UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act File Number 811-23089
M3Sixty Funds Trust
(Exact name of registrant as specified in charter)
4300 Shawnee Mission Parkway, Suite 100 Fairway, KS | 66205 |
(Address of principal executive offices) | (Zip code) |
The Corporation Trust Company
Corporation Trust Center
1209 Orange St.
Wilmington, DE 19801
(Name and address of agent for service)
With Copies To:
John H. Lively
Practus, LLP
11300 Tomahawk Creek Parkway, Suite 310
Leawood, KS 66211
Registrant’s telephone number, including area code: 888-553-4233
Date of fiscal year end: 06/30/2020
Date of reporting period: 06/30/2020
ITEM 1. | REPORTS TO SHAREHOLDERS |
The Annual Report to Shareholders of the Cognios Large Cap Value Fund (the “Value Fund), Cognios Market Neutral Fund (the “Market Neutral Fund”) and F/m Investments Large Cap Focused Fund (the “Focused Fund”), formerly the Cognios Large Cap Growth Fund, and, collectively, (the “Funds”), each a series of the M3Sixty Funds Trust (the “registrant”), for the period ended June 30, 2020 pursuant to Rule 30e-1 under the Investment Company Act of 1940, as amended (the “1940 Act”) (17 CFR 270.30e-1) is filed herewith.
COGNIOS LARGE CAP VALUE FUND
Investor Class COGLX
Institutional Class COGVX
COGNIOS MARKET NEUTRAL LARGE CAP FUND
Investor Class COGMX
Institutional Class COGIX
ANNUAL
JUNE 30, 2020
IMPORTANT NOTE: Beginning on January 1, 2021, as permitted by regulations adopted by the SEC, paper copies of the Cognios Funds’ (the “Funds”) shareholder reports will no longer be sent by mail unless you specifically request paper copies of the reports from the Funds or from your financial intermediary, such as a broker-dealer or bank. Instead, the reports will be made available on a website, and you will be notified by mail each time a report is posted and provided with a website link to access the report. If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. You may elect to receive all future reports in paper free of charge. You can inform the Funds or your financial intermediary that you wish to continue receiving paper copies of your shareholder reports by calling or sending an e-mail request. Your election to receive reports in paper will apply to all funds held with the Fund complex/your financial intermediary.
Table of Contents
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Annual Report | June 30, 20201
Dear Shareholder,
Thank you for investing in Cognios Funds. This Annual Report covers the Cognios Large Cap Value Fund (the “Value Fund”), and the Cognios Market Neutral Large Cap Fund (the “Market Neutral Fund”) (collectively, the “Funds”), for the fiscal year ending June 30, 2020. We appreciate this opportunity to offer insight into the Funds’ investment strategies and to offer commentary on performance and evolving global market conditions.
The Value Fund
Market Commentary
Total Return Performance | |
July 1, 2019 – June 30, 2020 | |
S&P 500® Total Return Index | Russell 1000® Value Total Return Index |
7.51% | -8.84% |
The twelve months ended June 30, 2020 were very difficult for value-based strategies. Many businesses that would be considered “value” stocks were severely disrupted by the Covid-19 pandemic, while businesses that would be considered “growth” stocks (many of which are in the technology sector) were able to maintain and even grow their earnings streams as lockdowns pushed more transactions online. This explains the wide outperformance of the S&P 500® Total Return Index (“S&P 500®”) over the Russell 1000® Value Total Return Index (“Russell 1000® Value”).
The wide performance gap has also created a wide valuation dispersion between growth and value. The overall valuation of the market appears elevated, but reasonable, especially considering the very low rates on U.S. Treasuries. However, valuations for growth stocks are very high. As of August 10, 2020, the quoted price to earnings ratio for the Russell 1000® Growth Index was 36.6x and the price to sales ratio was 4.5x, both high relative to historical norms. The price to earnings ratio for the Russell 1000® Value was 19.2x and the price to sales ratio was 1.6x. The spread between the ratios at 17.4x has been wider in the past, the spread reached 46.5x at the height of the Internet bubble in 2000, but it is higher than the approximate 10.0x average spread over the past 20 years.
The macroeconomic view upon which our value strategies are based is what we consider to be a straightforward model of market behavior over time. This model is based on the belief that corporate profits, market multiples, and interest rates drive stock price returns over very long periods. However, this is not to say that a market correction or crash will occur in the near future. Should an adverse market event occur, we believe the Large Cap Value and Market Neutral Funds are well positioned to mitigate volatility relative to their respective benchmarks.
The Value Fund invests in what we believe are high quality companies that trade at attractive valuations relative to the broader market. We utilize our proprietary ROTA/ROME® investment selection and portfolio construction methodology to execute this strategy. ROTA/ROME® focuses on a company’s Return on Tangible Assets (“ROTA”) and Return on Market Value of Equity (“ROME”) in order to identify companies whose per share intrinsic value has diverged significantly from the current market price of its stock. We believe that companies that exhibit sustainable long-term high ROTA are higher quality companies that most likely have a competitive advantage within the marketplace. ROME is a measure of profit yield, and like a yield on a bond, the higher the ROME, the more likely that shares in the company can be purchased at a better valuation compared to a company with a lower ROME.
Cognios Funds
Shareholder Letter (continued)June 30, 2020 (Unaudited)
2www.cogniosfunds.com
During the fiscal year ended June 30, 2020, the total return for the Institutional Class Shares (COGVX) was -6.67% and the total return for the Investor Class Shares (COGLX) was -6.89% outperforming the Russell 1000® Value, the Value Fund’s secondary benchmark, by 2.17% (COGVX) and underperforming the S&P 500®, the Value Fund’s primary benchmark, by 14.18% (COGVX). Over the course of the last fiscal year, the Value Fund maintained investment positions in 158 positions. Of those investment positions, 79 were profitable resulting in a 0.500 batting average. The tables below display the top five positions that contributed to gross loss:
Top 5 Investment Positions by Contribution to Gross Loss | ||
Ticker | Company | Contribution to |
CLX | The Clorox Company | -9.4% |
DG | Dollar General Corporation | -7.6% |
AKAM | Akamai Technologies, Inc | -6.7% |
CAG | Conagra Brands, Inc. | -6.3% |
TGT | Target Corporation | -6.3% |
Total | | -36.3% |
The Market Neutral Fund
The Market Neutral Fund employs a Beta-adjusted market neutral investment strategy that seeks to provide investors with returns that are non-correlated to, or independent of, the returns of the global equity and fixed-income markets. Beta is the statistical measure of the sensitivity of a company’s stock price to the movement of a broad stock market index. For the Fund, the Adviser uses a company stock price Beta relative to the S&P 500®. A Beta of 1.0 means a stock generally moves up and down in proportion to the movement of the stock market. A Beta greater than 1.0 means a stock generally moves up and down more than the movement of the stock market. A Beta less than 1.0 means that a stock generally moves up and down less than the movement of the stock market. By attempting to hedge out all of the market Beta, the Fund’s returns over time should be essentially “pure Alpha” (i.e., Alpha is the excess return of a portfolio after considering its Beta exposure.) Additionally, by hedging out the general market movements in this Beta-adjusted market neutral fashion, we believe that the total returns of the Fund will be independent of those broad “systemic” risk factors and macro events that move the entire stock market either positively or negatively over time.
Performance Commentary
The Market Neutral Fund invests long in high-quality companies that trade at attractive valuations relative to the broader market. We utilize our proprietary ROTA/ROME® investment selection and portfolio construction methodology, very similar to the Value Fund. Conversely, The Market Neutral Fund sells short shares in companies that demonstrate poor qualities based on our proprietary ROTA/ROME® investment selection and portfolio construction methodology.
For the twelve months ended June 30, 2020, the total return for the Institutional Class Shares (COGIX) was 1.77% and the total return for the Investor Class Shares (COGMX) was 1.50%, underperforming the S&P 500®, the Fund’s benchmark, by 5.74% (COGIX). Over the course of the last fiscal year, the Market Neutral Fund held 112 long positions, of which 69 were profitable resulting in a 0.616 batting average.
Cognios Funds
Shareholder Letter (continued)June 30, 2020 (Unaudited)
Annual Report | June 30, 20203
The table below displays the top five positions that contributed to gross profit for the long positions:
Top 5 Long Positions by Contribution to Long Gross Profit of the Market Neutral Fund | ||
Ticker | Company | Contribution to |
TGT | Target Corporation | 23.8% |
BMY | Bristol-Meyers Squibb Company | 19.8% |
VRSK | Verisk Analytics | 18.7% |
DG | Dollar General Corporation | 18.4% |
K | Kellogg Company | 16.4% |
Total | | 97.1% |
Over the course of the last fiscal year, the Market Neutral Fund held 221 short positions, of which 101 were profitable resulting in a 0.457 batting average. The table below displays the top five positions that contributed to gross profit for the short positions:
Top 5 Short Positions by Contribution to Short Gross Profit of the Market Neutral Fund | ||
Ticker | Company | Contribution to Gross Profit |
ABMD | Abiomed, Inc. | 32.0% |
FANG | Diamondback Energy, Inc. | 25.3% |
NKE | NIKE, Inc. | 25.3% |
UAA | Under Armour, Inc. | 15.8% |
AON | Aon Plc | 13.8% |
Total | | 112.2% |
We at Cognios look forward to future opportunities to connect with our shareholders. We strive to continuously add value to your investment experience by providing access to fund information, portfolio updates and straightforward commentary.
If you have any questions regarding the Cognios Funds, please contact your account manager or financial adviser, or call one of our shareholder associates at 888-553-4233. We also invite you to visit Cognios’ website at www.cognios.com to learn more about our firm, our team and our values.
We thank you for investing with Cognios and for the trust you have placed in us.
Sincerely,
| ||
Jonathan Angrist | | Brian Machtley |
Portfolio Managers,
Cognios Capital, LLC
4www.cogniosfunds.com
Performance (as of June 30, 2020)
| | One Year |
| Since Inception(a) |
Cognios Large Cap Value Fund Investor Class shares |
| -6.89% | | 7.01% |
Cognios Large Cap Value Fund Institutional Class shares |
| -6.67% | | 7.11% |
S&P 500® Total Return Index(b) | | 7.51% | | 12.35% |
Russell 1000® Value Total Return Index(c) | | -8.84% | | 4.60% |
(a)The Cognios Large Cap Value Fund (the “Value Fund”) commenced operations on October 3, 2016.
(b)The S&P 500® Total Return Index is a broad unmanaged index of 500 stocks, which is widely recognized as representative of the equity market in general. 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.
(c)The Russell 1000® Value Total Return Index measures the performance of those Russell 1000 companies with lower price-to-book ratios and lower forecasted growth values. 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.
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 888-553-4233.
As with any fund, save an index fund, that commonly compares its performance to the S&P 500® Total Return Index and the Russell 1000® Value 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 indices; so too with the Cognios Large Cap Value Fund, which will generally not invest in all the securities comprising each index.
Total Fund operating expense ratios as stated in the current Fund prospectus dated June 2, 2020 for the Fund were as follows:
Cognios Large Cap Value Fund Investor Class Shares, gross of fee waivers or | 2.88% |
Cognios Large Cap Value Fund Investor Class Shares, after fee waivers or | 2.19% |
Cognios Large Cap Value Fund Institutional Class Shares, gross of fee waivers or expense reimbursements | 2.63% |
Cognios Large Cap Value Fund Institutional Class Shares, after fee waivers or expense reimbursements | 1.94% |
Annual Report | June 30, 20205
Cognios Large Cap Value Fund
Portfolio Update (continued)June 30, 2020 (Unaudited)
Quantitative Value Technologies, LLC, d/b/a Cognios Capital (the “Adviser”) has entered into an Expense Limitation Agreement with the Value Fund under which it has agreed to waive its fees or reimburse other expenses of the Value Fund, if necessary, in an amount that limits the Value Fund’s annual operating expenses (exclusive of interest, borrowing expenses, distribution fees pursuant to Rule 12b-1 plans, taxes, acquired fund fees and expenses, brokerage fees and commissions, dividend expenses on short sales, litigation expenses, other expenditures which are capitalized in accordance with generally accepted accounting principles and other extraordinary expenses not incurred in the ordinary course of the Value Fund’s business) to not more than 0.85% through at least October 31, 2021. Subject to approval by the Value Fund’s Board, any waiver under the Expense Limitation Agreement is subject to repayment by the Value Fund within the three years following the date when the waiver or reimbursement occurred, if the Value Fund is able to make the payment without exceeding the expense limitation in place at the time of the waiver or reimbursement. Only the Board of Trustees can terminate the contractual agreement before the expiration date. Total Gross Operating Expenses (Annualized) during the year ended June 30, 2020 were 2.87% and 2.62% for the Value Fund’s Investor Class shares and Institutional Class shares, respectively. Please see the Disclosure of Fund Expenses, the Financial Highlights and Notes to Financial Statements (Note 5) sections of this report for expense related disclosures during the year ended June 30, 2020.
6www.cogniosfunds.com
Cognios Large Cap Value Fund
Portfolio Update (continued)June 30, 2020 (Unaudited)
The graphs shown above represent historical performance of hypothetical investments of $10,000 in the Cognios Large Cap Value Fund’s Investor Shares and $100,000 in the Cognios Large Cap Value Fund’s Institutional Shares since inception. Past performance does not guarantee future results. All returns reflect reinvested dividends, but do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.
The Value Fund’s principal investment objective is long-term growth of capital. The Value Fund seeks to achieve its investment objective by purchasing equity securities of U.S. companies that the Adviser believes are undervalued and likely to appreciate. The Value Fund generally seeks to purchase large capitalization U.S. equity common stocks of companies that are constituents of the S&P 500® Index. It may invest across different industries and sectors. Under normal circumstances, the Value Fund invests at least 80% of its assets in securities of large capitalization companies as defined by the S&P 500® Index. It may also invest up to 20% in issuers of any size.
Annual Report | June 30, 20207
Cognios Large Cap Value Fund
Portfolio Update (continued)June 30, 2020 (Unaudited)
Sector Allocation of Portfolio Holdings (% of Net Assets)*
Communications | | 6.06% |
Consumer, Cyclical | | 28.43% |
Consumer, Non-Cyclical | | 53.04% |
Energy | | 1.51% |
Financials | | 21.24% |
Industrials | | 8.39% |
Technology | | 12.06% |
Utilities | | 1.44% |
Cash, Cash Equivalents, & Other Net Liabilities | | (32.17)% |
TOTAL | | 100.00% |
Top Ten Portfolio Holdings (% of Net Assets)*
Clorox Co. | | 2.37% |
Dollar General Corp. | | 2.23% |
Akamai Technologies, Inc. | | 2.15% |
Nasdaq, Inc. | | 2.13% |
Conagra Brands, Inc. | | 2.10% |
McCormick & Co., Inc. | | 2.08% |
Bristol-Myers Squibb Co. | | 2.06% |
UnitedHealth Group, Inc. | | 2.03% |
General Mills, Inc. | | 2.03% |
Campbell Soup Co. | | 2.00% |
*The percentages in the above tables are based on the portfolio holdings of the Value Fund as of June 30, 2020 and are subject to change. For a detailed break-out of holdings by industry, please refer to the Schedules of Investments.
8www.cogniosfunds.com
Cognios Market Neutral Large Cap Fund
Portfolio UpdateJune 30, 2020 (Unaudited)
Performance (as of June 30, 2020)
| | One Year |
| Five Years |
| Since Inception(a) |
Cognios Market Neutral Large Cap Fund |
| 1.50% | | 1.85% | | 2.97% |
Cognios Market Neutral Large Cap Fund |
| 1.77% | | 2.09% | | 3.23% |
S&P 500® Total Return Index(b) | | 7.51% | | 10.72% | | 13.21% |
(a)The Cognios Market Neutral Large Cap Fund (the “Market Neutral Fund”) commenced operations on December 31, 2012.
(b)The S&P 500® Total Return Index is a broad unmanaged index of 500 stocks, which is widely recognized as representative of the equity market in general. 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.
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 888-553-4233.
As with any fund, save an index fund, that commonly compares its performance to the S&P 500® 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 Market Neutral Fund, which will generally not invest in all the securities comprising the index.
Total Fund operating expense ratios as stated in the current Fund prospectus dated June 2, 2020 for the Fund were as follows:
Cognios Market Neutral Large Cap Fund Investor Class Shares, gross of fee waivers or expense reimbursements | 4.61% |
Cognios Market Neutral Large Cap Fund Investor Class Shares, after fee waivers or | 4.19% |
Cognios Market Neutral Large Cap Fund Institutional Class Shares, gross of fee waivers or | 4.36% |
Cognios Market Neutral Large Cap Fund Institutional Class Shares, after fee waivers or | 3.94% |
Quantitative Value Technologies, LLC, d/b/a Cognios Capital (the “Adviser”) has entered into an Expense Limitation Agreement with the Market Neutral Fund under which it has agreed to waive its fees or reimburse other expenses of the Market Neutral Fund, if necessary, in an amount that limits the Market Neutral Fund’s annual operating expenses (exclusive of interest, borrowing expenses, distribution fees pursuant to Rule 12b-1 plans, taxes, acquired fund fees and expenses, brokerage
Annual Report | June 30, 20209
Cognios Market Neutral Large Cap Fund
Portfolio Update (continued)June 30, 2020 (Unaudited)
fees and commissions, dividend expenses on short sales, litigation expenses, other expenditures which are capitalized in accordance with generally accepted accounting principles and other extraordinary expenses not incurred in the ordinary course of the Market Neutral Fund’s business) to not more than 1.45% of the Market Neutral Fund’s average daily net assets through at least October 31, 2021. Subject to approval by the Market Neutral Fund’s Board of Trustees, any waiver or reimbursement under the Expense Limitation Agreement is subject to repayment by the Market Neutral Fund within the three years following the date when the waiver or reimbursement occurred, if the Market Neutral Fund is able to make the payment without exceeding the 1.45% expense limitation. Only the Board of Trustees can terminate the contractual agreement before the expiration date. Total Gross Operating Expenses (Annualized) during the year ended June 30, 2020 were 4.86% and 4.61% for the Fund’s Investor Class shares and Institutional Class shares, respectively. Please see the Disclosure of Fund Expenses, the Financial Highlights and Notes to Financial Statements (Note 5) sections of this report for expense related disclosures during the year ended June 30, 2020.
10www.cogniosfunds.com
Cognios Market Neutral Large Cap Fund
Portfolio Update (continued)June 30, 2020 (Unaudited)
The graphs shown above represent historical performance of hypothetical investments of $10,000 in the Cognios Market Neutral Large Cap Fund’s Investor Shares and $100,000 in the Cognios Market Neutral Large Cap Fund’s Institutional Shares since inception. Past performance does not guarantee future results. All returns reflect reinvested dividends, but do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.
The Market Neutral Fund’s principal investment objective is long-term growth of capital independent of stock market direction. The Market Neutral Fund seeks to achieve its investment objective by balancing “long” and “short” positions. To do this, the Fund will buy (take long positions in) equity securities of U.S. companies that the Adviser believes are undervalued and more likely to appreciate and, at the same time, borrow and then sell (take short positions in) equity securities of U.S. companies that the Adviser believes are likely to underperform the long positions over time. The Fund generally seeks to purchase and sell short large capitalization U.S. equity common stocks of companies that are constituents of the S&P 500® Index. Under normal circumstances the Market Neutral Fund invests at least 80% of its assets (defined as net assets plus borrowings for investment purposes) in securities of large cap companies as defined by the S&P 500® Index. It may also invest up to 20% in issuers of any size.
Annual Report | June 30, 202011
Cognios Market Neutral Large Cap Fund
Portfolio Update (continued)June 30, 2020 (Unaudited)
Sector Allocation of Portfolio Holdings (% of Net Assets)*
Basic Materials | | (3.77)% |
Communications | | 0.59% |
Consumer, Cyclical | | 11.42% |
Consumer, Non-Cyclical | | 29.33% |
Energy | | (0.27)% |
Financials | | (0.27)% |
Industrials | | (1.38)% |
Technology | | 9.59% |
Utilities | | (11.21)% |
Cash, Cash Equivalents, & Other Net Assets | | 65.97% |
TOTAL | | 100.00% |
Top Ten Portfolio Holdings (% of Net Assets)*
Akamai Technologies, Inc. | | 1.79% |
Oracle Corp. | | 1.77% |
Regeneron Pharmaceuticals, Inc. | | 1.76% |
Bristol-Myers Squibb Co. | | 1.76% |
Gilead Sciences, Inc. | | 1.75% |
McCormick & Co., Inc. | | 1.74% |
Dollar Tree, Inc. | | 1.74% |
Humana, Inc. | | 1.73% |
United Parcel Service, Inc. | | 1.73% |
Conagra Brands, Inc. | | 1.73% |
*The percentages in the above tables are based on the portfolio holdings of the Market Neutral Fund as of June 30, 2020 and are subject to change. For a detailed break-out of holdings by industry, please refer to the Schedules of Investments and Schedule of Securities Sold Short.
12www.cogniosfunds.com
As a shareholder of the Funds, 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 Funds 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 Funds’ actual expense ratio and an assumed rate of return of 5% per year before expenses, which are 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 Funds 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 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 Funds’ prospectus.
Annual Report | June 30, 202013
Cognios Funds
Disclosure of Fund Expenses (continued)June 30, 2020 (Unaudited)
Expenses and Value of a $1,000 Investment for the Period from 01/01/20 through 06/30/20
| Beginning | Annualized | Ending | Expenses |
Value Fund: | | | | |
Actual Fund Return (in parentheses) | | | | |
Investor Class Shares (-14.47%) | $1,000.00 | 1.83% | $ 855.30 | $ 8.44(a) |
Institutional Class Shares (-14.47%) | $1,000.00 | 1.58% | $ 855.30 | $ 7.29(a) |
Market Neutral Fund: | | | | |
Actual Fund Return (in parentheses) | | | | |
Investor Class Shares (-0.78%) | $1,000.00 | 4.60% | $ 992.20 | $22.79(a) |
Institutional Class Shares (-0.67%) | $1,000.00 | 4.35% | $ 993.30 | $21.56(a) |
Value Fund: | | | | |
Hypothetical 5% Fund Return | | | | |
Investor Class Shares (-14.47%) | $1,000.00 | 1.83% | $1,015.80 | $ 9.17(a) |
Institutional Class Shares (-14.47%) | $1,000.00 | 1.58% | $1,017.00 | $ 7.92(a) |
Market Neutral Fund: | | | | |
Hypothetical 5% Fund Return | | | | |
Investor Class Shares (-0.78%) | $1,000.00 | 4.60% | $1,002.00 | $22.90(a) |
Institutional Class Shares (-0.67%) | $1,000.00 | 4.35% | $1,003.20 | $21.67(a) |
(a)Expenses are equal to the Funds’ annualized expense ratios, multiplied by the average account value over the period, multiplied by 182/366 to reflect the one-half year period.
For more information on the Funds’ expenses, please refer to the Funds’ prospectus, which can be obtained from your investment representative or by calling 888-553-4233. Please read it carefully before you invest or send money.
The accompanying notes are an integral part of these financial statements.
14www.cogniosfunds.com
| Shares | | Fair Value |
COMMON STOCK - 132.17% | | | |
| |||
Communications - 6.06% | | | |
AT&T, Inc. (b) | 6,269 | | $189,512 |
CenturyLink, Inc. (b) | 6,840 | | 68,605 |
F5 Networks, Inc. (a) (b) | 688 | | 95,962 |
Juniper Networks, Inc. (b) | 2,166 | | 49,515 |
Motorola Solutions, Inc. (b) | 808 | | 113,225 |
Omnicom Group, Inc. (b) | 3,077 | | 168,004 |
| | | 684,823 |
Consumer, Cyclical - 28.43% | | | |
Alaska Air Group, Inc. (b) | 1,195 | | 43,331 |
AutoZone, Inc. (a) (b) | 160 | | 180,499 |
Capri Holdings Ltd. (a) (b) | 3,228 | | 50,454 |
Copart, Inc. (a) (b) | 998 | | 83,103 |
Costco Wholesale Corp. (b) | 271 | | 82,170 |
Darden Restaurants, Inc. (b) | 1,016 | | 76,982 |
Dollar General Corp. (b) | 1,325 | | 252,426 |
Dollar Tree, Inc. (a) (b) | 1,062 | | 98,426 |
Foot Locker, Inc. (b) | 660 | | 19,246 |
Gap, Inc. (b) | 6,116 | | 77,184 |
Kohl’s Corp. (b) | 532 | | 11,050 |
L Brands, Inc. (b) | 5,394 | | 80,748 |
Macy’s, Inc. (b) | 6,110 | | 42,037 |
McDonald’s Corp. (b) | 1,050 | | 193,694 |
NIKE, Inc. - Class B (b) | 932 | | 91,382 |
Nordstrom, Inc. (b) | 3,372 | | 52,232 |
NVR, Inc. (a) (b) | 37 | | 120,574 |
O’Reilly Automotive, Inc. (a) (b) | 433 | | 182,583 |
PulteGroup, Inc. (b) | 3,525 | | 119,956 |
Ralph Lauren Corp. (b) | 299 | | 21,683 |
Ross Stores, Inc. (b) | 1,283 | | 109,363 |
Starbucks Corp. (b) | 2,578 | | 189,715 |
Tapestry, Inc. (b) | 1,305 | | 17,330 |
Target Corp. (b) | 1,602 | | 192,128 |
TJX Cos., Inc. (b) | 3,859 | | 195,111 |
Tractor Supply Co. (b) | 938 | | 123,619 |
Walgreens Boots Alliance, Inc. (b) | 2,693 | | 114,156 |
Walmart, Inc. (b) | 1,727 | | 206,860 |
Yum! Brands, Inc. (b) | 2,145 | | 186,422 |
| | | 3,214,464 |
The accompanying notes are an integral part of these financial statements.
Annual Report | June 30, 202015
| Shares | | Fair Value |
Cognios Large Cap Value Fund
Schedules of Investments (continued)June 30, 2020
Consumer, Non-cyclical - 53.04% | | | |
AbbeVie, Inc. (b) | 1,030 | | $101,125 |
ABIOMED, Inc. (a) (b) | 726 | | 175,373 |
Altria Group, Inc. (b) | 4,491 | | 176,272 |
Amgen, Inc. (b) | 375 | | 88,447 |
Biogen, Inc. (a) (b) | 256 | | 68,493 |
Bristol-Myers Squibb Co. (b) | 3,969 | | 233,377 |
Campbell Soup Co. (b) | 4,548 | | 225,717 |
Centene Corp. (a) (b) | 784 | | 49,823 |
Church & Dwight Co., Inc. (b) | 2,788 | | 215,512 |
Cigna Corp. (b) | 199 | | 37,342 |
Clorox Co. (b) | 1,222 | | 268,070 |
Colgate-Palmolive Co. (b) | 2,876 | | 210,696 |
Conagra Brands, Inc. (b) | 6,745 | | 237,222 |
Constellation Brands, Inc. - Class A (b) | 1,106 | | 193,495 |
Cooper Cos., Inc. (b) | 130 | | 36,873 |
CVS Health Corp. (b) | 1,943 | | 126,237 |
General Mills, Inc. (b) | 3,722 | | 229,461 |
Gilead Sciences, Inc. (b) | 1,070 | | 82,326 |
H&R Block, Inc. (b) | 10,677 | | 152,468 |
HCA Healthcare, Inc. (b) | 931 | | 90,363 |
Hershey Co. (b) | 1,474 | | 191,060 |
Hormel Foods Corp. (b) | 2,954 | | 142,590 |
Humana, Inc. (b) | 229 | | 88,795 |
Incyte Corp. (a) (b) | 405 | | 42,108 |
Johnson & Johnson (b) | 1,461 | | 205,460 |
Kellogg Co. (b) | 2,050 | | 135,423 |
Kimberly-Clark Corp. (b) | 1,516 | | 214,287 |
Kroger Co. (b) | 3,073 | | 104,021 |
Lamb Weston Holdings, Inc. (b) | 3,180 | | 203,297 |
McCormick & Co., Inc. (b) | 1,311 | | 235,207 |
McKesson Corp. (b) | 619 | | 94,967 |
Molson Coors Brewing Co. - Class B (b) | 2,088 | | 71,744 |
PepsiCo, Inc. (b) | 1,533 | | 202,755 |
Phillip Morris International, Inc. (b) | 1,119 | | 78,397 |
Procter & Gamble Co. (b) | 1,766 | | 211,161 |
Quest Diagnostics, Inc. (b) | 786 | | 89,573 |
Regeneron Pharmaceuticals, Inc. (a) (b) | 158 | | 98,537 |
The accompanying notes are an integral part of these financial statements.
16www.cogniosfunds.com
| Shares | | Fair Value |
Cognios Large Cap Value Fund
Schedules of Investments (continued)June 30, 2020
Consumer, Non-cyclical - (continued) | | | |
Sysco Corp. (b) | 1,623 | | $88,713 |
Tyson Foods, Inc. - Class A (b) | 2,913 | | 173,935 |
UnitedHealth Group, Inc. (b) | 780 | | 230,061 |
Verisk Analytics, Inc. (b) | 567 | | 96,503 |
| | | 5,997,286 |
Energy - 1.51% | | | |
Cabot Oil & Gas Corp. (b) | 8,054 | | 138,368 |
Occidental Petroleum Corp. (b) | 1,750 | | 32,025 |
| | | 170,393 |
Financials - 21.24% | | | |
Aflac, Inc. (b) | 3,591 | | 129,384 |
Allstate Corp. (b) | 849 | | 82,345 |
Aon PLC - Class A (b) | 448 | | 86,285 |
Arthur J. Gallagher & Co. (b) | 1,911 | | 186,303 |
Berkshire Hathaway, Inc. - Class B (a) (b) | 812 | | 144,950 |
Cboe Global Markets, Inc. (b) | 1,934 | | 180,403 |
Cincinnati Financial Corp. (b) | 1,018 | | 65,183 |
CME Group, Inc. (b) | 225 | | 36,572 |
Everest Re Group Ltd. (b) | 438 | | 90,316 |
Hartford Financial Services Group, Inc. (b) | 2,126 | | 81,957 |
Intercontinental Exchange, Inc. (b) | 2,329 | | 213,336 |
Marsh & McLennan Cos, Inc. (b) | 1,680 | | 180,382 |
Nasdaq, Inc. (b) | 2,014 | | 240,613 |
Progressive Corp. (b) | 2,611 | | 209,167 |
Public Storage (b) | 945 | | 181,336 |
Western Union Co. (b) | 3,625 | | 78,372 |
Willis Towers Watson PLC (b) | 1,091 | | 214,872 |
| | | 2,401,776 |
Industrials - 8.39% | | | |
Amcor PLC (b) | 3,888 | | 39,696 |
Carrier Global Corp. (b) | 1 | | 22 |
CH Robinson Worldwide, Inc. (b) | 2,545 | | 201,208 |
Expeditors International of Washington, Inc. (b) | 1,693 | | 128,736 |
Northrop Grumman Corp. (b) | 482 | | 148,186 |
Raytheon Co. (b) | 344 | | 21,197 |
Republic Services, Inc. (b) | 2,507 | | 205,699 |
Waste Management, Inc. (b) | 1,930 | | 204,406 |
| | | 949,150 |
The accompanying notes are an integral part of these financial statements.
Annual Report | June 30, 202017
| Shares | | Fair Value |
Cognios Large Cap Value Fund
Schedules of Investments (continued)June 30, 2020
Technology - 12.06% | | | |
Activision Blizzard, Inc. (b) | 1,539 | | $116,810 |
Akamai Technologies, Inc. (a) (b) | 2,266 | | 242,666 |
Broadcom, Inc. (b) | 451 | | 142,340 |
Cerner Corp. (b) | 1,235 | | 84,659 |
Citrix Systems, Inc. (b) | 251 | | 37,125 |
Electronics Art, Inc. (a) (b) | 749 | | 98,905 |
Fidelity National Information Services, Inc. (b) | 351 | | 47,066 |
Fiserv, Inc. (a) (b) | 456 | | 44,515 |
Intel Corp. (b) | 2,954 | | 176,738 |
Oracle Corp. (b) | 1,576 | | 87,105 |
Paychex, Inc. (b) | 506 | | 38,330 |
Skyworks Solutions, Inc. (b) | 445 | | 56,898 |
Take-Two Interactive Software, Inc. (a) (b) | 1,365 | | 190,513 |
| | | 1,363,670 |
Utilities - 1.44% | | | |
American Electric Power Co., Inc. (b) | 471 | | 37,510 |
DTE Energy Co. (b) | 317 | | 34,077 |
Exelon Corp. (b) | 785 | | 28,488 |
NRG Energy, Inc. (b) | 905 | | 29,467 |
PPL Corp. (b) | 1,268 | | 32,765 |
| | | 162,307 |
| | | |
TOTAL COMMON STOCK (Cost $15,547,081) | | | 14,943,869 |
| | | |
TOTAL INVESTMENTS (Cost $15,547,081) - 132.17% | | | $14,943,869 |
LIABILITIES IN EXCESS OF OTHER ASSETS, NET - (32.17%) | | | (3,637,529) |
NET ASSETS - 100% | | | $11,306,340 |
| | | |
Percentages are stated as a percent of net assets. | | | |
| | | |
(a)Non-income producing security | | | |
(b)All or a portion of the security is segregated as collateral for line of credit borrowings. | |||
| | | |
The following abbreviations are used in this portfolio: | | | |
Ltd. - Limited | | | |
PLC - Public Limited Company | | | |
The accompanying notes are an integral part of these financial statements.
18www.cogniosfunds.com
Cognios Market Neutral Large Cap Fund
Schedules of InvestmentsJune 30, 2020
| Shares | | Fair Value |
COMMON STOCK - 125.31% | | | |
| | | |
Communications - 6.64% | | | |
AT&T, Inc. (b) | 21,342 | | $645,169 |
Motorola Solutions, Inc. (b) | 4,624 | | 647,961 |
Omnicom Group, Inc. (b) | 11,652 | | 636,199 |
Verison Communications, Inc. (b) | 11,445 | | 630,963 |
| | | 2,560,292 |
Consumer, Cyclical - 16.79% | | | |
AutoZone, Inc. (a) (b) | 568 | | 640,772 |
Cosco Wholesale Corp. (b) | 2,164 | | 656,146 |
Dollar General Corp. (b) | 3,424 | | 652,306 |
Dollar Tree, Inc. (a) (b) | 7,233 | | 670,354 |
Domino’s Pizza, Inc. (b) | 1,729 | | 638,762 |
McDonald’s Corp. (b) | 3,429 | | 632,548 |
Target Corp. (b) | 5,513 | | 661,174 |
Walgreens Boots Alliance, Inc. (b) | 15,305 | | 648,779 |
Walmart, Inc. (b) | 5,476 | | 655,915 |
Yum! Brands, Inc. (b) | 7,160 | | 622,276 |
| | | 6,479,032 |
Consumer, Non-cyclical - 53.55% | | | |
AbbVie, Inc. (b) | 6,753 | | 663,010 |
Altria Group, Inc. (b) | 15,626 | | 613,320 |
AmerisourceBergen Corp. (b) | 6,491 | | 654,098 |
Biogen, Inc. (a) (b) | 2,429 | | 649,879 |
Bristol-Myers Squibb Co. (b) | 11,542 | | 678,670 |
Campbell Soup Co. (b) | 13,179 | | 654,074 |
Church & Dwight Co., Inc. (b) | 8,387 | | 648,315 |
Clorox Co. (b) | 3,032 | | 665,130 |
Colgate-Palmolive Co. (b) | 8,811 | | 645,494 |
Conagra Brands, Inc. (b) | 18,950 | | 666,471 |
CVS Health Corp. (b) | 9,992 | | 649,180 |
Edwards Lifesciences Corp. (a) (b) | 9,325 | | 644,451 |
Estee Lauder Cos., Inc. (b) | 3,304 | | 623,399 |
General Mills, Inc. (b) | 10,545 | | 650,099 |
Gilead Sciences, Inc. (b) | 8,790 | | 676,303 |
Hershey Co. (b) | 4,905 | | 635,786 |
Hormel Foods Corp. (b) | 13,534 | | 653,286 |
Humana, Inc. (b) | 1,726 | | $ 669,256 |
Johnson & Johnson (b) | 4,531 | | 637,195 |
Kellogg Co. (b) | 9,659 | | 638,074 |
The accompanying notes are an integral part of these financial statements.
Annual Report | June 30, 202019
| Shares | | Fair Value |
Cognios Market Neutral Large Cap Fund
Schedules of Investments (continued)June 30, 2020
Consumer, Non-cyclical - (continued) | | | |
Kimberly-Clark Corp. (b) | 4,561 | | $644,697 |
Lamb Weston Holdings, Inc. (b) | 9,587 | | 612,897 |
McCormick & Co., Inc. (b) | 3,737 | | 670,455 |
McKesson Corp. (b) | 4,226 | | 648,353 |
Molson Coors Brewing Co. - Class B (b) | 16,636 | | 571,613 |
PepsiCo, Inc. (b) | 4,934 | | 652,571 |
Philip Morris Intertnational, Inc. (b) | 8,690 | | 608,821 |
Procter & Gamble Co. (b) | 5,485 | | 655,841 |
Regeneron Pharmaceuticals, Inc. (a) (b) | 1,089 | | 679,155 |
STERIS PLC (b) | 4,206 | | 645,369 |
Tyson Foods, Inc. - Class A (b) | 10,042 | | 599,608 |
UnitedHealth Group, Inc. (b) | 2,239 | | 660,393 |
| | | 20,665,263 |
Energy - 1.51% | | | |
Cabot Oil & Gas Corp. (b) | 34,023 | | 584,515 |
| | | |
Financials - 21.35% | | | |
Aflac, Inc. (b) | 17,377 | | 626,093 |
Allstate Corp. (b) | 6,617 | | 641,783 |
Aon PLC - Class A (b) | 3,349 | | 645,017 |
Arthur J Gallagher & Co. (b) | 6,492 | | 632,905 |
Berkshire Hathaway, Inc. - Class B (a) (b) | 3,576 | | 638,352 |
Cboe Global Markets, Inc. (b) | 6,400 | | 596,992 |
CME Group, Inc. (b) | 3,635 | | 590,833 |
Intercontinental Exchange, Inc. (b) | 6,872 | | 629,475 |
Marsh & McLennan Cos., Inc. (b) | 5,994 | | 643,576 |
Nasdaq, Inc. (b) | 5,520 | | 659,474 |
Progressive Corp. (b) | 8,106 | | 649,372 |
Public Storage (b) | 3,349 | | 642,640 |
Willis Towers Watson PLC (b) | 3,257 | | 641,466 |
| | | 8,237,978 |
Industrials - 10.15% | | | |
CH Robinson Worldwide, Inc. (b) | 8,320 | | 657,779 |
Expeditors International of Washington, Inc. (b) | 8,746 | | 665,046 |
Northrop Grumman Corp. (b) | 2,031 | | 624,411 |
Republic Services, Inc. (b) | 7,896 | | 647,867 |
United Parcel Services, Inc. - Class B (b) | 5,999 | | 666,969 |
Waste Management, Inc. (b) | 6,173 | | 653,782 |
| | | 3,915,854 |
The accompanying notes are an integral part of these financial statements.
20www.cogniosfunds.com
| Shares | | Fair Value |
Cognios Market Neutral Large Cap Fund
Schedules of Investments (continued)June 30, 2020
Technology - 12.01% | | | |
Akamai Technologies, Inc. (a) (b) | 6,452 | | $690,945 |
Cerner Corp. (b) | 9,356 | | 641,354 |
Citrix Systems, Inc. (b) | 4,470 | | 661,158 |
Intel Corp. (b) | 10,804 | | 646,403 |
Jack Henry & Associates, Inc. (b) | 3,609 | | 664,164 |
Oracle Corp. (b) | 12,326 | | 681,258 |
Take-Two Interactive Software, Inc. (a) (b) | 4,645 | | 648,303 |
| | | 4,633,585 |
Utilities - 3.31% | | | |
DTE Energy Co. (b) | 6,049 | | 650,267 |
NiSource, Inc. (b) | 27,558 | | 626,669 |
| | | 1,276,936 |
| | | |
TOTAL COMMON STOCK (Cost $45,679,510) | | | 48,353,455 |
| | | |
SHORT-TERM INVESTMENTS - 0.10% | | | |
BlackRock Liquidity Funds T-Fund Portfolio - | 40,667 | | 40,667 |
| | | |
TOTAL SHORT-TERM INVESTMENTS (Cost $40,667) | | | 40,667 |
| | | |
TOTAL INVESTMENTS (Cost $45,720,177) - 125.41% | | | $48,394,122 |
SECURITIES SOLD SHORT (Proceeds $33,968,633) - (91.28%) | | | (35,225,321) |
OTHER ASSETS IN EXCESS OF LIABILITES, NET - 65.87% | | | 25,419,774 |
NET ASSETS - 100% | | | $38,588,575 |
| | | |
Percentages are stated as a percent of net assets. | | | |
| | | |
(a)Non-income producing security | | | |
(b)All or a portion of the security is segregated as collateral for securities sold short. | |||
(c)Rate shown represents the 7-day effective yield at June 30, 2020, is subject to change and resets daily. | |||
| | | |
The following abbreviations are used in this portfolio: | | | |
PLC - Public Limited Company | | | |
The accompanying notes are an integral part of these financial statements.
Annual Report | June 30, 202021
| Shares | | Fair Value |
Cognios Market Neutral Large Cap Fund
Schedule of Investments: Securities Sold ShortJune 30, 2020
COMMON STOCK - 91.28% | | | |
| | | |
Basic Materials - 3.77% | | | |
Air Products & Chemicals, Inc. | 1,008 | | $243,392 |
Ecolab, Inc. | 1,178 | | 234,363 |
FMC Corp. | 2,405 | | 239,586 |
International Flavors & Fragrances, Inc. | 1,863 | | 228,143 |
Linde PLC | 1,152 | | 244,351 |
Newmont Mining Corp. | 4,315 | | 266,408 |
| | | 1,456,243 |
Communications - 6.05% | | | |
Amazon.com, Inc. | 91 | | 251,053 |
Charter Communications, Inc. - Class A | 449 | | 229,008 |
Comcast Corp. - Class A | 6,078 | | 236,920 |
Corning, Inc. | 8,731 | | 226,133 |
E*TRADE Financial Corp. | 4,822 | | 239,798 |
Netflix, Inc. | 539 | | 245,267 |
NortonLifeLock, Inc. | 11,876 | | 235,501 |
T-Mobile US, Inc. | 2,273 | | 236,733 |
Twitter, Inc. | 6,989 | | 208,202 |
Walt Disney Co. | 2,034 | | 226,811 |
| | | 2,335,426 |
Consumer, Cyclical - 5.37% | | | |
Advance Auto Parts, Inc. | 1,632 | | 232,478 |
Chipotle Mexican Grill, Inc. | 234 | | 246,252 |
Genuine Parts Co. | 2,694 | | 234,270 |
Live Nation Entertainment, Inc. | 4,966 | | 220,143 |
NIKE, Inc. - Class B | 2,421 | | 237,379 |
Nordstrom, Inc. | 12,804 | | 198,334 |
Tiffany & Co. | 1,985 | | 242,051 |
Under Armour, Inc. - Class A | 24,115 | | 234,880 |
VF Corp. | 3,716 | | 226,453 |
| | | 2,072,240 |
Consumer, Non-cyclical - 24.22% | | | |
Abbott Laboratories | 2,662 | | 243,387 |
Archer-Daniels-Midland Co. | 5,917 | | 236,088 |
Automatic Data Processing, Inc. | 1,591 | | 236,884 |
Baxter International, Inc. | 2,852 | | 245,557 |
The accompanying notes are an integral part of these financial statements.
22www.cogniosfunds.com
Cognios Market Neutral Large Cap Fund
Schedule of Investments: Securities Sold Short (continued)June 30, 2020
| Shares | | Fair Value |
Consumer, Non-cyclical - (continued) | | | |
Becton Dickerson and Co. | 1,016 | | $243,098 |
Boston Scientific Corp. | 6,550 | | 229,971 |
Brown-Forman Corp. - Class B | 3,583 | | 228,094 |
Cardinal Health, Inc. | 4,494 | | 234,542 |
Centene Corp. | 3,776 | | 239,965 |
Cigna Corp. | 1,261 | | 236,627 |
Coca-Cola Co. | 5,181 | | 231,487 |
Cooper Cos., Inc. | 796 | | 225,777 |
Corteva, Inc. | 8,749 | | 234,386 |
Coty, Inc. - Class A | 49,143 | | 219,669 |
Danaher Corp. | 1,367 | | 241,727 |
DENTSPLY SIRONA, Inc. | 5,417 | | 238,673 |
DexCom, Inc. | 598 | | 242,429 |
Eli Lilly & Co. | 1,510 | | 247,912 |
Global Payments, Inc. | 1,334 | | 226,273 |
Henry Schein, Inc. | 4,018 | | 234,611 |
Hologic, Inc. | 4,584 | | 261,288 |
IHS Markit Ltd. | 3,351 | | 253,001 |
Incyte Corp. | 2,489 | | 258,781 |
IQVIA Holdings, Inc. | 1,732 | | 245,736 |
JM Smucker Co. | 2,221 | | 235,004 |
Kraft Heinz Co. | 7,314 | | 233,243 |
Kroger Co. | 7,574 | | 256,380 |
Medtronic PLC | 2,529 | | 231,909 |
Merck & Co., Inc. | 3,171 | | 245,213 |
Mondelez International, Inc. - Class A | 4,561 | | 233,204 |
PayPal Holdings, Inc. | 1,453 | | 253,156 |
Perrigo Co. PLC | 4,431 | | 244,901 |
Pfizer, Inc. | 7,215 | | 235,931 |
Stryker Corp. | 1,265 | | 227,940 |
Teleflex, Inc. | 656 | | 238,771 |
Thermo Fisher Scientific, Inc. | 688 | | 249,290 |
Varian Medical Systems, Inc. | 1,993 | | 244,182 |
West Pharmaceutical Services, Inc. | 1,134 | | 257,611 |
Zimmer Biomet Holdings, Inc. | 1,871 | | 223,323 |
| | | 9,346,021 |
The accompanying notes are an integral part of these financial statements.
Annual Report | June 30, 202023
Cognios Market Neutral Large Cap Fund
Schedule of Investments: Securities Sold Short (continued)June 30, 2020
| Shares | | Fair Value |
Energy - 1.78% | | | |
Chevron Corp. | 2,586 | | $230,749 |
Exxon Mobil Corp. | 5,089 | | 227,580 |
Kinder Morgan, Inc. | 15,103 | | 229,113 |
| | | 687,442 |
Financials - 21.62% | | | |
Alexandria Real Estate Equities, Inc. | 1,415 | | 229,584 |
American Express Co. | 2,324 | | 221,245 |
American Tower Corp. | 929 | | 240,184 |
Apartment Investment & Management Co. | 6,154 | | 231,637 |
Assurant, Inc. | 2,248 | | 232,196 |
AvalonBay Communities, Inc. | 1,489 | | 230,259 |
Boston Properties, Inc. | 2,477 | | 223,871 |
Chubb Ltd. | 1,844 | | 233,487 |
Cincinnati Financial Corp. | 3,783 | | 242,225 |
Crown Castle International Corp. | 1,442 | | 241,319 |
Digital Realty Trust, Inc. | 1,683 | | 239,171 |
Duke Realty Corp. | 6,622 | | 234,353 |
Equinix, Inc. | 347 | | 243,698 |
Equity Residential | 3,866 | | 227,398 |
Essex Property Trust, Inc. | 995 | | 228,024 |
Everest Re Group Ltd. | 1,102 | | 227,232 |
Extra Space Storage, Inc. | 2,532 | | 233,881 |
Federal Realty Investment Trust | 2,693 | | 229,471 |
First Republic Bank | 2,160 | | 228,938 |
Healthpeak Properties, Inc. | 8,508 | | 234,480 |
Host Hotels & Resorts, Inc. | 19,431 | | 209,660 |
Iron Mountain, Inc. | 8,870 | | 231,507 |
Kimco Realty Corp. | 18,043 | | 231,672 |
Loews Corp. | 7,130 | | 244,488 |
Mid-America Apartment Communities, Inc. | 2,049 | | 234,959 |
Northern Trust Corp. | 2,865 | | 227,309 |
Prologis, Inc. | 2,524 | | 235,565 |
Realty Income Corp. | 3,759 | | 223,661 |
Regency Centers Corp. | 5,127 | | 235,278 |
SBA Communications Corp. | 811 | | 241,613 |
Travelers Cos., Inc. | 2,065 | | 235,513 |
UDR, Inc. | 6,267 | | 234,260 |
The accompanying notes are an integral part of these financial statements.
24www.cogniosfunds.com
Cognios Market Neutral Large Cap Fund
Schedule of Investments: Securities Sold Short (continued)June 30, 2020
| Shares | | Fair Value |
Financials - (continued) | | | |
Ventas, Inc. | 5,969 | | $218,585 |
Vornado Realty Trust | 6,014 | | 229,795 |
Welltower, Inc. | 4,091 | | 234,373 |
WR Berkley Corp. | 4,283 | | 221,645 |
| | | 8,342,536 |
Industrials - 11.53% | | | |
Agilent Technologies, Inc. | 2,728 | | 241,073 |
Amcor PLC | 23,094 | | 235,790 |
Ball Corp. | 3,419 | | 237,586 |
Caterpillar, Inc. | 1,866 | | 236,049 |
CXS Corp. | 3,436 | | 239,627 |
Deere & Co. | 1,534 | | 241,068 |
FedEx Corp. | 1,728 | | 242,300 |
General Dynamics Corp. | 1,505 | | 224,937 |
General Electric Co. | 32,886 | | 224,611 |
Jacobs Engineering Group, Inc. | 2,819 | | 239,051 |
Johnson Controls International PLC | 6,774 | | 231,264 |
Kansas City Southern | 1,637 | | 244,388 |
Keysight Technologies, Inc. | 2,342 | | 236,027 |
L3Harris Technologies, Inc. | 1,261 | | 213,954 |
Martin Marietta Materials, Inc. | 1,124 | | 232,185 |
Norfolk Southern Corp. | 1,366 | | 239,829 |
PerkinElmer, Inc. | 2,443 | | 239,634 |
Raytheon Technologies Corp. | 3,576 | | 220,353 |
Vulcan Materials Co. | 1,984 | | 229,846 |
| | | 4,449,572 |
Technology - 2.42% | | | |
Analog Devices, Inc. | 1,949 | | 239,025 |
Fidelity National Information Services, Inc. | 1,714 | | 229,830 |
Hewlett Packard Enterprise Co. | 23,513 | | 228,781 |
Qorvo, Inc. | 2,133 | | 235,760 |
| | | 933,396 |
Utilities - 14.52% | | | |
Alliant Energy Corp. | 4,955 | | 237,047 |
Ameren Corp. | 3,388 | | 238,380 |
American Electric Power Co., Inc. | 2,947 | | 234,699 |
American Water Works Co., Inc. | 1,871 | | 240,723 |
Atmos Energy Corp. | 2,366 | | 235,606 |
CenterPoint Energy, Inc. | 12,956 | | 241,889 |
CMS Energy Corp. | 4,106 | | 239,873 |
The accompanying notes are an integral part of these financial statements.
Annual Report | June 30, 202025
Cognios Market Neutral Large Cap Fund
Schedule of Investments: Securities Sold Short (continued)June 30, 2020
| Shares | | Fair Value |
Utilities - (continued) | | | |
Consolidated Edison, Inc. | 3,205 | | $230,536 |
Dominion Energy, Inc. | 2,861 | | 232,256 |
Duke Energy Corp. | 2,812 | | 224,651 |
Edison International | 4,060 | | 220,499 |
Entergy Corp. | 2,496 | | 234,150 |
Evergy, Inc. | 4,037 | | 239,354 |
Eversource Energy | 2,857 | | 237,902 |
Exelon Corp. | 6,326 | | 229,571 |
FirstEnergy Corp. | 5,999 | | 232,641 |
NextEra Energy, Inc. | 969 | | 232,725 |
Pinnacle West Capital Corp. | 3,122 | | 228,811 |
PPL Corp. | 8,948 | | 231,216 |
Public Service Enterprise Group, Inc. | 4,781 | | 235,034 |
Sempra Energy | 1,947 | | 228,247 |
Southern Co. | 4,323 | | 224,148 |
WEC Energy Group, Inc. | 2,698 | | 236,480 |
Xcel Energy, Inc. | 3,770 | | 235,625 |
| | | 5,602,063 |
| | | |
TOTAL COMMON STOCK (Proceeds $33,968,633) | | | 35,224,939 |
| | | |
RIGHTS - 0.00% | | | |
| | | |
Communications - 0.00% | | | |
T-Mobile US, Inc. | 2,273 | | 382 |
| | | |
TOTAL RIGHTS (Proceeds $0) | | | 382 |
| | | |
TOTAL SECURITIES SOLD SHORT (Proceeds $33,968,633) | | | $35,225,321 |
| | | |
Percentages are stated as a percent of net assets. | | | |
| | | |
(a)Non-income producing security | | | |
| | | |
The following abbreviations are used in this portfolio: | | | |
Ltd. - Limited | | | |
PLC - Public Limited Company | | | |
The accompanying notes are an integral part of these financial statements.
26www.cogniosfunds.com
| | Cognios | | Cognios |
Assets: | | | | |
Total Investments, at cost | | $15,547,081 | | $45,720,177 |
Investments, at value | | $14,943,869 | | $48,394,122 |
Cash and cash equivalents | | 136,104 | | — |
Segregated cash with broker | | — | | 3,128,075 |
Deposits at broker for securities sold short | | — | | 22,424,130 |
Due from adviser | | 26,034 | | — |
Receivables: | | | | |
Interest | | 341 | | 2 |
Dividends | | 31,411 | | 58,041 |
Fund shares sold | | — | | 606 |
Prepaid expenses | | 5,089 | | 23,776 |
Total assets | | 15,142,848 | | 74,028,752 |
| | | | |
Liabilities: | | | | |
Securities sold short, at proceeds | | — | | 33,968,633 |
Securities sold short, at value | | | | 35,225,321 |
Payables: | | | | |
Dividends on securities sold short | | — | | 87,771 |
Due to broker | | 3,806,083 | | — |
Fund shares redeemed | | — | | 71,027 |
Due to adviser | | — | | 17,119 |
Accrued distribution (12b-1) fees | | 117 | | 1,457 |
Due to administrator | | 8,339 | | 11,161 |
Accrued expenses | | 21,969 | | 26,321 |
Total liabilities | | 3,836,508 | | 35,440,177 |
Net Assets | | $11,306,340 | | $38,588,575 |
| | | | |
Sources of Net Assets: | | | | |
Paid-in capital | | $12,410,923 | | $43,944,287 |
Total accumulated deficit | | (1,104,583) | | (5,355,712) |
Total Net Assets | | $11,306,340 | | $38,588,575 |
| | | | |
Investor Class Shares: | | | | |
Net assets | | $539,860 | | $7,155,443 |
Shares Outstanding ($0 par value, unlimited shares of beneficial interest authorized) | | 66,158 | | 704,730 |
Net Asset Value, Offering and Redemption Price Per Share | | $8.16 | | $10.15 |
| | | | |
Institutional Class Shares: | | | | |
Net assets | | $10,766,480 | | $31,433,132 |
Shares Outstanding ($0 par value, unlimited shares of beneficial interest authorized) | | 1,319,379 | | 3,037,634 |
Net Asset Value, Offering and Redemption Price Per Share | | $8.16 | | $10.35 |
The accompanying notes are an integral part of these financial statements.
Annual Report | June 30, 202027
��� | | Cognios | | Cognios | |
| | For the | | For the | |
Investment income: | | | | | |
Dividends | | $760,586 | | $1,867,888 | |
Interest | | 2,677 | | 264,975 | |
Total investment income | | 763,263 | | 2,132,863 | |
| |||||
Expenses: | | | | | |
Advisory fees (Note 5) | | 156,397 | | 915,499 | |
Distribution (12b-1) fees - Investor Class | | 2,289 | | 32,727 | |
Accounting and transfer agent fees and expenses | | 98,839 | | 160,982 | |
Dividend expense on securities sold short | | — | | 1,727,171 | |
Interest expense | | 220,846 | | — | |
Trustee fees and expenses | | 26,411 | | 26,660 | |
Legal fees | | 25,515 | | 27,605 | |
Compliance officer fees | | 18,000 | | 18,000 | |
Custodian fees | | 17,402 | | 22,546 | |
Pricing fees | | 15,475 | | 30,116 | |
Miscellaneous | | 14,041 | | 18,238 | |
Audit fees | | 13,000 | | 14,500 | |
Liquidity program fees | | 10,290 | | 10,290 | |
Reports to shareholders | | 8,223 | | 7,655 | |
Registration fees | | 2,461 | | 28,117 | |
Insurance | | 2,327 | | 5,729 | |
Total expenses | | 631,516 | | 3,045,835 | |
Less: fees waived and expenses reimbursed by Adviser | | (203,862 | ) | (336,109 | ) |
Net expenses | | 427,654 | | 2,709,726 | |
| |||||
Net investment income (loss) | | 335,609 | | (576,863 | ) |
| |||||
Realized and unrealized gain (loss): | | | | | |
Net realized gain (loss) on: | | | | | |
Investments | | 625,973 | | 4,504,969 | |
Securities sold short | | — | | (8,820,721 | ) |
Net realized gain (loss) on investments and securities sold short | | 625,973 | | (4,315,752 | ) |
| |||||
Net change in unrealized appreciation (depreciation) on: | | | | | |
Investments | | (2,580,661 | ) | (2,556,759 | ) |
Securities sold short | | — | | 8,872,044 | |
Net change in unrealized appreciation (depreciation) on investments and securities sold short: | | (2,580,661 | ) | 6,315,285 | |
| |||||
Net realized and unrealized gain (loss) on investments and securities sold short | | (1,954,688 | ) | 1,999,533 | |
| |||||
Net increase (decrease) in net assets resulting from operations | | $(1,619,079 | ) | $1,422,670 | |
The accompanying notes are an integral part of these financial statements.
28www.cogniosfunds.com
| | Cognios | |
Increase (decrease) in cash: | | | |
Cash flows from operating activities: | | | |
Net decrease in net assets from operations | | $(1,619,079 | ) |
Adjustments to reconcile net decrease in net assets from operations to net cash | | | |
Purchase of investment securities | | (22,941,278 | ) |
Proceeds from disposition of investment securities | | 32,733,556 | |
Increase in due from advisor | | (10,710 | ) |
Increase in interest receivable | | (183 | ) |
Decrease in dividends receivable | | 2,286 | |
Increase in prepaid expenses | | (1,324 | ) |
Increase in due to broker | | (9,585 | ) |
Decrease in accrued expenses | | (1,290 | ) |
Net change in unrealized depreciation on investment securities | | 2,580,661 | |
Net realized gain on investment securities | | (625,973 | ) |
Net cash provided from operating activities | | 10,107,081 | |
| |||
Cash flows from financing activities: | | | |
Proceeds from loan | | 11,680,441 | |
Payments on loan | | (14,600,000 | ) |
Proceeds from Fund shares sold | | 6,009,194 | |
Payment on Fund shares redeemed | | (13,573,286 | ) |
Net cash used in financing activities | | (10,483,651 | ) |
| |||
Net decrease in cash | | $(376,570 | ) |
| |||
Cash: | | | |
Beginning of period | | $512,674 | |
End of period | | 136,104 | |
| |||
Supplemental disclosure of cash flow information: | | | |
Noncash financing activities not included herein consist of a decrease in receivable for fund shares sold of $2,430. | | ||
| |||
Interest paid by the Fund for outstanding balances on the line of credit amounted to $220,846. | |
The accompanying notes are an integral part of these financial statements.
Annual Report | June 30, 202029
Cognios Funds
Statement of Cash FlowsFor the Year Ended June 30, 2020
| | Cognios | |
Increase (decrease) in cash: | | | |
Cash flows from operating activities: | | | |
Net increase in net assets from operations | | $1,422,670 | |
Adjustments to reconcile net increase in net assets from operations to net cash provided from operating activities: | | | |
Purchase of investment securities | | (108,141,624 | ) |
Proceeds from disposition of investment securities | | 174,415,586 | |
Purchases of short-term investment securities, net | | 2,655,274 | |
Decrease in interest receivable | | 73,968 | |
Decrease in dividends receivable | | 123,514 | |
Increase in prepaid expenses | | (10,742 | ) |
Proceeds from securities sold short | | 75,757,199 | |
Payments to cover securities sold short | | (139,768,795 | ) |
Decrease in payable for dividends on securities sold short | | (41,122 | ) |
Decrease in accrued expenses | | (63,315 | ) |
Net change in unrealized appreciation on investment securities and securities sold short | | (6,315,285 | ) |
Net realized loss on investment securities and securities sold short | | 4,315,752 | |
Net cash provided from operating activities | | 4,423,080 | |
| |||
Cash flows from financing activities: | | | |
Proceeds from Fund shares sold | | 10,927,316 | |
Payment on Fund shares redeemed | | (66,104,155 | ) |
Net cash used in financing activities | | (55,176,839 | ) |
| |||
Net decrease in cash | | $(50,753,759 | ) |
| |||
Cash: | | | |
Beginning of year | | $76,305,964 | |
End of year | | 25,552,205 | |
| |||
Supplemental disclosure of cash flow information: | | | |
| |||
Reconciliation of restricted and unrestricted cash at the beginning of the year to the Statements of Assets and Liabilities: | | | |
Cash | | $— | |
Segregated cash with broker | | 2,763,381 | |
Deposits at broker for securities sold short | | 73,542,583 | |
| |||
Reconciliation of restricted and unrestricted cash at the end of the year to the Statements of Assets and Liabilities: | | | |
Cash | | $— | |
Segregated cash with broker | | 3,128,075 | |
Deposits at broker for securities sold short | | 22,424,130 | |
| |||
Noncash financing activities not included herein consist of a decrease in receivable for fund | |
The accompanying notes are an integral part of these financial statements.
30www.cogniosfunds.com
| | Cognios Large Cap Value Fund | | ||
| | For the | | For the | |
Increase (decrease) in net assets from: | | | | | |
Operations: | | | | | |
Net investment income | | $335,609 | | $324,004 | |
Net realized gain on investments | | 625,973 | | 1,708,063 | |
Net change in unrealized appreciation (depreciation) | | (2,580,661 | ) | 283,029 | |
Net increase (decrease) in net assets resulting from operations | | (1,619,079 | ) | 2,315,096 | |
| | | | | |
Distributions to shareholders from: | | | | | |
Total distributable earnings - Investor Class | | (78,029 | ) | (70,793 | ) |
Total distributable earnings - Institutional Class | | (1,903,561 | ) | (3,532,653 | ) |
Total distributions | | (1,981,590 | ) | (3,603,446 | ) |
| | | | | |
Capital share transactions (Note 3): | | | | | |
Decrease in net assets from capital share transactions | | (5,584,931 | ) | (3,258,616 | ) |
| | | | | |
Decrease in net assets | | (9,185,600 | ) | (4,546,966 | ) |
| | | | | |
Net Assets: | | | | | |
Beginning of year (Note 1) | | 20,491,940 | | 25,038,906 | |
| | | | | |
End of year | | $11,306,340 | | $20,491,940 | |
The accompanying notes are an integral part of these financial statements.
Annual Report | June 30, 202031
Cognios Funds
Statements of Changes in Net AssetsJune 30, 2020
| | Cognios Market Neutral Large Cap Fund | | ||
| | For the | | For the | |
Increase (decrease) in net assets from: | | | | | |
Operations: | | | | | |
Net investment loss | | $(576,863 | ) | $(56,786 | ) |
Net realized gain (loss) on investments and securities sold short | | (4,315,752 | ) | 3,278,229 | |
Net change in unrealized appreciation (depreciation) on investments and securities sold short | | 6,315,285 | | (6,631,188 | ) |
Net increase (decrease) in net assets resulting | | 1,422,670 | | (3,409,745 | ) |
| | | | | |
Capital share transactions (Note 3): | | | | | |
Increase (decrease) in net assets from capital share transactions | | (55,289,823 | ) | 31,731,398 | |
| | | | | |
Increase (decrease) in net assets | | (53,867,153 | ) | 28,321,653 | |
| | | | | |
Net Assets: | | | | | |
Beginning of year (Note 1) | | 92,455,728 | | 64,134,075 | |
| | | | | |
End of year | | $38,588,575 | | $92,455,728 | |
Annual Report | June 30, 202033
June 30, 2020
The accompanying notes are an integral part of these financial statements.
32www.cogniosfunds.com
The following tables set forth the per share operating performance data for a share of beneficial interest outstanding, total returns and ratios to average net assets and other supplemental data for the years/period indicated.
| | Cognios Large Cap Value Fund | | ||||||
Investor Class | |||||||||
For the | | For the | | For the | | For the | |||
Net Asset Value, Beginning of Year/Period | | $9.44 | | $10.23 | | $10.79 | | $10.00 | |
| | | | | | | | | |
Investment Operations: | | | | | | | | | |
Net investment income | | 0.10 | | 0.11 | | 0.12 | | 0.04 | |
Net realized and unrealized gain (loss) on investments | | (0.65 | ) | 0.92 | | 1.29 | | 0.75 | |
Total from investment operations | | (0.55 | ) | 1.03 | | 1.41 | | 0.79 | |
| | | | | | | | | |
Distributions: | | | | | | | | | |
From net investment income | | (0.08 | ) | (0.19 | ) | (0.18 | ) | 0.00 | (b) |
From net realized capital gains | | (0.65 | ) | (1.63 | ) | (1.79 | ) | — | |
Total distributions | | (0.73 | ) | (1.82 | ) | (1.97 | ) | 0.00 | |
| | | | | | | | | |
Net Asset Value, End of Year/Period | | $8.16 | | $9.44 | | $10.23 | | $10.79 | |
| | | | | | | | | |
Total Return(c) | | (6.89)% | | 12.90% | | 13.58% | | 7.92% | (d) |
| | | | | | | | | |
Ratios/Supplemental Data | | | | | | | | | |
Net assets, end of year/period (in 000’s) | | $540 | | $545 | | $25 | | $11 | |
| | | | | | | | | |
Ratios to average net assets (including interest expense and dividends on securities sold short): | | ||||||||
Expenses before fees waived and expenses reimbursed | | 2.87% | | 2.96% | | 1.62% | | 1.52% | (e) |
Expenses after fees waived and expenses reimbursed | | 2.02% | | 2.07% | | 1.10% | | 1.10% | (e) |
Net investment income after fees waived and expenses reimbursed | | 1.16% | | 1.39% | | 0.85% | | 0.79% | (e) |
| | | | | | | | | |
Ratios to average net assets (excluding interest expense and dividends on securities sold short): | | ||||||||
Expenses before fees waived and expenses reimbursed | | 1.95% | | 1.99% | | 1.62% | | 1.52% | (e) |
Expenses after fees waived and expenses reimbursed | | 1.10% | | 1.10% | | 1.10% | | 1.10% | (e) |
Net investment income after fees waived and expenses reimbursed | | 2.08% | | 2.36% | (f) | 0.85% | | 0.79% | (e) |
| | | | | | | | | |
Portfolio turnover rate | | 74% | | 64% | | 84% | | 24% | (d) |
(a)The Cognios Large Cap Value Fund commenced operations on October 3, 2016.
(b)Net investment income distributed by the Investor Class was less than $0.005 per share during the period ended June 30, 2017.
(c)Total Return represents the rate that the investor would have earned or lost on an investment in the Fund’s Investor Class, assuming reinvestment of dividends, if any.
(d)Not annualized.
(e)Annualized.
(f)The ratio of net investment income after fees waived and expenses reimbursed excluding interest expense and dividends on securities sold short for the year ended June 30, 2019 was restated due to a correction of a clerical error. The ratio of net investment income after fees waived and expenses reimbursed excluding interest expense and dividends on securities sold short as previously presented in the June 30, 2019 financial statements was 0.42%. No other financial statement line items were affected by the restatement.
Annual Report | June 30, 202035
June 30, 2020
The accompanying notes are an integral part of these financial statements.
34www.cogniosfunds.com
Cognios Funds
Financial Highlights
The following tables set forth the per share operating performance data for a share of beneficial interest outstanding, total returns and ratios to average net assets and other supplemental data for the years/period indicated.
| | Cognios Large Cap Value Fund | | |||||||
Institutional Class | ||||||||||
For the | | For the | | For the | | For the | ||||
Net Asset Value, Beginning of Year/Period | | $9.43 | | $10.25 | | $10.80 | | $10.00 | | |
| | | | | | | | | | |
Investment Operations: | | | | | | | | | | |
Net investment income | | 0.13 | | 0.18 | | 0.20 | | 0.06 | | |
Net realized and unrealized gain (loss) on investments | | (0.66 | ) | 0.82 | | 1.23 | | 0.75 | | |
Total from investment operations | | (0.53 | ) | 1.00 | | 1.43 | | 0.81 | | |
| | | | | | | | | | |
Distributions: | | | | | | | | | | |
From net investment income | | (0.09 | ) | (0.19 | ) | (0.19 | ) | (0.01 | ) | |
From net realized capital gains | | (0.65 | ) | (1.63 | ) | (1.79 | ) | — | | |
Total distributions | | (0.74 | ) | (1.82 | ) | (1.98 | ) | (0.01 | ) | |
| | | | | | | | | | |
Net Asset Value, End of Year/Period | | $8.16 | | $9.43 | | $10.25 | | $10.80 | | |
| | | | | | | | | | |
Total Return(b) | | (6.67)% | | 12.56% | | 13.87% | | 8.09% | (c) | |
| | | | | | | | | | |
Ratios/Supplemental Data | | | | | | | | | | |
Net assets, end of year/period (in 000’s) | | $10,766 | | $19,947 | | $25,014 | | $40,514 | | |
| | | | | | | | | | |
Ratios to average net assets (including interest expense and dividends on securities sold short): | | | | | | | | | ||
Expenses before fees waived and expenses reimbursed | | 2.62% | | 2.71% | | 1.37% | | 1.27% | (d) | |
Expenses after fees waived and expenses reimbursed | | 1.77% | | 1.82% | | 0.85% | | 0.85% | (d) | |
Net investment income after fees waived and expenses reimbursed | | 1.41% | | 1.64% | | 1.10% | | 1.04% | (d) | |
| | | | | | | | | | |
Ratios to average net assets (excluding interest expense and dividends on securities sold short): | | | | | | | | | ||
Expenses before fees waived and expenses reimbursed | | 1.70% | | 1.74% | | 1.37% | | 1.27% | (d) | |
Expenses after fees waived and expenses reimbursed | | 0.85% | | 0.85% | | 0.85% | | 0.85% | (d) | |
Net investment income after fees waived and expenses reimbursed | | 2.33% | | 2.61% | (e) | 1.10% | | 1.04% | (d) | |
| | | | | | | | | | |
Portfolio turnover rate | | 74% | | 64% | | 84% | | 24% | (c) |
(a)The Cognios Large Cap Value Fund commenced operations on October 3, 2016.
(b)Total Return represents the rate that the investor would have earned or lost on an investment in the Fund’s Institutional Class, assuming reinvestment of dividends, if any.
(c)Not annualized.
(d)Annualized.
(e)The ratio of net investment income after fees waived and expenses reimbursed excluding interest expense and dividends on securities sold short for the year ended June 30, 2019 was restated due to a correction of a clerical error. The ratio of net investment income after fees waived and expenses reimbursed excluding interest expense and dividends on securities sold short as previously presented in the June 30, 2019 financial statements was 0.67%. No other financial statement line items were affected by the restatement.
Annual Report | June 30, 202037
June 30, 2020
The accompanying notes are an integral part of these financial statements.
36www.cogniosfunds.com
Cognios Funds
Financial Highlights
The following tables set forth the per share operating performance data for a share of beneficial interest outstanding, total returns and ratios to average net assets and other supplemental data for the years/period indicated.
| | Cognios Market Neutral Large Cap Fund | | |||||||||||
Investor Class | ||||||||||||||
For the | | For the | | For the | | For the | | For the | | For the | ||||
Net Asset Value, Beginning of Year/Period | | $10.00 | | $10.31 | | $9.32 | | $9.93 | | $9.68 | | $10.77 | | |
| ||||||||||||||
Investment Operations: | | | | | | | | | | | | | | |
Net investment loss(b) | | (0.11 | ) | (0.05 | ) | (0.08 | ) | (0.13 | ) | (0.15 | ) | (0.20 | ) | |
Net realized and unrealized gain (loss) on investments | | 0.26 | | (0.26 | ) | 1.07 | | (0.33 | ) | 0.45 | | 0.60 | | |
Total from investment operations | | 0.15 | | (0.31 | ) | 0.99 | | (0.46 | ) | 0.30 | | 0.40 | | |
| | | | | | | | | | | | | | |
Distributions: | | | | | | | | | | | | | | |
From net realized capital gains | | — | | — | | — | | (0.15 | ) | (0.05 | ) | (1.49 | ) | |
Total distributions | | — | | — | | — | | (0.15 | ) | (0.05 | ) | (1.49 | ) | |
| | | | | | | | | | | | | | |
Net Asset Value, End of Year/Period | | $10.15 | | $10.00 | | $10.31 | | $9.32 | | $9.93 | | $9.68 | | |
| | | | | | | | | | | | | | |
Total Return(c) | | 1.50% | | (3.01)% | | 10.62% | (d) | (4.65)% | | 3.15% | | 4.47% | (g) | |
| | | | | | | | | | | | | | |
Ratios/Supplemental Data | | | | | | | | | | | | | | |
Net assets, end of year/period (in 000’s) | | $7,155 | | $17,931 | | $19,771 | | $22,997 | | $43,779 | | $6,253 | | |
| | | | | | | | | | | | | | |
Ratios to average net assets (including interest expense and dividends on securities sold short): | | | | | | | | | | | | | ||
Expenses before fees waived and expenses reimbursed | | 4.86% | | 4.27% | | 4.09% | (e) | 3.87% | | 4.07% | | 6.06% | | |
Expenses after fees waived and expenses reimbursed | | 4.34% | | 3.88% | | 3.66% | (e)(h) | 3.72% | | 3.80% | | 4.12% | (f) | |
Net investment loss after fees waived and expenses reimbursed | (1.09)% | | (0.26)% | | (0.98)% | (e) | (1.42)% | | (1.53)% | | (2.06)% | | ||
| | | | | | | | | | | | | | |
Ratios to average net assets (excluding interest expense and dividends on securities sold short): | | | | | | | | | | | | | ||
Expenses before fees waived and expenses reimbursed | | 2.22% | | 2.08% | | 2.30% | (e) | 2.10% | | 2.22% | | 4.04% | | |
Expenses after fees waived and expenses reimbursed | | 1.70% | | 1.69% | | 1.87% | (e)(h) | 1.95% | | 1.95% | | 2.10% | (f) | |
Net investment income (loss) after fees waived and expenses reimbursed | 1.55% | | 1.93% | | 0.81% | (e) | 0.35% | | 0.32% | | (0.04)% | | ||
| | | | | | | | | | | | | | |
Portfolio turnover rate | | 137% | | 159% | | 104% | (d) | 277% | | 250% | | 291% | |
(a)Represents the period from October 1, 2017 through June 30, 2018.
(b)Per share amounts calculated using the average shares method, which more appropriately presents the per share data for the year/period.
(c)Total Return represents the rate that the investor would have earned or lost on an investment in the Fund’s Investor Class, assuming reinvestment of dividends, if any.
(d)Not annualized.
(e)Annualized.
(f)Contractual expense limitation changed from 2.25% to 1.95% effective April 1, 2015.
(g)During the year ended September 30, 2015, 0.31% of the Fund’s total return consists of a voluntary reimbursement by the adviser for a realized investment loss. Excluding this item, total return would have been 4.16%.
(h)Contractual expense limitation changed from 1.95% to 1.70% effective May 5, 2018.
Annual Report | June 30, 202037
Annual Report | June 30, 202039
June 30, 2020
The accompanying notes are an integral part of these financial statements.
38www.cogniosfunds.com
Cognios Funds
Financial Highlights
The following tables set forth the per share operating performance data for a share of beneficial interest outstanding, total returns and ratios to average net assets and other supplemental data for the years/period indicated.
| | Cognios Market Neutral Large Cap Fund | | ||||||||||
Institutional Class | |||||||||||||
For the | | For the | | For the | | For the | | For the | | For the | |||
Net Asset Value, Beginning of Year/Period | | $10.17 | | $10.46 | | $9.44 | | $10.02 | | $9.76 | | $10.82 | |
| | | | | | | | | | | | | |
Investment Operations: | | | | | | | | | | | | | |
Net investment income (loss)(b) | | (0.08 | ) | 0.01 | | (0.05 | ) | (0.11 | ) | (0.13 | ) | (0.18 | ) |
Net realized and unrealized gain (loss) on investments | | 0.26 | | (0.30 | ) | 1.07 | | (0.32 | ) | 0.44 | | 0.61 | |
Total from investment operations | | 0.18 | | (0.29 | ) | 1.02 | | (0.43 | ) | 0.31 | | 0.43 | |
| | | | | | | | | | | | | |
Distributions: | | | | | | | | | | | | | |
From net investment income | | — | | — | | — | | — | | — | | — | |
From net realized capital gains | | — | | — | | — | | (0.15 | ) | (0.05 | ) | (1.49 | ) |
Total distributions | | — | | — | | — | | (0.15 | ) | (0.05 | ) | (1.49 | ) |
| | | | | | | | | | | | | |
Net Asset Value, End of Year/Period | | $10.35 | | $10.17 | | $10.46 | | $9.44 | | $10.02 | | $9.76 | |
| | | | | | | | | | | | | |
Total Return(c) | | 1.77% | | (2.77)% | | 10.81% | (d) | (4.31)% | | 3.23% | | 4.77% | (g) |
| | | | | | | | | | | | | |
Ratios/Supplemental Data | | | | | | | | | | | | | |
Net assets, end of year/period (in 000’s) | | $31,433 | | $74,525 | | $44,363 | | $38,856 | | $113,499 | | $10,402 | |
| | | | | | | | | | | | | |
Ratios to average net assets (including interest expense and dividends on securities sold short): | | | | | | | | | | | | | |
Expenses before fees waived and expenses reimbursed | | 4.61% | | 4.02% | | 3.84% | (e) | 3.62% | | 3.83% | | 5.81% | |
Expenses after fees waived and expenses reimbursed | | 4.09% | | 3.63% | | 3.41% | (e)(h) | 3.47% | | 3.55% | | 3.86% | (f) |
Net investment loss after fees waived and expenses reimbursed | | (0.84)% | | (0.01)% | | (0.73)% | (e) | (1.14)% | | (1.30)% | | (1.80)% | |
| | | | | | | | | | | | | |
Ratios to average net assets (excluding interest expense and dividends on securities sold short): | | | | | | | | | | | | | |
Expenses before fees waived and expenses reimbursed | | 1.97% | | 1.83% | | 2.05% | (e) | 1.85% | | 1.98% | | 3.79% | |
Expenses after fees waived and expenses reimbursed | | 1.45% | | 1.44% | | 1.62% | (e)(h) | 1.70% | | 1.70% | | 1.84% | (f) |
Net investment income after fees waived and expenses reimbursed | | 1.80% | | 2.18% | | 1.06% | (e) | 0.63% | | 0.55% | | 0.21% | |
| | | | | | | | | | | | | |
Portfolio turnover rate | | 137% | | 159% | | 104% | (d) | 277% | | 250% | | 291% | |
(a)Represents the period from October 1, 2017 through June 30, 2018.
(b)Per share amounts calculated using the average shares method, which more appropriately presents the per share data for the year/period.
(c)Total Return represents the rate that the investor would have earned or lost on an investment in the Fund’s Institutional Class, assuming reinvestment of dividends, if any.
(d)Not annualized.
(e)Annualized.
(f)Contractual expense limitation changed from 2.00% to 1.70% effective April 1, 2015.
(g)During the year ended September 30, 2015, 0.33% of the Fund’s total return consists of a voluntary reimbursement by the adviser for a realized investment loss. Excluding this item, total return would have been 4.44%.
(h)Contractual expense limitation changed from 1.70% to 1.45% effective May 5, 2018.
Annual Report | June 30, 202039
40www.cogniosfunds.com
1.ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The Cognios Large Cap Value Fund (the “Value Fund”) and Cognios Market Neutral Large Cap Fund (the “Market Neutral Fund”), (collectively, the “Funds”) are each a series of M3Sixty Funds Trust (the “Trust”). The Trust was organized on May 29, 2015 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 Value Fund’s investment objectives is long-term growth of capital. The investment objective of the Market Neutral Fund is long-term growth of capital independent of stock market direction. The Funds are each diversified funds. The Funds’ investment adviser was Cognios Capital, LLC (the “Former Adviser”). Effective April 3, 2020, Quantitative Value Technologies, LLC (the “Adviser”) was approved as investment adviser to the Funds.
The Funds each have two classes of shares, Investor Class Shares and Institutional Class Shares. The Value Fund’s Investor Class Shares and Institutional Class Shares commenced operations on October 3, 2016. The Market Neutral Fund’s Investor Class Shares and Institutional Class Shares commenced operations on January 2, 2013.
Income and realized/unrealized gains or losses are allocated to each class of each Fund on the basis of the net asset value of each class in relation to the net asset value of its Fund.
The following is a summary of the significant accounting policies followed by the Funds in the preparation of their financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The Funds are investment companies that follow the accounting and reporting guidance of FASB 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)Federal Income Taxes – The Funds have qualified and intend to continue to qualify as regulated investment companies under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). It is the policy of the Funds to comply with the requirements of the Code applicable to regulated investment companies and to distribute substantially all of their net investment company taxable income and net capital gains. Therefore, no provision for federal income taxes is required. The Funds recognize tax benefits of uncertain tax positions only where the position is more-likely-than-not to be sustained assuming examination by tax authorities.
Management has analyzed each Fund’s tax positions taken on all open tax years (tax years ended June 30, 2017. June 30, 2018 and June 30, 2019 for the Value Fund and for the years ended September 30, 2017, September 30, 2018 and the period ended June 30, 2018 and the year ended June 30, 2019 for the Market Neutral Fund) and expected to be taken as of and during the year ended June 30, 2020, and has concluded that the Funds did not have a liability for any unrecognized tax benefits. The Funds recognize interest and penalties, if any, related to unrecognized tax benefits as income tax expense in the statements of operations. During the year ended June 30, 2020, the Funds did not incur any interest or penalties. The Funds identify their major tax jurisdictions as U.S. Federal and Delaware state.
Annual Report | June 30, 202041
Cognios Funds
Notes to the Financial StatementsJune 30, 2020
c)Cash and Cash Equivalents – Cash is held with a financial institution. The assets of the Funds may be placed in deposit accounts at U.S. banks and such deposits generally exceed Federal Deposit Insurance Corporation (“FDIC”) insurance limits. The FDIC insures deposit accounts up to $250,000 for each account holder. The counterparty is generally a single bank rather than a group of financial institutions; thus there may be a greater counterparty credit risk. The Funds place deposits only with those counterparties which are believed to be creditworthy.
d)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.
e)Short Sales – The Market Neutral Fund may make short sales of securities consistent with its strategies. A short sale is a transaction in which the Fund sells a security it does not own in anticipation that the market price of that security will decline.
When the Market Neutral Fund makes a short sale, it must borrow the security sold short and deliver a security equal in value to the security sold short to the broker-dealer through which it made the short sale as collateral for its obligation to deliver the security upon conclusion of the sale. The Market Neutral Fund may have to pay a fee to borrow particular securities and is often obligated to pay over any accrued interest and dividends on such borrowed securities.
If the price of the security sold short increases between the time of the short sale and the time that the Market Neutral Fund replaces the borrowed security, the Market Neutral Fund will incur a loss; conversely, if the price declines, the Market Neutral Fund will realize a capital gain. Any gain will be decreased, and any loss increased, by the transaction costs described above. The successful use of short selling may be adversely affected by imperfect correlation between movements in the price of the security sold short and the securities being hedged.
To the extent that the Market Neutral Fund engages in short sales, it will provide collateral to the broker-dealer and (except in the case of short sales “against the box”) will maintain additional asset coverage in the form of segregated or “earmarked” assets that the Adviser determines to be liquid in accordance with procedures established by the Board and that is equal to the current market value of the securities sold short until the Market Neutral Fund replaces the borrowed security. A short sale is “against the box” to the extent that the Market Neutral Fund contemporaneously owns, or has the right to obtain at no added cost, securities identical to those sold short. The Market Neutral Fund may engage in short selling to the extent permitted by the federal securities laws and rules and interpretations thereunder. To the extent the Market Neutral Fund engages in short selling in foreign (non-U.S.) jurisdictions, the Market Neutral Fund will do so to the extent permitted by the laws and regulations of such jurisdiction. At June 30, 2020, the Market Neutral Fund had cash pledged in the amount of $3,128,075 to BNP Paribas Securities Corp. and $22,424,130 deposited with BNP Paribas Securities Corp. to cover collateral requirements for borrowing in connection with securities sold short and are listed in the Statements of Assets and Liabilities as ‘Segregated cash with broker’ and ‘Deposits at broker for securities sold short’, respectively.
42www.cogniosfunds.com
Cognios Funds
Notes to the Financial StatementsJune 30, 2020
f)Expenses – Expenses incurred by the Trust that do not relate to a specific Fund of the Trust may be allocated equally across all Funds of the Trust, or to the individual Funds based on each Fund’s relative net assets or another basis (as determined by the Board), whichever method is deemed appropriate as stated in the Trust’s expense allocation policy. Expenses incurred specific to a particular Fund are allocated entirely to that Fund.
g)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.
h)Other – Investment and shareholder transactions are recorded on trade date. The Funds determine the gain or loss realized from the investment transactions by comparing the identified 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 Funds and interest income is recognized on an accrual basis. Withholding taxes on foreign dividends have been provided for in accordance with the Funds’ understanding of the applicable country’s tax rules and rates.
2.INVESTMENT VALUATIONS
Processes and Structure
The Funds’ Board of Trustees (the “Board”) has adopted guidelines for valuing investments 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.
Hierarchy of Fair Value Inputs
The Funds utilize various methods to measure the fair value of most of their 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 Funds have 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 Funds’ 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.
Annual Report | June 30, 202043
Cognios Funds
Notes to the Financial StatementsJune 30, 2020
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 Funds’ major categories of assets and liabilities measured at fair value on a recurring basis follows.
Equity securities (common stock) – 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 certain indexes of securities based on a statistical analysis of the historical relationship and 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.
The following table summarizes the inputs used to value the Funds’ assets and liabilities measured at fair value as of June 30, 2020:
Categories(a) | Level 1 | Level 2 | Level 3 | Total |
Value Fund: Assets: | | | | |
Common Stocks(b) | $14,943,869 | — | — | $14,943,869 |
Total Investments in Securities | $14,943,869 | — | — | $14,943,869 |
Market Neutral Fund: Assets: | | | | |
Common Stocks(b) | $48,353,455 | — | — | $48,353,455 |
Short-Term Investment | 40,667 | — | — | 40,667 |
Total Investments in Securities | 48,394,122 | — | — | 48,394,122 |
Liabilities: | | | | |
Common Stocks(b) | $35,224,939 | — | — | $35,224,939 |
Rights(b) | 382 | — | — | 382 |
Total Securities Sold Short(b) | $35,225,321 | — | — | $35,225,321 |
44www.cogniosfunds.com
Cognios Funds
Notes to the Financial StatementsJune 30, 2020
(a)As of and during the year ended June 30, 2020, the Funds 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.
(b)All common stock held in the Funds are Level 1 securities. For a detailed break-out of common stock by industry, please refer to the Schedules of Investments and Schedule of Investments: Securities Sold Short.
The Funds recognize transfers, if any, between fair value hierarchy levels at the reporting period end. There were no transfers between levels during the year ended June 30, 2020.
3.CAPITAL SHARE TRANSACTIONS
Transactions in shares of capital stock during the year ended June 30, 2020 for the Funds were as follows:
Value Fund: |
| Sold |
| Redeemed |
| Reinvested |
| Net Increase | |
Investor Class Shares | | | | | | | | | |
Shares | | 121,063 | | (120,916 | ) | 8,301 | | 8,448 | |
Value | | $1,146,545 | | $(959,662 | ) | $78,029 | | $264,912 | |
Institutional Class Shares | | | | | | | | | |
Shares | | 515,604 | | (1,513,379 | ) | 202,722 | | (795,053 | ) |
Value | | $4,860,219 | | $(12,613,624 | ) | $1,903,562 | | $(5,849,843 | ) |
Market Neutral Fund: |
| Sold |
| Redeemed |
| Reinvested |
| Net Decrease | |
Investor Class Shares | | | | | | | | | |
Shares | | 216,567 | | (1,304,274 | ) | — | | (1,087,707 | ) |
Value | | $2,203,175 | | $(13,188,820 | ) | $— | | $(10,985,645 | ) |
Institutional Class Shares | | | | | | | | | |
Shares | | 845,563 | | (5,136,106 | ) | — | | (4,290,543 | ) |
Value | | $8,659,564 | | $(52,963,742 | ) | $— | | $(44,304,178 | ) |
Transactions in shares of capital stock during the year ended June 30, 2019 for the Funds were as follows:
Value Fund: |
| Sold |
| Redeemed |
| Reinvested |
| Net Increase | |
Investor Class Shares | | | | | | | | | |
Shares | | 100,444 | | (53,888 | ) | 8,729 | | 55,285 | |
Value | | $991,420 | | $(466,314 | ) | $70,793 | | $595,899 | |
Institutional Class Shares | | | | | | | | | |
Shares | | 378,723 | | (1,139,973 | )(a) | 434,522 | | (326,728 | ) |
Value | | $3,844,665 | | $(11,231,833 | )(a) | $3,532,653 | | $(3,854,515 | ) |
Annual Report | June 30, 202045
Cognios Funds
Notes to the Financial StatementsJune 30, 2020
Market Neutral Fund: |
| Sold |
| Redeemed |
| Reinvested |
| Net Increase | |
Investor Class Shares | | | | | | | | | |
Shares | | 513,453 | | (638,747 | ) | — | | (125,294 | ) |
Value | | $5,411,670 | | $(6,635,939 | ) | $— | | $(1,224,269 | ) |
Institutional Class Shares | | | | | | | | | |
Shares | | 4,908,075 | | (1,822,261 | ) | — | | 3,085,814 | |
Value | | $52,079,929 | | $(19,124,262 | ) | $— | | $32,955,667 | |
(a)Includes an in-kind redemption of 474,843 shares at a value of $5,042,833 paid on August 7, 2018, which represented 19.43% of the Value Fund’s net assets. A pro-rata portion of the Value Fund’s portfolio investments were transferred as payment of the in-kind redemption per procedures adopted by the Trust’s Board of Trustees.
4.INVESTMENT TRANSACTIONS
For the year ended June 30, 2020 aggregate purchases and sales of investment securities (excluding short-term investments) were as follows:
Fund | Purchases |
| Sales |
Value Fund | $22,941,278 | | $32,733,556 |
Market Neutral Fund | 108,141,624 | | 174,415,951 |
There were no government securities purchased or sold during the year.
5.ADVISORY FEES AND OTHER RELATED PARTY TRANSACTIONS
The Funds had entered into an Investment Advisory Agreement (the “Former Advisory Agreement”) with the Former Adviser. Pursuant to the Former Advisory Agreement, the Former Adviser managed the operations of the Funds and managed the Funds’ investments in accordance with the stated policies of the Funds. At a meeting of the Board held on January, 22, 2020, the Former Adviser notified the Board that it was transferring its operations to a new entity, the Adviser, following shareholder approval of a New Advisory Agreement, which occurred on April 3, 2020. The New Advisory Agreement became effective on May 31, 2020. As compensation for the investment advisory services provided to the Funds, during the period from July 1, 2019 through May 31, 2020, the Adviser received monthly management fees equal to an annual rate of each Fund’s net assets as follows:
Fund |
| Management |
| Management |
Value Fund | | 0.65% | | $146,211 |
Market Neutral Fund | | 1.40% | | 869,470 |
46www.cogniosfunds.com
Cognios Funds
Notes to the Financial StatementsJune 30, 2020
At a meeting held on February 12, 2020, the Board, including the Independent Trustees, considered and approved a new Investment Advisory Agreement (the “Advisory Agreement’) between the Trust and the Adviser in regard to the Funds. The Advisory Agreement was then approved by shareholders at a Special Meeting of Shareholders held on April 3, 2020. 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 beginning on May 31, 2020. As compensation for the investment advisory services provided to the Funds, during the period from June 1, 2020 through June 30, 2020, the Adviser receives a monthly management fee equal to an annual rate of the Fund’s net assets as follows:
Fund |
| Management |
| Management |
Value Fund | | 0.65% | | $10,186 |
Market Neutral Fund | | 1.40% | | 46,029 |
The Former Adviser had entered into an Expense Limitation Agreement (“Former Expense Agreement”) with the Funds under which it agreed to waive or reduce its fees and to assume other expenses of the Funds, if necessary, in an amount that limits the Funds’ annual operating expenses (exclusive of interest, borrowing expenses, distribution fees pursuant to Rule 12b-1 plans, taxes, acquired fund fees and expenses, brokerage fees and commissions, dividend expenses on short sales, litigation expenses, other expenditures which are capitalized in accordance with generally accepted accounting principles and other extraordinary expenses not incurred in the ordinary course of the Funds’ business) to not more than the following percentages of average daily net assets of each of the Funds through October 31, 2021:
Fund | Expense |
Value Fund | 0.85% |
Market Neutral Fund | 1.45% |
At a meeting held on February 12, 2020, the Board, including the Independent Trustees, considered and approved a new Expense Limitation Agreement (the “Expense Agreement’) between the Trust and the Adviser in regard to the Funds. Pursuant to the Expense Agreement, the Adviser has agreed to waive its fees or reimburse other expenses of the Funds, if necessary, in an amount that limits the Funds’ annual operating expenses (exclusive of interest, borrowing expenses, distribution fees pursuant to Rule 12b-1 plans, taxes, acquired fund fees and expenses, brokerage fees and commissions, dividend expenses on short sales, litigation expenses, other expenditures which are capitalized in accordance with generally accepted accounting principles and other extraordinary expenses not incurred in the ordinary course of the Funds’ business) to not more than the same percentages that were listed in the Former Expense Agreement through at least October 31, 2021. The Expense Agreement allowed the Adviser to recover previously waived fees and reimbursed expenses of the Former Adviser; the Expense Agreement was approved by shareholders at a Special Meeting of Shareholders held on April 3, 2020 but did not take effect until June 1, 2020.
Annual Report | June 30, 202047
Cognios Funds
Notes to the Financial StatementsJune 30, 2020
During the period from July 1, 2019 through May 31, 2020, the Former Adviser waived fees and reimbursed expenses as follows:
Fund |
| Management |
| Expenses |
Value Fund | | $146,211 | | $33,596 |
Market Neutral Fund | | 307,199 | | — |
During the period from June 1, 2020 through June 30, 2020, the Adviser waived fees and reimbursed expenses as follows:
Fund |
| Management |
| Expenses |
Value Fund | | $10,186 | | $13,869 |
Market Neutral Fund | | 28,910 | | — |
Subject to approval by the Funds’ Board of Trustees, any waivers or reimbursements under the Former Expense Agreement and the Expense Agreement are subject to repayment by the Funds within the three fiscal years following the date of such waiver provided that the Funds are able to make the repayment without exceeding the expense limitation in place at the time of the waiver or reimbursement and at the time the waiver or reimbursement is recouped. Per the Expense Agreement approved by shareholders on April 3, 2020, the Adviser can recoup amounts previously waived and reimbursed by the Former Adviser.
At June 30, 2020, the cumulative unreimbursed amounts paid and/or waived by the Former Adviser and the Adviser on behalf of the Funds that may be recouped no later than the dates stated below are as follows:
Fund |
| June 30, 2021 |
| June 30, 2022 |
| June 30, 2023 |
| Totals |
Value Fund | | $158,243 | | $175,817 | | $203,862 | | $537,922 |
Market Neutral Fund | | 62,226 | | 322,356 | | 336,109 | | 720,691 |
The Funds have entered into an Investment Company Services Agreement (“Services Agreement”) with M3Sixty Administration, LLC (“M3Sixty”). Under the Services Agreement, M3Sixty is responsible for a wide variety of functions, including but not limited to: (a) Fund accounting services; (b) financial statement preparation; (c) valuation of the Funds’ portfolio investments; (d) pricing the Funds’ 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 Funds’ legal compliance; (j) maintaining shareholder account records; and, (k) Chief Compliance Officer services.
For the year ended June 30, 2020, the Funds accrued fees pursuant to the Services Agreement as follows:
Fund | Services |
Value Fund | $116,839 |
Market Neutral Fund | 178,982 |
48www.cogniosfunds.com
Cognios Funds
Notes to the Financial StatementsJune 30, 2020
Certain officers and an Interested Trustee of the Trust are also employees or officers of M3Sixty.
The Funds have entered into a Distribution Agreement with ALPS Distributors, Inc. (the “Distributor”). Pursuant to the Distribution Agreement, the Distributor will provide distribution services to the Funds. The Distributor serves as underwriter/distributor of the Funds.
The Funds have adopted a Distribution and Services Plan (the “Plan”) pursuant to Rule 12b-1 of the 1940 Act for its Investor Class shares. Under the Plan, the Funds may use 12b-1 fees to compensate broker-dealers (including, without limitation, the Distributor) for sales of the Funds’ shares, or for other expenses associated with distributing the Funds’ shares. The Funds may expend up to 0.25% for Investor Class shares of a Fund’s average daily net assets annually to pay for any activity primarily intended to result in the sale of shares of the Funds and the servicing of shareholder accounts, provided that the Trustees have approved the category of expenses for which payment is being made.
For the year ended June 30, 2020, the Funds accrued 12b-1 expenses attributable to Investor Class shares as follows:
Fund | 12b-1 Fees |
Value Fund | $2,289 |
Market Neutral Fund | 32,727 |
6.SPECIAL CUSTODY AND PLEDGE AGREEMENT
The Value Fund may use borrowings for investment purposes. In determining when and to what extent to employ borrowing (i.e., leverage), the Adviser will consider factors such as the relative risks and returns expected from the portfolio as a whole and the costs of such transactions. These loans may be structured as secured or unsecured loans, and may have fixed or variable interest rates. The Value Fund may borrow an amount equal to as much as one-third of the value of its total assets (which includes the amount borrowed). The Value Fund will only engage in borrowing when the Adviser believes the return from the additional investments will be greater than the costs associated with the borrowing.
Effective May 7, 2018, the Value Fund entered into a Special Custody and Pledge Agreement (the “Pledge Agreement”) with BNP Paribas Securities Corp. and MUFG Union Bank, N.A. to facilitate extensions of credit. As of June 30, 2020, cash and portfolio securities valued at $14,953,528 were held in escrow by the custodian as collateral for extensions of credit made to the Fund. Borrowings under the Pledge Agreement bear interest at the bank’s prime rate plus 1.25%. The rate in effect at June 30, 2020 was 1.33%. For the year ended June 30, 2020, the average borrowings and interest rate under the Pledge Agreement were $8,619,628 and 2.54%, respectively. As of June 30, 2020, the amount due to the broker was $3,806,083 which consisted of a borrowing balance of $3,797,469, which represented 25.08% of the Value Fund’s total assets, and $8,614 of interest expense.
Annual Report | June 30, 202049
Cognios Funds
Notes to the Financial StatementsJune 30, 2020
7.TAX MATTERS
For U.S. Federal income tax purposes, the cost of securities owned, gross appreciation, gross depreciation, and net unrealized appreciation/(depreciation) of investments and securities sold short at June 30, 2020 were as follows:
Fund |
| Tax Cost |
| Gross |
| Gross |
| Net | |
Value Fund | | $15,624,009 | | $975,476 | | $(1,655,616 | ) | $(680,140 | ) |
Market Neutral Fund | | 13,336,263 | | 5,595,857 | | (5,763,319 | ) | (167,462 | |
The difference between book basis unrealized appreciation and tax-basis unrealized appreciation for the Funds is attributable primarily to the tax deferral of losses on wash sales, tax classifications of certain investments and the tax treatment of the cost of securities received as in-kind subscriptions and distributed as in-kind redemptions.
As of June 30, 2020, the Funds most recent fiscal year end, the components of distributable earnings presented on an income tax basis were as follows:
Fund | Deferred | Capital | Undistributed | Undistributed | Net | Total | |
Value Fund | $(617,996) | $— | $193,553 | $— | $(680,140) | $(1,104,583 | ) |
Market Neutral Fund | (5,188,250) | — | — | — | (167,462) | (5,355,712 | ) |
Under current law, capital losses and specified gains realized after October 31, and net investment losses realized after December 31 of a Fund’s fiscal year may be deferred and treated as occurring on the first business day of the following fiscal year for tax purposes. For disclosure purposes, these deferrals are included in “Deferred Post-October and Late Year Loss” above. As of June 30, 2020, the Funds elected to defer losses as follows:
Fund |
| Post-October |
| Post-December |
Value Fund | | $617,996 | | $— |
Market Neutral Fund | | 4,841,585 | | 346,665 |
As of June 30, 2020, the Funds had no capital loss carryforwards for federal income tax purposes available to offset future capital gains.
50www.cogniosfunds.com
Cognios Funds
Notes to the Financial StatementsJune 30, 2020
In accordance with GAAP, the Funds have recorded reclassifications in the capital accounts. These reclassifications have no impact on the net asset value of the Funds and are designed generally to present total distributable earnings and paid-in capital on a tax basis which is considered to be more informative to the shareholder. The reclassifications listed below are as a result of differing book/tax treatment of capital gains from sales of investments received from in-kind subscriptions, net operating loss, REIT adjustments and dividends on securities sold short. As of June 30, 2020, the Funds recorded reclassifications to increase (decrease) the capital accounts as follows:
Fund |
| Total |
| Paid-in | |
Value Fund | | $— | | $— | |
Market Neutral Fund | | 203,004 | | (203,004 | ) |
The tax character of distributions paid by the Funds during the year ended June 30, 2020 were as follows.
Fund |
| Long-Term |
| Ordinary |
Value Fund | | $1,209,901 | | $771,689 |
Market Neutral Fund | | — | | — |
The tax character of distributions paid by the Funds during the year ended June 30, 2019 were as follows.
Fund |
| Long-Term |
| Ordinary |
Value Fund | | $2,740,586 | | $862,860 |
Market Neutral Fund | | — | | — |
8.BENEFICIAL OWNERSHIP
The beneficial ownership, either directly or indirectly, of more than 25% of a fund’s voting interest creates a presumption of control of the fund, under Section 2(a)(9) of the Investment Company Act of 1940. As of June 30, 2020, the Value Fund and Market Neutral Fund had omnibus shareholder accounts which amounted to more than 25% of the total shares outstanding of each respective Fund. Shareholders with a controlling interest could affect the outcome of proxy voting or direction of management of the Funds.
9.COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Trust may enter into contracts that may contain a variety of representations and warranties and provide general indemnifications. The Funds’ maximum exposure under these arrangements is dependent on future claims that may be made against the Funds and, therefore, cannot be estimated; however, management considers the risk of loss from such claims to be remote.
Annual Report | June 30, 202051
Cognios Funds
Notes to the Financial StatementsJune 30, 2020
10. RECENT MARKET EVENTS
An outbreak of an infectious respiratory illness caused by a novel coronavirus known as COVID-19 was first detected in China in December 2019 and has now been detected globally. This coronavirus has resulted in travel and border restrictions, quarantines, curfews and restrictions on large gatherings, enhanced health screenings at ports of entry and elsewhere, disruption of and delays in healthcare service preparation and delivery, prolonged quarantines, cancellations and supply chain disruptions, which have caused lower consumer demand of a wide range of products and services and disruptions in manufacturing and supply chains, as well as general concern and uncertainty. While governments have already taken unprecedented action to limit disruption to the financial system, global financial markets have experienced and may continue to experience significant volatility resulting from the spread of and subsequent intervening measures intended to limit the spread of COVID-19. The spread of COVID-19 has adversely affected the economies of many nations and the entire global economy, in general. The full extent of the impact of COVID-19 on the Funds’ performance cannot be determined at this time and will depend on future developments, including the duration and the continued spread of the outbreak.
11.SUBSEQUENT EVENTS
During the period subsequent to fiscal year end, the Cognios Large Cap Value Fund’s net assets decreased by 89.3% primarily due to net redemptions of $11,363,366.
On August 24, 2020, the Adviser signed a non-binding Letter of Intent (“LOI”) to assign the New Advisory Agreement to another investment adviser for consideration. The assignment, if effective, would result in the automatic termination of the New Advisory Agreement, the Adviser expects to present the proposed assignment to the Board by September 30, 2020, along with a recommendation to appoint the other investment adviser as the interim investment adviser to the Funds for no more than 150 days (the “Interim Period”), while the Adviser will become the interim investment sub-adviser to the Funds during the Interim Period (the “Proposal”). Under the Proposal, there would be no change in the investment objectives, strategies, or risks of the Funds. If the Board approves the Proposal, then the Board and shareholders of the Funds will need to approve the new investment advisory agreement and the sub-advisory agreement with the Adviser before the Interim Period expires.
Management has evaluated the impact of all subsequent events of the Funds 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.
52www.cogniosfunds.com
To the Board of Trustees of M3Sixty Funds Trust
and the Shareholders of Cognios Large Cap Value Fund
and Cognios Market Neutral Large Cap Fund
Opinion on the Financial Statements
We have audited the accompanying statements of assets and liabilities of Cognios Large Cap Value Fund and Cognios Market Neutral Large Cap Fund, each a series of shares of beneficial interest in M3Sixty Funds Trust (the “Funds”), including the schedules of investments, as of June 30, 2020, and the related statements of operations and cash flows for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, the financial highlights as noted in the table below, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Funds as of June 30, 2020, and the results of their operations for the year then ended, the changes in their net assets for each of the years in the two-year period then ended and their financial highlights for each of the periods noted in the table below, in conformity with accounting principles generally accepted in the United States of America. The financial highlights for Cognios Large Cap Value Fund for the period October 3, 2016 through June 30, 2017 were audited by other auditors, whose report dated August 29, 2017, expressed an unqualified opinion on such financial highlights. The financial highlights for Cognios Market Neutral Large Cap Fund for the three-year period ended September 30, 2017 were audited by other auditors, whose report dated November 29, 2017, expressed an unqualified opinion on such financial highlights.
Fund | Financial Highlights Presented |
Cognios Large Cap Value Fund | For each of the years in the three-year period ended June 30, 2020 |
Cognios Market Neutral Large Cap Fund | For each of the years in the two-year period ended June 30, 2020 and the period from October 1, 2017 through June 30, 2018 |
Basis for Opinion
These financial statements are the responsibility of the Funds’ management. Our responsibility is to express an opinion on the Funds’ financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Funds in accordance with the U.S. federal securities law and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Funds are not required to have, nor were we engaged to perform, an audit of their internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Funds’ internal control over financial reporting. Accordingly, we express no such opinion.
Annual Report | June 30, 202053
Cognios Funds
Report of Independent Registered Public Accounting Firm
Our audits included performing procedures to assess the risk of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of June 30, 2020 by correspondence with the custodian and brokers. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
BBD, LLP
We have served as the auditor of one or more of the Funds in the M3Sixty Funds Trust since 2018.
Philadelphia, Pennsylvania
August 31, 2020
54www.cogniosfunds.com
1.PROXY VOTING POLICIES AND VOTING RECORD
A description of the policies and procedures that the Funds use to determine how to vote proxies relating to portfolio securities is available without charge, upon request, by calling 1-888-553-4233; and on the Commission’s website at http://www.sec.gov.
Information regarding how the Funds voted proxies relating to portfolio securities during the most recent period ended June 30 is available without charge, upon request, by calling 1-888-553-4233; and on the Commission’s website at http://www.sec.gov.
2.PORTFOLIO HOLDINGS
The Funds file their complete schedules of portfolio holdings with the Securities and Exchange Commission (the “Commission”) for the first and third quarters of each fiscal year on Form N-PORT. The Funds’ Forms N-PORT will be available on the Commission’s website at http://www.sec.gov. The Funds’ Forms N-PORT 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.
Prior to March 31, 2020, the Funds filed their complete schedules of portfolio holdings with the Commission for the first and third quarters of each fiscal year on Form N-Q. The Funds’ Forms N-Q are available on the Commission’s website at http://www.sec.gov.
3.SHAREHOLDER TAX INFORMATION
The tax character of distributions paid by the Value Fund during the year ended June 30, 2020, were as follows.
Fund |
| Long-Term |
| Ordinary |
Value Fund | | $2,740,586 | | $862,860 |
There were no distributions paid by the Market Neutral Fund during the year ended June 30, 2020.
Complete information will be computed and reported in conjunction with your 2020 Form 1099-DIV.
Shareholders should refer to their Form 1099-DIV or other tax information which will be mailed in 2021 to determine the calendar year amounts to be included on their 2020 tax returns. Shareholders should consult their own tax advisors.
Annual Report | June 30, 202055
Cognios Funds
Additional InformationJune 30, 2020 (Unaudited)
4.SPECIAL MEETING OF SHAREHOLDERS
On April 3, 2020, a Special Meeting of Shareholders of the Funds was held for the purpose of voting on the following proposals:
1.To approve a new investment advisory agreement between the Trust, on behalf of the Funds, and Quantitative Value Technologies, LLC.
2.To approve the new expense limitation agreement between the Trust, on behalf of the Funds, and Quantitative Value Technologies LLC.
3.To approve Quantitative Value Technologies LLC’s ability to recoup amounts that the prior adviser previously waived or reimbursed under the prior expense limitation agreement.
4.To transact such other business as may properly come before the meeting or any adjournment(s) or postponement(s) thereof.
The total number of shares of the Trust present in person or by proxy represented approximately 70.76% of the Value Fund’s shares and 58.06% of Market Neutral Fund’s shares entitled to vote at the Special Meeting. The shareholders of the Funds voted to approve all Proposals as follows:
Value Fund: |
| For |
| Against |
| Abstain |
Proposal 1 | | 2,089,207 | | — | | 53 |
Proposal 2 | | 2,089,207 | | — | | 53 |
Proposal 3 | | 2,086,682 | | 2,521 | | 57 |
Proposal 4 | | 2,089,207 | | — | | 53 |
Market Neutral Fund: |
| For |
| Against |
| Abstain |
Proposal 1 | | 3,674,556 | | 2,085 | | 74,565 |
Proposal 2 | | 3,674,558 | | 2,085 | | 74,564 |
Proposal 3 | | 3,671,188 | | 5,454 | | 74,564 |
Proposal 4 | | 3,389,676 | | 263,817 | | 97,712 |
56www.cogniosfunds.com
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. The Statement of Additional Information of the Trust includes additional information about the Funds’ Trustees and is available upon request, without charge, by calling 888-553-4233.
Following are the Trustees and Officers of the Trust, their year of birth and address, their present position with the Trust, 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. The address of each trustee and officer is 4300 Shawnee Parkway, Suite 100, Fairway, KS 66205.
Name and | Position(s) | Length of | Principal Occupation(s) | Number | Other Directorships |
Independent Trustees | |||||
Kelley J. | Trustee | Since | Retired; Partner, PricewaterhouseCoopers LLP (an accounting firm) (1981–2002). | Three | None |
Steven D. | Trustee | Since | Executive Vice President and Chief Financial Officer, Minnesota Vikings (professional sports organization) (1999 to present). | Three | 360 Funds Trust (7 portfolios) (2018– present); FNEX Ventures (2018–present) |
Tobias | Trustee | Since | Managing Member, Genovese Family Enterprises, LLC (family office) (1999–present); Managing Member, PTL Real Estate LLC (real estate/investment firm) (2000-9/2019); Manager Member, Bear Properties, LLC (real estate firm) (2006–present). | Three | AlphaCentric Prime Meridian Income Fund (2018–present); Strategy Shares (2016–present) (3 funds); Mutual Fund & Variable Insurance Trust (2010–present) (13 funds); Mutual Fund Series Trust, comprised of 40 funds (2006–present) |
Annual Report | June 30, 202057
Cognios Funds
Trustees and Officers (continued)June 30, 2020 (Unaudited)
Name and | Position(s) | Length of | Principal Occupation(s) | Number | Other Directorships |
Interested Trustee* | | | | ||
Randall K. | Trustee | Since | Chief Executive Officer, M3Sixty Administration, LLC (2013–present); Chief Operating Officer, M3Sixty Administration LLC (2011–2013); Managing Member, M3Sixty Holdings, LLC, (2011–present); Division Vice President, Boston Financial Data Services, (2005–2011). | Three | 360 Funds |
*The Interested Trustee is an Interested Trustee because he is an officer and employee of the Administrator.
Name and | Position(s) | Length of | Principal Occupation(s) | Number | Other Directorships |
Officers | |||||
András P. | Chief | Since | Chief Legal Officer, M3Sixty Administration, LLC, M3Sixty Holdings, LLC, Matrix 360 Distributors, LLC, and M3Sixty Advisors, LLC (2015–present); Chief Compliance Officer and Secretary, 360 Funds (2015–present); Chief Compliance Officer and Secretary, WP Trust (2016–present); Secretary, Monteagle Funds (2015–2016); Secretary and Assistant Treasurer, Capital Management Investment Trust (2015–2016); Partner, K&L Gates, (2001–2015). | N/A | N/A |
58www.cogniosfunds.com
Cognios Funds
Trustees and Officers (continued)June 30, 2020 (Unaudited)
Name and | Position(s) | Length of | Principal Occupation(s) | Number | Other Directorships |
Larry E. | Assistant Treasurer | Since | Fund Accounting, Administration and Tax Officer, M3Sixty Administration, LLC (2017–Present); Director of Fund Accounting & Administration, M3Sixty Administration, LLC (2005–2017); Assistant Treasurer, 360 Funds (July 2017–present); Assistant Treasurer, WP Funds Trust (July 2017–Present); Chief Accounting Officer, Amidex Funds, Inc. (2003–2020); Assistant Treasurer, Capital Management Investment Trust (July 2017–2019); Treasurer, 360 Funds (2007–July 2017); Treasurer and Assistant Secretary, Capital Management Investment Trust (2008–July 2017); Treasurer, WP Trust (2015–July 2017); Treasurer and Chief Financial Officer, Monteagle Funds (2008–2016). | N/A | N/A |
Annual Report | June 30, 202059
Cognios Funds
Trustees and Officers (continued)June 30, 2020 (Unaudited)
Name and | Position(s) | Length of | Principal Occupation(s) | Number | Other Directorships |
Brandon | Assistant | Since | Chief Operating Officer, M3Sixty Administration LLC (2012–present); Chief Operations Officer, Matrix Capital Group, Inc. (2015–present); Assistant Secretary and Assistant Treasurer, WP Trust (2016–present); Assistant Secretary and AML Compliance Officer, 360 Funds (2013–present); Assistant Secretary and AML Compliance Officer, Monteagle Funds (2013–2016). | N/A | N/A |
John H. | Assistant | Since | Managing Partner, Practus, LLP (law firm) (2010–present). | N/A | N/A |
Ted L. | Assistant | Since | Vice President of Operations, M3Sixty Administration, LLC (2012–present). | N/A | N/A |
Bo J. | Assistant | Since | Partner, Practus LLP (2018 to present); CEO of Joot (2018 to present); Director of Fund Administration, Ultimus Fund Solutions, LLC (2014 to 2018). | N/A | N/A |
**Effective December 28, 2018, Larry E. Beaver, Jr. was assigned as Interim Treasurer until a new Treasurer is appointed by the Board.
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Cognios Funds
Trustees and Officers (continued)June 30, 2020 (Unaudited)
Officers of the Trust and Trustees who are “interested persons” of the Trust or the Adviser will receive no salary or fees from the Trust. Officers of the Trust and interested Trustees do receive compensation directly from certain service providers to the Trust. Each Trustee who is not an “interested person” receives a fee of $5,000 each year (paid quarterly), plus a fee of $1,500 per Fund each year (paid quarterly), and $200 per Fund per Board or committee meeting attended. The Trust will also reimburse each Trustee for travel and other expenses incurred in connection with, and/or related to, the performance of their obligations as a Trustee. Officers of the Trust will also be reimbursed for travel and other expenses relating to their attendance at Board meetings.
Name of Trustee1 | Aggregate | Pension or | Estimated Annual | Total Compensation | |
Independent Trustees | |||||
Kelley Brennan | $4,467 | None | None | $13,400 | |
Steve Poppen | 4,467 | None | None | 13,400 | |
Tobias Caldwell | 4,467 | None | None | 13,400 | |
Interested Trustees and Officers | |||||
Randall K. Linscott | None | Not Applicable | Not Applicable | None |
1Each of the Trustees serves as a Trustee to each Series of the Trust. The Trust currently offers three (3) series of shares.
2Figures are for the year ended June 30, 2020.
Annual Report | June 30, 202061
Cognios Funds
Board Approval of the Investment Advisory Agreement for the Cognios Large Cap
Value Fund and the Cognios Market Neutral Large Cap Fund (Unaudited)
At a meeting held on February 12, 2020, the Board of Trustees (the “Board”) considered the approval of the Investment Advisory Agreement between the Trust and Quantitative Value Technologies, LLC (“QVT”) in regard to the Cognios Large Cap Value Fund (the “Large Cap Value Fund”) and Cognios Market Neutral Large Cap Fund (the “Market Neutral Fund,” together with the Large Cap Value Fund, the “Cognios Funds”) (the “Advisory Agreement”).
The Board reflected on its discussions regarding the proposed Advisory Agreement, the proposed expense limitation arrangements, and the services that QVT would provide to the Cognios Funds. Counsel referred to the materials that had been provided in connection with the approval of the Advisory Agreement and reviewed the types of information and factors that the Board should consider, including the following material factors: (i) the nature, extent, and quality of the services to be provided by QVT; (ii) the investment performance of the Cognios Funds; (iii) the costs of the services to be provided and profits to be realized by QVT from the relationship with the Cognios Funds; (iv) the extent to which economies of scale would be realized as the Cognios Funds grow and whether advisory fee levels reflect those economies of scale for the benefit of the shareholders; and (v) QVT’s practices regarding possible conflicts of interest and other benefits derived by it.
In assessing these factors and reaching its decisions, the Board took into consideration information furnished for the Board’s review and consideration throughout the year at regular Board meetings by Cognios Capital, LLC (“Cognios Capital”), which has the same portfolio management team as QVT, as well as information specifically provided during the approval process, including at the Meeting. The Board was provided with information and reports relevant to the approval of the Advisory Agreement, including: (i) information regarding the services and support provided to the Cognios Funds and their shareholders by Cognios Capital, which would carry over to QVT; (ii) quarterly assessments of the investment performance of the Cognios Funds from the portfolio management team; (iii) periodic commentary on the reasons for the performance; (iv) presentations by the Cognios Funds’ management addressing QVT’s investment philosophy, investment strategy, personnel, and operations, including a comparison of Cognios Capital and QVT; (v) compliance and audit reports concerning the Cognios Funds and Cognios Capital; (vi) disclosure information contained in the registration statement for the Cognios Funds and the Form ADV of QVT; and (vii) a memorandum from legal counsel that summarized the fiduciary duties and responsibilities of the Board in reviewing and approving the Advisory Agreement, including the material factors set forth above and the types of information included in each factor that should be considered by the Board to make an informed decision.
The Board also requested and received various informational materials including, without limitation: (i) documents containing information about QVT, including financial information, information on investment advice and summaries of anticipated expenses for the Cognios Funds, and information on QVT’s compliance program; (ii) comparative expense and performance information of the Cognios Funds’ peer group and category; (iii) the anticipated effect of size on the Cognios Funds’ performance and expenses; and (iv) benefits to be realized by QVT from its relationship with the Trust and the Cognios Funds.
62www.cogniosfunds.com
Cognios Funds
Board Approval of the Investment Advisory Agreement for the Cognios Large Cap
Value Fund and the Cognios Market Neutral Large Cap Fund (Unaudited)(continued)
The Board did not identify any information that was most relevant to its consideration to approve the Advisory Agreement, and each Trustee may have afforded different weights to the various factors. In deciding whether to approve the QVT, the Trustees considered numerous factors, including:
1.The nature, extent, and quality of the services to be provided by QVT.
The Board considered the responsibilities that QVT would have under the Advisory Agreement for each Cognios Fund. The Board reviewed the services to be provided by QVT to the Cognios Funds including, without limitation: Cognios Capital and QVT’s processes for formulating investment recommendations and assuring compliance with the Cognios Funds’ investment objectives and limitations; its coordination of services among the Cognios Funds’ service providers; and the anticipated efforts to promote the Cognios Funds, grow their assets, and assist in the distribution of their shares. The Board considered: The QVT’s staffing, personnel, and methods of operating; the education and experience of its personnel; and its compliance program, policies, and procedures. The Board noted that there would be no change to the investment objectives or strategies of the Cognios Funds, and the portfolio management team of QVT includes both Jonathan C. Angrist and Brian J. Machtley. The Board also considered QVT’s trading processes, which would most likely result in slight increases in the transaction costs of the Cognios Fund. In considering these new processes, the Board noted that QVT represented its belief that the new process would result in better execution service, business continuity, asset coverage, and liquidity. The Board further noted that QVT represented that its new process meets its duty to obtain the best execution for the Cognios Funds. Finally, the Board noted that based on information provided by QVT, including its responses to questions asked during the meeting, the new transaction costs were still competitively priced and only slightly higher than the rates the Cognios Funds previously paid. After reviewing the preceding information, the Board concluded that the nature, extent, and quality of the services to be provided by QVT were satisfactory and adequate for the Funds and consistent with the services that the Cognios Funds currently receive from Cognios Capital.
2.Investment Performance of the Cognios Funds and the portfolio managers.
The Board noted that under the terms of the transaction the portfolio management team of the Funds would remain the same; it noted that this team had been in place since the inception of the Cognios Funds. The Board viewed these as positive factors when considering whether to approve the Advisory Agreement. The Board also considered the past performance of the team and the continuity maintained during the transaction, which allowed the Board to apply the recent performance to its consideration of the Advisory Agreement. In considering the investment performance of the Cognios Funds and the current portfolio managers, the Board compared the short- and long-term performance of the Funds with the performance of their respective benchmark, comparable funds with similar objectives and size managed by other investment advisers, and comparable peer group indices (e.g., Morningstar category means and medians). The Board also considered the consistency of the portfolio managers’ management of the Cognios Funds with their respective investment objectives and policies.
Regarding the Large Cap Value Fund, the Board noted that it had outperformed the Large Value category average and median for the one-year and three-year periods ended December 31, 2019. The Board further considered the performance of the Large Cap Value Fund relative to its benchmark (the S&P 500® Total Return Index), noting that the fund had outperformed for the one year and underperformed for the three years ended December 31, 2019.
Annual Report | June 30, 202063
Cognios Funds
Board Approval of the Investment Advisory Agreement for the Cognios Large Cap
Value Fund and the Cognios Market Neutral Large Cap Fund (Unaudited)(continued)
Regarding the Market Neutral Fund, the Board noted that it had underperformed the Market Neutral category average and median for the year ended December 31, 2019, but had outperformed the category average and media for the three- and five-year periods, each ended December 31, 2019. The Board further considered the performance of the Market Neutral Fund relative to its benchmark (the S&P 500® Total Return Index) and noted that the fund had underperformed for the one, three, and five-year periods ended December 31, 2019.
Based on the preceding, the Board concluded that the investment performance information presented for the Cognios Funds was acceptable at this time.
3.The costs of the services to be provided and profits to be realized by QVT from the relationship with the Cognios Funds.
For this factor, the Board considered: QVT’s staffing, personnel, and operations; its financial condition and the level of commitment by QVT and its principals; the expected asset levels of the Cognios Funds; and the projected overall expenses of the Cognios Funds. The Board considered financial information of QVT and discussed its financial stability and productivity.
The Board considered the fees and expenses of the Cognios Funds relative to their respective peer group and category. The Board noted that the management fee for the Cognios Funds was above the applicable category average and median, but well within the category range. The Board considered that the net expense ratio of the Funds’ institutional classes was above the category average and median. In considering the management fee and total operating expenses, the Board noted the relatively small size of the Cognios Funds compared to the average and median fund size in the category. The Board further noted that QVT’s management fee is the same as the current management fee.
The Board also considered the fees that QVT charges on other accounts that have a similar strategy to the Cognios Funds, which were comparable to the management fee paid by the Cognios Funds. Following this analysis and upon further consideration and discussion, the Board concluded that the fees of QVT were fair and reasonable.
4.The extent to which economies of scale would be realized as the Cognios Funds grow and whether advisory fee levels reflect these economies of scale for the benefit of the Cognios Funds’ investors.
The Board considered the Cognios Funds’ fee arrangements with Cognios Capital and the proposed arrangements QVT. The Board determined that although the management fee would stay the same as asset levels increased, the shareholders of the Cognios Funds would benefit from the expense limitation arrangement for the Cognios Funds. The Board noted that while a breakpoint schedule in an advisory agreement could be beneficial, such a feature to the fee schedule only had benefits if the fund’s assets were enough to realize the effect of the breakpoint. The Board noted that obtaining lower expenses for the shareholders of the Cognios Funds would be realized immediately with the expense limitation arrangements, which the New Adviser agreed to maintain through at least October 31, 2021. The Board noted that the assurance that the expense limitation arrangements in place were of value to those Cognios Funds. In considering the economies of scale, the Board noted that the assets of the Cognios Funds were at such levels that the expense limitation arrangements currently were providing benefits to the respective Cognios Fund’s shareholders.
64www.cogniosfunds.com
Cognios Funds
Board Approval of the Investment Advisory Agreement for the Cognios Large Cap
Value Fund and the Cognios Market Neutral Large Cap Fund (Unaudited)(continued)
The Board also noted that the Cognios Funds would benefit from economies of scale under its agreements with some of its service providers other than QVT as fees that were in place with those other service providers were either fixed or essentially semi-fixed. The Board noted that QVT’s personnel had secured these arrangements with the other service providers on behalf of the Cognios Funds. Following further discussion of the Cognios Funds’ expected asset levels, expectations for growth and levels of fees, the Board determined that the Cognios Funds’ fee arrangements, in light of all the facts and circumstances, were fair and reasonable and that the expense limitation arrangements provided potential savings or protection for the benefit of the Cognios Funds’ investors.
5.Possible conflicts of interest and benefits derived by QVT.
In considering QVT’s practices regarding conflicts of interest, the Board evaluated the potential for conflicts of interest and considered such matters as the experience and ability of the advisory and compliance personnel assigned to the Cognios Funds; the basis of decisions to buy or sell securities for the Cognios Funds; and the substance and administration of QVT’s code of ethics. The Board noted that Cognios Capital and QVT have the same chief compliance officer and compliance program. Based on the preceding, the Board determined that QVT’s standards and practices relating to the identification and mitigation of possible conflicts of interest were satisfactory. Finally, the Board noted the conflict of interest related to QVT’s new trading processes, which would ease QVT’s trading operations while slightly increasing transaction costs for the Cognios Fund. The Board noted that the new processes provided some benefits to the Cognios Funds and still satisfied QVT’s obligations related to best execution. Finally, the Board noted that while the new trading procedures benefited QVT, some of those benefits would also apply to the Cognios Funds, and the overall price paid by the Cognios Funds was still competitive with market rates.
After additional consideration of the factors delineated in the memorandum provided by Counsel and further discussion among the Board, the Board determined that the compensation payable under the Advisory Agreement with respect to the Cognios Funds was fair, reasonable and within a range of what could have been negotiated at arms-length in light of all the surrounding circumstances, and they resolved to approve the Advisory Agreement with respect to the Cognios Funds.
M3SIXTY FUNDS TRUST
4300 Shawnee Mission Pkwy
Suite 100
Fairway, KS 66205
INVESTMENT ADVISER
Quantitative Value Technologies, LLC
7900 College Blvd
Suite 124
Overland Park, Kansas 66210
ADMINISTRATOR & TRANSFER AGENT
M3Sixty Administration, LLC
4300 Shawnee Mission Pkwy
Suite 100
Fairway, KS 66205
DISTRIBUTOR
ALPS Distributors, Inc.
1290 Broadway
Suite 1100
Denver, CO 80203
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
BBD, LLP
1835 Market Street
3rd Floor
Philadelphia, PA 19103
LEGAL COUNSEL
Practus, LLP
11300 Tomahawk Creek Parkway
Suite 310
Leawood, KS 66211
CUSTODIAN BANK
MUFG Union Bank®, N.A.
350 California Street
20th Floor
San Francisco, CA 94104
Must be accompanied or preceded by a prospectus.
The Cognios Funds are distributed by ALPS Distributors, Inc.
F/m Investments Large Cap Focused Fund
(formerly, Cognios Large Cap Growth Fund)
Investor Class Shares (Ticker Symbol: IAFMX)
Institutional Class Shares (Ticker Symbol: IAFLX)
A series of the
M3Sixty Funds Trust
ANNUAL REPORT
June 30, 2020
Investment Adviser:
F/M Investments LLC
3050 K Street, NW
Suite W-170
Washington, DC 20007
IMPORTANT NOTE: Beginning on January 1, 2021, as permitted by regulations adopted by the SEC, paper copies of the F/m Investments Large Cap Focused Fund’s (the “Fund”) shareholder reports will no longer be sent by mail unless you specifically request paper copies of the reports from the Fund or from your financial intermediary, such as a broker-dealer or bank. Instead, the reports will be made available on a website, and you will be notified by mail each time a report is posted and provided with a website link to access the report. If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. You may elect to receive all future reports in paper free of charge. You can inform the Fund or your financial intermediary that you wish to continue receiving paper copies of your shareholder reports by calling or sending an e-mail request.
Table of Contents
Thank you for investing with F/m Investments and Integrated Alpha. We hope that you and your loved ones are well through an extraordinary time and adapting to the ever changing medical and social guidance stemming from the Covid-19 global health pandemic.
This Annual Report covers the F/m Investments Large Cap Focused Fund (“the Fund”) for the fiscal year ending June 30, 2020. We appreciate this opportunity to offer insight into the Fund’s investment strategy and our perspective on recent performance and current market conditions. We also share an update regarding recent developments with the Fund’s management.
Important Fund Update
On February 1, 2020, F/m Investments LLC (“FMI”) was appointed the Fund’s adviser. Francisco Bido, the Fund’s portfolio manager at its predecessor firm, joined FMI as SVP, Portfolio Manager. Francisco operates within a new subsidiary, in which he shares equity ownership, called Integrated Alpha Investments. Francisco continues to manage the Fund and was joined by Alexander Morris as a co-portfolio manager. The investment strategy, underlying technology, and objectives have been maintained without alteration. Operations were assumed by FMI’s institutional trade desk and support infrastructure.
The Fund’s name was changed to the “F/m Investments Large Cap Focused Fund” to better reflect its objective as a concentrated portfolio targeting momentum growth. Tickers were also updated: the Institutional Class Shares trade under “IAFLX” and the Investor Class Shares trade under “IAFMX.” The Fund also changed its primary benchmark from the Russell 1000® Total Return Index (“Russell 1000®”)to the S&P 500® Total Return Index (“S&P 500®”). In addition, the Fund dropped the Russell 1000® Growth Total Return Index (“Russell 1000® Growth”) as a secondary benchmark. We believe the proposed changes better reflect an accurate relative measure of the Fund’s investment methodology.
About FMI
FMI is a specialist in supporting and growing boutique investment management firms. We are thrilled to welcome Francisco to our family and look forward to deploying our business, operations, and marketing experience and resources to grow the Fund, and the new Integrated Alpha brand, with him.
About the Fund
The Fund invests in companies that have accelerating revenue and earnings growth complemented by confirming price momentum by combining proven quantitative and traditional investment practices into a rigorous framework empowering highly systematic and adaptable alpha capture. We call this proprietary process, a combination of quantitative selection and discretionary overlay: QuantActive™. The quantitative process is driven by two proprietary scores, a fundamental score that measures growth in company fundamentals and a technical score that measures price momentum.
Our investment process is focused on building a robust and tempered investment portfolio that may include stocks that fall outside of the classic growth stock classification yet exhibit growth characteristics and price response. This style-agnostic approach enables us to navigate all market environments, regardless of prevailing trends. This flexibility was particularly important as we responded to the unprecedented impact of Covid-19 on markets, which produced definite winners and losers that quantitative models build on historical data would not likely have identified.
1
Performance Update
During the fiscal year ended June 30, 2020, the total return for Institutional Class Shares (“IAFLX”) was 23.84% and the total return for the Investor Class Shares (“IAFMX”) was 23.56%. IAFLX outperformed the Russell 1000® by 16.36%, the S&P 500® by 16.33%, and the Russell 1000® Growth by 0.56% during the year.
The trailing twelve-month period rewarded our investment approach, despite (a) shocks to global markets, sudden changes to economic policy, and a rise in unemployment, (b) continued uncertainty about global, and more germane to the Fund, domestic economic prospects, and (c) equity markets continuing to achieve all-time highs. Many of the Fund’s strongest performing stocks have been so-called “stay at home” stocks that weathered February and March 2020 well. We buoyed the portfolio with a strategic cash allocation, tempering downside and enabling us to nimbly add bargains to the portfolio.
Our quantitative factors travelled friendly waters for much of the past year, though they were not always calm. The Fund maintains an active weight to IT relative to its benchmarks. This paid off handsomely overall despite occasional but short-lived “value rallies.” The QuantActive™ process detected securities benefitting from these periodic events. We are pleased to see that the traditional core and value names we added to the Fund provided immediate and lasting positive contribution.
Relative to a purely quantitative strategy, our approach thrives on its ability to better navigate periods when our quantitative factors are out of favor, potentially mitigating downside risk of the Fund. This is critical for long term success. The active component of our investment process focuses on names that still fit the investment style, exhibit growth characteristics and provide the best opportunities given the current market conditions. By incorporating this active component into our process, we are able to better monitor the portfolio for macro risks, potentially insulating the portfolio from some of the effects of a full market correction. Essentially, we are not as concerned about short periods of factor rotations as we expect to maintain strong relative performance by holding high quality companies that align with our philosophy, and based on our analyses, still have room for share price growth.
From a macro perspective, the world is still trying to understand the short- and long-term ramifications of Covid-19 and unprecedented central bank stimulus. At the same time, the U.S. markets experienced the shortest (yet) bear market followed by a near immediate return to bull market status. Equity markets across the globe benefitted from the overwhelming response, particularly the Federal Reserve’s stabilization of currency markets through its near limitless liquidity support of short term credit markets. Specific to the U.S., the Federal Reserve’s interest rate slashes (to effectively zero) sent investors looking for yield further down cap tables, benefiting the Fund. Additionally, the Federal Reserve paired its mixed to glum outlook with a tacit (at times almost explicit) commitment to support markets. This so-called “Fed put” has reassured equity markets and, in our view, fueled the continued appreciation.
Market drivers seem to have shifted almost entirely to be driven by Covid-19 related factors. Everything from shared office space to ride sharing, previously the “sure bets” to reform how we live, work, and invest, have been crippled. The resulting rethink around how we interact with one another, along with stubbornly high unemployment, has shaken how most firms’ prospects are viewed. Internationally, short-term dollar weakness on the back of fiscal policy has created opportunity for U.S. firms to expand product sales abroad. We also expect continued volatility as the U.S. Presidential election – already fraught with new concerns and mudslinging – will likely roil markets. We have no view on whether the markets have priced in a specific outcome, and will remain true to our process to optimize alpha capture during any price dislocation.
In periods of time where corporate earnings and revenues are decreasing, or decelerating, we expect the Fund to underperform relative to its benchmark. The trade war has made such a period even more interesting. This short-term relative underperformance is, of course, undesired but we strongly believe that over time our investment process can make up small relative deficits.
2
As previously mentioned, the recent market conditions highlight the importance of the dual nature of our QuantActive™ investment process and risk management framework, which are adept at navigating unusual, or less favorable, market conditions for the Fund.
Since the Fund’s inception, it has maintained an active exposure to Information Technology which continues to have the largest contribution to the Fund’s performance over the period. This is consistent with our view of a well-built portfolio the largest active weights contributing more meaningfully to performance than sectors or positions with less active, or no active, weight.
Sincerely,
Francisco Bido | Alexander Morris |
3
F/m Investments Funds | ANNUAL REPORT |
Portfolio Update
June 30, 2020 (Unaudited)
Performance (as of June 30, 2020) | One Year | Since Inception (a) |
F/m Investments Large Cap Focused Fund Investor Class shares | 23.56% | 18.96% |
F/m Investments Large Cap Focused Fund Institutional Class shares | 23.84% | 19.23% |
S&P 500® Total Return Index (b) | 7.51% | 12.35% |
S&P 500® Growth Total Return Index (c) | 17.75% | 17.31% |
Russell 1000® Total Return Index (d) | 7.48% | 12.26% |
Russell 1000® Growth Total Return Index (e) | 23.28% | 19.46% |
(a) The F/m Investments Large Cap Focused Fund (the “Focused Fund”) commenced operations on October 3, 2016.
(b) The S&P 500® Total Return Index is a broad unmanaged index of 500 stocks, which is widely recognized as representative of the equity market in general. 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.
(c) The S&P 500® Growth Total Return Index is a market capitalization weighted index made up of only the growth stocks that are part of the S&P 500® Total Return Index. 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.
(d) The Russell 1000® Total Return Index measures the performance of the large-cap segment of the U.S. equity universe and consists of the largest 1000 companies in the Russell 3000 Index. 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.
(e) The Russell 1000® Growth Total Return Index measures the performance of those Russell 1000 companies with higher price-to-book ratios and higher forecasted growth values. 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.
The Fund changed its primary benchmark from the Russell 1000® Total Return Index to the S&P 500® Total Return Index and also changed its secondary benchmark from the Russell 1000® Growth Total Return Index to the S&P 500® Growth Total Return Index in order to better reflect an accurate relative measure of the Fund’s performance.
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 888-553-4233.
As with any fund, save an index fund, that commonly compares its performance to the S&P 500® Total Return Index and the S&P 500® Growth 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 indices; so too with the F/m Investments Large Cap Focused Fund, which will generally not invest in all the securities comprising each index.
Total Fund operating expense ratios as stated in the current Fund prospectus dated April 20, 2020 for the Focused Fund were as follows: | |
F/m Investments Large Cap Focused Fund Investor Class Shares, gross of fee waivers or expense reimbursements | 1.43% |
F/m Investments Large Cap Focused Fund Investor Class Shares, after fee waivers or expense reimbursements | 1.15% |
F/m Investments Large Cap Focused Fund Institutional Class Shares, gross of fee waivers or expense reimbursements | 1.18% |
F/m Investments Large Cap Focused Fund Institutional Class Shares, after fee waivers or expense reimbursements | 0.90% |
F/m Investments LLC (the “Adviser”) has entered into an Expense Limitation Agreement with the Fund under which it has agreed to waive its fees and reimburse expenses of the Fund, if necessary, in an amount that limits the Fund’s annual operating expenses (exclusive of interest, borrowing expenses, distribution fees pursuant to Rule 12b-1 plans, taxes, acquired fund fees and expenses, brokerage fees and commissions, dividend expenses on short sales, litigation expenses, other expenditures which are capitalized in accordance with generally accepted accounting principles and other extraordinary expenses not incurred in the ordinary course of the Fund’s business) to not more than 0.90% through at least October 31, 2021. Subject to approval by the Fund’s Board, any waiver under the Expense Limitation Agreement is subject to repayment by the Fund within the three years following the date when the waiver or reimbursement occurred, if the Fund is able to make the payment without exceeding the expense limitation in place at the time of the waiver or reimbursement. Only the Board of Trustees can terminate the contractual agreement before the expiration date. Total Gross Operating Expenses (Annualized) during the year ended June 30, 2020 were 1.50% and 1.25% for the Focused Fund’s Investor Class shares and Institutional Class shares, respectively. Please see the Disclosure of Fund Expenses, the Financial Highlights and Notes to Financial Statements (Note 5) sections of this report for expense related disclosures during the year ended June 30, 2020. |
4
F/m Investments Funds | ANNUAL REPORT |
Portfolio Update (continued)
June 30, 2020 (Unaudited)
(1) The minimum initial investment for the F/m Investments Large Cap Focused Fund, Investor Shares is $1,000.
(2) The minimum initial investment for the F/m Investments Large Cap Focused Fund, Institutional Shares is $100,000.
The graphs shown above represent historical performance of hypothetical investments of $10,000 in the F/m Investments Large Cap Focused Fund’s Investor Shares and $100,000 in the F/m Investments Large Cap Focused Fund’s Institutional Shares since inception. Past performance does not guarantee future results. All returns reflect reinvested dividends, but do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.
5
F/m Investments Funds | ANNUAL REPORT |
Portfolio Update (continued) | |
June 30, 2020 (Unaudited) |
The Focused Fund’s principal investment objective is long-term growth of capital. The Focused Fund seeks to achieve its investment objective by purchasing equity securities that the Adviser believes are likely to appreciate. It generally seeks to purchase equity securities of large capitalization U.S. companies, and may purchase American Depositary Receipts (“ADR’s”) of international companies trading on U.S. exchanges, that exhibit accelerating growth in earnings and revenue. The Fund may invest across different industries and sectors. The Fund will invest at least 80% of its net assets in securities that have a market capitalization at the time of investment comparable to securities held in the Russell 1000® Index.
Sector Allocation of Portfolio Holdings (% of Net Assets)* | |
Communications | 11.99% |
Consumer, Cyclical | 5.66% |
Consumer, Non-Cyclical | 17.16% |
Financials | 3.45% |
Industrials | 3.59% |
Technology | 52.33% |
Cash, Cash Equivalents, & Other Net Assets | 5.82% |
TOTAL | 100.00% |
Top Ten Portfolio Holdings (% of Net Assets)* | |
Microsoft Corp. | 9.59% |
Apple, Inc. | 9.04% |
Amazon.com, Inc. | 7.61% |
Adobe, Inc. | 4.23% |
Advanced Micro Devices, Inc. | 4.13% |
DocuSign, Inc. | 3.80% |
NVIDIA Corp. | 3.75% |
Lam Research Corp | 3.52% |
Splunk, Inc. | 3.50% |
Tesla, Inc. | 3.10% |
* The percentages in the above tables are based on the portfolio holdings of the Focused Fund as of June 30, 2020 and are subject to change. For a detailed break-out of holdings by industry, please refer to the Schedule of Investments.
6
F/m Investments Funds | ANNUAL REPORT |
Disclosure of Fund 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 are 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 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 01/01/20 through 06/30/20
Focused Fund: | Beginning Account Value (01/01/2020) | Annualized Expense Ratio for the Period | Ending Account Value (06/30/2020) | Expenses Paid During Period | |||||||||||||
Actual Fund Return (in parentheses) | |||||||||||||||||
Investor Class Shares (+13.73%) | $ | 1,000.00 | 1.15 | % | $ | 1,137.30 | $ | 6.11 | (a) | ||||||||
Institutional Class Shares (+13.92%) | $ | 1,000.00 | 0.90 | % | $ | 1,139.20 | $ | 4.79 | (a) | ||||||||
Hypothetical 5% Fund Return | |||||||||||||||||
Investor Class Shares | $ | 1,000.00 | 1.15 | % | $ | 1,019.10 | $ | 5.77 | (a) | ||||||||
Institutional Class Shares | $ | 1,000.00 | 0.90 | % | $ | 1,020.40 | $ | 4.52 | (a) |
(a) | Expenses are equal to the Funds’ annualized expense ratios, multiplied by the average account value over the period, multiplied by 182/366 to reflect the one-half year period. |
For more information on the Funds’ expenses, please refer to the Funds’ prospectus, which can be obtained from your investment representative or by calling 888-553-4233. Please read it carefully before you invest or send money.
7
F/m Investments Funds | |
F/m Investments Large Cap Focused Fund | ANNUAL REPORT |
Schedule of Investments
June 30, 2020
Shares | Fair Value | |||||||
COMMON STOCK - 94.18% | ||||||||
Communications - 11.99% | ||||||||
Alphabet, Inc. - Class A (a) | 943 | $ | 1,337,221 | |||||
Amazon.com, Inc. (a) | 1,465 | 4,041,671 | ||||||
Charter Communications, Inc. - Class A (a) | 1,943 | 991,008 | ||||||
6,369,900 | ||||||||
Consumer, Cyclical - 5.66% | ||||||||
Tesla, Inc. (a) | 1,523 | 1,644,551 | ||||||
TJX Cos., Inc. | 26,960 | 1,363,098 | ||||||
3,007,649 | ||||||||
Consumer, Non-cyclical - 17.16% | ||||||||
Exact Sciences Corp. (a) | 18,102 | 1,573,788 | ||||||
Horizon Therapeutics PLC (a) | 23,428 | 1,302,128 | ||||||
Kroger Co. | 47,620 | 1,611,937 | ||||||
MarketAxess Holding, Inc. | 1,548 | 775,424 | ||||||
Masimo Corp. (a) | 4,600 | 1,048,754 | ||||||
Procter & Gamble Co. | 11,628 | 1,390,360 | ||||||
Thermo Fisher Scientific, Inc. | 3,894 | 1,410,952 | ||||||
9,113,343 | ||||||||
Financials - 3.45% | ||||||||
Goldman Sachs Group, Inc. | 4,905 | 969,326 | ||||||
Morgan Stanley | 17,879 | 863,556 | ||||||
1,832,882 | ||||||||
Industrials - 3.59% | ||||||||
Keysight Technologies, Inc. (a) | 11,400 | 1,148,892 | ||||||
Lockheed Martin Corp. | 2,082 | 759,763 | ||||||
1,908,655 | ||||||||
Technology - 52.33% | ||||||||
Activision Blizzard, Inc. | 16,073 | 1,219,941 | ||||||
Adobe, Inc. (a) | 5,167 | 2,249,247 | ||||||
Advanced Micro Devices, Inc. (a) | 41,692 | 2,193,416 | ||||||
Apple, Inc. | 13,161 | 4,801,133 | ||||||
DocuSign, Inc. (a) | 11,736 | 2,021,057 | ||||||
Fiserv, Inc. (a) | 9,491 | 926,511 | ||||||
Lam Research Corp. | 5,785 | 1,871,216 | ||||||
Leidos Holdings Co. | 10,013 | 937,918 | ||||||
Micron Technology, Inc. (a) | 22,281 | 1,147,917 | ||||||
Microsoft Corp. | 25,040 | 5,095,890 | ||||||
NVIDIA Corp. | 5,240 | 1,990,728 | ||||||
RingCentral, Inc. - Class A (a) | 5,205 | 1,483,477 | ||||||
Splunk, Inc. (a) | 9,353 | 1,858,441 | ||||||
27,796,892 | ||||||||
TOTAL COMMON STOCK (Cost $36,694,021) | 50,029,321 | |||||||
SHORT-TERM INVESTMENTS - 5.79% | ||||||||
Goldman Sachs Financial Square Government Fund, 0.00%(b) | 3,076,965 | 3,076,965 | ||||||
TOTAL SHORT-TERM INVESTMENTS (Cost $3,076,965) | 3,076,965 | |||||||
TOTAL INVESTMENTS (Cost $39,770,986) - 99.97% | $ | 53,106,286 | ||||||
OTHER ASSETS IN EXCESS OF LIABILITIES, NET - 0.03% | 14,285 | |||||||
NET ASSETS - 100% | $ | 53,120,571 |
Percentages are stated as a percent of net assets.
(a) Non-income producing security
(b) Rate shown represents the 7-day effective yield at June 30, 2020, is subject to change and resets daily.
The following abbreviations are used in this portfolio:
PLC - Public Limited Company
The accompanying notes are an integral part of these financial statements.
8
F/m Investments Funds
Statement of Assets and Liabilities
June 30, 2020 | ANNUAL REPORT |
F/m Investments Large Cap Focused Fund | ||||
Assets: | ||||
Total Investments, at cost | $ | 39,770,986 | ||
Investments, at value | $ | 53,106,286 | ||
Cash and cash equivalents | 22,122 | |||
Due from adviser | 14,989 | |||
Receivables: | ||||
Interest | 2 | |||
Dividends | 7,510 | |||
Prepaid expenses | 4,549 | |||
Total assets | 53,155,458 | |||
Liabilities: | ||||
Payables: | ||||
Accrued distribution (12b-1) fees | 3,272 | |||
Due to administrator | 12,554 | |||
Accrued expenses | 19,061 | |||
Total liabilities | 34,887 | |||
Net Assets | $ | 53,120,571 | ||
Sources of Net Assets: | ||||
Paid-in capital | $ | 38,435,342 | ||
Total distributable earnings | 14,685,229 | |||
Total Net Assets | $ | 53,120,571 | ||
Investor Class Shares: | ||||
Net assets | $ | 11,157,408 | ||
Shares Outstanding ($0 par value, unlimited shares of beneficial interest authorized) | 701,835 | |||
Net Asset Value, Offering and Redemption Price Per Share | $ | 15.90 | ||
Institutional Class Shares: | ||||
Net assets | $ | 41,963,163 | ||
Shares Outstanding ($0 par value, unlimited shares of beneficial interest authorized) | 2,629,177 | |||
Net Asset Value, Offering and Redemption Price Per Share | $ | 15.96 |
The accompanying notes are an integral part of these financial statements.
9
F/m Investments Funds
June 30, 2020 | ANNUAL REPORT |
F/m Investments Large Cap Focused Fund | ||||
For the Year Ended June 30, 2020 | ||||
Investment income: | ||||
Dividends | $ | 427,961 | ||
Interest | 6,958 | |||
Total investment income | 434,919 | |||
Expenses: | ||||
Advisory fees (Note 5) | 331,831 | |||
Distribution (12b-1) fees - Investor Class | 24,542 | |||
Accounting and transfer agent fees and expenses | 135,026 | |||
Trustee fees and expenses | 26,411 | |||
Compliance officer fees | 18,000 | |||
Miscellaneous | 17,487 | |||
Audit fees | 13,000 | |||
Legal fees | 10,913 | |||
Reports to shareholders | 10,590 | |||
Liquidity program fees | 10,290 | |||
Custodian fees | 10,141 | |||
Pricing fees | 5,099 | |||
Insurance | 3,635 | |||
Registration and filing fees | 2,490 | |||
Total expenses | 619,455 | |||
Less: fees waived and expenses reimbursed by Adviser | (168,274 | ) | ||
Net expenses | 451,181 | |||
Net investment loss | (16,262 | ) | ||
Realized and unrealized gain: | ||||
Net realized gain on: | ||||
Investments | 2,906,779 | |||
Net realized gain on investments | 2,906,779 | |||
Net change in unrealized appreciation on: | ||||
Investments | 7,846,040 | |||
Net change in unrealized appreciation on investments | 7,846,040 | |||
Net realized and unrealized gain on investments | 10,752,819 | |||
Net increase in net assets resulting from operations | $ | 10,736,557 |
The accompanying notes are an integral part of these financial statements.
10
F/m Investments Funds
Statements of Changes in Net Assets
June 30, 2020 | ANNUAL REPORT |
F/m Investments Large Cap Focused Fund | ||||||||
For the Year Ended June 30, 2020 | For the Year Ended June 30, 2019 | |||||||
Increase (decrease) in net assets from: | ||||||||
Operations: | ||||||||
Net investment income (loss) | $ | (16,262 | ) | $ | 223,556 | |||
Net realized gain on investments | 2,906,779 | 2,152,141 | ||||||
Net change in unrealized appreciation on investments | 7,846,040 | 1,933,783 | ||||||
Net increase in net assets resulting from operations | 10,736,557 | 4,309,480 | ||||||
Distributions to shareholders from: | ||||||||
Total distributable earnings - Investor Class | (422,180 | ) | (476,672 | ) | ||||
Total distributable earnings - Institutional Class | (1,754,836 | ) | (1,514,121 | ) | ||||
Total distributions | (2,177,016 | ) | (1,990,793 | ) | ||||
Capital share transactions (Note 3): | ||||||||
Increase (decrease) in net assets from capital share transactions | (1,021,922 | ) | 6,801,131 | |||||
Increase in net assets | 7,537,619 | 9,119,818 | ||||||
Net Assets: | ||||||||
Beginning of year | 45,582,952 | 36,463,134 | ||||||
End of year | $ | 53,120,571 | $ | 45,582,952 |
The accompanying notes are an integral part of these financial statements.
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F/m Investments Funds | |
Financial Highlights | |
June 30, 2020 | ANNUAL REPORT |
The following tables set forth the per share operating performance data for a share of beneficial interest outstanding, total returns and ratios to average net assets and other supplemental data for the years/period indicated.
F/m Investments Large Cap Focused Fund | ||||||||||||||||
Investor Class | ||||||||||||||||
For the Year Ended June 30, 2020 | For the Year Ended June 30, 2019 | For the Year Ended June 30, 2018 | For the Period Ended June 30, 2017 (a) | |||||||||||||
Net Asset Value, Beginning of Year/Period | $ | 13.42 | $ | 12.98 | $ | 11.19 | $ | 10.00 | ||||||||
Investment Operations: | ||||||||||||||||
Net investment income (loss) | (0.03 | ) | 0.05 | 0.03 | 0.02 | |||||||||||
Net realized and unrealized gain on investments | 3.10 | 1.05 | 2.83 | 1.18 | ||||||||||||
Total from investment operations | 3.07 | 1.10 | 2.86 | 1.20 | ||||||||||||
Distributions: | ||||||||||||||||
From net investment income | (0.05 | ) | — | (0.04 | ) | (0.01 | ) | |||||||||
From net realized capital gains | (0.54 | ) | (0.66 | ) | (1.03 | ) | — | |||||||||
Total distributions | (0.59 | ) | (0.66 | ) | (1.07 | ) | (0.01 | ) | ||||||||
Net Asset Value, End of Year/Period | $ | 15.90 | $ | 13.42 | $ | 12.98 | $ | 11.19 | ||||||||
Total Return (b) | 23.56 | % | 9.42 | % | 26.50 | % | 11.98 | %(c) | ||||||||
Ratios/Supplemental Data | ||||||||||||||||
Net assets, end of year/period (in 000’s) | $ | 11,157 | $ | 9,788 | $ | 9,462 | $ | 10 | ||||||||
Ratio of expenses to average net assets: | ||||||||||||||||
Before fees waived and expenses reimbursed | 1.50 | % | 1.49 | % | 1.76 | % | 3.42 | %(d) | ||||||||
After fees waived and expenses reimbursed | 1.15 | % | 1.15 | % | 1.15 | % | 1.15 | %(d) | ||||||||
Ratio of net investment income (loss): | ||||||||||||||||
After fees waived and expenses reimbursed | (0.24 | )% | 0.36 | % | 0.04 | % | 0.30 | %(d) | ||||||||
Portfolio turnover rate | 139 | % | 230 | % | 221 | % | 286 | %(c) |
(a) | The Cognios Large Cap Growth Fund commenced operations on October 3, 2016. |
(b) | Total Return represents the rate that the investor would have earned or lost on an investment in the Fund’s Investor Class, assuming reinvestment of dividends, if any. |
(c) | Not annualized. |
(d) | Annualized. |
The accompanying notes are an integral part of these financial statements.
12
F/m Investments Funds | |
Financial Highlights | |
June 30, 2020 | ANNUAL REPORT |
The following tables set forth the per share operating performance data for a share of beneficial interest outstanding, total returns and ratios to average net assets and other supplemental data for the years/period indicated.
F/m Investments Large Cap Focused Fund | ||||||||||||||||
Institutional Class | ||||||||||||||||
For the Year Ended June 30, 2020 | For the Year Ended June 30, 2019 | For the Year Ended June 30, 2018 | For the Period Ended June 30, 2017 (a) | |||||||||||||
Net Asset Value, Beginning of Year/Period | $ | 13.47 | $ | 13.02 | $ | 11.20 | $ | 10.00 | ||||||||
Investment Operations: | ||||||||||||||||
Net investment income | — | (b) | 0.07 | 0.04 | 0.04 | |||||||||||
Net realized and unrealized gain on investments | 3.11 | 1.06 | 2.86 | 1.17 | ||||||||||||
Total from investment operations | 3.11 | 1.13 | 2.90 | 1.21 | ||||||||||||
Distributions: | ||||||||||||||||
From net investment income | (0.08 | ) | (0.02 | ) | (0.05 | ) | (0.01 | ) | ||||||||
From net realized capital gains | (0.54 | ) | (0.66 | ) | (1.03 | ) | — | |||||||||
Total distributions | (0.62 | ) | (0.68 | ) | (1.08 | ) | (0.01 | ) | ||||||||
Net Asset Value, End of Year/Period | $ | 15.96 | $ | 13.47 | $ | 13.02 | $ | 11.20 | ||||||||
Total Return (c) | 23.84 | % | 9.64 | % | 26.84 | % | 12.14 | %(d) | ||||||||
Ratios/Supplemental Data | ||||||||||||||||
Net assets, end of year/period (in 000’s) | $ | 41,963 | $ | 35,795 | $ | 27,001 | $ | 4,948 | ||||||||
Ratio of expenses to average net assets: | ||||||||||||||||
Before fees waived and expenses reimbursed | 1.25 | % | 1.24 | % | 1.51 | % | 3.17 | %(e) | ||||||||
After fees waived and expenses reimbursed | 0.90 | % | 0.90 | % | 0.90 | % | 0.90 | %(e) | ||||||||
Ratio of net investment income: | ||||||||||||||||
After fees waived and expenses reimbursed | 0.01 | % | 0.61 | % | 0.29 | % | 0.55 | %(e) | ||||||||
Portfolio turnover rate | 139 | % | 230 | % | 221 | % | 286 | %(d) |
(a) | The Cognios Large Cap Growth Fund commenced operations on October 3, 2016. |
(b) | Net investment income resulted in less than $0.005 per share. |
(c) | Total Return represents the rate that the investor would have earned or lost on an investment in the Fund’s Institutional Class, assuming reinvestment of dividends, if any. |
(d) | Not annualized. |
(e) | Annualized. |
The accompanying notes are an integral part of these financial statements.
13
F/m Investments Funds | ANNUAL REPORT |
Notes to the Financial Statements
June 30, 2020
1. | ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES |
The F/m Investments Large Cap Focused Fund (the “Focused Fund” or the “Fund”), formerly, the Cognios Large Cap Growth Fund is a series of M3Sixty Funds Trust (the “Trust”). The Trust was organized on May 29, 2015 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 Focused Fund’s investment objectives is long-term growth of capital. 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 has two classes of shares, Investor Class Shares and Institutional Class Shares. The Focused Fund’s Investor Class Shares and Institutional Class Shares commenced operations on October 3, 2016.
Income and realized/unrealized gains or losses are allocated to each class of the Fund on the basis of the net asset value of each class in relation to the net asset value of the Fund.
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The Fund is an investment company that follows the accounting and reporting guidance of FASB 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) 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. The Fund recognizes tax benefits of uncertain tax positions only where the position is more-likely-than-not to be sustained assuming examination by tax authorities.
Management has analyzed the Fund’s tax positions taken on all open tax years (tax years ended June 30, 2017, June 30, 2018 and June 30, 2019) and expected to be taken as of and during the year ended June 30, 2020, and has concluded that the Fund did not have a liability for any unrecognized tax benefits. The Fund recognizes interest and penalties, if any, related to unrecognized tax benefits as income tax expense in the statement of operations. During the year ended June 30, 2020, the Fund did not incur any interest or penalties. The Fund identifies its major tax jurisdictions as U.S. Federal and Delaware state.
c) Cash and Cash Equivalents – Cash is held with a financial institution. The assets of the Fund may be placed in deposit accounts at U.S. banks and such deposits generally exceed Federal Deposit Insurance Corporation (“FDIC”) insurance limits. The FDIC insures deposit accounts up to $250,000 for each account holder. The counterparty is generally a single bank rather than a group of financial institutions; thus there may be a greater counterparty credit risk. The Fund places deposits only with those counterparties which are believed to be creditworthy.
d) 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. There were no reclassifications made during the year ended June 30, 2020.
e) Expenses – Expenses incurred by the Trust that do not relate to a specific Fund of the Trust may be allocated equally across all Funds of the Trust, or to the individual Funds based on each Fund’s relative net assets or another basis (as determined by the Board), whichever method is deemed appropriate as stated in the Trust’s expense allocation policy. Expenses incurred specific to a particular Fund are allocated entirely to that Fund.
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.
14
F/m Investments Funds | ANNUAL REPORT |
Notes to the Financial Statements
June 30, 2020
1. | ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued) |
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 identified cost of the security lot sold with the net sales proceeds. Dividend income is recognized on the ex-dividend date or as soon as information is available to the Fund and interest income is recognized on an accrual basis. Withholding taxes on foreign dividends have been provided for in accordance with the Fund’s understanding of the applicable country’s tax rules and rates.
2. | INVESTMENT VALUATIONS |
Processes and Structure
The Fund’s Board of Trustees (the “Board”) has adopted guidelines for valuing investments 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.
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 Funds’ 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 Fund’s major categories of assets and liabilities measured at fair value on a recurring basis follows.
Equity securities (common stock) – 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 certain indexes of securities based on a statistical analysis of the historical relationship and 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.
15
F/m Investments Funds | ANNUAL REPORT |
Notes to the Financial Statements
June 30, 2020
2. | INVESTMENT VALUATIONS (continued) |
The following table summarizes the inputs used to value the Funds’ assets and liabilities measured at fair value as of June 30, 2020:
Categories (a) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Focused Fund: | ||||||||||||||||
Assets: | ||||||||||||||||
Common Stocks (b) | $ | 50,029,321 | — | — | $ | 50,029,321 | ||||||||||
Short-Term Investment | 3,076,965 | 3,076,965 | ||||||||||||||
Total Investments in Securities | $ | 53,106,286 | — | — | $ | 53,106,286 |
(a) As of and during the year ended June 30, 2020, 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.
(b) All common stock held in the Fund are Level 1 securities. For a detailed break-out of common stock by industry, please refer to the Schedule of Investments.
The Fund recognizes transfers, if any, between fair value hierarchy levels at the reporting period end. There were no transfers between levels during the year ended June 30, 2020.
3. | CAPITAL SHARE TRANSACTIONS |
Transactions in shares of capital stock during the year ended June 30, 2020 for the Fund were as follows:
Focused Fund: | Sold | Redeemed | Reinvested | Net Decrease | |||||||||||||
Investor Class Shares | |||||||||||||||||
Shares | 31,157 | (89,557 | ) | 30,637 | (27,763 | ) | |||||||||||
Value | $ | 451,728 | $ | (1,265,198 | ) | $ | 422,180 | $ | (391,290 | ) | |||||||
Institutional Class Shares | |||||||||||||||||
Shares | 165,393 | (321,611 | ) | 127,070 | (29,148 | ) | |||||||||||
Value | $ | 2,181,529 | $ | (4,566,997 | ) | $ | 1,754,836 | $ | (630,632 | ) |
Transactions in shares of capital stock during the year ended June 30, 2019 for the Fund were as follows:
Focused Fund: | Sold | Redeemed | Reinvested | Net Increase (Decrease) | |||||||||||||
Investor Class Shares | |||||||||||||||||
Shares | 40,042 | (81,460 | ) | 41,960 | 542 | ||||||||||||
Value | $ | 526,774 | $ | (1,061,868 | ) | $ | 476,672 | $ | (58,422 | ) | |||||||
Institutional Class Shares | |||||||||||||||||
Shares | 1,025,355 | (574,154 | ) | 132,934 | 584,135 | ||||||||||||
Value | $ | 13,153,465 | $ | (7,808,033 | ) | $ | 1,514,121 | $ | 6,859,553 |
16
F/m Investments Funds | ANNUAL REPORT |
Notes to the Financial Statements
June 30, 2020
4. | INVESTMENT TRANSACTIONS |
For the year ended June 30, 2020 aggregate purchases and sales of investment securities (excluding short-term investments) were as follows:
Fund | Purchases | Sales (Long-Term) | |||||||
Focused Fund | $ | 64,068,400 | $ | 69,054,754 |
There were no government securities purchased or sold during the year.
5. | ADVISORY FEES AND OTHER RELATED PARTY TRANSACTIONS |
The Fund had entered into an Investment Advisory Agreement (the “Former Advisory Agreement”) with the Cognios Capital, LLC (the “Former Adviser”). Pursuant to the Former Advisory Agreement, the Former Adviser managed the Fund’s operations and investments in accordance with the stated policies of the Fund. At a meeting of the Board held on January, 22, 2020, the Former Adviser notified the Board that it was going to assign the Former Advisory Agreement to the Adviser, which would result in the automatic termination of the agreement.. At the same meeting, the Board, including the Independent Trustees, approved an Interim Advisory Agreement with the Adviser that became effective on February 1, 2020. As compensation for the investment advisory services provided to the Fund, during the period from July 1, 2019 through January 31, 2020, the Former Adviser received a monthly management fee equal to an annual rate of the Fund’s net assets as follows:
Fund | Management Fee Rate | Management Fees Accrued | |||||||
Focused Fund | 0.70 | % | $ | 197,313 |
At a meeting held on February 12, 2020, the Board, including the Independent Trustees, considered and approved a new Investment Advisory Agreement (the “Advisory Agreement’) between the Trust and the Adviser in regard to the Focused Fund. The Advisory Agreement was then approved by shareholders at a Special Meeting held on April 10, 2020. 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 beginning on February 1, 2020. As compensation for the investment advisory services provided to the Fund, during the period from February 1, 2020 through June 30, 2020, the Adviser received a monthly management fee equal to an annual rate of the Fund’s net assets as follows:
Fund | Management Fee Rate | Management Fees Accrued | |||||||
Focused Fund | 0.70 | % | $ | 134,518 |
The Former Adviser had entered into an Expense Limitation Agreement (“Expense Agreements”) with the Fund under which the Former Adviser agreed to waive or reduce its fees and to assume other expenses of the Fund, if necessary, in an amount that limits the Fund’s annual operating expenses (exclusive of interest, borrowing expenses, distribution fees pursuant to Rule 12b-1 plan, taxes, acquired fund fees and expenses, brokerage fees and commissions, dividend expenses on short sales, litigation expenses, other expenditures which are capitalized in accordance with generally accepted accounting principles and other extraordinary expenses not incurred in the ordinary course of the Fund’s business) to not more than 0.90% of average daily net assets of the Fund through January 31, 2020. During the period from July 1, 2019 through January 31, 2020, the Former Adviser waived fees and reimbursed expenses as follows:
Fund | Management Fees Waived | Expenses Reimbursed | |||||||
Focused Fund | $ | 77,843 | $ | — |
17
F/m Investments Funds | ANNUAL REPORT |
Notes to the Financial Statements
June 30, 2020
5. | ADVISORY FEES AND OTHER RELATED PARTY TRANSACTIONS (continued) |
Effective February 1, 2020, the Adviser entered into an Expense Limitation Agreement with the Fund under which the Adviser has agreed to waive its fees and reimburse expenses of the Fund, if necessary, in an amount that limits the Fund’s annual operating expenses (exclusive of interest, borrowing expenses, distribution fees pursuant to Rule 12b-1 plan, taxes, acquired fund fees and expenses, brokerage fees and commissions, dividend expenses on short sales, litigation expenses, other expenditures which are capitalized in accordance with generally accepted accounting principles and other extraordinary expenses not incurred in the ordinary course of the Fund’s business) to not more than 0.90% through at least October 31, 2021. During the period from February 1, 2020 through June 30, 2020, the Adviser waived fees and reimbursed expenses as follows:
Fund | Management Fees Waived | Expenses Reimbursed | |||||||
Focused Fund | $ | 90,431 | $ | — |
Subject to approval by the Fund’s Board of Trustees, any waiver or reimbursement under the Expense Limitation Agreement is subject to repayment by the Fund within the three fiscal years following the date of such waiver provided that the Fund can make the repayment without exceeding the expense limitation in place at the time of the waiver or reimbursement and at the time the waiver or reimbursement is recouped. Amounts waived or reimbursed in prior years and during the period from July 1, 2019 through January 31, 2020 are no longer recoupable.
At June 30, 2020, the cumulative unreimbursed amounts waived by the Adviser on behalf of the Fund that may be recouped no later than the date stated below are as follows:
Fund | June 30, 2023 | Totals | |||||||
Focused Fund | $ | 90,431 | $ | 90,431 |
The Fund has entered into an Investment Company Services Agreement (“Services Agreement”) with M3Sixty Administration, LLC (“M3Sixty”). Under the Services Agreement, M3Sixty is responsible for a wide variety of functions, including but not limited to: (a) Fund accounting services; (b) financial statement preparation; (c) valuation of the Fund’s portfolio investments; (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; and, (k) Chief Compliance Officer services.
For the year ended June 30, 2020, the Fund accrued fees pursuant to the Services Agreement as follows:
Fund | Services Agreement Fees Accrued | ||||
Focused Fund | $ | 153,026 |
Certain officers and an Interested Trustee of the Trust are also employees or officers of M3Sixty.
The Fund had entered into a Distribution Agreement (the “Former Distribution Agreement”) with ALPS Distributors, Inc. (the “Former Distributor”). Pursuant to the Former Distribution Agreement, the Former Distributor provided distribution services to the Fund. The Former Distributor served as underwriter/distributor of the Funds. Effective April 23, 2020, the Fund has entered into a new Distribution Agreement (the “New Distribution Agreement”) with Matrix 360 Distributors, LLC (the “Distributor”). Pursuant to the New Distribution Agreement, the Distributor provides distribution services to the Fund. The Distributor serves as underwriter/distributor of the Fund.
The Fund has adopted a Distribution and Services Plan (the “Plan”) pursuant to Rule 12b-1 of the 1940 Act for its Investor Class shares. Under the Plan, the Fund may use 12b-1 fees to compensate broker-dealers (including, without limitation, the Distributor) for sales of the Fund’s shares, or for other expenses associated with distributing the Fund’s shares. The Fund may expend up to 0.25% for Investor Class shares of the Fund’s average daily net assets annually to pay for any activity primarily intended to result in the sale of shares of the Fund and the servicing of shareholder accounts, provided that the Trustees have approved the category of expenses for which payment is being made.
18
F/m Investments Funds | ANNUAL REPORT |
Notes to the Financial Statements
June 30, 2020
5. | ADVISORY FEES AND OTHER RELATED PARTY TRANSACTIONS (continued) |
For the year ended June 30, 2020, the Fund accrued 12b-1 expenses attributable to Investor Class shares as follows:
Fund | 12b-1 Fees Accrued | ||||
Focused Fund | $ | 24,542 |
6. | TAX MATTERS |
For U.S. Federal income tax purposes, the cost of securities owned, gross appreciation, gross depreciation, and net unrealized appreciation/(depreciation) of investments and securities sold short at June 30, 2020 were as follows:
Fund | Tax Cost | Gross Unrealized Appreciation | Gross Unrealized Depreciation | Net Unrealized Appreciation | |||||||||||||
Focused Fund | $ | 39,835,707 | $ | 14,155,951 | $ | (885,372 | ) | $ | 13,270,579 |
The difference between book basis unrealized appreciation and tax-basis unrealized appreciation for the Funds is attributable primarily to the tax deferral of losses on wash sales.
As of June 30, 2020, the components of distributable earnings presented on an income tax basis were as follows:
Fund | Deferred Post-October and Late Year Loss | Capital Loss Carryforwards | Undistributed Ordinary Income | Undistributed Long-Term Capital Gains | Net Unrealized Appreciation | Total Distributable Earnings | |||||||||||||||||||
Focused Fund | $ | (58,240 | ) | $ | — | $ | — | $ | 1,472,890 | $ | 13,270,579 | $ | 14,685,229 |
Under current law, capital losses and specified gains realized after October 31, and net investment losses realized after December 31 of a Fund’s fiscal year may be deferred and treated as occurring on the first business day of the following fiscal year for tax purposes. For disclosure purposes, these deferrals are included in “Deferred Post-October and Late Year Loss” above. As of June 30, 2020, the Fund elected to defer $58,240 of Post-December net investment losses.
As of June 30, 2020, the Fund had no capital loss carryforwards for federal income tax purposes available to offset future capital gains.
In accordance with GAAP, the Fund may record reclassifications in the capital accounts, if necessary. These reclassifications have no impact on the net asset value of the Fund and are designed generally to present total distributable earnings and paid-in capital on a tax basis which is considered to be more informative to the shareholder. As of June 30, 2020, there were no reclassifications necessary to increase (decrease) the capital accounts.
The tax character of distributions paid by the Funds during the year ended June 30, 2020 were as follows.
Fund | Long-Term Capital Gains | Ordinary Income | |||||||
Focused Fund | $ | 1,911,677 | $ | 265,339 |
The tax character of distributions paid by the Funds during the year ended June 30, 2019 were as follows.
Fund | Long-Term Capital Gains | Ordinary Income | |||||||
Focused Fund | $ | 840,860 | $ | 1,149,933 |
19
F/m Investments Funds | ANNUAL REPORT |
Notes to the Financial Statements
June 30, 2020
7. | NON-DIVERSIFIED FUND |
The Focused Fund is a non-diversified Fund. A non-diversified fund may or may not have a diversified portfolio of investments at any given time, and may have large amounts of assets invested in a very small number of companies, industries or securities. Such lack of diversification substantially increases market risks and the risk of loss associated with an investment in the Fund, because the value of each security will have a greater impact on the Fund’s performance and the value of each shareholder’s investment. When the value of a security in a non-diversified fund falls, it may have a greater impact on the Fund than it would have in a diversified fund.
8. | BENEFICIAL OWNERSHIP |
The beneficial ownership, either directly or indirectly, of more than 25% of a fund’s voting interest creates a presumption of control of the fund, under Section 2(a)(9) of the Investment Company Act of 1940. As of June 30, 2020, the Focused Fund had omnibus shareholder accounts which amounted to more than 25% of the total shares outstanding of the Fund. Shareholders with a controlling interest could affect the outcome of proxy voting or direction of management of the Fund.
9. | COMMITMENTS AND CONTINGENCIES |
In the normal course of business, the Trust may enter into contracts that may contain a variety of representations and warranties and provide general indemnifications. The 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.
10. | RECENT MARKET EVENTS |
An outbreak of an infectious respiratory illness caused by a novel coronavirus known as COVID-19 was first detected in China in December 2019 and has now been detected globally. This coronavirus has resulted in travel and border restrictions, quarantines, curfews and restrictions on large gatherings, enhanced health screenings at ports of entry and elsewhere, disruption of and delays in healthcare service preparation and delivery, prolonged quarantines, cancellations and supply chain disruptions, which have caused lower consumer demand of a wide range of products and services and disruptions in manufacturing and supply chains, as well as general concern and uncertainty. While governments have already taken unprecedented action to limit disruption to the financial system, global financial markets have experienced and may continue to experience significant volatility resulting from the spread of and subsequent intervening measures intended to limit the spread of COVID-19. The spread of COVID-19 has adversely affected the economies of many nations and the entire global economy, in general. The full extent of the impact of COVID-19 on the Fund’s performance cannot be determined at this time and will depend on future developments, including the duration and the continued spread of the outbreak.
11. | SUBSEQUENT EVENTS |
Management has evaluated the impact of all subsequent events of the Fund through the date the financial statements were issued, and has determined that there were no subsequent events requiring recognition or disclosure in the financial statements.
20
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees of M3Sixty Funds Trust
and the Shareholders of F/m Investments Large Cap Focused Fund
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of F/m Investments Large Cap Focused Fund (formerly, Cognios Large Cap Growth Fund), a series of shares of beneficial interest in M3Sixty Funds Trust (the “Fund”), including the schedule of investments, as of June 30, 2020, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended and the financial highlights for each of the years in the three-year period then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund as of June 30, 2020, and the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended and its financial highlights for each of the years in the three-year period then ended, in conformity with accounting principles generally accepted in the United States of America. The financial highlights for the period October 3, 2016 through June 30, 2017 were audited by other auditors, whose report dated August 29, 2017, expressed an unqualified opinion on such financial highlights.
Basis for Opinion
These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities law and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion.
21
Our audits included performing procedures to assess the risk of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of June 30, 2020 by correspondence with the custodian. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
BBD, LLP
We have served as the auditor of one or more of the Funds in the M3Sixty Funds Trust since 2018.
Philadelphia, Pennsylvania
August 31, 2020
22
F/m Investments Funds | ANNUAL REPORT |
Additional Information
June 30, 2020 (Unaudited)
1. | PROXY VOTING POLICIES AND VOTING RECORD |
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 1-888-553-4233; 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 period ended June 30 is available without charge, upon request, by calling 1-888-553-4233; and on the Commission’s website at http://www.sec.gov.
2. | PORTFOLIO HOLDINGS |
The Fund files its complete schedules of portfolio holdings with the Securities and Exchange Commission (the “Commission”) for the first and third quarters of each fiscal year on Form N-PORT. The Fund’s Forms N-PORT will be available on the Commission’s website at http://www.sec.gov. The Fund’s Forms N-PORT 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.
Prior to March 31, 2020, the Fund filed its complete schedules of portfolio holdings with 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.
3. | SHAREHOLDER TAX INFORMATION |
The tax character of distributions paid by the Focused Fund during the year ended June 30, 2020, were as follows.
Fund | Long-Term Capital Gains | Ordinary Income | ||||
Focused Fund | $ | 1,911,677 | $ | 265,339 |
Complete information will be computed and reported in conjunction with your 2020 Form 1099-DIV.
Shareholders should refer to their Form 1099-DIV or other tax information which will be mailed in 2021 to determine the calendar year amounts to be included on their 2020 tax returns. Shareholders should consult their own tax advisors.
4. | SPECIAL MEETING OF SHAREHOLDERS |
On April 10, 2020, a Special Meeting of Shareholders of the Fund was held for the purpose of voting on the following proposals:
1. | To approve a new investment advisory agreement between the Trust, on behalf of the Fund, and F/m Investments LLC. |
2. | To transact such other business as may properly come before the Meeting or any adjournment(s) or postponement(s) thereof. |
The total number of shares of the Trust present in person or by proxy represented approximately 58.50% of the Fund’s shares entitled to vote at the Special Meeting. The shareholders of the Fund voted to approve Proposal 1. The votes cast by the Fund’s shareholders with respect to Proposal 1 were as follows:
For | Against | Abstain | |||||||||||
Proposal 1 | 1,942,442 | — | 215 | ||||||||||
Proposal 2 | 1,942,442 | — | 215 |
23
F/m Investments Funds | ANNUAL REPORT |
Trustees and Officers
June 30, 2020 (Unaudited)
The Trustees are responsible for the management and supervision of the Fund. The Trustees approve all significant agreements between the Trust, on behalf of the Fund, and those companies that furnish services to the Fund; review performance of the Fund; and oversee activities of the Fund. The Statement of Additional Information of the Trust includes additional information about the Fund’s Trustees and is available upon request, without charge, by calling 888-553-4233.
Following are the Trustees and Officers of the Trust, their year of birth and address, their present position with the Trust, 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. The address of each trustee and officer is 4300 Shawnee Parkway, Suite 100, Fairway, KS 66205.
Name and Year of Birth | 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 | |||||
Kelley J. Brennan - 1942 | Trustee | Since 2015 | Retired; Partner, PricewaterhouseCoopers LLP (an accounting firm) (1981-2002). | Three | None |
Steven D. Poppen – 1968 | Trustee | Since 2015 | Executive Vice President and Chief Financial Officer, Minnesota Vikings (professional sports organization) (1999 to present).
| Three | 360 Funds Trust (7 portfolios) (2018–present); FNEX Ventures (2018–present)
|
Tobias Caldwell - 1967 | Trustee | Since 2016 | Managing Member, Genovese Family Enterprises, LLC (family office) (1999- present); Managing Member, PTL Real Estate LLC (real estate/investment firm) (2000-9/2019); Manager Member, Bear Properties, LLC (real estate firm) (2006- present).
| Three | AlphaCentric Prime Meridian Income Fund (2018–present); Strategy Shares (2016–present) (3 funds); Mutual Fund & Variable Insurance Trust (2010–present) (13 funds); Mutual Fund Series Trust, comprised of 40 funds (2006– present)
|
Interested Trustee* | |||||
Randall K. Linscott - 1971 | Trustee and President | Since 2015 | Chief Executive Officer, M3Sixty Administration, LLC (2013–present); Chief Operating Officer, M3Sixty Administration LLC (2011–2013); Managing Member, M3Sixty Holdings, LLC, (2011–present); Division Vice President, Boston Financial Data Services, (2005–2011).
| Three | 360 Funds (7 portfolios) |
* The Interested Trustee is an Interested Trustee because he is an officer and employee of the Administrator.
24
F/m Investments Funds | ANNUAL REPORT |
Trustees and Officers (continued)
June 30, 2020 (Unaudited)
Name and Year of Birth | 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 | |||||
András P. Teleki - 1971 | Chief Compliance Officer and Secretary | Since 2016 | Chief Legal Officer, M3Sixty Administration, LLC, M3Sixty Holdings, LLC, Matrix 360 Distributors, LLC, and M3Sixty Advisors, LLC (2015–present); Chief Compliance Officer and Secretary, 360 Funds (2015–present); Chief Compliance Officer and Secretary, WP Trust (2016–present); Secretary, Monteagle Funds (2015–2016); Secretary and Assistant Treasurer, Capital Management Investment Trust (2015– 2016); Partner, K&L Gates, (2001–2015). | N/A | N/A |
Larry E. Beaver, Jr. – 1969** | Assistant Treasurer | Since 2017 | Fund Accounting, Administration and Tax Officer, M3Sixty Administration, LLC (2017–Present); Director of Fund Accounting & Administration, M3Sixty Administration, LLC (2005–2017); Assistant Treasurer, 360 Funds (July 2017–present); Assistant Treasurer, WP Funds Trust (July 2017–Present); Chief Accounting Officer, Amidex Funds, Inc. (2003–2020); Assistant Treasurer, Capital Management Investment Trust (July 2017- 2019); Treasurer, 360 Funds (2007–July 2017); Treasurer and Assistant Secretary, Capital Management Investment Trust (2008–July 2017); Treasurer, WP Trust (2015–July 2017); Treasurer and Chief Financial Officer, Monteagle Funds (2008–2016). | N/A | N/A |
Brandon J. Byrd - 1981 | Assistant Secretary and Anti-Money Laundering (“AML”)Officer Vice President | Since 2015
| Chief Operating Officer, M3Sixty Administration LLC (2012-present); Chief Operations Officer, Matrix Capital Group, Inc. (2015-present); Assistant Secretary and Assistant Treasurer, WP Trust (2016- present); Assistant Secretary and AML Compliance Officer, 360 Funds (2013- present); Assistant Secretary and AML Compliance Officer, Monteagle Funds (2013-2016). | N/A | N/A |
John H. Lively - 1969 | Assistant Secretary | Since 2017 | Managing Partner, Practus, LLP (law firm) (2010-present). | N/A | N/A |
Ted L. Akins - 1974 | Assistant Secretary | Since 2018 | Vice President of Operations, M3Sixty Administration, LLC (2012-present). | N/A | N/A |
Bo J. Howell - 1981 | Assistant Secretary | Since 2020 | Partner, Practus LLP (2018 to present); CEO of Joot (2018 to present); Director of Fund Administration, Ultimus Fund Solutions, LLC (2014 to 2018). | N/A | N/A |
** Effective December 28, 2018, Larry E. Beaver, Jr. was assigned as Interim Treasurer until a new Treasurer is appointed by the Board.
25
F/m Investments Funds | ANNUAL REPORT |
Trustees and Officers (continued)
June 30, 2020 (Unaudited)
Officers of the Trust and Trustees who are “interested persons” of the Trust or the Adviser will receive no salary or fees from the Trust. Officers of the Trust and interested Trustees do receive compensation directly from certain service providers to the Trust. Each Trustee who is not an “interested person” receives a fee of $5,000 each year (paid quarterly), plus a fee of $1,500 per Fund each year (paid quarterly), and $200 per Fund per Board or committee meeting attended. The Trust will also reimburse each Trustee for travel and other expenses incurred in connection with, and/or related to, the performance of their obligations as a Trustee. Officers of the Trust will also be reimbursed for travel and other expenses relating to their attendance at Board meetings.
Name of Trustee1 | Aggregate | Pension or Retirement | Estimated | Total Compensation | ||||||||
Independent Trustees | ||||||||||||
Kelley Brennan | $ | 4,467 | None | None | $ | 13,400 | ||||||
Steve Poppen | 4,467 | None | None | 13,400 | ||||||||
Tobias Caldwell | 4,467 | None | None | 13,400 | ||||||||
Interested Trustees and Officers | ||||||||||||
Randall K. Linscott | None | Not Applicable | Not Applicable | None |
1 Each of the Trustees serves as a Trustee to each Series of the Trust. The Trust currently offers three (3) series of shares.
2 Figures are for the year ended June 30, 2020.
26
F/m Investments Funds | ANNUAL REPORT |
Board Approval of the Investment Advisory Agreement for the F/m Investments Large Cap Focused Fund (Unaudited)
At a meeting held on February 12, 2020, the Board of Trustees (the “Board”) considered the approval of the Investment Advisory Agreement between the Trust and F/m Investments LLC (“FMI”) in regard to the F/m Investments Large Cap Focused Fund (the “Fund”) (the “Advisory Agreement”).
The Board reflected on its discussions regarding the proposed Advisory Agreement, the proposed expense limitation arrangements, and the services that FMI would provide to the Fund. Counsel referred to the materials that had been provided in connection with the approval of the Advisory Agreement and reminded the Board of the types of information and factors that it should consider, including the following material factors: (i) the nature, extent, and quality of the services to be provided by FMI; (ii) the investment performance of the Fund; (iii) the costs of the services to be provided and profits to be realized by FMI from the relationship with the Fund; (iv) the extent to which economies of scale would be realized as the Fund grows and whether advisory fee levels reflect those economies of scale for the benefit of the shareholders; and (v) FMI’s practices regarding possible conflicts of interest and other benefits derived by it.
In assessing these factors and reaching its decisions, the Board took into consideration information prepared for or presented at the Meeting. The Board was provided with information and reports relevant to the approval of the Advisory Agreement, including: (i) information on the services and support that FMI would provide to the Fund and its shareholders; (ii) a presentation by FMI addressing the investment philosophy, investment strategy, personnel and operations that it would use when managing the Fund; (iii) the disclosure information contained in the registration statement of the Trust and the Form ADV of FMI; and (iv) the memorandum from Counsel that summarized the fiduciary duties and responsibilities of the Board in reviewing and approving the Advisory Agreement, including the material factors set forth above and the types of information included in each factor that should be considered by the Board to make an informed decision.
The Board also requested and received various informational materials including, without limitation: (i) documents containing information about FMI, including financial information, information on investment advice and summaries of anticipated expenses for the Fund, and information on FMI’s compliance program; (ii) comparative expense and performance information of the Fund’s peer group and category; (iii) the anticipated effect of size on the Fund’s performance and expenses; and (iv) benefits to be realized by FMI from its relationship with the Trust and the Fund.
The Board did not identify any information that was most relevant to its consideration to approve the Advisory Agreement, and each Trustee may have afforded different weights to the various factors. In deciding whether to approve the Advisory Agreement, the Trustees considered numerous factors, including:
1. | The nature, extent, and quality of the services to be provided by FMI. |
The Board considered the responsibilities of FMI under the Advisory Agreement. The Board reviewed the services to be provided by FMI, including, without limitation: the process for formulating investment recommendations and assuring compliance with the Fund’s investment objectives and limitations; and the anticipated efforts of FMI to promote the Fund and grow assets. The Board considered that FMI currently manages a mutual fund, and the Board considered FMI’s discussion of experience in that role. The Board considered: FMI’s staffing, personnel and methods of operating; the education and experience of its personnel; and its compliance program, policies and procedures, and the fact that FMI and Cognios Capital, LLC (“Cognios Capital”) have the same chief compliance officer and a similar compliance program. The Board noted that one of the Fund’s current portfolio managers has managed the Fund since its inception (even with Cognios Capital), is an employee of FMI, and will continue to manage the Fund. The Board also considered the financial condition of FMI and its parent company. The Board also considered the affiliated relationships of FMI, including the resources that FMI could leverage for compliance, distribution, and operations. After reviewing the preceding and further information from FMI, the Board concluded that the nature, extent, and quality of the services to be provided by FMI under the Advisory Agreement were adequate for the Fund.
2. | Investment Performance of the Fund. |
The Board noted that FMI had not commenced managing the Fund, and therefore, a consideration of the Fund’s performance was not relevant to this factor. The Board considered Mr. Bido’s performance in managing the Fund since its inception at Cognios Capital. It was noted that the Board approved revising the Fund’s name and principal investment strategies to reflect the change in investment adviser and its investment processes. It was also noted that FMI currently does not have any separate account or institutional clients that utilize strategies like the Fund’s strategy.
27
F/m Investments Funds | ANNUAL REPORT |
Board Approval of the Investment Advisory Agreement for the F/m Investments Large Cap Focused Fund (Unaudited) (continued)
3. | The costs of services to be provided and profits to be realized by FMI from its relationship with the Fund. |
The Board considered the financial condition of FMI and the level of commitment to the Fund by FMI’s parent company and the expenses of the Fund, including the nature and frequency of advisory fee payments. The Board reviewed FMI’s estimated profitability analysis for the Fund. The Board determined that the advisory fee, which would not change because of the transaction, was within an acceptable range considering the services to be rendered by FMI. The Board noted that the advisory fee was slightly higher than the peer group average and median, but was within the reasonable range of for the peer group and reflected the small size of the Fund. Following this comparison and upon further consideration and discussion of the preceding, the Board concluded that the advisory fees to be paid to FMI were fair and reasonable.
4. The extent to which economies of scale would be realized as the Fund grows and whether advisory fee levels reflect these economies of scale for the benefit of the Fund’s investors.
The Board considered the Fund’s contemplated fee arrangements with FMI. The Board noted that the advisory fee does not include a breakpoint but that the effect of the expense limitation agreement to be entered into for the Fund would have the effect of capping the expenses at a certain level. The Board noted that FMI indicated that it intended to keep the expense cap in place for the foreseeable future and that it would evaluate its advisory fee and the Fund’s overall expenses periodically to ensure it remained competitive within the peer group. The Board noted that the net expense ratio of the Fund was below the peer group average and median. Following further discussion of the Fund’s projected asset levels, expectations for growth, and levels of fees, the Board determined that the Fund’s contemplated fee arrangement with FMI was fair and reasonable relative to the nature, extent, and quality of the services to be provided by FMI.
5. | Possible conflicts of interest and other benefits. |
In evaluating the possibility for conflicts of interest, the Board considered such matters as: the experience and ability of the advisory personnel assigned to the Fund; the basis of decisions to buy or sell securities for the Fund; the method for bunching of portfolio securities transactions; the substance and administration of the Codes of Ethics; and other relevant policies described in FMI’s Form ADV and compliance program, such as personal conduct policies, personal trading policies, risk management, and internal controlsThe Board noted that FMI represented that it does not anticipate utilizing soft dollars or commission recapture regarding the Fund. The Board took into consideration the affiliations of FMI and considered the potential for conflicts of interest. Following further consideration and discussion, the Board indicated that FMI’s standards and practices relating to the identification and mitigation of potential conflicts of interest, as well as the benefits to be derived by FMI from managing the Fund, were satisfactory.
After additional consideration of the factors delineated in the memorandum provided by Counsel and further discussion among the Board, the Board determined that the compensation payable under the Advisory Agreement with respect to the Fund was fair, reasonable and within a range of what could have been negotiated at arms-length in light of all the surrounding circumstances, and they resolved to approve the Advisory Agreement with respect to the Fund.
28
M3SIXTY FUNDS TRUST |
4300 Shawnee Mission Pkwy |
Suite 100 |
Fairway, KS 66205 |
INVESTMENT ADVISER |
F/m Investments, LLC |
3050 K Street, NW |
Suite W-170 |
Washington, DC 20007 |
ADMINISTRATOR & TRANSFER AGENT |
M3Sixty Administration, LLC |
4300 Shawnee Mission Pkwy |
Suite 100 |
Fairway, KS 66205 |
DISTRIBUTOR |
Matrix 360 Distributors, LLC |
4300 Shawnee Mission Pkwy |
Suite 100 |
Fairway, KS 66205 |
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM |
BBD, LLP |
1835 Market Street |
3rd Floor |
Philadelphia, PA 19103 |
LEGAL COUNSEL |
Practus, LLP |
11300 Tomahawk Creek Parkway |
Suite 310 |
Leawood, KS 66211 |
CUSTODIAN BANK |
MUFG Union Bank®, N.A. |
350 California Street |
20th Floor |
San Francisco, CA 94104 |
ITEM 2. | CODE OF ETHICS. |
(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 Kelley J. Brennan serves on its audit committee as the “audit committee financial expert” as defined in Item 3 of Form N-CSR. |
ITEM 4. | PRINCIPAL ACCOUNTANT FEES AND SERVICES. |
(a)
| Audit Fees. The aggregate fees billed in each of the last two fiscal years 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 $34,000 with respect to each of the Funds’ fiscal year ended June 30, 2020 and $34,000 with respect to each of the Funds’ fiscal year ended June 30, 2019. The June 30, 2020 and June 30, 2019 fees were paid to BBD, LLP. |
(b) | Audit-Related Fees. There were no fees billed in each of the last two fiscal years 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 each of the last two fiscal years for professional services rendered by the principal accountant for tax compliance, tax advice and tax planning were $6,500 with respect to each of the Funds’ fiscal year ended June 30, 2020 and $6,500 with respect to each of the Funds’ fiscal year ended June 30, 2019. The services comprising these fees are the preparation of the registrant’s federal income and excise tax returns. The June 30, 2020 and June 30, 2019 fees were paid to BBD, LLP. |
(d) | All Other Fees. The aggregate fees billed in each of the last two fiscal years 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 with respect to each of the Fund’s fiscal years ended June 30, 2020 and June 30, 2019.
|
(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 for the fiscal years ended June 30, 2020 and June 30, 2019 respectively 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) | The registrant’s audit committee has considered whether the provision of non-audit services that were rendered to the registrant’s investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X, is compatible with maintaining the principal accountant’s independence and has determined that the provision of such non-audit services is compatible with maintaining the principal accountant’s independence |
ITEM 5. | AUDIT COMMITTEE OF LISTED REGISTRANTS. |
Not applicable to the registrant.
ITEM 6. | SCHEDULES OF INVESTMENTS |
Included in Annual Report to shareholders filed under Item 1 of this Form N-CSR.
ITEM 7. | DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. |
Not applicable as the Funds are open-end management investment companies.
ITEM 8. | PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES |
Not applicable as the Funds are open-end management investment companies.
ITEM 9. | PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. |
Not applicable as the Funds are open-end management investment companies.
ITEM 10. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. |
Not applicable at this time.
ITEM 11. | CONTROLS AND PROCEDURES. |
(a) | The registrant’s principal executive and principal financial officers, or persons performing similar functions, have concluded that the registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the 1940 Act, are effective, as of a date within 90 days of the filing date of this report, based on the evaluation of these controls and procedures required by Rule 30a-3(b) under the 1940 Act and Rule 15d-15(b) under the Securities Exchange Act of 1934, as amended. |
(b) | There were no changes in the registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act) that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the registrant’s internal control over financial reporting. |
ITEM 12. | DISCLOSURE OF SECURITIES LENDING ACTIVITIES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. |
Not applicable as the Funds are open-end management investment companies.
ITEM 13. | EXHIBITS |
(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.
M3Sixty Funds Trust
/s/ Randy Linscott
By: Randy Linscott | |
Principal Executive Officer, | |
Date: September 4, 2020 |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following person on behalf of the registrant and in the capacities and on the date indicated.
/s/ Randy Linscott
By Randy Linscott | |
Principal Executive Officer | |
Date: September 4, 2020 |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following person on behalf of the registrant and in the capacities and on the date indicated.
/s/ Larry E. Beaver, Jr.
By Larry E. Beaver, Jr. | |
Assistant Treasurer and Acting Principal Financial Officer | |
Date: September 4, 2020 | |