united
states
securities and exchange commission
washington, d.c. 20549
form n-csr
certified shareholder report of registered management
investment companies
Investment Company Act file number 811-22655
Northern Lights Fund Trust III
(Exact name of registrant as specified in charter)
225 Pictoria Drive, Suite 450, Cincinnati, OH 45246
(Address of principal executive offices) (Zip code)
Richard Malinowski
80 Arkay Drive, Suite 110, Hauppauge, NY 11788
(Name and address of agent for service)
Registrant's telephone number, including area code: 631-470-2619
Date of fiscal year end: 09/30
Date of reporting period: 9/30/2020
Item 1. Reports to Stockholders.
| Marathon Value Portfolio | ||
| MVPFX | ||
| Annual Report | ||
| September 30, 2020 | ||
| Fund Advisor: | ||
| Gratus Capital, LLC | ||
| 3350 Riverwood Parkway, Suite 1550 | ||
| Atlanta, GA, 30339 | ||
| (800) 788-6086 | ||
| www.marathonvalue.com | ||
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.marathonvalue.com, and you will be notified by mail each time a report is posted and provided with a website link to access the report.
If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. You may elect to receive shareholder reports and other communications from the Fund electronically or to continue receiving paper copies of shareholder reports, which are available free of charge by contacting your financial intermediary (such as a broker-dealer or bank) or, if you are a direct investor, by following the instructions included with paper Fund documents that have been mailed to you.
| Dear Shareholder | 6217-NLD-11/05/2020 |
The year 2020 will certainly go down as a memorable year. Not only was this the year that a global pandemic crashed into the modern economy but also in the changes that have been born out of the new reality of remote working, contactless shopping, limited public outings and sports events with no spectators. To be sure, everyone will likely remember where they were when schools and shops were closed down overnight. Later in the letter, we’ll speak to some of the positioning adjustments we’ve made in MVPFX to account for this new reality. In the next section, however, we’ll address the changing economy and why we think global equity markets could be in for additional positive performance despite the challenging backdrop.
Economic Observations/Outlook
Looking back at the last six months, it would seem that we should be measuring time in dog years as opposed to the current Roman-inspired method. From March to September, we’ve observed the worst contraction in manufacturing, followed by the biggest rebound since records began. Of course, this magnitude of economic contraction was not limited to manufacturing but also expanded to almost every other activity that involved human interaction and contact (in-store retail, restaurants, air travel, healthcare, etc.). In sum, the economic devastation was immense. The scale of the devastation was mitigated (in small part) by both global central banks with their emergency lending facilities, as well as global governments which sent direct financial support to citizens that could ill-afford the basic necessities.
Have we turned the corner? Clearly, this is a question with no 100% answer. While significant gains are being seen in many parts of the service economy, other segments of the economy remain on life support, there is no vaccine readily available yet, and risk-off assets like gold are signaling all is not right in the world. We would also point out the chart below, which we showed during our last investor letter. While we certainly experienced the “average decline” for an Event-driven recession, it’s important to note that the US economy significantly undershot the average length and average recovery time which suggest that some sideways equity-market activity is in our future. In our estimation, how quickly the scientific community can get a vaccine approved for mass distribution is the key data point because every day we don’t have a solution puts pressure on governments at all levels from a financial and social perspective.
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Financial Market Observations/Outlook
Turning to financial market performance, the first nine months of 2020 have been a big surprise. Not only did we experience the fasted 30%+ decline in stock prices on record but we also experienced one of the fastest recoveries as the S&P 500 (red) is now 5.57% higher than where it started the year.
As we pointed out in our March letter, we believed that keeping an eye on stock market volatility (blue) would give us a good indication of where stocks would likely head1. Our belief that a declining volatility index would lead to higher equity prices has largely come to fruition. Putting additional upward pressure on stock prices is the observation that interest rates on US government fixed income securities continue to remain below the level of inflation, thus creating few true alternatives for investors in financial assets.
This leads us to our next observation and relating to the unequal recovery of stocks. While the red line in the chart above (S&P 500) would indicate a general recovery, as the chart below suggests, it’s been very disparate. Looking at the S&P 500 sector-level performance below, cyclical (economically sensitive) sectors like financials and energy have experienced very poor returns given the challenging growth outlook for the global economy. Conversely, the less cyclical (technology, healthcare, communications) sectors of the economy have experience very positive returns as many of the advantages of remote working accrue to companies providing connectivity and productivity solutions.
| 1 | Stock market volatility is a reference to the volatility index or “VIX”. Generally speaking, a rising VIX index indicates increasing investor anxiety and thus a propensity to sell. Conversely, a declining VIX index indicates easing investor anxiety and a propensity to buy. Investors cannot invest directly in an index. Unmanaged index returns do not reflect any fees, expenses or sales charges. |
2
Further, as the next chart shows, the performance between the Russell 1000 Growth index (blue) and the Russell 1000 Value index (red) is at one of the widest differentials observed in history (with a ~37% difference)!
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The big question becomes: what will cause a reversal in this growth v. value domination? In our view, this transition back to value (from growth) can only occur if a sustained recovery in underlying economic growth takes hold with enough velocity to generate inflation above the 2% mark. What is magical about 2%? This is the number that the Federal Reserve has indicated inflation needs to hit before they step in to try and restrict economic activity (by raising interest rates). Until we see a reading in the inflation rate above 2%, we aren’t going to get too concerned that the growth v. value paradigm is ending.
That said, as a value-oriented strategy that does not mean that we have to sit on our hands and wait. In fact, because inflation is a lagging indicator (meaning that current inflation readings are reflecting levels that were hit months ago) we should start preparing for this paradigm shift now. Recent portfolio activity in MVPFX would certainly speak to some of the preparations we are starting to make. We believe it has been these position shifts that have allowed MVPFX to slightly underperform the S&P 500 while significantly outperforming the Russell 1000 Value index; all while maintaining or value orientation.
Translating these conditions and forecasts, we anticipate that equity markets will experience a slight upward bias despite challenging economic and valuation conditions. The implications of the above conditions are many to include: (1) shorter holding periods for positions as price targets are achieved quicker than average, (2) additional sector concentration and (3) adding diversifying assets to include fixed income, precious metals companies, and real estate investment trusts opportunistically.
Management Discussion
Over the twelve-month period ended September 30, 2020, the Fund returned 6.60%. Marathon’s annualized performance since inception (March 28, 2000) is +8.23%. The comparable total returns for the S&P 500 benchmark are +15.15% and +6.03%. Since the Fund’s inception, the Fund’s cumulative total return has been +406.80%, versus the S&P 500’s cumulative total return of +232.66%, for a total return differential of +174.14% for Marathon.
PERFORMANCE SUMMARY
|
Average
Annual
Total Returns |
|||||
| For the Periods Ended September 30, 2020 | |||||
| One Year |
Three
Year
Average |
Five
Year
Average |
Ten
Year
Average |
Since
Inception |
|
| Marathon Value Portfolio | 6.60% | 9.01% | 10.95% | 10.57% | 8.24% |
| S&P 500 Total Return Index | 15.15% | 12.28% | 14.15% | 13.74% | 6.03% |
The total gross annual expense ratio for the Fund, as disclosed in the Fund’s prospectus, is 1.10%.
| * | March 28, 2000 is the date the portfolio manager assumed management of Marathon. Returns for 2000 are from 03/28/00 through 12/31/00. Returns are not annualized. Performance quoted is past performance. The Fund’s past performance does not guarantee future results. The investment return and principal value of an investment in the Fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance of the Fund may be |
4
lower or higher than the performance quoted. Performance data current to the most recent month end may be obtained by visiting www.marathonvalue.com or by calling 1-800-788 -6086. The index is unmanaged, and returns for both the index and the Fund include reinvested dividends and capital gains. It is not possible to invest directly in an index.
You should carefully consider the investment objectives, potential risks, management fees, and charges and expenses of the Fund before investing. The Fund’s prospectus contains this and other information about the Fund and should be read carefully before investing. You may obtain a current copy of the Fund’s prospectus by visiting www.marathonvalue.com or by calling 1-800-788-6086.
The chart above assumes an initial investment of $10,000 made on March 28, 2000 (commencement of Fund operations) and held through September 30, 2020. The Fund’s return represents past performance and does not guarantee future results. The line graph and performance table shown do not reflect deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Investment returns and principal values will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original purchase price.
The Fund’s investment objectives, risk, charges and expenses must be considered carefully before investing. The prospectus contains this and other important information about the investment company and can be obtained by calling 1-800-788-6086 or visiting www.marathonvalue.com. The prospectus should be read carefully before investing.
The S&P 500 Total Return Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. The Fund’s portfolio holdings may differ significantly from the securities held in the Index, and unlike a mutual fund, an unmanaged index assumes no transaction costs, taxes, management fees or other expenses.
5
Moving to portfolio holdings, we’re outlining the top three contributors and detractors by portfolio weighting during the prior twelve months ended September 30, 2020 and providing a brief commentary on each:
Contributors
Apple Incorporated (AAPL, +110.6%, 3.38% of assets) has shown that it is transforming from a pure hardware company to a services behemoth anchored around their loyal customer base. Apple has spent the last five years building a durable services business which includes personal cloud storage, streaming music, and applications (via their App and iTunes stores). That said, recent performance, and accompanying valuation lift, have pushed AAPL shares to a stretched valuation. We’ve used recent performance as an opportunity to trim back the position and add to new opportunities, like WPM below.
Wheaton Precious Minerals (WPM, +67.78%, 1.79% of assets) was a top performing position in the portfolio despite the fact we have held it for less than six months. WPM’s royalty streaming business model is allowing for industry-leading profit margins and cash flow now that the underlying price for gold and silver has been rising. We think precious metals miners will be a key part of a diversified equity portfolio now that governments around the globe are committed to increasing levels of benefits and financial support to fight the ongoing pandemic.
Lowes Corporation (LOW, +53.54%, 4.14% of assets) has been one of the big remote working beneficiaries as a result of the pandemic. With more people working from home, the inclination to improve workspaces and create additional space has led to a significant uptick in sales (+30% year-on-year) as reported in the most recent quarter. We continue to see incremental upside in the company shares as a strong housing market underpins demand for LOW products and services.
Detractors
Alleghany (Y, -33.25%, 2.86% of assets) performance was disappointing but not out of character with other stocks in the financial and insurance sectors. With bonds yields trending lower over the course of the last twelve months, interest income from the Y general fund portfolio drops commensurately. Another near-term headwind is that the company must continue to set aside loss reserves as a result of canceled events that the company insured against prior to COVID.
White Mountain Insurance Group LTD (WTM, -27.79%, 1.28% of assets) is an example of another good company caught in a challenging sector, not dissimilar to Alleghany above. Nearly identical conditions are causing shares of WTM to remain depressed relative to the S&P 500.
Axos Financial (AX, -19.63%, 0.85% of assets), similar to most other bank stocks, fought an uphill battle with a challenging macroeconomic environment. In general, we are looking to reduce the fund exposure to financial stocks to mitigate any potential move lower in US interest rates.
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| Marathon Value Portfolio |
| PORTFOLIO REVIEW (Unaudited) |
| September 30, 2020 |
The Fund’s performance figures(*) for the periods ended September 30, 2020, compared to its benchmark:
| Five | Ten | Inception*** through | ||
| One | Year | Year | September 30, 2020 | |
| Year | (Annual) | (Annual) | (Annualized) | |
| Marathon Value Portfolio | 6.60% | 10.95% | 10.57% | 8.23% |
| S&P 500 Total Return Index ** | 15.15% | 14.15% | 13.74% | 6.03% |
| * | The performance data quoted here represents past performance. Current performance may be lower or higher than the performance data quoted above. Investment return and principal value will fluctuate, so that 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. Past performance is no guarantee of future results. Performance figures for periods greater than 1 year are the average annual. The Fund’s investment advisor has contractually agreed to pay most of the Fund’s operating expenses (with certain exceptions) in return for a “universal fee” of 1.10% (excluding indirect costs of investing in other investment companies and certain other expenses) of the Fund’s net assets. Please review the Fund’s most recent prospectus for more detail on this universal fee. The Fund’s total annual expense ratio is 1.10% per the Fund’s most recent prospectus. For performance information current to the most recent month-end, please call toll-free 1-800-788-6086. |
| ** | The S&P 500 Total Return Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. The Fund’s portfolio holdings may differ significantly from the securities held in the Index, and unlike a mutual fund, an unmanaged index assumes no transaction costs, taxes, management fees or other expenses. Investors may not invest directly in an index. |
| *** | Inception date is March 28, 2000. |
Comparison of the Change in Value of a $10,000 Investment
| Portfolio Composition as of September 30, 2020: | ||||
| Sectors | Percentage of Net Assets | |||
| Information Technology | 26.5 | % | ||
| Industrials | 15.2 | % | ||
| Healthcare | 12.6 | % | ||
| Consumer Staples | 10.6 | % | ||
| Consumer Discretionary | 8.8 | % | ||
| Financial Services | 8.7 | % | ||
| Communication | 8.3 | % | ||
| Materials | 7.7 | % | ||
| Real Estate Investment Trusts | 1.1 | % | ||
| Other | 0.5 | % | ||
| 100.0 | % | |||
Please refer to the Schedule of Investments in this report for a detailed listing of the Fund’s holdings.
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| Marathon Value Portfolio |
| SCHEDULE OF INVESTMENTS |
| September 30, 2020 |
| Shares | Fair Value | |||||||
| COMMON STOCKS - 98.4% | ||||||||
| COMMUNICATION - 8.3% | ||||||||
| 10,000 | Activision Blizzard, Inc. | $ | 809,500 | |||||
| 1,103 | Alphabet, Inc.* | 1,620,969 | ||||||
| 750 | Alphabet, Inc.* | 1,099,200 | ||||||
| 8,000 | Walt Disney Co. | 992,640 | ||||||
| 4,522,309 | ||||||||
| CONSUMER DISCRETIONARY - 8.8% | ||||||||
| 8,500 | Genuine Parts Co. | 808,945 | ||||||
| 13,700 | Lowe’s Cos., Inc. | 2,272,282 | ||||||
| 8,000 | McDonald’s Corp. | 1,755,920 | ||||||
| 4,837,147 | ||||||||
| CONSUMER STAPLES - 10.6% | ||||||||
| 10,000 | Colgate-Palmolive Co. | 771,500 | ||||||
| 6,300 | Costco Wholesale Corp. | 2,236,500 | ||||||
| 5,000 | Kimberly-Clark Corp. | 738,300 | ||||||
| 9,100 | PepsiCo, Inc. | 1,261,260 | ||||||
| 5,858 | Procter & Gamble Co. | 814,203 | ||||||
| 5,821,763 | ||||||||
| FINANCIAL SERVICES - 8.7% | ||||||||
| 3,013 | Alleghany Corp. | 1,568,116 | ||||||
| 3,000 | Aon PLC | 618,900 | ||||||
| 20,000 | Axos Financial, Inc. * | 466,200 | ||||||
| 6,500 | Berkshire Hathaway, Inc. * | 1,384,110 | ||||||
| 900 | White Mountains Insurance Group Ltd. | 701,100 | ||||||
| 4,738,426 | ||||||||
| HEALTHCARE - 12.6% | ||||||||
| 13,497 | Abbott Laboratories | 1,468,878 | ||||||
| 3,134 | Becton Dickinson and Co. | 729,219 | ||||||
| 30,000 | Edwards Lifesciences Corp. * | 2,394,600 | ||||||
| 8,000 | Novo Nordisk - ADR | 555,440 | ||||||
| 8,500 | Stryker Corp. | 1,771,145 | ||||||
| 6,919,282 | ||||||||
| INDUSTRIALS - 15.2% | ||||||||
| 6,000 | 3M Co. | 961,080 | ||||||
| 14,600 | Emerson Electric Co. | 957,322 | ||||||
| 30,000 | GraCo., Inc. | 1,840,500 | ||||||
| 8,300 | Illinois Tool Works, Inc. | 1,603,643 | ||||||
| 23,660 | Johnson Controls International PLC | 966,511 | ||||||
| 12,300 | Lincoln Electric Holdings, Inc. | 1,132,092 | ||||||
| 9,000 | TE Connectivity Ltd. | 879,660 | ||||||
| 8,340,808 | ||||||||
See accompanying notes to financial statements.
8
| Marathon Value Portfolio |
| SCHEDULE OF INVESTMENTS (Continued) |
| September 30, 2020 |
| Shares | Fair Value | |||||||
| COMMON STOCKS - 98.4% (Continued) | ||||||||
| MATERIALS - 7.7% | ||||||||
| 6,000 | FranCo-Nevada Corp. | $ | 837,480 | |||||
| 13,151 | Koninklijke DSM - ADR | 543,531 | ||||||
| 15,000 | PPG Industries, Inc. | 1,831,200 | ||||||
| 20,000 | Wheaton Precious Metals Corp. | 981,400 | ||||||
| 4,193,611 | ||||||||
| TECHNOLOGY - 26.5% | ||||||||
| 16,000 | Apple, Inc. | 1,852,960 | ||||||
| 6,700 | Automatic Data Processing, Inc. | 934,583 | ||||||
| 17,876 | Cisco Systems, Inc. | 704,136 | ||||||
| 9,000 | Equifax, Inc. | 1,412,100 | ||||||
| 12,250 | Global Payments, Inc. | 2,175,355 | ||||||
| 18,154 | Intel Corp. | 940,014 | ||||||
| 11,400 | Microsoft Corp. | 2,397,762 | ||||||
| 12,200 | Texas Instruments, Inc. | 1,742,038 | ||||||
| 6,000 | Verisk Analytics Inc | 1,111,860 | ||||||
| 5,000 | Zebra Technologies Corp. * | 1,262,300 | ||||||
| 14,533,108 | ||||||||
| TOTAL COMMON STOCK (Cost $13,816,208) | $ | 53,906,454 | ||||||
| REAL ESTATE INVESTMENT TRUST (REITs) - 1.1% | ||||||||
| 4,800 | EastGroup Properties, Inc. | $ | 620,784 | |||||
| TOTAL REAL ESTATE INVESTMENT TRUST (REITs) (Cost $148,451) | 620,784 | |||||||
| TOTAL INVESTMENTS (Cost $13,964,659) - 99.5% | $ | 54,527,238 | ||||||
| OTHER ASSETS IN EXCESS OF LIABILITIES - 0.5% | 272,048 | |||||||
| NET ASSETS - 100.0% | $ | 54,799,286 | ||||||
| * | Non-income producing securities. |
ADR - American Depositary Receipt.
PLC - Public Limited Company
See accompanying notes to financial statements.
9
| Marathon Value Portfolio |
| STATEMENT OF ASSETS AND LIABILITIES |
| September 30, 2020 |
| ASSETS | ||||
| Investment securities: | ||||
| At cost | $ | 13,964,659 | ||
| At fair value | $ | 54,527,238 | ||
| Cash and cash equivalents | 225,220 | |||
| Dividend receivable | 73,020 | |||
| TOTAL ASSETS | 54,825,478 | |||
| LIABILITIES | ||||
| Payable for fund shares redeemed | 12,784 | |||
| Investment advisory fees payable (a) | 13,408 | |||
| TOTAL LIABILITIES | 26,192 | |||
| NET ASSETS | $ | 54,799,286 | ||
| Net Assets Consist Of: | ||||
| Paid in capital | $ | 10,542,180 | ||
| Accumulated earnings | 44,257,106 | |||
| NET ASSETS | $ | 54,799,286 | ||
| Net Asset Value Per Share: | ||||
| Shares: | ||||
| Net Assets | $ | 54,799,286 | ||
| Shares of beneficial interest outstanding (b) | 1,849,219 | |||
| Net asset value (Net Assets ÷ Shares Outstanding), offering price and redemption price per share | $ | 29.63 |
| (a) | See Note 4 in the Notes to Financial Statements. |
| (b) | Unlimited number of shares of beneficial interest authorized, no par value. |
See accompanying notes to financial statements.
10
| Marathon Value Portfolio |
| STATEMENT OF OPERATIONS |
| For the Year Ended September 30, 2020 |
| INVESTMENT INCOME | ||||
| Dividends (net of foreign withholding tax of $13,008) | $ | 921,580 | ||
| TOTAL INVESTMENT INCOME | 921,580 | |||
| EXPENSES | ||||
| Investment advisory fees (a) | 625,559 | |||
| Overdraft expense | 1,338 | |||
| TOTAL EXPENSES | 626,897 | |||
| NET INVESTMENT INCOME | 294,683 | |||
| REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENTS | ||||
| Net realized gain from investments | 4,119,472 | |||
| Net change in unrealized depreciation on investments | (1,180,482 | ) | ||
| NET REALIZED AND UNREALIZED GAIN FROM INVESTMENTS | 2,938,990 | |||
| NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS | $ | 3,233,673 |
| (a) | See Note 4 in the Notes to Financial Statements. |
See accompanying notes to financial statements.
11
| Marathon Value Portfolio |
| STATEMENTS OF CHANGES IN NET ASSETS |
| Year Ended | Year Ended | |||||||
| September 30, 2020 | September 30, 2019 | |||||||
| FROM OPERATIONS | ||||||||
| Net investment income | $ | 294,683 | $ | 342,382 | ||||
| Net realized gain from investments | 4,119,472 | 4,534,701 | ||||||
| Net change in unrealized depreciation on investments | (1,180,482 | ) | (1,663,941 | ) | ||||
| Net increase in net assets resulting from operations | 3,233,673 | 3,213,142 | ||||||
| DISTRIBUTIONS TO SHAREHOLDERS | ||||||||
| Total distribution paid: | (4,654,273 | ) | (2,491,639 | ) | ||||
| Net decrease in net assets from distributions to shareholders | (4,654,273 | ) | (2,491,639 | ) | ||||
| FROM SHARES OF BENEFICIAL INTEREST | ||||||||
| Proceeds from shares sold | 406,193 | 1,100,090 | ||||||
| Reinvestment of distributions to shareholders | 4,433,045 | 2,488,890 | ||||||
| Payments for shares redeemed | (11,376,767 | ) | (7,985,330 | ) | ||||
| Net decrease in net assets from shares of beneficial interest | (6,537,529 | ) | (4,396,350 | ) | ||||
| TOTAL DECREASE IN NET ASSETS | (7,958,129 | ) | (3,674,847 | ) | ||||
| NET ASSETS | ||||||||
| Beginning of Year | 62,757,415 | 66,432,262 | ||||||
| End of Year | $ | 54,799,286 | $ | 62,757,415 | ||||
| SHARE ACTIVITY | ||||||||
| Shares Sold | 14,178 | 39,672 | ||||||
| Shares Reinvested | 153,979 | 96,882 | ||||||
| Shares Redeemed | (411,032 | ) | (295,834 | ) | ||||
| Net decrease from share activity | (242,875 | ) | (159,280 | ) | ||||
See accompanying notes to financial statements.
12
| Marathon Value Portfolio |
| FINANCIAL HIGHLIGHTS |
Per Share Data and Ratios for a Share of Beneficial Interest Outstanding Throughout Each Period/Year Presented
| Year Ended | Year Ended | Year Ended | Year Ended | Period Ended | Year Ended | |||||||||||||||||||
| September 30, | September 30, | September 30, | September 30, | September 30, | October 31, | |||||||||||||||||||
| 2020 | 2019 | 2018 | 2017 | 2016 | 2015 | |||||||||||||||||||
| Net asset value, beginning of period/year | $ | 30.00 | $ | 29.51 | $ | 27.43 | $ | 24.59 | $ | 23.24 | $ | 23.01 | ||||||||||||
| Activity from investment operations: | ||||||||||||||||||||||||
| Net investment income (a) | 0.15 | 0.16 | 0.17 | 0.17 | 0.17 | 0.15 | ||||||||||||||||||
| Net realized and unrealized gain on investments | 1.76 | 1.46 | 3.65 | 3.12 | 1.51 | 0.62 | ||||||||||||||||||
| Total from investment operations | 1.91 | 1.62 | 3.82 | 3.29 | 1.68 | 0.77 | ||||||||||||||||||
| Less distributions from: | ||||||||||||||||||||||||
| Net investment income | (0.14 | ) | (0.17 | ) | (0.21 | ) | (0.12 | ) | (0.16 | ) | (0.14 | ) | ||||||||||||
| Net realized gains | (2.14 | ) | (0.96 | ) | (1.53 | ) | (0.33 | ) | (0.17 | ) | (0.40 | ) | ||||||||||||
| Total distributions | (2.28 | ) | (1.13 | ) | (1.74 | ) | (0.45 | ) | (0.33 | ) | (0.54 | ) | ||||||||||||
| Net asset value, end of period/year | $ | 29.63 | $ | 30.00 | $ | 29.51 | $ | 27.43 | $ | 24.59 | $ | 23.24 | ||||||||||||
| Total return (b) | 6.60 | % | 6.13 | % | 14.51 | % | 13.56 | % | 7.36 | % (e) | 3.46 | % | ||||||||||||
| Net assets, end of period/year (000s) | $ | 54,799 | $ | 62,757 | $ | 66,432 | $ | 71,862 | $ | 62,984 | $ | 63,306 | ||||||||||||
| Ratio of expenses to average net assets (c) | 1.10 | % | 1.10 | % | 1.10 | % | 1.10 | % | 1.10 | % (d) | 1.10 | % | ||||||||||||
| Ratio of net investment income to average net assets (c) | 0.52 | % | 0.57 | % | 0.60 | % | 0.64 | % | 0.79 | % (d) | 0.65 | % | ||||||||||||
| Portfolio Turnover Rate | 9 | % | 9 | % | 6 | % | 15 | % | 6 | % (e) | 12 | % | ||||||||||||
| (a) | Per share amounts calculated using the average shares method, which more appropriately presents the per share data for the period/year. |
| (b) | Total return represents the rate that the investor would have earned or lost on an investment in the Fund, assuming reinvestment of dividends. |
| (c) | Recognition of net investment income by the Fund is affected by the timing of the declaration of dividends by the underlying investment companies in which the Fund invests. The expenses of the investment funds are excluded from the Fund’s expense ratio. |
| (d) | Annualized. |
| (e) | Not annualized. |
See accompanying notes to financial statements.
13
| Marathon Value Portfolio |
| NOTES TO FINANCIAL STATEMENTS |
| September 30, 2020 |
| 1. | ORGANIZATION |
Marathon Value Portfolio (the ’‘Fund’’) is a diversified series of shares of beneficial interest of Northern Lights Fund Trust III, a Delaware statutory trust organized on December 5, 2011 (the “Trust”). The Trust is an open-end management investment company registered under the Investment Company Act of 1940, as amended (the ’’1940 Act’’). The Fund currently consists of one class of shares. The Fund’s investment objective is to provide shareholders with long-term capital appreciation in a well-diversified portfolio.
| 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. The policies are in conformity with accounting principles generally accepted in the United States of America (’‘GAAP”), which require 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 Standards Codification Topic 946 “Financial Services – Investment Companies”.
Security Valuation – Securities listed on an exchange are valued at the last reported sale price at the close of the regular trading session of the 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. 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, which approximates fair value.
The Fund may hold securities, such as private investments, interests in commodity pools, other non-traded securities or temporarily illiquid securities, for which market quotations are not readily available or are determined to be unreliable. These securities will be valued using the “fair value” procedures approved by the Trust’s Board of Trustees (the “Board”). The Board has delegated execution of these procedures to a fair value committee composed of one or more representatives from each of the (i) Trust, (ii) administrator, and (iii) advisor. The committee may also enlist third party consultants such as a valuation specialist at a public accounting firm, valuation consultant or financial officer of a security issuer on an as-needed basis to assist in determining a security-specific fair value. The Board reviews and ratifies the execution of this process and the resultant fair value prices at least quarterly to assure the process produces reliable results.
Fair Valuation Process – As noted above, the fair value committee is composed of one or more representatives from each of the (i) Trust, (ii) administrator, and (iii) advisor. 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; and (iv) securities with respect to which an event that will affect the value thereof has occurred (a “significant event”) since the closing prices were established on the principal exchange on which they are traded, but prior to the 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)
14
| Marathon Value Portfolio |
| NOTES TO FINANCIAL STATEMENTS (Continued) |
| September 30, 2020 |
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.
Valuation of Fund of Funds – The Fund may invest in portfolios of open-end or closed-end investment companies (the “Underlying Funds”). Underlying open-end investment companies are valued at their respective net asset values as reported by such investment companies. The Underlying Funds value securities in their portfolios for which market quotations are readily available at their market values (generally the last reported sale price) and all other securities and assets at their fair value by the methods established by the board of directors of the Underlying Funds. The shares of many closed-end investment companies, after their initial public offering, frequently trade at a price per share, which is different than the net asset value per share. The difference represents a market premium or market discount of such shares. There can be no assurances that the market discount or market premium on shares of any closed-end investment company purchased by the Fund will not change.
Fair Value Hierarchy – 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 inputs 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.
15
| Marathon Value Portfolio |
| NOTES TO FINANCIAL STATEMENTS (Continued) |
| September 30, 2020 |
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The following table summarizes the inputs used as of September 30, 2020, for the Fund’s investments measured at fair value:
| Level 2 | Level 3 | |||||||||||||||
| Level 1 | (Other Significant | (Other Significant | ||||||||||||||
| Assets* | (Quoted Prices) | Observable Inputs) | Unobservable Inputs) | Total | ||||||||||||
| Common Stocks | $ | 53,906,454 | $ | — | $ | — | $ | 53,906,454 | ||||||||
| Real Estate Investment Trust (“REITs”) | 620,784 | — | — | 620,784 | ||||||||||||
| Total | $ | 54,527,238 | $ | — | $ | — | $ | 54,527,238 | ||||||||
The Fund did not hold any Level 3 securities during the period.
| * | Refer to the Schedule of Investments for industry classifications. |
Security Transactions and Related Income – Security transactions are accounted for on the 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 using the effective interest method. 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.
Return of capital distributions received from REITs securities are recorded as an adjustment to the cost of the security and thus may impact unrealized or realized gains or losses on the security. Withholding taxes on foreign dividends have been provided for in accordance with the Fund’s understanding of the applicable country’s tax rules and rates.
Dividends and Distributions to Shareholders – Dividends from net investment income and distributions from net realized capital gains if any, are declared and paid annually. Dividends and distributions to shareholders are recorded on the 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 (e.g., deferred losses, capital loss carryforwards) or permanent in nature. To the extent these differences are permanent in nature, such amounts are reclassified within the composition of net assets based on their federal tax-basis treatment; temporary differences do not require reclassification. These reclassifications have no effect on net assets, results from operations or net asset values per share of the Fund.
Federal Income Taxes – The Fund complies with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its taxable income to its shareholders. Therefore, no provision for federal income tax 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 September 30, 2017 - September 30, 2019, or expected to be taken in the Fund’s September 30, 2020 year-end tax returns. The Fund identifies its major tax jurisdictions as U.S. federal, Ohio 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.
16
| Marathon Value Portfolio |
| NOTES TO FINANCIAL STATEMENTS (Continued) |
| September 30, 2020 |
| 3. | INVESTMENT TRANSACTIONS |
For the year ended September 30, 2020, cost of purchases and proceeds from sales of portfolio securities, excluding short-term investments, amounted to $5,132,808 and $16,082,540, respectively.
| 4. | INVESTMENT ADVISORY AGREEMENT AND TRANSACTIONS WITH RELATED PARTIES |
Gratus Capital, LLC serves as the Fund’s investment advisor (the “Advisor”). Pursuant to an advisory agreement (“Advisory Agreement”) with the Trust, on behalf of the Fund, the Advisor provides investment advisory services and pays the Fund’s operating expenses (except for the following expenses, which are paid by the Fund: brokerage fees and commissions, indirect costs of investing in other investment companies, taxes, borrowing costs (such as (a) interest and (b) dividend expenses on securities sold short), such extraordinary or non-recurring expenses as may arise, including litigation to which the Fund may be a party and indemnification of the Trust’s Trustees and officers with respect thereto, and any 12b-1 fees) in return for a “universal fee.” For its services to the Fund, the Advisor is entitled to receive an annual fee, computed and accrued daily and paid monthly, equal to 1.10% of the Fund’s average daily net assets.
For the year ended September 30, 2020 Gratus earned fees of $625,559 for its services under on the Advisory Agreement.
Northern Lights Distributors, LLC (“NLD” or the “Distributor”) acts as the Fund’s distributor and principal underwriter in a continuous public offering of the Fund shares. During the year ended September 30, 2020, the Distributor received $0 in underwriting commissions.
In addition, certain affiliates of the Distributor provide services to the Fund 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 an administrative servicing agreement with GFS, the Fund pays GFS customary fees based on aggregate net assets of the Fund as described in the servicing agreement 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 GFS (as part of the universal fee).
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 GFS (as part of the universal fee).
Compensation of Directors. The total amount paid by the advisor on behalf of the Fund for the year ended September 30, 2020, was $12,415 (as part of the universal fee).
| 5. | DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF CAPITAL |
The below table represents aggregate cost for federal tax purposes as of September 30, 2020 and differs from market value by net unrealized appreciation/depreciation which consisted of:
| Total Unrealized | ||||||||||||||
| Gross Unrealized | Gross Unrealized | Appreciation/ | ||||||||||||
| Aggregate Cost | Appreciation | Depreciation | Depreciation | |||||||||||
| $ | 13,975,680 | $ | 40,562,579 | $ | (11,021 | ) | $ | 40,551,558 | ||||||
17
| Marathon Value Portfolio |
| NOTES TO FINANCIAL STATEMENTS (Continued) |
| September 30, 2020 |
The tax character of distributions paid during the year ended September 30, 2020 and September 30, 2019 was as follows:
| Fiscal Year Ended | Fiscal Year Ended | |||||||
| September 30, 2020 | September 30, 2019 | |||||||
| Ordinary Income | $ | 283,516 | $ | 381,157 | ||||
| Long-Term Capital Gain | 4,783,116 | 2,110,482 | ||||||
| Return of Capital | — | — | ||||||
| $ | 5,066,632 | $ | 2,491,639 | |||||
Tax equalization allows the Fund to treat as distribution that portion of redemption proceeds representing a redeeming shareholder’s portion of undistributed taxable and net capital gains. The Fund utilized equalization in the amount of $412,359 which resulted in a difference between tax distributions and book distributions as disclosed on the Statement of Changes for the year ended September 30, 2020. Net investment income and net realized gains(losses), as disclosed on the Statements of Operations and net assets were not affected by these reclassifications.
As of September 30, 2020, the components of accumulated earnings/(deficit) on a tax basis were as follows:
| Undistributed | Undistributed | Post October | Capital Loss | Other | Unrealized | Total | ||||||||||||||||||||
| Ordinary | Long-Term | Loss and Late | Carry | Book/Tax | Appreciation/ | Accumulated | ||||||||||||||||||||
| Income | Gains | Year Loss | Forwards | Differences | (Deprecation) | Earnings/(Deficits) | ||||||||||||||||||||
| $ | 250,507 | $ | 3,455,041 | $ | — | $ | — | $ | — | $ | 40,551,558 | $ | 44,257,106 | |||||||||||||
The difference between book basis and tax basis unrealized appreciation and undistributed net investment income is primarily attributable to adjustments for return of capital distributions from C-Corporations.
Permanent book and tax differences, primarily attributable to the tax adjustments for equalization credits, resulted in reclassifications for the Fund for the fiscal year ended September 30, 2020 as follows:
| Accumulated | ||||||
| Paid In Capital | Earnings (Losses) | |||||
| $ | 632,252 | $ | (632,252 | ) | ||
| 6. | BENEFICIAL OWNERSHIP |
The beneficial ownership, either directly or indirectly, of 25% or more of the outstanding shares of a fund creates a presumption of control of the fund under Section 2(a)(9) of the 1940 Act. As of September 30, 2020, Charles Schwab & Co. was the record owner of 80.01% of the Fund’s outstanding shares. Charles Schwab & Co. may be the beneficial owner of some or all of the shares, or may hold the shares for the benefit of others. As a result, Charles Schwab & Co. may be deemed to control the Fund.
| 7. | 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.
18
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders Marathon Value Portfolio and
Board of Trustees of Northern Lights Fund Trust III
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Marathon Value Portfolio (the “Fund”), a series of Northern Lights Fund Trust III, as of September 30, 2020, the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, including the related notes, and the financial highlights for the years or period ended September 30, 2020, 2019, 2018, 2017, 2016 and for the year ended October 31, 2015 (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 September 30, 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 conformity with accounting principles generally accepted in the United States of America.
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 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.
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 procedures included confirmation of securities owned as of September 30, 2020, by correspondence with the custodian. 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. We believe that our audits provide a reasonable basis for our opinion.
We have served as the Fund’s auditor since 2004.
COHEN & COMPANY, LTD.
Cleveland, Ohio
November 30, 2020
COHEN & COMPANY, LTD.
800.229.1099 | 866.818.4535 fax | cohencpa.com
Registered with the Public Company Accounting Oversight Board
19
| Marathon Value Portfolio |
| EXPENSE EXAMPLES (Unaudited) |
| September 30, 2020 |
As a shareholder of the Fund, you incur ongoing costs, consisting of the Fund’s universal fee. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from April 1, 2020 to September 30, 2020 (the ’‘period’’).
Actual Expenses
The first table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $ 1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled ’‘Expenses Paid During the Period’’ to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second table below provides information about hypothetical account values and hypothetical expenses based on the 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 balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the 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. Therefore, the second table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
| Beginning | Ending | Expenses Paid | Expense Ratio | |||||||||||
| Account Value | Account Value | During Period | During the Period | |||||||||||
| Actual | 4/1/20 | 9/30/20 | 4/1/20-9/30/20* | 4/1/20-9/30/20 | ||||||||||
| $1,000.00 | $1,277.70 | 6.26 | 1.10% | |||||||||||
| Beginning | Ending | Expenses Paid | Expense Ratio | |||||||||||
| Hypothetical | Account Value | Account Value | During Period | During the Period | ||||||||||
| (5% return before expenses) | 4/1/20 | 9/30/20 | 4/1/20-9/30/20* | 4/1/20-9/30/20 | ||||||||||
| $1,000.00 | $1,019.50 | $5.55 | 1.10% |
| * | 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 (183) divided by the number of days in the fiscal year (366). |
20
| Marathon Value Portfolio |
| SUPPLEMENTAL INFORMATION (Unaudited) |
| September 30, 2020 |
The Trustees and officers of the Trust, together with information as to their principal business occupations during the past five years and other information, are shown below. The address of each Trustee and officer is 4221 203rd Street, Suite 100, Elkhorn, Nebraska 68022.
| Independent Trustees | |||||
|
Name,
Address, Year of Birth |
Position(s)
Held with Registrant |
Length
of
Service and Term |
Principal
Occupation(s)
During Past 5 Years |
Number
of
Funds Overseen In The Fund Complex* |
Other
Directorships Held During
Past 5 Years** |
|
James
U. Jensen
1944 |
Trustee | Since February 2012, Indefinite | Chief Executive Officer, ClearWater Law & Governance Group, LLC (an operating board governance consulting company) (since 2004). | 1 | Northern Lights Fund Trust III (for series not affiliated with the Fund since 2012); Wasatch Funds Trust, (since 1986); University of Utah Research Foundation (April 2000 to May 2018); Agricon Global Corporation, formerly Bayhill Capital Corporation (large scale farming in Ghana, West Africa) (October 2009 to June 2014). |
|
Patricia
Luscombe
1961 |
Trustee | Since January 2015, Indefinite | Managing Director of the Valuations and Opinions Group, Lincoln International LLC (since August 2007). | 1 | Northern Lights Fund Trust III (for series not affiliated with the Fund since 2015); Monetta Mutual Funds (since November 2015). |
|
John
V. Palancia
1954 |
Trustee, Chairman | Trustee, since February 2012, Indefinite; Chairman of the Board since May 2014. | Retired (since 2011); Formerly, Director of Global Futures Operations Control, Merrill Lynch, Pierce, Fenner & Smith, Inc. (1975-2011). | 1 | Northern Lights Fund Trust III (for series not affiliated with the Fund since 2012); Northern Lights Fund Trust (since 2011); Northern Lights Variable Trust (since 2011); Alternative Strategies Fund (since 2012). |
|
Mark
H. Taylor
1964 |
Trustee, Chairman of the Audit Committee | Since February 2012, Indefinite | Director, Lynn Pippenger School of Accountancy, Muma College of Business, University of South Florida (since August 2019); Chair, Department of Accountancy and Andrew D. Braden Professor of Accounting and Auditing, Weatherhead School of Management, Case Western Reserve University (2009-2019); Vice President- Finance, American Accounting Association (2017-2020); President, Auditing Section of the American Accounting Association (2012-15); AICPA Auditing Standards Board Member (2009-2012). Former Academic Fellow, United States Securities and Exchange Commission (2005-2006). | 1 | Northern Lights Fund Trust III (for series not affiliated with the Fund since 2012); Northern Lights Fund Trust (since 2007); Northern Lights Variable Trust (since 2007); Alternative Strategies Fund (since June 2010). |
|
Jeffery
D. Young
1956 |
Trustee | Since January 2015, Indefinite | Co-owner and Vice President, Latin America Agriculture Development Corp. (since May 2015); Formerly Asst. Vice President - Transportation Systems, Union Pacific Railroad Company (June 1976 to April 2014); President, Celeritas Rail Consulting (since June 2014). | 1 | Northern Lights Fund Trust III (for series not affiliated with the Fund since 2015); PS Technology, Inc. (2010-2013). |
| * | As of September 30, 2020, the Trust was comprised of 34 active portfolios managed by 15 unaffiliated investment advisers. The term “Fund Complex” applies only to the Fund. 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. |
| ** | Includes directorships held within the past 5 years in a company with a class of securities registered pursuant to Section 12 of the Securities Exchange Act of 1934 or subject to the requirements of Section 15(d) of the Securities Exchange Act of 1934, or any company registered as an investment company under the 1940 Act. |
9/30/20-NLFT III-v2
21
| Marathon Value Portfolio |
| SUPPLEMENTAL INFORMATION (Unaudited) (Continued) |
| September 30, 2020 |
Officers of the Trust
|
Name,
Address, Year of Birth |
Position
Held with
Registrant |
Length
of
Service and Term |
Principal Occupation(s) During Past 5 Years |
|
Richard
Malinowski
1983 |
President | Since August 2017, indefinite | Senior Vice President and Senior Managing Counsel, Gemini Fund Services, LLC, (since 2020); Senior Vice President Legal Administration, Gemini Fund Services, LLC (2017-2020); Vice President and Counsel (2016- 2017) and AVP and Staff Attorney (2012-2016). |
|
Brian
Curley
1970 |
Treasurer | Since February 2013, indefinite | Vice President, Gemini Fund Services, LLC (since 2015), Assistant Vice President, Gemini Fund Services, LLC (2012-2014); Senior Controller of Fund Treasury, The Goldman Sachs Group, Inc. (2008-2012); Senior Associate of Fund Administration, Morgan Stanley (1999-2008). |
|
Eric
Kane
1981 |
Secretary | Since November 2013, indefinite | Vice President and Managing Counsel, Gemini Fund Services, LLC (since 2020); Vice President and Counsel, Gemini Fund Services, LLC (2017-2020), Assistant Vice President, Gemini Fund Services, LLC (2014- 2017), Staff Attorney, Gemini Fund Services, LLC (2013-2014), Law Clerk, Gemini Fund Services, LLC (2009-2013), Legal Intern, NASDAQ OMX (2011), Hedge Fund Administrator, Gemini Fund Services, LLC (2008), Mutual Fund Accountant/Corporate Action Specialist, Gemini Fund Services, LLC (2006-2008). |
|
William
Kimme
1962 |
Chief Compliance Officer | Since February 2012, indefinite | Senior Compliance Officer of Northern Lights Compliance Services, LLC (since 2011); Due Diligence and Compliance Consultant, Mick & Associates (2009-2011); Assistant Director, FINRA (2000-2009). |
The Fund’s Statement of Additional Information includes additional information about the Trustees and is available free of charge, upon request, by calling toll-free at 1-800-788-6086.
9/30/20-NLFT III-v2
22
| Marathon Value Portfolio |
| LIQUIDITY RISK MANAGEMENT PROGRAM (Unaudited) |
| September 30, 2020 |
The Fund has adopted and implemented a written liquidity risk management program as required by Rule 22e-4 (the “Liquidity Rule”) under the 1940 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 period ended September 30, 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.
23
| PRIVACY NOTICE |
NORTHERN LIGHTS FUND TRUST III
Rev. February 2014
| FACTS | WHAT DOES NORTHERN LIGHTS FUND TRUST III DO WITH YOUR PERSONAL INFORMATION? |
| Why? | Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal information. Please read this notice carefully to understand what we do. |
| What? |
The types of personal information we collect and share depend on the product or service you have with us. This information can include:
¡ Social Security number and income
¡ assets, account transfers and transaction history
¡ investment experience and risk tolerance
When you are no longer our customer, we continue to share your information as described in this notice. |
| How? | All financial companies need to share customers’ personal information to run their everyday business. In the section below, we list the reasons financial companies can share their customers’ personal information; the reasons Northern Lights Fund Trust III chooses to share and whether you can limit this sharing. |
| Reasons we can share your personal information |
Does
Northern Lights
Fund Trust III share? |
Can you limit this sharing? |
|
For
our everyday business purposes–
such as to process your transactions, maintain your account(s), respond to court orders and legal investigations, or report to credit bureaus |
YES | NO |
|
For
our marketing purposes–
to offer our products and services to you |
NO | We don’t share. |
| For joint marketing with other financial companies | NO | We don’t share. |
| For our affiliates’ everyday business purposes–information about your transactions and experiences | NO | We don’t share. |
| For our affiliates’ everyday business purposes–information about your creditworthiness | NO | We don’t share. |
| For our affiliates to market to you | NO | We don’t share. |
| For nonaffiliates to market to you | NO | We don’t share. |
| Questions? | Call 1-888-339-4230 |
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| Page 2 |
| Definitions | |
| Affiliates |
Companies related by common ownership or control. They can be financial and nonfinancial companies.
¡ Northern Lights Fund Trust III does not share with our affiliates.
|
| Nonaffiliates |
Companies not related by common ownership or control. They can be financial and nonfinancial companies.
¡ Northern Lights Fund Trust III does not share with nonaffiliates so they can market to you.
|
| Joint marketing |
A formal agreement between nonaffiliated financial companies that together market financial products or services to you.
¡ Northern Lights Fund Trust III doesn’t jointly market.
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| Marathon Value Portfolio |
| OTHER INFORMATION |
| September 30, 2020 (Unaudited) |
Portfolio Holdings
The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (the “SEC”) for the first and third quarters of each fiscal year on Form N-PORT. The Fund’s Forms N-PORT are available on the SEC’s website at http://www.sec.gov. Finally, the information on the Fund’s Form N-PORT is available, upon request, by calling the Fund at (800) 788-6086.
Proxy Voting Policies
The policies and procedures that the Fund uses to determine how to vote proxies relating to its investments is available without charge, upon request, by calling the Fund’s toll-free number at (800) 788-6086 or by visiting the Fund’s website at http://www.marathonvalue.com. A description of these policies and procedures is also included in the Fund’s Statement of Additional Information, which is available on the SEC’s website at http://www.sec.gov. Information regarding how the Fund voted proxies for each 12 month period ending June 30 is filed with the SEC on Form N-PX. Such information, when filed, is available without charge, upon request, by calling the Fund’s toll-free number at (800) 788-6086 or by visiting the Fund’s website at http://www.marathonvalue.com. Such information is also available on the SEC’s website at http://www.sec.gov.
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| Northern Lights Fund Trust III |
| 225 Pictoria Drive, Suite 450 |
| Cincinnati, OH 45246 |
| ADVISOR |
| Gratus Capital, LLC |
| 3350 Riverwood Parkway, Suite 1550 |
| Atlanta, GA, 30339 |
| ADMINISTRATOR |
| Gemini Fund Services, LLC |
| 4221 North 203rd Street, Suite 100 |
| Elkhorn, Nebraska 68022 |
| TRANSFER AGENT |
| Gemini Fund Services, LLC |
| 4221 North 203rd Street, Suite 100 |
| Elkhorn, Nebraska 68022 |
| INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM |
| Cohen & Company Ltd. |
| 1350 Euclid Avenue |
| Suite 800 |
| Cleveland, OH 44115 |
| LEGAL COUNSEL |
| Thompson Hine LLP |
| 41 South High Street |
| Suite 1700 |
| Columbus, OH 43215 |
| CUSTODIAN BANK |
| Huntington National Bank |
| 41 South High Street |
| Columbus, OH 43215 |
Item 2. Code of Ethics.
(a) As of the end of the period covered by this report, the registrant has adopted a code of ethics that applies to the registrant's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party.
(b) For purposes of this item, “code of ethics” means written standards that are reasonably designed to deter wrongdoing and to promote:
| (1) | Honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; |
| (2) | Full, fair, accurate, timely, and understandable disclosure in reports and documents that a registrant files with, or submits to, the Commission and in other public communications made by the registrant; |
(3) Compliance with applicable governmental laws, rules, and regulations;
| (4) | The prompt internal reporting of violations of the code to an appropriate person or persons identified in the code; and |
(5) Accountability for adherence to the code.
(c) Amendments: During the period covered by the report, there have not been any amendments to the provisions of the code of ethics.
(d) Waivers: During the period covered by the report, the registrant has not granted any express or implicit waivers from the provisions of the code of ethics.
(e) The Code of Ethics is not posted on Registrant’ website.
(f) A copy of the Code of Ethics is attached as an exhibit.
Item 3. Audit Committee Financial Expert.
(a)(1)ii The Registrant’s board of trustees has determined that Mark H. Taylor is an audit committee financial expert, as defined in Item 3 of Form N-CSR. Mr. Taylor is independent for purposes of this Item 3.
(a)(2) Not applicable.
(a)(3) In this regard, no member of the audit committee was identified as having all of the required technical attributes identified in instruction 2 (b) to item 3 of Form N-CSR to qualify as an “audit committee financial expert,” whether through the type of specialized education or experience required by that instruction. At this time, the board believes the experience provided by each member of the audit committee collectively offers the fund adequate oversight by its audit committee given the fund’s level of financial complexity. The board will from time to time reexamine such belief.
Item 4. Principal Accountant Fees and Services.
| (a) | Audit Fees |
2020 – $13,500
2019 – $13,500
| (b) | Audit-Related Fees |
2020– None
2019 – None
| (c) | Tax Fees |
2020 – $3,500
2019 – $3,500
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 |
2020 - None
2019 – 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 |
2020 2019
Audit-Related Fees: 0.00% 0.00%
Tax Fees: 0.00% 0.00%
All Other Fees: 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: |
2020 - $3,000
2019 –$3,000
(h) The registrant's audit committee has considered whether the provision of non-audit services to the registrant's investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant, that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X, is compatible with maintaining the principal accountant's independence.
Item 5. Audit Committee of Listed Companies. Not applicable to open-end investment companies.
Item 6. Schedule of Investments. Schedule of investments in securities of unaffiliated issuers is included under Item 1.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Funds. Not applicable to open-end investment companies.
Item 8. Portfolio Managers of Closed-End Management Investment Companies. Not applicable to open-end investment companies.
Item 9. Purchases of Equity Securities by Closed-End Funds. Not applicable to open-end investment companies.
Item 10. Submission of Matters to a Vote of Security Holders. None
Item 11. Controls and Procedures.
(a) Based on an evaluation of the Registrant’s disclosure controls and procedures as of a date within 90 days of filing date of this Form N-CSR, the principal executive officer and principal financial officer of the Registrant have concluded that the disclosure controls and procedures of the Registrant are reasonably designed to ensure that the information required in filings on Form N-CSR is recorded, processed, summarized, and reported by the filing date, including that information required to be disclosed is accumulated and communicated to the Registrant’s management, including the Registrant’s principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
(b) There were no significant changes in the Registrant’s internal control over financial reporting that occurred during the Registrant’s last fiscal half-year that have materially affected, or are reasonably likely to materially affect, the Registrant’s internal control over financial reporting.
Item 12. Disclosure of Securities Lending Activities for Closed-End Management Investment Companies. Not applicable to open-end investment companies.
Item 13. Exhibits.
(a)(1) Code of Ethics filed herewith.
(a)(3) Not applicable for open-end investment companies.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) Northern Lights Fund Trust III
By (Signature and Title)
/s/ Richard Malinowski
Richard Malinowski, Principal Executive Officer/President
Date 12/4/2020
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By (Signature and Title)
/s/ Richard Malinowski
Richard Malinowski, Principal Executive Officer/President
Date 12/4/2020
By (Signature and Title)
/s/ Brian Curley
Brian Curley, Principal Financial Officer/Treasurer
Date 12/4/2020