A) Firm Overview and Description
BTS Asset Management, Inc. (“BTS”) is a privately held company, founded in 1979 by Vilis Pasts, and is headquartered
in Lincoln, Massachusetts. Vilis Pasts owns 70% of BTS and acts as BTS’ Chairman of the Board of Directors, Director of
Research for the Investment Committee, and as a Portfolio Manager. Matthew Pasts, BTS’ Chief Executive Officer,
Director, Investment Committee member and Portfolio Manager, is the only other individual shareholder, owning 30%
of the company.
BTS is federally registered with the SEC (Securities and Exchange Commission) as a Registered Investment Adviser. The
primary services we offer consist of acting as a discretionary manager to asset allocation advisory portfolios
("Portfolios") for separately managed accounts; as investment manager to investment companies registered under the
Investment Company Act of 1940; as non-discretionary sub-advisor to other investment advisers and money managers;
and, as a portfolio strategist available on certain third-party platforms, including Wrap Fee Program sponsor platforms.
The services that BTS offers are described in greater detail in Item 4(B) below, but we also provide an overview here:
BTS primarily provides continuous and supervisory advisory control over the assets designated to BTS pursuant to
written advisory agreements with BTS Clients, including registered investment companies where BTS has been
designated the investment adviser. Through these agreements, BTS issues model investment advice using quantitative
and fundamental analyses. BTS utilizes several proprietary and technical indicators as part of the ongoing daily
supervision of BTS portfolios.
Because of the discretionary authority that we have, exchanges among mutual funds, variable annuity sub-accounts,
Exchange Traded Funds (“Fund(s)”) and individual securities are performed without prior notice to a BTS Client. In
limited situations, we provide our discretionary exchange signals to a client’s financial representative who is
responsible for executing and processing the trade instructions with the client’s custodian. In these situations, BTS still
maintains discretion and supervisory control over the assets and includes the accounts in its ongoing supervisory and
monitoring procedures.
As referenced above, BTS also enters separate arrangements with unaffiliated entities or financial professionals to
provide certain model portfolio trading recommendations. We refer to these arrangements generally and throughout
this Brochure as either a “Third Party Platform” or “sub-advisory” relationship, depending upon the nature of the
agreement that is in place. For Third Party Platform programs, we refer to the unaffiliated entity or financial
professional as either “Wrap Sponsor,” or” Program Sponsor,” and in the case of sub-advisory relationships, we refer to
the unaffiliated entity or financial professional as an Advisor. In all cases, the investors impacted by these
arrangements are not considered clients of BTS.
In the case of Third-Party Platforms, depending upon the nature of the relationship and the terms of the agreement, the
Sponsor will maintain (or designate) a certain level of discretionary authority over assets allocated to BTS. In this type
of arrangement, the Program Sponsor chooses to reject or accept our recommendations, in whole or in part, for use in
their Third-Party Platform accounts. In these situations, BTS is providing non-discretionary model recommendations to
the Program Sponsor.
For other Third-Party Platforms, the authority of the Program Sponsor may be limited to performing specified
functions, including administrative and/or trade order implementation duties pursuant to the direction of BTS. In such
situations, BTS continuously reviews the model instructions that we provide to ensure that the model is accurate and
complete. When BTS, in its discretion determines the model requires amending or modifying, the Program Sponsor
requires BTS to adjust the model. In these situations, the Program Sponsor agrees that it will begin processing our
instructions made timely over program assets on the day that we issue the instructions but note that circumstances
outside of their control may delay implementation beyond one day. Unless due to circumstances outside the control of
BTS, if BTS fails to make timely discretionary changes to BTS’ model, BTS is contractually responsible for trade losses
incurred by the Program Sponsor. In either case, Program Sponsor clients are not considered clients of BTS. As such,
unless otherwise required by law, BTS does not act as a fiduciary to Program Sponsor clients.
Similarly, in sub-advisory relationships, investors impacted by our services are not considered clients of BTS. Instead,
these investors’ accounts are continuously supervised by an unaffiliated investment adviser that retains BTS to provide
impersonal model recommendations. In these relationships, BTS provides consulting services only and issues what we
call “buy” and “sell” recommendations to the primary investment adviser. As such, BTS does not have ongoing
supervisory and management responsibilities over these assets and the primary investment adviser retains discretion
and authority to modify, adjust or reject our trade recommendations.
B) Types of Advisory Services
Material Consideration for all Advisory Services Listed Below: Fund and sub-account availability for all BTS
Portfolios and strategies, including share classes of the same Funds, differs by custodian, Fund Company, and
Annuity Company. Because Fund and sub-account availability differs, BTS Clients in the same or similar Portfolios,
or in Portfolios using similar strategies, will hold different Funds/sub-accounts and share classes than other BTS
Clients. As a result, BTS Clients in the same Portfolios will have different performance, fees, expenses, and
operational risks, including possible redemption fees, trading restrictions, and trade or exchange execution quality
and delays. These differences may be material and should be reviewed closely with Client and prospective Client
Financial Representatives.
TACTICAL ASSET ALLOCATION PORTFOLIOS
*Discretionary*
These Portfolios seek total return by focusing on preservation of capital in falling markets and capital appreciation
opportunities in rising markets. To try and accomplish this objective, the Portfolios aim to tactically allocate Client
monies to different asset classes comprising the Portfolio using a diverse mix of mutual funds, variable annuity sub-
accounts, and exchange traded funds (“Funds”), and available to Clients for purchase or exchange at their specific
custodian.
These Portfolios are monitored daily by members of the BTS Investment Committee using quantitative analysis, the
process of analyzing what is referred to as technical or model indicators.
These Portfolios are made available in different ways. First, for Clients that have accounts held directly at certain
mutual fund or variable annuity families, Clients can tailor their BTS Portfolio by identifying one or more Funds or sub-
accounts to be invested in accordance with the Portfolio selected by the client. Each Portfolio maintains both its
defensive and aggressive Funds in the same family of Funds or sub-accounts within the same variable annuity.
Second, some Tactical Asset Allocation Portfolios listed below are also offered as “Select” Portfolios. “Select” Portfolios
are designed to allocate Client’s assets among Funds, and possibly exchange-traded funds, selected by BTS. The number
of Funds selected, and the allocation percentages are determined by BTS. The selection of Funds is performed in
accordance with the Portfolio selected by the Client.
Tactical Asset Allocation portfolios offered by BTS include:
High Yield Bond Fund Portfolio: This portfolio utilizes a defensive (money market) Fund and aggressive (high yield
bond) Fund.
Bond Asset Allocation Portfolio: This Portfolio utilizes a defensive (money market) Fund and two aggressive
(government and high yield bond) Funds.
Seasonality Portfolio: This portfolio employs a seasonal market timing strategy using defensive (money market)
Fund(s) that will be held during historically unfavorable market periods and an aggressive (stock) Fund(s) that will be
held during historically favorable market periods. The Portfolio attempts to provide downside protection during
unfavorable market periods and appreciation possibilities during favorable market periods by exchanging between
defensive and aggressive funds as signals to buy close to a favorable market period, and sell close to an unfavorable
market period, are generated. The historically favorable market period is approximately November through April and
the historically unfavorable market period is considered to be approximately May through October. BTS will not issue
buy or sell signals on any pre-selected dates but will issue buy and sell signals near favorable and unfavorable market
periods as the BTS’ investment models dictate. BTS reserves the right to issue buy or sell signals outside of historically
favorable and unfavorable periods when economic indicators or market situations develop where BTS determines it to
be necessary to issue such buy or sell signals.
Seasonality/High Yield Portfolio: This portfolio is a combination of the Seasonality Portfolio and the High Yield Portfolio,
as discussed above. During the favorable market period (approximately November through April), Client’s assets are
invested in accordance with the Seasonality Portfolio. However, during the unfavorable market period (approximately
May through October), Client’s assets are invested in accordance with the High Yield Portfolio. If, due to market
conditions, BTS issues a sell signal during the historically favorable period, Client’s assets may be invested in accordance
with the High Yield Portfolio for the remainder of the historically favorable period.
Seasonality/Bond Asset Allocation Portfolio: This portfolio is a combination of the Seasonality Portfolio and the Bond
Asset Allocation Portfolio, as discussed above. During the favorable market period (approximately November through
April), Client’s assets are invested in accordance with the Seasonality Portfolio. However, during the unfavorable market
period (approximately May through October), Client’s assets are invested in accordance with the Bond Asset Allocation
Portfolio. If due to market conditions BTS issues a sell signal during the historically favorable period, Client’s assets may
be invested in accordance with the Bond Asset Allocation Portfolio for the remainder of the historically favorable period.
“ETF” Portfolios: Some “Select” Portfolios listed above may invest in exchange-traded funds (“ETFs”) and others invest
primarily in ETFs (the latter are referred to as the “ETF Portfolios”). The ETF Portfolios are designed to allocate Client’s
assets among ETFs selected by BTS based on BTS’ buy and sell signals. The number of ETFs selected, and the allocation
percentages, shall be determined by BTS. The selection of ETFs will be performed in accordance with the Select Portfolio
selected by Client. Regardless of the Portfolio, Client’s whose Portfolios grant BTS discretion to affect any transactions in
ETFs on behalf of Clients shall be responsible for and pay all transaction fees for the purchase and sale of ETFs. It is also
important to note that due to the way ETFs are bought, sold and priced, ETF Portfolios and portfolios holding ETFs may
be more volatile than similar portfolios that are exclusively invested in mutual funds, which are priced at the end of the
day.
“Plus” Portfolios: Some Portfolios listed above also have “Plus” versions. “Plus” Portfolios are designed to give BTS the
option to invest Client’s assets in a high yield inverse Fund when BTS believes that high yields will decrease in value and
issues a sell signal.
Tax-Advantaged Portfolios: Some Portfolios listed above are managed using high-yield municipal bond funds in lieu of
corporate high yield bond funds. These portfolios seek to offer clients the same tactical approach to fixed income
investing, but with the added focus on selecting bond funds that have the potential to generate tax-exempt income.
Rydex Funds Tactical Portfolios: Some Portfolios listed above invest exclusively in Rydex mutual funds with assets under
custody at Axos Advisor Services. The intent of the Rydex Funds Tactical Portfolios is not to select funds but to allocate
100% to a bond sector or money market fund based on BTS’ buy and sell signals. If a Rydex Fund uses leverage, BTS may
make a lower allocation in order to avoid leverage. These Portfolios invest in Rydex mutual funds selected by BTS, based
on our buy and sell signals, and the Portfolio selected by the Client. At BTS’ discretion, BTS may use non-Rydex money
market funds during defensive periods. High Yield and Government bond mutual fund options at Rydex are typically
limited.
STRATEGIC ASSET ALLOCATION PORTFOLIOS
*Discretionary*
The Strategic Asset Allocation Portfolios are investment portfolios allocating assets among several mutual funds, and
possibly exchange-traded funds, and asset categories utilizing a variety of mutual fund and variable annuity companies.
After establishing the initial asset allocation mix, Client’s account will be reallocated, or rebalanced if allocation
percentages remain the same, on a quarterly basis within the first week of January, April, July, and October, in
accordance with BTS’ then current asset allocation recommendations. BTS, at its discretion, incorporates third party
research and recommendations into its own analysis for determining percentages. At BTS’ discretion, Client’s account
will be reallocated at other times as required based on BTS’ ongoing monitoring of the Portfolios and revised asset
allocation recommendations.
Under the following Strategic Asset Allocation Portfolios, BTS selects the Funds to be used in the Portfolio:
Alpha SAA Conservative: Portfolio is designed and managed with the goal of preservation of capital and inflation
protection.
Alpha SAA Balanced: Portfolio is designed and managed with the goal of capital appreciation and a moderate level of
current income.
Alpha SAA Growth: Portfolio is designed and managed with the goal of long-term capital appreciation.
American Funds Balanced: The American Funds Balanced portfolio is designed and managed with the goal of
minimizing losses while maintaining growth opportunities using American Funds mutual funds selected by BTS.
American Funds Growth: The American Funds Growth portfolio is designed and managed with the goal of long-term
capital appreciation using American Funds mutual funds selected by BTS.
Under the following Strategic Asset Allocation Portfolios, the Client selects the Funds to be used in the Portfolio:
Balanced: Portfolio is designed and managed with the goal of minimizing losses while maintaining growth
opportunities.
Growth: Portfolio is designed and managed with the goal of long-term capital appreciation.
MULTI-STRATEGY PORTFOLIOS
*Discretionary*
The Multi-Strategy Portfolios are investment portfolios allocating assets among several Funds, and possibly exchange-
traded, using a combination of investment styles, including, but not limited to, Strategic Asset Allocation, Tactical Asset
Allocation, and variations thereof, at the sole discretion of BTS. The Portfolio is an investment advisory service designed
to allocate Client’s assets among Funds selected by BTS in accordance with the Client’s investment objective. After
establishing the initial Portfolio allocations, Client’s account will be reallocated, or rebalanced if allocation percentages
remain the same, on a quarterly basis within the first week of January, April, July, and October, in accordance with the
BTS’ then current asset allocation recommendations. In addition, Client’s account will have occasional allocation
changes at the strategy and underlying funds level as BTS makes buy and sell decisions based on market conditions and
Advisor’s underlying investment strategies. BTS may change strategy level and underlying fund level allocation
percentage changes at BTS’ discretion. At BTS’ discretion, Client’s account will be reallocated at other times as required
based on the BTS’ revised asset allocation recommendations.
The following Portfolios are available based on Client’s investment objective and risk tolerance:
Conservative: Portfolio is designed and managed with the goal of preservation of capital and inflation protection.
Moderate: Portfolio is designed and managed with the goal of minimizing losses while maintaining growth
opportunities.
Growth: Portfolio is designed and managed with the goal of long-term capital appreciation.
CUSTOM MULTI-STRATEGY PORTFOLIOS
*Discretionary*
The Custom Multi-Strategy Portfolios are investment portfolios allocating assets among several Funds, Individual
Stocks, and possibly exchange-traded funds, using a combination of various BTS portfolios and investment styles. Client
selects which portfolios to utilize in their Custom Multi-Strategy Portfolio, up to a maximum of four. The Portfolio is an
investment advisory service designed to allocate Client’s assets among Funds or Individual Stocks selected by BTS in
accordance with the Client’s selection of portfolios.
After establishing the initial portfolio allocations, Client’s account will be reallocated, or rebalanced if allocation
percentages remain the same, on a quarterly basis within the first week of January, April, July, and October, in
accordance with BTS’ then current asset allocation recommendations. The only exception to this rule would be if the
Client selected the BTS Enhanced Equity Income Portfolio as a portion of the Custom Multi-Strategy. The Enhanced
Equity Income portion of the Custom Multi-Strategy would be rebalanced on the final day of each quarter. In addition,
Client’s account will have occasional allocation changes as BTS makes buy and sell decisions based on market
conditions and BTS’ underlying investment strategies. At BTS’ discretion, Client’s account will be reallocated at other
times as required based on the BTS’ revised asset allocation recommendations.
STRATEGIC INCOME PORTFOLIO
*Discretionary*
The Strategic Income Portfolio is a multi-asset class strategy that seeks total return and systematic income using a
diversified mix of open-end high yield and U.S. Government bond mutual funds and Exchange Traded Funds. Under
normal market conditions the Portfolio’s assets will be allocated exclusively among open-end high yield and U.S.
Government bond funds, using a target weighting of 50% - 50%. During favorable market periods, the Portfolio may
increase its risk exposure to enhance potential capital appreciation opportunities by allocating up to 70% of Portfolio
assets in high yield bond funds and 30% in U.S. Government bond funds. During unfavorable market periods, the
Portfolio may decrease its overall risk exposure in an attempt to mitigate downside risk by allocating up to 70% of
Portfolio assets in U.S. Government bond funds and 30% in high yield bond funds. The Portfolio weightings will
fluctuate based on BTS’ risk assessment of then current market conditions and leading economic indicators.
Adjustments to weightings may be incremental or dynamic. Incremental changes may be made when seeking to
balance risk in gradually trending markets whereas dynamic, more comprehensive Portfolio weighting shifts may
occur when seeking to balance risk in substantially volatile markets.
MANAGED INCOME PORTFOLIO
*Discretionary*
BTS seeks to achieve the Portfolio’s investment objective by simultaneously employing two strategies: the Income
Strategy (also referred to as the Diversified Income Core) and the Risk Management Strategy (also referred to as the
Tactical Satellite).
Income Strategy: Through the Income Strategy, the Portfolio typically invests 60-70% of the Portfolio’s assets in
income producing securities, without restriction as to maturity, credit quality, type of issuer, country or currency
through investment in open-end mutual funds and Exchange Traded Funds. The Portfolio defines income securities to
include: (i) bills, (ii) notes, (iii) debentures, (iv) bonds, (v) preferred stocks, (vi) loan participation interests, (vii) any
other debt or debt-related securities of any maturities, whether issued by U.S. or non-U.S. governments, agencies or
instrumentalities thereof or corporate entities, and having fixed, variable, floating or inverse floating rates, (viii)
other evidences of indebtedness, and dividend stocks. When selecting sector allocations under the Income Strategy,
BTS uses historic measures of risk, return, and correlation of yield generating asset classes. BTS then selects
individual securities based on BTS ’assessment of projected price and yield.
Risk Management Strategy: Under the Risk Management Strategy, the Portfolio tactically invests 30-40% of the
Portfolio’s assets in cash, cash equivalents, and open-end mutual funds and Exchange Traded Funds that invest
primarily in income producing securities in an attempt to reduce the volatility of the income securities held under the
Income Strategy. The Risk Management Strategy is an active trading strategy based on BTS’ proprietary tactical asset
allocation model that evaluates market trends and momentum. When selecting investments under the Risk
Management Strategy, BTS uses its models to identify investments with risk characteristics that are both negatively
correlated to the investments held under the Income Strategy and within the risk tolerances determined using the
model’s sector and market trend and momentum indicators.
GOLD TACTICAL ASSET ALLOCATION
*Discretionary*
The portfolio seeks long-term capital appreciation. In seeking to achieve its investment objective, BTS will primarily invest the
portfolio in exchange traded products (ETP’s) that seek to provide exposure to gold as an asset, such as Gold Trusts issuing
shares that principally derive their value from the value of gold. At other times, and in BTS’ sole discretion, BTS may invest the
portfolio in ETP’s that seek to provide exposure, either individually or in combination, to metals other than gold (including
any precious metals, rare metals, base metals, and industrial metals). In addition to exposure to the metals themselves, the
portfolio may be allocated at times to ETP’s that offer exposure to companies engaged in gold and metals related activities,
including the exploration, mining, processing, and dealing of metals.
More specifically, and under normal circumstances, the portfolio may invest up to 100% of its assets in any one or a
combination of the following:
Shares of Exchange Traded Products that invest primarily in gold and other metals (gold, silver, platinum, palladium). These
products are typically organized as trusts, hold the underlying commodity in physical form, and their shares (ownership
interests) are traded publicly on open exchanges. Shares of Exchange Traded Funds (ETFs) that invest primarily in a diversified
group of companies principally engaged in gold and precious metals related activities. These are companies that derive at
least 50% of their revenues from metals-related activities, including the exploration, mining or processing of such metals.
BTS uses its proprietary tactical models to try and identify the most favorable sector or sectors based on then market
conditions. When conditions deteriorate or worsen, or when the BTS models otherwise mandate, the portfolio may seek
defensive capital preservation and move up to 100% of its assets to cash and cash equivalents, such as money market funds,
and short duration bond funds.
MATERIAL RISK: The Gold Tactical Allocation portfolio is not suitable for everyone and involves material risk of loss, increased
volatility, and is subject to frequent trading, high portfolio turnover, and higher transactions costs than portfolios with less
frequent trading.
Note: BTS Asset Management, Inc. is not a Commodity Advisor or Commodity Pool Operator/Advisor. The portfolio does
not invest in, and BTS does not, as part of this or any available strategy, recommend or provide advice related to
instruments that are principally regulated under the Commodity Exchange Act, as administered by the Commodities
Futures Trading Commission (“CFTC”). The portfolio does not hold or trade instruments classified as Commodity Pools,
commodity futures contracts, or in any other instrument primarily regulated by the Commodity Exchange Act. The
portfolio only invests in exchange traded products that offer indirect exposure to precious metal sectors and that qualify
as publicly traded securities. Investments are selected only if they disclose by prospectus that they will not hold or trade in
commodity futures contracts regulated by the Commodity Exchange Act and that they are not classified as Commodity
Pools. BTS is not registered with the CFTC and, therefore, is not subject to CFTC jurisdiction. Clients and prospective clients
should note, therefore, that investment in the BTS Gold Tactical Asset Allocation Portfolio will not receive regulatory
protections afforded to investors in products principally regulated by the CFTC.
Enhanced Equity Income Portfolio
*Discretionary*
The Enhanced Equity Income portfolio consists of 4 independent strategies that aims to create a portfolio that
offers high yield and long-term capital appreciation. The portfolio will consist primarily of individual equity
securities. 40% will be allocated to equities that are dividend growers (Dividend Aristocrats), 30% will be allocated
to equities with strong balance sheets (Equity Fortress), 20% will be allocated to equities that are high dividend
payers, and 10% will be allocated to covered call ETFs. The 3 independent equity strategies will each have 9
securities, one from each of 9 out of 11 GICS (Global Industry Classification Standard) sectors. The same securities
could be chosen from different strategies and therefore possibly increasing the concentration in certain equity
securities. The equity selection and GICS sector overweight process are based on static rules using quarterly
fundamental ratio analysis. Depending on the timing of a new client account, client accounts could have a cash
allocation of up to 10% for up to two calendar quarters. Accounts are rebalanced and reallocated on a quarterly
calendar basis.
MATERIAL RISK: The Enhanced Equity Income portfolio is not suitable for everyone and involves material risk of loss,
increased volatility, subject to frequent trading, high portfolio turnover, and higher transactions costs than portfolios with
less frequent trading. The portfolio may also have concentration risk.
OTHER ACCOUNTS
Investment Companies (Sole Discretion):
BTS is the investment adviser to the BTS Tactical Fixed Income Fund (“TFI Fund”). The TFI Fund is a diversified
series of the Northern Lights Fund Trust and an Investment Company registered under the Investment Company Act of
1940. The TFI Fund has been involved in two material reorganizations, including initially being converted into a
Registered Investment Company from a private fund; and, most recently in December of 2014, acquiring all of the assets
and liabilities of the BTS Bond Asset Allocation Fund, a mutual fund previously managed by BTS. Under normal
circumstances, the TFI Fund invests (long or short) at least 80% of its assets in fixed income securities of domestic and
foreign issuers or counterparties. The TFI Fund defines fixed income securities to include: (i) bills, (ii) notes, (iii)
debentures, (iv) bonds, (v) mortgage-backed securities ("MBS"), (vi) asset-backed securities ("ABS"), (vii) preferred
stocks, (viii) loan participation interests, (ix) any other debt or debt-related securities of any maturities, whether issued
by U.S. or non-U.S. governments, agencies or instrumentalities thereof or corporate entities, and having fixed, variable,
floating or inverse floating rates, (x) fixed income derivatives including options, financial futures, options on futures and
swaps, (xi) other evidences of indebtedness; and (xii) other investment companies that invest primarily in fixed income
securities. The 80% investment policy can be changed without shareholder approval. BTS will, pursuant to its
preservation of capital mandate and to the extent permitted by prospectus, take a more defensive approach and allocate
up to 100% of the TFI Fund’s assets to cash and cash equivalents, including money market mutual funds.
Certain BTS clients whose assets are held at Axos Advisor Services (“Axos”) will be invested in BTS’ affiliated mutual
fund, the TFI Fund. BTS will allocate a percentage of the clients account towards the TFI Fund. The percentages change
and are rebalanced based upon current market conditions. As an example, a client may hold 10% of the TFI Fund,
rebalance to 15%, and then hold 0%. Clients of BTS subject to this arrangement give their express consent and are
provided up front disclosure in a BTS Client Agreement. A conflict of interest exists in this scenario as the TFI Fund is
affiliated with BTS and pays BTS an investment management fee. To manage this conflict, Clients with assets invested in
the TFI Fund will receive a credit (offset) against the advisory fee otherwise payable to BTS under the BTS Client
Agreement for the advisory fees paid to BTS from the TFI Fund. The effect of this credit will be to reduce the amount of
the advisory fee payable directly to BTS by the Client per this Agreement, but the credit will not affect the amount
received by BTS for indirectly providing services to the Client since BTS retains the fees paid to us by the TFI Fund.
BTS is the investment adviser to the BTS Tactical Fixed Income VIT Fund (“TFI VIT Fund”). The TFI VIT Fund is a
diversified series of the Northern Lights Variable Trust and an Investment Company registered under the Investment
Company Act of 1940. Under normal circumstances, the TFI VIT Fund invests at least 80% of its assets in fixed income
securities. The 80% investment policy can be changed without shareholder approval. BTS will, pursuant to its
preservation of capital mandate and to the extent permitted by prospectus, take a more defensive approach and allocate
up to 100% of the TFI VIT Fund’s assets to cash and cash equivalents, including money market mutual funds.
BTS is the investment adviser to the BTS Managed Income Fund (“Managed Income Fund”). The Managed Income Fund
is a diversified series of the Northern Lights Fund Trust and an Investment Company registered under the Investment
Company Act of 1940. Under normal circumstances, the Fund simultaneously employs two strategies: the Income Strategy
and the Risk Management Strategy. Income Strategy. Through the Income Strategy, the Fund typically invests 60-70% of
the Fund’s assets in income-producing securities, without restriction as to maturity, credit quality, type of issuer, country,
market capitalization or currency, either through direct investment or indirectly through investment in Underlying Funds.
When selecting sector allocations under the Income Strategy, the Adviser uses historic measures of risk, return, and
correlation of yield generating asset classes. The Adviser then selects individual securities based on the Adviser’s assessment
of projected price and yield. Risk Management Strategy. Under the Risk Management Strategy, the Fund tactically invests
30-40% of the Fund’s assets in cash, cash equivalents, and fixed income securities, without restriction as to maturity, credit
quality, type of issuer, country or currency, including government and government related securities, in an effort to reduce
the volatility of the income-producing securities held under the Income Strategy. The Risk Management Strategy is an
active trading strategy based on the Adviser’s proprietary tactical asset allocation model that evaluates market trends and
momentum. When selecting investments under the Risk Management Strategy, the Adviser uses its tactical asset allocation
model to identify investments with risk characteristics that are both negatively correlated to the investments held under the
Income Strategy and within the risk tolerances determined using the model’s sector and market trend and momentum
indicators.
Certain BTS clients whose assets are held at Axos will be invested in BTS’ affiliated mutual fund, the Managed Income
Fund. BTS will allocate a percentage of the clients account towards the Managed Income Fund. The percentages change
and are rebalanced based upon current market conditions. As an example, a client may hold 10% of the Managed
Income Fund, rebalance to 15%, and then hold 0%. Clients of BTS subject to this arrangement give their express
consent and are provided up front disclosure in a BTS Client Agreement. A conflict of interest exists in this scenario as
the Managed Income Fund is affiliated with BTS and pays BTS an investment management fee. To manage this conflict,
Clients with assets invested in the Managed Income Fund will receive a credit (offset) against the advisory fee
otherwise payable to BTS under the BTS Client Agreement for the advisory fees paid to BTS from the Managed Income
Fund. The effect of this credit will be to reduce the amount of the advisory fee payable directly to BTS by the Client per
this Agreement, but the credit will not affect the amount received by BTS for indirectly providing services to the Client
since BTS retains the fees paid to us by the Managed Income Fund.
Collectively, the TFI Fund, Managed Income Fund and TFI VIT Fund are referred to as the “BTS Funds” throughout the
remainder of this Brochure. Prospectuses for the BTS Funds contain important information related to the Funds’
investment objectives, risks, charges, fees, expenses, and minimum investment amounts.
Sub-Advisory (Impersonal, Non-Discretionary):
As described in the overview in Item 4 above, we enter into certain agreements with unaffiliated entities and financial
professionals (“Advisors”) whereby we provide model trading recommendations (“buy” and “sell” signals) to the
Advisors for their use in their clients’ portfolios. Under the terms of these arrangements, we act as a sub-advisor,
providing our model trade recommendations as consultation services to the Advisor for a negotiable fee based upon the
total assets under management of the Advisor impacted by our model trading instructions. BTS does not execute any
exchanges under these agreements nor does BTS have a direct relationship with the clients of the Advisors that may be
directly affected by the services provided under the agreement. BTS therefore is unable to assess and ensure that our
recommendations remain appropriate for clients of Advisors that retain our Sub-Advisory services. Upon issuing new
model trading instructions, BTS notifies the Advisors of new recommendations in the form and medium agreed upon
and the Advisors exercise ultimate discretion in determining whether to implement the BTS instructions. Because BTS
does not exercise ongoing discretion and has no supervisory control over assets in these arrangements, allocation
percentages, trade dates and Fund selections implemented by Advisors may differ from what may be recommended by
BTS, resulting in potentially materially different performance and transactions costs than BTS Clients in the same
Portfolio.
C) Tailored Relationships
BTS enters directly into advisory agreements with Clients and provides continuous and regular supervisory or
management services to each individual BTS Client account. BTS processes and ensures trade instructions are properly
implemented, monitors each account, and treats each BTS Client using a BTS model portfolio as a unique and individual
Client. BTS will select funds to be used for Clients in Select Portfolios, and Clients are permitted to give specific
restrictions and instructions on Select portfolios. BTS does not make “buy” or “sell” decisions regarding individual
securities not part of BTS’ model portfolios. This means that BTS Clients using the same BTS Portfolio will, to the extent
permitted by custodian and fund availability, receive the same portfolio level discretionary investment advice. The
exact funds used will differ, but BTS will not give discretionary advice to individual Clients if that advice is not
consistent with the BTS portfolio strategy, its investment objectives or acceptable risk profile.
BTS offers specific Asset Allocation Portfolios for Clients to choose from and the advice and management services we
provide are generally restricted to the terms and objectives of the offered Portfolios. A prospective BTS Client, with the
assistance of the financial representative recommending our services to the Client, works together to select a BTS
Portfolio. The Client and their financial representative do this after evaluation of the Portfolio’s risks, charges, fees, and
expenses and whether they are consistent with the Client’s investment objectives and risk tolerance. BTS then reviews
each Client’s risk and financial profile during the application review stage to determine whether the chosen BTS
portfolio is appropriate. After accepting an application and reviewing a client’s profile, BTS monitors and manages each
account and the model portfolios on a routine basis.
In order to ensure prospective Clients and their representative have the information necessary to assess whether BTS’
Portfolios are appropriate, BTS provides tools prior to the on-boarding stage to the prospective Client and their
financial representative to use when reviewing whether BTS’ advisory services are suitable and meet the prospective
Client’s investment objectives and risk profile.
As noted above, investment restrictions for “Select” Portfolios may be made and they must be provided to BTS in
writing. Because of the nature of the model portfolios that we provide, certain restrictions and requirements may
prevent BTS from being able to establish a relationship with the prospective Client. As explained right above, this is
because the restriction may prevent BTS from managing the account using the strategy of the Portfolio.
D) Wrap Fee Programs
As described in the overview in Item 4 above, BTS participates in a third-party capacity in certain third party sponsored
platform programs, such as Wrap Fee Programs sponsored by unaffiliated broker-dealers, banks, or other financial
institutions. Pursuant to written agreements between BTS and the Program Sponsor, BTS provides model investment
advisory services to the Program Sponsor in a mutually acceptable format. The terms and conditions of this relationship
are determined by each Third-Party Platform agreement and may differ. Depending upon the nature of the relationship
and the terms of the agreement, the Program Sponsor maintains (or designates) a certain level of discretionary
authority over program or account assets and chooses either to reject or accept our model investment advice, in whole
or in part, for use in their program accounts. In these situations, BTS is providing non-discretionary, model
recommendations to the Program Sponsor as a strategist only.
For other programs, however, the authority of the third party may be limited to performing specified functions,
including administrative and/or trade order implementation duties pursuant to the direction of BTS. In such situations,
BTS continuously reviews the model instructions that we provide in order to ensure that the model is accurate and
complete. When BTS, in its discretion determines the model requires amending or modifying, the Program Sponsor
requires BTS to adjust the model. In these situations, the Program Sponsor agrees that it will begin processing our
instructions over program assets on the day that we issue the instructions but note that circumstances outside of their
control may delay implementation beyond one day. Unless due to circumstances outside the control of BTS, if BTS fails
to make timely discretionary changes to BTS’ model, BTS is contractually responsible for trade losses incurred by the
Program Sponsor and/or Wrap Fee Program account assets affected.
BTS will provide model trading recommendations to the Program Sponsor, or a third party as directed by the Program
Sponsor, who will be responsible for executing BTS’ recommended trades. BTS has no authority or responsibility for
transaction execution. Because BTS does not have a direct relationship with the clients impacted by our services under
these Wrap Programs, BTS is unable to assess whether our services are appropriate for each individual client. Whether
our available models are appropriate and remain appropriate is a matter to be determined by the Program Sponsor, the
client and/or the client’s financial representative, if applicable.
In order to access our model advisory services on a Third-Party Platform, an investor signs an agreement with the
Program Sponsor. Through this agreement the Program Sponsor and/or the Client’s financial representative obtains the
information necessary to determine whether BTS’ model portfolio is appropriate for the client. BTS exercises control
over the model and makes changes as necessary. A comprehensive fee (a "Wrap Fee") generally includes trade
execution, consulting, and custodial services performed or arranged by the Program Sponsor and the fee for BTS to
provide third party model strategist services. BTS does not calculate or bill the Program Sponsor client fees.
Accounts participating in these Third-Party programs are arranged only through the Program Sponsor, and commission
charges, custodial and other fees are determined by the Program Sponsor.
When BTS issues model delivery recommendations, Third Party Platform accounts participating in the programs will
not benefit from the possible advantages of aggregating with accounts that BTS manages on a discretionary basis, as
BTS has no control or authority over order routing, execution, or timing of execution of its recommendations. BTS
Clients will therefore receive different execution prices.
BTS fees vary by wrap fee platform and program sponsor. BTS portfolios and the securities used inside BTS portfolios
will also differ across platform and program. Together, these variations will result in investors across platforms
incurring different management fees, portfolio expenses, and overall investment performance results. These differences
may be material.
In programs where BTS has agreed in writing with Program Sponsors to a reduced management fee for its services,
portfolios subject to the reduced fee will have a percentage of assets allocated to one of BTS’ open-end proprietary
mutual funds. As the Funds’ investment manager, BTS receives an ongoing management fee equal up to 1% of assets
under management. The fees received from the BTS Funds on assets allocated from program portfolios are expected to
offset the reduction of the BTS program management fee. While the amount of the offset received from the BTS Funds
management fee is expected to equal the amount of the fee reduction, investors in these portfolios will incur higher
overall portfolio expenses, and thus lower investment returns, if the expense ratio of the BTS Fund (cost of owning the
BTS Fund in the portfolio) is higher than the aggregate expense ratios of securities that would have been used in the
portfolio.
The Program Sponsor or financial representative is required to provide the client(s) inside the program with a copy of
BTS’ disclosure brochure. BTS does not have a direct relationship with the individual clients on the Third-Party
Platform and does not provide individualized investment advice or disclosure or act as a fiduciary to participating
investors. For a complete description of the Program Sponsor and platform terms and conditions, refer to their
Appendix 1 of Form ADV Part 2A and other disclosures.
E) Managed Assets
As of December 31, 2023, BTS managed approximately $208,504,026 in discretionary assets for approximately 1000
accounts. Assets managed on a discretionary basis include BTS separately managed accounts and the BTS Funds.
This number does not include the approximately $277,295,679 in 1) assets that are under our advisement through sub-
advisory relationships where BTS provides only model recommendations to unaffiliated entities that expressly limit
BTS’ discretion, or 2) assets that are considered Wrap Program/Third Party Platform assets where BTS’ discretion is
expressly limited by agreement. We do not consider these “Regulatory Assets under Management.”