federal income tax regulations, which may differ from GAAP. These book/tax differences are considered either temporary (i.e., deferred losses, capital loss carry forwards) 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 classification.
Federal Income Taxes – It is the Funds policy to continue to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of their taxable income to their shareholders. Therefore, no provision for federal income tax is required. The Funds recognize 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 Funds 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 2016 - 2018 for all Funds, or expected to be taken by all the Funds in their 2019 tax returns. The Funds identify their major tax jurisdictions as U.S. Federal, Ohio and foreign jurisdictions where the Funds make significant investments. The Funds are 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.
Exchange Traded Funds – The Funds may invest in exchange traded funds (ETFs). ETFs are a type of fund bought and sold on a securities exchange. An ETF trades like common stock and represents a fixed portfolio of securities. The Funds may purchase an ETF to gain exposure to a portion of the U.S. or a foreign market. 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.
Expenses – Expenses of the Trust that are directly identifiable to a specific fund are charged to that fund. Expenses that 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 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 Funds enter into contracts that contain a variety of representations and warranties and which provide general indemnities. The Funds maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Funds that have not yet occurred. However, based on experience, the Funds expect the risk of loss due to these warranties and indemnities to be remote.
Cash Held at Broker – Cash held at broker includes cash and overnight investments in interest-bearing demand deposits with a financial institution with original maturities of three months or less. The Funds maintain deposits with a high quality financial institution in an amount that is in excess of federally insured limits. Each Fund places deposits only with those counterparties that are believed to be creditworthy and there has been no history of loss.
Cash and Cash Equivalents – Cash and cash equivalents are held with a financial institution. The assets of a Fund may be placed in deposit accounts at U.S. banks and such deposits generally exceed Federal Deposit Insurance Corporation (FDIC) insurance limits. The FDIC insures deposit accounts up to $250,000 for each account holder. The counterparty is generally a single bank rather than a group of financial institutions; thus, there may be a greater counterparty credit risk. Each Fund places deposits only with those counterparties that are believed to be creditworthy and there has been no history of loss.
ETF Risk – ETFs are subject to investment advisory and other expenses, which will be indirectly paid by the Funds. As a result, the cost of investing in the Funds will be higher than the cost of investing directly in ETFs and may be higher than other mutual funds that invest directly in stocks. ETFs are subject to specific risks, depending on the nature of the ETF.
Option Risk – Purchased put options may expire worthless and may have imperfect correlation to the value of the Funds sector ETFs. Written call and put options may limit the Funds participation in equity market gains and may amplify losses in market declines. The Funds losses are potentially large in a written put or call transaction. If unhedged, written calls expose the Funds to potentially unlimited losses.
47
SWAN FUNDS |
NOTES TO FINANCIAL STATEMENTS (Continued) |
June 30, 2019 |
Leveraging Risk – The use of leverage, such as that embedded in options, could magnify the Funds gains or losses. Written option positions expose the Funds to potential losses many times the option premium received.
3. | INVESTMENT ADVISORY AGREEMENT AND TRANSACTIONS WITH RELATED PARTIES |
Swan Capital Management, LLC (the Advisor) serves as investment advisor to the Funds. Subject to the oversight of the Board, the Advisor is responsible for the management of the Funds investment portfolios. The Advisor has selected Swan Global Management, LLC, (the Sub-Advisor), an affiliate of the Advisor with the same ownership and management as the Advisor, to serve as the Funds sub- advisor, effective November 19, 2014 for the Swan Defined Risk Fund and since commencement of the Swan Defined Risk Emerging Markets Fund, Swan Defined Risk Foreign Developed Fund, Swan Defined Risk Growth Fund and Swan Defined Risk U.S. Small Cap Fund.
Pursuant to an advisory agreement with the Trust, on behalf of the Funds, the Advisor, under the oversight of the Board, directs the daily operations of the Funds 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 Funds pay the Advisor a fee, computed and accrued daily and paid monthly at an annual rate of 1.00% of each Funds average daily net assets.
For the period ended June 30, 2019, the advisory fees incurred by each of the funds were as follows:
Fund | Advisory Fees | |||
Swan Defined Risk Fund | $ | 25,588,065 | ||
Swan Defined Risk Emerging Markets Fund | 492,530 | |||
Swan Defined Risk Foreign Developed Fund | 434,798 | |||
Swan Defined Risk Growth Fund | 10,977 | |||
Swan Defined Risk U.S. Small Cap Fund | 469,335 | |||
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 expenses of the Funds until at least December 14, 2019 for the Swan Defined Risk Fund, Swan Defined Risk Emerging Markets Fund, Swan Defined Risk Foreign Developed Fund and Swan U.S. Small Cap Fund, and until at least October 31, 2020 for the Swan Defined Risk Growth Fund to the extent necessary so that the total expenses incurred by the applicable Fund (exclusive of any front-end or contingent deferred loads, acquired fund fees and expenses, borrowing costs (such as interest and dividend expense on securities sold short), taxes, brokerage fees and commissions or extraordinary expenses such as litigation (which may include indemnification of Fund officers, and Trustees, and contractual indemnification of third party service providers other than the Advisor)) do not exceed 1.65%, 2.40%, and 1.40% of the daily average net assets attributable to Class A, Class C, and Class I shares of the applicable Fund and 1.01%, 1.01%, 1.02%, 1.02% and 1.02% for Class Y shares of the Swan Defined Risk Fund, Swan Defined Risk Emerging Markets Fund, Swan Defined Risk Foreign Developed Fund, Swan Defined Risk U.S. Small Cap Fund and Swan Defined Risk Growth Fund, respectively (the expense limitations).
During the period ended June 30, 2019, the Advisor waived advisory fees pursuant to the Waiver Agreement as follows:
Fund | Advisory Fees Waived | |||
Swan Defined Risk Fund | $ | 12 | ||
Swan Defined Risk Emerging Markets Fund | 46,345 | |||
Swan Defined Risk Foreign Developed Fund | 69,822 | |||
Swan Defined Risk Growth Fund | 101,331 | |||
Swan Defined Risk U.S. Small Cap Fund | 51,616 | |||
If the Advisor waives any fee or reimburses any expense pursuant to the Waiver Agreement, and a Funds Operating Expenses attributable to Class A, Class C, Class I and Class Y shares are subsequently less than the expense limitations, the Advisor shall be entitled to reimbursement by the applicable Fund for such waived fees or reimbursed expenses provided that such reimbursement does not cause the Funds expenses to exceed the expense limitation in place at the time of waiver or reimbursement or at time of recoupment, whichever is less. If Fund Operating Expenses attributable to Class A, Class
48
SWAN FUNDS |
NOTES TO FINANCIAL STATEMENTS (Continued) |
June 30, 2019 |
C and Class I shares subsequently exceed the expense limitation, the reimbursements shall be suspended. The Advisor may seek reimbursement only for expenses waived or paid by it during the three 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). The Advisor did not recapture waived fees during the period ended June 30, 2019.
As of June 30, 2019, the Advisor may recapture all or a portion of the waived fees no later than the dates stated below:
Fund | June 30, 2020 | June 30, 2021 | June 30, 2022 | Total | ||||||||||||
Swan Defined Risk Fund | $ | — | $ | — | $ | 12 | $ | 12 | ||||||||
Swan Defined Risk Emerging Markets Fund | 65,850 | 10,093 | 46,345 | $ | 122,288 | |||||||||||
Swan Defined Risk Foreign Developed Fund | 70,853 | 42,274 | 69,822 | $ | 182,949 | |||||||||||
Swan Defined Risk Growth Fund | — | — | 101,331 | $ | 101,331 | |||||||||||
Swan Defined Risk U.S. Small Cap Fund | 66,632 | 50,173 | 51,616 | $ | 168,421 | |||||||||||
Distributor – The distributor of the Funds is Northern Lights Distributors, LLC (NLD or the Distributor). The Board has adopted, on behalf of the Funds, the Trusts Master Distribution and Shareholder Servicing Plans for Class A and Class C shares as amended, pursuant to Rule 12b-1 under the 1940 Act (the Plans), to pay for certain distribution activities and shareholder services. Under the Plans, the Funds may pay 0.25% per year of the average daily net assets of Class A shares and 1.00% of the average daily net assets for Class C shares for such distribution and shareholder service activities.
For the period ended June 30, 2019, the Funds incurred 12b-1 fees attributable to Class A and C shares as follows:
Fund | Class A | Class C | ||||||
Swan Defined Risk Fund | $ | 734,311 | $ | 2,323,175 | ||||
Swan Defined Risk Emerging Markets Fund | 12,012 | 30,675 | ||||||
Swan Defined Risk Foreign Developed Fund | 6,141 | 14,891 | ||||||
Swan Defined Risk Growth Fund | — | — | ||||||
Swan Defined Risk U.S. Small Cap Fund | 4,818 | 17,581 | ||||||
The Distributor acts as the Funds principal underwriter in a continuous public offering of the Funds shares. During the period ended June 30, 2019, the Distributor received underwriting commissions for sales of Class A shares of each of the Funds as follows:
Amount Retained | ||||||||
by Principal | ||||||||
Fund | Commission | Underwriter | ||||||
Swan Defined Risk Fund | $ | 759,781 | $ | 94,037 | ||||
Swan Defined Risk Emerging Markets Fund | 8,220 | 1,383 | ||||||
Swan Defined Risk Foreign Developed Fund | 3,901 | 801 | ||||||
Swan Defined Risk Growth Fund | — | — | ||||||
Swan Defined Risk U.S. Small Cap Fund | 5,799 | 1,152 | ||||||
In addition, certain affiliates of the Distributor provide services to the Funds as follows:
Gemini Fund Services, LLC (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 Funds pay GFS customary fees for providing administration, fund accounting and transfer agency services to the Funds. Certain officers of the Trust are also officers of GFS, and are not paid any fees directly by the Funds for serving in such capacities.
Northern Lights Compliance Services, LLC (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 Funds.
49
SWAN FUNDS |
NOTES TO FINANCIAL STATEMENTS (Continued) |
June 30, 2019 |
Blu Giant, LLC (Blu Giant) – an affiliate of GFS and the Distributor, provides EDGAR conversion and filing services as well as print management services for the Funds on an ad-hoc basis. For the provision of these services, Blu Giant receives customary fees from the Funds.
Effective 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.
4. | INVESTMENT TRANSACTIONS |
The cost of purchases and proceeds from the sale of securities, other than U.S. Government securities and short-term investments, for the period ended June 30, 2019 were as follows:
Fund | Purchases | Sales | ||||||
Swan Defined Risk Fund | $ | 332,735,658 | $ | 1,322,426,156 | ||||
Swan Defined Risk Emerging Markets Fund | 19,616,038 | 21,367,742 | ||||||
Swan Defined Risk Foreign Developed Fund | 3,836,437 | 6,257,856 | ||||||
Swan Defined Risk Growth Fund | 3,031,926 | — | ||||||
Swan Defined Risk U.S. Small Cap Fund | 7,457,213 | 9,795,400 | ||||||
5. | DERIVATIVE TRANSACTIONS |
The following is a summary of the effect of derivative instruments on the Funds Statements of Assets and Liabilities as of June 30, 2019.
Swan Defined Risk Fund
Contract Type/Primary Risk Exposure | Statements of Assets and Liabilities | Value | ||||
Equity contracts/Equity price risk | Investment securities, at value | $ | 171,715,105 | |||
Equity contracts/Equity price risk | Options Written, at value | (78,453,030 | ) | |||
Swan Defined Risk Emerging Markets Fund
Contract Type/Primary Risk Exposure | Statements of Assets and Liabilities | Value | ||||
Equity contracts/Equity price risk | Investment securities, at value | $ | 3,689,763 | |||
Equity contracts/Equity price risk | Options Written, at value | (1,326,160 | ) | |||
Swan Defined Risk Foreign Developed Fund
Contract Type/Primary Risk Exposure | Statements of Assets and Liabilities | Value | ||||
Equity contracts/Equity price risk | Investment securities, at value | $ | 2,489,033 | |||
Equity contracts/Equity price risk | Options Written, at value | (1,004,661 | ) | |||
Swan Defined Risk Growth Fund
Contract Type/Primary Risk Exposure | Statements of Assets and Liabilities | Value | ||||
Equity contracts/Equity price risk | Investment securities, at value | $ | 432,147 | |||
Equity contracts/Equity price risk | Options Written, at value | (181,755 | ) |
50
SWAN FUNDS |
NOTES TO FINANCIAL STATEMENTS (Continued) |
June 30, 2019 |
Swan Defined Risk U.S. Small Cap Fund
Contract Type/Primary Risk Exposure | Statements of Assets and Liabilities | Value | ||||
Equity contracts/Equity price risk | Investment securities, at value | $ | 2,700,070 | |||
Equity contracts/Equity price risk | Options Written, at value | (944,405 | ) | |||
The following is a summary of the effect of derivative instruments on the Funds Statements of Operations for the period ended June 30, 2019.
Swan Defined Risk Fund
Change in Unrealized | ||||||||
Realized Gain/(Loss) | Appreciation/(Depreciation) | |||||||
Contract Type/Primary Risk Exposure | on Options Purchased | on Options Purchased | ||||||
Equity contracts/Equity price risk | $ | (193,571,237 | ) | $ | (26,388,154 | ) | ||
Change in Unrealized | ||||||||
Realized Gain/(Loss) | Appreciation/(Depreciation) | |||||||
Contract Type/Primary Risk Exposure | on Options Written | on Options Written | ||||||
Equity contracts/Equity price risk | $ | 84,075,753 | $ | 12,840,648 | ||||
Swan Defined Risk Emerging Markets Fund
Change in Unrealized | ||||||||
Realized Gain/(Loss) | Appreciation/(Depreciation) | |||||||
Contract Type/Primary Risk Exposure | on Options Purchased | on Options Purchased | ||||||
Equity contracts/Equity price risk | $ | 1,617,414 | $ | (3,173,479 | ) | |||
Change in Unrealized | ||||||||
Realized Gain/(Loss) | Appreciation/(Depreciation) | |||||||
Contract Type/Primary Risk Exposure | on Options Written | on Options Written | ||||||
Equity contracts/Equity price risk | $ | 693,904 | $ | 334,323 | ||||
Swan Defined Risk Foreign Developed Fund
Change in Unrealized | ||||||||
Realized Gain/(Loss) | Appreciation/(Depreciation) | |||||||
Contract Type/Primary Risk Exposure | on Options Purchased | on Options Purchased | ||||||
Equity contracts/Equity price risk | $ | 646,173 | $ | (1,472,744 | ) | |||
Change in Unrealized | ||||||||
Realized Gain/(Loss) | Appreciation/(Depreciation) | |||||||
Contract Type/Primary Risk Exposure | on Options Written | on Options Written | ||||||
Equity contracts/Equity price risk | $ | 642,284 | $ | 96,423 |
51
SWAN FUNDS |
NOTES TO FINANCIAL STATEMENTS (Continued) |
June 30, 2019 |
Swan Defined Risk Growth Fund
Change in Unrealized | ||||||||
Realized Gain/(Loss) | Appreciation/(Depreciation) | |||||||
Contract Type/Primary Risk Exposure | on Options Purchased | on Options Purchased | ||||||
Equity contracts/Equity price risk | $ | (55,971 | ) | $ | 50,174 | |||
Change in Unrealized | ||||||||
Realized Gain/(Loss) | Appreciation/(Depreciation) | |||||||
Contract Type/Primary Risk Exposure | on Options Written | on Options Written | ||||||
Equity contracts/Equity price risk | $ | (1,990 | ) | $ | (15,563 | ) | ||
Swan Defined Risk U.S. Small Cap Fund | ||||||||
Change in Unrealized | ||||||||
Realized Gain/(Loss) | Appreciation/(Depreciation) | |||||||
Contract Type/Primary Risk Exposure | on Options Purchased | on Options Purchased | ||||||
Equity contracts/Equity price risk | $ | 1,367,991 | $ | (1,044,095 | ) | |||
Change in Unrealized | ||||||||
Realized Gain/(Loss) | Appreciation/(Depreciation) | |||||||
Contract Type/Primary Risk Exposure | on Options Written | on Options Written | ||||||
Equity contracts/Equity price risk | $ | 203,792 | $ | 52,537 | ||||
The notional value of the derivative instruments outstanding as of June 30, 2019 as disclosed in the Portfolios of Investments and the amounts realized and changes in unrealized gains and losses on derivative instruments during the period as disclosed above and within the Statements of Operations serve as indicators of the volume of derivative activity for the Funds.
6. | AGGREGATE UNREALIZED APPRECIATION AND DEPRECIATION – TAX BASIS |
Gross | Gross | Net Unrealized | ||||||||||||||
Tax | Unrealized | Unrealized | Appreciation | |||||||||||||
Fund | Cost | Appreciation | Depreciation | (Depreciation) | ||||||||||||
Swan Defined Risk Fund | $ | 1,537,780,752 | $ | 550,404,095 | $ | (17,887,704 | ) | $ | 532,516,391 | |||||||
Swan Defined Risk Emerging Markets Fund | 44,690,743 | 4,469,127 | (3,331,764 | ) | 1,137,363 | |||||||||||
Swan Defined Risk Foreign Developed Fund | 39,982,757 | 3,502,636 | (2,151,722 | ) | 1,350,914 | |||||||||||
Swan Defined Risk Growth Fund | 3,650,749 | 210,324 | — | 210,324 | ||||||||||||
Swan Defined Risk U.S. Small Cap Fund | 35,690,966 | 6,169,857 | (571,712 | ) | 5,598,145 |
52
SWAN FUNDS |
NOTES TO FINANCIAL STATEMENTS (Continued) |
June 30, 2019 |
7. | DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF CAPITAL |
The tax character of distributions paid for the years ended June 30, 2019 and June 30, 2018 was as follows:
For the period ended June 30, 2019: | ||||||||||||||||
Ordinary | Long-Term | Return | ||||||||||||||
Portfolio | Income | Capital Gains | of Capital | Total | ||||||||||||
Swan Defined Risk Fund | $ | 22,031,412 | $ | — | $ | — | $ | 22,031,412 | ||||||||
Swan Defined Risk Emerging Markets Fund | 258,162 | — | — | 258,162 | ||||||||||||
Swan Defined Risk Foreign Developed Fund | 481,063 | — | — | 481,063 | ||||||||||||
Swan Defined Risk Growth Fund | — | — | — | — | ||||||||||||
Swan Defined Risk U.S. Small Cap Fund | — | — | — | — | ||||||||||||
For the period ended June 30, 2018: | ||||||||||||||||
Ordinary | Long-Term | Return | ||||||||||||||
Portfolio | Income | Capital Gains | of Capital | Total | ||||||||||||
Swan Defined Risk Fund | $ | 21,212,402 | $ | — | $ | — | $ | 21,212,402 | ||||||||
Swan Defined Risk Emerging Markets Fund | 919,769 | — | — | 919,769 | ||||||||||||
Swan Defined Risk Foreign Developed Fund | 1,230,282 | 74,923 | — | 1,305,205 | ||||||||||||
Swan Defined Risk Growth Fund | — | — | — | — | ||||||||||||
Swan Defined Risk U.S. Small Cap Fund | — | — | — | — | ||||||||||||
As of June 30, 2019, the components of accumulated earnings/(deficit) on a tax basis were as follows:
Undistributed | Undistributed | Post October Loss | Capital Loss | Other | Unrealized | Total | ||||||||||||||||||||||
Ordinary | Long-Term | and | Carry | Book/Tax | Appreciation/ | Accumulated | ||||||||||||||||||||||
Portfolio | Income | Capital Gains | Late Year Loss | Forwards | Differences | (Depreciation) | Earnings/(Deficits) | |||||||||||||||||||||
Swan Defined Risk Fund | $ | 4,482,927 | $ | — | $ | — | $ | (290,379,526 | ) | $ | — | $ | 532,516,391 | $ | 246,619,792 | |||||||||||||
Swan Defined Risk Emerging Markets Fund | 1,567,931 | 377,963 | — | — | (3,977,281 | ) | 1,137,363 | (894,024 | ) | |||||||||||||||||||
Swan Defined Risk Foreign Developed Fund | 1,250,066 | — | — | — | (3,340,931 | ) | 1,350,914 | (739,951 | ) | |||||||||||||||||||
Swan Defined Risk Growth Fund | 19,602 | 14,005 | — | — | (46,690 | ) | 210,324 | 197,241 | ||||||||||||||||||||
Swan Defined Risk U.S. Small Cap Fund | — | — | (765,558 | ) | (1,816,408 | ) | (486,059 | ) | 5,598,145 | 2,530,120 | ||||||||||||||||||
The difference between book basis and tax basis unrealized appreciation (depreciation) and accumulated net realized gains (losses) from investments is primarily attributable to the tax deferral of losses on wash sales and straddles, and the mark-to-market on open option contracts and collared positions. In addition, the amounts listed under other book/tax differences are primarily attributable to the tax deferral of losses on straddles and mark-to-market on collared positions.
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 Funds incurred and elected to defer such late year losses as follows:
Late Year | ||||
Portfolio | Losses | |||
Swan Defined Risk Fund | $ | — | ||
Swan Defined Risk Emerging Markets Fund | — | |||
Swan Defined Risk Foreign Developed Fund | — | |||
Swan Defined Risk Growth Fund | — | |||
Swan Defined Risk U.S. Small Cap Fund | 79,998 |
53
SWAN FUNDS |
NOTES TO FINANCIAL STATEMENTS (Continued) |
June 30, 2019 |
Capital losses incurred after October 31 within the fiscal year are deemed to arise on the first business day of the following fiscal year for tax purposes. The Funds incurred and elected to defer such capital losses as follows:
Post October | ||||
Portfolio | Losses | |||
Swan Defined Risk Fund | $ | — | ||
Swan Defined Risk Emerging Markets Fund | — | |||
Swan Defined Risk Foreign Developed Fund | — | |||
Swan Defined Risk Growth Fund | — | |||
Swan Defined Risk U.S. Small Cap Fund | 685,560 | |||
At June 30, 2019, the Funds had capital loss carry forwards for federal income tax purposes available to offset future capital gains and capital loss carry forwards utilized as follows:
Non-Expiring | ||||||||||||||||
CLCF | ||||||||||||||||
Portfolio | Short-Term | Long-Term | Total | Utilized | ||||||||||||
Swan Defined Risk Fund | $ | 186,100,840 | $ | 104,278,686 | $ | 290,379,526 | $ | — | ||||||||
Swan Defined Risk Emerging Markets Fund | — | — | — | 560,335 | ||||||||||||
Swan Defined Risk Foreign Developed Fund | — | — | — | — | ||||||||||||
Swan Defined Risk Growth Fund | — | — | — | — | ||||||||||||
Swan Defined Risk U.S. Small Cap Fund | 736,812 | 1,079,596 | 1,816,408 | — | ||||||||||||
Permanent book and tax differences, primarily attributable to the book/tax basis treatment of net operating losses, resulted in reclassification for the year ended June 30, 2019 as follows:
Paid | ||||||||
In | Accumulated | |||||||
Portfolio | Capital | Earnings (Losses) | ||||||
Swan Defined Risk Fund | $ | — | $ | — | ||||
Swan Defined Risk Emerging Markets Fund | — | — | ||||||
Swan Defined Risk Foreign Developed Fund | — | — | ||||||
Swan Defined Risk Growth Fund | — | — | ||||||
Swan Defined Risk U.S. Small Cap Fund | (212,211 | ) | 212,211 | |||||
8. | INVESTMENTS IN AFFILIATED COMPANIES |
An affiliated company is a company in which a Fund has ownership of at least 5% of the voting securities. Companies that are affiliates at June 30, 2019 are noted in the Funds Portfolio of Investments. Transactions during the period with the companies that are affiliated or were affiliates at the beginning of the period are as follows:
Swan Defined Risk Fund
Value | Dividends | Change in | Value | Shares | ||||||||||||||||||||||||||||||
Beginning | Credited to | Realized | Unrealized | End of | Held at | |||||||||||||||||||||||||||||
Cusip | Description | of Period | Purchases | Sales Proceeds | Income | Gain | Depreciation | Period | End of Period | |||||||||||||||||||||||||
81369Y100 | Materials Select Sector SPDR Fund | $ | 296,164,259 | $ | 788,311 | $ | 90,809,465 | $ | 5,053,619 | $ | 6,413,852 | $ | (10,035,105 | ) | $ | 202,521,852 | 3,461,912 | |||||||||||||||||
As of June 30, 2019, the Fund owns less than 5% of the voting securities of the investment company mentioned above.
54
SWAN FUNDS |
NOTES TO FINANCIAL STATEMENTS (Continued) |
June 30, 2019 |
9. | CONTROL OWNERSHIP |
The beneficial ownership either directly or indirectly, of more than 25% of voting securities of a fund creates a presumption of control of the fund, under Section 2(a)(9) of the 1940 Act. As of June 30, 2019, the shareholders listed below held more than 25% of an individual Fund and may be deemed to control that Fund.
Shareholder | Fund | Percent | ||
LPL Financial | Swan Defined Risk Emerging Markets Fund | 26.09% | ||
Pershing LLC | Swan Defined Risk Emerging Markets Fund | 32.85% | ||
LPL Financial | Swan Defined Risk Foreign Developed Fund | 47.54% | ||
Pershing LLC | Swan Defined Risk Growth Fund | 47.51% | ||
MITRA & Co | Swan Defined Risk Growth Fund | 29.35% | ||
LPL Financial | Swan Defined Risk U.S. Small Cap Fund | 43.67% | ||
10. | UNDERLYING INVESTMENT IN OTHER INVESTMENT COMPANIES |
The Swan Defined Risk Emerging Markets Fund currently invests a portion of its assets in the iShares MSCI Emerging Markets ETF (iShares ETF). The Fund may redeem its investment from the iShares ETF at any time if the Advisor determines that it is in the best interest of the Fund and its shareholders to do so. The performance of the Fund will be directly affected by the performance of the iShares ETF. The financial statements of the iShares ETF, including the portfolios of investments, can be found at the Securities and Exchange Commissions website (SEC) www.sec.gov and should be read in conjunction with the Funds financial statements. As of June 30, 2019, the percentage of the Funds net assets invested in the iShares ETF was 55.1%.
The Swan Defined Risk Emerging Markets Fund currently invests a portion of its assets in the iShares Core MSCI Emerging Markets ETF (iShares Core ETF). The Fund may redeem its investment from the iShares Core ETF at any time if the Advisor determines that it is in the best interest of the Fund and its shareholders to do so. The performance of the Fund will be directly affected by the performance of the iShares Core ETF. The financial statements of the iShares Core ETF, including the portfolios of investments, can be found at the Securities and Exchange Commissions website (SEC) www.sec.gov and should be read in conjunction with the Funds financial statements. As of June 30, 2019, the percentage of the Funds net assets invested in the iShares Core ETF was 37.5%.
The Swan Defined Risk Foreign Developed Fund currently invests a portion of its assets in the iShares MSCI EAFE ETF (iShares EAFE ETF) . The Fund may redeem its investment from the iShares EAFE ETF at any time if the Advisor determines that it is in the best interest of the Fund and its shareholders to do so. The performance of the Fund will be directly affected by the performance of the iShares EAFE ETF. The financial statements of the iShares EAFE ETF, including the portfolios of investments, can be found at the SECs website www.sec.gov and should be read in conjunction with the Funds financial statements. As of June 30, 2019, the percentage of the Funds net assets invested in the iShares EAFE ETF was 93.8%.
The Swan Defined Risk Growth Fund currently invests a portion of its assets in the iShares Core S&P 500 ETF (iShares S&P ETF) . The Fund may redeem its investment from the iShares S&P ETF at any time if the Advisor determines that it is in the best interest of the Fund and its shareholders to do so. The performance of the Fund will be directly affected by the performance of the iShares S&P ETF. The financial statements of the iShares S&P ETF, including the portfolios of investments, can be found at the SECs website www.sec.gov and should be read in conjunction with the Funds financial statements. As of June 30, 2019, the percentage of the Funds net assets invested in the iShares S&P ETF was 84.3%.
The Swan Defined Risk U.S. Small Cap Fund currently invests a portion of its assets in the iShares Russell 2000 ETF (iShares Russell ETF). The Fund may redeem its investment from the iShares Russell ETF at any time if the Advisor determines that it is in the best interest of the Fund and its shareholders to do so. The performance of the Fund will be directly affected by the performance of the iShares Russell ETF. The financial statements of the iShares Russell ETF, including the portfolios of investments, can be found at the SECs website www.sec.gov and should be read in conjunction with the Funds financial statements. As of June 30, 2019, the percentage of the Funds net assets invested in the iShares ETF was 93.8%.
55
SWAN FUNDS |
NOTES TO FINANCIAL STATEMENTS (Continued) |
June 30, 2019 |
11. | NEW ACCOUNTING PRONOUNCEMENTS |
In August 2018, the Securities and Exchange Commission adopted amendments to certain disclosure requirements under Regulation S-X to conform to US GAAP, including: (i) an amendment to require presentation of the total, rather than the components, of distributable earnings on the Statement of Assets and Liabilities; and (ii) an amendment to require presentation of the total, rather than the components, of distributions to shareholders, except for tax return of capital distributions, on the Statements of Changes in Net Assets. The amendments also removed the requirement for parenthetical disclosure of undistributed net investment income on the Statements of Changes in Net Assets. These amendments have been adopted with these financial statements.
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. These amendments have been adopted with these financial statements.
12. | SUBSEQUENT EVENTS |
Subsequent events after the date of the Statements 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.
56
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Trustees of Northern Lights Fund Trust III
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statements of assets and liabilities, including the portfolios of investments, of Swan Defined Risk Fund, Swan Defined Risk Emerging Markets Fund, Swan Defined Risk Foreign Developed Fund, Swan Defined Risk Growth Fund, and Swan Defined Risk U.S. Small Cap Fund (the Funds), five of the funds constituting the Northern Lights Fund Trust III (the Trust), as of June 30, 2019, the related statements of operations for the year ended June 30, 2019 (as to Swan Defined Risk Growth Fund for the period from December 27, 2018 (commencement of operations) through June 30, 2019), the statements of changes in net assets for each of the two years in the period then ended (as to Swan Defined Risk Growth Fund, the statement of changes in net assets for the period December 27, 2018 (commencement of operations) through June 30, 2019), the financial highlights for each of the two years in the period then ended (as to Swan Defined Risk Growth Fund, the financial highlights for the period December 27, 2018 (commencement of operations) through June 30, 2019), and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Funds of the Trust as of June 30, 2019, and the results of their operations for the year then ended (as to Swan Defined Risk Growth Fund for the period from December 27, 2018 (commencement of operations) through June 30, 2019), the changes in their net assets for each of the two years in the period then ended (as to Swan Defined Risk Growth Fund, the statement of changes in net assets for the period December 27, 2018 (commencement of operations) through June 30, 2019), and the financial highlights for each of the two years in the period then ended (as to Swan Defined Risk Growth Fund, the financial highlights for the period December 27, 2018 (commencement of operations) through June 30, 2019) in conformity with accounting principles generally accepted in the United States of America. The financial highlights of Swan Defined Risk Fund for each of the three years in the period ended June 30, 2017, the financial highlights of Swan Defined Risk Emerging Markets Fund for each of the 2 years in the period ended June 30, 2017 and for the period from December 30, 2014 (commencement of operations) through June 30, 2015, and the financial highlights of Swan Defined Risk Foreign Developed Fund and Swan Defined Risk U.S. Small Cap Fund for the year ended June 30, 2017 and for the period from December 29, 2015 (commencement of operations) through June 30, 2016, were audited by other auditors whose report dated August 29, 2017, expressed an unqualified opinion on those statements.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the Trusts management. Our responsibility is to express an opinion on the Trusts financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Trust in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. The Trust is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Trusts internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of June 30, 2019, by correspondence with the custodian and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
Costa Mesa, CA
August 29, 2019
We have served as the auditor of one or more Swan Funds investment companies since 2018.
57
SWAN FUNDS |
EXPENSE EXAMPLES (Unaudited) |
June 30, 2019 |
As a shareholder of the Funds, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchases and redemptions; 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 Funds 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 as noted below.
Actual Expenses
The Actual 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 table on the next page provides information about hypothetical account values and hypothetical expenses based on the respective Funds actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Funds actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balances or expenses you paid for the period. You may use this information to compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads). Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Beginning | Ending | Expenses Paid | Expense Ratio | |
Account Value | Account Value | During Period | During the Period | |
Actual | 1/1/19 | 6/30/19 | 1/1/19 – 6/30/2019* | 1/1/19 – 6/30/2019* |
Swan Defined Risk Fund | ||||
Class A | $1,000.00 | $1,092.20 | $7.21 | 1.39% |
Class C | $1,000.00 | $1,089.20 | $5.92 | 2.14% |
Class I | $1,000.00 | $1,094.50 | $5.25 | 1.14% |
Class Y | $1,000.00 | $1,095.30 | $11.09 | 1.01% |
Swan Defined Risk Emerging Markets Fund | ||||
Class A | $1,000.00 | $1,029.20 | $8.30 | 1.65% |
Class C | $1,000.00 | $1,025.60 | $12.05 | 2.40% |
Class I | $1,000.00 | $1,030.10 | $7.05 | 1.40% |
Class Y | $1,000.00 | $1,033.30 | $5.06 | 1.01% |
Swan Defined Risk Foreign Developed Fund | ||||
Class A | $1,000.00 | $1,062.20 | $8.44 | 1.65% |
Class C | $1,000.00 | $1,057.50 | $12.24 | 2.40% |
Class I | $1,000.00 | $1,063.30 | $7.16 | 1.40% |
Class Y | $1,000.00 | $1,065.40 | $5.22 | 1.02% |
Swan Defined Risk Growth Fund | ||||
Class A | $1,000.00 | $1,141.40 | $8.76 | 1.65% |
Class C | $1,000.00 | $1,141.40 | $12.74 | 2.40% |
Class I | $1,000.00 | $1,141.40 | $7.43 | 1.40% |
Class Y | $1,000.00 | $1,143.40 | $5.42 | 1.02% |
Swan Defined Risk U.S. Small Cap Fund | ||||
Class A | $1,000.00 | $1,094.60 | $8.57 | 1.65% |
Class C | $1,000.00 | $1,090.10 | $12.44 | 2.40% |
Class I | $1,000.00 | $1,095.80 | $7.28 | 1.40% |
Class Y | $1,000.00 | $1,096.70 | $5.30 | 1.02% |
58
SWAN FUNDS |
EXPENSE EXAMPLES (Unaudited)(Continued) |
June 30, 2019 |
Beginning | Ending | Expenses Paid | Expense Ratio During | |
Hypothetical | Account Value | Account Value | During Period | the Period |
(5% return before expenses) | 1/1/19 | 6/30/19 | 1/1/19 – 6/30/19* | 1/1/19 – 6/30/19* |
Swan Defined Risk Fund | ||||
Class A | $1,000.00 | $1,017.90 | $6.95 | 1.39% |
Class C | $1,000.00 | $1,014.18 | $10.69 | 2.14% |
Class I | $1,000.00 | $1,019.14 | $5.71 | 1.14% |
Class Y | $1,000.00 | $1,019.79 | $5.06 | 1.01% |
Swan Defined Risk Emerging Markets Fund | ||||
Class A | $1,000.00 | $1,016.61 | $8.25 | 1.65% |
Class C | $1,000.00 | $1,012.89 | $11.98 | 2.40% |
Class I | $1,000.00 | $1,017.85 | $7.00 | 1.40% |
Class Y | $1,000.00 | $1,019.79 | $5.06 | 1.01% |
Swan Defined Risk Foreign Developed Fund | ||||
Class A | $1,000.00 | $1,016.61 | $8.25 | 1.65% |
Class C | $1,000.00 | $1,012.89 | $11.98 | 2.40% |
Class I | $1,000.00 | $1,017.85 | $7.00 | 1.40% |
Class Y | $1,000.00 | $1,019.74 | $5.11 | 1.02% |
Swan Defined Risk Growth Fund | ||||
Class A | $1,000.00 | $1,016.61 | $8.25 | 1.65% |
Class C | $1,000.00 | $1,012.89 | $11.98 | 2.40% |
Class I | $1,000.00 | $1,017.85 | $7.00 | 1.40% |
Class Y | $1,000.00 | $1,019.74 | $5.11 | 1.02% |
Swan Defined Risk U.S. Small Cap Fund | ||||
Class A | $1,000.00 | $1,016.61 | $8.25 | 1.65% |
Class C | $1,000.00 | $1,012.89 | $11.98 | 2.40% |
Class I | $1,000.00 | $1,017.85 | $7.00 | 1.40% |
Class Y | $1,000.00 | $1,019.74 | $5.11 | 1.02% |
* | Expenses are equal to the average account value over the period, multiplied by the Funds annualized expense ratio, multiplied by the number of days in the period (181) divided by the number of days in the fiscal year (365). |
59
SWAN FUNDS |
SUPPLEMENTAL INFORMATION (Unaudited) |
June 30, 2019 |
Renewal of Advisory Agreements and Sub-Advisory Agreements – Swan Defined Risk Fund, Swan Defined Risk Emerging Markets Fund, Swan Defined Risk Foreign Developed Fund and Swan Defined Risk U.S. Small Cap Fund*
In connection with a meeting held on May 29-30, 2019, the Board of Trustees (the Board) of Northern Lights Fund Trust III (the Trust), including a majority of the Trustees who are not interested persons, as that term is defined in the Investment Company Act of 1940, as amended, discussed the renewal of the investment advisory agreements (the Advisory Agreements) between Swan Capital Management LLC (the Adviser) and the Trust, and the renewal of the investment sub-advisory agreements (the Sub-Advisory Agreements and together with the Advisory Agreements, the Agreements) between Swan Global Management, LLC (the Sub-Adviser, and together with the Adviser, Swan) and the Adviser, with respect to the Swan Defined Risk Fund (Swan DR), Swan Defined Risk Emerging Markets Fund (Swan EM), Swan Defined Risk Foreign Developed Fund (Swan FD) and Swan Defined Risk U.S. Small Cap Fund (Swan US and collectively, the Swan Funds). In considering the renewal of the Agreements, the Board received materials specifically relating to Swan DR, Swan EM, Swan FD and Swan US and the Agreements.
The Board relied upon the advice of independent legal counsel and their own business judgment in determining the material factors to be considered in evaluating the Agreements and the weight to be given to each such factor. The Boards conclusions were based on an evaluation of all of the information provided and were not the result of any one factor. Moreover, each Trustee may have afforded different weight to the various factors in reaching conclusions with respect to the Agreements.
Nature, Quality and Extent of Services. The Board noted that the Adviser was founded in 1997 and discussed that the Adviser and its affiliate Sub-Adviser were under common control and worked jointly to provide wealth management and investment advisory services to high net worth individuals, institutions, other investment advisory firms, and mutual funds. The Board reviewed key investment personnel, taking into consideration their diverse backgrounds and deep experience in the investment management industry. The Board discussed that Swan replaced its general counsel in January 2019, and expressed satisfaction with the new general counsels experience and credentials. The Board recognized Swans proprietary defined risk strategy, described by Swan as a rules based system used to determine asset allocations specific to each Funds strategy, supplemented with a risk mitigation sub-strategy that utilized options to hedge portfolio risk as well as offset the cost of such hedging techniques. The Board further remarked that the risk management for each Fund was inherent in the investment process due to the rules -based strategy. The Board observed that Swans compliance team monitored each Swan Fund regularly using checklists and risk matrices, and formally reviewed all trading vendors at least annually. The Board remarked that Swan selects brokers based on best execution standards, including cost, speed, options trading capability and technology enablement. The Board concluded that Swan had a culture of continuous improvement and growth and had demonstrated over the years that it could manage the Swan Funds effectively. The Board stated its expectation that Swan would continue to offer high quality services to each Swan Fund and its respective shareholders.
Performance.
Swan DR—The Board noted that Swan DR had underperformed its benchmark, Morningstar category and peer group for the 1-year, 3-year, 5-year and since- inception periods, but had overall positive returns for the 3-year, 5-year and since-inception periods. The Board remarked that Swan DRs 1- year underperformance was attributed both first and fourth quarter market volatility. The Board remarked that during the volatile fourth quarter of 2018, Swan DR outperformed relative to the overall market due to the protective hedges it had in place, even though those hedges did not fully mitigate downside risk. The Board recalled that the defined risk strategy attempted to capture only 50% of the market upside, but the ability to capture the upside could be impacted by market whipsaws that made hedges less effective. The Board considered that the defined risk strategy was not designed to outperform its benchmark, and Swan DRs performance was not unexpected considering the market conditions. The Board acknowledged Swans disagreement with Swan DRs Morningstar category and Broadridge-selected peer group, but noted that
60
SWAN FUNDS |
SUPPLEMENTAL INFORMATION (Unaudited)(Continued) |
June 30, 2019 |
the Fund generally fared well with respect to standard deviation because of its defined risk strategy. The Board discussed that Swan consistently executed its defined risk strategy, however, 2018 was not a good environment for the Funds strategy. Although past performance is not predictive of future returns, the Board concluded that Swan was expected to continue to provide reasonable results for Swan DR and its shareholders.
Swan EM—The Board observed that Swan EM outperformed its benchmark in the 1 year period, and outperformed its Broadridge-selected peer group and Morningstar category in the 3-year period. The Board further observed that Swan EM underperformed its peer group and Morningstar category in the 1-year and since-inception periods, and its benchmark in the 3- year and since inception periods. The Board noted that Swan EM utilized the defined risk strategy and invested primarily in ETFs that invested in emerging markets. The Board discussed Swan EMs performance, noting that the selloff of emerging market securities started in early 2018 due to the trade wars and slowdown in the Chinese economy. The Board acknowledged that with Swan EMs hedge protections in place, even though absolute returns for the 1-year period were negative, the Fund was able to outperform the MSCI Emerging Markets index and reduce its overall losses. The Board agreed that Swan continued to manage Swan EM in accordance with its defined risk strategy. Although past performance is not predictive of future returns, the Board concluded that Swan was expected to continue to provide reasonable results for Swan EM and its shareholders.
Swan FD—The Board noted that Swan FD had outperformed its benchmark for the 1-year period. The Board discussed that the defined risk strategy performed as expected, noting that the protective hedges prevented the Fund from experiencing the full downside of the foreign developed markets. The Board remarked that Swan FD underperformed its Morningstar category and Broadridge-selected peer group for all periods, acknowledging that Swan believed the peer group and Morningstar category were not meaningful comparisons. Although past performance is not predictive of future returns, the Board concluded that Swan was expected to continue to provide reasonable results for Swan FD and its shareholders.
Swan US—The Board observed that Swan US outperformed its Broadridge-selected peer group and Morningstar category for all periods presented, but under performed its benchmark, the Russell 2000 Total Return Index, for the same. The Board remarked that Swan US posted respectable returns for the 1-year period given the volatility of the markets during 2018. The Board further remarked that for most of the year, Swan US trailed its benchmark, however, in the fourth quarter, the hedge performed well leaving Swan US ahead of its benchmark at year- end. The Board acknowledged the four-star Morningstar rating for Swan US. The Board noted that the defined risk strategy performed as expected. Although past performance is not predictive of future returns, the Board concluded that Swan was expected to continue to provide reasonable results for Swan US and its shareholders.
Fees and Expenses.
Swan DR—The Board noted that Swan DRs 1.00% advisory fee was equivalent to the peer group median and higher than the peer group average, Morningstar category average, and median of 0.82%, 0.87% and 0.85%, respectively. The Board further noted that Swan DRs expense ratio of 1.27% was higher than the peer group and Morningstar category averages and medians, however, the net expense ratio was in line with the peer group median and well below the high of 2.81%. The Board remarked that with respect to size alone, the peer group and Morningstar categories appeared to be reasonable for purposes of fee and expense comparison and that Swan DRs fees and expenses were generally within range of its peers. They considered the average fees of the peer group provided by Swan. Given these considerations the Board concluded that the advisory fee for Swan DR was not unreasonable.
Swan EM—The Board noted that Swan EMs advisory fee was 1.00%, while the peer group average, peer group median, Morningstar category average and Morningstar category median ranged between 0.85% and 0.90%. The Board discussed that Swan EMs advisory fee was slightly higher than its peers but below the high of 1.75%. The Board stated that the net expense ratio for Swan EM was 2.03%, which was higher than its peer and category averages and medians that were between 1.01% and 1.35%.
61
SWAN FUNDS |
SUPPLEMENTAL INFORMATION (Unaudited)(Continued) |
June 30, 2019 |
The Board reviewed Swans justification for its fees and expenses noting that 0.63% of the total expense ratio was attributed to acquired fund fees and expenses, and the defined risk strategy required active management as opposed to the passive management strategies of many of the peer funds. They considered the average fees of the peer group provided by Swan. Given these considerations, the Board concluded that the advisory fee for Swan EM was not unreasonable.
Swan FD—The Board noted that Swan FDs 1.00% advisory fee and 1.91% net expense ratio were higher than the corresponding peer group and Morningstar category averages and medians. The Board discussed that Swan justified its fees and expenses because of its active approach to managing Swan FD, and the 0.30% acquired fund fees and expenses made up a significant portion of the total expense ratio. They considered the average fees of the peer group provided by Swan. Given these considerations, the Board concluded that the advisory fee for Swan FD was not unreasonable.
Swan US—The Board noted that Swan USs 1.00% advisory fee and 1.74% net expense ratio were higher than the corresponding peer group and Morningstar category averages and medians. The Board remarked that both the advisory fee and net expense ratios were below the category highs of 1.75% and 2.81% for fees and net expenses, respectively. The Board discussed that Swan justified its fees and expenses by pointing to its actively managed defined risk strategy. They considered the average fees of the peer group provided by Swan. The Board concluded that given these and other considerations, the advisory fee for Swan US was not unreasonable.
Economies of Scale. The Board discussed the size of each Swan Fund and its prospects for growth and noted Swans position that it had not achieved meaningful economies across all of the Swan Funds that would necessitate the establishment of breakpoints. They considered the disparate size of the Funds, and the impact of expense caps where applicable. The Board noted that Swan had considered and discussed potential breakpoints internally, acknowledging that Swans planned expansion of its staffing in the areas of legal, compliance, information technology and advisory support would alter the cost structure of the services provided to the Swan Funds as well as Swans profitability. The Board agreed to monitor and revisit this issue at the appropriate time, including once Swan was able to better forecast its operational costs following the addition of qualified staff.
Profitability. The Board reviewed Swans profitability analysis in connection with its advisory services provided to each Swan Fund, and noted that Swan earned a profit from each Swan Fund. They considered the benefit to Swan of the soft dollar arrangements. The Board discussed that Swan had communicated its intention to expand and invest in additional operations, compliance, legal and advisory staff, which would undercut Swans profitability in the current term. They also considered the variability of Fund assets over time. The Board concluded that Swans profitability was not excessive.
Conclusion. Having requested and reviewed such information from Swan as the Board believed to be reasonably necessary to evaluate the terms of the Agreements, and as assisted by the advice of independent counsel, the Board concluded that the advisory fee and sub-advisory fee for each Swan Fund was not unreasonable and that renewal of the Agreements was in the best interests of each Swan Fund and its respective shareholders.
* | Due to timing of the contract renewal schedule, these deliberations may or may not relate to the current performance results of the Funds. |
62
SWAN FUNDS |
SUPPLEMENTAL INFORMATION (Unaudited) |
June 30, 2019 |
This chart provides information about the Trustees and Officers who oversee the Fund. Officers elected by the Trustees manage the day-to-day operations of the Fund and execute policies formulated by the Trustees. The following is a list of the Trustees and executive officers of the Trust and each persons principal occupation over the last five years. The address of each Trustee and Officer is 17645 Wright Street, Suite 200, Omaha, Nebraska 68130 unless otherwise noted.
Independent Trustees | |||||
Name,
Address, Year of Birth |
Position(s)
Held with Registrant |
Length
of Service and Term |
Principal
Occupation(s) During Past 5 Years |
Number
of Funds Overseen In The Fund Complex* |
Other
Directorships Held During Past 5 Years** |
James
U. Jensen 1944 |
Trustee | Since February 2012, Indefinite | Chief Executive Officer, ClearWater Law & Governance Group, LLC (an operating board governance consulting company) (since 2004). | 5 | Northern Lights Fund Trust III (for series not affiliated with the Fund since 2012); Wasatch Funds Trust, (since 1986); University of Utah Research Foundation (April 2000 to May 2018). |
Patricia
Luscombe 1961 |
Trustee | Since January 2015, Indefinite | Managing Director of the Valuations and Opinions Group, Lincoln International LLC (since August 2007). | 5 | Northern Lights Fund Trust III (for series not affiliated with the Fund since 2015); Monetta Mutual Funds (since November 2015). |
John
V. Palancia 1954 |
Trustee, Chairman | Trustee, since February 2012, Indefinite; Chairman of the Board since May 2014. | Retired (since 2011). | 5 | Northern Lights Fund Trust III (for series not affiliated with the Fund since 2012); Northern Lights Fund Trust (since 2011); Northern Lights Variable Trust (since 2011); Alternative Strategies Fund (since 2012). |
Mark
H. Taylor 1964 |
Trustee, Chairman of the Audit Committee | Since February 2012, Indefinite | Chair, Department of Accountancy and Andrew D. Braden Professor of Accounting and Auditing, Weatherhead School of Management, Case Western Reserve University (since 2009); Vice President-Finance, American Accounting Association (2017-2020); President, Auditing Section of the American Accounting Association (2012-15). | 5 | Northern Lights Fund Trust III (for series not affiliated with the Fund since 2012); Northern Lights Fund Trust (since 2007); Northern Lights Variable Trust (since 2007); Alternative Strategies Fund (since June 2010). |
Jeffery
D. Young 1956 |
Trustee | Since January 2015, Indefinite | Co-owner and Vice President, Latin America Agriculture Development Corp. (since May 2015); President, Celeritas Rail Consulting (since June 2014). | 5 | Northern Lights Fund Trust III (for series not affiliated with the Fund since 2015). |
* | As of June 30, 2019, the Trust was comprised of 36 active portfolios managed by 15 unaffiliated investment advisers. The term Fund Complex applies only to the Funds. The Funds do not hold themselves out as related to any other series within the Trust for investment purposes, nor do they share the same investment adviser with any other series. |
** | Only includes directorships held within the past 5 years in a company with a class of securities registered pursuant to Section 12 of the Securities Exchange Act of 1934 or subject to the requirements of Section 15(d) of the Securities Exchange Act of 1934, or any company registered as an investment company under the 1940 Act. |
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63
SWAN FUNDS |
SUPPLEMENTAL INFORMATION (Unaudited)(Continued) |
June 30, 2019 |
Officers of the Trust
Name,
Address, Year of Birth |
Position(s)
Held with Registrant |
Length
of Service and Term |
Principal Occupation(s) During Past 5 Years |
Richard
Malinowski 80 Arkay Drive, Hauppauge, NY 11788 1983 |
President | Since August 2017, indefinite | Senior Vice President (since 2017), Vice President and Counsel (2015-2016) and Assistant Vice President (2012–2015), Gemini Fund Services, LLC. |
Brian
Curley 80 Arkay Drive, Hauppauge, NY 11788 1970 |
Treasurer | Since February 2013, indefinite | Vice President, Gemini Fund Services, LLC (since 2015), Assistant Vice President, Gemini Fund Services, LLC (2012-2014). |
Eric
Kane 80 Arkay Drive, Hauppauge, NY 11788 1981 |
Secretary | Since November 2013, indefinite | Vice President and Counsel, Gemini Fund Services, LLC (since 2017), Assistant Vice President, Gemini Fund Services, LLC (2014-2017), Staff Attorney, Gemini Fund Services, LLC (2013-2014). |
William
Kimme 1962 |
Chief Compliance Officer | Since February 2012, indefinite | Senior Compliance Officer of Northern Lights Compliance Services, LLC (since 2011). |
The Funds Statement of Additional Information includes additional information about the Trustees and is available free of charge, upon request, by calling toll-free at 1-877-896-2590.
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64
PRIVACY NOTICE |
NORTHERN LIGHTS FUND TRUST III
Rev. February 2014
FACTS | WHAT DOES NORTHERN LIGHTS FUND TRUST III DO WITH YOUR PERSONAL INFORMATION? |
Why? | Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal information. Please read this notice carefully to understand what we do. |
What? | The types of personal information we collect and share depend on the product or service you have with us. This information can include:
¡ Social Security number and income
¡ assets, account transfers and transaction history
¡ investment experience and risk tolerance
When you are no longer our customer, we continue to share your information as described in this notice. |
How? | All financial companies need to share customers personal information to run their everyday business. In the section below, we list the reasons financial companies can share their customers personal information; the reasons Northern Lights Fund Trust III chooses to share and whether you can limit this sharing. |
Reasons we can share your personal information | Does
Northern Lights Fund Trust III share? |
Can you limit this sharing? |
For
our everyday business purposes– such as to process your transactions, maintain your account(s), respond to court orders and legal investigations, or report to credit bureaus |
YES | NO |
For
our marketing purposes– to offer our products and services to you |
NO | We do not share |
For joint marketing with other financial companies | NO | We do not share |
For our affiliates everyday business purposes– information about your transactions and experiences | NO | We do not share |
For our affiliates everyday business purposes– information about your creditworthiness | NO | We do not share |
For our affiliates to market to you | NO | We do not share |
For nonaffiliates to market to you | NO | We do not share |
Questions? | Call 1-888-339-4230 |
65
Page 2 |
What we do | |
How does Northern Lights Fund Trust III protect my personal information? |
To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include computer safeguards and secured files and buildings.
Our service providers are held accountable for adhering to strict policies and procedures to prevent any misuse of your nonpublic personal information.
|
How does Northern Lights Fund Trust III collect my personal information? |
We collect your personal information, for example, when you
¡ open an account or give us contact information
¡ provide account information or give us your income information
¡ make deposits or withdrawals from your account
We also collect your personal information from other companies.
|
Why cant I limit all sharing? |
Federal law gives you the right to limit only
¡ sharing for affiliates everyday business purposes—information about your creditworthiness
¡ affiliates from using your information to market to you
¡ sharing for nonaffiliates to market to you
State laws and individual companies may give you additional rights to limit sharing
|
Definitions | |
Affiliates | Companies related by common ownership or control. They can be financial and nonfinancial companies.
¡ Northern Lights Fund Trust III does not share with our affiliates.
|
Nonaffiliates | Companies not related by common ownership or control. They can be financial and nonfinancial companies.
¡ Northern Lights Fund Trust III does not share with nonaffiliates so they can market to you.
|
Joint marketing | A formal agreement between nonaffiliated financial companies that together market financial products or services to you.
¡ Northern Lights Fund Trust III doesnt jointly market. |
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PROXY VOTING POLICY
Information regarding how the Funds voted proxies relating to portfolio securities for the most recent twelve month period ended June 30 as well as a description of the policies and procedures that the Funds use to determine how to vote proxies is available without charge, upon request, by calling 1-877-896-2590 or by referring to the SECs website at http://www.sec.gov.
PORTFOLIO HOLDINGS
The Funds file their complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year as an exhibit to its report on Form N-PORT. Form N-PORT is available on the SECs website at http://www.sec.gov and may be reviewed and copied at the SECs Public Reference Room in Washington, DC (1-800-SEC-0330). The information on Form N-PORT is available without charge, upon request, by calling 1-877-896-2590.
INVESTMENT ADVISOR |
Swan Capital Management, LLC |
1099 Main Ave. Suite 206 |
Durango, CO 81301 |
INVESTMENT SUB-ADVISOR |
Swan Global Management, LLC |
41 Shell Castle |
Humacao, PR 00791 |
ADMINISTRATOR |
Gemini Fund Services, LLC |
80 Arkay Drive, Suite 110 |
Hauppauge, NY 11788 |
Item 2. Code of Ethics.
(a) As of the end of the period covered by this report, the registrant has adopted a code of ethics that applies to the registrant's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party.
(b) For purposes of this item, “code of ethics” means written standards that are reasonably designed to deter wrongdoing and to promote:
(1) | Honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; |
(2) | Full, fair, accurate, timely, and understandable disclosure in reports and documents that a registrant files with, or submits to, the Commission and in other public communications made by the registrant; |
(3) Compliance with applicable governmental laws, rules, and regulations;
(4) | The prompt internal reporting of violations of the code to an appropriate person or persons identified in the code; and |
(5) Accountability for adherence to the code.
(c) Amendments: During the period covered by the report, there have not been any amendments to the provisions of the code of ethics.
(d) Waivers: During the period covered by the report, the registrant has not granted any express or implicit waivers from the provisions of the code of ethics.
(e) The Code of Ethics is not posted on Registrant’ website.
(f) A copy of the Code of Ethics is attached as an exhibit.
Item 3. Audit Committee Financial Expert.
(a)(1)ii The Registrant’s board of trustees has determined that Mark H. Taylor is an audit committee financial expert, as defined in Item 3 of Form N-CSR. Mr. Taylor is independent for purposes of this Item 3.
(a)(2) Not applicable.
(a)(3) In this regard, no member of the audit committee was identified as having all of the required technical attributes identified in instruction 2 (b) to item 3 of Form N-CSR to qualify as an “audit committee financial expert,” whether through the type of specialized education or experience required by that instruction. At this time, the board believes the experience provided by each member of the audit committee collectively offers the fund adequate oversight by its audit committee given the fund’s level of financial complexity. The board will from time to time reexamine such belief.
Item 4. Principal Accountant Fees and Services.
(a) Audit Fees 2017 2018 2019
Swan Defined Risk Fund $14,000 $14,775 $15,220
Swan Defined Risk Emerging Markets Fund $13,500 $14,775 $15,220
Swan Defined Risk Foreign Developed Fund $13,200 $14,775 $15,220
Swan Defined Risk U.S Small Cap Fund $13,200 $14,775 $15,220
Swan Defined Risk Growth Fund N/A N/A $15,220
(b) Audit-Related Fees 2017 2018 2019
Swan Defined Risk Fund None None None
Swan Defined Risk Emerging Markets Fund None None None
Swan Defined Risk Foreign Developed Fund None None None
Swan Defined Risk U.S Small Cap Fund None None None
Swan Defined Risk Growth Fund N/A N/A None
(c) Tax Fees 2017 2018 2019
Swan Defined Risk Fund $2,200 $3,100 $3,170
Swan Defined Risk Emerging Markets Fund $2,200 $3,100 $3,170
Swan Defined Risk Foreign Developed Fund $2,200 $3,100 $3,170
Swan Defined Risk U.S Small Cap Fund $2,200 $3,100 $3,170
Swan Defined Risk Growth Fund N/A N/A $3,170
Preparation of Federal & State income tax returns, assistance with calculation of required income, capital gain and excise distributions and preparation of Federal excise tax returns.
(d) All Other Fees 2017 2018 2019
Swan Defined Risk Fund None None None
Swan Defined Risk Emerging Markets Fund None None None
Swan Defined Risk Foreign Developed Fund None None None
Swan Defined Risk U.S Small Cap Fund None None None
Swan Defined Risk Growth Fund N/A N/A None
(e) | (1) Audit Committee’s Pre-Approval Policies |
The registrant’s Audit Committee is required to pre-approve all audit services and, when appropriate, any non-audit services (including audit-related, tax and all other services) to the registrant. The registrant’s Audit Committee also is required to pre-approve, when appropriate, any non-audit services (including audit-related, tax and all other services) to its adviser, or any entity controlling, controlled by or under common control with the adviser that provides ongoing services to the registrant, to the extent that the services may be determined to have an impact on the operations or financial reporting of the registrant. Services are reviewed on an engagement by engagement basis by the Audit Committee.
(2) | Percentages of Services Approved by the Audit Committee |
Swan Defined Risk Fund 2017 2018 2019
Audit-Related Fees: 0.00% 0.00% 0.00%
Tax Fees: 0.00% 0.00% 0.00%
All Other Fees: 0.00% 0.00% 0.00%
Swan Defined Risk Emerging Markets Fund 2017 2018 2019
Audit-Related Fees: 0.00% 0.00% 0.00%
Tax Fees: 0.00% 0.00% 0.00%
All Other Fees: 0.00% 0.00% 0.00%
Swan Defined Risk Foreign Developed Fund 2017 2018 2019
Audit-Related Fees: 0.00% 0.00% 0.00%
Tax Fees: 0.00% 0.00% 0.00%
All Other Fees: 0.00% 0.00% 0.00%
Swan Defined Risk U.S. Small Cap Fund 2017 2018 2019
Audit-Related Fees: 0.00% 0.00% 0.00%
Tax Fees: 0.00% 0.00% 0.00%
All Other Fees: 0.00% 0.00% 0.00%
Swan Defined Risk Growth Fund 2017 2018 2019
Audit-Related Fees: N/A N/A 0.00%
Tax Fees: N/A N/A 0.00%
All Other Fees: N/A N/A 0.00%
(f) | During the audit of registrant's financial statements for the most recent fiscal year, less than 50 percent of the hours expended on the principal accountant's engagement were attributed to work performed by persons other than the principal accountant's full-time, permanent employees. |
(g) | The aggregate non-audit fees billed by the registrant's accountant for services rendered to the registrant, and rendered to the registrant's investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant: |
2017 2018 2019
Swan Defined Risk Fund $2,220 $3,100 $3,170
Swan Defined Risk Emerging Markets Fund $2,220 $3,100 $3,170
Swan Defined Risk Foreign Developed Fund $2,220 $3,100 $3,170
Swan Defined Risk U.S. Small Cap Fund $2,220 $3,100 $3,170
Swan Defined Risk Growth Fund N/A N/A $3,170
(h) The registrant's audit committee has considered whether the provision of non-audit services to the registrant's investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant, that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X, is compatible with maintaining the principal accountant's independence.
Item 5. Audit Committee of Listed Companies. Not applicable to open-end investment companies.
Item 6. Schedule of Investments. Schedule of investments in securities of unaffiliated issuers is included under Item 1.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Funds. Not applicable to open-end investment companies.
Item 8. Portfolio Managers of Closed-End Management Investment Companies. Not applicable to open-end investment companies.
Item 9. Purchases of Equity Securities by Closed-End Funds. Not applicable to open-end investment companies.
Item 10. Submission of Matters to a Vote of Security Holders. None
Item 11. Controls and Procedures.
(a) Based on an evaluation of the Registrant’s disclosure controls and procedures as of a date within 90 days of filing date of this Form N-CSR, the principal executive officer and principal financial officer of the Registrant have concluded that the disclosure controls and procedures of the Registrant are reasonably designed to ensure that the information required in filings on Form N-CSR is recorded, processed, summarized, and reported by the filing date, including that information required to be disclosed is accumulated and communicated to the Registrant’s management, including the Registrant’s principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
(b) There were no significant changes in the Registrant’s internal control over financial reporting that occurred during the Registrant’s last fiscal half-year that have materially affected, or are reasonably likely to materially affect, the Registrant’s internal control over financial reporting.
Item 12. Disclosure of securities lending activities for closed-end management investment companies.
Not applicable to open-end investment companies.
Item 13. Exhibits.
(a)(1) Code of Ethics filed herewith.
(a)(3) Not applicable for open-end investment companies.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) Northern Lights Fund Trust III
By (Signature and Title)
/s/ Richard Malinowski
Richard Malinowski, Principal Executive Officer/President
Date 9/5/19
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By (Signature and Title)
/s/ Richard Malinowski
Richard Malinowski, Principal Executive Officer/President
Date 9/5/19
By (Signature and Title)
/s/ Brian Curley
Brian Curley, Principal Financial Officer/Treasurer
Date 9/5/19
CERTIFICATIONS
I, Richard Malinowski, certify that:
1. I have reviewed this report on Form N-CSR of the Swan Funds (a series of Northern Lights Fund Trust III);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal half-year (the registrant’s second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: 9/5/19 /s/ Richard Malinowski
Richard Malinowski
Principal Executive Officer/President
I, Brian Curley, certify that:
1. I have reviewed this report on Form N-CSR of the Swan Funds (a series of Northern Lights Fund Trust III);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal half-year (the registrant’s second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: 9/5/19 /s/ Brian Curley
Brian Curley
Principal Financial Officer/Treasurer
certification
Richard Malinowski, Principal Executive Officer/President, and Brian Curley Principal Financial Officer/Treasurer of Northern Lights Fund Trust III (the “Registrant”), certify to the best of my knowledge that:
1. The Registrant’s periodic report on Form N-CSR for the period ended June 30, 2019 (the “Form N-CSR”) fully complies with the requirements of Sections 15(d) of the Securities Exchange Act of 1934, as amended; and
2. The information contained in the Form N-CSR fairly presents, in all material respects, the financial condition and results of operations of the Registrant.
Principal Executive Officer/President Principal Financial Officer/Treasurer
Northern Lights Fund Trust III Northern Lights Fund Trust III
/s/ Richard Malinowski /s/ Brian Curley
Richard Malinowski Brian Curley
Date: 9/5/19 Date: 9/5/19
A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to Northern Lights Funds Trust III and will be retained by Northern Lights Fund Trust III and furnished to the Securities and Exchange Commission (the “Commission”) or its staff upon request.
This certification is being furnished to the Commission solely pursuant to 18 U.S.C. § 1350 and is not being filed as part of the Form N-CSR filed with the Commission.
aTTACHMENT 12.B
Northern Lights Fund Trust III
CODE OF ETHICS
Northern Lights Fund Trust III (the “Trust”) and each of its series (the “Funds”) has adopted this Code of Ethics (the “Code”) in order to set forth guidelines and procedures that promote ethical practices and conduct by all of its Access Persons and to ensure that all Access Persons comply with the federal securities laws. Although this Code contains a number of specific standards and policies, there are four key principles embodied throughout the Code.
The interests of the Funds must always be paramount
Access Persons have a legal, fiduciary duty to place the interests of the Funds ahead of their own. In any decision relating to their personal investments, Access Persons must scrupulously avoid serving their own interests ahead of those of Trust.
Access Persons may not take advantage of their relationship with the Funds
Access Persons should avoid any situation (unusual investment opportunities, perquisites and accepting gifts of more than token value from persons seeking to do business with the Funds) that might compromise, or call into question, the exercise of their fully independent judgment in the interests of the Funds.
All Personal Securities Transactions should avoid any actual, potential, or apparent conflicts of interest
Although all Personal Securities Transactions by Access Persons must be conducted in a manner consistent with this Code, the Code itself is based on the premise that Access Persons owe a fiduciary duty to the Funds, and should avoid any activity that creates an actual, potential, or apparent conflict of interest. This includes executing transactions through or for the benefit of a third party when the transaction is not in keeping with the general principles of this Code.
Access Persons must adhere to these general principles as well as comply with the specific provisions of this Code. Technical compliance with the Code and its procedures will not automatically prevent scrutiny of trades that show a pattern of abuse of an individual’s fiduciary duty to the Funds.
Access Persons must comply with all applicable laws
In both work-related and personal activities, Access Persons must comply with all applicable laws, including the federal securities laws.
Any violations of this Code should be reported promptly to the Chief Compliance Officer or his designee. Failure to do so will be deemed a violation of the Code.
DEFINITIONS
“Access Person” shall have the same meaning as set forth in Rule 17j-1 under the Investment Company Act of 1940, as amended (the “1940 Act”) and shall include:
1. | all officers and trustees (or persons occupying a similar status or performing a similar function) of the Funds; |
2. | all officers and trustees (or persons occupying a similar status or performing a similar function) of an Adviser with respect to its corresponding series of the Trust |
3. | any employee of the Trust or the Advisers (or of any company controlling or controlled by or under common control with the Trust or the Advisers) who, in connection with his or her regular functions or duties, makes, participates in, or obtains information regarding the purchase or sale of Covered Securities by the Funds, or whose functions relate to the making of any recommendations with respect to the purchase or sale; and |
4. | any other natural person controlling, controlled by or under common control with the Trust or the Advisers who obtains information concerning recommendations made to the Funds with regard to the purchase or sale of Covered Securities by the Funds. |
“Beneficial Ownership” means in general and subject to the specific provisions of Rule 16a-1(a)(2) under the Securities Exchange Act of 1934, as amended, having or sharing, directly or indirectly, through any contract arrangement, understanding, relationship, or otherwise, a direct or indirect “pecuniary interest” in the security.
“Chief Compliance Officer” means the Code of Ethics Compliance Officer of the Trust with respect to Trustees and officers of the Trust, or the CCO of the Advisers with respect to Advisers personnel.
“Code” means this Code of Ethics.
“Covered Security” means any Security, except (i) direct obligations of the U.S. Government, (ii) bankers’ acceptances, bank certificates of deposit, commercial paper and high quality short-term debt instruments, including repurchase agreements, and (iii) shares issued by open-end mutual Funds, except funds services by Gemini, NLCS, or NLD.
“Decision Making Access Person” means any Access Person who, in connection with his or her regular functions or duties, makes or participates in or obtains information regarding recommendations on the purchase or sale of a security by the Funds, or whose functions relate to the making of any recommendations with respect to such purchases or sales. Decision Makers typically are Adviser personnel.
“Funds” means series of the Trust.
“Immediate family” means an individual’s spouse, child, stepchild, grandchild, parent, stepparent, grandparent, siblings, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law and should include adoptive relationships. For purposes of determining whether an Access Person has an “indirect pecuniary interest” in securities, only ownership by “immediate family” members sharing the same household as the Access Person will be presumed to be an “indirect pecuniary interest” of the Access Person, absent special circumstances.
“Independent Trustees” means those Trustees of the Trust that would not be deemed an “interested person” of the Trust, as defined in Section 2(a)(19)(A) of the 1940 Act.
“Indirect Pecuniary Interest” includes, but is not limited to: (a) securities held by members of the person’s Immediate Family sharing the same household (which ownership interest may be rebutted); (b) a
general partner’s proportionate interest in Fund securities held by a general or limited partnership; (c) a person’s right to dividends that is separated or separable from the underlying securities (otherwise, a right to dividends alone will not constitute a pecuniary interest in securities); (d) a person’s interest in securities held by a Trust; (e) a person’s right to acquire securities through the exercise or conversion of any derivative security, whether or not presently exercisable; and (f) a performance-related fee, other than an asset based fee, received by any broker, dealer, bank, insurance company, investment company, investment manager, Trustee, or person or entity performing a similar function, with certain exceptions.
“Pecuniary Interest” means the opportunity, directly or indirectly, to profit or share in any profit derived from a transaction in securities.
“Personal Securities Transaction” means any transaction in a Covered Security in which an Access Person has a direct or indirect Pecuniary Interest.
“Purchase or Sale of a Security” includes the writing of an option to purchase or sell a Security. A Security shall be deemed “being considered for Purchase or Sale” for the Trusts when a recommendation to purchase or sell has been made and communicated by a Decision Making Access Person, and, with respect to the person making the recommendation, when such person seriously considers making such a recommendation. These recommendations are placed on the “Restricted List” until they are no longer being considered for Purchase or Sale, or until the Security has been purchased or sold.
“Restricted List” means the list of securities maintained by the Chief Compliance Officer in which trading by Access Persons is generally prohibited.
“Security” means any note, stock, treasury stock, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral-Trust certificate, pre-organization certificate or subscription, transferable share, investment contract, voting-Trusts certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral rights, or, in general, an interest or instrument commonly known as “security”, or any certificate or interest or participation in temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase (including options) any of the foregoing.
“Advisers” means the Advisers to the Trust.
“Trusts” mean Northern Lights Fund Trust and the Northern Lights Variable Trust.
PROHIBITED ACTIONS AND ACTIVITIES
A. | No Access Person shall purchase or sell directly or indirectly, any Covered Security in which he or she has, or by reason of such transaction acquires, any direct or indirect beneficial ownership and which he or she knows or should have known at the time of such purchase or sale; |
(1) | is being considered for purchase or sale by a Fund, or |
(2) | is being purchased or sold by a Fund. |
B. | Decision-Making Access Persons may not participate in any initial public offering of Covered Securities in any account over which they exercise Beneficial Ownership. All Access Persons must obtain prior written authorization from the Chief Compliance Officer or his designee prior to such participation; |
C. | No Access Person may purchase a Covered Security in which by reason of such transaction they acquire Beneficial Ownership in a private placement of a Security, without prior written authorization of the acquisition by the Chief Compliance Officer or his designee; |
D. | Access Persons may not accept any fee, commission, gift, or services, other than de minimus gifts, from any single person or entity that does business with or on behalf of the Trusts; |
E. | Decision-Making Access Persons may not serve on the board of directors of a publicly traded company without prior authorization from the Chief Compliance Officer or his designee based upon a determination that such service would be consistent with the interests of the Trust. If such service is authorized, procedures will then be put in place to isolate such Decision-Making Access Persons serving as directors of outside entities from those making investment decisions on behalf of the Trust. |
Advanced notice should be given so that the Trust or Advisers may take such action concerning the conflict as deemed appropriate by the Chief Compliance Officer or his designee.
F. | Decision-Making Access Persons may execute a Personal Securities Transaction involving a Covered Security without pre-authorization of the Chief Compliance Officer or such persons who may be designated by the Chief Compliance Officer from time to time, provided it is permitted by the Adviser’s Code of Ethics. The Chief Compliance Officer or his designee may restrict purchases of Covered Securities pursuant to the Adviser’s Code of Ethics. |
G. | It shall be a violation of this Code for any Access Person, in connection with the purchase or sale, directly or indirectly, of any Covered Security held or to be acquired by a Fund: |
a. | to employ any device, scheme or artifice to defraud the Trust; |
b. | to make to the Trust any untrue statement of a material fact or to omit to state to the Trust a material fact necessary in order to make the statements made, in light of the circumstances under which they are made, not misleading; |
c. | to engage in any act, practice or course of business that operates or would operate as a fraud or deceit upon the Trust; or |
d. | to engage in any manipulative practice with respect to the Trust. |
EXEMPTED TRANSACTIONS
The provisions described above under the heading Prohibited Actions and Activities and the preclearance procedures under the heading Preclearance of Personal Securities Transactions do not apply to:
· | Purchases or Sales of Securities effected in any account in which an Access Person has no Beneficial Ownership; |
· | Purchases or Sales of Securities which are non-volitional on the part the Access Person (for example, the receipt of stock dividends); |
· | Purchase of Securities made as part of automatic dividend reinvestment plans; |
· | Purchases of Securities made as part of an employee benefit plan involving the periodic purchase of company stock or mutual Funds; and |
· | Purchases of Securities effected upon the exercise of rights issued by an issuer pro rata to all holders of a class of its Securities, to the extent such rights were acquired from such issuer, and sale of such rights so acquired. |
PRECLEARANCE OF PERSONAL SECURITIES TRANSACTIONS
All Decision-Making Access Persons wishing to engage in a Personal Securities Transaction involving, as defined in the Securities Act of 1933, an Initial Public Offering (IPO) or a Limited Offering, must obtain prior authorization of any such Personal Securities Transaction from the Chief Compliance Officer or such person or persons that the Chief Compliance Officer may from time to time designate to make such authorizations. Personal Securities Transactions by the Chief Compliance Officer involving an IPO or Limited Offering, shall require prior authorization from the President or Chief Executive Officer of the Trust (unless such person is also the Chief Compliance Officer) or their designee, who shall perform the review and approval functions relating to reports and trading by the Chief Compliance Officer. The Trust shall adopt the appropriate forms and procedures for implementing this Code of Ethics.
Any authorization so provided is effective until the close of business on the fifth trading day after the authorization is granted. In the event that an order for the Personal Securities Transaction involving an IPO or Limited Offering, is not placed within that time period, a new authorization must be obtained. If the order for the transaction is placed but not executed within that time period, no new authorization is required unless the person placing the order originally amends the order in any manner. Authorization for “good until canceled” orders is effective unless the order conflicts with a Trusts order.
If a Decision-Making Access Person wishing to effect a Personal Securities Transaction learns, while the order is pending, that the same Security is being considered for Purchase or Sale by a Fund, he or she should consult with the Chief Compliance Officer or his or her designee.
REPORTING AND MONITORING
The Chief Compliance Officer or such person or persons that the Chief Compliance Officer may from time to time designate shall monitor all personal trading activity of all Access Persons pursuant to the procedures established under this Code. An Access Person of either Trust who is also an access person of the Trust’s principal underwriter or their affiliates or an Access Person of a Fund’s Adviser or Sub-Adviser may submit reports required by this Section on forms prescribed by the Code of Ethics of such principal underwriter, Adviser, or Sub-Adviser provided that such forms comply with the requirements of Rule 17j-1(d)(1) of the 1940 Act.
Disclosure of Personal Brokerage Accounts
Within ten days of the commencement of employment or at the commencement of a relationship with the Trust, all Access Persons, except Independent Trustees, are required to submit to the Chief Compliance Officer or his designee a report stating the names and account numbers of all of their personal brokerage accounts, brokerage accounts of members of their Immediate Family, and any brokerage accounts which they control or in which they or an Immediate Family member has Beneficial Ownership. Such report must contain the date on which it is submitted and the information in the report must be current as of a
date no more than 45 days prior to that date. In addition, if a new brokerage account is opened during the course of the year, the Chief Compliance Officer or his designee must be notified immediately.
The information required by the above paragraph must be provided to the Chief Compliance Officer or his designee on an annual basis, and the report of such should be submitted with the annual holdings reports described below.
Each of these accounts is required to furnish duplicate confirmations and statements to the Chief Compliance Officer or his designee. These statements and confirms for each series of the Trusts may be sent to the Advisers.
Initial Holdings Report
Within ten days of becoming an Access Person (and with information that is current as of a date no more than 45 days prior to the date that the report was submitted), each Access Person, except Independent Trustees must submit a holdings report that must contain, at a minimum, the title and type of Security, and as applicable, the exchange ticker symbol or CUSIP number, number of shares, and principal amount of each Covered Security in which the Access Person has any direct or indirect Beneficial Ownership. This report must state the date on which it is submitted.
Annual Holdings Reports
All Access Persons, except Independent Trustees, must supply the information that is required in the initial holdings report on an annual basis, and such information must be current as of a date no more than 45 days prior to the date that the report was submitted. Such reports must state the date on which they are submitted.
QUARTERLY TRANSACTION REPORTS
All Access Persons shall report to the Chief Compliance Officer or his designee the following information with respect to transactions in a Covered Security in which such person has, or by reason of such transaction acquires, any direct or indirect Beneficial Ownership in the Covered Security:
· | The date of the transaction, the title, and as applicable the exchange ticker symbol or CUSIP number, interest rate and maturity date, number of shares, and the principal amount of each Covered Security; |
· | The nature of the transaction (i.e., purchase, sale or any other type of acquisition or disposition); |
· | The price of the Covered Security at which the transaction was effected; and |
· | The name of the broker, dealer, or bank with or through whom the transaction was effected. |
· | The date the Access Person Submits the Report. |
Reports pursuant to this section of this Code shall be made no later than 30 days after the end of the calendar quarter in which the transaction to which the report relates was effected, and shall include a certification that the reporting person has reported all Personal Securities Transactions required to be disclosed or reported pursuant to the requirements of this Code. Confirmations and Brokerage Statements sent directly to each Adviser’s address noted above is an acceptable form of a quarterly transaction report.
An Independent Trustee need only make a quarterly transaction report if he or she, at the time of the transaction, knew, or in the ordinary course of fulfilling his or her official duties as a Trustee, should have known that during the 15-day period immediately preceding or following the date of the transaction by
the Independent Trustee, the Covered Security was purchased or sold by a Fund or was considered for purchase or sale by a Fund.
ENFORCEMENTS AND PENALTIES
The Chief Compliance Officer or his designee shall review the transaction information supplied by Access Persons. If a transaction appears to be a violation of this Code, the transaction will be reported to the Trusts Board of Trustees.
Upon being informed of a violation of this Code, the Trusts Board of Trustees may impose sanctions as it deems appropriate, including but not limited to, a letter of censure or suspension, termination of the employment of the violator, or a request for disgorgement of any profits received from a securities transaction effected in violation of this Code. The Trust shall impose sanctions in accordance with the principle that no Access Person may profit at the expense of its clients. Any losses are the responsibility of the violator. Any profits realized on personal securities transactions in violation of the Code must be disgorged in a manner directed by the Board of Trustees.
At least annually, the Chief Compliance Officer a shall issue a report on Personal Securities Transactions by Access Person. The report submitted to the board shall:
· | Summarize existing procedures concerning Personal Securities investing and any changes in the procedures made during the prior year; |
· | Identify any violations of this Code and any significant remedial action taken during the prior year; and; |
· | Identify any recommended changes in existing restrictions or procedures based upon the experience under the Code, evolving industry practices or developments in applicable laws and regulations. |
Acknowledgement
The Trust must provide all Access Persons with a copy of this Code. Upon receipt of this Code, all Access Persons must do the following:
All new Access Persons must read the Code, complete all relevant forms supplied by the Chief Compliance Officer or his designee (including a written acknowledgement of their receipt of the Code), and schedule a meeting with the Chief Compliance Officer or his designee to discuss the provisions herein within two calendar weeks of employment.
Existing Access Persons who did not receive this Code upon hire, for whatever reason, must read the Code, complete all relevant forms supplied by the Chief Compliance Officer or his designee (including a written acknowledgement of their receipt of the Code), and schedule a meeting with the Chief Compliance Officer or his designee to discuss the provisions herein at the earliest possible time, but no later than the end of the current quarter.
All Access Persons must certify on an annual basis that they have read and understood the Code.
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