October 31, 2009

Dear Fellow Shareholders,

Since opening on August 4, 2008, the KCM Macro Trends Fund has met its primary goals:

           1.  To reduce client losses during declining market periods, thereby seeking to preserve capital for future market advances; and

           2.    To capture the majority of major market advances.

During this period - from Fund inception through October 31, 2009 - the S&P 500 (including dividends) declined 18.07% while the Fund had a positive return of 5.71% and thus outperformed the S&P 500 by 23.78%.

Performance current to the most recent month-end may be lower or higher and can be obtained by calling 1-800-945-2125. The investment return and principal value of an investment will fluctuate so that investor's shares, when redeemed, may be worth more or less than their original cost. The KCM Macro Trends Fund’s total annual operating expense ratio is 1.82%. The Fund's Investment Advisor has contractually agreed to reduce its fees and/or absorb expenses of the Fund, at least until August 30, 2010, to ensure the net annual fund operating expenses will not exceed 1.70%, subject to possible recoupment from the Fund in future years. Please review the Fund's prospectus for more detail on the expense waiver. The S&P 500 TR is a broad-based unmanaged index of 500 stocks, which is widely recognized as representative of the equity market. You cannot invest directly in an index.

Fund Availability

The Fund is currently available through investment advisors on several platforms including:

            ·         Fidelity

            ·         Pershing

            ·         Schwab Institutional

            ·         Southwest Securities

            ·         TD Ameritrade, and

            ·         Trust Company of America. 

Investment Philosophy

The KCM Macro Trends Fund differs from most mutual funds in that it has a flexible investment policy. Our investment gains since inception during a period when the general markets were down exemplifies the results of this approach to investing. The Fund’s objective is to maximize reward while minimizing risk. As with any investment, it is not possible to avoid risk completely so we seek to minimize and manage risk. The Fund strives to be nimble and responsive to major market cycle changes by moving out of “Harm’s Way” during recessions and to capitalize on best performing sectors in stronger markets.

Investment Strategy

We employ a risk-averse investment strategy predicated on the belief that strong long-term investment results are best achieved through the avoidance of major losses and the compounding of reasonable gains. If we can miss the majority of major market cycle downturns and capture the majority of major cycle upturns, we will not only protect shareholder assets, but the long-term growth of those assets should be substantially greater than market growth.

We look at companies of all sizes and types located throughout the world. We want the flexibility to invest in great ideas regardless of size and do not see any reason to restrict our investing to “Style Boxes”.

Our focus in the current market environment remains on companies with high free-cash-flow plus dividend yields, 10% being very attractive. Companies with high free-cash-flow can finance their own growth, an attractive attribute in an environment where borrowing is difficult even for the best companies. High free-cash-flow also allows companies to maintain and increase their dividends, buy back their own stock or acquire other companies.

We also believe that high free-cash-flow companies make attractive acquisition targets. We also look for growing earnings and sales. Increasing sales can make up for a multitude of problems in recessionary times and are a necessity for long-term growth in stock price. We are looking for growth, and aim for stocks we feel will double their share price in three to five years. The majority of the upside comes from earnings growth.

In order to manage risk and volatility during market declines, we are willing to hold high percentages of cash if we feel the market offers more risk of loss than opportunity for gain. Additional risk-management includes hedging market risks through the purchase of securities such as futures or ETFs that move in the opposite direction of the market. Through market downturns, these tools allow us to hold stocks of companies we feel have good long-term growth potential. Statistics show that when markets go down, three out of four stocks go down – even the good ones. Therefore, having the ability to “hedge out” market risk greatly reduces potential market losses. This approach is validated by the fact that we missed 67.5% of the market downturn as measured by the decline in the S&P 500 Index from its high following the date the Fund was opened through its low on March 9, 2009. During this period, the S&P 500 Index was down 44.92%; KCMTX was down 14.61%.

The Fund also has the ability to be slightly net-short if we feel that severe market declines are eminent. Being net-short when the market is declining means that the Fund should increase in value. It is not anticipated that we will be in this position very often if at all.

Our objective is to hold approximately 100 stocks with initial positions around 1% of the portfolio. Diversifying risk among this number of holdings reduces the stock-specific risk of holding too much of a single company. When positions grow beyond 2% of the portfolio, consideration is given to reducing the position.

Our use of fundamental stock analysis combined with technical analysis of the market is then overlaid with our Macro approach to investing. We pay close attention to the strength of the US economy compared to other economies around the world as well as the growth or decline in the value of different world currencies. Geopolitical risk is also considered in picking or holding stocks.

If we believe we hold strong companies, we are prepared to hold them and hedge the risk of market declines. However, to obtain better value when acquiring new positions, we prefer to purchase new holdings near the bottom of any market decline they may be experiencing.

We feel that the ability to utilize all available investment tools and styles enhances our ability to preserve and grow client portfolios. A substantial portion of our personal net worth is invested in the Fund to align our interests with our client’s interests.

We sincerely appreciate the trust and confidence of our investors and believe that our approach to investing will add value to every client’s long-term financial well being.

M. Lane Kerns
Martin L. Kerns, II
Kerns Capital Management, Inc.

Mutual funds involve risk including the possible loss of principal. Investors should carefully consider the investment objectives, risks, charges and expenses of the KCM Macro Trends Fund. The Fund may invest in small, less well-known companies, which may be subject to more erratic market movements than large-cap stocks; foreign securities, which are subject to currency fluctuations and political uncertainty; and derivative securities, which may carry market, credit, and liquidity risks. The Fund may also engage in short selling activities, which are more risky than “long” positions because the potential loss on a short sell is unlimited. These risks may result in greater share price volatility. This and other important information about the Fund is contained in the prospectus. To obtain a prospectus please call 1-877-275- 5599. The prospectus should always be read carefully before investing. The KCM Macro Trends Fund is distributed by Northern Lights Distributors, LLC member FINRA/SIPC.