Washington, D.C. 20549
The Semi-Annual report to Shareholders of the WP Large Cap Income Plus Fund, a series of the 360 Funds, for the period ended February 28, 2017 pursuant to Rule 30e-1 under the Investment Company Act of 1940 (the “1940 Act”), as amended (17 CFR 270.30e-1) is filed herewith.
| Winning Points Funds | SEMI-ANNUAL REPORT |
WP Large Cap Income Plus Fund
NOTES TO THE FINANCIAL STATEMENTS
February 28, 2017 (Unaudited)
| 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 non-diversified Fund. As a non-diversified Fund, it may invest a significant portion of its assets in a small number of companies. The Fund’s investment objective is 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 Fund 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 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 continue to bear the risk of declines in the value of underlying securities held by the Fund. The Fund will receive a premium from the purchaser of a covered call option sold, which they retain whether or not the option is exercised. The premium received from the sold options may not be sufficient to offset any losses sustained from the volatility of the underlying equity securities over time.
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.
| Winning Points Funds | SEMI-ANNUAL REPORT |
WP Large Cap Income Plus Fund
NOTES TO THE FINANCIAL STATEMENTS
February 28, 2017 (Unaudited)
| 1. | ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued) |
As of and during the six month period ended February 28, 2017, the Fund did not have a liability for any unrecognized tax expenses. The Fund recognizes interest and penalties, if any, related to unrecognized tax liability as income tax expense in the statement of operations. During the six month period ended February 28, 2017, the Fund did not incur any interest or penalties. The Fund identifies its major tax jurisdictions as U.S. Federal and Delaware state.
In addition, accounting principles generally accepted in the United States of America (“GAAP”) requires management of the Fund to analyze all open tax years, as defined by IRS statute of limitations for all major industries, including federal tax authorities and certain state tax authorities. As of and during the six month period ended February 28, 2017, 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) Non-Diversified Fund – The Fund is a non-diversified fund. In general, a non-diversified fund may invest a greater percentage of its assets in a particular issue and may own fewer securities than other mutual funds. Accordingly, a non-diversified fund is generally subject to the risk that a large loss in an individual issue will cause a greater loss for the fund than it would if the fund was required to hold a larger number of securities or smaller positions.
h) Expenses – Expenses incurred by the Trust that do not relate to a specific fund of the Trust are allocated to the individual funds based on each fund's relative net assets or another appropriate basis (as determined by the Board).
i) Other – Investment and shareholder transactions are recorded on trade date. The Fund determines the gain or loss realized from the investment transactions by comparing the original cost of the security lot sold with the net sales proceeds. Dividend income is recognized on the ex-dividend date or as soon as information is available to the Fund and interest income is recognized on an accrual basis. Withholding taxes on foreign dividends have been provided for in accordance with the Fund’s understanding of the applicable country’s tax rules and rates.
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. |
| Winning Points Funds | SEMI-ANNUAL REPORT |
WP Large Cap Income Plus Fund
NOTES TO THE FINANCIAL STATEMENTS
February 28, 2017 (Unaudited)
| 2. | SECURITIES VALUATIONS (continued) |
| • | Level 3 – Unobservable inputs for the asset or liability to the extent that relevant observable inputs are not available, representing the Fund's own assumptions about the assumptions that a market participant would use in valuing the asset or liability, and that would be based on the best information available. |
The availability of observable inputs can vary from security to security and is affected by a wide variety of factors, including, for example, the type of security, whether the security is new and not yet established in the marketplace, the liquidity of markets, and other characteristics particular to the security. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in level 3.
The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement falls in its entirety is determined based on the lowest level input that is significant to the fair value measurement in its entirety.
Fair Value Measurements
A description of the valuation techniques applied to the company's major categories of assets and liabilities measured at fair value on a recurring basis follows.
Equity securities (common stock, 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.
| Winning Points Funds | SEMI-ANNUAL REPORT |
WP Large Cap Income Plus Fund
NOTES TO THE FINANCIAL STATEMENTS
February 28, 2017 (Unaudited)
| 2. | SECURITIES VALUATIONS (continued) |
The following table summarizes the inputs used to value the Fund’s assets and liabilities measured at fair value as of February 28, 2017.
| WP Large Cap Income Plus Fund Financial Instruments – Assets | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Security Classification (1) | | Level 1 | | | Level 2 | | | Level 3 | | | Totals | |
Common Stock (2) | | $ | 26,124,172 | | | $ | - | | | $ | - | | | $ | 26,124,172 | |
Closed-End Funds (2) | | | 2,489,820 | | | | | | | | | | | | 2,489,820 | |
Exchange-Traded Funds (2) | | | 975,360 | | | | - | | | | - | | | | 975,360 | |
| Mutual Funds | | | - | | | | 60,512 | | | | - | | | | 60,512 | |
| Put Options Purchased | | | 30,975 | | | | - | | | | - | | | | 30,975 | |
| Short-Term Investments | | | 432,303 | | | | - | | | | - | | | | 432,303 | |
| Total Assets | | $ | 30,052,630 | | | $ | 60,512 | | | $ | - | | | $ | 30,113,142 | |
| WP Large Cap Income Plus Fund Derivative Instruments – Liabilities | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Security Classification (1) | | Level 1 | | | Level 2 | | | Level 3 | | | Totals | |
| Call Options Written | | $ | 1,013,670 | | | $ | - | | | $ | - | | | $ | 1,013,670 | |
| Put Options Written | | | 1,067,760 | | | | - | | | | - | | | | 1,067,760 | |
| Total Liabilities | | $ | 2,081,430 | | | $ | - | | | $ | - | | | $ | 2,081,430 | |
| | | | | | | | | | | | | | | | | |
| (1) | As of and during the six month period ended February 28, 2017, 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 or liabilities transferred into and out of any Levels during the six month period ended February 28, 2017.
During the six month period ended February 28, 2017, no securities were fair valued.
| 3. | DERIVATIVES TRANSACTIONS |
As of February 28, 2017, portfolio securities valued at $29,589,122 were held in escrow by the custodian as cover for options written by the Fund.
| Winning Points Funds | SEMI-ANNUAL REPORT |
WP Large Cap Income Plus Fund
NOTES TO THE FINANCIAL STATEMENTS
February 28, 2017 (Unaudited)
| 3. | DERIVATIVES TRANSACTIONS (continued) |
Transactions in options written during six month period ended February 28, 2017 were as follows:
| | | Call Options | |
| | | Number of Options* | | | Option Premiums | |
| Options outstanding at beginning of period | | | 3,924 | | | $ | 1,446,633 | |
| Options written | | | 577 | | | | 1,245,202 | |
| Options covered | | | (4,386 | ) | | | (1,972,386 | ) |
| Options exercised | | | - | | | | - | |
| Options expired | | | - | | | | - | |
| Options outstanding end of period | | | 115 | | | $ | 719,449 | |
| | | | | | | | | |
| | | Put Options | |
| | | Number of Options* | | | Option Premiums | |
| Options outstanding at beginning of period | | | 2,980 | | | $ | 1,925,114 | |
| Options written | | | 3,614 | | | | 5,957,500 | |
| Options covered | | | (6,159 | ) | | | (6,065,718 | ) |
| Options exercised | | | - | | | | - | |
| Options expired | | | (50 | ) | | | (2,661 | ) |
| Options outstanding end of period | | | 385 | | | $ | 1,814,235 | |
| * | One option contract is equivalent to one hundred shares/units of the underlying ETF/Index. |
As of February 28, 2017, 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 | | $ | 30,975 | | | $ | - | | | $ | 30,975 | |
| Total Assets | | | | $ | 30,975 | | | $ | - | | | $ | 30,975 | |
| | | | | | | | | | | | | | | |
| Liabilities | | Location | | Equity Contracts | | | Interest Rate Contracts | | | Total | |
| Call options written | | Options written, at value | | $ | 1,013,670 | | | $ | - | | | $ | 1,013,670 | |
| Put options written | | Options written, at value | | | 1,021,235 | | | | 46,525 | | | | 1,067,760 | |
| Total Liabilities | | | | $ | 2,034,905 | | | $ | 46,525 | | | $ | 2,081,430 | |
Realized and unrealized gains and losses on derivatives contracts entered into by the Fund during the six month period ended February 28, 2017, are recorded in the following locations in the Statement of Operations:
| Net change in unrealized depreciation on: | | Location | | Equity Contracts | | | Interest Rate Contracts | | | Total | |
| Put options purchased | | Options purchased | | $ | 20,615 | | | $ | - | | | $ | 20,615 | |
| Call options written | | Options written | | | (400,226 | ) | | | - | | | | (400,226 | ) |
| Put option written | | Options written | | | 585,755 | | | | (37,624 | ) | | | 548,131 | |
| | | | | $ | 206,144 | | | $ | (37,624 | ) | | $ | 168,520 | |
| Winning Points Funds | SEMI-ANNUAL REPORT |
WP Large Cap Income Plus Fund
NOTES TO THE FINANCIAL STATEMENTS
February 28, 2017 (Unaudited)
| 3. | DERIVATIVES TRANSACTIONS (continued) |
| Net realized gain (loss) on: | | Location | | Equity Contracts | | | Interest Rate Contracts | | | Total | |
| Call options purchased | | Options purchased | | $ | - | | | $ | - | | | $ | - | |
| Put options purchased | | Options purchased | | | (429,331 | ) | | | - | | | | (429,331 | ) |
| Call options written | | Options written | | | (115,793 | ) | | | - | | | | (115,793 | ) |
| Put option written | | Options written | | | 1,255,312 | | | | 62,188 | | | | 1,317,500 | |
| | | | | $ | 710,188 | | | $ | 62,188 | | | $ | 772,376 | |
For the six month period ended February 28, 2017, 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 period.
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 February 28, 2017.
| 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 | | $ | 30,975 | (1) | | $ | - | | | $ | 30,975 | (1) | | $ | 30,975 | (2) | | $ | - | | | $ | - | |
| Total | | $ | 30,975 | (1) | | $ | - | | | $ | 30,975 | (1) | | $ | 30,975 | (2) | | $ | - | | | $ | - | |
| Liabilities: | | Gross Amounts of Liabilities Presented in the Statement of Assets & Liabilities | |
| | | Gross Amounts of Recognized Liabilities | | | Gross Amounts Offset in the Statement of Assets and Liabilities | | | Net Amounts of Liabilities Presented in the Statement of Assets and Liabilities | | | Financial Instruments Pledged | | | Cash Collateral Pledged | | | Net Amount of Liabilities | |
| Options Written Contracts | | $ | 2,081,430 | (3) | | $ | - | | | $ | 2,081,430 | (3) | | $ | 2,081,430 | (2) | | $ | - | | | $ | - | |
| Total | | $ | 2,081,430 | (3) | | $ | - | | | $ | 2,081,430 | (3) | | $ | 2,081,430 | (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. |
| Winning Points Funds | SEMI-ANNUAL REPORT |
WP Large Cap Income Plus Fund
NOTES TO THE FINANCIAL STATEMENTS
February 28, 2017 (Unaudited)
| 4. | CAPITAL SHARE TRANSACTIONS |
Transactions in shares of capital stock for the Fund for the six month period ended February 28, 2017 were as follows:
| WP Large Cap Income Plus Fund: | | Sold | | | Redeemed | | | Reinvested | | | Net Increase | |
| Institutional Class | | | | | | | | | | | | |
| Shares | | | 163,508 | | | | (142,762 | ) | | | 3,992 | | | | 24,738 | |
| Value | | $ | 1,879,927 | | | $ | (1,597,204 | ) | | $ | 46,224 | | | $ | 328,947 | |
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 | ) |
| 5. | INVESTMENT TRANSACTIONS |
For the six month period ended February 28, 2017, aggregate purchases and sales of investment securities (excluding short-term investments) for the Fund were as follows:
| Purchases | Sales |
| $ 1,116,137 | $ 75,896 |
There were no government securities purchased or sold during the period.
| 6. | ADVISORY FEES AND OTHER RELATED PARTY TRANSACTIONS |
The Fund has entered into an Investment Advisory Agreement (the “Advisory Agreement”) with the Adviser. Pursuant to the Advisory Agreement, the Adviser manages the operations of the Fund and manages the Fund’s investments in accordance with the stated policies of the Fund. As compensation for the investment advisory services provided to the Fund, the Adviser will receive a monthly management fee equal to an annual rate of 1.35% of the Fund’s net assets. For the six month period ended February 28, 2017, the Adviser earned $171,004 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 six month period ended February 28, 2017, M3Sixty earned $49,975, including out of pocket expenses with $8,815 remaining payable at February 28, 2017.
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 (see note 9).
The Distributor is an affiliate of M3Sixty.
| Winning Points Funds | SEMI-ANNUAL REPORT |
WP Large Cap Income Plus Fund
NOTES TO THE FINANCIAL STATEMENTS
February 28, 2017 (Unaudited)
| 6. | ADVISORY FEES AND OTHER RELATED PARTY TRANSACTIONS (continued) |
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 six month period ended February 28, 2017, the Fund accrued $31,667 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 February 28, 2017 were as follows:
| Cost | | Gross Appreciation | | Gross Depreciation | | Net Appreciation |
| $ 25,221,198 | | $ 6,052,137 | | $ (1,160,193) | | $ 4,891,944 |
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 CEFs and REITs.
The Fund’s tax basis distributable earnings are determined only at the end of each fiscal year. The tax character of distributable earnings (deficit) at 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 Distributable Earnings | |
| $ | 2,103,932 | | | $ | - | | | $ | - | | | $ | (104,005 | ) | | $ | (1,341,451 | ) | | $ | 658,476 | |
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 CEFs and REITs.
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 |
| $ 1,341,451 | $ 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 | $ - |
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 |
| $ 46,718 | $ 7,972 | $ (54,690) |
| Winning Points Funds | SEMI-ANNUAL REPORT |
WP Large Cap Income Plus Fund
NOTES TO THE FINANCIAL STATEMENTS
February 28, 2017 (Unaudited)
| 7. | TAX MATTERS (continued) |
The permanent differences were mainly due to return of capital distributions, net operating loss, and basis adjustments from the sale of CEFs and REITs.
During the six month period ended February 28, 2017, the Fund distributed $46,284 of net investment income.
During the year ended August 31, 2016, the Fund distributed $41,253 of return of capital.
| 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 Trust’s maximum exposure under these arrangements is dependent on future claims that may be made against the Fund and, therefore, cannot be estimated; however, management considers the risk of loss from such claims to be remote.
Pursuant to a New Distribution Agreement (“New Agreement”), Matrix 360 Distributors, LLC (“M3SixtyD”) replaced Matrix Capital Group, Inc. as Distributor to the Fund effective March 3, 2017. Transition of the distribution services to M3SixtyD required an in-person meeting of the Board of Trustees to review and approve the New Agreement and M3SixtyD as the new Distributor. The approval of the New Agreement took place at the January 11, 2017 meeting of the Board of Trustees and became effective March 3, 2017.
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.
| Winning Points Funds | SEMI-ANNUAL REPORT |
ADDITIONAL INFORMATION
February 28, 2017 (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 $46,284 of ordinary income distributions during the six month period ended February 28, 2017.
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 2018 to determine the calendar year amounts to be included on their 2017 tax returns. Shareholders should consult their own tax advisors.
| Winning Points Funds | SEMI-ANNUAL REPORT |
ADDITIONAL INFORMATION
February 28, 2017 (Unaudited)
BOARD OF TRUSTEES, OFFICERS AND PRINCIPAL SHAREHOLDERS - (Unaudited)
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 $1,500 each year plus $200 per Board or committee meeting attended. The Trust reimburses each Trustee and officer for his or her travel and other expenses relating to attendance at such meetings. 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 | $ 1,150 | None | None | $ 1,150 |
| Thomas Krausz | $ 1,150 | None | None | $ 1,150 |
| Tom M. Wirtshafter | $ 1,350 | None | None | $ 1,350 |
| Gary DiCenzo | $ 1,150 | None | None | $ 1,150 |
| Interested Trustees |
Randall K. Linscott3 | 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 seven (7) series of shares. |
| 2 | Figures are for the six month period ended February 28, 2017. |
| 3 | The Interested Trustee is an Interested Trustee because he is an officer and employee of the Administrator. |
| Winning Points Funds | SEMI-ANNUAL REPORT |
Information About Your Fund’s Expenses - (Unaudited)
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, such as the sales charge (load) imposed on certain subscriptions and the contingent deferred sales charge (“CDSC”) imposed on certain short-term redemptions; and (2) 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 09/01/2016 through 02/28/2017 |
| | Beginning Account
Value (09/01/2016) | Annualized Expense
Ratio for the Period | Ending Account
Value (02/28/2017) | Expenses Paid
During Period (a) |
| Actual Fund Return (in parentheses) | | | |
| Institutional Class (+17.28%) | $1,000.00 | 2.48% | $1,172.80 | $13.36 |
| Hypothetical 5% Fund Return | | | |
| Institutional Class | $1,000.00 | 2.48% | $1,012.50 | $12.37 |
| (a) | Expenses are equal to the Funds’ annualized expense ratios, multiplied by the average account value over the period, multiplied by 181/365 to reflect the one-half year period. |
For more information on Fund expenses, please refer to the Fund’s prospectus, which can be obtained from your investment representative or by calling 1-877-244-6235. Please read it carefully before you invest or send money.
Total Fund operating expense ratios as stated in the current Fund prospectus dated December 31, 2016 for the Fund were as follows: |
| WP Large Cap Income Plus Fund Institutional Class shares | 3.05% |
Total Gross Operating Expenses during the six month period ended February 28, 2017 were 2.48% 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 the six month period ended February 28, 2017. |
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 360 Distributors, LLC 4520 Main Street Suite 1425 Kansas City, MO 64111
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Cohen & Company, Ltd. 1350 Euclid Avenue Suite 800 Cleveland, OH 44115
LEGAL COUNSEL The Law Offices of John H. Lively & Associates, Inc. A member firm of The 1940 Act Law Group™ 11300 Tomahawk Creek Parkway Suite 310 Leawood, KS 66211
CUSTODIAN BANK Fifth Third Bank Fifth Third Center
38 Fountain Square Plaza
Cincinnati, OH 45263 |
Not applicable at this time.
Not applicable at this time.
Not applicable at this time.
Included in semi-annual report to shareholders filed under item 1 of this form.
Not applicable at this time.
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.
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.
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.
