https://www.sec.gov/Archives/edgar/data/1587982/000139834418011999/fp0035149_485apos.htmPrincipal Investment Strategies
Under normal market conditions, the Fund will invest at least 80% of its net assets (plus any borrowings for investment purposes) in the equity securities of companies across the globe that (i) are engaged in legal cultivation, production, marketing or distribution of cannabis products for either medical or nonmedical purposes; (ii) are engaged in the lawful creation, marketing or distribution of pharmaceutical drugs that utilize cannabinoids as an active ingredient; (iii) are engaged in the creation, production and distribution of fertilizers, plant foods, pesticide or growing equipment to be used in the cultivation of cannabis; or (iv) ancillary companies that support cannabis companies and consumers which include, for example, companies that (a) produce packaging, supplies, or accessories used in the cannabis industry, (b) provide technology related services utilized by cannabis companies, and (c) provide capital in the cannabis industry (collectively, “Cannabis Companies”). Cannabinoids are the chemical compounds secreted by cannabis plants. Cannabinoids can also be synthetically produced chemical compounds and used in lawful research and development of pharmaceutical drugs or other products utilizing cannabinoids as an active ingredient.
The equity securities in which the Fund principally invests are common stock, but the Fund also may invest in other types of equity securities, such as shares of exchange-traded funds (“ETFs”) that invest substantially all of their assets in equity securities, equity interests in real estate investment trusts (“REITs”) and private placements. The Fund may invest in the initial public offerings of companies. The Fund may invest a majority of its net assets in foreign securities (including emerging market securities) if the Fund’s advisor, Foothill Capital Management, LLC (the “Advisor”) believes that such securities have the potential to outperform U.S. securities. While the Fund may invest in companies of any market capitalization, the Fund will generally invest in companies with market capitalizations of at least $100 million. The Fund intends to concentrate its investments in the consumer staples sector.
The Fund may also purchase and write (i.e., sell) call and put options on individual securities, indexes and ETFs, to manage the position size of individual security holdings, and to seek to enhance the Fund’s return and reduce volatility. When evaluating options, the Advisor considers the amount of the premium received or invested (which is a function of the implied volatility of the underlying security, the strike price, and the time to expiration), the valuation of the underlying security at the exercise price, the weighting of the security in the portfolio if exercised, and the expiration date. In addition, the Fund may write (sell) covered call options on securities the Fund holds in its portfolio.
The Advisor employs a strategy that first seeks to identify a universe of high quality established and emerging Cannabis Companies. The Advisor examines each Cannabis Company included in the initial universe using the Advisor's proprietary screening process. This screening process evaluates the Cannabis Companies using certain criteria such as (i) long-term growth potential, (ii) price momentum, (iii) financial viability, (iv) branding and market exposure and (v) management team experience. The Advisor also considers the liquidity of a security prior to the Fund buying a position in that security. The Advisor then selects the highest-quality Cannabis Companies that it believes have the strongest sustainable competitive advantage within the universe and offer the potential for strong earnings and growth. The Fund expects to frequently and actively trade its portfolio securities.
The Fund will only invest in companies that are engaged exclusively in legal activities under applicable national and local laws, including U.S. federal and state laws.
The Fund is classified as “non-diversified” for purposes of the Investment Company Act of 1940 (the “1940 Act”), which means a relatively high percentage of the Fund’s assets may be invested in the securities of a limited number of companies that could be in the same or related economic sectors.
The Advisor may sell all or a portion of a position of the Fund’s portfolio holdings, when in its opinion, one of more of the following occurs, among other reasons: (i) a particular security has achieved its investment expectations; (ii) the reason(s) for maintaining the position are no longer valid; (iii) the Advisor’s view of the business fundamentals or management of the underlying company changes; (iv) a more attractive investment opportunity is found; (v) general market conditions trigger a change in the Advisor’s assessment criteria; (vi) for other portfolio management reasons; or (vii) the Fund requires cash to meet redemption requests.
