The Spin-Off Index selection methodology is designed to identify companies with potentially superior risk/return profiles as determined by Beacon. The Index is designed to actively represent the stock of a group of companies that have recently been spun-off from larger corporations and have the opportunity to better focus on their core market segment and outperform, on a risk-adjusted basis, the Russell 2000(R) Small Cap Index and other small-cap-oriented benchmark indices. The Index constituent selection methodology was developed by Beacon as a quantitative approach to selecting stocks from a universe of all spin-off companies. The Index constituent selection model evaluates and selects stocks from a universe of recently spun-off companies using a proprietary, 100% rules-based methodology developed by Beacon. The Index constituent selection methodology utilizes multi-factor proprietary selection rules to seek to identify those stocks that offer the greatest potential from a risk/return perspective while maintaining industry diversification. The Index is adjusted semi-annually, however, if there are not enough new Spinoffs to populate the index, a rebalance may be delayed.
Potential Index constituents include all equities trading on major U.S. exchanges of companies that were spun-off during the two year period beginning 30 months prior to reconstitution and ending 6 months prior to reconstitution. This time frame may be extended to compensate for periods where there are too few new spinoffs to populate the index.
The Spin-Off Index is comprised of up to the 40 highest-ranking stocks chosen from the universe of spun-off companies.
Each company is ranked using a 100% quantitative rules-based methodology that includes composite scoring of several growth-oriented, multi-factor filters, and is sorted from highest to lowest.
Up to 40 stocks are chosen and given a modified market cap weighting with a maximum weight of 4.5%.
The constituent selection process and portfolio rebalance is repeated semi-annually, however, if there are not enough new Spinoffs to populate the index, a rebalance may be delayed.
RISKS AND OTHER CONSIDERATIONS
Investors should consider the following risk factors and special considerations associated with investing in the fund, which may cause you to lose money, including the entire principal amount that you invest.
Equity Risk: The value of the equity securities held by the fund will fall due to general market and economic conditions, perceptions regarding the industries in which the issuers of securities held by the fund participate, or factors relating to specific companies in which the fund invests.
Foreign Investment Risk: The fund’s investments in non-U.S. issuers, although generally limited to ADRs, may involve unique risks compared to investing in securities of U.S. issuers, including less market liquidity, generally greater market volatility than U.S. securities and less complete financial information than for U.S. issuers.
Consumer Discretionary Sector Risk: The success of consumer product manufacturers and retailers is tied closely to the performance of the overall domestic and international economy, interest rates, competitive and consumer confidence. Success depends heavily on disposable household income and consumer spending. Changes in demographics and consumer tastes can also affect the demand for, and success of, consumer products in the marketplace.
Computer/Technology Sector Risk: Competitive pressures may have a significant effect on the financial condition of companies in the computer/technology sector. Also, many of the products and services offered by computer and technology companies are subject to the risks of short product cycles and rapid obsolescence.
Small- and Medium-Sized Company Risk: Investing in securities of small and medium-sized companies involves greater risk than is customarily associated with investing in larger, more established companies.
Micro-Cap Company Risk: Micro-cap stocks involve substantially greater risks of loss and price fluctuations because their earnings and revenues tend to be less predictable (and some companies may be experiencing significant losses), and their share prices tend to be more volatile and their markets less liquid than companies with larger market capitalizations.
MLP Risk: Investments in securities of MLPs involve risks that differ from an investment in common stock. Holders of the units of MLPs have more limited control and limited rights to vote on matters affecting the partnership. There are also certain tax risks associated with an investment in units of MLPs.
Concentration Risk: If the Index concentrates in an industry or group of industries the fund’s investments will be concentrated accordingly. In such event, the value of the fund’s shares may rise and fall more than the value of shares of a fund that invests in securities of companies in abroader range of industries. In addition the fund is subject to Non-Correlation Risk, Replication Management Risk, Issuer- Specific Changes and Non-Diversified fund Risk.
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