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 811-21726
360 Funds
(Exact name of registrant as specified in charter)
| | 4300 Shawnee Mission Parkway, Suite 100 Fairway, KS | 66205 | |
| | (Address of principal executive offices) | (Zip code) | |
The Corporation Trust Company
Corporation Trust Center
1209 Orange St.
Wilmington, DE 19801
(Name and address of agent for service)
With Copies To:
John H. Lively
Practus, LLP
11300 Tomahawk Creek Parkway, Suite 310
Leawood, KS 66211
Registrant's telephone number, including area code: 877-244-6235
Date of fiscal year end: 10/31/2019
Date of reporting period: 04/30/2019
| ITEM 1. | REPORTS TO STOCKHOLDERS |
The Semi-Annual report to Shareholders of the Powell Alternative Income Strategies Fund (the “Fund”), a series of the 360 Funds, for the period ended April 30, 2019 pursuant to Rule 30e-1 under the Investment Company Act of 1940, as amended (the “1940 Act”) (17 CFR 270.30e-1), is filed herewith.
Powell Alternative Income Strategies Fund
Investor Class Shares (Ticker Symbol: PAISX)
A series of the
360 Funds
SEMI-ANNUAL REPORT
APRIL 30, 2019
Investment Adviser
Powell Capital, LLC
938 Broadway, Court C, 2nd Floor
Tacoma, WA 98407
IMPORTANT NOTE: Beginning on January 1, 2021, as permitted by regulations adopted by the SEC, paper copies of the Powell Alternative Income Strategies Fund’s (the “Fund”) shareholder reports will no longer be sent by mail unless you specifically request paper copies of the reports from the Fund or from your financial intermediary, such as a broker-dealer or bank. Instead, the reports will be made available on a website, 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 all future reports in paper free of charge. You can inform the Fund or your financial intermediary that you wish to continue receiving paper copies of your shareholder reports by calling or sending an e-mail request.
TABLE OF CONTENTS
| Powell Alternative Income Strategies Fund | SEMI-ANNUAL REPORT |
INVESTMENT HIGHLIGHTS
April 30, 2019 (Unaudited)
The investment objective of the Powell Alternative Income Strategies Fund (the “Fund”) is to generate income and capital appreciation with lower volatility as compared to the S&P 500® Index. Powell Capital, LLC (the “Adviser”) seeks to achieve the Fund’s investment objective by employing a multi-strategy approach that will target income and capital appreciation while maintaining an active hedging structure to mitigate volatility. The Adviser may utilize each or any combination of the following alternative investment strategies: (1) a Protected Income Strategy; (2) a Pair Trade Strategy; and/or (3) any other strategies identified by the Adviser, from time to time, that under current market and economic conditions are most suited to achieve the Fund’s objective. There is no requirement for the Adviser to use all of the strategies at any given time, and the Adviser may determine that the relevant conditions warrant allocation of all of the Fund’s assets to only one of these strategies.
Protected Income Strategy: The strategy has two components: income generation and volatility protection. Income generation involves purchasing dividend-paying securities and selling covered calls. The Fund realizes income when it collects dividends on securities and premiums on the written calls. The Fund manages the volatility of the portfolio by using various hedging techniques, such as purchasing inverse exchange-traded funds (“ETFs”) or put options on either the portfolio’s securities or a broad securities index.
Pair Trade Strategy: The strategy aims to extract returns by taking advantage of market dislocations and pricing inefficiencies of various types: behavorial, technical or fundamental. The strategy monitors performance of two historically correlated securities. When the correlation between the two securities temporarily weakens (i.e., one security moves up while the other moves down), the pair trade would be to short the outperforming security and to go long the underperforming one. This strategy attempts to gain on the “spread” between the two positions that would eventually converge. When implementing this strategy, the Fund invests in ETFs, including leveraged and inverse ETFs. The Fund may also utilize futures and options on securities indices and ETFs.
Alternative Strategies Flexibility: The Adviser may identify additional and new strategies from time to time that will generate income and capital appreciation while managing volatility. These strategies may involve the utilization of equity and fixed income securities, as well as puts, options and futures. These strategies may also involve high portfolio turnover. These strategies may also involve making investments in other investment companies, including ETFs.
When determining how to allocate the Fund’s assets among the strategies, the Adviser considers a variety of factors. These factors include asset class allocations, preferred asset class positioning and contribution to overall portfolio characteristics. These characteristics include capitalization size, growth and profitability measures, valuation measures, economic sector weightings, country weightings, earnings and price volatility statistics, yield, liquidity, credit quality and duration. The Fund also considers the manner in which the specific strategies’ historical and expected investment returns, as well as the historical and expected returns of asset classes, correlate with one another. In addition, Adviser may adjust allocations based on the Fund’s overall exposures and forecasted portfolio risk.
Allocation of Portfolio Holdings
| Asset Class | | Percentage of Portfolio |
| Common Stock | | 73.36% |
| Exchange Traded Funds | | 26.00% |
| Written Call Options | | (0.25)% |
| Cash, Cash Equivalents & Other, Net | | 0.89% |
| | | 100.00% |
The percentages in the above table are based on net assets of the Fund as of April 30, 2019 and are subject to change. For a detailed break-out of holdings by industry and investment type, please refer to the Schedule of Investments.
POWELL ALTERNATIVE INCOME STRATEGIES FUND
SCHEDULE OF INVESTMENTS
| April 30, 2019 (Unaudited) | SEMI-ANNUAL REPORT |
| COMMON STOCK - 73.36% | | Shares | | | Fair Value | |
| | | | | | | |
| Aerospace & Defense - 9.86% | | | | | | | | |
| Boeing Co. (a) | | | 1,900 | | | $ | 717,611 | |
| United Technologies Corp. (a) | | | 1,900 | | | | 270,959 | |
| | | | | | | | 988,570 | |
| Apparel - 1.66% | | | | | | | | |
| NIKE, Inc. - Class B (a) | | | 1,900 | | | | 166,877 | |
| | | | | | | | | |
| Banks - 6.10% | | | | | | | | |
| Goldman Sachs Group, Inc. (a) | | | 1,900 | | | | 391,248 | |
| JPMorgan Chase & Co. (a) | | | 1,900 | | | | 220,495 | |
| | | | | | | | 611,743 | |
| Chemicals - 1.07% | | | | | | | | |
| DowDuPont, Inc. (a) | | | 1,900 | | | | 107,787 | |
| | | | | | | | | |
| Computers - 6.46% | | | | | | | | |
| Apple, Inc. (a) | | | 1,900 | | | | 381,273 | |
| International Business Machines Corp. (a) | | | 1,900 | | | | 266,513 | |
| | | | | | | | 647,786 | |
| Cosmetics & Personal Care - 2.02% | | | | | | | | |
| Procter & Gamble Co. (a) | | | 1,900 | | | | 202,312 | |
| | | | | | | | 192,940 | |
| Diversified Financial Services - 5.34% | | | | | | | | |
| American Express Co. (a) | | | 1,900 | | | | 222,737 | |
| Visa, Inc. - Class A (a) | | | 1,900 | | | | 312,417 | |
| | | | | | | | 535,154 | |
| Healthcare - Services - 4.42% | | | | | | | | |
| UnitedHealth Group, Inc. (a) | | | 1,900 | | | | 442,833 | |
| | | | | | | | | |
| Insurance - 2.72% | | | | | | | | |
| Travelers Cos., Inc. (a) | | | 1,900 | | | | 273,125 | |
| | | | | | | | | |
| Machinery - Construction & Mining - 2.64% | | | | | | | | |
| Caterpillar, Inc. (a) | | | 1,900 | | | | 264,898 | |
| | | | | | | | | |
| Media - 2.59% | | | | | | | | |
| Walt Disney Co. (a) | | | 1,900 | | | | 260,243 | |
| | | | | | | | | |
| Miscellaneous Manufacturing - 3.59% | | | | | | | | |
| 3M Co. (a) | | | 1,900 | | | | 360,069 | |
| | | | | | | | | |
| Oil & Gas - 3.80% | | | | | | | | |
| Chevron Corp. (a) | | | 1,900 | | | | 228,114 | |
| Exxon Mobil Corp. (a) | | | 1,900 | | | | 152,532 | |
| | | | | | | | 380,646 | |
| Pharmaceuticals - 4.94% | | | | | | | | |
| Johnson & Johnson (a) | | | 1,900 | | | | 268,280 | |
| Merck & Co., Inc. (a) | | | 1,900 | | | | 149,549 | |
| Pfizer, Inc. (a) | | | 1,900 | | | | 77,159 | |
| | | | | | | | 494,988 | |
POWELL ALTERNATIVE INCOME STRATEGIES FUND
SCHEDULE OF INVESTMENTS
| April 30, 2019 (Unaudited) | SEMI-ANNUAL REPORT |
| COMMON STOCK - 73.36% (continued) | | Shares | | | Fair Value | |
| | | | | | | |
| Retail - 10.57% | | | | | | | | |
| Home Depot, Inc. (a) | | | 1,900 | | | $ | 387,030 | |
| McDonald's Corp. (a) | | | 1,900 | | | | 375,383 | |
| Walgreens Boots Alliance, Inc. (a) | | | 1,900 | | | | 101,783 | |
| Walmart, Inc. (a) | | | 1,900 | | | | 195,396 | |
| | | | | | | | 1,059,592 | |
| Semiconductors - 0.97% | | | | | | | | |
| Intel Corp. (a) | | | 1,900 | | | | 96,976 | |
| | | | | | | | | |
| Software - 2.47% | | | | | | | | |
| Microsoft Corp. (a) | | | 1,900 | | | | 248,140 | |
| | | | | | | | | |
| Telecommunications - 2.14% | | | | | | | | |
| Cisco Systems, Inc. (a) | | | 1,900 | | | | 106,305 | |
| Verizon Communications, Inc. (a) | | | 1,900 | | | | 108,661 | |
| | | | | | | | 214,966 | |
| | | | | | | | | |
| TOTAL COMMON STOCK (Cost $7,428,635) | | | | | | | 7,356,705 | |
| | | | | | | | | |
| EXCHANGE TRADED FUNDS - 26.00% | | | | | | | | |
| | | | | | | | | |
| Equity Funds - 26.00% | | | | | | | | |
| Direxion Daily S&P 500 Bull and Bear 3X Shares | | | 13,116 | | | | 244,351 | |
| ProShares Ultra QQQ | | | 3,741 | | | | 247,243 | |
| ProShares UltraPro Short Dow30 | | | 120,604 | | | | 1,526,847 | |
| SPDR Dow Jones Industrial Average ETF Trust | | | 2,217 | | | | 589,256 | |
| | | | | | | | 2,607,697 | |
| | | | | | | | | |
| TOTAL EXCHANGE TRADED FUNDS (Cost $2,759,236) | | | | | | | 2,607,697 | |
| | | | | | | | | |
| SHORT-TERM INVESTMENT - 1.44% | | | | | | | | |
| | | | | | | | | |
| Federated Government Obligations Fund - Institutional Shares, 2.31% (a) (b) | | | 144,157 | | | | 144,157 | |
| | | | | | | | | |
| TOTAL SHORT-TERM INVESTMENT (Cost $144,157) | | | | | | | 144,157 | |
| | | | | | | | | |
| TOTAL INVESTMENTS (Cost $10,332,028) - 100.80% | | | | | | | 10,108,559 | |
| | | | | | | | | |
| OPTIONS WRITTEN (Proceeds $20,869) - (0.25%) | | | | | | | (25,350 | ) |
| | | | | | | | | |
| LIABILITIES IN EXCESS OF OTHER ASSETS, NET - (0.55)% | | | | | | | (55,266 | ) |
| | | | | | | | | |
| NET ASSETS - 100% | | | | | | $ | 10,027,943 | |
(a) All or a portion of the security is segregated as collateral for call options written.
(b) Rate shown represents the 7-day effective yield at April 30, 2019, is subject to change and resets daily.
ETF - Exchange Traded Fund
The accompanying notes are an integral part of these financial statements.
POWELL ALTERNATIVE INCOME STRATEGIES FUND
SCHEDULE OF INVESTMENTS
| April 30, 2019 (Unaudited) | SEMI-ANNUAL REPORT |
| OPTIONS WRITTEN - (0.38)% | | | | | | | | | | | | | | | |
| CALL OPTIONS WRITTEN - (0.38%) | | Contracts 1 | | | Notional Amount | | | Exercise Price | | | Expiration | | | Fair Value | |
| | | | | | | | | | | | | | | | |
| 3M Co. | | | 5 | | | $ | 96,250 | | | $ | 192.50 | | | | 5/3/2019 | | | $ | 125 | |
| 3M Co. | | | 4 | | | $ | 78,000 | | | $ | 195.00 | | | | 5/3/2019 | | | | 24 | |
| 3M Co. | | | 5 | | | $ | 96,250 | | | $ | 192.50 | | | | 5/10/2019 | | | | 470 | |
| 3M Co. | | | 5 | | | $ | 97,500 | | | $ | 195.00 | | | | 5/10/2019 | | | | 170 | |
| American Express Co. | | | 5 | | | $ | 57,500 | | | $ | 115.00 | | | | 5/3/2019 | | | | 1,230 | |
| American Express Co. | | | 5 | | | $ | 58,000 | | | $ | 116.00 | | | | 5/3/2019 | | | | 545 | |
| American Express Co. | | | 4 | | | $ | 47,600 | | | $ | 119.00 | | | | 5/3/2019 | | | | 40 | |
| American Express Co. | | | 5 | | | $ | 58,500 | | | $ | 117.00 | | | | 5/17/2019 | | | | 755 | |
| Apple, Inc. | | | 4 | | | $ | 88,000 | | | $ | 220.00 | | | | 5/3/2019 | | | | 84 | |
| Apple, Inc. | | | 5 | | | $ | 106,250 | | | $ | 212.50 | | | | 5/3/2019 | | | | 450 | |
| Apple, Inc. | | | 4 | | | $ | 89,000 | | | $ | 222.50 | | | | 5/3/2019 | | | | 52 | |
| Boeing Co./The | | | 5 | | | $ | 192,500 | | | $ | 385.00 | | | | 5/3/2019 | | | | 350 | |
| Boeing Co./The | | | 5 | | | $ | 196,250 | | | $ | 392.50 | | | | 5/3/2019 | | | | 55 | |
| Caterpillar, Inc. | | | 5 | | | $ | 69,500 | | | $ | 139.00 | | | | 5/3/2019 | | | | 885 | |
| Caterpillar, Inc. | | | 4 | | | $ | 57,600 | | | $ | 144.00 | | | | 5/3/2019 | | | | 176 | |
| Caterpillar, Inc. | | | 5 | | | $ | 72,500 | | | $ | 145.00 | | | | 5/3/2019 | | | | 90 | |
| Caterpillar, Inc. | | | 5 | | | $ | 73,000 | | | $ | 146.00 | | | | 5/10/2019 | | | | 215 | |
| Chevron Corp. | | | 5 | | | $ | 60,000 | | | $ | 120.00 | | | | 5/3/2019 | | | | 450 | |
| Chevron Corp. | | | 5 | | | $ | 60,500 | | | $ | 121.00 | | | | 5/10/2019 | | | | 550 | |
| Chevron Corp. | | | 4 | | | $ | 49,200 | | | $ | 123.00 | | | | 5/10/2019 | | | | 168 | |
| Cisco Systems, Inc. | | | 4 | | | $ | 23,000 | | | $ | 57.50 | | | | 5/3/2019 | | | | 4 | |
| Cisco Systems, Inc. | | | 7 | | | $ | 39,900 | | | $ | 57.00 | | | | 5/10/2019 | | | | 161 | |
| Cisco Systems, Inc. | | | 4 | | | $ | 23,600 | | | $ | 59.00 | | | | 5/17/2019 | | | | 140 | |
| Cisco Systems, Inc. | | | 4 | | | $ | 23,800 | | | $ | 59.50 | | | | 5/17/2019 | | | | 108 | |
| Dow, Inc. | | | 5 | | | $ | 28,250 | | | $ | 56.50 | | | | 5/3/2019 | | | | 500 | |
| Dow, Inc. | | | 4 | | | $ | 22,800 | | | $ | 57.00 | | | | 5/3/2019 | | | | 360 | |
| Dow, Inc. | | | 4 | | | $ | 23,400 | | | $ | 58.50 | | | | 5/3/2019 | | | | 80 | |
| Dow, Inc. | | | 5 | | | $ | 30,000 | | | $ | 60.00 | | | | 5/3/2019 | | | | 50 | |
| Exxon Mobil Corp. | | | 5 | | | $ | 40,500 | | | $ | 81.00 | | | | 5/3/2019 | | | | 120 | |
| Goldman Sachs Group, Inc. | | | 5 | | | $ | 105,000 | | | $ | 210.00 | | | | 5/3/2019 | | | | 170 | |
| Goldman Sachs Group, Inc. | | | 5 | | | $ | 106,250 | | | $ | 212.50 | | | | 5/3/2019 | | | | 45 | |
| Goldman Sachs Group, Inc. | | | 4 | | | $ | 84,000 | | | $ | 210.00 | | | | 5/10/2019 | | | | 448 | |
| Goldman Sachs Group, Inc. | | | 5 | | | $ | 106,250 | | | $ | 212.50 | | | | 5/10/2019 | | | | 290 | |
| Home Depot, Inc. | | | 5 | | | $ | 105,000 | | | $ | 210.00 | | | | 5/3/2019 | | | | 10 | |
| Home Depot, Inc. | | | 5 | | | $ | 103,750 | | | $ | 207.50 | | | | 5/10/2019 | | | | 310 | |
| Home Depot, Inc. | | | 5 | | | $ | 106,250 | | | $ | 212.50 | | | | 5/10/2019 | | | | 35 | |
| Intel Corp. | | | 5 | | | $ | 26,500 | | | $ | 53.00 | | | | 5/3/2019 | | | | 20 | |
| Intel Corp. | | | 4 | | | $ | 21,200 | | | $ | 53.00 | | | | 5/10/2019 | | | | 88 | |
| Intel Corp. | | | 5 | | | $ | 27,000 | | | $ | 54.00 | | | | 5/10/2019 | | | | 55 | |
| Intel Corp. | | | 5 | | | $ | 27,250 | | | $ | 54.50 | | | | 5/10/2019 | | | | 45 | |
| International Business Machines Corp. | | | 4 | | | $ | 56,000 | | | $ | 140.00 | | | | 5/3/2019 | | | | 400 | |
| International Business Machines Corp. | | | 10 | | | $ | 143,000 | | | $ | 143.00 | | | | 5/3/2019 | | | | 80 | |
| Johnson & Johnson | | | 5 | | | $ | 70,500 | | | $ | 141.00 | | | | 5/3/2019 | | | | 525 | |
| Johnson & Johnson | | | 9 | | | $ | 127,800 | | | $ | 142.00 | | | | 5/3/2019 | | | | 477 | |
| Johnson & Johnson | | | 5 | | | $ | 71,500 | | | $ | 143.00 | | | | 5/10/2019 | | | | 315 | |
| JPMorgan Chase & Co. | | | 5 | | | $ | 58,000 | | | $ | 116.00 | | | | 5/3/2019 | | | | 400 | |
| JPMorgan Chase & Co. | | | 5 | | | $ | 59,500 | | | $ | 119.00 | | | | 5/3/2019 | | | | 25 | |
| JPMorgan Chase & Co. | | | 4 | | | $ | 46,400 | | | $ | 116.00 | | | | 5/10/2019 | | | | 484 | |
| JPMorgan Chase & Co. | | | 5 | | | $ | 59,000 | | | $ | 118.00 | | | | 5/10/2019 | | | | 220 | |
| McDonald's Corp. | | | 5 | | | $ | 98,750 | | | $ | 197.50 | | | | 5/3/2019 | | | | 605 | |
| McDonald's Corp. | | | 6 | | | $ | 120,000 | | | $ | 200.00 | | | | 5/3/2019 | | | | 174 | |
| McDonald's Corp. | | | 8 | | | $ | 162,000 | | | $ | 202.50 | | | | 5/3/2019 | | | | 48 | |
| Merck & Co., Inc. | | | 4 | | | $ | 31,600 | | | $ | 79.00 | | | | 5/3/2019 | | | | 180 | |
| Merck & Co., Inc. | | | 5 | | | $ | 39,750 | | | $ | 79.50 | | | | 5/3/2019 | | | | 120 | |
| Merck & Co., Inc. | | | 5 | | | $ | 40,000 | | | $ | 80.00 | | | | 5/3/2019 | | | | 60 | |
POWELL ALTERNATIVE INCOME STRATEGIES FUND
SCHEDULE OF INVESTMENTS
| April 30, 2019 (Unaudited) | SEMI-ANNUAL REPORT |
| OPTIONS WRITTEN - (0.38)% (continued) | | | | | Notional | | | Exercise | | | | | | | |
| | | Contracts 1 | | | Amount | | | Price | | | Expiration | | | Fair Value | |
| CALL OPTIONS WRITTEN - (0.38%) (continued) | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| Merck & Co., Inc. | | | 5 | | | $ | 39,750 | | | $ | 79.50 | | | | 5/10/2019 | | | $ | 305 | |
| Microsoft Corp. | | | 5 | | | $ | 66,000 | | | $ | 132.00 | | | | 5/3/2019 | | | | 160 | |
| Microsoft Corp. | | | 5 | | | $ | 66,500 | | | $ | 133.00 | | | | 5/10/2019 | | | | 255 | |
| NIKE, Inc. | | | 5 | | | $ | 44,500 | | | $ | 89.00 | | | | 5/3/2019 | | | | 105 | |
| NIKE, Inc. | | | 5 | | | $ | 44,750 | | | $ | 89.50 | | | | 5/3/2019 | | | | 50 | |
| NIKE, Inc. | | | 5 | | | $ | 45,250 | | | $ | 90.50 | | | | 5/3/2019 | | | | 15 | |
| NIKE, Inc. | | | 4 | | | $ | 36,400 | | | $ | 91.00 | | | | 5/10/2019 | | | | 48 | |
| Pfizer, Inc. | | | 5 | | | $ | 20,750 | | | $ | 41.50 | | | | 5/3/2019 | | | | 25 | |
| Pfizer, Inc. | | | 5 | | | $ | 21,000 | | | $ | 42.00 | | | | 5/3/2019 | | | | 10 | |
| Travelers Co.s, Inc. | | | 12 | | | $ | 168,000 | | | $ | 140.00 | | | | 5/17/2019 | | | | 5,160 | |
| United Technologies Corp. | | | 5 | | | $ | 71,000 | | | $ | 142.00 | | | | 5/3/2019 | | | | 635 | |
| United Technologies Corp. | | | 5 | | | $ | 72,500 | | | $ | 145.00 | | | | 5/10/2019 | | | | 280 | |
| UnitedHealth Group, Inc. | | | 9 | | | $ | 216,000 | | | $ | 240.00 | | | | 5/3/2019 | | | | 351 | |
| UnitedHealth Group, Inc. | | | 5 | | | $ | 121,250 | | | $ | 242.50 | | | | 5/3/2019 | | | | 100 | |
| UnitedHealth Group, Inc. | | | 5 | | | $ | 122,500 | | | $ | 245.00 | | | | 5/10/2019 | | | | 300 | |
| Verizon Co.mmunications, Inc. | | | 5 | | | $ | 29,000 | | | $ | 58.00 | | | | 5/10/2019 | | | | 145 | |
| Visa, Inc. | | | 19 | | | $ | 318,250 | | | $ | 167.50 | | | | 5/3/2019 | | | | 152 | |
| Visa, Inc. | | | 5 | | | $ | 83,750 | | | $ | 167.50 | | | | 5/10/2019 | | | | 145 | |
| Walgreens Boots Alliance, Inc. | | | 4 | | | $ | 21,800 | | | $ | 54.50 | | | | 5/3/2019 | | | | 88 | |
| Walgreens Boots Alliance, Inc. | | | 5 | | | $ | 27,750 | | | $ | 55.50 | | | | 5/3/2019 | | | | 30 | |
| Walgreens Boots Alliance, Inc. | | | 5 | | | $ | 28,250 | | | $ | 56.50 | | | | 5/3/2019 | | | | 25 | |
| Walgreens Boots Alliance, Inc. | | | 5 | | | $ | 27,750 | | | $ | 55.50 | | | | 5/10/2019 | | | | 130 | |
| Walmart, Inc. | | | 5 | | | $ | 52,500 | | | $ | 105.00 | | | | 5/3/2019 | | | | 20 | |
| Walmart, Inc. | | | 5 | | | $ | 53,500 | | | $ | 107.00 | | | | 5/17/2019 | | | | 290 | |
| Walmart, Inc. | | | 4 | | | $ | 43,200 | | | $ | 108.00 | | | | 5/17/2019 | | | | 164 | |
| Walt Disney Co. | | | 5 | | | $ | 67,500 | | | $ | 135.00 | | | | 5/3/2019 | | | | 1,280 | |
| Walt Disney Co. | | | 5 | | | $ | 72,500 | | | $ | 145.00 | | | | 5/3/2019 | | | | 20 | |
| Walt Disney Co. | | | 4 | | | $ | 55,200 | | | $ | 138.00 | | | | 5/10/2019 | | | | 936 | |
| Walt Disney Co. | | | 5 | | | $ | 75,000 | | | $ | 150.00 | | | | 5/10/2019 | | | | 90 | |
| | | | | | | | | | | | | | | | | | | | | |
| TOTAL CALL OPTIONS WRITTEN (Proceeds $20,869) | | | | | | | | | | | | | | | | 25,350 | |
| | | | | | | | | | | | | | | | | | | | | |
| TOTAL OPTIONS WRITTEN (Proceeds $20,869) | | | | | | | | | | | | | | | $ | 25,350 | |
1 Each option contract is equivalent to 100 shares of the underlying common stock. All options are non-income producing.
The accompanying notes are an integral part of these financial statements.
POWELL ALTERNATIVE INCOME STRATEGIES FUND
STATEMENT OF ASSETS AND LIABILITIES
| April 30, 2019 (Unaudited) | SEMI-ANNUAL REPORT |
| Assets: | | | | |
| Investments, at cost | | $ | 10,332,028 | |
| Investments, at value | | $ | 10,108,559 | |
| Receivables: | | | | |
| Interest | | | 1,033 | |
| Dividends | | | 5,296 | |
| Investment securities sold | | | 31,885 | |
| Prepaid expenses | | | 3,849 | |
| Total assets | | | 10,150,622 | |
| | | | | |
| Liabilities: | | | | |
| Options written, at proceeds | | $ | 20,869 | |
| Options written, at value | | $ | 25,350 | |
| Payables: | | | | |
| Investment securities purchased | | | 28,965 | |
| Fund shares redeemed | | | 16,554 | |
| Due to adviser | | | 5,543 | |
| Accrued distribution (12b-1) fees | | | 3,881 | |
| Due to administrator | | | 5,473 | |
| Due to broker | | | 34,807 | |
| Accrued expenses | | | 2,106 | |
| Total liabilities | | | 122,679 | |
| Net Assets | | $ | 10,027,943 | |
| | | | | |
| Sources of Net Assets: | | | | |
| Beneficial interest | | $ | 10,909,129 | |
| Total distributable earnings | | | (881,186 | ) |
| Total Net Assets (Unlimited shares of beneficial interest authorized) | | $ | 10,027,943 | |
| | | | | |
| Investor Class Shares: | | | | |
| Net assets applicable to 1,119,384 shares outstanding | | $ | 10,027,943 | |
| Net Asset Value, Offering and Redemption Per Share | | $ | 8.96 | |
The accompanying notes are an integral part of these financial statements.
POWELL ALTERNATIVE INCOME STRATEGIES FUND
STATEMENT OF OPERATIONS
| | | For the Six Month | |
| | | Period Ended | |
| | | April 30, 2019 | |
| | | | (Unaudited) | |
| Investment income: | | | | |
| Dividends (net of foreign withholding taxes of $0) | | $ | 80,652 | |
| Interest | | | 13,158 | |
| Total investment income | | | 93,810 | |
| | | | | |
| Expenses: | | | | |
| Advisory fees (Note 6) | | | 83,055 | |
| Distribution (12b-1) fees - Investor Class | | | 11,865 | |
| Accounting and transfer agent fees and expenses | | | 31,391 | |
| Trustee fees and expenses | | | 8,836 | |
| Legal fees | | | 8,271 | |
| Audit fees | | | 7,579 | |
| Miscellaneous | | | 7,219 | |
| Custodian fees | | | 6,280 | |
| Pricing fees | | | 6,098 | |
| Shareholder network fees | | | 5,131 | |
| Compliance officer fees | | | 4,462 | |
| Registration and filing fees | | | 1,590 | |
| Reports to shareholders | | | 263 | |
| Insurance | | | 157 | |
| Total expenses | | | 182,197 | |
| Less expense reimbursement: | | | | |
| Fees waived/reimbursed by Adviser | | | (50,960 | ) |
| Fees waived by Administrator | | | (12,500 | ) |
| Net expenses | | | 118,737 | |
| | | | | |
| Net investment loss | | | (24,927 | ) |
| | | | | |
| Realized and unrealized gain (loss): | | | | |
| Net realized gain (loss) on: | | | | |
| Investments | | | (673,084 | ) |
| Options written | | | 256,723 | |
| Net realized loss on investments and options written | | | (416,361 | ) |
| | | | | |
| Net change in unrealized depreciation on: | | | | |
| Investments | | | 306,213 | |
| Options written | | | 2,581 | |
| Net change in unrealized depreciation on investments and options written | | | 308,794 | |
| | | | | |
| Net loss on investments | | | (107,567 | ) |
| | | | | |
| Net decrease in net assets resulting from operations | | $ | (132,494 | ) |
The accompanying notes are an integral part of these financial statements.
POWELL ALTERNATIVE INCOME STRATEGIES FUND
STATEMENTS OF CHANGES IN NET ASSETS
| | | | | | | |
| | SEMI-ANNUAL REPORT | |
| | | | | | | |
| | | For the Six Month | | | For the | |
| | | Period Ended | | | Period Ended | |
| | | April 30, 2019 | | | October 31, 2018 (a) | |
| | | | (Unaudited) | | | | | |
| Increase (decrease) in net assets from: | | | | | | | | |
| Operations: | | | | | | | | |
| Net investment loss | | $ | (24,927 | ) | | $ | (28,081 | ) |
| Net realized gain (loss) on investments and options written | | | (416,361 | ) | | | 446,407 | |
| Net change in unrealized depreciation on investments and options written | | | 308,794 | | | | (536,744 | ) |
| Net decrease in net assets resulting from operations | | | (132,494 | ) | | | (118,418 | ) |
| | | | | | | | | |
| Distributions to shareholders from: | | | | | | | | |
| Total distributable earnings - Investor Class | | | (630,274 | ) | | | — | |
| Total distributions | | | (630,274 | ) | | | — | |
| | | | | | | | | |
| Beneficial interest transactions (Note 4): | | | | | | | | |
| Increase in net assets from beneficial interest transactions | | | 2,034,466 | | | | 8,874,663 | |
| | | | | | | | | |
| Increase in net assets | | | 1,271,698 | | | | 8,756,245 | |
| | | | | | | | | |
| Net Assets: | | | | | | | | |
| Beginning of period | | | 8,756,245 | | | | — | |
| | | | | | | | | |
| End of period | | $ | 10,027,943 | | | $ | 8,756,245 | |
| |
| (a) | The Powell Alternative Income Strategies Fund commenced operations on April 18, 2018. |
The accompanying notes are an integral part of these financial statements.
| POWELL ALTERNATIVE INCOME STRATEGIES FUND | | | | | |
| | | | | | | | | | |
| FINANCIAL HIGHLIGHTS | | | | | | | | |
| | | | | | | | | | |
| | | | | | | SEMI-ANNUAL REPORT |
| | | | | | | | | | |
| The following tables set forth the per share operating performance data for a share of beneficial interest outstanding, total return ratios to average net assets and other supplemental data for the period indicated. |
| | | | | | | |
| | | Investor Class | |
| | | | |
| | | For the Six Month | | | For the | |
| | | Period Ended | | | Perid Ended | |
| | | April 30, 2019 | | | October 31, 2018 (a) | |
| | | (Unaudited) | | | | | |
| | | | | | | | | |
| Net Asset Value, Beginning of Period | | $ | 9.79 | | | $ | 10.00 | |
| | | | | | | | | |
| Investment Operations: | | | | | | | | |
| Net investment loss | | | (0.02 | ) | | | (0.05 | ) |
| Net realized and unrealized loss on investments | | | (0.18 | ) | | | (0.16 | ) |
| Total from investment operations | | | (0.20 | ) | | | (0.21 | ) |
| | | | | | | | | |
| Distributions: | | | | | | | | |
| From net realized capital gains | | | (0.63 | ) | | | — | |
| Total distributions | | | (0.63 | ) | | | — | |
| | | | | | | | | |
| Net Asset Value, End of Period | | $ | 8.96 | | | $ | 9.79 | |
| | | | | | | | | |
| Total Return (b) | | | (1.91 | )%(c) | | | (2.10 | )%(c) |
| | | | | | | | | |
| Ratios/Supplemental Data | | | | | | | | |
| Net assets, end of period (in 000's) | | $ | 10,028 | | | $ | 8,756 | |
| | | | | | | | | |
| Ratios of expenses to average net assets (d): | | | | | | | | |
| Before fees waived and expenses reimbursed | | | 3.84 | %(e) | | | 5.07 | %(e)(f) |
| After fees waived and expenses reimbursed | | | 2.50 | %(e) | | | 2.51 | %(e)(f) |
| | | | | | | | | |
| Ratios of net investment loss (d): | | | | | | | | |
| Before fees waived and expenses reimbursed | | | (1.86 | )%(e) | | | (3.46 | )%(e)(f) |
| After fees waived and expenses reimbursed | | | (0.52 | )%(e) | | | (0.91 | )%(e)(f) |
| | | | | | | | | |
| Portfolio turnover rate | | | 664 | %(c) | | | 995 | %(c) |
| (a) | The Powell Alternative Income Strategies Fund commenced operations on April 18, 2018. |
| (b) | Total Return represents the rate that the investor would have earned or lost on an investment in the Fund, assuming reinvestment of dividends, if any. |
| (c) | Not annualized. |
| (d) | Ratios do not include expenses of the investment companies in which the Fund invests. |
| (e) | Annualized. |
| (f) | Ratios are for the period from April 23, 2018, the date of initial expense accruals, through October 31, 2018. The ratios include 0.01% of interest expense from options written during the period ended October 31, 2018. |
The accompanying notes are an integral part of these financial statements.
| Powell Alternative Income Strategies Fund | SEMI-ANNUAL REPORT |
NOTES TO THE FINANCIAL STATEMENTS
April 30, 2019 (Unaudited)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The Powell Alternative Income Strategies Fund (the “Fund”) is a series of 360 Funds (the “Trust”). The Trust was organized on February 24, 2005 as a Delaware statutory trust. The Trust is registered as an open-end management investment company under the Investment Company Act of 1940 (the “1940 Act”). The Fund is a non-diversified Fund. As a non-diversified Fund, it may invest a significant portion of its assets in a small number of companies. The Fund’s investment objective is to generate income and capital appreciation with lower volatility as compared to the S&P 500® Index. The Fund’s investment adviser is Powell Capital, LLC (the “Adviser”). The Fund has one class of shares, Investor Class shares. The Fund commenced operations on April 18, 2018.
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements. The Fund is an investment company that follows the accounting and reporting guidance of Accounting Standards Codification Topic 946 applicable to investment companies.
a) Security Valuation – All investments in securities are recorded at their estimated fair value, as described in note 2.
b) Options – The Fund’s option strategy consists of selling and purchasing put and call options on securities and security indexes. The sale of put options generates income for the Fund, but exposes it to the risk of declines in the value of the underlying assets. The risk in purchasing options is limited to the premium paid by the Fund for the options. The sale of call options generates income for the Fund, but may limit the Fund’s participation in equity market gains. The Fund’s investment adviser seeks to reduce the overall volatility of returns for the Fund by managing a portfolio of options. When the Fund writes or purchases an option, an amount equal to the premium received or paid by the Fund is recorded as a liability or an asset and is subsequently adjusted to the current fair value of the option written or purchased. Premiums received or paid from writing or purchasing options which expire unexercised are treated by the Fund on the expiration date as realized gains or losses. The difference between the premium and the amount paid or received on affecting a closing purchase or sale transaction, including brokerage commissions, is also treated as a realized gain or loss. If an option is exercised, the premium paid or received is added to the cost of the purchase or proceeds from the sale in determining whether the Fund has realized a gain or a loss on investment transactions.
Purchasing and selling put and call options are highly specialized activities and entail greater than ordinary investment risks. The successful use of options depends in part on the ability of the investment adviser to manage future price fluctuations and the degree of correlation between the options and securities (or currency) markets. By selling put options on equity securities, the Fund gives up the opportunity to benefit from potential increases in the value of the underlying securities above the strike prices of the sold put options, but continue to bear the risk of declines in the value of underlying securities held by the Fund. The Fund will receive a premium from the purchaser of a covered call option sold, which they retain whether or not the option is exercised. The premium received from the sold options may not be sufficient to offset any losses sustained from the volatility of the underlying equity securities over time.
The Fund will incur a loss as a result of a written option (also referred to as a short position) if the price of the written option instrument increases in value between the date when the Fund writes the option and the date on which the Fund purchases an offsetting position. The Fund’s losses are potentially large in a written put transaction and potentially unlimited in a written call transaction. Please refer to the Fund’s prospectus for a full listing of risks associated with these instruments.
c) Exchange-Traded Funds - The Fund may invest in Exchange-Traded Funds (“ETFs”). ETFs are registered investment companies and incur fees and expenses such as operating expenses, licensing fees, registration fees, trustees fees, and marketing expenses, and ETF shareholders, such as the Fund, pay their proportionate share of these expenses. Your cost of investing in the Fund will generally be higher than the cost of investing directly in ETFs. By investing in the Fund, you will indirectly bear fees and expenses charged by the underlying ETFs in which the Fund invests in addition to the Fund’s direct fees and expenses. Also, with respect to dividends paid by the ETFs, it is possible for these dividends to exceed the underlying investments’ taxable earnings and profits resulting in the excess portion of such dividends being designated as a return of capital. Distributions received from investments in securities that represent a return of capital or capital gains are recorded as a reduction of the cost of investments or as a realized gain, respectively.
| Powell Alternative Income Strategies Fund | SEMI-ANNUAL REPORT |
NOTES TO THE FINANCIAL STATEMENTS
April 30, 2019 (Unaudited)
| 1. | ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued) |
d) Federal Income Taxes – The Fund intends to qualify as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). It is the policy of the Fund to comply with the requirements of the Code applicable to regulated investment companies and to distribute substantially all of its net investment company taxable income and net capital gains. Therefore, no provision for federal income taxes is required.
As of and during the six month period ended April 30, 2019, the Fund did not have a liability for any unrecognized tax expenses. The Fund recognizes interest and penalties, if any, related to unrecognized tax liability as income tax expense in the statement of operations. During the six month period ended April 30, 2019, the Fund did not incur any interest or penalties. The Fund identifies its major tax jurisdictions as U.S. Federal and Delaware state.
In addition, accounting principles generally accepted in the United States of America (“GAAP”) requires management of the Fund to analyze all open tax years, as defined by IRS statute of limitations for all major jurisdictions, including federal tax authorities and certain state tax authorities. As of and during the six month period ended April 30, 2019 and during the period from April 18, 2018 (commencement of operations) through October 31, 2018, the Fund did not have a liability for any unrecognized tax benefits. The Fund has no examination in progress and is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.
e) Distributions to Shareholders – Dividends from net investment income and distributions of net realized capital gains, if any, will be declared and paid at least annually. Income and capital gain distributions, which are determined in accordance with income tax regulations, are recorded on the ex-dividend date. GAAP requires that permanent financial reporting differences relating to shareholder distributions be reclassified to paid-in capital.
f) Use of Estimates – The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
g) Non-Diversified Fund – The Fund is a non-diversified fund. In general, a non-diversified fund may invest a greater percentage of its assets in a particular issue and may own fewer securities than other mutual funds. Accordingly, a non-diversified fund is generally subject to the risk that a large loss in an individual issue will cause a greater loss for the fund than it would if the fund was required to hold a larger number of securities or smaller positions.
h) Expenses – Expenses incurred by the Trust that do not relate to a specific fund of the Trust are allocated to the individual funds based on each fund’s relative net assets or another appropriate basis (as determined by the Board).
i) Other – Investment and shareholder transactions are recorded on trade date. The Fund determines the gain or loss realized from the investment transactions by comparing the original cost of the security lot sold with the net sales proceeds. Dividend income is recognized on the ex-dividend date or as soon as information is available to the Fund and interest income is recognized on an accrual basis. 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.
2. SECURITIES VALUATIONS
Processes and Structure
The Fund’s Board of Trustees has adopted guidelines for valuing securities and other derivative instruments including circumstances in which market quotes are not readily available, and has delegated authority to the Adviser to apply those guidelines in determining fair value prices, subject to review by the Board of Trustees.
| Powell Alternative Income Strategies Fund | SEMI-ANNUAL REPORT |
NOTES TO THE FINANCIAL STATEMENTS
April 30, 2019 (Unaudited)
2. SECURITIES VALUATIONS (continued)
Hierarchy of Fair Value Inputs
The Fund utilizes various methods to measure the fair value of most of its investments on a recurring basis. GAAP establishes a hierarchy that prioritizes inputs to valuation techniques used to measure fair value. The three levels of inputs are as follows:
| ● | Level 1 – Unadjusted quoted prices in active markets for identical assets or 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 that relevant observable inputs are not available, representing the Fund’s own assumptions about the assumptions that a market participant would use in valuing the asset or liability, and that 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.
Fair Value Measurements
A description of the valuation techniques applied to the company’s major categories of assets and liabilities measured at fair value on a recurring basis follows.
Equity securities (common stock and ETFs) – Securities traded on a national securities exchange (or reported on the NASDAQ national market) are stated at the last reported sales price on the day of valuation. To the extent these securities are actively traded, and valuation adjustments are not applied, they are categorized in level 1 of the fair value hierarchy. Certain foreign securities may be fair valued using a pricing service that considers the correlation of the trading patterns of the foreign security to the intraday trading in the U.S. markets for investments such as American Depositary Receipts, financial futures, Exchange Traded Funds, and the movement of the certain indexes of securities based on a statistical analysis of the historical relationship and that are categorized in level 2. Preferred stock and other equities traded on inactive markets or valued by reference to similar instruments are also categorized in level 2.
Money market funds – Money market funds are valued at their net asset value of $1.00 per share and are categorized as Level 1.
Derivative instruments – Listed derivatives, including options that are actively traded are valued based on quoted prices from the exchange and categorized in level 1 of the fair value hierarchy. Options held by the Fund for which no current quotations are readily available and which are not traded on the valuation date are valued at the mean price and are categorized within level 2 of the fair value hierarchy. Options that are thinly traded for which a mean price is not available are valued at the ask price or the bid price, whichever is available, and are categorized within level 2 of the fair value hierarchy. Over-the-counter (OTC) derivative contracts include forward, swap, and option contracts related to interest rates; foreign currencies; credit standing of reference entities; equity prices; or commodity prices, and warrants on exchange-traded securities. Depending on the product and terms of the transaction, the fair value of the OTC derivative products can be modeled taking into account the counterparties’ creditworthiness and using a series of techniques, including simulation models. Many pricing models do not entail material subjectivity because the methodologies employed do not necessitate significant judgments, and the pricing inputs are observed from actively quoted markets, as is the case of interest rate swap and option contracts. OTC derivative products valued using pricing models are categorized within level 2 of the fair value hierarchy.
| Powell Alternative Income Strategies Fund | SEMI-ANNUAL REPORT |
NOTES TO THE FINANCIAL STATEMENTS
April 30, 2019 (Unaudited)
2. SECURITIES VALUATIONS (continued)
If the Adviser decides that a price provided by the pricing service does not accurately reflect the fair value of the securities, when prices are not readily available from a pricing service, or when certain restricted or illiquid securities are being valued, securities are valued at fair value as determined in good faith by the Adviser, in conformity with guidelines adopted by and subject to review of the Board and the Fair Valuation Committee. These securities will be categorized as Level 3 securities.
The following table summarizes the inputs used to value the Fund’s assets and liabilities measured at fair value as of April 30, 2019.
| Financial Instruments – Assets | | | | | | | | |
| Security Classification (1) | Level 1 | | Level 2 | | Level 3 | | Totals | |
| Common Stock (2) | $ | 7,356,705 | | $ | — | | $ | — | | $ | 7,356,705 | |
| Exchange Traded Funds (2) | | 2,607,697 | | | | | | | | | 2,607,697 | |
| Short-Term Investments | | 144,157 | | | — | | | — | | | 144,157 | |
| Total Assets | $ | 10,108,559 | | $ | — | | $ | — | | $ | 10,108,559 | |
| Derivative Instruments – Liabilities | | | | | | | | |
| Security Classification (1) | Level 1 | | Level 2 | | Level 3 | | Totals | |
| Call Options Written | $ | 25,350 | | $ | — | | $ | — | | $ | 25,350 | |
| Total Liabilities | $ | 25,350 | | $ | — | | $ | — | | $ | 25,350 | |
(1) As of and during the six month period ended April 30, 2019, the Fund held no securities that were considered to be “Level 3” securities (those valued using significant unobservable inputs). Therefore, a reconciliation of assets in which significant unobservable inputs (Level 3) were used in determining fair value is not applicable.
(2) All common stock and exchange-traded funds (“ETFs”) held in the Fund are Level 1 securities. For a detailed break-out of common stock by industry and ETFs by investment type, please refer to the Schedule of Investments.
It is the Fund’s policy to recognize transfers between Levels at the end of the reporting period. There were no assets or liabilities transferred into and out of any Levels during the six month period ended April 30, 2019.
During the six month period ended April 30, 2019 no securities were fair valued.
3. DERIVATIVES TRANSACTIONS
As of April 30, 2019, portfolio securities valued at $5,421,850 were held in escrow by the custodian as cover for options written by the Fund.
| Powell Alternative Income Strategies Fund | SEMI-ANNUAL REPORT |
NOTES TO THE FINANCIAL STATEMENTS
April 30, 2019 (Unaudited)
3. DERIVATIVES TRANSACTIONS (continued)
As of April 30, 2019, the location on the Statement of Assets and Liabilities for financial derivative instrument fair values is as follows:
| Liabilities | | Location | | Equity Contracts | |
| Call options written | | Options written, at value | | $ | 25,350 | |
| Total Liabilities | | | | $ | 25,350 | |
Realized and unrealized gains and losses on derivatives contracts entered into by the Fund during the six month period ended April 30, 2019, are recorded in the following locations in the Statement of Operations:
Net change in unrealized
depreciation on: | | Location | | Equity Contracts | |
| Put options purchased | | Investments | | $ | 84,718 | |
| Call options written | | Options written | | | 2,581 | |
| | | | | $ | 87,299 | |
| Net realized gain (loss) on: | | Location | | Equity Contracts | |
| Put options purchased | | Investments | | $ | (95,853 | ) |
| Call options written | | Options written | | | 256,723 | |
| | | | | $ | 160,870 | |
All open derivative positions at April 30, 2019 are reflected on the Fund’s Schedule of Investments. The following table presents the Fund’s liability derivatives available for offset under a master netting arrangement net of collateral pledged as of April 30, 2019.
| | | Gross Amounts of Liabilities Presented in the Statement of Assets & Liabilities | |
| | | Gross Amounts of Recognized
Liabilities | | | Gross
Amounts
Offset in the
Statement of
Assets and
Liabilities | | | Net Amounts of
Liabilities
Presented in the
Statement of
Assets and
Liabilities | | | Financial Instruments Pledged | | | Cash Collateral Pledged | | | Net Amount of Liabilities | |
| Options Written Contracts | $ | 25,350 (1) | | $ | — | | $ | 25,350 (1) | | $ | 25,350 (2) | | $ | — | | $ | — | |
| Total | $ | 25,350 (1) | | $ | — | | $ | 25,350 (1) | | $ | 25,350 (2) | | $ | — | | $ | — | |
(1) Written options at value as presented in the Schedule of Written Options.
(2) The amount is limited to the derivative liability balance and accordingly does not include excess collateral pledged.
4. BENEFICIAL INTEREST TRANSACTIONS
Transactions in shares of beneficial interest for the Fund for the six month period ended April 30, 2019 were as follows:
| | Sold | | Redeemed | | Reinvested | | Net Increase | |
| Investor Class | | | | | | | | | | | | |
| Shares | | 281,318 | | | (127,881 | ) | | 71,703 | | | 225,140 | |
| Value | $ | 2,573,222 | | $ | (1,169,030 | ) | $ | 630,274 | | $ | 2,034,466 | |
| Powell Alternative Income Strategies Fund | SEMI-ANNUAL REPORT |
NOTES TO THE FINANCIAL STATEMENTS
April 30, 2019 (Unaudited)
4. BENEFICIAL INTEREST TRANSACTIONS (continued)
Transactions in shares of beneficial interest for the Fund for the period from April 18, 2018 (commencement of operations) through October 31, 2018 were as follows:
| | Sold | | Redeemed | | Reinvested | | Net Increase | |
| Investor Class | | | | | | | | | | | | |
| Shares | | 929,248 | | | (35,004 | ) | | — | | | 894,244 | |
| Value | $ | 9,221,255 | | $ | (346,592 | ) | $ | — | | $ | 8,874,663 | |
5. INVESTMENT TRANSACTIONS
For the six month period ended April 30, 2019, aggregate purchases and sales of investment securities (excluding short-term investments) for the Fund were as follows:
| Purchases | | Sales | |
| $ | 57,857,949 | | $ | 55,101,315 | |
There were no government securities purchased or sold during the period.
6. ADVISORY FEES AND OTHER RELATED PARTY TRANSACTIONS
The Fund has entered into an Investment Advisory Agreement (the “Advisory Agreement”) with the Adviser. Pursuant to the Advisory Agreement, the Adviser manages the operations of the Fund and manages the Fund’s investments in accordance with the stated policies of the Fund. As compensation for the investment advisory services provided to the Fund, the Adviser will receive a monthly advisory fee equal to an annual rate of 1.75% of the Fund’s net assets. For the six month period ended April 30, 2019, the Adviser earned $83,055 of advisory fees.
The Adviser has entered into an Expense Limitation Agreement with the Fund under which it has agreed to waive or reduce its fees and to assume other expenses of the Fund, if necessary, in an amount that limits the Fund’s annual operating expenses (exclusive of interest, distribution fees pursuant to Rule 12b-1 plans, taxes, acquired fund fees and expenses, brokerage commissions, dividend expenses on short sales and other expenditures which are capitalized in accordance with generally accepted accounting principles and other extraordinary expenses not incurred in the ordinary court of such Fund’s business) to not more than 2.25% through at least February 28, 2020. For the six month period ended April 30, 2019, the Adviser waived advisory fees of $50,960.
Subject to approval by the Fund’s Board of Trustees, each waiver or reimbursement of an expense by the Adviser is subject to repayment by the Fund within three fiscal years following the fiscal year in which the expense was incurred, provided that the Fund is able to make the repayment without exceeding the expense limitation in place at the time of the waiver or reimbursement and at the time the waiver or reimbursement is recouped. As of April 30, 2019, the total amount of expenses waived/reimbursed subject to recapture, pursuant to the waiver agreements was $112,345, of which $61,385 and $50,960 will expire on October 31, 2021and October 31, 2022, respectively.
The Fund has entered into an Investment Company Services Agreement (“ICSA”) with M3Sixty Administration, LLC (“M3Sixty”). Pursuant to the ICSA, M3Sixty will provide day-to-day operational services to the Fund including, but not limited to: (a) Fund accounting services; (b) financial statement preparation; (c) valuation of the Fund’s portfolio securities; (d) pricing the Fund’s shares; (e) assistance in preparing tax returns; (f) preparation and filing of required regulatory reports; (g) communications with shareholders; (h) coordination of Board and shareholder meetings; (i) monitoring the Fund’s legal compliance; (j) maintaining shareholder account records.
For the six month period ended April 30, 2019, M3Sixty earned $35,853, including out of pocket expenses.
M3Sixty has also agreed to voluntarily waive certain fees until certain thresholds are met by the Fund. During the six month period ended April 30, 2019, M3Sixty waived fees of $12,500.
Certain officers and a Trustee of the Fund are also employees of M3Sixty.
| Powell Alternative Income Strategies Fund | SEMI-ANNUAL REPORT |
NOTES TO THE FINANCIAL STATEMENTS
April 30, 2019 (Unaudited)
| 6. | ADVISORY FEES AND OTHER RELATED PARTY TRANSACTIONS (continued) |
The Fund has entered into a Distribution Agreement with Matrix 360 Distributors, LLC (“M3SixtyD”). Pursuant to the Distribution Agreement, M3SixtyD provides distribution services to the Fund. M3SixtyD serves as underwriter/distributor of the Fund.
M3SixtyD is an affiliate of M3Sixty.
The Fund has adopted a Distribution Plan (“Plan”) pursuant to Rule 12b-1 under the Investment Company Act of 1940. The Fund may expend up to 0.25% for Investor Class shares of the Fund’s average daily net assets annually to pay for any activity primarily intended to result in the sale of shares of the Fund and the servicing of shareholder accounts, provided that the Trustees have approved the category of expenses for which payment is being made.
For the six month period ended April 30, 2019 the Fund accrued $11,865 in 12b-1 expenses attributable to Investor Class shares.
For U.S. Federal income tax purposes, the cost of securities owned, gross appreciation, gross depreciation, and net unrealized appreciation/(depreciation) of investments at April 30, 2019 were as follows:
| Cost | | | Gross Appreciation | | | Gross Depreciation | | | Net Depreciation | |
| $ | 11,281,304 | | | $ | 69,864 | | | $ | (1,267,959 | ) | | $ | (1,198,095 | ) |
The difference between book basis and tax basis unrealized appreciation (depreciation) is primarily attributable to the tax deferral of losses on wash sales.
The Fund’s tax basis distributable earnings are determined only at the end of each fiscal year. The tax character of distributable earnings (deficit) at October 31, 2018, the Fund’s most recent fiscal year end, was as follows:
Undistributed Ordinary Income | | | Post-October Loss and Late Year Loss | | | Capital Loss Carry Forwards | | | Other Book/Tax Differences | | | Unrealized Depreciation | | | Total Distributable Earnings | |
| $ | 630,274 | | | $ | — | | | $ | — | | | $ | — | | | $ | (748,692 | ) | | $ | (118,418 | ) |
At October 31, 2018, the Fund had no capital loss carry forwards for federal income tax purposes available to offset future capital gains.
During the six month period ended April 30, 2019 the Fund distributed $630,274 of ordinary income.
The Fund did not pay any distributions during the period from April 18, 2018 (commencement of operations) through October 31, 2018.
The beneficial ownership, either directly or indirectly, of more than 25% of the voting securities of a fund creates a presumption of control of the fund, under Section 2(a)(9) of the Investment Company Act of 1940. As of April 30, 2019, TD Ameritrade, Inc. and Charles Schwab & Co. held 54.54% and 39.51%, respectively, of the Fund’s shares in omnibus accounts for the sole benefit of its customers. The Trust does not know whether any of the underlying beneficial shareholders of the omnibus accounts held by TD Ameritrade, Inc. and Charles Schwab Co. own more than 25% of the voting securities of the Fund.
| 9. | COMMITMENTS AND CONTINGENCIES |
In the normal course of business, the Trust may enter into contracts that may contain a variety of representations and warranties and provide general indemnifications. The Trust’s maximum exposure under these arrangements is dependent on future claims that may be made against the Fund and, therefore, cannot be estimated; however, management considers the risk of loss from such claims to be remote.
| Powell Alternative Income Strategies Fund | SEMI-ANNUAL REPORT |
NOTES TO THE FINANCIAL STATEMENTS
April 30, 2019 (Unaudited)
| 10. | RECENT ACCOUNTING PRONOUNCEMENTS |
In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (ASU) No. 2018-13 “Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement” (“ASU 2018-13”) which includes amendments intended to improve the effectiveness of disclosures in the notes to financial statements. For example, ASU 2018-13 includes additional disclosures regarding the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and clarifications to the narrative description of measurement uncertainty disclosures. ASU 2018-13 is effective for interim and annual periods beginning after December 15, 2019. Management is currently evaluating the impact that ASU 2018- 13 will have on the Fund’s financial statements and related disclosures.
In accordance with GAAP, Management has evaluated the impact of all subsequent events on the Fund through the date the financial statements were issued, and has determined that there were no subsequent events requiring recognition or disclosure in the financial statements.
| Powell Alternative Income Strategies Fund | SEMI-ANNUAL REPORT |
ADDITIONAL INFORMATION
April 30, 2019 (Unaudited)
The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (the “Commission”) for the first and third quarters of each fiscal year on Form N-Q. The Fund’s Forms N-Q are available on the Commission’s website at http://www.sec.gov. The Fund’s Forms N-Q may be reviewed and copied at the Commission’s Public Reference Room in Washington, DC. Information on the operation of the Commission’s Public Reference Room may be obtained by calling 1-800-SEC-0330.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, by calling 1-877-244-6235; and on the Commission’s website at http://www.sec.gov.
Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30th is available without charge, upon request, by calling 1-877-244-6235; and on the Commission’s website at http://www.sec.gov.
Shareholder Tax Information - The Fund is required to advise you within 60 days of the Fund’s fiscal year end regarding the federal tax status of distributions received by shareholders during the fiscal year. During the six month period ended April 30, 2019 the Fund distributed $630,274 of ordinary income.
Tax information is reported from the Fund’s fiscal year and not calendar year, therefore, shareholders should refer to their Form 1099-DIV or other tax information which will be mailed in 2020 to determine the calendar year amounts to be included on their 2018 tax returns. Shareholders should consult their own tax advisors.
| Powell Alternative Income Strategies Fund | SEMI-ANNUAL REPORT |
ADDITIONAL INFORMATION
April 30, 2019 (Unaudited)
BOARD OF TRUSTEES, OFFICERS AND PRINCIPAL SHAREHOLDERS - (Unaudited)
The Trustees are responsible for the management and supervision of the Fund. The Trustees approve all significant agreements between the Trust, on behalf of the Fund, and those companies that furnish services to the Fund; review performance of the Fund; and oversee activities of the Fund. The Statement of Additional Information of the Trust includes additional information about the Fund’s Trustees and is available upon request, without charge, by calling (877) 244-6235.
Remuneration Paid to Trustees and Officers - Officers of the Trust and Trustees who are “interested persons” of the Trust or the Adviser will receive no salary or fees from the Trust. Officers of the Trust and interested Trustees do receive compensation directly from certain service providers to the Trust, including Matrix 360 Distributors, LLC and M3Sixty Administration, LLC. Each Trustee who is not an “interested person” received a fee of $1,500 each year plus $200 per Board or committee meeting attended. Effective April 25, 2019, each Trustee who is not an “interested person” (an “Independent Trustee”) will receive a $5,000 annual retainer (paid quarterly). In addition, each Independent Trustee will receive, on a per fund basis: (i) a fee of $1,500 per fund each year (paid quarterly); (ii) a fee of $200 per Board meeting attended; and (iii) a fee of $200 per committee meeting attended. The Trust will also reimburse each Trustee for travel and other expenses incurred in connection with, and/or related to, the performance of their obligations as a Trustee. Officers of the Trust will also be reimbursed for travel and other expenses relating to their attendance at Board meetings.
| Name of Trustee1 | | Aggregate
Compensation From each Fund2 | | | Pension or Retirement
Benefits Accrued As Part
of Portfolio Expenses | Estimated
Annual Benefits
Upon
Retirement | | Total Compensation From the Fund Paid to Trustees2 | |
| Independent Trustees |
| Arthur Q. Falk | | $ | 1,254 | | | None | | None | | $ | 1,254 | |
| Tom M. Wirtshafter | | $ | 1,254 | | | None | | None | | $ | 1,254 | |
| Gary W. DiCenzo | | $ | 1,254 | | | None | | None | | $ | 1,254 | |
| Steven D. Poppen | | $ | 1,254 | | | None | | None | | $ | 1,254 | |
| Thomas J. Schmidt | | $ | 1,254 | | | None | | None | | $ | 1,254 | |
| Interested Trustees and Officers |
| Randall K. Linscott | | | None | | | Not Applicable | | Not Applicable | | | None | |
| | | | | | | | | | | | | |
1 Each of the Trustees serves as a Trustee to each Series of the Trust. The Trust currently offers ten (10) series of shares.
2 Figures are for the six month period ended April 30, 2019.
| Powell Alternative Income Strategies Fund | SEMI-ANNUAL REPORT |
INFORMATION ABOUT YOUR FUND’S EXPENSES - (Unaudited)
As a shareholder of the Fund, you incur ongoing costs, including management fees, distribution and/or service (12b-1) fees; and other Fund expenses. The example below 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 as indicated below.
Actual Expenses – The first section of the table provides information about actual account values and actual expenses (relating to the example $1,000 investment made at the beginning of the period). You may use the information in this section, 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 section under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes – The second section of the table provides information about the 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 to 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, such as sales charges (loads), CDSC fees, or exchange fees. Therefore, the second section of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher. For more information on transactional costs, please refer to the Fund’s prospectus.
| Expenses and Value of a $1,000 Investment for the period from 11/01/2018 through 04/30/2019 | |
| | |
| | | Beginning Account
Value (11/01/2018) | | | Annualized Expense
Ratio for the Period | | | Ending Account
Value (04/30/2019) | | | Expenses Paid
During Period (a) | |
| Actual Fund Return (in parentheses) | | | | | | | | | |
| Investor Class (-1.91%) | | $ | 1,000.00 | | | | 2.50 | % | | $ | 980.87 | | | $ | 12.28 | |
| Hypothetical 5% Fund Return | | | | | | | | | | | | | | | | |
| Investor Class | | $ | 1,000.00 | | | | 2.50 | % | | $ | 1,012.40 | | | $ | 12.47 | |
| | | | | | | | | | | | | | | �� | | |
| (a) | Expenses are equal to the Fund’s annualized expense ratios, multiplied by the average account value over the period, multiplied by 181/365 to reflect the one-half year period. |
For more information on Fund expenses, please refer to the Fund’s prospectus, which can be obtained from your investment representative or by calling 1-877-244-6235. Please read it carefully before you invest or send money.
| Powell Alternative Income Strategies Fund | ANNUAL REPORT |
INFORMATION ABOUT YOUR FUND’S EXPENSES - (Unaudited) (continued)
Total Fund operating expense ratios as stated in the current Fund prospectus dated February 28, 2019 for the Fund were as follows: |
| Powell Alternative Income Strategies Fund Investor Class shares before fees waived and expense reimbursed | 5.17% |
| Powell Alternative Income Strategies Fund Investor Class shares after fees waived and expense reimbursed | 2.61% |
Powell Capital LLC (the “Adviser”) has entered into an Expense Limitation Agreement with the Fund under which it has agreed to waive or reduce its fees and to assume other expenses of the Fund, if necessary, in an amount that limits the Fund’s annual operating expenses (exclusive of interest, distribution fees pursuant to Rule 12b-1 plans, taxes, acquired fund fees and expenses, brokerage commissions, dividend expenses on short sales and other expenditures which are capitalized in accordance with generally accepted accounting principles and other extraordinary expenses not incurred in the ordinary court of such Fund’s business) to not more than 2.25% through at least February 28, 2020. Each waiver or reimbursement of an expense by the Adviser is subject to repayment by the Fund within three fiscal years following the fiscal year in which the expense was incurred, provided that the Fund is able to make the repayment without exceeding the expense limitation in place at the time of the waiver or reimbursement and at the time the waiver or reimbursement is recouped. Total Gross Operating Expenses during the six month period ended April 30, 2019 were 3.84% for the Powell Alternative Income Strategies Fund Investor Class shares. Please see the Information About Your Fund’s Expenses, the Financial Highlights and Notes to Financial Statements (Note 6) sections of this report for expense related disclosures during the six month period ended April 30, 2019. |
360 FUNDS
4300 Shawnee Mission Parkway
Suite 100
Fairway, KS 66205
INVESTMENT ADVISER
Powell Capital, LLC
938 Broadway
Court C, 2nd Floor
Tacoma, WA 98407
ADMINISTRATOR & TRANSFER AGENT
M3Sixty Administration, LLC
4300 Shawnee Mission Parkway
Suite 100
Fairway, KS 66205
DISTRIBUTOR
Matrix 360 Distributors, LLC
4300 Shawnee Mission Parkway
Suite 100
Fairway, KS 66205
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
BBD, LLP
1835 Market Street
3rd Floor
Philadelphia, PA 19103
LEGAL COUNSEL
Practus, LLP
11300 Tomahawk Creek Parkway
Suite 310
Leawood, KS 66211
CUSTODIAN BANK
Fifth Third Bank
Fifth Third Center
38 Fountain Square Plaza
Cincinnati, OH 45263
Not applicable at this time.
| ITEM 3. | AUDIT COMMITTEE FINANCIAL EXPERT. |
Not applicable at this time.
| ITEM 4. | PRINCIPAL ACCOUNTANT FEES AND SERVICES. |
Not applicable at this time.
| ITEM 5. | AUDIT COMMITTEE OF LISTED REGISTRANTS. |
Not applicable
| ITEM 6. | SCHEDULE OF INVESTMENTS |
Included in the Semi-Annual Report to Shareholders filed under item 1 of this Form.
| ITEM 7. | DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. |
Not applicable as the Fund is an open-end management investment company.
| ITEM 8. | PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES |
Not applicable as the Fund is an open-end management investment company.
| ITEM 9. | PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. |
Not applicable as the Fund is an open-end management investment company.
| ITEM 10. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. |
Not applicable at this time.
| ITEM 11. | CONTROLS AND PROCEDURES. |
| (a) | The registrant's principal executive and principal financial officers, or persons performing similar functions, have concluded that the registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the 1940 Act, are effective, as of a date within 90 days of the filing date of this report, based on the evaluation of these controls and procedures required by Rule 30a-3(b) under the 1940 Act and Rule 15d-15(b) under the Securities Exchange Act of 1934, as amended. |
| (b) | There were no changes in the registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act) that occurred during the period covered by this report 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 as the Fund is an open-end management investment company.
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.
360 Funds
| /s/ Randy K. Linscott | |
| By Randy K. Linscott | |
| Principal Executive Officer, | |
| Date: | July 1, 2019 | |
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 person on behalf of the registrant and in the capacities and on the date indicated.
| /s/ Randy K. Linscott | |
| By Randy Linscott | |
| Principal Executive Officer, | |
| Date: | July 1, 2019 | |
| /s/ Larry E, Beaver, Jr. | |
| By Larry E. Beaver, Jr. | |
| Assistant Treasurer and Acting Principal Financial Officer |
| Date: | July 1, 2019 | |
