Form N-CSR NORTHERN LIGHTS FUND For: Oct 31
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securities and exchange commission
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form n-csr
certified shareholder report of registered management
investment companies
Investment Company Act file number 811-22549
Northern Lights Fund Trust II
(Exact name of registrant as specified in charter)
225 Pictoria Dr, Ste 450 Cincinnati, Ohio 45246
(Address of principal executive offices) (Zip code)
Kevin E. Wolf, Gemini Fund Services, LLC.
80 Arkay Drive, Suite 110., Hauppauge, NY 11788
(Name and address of agent for service)
Registrant's telephone number, including area code: 631-470-2600
Date of fiscal year end: 10/31
Date of reporting period: 10/31/20
Item 1. Reports to Stockholders.
 |
| F/m Investments European L/S Small Cap Fund |
| Institutional Class |
| BESMX |
| Investor Class |
| BESRX |
| Annual Report |
| October 31, 2020 |
| 1-844-322-8112 |
| www.fm-invest.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 Fund’s shareholder reports like this one will no longer be sent by mail, unless you specifically request paper copies of the reports. Instead, the reports will be made available on the Fund’s website www.fm-invest.com, and you will be notified by mail each time a report is posted and provided with a website link to access the report.
If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. You may elect to receive shareholder reports and other communications from the Fund electronically 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.
Dear Shareholder,
We hope that each of you and your families have stayed safe and well, and continue to do so, during a turbulent, trying year. With renewed optimism for the new year we deliver to you this letter about performance of the prior fiscal year and current outlook of the F/m Investments European Small Cap Long / Short Fund (the “Fund”).
For the 12-month period ending October 31, 2020, the Fund returned -4.50%, which lagged its index, the MSCI Europe Small Cap Net Return USD Index1, which returned -2.41%.
At the start of the fiscal year, European economies and markets rode positive momentum as the major headwinds, e.g., fear of a hard Brexit, passed. This was quickly derailed as the impacts of COVID-19 imposed unprecedented lockdowns across the Continent and abroad as well as stoppages to movements of goods and people.
The Fund performed in line with its beta until the start of the broad market collapse in early February. The Fund positioned itself well for that sudden decline, losing 30.68% peak to trough intra-year whilst the benchmark losing 44.89% peak to trough. The Fund’s return during this period would have been greater had various European regulators not imposed bans on short sales. In prior years we have highlighted the short book’s alpha generation capabilities; this year is a good reminder that the short book also buffers volatility during sudden drops.
Additionally, currency trends reversed course. Calls for Euro- US dollar parity and Pound Sterling bearish eroded with massive US stimulus and calls for long term near zero interest rates. Both made steady gains versus the US dollar throughout that the year. The Euro ended the year up +4.01% and Sterling +1.91%. At the time of this writing, this trend has continued, with the Euro, Sterling, and other European currencies approximately double that margin.
Our view that economic trends favored small caps was confirmed early in the year. As COVID-19 related shutdown impacted economies and markets, small and large caps performed similarly.
European equities continue to trade at significant and near historic discounts to their US counterparts. Fueled in part by the US Federal Reserve’s rate cuts to effectively zero, US large cap stocks’ continued price increase without commensurate increases in fundamentals compounds this difference. Indeed, early in the fiscal year European small cap outperformed US large caps – a realization of thesis that fiscal stimulus programs run by each State would favor domestic firms, which tend to be small cap names. All focus was shifted towards averting complete meltdown during the worst of the COVID-19, injuring small cap. As stability was regained in at the end of July 2020, European Small caps again outperformed their large cap cousins. (On a currency adjusted basis, European large caps lagged US large caps by -18.41% for the fiscal year, and European small caps lagged US small caps by only -2.38%.)
As noted above, our thesis that the US dollar bull market would relax has played out. We expect this trend to continue early into the term of Janet Yellen, the presumptive Treasury Secretary. Although Ms. Yellen espoused dovish tones, we recognize her hawkish past, and note that she and the Biden administration may need to pursue strong dollar policies.
Volatile markets and a slow return to “normal”, we believe the Fund is positioned well to continue to buffer large market swings and provide robust risk adjusted returns.
Over the course of its history, the Fund and its strategy have experienced periodic drawdowns, as Fund holdings have at times fallen out of favor. While the Fund has recently been in such a period, the Fund has recovered from such periods in the past. Each time, the sub- adviser remained disciplined and committed to the three pillars of their European small cap strategy: seek companies with good management, sound cash flow, and a catalyst to compound or unlock value (and the inverse for short positions). Over time, this discipline has generated “double alpha,” or cumulative positive alpha2 for both long and short positions. Moreover, returns in a recovery after a performance downdraft have been significantly positive. We continue to believe our defensive approach provides a balanced way to invest in the specialized opportunities of European small cap stocks.
On behalf of all of my colleagues, thank you for your continued investment in BESMX.
Sincerely,
Alexander Morris
The commentary represents the opinion of F/m Investments as of December 2020 and is subject to change based on market and other conditions. These opinions are not intended to be a forecast of future events, a guarantee of future results or investment advice. Any statistics contained here have been obtained from sources believed to be reliable, but the accuracy of this information cannot be guaranteed. The views expressed herein may change at any time subsequent to the date of issue hereof. The information provided is not to be construed as a recommendation or an offer to buy or sell or the solicitation of an offer to buy or sell any fund or security.7552-NLD-12/23/2020
| 1 | MSCI Europe Small Net Return USD Index measures a basket of small capitalization stocks from developed European countries converted to US dollar and reinvesting after tax dividends. Investors are not able to invest directly in the indices referenced and unmanaged index returns do not reflect any fees, expenses, or sales charges. The referenced indices are shown for general market comparisons. |
| 2 | Alpha is a measure of a security’s outperformance versus its benchmark. |
1
| F/m Investments European L/S Small Cap Fund |
| PORTFOLIO REVIEW (Unaudited) |
| October 31, 2020 |
The fund’s performance figures* for the periods ended October 31, 2020, compared to its benchmark:
| Annualized | Annualized | Annualized | Annualized | ||
| One Year | Five Year | Ten Year | Since Inception ** | Since Inception *** | |
| F/m Investments European L/S Small Cap Fund Investor Class | (4.93)% | N/A | N/A | (0.95)% | N/A |
| F/m Investments European L/S Small Cap Fund Institutional Class | (4.50)% | (0.62)% | 3.88% | N/A | 6.21% |
| MSCI Europe Small Cap Index (a) | (2.41)% | 4.08% | 6.73% | 4.03% | 3.05% |
Comparison of the Change in Value of a $50,000 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. Returns greater than 1 year are annualized. The total operating expenses as stated in the fee table to the Fund’s prospectus dated March 1, 2020 is 3.85% and 4.15% for the Institutional Class and Investor Class. For performance information current to the most recent month-end, please call 1-844-322-8112. |
| ** | Inception date is December 30, 2015. |
| *** | Inception date is October 31, 2007. Performance data for Institutional Class shares includes the Fund’s predecessor hedge fund. |
| (a) | The MSCI Europe Small Cap Index captures small cap representation across the 15 Developed Markets countries in Europe. With 918 constituents, the index covers approximately 14% of the free float-adjusted market capitalization in the European equity universe. Index returns assume reinvestment of dividends. Investors may not invest in the Index directly; unlike the Fund’s returns, the Index does not reflect any fees or expenses. |
| Holdings By Industry/Asset Type (1) | % of Net Assets | |||
| Money Market Funds | 15.5 | % | ||
| Software | 5.8 | % | ||
| Commercial Support Services | 5.7 | % | ||
| Health Care Facilities & Services | 4.5 | % | ||
| Containers & Packaging | 4.3 | % | ||
| Chemicals | 4.1 | % | ||
| Insurance | 3.8 | % | ||
| Technology Services | 3.5 | % | ||
| Transportation & Logistics | 2.9 | % | ||
| Food | 2.8 | % | ||
| Other Assets Less Liabilities | 47.1 | % | ||
| 100.0 | % | |||
| (1) | Does not include securities sold short in which the fund invests. |
Please refer to the Portfolio of Investments in this annual report for a detailed analysis of the Fund’s holdings.
2
| F/m Investments European L/S Small Cap Fund |
| PORTFOLIO OF INVESTMENTS |
| October 31, 2020 |
| Shares | Fair Value | |||||||
| COMMON STOCK - 80.4% | ||||||||
| ASSET MANAGEMENT - 2.3% | ||||||||
| 136,154 | IP Group PLC * ^ | $ | 139,958 | |||||
| 220,000 | Stirling Industries PLC * # | 19,912 | ||||||
| 159,870 | ||||||||
| AUTOMOTIVE - 1.9% | ||||||||
| 43,520 | Gestamp Automocion SA ^ | 133,022 | ||||||
| BEVERAGES - 1.9% | ||||||||
| 5,839 | Coca-Cola HBC AG | 132,500 | ||||||
| CABLE & SATELLITE - 1.5% | ||||||||
| 42,158 | Tele Columbus AG * | 103,863 | ||||||
| CHEMICALS - 4.1% | ||||||||
| 4,962 | Imerys SA | 148,199 | ||||||
| 8,980 | Tikkurila Oyj | 143,725 | ||||||
| 291,924 | ||||||||
| COMMERCIAL SUPPORT SERVICES - 5.7% | ||||||||
| 2,562 | Befesa SA | 105,347 | ||||||
| 20,791 | Caverion Oyj * | 136,350 | ||||||
| 22,756 | Marlowe PLC * | 161,829 | ||||||
| 403,526 | ||||||||
| CONSTRUCTION MATERIALS - 2.3% | ||||||||
| 178,463 | Breedon Group PLC * | 162,912 | ||||||
| CONSUMER SERVICES - 2.2% | ||||||||
| 7,135 | Instalco AB ^ | 157,912 | ||||||
| CONTAINERS & PACKAGING - 4.3% | ||||||||
| 5,563 | Aluflexpack AG * | 154,772 | ||||||
| 10,406 | Zignago Vetro SpA | 150,306 | ||||||
| 305,078 | ||||||||
| E-COMMERCE DISCRETIONARY - 2.0% | ||||||||
| 4,563 | Westwing Group AG * | 140,003 | ||||||
| ELECTRIC UTILITIES- 1.5% | ||||||||
| 19,607 | Falck Renewables SpA | 106,386 | ||||||
| FOOD - 2.8% | ||||||||
| 164,748 | Premier Foods PLC * | 196,830 | ||||||
| FORESTRY, PAPER & WOOD PRODUCTS - 1.9% | ||||||||
| 12,027 | Corticeira Amorim SGPS SA ^ | 138,135 | ||||||
| HEALTH CARE FACILITIES & SERVICES - 4.5% | ||||||||
| 9,629 | CVS Group PLC | 153,761 | ||||||
| 7,203 | Musti Group Oyj * | 165,039 | ||||||
| 318,800 | ||||||||
| HOME CONSTRUCTION - 1.6% | ||||||||
| 18,438 | Victoria PLC * | 112,050 | ||||||
| INDUSTRIAL INTERMEDIATE PRODUCTS - 2.0% | ||||||||
| 6,286 | SAES Getters SpA | 143,516 | ||||||
| INSURANCE - 3.8% | ||||||||
| 5,749 | Grupo Catalana Occidente SA ^ | 132,595 | ||||||
| 16,194 | Lancashire Holdings Ltd. ^ | 133,276 | ||||||
| 265,871 | ||||||||
| INTERNET MEDIA & SERVICES - 1.8% | ||||||||
| 105,160 | GoCo Group PLC | 130,941 | ||||||
| LEISURE FACILITIES & SERVICES - 2.0% | ||||||||
| 9,550 | Gamesys Group PLC | 143,486 | ||||||
| LEISURE PRODUCTS - 1.7% | ||||||||
| 2,723 | MIPS AB ^ | 117,227 | ||||||
| MACHINERY - 2.2% | ||||||||
| 29,931 | Deutz AG * | 153,686 | ||||||
| MEDICAL EQUIPMENT & DEVICES - 2.0% | ||||||||
| 19,619 | Arjo AB | 139,409 | ||||||
| OIL & GAS SERVICES & EQUIPMENT - 1.3% | ||||||||
| 158,856 | CGG SA * | 88,747 | ||||||
| REAL ESTATE SERVICES - 2.4% | ||||||||
| 15,829 | Savills PLC * ^ | 170,182 | ||||||
| RENEWABLE ENERGY - 1.5% | ||||||||
| 2,484 | SMA Solar Technology AG * | 107,522 | ||||||
| RETAIL - DISCRETIONARY - 0.8% | ||||||||
| 15,316 | Fourlis Holdings SA * | 59,142 | ||||||
| SEMICONDUCTORS - 2.4% | ||||||||
| 5,058 | ams AG * | 108,439 | ||||||
| 15,799 | X-Fab Silicon Foundries SE * | 58,799 | ||||||
| 167,238 | ||||||||
See accompanying notes to financial statements.
3
| F/m Investments European L/S Small Cap Fund |
| PORTFOLIO OF INVESTMENTS (Continued) |
| October 31, 2020 |
| Shares | Fair Value | |||||||
| COMMON STOCK (Continued) - 80.4% | ||||||||
| SOFTWARE - 5.8% | ||||||||
| 4,934 | Fortnox AB | $ | 154,098 | |||||
| 2,282 | Mynaric AG * | 153,112 | ||||||
| 3,805 | PSI Software AG | 106,374 | ||||||
| 413,584 | ||||||||
| SPECIALTY FINANCE - 2.1% | ||||||||
| 31,703 | Banca Farmafactoring SpA - 144A * ^ | 146,055 | ||||||
| TECHNOLOGY HARDWARE - 1.7% | ||||||||
| 44,095 | Bang & Olufsen A/S * | 122,941 | ||||||
| TECHNOLOGY SERVICES - 3.5% | ||||||||
| 20,597 | Indra Sistemas SA * | 123,561 | ||||||
| 2,588 | QT Group Oyj * ^ | 125,107 | ||||||
| 248,668 | ||||||||
| TRANSPORTATION & LOGISTICS - 2.9% | ||||||||
| 21,364 | Goodbulk Ltd. # | 202,982 | ||||||
| TOTAL COMMON STOCK (Cost - $5,596,816) | 5,684,008 | |||||||
| SHORT-TERM INVESTMENTS - 15.5% | ||||||||
| MONEY MARKET FUNDS - 15.5% | ||||||||
| 546,006 | Fidelity Institutional Money Market Funds - Government Portfolio, Institutional Class, 0.16% ** | 546,006 | ||||||
| 546,007 | Invesco STIT - Treasury Portfolio, Institutional Class, 0.10%** | 546,007 | ||||||
| TOTAL SHORT-TERM INVESTMENTS (Cost - $1,092,013) | 1,092,013 | |||||||
| TOTAL INVESTMENTS - 95.9% (Cost - $6,688,829) | $ | 6,776,021 | ||||||
| SECURITIES SOLD SHORT - (24.3)% (Proceeds - $1,832,693) | (1,716,311 | ) | ||||||
| OTHER ASSETS LESS LIABILITIES - 28.4% | 2,008,999 | |||||||
| NET ASSETS - 100.0% | $ | 7,068,709 | ||||||
| SECURITIES SOLD SHORT - (24.3)% | ||||||||
| AUTOMOTIVE - (2.3)% | ||||||||
| -16,439 | ElringKlinger AG * | $ | 166,213 | |||||
| BIOTECH & PHARMACEUTICALS - (1.0)% | ||||||||
| 1,500 | BioGaia AB | 71,367 | ||||||
| CABLE & SATELLITE - (1.9)% | ||||||||
| 14,438 | Euskaltel SA | 137,404 | ||||||
| INDUSTRIAL INTERMEDIATE PRODUCTS - (1.0)% | ||||||||
| 4,197 | Troax Group AB | 68,369 | ||||||
| LEISURE FACILITIES & SERVICES - (3.6)% | ||||||||
| 3,001 | CTS Eventim AG & Co. KGaA * | 132,977 | ||||||
| 27,741 | Domino’s Pizza Group PLC | 118,870 | ||||||
| 251,847 | ||||||||
| LEISURE PRODUCTS - (1.1)% | ||||||||
| 10,281 | Technogym SpA * | 76,406 | ||||||
| MACHINERY - (4.5)% | ||||||||
| 1,707 | Krones AG | 97,471 | ||||||
| 293 | Rational AG | 219,627 | ||||||
| 317,098 | ||||||||
| PUBLISHING & BROADCASTING - (1.7)% | ||||||||
| 18,442 | Pearson PLC | 121,612 | ||||||
| REIT - (1.5)% | ||||||||
| 8,207 | Klepierre SA | 103,964 | ||||||
| RETAIL - DISCRETIONARY - (2.0)% | ||||||||
| 1,898 | Sixt SE * | 143,708 | ||||||
| SOFTWARE - (1.7)% | ||||||||
| 5,896 | Blue Prism Group plc * | 117,708 | ||||||
| TECHNOLOGY SERVICES - (1.0)% | ||||||||
| 4,799 | Softcat PLC | 69,808 | ||||||
| TRANSPORTATION EQUIPMENT - (1.0)% | ||||||||
| 1,779 | Stadler Rail AG | 70,807 | ||||||
| TOTAL SECURITIES SOLD SHORT (Proceeds - $1,832,693) | 1,716,311 | |||||||
PLC - Public Limited Company
144A - Securities exempt from registration under Rule 144A of Securities Act of 1933. These securities may be resold in transaction exempt from registration to qualified institutional buyers. At October 31, 2020, these securities amounted to $146,055 or 2.04% of net assets.
| * | Non-income producing security. |
| ^ | All or a portion of these securities are held as collateral for securities sold short. |
| # | Fair valued security, the value of this security has been determined in good faith under the policies of the Board of Trustees. |
| ** | Money market fund; interest rate reflects effective yield on October 31, 2020. |
See accompanying notes to financial statements.
4
| F/m Investments European L/S Small Cap Fund |
| PORTFOLIO OF INVESTMENTS (Continued) |
| October 31, 2020 |
| Unrealized | ||||||||||||||||
| Foreign Currency | Settlement Date | Counterparty | Local Currency | U.S. Dollar Value | Appreciation/(Depreciation) | |||||||||||
| To Buy: | ||||||||||||||||
| Swedish Krona | 11/12/2020 | Goldman Sachs | 153,109 | $ | 167,092 | $ | (1,836 | ) | ||||||||
| Swiss Franc | 11/12/2020 | Goldman Sachs | 1,633,673 | 183,553 | (3,893 | ) | ||||||||||
| $ | 350,645 | $ | (5,729 | ) | ||||||||||||
| To Sell: | ||||||||||||||||
| British Pound | 11/12/2020 | Goldman Sachs | 734,908 | $ | 950,290 | $ | 7,079 | |||||||||
| British Pound | 11/12/2020 | Goldman Sachs | 206,454 | 266,961 | 2,245 | |||||||||||
| Danish Krone | 11/12/2020 | Goldman Sachs | 687,083 | 107,522 | 1,379 | |||||||||||
| Euro | 11/12/2020 | Goldman Sachs | 1,313,842 | 1,530,731 | 19,671 | |||||||||||
| Euro | 11/12/2020 | Goldman Sachs | 159,118 | 185,385 | 2,759 | |||||||||||
| Norwegian Krone | 11/12/2020 | Goldman Sachs | 3,791,288 | 396,606 | 17,687 | |||||||||||
| Swedish Krona | 11/12/2020 | Goldman Sachs | 6,008,193 | 675,057 | 10,480 | |||||||||||
| Swiss Franc | 11/12/2020 | Goldman Sachs | 126,156 | 137,678 | 1,096 | |||||||||||
| $ | 4,250,230 | $ | 62,396 | |||||||||||||
| Total | $ | 56,667 | ||||||||||||||
See accompanying notes to financial statements.
5
| F/m Investments European L/S Small Cap Fund |
| STATEMENT OF ASSETS AND LIABILITIES |
| October 31, 2020 |
| ASSETS | ||||
| Investment securities: | ||||
| At cost | $ | 6,688,829 | ||
| At value | $ | 6,776,021 | ||
| Cash collateral segregated for short sales | 2,387,799 | |||
| Cash held for collateral at custodian | 215,095 | |||
| Receivable for securities sold | 296,001 | |||
| Unrealized appreciation on foreign currency contracts | 56,667 | |||
| Dividends and interest receivable | 25,617 | |||
| Receivable due from advisor | 10,556 | |||
| Prepaid expenses and other assets | 21,063 | |||
| TOTAL ASSETS | 9,788,819 | |||
| LIABILITIES | ||||
| Securities sold short (Proceeds - $1,832,693) | 1,716,311 | |||
| Due to Custodian - Foreign Currency (Cost - $458,957) | 458,000 | |||
| Payable for investments purchased | 490,125 | |||
| Payable for Fund shares redeemed | 9,297 | |||
| Payable to related parties | 9,015 | |||
| Shareholder service fees | 2,152 | |||
| Distribution (12b-1) fees payable | 372 | |||
| Accrued expenses and other liabilities | 34,838 | |||
| TOTAL LIABILITIES | 2,720,110 | |||
| NET ASSETS | $ | 7,068,709 | ||
| NET ASSETS CONSIST OF: | ||||
| Paid in capital | $ | 19,826,945 | ||
| Accumulated loss | (12,758,236 | ) | ||
| NET ASSETS | $ | 7,068,709 | ||
| NET ASSET VALUE PER SHARE: | ||||
| Institutional Class: | ||||
| Net Assets | $ | 5,425,242 | ||
| Shares of beneficial interest outstanding ($0 par value, unlimited shares authorized) | 726,687 | |||
| Net asset value (Net Assets ÷ Shares Outstanding), offering price and redemption price per share (a) | $ | 7.47 | ||
| Investor Class: | ||||
| Net Assets | $ | 1,643,467 | ||
| Shares of beneficial interest outstanding ($0 par value, unlimited shares authorized) | 221,062 | |||
| Net asset value (Net Assets ÷ Shares Outstanding), offering price and redemption price per share (a) | $ | 7.43 | ||
| (a) | Redemptions made within 60 days of purchases may be assessed a redemption fee of 1.00%. |
See accompanying notes to financial statements.
6
| F/m Investments European L/S Small Cap Fund |
| STATEMENT OF OPERATIONS |
| For the Year Ended October 31, 2020 |
| INVESTMENT INCOME | ||||
| Dividends (net of foreign tax withheld of $10,539) | $ | 122,333 | ||
| Interest | 4,799 | |||
| TOTAL INVESTMENT INCOME | 127,132 | |||
| EXPENSES | ||||
| Investment advisory fees | 165,384 | |||
| Distribution (12b-1) fees: | ||||
| Investor Class | 4,072 | |||
| Administration fees | 86,798 | |||
| Interest expense | 45,232 | |||
| Dividends on securities sold short | 45,392 | |||
| Custodian fees | 43,203 | |||
| Registration fees | 33,043 | |||
| Compliance officer fees | 32,608 | |||
| Trustees fees and expenses | 28,499 | |||
| Legal fees | 26,501 | |||
| Audit fees | 18,999 | |||
| Printing expense | 14,499 | |||
| Insurance expense | 3,200 | |||
| Third party administrative servicing fees | 958 | |||
| Shareholder service fees - Investor Class | 814 | |||
| Other expenses | 5,507 | |||
| TOTAL EXPENSES | 554,709 | |||
| Less: Fees waived by the Advisor | (165,384 | ) | ||
| Service fees waived | (108,777 | ) | ||
| NET EXPENSES | 280,548 | |||
| NET INVESTMENT LOSS | (153,416 | ) | ||
| REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS | ||||
| Net realized loss on: | ||||
| Investments | (453,816 | ) | ||
| Foreign currency contracts | (275,394 | ) | ||
| Securities sold short | (96,248 | ) | ||
| (825,458 | ) | |||
| Net change in unrealized appreciation on: | ||||
| Investments | 94,027 | |||
| Foreign currency contracts | 136,163 | |||
| Foreign currency translations | 8,360 | |||
| Securities sold short | 91,480 | |||
| 330,030 | ||||
| NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS | (495,428 | ) | ||
| NET DECREASE IN NET ASSETS | $ | (648,844 | ) | |
See accompanying notes to financial statements.
7
| F/m Investments European L/S Small Cap Fund |
| STATEMENTS OF CHANGES IN NET ASSETS |
| For the | For the | |||||||
| Year Ended | Year Ended | |||||||
| October 31, 2020 | October 31, 2019 | |||||||
| FROM OPERATIONS | ||||||||
| Net investment loss | $ | (153,416 | ) | $ | (865,358 | ) | ||
| Net realized loss from investments, foreign currency contracts, and securities sold short | (825,458 | ) | (8,074,699 | ) | ||||
| Net change in unrealized appreciation on investments, securities sold short, foreign currency contracts and foreign currency translations | 330,030 | 4,320,779 | ||||||
| Net decrease in net assets resulting from operations | (648,844 | ) | (4,619,278 | ) | ||||
| DISTRIBUTIONS TO SHAREHOLDERS | ||||||||
| Return of capital | ||||||||
| Institutional Class | (241,087 | ) | — | |||||
| Investor Class | (45,549 | ) | — | |||||
| Distributions Paid: | ||||||||
| Institutional Class | (766,612 | ) | (4,332,627 | ) | ||||
| Investor Class | (141,159 | ) | (71,987 | ) | ||||
| Net decrease in net assets resulting from distributions to shareholders | (1,194,407 | ) | (4,404,614 | ) | ||||
| FROM SHARES OF BENEFICIAL INTEREST | ||||||||
| Proceeds from shares sold: | ||||||||
| Institutional Class | 3,818,584 | 11,095,003 | ||||||
| Investor Class | 1,022,075 | 1,334,417 | ||||||
| Net asset value of shares issued in reinvestment of distributions: | ||||||||
| Institutional Class | 760,571 | 3,407,875 | ||||||
| Investor Class | 186,708 | 71,987 | ||||||
| Redemption fee proceeds: | ||||||||
| Institutional Class | 335 | 6,116 | ||||||
| Investor Class | 450 | 869 | ||||||
| Payments for shares redeemed: | ||||||||
| Institutional Class | (6,307,319 | ) | (82,249,649 | ) | ||||
| Investor Class | (787,502 | ) | (1,150,915 | ) | ||||
| Net decrease in net assets from shares of beneficial interest | (1,306,098 | ) | (67,484,297 | ) | ||||
| TOTAL DECREASE IN NET ASSETS | (3,149,349 | ) | (76,508,189 | ) | ||||
| NET ASSETS | ||||||||
| Beginning of Year | 10,218,058 | 86,726,247 | ||||||
| End of Year | $ | 7,068,709 | $ | 10,218,058 | ||||
| SHARE ACTIVITY | ||||||||
| Institutional Class: | ||||||||
| Shares Sold | 496,484 | 1,170,894 | ||||||
| Shares Reinvested | 98,138 | 377,395 | ||||||
| Shares Redeemed | (834,396 | ) | (8,784,764 | ) | ||||
| Net decrease in shares of beneficial interest outstanding | (239,774 | ) | (7,236,475 | ) | ||||
| Investor Class: | ||||||||
| Shares Sold | 137,913 | 143,293 | ||||||
| Shares Reinvested | 24,123 | 7,981 | ||||||
| Shares Redeemed | (106,368 | ) | (123,270 | ) | ||||
| Net increase in shares of beneficial interest outstanding | 55,668 | 28,004 | ||||||
See accompanying notes to financial statements.
8
| F/m Investments European L/S Small Cap |
| FINANCIAL HIGHLIGHTS |
| Per Share Data and Ratios for a Share of Beneficial Interest Outstanding Throughout Each Period |
| Institutional Class | ||||||||||||||||||||
| For the | For the | For the | For the | For the | ||||||||||||||||
| Year Ended | Year Ended | Year Ended | Year Ended | Period Ended | ||||||||||||||||
| October 31, 2020 | October 31, 2019 | October 31, 2018 | October 31, 2017 | October 31, 2016 (1) | ||||||||||||||||
| Net asset value, beginning of period | $ | 9.03 | $ | 10.40 | $ | 11.67 | $ | 9.27 | $ | 10.00 | ||||||||||
| Activity from investment operations: | ||||||||||||||||||||
| Net investment loss (2) | (0.13 | ) | (0.17 | ) | (0.25 | ) | (0.21 | ) | (0.18 | ) | ||||||||||
| Net realized and unrealized gain (loss) on investments | (0.23 | ) | (0.63 | ) | (0.43 | ) | 2.61 | (0.55 | ) | |||||||||||
| Total from investment operations | (0.36 | ) | (0.80 | ) | (0.68 | ) | 2.40 | (0.73 | ) | |||||||||||
| Less distributions from: | ||||||||||||||||||||
| Net investment income | (0.91 | ) | (0.25 | ) | (0.31 | ) | — | — | ||||||||||||
| Net realized gains | — | (0.32 | ) | (0.28 | ) | — | — | |||||||||||||
| Return of capital | (0.29 | ) | — | — | — | — | ||||||||||||||
| Total distributions | (1.20 | ) | (0.57 | ) | (0.59 | ) | — | — | ||||||||||||
| Paid-in-Capital From Redemption Fees | 0.00 | (3) | 0.00 | (3) | 0.00 | (3) | 0.00 | (3) | — | |||||||||||
| Net asset value, end of period | $ | 7.47 | $ | 9.03 | $ | 10.40 | $ | 11.67 | $ | 9.27 | ||||||||||
| Total return (4) | (4.50 | )% (9) | (7.69 | )% | (6.18 | )% | 25.89 | % | (7.30 | )% (5) | ||||||||||
| Net assets, at end of period (000’s) | $ | 5,425 | $ | 8,730 | $ | 85,302 | $ | 69,368 | $ | 24,654 | ||||||||||
| Ratio of gross expenses to average net assets (6,8) | 6.63 | % | 3.83 | % | 3.97 | % | 2.71 | % | 2.87 | % (7) | ||||||||||
| Ratio of net expenses to average net assets (8) | 3.32 | % | 3.33 | % | 3.73 | % | 2.46 | % | 2.45 | % (7) | ||||||||||
| Ratio of net investment loss to average net assets | (1.75 | )% | (1.81 | )% | (2.24 | )% | (1.99 | )% | (2.18 | )% (7) | ||||||||||
| Portfolio Turnover Rate | 152 | % | 141 | % | 194 | % | 154 | % | 168 | % (5) | ||||||||||
| (1) | The Fund commenced operations on December 30, 2015. |
| (2) | Per share amounts calculated using the average shares method, which more appropriately presents the per share data for the period. |
| (3) | Represents less than $0.01 per share. |
| (4) | Total returns shown exclude the effect of applicable sales charges and redemption fees and assumes the reinvestment of distributions. |
| (5) | Not Annualized. |
| (6) | Represents the ratio of expenses to average net assets absent fee waivers and/or expense reimbursements by the Advisor. |
| (7) | Annualized. |
| (8) | Excluding dividends from securities sold short and interest expense, the ratio of expenses to average net assets would have been: |
| Before fees waived | 5.55 | % | 2.74 | % | 2.48 | % | 2.49 | % | 2.66 | % (7) | ||||||||||
| After fees waived | 2.24 | % | 2.24 | % | 2.24 | % | 2.24 | % | 2.24 | % (7) | ||||||||||
| (9) | Includes adjustments in accordance with accounting principles generally accepted in the United States and, consequently, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset values and returns for shareholder transactions. |
See accompanying notes to financial statements.
9
| F/m Investments European L/S Small Cap |
| FINANCIAL HIGHLIGHTS |
| Per Share Data and Ratios for a Share of Beneficial Interest Outstanding Throughout Each Period |
| Investor Class | ||||||||||||||||||||
| For the | For the | For the | For the | For the | ||||||||||||||||
| Year Ended | Year Ended | Year Ended | Year Ended | Period Ended | ||||||||||||||||
| October 31, 2020 | October 31, 2019 | October 31, 2018 | October 31, 2017 | October 31, 2016 (1) | ||||||||||||||||
| Net asset value, beginning of period | $ | 9.00 | $ | 10.37 | $ | 11.66 | $ | 9.27 | $ | 10.00 | ||||||||||
| Activity from investment operations: | ||||||||||||||||||||
| Net investment loss (2) | (0.17 | ) | (0.17 | ) | (0.29 | ) | (0.27 | ) | (0.18 | ) | ||||||||||
| Net realized and unrealized gain (loss) on investments | (0.23 | ) | (0.66 | ) | (0.42 | ) | 2.66 | (0.55 | ) | |||||||||||
| Total from investment operations | (0.40 | ) | (0.83 | ) | (0.71 | ) | 2.39 | (0.73 | ) | |||||||||||
| Less distributions from: | ||||||||||||||||||||
| Net investment income | (0.88 | ) | (0.23 | ) | (0.30 | ) | — | — | ||||||||||||
| Net realized gains | — | (0.32 | ) | (0.28 | ) | — | — | |||||||||||||
| Return of capital | (0.29 | ) | — | — | — | — | ||||||||||||||
| Total distributions | (1.17 | ) | (0.55 | ) | (0.58 | ) | — | — | ||||||||||||
| Paid-in-Capital From Redemption Fees | 0.00 | (3) | 0.01 | 0.00 | (3) | — | — | |||||||||||||
| Net asset value, end of period | $ | 7.43 | $ | 9.00 | $ | 10.37 | $ | 11.66 | $ | 9.27 | ||||||||||
| Total return (4) | (4.93 | )% (10) | (7.92 | )% | (6.44 | )% | 25.78 | % | (7.30 | )% (5) | ||||||||||
| Net assets, at end of period (000’s) | $ | 1,643 | $ | 1,488 | $ | 1,425 | $ | 517 | $ | 0 | (8) | |||||||||
| Ratio of gross expenses to average net assets (6,9) | 6.93 | % | 4.13 | % | 4.27 | % | 3.01 | % | 3.17 | % (7) | ||||||||||
| Ratio of net expenses to average net assets (9) | 3.62 | % | 3.63 | % | 4.03 | % | 2.76 | % | 2.75 | % (7) | ||||||||||
| Ratio of net investment loss to average net assets | (2.28 | )% | (1.85 | )% | (2.56 | )% | (2.39 | )% | (2.48 | )% (7) | ||||||||||
| Portfolio Turnover Rate | 152 | % | 141 | % | 194 | % | 154 | % | 168 | % (5) | ||||||||||
| (1) | The Fund commenced operations on December 30, 2015. |
| (2) | Per share amounts calculated using the average shares method, which more appropriately presents the per share data for the period. |
| (3) | Represents less than $0.01 per share. |
| (4) | Total returns shown exclude the effect of applicable sales charges and redemption fees and assumes the reinvestment of distributions. |
| (5) | Not Annualized. |
| (6) | Represents the ratio of expenses to average net assets absent fee waivers and/or expense reimbursements by the Advisor. |
| (7) | Annualized. |
| (8) | Less than $1,000. |
| (9) | Excluding dividends from securities sold short and interest expense, the ratio of expenses to average net assets would have been: |
| Before fees waived | 5.85 | % | 3.04 | % | 2.78 | % | 2.79 | % | 2.96 | % (7) | ||||||||||
| After fees waived | 2.54 | % | 2.54 | % | 2.54 | % | 2.54 | % | 2.54 | % (7) | ||||||||||
| (10) | Includes adjustments in accordance with accounting principles generally accepted in the United States and, consequently, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset values and returns for shareholder transactions. |
See accompanying notes to financial statements.
10
| F/m Investments European L/S Small Cap Fund |
| NOTES TO FINANCIAL STATEMENTS |
| October 31, 2020 |
| 1. | ORGANIZATION |
The F/m Investments European L/S Small Cap Fund (the “Fund”) is a diversified series of shares of beneficial interest of Northern Lights Fund Trust II (the “Trust”), a statutory trust organized under the laws of the State of Delaware on August 26, 2010, and is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Fund commenced operations on December 30, 2015.
The investment objective of the Fund is to generate absolute returns by investing both long and short in European Companies. The Fund offers two classes of shares: Institutional Class shares and Investor Class shares. Each class of shares is offered at their net asset value. Each class of shares of the Fund has identical rights and privileges with respect to arrangements pertaining to shareholder servicing or distribution, class-related expenses, voting rights on matters affecting a single class of shares, and the exchange privilege of each class of shares. The Fund’s share classes differ in the fees and expenses charged to shareholders. The Fund’s income, expenses (other than class specific distribution fees) and realized and unrealized gains and losses are allocated proportionately each day based upon the relative net assets of each class.
| 2. | SIGNIFICANT ACCOUNTING POLICIES |
The following is a summary of significant accounting policies followed by the Fund in preparation of its financial statements. These policies are in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of financial statements 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 Fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standard Codification Topic 946 “Financial Services – Investment Companies”.
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. Short-term debt obligations having 60 days or less remaining until maturity, at time of purchase may be valued at amortized cost. Forward foreign currency exchange contracts (‘forward contracts”) are valued at the forward rate. Investments values in currencies other than the U.S. dollar are converted to U.S. dollars using exchange rates obtained from pricing services. Investments in open-end investment companies are valued at net asset value.
The Fund may hold securities, such as private investments, interests in commodity pools, other non-traded securities or temporarily illiquid securities, for which market quotations are not readily available or are determined to be unreliable. These securities will be valued using the “fair value” procedures approved by the Board. The Board has delegated execution of these procedures to a fair value committee composed of one or more representatives from each of the (i) Trust, (ii) administrator, and (iii) 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 has also engaged a third party valuation firm to attend valuation meetings held by the Trust, review minutes of such meetings and report to the Board on a quarterly basis. The Board reviews and ratifies the execution of this process and the resultant fair value prices at least quarterly to assure the process produces reliable results.
Fair Valuation Process – As noted above, the fair value committee is composed of one or more representatives from each of the (i) Trust, (ii) administrator, and (iii) 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 the prices or values available do not represent the fair value of the instrument. Factors which may cause the 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; (iv) securities with respect to which an event that will affect the value thereof has occurred (a “significant event”)
11
| F/m Investments European L/S Small Cap Fund |
| NOTES TO FINANCIAL STATEMENTS (Continued) |
| October 31, 2020 |
since the closing prices were established on the principal exchange on which they are traded, but prior to a Fund’s calculation of its net asset value. Specifically, interests in commodity pools or managed futures pools are valued on a daily basis by reference to the closing market prices of each futures contract or other asset held by a pool, as adjusted for pool expenses. Restricted or illiquid securities, such as private investments or non-traded securities are valued via inputs from the 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 is unable to obtain a current bid from such independent dealers or other independent parties, the fair value committee shall determine the fair value of such security using the following factors: (i) the type of security; (ii) the cost at date of purchase; (iii) the size and nature of the Fund’s holdings; (iv) the discount from market value of unrestricted securities of the same class at the time of purchase and subsequent thereto; (v) information as to any transactions or offers with respect to the security; (vi) the nature and duration of restrictions on disposition of the security and the existence of any registration rights; (vii) how the yield of the security compares to similar securities of companies of similar or equal creditworthiness; (viii) the level of recent trades of similar or comparable securities; (ix) the liquidity characteristics of the security; (x) current market conditions; and (xi) the market value of any securities into which the security is convertible or exchangeable.
The Fund utilizes various methods to measure the fair value of all of its investments on a recurring basis. GAAP establishes a hierarchy that prioritizes inputs to valuation methods. The three levels of input are:
Level 1 – Unadjusted quoted prices in active markets for identical assets and liabilities that the Fund has the ability to access.
Level 2 – Observable inputs other than quoted prices included in level 1 that are observable for the asset or liability, either directly or indirectly. These inputs may include quoted prices for the identical instrument on an inactive market, prices for similar instruments, interest rates, prepayment speeds, credit risk, yield curves, default rates and similar data.
Level 3 – Unobservable inputs for the asset or liability, to the extent relevant observable inputs are not available, representing the Fund’s own assumptions about the assumptions a market participant would use in valuing the asset or liability, and would be based on the best information available.
The availability of observable inputs can vary from security to security and is affected by a wide variety of factors, including, for example, the type of security, whether the security is new and not yet established in the marketplace, the liquidity of markets, and other characteristics particular to the security. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3.
The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement falls in its entirety, is determined based on the lowest level input that is significant to the fair value measurement in its entirety.
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The following tables summarize the inputs used as of October 31, 2020 for the Fund’s investments measured at fair value:
| Assets * | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Common Stock | $ | 5,461,114 | $ | 19,912 | $ | 202,982 | $ | 5,684,008 | ||||||||
| Money Market Funds | 1,092,013 | — | — | 1,092,013 | ||||||||||||
| Forward Currency Contracts | — | 56,667 | — | 56,667 | ||||||||||||
| Total | $ | 6,553,127 | $ | 76,579 | $ | 202,982 | $ | 6,832,688 | ||||||||
| Liabilities* | ||||||||||||||||
| Securities Sold Short | $ | 1,716,311 | $ | — | $ | — | $ | 1,716,311 | ||||||||
| Total | $ | 1,716,311 | $ | — | $ | — | $ | 1,716,311 | ||||||||
It is the Fund’s policy to recognize transfers into or out of Level 2 and Level 3 at the end of the reporting period.
| * | Refer to the Portfolio of Investments for industry classification. |
12
| F/m Investments European L/S Small Cap Fund |
| NOTES TO FINANCIAL STATEMENTS (Continued) |
| October 31, 2020 |
The following is a reconciliation for which Level 3 inputs were used in determining value:
| Goodbulk Ltd. | ||||
| Beginning Balance November 1, 2019 | $ | — | ||
| Transfers from level 2 * | 497,327 | |||
| Purchases | — | |||
| Proceeds from Sales | (220,640 | ) | ||
| Total realized gain/(loss) | 46,851 | |||
| Change In Unrealized Depreciation | (120,556 | ) | ||
| Ending balance October 31, 2020 | 202,982 | |||
| * | Transfer into level 3 was the result of the use of a significant unobservable input in valuing the Fund’s investment in Goodbulk Ltd. |
The total change in unrealized appreciation/(depreciation) included in the Statements of Operations attributable to Level 3 investments still held at October 31, 2020, was $(120,556).
Quantitative disclosures of unobservable inputs and assumptions used by the Fund are below.
| Common Stock | Fair Value | Valuation Techniques | Unobservable Input | |||||
| Goodbulk Ltd. | $ | 202,982 | Last price and index performance | Application of beta factor to other observable inputs ** | ||||
| ** | A decrease to the beta factor used would result in an increase to the value of the position categorized as level 3. |
Security transactions and related income – Security transactions are accounted for on trade date. Interest income is recognized on an accrual basis. Discounts are accreted and premiums are amortized on securities purchased over the lives of the respective securities. Dividend income is recorded on the ex-dividend date. Realized gains or losses from sales of securities are determined by comparing the identified cost of the security lot sold with the net sales proceeds.
Dividends and distributions to shareholders – Dividends from net investment income, if any, are declared and paid annually. Distributable net realized capital gains, if any, are declared and distributed annually. Dividends from net investment income and distributions from net realized gains are recorded on ex dividend date and are 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 reclassification. These reclassifications have no effect on net assets, results from operations or net asset value per share of the Fund.
Forward Currency Contracts – As foreign securities are purchased, a Fund generally enters into forward currency exchange contracts in order to hedge against foreign currency exchange rate risks. The market value of the contract fluctuates with changes in currency exchange rates. The contract is marked-to-market daily and the change in market value is recorded by a Fund as an unrealized gain or loss. As foreign securities are sold, a portion of the contract is generally closed and the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. A Fund may also enter into forward currency contracts as an investment strategy consistent with that Fund’s investment objective. Realized gains and losses from contract transactions are included as a component of net realized gains (losses) from investments and foreign currency in the Statements of Operations.
Foreign Currency Translations – The accounting records of the Fund is maintained in U.S. dollars. Investment securities and other assets and liabilities denominated in a foreign currency, and income receipts and expense payments are translated into U.S. dollars using the prevailing exchange rate at the London market close. Purchases and sales of securities are translated into U.S. dollars at the contractual currency rates established at the approximate time of the trade.
Short Sales – A “short sale” is a transaction in which the Fund sells a security it does not own but has borrowed in anticipation that the market price of that security will decline. The Fund is obligated to replace the security borrowed by purchasing it on the open market at a later date. If the price of the security sold short increases between the time of the short sale and the time the Fund replaces the borrowed security, the Fund will incur a loss, unlimited in size. Conversely, if the price declines, the Fund will realize a gain, limited to the price at which the Fund sold the security short. Certain cash and securities are held as collateral.
13
| F/m Investments European L/S Small Cap Fund |
| NOTES TO FINANCIAL STATEMENTS (Continued) |
| October 31, 2020 |
Federal income tax – It is the Fund’s policy to qualify as a regulated investment company by complying with the provisions of the Internal Revenue Code that are applicable to regulated investment companies and to distribute substantially all of its taxable income and net realized gains to shareholders. Therefore, no federal income tax provision is required. The Fund recognizes the tax benefits of uncertain tax positions only where the position is “more likely than not” to be sustained assuming examination by tax authorities. Management has analyzed the Fund’s tax positions and has concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions taken on returns filed for open tax years ended October 31, 2017 to October 31, 2019, or expected to be taken in the Fund’s October 31, 2020 year end tax returns. The Fund identifies its major tax jurisdictions as U.S. Federal and Ohio (Nebraska in years prior to 2019), and foreign jurisdictions where the Fund makes significant investments; however, the Fund is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next twelve months.
Expenses – Expenses of the Trust that are directly identifiable to a specific fund are charged to that fund. Expenses which are not readily identifiable to a specific fund are allocated in such a manner as deemed equitable, taking into consideration the nature and type of expense and the relative sizes of the funds in the Trust.
Indemnification – The Trust indemnifies its officers and Trustees for certain liabilities that may arise from the performance of their duties to the Trust. Additionally, in the normal course of business, the Fund enters into contracts that contain a variety of representations and warranties and which provide general indemnities. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. However, based on experience, the risk of loss due to these warranties and indemnities appears to be remote.
| 3. | INVESTMENT TRANSACTIONS |
For the year ended October 31, 2020, cost of purchases and proceeds from sales of portfolio securities, other than short-term investments and securities sold short, amounted to the following:
| Purchases | Sales | |||||
| $ | 20,008,043 | $ | 23,089,261 | |||
| 4. | INVESTMENT ADVISORY AGREEMENT AND TRANSACTIONS WITH RELATED PARTIES |
F/m Investments LLC serves as the Fund’s investment advisor to the Fund. Pursuant to an Investment Advisory Agreement with the Fund, the Advisor, under the oversight of the Board, directs the daily operations of the Fund and supervises the performance of administrative and professional services provided by others. As compensation for its services and the related expenses borne by the Advisor, the Fund pays the Advisor an investment advisory fee, computed and accrued daily and paid monthly, at an annual rate of 2.00%. The Advisor, on behalf of the Fund, has entered into a Sub-Advisory agreement with S.W. Mitchell Capital LLP and the Advisor compensates the Sub-Advisor out of the investment Advisory fee it receives from the Fund. For the year ended October 31, 2020, the Fund incurred advisory fees in the amount of $165,384.
The Fund’s Advisor has contractually agreed to reduce its fees and/or absorb expenses of the Fund, until at least February 28, 2022 to ensure that Total Annual Fund Operating Expenses after fee waiver and/or reimbursement (excluding interest and tax expenses, dividends on short positions and Acquired Fund Fees and Expenses) for the Fund do not exceed 2.24% and 2.54% of the Fund’s average net assets, for Institutional Class and Investor Class shares, respectively; subject to possible recoupment from the Fund in future years on a rolling three year basis (within the three years after the fees have been waived or reimbursed) if such recoupment can be achieved within the foregoing expense limits. During the year ended October 31, 2020 the amount of advisory fees waived was $165,384, and other expenses in the amount of $108,777 were reimbursed. As of October 31, 2020, the total amount of expense reimbursement subject to recapture is $282,874, of which $8,713 will expire on October 31, 2022 and $274,161 will expire on October 31, 2023.
Distributor – The distributor of the Fund is Northern Lights Distributors, LLC (the “Distributor”). The Board of Trustees of the Northern Lights Fund Trust II has adopted, on behalf of the Fund, the Trust’s Master Distribution and Shareholder Servicing Plan (the “Plan”), as amended, pursuant to Rule 12b-1 under the Investment Company Act of 1940, to pay for certain distribution activities and shareholder services. Under the Plan, the Fund’s Investor Class may pay 0.25% per year of the average daily net assets of Investor Class shares for such distribution and shareholder service activities. For the year ended October 31, 2020, the Fund incurred distribution fees in the amount of $4,072.
14
| F/m Investments European L/S Small Cap Fund |
| NOTES TO FINANCIAL STATEMENTS (Continued) |
| October 31, 2020 |
In addition, certain affiliates of the Distributor provide services to the Fund(s) 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 Fund pays GFS customary fees for providing administration, fund accounting and transfer agency services to the Fund. Certain officers of the Trust are also officers of GFS, and are not paid any fees directly by the Fund for serving in such capacities.
Northern Lights Compliance Services, LLC (“NLCS”), an affiliate of GFS and the Distributor, provides a Chief Compliance Officer to the Trust, as well as related compliance services, pursuant to a consulting agreement between NLCS and the Trust. Under the terms of such agreement, NLCS receives customary fees from the Fund.
Blu Giant, LLC (“Blu Giant”), an affiliate of GFS and the Distributor, provides EDGAR conversion and filing services as well as print management services for the Fund on an ad-hoc basis. For the provision of these services, Blu Giant receives customary fees from the Fund.
| 5. | DERIVATIVE TRANSACTIONS |
The following is a summary of the effect of derivative instruments on the Fund’s Statement of Assets and Liabilities as of October 31, 2020.
| Contract Type/Primary Risk Exposure | Statements of Assets and Liabilities | Value | ||||
| Foreign currency contracts/Currency Risk | Unrealized appreciation on foreign currency contracts | $ | 56,667 | |||
The following is a summary of the effect of derivative instruments on the Fund’s Statement of Operations for the year ended October 31, 2020.
| Change in Unrealized | ||||||||
| Contract type/ | Realized Gain/(Loss) | Appreciation/(Depreciation) | ||||||
| Primary Risk Exposure | On Foreign Currency Contracts | on Foreign Currency Contracts | ||||||
| Currency contracts/Currency risk | $ | (275,394 | ) | $ | 136,163 | |||
The notional value and contracts of the derivative instruments outstanding as of October 31, 2020 as disclosed in the Portfolio 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 Statement of Operations serve as indicators of the volume of derivative activity for the Fund.
| 6. | CONTROL OWNERSHIP |
The beneficial ownership, either directly or indirectly, of more than 25% of the voting securities of a fund creates presumption of control of the fund, under Section 2(a)(9) of the 1940 Act. As of October 31, 2020, TD Ameritrade, Inc. held approximately 82.97% of the voting securities of the Fund for the benefit of others. The Fund has no knowledge as to whether all or any portion of the shares owned on record by TD Ameritrade, Inc. are also owned beneficially by any party who would be presumed to control the Fund.
| 7. | REDEMPTION FEES |
The Fund may assess a short-term redemption fee of 1.00% of the total redemption amount if a shareholder sells his shares after holding them for less than 60 days. The redemption fee is paid directly to the Fund. For the year ended October 31, 2020 the fund assessed redemption fees in the amount of $335 and $450 for the Institutional Class and Investor Class, respectively.
15
| F/m Investments European L/S Small Cap Fund |
| NOTES TO FINANCIAL STATEMENTS (Continued) |
| October 31, 2020 |
| 8. | AGGREGATE UNREALIZED APPRECIATION AND DEPRECIATION – TAX BASIS |
The identified cost of investments in securities owned by the Fund for federal income tax purposes, and its respective gross unrealized appreciation and depreciation at October 31, 2020, was as follows:
| Gross | Gross | Net Unrealized | ||||||||||||
| Tax | Unrealized | Unrealized | Appreciation | |||||||||||
| Cost | Appreciation | Depreciation | (Depreciation) | |||||||||||
| $ | 5,080,347 | $ | 935,384 | $ | (899,354 | ) | $ | 36,030 | ||||||
| 9. | DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF CAPITAL |
The tax character of distributions paid during the period ended October 31, 2020 and October 31, 2019 was as follows:
| Fiscal Year Ended | Fiscal Year Ended | |||||||
| October 31, 2020 | October 31, 2019 | |||||||
| Ordinary Income | $ | 907,771 | $ | 4,404,614 | ||||
| Long-Term Capital Gain | — | — | ||||||
| Return of Capital | 286,636 | — | ||||||
| $ | 1,194,407 | $ | 4,404,614 | |||||
As of October 31, 2020, 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 | ||||||||||||||||||||
| Income | Gains | Late Year Loss | Forwards | Differences | (Depreciation) | Earnings/(Deficits) | ||||||||||||||||||||
| $ | — | $ | — | $ | (147,930 | ) | $ | (12,648,388 | ) | $ | — | $ | 38,082 | $ | (12,758,236 | ) | ||||||||||
The difference between book basis and tax basis accumulated net investment income/(loss), accumulated net realized gain/(loss), and unrealized appreciation from investments is primarily attributable to the tax deferral of losses on wash sales, and the mark-to-market treatment of passive foreign investment companies, and foreign exchange contracts.
The unrealized appreciation in the table above includes unrealized foreign currency gains of $2,052.
Late year losses incurred after December 31 within the fiscal year are deemed to arise on the first business day of the following fiscal year for tax purposes. The Fund incurred and elected to defer such late year losses of $147,930.
At October 31, 2020, the Funds had capital loss carry forwards for federal income tax purposes available to offset future capital gains, as follows:
| Non-Expiring | Non-Expiring | |||||||||||||
| Short-Term | Long-Term | Total | CLCF Utilized | |||||||||||
| $ | 10,473,696 | $ | 2,174,692 | $ | 12,648,388 | $ | — | |||||||
Permanent book and tax differences, primarily attributable to the book/tax basis treatment of net operating losses, and distributions in excess, resulted in reclassifications for the Fund for the fiscal year ended October 31, 2020 as follows:
| Paid | ||||||
| In | Accumulated | |||||
| Capital | Earnings (Losses) | |||||
| $ | (369,340 | ) | $ | 369,340 | ||
16
| F/m Investments European L/S Small Cap Fund |
| NOTES TO FINANCIAL STATEMENTS (Continued) |
| October 31, 2020 |
| 10. | SUBSEQUENT EVENTS |
Subsequent events after the date of the Statement of Assets and Liabilities have been evaluated through the date the financial statements were issued. Management has determined that no events or transactions occurred requiring adjustment or disclosure in the financial statements.
17
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees
of Northern Lights Fund Trust II and
Shareholders of
F/m Investments European L/S Small Cap Fund
Opinion on the Financial Statements
We have audited the accompanying statements of assets and liabilities of F/m Investments European L/S Small Cap Fund (the “Fund”), a series of Northern Lights Fund Trust II (the “Trust”), including the schedules of investments, as of October 31, 2020, and the related statements of operations for the year ended October 31, 2020, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the periods indicated in the table below, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund as of October 31, 2020, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated in the table below, in conformity with accounting principles generally accepted in the United States of America.
| Individual Funds | ||||||
| constituting | Statement of | Statements of | ||||
| F/m Investments | operations | changes in net assets | Financial highlights | |||
| F/m Investments European L/S Small Cap Fund | For the year ended October 31, 2020 | For each of the two years in the period ended October 31, 2020 | For each of the four years in the period ended October 31, 2020 and the period from December 30, 2015 (commencement of operations) through October 31, 2016. |
Basis for Opinion
These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements 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 Fund 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 have served as the auditor of one or more of the funds in the Trust since 2012.
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 are free of material misstatement, whether due to error or fraud. The Fund 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 Fund’s 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, 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. 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. Our procedures included confirmation of securities owned as of October 31, 2020 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.
TAIT, WELLER & BAKER LLP
| Philadelphia, Pennsylvania |
| December 30, 2020 |
18
| F/m Investments European L/S Small Cap Fund |
| EXPENSE EXAMPLE (Unaudited) |
| October 31, 2020 |
As a shareholder of a Fund, 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 Expenses” line in the table below provides information about actual account values and actual expenses. You may use the information below; together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The “Hypothetical” line in the table below provides information about hypothetical account values and hypothetical expenses based on the respective Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balances or expenses you paid for the period. You may use this information to compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads). 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 During | |
| Account Value | Account Value | During Period | the Period | |
| Actual | 5/1/20 | 10/31/20 | 5/1/20 – 10/31/20* | 5/1/20 – 10/31/20* |
| Institutional Class | $1,000.00 | $1,105.10 | $11.85 | 2.24% |
| Investor Class | $1,000.00 | $1,104.00 | $13.43 | 2.54% |
| Beginning | Ending | Expenses Paid | Expense Ratio During | |
| Hypothetical ** | Account Value | Account Value | During Period | the Period |
| (5% return before expenses) | 5/1/20 | 10/31/20 | 5/1/20 – 10/31/20* | 5/1/20 – 10/31/20* |
| Institutional Class | $1,000.00 | $1,013.88 | $11.34 | 2.24% |
| Investor Class | $1,000.00 | $1,012.37 | $12.85 | 2.54% |
| * | Expenses are equal to the average account value over the period, multiplied by the Fund’s annualized expense ratio, multiplied by the number of days in the period (184) divided by the number of days in the fiscal year (366). |
| ** | The hypothetical example assumes that the Fund was in operation for the full six months ended October 31, 2020. |
19
| F/m Investments European L/S Small Cap Fund |
| SUPPLEMENTAL INFORMATION (Unaudited) |
| October 31, 2020 |
LIQUIDITY RISK MANAGEMENT PROGRAM
The Fund has adopted and implemented a written liquidity risk management program as required by Rule 22e-4 (the “Liquidity Rule”) under the Investment Company Act. The program is reasonably designed to assess and manage the Fund’s liquidity risk, taking into consideration, among other factors, the Fund’s investment strategy and the liquidity of its portfolio investments during normal and reasonably foreseeable stressed conditions; its short and long-term cash flow projections; and its cash holdings and access to other funding sources.
During the fiscal year ended October 31, 2020, the Trust’s Liquidity Risk Management Program Committee (the “Committee”) reviewed the Fund’s investments and determined that the Fund held adequate levels of cash and highly liquid investments to meet shareholder redemption activities in accordance with applicable requirements. Accordingly, the Committee concluded that (i) the Fund’s liquidity risk management program is reasonably designed to prevent violations of the Liquidity Rule and (ii) the Fund’s liquidity risk management program has been effectively implemented.
20
| F/m Investments European L/S Small Cap Fund |
| SUPPLEMENTAL INFORMATION (Unaudited) |
| October 31, 2020 |
The Trustees and the officers of the Trust are listed below with their present positions with the Trust and principal occupations over at least the last five years. The business address of each Trustee and Officer is 225 Pictoria Drive, Suite 450, Cincinnati, OH 45246. All correspondence to the Trustees and Officers should be directed to c/o Gemini Fund Services, LLC, P.O. Box 541150, Omaha, Nebraska 68154.
Independent Trustees
| Name
and Year of Birth |
Position/Term
of Office* |
Principal
Occupation During the Past Five Years |
Number
of Portfolios in Fund Complex Overseen by Trustee *** |
Other
Directorships held by Trustee During the Past Five Years |
| Thomas
T. Sarkany 1946 |
Trustee Since October 2011 | President, TTS Consultants, LLC (financial services) (since 2010). | 1 | Director, Aquila Distributors; Trustee, Arrow ETF Trust; Trustee, Arrow Investments Trust; Trustee, Northern Lights Fund Trust IV |
| Anthony
H. Lewis 1946 |
Trustee Since May 2011 | Chairman and CEO of The Lewis Group USA (executive consulting firm) (since 2007). | 1 | Director, Member of the Compensation Committee and Member of the Risk Committee of Torotel Inc. (Magnetics, Aerospace and Defense), Trustee, Chairman of the Fair Valuation Committee and Member of the Audit Committee of the Wildermuth Endowment Strategy Fund |
| Keith
Rhoades 1948 |
Trustee Since May 2011 | Retired since 2008. | 1 | NONE |
| Randal
D. Skalla 1962 |
Trustee Since May 2011 | President, L5 Enterprises, Inc. (financial services company) (since 2001). | 1 | Board Member, Orizon Investment Counsel (financial services company) (from 2001 to 2017) |
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21
| F/m Investments European L/S Small Cap Fund |
| SUPPLEMENTAL INFORMATION (Unaudited)(Continued) |
| October 31, 2020 |
Interested Trustees and Officers
| Name
and Year of Birth |
Position/Term
of Office* |
Principal
Occupation During the Past Five Years |
Number
of Portfolios in Fund Complex Overseen by Trustee *** |
Other
Directorships held by Trustee During the Past Five Years |
| Brian
Nielsen** 1972 |
Trustee Since May 2011 | Trustee of Northern Lights Fund Trust II (since 2011); Special Projects Counsel of NorthStar Financial Services Group, LLC (from 2018 to 2019); Secretary of CLS Investments, LLC (from 2001 to 2018); Secretary of Orion Advisor Services, LLC (from 2001 to 2018); Manager (from 2012 to 2015), General Counsel and Secretary (from 2003 to 2018) of NorthStar Financial Services Group, LLC; CEO (from 2012 to 2018), Secretary (from 2003 to 2018) and Manager (from 2005 to 2018) of Northern Lights Distributors, LLC; Director, Secretary and General Counsel of Constellation Trust Company (from 2004 to 2018); CEO (from 2015 to 2018), Manager (from 2008 to 2015), General Counsel and Secretary (from 2011 to 2018) of Northern Lights Compliance Services, LLC; General Counsel and Secretary of Blu Giant, LLC (from 2011 to 2018); Secretary of Gemini Fund Services, LLC (from 2012 to 2018); Manager of Arbor Point Advisors, LLC (from 2012 to 2018); Secretary and General Counsel of NorthStar Holdings, LLC (from 2013 to 2015); Director, Secretary and General Counsel of NorthStar CTC Holdings, Inc. (from 2015 to 2018) and Secretary and Chief Legal Officer of AdvisorOne Funds (from 2003 to 2018). | 1 | Manager of Northern Lights Distributors, LLC (from 2005 to 2018); Manager of NorthStar Financial Services Group, LLC (from 2012 to 2015); Manager of Arbor Point Advisors, LLC (from 2012 to 2018); Director of Constellation Trust Company (from 2004 to 2018) |
| Kevin
E. Wolf 1969 |
President Since January 2013 | Vice President of The Ultimus Group, LLC and Executive Vice President, Head of Fund Administration and Product, Gemini Fund Services, LLC (since 2019), President, Gemini Fund Services, LLC (2012 - 2019). | N/A | N/A |
| Richard
Malinowski 1983 |
Secretary Since January 2018 | Senior Vice President and Senior Managing Counsel, Gemini Fund Services, LLC, (since February 2020); Senior Vice President Legal Administration, Gemini Fund Services, LLC (since April 2017); Vice President and Counsel (April 2016 to 2017) and AVP and Staff Attorney (September 2012 to March 2016). | N/A | N/A |
| Erik
Naviloff 1968 |
Treasurer Since January 2013 | Vice President of Gemini Fund Services, LLC (since 2011). | N/A | N/A |
| Emile
R. Molineaux 1962 |
Chief Compliance Officer and Anti Money Laundering Officer Since May 2011 | Senior Compliance Officer and CCO of Various clients of Northern Lights Compliance Services, LLC (since 2011). | N/A | N/A |
| * | The term of office for each Trustee and Officer listed above will continue indefinitely. |
| ** | Brian Nielsen is an “interested person” of the Trust as that term is defined under the 1940 Act, because of his prior affiliation with Northern Lights Distributors, LLC (the Fund’s Distributor). |
| *** | As of October 31, 2020, the Trust was comprised of 18 active portfolios managed by unaffiliated investment advisers. The term “Fund Complex” applies only to the Fund, and not to any other series of the Trust. The Fund does not hold itself out as related to any other series within the Trust for investment purposes, nor does it share the same investment adviser with any other series. |
The Fund’s Statement of Additional Information (“SAI”) includes additional information about the Trustees and is available free of charge, upon request, by calling toll-free at 1-844-322-8112.
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22
Privacy Policy
Rev. May 2019
| FACTS | WHAT DOES NORTHERN LIGHTS FUND TRUST II (“NLFT II”) 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
● Employment information
● Account balances |
● Account transactions
● Income
● Investment experience | |
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 a customer’s personal information to run their everyday business - to process transactions, maintain customer accounts, and report to credit bureaus. In the section below, we list the reasons financial companies can share their customer’s personal information; the reasons NLFT II chooses to share; and whether you can limit this sharing. | |
| Reasons we can share your personal information | Does
NLFT II 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 |
Yes | No |
For joint marketing with other financial companies |
Yes | No |
For our affiliates’ everyday business purposes — information about your transactions and experiences |
Yes | No |
For our affiliates’ everyday business purposes — information about your creditworthiness |
No | We don’t share |
For nonaffiliates to market to you |
No | We don’t share |
| Questions? | Call 1-402-493-4603 |
23
| Who we are | ||
| Who is providing this notice? | Northern Lights Fund Trust II | |
| What we do | ||
| How does NLFT II 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. | |
| How does NLFT II collect my personal information? | We
collect your personal information, for example, when you | |
● open an account
● give us your income information
● provide employment information
|
● provide account information
● give us your contact information | |
| We also collect your personal information from others, such as credit bureaus, affiliates, or other companies. | ||
| Why can’t I limit all sharing? | Federal law gives you the right to limit only
● sharing for affiliates’ everyday business purposes—information about your creditworthiness
● affiliates from using your information to market to you
● sharing for nonaffiliates to market to you
State laws and individual companies may give you additional rights to limit sharing. | |
| Definitions | ||
| Affiliates | Companies related by common ownership or control. They can be financial and nonfinancial companies.
● Northern Lights Fund Trust II has no affiliates.
| |
| Nonaffiliates | Companies not related by common ownership or control. They can be financial and nonfinancial companies.
● NLFT II 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 and services to you.
● Our joint marketing partners include other financial service companies. | |
24
PROXY VOTING POLICY
Information regarding how the Fund voted proxies relating to portfolio securities for the most recent twelve month period ended June 30 as well as a description of the policies and procedures that the Fund uses to determine how to vote proxies is available without charge, upon request, by calling 1-844-322-8112 or by referring to the Securities and Exchange Commission’s (“SEC”) website at http://www.sec.gov.
PORTFOLIO HOLDINGS
The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-PORT. Form N-PORT is available on the SEC’s website at http://www.sec.gov and may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC (1-800-SEC-0330). The information on Form N-PORT is available without charge, upon request, by calling 1-844-322-8112.
| INVESTMENT ADVISOR |
| F/m Investments LLC |
| 3050 K Street NW, Suite W-170 |
| Washington, DC 20007 |
| ADMINISTRATOR |
| Gemini Fund Services, LLC |
| 4221 North 203rd Street, Suite 100 |
| Elkhorn, Nebraska 68022 |
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) The Registrant’s board of trustees has determined that Keith Rhoades is an audit committee financial expert, as defined in Item 3 of Form N-CSR. Mr. Rhoades is independent for purposes of this Item.
Item 4. Principal Accountant Fees and Services.
| (a) | Audit Fees |
2018 2019 2020
F/m Investments European L/S Small Cap Fund $15,500 $15,500 $16,000
| (b) | Audit-Related Fees |
2018 2019 2020
F/m Investments European L/S Small Cap Fund None None None
| (c) | Tax Fees |
2018 2018 2019
F/m Investments European L/S Small Cap Fund $3,150 $3,250 $3,250
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 |
2018 2019 2020
F/m Investments European L/S Small Cap Fund None None 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 |
F/m Investments European L/S Small Cap Fund
2018 2019 2020
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%
| (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: |
2018 2019 2020
F/m Investments European L/S Small Cap Fund $3,150 $3,250 $3,250
(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 II
By (Signature and Title)
/s/ Kevin E. Wolf
Kevin E. Wolf, Principal Executive Officer/President
Date 1/7/21
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By (Signature and Title)
/s/Kevin E. Wolf
Kevin E. Wolf, Principal Executive Officer/President
Date 1/7/21
By (Signature and Title)
/s/ Erik Naviloff
Erik Naviloff, Principal Financial Officer/Treasurer
Date 1/7/21
CERTIFICATIONS
I, Kevin E. Wolf, certify that:
1. I have reviewed this report on Form N-CSR of F/m Investments European L/S Small Cap Fund (a series of Northern Lights Fund Trust II);
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 second fiscal quarter of the period covered by this 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: 1/7/21 /s/ Kevin E. Wolf
Kevin E. Wolf
Principal Executive Officer/President
I, Erik Naviloff, certify that:
1. I have reviewed this report on Form N-CSR of the F/m Investments European L/S Small Cap Fund (a series of Northern Lights Fund Trust II);
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 second fiscal quarter of the period covered by this 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: 1/7/21 /s/ Erik Naviloff
Erik Naviloff
Principal Financial Officer/Treasurer
certification
Kevin E. Wolf, Principal Executive Officer/President, and Erik Naviloff, Principal Financial Officer/Treasurer of Northern Lights Fund Trust II (the “Registrant”), each certify to the best of his knowledge that:
1. The Registrant’s periodic report on Form N-CSR for the period ended October 31, 2020 (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 II Northern Lights Fund Trust II
/s/ Kevin E. Wolf /s/ Erik Naviloff
Kevin E. Wolf Erik Naviloff
Date: 1/7/21 Date: 1/7/21
A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to the Northern Lights Fund Trust II and will be retained by the Northern Lights Fund Trust II 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.
Northern Lights Fund Trust II
CODE OF ETHICS
May 17, 2011
Northern Lights Fund Trust II (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 the 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 the Advisers 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.
“Decision Making Access Person” means any Access Person who, in connection with his or her regular functions or duties, makes, participates in, or obtains information regarding 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 Advisers 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 the 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 Trust 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-Trust 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 know 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.
“Trust” means Northern Lights Fund Trust II.
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 other 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 Trust;
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 Person may not execute a Personal Securities Transaction involving a Covered Security without authorization of the Chief Compliance Officer or such persons who may be designated by the Chief Compliance Officer from time to time.
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 or 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 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 shall require prior authorization from the President or Chief Executive Officer of the Trust (unless such person is also the Chief Compliance Officer), who shall perform the review and approval functions relating to reports and trading by the Chief Compliance Officer. The Trusts 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 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 Trust order.
If a 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, such person shall cancel the trade.
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.
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 Trust 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 Trusts 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.
Annually, the Chief Compliance Officer at each regular meeting of the Board 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.
ACKNOWLEDGMENT
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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