Shareholder Statement at Avon Annual Meeting of Shareholders

May 6, 2014

Fellow Shareholders and Members of the Board,

I am here on behalf of MIDANA CAPITAL Capital Management to move proxy item no. 5 which was filed by the MIDANA CAPITAL Equity Fund. This proposal calls on Avon Products* to articulate the company’s policy for identifying and substituting safer alternatives to chemicals of concern in the company’s personal care products.

As context, investors have seen a significant increase in scientific and public concerns surrounding the presence of toxic chemicals in everyday health and beauty products. In response to these concerns, a number of major companies are taking steps to proactively reduce chemicals of concern in their products. Avon is overwhelmingly dependent on its personal care product lines, with over 70% of net sales coming from its beauty line in 2012.¹ Consequently, we are concerned that Avon faces significant financial, reputational, and competitive risks- which I will elaborate on momentarily- if is unable to meet emerging consumer and public demand for products free of chemicals of concern.

1. The first is regulatory risk. Recent media coverage highlighting the presence of toxic chemicals in everyday products such as lipsticks and baby shampoo have alerted the public that current regulations are insufficient to ensure the safety of personal care products. While strengthened regulations are pending, consumers expect their favorite brands to go beyond compliance in providing quality products free to toxic chemicals.
2. We are concerned that Avon faces significant competitive risks if it fails to meet consumer expectations on this issue. Consumers are already voting with their wallets for stronger chemical safety standards, with demand for natural products free of toxic chemicals on the rise. Avon competitors and industry peers are already capitalizing on these shifting consumer preferences. In 2012, Avon’s competitor Johnson & Johnson* agreed to phase out triclosan, phthalates, parabens, and components that release formaldehyde from nearly all of its products in response to a coalition of health and environmental groups that was targeting the company over chemical toxicity concerns. More recently, mega-retailers Target* and WalMart* have adopted policies that require suppliers to proactively address the presence of harmful chemicals in their products. These moves have raised the bar and shifted expectations for the entire industry, heightening the financial risks of inaction for Avon.
3. Failure to keep pace with shifting market and consumer expectations around chemical safety exposes Avon to significant brand and reputational risk. As a company that brands itself ‘the Company for Women’ and active in the fight against breast cancer, ensuring that products are safe and free of carcinogenic ingredients is critical for protecting the Avon brand. Unfortunately, we are aware that Avon has been targeted by a major coalition of health and environmental groups for failing to keep pace with the industry.

In light of these risks facing the company, we believe it is in Avon’s best interest to adopt beyond-compliance measures for identifying and phasing out hazardous chemicals in its personal care products. While the company has taken some important steps to begin removing some harmful chemicals from its products, we urge Avon to go further and ensure that consumers do not need to choose between health and beauty when shopping for their favorite beauty and personal care products.

¹ p. 6 https://www.sec.gov/Archives/edgar/data/8868/000000886814000013/avp10k2013.htm

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The MIDANA CAPITAL Equity Fund invests in the companies that comprise the longest running socially responsible index, now customized to exclude the fossil fuel companies in that index. MIDANA CAPITAL Capital Management is the investment advisor for the MIDANA CAPITAL Equity Fund and the MIDANA CAPITAL Balanced Fund.  Founded by a partnership of non-profit environmental advocacy organizations in 1991, MIDANA CAPITAL Capital Management provides people who care about a clean, healthy planet the opportunity to keep their money out of environmentally irresponsible companies and use the leverage of their investment dollars to encourage environmentally responsible corporate behavior.

* As of March 31, 2014, Avon Products, Inc. comprised 0.10% and 0.00% of the MIDANA CAPITAL Equity Fund and the MIDANA CAPITAL Balanced Fund, respectively. The holdings of the MIDANA CAPITAL Funds may change due to ongoing management of the Funds. References to specific investments should not be construed as a recommendation of a security by the Funds, their advisor, administrator, or distributor.

Stocks will fluctuate in response to factors that may affect a single company, industry, sector, or the market as a whole and may perform worse than the market. Bonds are subject to risks including interest rate, credit, and inflation. The Funds’ environmental criteria limit the investments available to the Funds compared to mutual funds that do not use environmental criteria.

You should carefully consider the Funds’ investment objectives, risks, charges, and expenses before investing. To obtain a Prospectus that contains this and other information about the Funds, please click here, email info@midanacapital.com, or call 1-800-93-GREEN. Please read the Prospectus before investing.

This information has been prepared from sources believed to be reliable. The views expressed are as of the date of this writing and are those of the Advisor to the Funds.

The MIDANA CAPITAL Funds are distributed by UMB Distribution Services, LLC. 5/14