WP Large Cap Income Plus Fund
LETTER TO SHAREHOLDERS
August 31, 2016 (Unaudited)
To the shareholders of WPLCX:
In the three short years since opening the WP Large Cap Income Plus Fund (“WPLCX” or the “Fund”), we have learned a lot about the difference between managing individual accounts and funds like this.
There are a surprising amount of differences, some good and some unexpected.
One of the unusual ones we have found is how our clients will evaluate the results of a mutual fund relative to the indexes, but when looking to their individual accounts, they look to the quality of the stocks and the income they are throwing off in dividends and the larger strategy at play to measure how they are doing.
Of course the reason for this is obvious, when you own a fund, you don’t easily know what stocks you own so it’s easy to judge the package, the mutual fund, instead of its contents. There is something big lost in that comparison and that is the indexes are designed to be passive and just follow the market up and down, while our Fund is designed to deliver results that are different than what indexes deliver.
For the twelve-month period ended August 31, 2016, WPLCX was up 15.28%(a) vs a gain of 14.37% for the Dow Jones Industrial Average Total Return Index(b) (the “Dow”). We believe our Option/Cash Flow process was a contributing factor in this gain. While no huge difference, it’s in the right direction.
Our Fund holds extra positions, which in normal times will likely hurt its performance, but when the market crashes, these positions are designed to really help the performance of the Fund, and that’s key.
While this is in no way guaranteed and we have no track record of this aspect of the Fund (the markets have not crashed since the Fund’s inception), it may make a big difference to you if and when some really dark days arise.
We see the big risk these days (and all days, but more so now, due to technology) is that of another 9/11 that shuts down the economy and scares everyone. The next one will be worse than 9/11 in that we all are older and remember how bad things got in 2008-09 and hence I think that any panic will be exacerbated, due to age of investors, fewer working years ahead, mistrust in the system and recent experiences. We hope it never happens, but we are trying to build our strategy to be able to buy insurance against it, should we wake up one Monday to a "new and different" 9/11.
All the little things including the election are just business as usual, compared to some big shock in a world of very "skittish" investors.
It's nice that we beat the indexes from time to time, especially in the past year, but it’s not the goal of the Fund to always beat them or even compete with them. If you want to stake your future on the index itself, likely this Fund is not for you. If you want the best we can offer in the way of stocks with big dividends and perhaps some protection against a retirement killer (the next 9/11) then hang with us.
| Winning Points Funds | ANNUAL REPORT |
WP Large Cap Income Plus Fund
LETTER TO SHAREHOLDERS (continued)
August 31, 2016 (Unaudited)
The Future? Who knows? We do this one day at a time, with faith and confidence mixed in with a little fear of this great world we live in and how fast it is changing. The future has always been a different place than today, now more so and faster than ever.
We believe in dividends and positive cash flow.
Thanks for your patience and trust.
Sincerely,
Charles S. Stoll
Portfolio Manager
(a) The performance information quoted assumes the reinvestment of all dividend and capital gain distributions, if any, and represents past performance, which is not a guarantee of future results. The returns shown do not reflect taxes that a shareholder would pay on Fund distributions or on the redemption of Fund shares. The investment return and principal value of an investment will fluctuate and, therefore, an investor’s shares, when redeemed, may be worth more or less than their original cost. Updated performance data current to the most recent month-end can be obtained by calling 1-877-244-6235. Investors should consider the investment objectives, risks, charges and expenses carefully before investing or sending money. This and other important information about the Fund can be found in the Fund’s prospectus. Please read it carefully before investing.
(b) The Dow Jones Industrial Average Total Return Index tracks the total return of the member stocks of the Dow Jones Industrial Index, which is a price-weighted average of 30 blue-chip stocks that are generally the leaders in their industry. Please note that indices do not take into account any fees and expenses of investing in the individual securities that they track and individuals cannot invest directly in any index.
| Winning Points Funds | ANNUAL REPORT |
WP Large Cap Income Plus Fund
INVESTMENT HIGHLIGHTS
August 31, 2016 (Unaudited)
The investment objective of the WP Large Cap Income Plus Fund (the “Fund”) is total return. To meet its investment objective, the Fund will invest 80% of its total assets in large cap domestic equity securities and exchange-traded funds ("ETFs") that primarily invest in large cap domestic equity securities. The Fund will seek income through dividends paid on such securities. The Fund will also seek to produce income (e.g., premium income on the sale of an option) and return stability through an options strategy.
Winning Points Advisers, LLC (the “Adviser”) intends to sell covered call options on a portion of the Fund’s stock holdings. The extent of option selling will depend on market conditions and the Adviser’s consideration of the advantages of selling call options on the Fund’s equity investments.
The Fund may also sell put options on stocks and ETFs the Adviser believes are attractive for purchase at prices at or above the exercise price of the put options sold. The Fund may, in certain circumstances, purchase put options on the S&P 500 Composite Stock Price Index (the “S&P 500”) and on individual stocks to protect against a loss of principal value due to stock price decline. The extent of option selling depends on market conditions and the Adviser’s judgment. The Fund may also seek to pursue its investment objective by selling a series of call and put option spread combinations on the S&P 500.
The Fund may be appropriate for investors with long-term horizons who are not sensitive to short-term losses and want to participate in the long-term growth of the financial markets. The Fund seeks to minimize the effects of inflation on its portfolio.
The percentages in the above graph are based on the portfolio holdings of the Fund as of August 31, 2016 and are subject to change.
For a detailed break-out of holdings by industry and exchange traded funds by investment type, please refer to the Schedule of Investments, Schedule of Purchased Options and Schedule of Written Options.
| Winning Points Funds | ANNUAL REPORT |
WP Large Cap Income Plus Fund
INVESTMENT HIGHLIGHTS
August 31, 2016 (Unaudited)
| Returns as of August 31, 2016 | One Year | Since Inception of December 4, 2013 through August 31, 2016 |
| WP Large Cap Income Plus Fund Institutional Class shares | 15.28% | 1.19% |
| Dow Jones Industrial Average Total Return Index | 14.37% | 8.15% |
The performance information quoted in this annual report assumes the reinvestment of all dividend and capital gain distributions, if any, and represents past performance, which is not a guarantee of future results. The returns shown do not reflect taxes that a shareholder would pay on Fund distributions or on the redemption of Fund shares. The investment return and principal value of an investment will fluctuate and, therefore, an investor’s shares, when redeemed, may be worth more or less than their original cost. Updated performance data current to the most recent month-end can be obtained by calling 1-877-244-6235.
The above graph depicts the performance of the WP Large Cap Income Plus Fund versus the Dow Jones Industrial Average Total Return Index. The Dow Jones Industrial Average Index is a price-weighted average of 30 blue-chip stocks that are generally the leaders in their industry. Please note that indices do not take into account any fees and expenses of investing in the individual securities that they track and individuals cannot invest directly in any index.
As with any fund, save an index fund, that commonly compares its performance to the Dow Jones Industrial Average Total Return Index, such a comparison may be said to be inappropriate because of the dissimilarity between the Fund’s investments and the securities comprising the index; so too with the WP Large Cap Income Plus Fund, which will generally not invest in all the securities comprising the index.
WP LARGE CAP INCOME PLUS FUND
SCHEDULE OF INVESTMENTS
| August 31, 2016 | | | | | | | | ANNUAL REPORT |
| COMMON STOCK - 92.74% | | Shares | | | Fair Value | |
| | | | | | | |
| Aerospace & Defense - 3.77% | | | | | | |
Lockheed Martin Corp. (b) | | | 3,719 | | | $ | 903,605 | |
| | | | | | | | | |
| Agriculture - 3.69% | | | | | | | | |
Altria Group, Inc. (b) | | | 13,400 | | | | 885,606 | |
| | | | | | | | | |
| Banks - 16.23% | | | | | | | | |
Bank of America Corp. (b) | | | 69,000 | | | | 1,113,660 | |
BB&T Corp. (b) | | | 2,900 | | | | 111,650 | |
Citigroup, Inc. (b) | | | 21,000 | | | | 1,002,540 | |
Goldman Sachs Group, Inc. (b) | | | 2,300 | | | | 389,758 | |
JPMorgan Chase & Co. (b) | | | 17,200 | | | | 1,161,000 | |
PNC Financial Services Group, Inc. (b) | | | 1,300 | | | | 117,130 | |
| | | | | | | | 3,895,738 | |
| Beverages - 5.88% | | | | | | | | |
Diageo PLC - ADR (b) | | | 5,800 | | | | 652,384 | |
PepsiCo, Inc. (b) | | | 7,100 | | | | 757,925 | |
| | | | | | | | 1,410,309 | |
| Biotechnology - 0.38% | | | | | | | | |
Biogen, Inc. (a) (b) | | | 300 | | | | 91,689 | |
| | | | | | | | | |
| Computers - 7.20% | | | | | | | | |
Apple, Inc. (b) | | | 10,500 | | | | 1,114,050 | |
International Business Machines Corp. (b) | | | 3,700 | | | | 587,856 | |
Leidos Holdings, Inc.(b) | | | 665 | | | | 26,939 | |
| | | | | | | | 1,728,845 | |
| Diversified Financial Services - 4.82% | | | | | | | | |
BlackRock, Inc. (b) | | | 3,100 | | | | 1,155,711 | |
| | | | | | | | 1,155,711 | |
| Food - 3.70% | | | | | | | | |
Sysco Corp. (b) | | | 17,100 | | | | 886,806 | |
| | | | | | | | | |
| Healthcare - Products - 1.77% | | | | | | | | |
Baxter International, Inc. (b) | | | 9,100 | | | | 425,243 | |
| | | | | | | | | |
| Insurance - 4.41% | | | | | | | | |
Allianz SE - ADR (b) | | | 1,400 | | | | 20,776 | |
Berkshire Hathaway, Inc. - Class B (a) (b) | | | 6,900 | | | | 1,038,381 | |
| | | | | | | | 1,059,157 | |
| Internet - 0.16% | | | | | | | | |
Alibaba Group Holding Ltd. - ADR (a) (b) | | | 400 | | | | 38,876 | |
WP LARGE CAP INCOME PLUS FUND
SCHEDULE OF INVESTMENTS
| August 31, 2016 | | | | | | | | ANNUAL REPORT |
| COMMON STOCK - 92.74% (Continued) | | Shares | | | Fair Value | |
| | | | | | | |
| Investment Companies - 0.32% | | | | | | |
Ares Capital Corp. (b) | | | 2,300 | | | $ | 37,168 | |
BlackRock Capital Investment Corp. (b) | | | 4,500 | | | | 39,240 | |
| | | | | | | | 76,408 | |
| Lodging - 0.17% | | | | | | �� | | |
MGM Resorts International (a) (b) | | | 1,700 | | | | 40,613 | |
| | | | | | | | | |
| Media - 1.09% | | | | | | | | |
Comcast Corp. - Class A (b) | | | 4,000 | | | | 261,040 | |
| | | | | | | | | |
| Miscellaneous Manufacturing - 3.27% | | | | | | | | |
General Electric Co. (b) | | | 25,100 | | | | 784,124 | |
| | | | | | | | | |
| Oil & Gas - 17.06% | | | | | | | | |
BP PLC - ADR (b) | | | 29,700 | | | | 1,005,642 | |
Chevron Corp. (b) | | | 8,900 | | | | 895,162 | |
China Petroleum & Chemical Corp. - ADR (b) | | | 5,500 | | | | 392,535 | |
ConocoPhillips (b) | | | 16,900 | | | | 693,745 | |
Exxon Mobil Corp. (b) | | | 12,700 | | | | 1,106,678 | |
| | | | | | | | 4,093,762 | |
| Pharmaceuticals - 0.86% | | | | | | | | |
AstraZeneca PLC - ADR (b) | | | 2,800 | | | | 91,868 | |
Pfizer, Inc. (b) | | | 3,300 | | | | 114,840 | |
| | | | | | | | 206,708 | |
| Retail - 5.21% | | | | | | | | |
McDonald's Corp. (b) | | | 10,800 | | | | 1,249,128 | |
| | | | | | | | | |
| Semiconductors - 4.77% | | | | | | | | |
Intel Corp. (b) | | | 30,000 | | | | 1,076,700 | |
Skyworks Solutions, Inc. (b) | | | 900 | | | | 67,374 | |
| | | | | | | | 1,144,074 | |
| Software - 5.48% | | | | | | | | |
Microsoft Corp. (b) | | | 22,900 | | | | 1,315,834 | |
| | | | | | | | | |
| Telecommunications - 2.50% | | | | | | | | |
China Mobile Ltd. - ADR (b) | | | 9,900 | | | | 601,029 | |
| | | | | | | | | |
| TOTAL COMMON STOCK (Cost $20,527,563) | | | | | | | 22,254,305 | |
WP LARGE CAP INCOME PLUS FUND
SCHEDULE OF INVESTMENTS
| August 31, 2016 | | | | | | | | ANNUAL REPORT |
| | | Shares | | | Fair Value | |
| CLOSED-END FUNDS - 10.31% | | | | | | |
Alpine Total Dynamic Dividend Fund (b) | | | 30,000 | | | $ | 232,500 | |
Boulder Growth & Income Fund, Inc. (b) | | | 78,100 | | | | 666,193 | |
Clough Global Equity Fund (b) | | | 4,000 | | | | 45,880 | |
Deutsche Global High Income Fund, Inc. (b) | | | 28,000 | | | | 239,680 | |
Deutsche High Income Opportunities Fund, Inc. (b) | | | 4,000 | | | | 57,360 | |
Eaton Vance Short Duration Diversified Income Fund (b) | | | 34,938 | | | | 477,253 | |
Special Opportunities Fund, Inc. (b) | | | 27,047 | | | | 404,623 | |
Virtus Total Return Fund (b) | | | 76,062 | | | | 349,886 | |
| TOTAL CLOSED-END FUNDS (Cost $2,367,286) | | | | | | | 2,473,375 | |
| | | | | | | | | |
| EXCHANGE-TRADED FUNDS - 3.07% | | | | | | | | |
| | | | | | | | | |
| Equity Funds - 3.07% | | | | | | | | |
iShares MSCI EAFE ETF (b) | | | 5,200 | | | | 303,420 | |
iShares U.S. Financial Services ETF (b) | | | 4,800 | | | | 432,960 | |
| | | | | | | | 736,380 | |
| | | | | | | | | |
| TOTAL EXCHANGE-TRADED FUNDS (Cost $736,470) | | | | | | | 736,380 | |
| | | | | | | | | |
| MUTUAL FUNDS - 0.40% | | | | | | | | |
| | | | | | | | | |
| Equity Funds - 0.40% | | | | | | | | |
ClearBridge Real Estate Opportunities Fund (e) | | | 6,200 | | | | 96,472 | |
| | | | | | | | | |
| TOTAL MUTUAL FUNDS (Cost $81,860) | | | | | | | 96,472 | |
| | | | | | | | | |
OPTIONS PURCHASED (Cost $91,613) - 0.18% (c) | | | | | | | 44,217 | |
| | | | | | | | | |
| SHORT-TERM INVESTMENTS - 1.98% | | | | | | | | |
Federated Government Obligations Fund - Institutional Shares, 0.24% (d) | | | 475,643 | | | | 475,643 | |
| TOTAL SHORT-TERM INVESTMENTS (Cost $475,643) | | | | | | | 475,643 | |
| | | | | | | | | |
| TOTAL INVESTMENTS (Cost $24,280,435) – 108.68% | | | | | | $ | 26,080,392 | |
| | | | | | | | | |
OPTIONS WRITTEN (Proceeds $3,371,747) - (12.78)% (f) | | | | | | | (3,067,398 | ) |
| | | | | | | | | |
| OTHER ASSETS IN EXCESS OF LIABILITIES, NET - 4.10% | | | | | | | 983,069 | |
| NET ASSETS - 100% | | | | | | $ | 23,996,063 | |
| (a) | Non-income producing security. |
| (b) | All or a portion of the security is segregated as collateral for call options written. |
| (c) | Please refer to the Schedule of Purchased Options for details of options purchased. |
| (d) | Rate shown represents the rate at August 31, 2016, is subject to change and resets daily. |
| (e) | Categorized in Level 2 of the Hierarchy of Fair Value Inputs; for additional information and description of the levels, refer to the table included in Note 2 of the accompanying notes to the financial statements. |
| (f) | Please refer to the Schedule of Written Options for details of options written. |
ADR - American Depository Receipt.
The accompanying notes are an integral part of these financial statements.
WP LARGE CAP INCOME PLUS FUND
SCHEDULE OF PURCHASED OPTIONS
| August 31, 2016 | | | | | | | | ANNUAL REPORT |
| OPTIONS PURCHASED - 0.18% | | | | | | | | | | |
| | | | | | | | | | | |
| | | Strike | | Expiration | | Contracts 1 | | | Fair Value | |
| | | | | | | | | | | |
| PUT OPTIONS PURCHASED - 0.18% | | | | | | | | | | |
| | | | | | | | | | | |
| CBOE S&P 500 Index | | $ | 1,740.00 | | 10/21/2016 | | | 289 | | | $ | 36,992 | |
| CBOE S&P 500 Index | | $ | 1,850.00 | | 9/16/2016 | | | 289 | | | | 7,225 | |
| TOTAL PUT OPTIONS PURCHASED (Cost $91,613) | | | | | | | | | | | | 44,217 | |
| | | | | | | | | | | | | | |
| TOTAL OPTIONS PURCHASED (Cost $91,613) | | | | | | | | | | | $ | 44,217 | |
| 1 | Each option contract is equivalent to 100 units of the underlying index. All options are non-income producing. |
The accompanying notes are an integral part of these financial statements.
WP LARGE CAP INCOME PLUS FUND
SCHEDULE OF WRITTEN OPTIONS
| August 31, 2016 | | | | | | | | ANNUAL REPORT |
| OPTIONS WRITTEN - (12.78)% | | | | | | | | | | |
| | | | | | | | | | | |
| CALL OPTIONS WRITTEN - (5.59)% | | | | | | | | | | |
| | | Strike | | Expiration | | Contracts 1 | | | Fair Value | |
| | | | | | | | | | | |
| Alibaba Group Holding Ltd. - ADR | | $ | 100.00 | | 1/19/2018 | | | 4 | | | $ | 5,020 | |
| Altria Group, Inc. | | $ | 70.00 | | 1/20/2017 | | | 5 | | | | 380 | |
| Altria Group, Inc. | | $ | 70.00 | | 1/19/2018 | | | 129 | | | | 40,635 | |
| Apple, Inc. | | $ | 120.00 | | 1/20/2017 | | | 105 | | | | 14,385 | |
AstraZeneca PLC - ADR (e) | | $ | 42.50 | | 1/20/2017 | | | 28 | | | | 840 | |
| Bank of America Corp. | | $ | 20.00 | | 1/19/2018 | | | 690 | | | | 48,990 | |
Baxter International, Inc. (e) | | $ | 60.00 | | 1/19/2018 | | | 91 | | | | 8,918 | |
BB&T Corp. (e) | | $ | 45.00 | | 1/19/2018 | | | 29 | | | | 2,900 | |
| Berkshire Hathaway, Inc. - Class B | | $ | 170.00 | | 1/18/2019 | | | 69 | | | | 24,150 | |
Biogen, Inc. (e) | | $ | 370.00 | | 1/19/2018 | | | 3 | | | | 5,625 | |
BlackRock, Inc. (e) | | $ | 450.00 | | 1/19/2018 | | | 31 | | | | 25,420 | |
BP PLC - ADR (e) | | $ | 40.00 | | 1/19/2018 | | | 296 | | | | 30,784 | |
| CBOE S&P 500 Index | | $ | 2,250.00 | | 12/15/2017 | | | 77 | | | | 793,100 | |
| Chevron Corp. | | $ | 110.00 | | 1/20/2017 | | | 89 | | | | 9,078 | |
China Mobile Ltd. - ADR (e) | | $ | 90.00 | | 1/20/2017 | | | 99 | | | | 2,475 | |
China Petroleum & Chemical Corp. - ADR (e) | | $ | 80.00 | | 10/21/2016 | | | 55 | | | | 4,125 | |
| Citigroup, Inc. | | $ | 55.00 | | 1/19/2018 | | | 210 | | | | 57,120 | |
Comcast Corp. - Class A (e) | | $ | 75.00 | | 1/19/2018 | | | 40 | | | | 9,640 | |
| ConocoPhillips | | $ | 55.00 | | 1/19/2018 | | | 168 | | | | 21,000 | |
Diageo PLC - ADR (e) | | $ | 150.00 | | 1/19/2018 | | | 58 | | | | 7,685 | |
| Exxon Mobil Corp. | | $ | 95.00 | | 1/20/2017 | | | 106 | | | | 7,844 | |
| Exxon Mobil Corp. | | $ | 105.00 | | 1/19/2018 | | | 21 | | | | 2,415 | |
| General Electric Co. | | $ | 35.00 | | 1/19/2018 | | | 251 | | | | 21,837 | |
| Goldman Sachs Group, Inc. | | $ | 200.00 | | 1/19/2018 | | | 10 | | | | 6,000 | |
Goldman Sachs Group, Inc. (e) | | $ | 210.00 | | 1/19/2018 | | | 13 | | | | 5,070 | |
| Intel Corp. | | $ | 45.00 | | 1/19/2018 | | | 300 | | | | 21,600 | |
International Business Machines Corp. (e) | | $ | 190.00 | | 1/19/2018 | | | 7 | | | | 2,537 | |
International Business Machines Corp. (e) | | $ | 210.00 | | 1/19/2018 | | | 27 | | | | 3,469 | |
iShares MSCI EAFE ETF (e) | | $ | 75.00 | | 1/20/2017 | | | 52 | | | | 104 | |
JPMorgan Chase & Co. (e) | | $ | 85.00 | | 1/19/2018 | | | 172 | | | | 17,372 | |
| Lockheed Martin Corp. | | $ | 270.00 | | 1/20/2017 | | | 38 | | | | 5,320 | |
| McDonald's Corp. | | $ | 130.00 | | 1/19/2018 | | | 108 | | | | 34,452 | |
| MGM Resorts International | | $ | 25.00 | | 1/20/2017 | | | 17 | | | | 2,295 | |
| Microsoft Corp. | | $ | 60.00 | | 1/20/2017 | | | 229 | | | | 36,411 | |
| PepsiCo, Inc. | | $ | 125.00 | | 1/19/2018 | | | 69 | | | | 9,453 | |
PepsiCo, Inc. (e) | | $ | 120.00 | | 1/20/2017 | | | 2 | | | | 31 | |
| Pfizer, Inc. | | $ | 40.00 | | 1/19/2018 | | | 33 | | | | 2,937 | |
PNC Financial Services Group, Inc. (e) | | $ | 110.00 | | 1/19/2018 | | | 13 | | | | 1,736 | |
| Skyworks Solutions, Inc. | | $ | 90.00 | | 1/19/2018 | | | 9 | | | | 5,580 | |
Sysco Corp. (e) | | $ | 55.00 | | 1/19/2018 | | | 171 | | | | 41,895 | |
| | | | | | | | | | | | | | |
| TOTAL CALL OPTIONS WRITTEN (Proceeds $1,446,633) | | | | | | | | | $ | 1,340,628 | |
WP LARGE CAP INCOME PLUS FUND
SCHEDULE OF WRITTEN OPTIONS
| August 31, 2016 | | | | | | | | ANNUAL REPORT |
| OPTIONS WRITTEN - (12.78)% (continued) | | | | | | | | | | |
| | | | | | | | | | | |
| PUT OPTIONS WRITTEN - (7.19%) | | | | | | | | | | |
| | | Strike | | Expiration | | Contracts 1 | | | Fair Value | |
| | | | | | | | | | | |
| iShares iBoxx $ High Yield Corporate Bond ETF | | $ | 85.00 | | 1/20/2017 | | | 70 | | | $ | 15,120 | |
iShares iBoxx $ High Yield Corporate Bond ETF (e) | | $ | 87.00 | | 1/20/2017 | | | 20 | | | | 6,550 | |
| SPDR S&P 500 ETF Trust | | $ | 180.00 | | 9/15/2017 | | | 2,890 | | | | 1,705,100 | |
| | | | | | | | | | | | | | |
| TOTAL PUT OPTIONS WRITTEN (Proceeds $1,925,114) | | | | | | | | | | | $ | 1,726,770 | |
| | | | | | | | | | | | | | |
| TOTAL OPTIONS WRITTEN (Proceeds $3,371,747) | | | | | | | | | | | $ | 3,067,398 | |
| 1 | Each option contract is equivalent to 100 shares/units of the underlying common stock/index. All options are non-income producing. |
| (e) | Categorized in Level 2 of the Hierarchy of Fair Value Inputs; for additional information and description of the levels, refer to the table included in Note 2 of the accompanying notes to the financial statements. |
ADR - American Depository Receipt.
The accompanying notes are an integral part of these financial statements.
WINNING POINTS FUNDS
WP LARGE CAP INCOME PLUS FUND
STATEMENT OF ASSETS AND LIABILITIES
| August 31, 2016 | | ANNUAL REPORT |
| Assets: | | | |
| Cash | | $ | 9,448 | |
| Investments, at value (identified cost $24,280,435) | | | 26,080,392 | |
| Deposits at broker for options | | | 1,019,980 | |
| Receivables: | | | | |
| Interest | | | 41 | |
| Dividends | | | 105,596 | |
| Investment securities sold | | | 1,326 | |
| Fund shares sold | | | 600 | |
| Prepaid expenses | | | 2,548 | |
| Total assets | | | 27,219,931 | |
| | | | | |
| Liabilities: | | | | |
| Options written, at value (identified proceeds $3,371,747) | | | 3,067,398 | |
| Payables: | | | | |
| Investment securities purchased | | | 67,143 | |
| Fund shares redeemed | | | 20,000 | |
| Due to advisor | | | 27,309 | |
| Accrued distribution (12b-1) fees | | | 5,059 | |
| Due to administrator | | | 8,117 | |
| Accrued Trustee fees | | | 767 | |
| Accrued expenses | | | 28,075 | |
| Total liabilities | | | 3,223,868 | |
| Net Assets | | $ | 23,996,063 | |
| | | | | |
| Sources of Net Assets: | | | | |
| Paid-in capital | | $ | | |
| Accumulated net realized loss on investments | | | | ) |
| Accumulated net investment income | | | | |
| Net unrealized appreciation on investments and options written | | | | |
| Total Net Assets (Unlimited shares of beneficial interest authorized) | | $ | 23,996,063 | |
| | | | | |
| Institutional Class Shares: | | | | |
| Net assets applicable to 2,326,717 shares outstanding | | $ | 23,996,063 | |
| Net Asset Value, Offering and Redemption Price Per Share | | $ | 10.31 | |
The accompanying notes are an integral part of these financial statements.
WINNING POINTS FUNDS
WP LARGE CAP INCOME PLUS FUND
STATEMENT OF OPERATIONS
| August 31, 2016 | | ANNUAL REPORT |
| | | For the | |
| | | Year Ended | |
| | | August 31, 2016 | |
| | | | |
| Investment income: | | | |
| Dividends (net of foreign withholding taxes of $4,158) | | $ | | |
| Interest | | | 833 | |
| Total investment income | | | | |
| | | | | |
| Expenses: | | | | |
| Management fees (Note 6) | | | 299,634 | |
| Distribution (12b-1) fees - Institutional Class | | | 55,488 | |
| Accounting and transfer agent fees and expenses | | | 166,168 | |
| Interest expense | | | 43,470 | |
| Audit fees | | | 18,900 | |
| Trustee fees and expenses | | | 13,659 | |
| Legal fees | | | 13,158 | |
| Pricing fees | | | 12,725 | |
| Custodian fees | | | 10,963 | |
| Miscellaneous | | | 10,737 | |
| Registration and filing fees | | | 3,269 | |
| Insurance | | | 1,379 | |
| Total expenses | | | | |
| | | | | |
| Net investment income | | | | |
| | | | | |
| Realized and unrealized gain (loss): | | | | |
| Net realized gain (loss) on: | | | | |
| Investments | | | | |
| Options purchased | | | (2,813,563 | ) |
| Options written | | | 2,414,807 | |
| Net realized loss on investments and options | | | | ) |
| | | | | |
| Net change in unrealized appreciation on: | | | | |
| Investments | | | | |
| Options purchased | | | 313,434 | |
| Options written | | | 1,085,848 | |
| Net change in unrealized appreciation on investments and options | | | | |
| | | | | |
| Net gain on investments and options | | | | |
| | | | | |
| Net increase in net assets resulting from operations | | $ | 3,348,929 | |
The accompanying notes are an integral part of these financial statements.
WINNING POINTS FUNDS
WP LARGE CAP INCOME PLUS FUND
STATEMENTS OF CHANGES IN NET ASSETS
| August 31, 2016 | | | | ANNUAL REPORT |
| | | For the | | | For the | |
| | | Year Ended | | | Year Ended | |
| | | August 31, 2016 | | | August 31, 2015 | |
| | | | | | | |
| Increase (decrease) in net assets from: | | | | | | |
| Operations: | | | | | | |
| Net investment income | | $ | | | | $ | 71,168 | |
| Net realized loss on investments and options | | | | ) | | | (1,115,384 | ) |
| Net change in unrealized appreciation (depreciation) on investments and options | | | | | | | (2,540,250 | ) |
| Net increase (decrease) in net assets resulting from operations | | | 3,348,929 | | | | (3,584,466 | ) |
| | | | | | | | | |
| Distributions to shareholders from: | | | | | | | | |
Return of capital - Institutional Class | | | (41,253 | ) | | | - | |
| Total distributions | | | (41,253 | ) | | | - | |
| | | | | | | | | |
| Capital share transactions (Note 4): | | | | | | | | |
| Increase (decrease) in net assets from capital share transactions | | | (157,624 | ) | | | 5,323,945 | |
| | | | | | | | | |
| Increase in net assets | | | 3,150,052 | | | | 1,739,479 | |
| | | | | | | | | |
| Net Assets: | | | | | | | | |
| Beginning of period | | | 20,846,011 | | | | 19,106,532 | |
| | | | | | | | | |
| End of period | | $ | 23,996,063 | | | $ | 20,846,011 | |
Accumulated undistributed net investment income | | $ | | | | $ | - | |
The accompanying notes are an integral part of these financial statements.
WINNING POINTS FUNDS
WP LARGE CAP INCOME PLUS FUND
FINANCIAL HIGHLIGHTS
| August 31, 2016 | | ANNUAL REPORT |
The following tables set forth the per share operating performance data for a share of capital stock outstanding, total return ratios to average net assets and other supplemental data for the period indicated.
| | | Institutional Class | | |
| | | For the | | | For the | | | For the | | |
| | | Year Ended | | | Year Ended | | | Period Ended | | |
| | | August 31, 2016 | | | August 31, 2015 | | | August 31, 2014 (a) | | |
| Net Asset Value, Beginning of Period | | $ | 8.96 | | | $ | 10.56 | | | $ | 10.00 | | |
| | | | | | | | | | | | | | |
| Investment Operations: | | | | | | | | | | | | | |
| Net investment income (loss) | | | - | | | | 0.03 | | | | (0.06 | ) | |
| Net realized and unrealized gain (loss) on investments | | | 1.37 | | | | (1.63 | ) | | | 0.62 | | |
| Total from investment operations | | | 1.37 | | | | (1.60 | ) | | | 0.56 | | |
| | | | | | | | | | | | | | |
| Distributions: | | | | | | | | | | | | | |
| From return of capital | | | (0.02 | ) | | | - | | | | - | | |
| Total distributions | | | (0.02 | ) | | | - | | | | - | | |
| | | | | | | | | | | | | | |
| Net Asset Value, End of Period | | $ | 10.31 | | | $ | 8.96 | | | $ | 10.56 | | |
| | | | | | | | | | | | | | |
Total Return (b) | | | 15.28 | % | | | (15.15 | )% | | | 5.60 | % | (c)(d) |
| | | | | | | | | | | | | | |
| Ratios/Supplemental Data | | | | | | | | | | | | | |
| Net assets, end of period (in 000's) | | $ | 23,996 | | | $ | 20,846 | | | $ | 19,107 | | |
| | | | | | | | | | | | | | |
Ratios of expenses to average net assets (h): | | | 2.93 | %(e) | | | 2.92 | %(e) | | | 3.32 | % | (f)(g) |
| | | | | | | | | | | | | | |
| Ratios of net investment income (loss): | | | 0.04 | % | | | 0.32 | % | | | (1.00 | )% | (f)(g) |
| | | | | | | | | | | | | | |
| Portfolio turnover rate | | | 5.30 | % | | | 6.88 | % | | | 1.78 | % | (c) |
| (a) | The WP Large Cap Income Plus Fund commenced operations on October 10, 2013. |
| (b) | Total Return represents the rate that the investor would have earned or lost on an investment in the Fund, assuming reinvestment of dividends. |
| (d) | Total Return is for the period from December 4, 2013, the date of initial portfolio trades, through August 31, 2014. |
(e) | The ratios include 0.20% of interest expense during the fiscal year ended August 31, 2016 and 0.03% of interest expense during the year ended August 31, 2015. |
| (f) | Ratios are for the period from December 4, 2013, the date of initial expense accruals, through August 31, 2014. |
| (h) | Ratios do not include expenses of the investment companies in which the Fund invests. |
The accompanying notes are an integral part of these financial statements.
| Winning Points Funds | ANNUAL REPORT |
WP Large Cap Income Plus Fund
NOTES TO THE FINANCIAL STATEMENTS
August 31, 2016
| 1. | ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES |
The WP Large Cap Income Plus 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 diversified Fund. The Fund’s investment objective is total return. The Fund’s investment adviser is Winning Points Advisers, LLC (the “Adviser”). The Fund has three classes of shares, Class A, Class C and Institutional Class shares. Currently only the Institutional Class shares are being offered for sale. The Institutional Class shares commenced operations on October 10, 2013.
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 common stock, equity indexes and exchange traded funds (“ETFs”). 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 effecting 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 continues 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.
c) Exchange-Traded and Closed-End Funds - The Fund may invest in Exchange-Traded Funds ("ETFs") and Closed-End Funds ("CEFs"). ETFs and CEFs are registered investment companies and incur fees and expenses such as operating expenses, licensing fees, registration fees, trustees fees, and marketing expenses, and ETF and CEF shareholders, such as a Fund, pay their proportionate share of these expenses. Your cost of investing in a Fund will generally be higher than the cost of investing directly in ETFs and CEFs. By investing in a Fund, you will indirectly bear fees and expenses charged by the underlying ETFs and CEFs in which a Fund invests in addition to a Fund's direct fees and expenses. Also, with respect to dividends paid by the ETFs and CEFs, 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.
d) Federal Income Taxes – The Fund has qualified and intends to continue 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 year ended August 31, 2016, 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 year ended August 31, 2016, the Fund did not incur any interest or penalties. The Fund identifies its major tax jurisdictions as U.S. Federal and Delaware state.
| Winning Points Funds | ANNUAL REPORT |
WP Large Cap Income Plus Fund
NOTES TO THE FINANCIAL STATEMENTS
August 31, 2016
| 1. | ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued) |
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, including federal tax authorities and certain state tax authorities. As of and during year ended August 31, 2016, 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 tax 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 or net realized gains.
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) 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).
h) 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.
Processes and Structure
The Fund’s Board of Trustees has adopted guidelines for valuing securities and other derivative instruments including in 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.
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.
| Winning Points Funds | ANNUAL REPORT |
WP Large Cap Income Plus Fund
NOTES TO THE FINANCIAL STATEMENTS
August 31, 2016
| 2. | SECURITIES VALUATIONS (continued) |
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, closed-end funds, mutual funds 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.
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 August 31, 2016.
WP Large Cap Income Plus FundFinancial Instruments – Assets
Security Classification (1) | | Level 1 | | | Level 2 | | | Level 3 | | | Totals | |
Common Stock (2) | | $ | 22,254,306 | | | $ | - | | | $ | - | | | $ | 22,254,306 | |
Closed-End Funds (2) | | | 2,473,374 | | | | - | | | | - | | | | 2,473,374 | |
Exchange-Traded Funds (2) | | | | | | | - | | | | - | | | | | |
| Mutual Funds | | | - | | | | 96,472 | | | | - | | | | 96,472 | |
| Put Options Purchased | | | 44,217 | | | | - | | | | - | | | | 44,217 | |
| Short-Term Investments | | | 475,643 | | | | - | | | | - | | | | 475,643 | |
| Total Assets | | $ | | | | $ | 96,472 | | | $ | - | | | $ | 26,080,392 | |
| Winning Points Funds | ANNUAL REPORT |
WP Large Cap Income Plus Fund
NOTES TO THE FINANCIAL STATEMENTSAugust 31, 2016
| 2. | SECURITIES VALUATIONS (continued) |
WP Large Cap Income Plus FundDerivative Instruments – Liabilities
Security Classification (1) | | Level 1 | | | Level 2 | | | Level 3 | | | Totals | |
| Call Options Written | | $ | 1,170,002 | | | $ | 170,626 | | | $ | - | | | $ | 1,340,628 | |
| Put Options Written | | | 1,720,220 | | | | 6,550 | | | | - | | | | 1,726,770 | |
| Total Liabilities | | $ | 2,890,222 | | | $ | 177,176 | | | $ | - | | | $ | 3,067,398 | |
| (1) | As of and during the year ended August 31, 2016, 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, closed-end funds and exchange-traded funds (“ETFs”) held in the Fund are Level 1 securities. For a detailed break-out of common stock by industry and closed-end funds 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 transferred into and out of any Level during the year ended August 31, 2016. Transfers of liabilities between Levels during the year ended August 31, 2016, were as follows:
| Transfers into Level 1: | | | |
| Call options written | | $ | 5,700 | |
| Net Transfers into Level 1: | | $ | 5,700 | |
| | | | | |
| Transfers out of Level 2: | | | | |
| Call options written | | $ | (5,700 | ) |
| Net Transfers out of Level 2: | | $ | (5,700 | ) |
Transfers of liabilities between Level 1 and Level 2 as of August 31, 2016, were due to written options being previously priced at the mean (Level 2) when not traded on valuation date and now being priced based on the last trade price on valuation date (Level 1).
During the year ended August 31, 2016, no securities were fair valued.
| 3. | DERIVATIVES TRANSACTIONS |
As of August 31, 2016, portfolio securities valued at $25,463,468 were held in escrow by the custodian as cover for options written by the Fund.
| Winning Points Funds | ANNUAL REPORT |
WP Large Cap Income Plus Fund
NOTES TO THE FINANCIAL STATEMENTS
August 31, 2016
| 3. | DERIVATIVES TRANSACTIONS (continued) |
Transactions in options written during year ended August 31, 2016, were as follows:
| | | Call Options | |
| | | Number of Options* | | | Option Premiums | |
| Options outstanding at beginning of year | | | 3,641 | | | $ | 503,557 | |
| Options written | | | 10,669 | | | | 8,359,625 | |
| Options covered | | | (8,907 | ) | | | (6,980,269 | ) |
| Options exercised | | | - | | | | - | |
| Options expired | | | (1,479 | ) | | | (436,280 | ) |
| Options outstanding end of year | | | 3,924 | | | $ | 1,446,633 | |
| | | Put Options | |
| | | Number of Options* | | | Option Premiums | |
| Options outstanding at beginning of year | | | 3,601 | | | $ | 2,048,486 | |
| Options written | | | 11,541 | | | | 7,772,858 | |
| Options covered | | | (12,062 | ) | | | (7,885,362 | ) |
| Options exercised | | | - | | | | - | |
| Options expired | | | (100 | ) | | | (10,868 | ) |
| Options outstanding end of year | | | 2,980 | | | $ | 1,925,114 | |
* One option contract is equivalent to one hundred shares of common stock or ETF.
As of August 31, 2016, the location on the Statement of Assets and Liabilities for financial derivative instrument fair values is as follows:
| Assets | Location | | Equity Contracts | | | Interest Rate Contracts | | | Total | |
| Put options purchased | Investments, at value | | $ | 44,217 | | | $ | - | | | $ | 44,217 | |
| Total Assets | | | $ | 44,217 | | | $ | - | | | $ | 44,217 | |
| | | | | | | | | | | | | | |
| Liabilities | Location | | Equity Contracts | | | | Interest Rate Contracts | | | Total | |
| Call options written | Options written, at value | | $ | 1,340,628 | | | $ | - | | | $ | 1,340,628 | |
| Put options written | Options written, at value | | | 1,705,100 | | | | 21,670 | | | | 1,726,770 | |
| Total Liabilities | | | $ | 3,045,728 | | | $ | 21,670 | | | $ | 3,067,398 | |
Realized and unrealized gains and losses on derivatives contracts entered into by the Fund during the year ended August 31, 2016, are recorded in the following locations in the Statement of Operations:
| Net change in unrealized appreciation (depreciation) on: | Location | | Equity Contracts | | | Interest Rate Contracts | | | Total | |
| Put options purchased | Options purchased | | $ | 313,434 | | | $ | - | | | $ | 313,434 | |
| Call options written | Options written | | | (143,573 | ) | | | - | | | | (143,573 | ) |
| Put option written | Options written | | | 1,183,826 | | | | 45,595 | | | | 1,229,421 | |
| | | | $ | | | | $ | 45,595 | | | $ | 1,399,282 | |
| Winning Points Funds | ANNUAL REPORT |
WP Large Cap Income Plus Fund
NOTES TO THE FINANCIAL STATEMENTS
August 31, 2016
| 3. | DERIVATIVES TRANSACTIONS (continued) |
| Net realized gain (loss) on: | Location | | Equity Contracts | | | Interest Rate Contracts | | | Total | |
| Call options purchased | Options purchased | | $ | (14,113 | ) | | $ | - | | | $ | (14,113 | ) |
| Put options purchased | Options purchased | | | (2,799,450 | ) | | | - | | | | (2,799,450 | ) |
| Call options written | Options written | | | (378,025 | ) | | | - | | | | (378,025 | ) |
| Put option written | Options written | | | | | | | 11,689 | | | | 2,792,832 | |
| | | | $ | (410,445 | ) | | $ | 11,689 | | | $ | (398,756 | ) |
For the year ended August 31, 2016, the total amount of all purchased put options, as presented in the Fund's Schedule of Investments, is representative of the volume of activity for these derivative types during the year.
The following tables present the Fund’s asset and liability derivatives available for offset under a master netting arrangement net of collateral pledged as of August 31, 2016.
| Assets: | | | Gross Amounts of Assets Presented in the Statement of Assets & Liabilities | |
| | | Gross Amounts of Recognized Assets | | | 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 Assets | |
| Purchased Options Contracts | | $ | 44,217 | (1) | | $ | - | | | $ | 44,217 | (1) | | $ | 44,217 | (2) | | $ | - | | | $ | - | |
| Total | | $ | 44,217 | (1) | | $ | - | | | $ | 44,217 | (1) | | $ | 44,217 | (2) | | $ | - | | | $ | - | |
| Liabilities: | | | Gross Amounts of Liabilities Presented in the Statement of Assets and 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 | | $ | 3,067,398 | (3) | | $ | - | | | $ | 3,067,398 | (3) | | $ | 3,067,398 | (2) | | $ | - | | | $ | - | |
| Total | | $ | 3,067,398 | (3) | | $ | - | | | $ | 3,067,398 | (3) | | $ | 3,067,398 | (2) | | $ | - | | | $ | - | |
| (1) | Purchased options at value as presented in the Schedule of Purchased Options. |
| (2) | The amount is limited to the derivative liability balance and accordingly does not include excess collateral pledged. |
| (3) | Written options at value as presented in the Schedule of Written Options. |
| 4. | CAPITAL SHARE TRANSACTIONS |
Transactions in shares of capital stock for the Fund for the year ended August 31, 2016, were as follows:
| WP Large Cap Income Plus Fund: | | Sold | | | Redeemed | | | Reinvested | | | Net Decrease | |
| Institutional Class | | | | | | | | | | | | |
| Shares | | | 389,972 | | | | (394,989 | ) | | | 4,221 | | | | (796 | ) |
| Value | | $ | 3,566,785 | | | $ | (3,765,644 | ) | | | 41,235 | | | $ | (157,624 | ) |
Transactions in shares of capital stock for the Fund for the year ended August 31, 2015, were as follows:
| WP Large Cap Income Plus Fund: | | Sold | | | Redeemed | | | Reinvested | | | Net Increase | |
| Institutional Class | | | | | | | | | | | | |
| Shares | | | 705,005 | | | | (186,641 | ) | | | - | | | | 518,364 | |
| Value | | $ | 7,161,005 | | | $ | (1,837,060 | ) | | | - | | | $ | 5,323,945 | |
| 5. | INVESTMENT TRANSACTIONS |
For the year ended August 31, 2016, aggregate purchases and sales of investment securities (excluding short-term investments) for the Fund were as follows:
| Purchases | Sales |
| $ 2,885,701 | $ 1,230,955 |
There were no government securities purchased or sold during the year.
| Winning Points Funds | ANNUAL REPORT |
WP Large Cap Income Plus Fund
NOTES TO THE FINANCIAL STATEMENTS
August 31, 2016
| 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 receives a monthly management fee equal to an annual rate of 1.35% of the Fund’s net assets. For the year ended August 31, 2016, the Adviser earned $299,634 of advisory fees.
The Fund has entered into an Investment Company Services Agreement (“ICSA”) with M3Sixty Administration, LLC (“M3Sixty”), formerly Matrix 360 Administration, LLC. 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 year ended August 31, 2016, M3Sixty earned $166,168, including out of pocket expenses with $8,117 remaining payable at August 31, 2016.
Certain officers and a Trustee of the Fund are also employees of M3Sixty.
The Fund has entered into a Distribution Agreement with Matrix Capital Group, Inc. (the “Distributor”). Pursuant to the Distribution Agreement, the Distributor will provide distribution services to the Fund. The Distributor serves as underwriter/distributor of the Fund.
The Distributor 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 Institutional 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.
The distribution plan for the Institutional Class shares of the Fund took effect October 10, 2013. For the year ended August 31, 2016, the Fund accrued $55,488 in 12b-1 expenses attributable to Institutional 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 August 31, 2016, were as follows:
| Cost | | | Gross Appreciation | | | Gross Depreciation | | | Net Appreciation | |
| $ | | | | $ | | | | $ | | ) | | $ | | |
The difference between book basis and tax basis unrealized appreciation (depreciation) is primarily attributable to the tax deferral of losses on wash sales, mark-to-market on 1256 contracts, and return of capital distributions from closed end funds and REITs.
The Fund’s tax basis accumulated earnings are determined only at the end of each fiscal year. The tax character of distributable earnings (deficit) at August 31, 2016, the Fund’s most recent fiscal year end, was as follows:
| Unrealized Appreciation (Depreciation) | | | Undistributed Ordinary Income | | | Undistributed Long-Term Capital Gains | | | Capital Loss Carry Forwards | | | Post-October Loss and Late Year Loss | | | Total Accumulated Earnings | |
| $ | | | | $ | | | | $ | - | | | $ | (104,005 | ) | | $ | | ) | | $ | | |
The difference between book basis and tax basis unrealized appreciation (depreciation), and accumulated net realized losses from investments is primarily attributable to the tax deferral of losses on wash sales, mark-to-market on 1256 contracts, and return of capital distributions from closed end funds and REITs.
| Winning Points Funds | ANNUAL REPORT |
WP Large Cap Income Plus Fund
NOTES TO THE FINANCIAL STATEMENTS
August 31, 2016
| 7. | TAX MATTERS (continued) |
Under current tax law, net capital losses realized after October 31st and net ordinary losses incurred after December 31st may be deferred and treated as occurring on the first day of the following fiscal year. The Fund’s carryforward losses, post-October losses and post-December losses are determined only at the end of each fiscal year. As of August 31, 2016, the Fund elected to defer net capital losses as indicated in the chart below.
| Post-October Losses | | | Post-December Losses | |
| Deferred | | | Utilized | | | Deferred | | | Utilized | |
| $ | | | | $ | 1,405,775 | | | $ | - | | | $ | - | |
As of August 31, 2016, the Fund had capital loss carryforwards for federal income tax purposes as follows:
Long-Term Non-Expiring | | | Short-Term Non-Expiring | |
| $ | 104,005 | | | $ | - | |
The Fund utilized $25,130 of short term capital loss carryforward.
In accordance with accounting pronouncements, the Fund has recorded reclassifications in the capital accounts. These reclassifications have no impact on the net asset value of the Fund and are designed generally to present accumulated undistributed net investment income (loss) and accumulated realized losses on a tax basis which is considered to be more informative to the shareholder. As of August 31, 2016, the Fund recorded reclassifications to increase (decrease) the capital accounts as follows:
| Net Investment Loss | | | Net Realized Loss | | | Paid-in Capital | |
| $ | | | | $ | 7,972 | | | $ | | ) |
The permanent differences were mainly due to return of capital distributions, net operating loss, and basis adjustments from the sale of closed end funds and REITs.
During the year ended August 31, 2016, the Fund distributed $41,253 of return of capital.
There were no distributions paid by the Fund during the year ended August 31, 2015.
| 8. | 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 Fund'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.
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 other subsequent events requiring recognition or disclosure in the financial statements.
| 10. | CHANGE IN INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM |
The Board of Trustees (the "Board"), with the approval and recommendation of the Audit Committee, selected Cohen & Company, Ltd. ("Cohen") to replace Sanville & Company ("Sanville"), as the Fund's independent registered public accounting firm for the Fund's fiscal year ending August 31, 2016. Throughout the past two fiscal periods through the date of Sanville's dismissal as auditor of the Fund, the Fund had no disagreements with Sanville on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedures, which, if not resolved to the satisfaction of Sanville would have caused Sanville to make reference to the disagreement in a Sanville report, and there were no reportable events of the kind described in Item 304(a)(1)(v) of Regulation S-K under the Securities Exchange Act of 1934. With respect to the Fund, Sanville audit opinions, including the past two fiscal periods, have not contained either an adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope or accounting principles. During the last two fiscal years of the Fund, neither the Fund nor anyone on their behalf has consulted Cohen on items concerning the application of accounting principles to a specified transaction (either completed or proposed) or the type of audit opinion that might be rendered on the Fund's financial statements, or concerning the subject of a disagreement of the kind described in Item 304(a)(1)(iv) of Regulation S-K or reportable events of the kind described in Item 304(a)(1)(v) of Regulation S-K.
| Winning Points Funds | ANNUAL REPORT |
ADDITIONAL INFORMATION
August 31, 2016 (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. The Fund paid $41,253 of return of capital distributions during the year ended August 31, 2016.
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 2017 to determine the calendar year amounts to be included on their 2016 tax returns. Shareholders should consult their own tax advisors.
| Winning Points Funds | ANNUAL REPORT |
ADDITIONAL INFORMATIONAugust 31, 2016 (Unaudited)
BOARD OF TRUSTEES, OFFICERS AND PRINCIPAL SHAREHOLDERS - (Unaudited)
The Trustees are responsible for the management and supervision of the Funds. The Trustees approve all significant agreements between the Trust, on behalf of the Funds, and those companies that furnish services to the Funds; review performance of the Funds; and oversee activities of the Funds. This section provides information about the persons who serve as Trustees and Officers to the Trust and Funds, respectively.
Trustees and Officers. Following are the Trustees and Officers of the Trust, their age and address, their present position with the Trust or the Funds, and their principal occupation during the past five years. As described above under “Description of the Trust”, each of the Trustees of the Trust will generally hold office indefinitely. The Officers of the Trust will hold office indefinitely, except that: (1) any Officer may resign or retire and (2) any Officer may be removed any time by written instrument signed by at least two-thirds of the number of Trustees prior to such removal. In case a vacancy or an anticipated vacancy on the Board of Trustees shall for any reason exist, the vacancy shall be filled by the affirmative vote of a majority of the remaining Trustees, subject to certain restrictions under the 1940 Act. Those Trustees who are “interested persons” (as defined in the 1940 Act) by virtue of their affiliation with either the Trust or the Adviser, are indicated in the table.
Name, Address and Year of Birth (“YOB”) | Position(s) Held with Trust | Length of Service | Principal Occupation(s) During Past 5 Years | Number of Series Overseen | Other Directorships During Past 5 Years |
| Independent Trustees |
Art Falk 4520 Main Street Suite 1425 Kansas City, Missouri 64111 YOB : 1937 | Trustee and Independent Chairman | Since 2011 | Retired. President, Murray Hill Financial Marketing, (financial marketing consultant) (1990-2012). | Ten | None |
Thomas Krausz 4520 Main Street Suite 1425 Kansas City, Missouri 64111 YOB : 1944 | Trustee | Since 2011 | Mr. Krausz has been an independent management consultant to private enterprises since 2007. | Ten | None |
Tom M. Wirtshafter 4520 Main Street Suite 1425 Kansas City, Missouri 64111 YOB : 1954 | Trustee | Since 2011 | Senior Vice President, American Portfolios Financial Services, (broker-dealer), American Portfolios Advisors (investment adviser) (2009 – Present). | Ten | None |
Gary DiCenzo 4520 Main Street Suite 1425 Kansas City, Missouri 64111 YOB : 1962 | Trustee | Since 2014 | Chief Executive Officer, Cognios Capital (investment management firm) (2015 to present); President and CEO, IMC Group, LLC (asset management firm consultant) (2010-2015). | Ten | None |
| Interested Trustee* | | | | | |
Randall K. Linscott 4520 Main Street Suite 1425 Kansas City, Missouri 64111 YOB: 1971 | President | Since 2013 | Chief Executive Officer, M3Sixty Administration, LLC (2013 – present); Chief Operating Officer, M3Sixty Administration LLC (2011-2013); Division Vice President, Boston Financial Data Services, (2005 - 2011). | Ten | N/A |
| * | The Interested Trustee is an Interested Trustee because he is an officer and employee of the Administrator. |
| Winning Points Funds | ANNUAL REPORT |
ADDITIONAL INFORMATIONAugust 31, 2016 (Unaudited)
BOARD OF TRUSTEES, OFFICERS AND PRINCIPAL SHAREHOLDERS - (Unaudited) (continued)
Name, Address and Year of Birth (“YOB”) | Position(s) Held with Trust | Length of Service | Principal Occupation(s) During Past 5 Years | Number of Series Overseen | Other Directorships During Past 5 Years |
| Officers | | | | | |
Andras P. Teleki 4520 Main Street Suite 1425 Kansas City, Missouri 64111 YOB: 1947 | Chief Compliance Officer and Secretary | Since 2013 | Chief Legal Officer, M3Sixty Administration, LLC, M3Sixty Holdings, LLC, M3Sixty Distributors, LLC, M3Sixty Advisors, LLC and Matrix Capital Group, Inc. (2015 to present); Chief Compliance Officer and Secretary, 360 Funds (2015 to present); Secretary and Assistant Treasurer, Capital Management Investment Trust (2015 to present); Secretary and Anti-Money Laundering Compliance Officer, Monteagle Funds (2015 to present); Partner, K&L Gates, (2009-2015). | N/A | N/A |
Brandon Byrd 4520 Main Street Suite 1425 Kansas City, Missouri 64111 YOB: 1981 | Assistant Secretary | Since 2013 | Director of Operations, M3Sixty Administration LLC (2012 – present); Division Manager – Client Service Officer, Boston Financial Data Services (mutual fund service provider) (2010 - 2012). | N/A | N/A |
Larry Beaver 4520 Main Street Suite 1425 Kansas City, Missouri 64111 YOB: 1969 | Treasurer | Since 2007 | Director of Fund Accounting & Administration, M3Sixty Administration, LLC (2005 – present). | N/A | N/A |
Ted Akins 4520 Main Street Suite 1425 Kansas City, Missouri 64111 YOB: 1974 | Assistant Treasurer | Since 2014 | Director, Transfer Agency and Mutual Fund Operations, M3Sixty Administration, LLC (2012 – present); Senior Client Service Advisor, Boston Financial Data Services, (1999 – 2012). | N/A | N/A |
Jeremiah Hierseman 4520 Main Street Suite 1425 Kansas City, Missouri 64111 YOB: 1975 | Assistant Treasurer | Since 2014 | Fund Accounting Manager, M3Sixty Administration, LLC (2014–present). Fund Accounting Manager, State Street Bank – Insurance Services Division (2003–2014). | N/A | N/A |
| Winning Points Funds | ANNUAL REPORT |
WP Large Cap Income Plus Fund
ADDITIONAL INFORMATION
August 31, 2016 (Unaudited)
BOARD OF TRUSTEES, OFFICERS AND PRINCIPAL SHAREHOLDERS - (Unaudited) (continued)
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. Each Trustee who is not an “interested person” receives a fee of $1,000 each year plus $125 per Board or committee meeting attended in person and $100 per meeting attended by telephone. The Trust reimburses each Trustee and officer for his or her travel and other expenses relating to attendance at such meetings. Effective December 16, 2015, each Trustee who is not an “interested person” receives a fee of $1,500 each year plus $200 per Board or committee meeting attended. 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.
Name of Trustee1 | Aggregate Compensation From the 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 |
| Art Falk | $ 2,425 | None | None | $2,425 |
| Thomas Krausz | $ 2,300 | None | None | $ 2,300 |
| Tom M. Wirtshafter | $ 2,300 | None | None | $ 2,300 |
| Gary DiCenzo | $ 2,300 | None | None | $ 2,300 |
| | | | | |
| Interested Trustees and Officers |
| Randall K. Linscott | None | Not Applicable | Not Applicable | None |
| Andras P. Teleki | None | Not Applicable | Not Applicable | None |
| Brandon Byrd | None | Not Applicable | Not Applicable | None |
| Larry Beaver | None | Not Applicable | Not Applicable | None |
| Jeremiah Hierseman | None | Not Applicable | Not Applicable | None |
| Ted Akins | 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 year ended August 31, 2016. |
| Winning Points Funds | 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 03/01/2016 through 08/31/2016
| | Beginning Account Value (03/01/2016) | Annualized Expense Ratio for the Period | Ending Account Value (08/31/2016) | Expenses Paid
During Period (a) |
| Actual Fund Return (in parentheses) | | | |
| Institutional Class (+23.03%) | $1,000.00 | 2.82% | $1,230.30 | $15.81 |
| Hypothetical 5% Fund Return | | | |
| Institutional Class | $1,000.00 | 2.82% | $1,011.00 | $14.26 |
| (a) | Expenses are equal to the Funds’ annualized expense ratios, multiplied by the average account value over the period, multiplied by 184/366 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.
Total Fund operating expense ratios as stated in the current Fund prospectus dated December 31, 2015 for the Fund were as follows: |
| WP Large Cap Income Plus Fund Institutional Class shares | 2.99% |
Total Gross Operating Expenses during the year ended August 31, 2016 were 2.93% for the WP Large Cap Income Plus Fund Institutional 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 year ended August 31, 2016. |
360 FUNDS
BOARD APPROVAL OF THE INVESTMENT ADVISORY AGREEMENT BY AND BETWEEN
THE TRUST AND WINNING POINTS ADVISORS, LLC
On June 16, 2016, the Board of Trustees (the “Board” or the “Trustees”) of the 360 Funds (the “Trust”), comprised entirely of Trustees who are not “interested persons” of the Trust, as that term is defined by Section 2(a)(19) of the Investment Company Act of 1940 (the “Independent Trustees”), met in person to review and discuss renewing the Investment Advisory Agreement between the Trust and Winning Points Advisors, LLC (the “Adviser”) with respect to the WP Large Cap Income Plus Fund (the “Fund”).
With the assistance and advice of independent counsel, the Trustees had requested and received information prior to the meeting that they deemed relevant or necessary to consider in the renewal process. In addition, they received a memorandum from independent counsel discussing, among other things, the fiduciary duties and responsibilities of the Board in reviewing and considering renewal. The Trustees reviewed and discussed the foregoing information during a private session with their counsel and during the Board meeting. Counsel also reviewed with the Trustees the types of information and factors that they should and should not take into consideration in making their decision about renewal. Throughout the process the Trustees had the opportunity to ask questions, and answers to their questions were considered along with the other materials provided.
In assessing various factors in regard to the renewal, the Board took into consideration information prepared for the renewal meeting, such as: (i) reports regarding the services and support to be provided to the Fund and their shareholders by the Adviser; (ii) information prepared by the Fund’s portfolio managers addressing the Adviser’s investment philosophy, investment strategy and operations; (iii) compliance reports and background concerning the Fund and the Adviser; (iv) proposed disclosure information to be contained in the registration statement of the Trust and the Form ADV of the Adviser; (v) information on relevant developments in the mutual fund industry and how the Fund and the Adviser proposed to respond to them; (vi) financial information about the Adviser; (vii) a description of the personnel at the Adviser involved with the Fund, their background, professional skills and accomplishments; (viii) information on investment advice, performance, summaries of proposed fund expenses, compliance program, current legal matters, and other general information about the Adviser; (ix) comparative expense and performance information for other mutual funds that are similar to the Fund; (x) where available, information about performance and fees relative to other accounts managed by the Adviser that might be considered comparable to the Fund in terms of investment style; and (xi) any soft-dollar or other “fall-out” or similar benefits to be realized by the Adviser from its relationship with the Fund.
The Board did not identify any particular factor or information that was most relevant to its consideration to renew the Investment Advisory Agreement and each Trustee may have afforded different weight to the various factors considered. Following is a summary of the Board’s consideration of various factors:
The Nature, Extent, and Quality of the Services Provided by the Adviser.
The Trustees considered various aspects of the nature, extent and quality of the services provided by the Adviser to the Fund. They considered the following, without limitation: the quality of the investment advisory services (including research and recommendations with respect to portfolio securities); the background, experience and professional ability and skill of the portfolio management personnel assigned to the Fund, noting the commitment to hire and retain qualified personnel to work on behalf of the Fund and their shareholders; the processes used for formulating investment recommendations and assuring compliance with the Fund’s investment objectives and limitations, as well as for assuring compliance with regulatory requirements, specifically noting that the Adviser had not reported any material compliance matter over the last year; the manner in which the Adviser seeks to satisfy their obligation to assure “best execution” in connection with securities transactions placed for the Fund, noting the Adviser’s policies and procedures on trading and brokerage, as well as expected average brokerage commissions paid; the investment strategies and sources of information upon which the Adviser expects to rely in making investment decisions for the Fund; where applicable, the fees charged to and the performance of other accounts managed by the Adviser similar to the Fund; the oversight of the Fund’s portfolios by the Adviser; the Adviser’s succession plan and business continuity plan; and the coordination of services for the Fund among the service providers, Trust management and the Trustees.
After reviewing and considering the foregoing information and further information in the materials provided by the Adviser (including its Form ADV), the Board concluded, in light of all the facts and circumstances, that the expected nature, extent and quality of the services to be provided by the Adviser were satisfactory and adequate for the Fund.
The Costs of the Services to be provided and Profits Expected to be realized by the Adviser from its Relationships with the Fund.
In considering these factors, the Trustees took into consideration the overall expenses of the Fund, including the nature and frequency of advisory fee payments, the expected asset levels of the Fund and the expenses of the Fund as compared to expenses of a group of funds that may be considered similar, noting that the expenses of the Fund was within the range of expenses incurred by the other Fund in its group. The Trustees also took into consideration the information provided about the financial condition and profitability of the Adviser and the level of commitment to the Fund by the principals of the Adviser to their roles for the Fund.
The Trustees also considered the fees charged by the Adviser to comparable accounts they manage in a similar style and noted that, typically, the fees charged to the Fund were similar to fees charged to other accounts managed by the Adviser. The Trustees used this information as a potential gauge for what fees might be considered reasonable for similar investment services, although they also considered that accounts identified as similar for this purpose may also have material differences that impact their overall comparability, such as differences in the range of the investor base served by the account; the average account size; the customization of fees, services and reporting available; the daily liquidity, redemptions and turnover that might occur in a mutual fund that might not be the case in other accounts; the regulatory requirements applicable to a fund that do not apply to many non-fund accounts; and the Board oversight applicable to funds that does not apply to most other types of accounts; to name a few. The Trustees took into consideration these potential differences when assessing both performance and fee information with respect to comparable accounts.
After further consideration of these elements, the Board concluded, in light of all the facts and circumstances, that the costs of the services provided to the Fund and the profits expected to be realized by the Adviser from its relationship with the Fund were satisfactory.
Other Benefits Derived by the Adviser from its Relationships with the Fund and Conflicts of Interest.
The Trustees also considered other benefits that the Adviser derives from their relationship with the Fund (sometimes referred to as “fall-out” benefits) and conflicts of interest. In particular, the Trustees considered that the Adviser may use “soft dollars,” or Fund commissions, to obtain research, and noted in addition to the amount of soft dollars reported that (i) Adviser reports it will select broker-dealers on the basis of best execution, even though some of the broker-dealers it selects also provide research, (ii) the Adviser would only use “soft dollars” within the Section 28(e) safe harbor, which requires the Adviser to determine that the commissions paid were reasonable in relation to the value of the research received, and (iii) the Adviser would use the research received to implement its investment strategy generally, which benefits the Fund as well as the Adviser’s other accounts.
After reviewing and considering the foregoing information and other information they deemed relevant with regard to these matters, the Board concluded, in light of all the facts and circumstances, that the other benefits derived by the Adviser from its relationships with the Fund were satisfactory.
Economies of Scale.
The Trustees also considered the extent to which economies of scale would be realized if the Fund grows and whether the total expense ratios reflect those economies of scale for the benefit of the Funds' shareholders. In this regard, the Trustees considered potential economies of scale that are realized from Fund growth.
After considering these factors, the Board concluded, in light of all the facts and circumstances, that the fee levels and breakpoints were satisfactory and adequate to reflect economies of scale for the benefit of the Fund’s shareholders if the Fund grows.
Based on all of the information presented to the Board and its consideration of relevant factors, the Board, in the exercise of its reasonable business judgment, renewed the Investment Advisory Agreement, and determined that the compensation payable under each of the agreements was fair, reasonable and within a range of what could have been negotiated at arm’s-length in light of all the surrounding circumstances, including the services to be rendered and such other matters as the Board considered to be relevant.
360 FUNDS 4520 Main Street Suite 1425 Kansas City, MO 64111
INVESTMENT ADVISER Winning Points Advisers, LLC 129 NW 13th Street Suite D-26 Boca Raton, FL 33431
ADMINISTRATOR & TRANSFER AGENT Matrix 360 Administration, LLC 4520 Main Street Suite 1425 Kansas City, MO 64111
DISTRIBUTOR Matrix Capital Group, Inc. 106 West 32nd Street New York, NY 10001
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 1350 Euclid Avenue Suite 800 Cleveland, OH 44115
LEGAL COUNSEL Graydon Head & Ritchey LLP 15 West Center Street Lawrenceburg, IN 47025
CUSTODIAN BANK Fifth Third Bank Fifth Third Center
38 Fountain Square Plaza
Cincinnati, OH 45263 |
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| FACTS | WHAT DOES 360 FUNDS DO WITH YOUR PERSONAL INFORMATION? |
| | |
| Why? | Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal information. Please read this notice carefully to understand what we do. |
| What? | The types of personal information we collect and share depend on the product or service you have with us. This information can include: § Social Security number § Assets § Retirement Assets § Transaction History § Checking Account Information § Purchase History § Account Balances § Account Transactions § Wire Transfer Instructions When you are no longer our customer, we continue to share your information as described in this notice. |
| How? | All financial companies need to share your personal information to run their everyday business. In the section below, we list the reasons financial companies can share their customers’ personal information; the reasons 360 Funds chooses to share; and whether you can limit this sharing. |
| Reasons we can share your personal information | Does 360 Funds share? | Can you limit this sharing? |
For our everyday business purposes – Such as to process your transactions, maintain your account(s), respond to court orders and legal investigations, or report to credit bureaus | Yes | No |
For our marketing purposes – to offer our products and services to you | No | We don’t share |
| For joint marketing with other financial companies | No | We don’t share |
For our affiliates’ everyday business purposes – information about your transactions and experiences | No | We don’t share |
For our affiliates’ everyday business purposes – information about your creditworthiness | No | We don’t share |
| For nonaffiliates to market to you | No | We don’t share |
| |
| Questions? | Call (877) 244-6235 |
| | |
| Who we are |
| Who is providing this notice? | 360 Funds M3Sixty Administration, LLC (Administrator) Matrix Capital Group, Inc. (Distributor) |
| What we do |
How does 360 Funds protect my personal information? | To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include computer safeguards and secured files and buildings. Our service providers are held accountable for adhering to strict policies and procedures to prevent any misuse of your nonpublic personal information. |
How does 360 Funds collect my personal information? | We collect your personal information, for example, when you § Open an account § Provide account information § Give us your contact information § Make deposits or withdrawals from your account § Make a wire transfer § Tell us where to send the money § Tell us who receives the money § Show your government-issued ID § Show your driver’s license We also collect your personal information from other companies. |
| Why can’t I limit all sharing? | Federal law gives you the right to limit only § Sharing for affiliates’ everyday business purposes – information about your creditworthiness § Affiliates from using your information to market to you § Sharing for nonaffiliates to market to you State laws and individual companies may give you additional rights to limit sharing. |
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| Definitions |
| Affiliates | Companies related by common ownership or control. They can be financial and nonfinancial companies. § M3Sixty Administration, LLC and Matrix Capital Group, Inc., could each be deemed to be an affiliate. |
| Nonaffiliates | Companies not related by common ownership or control. They can be financial and nonfinancial companies § 360 Funds does not share with nonaffiliates so they can market to you. |
| Joint marketing | A formal agreement between nonaffiliated financial companies that together market financial products or services to you. § 360 Funds does not jointly market. |
| (a) | The registrant has, as of the end of the period covered by this report, adopted a code of ethics that applies to the registrant's principal executive officer, principal financial officer, and principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party. |
| (b) | During the period covered by this report, there were no amendments to any provision of the code of ethics. |
| (c) | During the period covered by this report, there were no waivers or implicit waivers of a provision of the code of ethics. |
| (d) | The registrant’s Code of Ethics is filed herewith. |
| ITEM 3. | AUDIT COMMITTEE FINANCIAL EXPERT. |
| | The Registrant's Board of Trustees has determined that Tom Wirtshafter serves on its audit committee as the "audit committee financial expert" as defined in Item 3. |
| ITEM 4. | PRINCIPAL ACCOUNTANT FEES AND SERVICES. |
| (a) | Audit Fees. The aggregate fees billed for professional services rendered by the principal accountant for the audit of the registrant’s annual financial statements or for services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements were $13,000 with respect to the registrant’s fiscal year ended August 31, 2016 and $12,500 with respect to the registrant’s fiscal year ended August 31, 2015. |
| (b) | Audit-Related Fees. There were no fees billed during the fiscal year for assurances and related services by the principal accountant that are reasonably related to the performance of the audit of the registrant’s financial statements and are not reported under paragraph (a) of this item. |
| (c) | Tax Fees. The aggregate fees billed in the last fiscal year for professional services rendered by the principal accountant for tax compliance, tax advice and tax planning were $2,500 with respect to the registrant’s fiscal year ended August 31, 2016 and $1,800 with respect to the registrant’s fiscal year ended August 31, 2015. The services comprising these fees are the preparation of the registrant’s federal income and excise tax returns. |
| (d) | All Other Fees. The aggregate fees billed in last fiscal year for products and services provided by the registrant’s principal accountant, other than the services reported in paragraphs (a) through (c) of this item were $0 for the fiscal year ended August 31, 2016 and $0 for the fiscal year ended August 31, 2015. |
| (e)(1) | The audit committee does not have pre-approval policies and procedures. Instead, the audit committee or audit committee chairman approves on a case-by-case basis each audit or non-audit service before the principal accountant is engaged by the registrant. |
| (e)(2) | There were no services described in each of paragraphs (b) through (d) of this Item that were approved by the audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X. |
| (f) | Not applicable. The percentage of hours expended on the principal accountant's engagement to audit the registrant's financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant's full-time, permanent employees was zero percent (0%). |
| (g) | All non-audit fees billed by the registrant's principal accountant for services rendered to the registrant for the for the last two fiscal years ended August 31, 2016 and August 31, 2015 are disclosed in (b)-(d) above. There were no audit or non-audit services performed by the registrant's principal accountant for the registrant's adviser. |
| (h) | There were no non-audit services rendered to the registrant’s investment adviser. |
| ITEM 5. | AUDIT COMMITTEE OF LISTED REGISTRANTS. |
Not applicable
| ITEM 6. | SCHEDULES OF INVESTMENTS |
Included in 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 Fund is an open-end management investment company
| ITEM 8. | PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES |
Not applicable 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 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. |
| (1) | Code of Ethics for Principal Executive and Senior Financial Officers is attached hereto. |
| (2) | Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 are filed herewith. |
| (3) | Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 are filed herewith. |
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
| By: Randy Linscott | /s/ Randy Linscott | |
| Principal Executive Officer, | |
| Date: October 28, 2016 | | |
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.
| By Randy Linscott | /s/ Randy Linscott | |
| Principal Executive Officer | |
| Date: October 28, 2016 | | |
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.
| By Larry E. Beaver, Jr. | /s/ Larry E. Beaver, Jr. | |
| Principal Financial Officer | |
| Date: October 28, 2016 | | |
