Risk Factors
For risk factors specific to the relevant
index, please see the sections titled “Risk Factors” in the relevant preliminary terms or preliminary pricing supplement
and any accompanying product supplement.
NYSE Arca China Index
The NYSE Arca China Index is a modified
equal weighted index composed of selected publicly traded stocks and American Depositary Receipts, or ADRs, of companies with significant
exposure to the Chinese economy. The NYSE Arca China Index divisor was initially determined to yield a benchmark value of 100.00
at the close of trading on December 19, 2003. The NYSE Arca China Index is calculated and maintained by NYSE Arca, which is the
index publisher. The value of the NYSE Arca China Index will be disseminated every 15 seconds over the Consolidated Tape Association’s
Network B between the hours of approximately 9:30 a.m. and 4:15 p.m.
Eligibility Criteria for NYSE Arca China
Index Components.
The NYSE Arca China Index includes companies whose business is focused in the People’s Republic of
China and are listed for trading on the New York Stock Exchange, NYSE MKT, or quoted on the NASDAQ Global Market. To be included
in the NYSE Arca China Index, companies must have a market capitalization greater than $75 million and have at least 1,000,000
shares traded volume over each of the last six months.
NYSE Arca China Index Calculation.
The
NYSE Arca China Index is calculated using a modified equal weight methodology. Each security is placed into one of three tiers,
top five and bottom five by market capitalization and those securities that are between the top and bottom. The top five securities
are weighted such that the two with the largest market capitalization are set to fifteen percent (15%) and the next three are set
to nine percent (9%), representing a combined fifty-seven percent (57%) of the NYSE Arca China Index. The bottom five securities
are equally weighted to represent ten percent (10%) of the NYSE Arca China Index or two percent each (2%). The securities not in
the top five or bottom five are equally weighted to represent thirty-three percent (33%) of the NYSE Arca China Index.
Quarterly Updates to the NYSE Arca China
Index.
Changes to the NYSE Arca China Index compositions and/or the component share weights in the NYSE Arca China Index typically
take effect after the close of trading on the third Friday of each calendar quarter month in connection with the quarterly index
rebalance. At the time of the NYSE Arca China Index quarterly rebalance, the weights for the components stocks (taking into account
expected component changes and share adjustments), are modified in accordance with the following procedures. The NYSE Arca China
Index is reviewed quarterly to ensure that at least 90% of the NYSE Arca China Index weight is accounted for by components that
continue to represent the universe of stocks that meet the initial NYSE Arca China Index requirements. The index publisher may
at any time and from time to time change the number of stocks comprising the group by adding or deleting one or more stocks, or
replace one or more stocks contained in the group with one or more substitute stocks of its choice, if in the index publisher’s
discretion such addition, deletion or substitution is necessary or appropriate to maintain the quality and/or character of the
index to which the group relates. In conjunction with the quarterly review, the share weights used in the calculation of the NYSE
Arca China Index are determined based upon current shares outstanding modified, if necessary, to provide greater index diversification,
as described in the NYSE Arca China Index Calculation section above. The NYSE Arca China Index components and their share weights
are determined on the Wednesday prior to the third Friday of March, June, September, and December. The share weight of each component
stock in the NYSE Arca China Index portfolio remains fixed between quarterly reviews except in the event of certain types of corporate
actions such as stock splits, reverse stock splits, stock dividends, or similar events. The share weights used in the NYSE Arca
China Index calculation are not typically adjusted for shares issued or repurchased between quarterly reviews.
Maintenance of the NYSE Arca China Index.
In the event of a merger between two components, the share weight of the surviving entity may be adjusted to account for any
stock issued in the acquisition. The index publisher may substitute stocks or change the number of stocks included in the index
based on changing conditions in the industry or in the event of certain types of corporate actions, including mergers, acquisitions,
spin-offs, and reorganizations. In the event of component or share weight changes to the NYSE Arca China Index portfolio, the payment
of dividends other than ordinary cash dividends, spin-offs, rights offerings, re-capitalization, or other corporate actions affecting
a component stock of the NYSE Arca China Index; the index divisor may be adjusted to ensure that there are no changes to the index
level as a result of non-market forces.
In this index supplement, unless the context
requires otherwise, references to the NYSE Arca China Index will include any Successor NYSE Arca China Index and references to
the index publisher will include any successor to the index publisher.
The NYSE Arca China Index (CZH) is sponsored
by, and is a service mark of, Intercontinental Exchange, Inc. or its affiliates (“Intercontinental Exchange”).
Intercontinental Exchange in no way sponsors,
endorses or is otherwise involved in the transactions specified and described in this document (the “Transaction”)
and Intercontinental Exchange disclaims any liability to any party for any inaccuracy in the data on which the Index is based,
for any mistakes, errors, or omissions in the calculation and/or dissemination of the NYSE Arca China Index, or for the manner
in which it is applied in connection with the Transaction.
NYSE Arca Gold BUGS
®
Index
The NYSE Arca Gold BUGS
®
Index (the “Gold BUGS Index”) is calculated and maintained by NYSE Arca. The Gold BUGS Index is a modified equal dollar
weighted index of companies involved in gold mining. It was designed to provide significant exposure to near term movements in
gold prices by including companies that do not hedge their gold production beyond 1.5 years. The Gold BUGS Index was developed
on March 15, 1996 with a base value of 200.00. Adjustments are made quarterly after the close of trading on the third Friday of
March, June, September and December so that each component stock represents its assigned weight in the Gold BUGS Index. The value
of the Gold BUGS Index is published every 15 seconds to the NYSE Global Index Feed under the ticker symbol “HUI” between
the hours of approximately 9:30 a.m. and 6:00 p.m., U.S. Eastern Time.
Computation of the Gold BUGS Index
.
The Gold BUGS Index is calculated using a modified equal-dollar weighting methodology under which the majority of stocks in the
Gold BUGS Index are equally weighted. Three of the largest component securities by market value are assigned higher percentage
weights in the Gold BUGS Index at the time of the quarterly rebalancing and the remaining index components are given an equal percentage
weight. The Gold BUGS Index has a scheduled quarterly rebalance after the close of trading on the third Friday of March, June,
September and December, so that each component stock is represented at approximately its assigned weight in the Gold BUGS Index.
The newly adjusted portfolio becomes the basis for the Gold BUGS Index’s value effective on the first trading day following
the quarterly adjustments. If necessary, a divisor adjustment is made to ensure continuity of the Gold BUGS Index’s value.
Modifications to the Common Stocks Underlying
the Gold BUGS Index.
The index publisher has changed, and may at any time change, the number or assigned weighting of the component
stocks by adding or deleting one or more component stocks, or replace one or more component stocks with one or more substitute
stocks of its choice, if in the index publisher’s discretion such addition, deletion or substitution is necessary or appropriate
to maintain the quality and/or character of the Gold BUGS Index. However, in order to reduce turnover in the Gold BUGS Index, the
index publisher generally attempts to combine additions and deletions to the Gold BUGS Index with a scheduled rebalancing. The
index publisher may change the composition of the Gold BUGS Index at any time to reflect the conditions of the gold mining industry
and to ensure that the component stocks continue to represent the gold mining companies. The number of shares of each component
stock in the Gold BUGS Index portfolio remain fixed between quarterly reviews, except in the event of certain types of corporate
actions such as the payment of a dividend, other than an ordinary cash dividend, stock distribution, stock split, reverse stock
split, rights offering, or a distribution, reorganization, recapitalization, or some such similar event with respect to a component
stock. When the Gold BUGS Index is adjusted between quarterly reviews for such events, the number of shares of the relevant component
stock will be adjusted, to the nearest whole share, to maintain the component stock’s relative weight in the Gold BUGS Index
at the level immediately prior to the corporate action. The Gold BUGS Index may also be adjusted in the event of a merger consolidation,
dissolution or liquidation of an issuer of a component stock. In the event of a stock replacement, the average dollar value of
the remaining component stocks that are assigned the lower Gold BUGS Index weight will be calculated and that amount invested in
the new component stock to the nearest whole share.
The NYSE Arca Gold BUGS Index (HUI) is
sponsored by, and is a service mark of, Intercontinental Exchange, Inc. or its affiliates (“Intercontinental Exchange”).
Intercontinental Exchange in no way sponsors,
endorses or is otherwise involved in the transactions specified and described in this document (the “Transaction”)
and Intercontinental Exchange disclaims any liability to any party for any inaccuracy in the data on which the Index is based,
for any mistakes, errors, or omissions in the calculation and/or dissemination of the NYSE Arca Gold BUGS Index, or for the manner
in which it is applied in connection with the Transaction.
NYSE Arca Gold Miners Index
The NYSE Arca Gold Miners Index is a modified
market capitalization weighted index comprised of publicly traded companies involved primarily in the mining of gold or silver
ore. The NYSE Arca Gold Miners Index includes common stocks , American Depositary Receipts and Global Depositary Receipts of selected
companies that are involved in mining for gold and silver ore and that are listed for trading on and electronically quoted on a
major stock market that is accessible by foreign investors, which specifically includes those companies classified as being cross
listed. Only companies with market capitalization greater than $750 million that have a daily average trading volume of at least
50,000 shares and a daily average value traded of at least $1 million over the past three months are eligible for inclusion in
the NYSE Arca Gold Miners Index. The index divisor was initially determined to yield a benchmark value of 500.00 at the close of
trading on December 20, 2002. The value of the NYSE Arca Gold Miners Index will be disseminated every 15 seconds to the NYSE Global
Index Fund between the hours of approximately 12:30 a.m. and 6:00 p.m., U.S. Eastern Time.
The NYSE Arca Gold Miners Index is calculated
using a modified market capitalization weighting methodology. The NYSE Arca Gold Miners Index is weighted based on the market capitalization
of each of the component securities, modified to conform to the following asset diversification requirements, which are applied
in conjunction with the scheduled quarterly adjustments to the NYSE Arca Gold Miners Index:
(1) the weight of any single component
stock may not account for more than 20% of the total value of the NYSE Arca Gold Miners Index;
(2) the component stocks are split into
two subgroups–large and small, which are ranked by market capitalization weight in the NYSE Arca Gold Miners Index. Large
stocks are defined as having an index weight greater than or equal to 5%. Small securities are defined as having an index weight
below 5%; and
(3) the aggregate weight of those component
stocks which individually represent more than 4.5% of the total value of the NYSE Arca Gold Miners Index may not account for more
than 45% of the total index value.
The NYSE Arca Gold Miners Index is calculated,
published and maintained by NYSE Arca, which is the index publisher. NYSE Arca Gold Miners Index is reviewed quarterly so that
the index components continue to represent the universe of companies involved in the gold and silver mining industry. The index
publisher may at any time and from time to time change the number of stocks comprising the group by adding or deleting one or more
stocks, or replacing one or more stocks contained in the group with one or more substitute stocks of its choice, if in the index
publisher’s discretion such addition, deletion or substitution is necessary or appropriate to maintain the quality and/or
character of the NYSE Arca Gold Miners Index. Changes to the NYSE Arca Gold Miners Index compositions and/or the component share
weights in the NYSE Arca Gold Miners Index typically take effect after the close of trading on the third Friday of each calendar
quarter month in connection with the quarterly index rebalance.
NYSE Arca Hong Kong 30 Index
SM
The NYSE Arca Hong Kong 30 Index
SM
is a broad-market index that measures the composite price performance of 30 stocks actively traded on the Hong Kong Stock Exchange
(the “HKSE”), designed to reflect the movement of the Hong Kong stock market as a whole. The NYSE Arca Hong Kong 30
Index was established June 25, 1993 with a benchmark value of 350.00. The NYSE Arca Hong Kong 30 Index is calculated and disseminated
each New York business day based on the most recent official closing price of each of the component stocks as reported by the HKSE
and a fixed HK$/US$ exchange rate.
Eligibility Standards for the Inclusion
and Maintenance of Component Stocks in the NYSE Arca Hong Kong 30 Index
. The securities composing the NYSE Arca Hong Kong 30
Index are selected based on their market weight, trading liquidity, and representativeness of the business industries reflected
on the HKSE. NYSE Arca, which is the index publisher, will require that each NYSE Arca Hong Kong 30 Index component security be
one issued by an entity with major business interests in Hong Kong, listed for trading on the HKSE and have its primary trading
market located in a country with which the index publisher has an effective surveillance sharing agreement. The index publisher
will remove any NYSE Arca Hong Kong 30 Index component security that fails to meet any of the foregoing listing and maintenance
criteria within 30 days after such a failure occurs. To ensure that the NYSE Arca Hong Kong 30 Index does not consist of a number
of thinly-capitalized, low-priced securities with small public floats and low trading volumes, the index publisher has established
additional listing and maintenance criteria:
• All component securities selected
for inclusion in the NYSE Arca Hong Kong 30 Index must have, and thereafter maintain, an average daily capitalization, as calculated
by the total number of shares outstanding times the latest price per share (in Hong Kong dollars), measured over the prior six
month period, of at least HK$3 billion (approximately US$380 million);
• All component securities selected
for inclusion in the NYSE Arca Hong Kong 30 Index must have, and thereafter maintain, a minimum free float value (total freely
tradable outstanding shares less insider holdings), based on a monthly average measured over the prior three month period, of US$238
million, although up to, but no more than, three NYSE Arca Hong Kong 30 Index component securities may have a free float value
of less than US$238 million but in no event less than US$150 million, measured over the same period;
• All component securities selected
for inclusion in the NYSE Arca Hong Kong 30 Index must have, and thereafter maintain, an average daily closing price, measured
over the prior six month period, not lower than HK$2.50 (approximately US$0.32); and
• All component securities selected
for inclusion in the NYSE Arca Hong Kong 30 Index must have, and thereafter maintain, an average daily trading volume, measured
over the prior six month period, of more than one million shares per day, although up to, but no more than, three component securities
may have an average daily trading volume, measured over the prior six month period, of less than one million shares per day, but
in no event less than 500,000 shares per day.
Beginning in 1994, the index publisher
has reviewed the NYSE Arca Hong Kong 30 Index’s component securities on a quarterly basis, conducted on the last business
day in January, April, July, and October. Any component security failing to meet the above listing and maintenance criteria is
reviewed on the second Friday of the second month following the quarterly review again to determine compliance with the above criteria.
Any NYSE Arca Hong Kong 30 Index component stock failing this second review is replaced by a “qualified” NYSE Arca
Hong Kong 30 Index component stock effective upon the close of business on the following Friday, provided, however, that if such
Friday is not a business day, the replacement will be effective at the close of business on the first preceding business day. The
index publisher will notify its membership immediately after it determines to replace an NYSE Arca Hong Kong 30 Index component
stock.
The NYSE Arca Hong Kong 30 Index is maintained
by NYSE Arca and contains at least thirty component stocks at all times. The index publisher may change the composition of the
NYSE Arca Hong Kong 30 Index at any time in order to reflect more accurately the composition and track the movement of the Hong
Kong stock market. Any replacement component stock must also meet the component stock listing and maintenance standards as discussed
above. If the number of NYSE Arca Hong Kong 30 Index component securities in the NYSE Arca Hong Kong 30 Index falls below thirty,
no new option series based on the NYSE Arca Hong Kong 30 Index will be listed for trading unless and until the Securities and Exchange
Commission approves a rule filing pursuant to section 19(b) of the Securities Exchange Act of 1934 reflecting such change.
The NYSE Arca Hong Kong 30 Index (HKX)
is sponsored by, and is a service mark of, Intercontinental Exchange, Inc. or its affiliates (“Intercontinental Exchange”).
Intercontinental Exchange in no way sponsors,
endorses or is otherwise involved in the transactions specified and described in this document (the “Transaction”)
and Intercontinental Exchange disclaims any liability to any party for any inaccuracy in the data on which the Index is based,
for any mistakes, errors, or omissions in the calculation and/or dissemination of the NYSE Arca Hong Kong 30 Index, or for the
manner in which it is applied in connection with the Transaction.
DAXglobal
®
Russia+ Index
The DAXglobal
®
Russia+ Index
(the “Russia+ Index”) is intended to give investors an efficient, modified market capitalization-weighted investment
designed to track the movements of certain Russian American Depositary Receipts (“ADRs”), Global Depositary Receipts
(“GDRs”) and shares, which are traded on the London Stock Exchange, the New York Stock Exchange as well as on the Hong
Kong Stock Exchange. Additionally, shares listed at the Moscow Interbank Currency Exchange can be included in the index, but are
taken into consideration only if no ADRs or GDRs exist for the corresponding constituent or the ADRs/GDRs do not fulfill the liquidity
criteria. The Russia+ Index divisor was initially determined to yield a benchmark value of 100.00 at the close of trading on December
28, 2001. The Russia+ Index is calculated and maintained by Deutsche Börse AG, the index publisher. Any new constituent of
the Russia+ Index must have an average daily value traded (“ADVT”) of at least $1.2 million over the last six months
as well as over each of the last two months and a market capitalization of at least $180 million and an aggregated trading volume
of at least 300,000 shares per month for each of the last 6 months. For present constituents of the Russia+ Index, a 6-month ADVT
of $0.8 million, a market capitalization of $120 million and an aggregated trading volume (for each of the previous 6 months) of
200,000 shares are required.
The Russia+ Index is weighted based on
the market capitalization of each of the component stocks, modified according to the following capping method:
Step A
|
All companies will be capped at a maximum of 8% by the single capitalization limit method.
|
Step B
|
The companies will then be ranked from largest to smallest (in case more than one company has the weight of 8% after Step A, the original weight is taken to determine the order among these companies).
|
Step C
|
Maximal weights are determined for the largest 6 companies according to Step B. For the largest 6 companies, the maximum weights allowed are 8%, 7.5%, 7%, 6.5%, 6% and 5%. All further stocks will be capped down to a maximum weight of 4.5%.
|
Step D
|
Step C is repeated until all constituents fulfill the restrictions listed under Step C.
|
Maintenance of the Russia+ Index
The Russia+ Index is reviewed quarterly
and the recomposition of the Russia+ Index takes place semi-annually on the third Friday in March and September. Component securities
will be removed from the Russia+ Index, if the market capitalization falls below $120 million, the traded average daily turnover
for the previous six months is lower than $0.8 million or if the an aggregated trading volume (for each of the previous 6 months)
falls below 200,000 shares.
EURO STOXX 50
®
Index
The EURO STOXX 50
®
Index
was created by STOXX
®
Limited, which is a wholly owned subsidiary of Deutsche Boerse AG. Publication of the EURO
STOXX 50
®
Index began on February 26, 1998 with a base value of 1,000 as of December 31, 1991. The EURO STOXX 50
®
Index is published in The Wall Street Journal and disseminated on the STOXX Limited website. The EURO STOXX 50® Index is reported
by Bloomberg Financial Markets under ticker symbol “SX5E.”
EURO STOXX 50
®
Index
Composition and Maintenance.
The EURO STOXX 50
®
Index is composed of 50 component stocks of market sector leaders
from within the STOXX 600 Supersector Indices, which includes stocks selected from 11 Eurozone countries: Austria, Belgium, Finland,
France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain. The component stocks have a high degree of liquidity
and represent the largest companies across all market sectors.
The composition of the EURO STOXX 50
®
Index is reviewed annually, based on the closing stock data on the last trading day in August. The component stocks are announced
the first trading day in September. Changes to the component stocks are implemented on the third Friday in September and are effective
the following trading day. Changes in the composition of the EURO STOXX 50
®
Index are made to ensure that the EURO
STOXX 50
®
Index includes the 50 sector leaders from within the EURO STOXX Index.
The free float factors for each component
stock used to calculate the EURO STOXX 50
®
Index, as described below, are reviewed, calculated and implemented on
a quarterly basis and are fixed until the next quarterly review. Each component’s weight is capped at 10% of the index’s
total free float market capitalization.
The EURO STOXX 50
®
Index
is also reviewed on an ongoing basis. Corporate actions (including initial public offerings, mergers and takeovers, spin-offs,
delistings and bankruptcy) that affect the EURO STOXX 50
®
Index composition are immediately reviewed. Any changes
are announced, implemented and effective in line with the type of corporate action and the magnitude of the effect.
EURO STOXX 50
®
Index
Calculation.
The EURO STOXX 50
®
Index is calculated with the “Laspeyres formula,” which measures
the aggregate price changes in the component stocks against a fixed base quantity weight. The formula for calculating the EURO
STOXX 50
®
Index value can be expressed as follows:
Index
|
=
|
free
float market capitalization of the EURO STOXX 50
®
Index
|
divisor
|
The “free float market capitalization
of the EURO STOXX 50
®
Index” is equal to the sum of the products of the closing price, market capitalization
and free float factor for each component stock as of the time the EURO STOXX 50
®
Index is being calculated.
The divisor for the EURO STOXX 50
®
Index is adjusted to maintain the continuity of the EURO STOXX 50
®
Index values across changes due to corporate
actions. The following is a summary of the adjustments to any component stock made for corporate actions and the effect of such
adjustment on the divisor, where shareholders of the component stock will receive “B” number of shares for every “A”
share held (where applicable).
(1)
|
Cash dividend (applied to Total Return indices only):
|
|
Adjusted price = closing price – announced dividend * (1 – withholding tax)
|
|
Divisor: decreases
|
(2)
|
Special cash dividend (applied to Price and Total Return indices):
|
|
Adjusted price = closing price – announced dividend * (1 – withholding tax)
|
|
Divisor: decreases
|
(3)
|
Split and reverse split:
|
|
Adjusted price = closing price * A/B
|
|
New number of shares = old number of shares * B / A
|
|
Divisor: no change
|
(4)
|
Rights offering:
|
|
|
Adjusted price = (closing
price * A + subscription price * B) / (A + B)
|
|
|
New number of shares = old number of shares * (A + B) / A
|
|
|
Divisor: increases
|
|
(5)
|
Stock dividend:
|
|
|
Adjusted price = closing price * A / (A + B)
|
|
|
New number of shares = old number of shares * (A + B) / A
|
|
|
Divisor: no change
|
|
(6)
|
Stock Dividend (from Treasury Stock)
|
|
|
Stock dividends from treasury stocks will be adjusted as cash
dividends
|
|
|
a1) If treated as regular
cash dividend, only the return indices are adjusted.
Adjusted close = close
- close × B / (A + B)
|
|
|
a2) If treated as extraordinary
dividend, the price and the return indices are adjusted.
Adjusted close = close
- close × B / (A + B)
|
|
|
Divisor: decreases
|
|
(7)
|
Stock dividend of another company:
|
|
|
Adjusted price
= (closing price * A - price of other company * B) / A
|
|
|
Divisor: decreases
|
|
(8)
|
Return of capital and share consideration:
|
|
|
Adjusted price = (closing
price - dividend announced by company * (1-withholding tax)) * A / B
|
|
|
New number of shares = old number of shares * B / A
|
|
|
Divisor: decreases
|
|
(9)
|
Repurchase shares / self tender:
|
|
|
Adjusted price
= ((price before tender * old number of shares ) - (tender price * number of tendered shares)) / (old number of shares
- number of tendered shares)
|
|
|
New number of
shares = old number of shares - number of tendered shares
|
|
|
Divisor: decreases
|
|
(10)
|
Spin-off:
|
|
Adjusted price = (closing
price * A - price of spun-off shares * B) / A
|
|
Divisor: decreases
|
(11)
|
Combination stock distribution (dividend or split) and rights offering:
|
|
For this corporate action, the following additional assumptions apply:
|
|
• Shareholders receive
B new shares from the distribution and C new shares from the rights offering for every A shares held
|
|
• If A is not equal
to one share, all the following “new number of shares” formulae need to be divided by A:
|
|
-
If rights are applicable after stock distribution (one action applicable
to other):
|
|
Adjusted price = (closing
price * A + subscription price * C * (1 + B / A)) / ((A + B) * ( 1 + C / A))
|
|
New number of shares = old
number of shares * ((A + B) * (1 + C / A)) / A
|
|
Divisor: increases
|
|
-
If stock distribution is applicable after rights (one action applicable
to other):
|
|
Adjusted price = (closing
price * A + subscription price * C) / ((A + C) * (1 + B / A))
|
|
New number of shares = old
number of shares * ((A + C) * (1 + B / A))
|
|
Divisor: increases
|
|
-
Stock distribution and rights (neither action is applicable to the other):
|
|
Adjusted price = (closing
price * A + subscription price * C) / (A + B + C)
|
|
New number of shares = old number of shares * (A + B +C) / A
|
|
Divisor: increases
|
The securities are not sponsored, endorsed,
sold or promoted by STOXX Limited. STOXX Limited makes no representation or warranty, express or implied, to the owners of the
securities or any member of the public regarding the advisability of investing in securities generally or in the securities particularly.
The EURO STOXX 50
®
Index is determined, composed and calculated by STOXX Limited without regard to Morgan Stanley
or the securities. STOXX Limited has no obligation to take the needs of Morgan Stanley or the owners of the securities into consideration
in determining, composing or calculating the EURO STOXX 50
®
Index. STOXX Limited is not responsible for and has
not participated in the determination of the timing of, prices at, or quantities of the securities to be issued or in the determination
or calculation of
the equation by which the securities are to
be converted into cash. STOXX Limited has no obligation or liability in connection with the administration, marketing or trading
of the securities.
STOXX LIMITED DOES NOT GUARANTEE THE ACCURACY
AND/OR THE COMPLETENESS OF THE EURO STOXX 50
®
INDEX OR ANY DATA INCLUDED THEREIN AND STOXX LIMITED SHALL HAVE NO
LIABILITY FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. STOXX LIMITED MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS
TO BE OBTAINED BY MORGAN STANLEY, OWNERS OF THE SECURITIES, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE EURO STOXX 50
®
INDEX OR ANY DATA INCLUDED THEREIN. STOXX LIMITED MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES,
OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE EURO STOXX 50
®
INDEX OR ANY DATA
INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL STOXX LIMITED HAVE ANY LIABILITY FOR ANY LOST PROFITS
OR INDIRECT, PUNITIVE, SPECIAL OR CONSEQUENTIAL DAMAGES OR LOSSES, EVEN IF NOTIFIED OF THE POSSIBILITY THEREOF.
“EURO STOXX 50
®
”
and “STOXX
®
” are registered trademarks of STOXX Limited. The securities are not sponsored, endorsed,
sold or promoted by STOXX Limited, and STOXX Limited makes no representation regarding the advisability of investing in the securities.
Dow Jones Industrial Average
SM
The Dow Jones Industrial Average
SM
,
which we refer to as the DJIA, is a price-weighted index composed of 30 common stocks selected by a committee (the “Averages
Committee”), which is published by S&P, as representative of the broad market of U.S. industry. The DJIA is reported
by Bloomberg Financial Markets under ticker symbol “INDU.” S&P is a joint venture between S&P Global, Inc.
(73% owner) and CME Group Inc. (“CME”) (27% owner), owner of CME Group Index Services LLC, the former owner of the
DJIA.
The index universe is defined as all U.S.-listed
stocks of companies incorporated in the U.S. that produce non -transportation and non-utility goods and services. The definition
of industrial is kept intentionally broad to provide an indicator that reflects the performance of the entire U.S. economy.
While there are no rules for component
selection, a stock typically is added only if it has an excellent reputation, demonstrates sustained growth, is of interest to
a large number of investors and accurately represents the sector(s) covered by the average. The DJIA serves as a measure of the
entire U.S. market such as financial services, technology, retail, entertainment and consumer goods and is not limited to traditionally
defined industrial stocks.
The DJIA is maintained by the Averages
Committee comprised of S&P staff as well as non-S&P staff as minority members. The DJIA is reviewed as needed, and composition
changes are rare for the sake of continuity. Generally, composition changes occur only after mergers, corporate acquisitions or
other dramatic shifts in a component’s core business. When such an event necessitates that one component be replaced, the
entire index is reviewed. As a result, when changes are made they typically involve more than one component.
The DJIA is price weighted rather than
market capitalization weighted. Therefore, the component stock weightings are affected only by changes in the stocks’ prices,
in contrast with the weightings of other indices that are affected by both price changes and changes in the number of shares outstanding.
The value of the DJIA is the sum of the primary exchange prices of each of the 30 common stocks included in the DJIA, divided by
a divisor. The divisor is changed in accordance with a mathematical formula to adjust for stock dividends, stock splits and other
corporate actions. The current divisor of the DJIA is published daily in newspapers, on television and radio, and over the internet.
While this methodology reflects current practice in calculating the DJIA, no assurance can be given that Dow Jones will not modify
or change this methodology in a manner that may affect the return on your investment.
Computation
of the DJIA.
The level of the DJIA is the sum of the primary exchange prices of each of the 30 component stocks included in
the DJIA, divided by a divisor that is designed to provide a meaningful continuity in the level of the DJIA. Because the DJIA
is price-weighted, stock splits or changes in the component stocks could result in distortions in the DJIA level. In order to
prevent these distortions related to extrinsic factors, the divisor is periodically changed in accordance with a mathematical
formula that reflects adjusted proportions within the DJIA. The current divisor of the DJIA is published daily in the Wall Street
Journal and other publications. In addition, other statistics based on the DJIA may be found in a variety of publicly available
sources.
The current
formula used to calculate divisor adjustments is as follows: the new divisor (
i.e.
, the divisor on the next trading session)
is equal to (1) the divisor on the current trading session
times
(2) the
quotient
of (a) the sum of the adjusted
(for stock dividends, splits, spin-offs and other applicable corporate actions) closing prices of the DJIA components on the current
trading session and (b) the sum of the unadjusted closing prices of the DJIA components on the current trading session.
The
formula used to calculate divisor adjustments is:
New Divisor = Current Divisor ×
|
Adjusted Sum of Prices
|
Unadjusted Sum of Prices
|
The Dow Jones Industrial Average Index
is a product of S&P or its affiliates (“SPDJI”), and has been licensed for use by Morgan Stanley. Standard
& Poor’s
®
and S&P
®
are registered trademarks of Standard & Poor’s Financial
Services LLC and Dow Jones
®
is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”).
Any securities issued by Morgan Stanley or MSFL are not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, Standard &
Poor’s Financial Services LLC, any of their respective affiliates (collectively, “S&P Dow Jones Indices”).
S&P Dow Jones Indices does not make any representation or warranty, express or implied, to the owners of the securities or
any member of the public regarding the advisability of investing in securities generally or in securities issued by Morgan Stanley
affiliates particularly or the ability of the index to track general market performance. S&P Dow Jones Indices’
only relationship to Morgan Stanley with respect to the index is the licensing of the Index and certain trademarks, service marks
and/or trade names of S&P Dow Jones Indices and/or its licensors. The index is determined, composed and calculated by
S&P Dow Jones Indices without regard to Morgan Stanley or the securities. S&P Dow Jones Indices has no obligation
to take the needs of Morgan Stanley or the owners of securities into consideration in determining, composing or calculating the
index. S&P Dow Jones Indices is not responsible for and has not participated in the determination of the prices, and
amount of securities or the timing of the issuance or sale of securities or in the determination or calculation of the equation
by which securities are to be converted into cash, surrendered or redeemed, as the case may be. S&P Dow Jones Indices
has no obligation or liability in connection with the administration, marketing or trading of securities. There is no assurance
that investment products based on the index will accurately track index performance or provide positive investment returns.
S&P Dow Jones Indices LLC is not an investment advisor. Inclusion of a security within an index is not a recommendation
by S&P Dow Jones Indices to buy, sell, or hold such security, nor is it considered to be investment advice.
S&P DOW JONES INDICES DOES NOT GUARANTEE
THE ADEQUACY, ACCURACY, TIMELINESS AND/OR THE COMPLETENESS OF THE INDEX OR ANY DATA RELATED THERETO OR ANY COMMUNICATION, INCLUDING
BUT NOT LIMITED TO, ORAL OR WRITTEN COMMUNICATION (INCLUDING ELECTRONIC COMMUNICATIONS) WITH RESPECT THERETO. S&P DOW
JONES INDICES SHALL NOT BE SUBJECT TO ANY DAMAGES OR LIABILITY FOR ANY ERRORS, OMISSIONS, OR DELAYS THEREIN. S&P DOW
JONES INDICES MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES, OF MERCHANTABILITY OR FITNESS FOR
A PARTICULAR PURPOSE OR USE OR AS TO RESULTS TO BE OBTAINED BY MORGAN STANLEY, OWNERS OF THE SECURITIES, OR ANY OTHER PERSON OR
ENTITY FROM THE USE OF THE INDEX OR WITH RESPECT TO ANY DATA RELATED THERETO. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO
EVENT WHATSOEVER SHALL S&P DOW JONES INDICES BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE, OR CONSEQUENTIAL DAMAGES
INCLUDING BUT NOT LIMITED TO, LOSS OF PROFITS, TRADING LOSSES, LOST TIME OR GOODWILL, EVEN IF THEY HAVE BEEN ADVISED OF THE POSSIBILITY
OF SUCH DAMAGES, WHETHER IN CONTRACT, TORT, STRICT LIABILITY, OR OTHERWISE. THERE ARE NO THIRD PARTY BENEFICIARIES OF ANY
AGREEMENTS OR ARRANGEMENTS BETWEEN S&P DOW JONES INDICES AND MORGAN STANLEY, OTHER THAN THE LICENSORS OF S&P DOW JONES
INDICES.
“Dow Jones
SM
,” “DJIA
SM
”
and “Dow Jones Industrial Average
SM
” are service marks of Dow Jones Trademark Holdings LLC and have been
licensed to CME and sublicensed for use for certain purposes by Chicago Board Options Exchange, Incorporated. The securities are
not sponsored, endorsed, sold or promoted by S&P, and S&P makes no representation regarding the advisability of investing
in the securities.
FTSE
TM
100 Index
The FTSE
TM
100 Index is calculated,
published, and disseminated by FTSE International Limited (“FTSE Russell”), a company wholly owned by the London Stock
Exchange Plc (the “LSE”).
The FTSE 100 Index was first calculated
on January 3, 1984 with an initial base level index value of 1,000 points. Publication of the FTSE 100 Index began in February
1984. Real-time FTSE Russell indices are calculated on systems managed by Reuters. Prices and FX rates used are supplied by Reuters.
The FTSE 100 Index is a market-capitalization
weighted index representing the performance of the 100 largest UK-domiciled blue chip companies, which pass screening for size
and liquidity. Stocks are free-float weighted to ensure that only the investable opportunity set is included in the FTSE 100 Index.
FTSE 100 Index constituents are all traded on the London Stock Exchange’s SETS trading system. As of August 2017, to be eligible
for inclusion in the FTSE 100 Index, each company is required to have more than 5% of its voting rights (aggregated across all
of its equity securities) held by unrestricted shareholders. Companies already included in the FTSE 100 Index have a 5-year grandfathering
period to comply with this requirement, or they will be removed from the FTSE 100 Index in September 2022.
FTSE Russell, the publisher of the FTSE
100 Index, is responsible for calculating, publishing and disseminating the FTSE 100 Index. The FTSE 100 Index is overseen by FTSE
Russell’s Europe/Middle East/Africa Regional Equity Advisory Committee (the “FTSE EMEA Committee”).
FTSE Russell can add, delete or substitute
the stocks underlying the FTSE 100 Index or make other methodological changes that could change the value of the FTSE 100 Index.
FTSE Russell may discontinue or suspend calculation or dissemination of the FTSE 100 Index. The FTSE EMEA Committee reviews the
FTSE 100 Index underlying stocks quarterly in March, June, September and December in order to maintain compliance with the index
objectives.
Changes to the constituents can be prompted
by new listings on the exchange, corporate actions (
e.g.
, mergers and acquisitions) or an increase or decrease in a market
capitalization. The FTSE 100 Index underlying stocks may be replaced, if necessary, in accordance with deletion/addition rules
which provide generally for the removal and replacement of a stock from the FTSE 100 Index. To maintain continuity, a stock will
be added at the quarterly review if it has risen to 90
th
place or above and a stock will be deleted if at the quarterly
review it has fallen to 111
th
place or below, in each case ranked on the basis of market value. Where a greater number
of companies qualify to be inserted in the FTSE 100 Index than those qualifying to be deleted, the lowest ranking constituents
presently included in the FTSE 100 Index will be deleted to ensure that an equal number of companies are inserted and deleted at
the periodic review. Likewise, where a greater number of companies qualify to be deleted than those qualifying to be inserted,
the securities of the highest ranking companies which are presently not included in the index will be inserted to match the number
of companies being deleted at the periodic review.
The FTSE 100 Index is obtained by: (i)
calculating the total market value of all companies within the FTSE 100 Index, which equals to sum of the products of shares-in-issue,
share price and investability weighting for each stock included in the FTSE 100 Index as of the relevant current date and (ii)
dividing the total market value as of the relevant current date by a divisor which represents the adjustments to the total market
value as of the base date. The investability weighting for each stock is published by FTSE Russell and is usually 1.00. The divisor
is continuously adjusted to reflect changes, without distorting the FTSE 100 Index, in the issued share capital of individual underlying
stocks, including the deletion and addition of stocks, the substitution of stocks, stock dividends and stock splits.
All rights to the FTSE 100 Index are owned
by the FTSE Russell, the publisher of the FTSE 100 Index. Morgan Stanley disclaims all responsibility for the calculation or other
maintenance of or any adjustments to the FTSE 100 Index. In addition, neither the LSE nor FTSE Russell has any relationship to
Morgan Stanley or the securities. Neither the LSE nor the FTSE Russell sponsors, endorses, authorizes, sells or promotes the securities,
or has any obligation or liability in connection with the administration, marketing or trading of the securities or with the calculation
of the payment at maturity.
These securities are not in any way sponsored,
endorsed, sold or promoted by FTSE Russell or by LSE and neither FTSE Russell or LSE makes any warranty or representation whatsoever,
expressly or impliedly, either as to the results to be obtained from the use of the FTSE 100 Index and/or the figure at which the
said Index stands at any particular time on any particular day or otherwise. The FTSE 100 Index is compiled and calculated solely
by FTSE Russell. However, neither FTSE Russell or LSE shall be liable (whether in negligence or otherwise) to any person for any
error in the FTSE 100 Index and neither FTSE Russell or LSE or shall be under any obligation to advise any person of any error
therein.
“FTSE
TM
,” “FTSE
Russell” and “Footsie
TM
” are trademarks of the London Stock Exchange Group Plc.
FTSE China 50 Index
The FTSE China 50 Index is a stock index
calculated, published and disseminated by FTSE International Limited (“FTSE Russell”), a company wholly owned by the
London Stock Exchange Group Plc (the “LSE”), and is designed to
represent the performance of the mainland
Chinese market that is available to international investors and includes companies that trade on the Hong Kong Stock Exchange (“HKSE”).
Investors globally use the FTSE China 50
Index (previously named the FTSE China 25 Index and the FTSE/Xinhua China 25 Index) to gain exposure to the Chinese markets. The
index consists of the 50 largest and most liquid Chinese stocks (Red Chips, “P Chips” and H shares) listed and trading
on HKSE. H Shares are the securities of companies incorporated in the People’s Republic of China and listed on HKSE. They
can only be traded by Chinese investors under the Qualified Domestic Institutional Investors scheme (QDII). There are no restrictions
for international investors. Red Chip companies are incorporated outside of the PRC that trade on the HKSE. A Red Chip is a company
that has at least 30 per cent of its shares in aggregate held directly or indirectly by mainland Chinese entities, and at least
50 per cent of their sales revenue or operating assets derived from mainland China.
Eligible Securities.
Only H-shares,
Red Chip shares, and “P Chips” shares are eligible for inclusion in the FTSE China 50 Index. Each security must be
a current constituent of the FTSE All-World Index. All classes of equity in issue are eligible for inclusion in the FTSE China
50 Index subject to certain restrictions. Convertible preference shares and loan stocks are excluded until converted. Companies
whose business is that of holding equity and other investment instruments will not be eligible for inclusion. Securities must be
sufficiently liquid to be traded. The following criteria are used to ensure that illiquid securities are excluded:
|
a)
|
Price
- The FTSE Asia Pacific Regional Equity Advisory Committee must be satisfied that an accurate and reliable price exists for the purposes of determining the market value of a company. The FTSE Asia Pacific Regional Equity Advisory Committee may exclude a security from the FTSE China 50 Index if it determines that an ‘accurate and reliable’ price is not available. The FTSE China 50 Index uses the last trade prices from the relevant stock exchanges, when available.
|
|
b)
|
Liquidity
- Each security is tested for liquidity on an annual basis in March by calculation of its median daily trading per month as part of the FTSE All-World Index review. The median trade is calculated by ranking each daily trade total and selecting the middle ranking day. Daily totals with zero trades are included in the ranking; therefore a security that fails to trade for more than half of the days in a month will have a zero median trade.
|
The FTSE China 50 Index is overseen by
the FTSE Asia Equity Advisory Pacific Regional Committee.
Computation of the FTSE China 50 Index
.
The FTSE China 50 Index is calculated using the free float index calculation methodology of FTSE Russell. The FTSE China 50 Index
is calculated using the following algorithm:
S
(p
n
1
x e
n
1
x s
n
1
x f
n
1
x c
n
1
)
|
d
|
n = 1,2,3…….,n
where “p” is the latest trade
price of the component security “n”, “e” is the exchange rate required to convert the security’s
home currency into the FTSE China 50 Index’s base currency, “s” is the number of shares of the security in issue,
“f” is the free float factor published by FTSE Russell, applicable to such security, to be applied to the security
to allow amendments to its weighting, “c” is the capping factor published by FTSE Russell at the most recent quarterly
review of the FTSE China 50 Index, and “d” is the divisor, a figure that represents the total issued share capital
of the FTSE China 50 Index at the base date, which may be adjusted to allow for changes in the issued share capital of individual
securities without distorting the FTSE China 50 Index.
The FTSE China 50 Index uses actual trade
prices for securities with local stock exchange quotations and Reuters real-time spot currency rates for its calculations. Under
this methodology, FTSE Russell subjects the following to free floating restrictions: (i) holdings directly owned by state, regional,
municipal and local governments; (ii) holdings held by public companies or by non-listed subsidiaries of public companies; (iii)
holdings by directors, senior executives and managers of the company and their families and direct relations and by companies with
which they are affiliated; (iv) holdings by founders, promoters, former directors, founding venture capital and private equity
firms; (v) holdings by companies with non-negotiable shares that have not yet been converted following the A Share reform; (vi)
holdings by employee share plans; holdings by sovereign wealth funds of 10% or greater (such shares will remain restricted until
the holding falls below 7%); (vii) shares held for publicly announced strategic reasons; (viii) shares that are subject to on-going
contractual agreements (such as swaps) where they would ordinarily be treated as restricted; (ix) and investments or non-tradeable
A shares subject to lock-in clauses (for the duration of the clause). For clarity, the following holdings are not considered as
restricted free float: portfolio holdings less than 30% (such as pension and insurance funds), nominee holdings, investment company
holdings less than 30%, and holdings by
ETFs. Such free float restrictions are calculated using available published information.
The initial weighting of a FTSE China 50
Index constituent stock is applied in bands, as follows:
|
|
|
Free float less than or equal to 15%
|
|
Subject to a 1 percentage point threshold. For example, Company B on a free float of 8% would trigger a change if its free float moved to above 9% or below 7%. Companies with a free float of 5% or below are excluded.
|
|
|
Free float greater than 15% but less than or equal to 20%
|
|
20%
|
|
|
Free float greater than 20% but less than or equal to 30%
|
|
30%
|
|
|
Free float greater than 30% but less than or equal to 40%
|
|
40%
|
|
|
Free float greater than 40% but less than or equal to 50%
|
|
50%
|
|
|
Free float greater than 50% but less than or equal to 75%
|
|
75%
|
|
|
Free float greater than 75%
|
|
100%
|
These bands are narrow at the lower end,
to ensure that there is sufficient sensitivity in order to maintain accurate representation, and broader at the higher end, in
order to ensure that the weightings of larger companies do not fluctuate absent a significant corporate event.
Following the application of an initial
free float restriction, a FTSE China 50 Index constituent stock’s free float will only be changed if its actual free float
is more than five percentage points above the minimum or five percentage points below the maximum of an adjacent band. This five
percentage point threshold does not apply if the initial free float is less than 15%. Foreign ownership limits, if any, are applied
after calculating the actual free float restriction, but before applying the bands shown above. If the foreign ownership limit
is more restrictive than the free float restriction, the precise foreign ownership limit is applied. If the foreign ownership limit
is less restrictive or equal to the free float restriction, the free float restriction is applied, subject to the bands shown above.
The FTSE China 50 Index is periodically
reviewed for changes in free float. These reviews coincide with the quarterly reviews undertaken of the FTSE China 50 Index. Implementation
of any changes takes place after the close of trading on the third Friday in March, June, September and December. A stock’s
free float is also reviewed and adjusted if necessary following certain corporate events. If the corporate event includes a corporate
action which affects the FTSE China 50 Index, any change in free float is implemented at the same time as the corporate action.
If there is no corporate action, the change in free float is applied as soon as practicable after the corporate event.
The securities are not in any way sponsored,
endorsed, sold or promoted by FTSE International Limited or by the London Stock Exchange Group Plc and neither FTSE International
Limited or LSE makes any warranty or representation whatsoever, expressly or impliedly, either as to the results to be obtained
from the use of the FTSE China 50 Index and/or the figure at which the said Index stands at any particular time on any particular
day or otherwise. The FTSE China 50 Index is compiled and calculated solely by FTSE International Limited. However, neither FTSE
International Limited nor LSE shall be liable (whether in negligence or otherwise) to any person for any error in the FTSE China
50 Index and neither FTSE International Limited nor LSE shall be under any obligation to advise any person of any error therein.
“FTSE
TM
,” “FTSE
Russell” and “Footsie
TM
” are trademarks of the London Stock Exchange Group Plc.
Hang Seng Index
The Hang Seng Index was developed, and
is calculated, maintained and published, by Hang Seng Indexes Company Limited (formerly HSI Services Limited), a wholly owned subsidiary
of the Hang Seng Bank, and was first calculated and
published on November 24, 1969. The Hang Seng
Index is a market capitalization weighted stock market index of the Hong Kong Stock Exchange (“HKSE”) and purports
to be an indicator of the performance of the Hong Kong stock market.
Only companies with a primary listing on
the Main Board of the HKSE are eligible to be constituents of the Hang Seng Index. Mainland China enterprises that have an H-share
listing in Hong Kong are eligible for inclusion in the Hang Seng Index only when they have no unlisted share capital. For any H-share
company included in the Hang Seng Index, only the H-share portion of the share capital of the company will be used for index calculation,
subject to free float adjustment. H-shares are shares of mainland China companies listed on HKSE.
To be eligible for selection in the Hang
Seng Index, a company: (1) must be among those that constitute the top 90% of the total market capitalization of all primary shares
listed on the HKSE (market capitalization is expressed as an average of the past 12 months); (2) must be among those that constitute
the top 90% of the total turnover of all primary listed shares on the HKSE (turnover is aggregated and individually assessed for
eight quarterly sub-periods for the past 24 months); and (3) should normally have a listing history of 24 months or meet certain
other requirements. From the candidates, final selections are based on the following: (1) the market capitalization and turnover
rankings of the companies; (2) the representation of the sub-sectors within the Hang Seng Index directly reflecting that of the
market; and (3) the financial performance of the companies. The Hang Seng Index is reviewed quarterly. A constituent of the Hang
Seng Index will be removed from the Hang Seng Index and replaced by a suitable candidate if it has been suspended from trading
for a long period and it is believed that its shares are unlikely to resume trading in the near future.
Calculation Methodology.
The calculation
methodology of the Hang Seng Index uses a free float-adjusted market capitalization weighting. Under this calculation methodology,
shares held by any entities (excluding custodians, trustees, mutual funds and investment companies) which control more than 5%
of the shareholdings would be considered as non-freefloat and are excluded from index calculation. The freefloat-adjusted factor
(“FAF”), representing the proportion of shares that is freefloated as a percentage of the issued shares, is rounded
up to the nearest 1% for FAFs below 10% and otherwise to the nearest 5% for index calculation. FAFs are reviewed quarterly. For
companies with more than one class of shares, FAF will be calculated separately for each class of shares.
A cap of 10% on individual stock weightings
is applied. A cap factor is calculated quarterly to coincide with the regular update of the free float adjustment factor.
“Hang Seng
®
Index”
is a trademark of Hang Seng Indexes Company Limited. Hang Seng Indexes Company Limited has no obligation to the Hang Seng Index
in connection with the issuance of certain securities. Morgan Stanley is not affiliated with Hang Seng Indexes Company Limited.
The Hang Seng Index is published and compiled
by Hang Seng Indexes Company Limited pursuant to a license from Hang Seng Data Services Limited. The mark and name “Hang
Seng
®
Index” is proprietary to Hang Seng Data Services Limited. Neither Hang Seng Indexes Company Limited
nor Hang Seng Data Services Limited warrants or represents or guarantees to any broker or holder of the securities or any other
person the accuracy or completeness of the Hang Seng Index and its computation or any information related thereto and no warranty
or representation or guarantee of any kind whatsoever relating to the Hang Seng Index is given or may be implied. The process and
basis of computation and compilation of the Hang Seng Index and any of the related formula or formulae, constituent stocks and
factors may at any time be changed or altered by Hang Seng Indexes Company Limited without notice. No responsibility or liability
is accepted by Hang Seng Indexes Company Limited or Hang Seng Data Services Limited in respect of the use of and/or reference to
the Hang Seng Index by Morgan Stanley in connection with the securities, or for any inaccuracies, omissions, mistakes or errors
of Hang Seng Indexes Company Limited in the computation of the Hang Seng Index or for any economic or other loss which may be directly
or indirectly sustained by any broker or holder of the securities for any other person dealing with the securities as a result
thereof and no claims, actions or legal proceedings may be brought against Hang Seng Indexes Company Limited and/or Hang Seng Data
Services Limited in connection with the securities in any manner whatsoever by any broker, holder or other person dealing with
the securities. Any broker, holder or other person dealing with the securities does so therefore in full knowledge of this disclaimer
and can place no reliance whatsoever on Hang Seng Indexes Company Limited and Hang Seng Data Services Limited. For the avoidance
of doubt, this disclaimer does not create any contractual or quasi-contractual relationship between any broker, holder or other
person and Hang Seng Indexes Company Limited and/or Hang Seng Data Services Limited and must not be construed to have created such
relationship.
KOSPI 200 Index
The KOSPI 200 Index is a market capitalization
based index and was developed as an underlying index for derivatives products (index futures and index options) traded on the Korea
Exchange. The calculation of the value of the KOSPI 200 Index (discussed below in further detail) is based on the relative value
of the aggregated current Market Value (as defined
below) of the common stocks of 200 companies
(the “Constituent Stocks”) as of a particular time as compared to the aggregated average Market Value of the common
stocks of 200 companies at the base date of January 3, 1990. The current “Market Value” of any Constituent Stock is
the product of the market price per share and the number of the then outstanding shares of such Constituent Stock. Korea Exchange
(“KRX”) chooses companies for inclusion in the KOSPI 200 Index with an aim of accurately representing overall market
movement. KRX may from time to time, in its sole discretion, add companies to, or delete companies from, the KOSPI 200 Index to
achieve the objectives stated above. The KOSPI 200 Index selects stocks of companies that belong to one of nine industry groups.
The capitalization requirement ensures the high percentage of market capitalization of Constituent Stocks against the total. Stocks
initially listed or relisted after May 1 of the year preceding the year of the periodic realignment review date, stocks designated
as administrative issue as of the periodic realignment review date, stocks of securities investment companies, issues of liquidation
sale and stocks deemed unsuitable are ineligible to become a Constituent Stock of the KOSPI 200 Index.
Basic selection criteria are the average
market capitalization obtained by dividing the aggregated value (attained by multiplying the closing price of the listed common
shares by the number of listed common shares for one year from April of the year preceding the year to which the periodic realignment
review date belongs), by 12, and the sum of daily trading value for the same period. In the case of a stock which has been reclassified
under a different industry group, such stock is grouped with the newly classified industry group.
The Constituent Stocks are chosen on the
basis of rank order of average monthly market capitalization, while ensuring that the accumulated market capitalization of a stock
is at least 80% of the total market capitalization of the same industry group. The number of stocks selected is considered as is
the number of Constituent Stocks chosen from the same industry group. However, a stock is excluded if its ranking of annual trading
value is below 85% of the same industry group, and a stock that satisfies the trading value requirement is chosen from among the
stocks whose market capitalization is ranked next.
Notwithstanding the above criteria, a stock
whose market capitalization is within the top 50 of its industry group may be included in the constituents. The Futures and Options
Index Maintenance Committee (the “KOSPI Committee”) makes the decision while taking into account such factors as the
percentage of market capitalization of the industry group to the total and the liquidity of such stock.
To ensure that the KOSPI 200 Index accurately
represents the overall market movement, its Constituent Stocks are realigned as the need arises. There are two types of realignments:
periodic realignment and special realignment. Periodic realignment takes place regularly once a year, on the trading day following
the day which is the last trading day of June contracts of both the index futures and index options. Special realignment takes
place at the time when a stock has to be excluded from the constituents as a result of, for instance, delisting, designation as
administrative issue or a merger.
The method of periodic realignment is similar
to the method used for selection of Constituent Stocks. However, to maintain constancy of the KOSPI 200 Index, a replacement stock
must both satisfy the criteria for selection of Constituent Stocks, and its ranking of market capitalization should be within 90%
of total market capitalization of the constituents of the same industry group. However, even if an existing Constituent Stock does
not satisfy the criteria for selection of Constituent Stocks, such stock remains a constituent as long as its ranking of market
capitalization is within 110% of the market capitalization of the constituents. In the case of a stock with a market capitalization
ranking that has reached 90% of the total market capitalization of the constituents of the same industry group, such stock is excluded
unless there is an existing Constituent Stock whose ranking falls below 110% of the constituents.
Special realignment is carried out by choosing
a stock from a replacement list prepared beforehand in a priority order by industry group. In the event that the replacement list
includes no stock for a specific industry, a stock is chosen from the manufacturing industry group.
In cases where there is an initial listing
of a stock that is deemed to have high liquidity and is worthy in terms of its impact on KOSPI 200 Index, a Constituent Stock is
merged into non-Constituent Stock or a company is established as result of merger between the constituent, it is possible to include
before the periodic realignment date.
The level of the KOSPI 200 Index reflects
the total current Market Value of all 200 Constituent Stocks relative to the base index of the KOSPI 200 Index as of the base date
of January 3, 1990 (the “Base Index.”), which is 100. An indexed number is used to represent the results of this calculation.
The actual aggregate Market Value of the
Constituent Stocks at the base date (the “KOSPI 200 Base Market Value”) has been set. In practice, the calculation
of the KOSPI 200 Index is computed by dividing the total current aggregated Market Value of the Constituent Stocks by the KOSPI
200 Base Market Value and then multiplying by the Base Index of 100.
In order to maintain the consistency of
the KOSPI 200 Index, the Market Value and KOSPI 200 Base Market Value can be readjusted. Readjustment includes changing the KOSPI
200 Base Market Value when there is an event, such as a distribution of rights or dividends, that affects the stock price, in order
to equalize the stock price index on the day before the event and the stock price index on the day of the event. The following
formula is used:
Current Market Value on the day before the change
|
=
|
Current Market Value on the day before the change
|
+
|
Amount of Change in the Value
|
Old Market Value
|
New KOSPI 200 Base Market Value
|
Current Market Value increases or decreases
when there is a rights offering a new listing, a delisting or merger. Therefore, to maintain consistency, the KOSPI 200 Base Market
Value is adjusted when there is a change in current Market Value, using the following formula:
New KOSPI 200 Base Market Value
|
=
|
Old Market Value
|
x
|
Current Market Value on the day before the change
|
+
|
Amount of change in the current Market Value
|
Current Market Value on the day before the change
|
The KOSPI Committee is charged with reviewing
matters relating to calculation and management of the KOSPI 200 Index. The KOSPI Committee is composed of 10 members who are chosen
as representatives of institutional investors and securities related institutions, legal and accounting professions, and professors
and researchers. The KOSPI Committee is responsible for matters relating to the calculation method of the KOSPI 200 Index; matters
relating to selection and realignment of KOSPI 200 Constituent Stocks; matters relating to establishment, amendment and abolishment
of the criteria for selection of KOSPI 200 Constituent Stocks; and any other matters that are requested by the chief executive
officer of the KRX.
Regular meetings of the KOSPI Committee
are held in May of each year for the purpose of realigning the Constituent Stocks, but a special meeting can be called if need
arises.
Although KRX currently employs the above
methodology to calculate the KOSPI 200 Index, we cannot assure you that KRX will not modify or change this methodology in a manner
that may affect the return on your investment.
The KOSPI 200 Index is selected, compiled,
coordinated, arranged and prepared by KRX, respectively, through the application of methods and standards of judgment used and
developed through the expenditure of considerable work, time and money by KRX. KOSPI 200 Index and the KOSPI marks are the exclusive
property of KRX, that KRX has and retains all property rights therein (including, but not limited to trademarks and copyrights)
and that the KOSPI 200 Index and its compilation and composition and changes therein are in the complete control and sole discretion
of KRX.
MSCI International Equity Indices
MSCI International Equity Indices are calculated,
published and disseminated daily by MSCI Inc. (“MSCI”), through numerous data vendors, on the MSCI website and a majority
of them in real time on Bloomberg Financial Markets and Reuters Limited.
The MSCI International Equity Indices are
calculated for 80 countries globally in the developed, emerging and frontier markets. The MSCI International Equity Indices include,
among others, MSCI EAFE Index, MSCI Emerging Markets Index, MSCI Europe Index, MSCI World Index, MSCI World Real Estate Index,
MSCI Australia Index, MSCI Belgium Index, MSCI Brazil Index, MSCI France Index, MSCI Italy Index, MSCI Japan Index, MSCI Pacific
Ex-Japan Index, MSCI Singapore Index, MSCI Spain Index, MSCI Switzerland Index, MSCI Taiwan Index and MSCI USA Index. MSCI implemented
enhancements to the methodology of the MSCI International Equity Indices in May 2008. In an attempt to provide broader coverage
of the equity markets, MSCI moved from a sampled multi-cap approach to an approach targeting exhaustive coverage with non-overlapping
size and segments. MSCI combined the MSCI Global Standard and MSCI Global Small Cap Indices to form the MSCI Global Investable
Market Indices, segmented by region/country, size (large, mid and small cap), value/growth styles and Global Industry Classification
Standard (“GICS
®
”) sectors/industries. The MSCI Global Standard and MSCI Global Small Cap Indices, along
with the other MSCI equity indices based on them, transitioned to the MSCI Global Investable Market Indices methodology. The transition
was completed at the end of May 2008. For more details, please see “– MSCI Global Investable Market Indices Methodology.”
Certain securities traded outside of their
country of classification (i.e., “foreign listings”) are eligible for inclusion in certain MSCI Country Investable
Market Indexes within the MSCI Global Investable Market Indices. Foreign listings are eligible to represent securities only from
countries that meet the Foreign Listing Materiality Requirement. To meet the Foreign Listing Materiality Requirement, the aggregate
market capitalization of all securities represented by foreign listings should represent at least (i) 5% of the free float-adjusted
market capitalization of the relevant MSCI Country Investable Market Index and (ii) 0.05% of the free-float adjusted market capitalization
of the MSCI ACWI (All Country World Index) Investable Market Index.
MSCI EAFE Index
®
The MSCI EAFE Index
®
is
a free float-adjusted market capitalization index that is designed to measure the equity market performance of developed markets,
excluding the United States and Canada. As of July 2017, the MSCI EAFE Index consisted of the following 21 developed market country
indices: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands,
New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland and the United Kingdom. The MSCI EAFE Index includes components
from all countries in Europe, Australia and the Far East that are designated by MSCI as Developed Markets. The MSCI EAFE Index
was developed with a base value of 100 as of December 31, 1969. The MSCI EAFE Index is reported by Bloomberg Financial Markets
under ticker symbol “MXEA.”
MSCI Emerging Markets Index
SM
The MSCI Emerging Markets Index
SM
is a free float-adjusted market capitalization index that is designed to measure the equity market performance of emerging markets.
As of July 2017, the MSCI Emerging Markets Index consisted of the following 24 emerging market country indices: Brazil, Chile,
China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Pakistan, Peru, Philippines,
Poland, Qatar, Russia, South Africa, Taiwan, Thailand, Turkey and United Arab Emirates. The MSCI Emerging Markets Index includes
components from all countries designated by MSCI as Emerging Markets. The MSCI Emerging Markets Index was developed with a base
value of 100 as of December 31, 1987. The MSCI Emerging Markets Index is reported by Bloomberg Financial Markets under ticker symbol
“MXEF.”
MSCI Europe Index
SM
The MSCI Europe Index
SM
is a
free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of the developed
markets in Europe. As of July 2017, the MSCI Europe Index consisted of the following 15 developed market country indices: Austria,
Belgium, Denmark, Finland, France, Germany, Ireland, Italy, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and the
United Kingdom. The MSCI Europe Index was developed with a base value of 100 as of December 31, 1998. The MSCI Europe Index is
reported by Bloomberg Financial Markets under ticker symbol “MXEU.”
MSCI All Country World Index
SM
The MSCI All Country World Index
SM
is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed
and emerging markets. As of July 2017, the MSCI All Country World Index consisted of 46 country indices comprising 23 developed
and 24 emerging market country indices. The developed market country indices included are: Australia, Austria, Belgium, Canada,
Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, Netherlands, New Zealand, Norway, Portugal, Singapore,
Spain, Sweden, Switzerland, the United Kingdom and the United States. The emerging market country indices included are: Brazil,
Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Pakistan, Peru, Philippines,
Poland, Qatar, Russia, South Africa, Taiwan, Thailand, Turkey and United Arab Emirates. The MSCI All Country World Index was developed
with a base value of 100 as of December 31, 1987. The MSCI All Country World Index is reported by Bloomberg Financial Markets under
ticker symbol “MXWD.”
MSCI World Index
SM
The MSCI World Index
SM
is a
free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed
markets. As of July 2017, the MSCI World Index consisted of the following 23 developed market country indices: Australia, Austria,
Belgium, Canada, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway,
Portugal, Singapore, Spain, Sweden, Switzerland, the United Kingdom and the United States. The MSCI World Index was developed with
a base value of 100 as of December 31, 1969. The MSCI World Index is reported by Bloomberg Financial Markets under ticker symbol
“MXWO.”
MSCI World Real Estate Index
SM
The MSCI World Real Estate Index
SM
is a sub-index of the MSCI World Index and represents only securities in the GICS Real Estate Industry Group. The MSCI World Real
Estate Index was developed with a base value of 100 as of December 31, 1998. The MSCI World Real Estate Index is reported by Bloomberg
Financial Markets under ticker symbol “MXWO0RE.”
MSCI Australia Index
SM
The MSCI Australia Index
SM
is
a free float-adjusted market capitalization index intended to reflect the sectoral diversity of the Australian equity market and
to represent Australian companies that are available to investors worldwide. Securities listed on the Australian Securities Exchange
are eligible for inclusion in the MSCI Australia Index. The MSCI Australia Index was developed with a base value of 100 as of December
31, 1969. The MSCI Australia Index is reported by Bloomberg Financial Markets under ticker symbol “MXAU.”
MSCI Belgium Index
SM
The MSCI Belgium Index
SM
is
a free float-adjusted market capitalization index intended to reflect the sectoral diversity of the Belgian equity market and to
represent Belgian companies that are available to investors worldwide. Securities listed on the Euronext are eligible for inclusion
in the MSCI Belgium Index. The MSCI Belgium Index was developed with a base value of 100 as of December 31, 1998. The MSCI Belgium
Index is reported by Bloomberg Financial Markets under ticker symbol “MXBE.”
MSCI Brazil Index
SM
The MSCI Brazil Index
SM
is a
free float-adjusted market capitalization index intended to reflect the sectoral diversity of the Brazilian equity market and to
represent Brazilian companies that are available to investors worldwide. Securities listed on the Sao Paulo Stock Exchange are
eligible for inclusion in the MSCI Brazil Index. The MSCI Brazil Index was developed with a base value of 100 as of December 31,
1987. The MSCI Brazil Index is reported by Bloomberg Financial Markets under ticker symbol “MXBR.”
MSCI France Index
SM
The MSCI France Index
SM
is a
free float-adjusted market capitalization index intended to reflect the sectoral diversity of the French equity market and to represent
French companies that are available to investors worldwide. Securities listed on the Euronext are eligible for inclusion in the
MSCI France Index. The MSCI France Index was developed with a base value of 100 as of December 31, 1998. The MSCI France Index
is reported by Bloomberg Financial Markets under ticker symbol “MXFR.”
MSCI Italy Index
SM
The MSCI Italy Index
SM
is a
free float-adjusted market capitalization index intended to reflect the sectoral diversity of the Italian equity market and to
represent Italian companies that are available to investors worldwide. Securities listed on the Borsa Italiana (formerly known
as the Italian Stock Exchange) are eligible for inclusion in the MSCI Italy Index. The MSCI Italy Index was developed with a base
value of 100 as of December 31, 1998. The MSCI Italy Index is reported by Bloomberg Financial Markets under ticker symbol “MXIT.”
MSCI Japan Index
SM
The MSCI Japan Index
SM
is a
free-float adjusted market capitalization weighted index that is designed to track the equity market performance of Japanese securities
listed on the Tokyo Stock Exchange, JASDAQ and the Nagoya Stock Exchange. The MSCI Japan Index is constructed based on the MSCI
Global Investable Market Indices Methodology, targeting a free-float market capitalization coverage of 85%. The index has a base
date of December 31, 1987 with a base value of 100 as of December 31, 1969. The MSCI Japan Index is reported by Bloomberg Financial
Markets under ticker symbol “MXJP.”
MSCI Pacific Ex-Japan Index
SM
The MSCI Pacific Ex-Japan Index
SM
is a free float-adjusted market capitalization weighted index designed to measure the equity market performance of the developed
markets in the Pacific region, excluding Japan. As of July 2017, the MSCI Pacific Ex-Japan Index consisted of the following 4 developed
market country indices: Australia, Hong Kong, New Zealand and Singapore. The MSCI Pacific Ex-Japan Index was developed with a base
value of 100 as of December 31, 1969. The MSCI Pacific Ex-Japan Index is reported by Bloomberg Financial Markets under ticker symbol
“MXPCJ.”
MSCI Singapore Index
SM
The MSCI Singapore Index
SM
is
a free float-adjusted market capitalization index intended to reflect the sectoral diversity of the Singaporean equity market and
to represent Singaporean companies that are available to investors worldwide. Securities listed on the Singapore Exchange are eligible
for inclusion in the MSCI Singapore Index unless the securities are listed on the Singapore Exchange’s “Watch-list”.
The MSCI Singapore Index was developed with a base value of 100 as of December 31, 1969. The MSCI Singapore Index is reported by
Bloomberg Financial Markets under ticker symbol “MXSG.”
MSCI Spain Index
SM
The MSCI Spain Index
SM
is a
free float-adjusted market capitalization index intended to reflect the sectoral diversity of the Spanish equity market and to
represent Spanish companies that are available to investors worldwide. Securities listed on the Madrid Stock Exchange are eligible
for inclusion in the MSCI Spain Index. The MSCI Spain Index was developed with a base value of 100 as of December 31, 1998. The
MSCI Spain Index is reported by Bloomberg Financial Markets under ticker symbol “MXES.”
MSCI Switzerland Index
SM
The MSCI Switzerland Index
SM
is a free float-adjusted market capitalization index intended to reflect the sectoral diversity of the Swiss equity market and
to represent Swiss companies that are available to investors worldwide. Securities listed on the SIX Swiss Exchange are eligible
for inclusion in the MSCI Switzerland Index. The MSCI Switzerland Index was developed with a base value of 100 as of December 31,
1969. The MSCI Switzerland Index is reported by Bloomberg Financial Markets under ticker symbol “MXCH.”
MSCI Taiwan Index
SM
The MSCI Taiwan Index
SM
is a
free-float adjusted market capitalization weighted index that is designed to track the equity market performance of Taiwanese securities
listed on the Taiwan Stock Exchange or the Taipei Exchange. Securities listed on an exchange’s “Altered-Trading-Method”
category are ineligible for inclusion. The MSCI Taiwan Index is constructed based on the MSCI Global Investable Market Indices
Methodology, targeting a free-float market capitalization coverage of 85%. The MSCI Taiwan Index has a base date of December 31,
1987. The MSCI Taiwan Index is reported by Bloomberg Financial Markets under ticker symbol “TAMSCI.”
MSCI USA Index
SM
The MSCI USA Index
SM
is a free
float-adjusted market capitalization index intended to reflect the sectoral diversity of the United States equity market and to
represent United States companies that are available to investors worldwide.
Securities listed on the New York Stock Exchange,
NASDAQ and NYSE MKT Equities are eligible for inclusion in the MSCI USA Index. The MSCI USA Index was developed with a base value
of 100 as of December 31, 1969. The MSCI USA Index is reported by Bloomberg Financial Markets under ticker symbol “MXUS.”
MSCI Global Investable Market Indices Methodology
Constructing the MSCI Global Investable Market
Indices
MSCI undertakes an index construction
process, which involves: (i) identifying eligible equity securities and classifying those eligible securities into the appropriate
country (defining the “Equity Universe”); (ii) applying investability screens to individual companies and securities
in the Equity Universe that are classified in that market (determining the “Market Investable Equity Universe” for
each market); (iii) determining market capitalization size segments for each market; (iv) applying index continuity
rules for an index that includes 85% ± 5% of the Market Investable Equity Universe (the “MSCI Standard Index”);
(v) creating style segments within each size segment within each market; and (vi) classifying securities under the Global
Industry Classification Standard
(“GICS
®
”)
.
Defining the Equity Universe
(i) Identifying Eligible Equity Securities:
The Equity Universe initially looks at securities listed in countries which are classified as either developed markets (“Developed
Market” or “DM”) or emerging markets (“Emerging Market” or “EM”). All listed equity securities,
or listed securities that exhibit characteristics of equity securities, except mutual funds (U.S. Business Development Companies
are eligible), exchange-traded funds, equity derivatives, limited partnerships, and most investment trusts, are eligible for inclusion
in the Equity Universe. Real Estate Investment Trusts (REITs) in some countries and certain income trusts in Canada are also eligible
for inclusion.
(ii) Country Classification of Eligible
Securities: Each company and its securities (i.e., share classes) is classified in one and only one country, which allows for sorting
of each company by its respective country.
Defining Market Capitalization Size
Segments for Each Market
Once a Market Investable Equity Universe
is defined, it is segmented into the following size-based indices:
|
•
|
|
Investable Market Index (Large + Mid + Small)
|
|
•
|
|
Standard Index (Large + Mid)
|
Creating the Size Segment Indices in each
market involves the following steps: (i) defining the Market Coverage Target Range for each size segment; (ii) determining
the Global Minimum Size Range for each size segment; (iii) determining the Market Size-Segment Cutoffs and associated Segment
Number of Companies; (iv) assigning companies to the size segments; and (v) applying final size-segment investability
requirements and index continuity rules.
Index Continuity Rules for the Standard
Indices
In order to achieve index continuity, as
well as provide some basic level of diversification within a market index, notwithstanding the effect of other index construction
rules, a minimum number of five constituents will be maintained for a DM Standard Index and a minimum number of three constituents
will be maintained for an EM Standard Index. The application of this requirement involves the following steps:
If after the application of the index construction
methodology, a Standard Index contains fewer than five securities in a Developed Market or three securities in an Emerging Market,
then the largest securities by free float-adjusted market capitalization are added to the Standard Index in order to reach five
constituents in that Developed Market or three in that Emerging Market. At subsequent Index Reviews, if the free float-adjusted
market capitalization of a non-index constituent is at least 1.50 times the free float-adjusted market capitalization of the smallest
existing constituent after rebalancing, the larger free float-adjusted market capitalization security replaces the smaller one.
When the index continuity rule is in effect,
the market size-segment cutoff is set at 0.5 times the global minimum size reference for the Standard Index rather than the full
market capitalization of the smallest company in that market’s Standard Index.
Creating Style Indices within Each Size
Segment
All securities in the investable equity
universe are classified into Value or Growth segments using the MSCI Global Value and Growth methodology.
Classifying Securities under the Global
Industry Classification Standard (“GICS
®
”)
All securities in the Global Investable
Equity Universe are assigned to the industry that best describes their business activities. To this end, MSCI has designed, in
conjunction with S&P Dow Jones Indices LLC, the GICS. The GICS entails four levels of classification: (1) sector; (2) industry
group; (3) industries; and (4) sub-industries. Under the GICS, each company is assigned to one sub-industry according to its principal
business activity. Therefore, a company can belong to only one industry grouping at each of the four levels of the GICS.
Index Maintenance
The MSCI Global Investable Market Indices
are maintained with the objective of reflecting the evolution of the underlying equity markets and segments on a timely basis,
while seeking to achieve index continuity, continuous investability of constituents and replicability of the indices, and index
stability and low index turnover.
In particular, index maintenance involves:
(i) Semi-Annual Index Reviews (“SAIRs”)
in May and November of the Size Segment and Global Value and Growth Indices which include:
|
•
|
|
Updating the indices on the basis of a fully refreshed Equity Universe.
|
|
•
|
|
Taking buffer rules into consideration for migration of securities across size and style segments.
|
|
•
|
|
Updating Foreign Inclusion Factor (“FIF”) and Number of Shares (“NOS”).
|
The objective of the SAIRs is to systematically
reassess the various dimensions of the Equity Universe for all markets on a fixed semi-annual timetable. A SAIR involves a comprehensive
review of the Size Segment and Global Value and Growth Indices. During each SAIR, the equity universe is updated and the global
minimum size range is recalculated for each size segment. Among other index maintenance activities, for each market, new equity
securities are identified and tested for inclusion in the relevant index, and existing component securities are evaluated to ensure
they meet the revised requirements for inclusion in the relevant index.
(ii) Quarterly Index Reviews (“QIRs”)
in February and August (in addition to the SAIRs in May and November) of the Size Segment Indices aimed at:
|
•
|
|
Including significant new eligible securities (such as IPOs that were not eligible for earlier inclusion) in the index.
|
|
•
|
|
Allowing for significant moves of companies within the Size Segment Indices, using wider buffers than in the SAIR.
|
|
•
|
|
Reflecting the impact of significant market events on FIFs and updating NOS.
|
QIRs are designed to ensure that the indices
continue to be an accurate reflection of the evolving equity marketplace. This is achieved by a timely reflection of significant
market driven changes that were not captured in the index at the time of their actual occurrence but are significant enough to
be reflected before the next SAIR. QIRs may result in additions or deletions due to migration to another Size Segment Index, and
changes in FIFs and in NOS. Only additions of significant new investable companies are considered, and only for the Standard Index.
The buffer zones used to manage the migration of companies from one segment to another are wider than those used in the SAIR. The
style classification is reviewed only for companies that are reassigned to a different size segment.
(iii) Ongoing event-related changes. Ongoing
event-related changes to the indices are the result of mergers, acquisitions, spin-offs, bankruptcies, reorganizations and other
similar corporate events. They can also result from capital reorganizations in the form of rights issues, bonus issues, public
placements and other similar corporate actions that take place on a continuing basis. These changes generally are reflected in
the indices at the time of the event. Significantly large IPOs are included in the indices after the close of the company’s
tenth day of trading.
Announcement Policy
The results of the SAIRs are announced
at least two weeks in advance of their effective implementation dates as of the close of the last business day of May and November.
The results of the QIRs are announced at
least two weeks in advance of their effective implementation dates as of the close of the last business day of February and August.
All changes resulting from corporate events
are announced prior to their implementation in the MSCI indices.
The changes are typically announced at
least ten business days prior to the changes becoming effective in the indices as an “expected” announcement, or as
an “undetermined” announcement, when the effective dates are not known yet or when aspects of the event are uncertain.
MSCI sends “confirmed” announcements at least two business days prior to events becoming effective in the indices,
provided that all necessary public information concerning the event is available. The full list of all new and pending changes
is delivered to clients on a daily basis, between 5:30 p.m. and 6:00 p.m., U.S. Eastern Time.
In exceptional cases, events are announced
during market hours for same or next day implementation. Announcements made by MSCI during market hours are usually linked to late
company disclosure of corporate events or unexpected changes to previously announced corporate events.
In the case of secondary offerings representing
at least 5% of a security’s number of shares for existing constituents, these changes will be announced prior to the end
of the subscription period when possible and a subsequent announcement confirming the details of the event (including the date
of implementation) will be made as soon as the results are available.
Both primary equity offerings and secondary
offerings for U.S. securities, representing at least 5% of the security’s number of shares, will be confirmed through an
announcement during market hours for next day or shortly after implementation, as the completion of the events cannot be confirmed
prior to the notification of the pricing.
Early deletions of constituents due to
bankruptcy or other significant cases are announced as soon as practicable prior to their implementation in the MSCI indices.
For
Standard Index constituents, a more descriptive text announcement is sent to clients for significant events that meet any of the
following criteria:
|
•
|
Additions
and deletions of constituents.
|
|
•
|
Changes
in free float-adjusted market capitalization equal to or larger than USD 5 billion, or
with an impact of at least 1% of the constituent’s underlying country index.
|
If
warranted, MSCI Inc. may make additional announcements for events that are complex in nature and for which additional clarification
could be beneficial.
IPOs
and Other Early Inclusions
. Early inclusions of large IPOs in the MSCI Standard Index Series are announced no earlier
than the first day of trading and no later than before the opening of the third day of trading in the market where the company
has its primary listing. Early inclusions of already listed securities following large secondary offerings of new and/or existing
shares are announced no earlier than shortly after the end of the offer period.
GICS
®
.
Non-event related changes in industry classification at the sub-industry level are announced at least two weeks prior to their
implementation as of the close of the last U.S. business day of each month. MSCI announces GICS changes twice a month, the first
announcement being made on the first U.S. business day of the month and the second one being made at least ten U.S. business days
prior to the last U.S. business day of the month. All GICS changes announced in a given month will be implemented as of the close
of the last U.S. business day of the month.
Index Calculation
Price Index Level
The MSCI indices are calculated using the
Laspeyres’ concept of a weighted arithmetic average together with the concept of chain-linking. As a general principle, the
level of the relevant MSCI index level is obtained by applying the change in the market performance to the previous period level
for such MSCI index.
PriceIndexLevelUSD
t
=
PriceIndexLevelUSD
t
-1
×
|
|
IndexAdjustedMarketCapUSD
t
|
|
|
IndexInitialMarketCapUSD
t
|
|
PriceIndexLevelLocal
t
=
PriceIndexLevelLocal
t
-1
×
|
|
IndexAdjustedMarketCapForLocal
t
|
|
|
|
IndexInitialMarketCapUSD
t
|
|
|
|
·
|
PriceIndexLevelUSD
t
-1
is the Price Index level in USD at time t-1
|
|
·
|
IndexAdjustedMarketCapUSD
t
is the Adjusted Market Capitalization of the index in USD at time t
|
|
·
|
IndexInitialMarketCapUSD
t
is the Initial Market Capitalization of the index in USD at time t
|
|
·
|
PriceIndexLevelLocal
t
-1
is the Price Index level in local currency at time t-1
|
|
·
|
IndexAdjustedMarketCapForLocal
t
is the Adjusted Market Capitalization of the index in USD converted using
FX rate as of t-1 and used for local currency index at time t
|
Note:
IndexInitialMarketCapUSD
was previously called
IndexUnadjustedMarketCapPreviousUSD
Security Index of Price in Local Currency
The Security Index of Price is distributed
in MSCI daily and monthly security products. It represents the price return from period to period by utilizing the concept of an
index of performance with an arbitrary base value. The index of price is fully adjusted for capital changes and is expressed in
local currency.
SecurityPriceIndexLevel
1
=
SecurityPriceIndexLevel
t
-1
×
|
|
SecurityAdjustedMarketCapForLocal
t
|
|
|
|
SecurityInitialMarketCapUSD
t
|
|
|
SecurityAdjustedMarketCapForLocal
t
=
|
|
|
EndOfDayNumberOfShares
t
-1
×
PricePerShare
t
×
InclusionFactor
t
×
PAF
t
|
|
×
|
|
ICI
t
|
|
|
FXrate
t
-1
|
|
|
ICI
t
-1
|
|
|
SecurityInitialMarketCapUSD
t
=
|
|
EndOfDayNumberOfShares
t
-1
×
PricePerShare
t
-1
×
InclusionFactor
t
|
|
|
|
FXrate
t
-1
|
|
|
|
·
|
SecurityPriceIndexLevel
t
-1
is Security Price Index level at time t-1.
|
|
·
|
SecurityAdjustedMarketCapForLocal
t
is the Adjusted Market Capitalization of security s in USD converted
using FX rate as of t-1.
|
|
·
|
SecurityInitialMarketCapUSD
t
is the Initial Market Capitalization of security s in USD at time t.
|
|
·
|
EndOfDayNumberOfShares
t
-1
is the number of shares of security s at time t-1.
|
|
·
|
PricePerShare
t
is the price per share of security s at time t.
|
|
·
|
PricePerShare
t
-1
is the price per share of security s at time t-1.
|
|
·
|
InclusionFactor
t
is the inclusion factor of security s at time t. The inclusion factor can be one or the
combination of the following factors: Foreign Inclusion Factor, Domestic Inclusion Factor Growth Inclusion Factor, Value Inclusion
Factor, Index Inclusion Factor.
|
|
·
|
PAF
t
is the Price Adjustment Factor (“PAF”) of security s at time t.
|
|
·
|
FXrate
t
-1
is the FX rate of the price currency of security s vs USD at time t-1. It is the value
of 1 USD in foreign currency.
|
|
·
|
ICI
t
is the Internal Currency Index of price currency at time t. The ICI is different than 1 when a country
changes the internal value of its currency (
e.g.
from Turkish Lira to New Turkish Lira – ICI = 1,000,000).
|
|
·
|
ICI
t
-1
is the Internal Currency Index of price currency at time t-1.
|
Index Market Capitalization
IndexAdjustedMarketCapUSD
t
=
å
s ε
I,t
|
End of Day Number of Shares
t-1
×
Price Per Share
t
×
Inclusion Factor
t
×
PAF
t
|
FXrate
t
|
IndexAdjustedMarketCapForLocal
t
=
å
s ε
I,t
|
|
(
|
End of Day Number of Shares
t-1
×
Price Per Share
t
×
Inclusion Factor
t
×
PAF
t
|
×
|
|
ICI
t
|
|
)
|
|
FXrate
t-1
|
|
ICI
t-1
|
|
IndexInitialMarketCapUSD
t
=
å
s ε
I,t
|
End of Day Number of Shares
t-1
×
Price Per Share
t
×
Inclusion Factor
t
|
FXratet-1
|
|
·
|
EndOfDayNumberOfShares
t
-1
is the number of shares of security s at the end of day t-1.
|
|
·
|
PricePerShare
t
is the price per share of security s at time t.
|
|
·
|
PricePerShare
t
-1
is the price per share of security s at time t-1.
|
|
·
|
InclusionFactor
t
is the inclusion factor of security s at time t. The inclusion factor can be one or the
combination of the following factors: Foreign Inclusion Factor, Domestic Inclusion Factor Growth Inclusion Factor, Value Inclusion
Factor, Index Inclusion Factor.
|
|
·
|
PAF
t
is the Price Adjustment Factor of security s at time t.
|
|
·
|
FXrate
t
is the FX rate of the price currency of security s vs USD at time t. It is the value of 1 USD in
foreign currency.
|
|
·
|
FXrate
t
-1
is the FX rate of the price currency of security s vs USD at time t-1. It is the value
of 1 USD in foreign currency.
|
|
·
|
ICI
t
is the Internal Currency Index of price currency at time t. The ICI is different than 1 when a country
changes the internal value of its currency (
e.g.
from Turkish Lira to New Turkish Lira, ICI = 1,000,000).
|
|
·
|
ICI
t-1
is the Internal Currency Index of price currency at time t-1.
|
Corporate Events
Mergers and Acquisitions.
As a general
principle, MSCI implements M&As as of the close of the last trading day of the acquired entity or merging entities (last offer
day for tender offers), regardless of the status of the securities (index constituents or non-index constituents) involved in the
event. MSCI uses market prices for implementation. This principle applies if all necessary information is available prior to the
completion of the event and if the liquidity of the relevant constituent(s) is not expected to be significantly diminished on the
day of implementation. Otherwise, MSCI will determine the most appropriate implementation method and announce it prior to the changes
becoming effective in the indices.
For U.S. mergers and acquisitions, where
the delisting date for the acquired security is not available in advance and the completion of the transaction may be delayed due
to, for example, the existence of financing conditions, MSCI will wait until the official announcement of the completion of the
deal to delete the security and will give advance notice before the deletion. However, if the delisting date for the acquired security
is not available in advance, and the transaction is not subject to any financing conditions, MSCI will delete such securities shortly
after the relevant shareholders’ approvals, provided that all other conditions required for completion of the transaction
have been met. If the deletion of securities after the official announcement of the completion of a deal results in deleting securities
after they have ceased trading. MSCI will use the following deletion prices:
|
·
|
the last traded price before the delisting if the acquisition is for cash; or
|
|
·
|
a calculated price based on the terms of the acquisition and the market share price of the acquirer if the acquisition is for
shares or cash and shares.
|
Tender Offers.
In tender offers,
the acquired or merging security is generally deleted from the MSCI indices at the end of the initial offer period, when the offer
is likely to be successful and / or if the free float of the security is likely to be substantially reduced below 15% of shares
outstanding that are available for purchase in the public equity markets by international investors (this rule is applicable even
if the offer is extended), or once the results of the offer have been officially communicated and the offer has been successful
and the security’s free float has been substantially reduced, if all required information is not available in advance or
if the offer’s outcome is uncertain. The main factors considered by MSCI when assessing the outcome of a tender offer (not
in order of importance) are: the announcement of the offer as friendly or hostile, a comparison of the offer price to the acquired
security’s market price, the recommendation by the acquired company’s board of directors, the major shareholders’
stated intention whether to tender their shares, the required level of acceptance, the existence of pending regulatory approvals,
market perception of the transaction, official preliminary results if any, and other additional conditions for the offer.
If a security is deleted from an index,
the security will not be reinstated immediately after its deletion even when the tender offer is subsequently declared unsuccessful
and/or the free float of the security is not substantially reduced. It may be reconsidered for index inclusion in the context of
a quarterly index review or annual full country index review. MSCI uses market prices for implementation.
Late Announcements of Completion of
Mergers and Acquisitions.
When the completion of an event is announced too late to be reflected as of the close of the last
trading day of the acquired or merging entities, implementation occurs as of the
close of the following day or as soon as practicable thereafter.
In these cases, MSCI uses a calculated price for the acquired or merging entities. The calculated price is determined using the
terms of the transaction and the price of the acquiring or merged entity, or, if not appropriate, using the last trading day’s
market price of the acquired or merging entities.
Conversions of Share Classes.
Conversions
of a share class into another share class resulting in the deletion and/or addition of one or more classes of shares are implemented
as of the close of the last trading day of the share class to be converted.
Spin-Offs.
On the ex-date of a spin-off,
a PAF is applied to the price of the security of the parent company. The PAF is calculated based on the terms of the transaction
and the market price of the spun-off security. If the spun-off entity qualifies for inclusion, it is included as of the close of
its first trading day. In order to decide whether the spun-off entity qualifies for inclusion, the full company market capitalization
of the spun-off entity is estimated by MSCI prior to the spin-off being effective. These estimates are typically based on public
information provided by the parent company, including amongst others the spin-off prospectus and estimates from brokers.
In cases of spin-offs of partially-owned
companies, the post-event free float of the spun-off entity is calculated using a weighted average of the existing shares and the
spun-off shares, each at their corresponding free float. Any resulting changes to FIFs and/or Domestic Inclusion Factors (“DIFs”)
are implemented as of the close of the ex-date.
When the spun-off security does not trade
on the ex-date, a “detached” security is created to avoid a drop in the free float-adjusted market capitalization of
the parent entity, regardless of whether the spun-off security is added or not. The detached security is included until the spun-off
security begins trading, and is deleted thereafter. Generally, the value of the detached security is equal to the difference between
the cum price and the ex price of the parent security.
Corporate Actions.
Corporate actions
such as splits, bonus issues and rights issues, which affect the price of a security, require a price adjustment. In general, the
PAF is applied on the ex-date of the event to ensure that security prices are comparable between the ex-date and the cum date.
To do so, MSCI adjusts for the value of the right and/or the value of the special assets that are distributed. In general, corporate
actions do not impact the free float of the securities because the distribution of new shares is carried out on a pro rata basis
to all existing shareholders. Therefore, MSCI will generally not implement any pending number of shares and/or free float updates
simultaneously with the event.
If a security does not trade for any reason
on the ex-date of the corporate action, the event will be generally implemented on the day the security resumes trading.
Share Placements and Offerings.
Changes in number of shares and FIF resulting from primary equity offerings representing at least 5% of the security’s number
of shares are generally implemented as of the close of the first trading day of the new shares, if all necessary information is
available at that time. Otherwise, the event is implemented as soon as practicable after the relevant information is made available.
A primary equity offering involves the issuance of new shares by a company. Changes in number of shares and FIF resulting from
primary equity offerings representing less than 5% of the security’s number of shares are deferred to the next regularly
scheduled Index Review following the completion of the event. For public secondary offerings of existing constituents representing
at least 5% of the security’s number of shares, where possible, MSCI will announce these changes and reflect them shortly
after the results of the subscription are known. Secondary public offerings that, given lack of sufficient notice, were not reflected
immediately will be reflected at the following regularly scheduled Index Review. Secondary offerings involve the distribution of
existing shares of current shareholders in a listed company and are usually pre-announced by a company or by a company’s
shareholders and open for public subscription during a pre-determined period. For U.S. securities, increases in number of shares
and changes in FIFs and/or DIFs resulting from primary equity offerings and from secondary offerings representing at least 5% of
the security’s number of shares will be implemented as soon as practicable after the offering is priced. Generally, implementation
takes place as of the close of the same day that the pricing of the shares is made public. If this is not possible, the implementation
will take place as of the close of the following trading day.
Debt-to-Equity Swaps.
In general,
large debt-to-equity swaps involve the conversion of debt into equity originally not convertible at the time of issue. In this
case, changes in numbers of shares and subsequent FIF and/or DIF changes are implemented as of the close of the first trading day
of the newly issued shares, or shortly thereafter if all necessary information is available at the time of the swap. In general,
shares issued in debt-to-equity swaps are assumed to be issued to strategic investors. As such, the post-event free float is calculated
on a pro forma basis assuming that all these shares are non-free float. Changes in numbers of shares and subsequent FIF and/or
DIF changes due to conversions of convertible bonds or other convertible instruments, including periodical conversions of preferred
stocks and small debt-to-equity swaps are implemented as part of the quarterly index review.
Optional
Dividends
. In the case of an optional dividend, the company offers shareholders the choice of receiving the dividend either
in cash or in shares. However, shareholders electing the cash option may receive the dividend consideration in
cash or shares, or
some combination of cash and shares. These dividends are a common practice in the U.S. For dividend reinvestment purposes, MSCI
assumes that investors elect the cash option, therefore the dividend is reinvested in the MSCI Daily Total Return Indices and
price adjustment is not necessary (if the dividend is less than 5% of the cum market price of the underlying security). In the
event that shareholders electing the cash option receive the dividend distribution in shares, or a combination of cash and shares,
MSCI will increase the number of shares accordingly after results have been officially communicated, with two full business days’
notice.
Suspensions, Delistings and Bankruptcies.
MSCI will remove from the MSCI Equity Index Series as soon as practicable companies that file for bankruptcy, companies that file
for protection from their creditors, and companies that fail stock exchange listing requirements with announcements of delisting
from the stock exchanges. MSCI will delete from the MSCI Equity Indexes after 50 business days of suspension, where feasible, securities
of companies facing financial difficulties (e.g., liquidity issues, debt repayment issues, companies under legal investigation)
with at least two business days’ advance notice. Subsequently, if and when these securities resume normal trading, they may
be considered as a potential addition to the MSCI Indexes at the next scheduled Semi-Annual Index Review based on the rules described
in the section 3.1 of the MSCI Global Investable Market Indexes Methodology Book. In certain cases, when the financial situation
of companies may not be transparent to the public, after 50 business days of suspension, MSCI may keep these companies longer in
the Indexes and may delete them at one of the following Index Reviews.
Securities of companies suspended due to
pending corporate events (e.g., merger, acquisition, etc.), will continue to be maintained in the MSCI Indices until they resume
trading regardless of the duration of the suspension period. When the primary exchange price is not available, MSCI will delete
securities at an over the counter or equivalent market price when such a price is available and deemed relevant. If no over the
counter or equivalent price is available, the security will be deleted at the smallest price (unit or fraction of the currency)
at which a security can trade on a given exchange. For securities that are suspended, MSCI will carry forward the market price
prior to the suspension during the suspension period.
Certain MSCI Indices are Subject to
Currency Exchange Risk.
Because the closing prices of the component securities are converted into U.S. dollars for purposes
of calculating the value of certain MSCI indices, investors in the securities linked to such MSCI indices will be exposed to currency
exchange rate risk. Exposure to currency changes will depend on the extent to which the relevant currency strengthens or weakens
against the U.S. dollar. The devaluation of the U.S. dollar against the applicable currency will result in an increase in the value
of the relevant index. Conversely, if the U.S. dollar strengthens against such currency, the value of such index will be adversely
affected and may reduce or eliminate any return on your investment. Fluctuations in currency exchange rates can have a continuing
impact on the value of the indices, and any negative currency impact on the indices may significantly decrease the value of the
securities. The return on an index composed of the component securities where the closing price is not converted into U.S. dollars
can be significantly different than the return on the indices which are converted into U.S. dollars.
THE SECURITIES ARE NOT SPONSORED, ENDORSED,
SOLD OR PROMOTED BY MSCI, ANY OF ITS AFFILIATES, ITS OR THEIR DIRECT OR INDIRECT THIRD PARTY INFORMATION SOURCES OR ANY OTHER THIRD
PARTY INVOLVED IN, OR RELATED TO, COMPILING, COMPUTING OR CREATING ANY MSCI INDEX (COLLECTIVELY, THE “
MSCI PARTIES
”).
THE MSCI INDEXES ARE THE EXCLUSIVE PROPERTY OF MSCI. MSCI AND THE MSCI INDEX NAMES ARE SERVICE MARKS OF MSCI. THE SECURITIES HAVE
NOT BEEN REVIEWED OR PASSED ON BY ANY OF THE MSCI PARTIES AS TO ITS LEGALITY OR SUITABILITY WITH RESPECT TO ANY PERSON OR ENTITY
AND NONE OF THE MSCI PARTIES MAKES ANY WARRANTIES OR BEARS ANY LIABILITY WITH RESPECT TO THE SECURITIES. WITHOUT LIMITING THE GENERALITY
OF THE FOREGOING, NONE OF THE MSCI PARTIES MAKES ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, TO THE ISSUER OR MANAGER OF
OR INVESTORS IN THE SECURITIES OR ANY OTHER PERSON OR ENTITY REGARDING THE ADVISABILITY OF INVESTING IN ANY FINANCIAL PRODUCT GENERALLY
OR IN THE SECURITIES PARTICULARLY OR THE ABILITY OF ANY MSCI INDEX TO TRACK CORRESPONDING MARKET PERFORMANCE. THE MSCI INDEXES
ARE DETERMINED, COMPOSED AND CALCULATED BY MSCI WITHOUT REGARD TO THE SECURITIES OR THE ISSUER, OFFEROR, PROMOTER, SPONSOR OR MANAGER
OF, OR INVESTORS IN, THE SECURITIES OR ANY OTHER PERSON OR ENTITY. NONE OF THE MSCI PARTIES HAS ANY OBLIGATION TO TAKE THE NEEDS
OF THE ISSUER, OFFEROR, PROMOTER, SPONSOR OR MANAGER OF, OR INVESTORS IN, THE SECURITIES OR ANY OTHER PERSON OR ENTITY INTO CONSIDERATION
IN DETERMINING, COMPOSING OR CALCULATING THE MSCI INDEXES. NONE OF THE MSCI PARTIES IS RESPONSIBLE FOR OR HAS PARTICIPATED IN THE
DETERMINATION OF THE TIMING OF, PRICES AT, OR QUANTITIES OF THE SECURITIES TO BE ISSUED OR IN THE DETERMINATION OR CALCULATION
OF THE EQUATION BY OR THE AMOUNT OR TYPE OF CONSIDERATION INTO WHICH THE SECURITIES ARE REDEEMABLE. FURTHER, NONE OF THE MSCI PARTIES
HAS ANY OBLIGATION OR LIABILITY TO THE ISSUER, OFFEROR, PROMOTER, SPONSOR OR
MANAGER OF, OR INVESTORS IN, THE SECURITIES
OR ANY OTHER PERSON OR ENTITY IN CONNECTION WITH THE ADMINISTRATION, MARKETING OR OFFERING OF THE SECURITIES OR OTHERWISE.
ALTHOUGH MSCI SHALL OBTAIN INFORMATION
FOR INCLUSION IN OR FOR USE IN THE CALCULATION OF THE MSCI INDEXES FROM SOURCES THAT MSCI CONSIDERS RELIABLE, NONE OF THE MSCI
PARTIES WARRANTS OR GUARANTEES THE ORIGINALITY, ACCURACY AND/OR THE COMPLETENESS OF ANY MSCI INDEX OR ANY DATA INCLUDED THEREIN
OR THE RESULTS TO BE OBTAINED BY THE ISSUER, OFFEROR, PROMOTER, SPONSOR OR MANAGER OF THE SECURITIES, INVESTORS IN THE SECURITIES,
OR ANY OTHER PERSON OR ENTITY, FROM THE USE OF ANY MSCI INDEX OR ANY DATA INCLUDED THEREIN AND NONE OF THE MSCI PARTIES SHALL HAVE
ANY LIABILITY TO ANY PERSON OR ENTITY FOR ANY ERRORS, OMISSIONS OR INTERRUPTIONS OF OR IN CONNECTION WITH ANY MSCI INDEX OR ANY
DATA INCLUDED THEREIN. FURTHER, NONE OF THE MSCI PARTIES MAKES ANY EXPRESS OR IMPLIED WARRANTIES OF ANY KIND AND THE MSCI PARTIES
HEREBY EXPRESSLY DISCLAIM ALL WARRANTIES (INCLUDING, WITHOUT LIMITATION AND FOR PURPOSES OF EXAMPLE ONLY, ALL WARRANTIES OF TITLE,
SEQUENCE, AVAILABILITY, ORIGINALITY, ACCURACY, COMPLETENESS, TIMELINESS, NON-INFRINGEMENT, MERCHANTABILITY AND FITNESS FOR A PARTICULAR
PURPOSE AND ALL IMPLIED WARRANTIES ARISING FROM TRADE USAGE, COURSE OF DEALING AND COURSE OF PERFORMANCE) WITH RESPECT TO EACH
MSCI INDEX AND ALL DATA INCLUDED THEREIN. WITHOUT LIMITING THE GENERALITY OF ANY OF THE FOREGOING, IN NO EVENT SHALL ANY OF THE
MSCI PARTIES HAVE ANY LIABILITY TO ANY PERSON OR ENTITY FOR ANY DAMAGES, WHETHER DIRECT, INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE,
CONSEQUENTIAL (INCLUDING, WITHOUT LIMITATION, LOSS OF USE, LOSS OF PROFITS OR REVENUES OR OTHER ECONOMIC LOSS), AND WHETHER IN
TORT (INCLUDING, WITHOUT LIMITATION, STRICT LIABILITY AND NEGLIGENCE), CONTRACT OR OTHERWISE, EVEN IF IT MIGHT HAVE ANTICIPATED,
OR WAS ADVISED OF, THE POSSIBILITY OF SUCH DAMAGES.
NO PURCHASER, SELLER OR HOLDER OF INTERESTS
IN THE SECURITIES, OR ANY OTHER PERSON OR ENTITY, MAY USE OR REFER TO ANY MSCI TRADE NAME, TRADEMARK OR SERVICE MARK TO SPONSOR,
ENDORSE, MARKET OR PROMOTE THE SECURITIES OR USE ANY MSCI INDEX WITHOUT FIRST CONTACTING MSCI TO DETERMINE WHETHER MSCI’S
PERMISSION IS REQUIRED.
The foregoing disclaimers and limitations
of liability in no way modify or limit any disclaimers or limitations of liability, or any representations or warranties, made
by Morgan Stanley elsewhere in this document to prospective or actual purchasers of or investors in the securities.
“MSCI EAFE Index
®
”,
“MSCI Emerging Markets Index
SM
”, “MSCI Europe Index
SM
”, “MSCI World Index
SM
”,
“MSCI World Real Estate Index
SM
”, “MSCI Australia Index
SM
”, “MSCI Belgium Index
SM
”,
“MSCI Brazil Index
SM
”, “MSCI France Index
SM
”, “MSCI Italy Index
SM
”,
“MSCI Japan Index
SM
”, “MSCI Pacific Ex-Japan Index
SM
”, “MSCI Singapore Index
SM
”,
“MSCI Spain Index
SM
”, “MSCI Switzerland Index
SM
”, “MSCI Taiwan Index
SM
”
and “MSCI USA Index
SM
” are trademarks or service marks of MSCI. The securities are not sponsored, endorsed,
sold or promoted by MSCI and MSCI makes no representation regarding the advisability of investing in the securities.
NASDAQ-100 Index
®
All information regarding the NASDAQ-100
Index
®
(the “NASDAQ-100 Index”) set forth in this index supplement reflects the policies of, and is
subject to change by, NASDAQ, Inc. (“NASDAQ”, formerly The Nasdaq Stock Market, Inc. and the NASDAQ OMX Group, Inc.).
The NASDAQ-100 Index was developed by NASDAQ and is calculated, maintained and published by NASDAQ. The NASDAQ-100 Index is reported
by Bloomberg Financial Markets under ticker symbol “NDX.”
Index Calculation
. First published
in January 1985 with a base value of 125, the NASDAQ-100 Index is a modified capitalization-weighted index of 100 of the largest
and most actively traded equity securities of non-financial companies listed on The NASDAQ Stock Market LLC (“NASDAQ”).
The NASDAQ-100 Index includes companies across a variety of major industry groups. At any moment in time, the value of the NASDAQ-100
Index equals the aggregate value of the then-current NASDAQ-100 Index share weights of each of the NASDAQ-100 Index component securities,
which are based on the total shares outstanding of each such NASDAQ-100 Index component security, multiplied by each such security’s
respective last sale price on NASDAQ (which may be the official closing price published by NASDAQ), and divided by a scaling factor
(the “divisor”), which becomes the basis for the reported NASDAQ-100 Index value. The divisor serves the purpose of
scaling such aggregate value (otherwise in the trillions) to a lower order of magnitude which is more desirable for NASDAQ-100
Index reporting purposes. If trading in a NASDAQ-100 Index security is halted on its primary listing market, the most
recent last sale price for that security is
used for all index computations until trading on such market resumes. Likewise, the most recent last sale price is used if trading
in a NASDAQ-100 Index security is halted on its primary listing market before the market is open.
The formula for the value of the NASDAQ-100
Index is as follows:
|
|
Aggregate
adjusted market value of the NASDAQ-100 Index
|
divisor
|
The formula for the divisor is as follows:
Divisor
|
=
|
Market
value after adjustments
|
×
|
divisor before adjustments
|
Market value before adjustments
|
Two versions of the NASDAQ-100 Index are
calculated – a price return index and a total return index. The price return index is ordinarily calculated without regard
to cash dividends on NASDAQ-100 Index securities. The total return index reinvests cash dividends on the ex-date. Both the price
return and total return index reinvest extraordinary cash distributions. The total return index was synchronized to the value of
the price return index at the close on March 4, 1999. The NASDAQ-100 Index is calculated during the trading day and is disseminated
once per second from 09:30:01 to 17:16:00 Eastern Time. The closing value of the NASDAQ-100 Index may change up until 17:15:00
Eastern Time due to corrections to the last sale price of the NASDAQ-100 Index securities.
Eligibility
. Index eligibility is
limited to specific security types only. The security types eligible for the NASDAQ-100 Index include common stocks, ordinary shares,
ADRs, shares of beneficial interest or limited partnership interests and tracking stocks. Security types not included in the NASDAQ-100
Index are closed-end funds, convertible debentures, exchange traded funds, preferred stocks, rights, warrants, units and other
derivative securities. The NASDAQ-100 Index does not contain securities of investment companies.
To be eligible for initial inclusion in
the NASDAQ-100 Index, a security must be listed on NASDAQ and meet certain eligibility criteria, which may be revised by NASDAQ
from time to time, including the following: the security’s U.S. listing must be exclusively on the NASDAQ Global Select Market
or the NASDAQ Global Market (unless the security was dually listed on another U.S. market prior to January 1, 2004 and has
continuously maintained such listing); the security must be of a non-financial company; only one class of security per issuer may
be included in the NASDAQ-100 Index; the security may not be issued by an issuer currently in bankruptcy proceedings; the security
must have an average daily trading volume of at least 200,000 shares; the issuer of the security must be “seasoned”
on a recognized market (generally, a company is considered to be seasoned if it has been listed on a market for at least three
full months; in the case of spin-offs, the operating history of the parent will be considered); if the issuer of the security is
organized under the laws of a jurisdiction outside the United States, then such security must have listed options on a recognized
options market in the United States or be eligible for listed-options trading on a recognized options market in the United States;
the issuer of the security may not have annual financial statements with an audit opinion that is currently withdrawn; and the
issuer of the security may not have entered into a definitive agreement or other arrangement which would likely result in the security
no longer being eligible for inclusion in the NASDAQ-100 Index.
In addition, to be eligible for continued
inclusion in the NASDAQ-100 Index, the following criteria apply: the security’s U.S. listing must be exclusively on the NASDAQ
Global Select Market or the NASDAQ Global Market (unless the security was dually listed on another U.S. market prior to January
1, 2004 and has continuously maintained such listing); the security must be of a non-financial company; the security may not be
issued by an issuer currently in bankruptcy proceedings; the security must have an average daily trading volume of at least 200,000
shares (measured annually during the ranking review process); if the issuer of the security is organized under the laws of a jurisdiction
outside the United States, then such security must have listed options on a recognized options market in the United States or be
eligible for listed-options trading on a recognized options market in the United States (measured annually during the ranking review
process); the issuer of the security may not have annual financial statements with an audit opinion that is currently withdrawn;
and the security must have an adjusted market capitalization equal to or exceeding 0.10% of the aggregate adjusted market capitalization
of the NASDAQ-100 Index at each month-end. In the event a company does not meet this criterion for two consecutive month-ends,
it will be removed from the NASDAQ-100 Index effective after the close of trading on the third Friday of the following month.
Index Maintenance
. The securities
in the NASDAQ-100 Index are monitored every day by NASDAQ with respect to changes in total shares outstanding arising from secondary
offerings, stock repurchases, conversions or other corporate actions. NASDAQ has adopted the following quarterly scheduled weight
adjustment procedures with respect to such changes. If the change in total shares outstanding arising from such corporate action
is greater than or equal to 10.0%, such change is made to the NASDAQ-100 Index on the evening prior to the effective date of such
corporate action or as soon as practical
thereafter. Otherwise, if the change in total
shares outstanding is less than 10.0%, then all such changes are accumulated and made effective at one time on a quarterly basis
after the close of trading on the third Friday in each of March, June, September and December. In either case, the NASDAQ-100 Index
share weights for such NASDAQ-100 Index component securities are adjusted by the same percentage amount by which the total shares
outstanding have changed in such NASDAQ-100 Index component securities.
Additionally, NASDAQ may periodically (ordinarily,
several times per quarter) replace one or more component securities in the NASDAQ-100 Index due to mergers, acquisitions, bankruptcies
or other market conditions, or due to delisting if an issuer chooses to list its securities on another marketplace, or if the issuers
of such component securities fail to meet the criteria for continued inclusion in the NASDAQ-100 Index.
The NASDAQ-100 Index share weights are
also subject, in certain cases, to a rebalancing (see “Rebalancing of the NASDAQ-100 Index for Modified Capitalization-Weighted
Methodology” below). Ordinarily, whenever there is a change in the NASDAQ-100 Index share weights or a change in a component
security included in the NASDAQ-100 Index, NASDAQ adjusts the divisor to assure that there is no discontinuity in the value of
the NASDAQ-100 Index which might otherwise be caused by such change. All changes are announced in advance and are reflected in
the NASDAQ-100 Index prior to market open on the effective date.
Annual Ranking Review.
The composition
of the securities underlying the NASDAQ-100 Index is, save under extraordinary circumstances, reviewed on an annual basis (the
“annual ranking review”). Securities which meet the eligibility criteria described above are ranked by market value
using their closing prices as of the end of October and publicly available statements of total shares outstanding submitted through
the end of November. Eligible securities that remain ranked in the top 100 eligible securities based on market capitalization are
retained in the NASDAQ-100 Index. Securities that rank between 101 and 125 are also retained, provided that such securities were
ranked in the top 100 eligible securities as of the previous annual ranking review. Securities not meeting such criteria are replaced
with securities that are eligible but not currently included in the NASDAQ-100 Index in order of largest market capitalization.
Generally, the list of deletions and additions to be made pursuant to annual ranking reviews is publicly announced by NASDAQ by
means of a press release in early December, with such replacements made effective after the close of trading on the third Friday
in December. Moreover, a security that fails to meet the criteria for continued inclusion will be replaced with the largest market
capitalization security not currently included in the NASDAQ-100 Index. In all cases, a security is removed from the NASDAQ-100
Index at its last sale price.
Rebalancing of the NASDAQ-100 Index
for Modified Capitalization-weighted Methodology
. Effective after the close of trading on December 18, 1998, the NASDAQ-100
Index has been calculated under a “modified capitalization-weighted” methodology, which is a hybrid between equal weighting
and conventional capitalization weighting. This methodology is expected to: (1) retain in general the economic attributes of capitalization
weighting; (2) promote portfolio weight diversification (thereby limiting domination of the NASDAQ-100 Index by a few large stocks);
(3) reduce NASDAQ-100 Index performance distortion by preserving the capitalization ranking of companies; and (4) reduce market
impact on the smallest NASDAQ-100 Index component securities from necessary weight rebalancings.
Under the methodology employed, on a quarterly
basis coinciding with NASDAQ’s quarterly scheduled weight adjustment procedures described above, the NASDAQ-100 Index component
securities are categorized as either “Large Stocks” or “Small Stocks” depending on whether their current
percentage weights (after taking into account such scheduled weight adjustments due to stock repurchases, secondary offerings or
other corporate actions) are greater than, or less than or equal to, the average percentage weight in the NASDAQ-100 Index (i.e.,
as a 100-stock index, the average percentage weight in the NASDAQ-100 Index is 1.0%).
Such quarterly examination will result
in a NASDAQ-100 Index rebalancing if either one or both of the following two weight distribution requirements are not met: (1)
the current weight of the single largest market capitalization NASDAQ-100 Index component security must be less than or equal to
24.0% and (2) the “collective weight” of those NASDAQ-100 Index component securities whose individual current weights
are in excess of 4.5%, when added together, must be less than or equal to 48.0%. In addition, NASDAQ may conduct a special rebalancing
if it is determined necessary to maintain the integrity of the NASDAQ-100 Index.
If either one or both of these weight distribution
requirements are not met upon quarterly review or NASDAQ determines that a special rebalancing is required, a weight rebalancing
will be performed in accordance with the following plan. First, relating to weight distribution requirement (1) above, if the current
weight of the single largest NASDAQ-100 Index component security exceeds 24.0%, then the weights of all Large Stocks will be scaled
down proportionately towards 1.0% by enough for the adjusted weight of the single largest NASDAQ-100 Index component security to
be set to 20.0%. Second, relating to weight distribution requirement (2) above, for those NASDAQ-100 Index component securities
whose individual current weights or adjusted weights in accordance with the preceding step are in excess of 4.5%, if their “collective
weight” exceeds 48.0%, then the weights
of all Large Stocks will be scaled down proportionately towards 1.0% by just enough for the “collective weight,” so
adjusted, to be set to 40.0%.
The aggregate weight reduction among the
Large Stocks resulting from either or both of the above rescalings will then be redistributed to the Small Stocks in the following
iterative manner. In the first iteration, the weight of the largest Small Stock will be scaled upwards by a factor which sets it
equal to the average NASDAQ-100 Index weight of 1.0%. The weights of each of the smaller remaining Small Stocks will be scaled
up by the same factor reduced in relation to each stock’s relative ranking among the Small Stocks such that the smaller the
NASDAQ-100 Index component security in the ranking, the less the scale-up of its weight. This is intended to reduce the market
impact of the weight rebalancing on the smallest component securities in the NASDAQ-100 Index.
In the second iteration, the weight of
the second largest Small Stock, already adjusted in the first iteration, will be scaled upwards by a factor which sets it equal
to the average index weight of 1.0%. The weights of each of the smaller remaining Small Stocks will be scaled up by this same factor
reduced in relation to each stock’s relative ranking among the Small Stocks such that, once again, the smaller the stock
in the ranking, the less the scale-up of its weight.
Additional iterations will be performed
until the accumulated increase in weight among the Small Stocks exactly equals the aggregate weight reduction among the Large Stocks
from rebalancing in accordance with weight distribution requirement (1) and/or weight distribution requirement (2).
Then, to complete the rebalancing procedure,
once the final percent weights of each NASDAQ-100 Index component security are set, the NASDAQ-100 Index share weights will be
determined anew based upon the last sale prices and aggregate capitalization of the NASDAQ-100 Index at the close of trading on
the last day in February, May, August and November. Changes to the NASDAQ-100 Index share weights will be made effective after
the close of trading on the third Friday in March, June, September, and December and an adjustment to the NASDAQ-100 Index divisor
will be made to ensure continuity of the NASDAQ-100 Index. Ordinarily, new rebalanced weights will be determined by applying the
above procedures to the current NASDAQ-100 Index share weights. However, NASDAQ may from time to time determine rebalanced weights,
if necessary, by instead applying the above procedure to the actual current market capitalization of the NASDAQ-100 Index components.
In such instances, NASDAQ would announce the different basis for rebalancing prior to its implementation.
The securities are not sponsored, endorsed,
sold or promoted by NASDAQ (including its affiliates) (NASDAQ , with its affiliates, are referred to as the “Corporations”).
The Corporations have not passed on the legality or suitability of, or the accuracy or adequacy of descriptions and disclosures
relating to, the securities. The Corporations make no representation or warranty, express or implied, to the holders of the securities
or any member of the public regarding the advisability of investing in securities generally or in the securities particularly,
or the ability of the NASDAQ-100 Index
®
to track general stock market performance. The NASDAQ-100 Index
®
is determined, composed and calculated by NASDAQ without regard to us or the securities. NASDAQ has no obligation to take our needs
or the needs of the owners of the securities into consideration in determining, composing or calculating the NASDAQ-100 Index
®
.
The Corporations are not responsible for and have not participated in the determination of the timing, prices, or quantities of
the securities to be issued or in the determination or calculation of the equation by which the securities are to be converted
into cash. The Corporations have no liability in connection with the administration, marketing or trading of the securities.
THE
CORPORATIONS DO NOT GUARANTEE THE ACCURACY AND/OR UNINTERRUPTED CALCULATION OF THE NASDAQ-100 INDEX
®
OR ANY DATA
INCLUDED THEREIN. THE CORPORATIONS MAKE NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY MORGAN sTANLEY, OWNERS
OF THE securities, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE NASDAQ-100 INDEX
®
OR ANY DATA INCLUDED THEREIN.
THE CORPORATIONS MAKE NO EXPRESS OR IMPLIED WARRANTIES AND EXPRESSLY DISCLAIM ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR
A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE NASDAQ-100 INDEX
®
OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING
ANY OF THE FOREGOING, IN NO EVENT SHALL THE CORPORATIONS HAVE ANY LIABILITY FOR LOST PROFITS OR SPECIAL, INCIDENTAL, PUNITIVE,
INDIRECT OR CONSEQUENTIAL DAMAGES, EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
“Nasdaq
®
,” “NASDAQ-100
®
”
and “NASDAQ-100 Index
®
” are trademarks of NASDAQ. The securities have not been passed on by the Corporations
as to their legality or suitability. The securities are not issued, endorsed, sold or promoted by the Corporations. THE CORPORATIONS
MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH RESPECT TO THE SECURITIES.
NASDAQ Biotechnology Index
®
The NASDAQ Biotechnology Index
®
is calculated, published and disseminated by NASDAQ, and is designed to measure the performance of NASDAQ-listed companies that
are classified according to the Industry Classification Benchmark as either biotechnology or pharmaceuticals which also meet other
eligibility criteria determined by NASDAQ.
The NASDAQ Biotechnology Index is calculated
under a modified capitalization-weighted methodology. On November 1, 1993, the NASDAQ Biotechnology Index began with a base of
200.00. To be eligible for inclusion in the NASDAQ Biotechnology Index, a security must be listed on The NASDAQ Stock Market and
meet the following criteria:
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the security’s U.S. listing must be exclusively on the NASDAQ Global Market (unless the security was dually listed on
another U.S. market prior to January 1, 2004 and has continuously maintained such listing);
|
|
·
|
the issuer of the security must be classified according to the Industry Classification Benchmark as either Biotechnology or
Pharmaceuticals;
|
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·
|
the security may not be issued by an issuer currently in bankruptcy proceedings;
|
|
·
|
the security must have a market capitalization of at least $200 million;
|
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·
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the security must have an average daily trading volume of at least 100,000 shares;
|
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·
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the issuer of the security may not have entered into a definitive agreement or other arrangement which would likely result
in the security no longer being eligible for inclusion in the NASDAQ Biotechnology Index;
|
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·
|
the issuer of the security may not have annual financial statements with an audit opinion that is currently withdrawn; and
|
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·
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the issuer of the security must have “seasoned” on NASDAQ or another recognized market for at least three full
months; in the case of spin-offs, the operating history of the spin-off will be considered.
|
Annual Ranking Review.
The securities
composing the NASDAQ Biotechnology Index are evaluated annually each December. Securities currently within the NASDAQ Biotechnology
Index must meet the eligibility criteria through the end of October that year. Index-eligible securities not currently in the NASDAQ
Biotechnology Index are added. Changes will occur after the close of trading on the third Friday in December. The data used in
the ranking is updated for total shares outstanding submitted in a publicly filed SEC document via EDGAR through the end of October.
In addition to the Ranking Review, the
securities in the NASDAQ Biotechnology Index are monitored every day by NASDAQ with respect to changes in total shares outstanding
arising from secondary offerings, stock repurchases, conversions, or other corporate actions. NASDAQ has adopted the following
weight adjustment procedures with respect to such changes. Changes in total shares outstanding arising from stock splits, stock
dividends, or spin-offs are generally made to the NASDAQ Biotechnology Index on the evening prior to the effective date of such
corporate action. If the change in total shares outstanding arising from other corporate actions is greater than or equal to 10.0%,
the change will be made as soon as practicable, normally within ten (10) days of such action. Otherwise, if the change in total
shares outstanding is less than 10.0%, then all such changes are accumulated and made effective at one time on a quarterly basis
after the close of trading on the third Friday in each of March, June, September, and December. In either case, the index share
weights for such securities included in the NASDAQ Biotechnology Index are adjusted by the same percentage amount by which the
total shares outstanding have changed in such securities included in the NASDAQ Biotechnology Index.
Nikkei 225 Index
The Nikkei 225 Index is a stock index calculated,
published and disseminated by Nikkei Inc. (formerly known as Nihon Keizai Shimbun, Inc.), which we refer to as Nikkei, that measures
the composite price performance of selected Japanese stocks. The Nikkei 225 Index currently is based on 225 underlying stocks (the
“Nikkei Underlying Stocks”) trading on the Tokyo Stock Exchange (the “TSE”) representing a broad cross-section
of Japanese industries. Stocks listed in the First Section of the TSE are among the most actively traded stocks on the TSE. All
225 Nikkei Underlying Stocks are stocks listed in the First Section of the TSE. Nikkei rules require that the 75 most liquid issues
(one-third of the component count of the Nikkei 225 Index) be included in the Nikkei 225 Index. Nikkei first calculated and published
the Nikkei 225 Index in 1970.
The 225 companies included in the Nikkei
225 Index are divided into six sector categories: technology, financials, consumer goods, materials, capital goods/others and transportation
and utilities. These six sector categories are further divided into 36 industrial classifications as follows:
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•
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Technology — pharmaceuticals, electrical machinery, automobiles and auto parts, precision machinery, telecommunications
|
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•
|
Financials — banks, miscellaneous finance, securities, insurance
|
|
•
|
Consumer goods — marine products, food, retail, services
|
|
•
|
Materials — mining, textiles, paper & pulp, chemicals, oil, rubber, glass and ceramics, steel, nonferrous metals,
trading houses
|
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•
|
Capital goods/others — construction, machinery, shipbuilding, transportation equipment, miscellaneous manufacturing,
real estate
|
|
•
|
Transportation and utilities — railroads & buses, trucking, shipping, airlines, warehousing, electric power, gas
|
Rules of the Periodic Review
The Nikkei Underlying Stocks are reviewed
annually (the “periodic review”) in accordance with the rules below, and results of the review are applied on the first
trading day in October. Results of the review become effective on the first trading day of October, and there is no limit to the
number of Nikkei Underlying Stocks that can be affected. Stocks selected by the procedures outlined below are presented as candidates
to a committee comprised of academics and market professionals for comment; based on comments from the committee, Nikkei Inc. determines
and announces any changes to the Nikkei Underlying Stocks.
The Nikkei 225 Index is balanced based
on liquidity and sector. The 450 most liquid issues on the TSE are categorized into the above sectors. The “appropriate number”
of companies selected from each sector is defined as half the number of stocks in each sector. After these changes are considered,
a rebalancing is conducted if any of the sectors are over- or under-represented. Degree of representation is evaluated by comparing
the actual number of constituents in the sector against the “appropriate number.”
The Nikkei 225 Index is a modified, price-weighted
index (i.e., a Nikkei Underlying Stock’s weight in the index is based on its price per share rather than the total market
capitalization of the issuer) which is calculated by (i) multiplying the per share price of each Nikkei Underlying Stock by the
corresponding weighting factor for such Nikkei Underlying Stock (a “Weight Factor”), (ii) calculating the sum of all
these products and (iii) dividing such sum by a divisor (the “Nikkei Divisor”). The Nikkei Divisor was initially set
at 225 for the date of May 16, 1949 using historical numbers from May 16, 1949, the date on which the Tokyo Stock Exchange was
reopened. The Nikkei Divisor is subject to periodic adjustments as set forth below. Each Weight Factor is computed by dividing
¥50 by the par value of the relevant Nikkei Underlying Stock, so that the share price of each Nikkei Underlying Stock when
multiplied by its Weight Factor corresponds to a share price based on a uniform par value of ¥50. The stock prices used in
the calculation of the Nikkei 225 Index are those reported by a primary market for the Nikkei Underlying Stocks (currently the
TSE). The level of the Nikkei 225 Index is calculated once per minute during TSE trading hours.
In order to maintain continuity in the
Nikkei 225 Index in the event of certain changes due to non-market factors affecting the Nikkei Underlying Stocks, such as the
addition or deletion of stocks, substitution of stocks, stock splits or distributions of assets to stockholders, the Nikkei Divisor
used in calculating the Nikkei 225 Index is adjusted in a manner designed to prevent any instantaneous change or discontinuity
in the level of the Nikkei 225 Index. Thereafter, the Nikkei Divisor remains at the new value until a further adjustment is necessary
as the result of another change. As a result of such change affecting any Nikkei Underlying Stock, the Nikkei Divisor is adjusted
in such a way that the sum of all share prices immediately after such change multiplied by the applicable Weight Factor and divided
by the new Nikkei Divisor (i.e., the level of the Nikkei 225 Index immediately after such change) will equal the level of the Nikkei
225 Index immediately prior to the change.
A Nikkei Underlying Stock may be deleted
or added by Nikkei. Any stock becoming ineligible for listing in the First Section of the TSE due to any of the following reasons
will be deleted from the Nikkei Underlying Stocks: (i) bankruptcy of the issuer, (ii) merger of the issuer with, or acquisition
of the issuer by, another company, (iii) delisting of such stock, (iv) transfer of such stock to the “Seiri Meigara”
because of excess debt of the issuer or because of any other reason or (v) transfer of such stock to the Second Section. In addition,
a component stock transferred to the “Kanri Meigara” (post for
stocks under supervision) is in principle
a candidate for deletion. Nikkei Underlying Stocks with relatively low liquidity, based on trading value and rate of price fluctuation
over the past five years, may be deleted by Nikkei. Upon deletion of a stock from the Nikkei Underlying Stocks, Nikkei will select
a replacement for such deleted Nikkei Underlying Stock in accordance with certain criteria. In an exceptional case, a newly listed
stock in the First Section of the TSE that is recognized by Nikkei to be representative of a market may be added to the Nikkei
Underlying Stocks. When a new stock is added to the Nikkei Underlying Stocks, an existing Nikkei Underlying Stock with low trading
volume deemed not to be representative of a market will be deleted by Nikkei. A list of the issuers of the Nikkei Underlying Stocks
constituting Nikkei 225 Index is available from the Nikkei Economic Electronic Databank System.
Nikkei, the publisher of the Nikkei 225
Index, has the copyright to the Nikkei 225 Index. All rights to the Nikkei 225 Index are owned by Nikkei. We, the Calculation Agent
and the Trustee disclaim all responsibility for the calculation or other maintenance of or any adjustments to the Nikkei 225 Index.
Nikkei has the right to change the contents of the Nikkei 225 Index and to cease compilation and publication of the Nikkei 225
Index. In addition, Nikkei has no relationship to us or the securities; it does not sponsor, endorse, authorize, sell or promote
the securities, and has no obligation or liability in connection with the administration, marketing or trading of the securities
or with the calculation of the return on your investment.
PHLX Housing Sector
SM
Index
The PHLX Housing Sector
SM
Index
(the “PHLX Housing Index”) was developed by the predecessor to NASDAQ PHLX and is calculated, maintained and published
by NASDAQ PHLX, which is the index publisher. The PHLX Housing Index is composed of companies whose primary lines of business are
directly associated with the United States housing construction market.
The PHLX Housing Index is a modified market
capitalization-weighted index. The value of the PHLX Housing Index equals the aggregate value of the index share weights (the “Index
Shares”), of each of the index component securities multiplied by each such security’s last sale price, and divided
by the divisor of the PHLX Housing Index. The divisor serves the purpose of scaling such aggregate index value to a lower order
of magnitude which is more desirable for reporting purposes. If trading in an index component security is halted on its primary
listing market, the most recent last sale price for that security is used for all index computations until trading on such market
resumes. Likewise, the most recent last sale price is used if trading in a security is halted on its primary listing market before
the market is open. The PHLX Housing Index was set to an initial value of 250 on January 2, 2002. Options commenced trading on
the PHLX Housing Index on July 17, 2002. The level of the PHLX Housing Index was split in half on February 1, 2006. The PHLX Housing
Index value calculation is described by the following formula:
Aggregate Adjusted
Market Value
Divisor
Two versions of the PHLX Housing Index
are calculated – a price return index and a total return index. The price return index (NASDAQ: HGX) is ordinarily calculated
without regard to cash dividends on index component securities. The total return index (NASDAQ: XHGX) reinvests cash dividends
on the ex-date. Both indexes reinvest extraordinary cash distributions. The total return index was synchronized to the value of
the price return index at the close on June 30, 2011.
Eligibility and Adjustments
The security types eligible for the PHLX
Housing Index include common stocks, ordinary shares, shares of beneficial interest or limited partnership interests and tracking
stocks. Security types not included in the PHLX Housing Index are ADRs, closed-end funds, convertible debentures, exchange traded
funds, preferred stocks, rights, warrants, units and other derivative securities.
To be eligible for initial inclusion in
the PHLX Housing Index, a security must meet the following criteria: (1) a security must be listed on The Nasdaq Stock Market,
the New York Stock Exchange, or NYSE MKT; (2) the issuer of the security must be classified, as reasonably determined by NASDAQ,
as a company whose primary business is associated with the U.S. housing construction market; (3) only one class of security per
issuer is allowed; (4) the security must have a market capitalization of at least $100 million; (5) the security must have traded
at least 1.5 million shares in each of the last six months; (6) the security must have listed options on a recognized options market
in the U.S. or be eligible for listed-options trading on a recognized options market in the U.S.; (7) the security may not be issued
by an issuer currently in bankruptcy proceedings; (8) the issuer of the security may not have entered into a definitive agreement
or other arrangement which would likely result in the security no longer being Index eligible; (9) the issuer of the security may
not have annual financial statements with an audit opinion that is currently withdrawn; and (10) the issuer of the security must
have “seasoned” on a recognized market for at least 6 months; in the case of spin-offs, the operating history of the
parent will be considered.
To be eligible for continued inclusion
in the PHLX Housing Index, a security must meet the following criteria: (1) a security must be listed on the Nasdaq Stock Market,
the New York Stock Exchange, or NYSE MKT; (2) the issuer of the security must be classified, as reasonably determined by NASDAQ,
as a company whose primary business is in the U.S. housing sector; (3) the security must have a market capitalization of at least
$60 million; (4) the security may not be issued by an issuer currently in bankruptcy proceedings; and (5) the issuer of the security
may not have annual financial statements with an audit opinion that is currently withdrawn.
Index Maintenance
Changes in the price and/or Index Shares
driven by corporate events such as stock dividends, stock splits, and certain spin-offs and rights issuances are adjusted on the
ex-date. If the change in total shares outstanding arising from other corporate actions is greater than or equal to 10%, the change
is made as soon as practicable. Otherwise, if the change in total shares outstanding is less than 10%, then all such changes are
accumulated and made effective at one time on a quarterly basis after the close of trading on the third Friday in each of March,
June, September and December. The Index Shares are derived from the security’s total shares outstanding. The Index Shares
are adjusted by the same percentage amount by which the total shares outstanding have changed. In the case of a special cash dividend,
a determination is made on an individual basis whether to make a change to the price of an index component security in accordance
with its index dividend policy. If it is determined that a change will be made, it will become effective on the ex-date. Ordinarily,
whenever there is a change in Index Shares, a change in an index component security or a change to the price of an index component
security due to spin-offs, rights issuances or special cash dividends, the divisor is adjusted to ensure that there is no discontinuity
in the value of the PHLX Housing Index which might otherwise be caused by any such change. All changes are announced in advance
and are reflected in the PHLX Housing Index prior to market open on the Index effective date.
Index Rebalancing
The PHLX Housing Index shall employ a modified
market capitalization-weighting methodology. At each quarter, the index is rebalanced such that the maximum weight of any index
component security will not exceed 15% and no more than 2 securities will be at the cap. Any security then in excess of 8% will
be capped at 8%. The aggregate amount by which all securities over 15% and 8% is reduced will be redistributed proportionally across
the remaining index component securities. After redistribution, if any other index component security then exceeds 8%, the index
component security is set to 8% of the PHLX Housing Sector Index and the redistribution is repeated to derive the final weights.
The modified market capitalization-weighted
methodology is applied to the capitalization of each index component security, using the last sale price of the security at the
close of trading on the first Friday in March, June, September, and December and after applying quarterly changes to the total
shares outstanding. Index Shares are then calculated multiplying the weight of the security by the new market value of the Index
and dividing the modified market capitalization for each index component security by its corresponding last sale price. The changes
become effective after trading on the third Friday
In this index supplement, unless the context
requires otherwise, references to the PHLX Housing Index will include any successor index and references to the index publisher
will include any successor to the index publisher.
The securities are
not sponsored, endorsed, sold or promoted by The NASDAQ Group, Inc. or its affiliates (NASDAQ, with its affiliates, are referred
to as the “Corporations”). The Corporations have not passed on the legality or suitability of, or the accuracy or adequacy
of descriptions and disclosures relating to, the securities. The Corporations make no representation or warranty, express or implied
to the owners of the securities or any member of the public regarding the advisability of investing in securities generally or
in the securities particularly, or the ability of the PHLX Housing Sector
SM
Index to track general stock market performance.
The PHLX Housing Sector
SM
Index is determined, composed and calculated by NASDAQ without regard to us or the securities.
NASDAQ has no obligation to take our needs or the needs of the owners of the securities into consideration in determining, composing
or calculating the PHLX Housing Sector
SM
Index
.
The Corporations are not responsible
for and have not participated in the determination of the timing of, prices at, or quantities of the securities to be issued or
in the determination or calculation of the equation by which the securities are to be converted into cash. The Corporations have
no liability in connection with the administration, marketing or trading of the securities.
THE CORPORATIONS
DO NOT GUARANTEE THE ACCURACY AND/OR UNINTERRUPTED CALCULATION OF THE PHLX HOUSING SECTOR
SM
INDEX OR ANY DATA INCLUDED
THEREIN. THE CORPORATIONS MAKE NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY MORGAN STANLEY, OWNERS OF THE SECURITIES,
OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE PHLX HOUSING SECTOR
SM
INDEX OR ANY DATA INCLUDED THEREIN. THE CORPORATIONS
MAKE NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIM ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE
OR USE WITH
RESPECT TO THE PHLX HOUSING SECTOR
SM
INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL THE CORPORATIONS HAVE ANY LIABILITY
FOR ANY LOST PROFITS OR SPECIAL, INCIDENTAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES, EVEN IF NOTIFIED OF THE POSSIBILITY
OF SUCH DAMAGES.
“Nasdaq
®
,” “PHLX
Housing Sector
SM
” and “HGX
SM
” are registered trademarks or service marks of The NASDAQ
Group, Inc. (which with its affiliates is referred to as the “Corporations”). The securities have not been passed on
by the Corporations as to their legality or suitability. The securities are not issued, endorsed, sold, or promoted by the Corporations.
THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH RESPECT TO THE SECURITIES.
PHLX Oil Service Sector
SM
Index
The PHLX Oil Service Sector
SM
Index (the “PHLX Oil Index”) was developed by the predecessor to NASDAQ PHLX and is calculated, maintained and published
by NASDAQ PHLX. The PHLX Oil Index is designed to track the performance of a set of companies involved in the oil services sector.
The PHLX Oil Index is a modified market
capitalization index. The value of the PHLX Oil Index equals the aggregate value of the index share weights, also known as the
Index Shares (the “Index Shares”), of each of the index component securities, which is fixed at 10,000,000, multiplied
by each such security’s last sale price, and divided by the divisor of the PHLX Oil Index. The divisor serves the purpose
of scaling such aggregate index value to a lower order of magnitude which is more desirable for reporting purposes. If trading
in an index component security is halted on its primary listing market, the most recent last sale price for that security is used
for all index computations until trading on such market resumes. Likewise, the most recent last sale price is used if trading in
an index component is halted on its primary listing market before the market is open. The PHLX Oil Index began on December 31,
1996 at a base value of 75.00. The PHLX Oil Index value calculation is described by the following formula:
Aggregate Adjusted
Market Value
Divisor
Two versions of the PHLX Oil Index are
calculated – a price return index and a total return index. The price return index (NASDAQ: OSX) is ordinarily calculated
without regard to cash dividends on the index component securities. The total return index (NASDAQ: XOSX) reinvests cash dividends
on the ex-date. Both indexes reinvest extraordinary cash distributions. The total return index was synchronized to the value of
the price return index at the close on June 30, 2011.
Eligibility
Index eligibility is limited to specific
security types only. The security types eligible for the PHLX Oil Index include common stocks, ordinary shares, ADRs, shares of
beneficial interest or limited partnership interests, and tracking stocks. Security types not included in the PHLX Oil Index are
closed-end funds, convertible debentures, exchange traded funds, preferred stocks, rights, warrants, units and other derivative
securities.
To be eligible for initial inclusion in
the PHLX Oil Index, a security must meet the following criteria: (1) a security must be listed on The Nasdaq Stock Market, the
New York Stock Exchange, or NYSE MKT; (2) the issuer of the security must be classified, as reasonably determined by NASDAQ, as
a company whose primary business is in the oil services sector; (3) only one class of security per issuer is allowed; (4) the security
must have a market capitalization of at least $100 million; (5) the security must have traded at least 1.5 million shares in each
of the last six months; (6) the security must have listed options on a recognized options market in the U.S. or be eligible for
listed-options trading on a recognized options market in the U.S.; (7) the security may not be issued by an issuer currently in
bankruptcy proceedings; (8) the issuer of the security may not have entered into a definitive agreement or other arrangement which
would likely result in the security no longer being eligible; (9) the issuer of the security may not have annual financial statements
with an audit opinion that is currently withdrawn; and (10) the issuer of the security must have “seasoned” on a recognized
market for at least 6 months; in the case of spin-offs, the operating history of the parent will be considered.
To be eligible for continued inclusion
in the PHLX Oil Index, a security must meet the following criteria: (1) the security must be listed on The Nasdaq Stock Market,
the New York Stock Exchange, or NYSE MKT; (2) the issuer of the security must be classified, as reasonably determined by NASDAQ,
as a company whose primary business is in the oil services sector; (3) the security must have a market capitalization of at least
$60 million; (4) the security may not be issued by an
issuer currently in bankruptcy proceedings;
and (5) the issuer of the security may not have annual financial statements with an audit opinion that is currently withdrawn.
Index Maintenance
Changes in the price of an index component
security derived by corporate events such as stock dividends, stock splits, certain spin-offs, and rights issuances will be adjusted
on the ex-date and the shares shall remain fixed. In the case of a special cash dividend, a determination is made on an individual
basis whether to make a change to the price of an index component security in accordance with its index dividend policy. If it
is determined that a change will be made, it will become effective on the ex-date and advance notification will be made. Ordinarily,
whenever there is a change in the price of an index component security due to stock dividends, stock splits, spin-offs, rights
issuances, or special cash dividends, the divisor is adjusted to ensure that there is no discontinuity in the value of the PHLX
Oil Index, which might otherwise be caused by any such change. All changes are announced in advance and will be reflected in the
PHLX Oil Index prior to market open on the PHLX Oil Index effective date.
The securities are
not sponsored, endorsed, sold or promoted by The NASDAQ Group, Inc. or its affiliates (NASDAQ, with its affiliates, are referred
to as the “Corporations”). The Corporations have not passed on the legality or suitability of, or the accuracy or adequacy
of descriptions and disclosures relating to, the securities. The Corporations make no representation or warranty, express or implied
to the owners of the securities or any member of the public regarding the advisability of investing in securities generally or
in the securities particularly, or the ability of the PHLX Oil Service Sector
SM
Index to track general stock market
performance. The PHLX Oil Service Sector
SM
Index is determined, composed and calculated by NASDAQ without regard to
us or the securities. NASDAQ has no obligation to take our needs or the needs of the owners of the securities into consideration
in determining, composing or calculating the PHLX Oil Service Sector
SM
Index
.
The Corporations
are not responsible for and have not participated in the determination of the timing of, prices at, or quantities of the securities
to be issued or in the determination or calculation of the equation by which the securities are to be converted into cash. The
Corporations have no liability in connection with the administration, marketing or trading of the securities.
THE CORPORATIONS
DO NOT GUARANTEE THE ACCURACY AND/OR UNINTERRUPTED CALCULATION OF THE PHLX OIL SERVICE SECTOR
SM
INDEX OR ANY DATA INCLUDED
THEREIN. THE CORPORATIONS MAKE NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY MORGAN STANLEY, OWNERS OF THE SECURITIES,
OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE PHLX OIL SERVICE SECTOR
SM
INDEX OR ANY DATA INCLUDED THEREIN. THE
CORPORATIONS MAKE NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIM ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE OR USE WITH RESPECT TO THE PHLX OIL SERVICE SECTOR
SM
INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY
OF THE FOREGOING, IN NO EVENT SHALL THE CORPORATIONS HAVE ANY LIABILITY FOR ANY LOST PROFITS OR SPECIAL, INCIDENTAL, PUNITIVE,
INDIRECT, OR CONSEQUENTIAL DAMAGES, EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
“Nasdaq
®
,” “PHLX
Oil Service Sector
SM
” and “OSX
SM
” are registered trademarks or service marks of The NASDAQ
Group, Inc. (which with its affiliates is referred to as the “Corporations”). The securities have not been passed on
by the Corporations as to their legality or suitability. The securities are not issued, endorsed, sold, or promoted by the Corporations.
THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH RESPECT TO THE SECURITIES
.
PHLX Semiconductor Sector
SM
Index
The PHLX Semiconductor Sector
SM
Index (the “PHLX Semiconductor Index”), was developed by the predecessor to NASDAQ PHLX and is calculated, maintained
and published by NASDAQ PHLX. The PHLX Semiconductor Index is designed to track the performance of a set of companies engaged in
the design, distribution, manufacture and sale of semiconductors.
The PHLX Semiconductor Sector Index is
a modified capitalization-weighted index. The value of the PHLX Semiconductor Index equals the aggregate value of the index share
weights, also known as the Index Shares (the “Index Shares”), of each of the index component securities multiplied
by each such security’s last sale price, and divided by the divisor of the PHLX Semiconductor Index. The divisor serves the
purpose of scaling such aggregate index value to a lower order of magnitude which is more desirable for reporting purposes. If
trading in an index component security is halted on its primary listing market, the most recent last sale price is used for all
index computations until trading on such market resumes.
Likewise, the most recent last sale price
is used if trading in a security is halted on its primary listing market before the market is open. The PHLX Semiconductor Index
began on December 1, 1993 at a base value of 100.00, as adjusted. The PHLX Semiconductor Index value calculation is described by
the following formula:
Aggregate Adjusted
Market Value
Divisor
Two versions of the PHLX Semiconductor
Index are calculated – a price return index and a total return index. The price return index (NASDAQ: SOX) is ordinarily
calculated without regard to cash dividends on index component securities. The total return index (NASDAQ: XSOX) reinvests cash
dividends on the ex-date. Both Indices reinvest extraordinary cash distributions. The total return index was synchronized to the
value of the price return index at the close on December 22, 2009.
Eligibility
Index eligibility is limited to specific
security types only. The security types eligible for the PHLX Semiconductor Index include common stocks, ordinary shares, ADRs,
shares of beneficial interest or limited partnership interests and tracking stocks. Security types not included in the PHLX Semiconductor
Index are closed-end funds, convertible debentures, exchange traded funds, preferred stocks, rights, warrants, units and other
derivative securities.
Initial Security Eligibility Criteria
To be eligible for inclusion in the PHLX
Semiconductor Index, a security must meet the following criteria: (1) a security must be listed on the Nasdaq Stock Market, the
New York Stock Exchange, or NYSE MKT; (2) the issuer of the security must be classified, as reasonably determined by NASDAQ, as
a company whose primary business is involved in the design, distribution, manufacture and sale of semiconductors; (3) only one
class of security per issuer is allowed; (4) the security must have a market capitalization of at least $100 million; (5) the security
must have traded at least 1.5 million shares in each of the last six months; (6) the security must have listed options on a recognized
options market in the U.S. or be eligible for listed-options on a recognized options market in the U.S.; (7) the security may not
be issued by an issuer currently in bankruptcy proceedings; (8) the issuer of the security may not have entered into a definitive
agreement or other arrangement which would likely result in the security no longer being eligible; (9) the issuer of the security
may not have annual financial statements with an audit opinion that is currently withdrawn; and (10) the issuer of the security
must have “seasoned” on a recognized market for at least 6 months; in the case of the spin-offs, the operating history
of the parent will be considered.
To be eligible for continued inclusion
in the PHLX Semiconductor Index, an index component security must meet the following criteria: (1) a security must be listed on
The Nasdaq Stock Market, the New York Stock Exchange, or NYSE MKT; (2) the issuer of the security must be classified, as reasonably
determined by NASDAQ, as a company whose primary business is involved in the design, distribution, manufacture, and sale of semiconductors;
(3) the security must have a market capitalization of at least $100 million; (4) the security must have traded at least 1.5 million
shares in each of the last six months; (5) only one security per issuer is permitted. If an issuer has multiple securities, the
security with the largest market capitalization will be selected for possible inclusion into the PHLX Semiconductor Index; (6)
the security must have listed options on a recognized options market in the U.S.; (7) the security may not be issued by an issuer
currently in bankruptcy proceedings; (8) the issuer of the security may not have entered into a definitive agreement or other arrangement
which would likely result in the security no longer being eligible for inclusion in the PHLX Semiconductor Index; (9) the issuer
of the security may not have annual financial statements with an audit opinion that is currently withdrawn; and (10) the security
have “seasoned” on a recognized market for at least 3 months.
Index Maintenance
Changes in the price and/or Index Shares
driven by corporate events such as stock dividends, stock splits and certain spin-offs and rights issuances are adjusted on the
ex-date. If the change in total shares outstanding arising from other corporate actions is greater than or equal to 10%, the change
is made as soon as practicable. Otherwise, if the change in total shares outstanding is less than 10%, then all such changes are
accumulated and made effective at one time on a quarterly basis after the close of trading on the third Friday in each of March,
June, September and December. The Index Shares are derived from the security’s total shares outstanding. Intraquarter, the
Index Shares are adjusted by the same percentage amount by which the total shares outstanding have changed. In the case of a special
cash dividend, a determination is made on an individual basis whether to make a change to the price of an index component security
in accordance with its index dividend policy. If it is determined that a change will be made, it will become effective on the ex-date.
Ordinarily, whenever there is a change in Index Shares, a change in an index component security, or a change to the price of an
index component
security due to spin-offs, rights issuance
or special cash dividends, the divisor is adjusted to ensure that there is no discontinuity in the value of the PHLX Semiconductor
Index which might otherwise be caused by any such change. All changes are announced in advance and are reflected in the PHLX Semiconductor
Index prior to market open on the PHLX Semiconductor Index effective date.
Index Rebalancing
The PHLX Semiconductor Index employs a
modified market capitalization-weighting methodology. At each quarter, the PHLX Semiconductor Index is rebalanced such that the
maximum weight of any index component security does not exceed 8% and no more than 5 securities are at that cap. The excess weight
of any capped security is distributed proportionally across the remaining index component securities. If after redistribution,
any of the 5 highest ranked index component securities are weighted below 8%, these securities are not capped. Next, any remaining
index component securities in excess of 4% are capped at 4% and the excess weight is redistributed proportionally across the remaining
index component securities. The process is repeated, if necessary, to derive the final weights.
The modified market capitalization-weighting
methodology is applied to the capitalization of each index component security, using the last sale price of the security at the
close of trading on the last trading day in February, May, August and November and after applying quarterly changes to the total
shares outstanding. Index Shares are then calculated multiplying the weight of the security derived above by the new market value
of the PHLX Semiconductor Index and dividing the modified market capitalization for each index component security by its corresponding
Last Sale Price. The changes are effective after trading on the third Friday in March, June, September and December.
The securities are
not sponsored, endorsed, sold or promoted by The NASDAQ Group, Inc. or its affiliates (NASDAQ, with its affiliates, are referred
to as the “Corporations”). The Corporations have not passed on the legality or suitability of, or the accuracy or adequacy
of descriptions and disclosures relating to, the securities. The Corporations make no representation or warranty, express or implied
to the owners of the securities or any member of the public regarding the advisability of investing in securities generally or
in the securities particularly, or the ability of the PHLX Semiconductor Sector
SM
Index to track general stock market
performance. The PHLX Semiconductor Sector
SM
Index is determined, composed and calculated by NASDAQ without regard to
us or the securities. NASDAQ has no obligation to take our needs or the needs of the owners of the securities into consideration
in determining, composing or calculating the PHLX Semiconductor Sector
SM
Index
.
The
Corporations are not responsible for and have not participated in the determination of the timing of, prices at, or quantities
of the securities to be issued or in the determination or calculation of the equation by which the securities are to be converted
into cash. The Corporations have no liability in connection with the administration, marketing or trading of the securities.
THE CORPORATIONS
DO NOT GUARANTEE THE ACCURACY AND/OR UNINTERRUPTED CALCULATION OF THE PHLX SEMICONDUCTOR SECTOR
SM
INDEX OR ANY DATA
INCLUDED THEREIN. THE CORPORATIONS MAKE NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY MORGAN STANLEY, OWNERS
OF THE SECURITIES, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE PHLX SEMICONDUCTOR SECTOR
SM
INDEX OR ANY DATA INCLUDED
THEREIN. THE CORPORATIONS MAKE NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIM ALL WARRANTIES OF MERCHANTABILITY OR FITNESS
FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE PHLX SEMICONDUCTOR SECTOR
SM
INDEX OR ANY DATA INCLUDED THEREIN.
WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL THE CORPORATIONS HAVE ANY LIABILITY FOR ANY LOST PROFITS OR SPECIAL, INCIDENTAL,
PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES, EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
“Nasdaq
®
, “PHLX
Semiconductor Sector
SM
” and “SOX
SM
” are registered trademarks or service marks of The NASDAQ
Group, Inc. (which with its affiliates is referred to as the “Corporations”). The securities have not been passed on
by the Corporations as to their legality or suitability. The securities are not issued, endorsed, sold, or promoted by the Corporations.
THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH RESPECT TO THE SECURITIES
.
Russell 1000
®
Growth Index
The Russell 1000
®
Growth
Index is a sub-group of the Russell 1000
®
Index, which is an index calculated, published and disseminated by FTSE
International Limited (“FTSE Russell”), a subsidiary of the London Stock Exchange Group plc (“LSE Group”),
and measures the composite price performance of stocks of 1,000 companies (the “Russell 1000 Component Stocks”) incorporated
in the U.S. and its territories. All 1,000 stocks are traded on a major U.S. exchange and are the 1,000 largest securities that
form the Russell 3000
®
Index. The Russell 3000 Index is composed of the 3,000 largest U.S. companies as determined
by market capitalization and represents approximately 98% of the U.S. equity market. The Russell
1000 Index consists of the largest 1,000 companies
included in the Russell 3000 Index. The Russell 1000 Index is designed to track the performance of the large-capitalization segment
of the U.S. equity market.
Selection of stocks underlying the Russell
1000 Growth Index.
The Russell 1000 Growth Index is a sub-group of the Russell 1000 Index. To be eligible for inclusion in
the Russell 1000 Index, and, consequently, the Russell 1000 Growth Index, a company’s stocks must be listed on the last trading
day in May of a given year and FTSE Russell must have access to documentation verifying the company’s eligibility for inclusion.
Beginning September 2004, eligible initial public offerings are added to Russell U.S. Indices at the end of each calendar quarter,
based on total market capitalization rankings within the market-adjusted capitalization breaks established during the most recent
reconstitution. To be added to any Russell U.S. equity index during a quarter outside of reconstitution, initial public offerings
must meet additional eligibility criteria. As of August 2017, to be eligible for inclusion in the Russell 1000 Growth Index, each
company is required to have more than 5% of its voting rights (aggregated across all of its equity securities) held by unrestricted
shareholders. Companies already included in the Russell 1000 Growth Index have a 5-year grandfathering period to comply with this
requirement, or they will be removed from the Russell 1000 Growth Index in September 2022.
Only companies that are determined to be
part of the U.S. equity market are eligible for inclusion in the Russell 1000 Growth Index. All securities eligible for inclusion
must trade on a major U.S. exchange. Bulletin board, pink sheet or over-the-counter traded securities are not eligible for inclusion.
Stocks must have a close price at or above $1.00 on their primary exchange or on another major U.S. exchange on the last trading
day in May to be considered eligible for inclusion. The following companies are specifically excluded from the Russell 1000 Growth
Index: (i) companies with a total market capitalization less than $30 Million; (ii) companies with only a small portion of their
shares available in the marketplace; (iii) royalty trusts, limited liability companies, closed-end investment companies (companies
that are required to report Acquired Fund Fees and Expenses, as defined by the Securities and Exchange Commission, including business
development companies, are not eligible for inclusion), blank check companies, special purpose acquisition companies, limited partnerships,
exchange-traded funds and mutual funds. In addition, preferred and convertible preferred stock, redeemable shares, participating
preferred stock, warrants, rights and trust receipts are not eligible for inclusion.
FTSE Russell uses a “non-linear probability”
method to assign stocks to the growth and value style indices. The term “probability” is used to indicate the degree
of certainty that a stock is value or growth based on its relative book-to-price (B/P) ratio, I/B/E/S forecast medium-term growth
(2 year) and sales per share historical growth (5 year). This method allows stocks to be represented as having both growth and
value characteristics, while preserving the additive nature of the indices.
The process for assigning growth and value
weights is applied separately to the stocks in the Russell 1000 Index. The stocks in the Russell 1000 Index are ranked by their
adjusted book-to-price ratio (B/P), their I/B/E/S forecast medium-term growth (2 year) and sales per share historical growth (5
year). These rankings are converted to standardized units and combined to produce a Composite Value Score (“CVS”).
Stocks are then ranked by their CVS, and a probability algorithm is applied to the CVS distribution to assign growth and value
weights to each stock. In general, stocks with a lower CVS are considered growth, stocks with a higher CVS are considered value,
and stocks with a CVS in the middle range are considered to have both growth and value characteristics, and are weighted proportionately
in the growth and value index. Stocks are always fully represented by the combination of their growth and value weights, e.g.,
a stock that is given a 20% weight in a Russell value index will have an 80% weight in the same Russell growth index.
Stock A, in the figure below, is a security
with 20% of its available shares assigned to the value index and the remaining 80% assigned to the growth index. The growth and
value probabilities will always sum to 100%. Hence, the sum of a stock’s market capitalization in the growth and value index
will always equal its market capitalization in the Russell 1000 Index.
In the figure above, the quartile breaks
are calculated such that approximately 25% of the available market capitalization lies in each quartile. Stocks at the median are
divided 50% in each style index. Stocks below the first quartile are 100% in the growth index. Stocks above the third quartile
are 100% in the value index. Stocks falling between the first and third quartile breaks are in both indexes to varying degrees
depending on how far they are above or below the median and how close they are to the first or third quartile breaks.
Roughly 70% of the available market capitalization
is classified as all growth or all value. The remaining 30% have some portion of their market value in either the value or growth
index, depending on their relative distance from the median value score. Note that there is a small position cutoff rule. If a
stock’s weight is more than 95% in one style index, its weight is increased to 100% in the index. This rule eliminates many
small weightings and makes passive management easier.
The Russell 1000 Growth Index, along with
the Russell 1000 Index, is reconstituted annually to reflect changes in the marketplace. The list of companies is ranked based
on May 31 total market capitalization, with the actual reconstitution effective on the first trading day following the final Friday
of June each year. Changes in the constituents are preannounced and subject to change if any corporate activity occurs or if any
new information is received prior to release.
Capitalization Adjustments.
The
Russell 1000 Growth Index is a float-adjusted and market-capitalization weighted index. The current Russell 1000 Growth Index value
is calculated by adding the market values of the Russell 1000 Index’s Component Stocks, which are derived by multiplying
the price of each stock by the number of available shares, to arrive at the total market capitalization of the 1,000 stocks. The
total market capitalization is then divided by a divisor, which represents the “adjusted” capitalization of the Russell
1000 Growth Index on the base date of December 31, 1978. To calculate the Russell 1000 Growth Index, last sale prices will be used
for exchange-traded stocks. If a component stock is not open for trading, the most recently traded price for that security will
be used in calculating the Russell 1000 Growth Index. In order to provide continuity for the Russell 1000 Growth Index’s
value, the divisor is adjusted periodically to reflect events including changes in the number of common shares outstanding for
Russell 1000 Component Stocks, company additions or deletions, corporate restructurings and other capitalization changes.
Available shares are assumed to be shares
available for trading. Exclusion of capitalization held by directors, senior executives and managers of the company is based on
information recorded in corporate filings with the Securities and Exchange Commission. Where FTSE Russell determines that a company
is being excluded from index membership solely on the basis of the minimum float requirement, FTSE Russell will use the best available
information contained in the Securities and Exchange Commission filings to determine the free float.
The following types of shares are considered
unavailable and are removed from total market capitalization to arrive at free float or available market capitalization:
|
•
|
ESOP or LESOP shares – Shares held within employee share plans;
|
|
•
|
Public company holdings – Shares held by public companies or by non-listed subsidiaries of public companies;
|
|
•
|
Lock-In clause shares – All Shares where the holders is subject to a lock-in clause are considered unavailable for the
duration of the lock-in clause. Free Float changes resulting from the expiry of a lock-in will be implemented at the next quarterly
review subsequent to there being a minimum of 20 business days between the lock-in expiry date and the Tuesday before the first
Friday of the review month. If the previously locked-in shares are sold by way of a corporate event (such as a secondary offering),
any change to the free float will be applied 2 business days following completion and will not be subject to the minimum 20 business
day rule;
|
|
•
|
Active participation or strategic holding shares – Shares held by an investor, investment company or an investment fund
that is actively participating in the management of a company or is holding shares in a company for strategic reasons as evidenced
by specific statements to that effect in publicly available announcements, or has successfully placed a current member to the board
of directors of a company;
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•
|
On-going contractual agreement shares – Shares that are subject to ongoing contractual agreements (such as swaps) where
they would ordinarily be treated as restricted are considered unavailable;
|
|
•
|
Sovereign Wealth Fund shares – Shares held by a Sovereign Wealth Fund are considered unavailable where the Sovereign
Wealth Fund’s owns 10% or more of the shares;
|
|
•
|
Corporate insider shares – Corporate insider shares are defined as those shares held by founders, promoters, former directors,
founding venture capital and private equity firms, private companies, and individuals (including employees) and shares held by
several investors acting in concert that own 10% or more of the shares outstanding. Portfolio holdings (such as pension fund, insurance
fund or investment companies) are generally not considered unavailable. However, where a single portfolio holding is 30% or greater
it will be regarded as strategic and therefore unavailable;
|
|
•
|
Legally restricted shares – Legally restricted shares are defined as shares where the company’s shareholders are
subject to legal restrictions, including foreign ownership restrictions, that are more restrictive; and
|
|
•
|
Direct government holders – Shares directly owned by State, Regional, Municipal and Local Governments are considered
unavailable and will be removed entirely from available shares;
|
|
•
|
Indirect government holders – shares held by government investment boards and/or investment arms will be treated similar
to portfolio holdings and removed if the holding is greater than 30%; and
|
|
•
|
Government pensions – holdings by independently managed pension schemes for governments are considered institutional
holdings and will not be removed from available shares.
|
Corporate Actions Affecting the Russell
1000 Growth Index.
The following summarizes the types of Russell 1000 Growth Index maintenance adjustments and indicates whether
or not an index adjustment is required:
|
•
|
“No Replacement” Rule – Securities that leave the Russell 1000 Growth Index, between reconstitution dates,
for any reason (e.g., mergers, acquisitions or other similar corporate activity) are not replaced. Thus, the number of securities
in the Russell 1000 Growth Index over the past year will fluctuate according to corporate activity.
|
|
•
|
Rule for Deletions – When a stock is acquired, delisted, or moves to the pink sheets or bulletin boards on the floor
of a U.S. securities exchange, the stock is deleted from the index at the close on the effective date or when the stock is no longer
trading on the exchange.
|
|
•
|
When acquisitions or mergers take place within the Russell 1000 Growth Index, the stock’s capitalization moves to the
acquiring stock, hence, mergers have no effect on the index total capitalization. Shares are updated for the acquiring stock at
the time the transaction is final.
|
|
•
|
Rule for Additions – The only additions between reconstitution dates are as a result of spin-offs and initial public
offerings. Spin-off companies are added to the parent company’s index and capitalization tier of membership (i) until the
next annual reconstitution date, if the spin-off company is eligible for the Russell 1000 Index or (ii) for two business days,
if the spin-off company is ineligible for the Russell 1000 Index.
|
Updates to Share Capital Affecting the
Russell 1000 Growth Index.
In March, June, September, and December, the Russell 1000 Growth Index is updated for changes to
shares outstanding as companies report changes in share capital to the Securities and Exchange Commission. The changes will be
implemented quarterly, on the third Friday of the month (after the close). In June, any change to shares outstanding will be implemented.
In March, September, and December, only cumulative changes to shares outstanding greater than 3% will be reflected in the Russell
1000 Growth Index. This does not affect treatment of major corporate events, which are effective on the ex-date.
The securities are not sponsored, endorsed,
sold or promoted by FTSE Russell. FTSE Russell makes no representation or warranty, express or implied, to the owners of the securities
or any member of the public regarding the advisability of investing in securities generally or in the securities particularly or
the ability of the Russell 1000 Growth Index to track general stock market performance or a segment of the same. FTSE Russell’s
publication of the Russell 1000 Growth Index in no way suggests or implies an opinion by FTSE Russell as to the advisability of
investment in any or all of the securities upon which the Russell 1000 Growth Index is based. The Russell 1000 Growth Index is
determined, composed and calculated by FTSE Russell without regard to Morgan Stanley or the securities. FTSE Russell is not responsible
for and has not reviewed the securities nor any associated literature or publications and FTSE Russell makes no representation
or warranty express or implied as to their accuracy or completeness, or otherwise. FTSE Russell reserves the right, at any time
and without notice, to alter, amend, terminate or in any way change the Russell 1000 Growth Index. FTSE Russell has no obligation
or liability in connection with the administration, marketing or trading of the securities.
FTSE RUSSELL DOES NOT GUARANTEE THE ACCURACY
AND/OR THE COMPLETENESS OF THE RUSSELL 1000 GROWTH INDEX OR ANY DATA INCLUDED THEREIN AND FTSE RUSSELL SHALL HAVE NO LIABILITY
FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. FTSE RUSSELL MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED
BY MORGAN STANLEY, INVESTORS, OWNERS OF THE SECURITIES, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE RUSSELL 1000 GROWTH INDEX
OR ANY DATA INCLUDED THEREIN. FTSE RUSSELL MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE RUSSELL 1000 GROWTH INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT
LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL FTSE RUSSELL HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL
DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
The “Russell 1000
®
Index” is a trademark of FTSE Russell. The securities are not sponsored, endorsed, sold or promoted by FTSE Russell and FTSE
Russell makes no representation regarding the advisability of investing in the securities.
Russell 1000
®
Value Index
The Russell 1000
®
Value
Index is a sub-group of the Russell 1000 Index, which is an index calculated, published and disseminated by FTSE International
Limited (“FTSE Russell”), a subsidiary of the London Stock Exchange Group plc (“LSE Group”), and measures
the composite price performance of stocks of 1,000 companies (the “Russell 1000 Component Stocks”) incorporated in
the U.S. and its territories. All 1,000 stocks are traded on a major U.S. exchange and are the 1,000 largest securities that form
the Russell 3000 Index. The Russell 3000 Index is composed of the 3,000 largest U.S. companies as determined by market capitalization
and represents approximately 98% of the U.S. equity market. The Russell 1000 Index consists of the largest 1,000 companies included
in the Russell 3000 Index and represents approximately 92% of the U.S. equity market. The Russell 1000 Index is designed to track
the performance of the large-capitalization segment of the U.S. equity market.
Selection of stocks underlying the Russell
1000 Value Index.
The Russell 1000 Value Index is a sub-group of the Russell 1000 Index. To be eligible for inclusion in the
Russell 1000 Index, and, consequently, the Russell 1000 Value Index, a company’s stocks must be listed on the last trading
day in May of a given year and FTSE Russell must have access to documentation verifying the company’s eligibility for inclusion.
Beginning September 2004, eligible initial public offerings are added to Russell U.S. Indexes at the end of each calendar quarter,
based on total market capitalization rankings within the market-adjusted capitalization breaks established during the most recent
reconstitution. To be added to any Russell U.S. equity index during a quarter outside of reconstitution, initial public offerings
must meet additional eligibility criteria. As of August 2017, to be eligible for inclusion in the Russell 1000 Value Index, each
company is required to have more than 5% of its voting rights (aggregated across all of its equity securities) held by unrestricted
shareholders. Companies already included in the Russell 1000 Value Index have a 5-year grandfathering period to comply with this
requirement, or they will be removed from the Russell 1000 Value Index in September 2022.
Only companies that are determined to be
part of the U.S. equity market are eligible for inclusion in the Russell 1000 Value Index. All securities eligible for inclusion
must trade on a major U.S. exchange. Bulletin board, pink sheet or over-the-counter traded securities are not eligible for inclusion.
Stocks must have a close price at or above $1.00 on their primary exchange or on another major U.S. exchange on the last trading
day in May to be considered eligible for inclusion. The following companies are specifically excluded from the Russell 1000 Value
Index: (i) companies with a total market capitalization less than $30 Million; (ii) companies with only a small portion of their
shares available in the marketplace; (iii) royalty trusts, limited liability companies, closed-end investment companies (companies
that are required to report Acquired Fund Fees and Expenses, as defined by the Securities and Exchange Commission, including business
development companies, are not eligible for inclusion), blank check companies, special purpose acquisition companies, limited
partnerships, exchange-traded funds and mutual
funds. In addition, preferred and convertible preferred stock, redeemable shares, participating preferred stock, warrants, rights
and trust receipts are not eligible for inclusion.
FTSE Russell uses a “non-linear probability”
method to assign stocks to the growth and value style indexes. The term “probability” is used to indicate the degree
of certainty that a stock is value or growth based on its relative book-to-price (B/P) ratio, I/B/E/S forecast medium-term growth
(2 year) and sales per share historical growth (5 year). This method allows stocks to be represented as having both growth and
value characteristics, while preserving the additive nature of the indexes.
The process for assigning growth and value
weights is applied separately to the stocks in the Russell 1000 Index. The stocks in the Russell 1000 Index are ranked by their
adjusted book-to-price ratio (B/P), their I/B/E/S forecast medium-term, growth (2 year) and sales per share historical growth (5
year). These rankings are converted to standardized units and combined to produce a Composite Value Score (“CVS”).
Stocks are then ranked by their CVS, and a probability algorithm is applied to the CVS distribution to assign growth and value
weights to each stock. In general, stocks with a lower CVS are considered growth, stocks with a higher CVS are considered value,
and stocks with a CVS in the middle range are considered to have both growth and value characteristics, and are weighted proportionately
in the growth and value index. Stocks are always fully represented by the combination of their growth and value weights, e.g.,
a stock that is given a 20% weight in a Russell value index will have an 80% weight in the same Russell growth index.
Stock A, in the figure below, is a security
with 20% of its available shares assigned to the value index and the remaining 80% assigned to the growth index. The growth and
value probabilities will always sum to 100%. Hence, the sum of a stock’s market capitalization in the growth and value index
will always equal its market capitalization in the Russell 1000 Index.
In the figure above, the quartile breaks
are calculated such that approximately 25% of the available market capitalization lies in each quartile. Stocks at the median are
divided 50% in each style index. Stocks below the first quartile are 100% in the growth index. Stocks above the third quartile
are 100% in the value index. Stocks falling between the first and third quartile breaks are in both indexes to varying degrees
depending on how far they are above or below the median and how close they are to the first or third quartile breaks.
Roughly 70% of the available market capitalization
is classified as all growth or all value. The remaining 30% have some portion of their market value in either the value or growth
index, depending on their relative distance from the median value score. Note that there is a small position cutoff rule. If a
stock’s weight is more than 95% in one style index, its weight is increased to 100% in the index. This rule eliminates many
small weightings and makes passive management easier.
The Russell 1000 Value Index, along with
the Russell 1000 Index, is reconstituted annually to reflect changes in the marketplace. The list of companies is ranked based
on May 31 total market capitalization, with the actual reconstitution effective on the first trading day following the final Friday
of June each year. Changes in the constituents are preannounced and subject to change if any corporate activity occurs or if any
new information is received prior to release.
Capitalization Adjustments.
The
Russell 1000 Value Index is a float-adjusted and market-capitalization weighted index. The current Russell 1000 Value Index value
is calculated by adding the market values of the Russell 1000 Index’s Component Stocks, which are derived by multiplying
the price of each stock by the number of available shares, to arrive at the total market capitalization of the 1,000 stocks. The
total market capitalization is then divided by a divisor, which represents the “adjusted” capitalization of the Russell
1000 Value Index on the base date of December 31, 1978. To calculate the Russell 1000 Value Index, last sale prices will be used
for exchange-traded stocks. If a component stock is not open for
trading, the most recently traded price for
that security will be used in calculating the Russell 1000 Value Index. In order to provide continuity for the Russell 1000 Value
Index’s value, the divisor is adjusted periodically to reflect events including changes in the number of common shares outstanding
for Russell 1000 Component Stocks, company additions or deletions, corporate restructurings and other capitalization changes.
Available shares are assumed to be shares
available for trading. Exclusion of capitalization held by directors, senior executives and managers of the company is based on
information recorded in corporate filings with the Securities and Exchange Commission. Where FTSE Russell determines that a company
is being excluded from index membership solely on the basis of the minimum float requirement, FTSE Russell will use the best available
information contained in the Securities and Exchange Commission filings to determine the free float.
The following types of shares are considered
unavailable and are removed from total market capitalization to arrive at free float or available market capitalization:
|
•
|
ESOP or LESOP shares – Shares held within employee share plans;
|
|
•
|
Public company holdings – Shares held by public companies or by non-listed subsidiaries of public companies;
|
|
•
|
Lock-In clause shares – All Shares where the holders is subject to a lock-in clause are considered unavailable for the
duration of the lock-in clause. Free Float changes resulting from the expiry of a lock-in will be implemented at the next quarterly
review subsequent to there being a minimum of 20 business days between the lock-in expiry date and the Tuesday before the first
Friday of the review month. If the previously locked-in shares are sold by way of a corporate event (such as a secondary offering),
any change to the free float will be applied 2 business days following completion and will not be subject to the minimum 20 business
day rule;
|
|
•
|
Active participation or strategic holding shares – Shares held by an investor, investment company or an investment fund
that is actively participating in the management of a company or is holding shares in a company for strategic reasons as evidenced
by specific statements to that effect in publicly available announcements, or has successfully placed a current member to the board
of directors of a company;
|
|
•
|
On-going contractual agreement shares – Shares that are subject to ongoing contractual agreements (such as swaps) where
they would ordinarily be treated as restricted are considered unavailable;
|
|
•
|
Sovereign Wealth Fund shares – Shares held by a Sovereign Wealth Fund are considered unavailable where the Sovereign
Wealth Fund’s owns 10% or more of the shares;
|
|
•
|
Corporate insider shares – Corporate insider shares are defined as those shares held by founders, promoters, former directors,
founding venture capital and private equity firms, private companies, and individuals (including employees) and shares held by
several investors acting in concert that own 10% or more of the shares outstanding. Portfolio holdings (such as pension fund, insurance
fund or investment companies) are generally not considered unavailable. However, where a single portfolio holding is 30% or greater
it will be regarded as strategic and therefore unavailable;
|
|
•
|
Legally restricted shares – Legally restricted shares are defined as shares where the company’s shareholders are
subject to legal restrictions, including foreign ownership restrictions, that are more restrictive; and
|
|
•
|
Direct government holders – Shares directly owned by State, Regional, Municipal and Local Governments are considered
unavailable and will be removed entirely from available shares;
|
|
•
|
Indirect government holders – shares held by government investment boards and/or investment arms will be treated similar
to portfolio holdings and removed if the holding is greater than 30%; and
|
|
•
|
Government pensions – holdings by independently managed pension schemes for governments are considered institutional
holdings and will not be removed from available shares.
|
Corporate Actions Affecting the Russell
1000 Value Index.
The following summarizes the types of Russell 1000 Value Index maintenance adjustments and indicates whether
or not an index adjustment is required:
|
•
|
“No Replacement” Rule – Securities that leave the Russell 1000 Value Index, between reconstitution dates,
for any reason (e.g., mergers, acquisitions or other similar corporate activity) are not replaced. Thus, the number of securities
in the Russell 1000 Value Index over the past year will fluctuate according to corporate activity.
|
|
•
|
Rule for Deletions – When a stock is acquired, delisted, or moves to the pink sheets or bulletin boards on the floor
of a U.S. securities exchange, the stock is deleted from the index at the close on the effective date or when the stock is no longer
trading on the exchange.
|
|
•
|
When acquisitions or mergers take place within the Russell 1000 Value Index, the stock’s capitalization moves to the
acquiring stock, hence, mergers have no effect on the index total capitalization. Shares are updated for the acquiring stock at
the time the transaction is final.
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•
|
Rule for Additions – The only additions between reconstitution dates are as a result of spin-offs and initial public
offerings. Spin-off companies are added to the parent company’s index and capitalization tier of membership (i) until the
next annual reconstitution date, if the spin-off company is eligible for the Russell 1000 Index or (ii) for two business days,
if the spin-off company is ineligible for the Russell 1000 Index.
|
Updates to Share Capital Affecting the
Russell 1000 Value Index.
In March, June, September, and December, the Russell 1000 Value Index is updated for changes to shares
outstanding as companies report changes in share capital to the Securities and Exchange Commission. The changes will be implemented
quarterly, on the third Friday of the month (after the close). In June, any change to shares outstanding will be implemented. In
March, September, and December, only cumulative changes to shares outstanding greater than 3% will be reflected in the Russell
1000 Value Index. This does not affect treatment of major corporate events, which are effective on the ex-date.
The securities are not sponsored, endorsed,
sold or promoted by FTSE Russell. FTSE Russell makes no representation or warranty, express or implied, to the owners of the securities
or any member of the public regarding the advisability of investing in securities generally or in the securities particularly or
the ability of the Russell 1000 Value Index to track general stock market performance or a segment of the same. FTSE Russell’s
publication of the Russell 1000 Value Index in no way suggests or implies an opinion by FTSE Russell as to the advisability of
investment in any or all of the securities upon which the Russell 1000 Value Index is based. The Russell 1000 Value Index is determined,
composed and calculated by FTSE Russell without regard to Morgan Stanley or the securities. FTSE Russell is not responsible for
and has not reviewed the securities nor any associated literature or publications and FTSE Russell makes no representation or warranty
express or implied as to their accuracy or completeness, or otherwise. FTSE Russell reserves the right, at any time and without
notice, to alter, amend, terminate or in any way change the Russell 1000 Value Index. FTSE Russell has no obligation or liability
in connection with the administration, marketing or trading of the securities.
FTSE RUSSELL DOES NOT GUARANTEE THE ACCURACY
AND/OR THE COMPLETENESS OF THE RUSSELL 1000 VALUE INDEX OR ANY DATA INCLUDED THEREIN AND FTSE RUSSELL SHALL HAVE NO LIABILITY FOR
ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. FTSE RUSSELL MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED
BY MORGAN STANLEY, INVESTORS, OWNERS OF THE SECURITIES, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE RUSSELL 1000 VALUE INDEX
OR ANY DATA INCLUDED THEREIN. FTSE RUSSELL MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE RUSSELL 1000 VALUE INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING
ANY OF THE FOREGOING, IN NO EVENT SHALL FTSE RUSSELL HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES
(INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
The “Russell 1000
®
Index” is a trademark of FTSE Russell. The securities are not sponsored, endorsed, sold or promoted by FTSE Russell and FTSE
Russell makes no representation regarding the advisability of investing in the securities.
Russell 2000
®
Index
The Russell 2000
®
Index
is an index calculated, published and disseminated by FTSE Russell, and measures the composite price performance of stocks of
2,000 companies (the “Russell 2000 Component Stocks”) incorporated in the U.S. and its territories. All 2,000 stocks
are traded on a major U.S. exchange and are the 2,000 smallest securities that form the Russell 3000
®
Index. The
Russell 3000 Index is composed of the 3,000 largest U.S. companies as determined by market capitalization and represents approximately
98% of the U.S. equity market. The Russell 2000 Index consists of the smallest 2,000 companies included in the Russell 3000 Index
and represents a small portion of the total market capitalization of the Russell 3000 Index. The Russell 2000 Index is designed
to track the performance of the small capitalization segment of the U.S. equity market.
The Russell
2000
®
Index is reported by Bloomberg Financial Markets under ticker symbol “RTY.”
Selection of stocks underlying the Russell
2000 Index.
The Russell 2000 Index is a sub-group of the Russell 3000 Index. To be eligible for inclusion in the Russell 3000
Index, and, consequently, the Russell 2000 Index, a company’s stocks must be listed on the last trading day in May of a given
year and FTSE Russell must have access to documentation verifying the company’s eligibility for inclusion. Beginning September
2004, eligible initial public offerings are added to Russell U.S. Indices at the end of each calendar quarter, based on total market
capitalization rankings within the market-adjusted capitalization breaks established during the most recent reconstitution. To
be added to any Russell U.S. equity index during a quarter outside of reconstitution, initial public offerings must meet additional
eligibility criteria. As of August 2017, to be eligible for inclusion in the Russell 2000 Index, each company is required to have
more than 5% of its voting rights (aggregated across all of its equity securities) held by unrestricted shareholders. Companies
already included in the Russell 2000 Index have a 5-year grandfathering period to comply with this requirement, or they will be
removed from the Russell 2000 Index in September 2022.
Only companies that are determined to be
part of the U.S. equity market are eligible for inclusion in the Russell 2000 Index. All securities eligible for inclusion must
trade on a major U.S. exchange. Bulletin board, pink sheet or over-the-counter traded securities are not eligible for inclusion.
Stocks must have a close price at or above $1.00 on their primary exchange or on another major U.S. exchange on the last trading
day in May to be considered eligible for inclusion. The following companies are specifically excluded from the Russell 2000 Index:
(i) companies with a total market capitalization less than $30 Million; (ii) companies with only a small portion of their shares
available in the marketplace; (iii) royalty trusts, limited liability companies, closed-end investment companies (companies that
are required to report Acquired Fund Fees and Expenses, as defined by the Securities and Exchange Commission, including business
development companies, are not eligible for inclusion), blank check companies, special purpose acquisition companies, limited partnerships,
exchange-traded funds and mutual funds. In addition, preferred and convertible preferred stock, redeemable shares, participating
preferred stock, warrants, rights and trust receipts are not eligible for inclusion.
The primary criteria used to determine
the initial list of securities eligible for the Russell 3000 Index is total market capitalization, which is defined as the price
of the shares times the total number of available shares. All common stock share classes are combined in determining market capitalization.
For companies with multiple share classes, the pricing vehicle will be designated as the share class with the highest two-year
trading volume as of the rank day in May. In the absence of two years’ worth of data, all available data will be used for
this determination. If the difference between trading volumes for each share class is less than 20%, the share class with the most
available shares outstanding will be used as the pricing vehicle. Stocks must trade at or above $1.00 on the last trading day in
May of each year to be eligible for inclusion in the Russell 2000 Index. However, if a stock falls below $1.00 intra-year, it will
not be removed until the next reconstitution if it is still trading below $1.00.
The Russell 2000 Index is reconstituted
annually to reflect changes in the marketplace. The list of companies is ranked based on May 31 total market capitalization, with
the actual reconstitution effective on the first trading day following the final Friday of June each year. Changes in the constituents
are preannounced and subject to change if any corporate activity occurs or if any new information is received prior to release.
Capitalization Adjustments.
The
Russell 2000 Index is a float-adjusted and market-capitalization weighted index. The current Russell 2000 Index value is calculated
by adding the market values of the Russell 2000 Index’s Russell 2000 Component Stocks, which are derived by multiplying the
price of each stock by the number of available shares, to arrive at the total market capitalization of the 2,000 stocks. The total
market capitalization is then divided by a divisor, which represents the “adjusted” capitalization of the Russell 2000
Index on the base date of December 31, 1978. To calculate the Russell 2000 Index, last sale prices will be used for exchange-traded
stocks. If a component stock is not open for trading, the most recently traded price for that security will be used in calculating
the Russell 2000 Index. In order to provide continuity for the Russell 2000 Index’s value, the divisor is adjusted periodically
to reflect events including changes in the number of common shares outstanding for Russell 2000 Component Stocks, company additions
or deletions, corporate restructurings and other capitalization changes.
Available shares are assumed to be shares
available for trading. Exclusion of capitalization held by directors, senior executives and managers of the company is based on
information recorded in corporate filings with the Securities and Exchange Commission. Where FTSE Russell determines that a company
is being excluded from index membership solely on the basis of the minimum float requirement, FTSE Russell will use the best available
information contained in the Securities and Exchange Commission filings to determine the free float.
The following types of shares are considered
unavailable and are removed from total market capitalization to arrive at free float or available market capitalization:
|
•
|
ESOP or LESOP shares – Shares held within employee share plans;
|
|
•
|
Public company holdings – Shares held by public companies or by non-listed subsidiaries of public companies;
|
|
•
|
Lock-In clause shares – All Shares where the holders is subject to a lock-in clause are considered unavailable for the
duration of the lock-in clause. Free Float changes resulting from the expiry of a lock-in will be implemented at the next quarterly
review subsequent to there being a minimum of 20 business days between the lock-in expiry date and the Tuesday before the first
Friday of the review month. If the previously locked-in shares are sold by way of a corporate event (such as a secondary offering),
any change to the free float will be applied 2 business days following completion and will not be subject to the minimum 20 business
day rule;
|
|
•
|
Active participation or strategic holding shares – Shares held by an investor, investment company or an investment fund
that is actively participating in the management of a company or is holding shares in a company for strategic reasons as evidenced
by specific statements to that effect in publicly available announcements, or has successfully placed a current member to the board
of directors of a company;
|
|
•
|
On-going contractual agreement shares – Shares that are subject to ongoing contractual agreements (such as swaps) where
they would ordinarily be treated as restricted are considered unavailable;
|
|
•
|
Sovereign Wealth Fund shares – Shares held by a Sovereign Wealth Fund are considered unavailable where the Sovereign
Wealth Fund’s owns 10% or more of the shares;
|
|
•
|
Corporate insider shares – Corporate insider shares are defined as those shares held by founders, promoters, former directors,
founding venture capital and private equity firms, private companies, and individuals (including employees) and shares held by
several investors acting in concert that own 10% or more of the shares outstanding. Portfolio holdings (such as pension fund, insurance
fund or investment companies) are generally not considered unavailable. However, where a single portfolio holding is 30% or greater
it will be regarded as strategic and therefore unavailable;
|
|
•
|
Legally restricted shares – Legally restricted shares are defined as shares where the company’s shareholders are
subject to legal restrictions, including foreign ownership restrictions, that are more restrictive; and
|
|
•
|
Direct government holders – Shares directly owned by State, Regional, Municipal and Local Governments are considered
unavailable and will be removed entirely from available shares;
|
|
•
|
Indirect government holders – shares held by government investment boards and/or investment arms will be treated similar
to portfolio holdings and removed if the holding is greater than 30%; and
|
|
•
|
Government pensions – holdings by independently managed pension schemes for governments are considered institutional
holdings and will not be removed from available shares.
|
Corporate Actions Affecting the Russell
2000 Index.
The following summarizes the types of Russell 2000 Index maintenance adjustments and indicates whether or not an
index adjustment is required:
|
•
|
“No Replacement” Rule – Securities that leave the Russell 2000 Index, between reconstitution dates, for any
reason (e.g., mergers, acquisitions or other similar corporate activity) are not replaced. Thus, the number of securities in the
Russell 2000 Index over the past year will fluctuate according to corporate activity.
|
|
•
|
Rule for Deletions – When a stock is acquired, delisted, or moves to the pink sheets or bulletin boards on the floor
of a U.S. securities exchange, the stock is deleted from the index at the close on the effective date or when the stock is no longer
trading on the exchange.
|
|
•
|
When acquisitions or mergers take place within the Russell 2000 Index, the stock’s capitalization moves to the acquiring
stock, hence, mergers have no effect on the index total capitalization. Shares are updated for the acquiring stock at the time
the transaction is final.
|
|
•
|
Rule for Additions – The only additions between reconstitution dates are as a result of spin-offs and initial public
offerings. The only additions between reconstitution dates are as a result of spin-offs and initial public offerings. Spin-off
companies are added to the parent company’s index and capitalization tier of membership (i) until the next annual reconstitution
date, if the spin-off company is eligible for the Russell 2000 Index or (ii) for two business days, if the spin-off company is
ineligible for the Russell 2000 Index.
|
Updates to Share Capital Affecting the
Russell 2000 Index.
In March, June, September, and December, the Russell 2000 Index is updated for changes to shares outstanding
as companies report changes in share capital to the Securities and Exchange Commission. The changes will be implemented quarterly,
on the third Friday of the month (after the close). In June, any change to shares outstanding will be implemented. In March, September,
and December, only cumulative changes to shares outstanding greater than 3% will be reflected in the Russell 2000 Index. This does
not affect treatment of major corporate events, which are effective on the ex-date.
The securities are not sponsored, endorsed,
sold or promoted by FTSE Russell. FTSE Russell makes no representation or warranty, express or implied, to the owners of the securities
or any member of the public regarding the advisability of investing in securities generally or in the securities particularly or
the ability of the Russell 2000 Index to track general stock market performance or a segment of the same. FTSE Russell publication
of the Russell 2000 Index in no way suggests or implies an opinion by FTSE Russell as to the advisability of investment in any
or all of the securities upon which the Russell 2000 Index is based. The Russell 2000 Index is determined, composed and calculated
by FTSE Russell without regard to Morgan Stanley or the securities. FTSE Russell is not responsible for and has not reviewed the
securities nor any associated literature or publications and FTSE Russell makes no representation or warranty express or implied
as to their accuracy or completeness, or otherwise. FTSE Russell reserves the right, at any time and without notice, to alter,
amend, terminate or in any way change the Russell 2000 Index. FTSE Russell has no obligation or liability in connection with the
administration, marketing or trading of the securities.
FTSE RUSSELL DOES NOT GUARANTEE THE ACCURACY
AND/OR THE COMPLETENESS OF THE RUSSELL 2000 INDEX OR ANY DATA INCLUDED THEREIN AND FTSE RUSSELL SHALL HAVE NO LIABILITY FOR ANY
ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. FTSE RUSSELL MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY
MORGAN STANLEY, INVESTORS, OWNERS OF THE SECURITIES, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE RUSSELL 2000 INDEX OR ANY
DATA INCLUDED THEREIN. FTSE RUSSELL MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE RUSSELL 2000 INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING
ANY OF THE FOREGOING, IN NO EVENT SHALL FTSE RUSSELL HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES
(INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
The “Russell 2000
®
Index” is a trademark of FTSE Russell. The securities are not sponsored, endorsed, sold or promoted by FTSE Russell and FTSE
Russell makes no representation regarding the advisability of investing in the securities.
Russell 2000
®
Growth Index
The Russell 2000
®
Growth
Index is a sub-group of the Russell 2000 Index, which is an index calculated, published and disseminated by FTSE Russell, and measures
the composite price performance of stocks of 2,000 companies (the “Russell 2000 Component Stocks”) incorporated in
the U.S. and its territories. All 2,000 stocks are traded on a major U.S. exchange and are the 2,000 smallest securities that form
the Russell 3000 Index. The Russell 3000 Index is composed of the 3,000 largest U.S. companies as determined by market capitalization
and represents approximately 98% of the U.S. equity market. The Russell 2000 Index consists of the smallest 2,000 companies included
in the Russell 3000 Index and represents a small portion of the total market capitalization of the Russell 3000 Index. The Russell
2000 Index is designed to track the performance of the small capitalization segment of the U.S. equity market.
Selection of stocks underlying the Russell
2000 Growth Index.
The Russell 2000 Growth Index is a sub-group of the Russell 2000 Index. To be eligible for inclusion in
the Russell 2000 Index, and, consequently, the Russell 2000 Growth Index, a company’s stocks must be listed on the last trading
day in May of a given year and FTSE Russell must have access to documentation verifying the company’s eligibility for inclusion.
Beginning September 2004, eligible initial public offerings are added to Russell U.S. Indices at the end of each calendar quarter,
based on total market capitalization rankings within the market-adjusted capitalization breaks established during the most recent
reconstitution. To be added to any Russell U.S. equity index during a quarter outside of reconstitution, initial public offerings
must meet additional eligibility criteria. As of August 2017, to be eligible for inclusion in the Russell 2000 Growth Index, each
company is required to have more than 5% of its voting rights (aggregated across all of its equity securities) held by unrestricted
shareholders. Companies already included in the Russell 2000 Growth Index have a 5-year grandfathering period to comply with this
requirement, or they will be removed from the Russell 2000 Growth Index in September 2022.
Only companies that are determined to be
part of the U.S. equity market are eligible for inclusion in the Russell 2000 Growth Index. All securities eligible for inclusion
must trade on a major U.S. exchange. Bulletin board, pink sheet or over-the-counter traded securities are not eligible for inclusion.
Stocks must have a close price at or above $1.00 on their primary exchange or on another major U.S. exchange on the last trading
day in May to be considered eligible for inclusion. The
following companies are specifically excluded
from the Russell 2000 Growth Index: (i) companies with a total market capitalization less than $30 Million; (ii) companies with
only a small portion of their shares available in the marketplace; (iii) royalty trusts, limited liability companies, closed-end
investment companies (companies that are required to report Acquired Fund Fees and Expenses, as defined by the Securities and Exchange
Commission, including business development companies, are not eligible for inclusion), blank check companies, special purpose acquisition
companies, limited partnerships, exchange-traded funds and mutual funds. In addition, preferred and convertible preferred stock,
redeemable shares, participating preferred stock, warrants, rights and trust receipts are not eligible for inclusion.
FTSE Russell uses a “non-linear probability”
method to assign stocks to the growth and value style indices. The term “probability” is used to indicate the degree
of certainty that a stock is value or growth based on its relative book-to-price (B/P) ratio, I/B/E/S forecast medium-term growth
(2 year) and sales per share historical growth (5 year). This method allows stocks to be represented as having both growth and
value characteristics, while preserving the additive nature of the indices.
The process for assigning growth and value
weights is applied separately to the stocks in the Russell 2000 Index. The stocks in the Russell 2000 Index are ranked by their
adjusted book-to-price ratio (B/P), their I/B/E/S forecast medium-term growth (2 year) and sales per share historical growth (5
year). These rankings are converted to standardized units and combined to produce a Composite Value Score (“CVS”).
Stocks are then ranked by their CVS, and a probability algorithm is applied to the CVS distribution to assign growth and value
weights to each stock. In general, stocks with a lower CVS are considered growth, stocks with a higher CVS are considered value,
and stocks with a CVS in the middle range are considered to have both growth and value characteristics, and are weighted proportionately
in the growth and value index. Stocks are always fully represented by the combination of their growth and value weights, e.g.,
a stock that is given a 20% weight in a Russell value index will have an 80% weight in the same Russell growth index.
Stock A, in the figure below, is a security
with 20% of its available shares assigned to the value index and the remaining 80% assigned to the growth index. The growth and
value probabilities will always sum to 100%. Hence, the sum of a stock’s market capitalization in the growth and value index
will always equal its market capitalization in the Russell 2000 Index.
In the figure above, the quartile breaks
are calculated such that approximately 25% of the available market capitalization lies in each quartile. Stocks at the median are
divided 50% in each style index. Stocks below the first quartile are 100% in the growth index. Stocks above the third quartile
are 100% in the value index. Stocks falling between the first and third quartile breaks are in both indices to varying degrees
depending on how far they are above or below the median and how close they are to the first or third quartile breaks.
Roughly 70% of the available market capitalization
is classified as all growth or all value. The remaining 30% have some portion of their market value in either the value or growth
index, depending on their relative distance from the median value score. Note that there is a small position cutoff rule. If a
stock’s weight is more than 95% in one style index, its weight is increased to 100% in the index. This rule eliminates many
small weightings and makes passive management easier.
The Russell 2000 Growth Index, along with
the Russell 2000 Index, is reconstituted annually to reflect changes in the marketplace. The list of companies is ranked based
on May 31 total market capitalization, with the actual reconstitution effective on the first trading day following the final Friday
of June each year. Changes in the constituents are preannounced and subject to change if any corporate activity occurs or if any
new information is received prior to release.
Capitalization Adjustments.
The
Russell 2000 Growth Index is a float-adjusted and market-capitalization weighted index. The current Russell 2000 Growth Index value
is calculated by adding the market values, according to the
methodology discussed above, of the Russell
2000 Index’s Component Stocks, which are derived by multiplying the price of each stock by the number of available shares,
to arrive at the total market capitalization of the 2,000 stocks. The total market capitalization is then divided by a divisor,
which represents the “adjusted” capitalization of the Russell 2000 Growth Index on the base date of May 31, 1993. To
calculate the Russell 2000 Growth Index, last sale prices will be used for exchange-traded stocks. If a component stock is not
open for trading, the most recently traded price for that security will be used in calculating the Russell 2000 Growth Index. In
order to provide continuity for the Russell 2000 Growth Index’s value, the divisor is adjusted periodically to reflect events
including changes in the number of common shares outstanding for Russell 2000 Component Stocks, company additions or deletions,
corporate restructurings and other capitalization changes.
Available shares are assumed to be shares
available for trading. Exclusion of capitalization held by directors, senior executives and managers of the company is based on
information recorded in corporate filings with the Securities and Exchange Commission. Where FTSE Russell determines that a company
is being excluded from index membership solely on the basis of the minimum float requirement, FTSE Russell will use the best available
information contained in the Securities and Exchange Commission filings to determine the free float.
The following types of shares are considered
unavailable and are removed from total market capitalization to arrive at free float or available market capitalization:
|
•
|
ESOP or LESOP shares – Shares held within employee share plans;
|
|
•
|
Public company holdings – Shares held by public companies or by non-listed subsidiaries of public companies;
|
|
•
|
Lock-In clause shares – All Shares where the holders is subject to a lock-in clause are considered unavailable for the
duration of the lock-in clause. Free Float changes resulting from the expiry of a lock-in will be implemented at the next quarterly
review subsequent to there being a minimum of 20 business days between the lock-in expiry date and the Tuesday before the first
Friday of the review month. If the previously locked-in shares are sold by way of a corporate event (such as a secondary offering),
any change to the free float will be applied 2 business days following completion and will not be subject to the minimum 20 business
day rule;
|
|
•
|
Active participation or strategic holding shares – Shares held by an investor, investment company or an investment fund
that is actively participating in the management of a company or is holding shares in a company for strategic reasons as evidenced
by specific statements to that effect in publicly available announcements, or has successfully placed a current member to the board
of directors of a company;
|
|
•
|
On-going contractual agreement shares – Shares that are subject to ongoing contractual agreements (such as swaps) where
they would ordinarily be treated as restricted are considered unavailable;
|
|
•
|
Sovereign Wealth Fund shares – Shares held by a Sovereign Wealth Fund are considered unavailable where the Sovereign
Wealth Fund’s owns 10% or more of the shares;
|
|
•
|
Corporate insider shares – Corporate insider shares are defined as those shares held by founders, promoters, former directors,
founding venture capital and private equity firms, private companies, and individuals (including employees) and shares held by
several investors acting in concert that own 10% or more of the shares outstanding. Portfolio holdings (such as pension fund, insurance
fund or investment companies) are generally not considered unavailable. However, where a single portfolio holding is 30% or greater
it will be regarded as strategic and therefore unavailable;
|
|
•
|
Legally restricted shares – Legally restricted shares are defined as shares where the company’s shareholders are
subject to legal restrictions, including foreign ownership restrictions, that are more restrictive; and
|
|
•
|
Direct government holders – Shares directly owned by State, Regional, Municipal and Local Governments are considered
unavailable and will be removed entirely from available shares;
|
|
•
|
Indirect government holders – shares held by government investment boards and/or investment arms will be treated similar
to portfolio holdings and removed if the holding is greater than 30%; and
|
|
•
|
Government pensions – holdings by independently managed pension schemes for governments are considered institutional
holdings and will not be removed from available shares.
|
Corporate Actions Affecting the Russell
2000 Growth Index.
The following summarizes the types of Russell 2000 Growth Index maintenance adjustments and indicates whether
or not an index adjustment is required:
|
•
|
“No Replacement” Rule – Securities that leave the Russell 2000 Growth Index, between reconstitution dates,
for any reason (e.g., mergers, acquisitions or other similar corporate activity) are not replaced. Thus, the number of securities
in the Russell 2000 Growth Index over the past year will fluctuate according to corporate activity.
|
|
•
|
Rule for Deletions – When a stock is acquired, delisted, or moves to the pink sheets or bulletin boards on the floor
of a U.S. securities exchange, the stock is deleted from the index at the close on the effective date or when the stock is no longer
trading on the exchange.
|
|
•
|
When acquisitions or mergers take place within the Russell 2000 Growth Index, the stock’s capitalization moves to the
acquiring stock, hence, mergers have no effect on the index total capitalization. Shares are updated for the acquiring stock at
the time the transaction is final.
|
|
•
|
Rule for Additions – The only additions between reconstitution dates are as a result of spin-offs and initial public
offerings. Spin-off companies are added to the parent company’s index and capitalization tier of membership (i) until the
next annual reconstitution date, if the spin-off company is eligible for the Russell 2000 Index or (ii) for two business days,
if the spin-off company is ineligible for the Russell 2000 Index.
|
Updates to Share Capital Affecting the
Russell 2000 Growth Index.
In March, June, September, and December, the Russell 2000 Growth Index is updated for changes to
shares outstanding as companies report changes in share capital to the Securities and Exchange Commission. The changes will be
implemented quarterly, on the third Friday of the month (after the close). In June, any change to shares outstanding will be implemented.
In March, September, and December, only cumulative changes to shares outstanding greater than 3% will be reflected in the Russell
2000 Growth Index. This does not affect treatment of major corporate events, which are effective on the ex-date.
The securities are not sponsored, endorsed,
sold or promoted by FTSE Russell. FTSE Russell makes no representation or warranty, express or implied, to the owners of the securities
or any member of the public regarding the advisability of investing in securities generally or in the securities particularly or
the ability of the Russell 2000 Growth Index to track general stock market performance or a segment of the same. FTSE Russell’
publication of the Russell 2000 Growth Index in no way suggests or implies an opinion by FTSE Russell as to the advisability of
investment in any or all of the securities upon which the Russell 2000 Growth Index is based. The Russell 2000 Growth Index is
determined, composed and calculated by FTSE Russell without regard to Morgan Stanley or the securities. FTSE Russell is not responsible
for and has not reviewed the securities nor any associated literature or publications and FTSE Russell makes no representation
or warranty express or implied as to their accuracy or completeness, or otherwise. FTSE Russell reserves the right, at any time
and without notice, to alter, amend, terminate or in any way change the Russell 2000 Growth Index. FTSE Russell has no obligation
or liability in connection with the administration, marketing or trading of the securities.
FTSE
Russell
DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE RUSSELL 2000 GROWTH INDEX OR ANY DATA INCLUDED THEREIN
AND
FTSE Russell
SHALL HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS
THEREIN.
FTSE Russell
MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE
OBTAINED BY MORGAN STANLEY, INVESTORS, OWNERS OF THE SECURITIES, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE RUSSELL 2000
GROWTH INDEX OR ANY DATA INCLUDED THEREIN.
FTSE Russell
MAKES NO EXPRESS OR IMPLIED
WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO
THE RUSSELL 2000 GROWTH INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL
FTSE
Russell
HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN
IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
The “Russell 2000
®
Index” is a trademark of FTSE Russell. The securities are not sponsored, endorsed, sold or promoted by FTSE Russell and FTSE
Russell makes no representation regarding the advisability of investing in the securities.
Russell 2000
®
Value Index
The Russell 2000
®
Value
Index is a sub-group of the Russell 2000 Index, which is an index calculated, published and disseminated by FTSE International
Limited (“FTSE Russell”), a subsidiary of the London Stock Exchange Group plc (“LSE Group”), and measures
the composite price performance of stocks of 2,000 companies (the “Russell 2000 Component
Stocks”) incorporated in the U.S. and
its territories. All 2,000 stocks are traded on a major U.S. exchange are the 2,000 smallest securities that form the Russell 3000
®
Index. The Russell 3000 Index is composed of the 3,000 largest U.S. companies as determined by market capitalization and represents
approximately 98% of the U.S. equity market. The Russell 2000 Index consists of the smallest 2,000 companies included in the Russell
3000 Index and represents a small portion of the total market capitalization of the Russell 3000 Index. The Russell 2000 Index
is designed to track the performance of the small- capitalization segment of the U.S. equity market.
Selection of stocks underlying the Russell
2000 Value Index.
The Russell 2000 Value Index is a sub-group of the Russell 2000 Index. To be eligible for inclusion in the
Russell 2000 Index, and, consequently, the Russell 2000 Value Index, a company’s stocks must be listed on May 31 of a given
year and FTSE Russell must have access to documentation verifying the company’s eligibility for inclusion. Beginning September
2004, eligible initial public offerings are added to Russell U.S. Indexes at the end of each calendar quarter, based on total market
capitalization rankings within the market-adjusted capitalization breaks established during the most recent reconstitution. To
be added to any Russell U.S. equity index during a quarter outside of reconstitution, initial public offerings must meet additional
eligibility criteria. As of August 2017, to be eligible for inclusion in the Russell 2000 Value Index, each company is required
to have more than 5% of its voting rights (aggregated across all of its equity securities) held by unrestricted shareholders. Companies
already included in the Russell 2000 Value Index have a 5-year grandfathering period to comply with this requirement, or they will
be removed from the Russell 2000 Value Index in September 2022.
Only companies that are determined to be
part of the U.S. equity market are eligible for inclusion in the Russell 2000 Value Index. All securities eligible for inclusion
must trade on a major U.S. exchange. Bulletin board, pink sheet or over-the-counter traded securities are not eligible for inclusion.
Stocks must have a close price at or above $1.00 on their primary exchange or on another major U.S. exchange on the last trading
day in May to be considered eligible for inclusion. The following companies are specifically excluded from the Russell 2000 Value
Index: (i) companies with a total market capitalization less than $30 Million; (ii) companies with only a small portion of their
shares available in the marketplace; (iii) royalty trusts, limited liability companies, closed-end investment companies (companies
that are required to report Acquired Fund Fees and Expenses, as defined by the Securities and Exchange Commission, including business
development companies, are not eligible for inclusion), blank check companies, special purpose acquisition companies, limited partnerships,
exchange-traded funds and mutual funds. In addition, preferred and convertible preferred stock, redeemable shares, participating
preferred stock, warrants, rights and trust receipts are not eligible for inclusion.
FTSE Russell uses a “non-linear probability”
method to assign stocks to the growth and value style indices. The term “probability” is used to indicate the degree
of certainty that a stock is value or growth based on its relative book-to-price (B/P) ratio, I/B/E/S forecast medium-term growth
(2 year) and sales per share historical growth (5 year). This method allows stocks to be represented as having both growth and
value characteristics, while preserving the additive nature of the indices.
The process for assigning growth and value
weights is applied separately to the stocks in the Russell 2000 Index. The stocks in the Russell 2000 Index are ranked by their
adjusted book-to-price ratio (B/P), their I/B/E/S forecast medium-term growth (2 year) and sales per share historical growth (5
year). These rankings are converted to standardized units and combined to produce a Composite Value Score (“CVS”).
Stocks are then ranked by their CVS, and a probability algorithm is applied to the CVS distribution to assign growth and value
weights to each stock. In general, stocks with a lower CVS are considered growth, stocks with a higher CVS are considered value,
and stocks with a CVS in the middle range are considered to have both growth and value characteristics, and are weighted proportionately
in the growth and value index. Stocks are always fully represented by the combination of their growth and value weights, e.g.,
a stock that is given a 20% weight in a Russell value index will have an 80% weight in the same Russell growth index.
Stock A, in the figure below, is a security
with 20% of its available shares assigned to the value index and the remaining 80% assigned to the growth index. The growth and
value probabilities will always sum to 100%. Hence, the sum of a stock’s market capitalization in the growth and value index
will always equal its market capitalization in the Russell 2000 Index.
In the figure above, the quartile breaks
are calculated such that approximately 25% of the available market capitalization lies in each quartile. Stocks at the median are
divided 50% in each style index. Stocks below the first quartile are 100% in the growth index. Stocks above the third quartile
are 100% in the value index. Stocks falling between the first and third quartile breaks are in both indexes to varying degrees
depending on how far they are above or below the median and how close they are to the first or third quartile breaks.
Roughly 70% of the available market capitalization
is classified as all growth or all value. The remaining 30% have some portion of their market value in either the value or growth
index, depending on their relative distance from the median value score. Note that there is a small position cutoff rule. If a
stock’s weight is more than 95% in one style index, its weight is increased to 100% in the index. This rule eliminates many
small weightings and makes passive management easier.
The Russell 2000 Value Index, along with
the Russell 2000 Index, is reconstituted annually to reflect changes in the marketplace. The CVS for each company in the Russell
2000 Index is determined annually based on data as of May 31. The list of companies is ranked based on May 31 total market capitalization,
with the actual reconstitution effective on the first trading day following the final Friday of June each year. Changes in the
constituents are preannounced and subject to change if any corporate activity occurs or if any new information is received prior
to release.
Capitalization Adjustments.
As a
capitalization-weighted index, the Russell 2000 Value Index reflects changes in the capitalization, or market value, of the Russell
2000 Component Stocks relative to the capitalization on a base date. The current Russell 2000 Value Index value is calculated by
adding the market values, according to the methodology discussed above, of the Russell 2000 Index’s Component Stocks, which
are derived by multiplying the price of each stock by the number of available shares, to arrive at the total market capitalization
of the 2,000 stocks. The total market capitalization is then divided by a divisor, which represents the “adjusted”
capitalization of the Russell 2000 Value Index on the base date of December 31, 1986. To calculate the Russell 2000 Value Index,
last sale prices will be used for exchange-traded stocks. If a component stock is not open for trading, the most recently traded
price for that security will be used in calculating the Russell 2000 Value Index. In order to provide continuity for the Russell
2000 Value Index’s value, the divisor is adjusted periodically to reflect events including changes in the number of common
shares outstanding for Russell 2000 Component Stocks, company additions or deletions, corporate restructurings and other capitalization
changes.
Available shares are assumed to be shares
available for trading. Exclusion of capitalization held by directors, senior executives and managers of the company is based on
information recorded in corporate filings with the Securities and Exchange Commission. Where FTSE Russell determines that a company
is being excluded from index membership solely on the basis of the minimum float requirement, FTSE Russell will use the best available
information contained in the Securities and Exchange Commission filings to determine the free float.
The following types of shares are considered
unavailable and are removed from total market capitalization to arrive at free float or available market capitalization:
|
•
|
ESOP or LESOP shares – Shares held within employee share plans;
|
|
•
|
Public company holdings – Shares held by public companies or by non-listed subsidiaries of public companies;
|
|
•
|
Lock-In clause shares – All Shares where the holders is subject to a lock-in clause are considered unavailable for the
duration of the lock-in clause. Free Float changes resulting from the expiry of a lock-in will be implemented at the next quarterly
review subsequent to there being a minimum of 20 business days between the lock-in expiry date and the Tuesday before the first
Friday of the review month. If the previously locked-in
|
shares are sold by way of a corporate
event (such as a secondary offering), any change to the free float will be applied 2 business days following completion and will
not be subject to the minimum 20 business day rule;
|
•
|
Active participation or strategic holding shares – Shares held by an investor, investment company or an investment fund
that is actively participating in the management of a company or is holding shares in a company for strategic reasons as evidenced
by specific statements to that effect in publicly available announcements, or has successfully placed a current member to the board
of directors of a company;
|
|
•
|
On-going contractual agreement shares – Shares that are subject to ongoing contractual agreements (such as swaps) where
they would ordinarily be treated as restricted are considered unavailable;
|
|
•
|
Sovereign Wealth Fund shares – Shares held by a Sovereign Wealth Fund are considered unavailable where the Sovereign
Wealth Fund’s owns 10% or more of the shares;
|
|
•
|
Corporate insider shares – Corporate insider shares are defined as those shares held by founders, promoters, former directors,
founding venture capital and private equity firms, private companies, and individuals (including employees) and shares held by
several investors acting in concert that own 10% or more of the shares outstanding. Portfolio holdings (such as pension fund, insurance
fund or investment companies) are generally not considered unavailable. However, where a single portfolio holding is 30% or greater
it will be regarded as strategic and therefore unavailable;
|
|
•
|
Legally restricted shares – Legally restricted shares are defined as shares where the company’s shareholders are
subject to legal restrictions, including foreign ownership restrictions, that are more restrictive; and
|
|
•
|
Direct government holders – Shares directly owned by State, Regional, Municipal and Local Governments are considered
unavailable and will be removed entirely from available shares;
|
|
•
|
Indirect government holders – shares held by government investment boards and/or investment arms will be treated similar
to portfolio holdings and removed if the holding is greater than 30%; and
|
|
•
|
Government pensions – holdings by independently managed pension schemes for governments are considered institutional
holdings and will not be removed from available shares.
|
Corporate Actions Affecting the Russell
2000 Value Index.
The following summarizes the types of Russell 2000 Value Index maintenance adjustments and indicates whether
or not an index adjustment is required:
|
•
|
“No Replacement” Rule – Securities that leave the Russell 2000 Value Index, between reconstitution dates,
for any reason (e.g., mergers, acquisitions or other similar corporate activity) are not replaced. Thus, the number of securities
in the Russell 2000 Value Index over the past year will fluctuate according to corporate activity.
|
|
•
|
Rule for Deletions – When a stock is acquired, delisted, or moves to the pink sheets or bulletin boards on the floor
of a U.S. securities exchange, the stock is deleted from the index at the close on the effective date or when the stock is no longer
trading on the exchange.
|
|
•
|
When acquisitions or mergers take place within the Russell 2000 Value Index, the stock’s capitalization moves to the
acquiring stock, hence, mergers have no effect on the index total capitalization. Shares are updated for the acquiring stock at
the time the transaction is final.
|
|
•
|
Rule for Additions – The only additions between reconstitution dates are as a result of spin-offs and initial public
offerings. Spin-off companies are added to the parent company’s index and capitalization tier of membership (i) until the
next annual reconstitution date, if the spin-off company is eligible for the Russell 2000 Index or (ii) for two business days,
if the spin-off company is ineligible for the Russell 2000 Index.
|
Updates to Share Capital Affecting the
Russell 2000 Value Index.
In March, June, September, and December, the Russell 2000 Value Index is updated for changes to shares
outstanding as companies report changes in share capital to the Securities and Exchange Commission. The changes will be implemented
quarterly, on the third Friday of the month (after the close). In June, any change to shares outstanding will be implemented. In
March, September, and December, only
cumulative changes to shares outstanding greater
than 3% will be reflected in the Russell 2000 Value Index. This does not affect treatment of major corporate events, which are
effective on the ex-date.
The securities are not sponsored, endorsed,
sold or promoted by FTSE Russell. FTSE Russell makes no representation or warranty, express or implied, to the owners of the securities
or any member of the public regarding the advisability of investing in securities generally or in the securities particularly or
the ability of the Russell 2000 Value Index to track general stock market performance or a segment of the same. FTSE Russell’
publication of the Russell 2000 Value Index in no way suggests or implies an opinion by FTSE Russell as to the advisability of
investment in any or all of the securities upon which the Russell 2000 Value Index is based. The Russell 2000 Value Index is determined,
composed and calculated by FTSE Russell without regard to Morgan Stanley or the securities. FTSE Russell is not responsible for
and has not reviewed the securities nor any associated literature or publications and FTSE Russell makes no representation or warranty
express or implied as to their accuracy or completeness, or otherwise. FTSE Russell reserves the right, at any time and without
notice, to alter, amend, terminate or in any way change the Russell 2000 Value Index. FTSE Russell has no obligation or liability
in connection with the administration, marketing or trading of the securities.
FTSE
Russell
DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE RUSSELL 2000 VALUE INDEX OR ANY DATA INCLUDED THEREIN
AND
FTSE Russell
SHALL HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS
THEREIN.
FTSE Russell
MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE
OBTAINED BY MORGAN STANLEY, INVESTORS, OWNERS OF THE SECURITIES, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE RUSSELL 2000
VALUE INDEX OR ANY DATA INCLUDED THEREIN.
FTSE Russell
MAKES NO EXPRESS OR IMPLIED
WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO
THE RUSSELL 2000 VALUE INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL
FTSE
Russell
HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN
IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
The “Russell 2000
®
Index” is a trademark of FTSE Russell. The securities are not sponsored, endorsed, sold or promoted by FTSE Russell and FTSE
Russell makes no representation regarding the advisability of investing in the securities.
S&P 500
®
Index
The S&P 500
®
Index is
calculated, maintained and published by S&P Dow Jones Indices LLC (“S&P”). S&P is a joint venture between
S&P Global, Inc. (73% owner) and CME Group Inc. (27% owner), owner of CME Group Index Services LLC.
The S&P 500
®
Index is
intended to provide a performance benchmark for the U.S. equity markets. The calculation of the value of the S&P 500
®
Index (discussed below in further detail) is based on the relative value of the aggregate Market Value (as defined below) of the
common stocks of 500 companies (the “S&P 500 Component Stocks”) as of a particular time as compared to the aggregate
average Market Value of the common stocks of 500 similar companies during the base period of the years 1941 through 1943. The “Market
Value” of any S&P 500 Component Stock is the product of the market price per share and the number of the then outstanding
shares of such S&P 500 Component Stock. The 500 companies are not the 500 largest companies listed on the New York Stock Exchange
and not all 500 companies are listed on such exchange. S&P chooses companies for inclusion in the S&P 500
®
Index with an aim of achieving a distribution by broad industry groupings that approximates the distribution of these groupings
in the common stock population of the U.S. equity market. S&P may from time to time, in its sole discretion, add companies
to, or delete companies from, the S&P 500
®
Index to achieve the objectives stated above. Relevant criteria employed
by S&P include the viability of the particular company, the extent to which that company represents the industry group to which
it is assigned, the extent to which the company’s common stock is widely-held and the Market Value and trading activity of
the common stock of that company.
The S&P 500
®
Index is
a float-adjusted index. Under float adjustment, the share counts used in calculating the S&P 500
®
Index reflect
only those shares that are available to investors, not all of a company’s outstanding shares. Float adjustment excludes shares
that are closely held by control groups, other publicly traded companies or government agencies.
As of July 31, 2017, securities of companies
with multiple share class structures are no longer eligible to be added to the S&P 500
®
Index, but securities
already included in the S&P 500
®
Index have been grandfathered and are not affected by this change.
Beginning September 21, 2012, all share-holdings
with a position greater than 5% of a stock’s outstanding shares, other than holdings by “block owners,” are removed
from the float for purposes of calculating the S&P 500
®
Index. Generally, these “control holders”
include officers and directors, private equity, venture capital and special equity firms, other publicly traded companies that
hold shares for control, strategic partners, holders of restricted shares, ESOPs, employee and family trusts, foundations associated
with the company, holders of unlisted share classes of stock or government entities at all levels (other than government retirement/pension
funds) and any individual person who controls a 5% or greater stake in a company as reported in regulatory filings. Holdings by
block owners, such as depositary banks, pension funds, mutual funds and ETF providers, 401(k) plans of the company, government
retirement/pension funds, investment funds of insurance companies, asset managers and investment funds, independent foundations
and savings and investment plans, are ordinarily considered to be part of the float.
Treasury stock, stock options, equity participation
units, warrants, preferred stock, convertible stock and rights are generally not part of the float. However, shares held in a trust
to allow investors in countries outside the country of domicile (e.g., American Depositary Receipts, CREST Depositary Receipts
and Canadian exchangeable shares) are normally part of the float unless those shares form a control block. If a company has more
than one class of stock outstanding, shares in an unlisted or non-traded class are treated as a control block.
For each stock, an investable weight factor
(“IWF”) is calculated by dividing the available float shares by the total shares outstanding. Available float shares
are defined as total shares outstanding less shares held by control holders. The S&P 500
®
Index is calculated
by dividing the sum of the IWF multiplied by both the price and the total shares outstanding for each stock by a number called
the “S&P 500
®
Index Divisor.”
The S&P 500
®
Index is
calculated using a base-weighted aggregate methodology: the level of the S&P 500
®
Index reflects the total Market
Value of all 500 S&P 500 Component Stocks relative to the S&P 500
®
Index’s base period of 1941-43
(the “Base Period”).
An indexed number is used to represent
the results of this calculation in order to make the value easier to work with and track over time.
The actual total Market Value of the S&P
500 Component Stocks during the Base Period has been set equal to an indexed value of 10. This is often indicated by the notation
1941-43=10. In practice, the daily calculation of the S&P 500
®
Index is computed by dividing the total Market
Value of the S&P 500 Component Stocks by the S&P 500
®
Index Divisor. By itself, the S&P 500
®
Index Divisor is an arbitrary number. However, in the context of the calculation of the S&P 500
®
Index, it is
the only link to the original base period value of the S&P 500
®
Index. The S&P 500
®
Index
Divisor keeps the S&P 500
®
Index comparable over time and is the manipulation point for all adjustments to the
S&P 500
®
Index (“S&P 500
®
Index Maintenance”).
S&P 500
®
Index Maintenance
includes monitoring and completing the adjustments for company additions and deletions, share changes, stock splits, stock dividends,
and stock price adjustments due to company restructurings or spinoffs.
To prevent the value of the S&P 500
®
Index from changing due to corporate actions, all corporate actions which affect the total Market Value of the S&P 500
®
Index require a S&P 500
®
Index Divisor adjustment. By adjusting the S&P 500
®
Index Divisor
for the change in total Market Value, the value of the S&P 500
®
Index remains constant. This helps maintain
the value of the S&P 500
®
Index as an accurate barometer of stock market performance and ensures that the movement
of the S&P 500
®
Index does not reflect the corporate actions of individual companies in the S&P 500
®
Index. All S&P 500
®
Index Divisor adjustments are made after the close of trading and after the calculation
of the closing value of the S&P 500
®
Index. Some corporate actions, such as stock splits and stock dividends,
require simple changes in the common shares outstanding and the stock prices of the companies in the S&P 500
®
Index and do not require S&P 500
®
Index Divisor adjustments.
The table below summarizes the types of
S&P 500
®
Index maintenance adjustments and indicates whether or not a S&P 500
®
Index Divisor
adjustment is required:
Type
of Corporate Action
|
Comment
|
Divisor
Adjustment Required
|
Company Added/Deleted
|
Net change in market value determines the divisor adjustment.
|
Yes
|
Change in Shares Outstanding
|
Any combination of secondary issuance, share repurchase or buy back – share counts
revised to reflect change.
|
Yes
|
Stock Split
|
Share count revised to reflect new count. Divisor adjustment is not required since the share
count and price changes are offsetting.
|
No
|
Spin-off
|
If the spun-off company is not being added to the index, the divisor adjustment reflects
the
|
Yes
|
|
decline in index market value (i.e., the value of the spun-off unit).
|
|
Spin-off
|
Spun-off company added to the index, no company removed from the index.
|
No
|
Spin-off
|
Spun-off company added to the index, another company removed to keep number of names fixed.
Divisor adjustment reflects deletion.
|
Yes
|
Change in Investable Weight Factor (“IWF”)
|
Increasing (decreasing) the IWF increases (decreases) the total market value of the index.
The divisor change reflects the change in market value caused by the change to an IWF.
|
Yes
|
Special Dividends
|
When a company pays a special dividend the share price is assumed to drop by the amount
of the dividend; the divisor adjustment reflects this drop in index market value.
|
Yes
|
Rights Offering
|
Each shareholder receives the right to buy a proportional number of additional shares at
a set (often discounted) price. The calculation assumes that the offering is fully subscribed. Divisor adjustment reflects
increase in market cap measured as the shares issued multiplied by the price paid.
|
Yes
|
Stock splits and stock dividends do not
affect the S&P 500
®
Index Divisor of the S&P 500
®
Index, because following a split or dividend
both the stock price and number of shares outstanding are adjusted by S&P so that there is no change in the Market Value of
the S&P 500 Component Stock. Corporate actions (such as stock splits, stock dividends, spin-offs and rights offerings) are
implemented after the close of trading on the day prior to the ex-date. Share changes resulting from exchange offers are made on
the ex-date.
Each of the corporate events exemplified
in the table requiring an adjustment to the S&P 500
®
Index Divisor has the effect of altering the Market Value
of the S&P 500 Component Stock and consequently of altering the aggregate Market Value of the S&P 500 Component Stocks
(the “Post-Event Aggregate Market Value”). In order that the level of the S&P 500
®
Index (the “Pre-Event
Index Value”) not be affected by the altered Market Value (whether increase or decrease) of the affected S&P 500 Component
Stock, a new S&P 500
®
Index Divisor (“New S&P 500 Divisor”) is derived as follows:
Post-Event Aggregate Market Value
|
=
|
Pre-Event Index Value
|
New S&P 500 Divisor
|
New S&P 500 Divisor
|
=
|
Post-Event Aggregate Market Value
|
Pre-Event Index Value
|
A large part of the S&P 500
®
Index maintenance process involves tracking the changes in the number of shares outstanding of each of the S&P 500
®
Index companies. Changes in a company’s total shares outstanding of 5% or more due to public offerings, tender offers, Dutch
auctions or exchange offers are made as soon as reasonably possible. Other changes of 5% or more are made weekly, and are announced
on Fridays for implementation after the close of trading the following Friday (one week later). All other changes of less than
5% are accumulated and made quarterly on the third Friday of March, June, September, and December when the share totals of companies
in the S&P 500
®
Index are updated as required by any changes in the number of shares outstanding. After the
totals are updated, the S&P 500
®
Index Divisor is adjusted to compensate for the net change in the total Market
Value of the S&P 500
®
Index.
The S&P Indices described herein are
products of S&P or its affiliates (“SPDJI”), and have been licensed for use by Morgan Stanley. Standard &
Poor’s
®
and S&P
®
are registered trademarks of Standard & Poor’s Financial Services
LLC and Dow Jones
®
is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”).
Any securities issued by Morgan Stanley or MSFL are not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, Standard &
Poor’s Financial Services LLC, any of their respective affiliates (collectively, “S&P Dow Jones Indices”).
S&P Dow Jones Indices does not make any representation or warranty, express or implied, to the owners of the securities or
any member of the public regarding the advisability of investing in securities generally or in securities issued by Morgan Stanley
affiliates particularly or the ability of the relevant index to track general market performance. S&P Dow Jones Indices’
only relationship to Morgan Stanley with respect to the indices is the licensing of the Index and certain trademarks, service marks
and/or trade names of S&P Dow Jones Indices and/or its licensors. The indices are determined, composed and calculated
by S&P Dow Jones Indices without regard to Morgan Stanley or the securities. S&P Dow Jones Indices has no obligation
to take the needs of Morgan Stanley or the owners of securities into consideration in determining, composing or calculating the
indices. S&P
Dow Jones Indices is not responsible for and
has not participated in the determination of the prices, and amount of securities or the timing of the issuance or sale of securities
or in the determination or calculation of the equation by which securities are to be converted into cash, surrendered or redeemed,
as the case may be. S&P Dow Jones Indices has no obligation or liability in connection with the administration, marketing
or trading of securities. There is no assurance that investment products based on the indices will accurately track index performance
or provide positive investment returns. S&P Dow Jones Indices LLC is not an investment advisor. Inclusion of a
security within an index is not a recommendation by S&P Dow Jones Indices to buy, sell, or hold such security, nor is it considered
to be investment advice.
S&P DOW JONES INDICES DOES NOT GUARANTEE
THE ADEQUACY, ACCURACY, TIMELINESS AND/OR THE COMPLETENESS OF THE INDICES OR ANY DATA RELATED THERETO OR ANY COMMUNICATION, INCLUDING
BUT NOT LIMITED TO, ORAL OR WRITTEN COMMUNICATION (INCLUDING ELECTRONIC COMMUNICATIONS) WITH RESPECT THERETO. S&P DOW
JONES INDICES SHALL NOT BE SUBJECT TO ANY DAMAGES OR LIABILITY FOR ANY ERRORS, OMISSIONS, OR DELAYS THEREIN. S&P DOW
JONES INDICES MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES, OF MERCHANTABILITY OR FITNESS FOR
A PARTICULAR PURPOSE OR USE OR AS TO RESULTS TO BE OBTAINED BY MORGAN STANLEY, OWNERS OF THE SECURITIES, OR ANY OTHER PERSON OR
ENTITY FROM THE USE OF THE INDICES OR WITH RESPECT TO ANY DATA RELATED THERETO. WITHOUT LIMITING ANY OF THE FOREGOING, IN
NO EVENT WHATSOEVER SHALL S&P DOW JONES INDICES BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE, OR CONSEQUENTIAL
DAMAGES INCLUDING BUT NOT LIMITED TO, LOSS OF PROFITS, TRADING LOSSES, LOST TIME OR GOODWILL, EVEN IF THEY HAVE BEEN ADVISED OF
THE POSSIBILITY OF SUCH DAMAGES, WHETHER IN CONTRACT, TORT, STRICT LIABILITY, OR OTHERWISE. THERE ARE NO THIRD PARTY BENEFICIARIES
OF ANY AGREEMENTS OR ARRANGEMENTS BETWEEN S&P DOW JONES INDICES AND MORGAN STANLEY, OTHER THAN THE LICENSORS OF S&P DOW
JONES INDICES.
Consumer Discretionary Select Sector Index
The Consumer Discretionary Select Sector
Index, which is one of the eleven Select Sector sub-indices of the S&P 500
®
Index, is intended to give investors
an efficient, modified market capitalization-based way to track the movements of certain public companies that represent the consumer
discretionary sector of the S&P 500
®
Index. As of June 30, 2017, the Consumer Discretionary Select Sector Index
included 85 component stocks in industries such as media; retail; hotels, restaurants and leisure; textiles, apparel and luxury
goods; household durables; automobiles; auto components; distributors; multiline retail; specialty retail; and diversified consumer
services.
Consumer Staples Select Sector Index
The Consumer Staples Select Sector Index,
which is one of the eleven Select Sector sub-indices of the S&P 500
®
Index, is intended to give investors an
efficient, modified market capitalization-based way to track the movements of certain public companies that represent the consumer
staples sector of the S&P 500
®
Index. As of June 30, 2017, the Consumer Staples Select Sector Index included
36 component stocks in industries such as food & staples retailing; food products; beverages; tobacco; household products;
and personal products.
Energy Select Sector Index
The Energy Select Sector Index, which is
one of the eleven Select Sector sub-indices of the S&P 500
®
Index, is intended to track the movements of companies
that are components of the S&P 500
®
Index and are involved in the development or production of energy products.
As of June 30, 2017, the Energy Select Sector Index included 34 component stocks in industries such as energy equipment and services;
and oil, gas & consumable fuels. The Energy Select Sector Index was established with a value of 250.00 on June 30, 1998.
Financial Select Sector Index
The Financial Select Sector Index, which
is one of the eleven Select Sector sub-indices of the S&P 500
®
Index, is intended to give investors an efficient,
modified market capitalization-based way to track the movements of certain public companies that represent the financial sector
of the S&P 500
®
Index. As of June 30, 2017, the Financial Select Sector Index included 66 component stocks in
the following industries: banks; thrifts and mortgage finance; diversified financial services; consumer finance; capital markets;
mortgage REITs; and insurance.
Financial Services Select Sector Index
The Financial Services Select Sector Index,
which is one of the eleven Select Sector sub-indices of the S&P 500
®
Index, is intended to give investors an
efficient, modified market capitalization-based way to track the movements of certain public companies that represent the financial
sector of the S&P 500
®
Index. The Financial Services Select Sector Index includes component stocks in all the
same industries included in the Financial Select Sector Index.
Health Care Select Sector Index
The Healthcare Select Sector Index, which
is one of the eleven Select Sector sub-indices of the S&P 500
®
Index, is intended to give investors an efficient,
modified market capitalization-based way to track the movements of certain public companies that represent the healthcare sector
of the S&P 500
®
Index. As of June 30, 2017, 2016, the Health Care Select Sector Index included 61 component
stocks in the following industries: health care equipment and supplies; health care providers and services; health care technology;
biotechnology; pharmaceuticals; biotechnology; and life sciences tools and services.
Industrial Select Sector Index
The Select Sector Industrials Index, which
is one of eleven Select Sector sub-indices of the S&P 500
®
Index, is a modified market capitalization-based
index intended to track the movements of companies that are components of the S&P 500
®
Index. As of June 30,
2017, the Industrial Select Sector Index included 69 component stocks in the following industries: aerospace and defense, building
products, construction and engineering, electrical equipment, industrial conglomerates, machinery, trading companies and distributors,
commercial services and supplies, professional services, air freight & logistics, airlines, road & rail and transportation
infrastructure.
Materials Select Sector Index
The Select Sector Materials Index, which
is one of eleven Select Sector sub-indices of the S&P 500
®
Index, is a modified market capitalization based
index intended to track the movements of companies that are components of the S&P 500
®
Index. As of June 30,
2017, the Materials Select Sector Index included 25 component stocks in the following industries: chemicals, construction materials,
containers and packaging, metals and mining, and paper and forest products.
Real Estate Select Sector Index
The Select Sector Real Estate Index, which
is one of eleven Select Sector sub-indices of the S&P 500
®
Index, is a modified market capitalization based
index intended to track the movements of companies that are components of the S&P 500
®
Index. As of June 30,
2017, the Real Estate Select Sector Index included 31 component stocks in the following industries: real estate management and
development and REITs, excluding mortgage REITs.
Technology Select Sector Index
The Select Sector Technology Index, which
is one of eleven Select Sector sub-indices of the S&P 500
®
Index, is a modified market capitalization-based
index intended to track the movements of companies that are components of the S&P 500
®
Index. As of
June
30, 2017
, the Technology Select Sector Index included 72 component stocks in the following industries: technology hardware,
storage and peripherals; software; diversified telecommunication services; communications equipment; semiconductor and semiconductor
equipment; internet software and services; IT services; wireless telecommunication services; and electronic equipment and instruments.
Utilities Select Sector Index
The Select Sector Utilities Index, which
is one of eleven Select Sector sub-indices of the S&P 500
®
Index, is a modified market capitalization-based
index intended to track the movements of companies that are components of the S&P 500
®
Index. As of June 30,
2017, the Utilities Select Sector Index included 28 component stocks in the following industries: electric utilities; multi-utilities;
independent power and renewable energy producers; water utilities; and gas utilities.
The stocks included in each Select Sector
Index, including the Consumer Staples Select Sector Index, the Consumer Discretionary Select Sector Index, the Energy Select Sector
Index, the Financial Select Sector Index, Financial Services Select Sector Index, the Healthcare Select Sector Index, the Industrial
Select Sector Index, the Materials Select Sector Index, the Real Estate Select Sector Index, the Technology Select Sector Index,
and the Utilities Select Sector Index are assigned based on the constituent’s classification under the Global Industry Classification
Standard (“GICS”). GICS was designed to classify a company according to its principal business activity. To make this
determination, S&P and MSCI, Inc. (“MSCI”)
jointly assign a company to a single GICS
sub-industry according to the definition of its principal business activity as determined by S&P and MSCI. The constituency
of each Select Sector Index is defined as follows:
|
•
|
Consumer Discretionary (GICS Consumer Discretionary Sector)
|
|
•
|
Consumer Staples (GICS Consumer Staples Sector)
|
|
•
|
Energy (GICS Energy Sector)
|
|
•
|
Financial (GICS Financials Sector)
|
|
•
|
Financial Services (GICS Financials Sector)
|
|
•
|
Health Care (GICS Health Care Sector)
|
|
•
|
Industrials (GICS Industrials Sector)
|
|
•
|
Materials (GICS Materials Sector)
|
|
•
|
Real Estate (GICS Real Estate Sector)
|
|
•
|
Technology (GICS Information Technology Sector & Telecommunication
Services Sector)
|
|
•
|
Utilities (GICS Utilities Sector)
|
Each stock in the S&P 500
®
Index is allocated to only one Select Sector Index, and the eleven Select Sector Indices (listed below) together comprise all of
the companies in the S&P 500
®
Index.
Select Sector Index
|
The Consumer Discretionary Select Sector Index
|
The Consumer Staples Select Sector Index
|
The Energy Select Sector Index
|
The Financial Select Sector Index
The Financial Services Select Sector Index
|
The Health Care Select Sector Index
|
The Industrial Select Sector Index
|
The Materials Select Sector Index
|
The Real Estate Select Sector Index
The Technology Select Sector Index
|
The Utilities Select Sector Index
|
Each Select Sector Index was developed
and is maintained in accordance with the following criteria:
|
•
|
Each of the component stocks in a Select Sector Index (the “Component Stocks”) is a constituent company of the
S&P 500
®
Index.
|
|
•
|
The eleven Select Sector Indices together will include all of the companies represented in the S&P 500
®
Index and each of the stocks in the S&P 500
®
Index will be allocated to one and only one of the Select Sector
Indices.
|
|
•
|
Each Select Sector Index is weighted based on the market capitalization of each of the Component Stocks, subject to the following
asset diversification requirements: (i) the market capitalization-based weighted value of any single Component Stock measured on
the last day of a calendar quarter may not exceed 24% of the total value of its respective Select Sector Index; and (ii) the sum
of companies with weights greater than 4.8% cannot exceed 50% of the total index weight.
|
Each Select Sector Index is calculated
using the same methodology utilized by S&P in calculating the S&P 500
®
Index, using a base-weighted aggregate
methodology. See “—S&P 500
®
Index” above. The daily calculation of each Select Sector Index
is computed by dividing the total market value of the companies in the Select Sector Index by a number called the index divisor.
Component Stocks removed from and added
to the S&P 500
®
Index will be deleted from and added to the appropriate Select Sector Index on the same schedule
used by S&P for additions and deletions from the S&P 500
®
Index insofar as practicable.
S&P 500
®
Growth Index
The S&P
®
500 Growth
Index is a subset of the S&P
®
500 Index, is published by S&P Dow Jones Indices LLC (“S&P”)
and is an unmanaged float adjusted market capitalization weighted index comprised of stocks representing approximately half the
market capitalization of the S&P
®
500 Index that have been identified as being on the “growth” end
of the growth-value spectrum. S&P is a joint venture between S&P Global, Inc. (73% owner) and CME Group Inc. (27% owner),
owner of CME Group Index Services LLC.
Methodology.
The S&P 500 Growth
Index is one of the S&P Style Indices. The S&P Style Indices methodology was developed to measure growth and value characteristics
based on six different growth and value factors, while reflecting the fact that some companies exhibit neither strong growth nor
value attributes.
S&P measures growth and value of each
of the companies included in the S&P 500
®
Index across three growth factors and three value factors. The growth
factors include three-year change in earnings per share over price per share, three year sales per share growth rate and momentum
(12-month percent price change). The value factors include book value to price ratio, earnings to price ratio and sales to price
ratio. After standardizing the factor scores, each company is assigned a growth score and a value score by averaging its individual
growth and value factor scores, respectively. All 500 companies are then ranked twice, once by growth and once by value. These
companies are sorted in ascending order of the ratio of each company’s growth rank divided by its value rank. Companies in
the top 33% of this list as measured by weight in the S&P 500
®
Index have all of their market capitalization
assigned to the S&P 500 Growth Index. Companies in the bottom 33% of this list as measured by weight in the S&P 500
®
Index have all of their market capitalization assigned to the S&P 500 Value Index. Companies in the middle 34% of this list
have their market capitalization distributed between the growth and value style indices according to the deviation of their growth
and value score from the average score in each of the two groups. This methodology results in some companies being members of both
the growth and value indices, but because the market capitalization of these companies is split between the two indices, the summed
total capitalization of the growth and value indices equals the total capitalization of the parent index, the S&P 500
®
Index. Growth scores and value scores are reviewed and indices are rebalanced once a year on the third Friday of December.
The S&P 500 Growth Index is calculated following S&P’s market capitalization-weighted, divisor-based index methodology.
For more information on the S&P 500
®
Index, see “—S&P 500
®
Index” above.
S&P 500
®
Value Index
The S&P
®
500 Value Index
is a subset of the S&P
®
500 Index, is published by S&P Dow Jones Indices LLC (“S&P”) and
is an unmanaged float adjusted market capitalization weighted index comprised of stocks representing approximately half the market
capitalization of the S&P
®
500 Index that have been identified as being on the “value” end of the
growth-value spectrum. S&P is a joint venture between S&P Global, Inc. (73% owner) and CME Group Inc. (27% owner), owner
of CME Group Index Services LLC.
Methodology.
The S&P 500 Value
Index is one of the S&P Style Indices. The S&P Style Indices methodology was developed to measure growth and value characteristics
based on six different growth and value factors, while reflecting the fact that some companies exhibit neither strong growth nor
value attributes.
S&P measures growth and value of each
of the companies included in the S&P 500
®
Index across three growth factors and three value factors. The growth
factors include three-year change in earnings per share over price per share, three year sales per share growth rate and momentum
(12-month percent price change). The value factors include book value to price ratio, earnings to price ratio and sales to price
ratio. After standardizing the factor scores, each company is assigned a growth score and a value score by averaging its individual
growth and value factor scores, respectively. All 500 companies are then ranked twice, once by growth and once by value. These
companies are sorted in ascending order of the ratio of each company’s growth rank divided by its value rank. Companies in
the top 33% of this list as measured by weight in the S&P 500
®
Index have all of their market capitalization
assigned to the S&P 500 Growth Index. Companies in the bottom 33% of this list as measured by weight in the S&P 500
®
Index have all of their market capitalization assigned to the S&P 500 Value Index. Companies in the middle 34% of this list
have their market capitalization distributed between the growth and value style indices according to the deviation of their growth
and value score from the average score in each of the two groups. This methodology results in some companies being members of both
the growth and value indices, but because the market capitalization of these companies is split between the two indices, the summed
total capitalization of the growth and value indices equals the total capitalization of the parent index, the S&P 500
®
Index. Growth scores and value scores are reviewed and indices are rebalanced once a year on the third Friday of December. The
S&P 500 Growth Index is calculated following
S&P’s market capitalization-weighted,
divisor-based index methodology. For more information on the S&P 500
®
Index, see “—S&P 500
®
Index” above.
S&P 100
®
Index
The S&P 100
®
Index is
calculated, maintained and published by S&P Dow Jones Indices LLC (“S&P”). S&P is a joint venture between
S&P Global, Inc. (73% owner) and CME Group Inc. (27% owner), owner of CME Group Index Services LLC.
The S&P 100 Index is a subset of the
S&P 500
®
Index and comprises 100 leading U.S. stocks with exchange-listed options. Constituents of the S&P
100 Index are selected for sector balance. The calculation of the value of the S&P 100 Index (discussed below in further detail)
is based on the relative value of the aggregate Market Value (as defined below) of the common stocks of 100 companies (the “S&P
100 Component Stocks”) as of a particular time as compared to the aggregate average Market Value of the common stocks of
100 similar companies during the base period. The “Market Value” of any S&P 100 Component Stock is the product
of the market price per share and the number of the then outstanding shares of such S&P 100 Component Stock.
The S&P 100 Index was originally developed
by the Chicago Board Options Exchange (CBOE), which later transferred the S&P 100 Index to S&P for management. S&P’s
U.S. Index Committee, which oversees the S&P 500
®
Index and other S&P equity indices, maintains the S&P
100 Index. Because the S&P 100 Index is derived from the S&P 500
®
Index, the S&P 100 Index stocks are
also subject to the published S&P 500 criteria for additions and deletions. In addition, only companies included in the S&P
500
®
Index are eligible for inclusion in the S&P 100 Index. All stocks added to the S&P 100 Index must maintain
exchange-listed options. Stocks included in the S&P 100 Index must also meet the S&P U.S. Index Committee’s guidelines
for sector representation. The sector composition of the S&P 100 Index has remained comparable to the sector composition of
the S&P 500
®
Index. The S&P U.S. Index Committee may remove a company from the S&P 100 Index if the
company does not meet the inclusion qualifications or if the index becomes unbalanced in its sector representation. The S&P
U.S. Index Committee may also remove any company that violates any of the S&P 500 criteria.
Beginning September 21, 2012, all share-holdings
with a position greater than 5% of a stock’s outstanding shares, other than holdings by “block owners,” are removed
from the float for purposes of calculating the S&P 100 Index. Generally, these “control holders” include officers
and directors, private equity, venture capital and special equity firms, other publicly traded companies that hold shares for control,
strategic partners, holders of restricted shares, ESOPs, employee and family trusts, foundations associated with the company, holders
of unlisted share classes of stock or government entities at all levels (other than government retirement/pension funds) and any
individual person who controls a 5% or greater stake in a company as reported in regulatory filings. Holdings by block owners,
such as depositary banks, pension funds, mutual funds and ETF providers, 401(k) plans of the company, government retirement/pension
funds, investment funds of insurance companies, asset managers and investment funds, independent foundations and savings and investment
plans, are ordinarily considered to be part of the float.
The S&P 100 Index is calculated using
a base-weighted aggregate methodology where the level of the S&P 100 Index reflects the total Market Value of all 100 S&P
100 Component Stocks relative to the S&P 100 Index’s base period.
An indexed number is used to represent
the results of this calculation in order to make the value easier to work with and track over time.
The daily calculation of the S&P 100
Index is computed by dividing the total Market Value of the S&P 100 Component Stocks by a number called the “S&P
100 Index Divisor.” By itself, the S&P 100 Index Divisor is an arbitrary number. However, in the context of the calculation
of the S&P 100 Index, it is the only link to the original base period value of the S&P 100 Index. The S&P 100 Index
Divisor keeps the S&P 100 Index comparable over time and is the manipulation point for all adjustments to the S&P 100 Index
(“S&P 100 Index Maintenance”).
S&P 100 Index Maintenance includes
monitoring and completing adjustments for company additions and deletions, share changes, stock splits, stock dividends, and stock-price
adjustments due to company restructurings or spinoffs.
To prevent the value of the S&P 100
Index from changing due to corporate actions, all corporate actions which affect the total Market Value of the S&P 100 Index
require a S&P 100 Index Divisor adjustment. By adjusting the S&P 100 Index Divisor for the change in total Market Value,
the value of the S&P 100 Index remains constant. This helps maintain the value of the S&P 100 Index as an accurate barometer
of stock market performance and ensures that the movement of the S&P 100 Index does not reflect the corporate actions of individual
companies in the S&P 100 Index. All S&P 100 Index Divisor adjustments are made after the close of trading and after the
calculation of the index closing value of the S&P 100 Index.
Some corporate actions, such as stock splits
and stock dividends, require simple changes in the common shares outstanding and the stock prices of the companies in the S&P
100 Index and do not require S&P 100 Index Divisor adjustments.
The table below summarizes the types of
S&P 100 Index maintenance adjustments and indicates whether or not a S&P 100 Index Divisor adjustment is required:
Type
of Corporate Action
|
Comment
|
Divisor
Adjustment Required
|
Company Added/Deleted
|
Net change in market value determines the divisor adjustment.
|
Yes
|
Change in Shares Outstanding
|
Any combination of secondary issuance, share repurchase or buy
back – share counts revised to reflect change.
|
Yes
|
Stock Split
|
Share count revised to reflect new count. Divisor adjustment is
not required since the share count and price changes are offsetting.
|
No
|
Spin-off
|
If the spun-off company is not being added to the index, the divisor
adjustment reflects the decline in index market value (i.e., the value of the spun-off unit).
|
Yes
|
Spin-off
|
Spun-off company added to the index, no company removed from the
index.
|
No
|
Spin-off
|
Spun-off company added to the index, another company removed to
keep number of names fixed. Divisor adjustment reflects deletion.
|
Yes
|
Change in Investable Weight Factor (IWF)
|
Increasing (decreasing) the IWF increases (decreases) the total
market value of the index. The divisor change reflects the change in market value caused by the change to an IWF.
|
Yes
|
Special Dividends
|
When a company pays a special dividend the share price is assumed
to drop by the amount of the dividend; the divisor adjustment reflects this drop in index market value.
|
Yes
|
Rights Offering
|
Each shareholder receives the right to buy a proportional number
of additional shares at a set (often discounted) price. The calculation assumes that the offering is fully subscribed. Divisor
adjustment reflects increase in market cap measured as the shares issued multiplied by the price paid.
|
Yes
|
Stock splits and stock dividends do not
affect the S&P 100 Index Divisor of the S&P 100 Index, because following a split or dividend both the stock price and number
of shares outstanding are adjusted by S&P so that there is no change in the Market Value of the S&P 100 Component Stock.
Corporate actions (such as stock splits, stock dividends, spin-offs and rights offerings) are implemented after the close of trading
on the day prior to the ex-date. Share changes resulting from exchange offers are made on the ex-date.
Each of the corporate events exemplified
in the table requiring an adjustment to the S&P 100 Index Divisor has the effect of altering the Market Value of the S&P
100 Component Stock and consequently of altering the aggregate Market Value of the S&P 100 Component Stocks (the “Post-Event
Aggregate Market Value”). In order that the level of the S&P 100 Index (the “Pre-Event Index Value”) not
be affected by the altered Market Value (whether increase or decrease) of the affected S&P 100 Component Stock, a new S&P
100 Index Divisor (“New S&P 100 Divisor”) is derived as follows:
Post-Event Aggregate Market Value
|
=
|
Pre-Event Index Value
|
New S&P 100 Divisor
|
New S&P 100 Divisor
|
=
|
Post-Event Aggregate Market Value
|
Pre-Event Index Value
|
A large part of the S&P 100 Index maintenance
process involves tracking the changes in the number of shares outstanding of each of the S&P 100 Index companies. Changes in
a company’s total shares outstanding of 5% or more due to public offerings, tender offers, Dutch auctions or exchange offers
are made as soon as reasonably possible. Other changes of 5% or more are made weekly, and are announced on Fridays for implementation
after the close of trading the following Friday (one week later). All other changes of less than 5% are accumulated and made quarterly
on the third Friday of March,
June, September, and December when the share
totals of companies in the S&P 100 Index are updated as required by any changes in the number of shares outstanding. After
the totals are updated, the S&P 100 Index Divisor is adjusted to compensate for the net change in the total Market Value of
the S&P 100 Index.
S&P MidCap 400
®
Index
The S&P MidCap 400
®
Index (the “S&P MidCap Index”) is published by S&P Dow Jones Indices LLC (“S&P”) and is intended
to provide a benchmark for performance measurement of the medium capitalization segment of the U.S. equity markets. S&P is
a joint venture between S&P Global, Inc. (73% owner) and CME Group Inc. (27% owner), owner of CME Group Index Services LLC.
The S&P MidCap Index tracks the stock
price movement of 400 companies with mid-sized market capitalizations, primarily ranging from $1.6 billion to $6.8 billion. This
range is reviewed from time to time to ensure consistency with market conditions. The calculation of the value of the S&P MidCap
Index (discussed below in further detail) is based on the relative value of the aggregate Market Value (as defined below) of the
common stocks of 400 companies (the “S&P Midcap Component Stocks”) as of a particular time as compared to the aggregate
average Market Value of the common stocks of 400 similar companies during the base period of June 28, 1991. The “Market Value”
of any S&P Midcap Component Stock is the product of the market price per share and the number of the then outstanding shares
of such S&P Midcap Component Stock. S&P chooses companies for inclusion in the S&P MidCap Index with an aim of achieving
a distribution by broad industry groupings that approximates the distribution of these groupings in the common stock population
of the medium capitalization segment of the U.S. equity market. S&P may from time to time, in its sole discretion, add companies
to, or delete companies from, the S&P MidCap Index to achieve the objectives stated above. Relevant criteria employed by S&P
include the viability of the particular company, the extent to which that company represents the industry group to which it is
assigned, the extent to which the company’s common stock is widely held and the Market Value and trading activity of the
common stock of that company.
As of July 31, 2017, securities of companies
with multiple share class structures are no longer eligible to be added to the S&P MidCap Index, but securities already included
in the S&P MidCap Index have been grandfathered and are not affected by this change.
Beginning September 21, 2012, all share-holdings
with a position greater than 5% of a stock’s outstanding shares, other than holdings by “block owners,” are removed
from the float for purposes of calculating the S&P MidCap Index. Generally, these “control holders” include officers
and directors, private equity, venture capital and special equity firms, other publicly traded companies that hold shares for control,
strategic partners, holders of restricted shares, ESOPs, employee and family trusts, foundations associated with the company, holders
of unlisted share classes of stock or government entities at all levels (other than government retirement/pension funds) and any
individual person who controls a 5% or greater stake in a company as reported in regulatory filings. Holdings by block owners,
such as depositary banks, pension funds, mutual funds and ETF providers, 401(k) plans of the company, government retirement/pension
funds, investment funds of insurance companies, asset managers and investment funds, independent foundations and savings and investment
plans, are ordinarily considered to be part of the float.
The S&P MidCap Index is calculated
using a base-weighted aggregate methodology: the level of the S&P MidCap Index reflects the total Market Value of all 400 S&P
Midcap Component Stocks relative to the S&P MidCap Index’s base period of June 28, 1991 (the “Base Period”).
An indexed number is used to represent the results of this calculation in order to make the value easier to work with and track
over time.
The actual total Market Value of the S&P
Midcap Component Stocks during the Base Period has been set equal to an indexed value of 100. This is often indicated by the notation
June 28, 1991=100. In practice, the daily calculation of the S&P MidCap Index is computed by dividing the total Market Value
of the S&P Midcap Component Stocks by a number called the “S&P MidCap Index Divisor.” By itself, the S&P
MidCap Index Divisor is an arbitrary number. However, in the context of the calculation of the S&P MidCap Index, it is the
only link to the original base period value of the S&P MidCap Index. The S&P MidCap Index Divisor keeps the S&P MidCap
Index comparable over time and is the manipulation point for all adjustments to the S&P MidCap Index (“S&P MidCap
Index Maintenance”). S&P MidCap Index Maintenance includes monitoring and completing the adjustments for company additions
and deletions, share changes, stock splits, stock dividends and stock price adjustments due to company restructurings or spinoffs.
To prevent the value of the S&P MidCap
Index from changing due to corporate actions, all corporate actions which affect the total Market Value of the S&P MidCap Index
require a S&P MidCap Index Divisor adjustment. By adjusting the S&P MidCap Index Divisor for the change in total Market
Value, the value of the S&P MidCap Index remains constant. This helps maintain the value of the S&P MidCap Index as an
accurate barometer of stock market performance and ensures that the movement of the S&P MidCap Index does not reflect the corporate
actions of individual companies in the S&P
MidCap Index. All S&P MidCap Index Divisor
adjustments are made after the close of trading and after the calculation of the index closing value of the S&P MidCap Index.
Some corporate actions, such as stock splits and stock dividends, require simple changes in the common shares outstanding and the
stock prices of the companies in the S&P MidCap Index and do not require S&P MidCap Index Divisor adjustments.
The table below summarizes the types of
S&P MidCap Index maintenance adjustments and indicates whether or not a S&P MidCap Index Divisor adjustment is required.
Type
of Corporate Action
|
Comment
|
Divisor
Adjustment Required
|
Company Added/Deleted
|
Net change in market value determines the divisor adjustment.
|
Yes
|
Change in Shares Outstanding
|
Any combination of secondary issuance, share repurchase or buy
back – share counts revised to reflect change.
|
Yes
|
Stock Split
|
Share count revised to reflect new count. Divisor adjustment is
not required since the share count and price changes are offsetting.
|
No
|
Spin-off
|
If the spun-off company is not being added to the index, the divisor
adjustment reflects the decline in index market value (i.e., the value of the spun-off unit).
|
Yes
|
Spin-off
|
Spun-off company added to the index, no company removed from the
index.
|
No
|
Spin-off
|
Spun-off company added to the index, another company removed to
keep number of names fixed. Divisor adjustment reflects deletion.
|
Yes
|
Change in Investable Weight Factor (IWF)
|
Increasing (decreasing) the IWF increases (decreases) the total
market value of the index. The divisor change reflects the change in market value caused by the change to an IWF.
|
Yes
|
Special Dividends
|
When a company pays a special dividend the share price is assumed
to drop by the amount of the dividend; the divisor adjustment reflects this drop in index market value.
|
Yes
|
Rights Offering
|
Each shareholder receives the right to buy a proportional number
of additional shares at a set (often discounted) price. The calculation assumes that the offering is fully subscribed. Divisor
adjustment reflects increase in market cap measured as the shares issued multiplied by the price paid.
|
Yes
|
Stock splits and stock dividends do not
affect the S&P MidCap Index Divisor of the S&P MidCap Index, because following a split or dividend both the stock price
and number of shares outstanding are adjusted by S&P so that there is no change in the Market Value of the S&P Midcap Component
Stock. Corporate actions (such as stock splits, stock dividends, spin-offs and rights offerings) are implemented after the close
of trading on the day prior to the ex-date. Share changes resulting from exchange offers are made on the ex-date.
Each of the corporate events exemplified
in the table requiring an adjustment to the S&P MidCap Index Divisor has the effect of altering the Market Value of the S&P
Midcap Component Stock and consequently of altering the aggregate Market Value of the S&P Midcap Component Stocks (the “Post-Event
Aggregate Market Value”). In order that the level of the S&P MidCap Index (the “Pre-Event Index Value”) not
be affected by the altered Market Value (whether increase or decrease) of the affected S&P Midcap Component Stock, a new S&P
MidCap Index Divisor (“New S&P MidCap Divisor”) is derived as follows:
Post-Event Aggregate Market Value
|
= Pre-Event Index Value
|
New S&P MidCap Divisor
|
New S&P MidCap Divisor =
|
Post-Event Aggregate Market Value
|
Pre-Event Index Value
|
A large part of the S&P MidCap Index
maintenance process involves tracking the changes in the number of shares outstanding of each of the S&P MidCap Index companies.
Changes in a company’s total shares outstanding of 5% or more
due to public offerings, tender offers, Dutch
auctions or exchange offers are made as soon as reasonably possible. Other changes of 5% or more are made weekly, and are announced
on Fridays for implementation after the close of trading the following Friday (one week later). All other changes of less than
5% are accumulated and made quarterly on the third Friday of March, June, September, and December when, the share totals of companies
in the S&P MidCap Index are updated as required by any changes in the number of shares outstanding. After the totals are updated,
the S&P MidCap Index Divisor is adjusted to compensate for the net change in the total Market Value of the S&P MidCap Index.
S&P SmallCap 600
®
Index
The S&P SmallCap 600
®
Index (the “S&P SmallCap Index”) is published by S&P Dow Jones Indices LLC (“S&P”) and is intended
to provide a benchmark for performance measurement of the small capitalization segment of the U.S. equity markets. S&P is a
joint venture between S&P Global, Inc. (73% owner) and CME Group Inc. (27% owner), owner of CME Group Index Services LLC.
The S&P SmallCap Index tracks the stock
price movement of 600 companies with small market capitalizations, primarily ranging from $450 million to $2.1 billion. This range
is reviewed from time to time to ensure consistency with market conditions. The calculation of the value of the S&P SmallCap
Index (discussed below in further detail) is based on the relative value of the aggregate Market Value (as defined below) of the
common stocks of 600 companies (the “S&P SmallCap Component Stocks”) as of a particular time as compared to the
aggregate average Market Value of the common stocks of 600 similar companies during the base period of December 31, 1993 (the “Base
Period”). The “Market Value” of any S&P SmallCap Component Stock is the product of the market price per share
and the number of the then outstanding shares of such S&P SmallCap Component Stock. S&P chooses companies for inclusion
in the S&P SmallCap Index with an aim of achieving a distribution by broad industry groupings that approximates the distribution
of these groupings in the common stock population of the small capitalization segment of the U.S. equity market. S&P may from
time to time, in its sole discretion, add companies to, or delete companies from, the S&P SmallCap Index to achieve the objectives
stated above. Relevant criteria employed by S&P include the viability of the particular company, the extent to which that company
represents the industry group to which it is assigned, the extent to which the company’s common stock is widely held and
the Market Value and trading activity of the common stock of that company.
As of July 31, 2017, securities of companies
with multiple share class structures are no longer eligible to be added to the S&P SmallCap Index, but securities already included
in the S&P SmallCap Index have been grandfathered and are not affected by this change.
Beginning September 21, 2012, all share-holdings
with a position greater than 5% of a stock’s outstanding shares, other than holdings by “block owners,” are removed
from the float for purposes of calculating the S&P SmallCap Index. Generally, these “control holders” include officers
and directors, private equity, venture capital and special equity firms, other publicly traded companies that hold shares for control,
strategic partners, holders of restricted shares, ESOPs, employee and family trusts, foundations associated with the company, holders
of unlisted share classes of stock or government entities at all levels (other than government retirement/pension funds) and any
individual person who controls a 5% or greater stake in a company as reported in regulatory filings. Holdings by block owners,
such as depositary banks, pension funds, mutual funds and ETF providers, 401(k) plans of the company, government retirement/pension
funds, investment funds of insurance companies, asset managers and investment funds, independent foundations and savings and investment
plans, are ordinarily considered to be part of the float.
The S&P SmallCap Index is calculated
using a base-weighted aggregate methodology: the level of the S&P SmallCap Index reflects the total Market Value of all 600
S&P SmallCap Component Stocks relative to the S&P SmallCap Index’s Base Period. An indexed number is used to represent
the results of this calculation in order to make the value easier to work with and track over time.
The actual total Market Value of the S&P
SmallCap Component Stocks during the Base Period has been set equal to an indexed value of 100. This is often indicated by the
notation December 31, 1993=100. In practice, the daily calculation of the S&P SmallCap Index is computed by dividing the total
Market Value of the S&P SmallCap Component Stocks by a number called the “S&P SmallCap Index Divisor.” By itself,
the S&P SmallCap Index Divisor is an arbitrary number. However, in the context of the calculation of the S&P SmallCap Index,
it is the only link to the original base period value of the S&P SmallCap Index. The S&P SmallCap Index Divisor keeps the
S&P SmallCap Index comparable over time and is the manipulation point for all adjustments to the S&P SmallCap Index (“S&P
SmallCap Index Maintenance”). S&P SmallCap Index Maintenance includes monitoring and completing the adjustments for company
additions and deletions, share changes, stock splits, stock dividends and stock price adjustments due to company restructurings
or spinoffs.
To prevent the value of the S&P SmallCap
Index from changing due to corporate actions, all corporate actions which affect the total Market Value of the S&P SmallCap
Index require a S&P SmallCap Index Divisor adjustment. By adjusting the S&P SmallCap Index Divisor for the change in total
Market Value, the value of the S&P SmallCap Index remains constant. This helps maintain the value of the S&P SmallCap Index
as an accurate barometer of stock market performance and ensures that the movement of the S&P SmallCap Index does not reflect
the corporate actions of individual companies in the S&P SmallCap Index. All S&P SmallCap Index Divisor adjustments are
made after the close of trading and after the calculation of the index closing value of the S&P SmallCap Index. Some corporate
actions, such as stock splits and stock dividends, require simple changes in the common shares outstanding and the stock prices
of the companies in the S&P SmallCap Index and do not require S&P SmallCap Index Divisor adjustments.
The table below summarizes the types of
S&P SmallCap Index maintenance adjustments and indicates whether or not a S&P SmallCap Index Divisor adjustment is required.
Type
of Corporate Action
|
Comment
|
Divisor
Adjustment Required
|
Company Added/Deleted
|
Net change in market value determines the divisor adjustment.
|
Yes
|
Change in Shares Outstanding
|
Any combination of secondary issuance, share repurchase or buy
back – share counts revised to reflect change.
|
Yes
|
Stock Split
|
Share count revised to reflect new count. Divisor adjustment is
not required since the share count and price changes are offsetting.
|
No
|
Spin-off
|
If the spun-off company is not being added to the index, the divisor
adjustment reflects the decline in index market value (i.e., the value of the spun-off unit).
|
Yes
|
Spin-off
|
Spun-off company added to the index, no company removed from the
index.
|
No
|
Spin-off
|
Spun-off company added to the index, another company removed to
keep number of names fixed. Divisor adjustment reflects deletion.
|
Yes
|
Change in Investable Weight Factor (IWF)
|
Increasing (decreasing) the IWF increases (decreases) the total
market value of the index. The divisor change reflects the change in market value caused by the change to an IWF.
|
Yes
|
Special Dividends
|
When a company pays a special dividend the share price is assumed
to drop by the amount of the dividend; the divisor adjustment reflects this drop in index market value.
|
Yes
|
Rights Offering
|
Each shareholder receives the right to buy a proportional number
of additional shares at a set (often discounted) price. The calculation assumes that the offering is fully subscribed. Divisor
adjustment reflects increase in market cap measured as the shares issued multiplied by the price paid.
|
Yes
|
Stock splits and stock dividends do not
affect the S&P SmallCap Index Divisor of the S&P SmallCap Index, because following a split or dividend both the stock price
and number of shares outstanding are adjusted by S&P so that there is no change in the Market Value of the S&P SmallCap
Component Stock. Corporate actions (such as stock splits, stock dividends, spin-offs and rights offerings) are implemented after
the close of trading on the day prior to the ex-date. Share changes resulting from exchange offers are made on the ex-date.
Each of the corporate events exemplified
in the table requiring an adjustment to the S&P SmallCap Index Divisor has the effect of altering the Market Value of the S&P
SmallCap Component Stock and consequently of altering the aggregate Market Value of the S&P SmallCap Component Stocks (the
“Post-Event Aggregate Market Value”). In order that the level of the S&P SmallCap Index (the “Pre-Event Index
Value”) not be affected by the altered Market Value (whether increase or decrease) of the affected S&P SmallCap Component
Stock, a new S&P SmallCap Index Divisor (“New S&P SmallCap Divisor”) is derived as follows:
Post-Event Aggregate Market Value
|
=
|
Pre-Event Index Value
|
New S&P SmallCap Divisor
|
New S&P SmallCap Divisor
|
=
|
Post-Event Aggregate Market Value
|
A large part of the S&P SmallCap Index
maintenance process involves tracking the changes in the number of shares outstanding of each of the S&P SmallCap Index companies.
Changes in a company’s total shares outstanding of 5% or more due to public offerings, tender offers, Dutch auctions or exchange
offers are made as soon as reasonably possible. Other changes of 5% or more are made weekly, and are announced on Fridays for implementation
after the close of trading the following Friday (one week later). All other changes of less than 5% are accumulated and made quarterly
on the third Friday of March, June, September, and December when the share totals of companies in the S&P SmallCap Index are
updated as required by any changes in the number of shares outstanding. After the totals are updated, the S&P SmallCap Index
Divisor is adjusted to compensate for the net change in the total Market Value of the S&P SmallCap Index. In addition, any
changes over 5% in the current common shares outstanding for the S&P SmallCap Index companies are carefully reviewed on a weekly
basis, and when appropriate, an immediate adjustment is made to the S&P SmallCap Index Divisor.
S&P/ASX 200 Index
The S&P/ASX 200 Index is Australia’s
large capitalization tradable equity index and Australia’s institutional benchmark. The S&P/ASX 200 Index was introduced
in April 2000 and is maintained by the S&P Australian Index Committee (the “ASX Committee”), a team of representatives
from both S&P and the Australian Securities Exchange. S&P is a joint venture between S&P Global, Inc. (73% owner) and
CME Group Inc. (27% owner), owner of CME Group Index Services LLC, the former owner of the S&P/ASX 200 Index.
Composition and Maintenance.
The
S&P/ASX 200 Index is composed of the 200 largest index-eligible stocks listed on the ASX by float-adjusted market capitalization.
As of July 2017, the S&P/ASX 200 represented approximately 80% of the Australian equity market by capitalization. The index
essentially covers large-cap and mid-cap stocks evaluated for liquidity and size.
The S&P/ASX 200
Index is a float-adjusted index. Under float adjustment, the share counts used in calculating the S&P/ASX 200 Index reflect
only those shares that are available to investors, not all of a company’s outstanding shares. Float adjustment excludes shares
that are closely held by control groups, other publicly traded companies or government agencies.
The S&P/ASX 200
Index weights companies according to the Global Industry Classification Standard (GICS
®
) , which creates uniform
ground rules for replicable, custom tailored, industry focused portfolios. It also enables meaningful comparisons of sectors and
industries across regions. Sector indices are available for the S&P/ASX 200 Index. The S&P/ASX 200 Index constituents are
rebalanced quarterly to ensure adequate market capitalization and liquidity. Both market capitalization and liquidity are assessed
using the previous six months’ worth of data. Shares and Investable Weight Factors (“IWFs”) updates are also
applied regularly. Quarterly review changes take effect after the market close on the third Friday of March, June, September and
December. The index committee may change the date of a given rebalancing for reasons including market holidays occurring on the
scheduled rebalancing date. Any such change will be announced with proper advance notice where possible.
Only stocks listed on
the Australian Securities Exchange (“ASX”) are considered for inclusion in the S&P/ASX 200 Index. Stocks are assessed
based on the stock price history (last six months), latest available shares on issue and the IWF. The IWF is a variable that is
primarily used to determine the available float of a security for ASX listed securities. Only stocks that are actively and regularly
traded are considered for inclusion in the S&P/ASX 200 Index. A stock’s liquidity is measured relative to its size peers.
There must be relative liquidity of at least 50% for a stock to warrant inclusion in the S&P/ASX 200 Index.
Index Calculation.
The S&P/ASX 200 Index has a base value of 3000. Calculation for the S&P/ASX 200 Index is based on stock prices taken
from the ASX. The official daily index closing values for price and accumulation indices, are calculated after the market closes
and are based on the last traded price for each constituent.
Global Industry Classification
Standard (GICS)
SM
and GICS
SM
are service marks of S&P; and GICS
®
is a trademark of S&P.
S&P BRIC 40
®
Index
Launched by S&P on June 20, 2006, the
S&P BRIC 40
®
Index is intended to provide exposure to 40 leading companies from the emerging markets of Brazil,
Russia, India and China. There is no minimum number of stocks from the respective four countries that have to be included. All
stocks in the S&P BRIC 40 Index trade in developed market exchanges – the Hong Kong Stock Exchange, London Stock Exchange,
NASDAQ and/or the NYSE. The S&P BRIC 40 Index uses a particular selection procedure for its component stocks, and a modified
market capitalization weighting scheme, both
discussed in further detail below. S&P
is a joint venture between S&P Global, Inc. (73% owner) and CME Group Inc. (27% owner), owner of CME Group Index Services LLC,
the former owner of the S&P BRIC 40 Index.
All constituent companies must first be
constituents of the S&P/IFCI index series for one of the four countries. The S&P/IFCI indices are designed to measure the
type of returns foreign portfolio investors might receive from investing in emerging market stocks that are legally and practically
available to them. Constituents for the S&P/IFCI series are chosen based on size, liquidity, and their legal and practical
availability to foreign institutional investors. The S&P/IFCI indices are calculated on a daily basis for each country.
The process of selecting the 40 companies
is as follows. All constituents of the S&P/IFCI country indices for Brazil, Russia, India and China constitute the initial
selection universe. All companies that do not have a developed market listing are removed from the list. Companies with a float-adjusted
market capitalization of less than $1 billion and/or an average three-month daily trading volume of less than $5 million are removed.
In addition, if a company has multiple share classes, the share class with the lower liquidity is removed. The remaining stocks
are sorted in decreasing order of their float-adjusted market capitalization, and the top forty become index members.
The S&P BRIC 40 Index is rebalanced
once a year after the close of the third Friday of December. The reference date for additions and deletions is the third Friday
of November. No companies are added between rebalancings, but a company can be deleted during that time due to corporate events
such as mergers, acquisitions, takeovers or de-listings. In addition, a mid-year review is carried out to ensure the index’s
representation is current and up to date. A semi-annual rebalancing will occur after the market close of the third Friday in June
only if three of the biggest 30 stocks from the eligible universe are not in the index at the mid-year review.
An Index Committee (the “S&P
BRIC 40 Index Committee”) maintains the S&P BRIC 40 Index, meeting regularly. The committee members are full-time professionals
of S&P’s staff. At each meeting, the S&P BRIC 40 Index Committee reviews pending corporate actions that may affect
index constituents, statistics comparing the composition of the indices to the market, and any significant market events. In addition,
the S&P BRIC 40 Index Committee can revise index policy covering rules for selecting companies, share counts, the liquidity
and market cap thresholds or other matters.
The S&P BRIC 40 Index is calculated
in U.S. dollars and Euros. Local market prices are converted using the Reuters/WM London closing. The pricing of individual index
constituents is taken from their listing in the developed market exchange in which it trades. If a stock trades on more than one
developed market exchange, the listing from the market with the most liquidity is taken.
As of June 30, 2017, 71.9% of the S&P
BRIC 40 Index weight was made up by Chinese stocks, 10.8% by Brazilian stocks, 9.3% by Russian stocks and 8.0% by Indian stocks.
As of the same date, the largest sectors of the S&P BRIC 40 Index were financials (composing 35.7% of index weight), information
technology (composing 34.8% of index weight), energy (composing 12.6% of index weight), telecommunication services (composing 6.0%
of index weight), consumer discretionary (composing 5.0% of index weight), and consumer staples (composing 3.5% of index weight).
Once the constituent companies are identified,
S&P utilizes a modified market capitalization weighing procedure to determine the composition of the S&P BRIC 40 Index.
In short, at rebalancing, the starting weight of each stock is proportional to its available market capitalization, which accounts
for available float and investment restrictions for foreign investors. Modifications are made, if required, to ensure that no stock
has a weight of more than 10% in the index. In addition, changes are made to ensure that the minimum initial portfolio size for
1-day trade (based on recent trading volume) will be at least $600 million.
The index is calculated by means of the
divisor methodology used in all S&P’s equity indices. The index value is simply the index market value divided by the
index divisor:
|
|
|
Index Value = Index Market Value / Index Divisor
|
|
(1)
|
|
|
|
|
|
(2)
|
(2)
To calculate a modified market cap weighted
index, the Index Market Value for each stock used in the calculation of the index is redefined so that each index constituent has
the appropriate user-defined weight in the index at each rebalancing date.
In order to maintain basket series continuity,
it is also necessary to adjust the divisor at the rebalancing.
|
|
|
(Index Value)
before rebalancing
= (Index Value)
after rebalancing
|
|
(3)
|
Therefore,
|
(Divisor)
after rebalancing
= (Index Value)
after rebalancing
/ (Index Market Value)
before rebalancing
(4)
|
The table below summarizes the types of
Index maintenance adjustments and indicates whether or not an Index Divisor Adjustment is required.
The S&P Global Infrastructure Index,
which is calculated, maintained and published by S&P Dow Jones Indices LLC (“S&P”), consists of 75 component
stocks of the largest publicly listed infrastructure companies from both developed and emerging markets, selected to provide liquid
exposure to the leading publicly listed companies in the global infrastructure industry. The S&P BRIC 40 Index uses a particular
selection procedure for its component stocks, and a modified market capitalization weighting scheme, both discussed in further
detail below. S&P is a joint venture between S&P Global, Inc. (73% owner) and CME Group Inc. (27% owner), owner of CME
Group Index Services LLC, the former owner of the S&P Global Infrastructure Index.
The infrastructure clusters are chosen
based on the Global Industry Classification Standard (“GICS
®
”), as follows:
Companies belonging to the above GICS
sub-industries become the universe for the S&P Global Infrastructure Index. The universe is then narrowed down to an investable
set of stocks based on the following criteria:
The selection of the S&P Global Infrastructure
index constituents starts by classifying all stocks in the Investable Universe as being in one of the three clusters: Energy, Transportation
or Utilities. Then 15 emerging market stocks are chosen based on the highest float-adjusted market capitalization of the parent
company, with no more than 10 chosen for any one cluster. The remaining 60 stocks are the 60 largest developed market stocks, based
on float-adjusted market capitalization. The developed market stocks are chosen such that there total 30 transportation, 30 utilities
and 15 energy infrastructure companies in the index.
In the event of fewer than 75 qualifying
stocks that meet the distribution criteria above, the largest companies from the Investable Universe, not already in the index,
are added until the count reaches 75.
To calculate a modified market cap weighted
index, the Index Market Value for each stock used in the calculation of the index is redefined so that each index constituent has
the appropriate user-defined weight in the index at each rebalancing date.
In order to maintain basket series continuity,
it is also necessary to adjust the divisor at the rebalancing.
In order to obtain basket series continuity,
it is also necessary to adjust the divisor at the rebalancing. The table below summaries the types of S&P Global Infrastructure
Index maintenance adjustments and indicates whether or not a S&P Global Infrastructure Index Divisor adjustment is required:
The Latin America Index includes the stocks
that are among the largest in terms of market capitalization from companies located in Brazil, Chile, Mexico and Peru (the “Component
Stocks”). A stock’s domicile is determined based on criteria that include headquarters of the company, registration,
listing of the stock, place of operations, and residence of the senior officers. A stock’s weight in the Latin America Index
is determined by the float-adjusted market capital of the stock. An investable weight factor (“IWF”) is applied to
each constituent’s share count used for index calculation. Each company’s IWF is adjusted for holdings by governments,
corporations, strategic partners and other private individuals.
All common and preferred shares (of an
equity and not a fixed income nature) are eligible for inclusion in the Latin America Index. Convertible stock, bonds, warrants,
rights and preferred stock that provide a guaranteed fixed return are not eligible.
An index addition generally is made only
if a vacancy is created by an index deletion. Index additions are made according to market size and liquidity, with a view to preserving
regional, country, and sector representation in the index. An initial public offering (IPO) is added to the index only when an
appropriate vacancy occurs and is subject to proven liquidity for at least six months. An exception may be made for extraordinary
large global offerings where expected trading volume justifies inclusion.
Deletions can occur due to acquisitions,
mergers and spin offs or due to bankruptcies or suspension. The latter is removed from the index at the best available price in
the market. In some cases, stocks will be removed at $0.01 in recognition of constraints faced by investors in trading bankrupt
or suspended stocks. Imposition of restrictive foreign investments in the sector or country within any of the countries will be
handled expeditiously to allow investors to exit the sector or country in the least unfavorable manner.
The daily calculation of the Latin America
Index is computed by dividing the total Market Value of the Component Stocks by a number called the “Index Divisor.”
The “Market Value” of any Component Stock is the product of the market price per share and the number of the then outstanding
shares of such Component Stock. By itself, the Index Divisor is an arbitrary number. However, in the context of the calculation
of the Latin America Index, it is the only link to the original base value of the Latin America Index. The Index Divisor keeps
the Latin America Index comparable over time and is the manipulation point for all adjustments to the Latin America Index (“Index
Maintenance”). Index Maintenance includes monitoring and completing the adjustments for company additions and deletions,
share changes, stock splits, stock dividends, and stock price adjustments due to company restructurings or spinoffs.
All share changes of 5% and over are done
at the effective date, or as soon as reliable information is available. Changes of less than 5% are applied on the third Friday
of March, June, September and December. Similarly, changes reflecting float adjustment are applied if they cause a capitalization
change of 5% or over. Changes of less than this are applied at the annual review in September.
Changes in the Latin America Index value
reflect changes in the total market capitalization of the Latin America Index that are caused by price movements in the market.
They do not reflect changes in the market capitalization of the index, or of the individual stocks, that are caused by corporate
actions such as dividend payments, stock splits, distributions to shareholders, mergers or acquisitions.
To prevent the value of the Latin America
Index from changing due to corporate actions, all corporate actions which affect the total Market Value of the Latin America Index
require an Index Divisor adjustment. By adjusting the Index Divisor for the change in total Market Value, the value of the Latin
America Index remains constant. This helps maintain the value of the Latin America Index as an accurate barometer of stock market
performance and ensures that the movement of the Latin America Index does not reflect the corporate actions of individual companies
in the Latin America Index. All Index Divisor adjustments are made after the close of trading and after the calculation of the
closing value of the Latin America Index. Some corporate actions, such as stock splits and stock dividends, require simple changes
in the common shares outstanding and the stock prices of the companies in the Latin America Index and do not require Index Divisor
adjustments.
The table below summarizes the types of
Index Maintenance adjustments and indicates whether or not an Index Divisor adjustment is required.
Stock splits and stock dividends do not
affect the Index Divisor of the Latin America Index, because following a split or dividend both the stock price and number of shares
outstanding are adjusted by S&P so that there is no change in the Market Value of the Component Stock. Corporate actions (such
as stock splits, stock dividends, spin-offs and rights offerings) are implemented after the close of trading on the day prior to
the ex-date. Share changes resulting from exchange offers are made on the ex-date.
Each of the corporate events exemplified
in the table requiring an adjustment to the Index Divisor has the effect of altering the Market Value of the Component Stock and
consequently of altering the aggregate Market Value of the Component Stocks (the “Post-Event Aggregate Market Value”).
In order that the level of the Latin America Index (the “Pre-Event Index Value”) not be affected by the altered Market
Value (whether increase or decrease) of the affected Component Stock, a new Index Divisor (“New Divisor”) is derived
as follows:
A large part of the Index Maintenance process
involves tracking the changes in the number of shares outstanding of each of the Index companies. Changes in a company’s
total shares outstanding of 5% or more due to public offerings, tender offers, Dutch auctions or exchange offers are made as soon
as reasonably possible. Other changes of 5% or more are made weekly, and are announced on Fridays for implementation after the
close of trading the following Friday (one week later). All other changes of less than 5% are accumulated and made quarterly on
the third Friday of March, June, September, and December when the share totals of companies in the Latin America Index are updated
as required by any changes in the number of shares outstanding. After the totals are updated, the Index Divisor is adjusted to
compensate for the net change in the total Market Value of the Latin America Index.
The Swiss Market Index, which we refer
to as the SMI, was introduced on June 30, 1988 with a baseline value of 1500 points at that date. The SMI is updated in real time
after each transaction.
The composition of SMI
is reviewed annually, and in order to ensure a high degree of continuity in the composition of the SMI, the component stocks are
subject to a special procedure for adding them to the SMI or removing them based on free float market capitalization and liquidity.
The resulting adjustments to the index are made regularly once a year.
Admission to and exclusion
from the index composition will be made once a year after prior notice of at least two months on the third Friday in September
after close of trading. The number of securities and free-float shares are adjusted on two ordinary adjustment dates a year: the
third Friday in March (after close of trading) and the third Friday in September (after close of trading).
In order to achieve a capped weighting
while attempting to not cause market distortion, a stepwise reduction is conducted based on the normal index reviews, and a transition
period is put into effect until no SMI component has a weight of greater than 18%. This stepwise reduction ensures that no change
in the weighting from one review to the next exceeds 3%. In case of an intra-quarter breach where two SMI component weights exceed
20% in the aggregate, the weights are limited to the last defined weights as of the prior review.
The securities are not
in any way sponsored, endorsed, sold or promoted by SIX Swiss Exchange and SIX Swiss Exchange makes no warranty or representation
whatsoever, express or implied, either as to the results to be obtained from the use of the SMI
®
index (the “SMI”)
and/or the figures at which the said Index stands at any particular time on any particular day or otherwise. The SMI is compiled
and calculated solely by SIX Swiss Exchange. However, SIX Swiss Exchange shall not be liable (whether in negligence or otherwise)
to any person for any error in the SMI and SIX Swiss Exchange shall not be under any obligation to advise any person of any error
therein.
The component stocks of the TOPIX Index
consist of all domestic common stocks listed on the First Section of the TSE. The TOPIX Index measures changes in the aggregate
market value of these stocks. The TSE domestic stock market is divided into two sections: the First Section and the Second Section.
Listings of stocks on the TSE are divided between these two sections, with stocks listed on the First Section typically being limited
to larger, longer established and more actively traded issues and the Second Section to smaller and newly listed companies. The
component stocks of the TOPIX Index are determined based on market capitalization and liquidity. Review and selection of component
stocks is conducted semiannually, based on market data as of the base date for selection.
The TOPIX Index is a free float adjusted
market capitalization weighted index, with the market price of each component stock multiplied by the number of shares listed (as
adjusted by multiplying the Free-Float Weight (“FFW”) to take into account only the listed shares deemed to be available
for trading in the market). The TSE is responsible for calculating and maintaining the TOPIX Index, and can add, delete or substitute
the stocks underlying the TOPIX Index or make other methodological changes that could change the value of the TOPIX Index. The
underlying stocks may be removed, if
necessary, in accordance with deletion/addition
rules which provide generally for the deletion of a stock from the TOPIX Index if such stock ceases to meet the criteria for inclusion.
Stocks listed on the Second Section of the TSE may be transferred to the First Section if they satisfy applicable criteria. Such
criteria include average monthly trading volume, among others. Similarly, when a First Section stock falls within the coverage
of TSE rules prescribing reassignment thereof to the Second Section, such stock will be removed from the First Section.
The TOPIX Index is not expressed in Japanese
Yen, but is presented in terms of points (as a decimal figure) rounded off to the nearest one-hundredth. The TOPIX Index is calculated
by multiplying 100 by the figure obtained by dividing the current free-float adjusted market value (the current market price per
share at the time of the index calculation multiplied by the number of common shares listed on the First Section of the TSE at
the same instance (as adjusted by multiplying the FFW)) (the “TOPIX Current Market Value”) by the base market value
(i.e., the TOPIX Current Market Value on the base date) (the “TOPIX Base Market Value”).
The calculation of the TOPIX Index can
be represented by the following formula:
In order to maintain continuity, the TOPIX
Base Market Value is adjusted from time to time to ensure that it reflects only price movements resulting from auction market activity,
and to eliminate the effects of other factors and prevent any instantaneous change or discontinuity in the level of the TOPIX Index.
Such factors include, without limitation: new listings; delistings; new share issues either through public offerings or through
rights offerings to shareholders; issuance of shares as a consequence of exercise of convertible bonds or warrants; and transfer
of listed securities from the First Section to the Second Section of the TSE.
Where, adjustment amount is equal to the
changes in the number of shares included in the calculation of the index
multiplied
by the price of those shares used for
the purposes of the adjustment.
The TOPIX Base Market Value remains at
the new value until a further adjustment is necessary as a result of another change. As a result of such change affecting the TOPIX
Current Market Value or any stock underlying the TOPIX Index, the TOPIX Base Market Value is adjusted in such a way that the new
value of the TOPIX Index will equal the level of the TOPIX Index immediately prior to such change.
No adjustment is made to the TOPIX Base
Market Value, however, in the case of events such as stock splits or decreases in capital without compensation, which theoretically
do not affect market value.
(i) The
TOPIX Index Value and the TOPIX Trademarks are subject to the intellectual property rights owned by the TSE and the TSE owns all
rights relating to the TOPIX Index, such as calculation, publication and use of the TOPIX Index Value and relating to the TOPIX
Trademarks.
(ii) The
TSE shall reserve the rights to change the methods of calculation or publication, to cease the calculation or publication of the
TOPIX Index Value or to change the TOPIX Trademarks or cease the use thereof.
(iii) The
TSE makes no warranty or representation whatsoever, either as to the results stemming from the use of the TOPIX Index Value and
the TOPIX Trademarks or as to the figure at which the TOPIX Index Value stands on any particular day.
(iv) The
TSE gives no assurance regarding accuracy or completeness of the TOPIX Index Value and data contained therein. Further, the TSE
shall not be liable for the miscalculation, incorrect publication, delayed or interrupted publication of the TOPIX Index Value.
(v) The
securities are in no way sponsored, endorsed or promoted by the TSE.
(vi) The
TSE shall not bear any obligation to give an explanation of the securities or any advice on investments to any purchaser of the
securities or to the public.
(vii) The TSE neither selects specific
stocks or groups thereof nor takes into account any needs of the issuer or any purchaser of the securities, for calculation of
the TOPIX Index Value.
(viii) Including but not limited
to the foregoing, the TSE shall not be responsible for any damage resulting from the issue and sale of the securities.
The TSE is one of the world’s largest
securities exchanges in terms of market capitalization. Trading hours are currently from 9:00 a.m. to 11:00 a.m. and from 12:30
p.m. to 3:00 p.m., Tokyo time, Monday through Friday.
Due to the time zone difference, on any
normal trading day the TSE will close prior to the opening of business in New York City on the same calendar day. Therefore, the
closing level of the TOPIX
®
Index on a trading day will generally be available in the United States by the opening
of business on the same calendar day.
The TSE has adopted certain measures, including
daily price floors and ceilings on individual stocks, intended to prevent any extreme short-term price fluctuations resulting from
order imbalances. In general, any stock listed on the TSE cannot be traded at a price lower than the applicable price floor or
higher than the applicable price ceiling. These price floors and ceilings are expressed in absolute Japanese yen, rather than percentage
limits based on the closing price of the stock on the previous trading day. In addition, when there is a major order imbalance
in a listed stock, the TSE posts a “special bid quote” or a “special asked quote” for that stock at a specified
higher or lower price level than the stock’s last sale price in order to solicit counter-orders and balance supply and demand
for the stock. Prospective investors should also be aware that the TSE may suspend the trading of individual stocks in certain
limited and extraordinary circumstances, including, for example, unusual trading activity in that stock. As a result, changes in
the TOPIX
®
Index may be limited by price limitations or special quotes, or by suspension of trading, on individual
stocks that make up the TOPIX
®
Index, and these limitations, in turn, may adversely affect the value of the securities.
The WilderHill Clean Energy Index (the
“Clean Energy Index”) is a modified equal dollar weighted index comprised of publicly traded companies in the clean
energy sector: specifically, businesses that stand to benefit substantially from a societal transition toward use of cleaner energy
and conservation. Stocks and sector weightings within the Clean Energy Index are based on their significance for clean energy,
technological influence and relevance to preventing pollution. The Clean Energy Index is rebalanced quarterly. The Clean Energy
Index divisor was initially determined to yield a benchmark value of 100.00 at the close of trading December 30, 2002. The Clean
Energy Index was created by and is a trademark of Wildershares, LLC, the index provider.
The Index is calculated using a modified
equal dollar weighting methodology. Component securities and weights are determined by their respective sector (as set out below)
and size. Each sector is assigned an aggregate weight within the Clean Energy Index. Component companies with less than $200 million
in total market capitalization are set to one-half of a percent (0.5%). The remaining components in each sector are equally weighted
by using the sector weightings minus the sum of the weights of those companies with less than $200 million in market capitalization.
Sector weightings were initially determined by the index provider and are reviewed each quarter in conjunction with the scheduled
quarterly review of the Clean Energy Index. The component’s weighting cannot exceed four percent (4%) of the Clean Energy
Index at the time of each quarterly rebalancing.
Companies selected for the Clean Energy
Index include companies that focus on the technologies for utilizing greener, renewable sources of energy. These technologies include
renewable energy harvesting or production, energy conversion, energy storage, pollution prevention, improving efficiency, power
delivery, energy conservation, and monitoring information.
There is a strong bias in the Clean Energy
Index in favor of companies in wind power, solar power, hydrogen and fuel cells, biofuels and related fields. Companies in relevant
fields such as hydroelectric, geothermal, wave, tidal, waste heat recapture and others will be considered with respect to carbon
content, the impacts upon marine and terrestrial biodiversity, and degree to which they advance or reflect the clean energy sector.
The Clean Energy Index is currently comprised
of companies focused on the following sectors:
The WisdomTree Japan Hedged Equity Index
(the “WTIDJH Index”) is a stock index calculated, published and disseminated by WisdomTree Investments, Inc. (“WTI”),
and is designed to provide exposure to a segment of the Japanese equity markets while at the same time attempting to mitigate exposure
to fluctuations of the Japanese yen relative to the U.S. dollar. The WTIDJH Index consists of dividend-paying companies incorporated
in Japan and traded on the Tokyo Stock Exchange that derive less than 80% of their revenue from sources in Japan. By excluding
companies that derive 80% or more of their revenue from Japan, the WTIDJH Index is concentrated on dividend-paying companies with
a more significant non-Japan revenue base. The companies included in the WTIDJH Index typically have greater exposure to the value
of global currencies and, in many cases, their business prospects historically have improved when the value of the Japanese yen
has declined and have weakened when the value of the Japanese yen has increased. The WTIDJH Index is a currency hedged version
of the WisdomTree Japan Dividend Index (the “WJD Index”), and the selection and weighting methodology for the WTIDJH
Index is identical to the selection and weighting methodology used for the WJD Index.
To be eligible for inclusion in the WTIDJH
Index, component companies must meet the following eligibility requirements established by WTI: (i) payment of at least $5 million
in cash dividends on common shares in the annual cycle prior to the annual rebalance of the WTIDJH Index; (ii) market capitalization
of at least $100 million as of the rebalance of the WTIDJH Index; (iii) average daily dollar volume of at least $100,000 for the
three months preceding the rebalance of the WTIDJH Index; and (iv) trading of at least 250,000 shares per month for each of the
six months preceding the rebalance of the WTIDJH Index.
Companies are weighted in the WTIDJH Index
based on annual cash dividends paid. At the time of the annual rebalance of the WTIDJH Index, the maximum weight of any single
security in the WTIDJH Index is capped at 5% and the maximum weight of any one sector in the WTIDJH Index is capped at 25%. In
response to market conditions, security and sector weights may fluctuate above the specified cap between annual rebalance of the
WTIDJH Index dates. WTI, as index provider, currently uses old Standard & Poor’s Global Industry Classification Standards,
i.e. real estate and financials are aggregated into one sector, to define companies in each sector. The following sectors are included
in the WTIDJH Index: consumer discretionary, consumer staples, energy, financials, health care, industrials, information technology,
materials, telecommunication services, and utilities. A sector is comprised of multiple industries. For example, the energy sector
is comprised of companies in, among others, the natural gas, oil and petroleum industries.
The WTIDJH Index is a currency hedged version
of the WJD Index. The index values of the WJD Index are calculated by aggregating the sum of the product of number of stocks in
the WTIDJH Index for a component company, the price of such stock and the cross rate of the Japanese yen against the U.S. dollar.
This value is then adjusted by a divisor. By adjusting the divisor, the index value retains its continuity before and after changes
in the market capitalization of the share underlying index due to changes in composition, weighting or corporate actions.
The WJD Index is calculated on an end-of-day
basis whenever the New York Stock Exchange is open for trading. If trading is suspended while the exchange the component company
trades on is still open, the last traded price for that stock is used for all subsequent computations of the WJD Index until trading
resumes. If trading is suspended before the opening, the
adjusted closing price of the stock from the
previous day is used to calculate the WJD Index. Until a particular stock opens, its adjusted closing price from the previous day
is used in the computation of the WJD Index.
The WTIDJH Index is a currency hedged version
of the WJD Index, and the WTIDJH Index is designed to approximate the investable return available to U.S. based investors that
attempts to mitigate currency fluctuations as a source of the international index return.
The WTIDJH Index is calculated on a daily
basis and it uses to a WM/Reuters 1-month forward rate to mitigate the effects of currency fluctuations. The precise calculation
for the daily hedged currency index is as follows:
The WTIDJH Index is a modified capitalization-weighted
index that employs a transparent weighting formula to magnify the effect that dividends play in the total return of such index.
The initial weight of a component in the WTIDJH Index at the annual reconstitution is derived by multiplying the U.S. dollar value
of the annual dividend per share of the company by the number of common shares outstanding for that company (the “Cash Dividend
Factor”). Special dividends are not included in the computation of weights of the WTIDJH Index. The Cash Dividend Factor
is calculated for every component in the WTIDJH Index and then summed. The weight of each component, at the International Weighting
Date, is equal to its Cash Dividend Factor divided by the sum of all Cash Dividend Factors for all the components in that WTIDJH
Index. The International Weighting Date is the date on which component weights are set and it occurs immediately after the close
of trading on the third Wednesday of June. New component weights take effect before the opening of trading on the first Monday
following the third Friday of June.
The weighting of the WTIDJH Index will
be modified in the event of the following weighting modification events:
Normal dividend payments are reinvested
and accounted for in the calculation of the index value of the WTIDJH Index. However, special dividends that are not reinvested
in the WTIDJH Index require index divisor adjustments.
Index maintenance includes monitoring and
implementing the adjustments for company deletions, stock splits, stock dividends, spins-offs, or other corporate actions. Some
corporate actions, such as stock splits, stock dividends, and rights
offerings require changes in the number of
stocks of such constituent included in the WTIDJH Index and the stock prices of the component companies in the WTIDJH Index. Some
corporate actions, such as stock issuances, stock buybacks, warrant issuances, increases or decreases in dividend per share between
reconstitutions, do not require changes in the number of stocks of such constituent included in the WTIDJH Index or in the stock
prices of the component companies in the WTIDJH Index. Other corporate actions, such as special dividends and entitlements, may
require index divisor adjustments. Any corporate action, whether it requires index divisor adjustments or not, will be implemented
after the close of trading on the day prior to the ex-date of such corporate actions. Whenever possible, changes to the components
of the underlying index, such as deletions as a result of corporate actions, will be announced at least two business days prior
to their implementation date.
Changes in the market capitalization of
the WTIDJH Index due to changes in composition, weighting or corporate actions result in a divisor change to maintain the continuity
of the WTIDJH Index. Corporate actions that require divisor adjustments will be implemented prior to the opening of trading on
the effective date. In certain instances where information is incomplete, or the completion of an event is announced too late to
be implemented prior to the ex-date, the implementation will occur as of the close of the following day or as soon as practicable
thereafter. For corporate actions not described herein, or combinations of different types of corporate events and other exceptional
cases, WTI reserves the right to determine the appropriate implementation method.