THOMSON REUTERS/S-NETWORK ESG BEST PRACTICES INDICES INDEX METHODOLOGY

Transcription

1 THOMSON REUTERS/S-NETWORK ESG BEST PRACTICES INDICES INDEX METHODOLOGY June 2017

2 TABLE OF CONTENTS I. GENERAL DESCRIPTION... 3 II. THE INDEX COMMITTEE... 4 III. INDEX VALUE AT INCEPTION... 4 IV. ELIGIBILITY CRITERIA FOR S-NETWORK 500 US LARGE CAP INDEX... 4 V. ELIGIBILITY CRITERIA AND WEIGHTING FOR TRCR US LARGE CAP... 4 VI. ELIGIBILITY CRITERIA FOR S-NETWORK DEVELOPED MARKETS... 5 VII. ELIGIBILITY CRITERIA AND WEIGHTING FOR TRCR DEVELOPED MARKETS... 5 VIII. ELIGIBILITY CRITERIA FOR S-NETWORK EUROPE 500 LARGE CAP INDEX... 5 IX. ELIGIBILITY CRITERIA AND WEIGHTING FOR TRCR EUROPE ESG INDICES... 6 X. RULES FOR RECONSTITUTIONS, REBALANCES AND INDEX CHANGES... 6 XI. ROLES OF PARTIES IN QUARTERLY REBALANCE... 7 XII. ROLES OF PARTIES IN ANNUAL RECONSTITUTION... 7 XIII. CALCULATION OF INDEX VALUES... 8 XIV. DISSEMINATION... 8 XV. ONGOING MAINTENANCE... 9 XVI. CALCULATION AND ADJUSTMENTS XVI. DATA CORRECTION POLICY XVI. APPENDIX REVIEW SCHEDULE

3 (TRSNESGIs) I. General Descripion The (TRSNESGI) are a family of indices based on he Thomson Reuers/S-Nework ESG Bes Pracices Scores ( TRSNESG Raings ), a raing sysem ha evaluaes he environmenal, social and corporae governance pracices of over 5,000 companies worldwide. The curren index family includes: Thomson Reuers/S-Nework ESG Bes Pracices US Large Cap ESG Index (TRESGUS) The Thomson Reuers/S-Nework ESG Bes Pracices US Large Cap Environmenal Index (TRENVUS) The Thomson Reuers/S-Nework ESG Bes Pracices US Large Cap Social Index (TRSCUS) The Thomson Reuers/S-Nework ESG Bes Pracices US Large Cap Governance Index (TRCGVUS) Thomson Reuers/S-Nework ESG Bes Pracices Developed Markes (ex-us) ESG Index (TRESGDX) The Thomson Reuers/S-Nework ESG Bes Pracices Developed Markes (ex-us) Environmenal Index (TRENVDX) The Thomson Reuers/S-Nework ESG Bes Pracices Developed Markes (ex-us) Social Index (TRSCDX) The Thomson Reuers/S-Nework ESG Bes Pracices Developed Markes (ex-us) Governance Index (TRCGVDX) Thomson Reuers/S-Nework ESG Bes Pracices Europe ESG Index (TRESGEU) The Thomson Reuers/S-Nework ESG Bes Pracices Europe Markes Environmenal Index (TRENVEU) The Thomson Reuers/S-Nework ESG Bes Pracices Europe Markes Social Index (TRSCEU) The Thomson Reuers/S-Nework ESG Bes Pracices Europe Markes Governance Index (TRCGVEU) Each index is derived from an underlying index published by S-Nework Global Indexes ha is defined by he relevan region and capalizaion secor (he Underlying Indices ). The are consruced o be secor-neural o heir underlying indices. They are also consruced o have consisenly higher raings as measured by he TRSNESG Raings. Using he TRSNESG Raings derived from he ASSET4 daabase, we include half of he companies from each of he en Thomson Reuers Business Classificaion (TRBC) secors in he Underlying Indices. Companies which have he highes TRSNESG Raings in he relevan caegory are seleced for inclusion in he relevan TRSNESGI. Eligible socks are weighed whin each secor based on a combinaion of heir floa/marke capalizaion and heir TRSNESG Raings. Company weighs whin each secor are hen modified by he secor weigh of he underlying Index. 3

4 The indices are reconsued annually on he hird Friday of December and rebalanced quarerly on he hird Friday of he las monh of each calendar quarer. II. The Index Commee The Thomson Reuers/S-Nework ESG Bes Pracices Index Commee ( The Commee ) will be composed of no less han five members. The Commee Chairman will have exensive experience wh experise in inernaional equy markes. The oher members will have experience in financial markes, indices, financial producs and/or socially responsible invesing. The Commee will be responsible for overseeing he acivies of he compilaion and calculaion agens and approving all changes o he index relaed o s annual reconsuion and quarerly rebalancings. The Commee will mee quarerly, eher in person or via eleconference, o discuss index issues and organize he annual reconsuion and quarerly rebalancings. The composion of he Commee may from ime o ime be changed o reflec changes in marke condions. All members of he index commee and heir advisors shall comply wh he Thomson Reuers and S-Nework Global Indexes code of conduc and ehics wh respec o he disclosure and use of maerial non-public informaion. III. Index Value a Incepion All Thomson Reuers/S-Nework ESG Bes Pracices Price Indices had values on heir incepion daes of December 31, 2007 of The TRSNESGIs are also calculaed on Toal Reurn and Ne Toal Reurn bases. IV. Eligibily Creria for S-Nework 500 US Large Cap Index (SN500) The SN500 universe includes socks whose domiciles and primary exchange lisings are in he Uned Saes of America. I is compiled according o he following mehodology: i. Idenify he 500 larges capalizaion socks in he US, afer removing duplicae and secondary lisings, as well as Closed End Funds, MLPs and companies organized under similar srucures, ii. Weigh eligible companies based on floa marke capalizaion. 4

5 V. Eligibily Creria and Weighing for Thomson Reuers/S-Nework ESG Bes Pracices US Large Cap Indices Only socks ha are curren consuens of he SN500 index as of he las rading day of he second monh of each calendar quarer ( he snapsho dae ) are eligible for inclusion in he Thomson Reuers/S-Nework ESG Bes Pracices US Large Cap Indices. Half of he numbers of socks in each of he en TRBC secors wh he highes applicable raings as of he las rading day of November are seleced for inclusion. All socks seleced for inclusion are weighed on a hybrid basis. Fify percen of he weigh assigned o each sock whin a secor is based on floa marke capalizaion and fify percen of he weigh assigned o each sock whin a secor is based on he socks relevan raing. Weighs of socks whin each secor are hen modified by he secors weighs of he SN500 index. Share weighs will be based on prices as of he close of rading on he Thursday prior o he second Friday of he rebalancing monh ( The Record Dae ). VI. Eligibily Creria for S-Nework Developed Markes (ex-us) Index (SNDMI) The SNDMI universe includes socks whose domiciles and primary exchange lisings are in counies idenified by he World Bank as High Income Counries, and excludes socks from counries a) locaed in he Americas, b) ha do no have sock exchanges or open sock exchange srucures, and c) were members of he former Comecon. I is compiled according o he following mehodology: iii. Compile securies from aforemenioned counry lis, iv. Idenify primary lisings and remove duplicae and secondary lisings, v. Sor acive securies descending by full Marke Capalizaion o derive marke capalizaion percenile, vi. Remove securies below 99%, vii. Capure 70% of oal floa marke capalizaion of each counry conained in he universe. Companies are added o he counry universe successively, saring wh he company wh he larges marke capalizaion in he counry. Companies are added o he counry universe in descending order based on heir floa marke capalizaion unil he oal floa marke capalizaion of he companies added o he counry equals a leas 70% of he oal counry floa marke capalizaion, viii. Weigh eligible companies based on floa marke capalizaion VII. Eligibily Creria and Weighing for he Thomson Reuers Corporae Responsibily Developed Markes (ex-us) Indices Only socks ha are curren consuens of he SNDMI index as of he las rading day of he second monh of each calendar quarer ( he snapsho dae ) are eligible for inclusion in he Thomson Reuers/S-Nework ESG Bes Pracices Developed Markes (ex US) Indices. Half of he numbers of socks in each of he en TRBC secors wh he highes applicable raings as of he las rading day of November are seleced for inclusion. All socks seleced for inclusion in he indices are weighed on a hybrid basis. Fify percen of he weigh assigned o each sock whin a secor is based on floa marke capalizaion and fify percen of he weigh assigned o each sock whin a secor is based on he socks relevan 5

6 raing. Weighs of socks whin each secor are hen modified by he secor weighs of he SNDMI index. Share weighs will be based on prices as of he close of rading on he Thursday prior o he second Friday of he rebalancing monh ( The Record Dae ). VIII. Eligibily Creria for S-Nework Europe 500 Large Cap Index (SNE500) The SNE500 universe includes socks whose domiciles and primary exchange lisings are in Europe. I is compiled according o he following mehodology: i. Idenify he 500 larges capalizaion socks in Europe, afer removing duplicae and secondary lisings, as well as Closed End Funds, MLPs and companies organized under similar srucures, ii. Weigh eligible companies based on floa marke capalizaion. IX. Eligibily Creria and Weighing for Thomson Reuers/S-Nework ESG Bes Pracices Europe ESG Indices Only socks ha are curren consuens of he SNE500 index as of he las rading day of he second monh of each calendar quarer ( he snapsho dae ) are eligible for inclusion in he Thomson Reuers/S-Nework ESG Bes Pracices Europe ESG Indices. Half of he numbers of socks in each of he en TRBC secors wh he highes applicable raings as of he las rading day of November are seleced for inclusion. All socks seleced for inclusion are weighed on a hybrid basis. Fify percen of he weigh assigned o each sock whin a secor is based on floa marke capalizaion and fify percen of he weigh assigned o each sock whin a secor is based on he socks relevan raing. Weighs of socks whin each secor are hen modified by he secors weighs of he SNE500 index. Share weighs will be based on prices as of he close of rading on he Thursday prior o he second Friday of he rebalancing monh ( The Record Dae ). X. Rules for Reconsuions, Rebalances, and Index Changes The are calculaed by Thomson Reuers PLC. ( The Calculaion Agen ). The Calculaion Agen is also responsible for index mainenance and price disseminaion. The calculaion, mainenance and disseminaion rules are as follows: Index Rebalancings. The are rebalanced quarerly on he hird Friday of he las monh of each calendar quarer. Index changes ake place a each rebalancing dae (he hird Friday of he las monh of each calendar quarer). Index Reconsuions. The are reconsued annually on he hird Friday of December. Addions and Deleions. Addions and Deleions o he Indices are made 1) a he close of rading on he annual reconsuion dae (hird Friday of December) and 2) in he even of he deleion of a consuen sock due o a corporae acion. When a sock is deleed, a replacemen will be added on he nex rebalancing dae. 6

7 Deleions are made a any ime, in he even a sock is liquidaed, de-lised, files for bankrupcy, is acquired, merges wh anoher sock, or if, in he opinion of he Index Commee, 1) he sock represens excessive risk due o pending regulaory or similar legal acion or 2) he sock is subjec o exreme evens having a maerial impac on s saus in one or more of he ESG pillars. Upon deleion, he weigh of he removed sock is reallocaed proporionaely o he remaining consuens. Addions/replacemens are made only upon he effecive dae of he quarerly rebalancing. Index Changes. Changes o he indices due o corporae acions, such as mergers, acquisions, and de-lisings, are applied on he effecive dae of he acion, unless oherwise deermined by he Index Commee. Whenever possible, changes will be announced a leas wo business days prior o heir implemenaion. XI. Roles of Paries in he Quarerly Rebalance i) On he firs Friday of he rebalancing monh, he Compilaion Agen shall provide he Commee, or s designee, wh a lis of consuens for he Thomson Reuers/S- Nework ESG Bes Pracices Indices. ii) iii) iv) The Commee shall approve or rejec he changes and noify he calculaion agen of s decisions no laer han he Tuesday following he firs Friday of he rebalancing monh. No laer han he Tuesday following he firs Friday of he rebalancing monh, he Index Commee or s designee will issue a press release announcing addions and deleions o he TRSNESGIs. The press release will be posed on he TRSNESG webse. The Compilaion Agen will provide final share weighs o he Commee or s designee on he Monday following he second Friday of he rebalancing monh. Share weighs will be based on prices as of he close of rading on he second Friday of he rebalancing monh ( he record dae ). v) The Index Commee or s designee will approve he final share weighs prior o he close of US markes on he nex business day and will disribue his informaion o he Calculaion Agen and all TRSNESGI licensees. vi) vii) The effecive dae of he rebalancing will be on he close of business on he hird Friday of he las monh of each calendar quarer. The Compilaion Agen will pos all final rebalancing daa and informaion on s FTP server prior o he open on he nex business day following he rebalancing dae. TRSNESGI will pos all rebalancing daa on s webse prior o he open on he nex business day following he rebalancing dae. XII. Roles of Paries in he Annual Reconsuion 7

8 i) The Compilaion Agen will subm o he Calculaion Agen an updaed version of he S-Nework SNDMI universe no laer han las business day of he monh prior o he reconsuion monh. ii) iii) iv) The Compilaion Agen will screen he consuens of he universe o idenify he socks in each secor wh he TRSNESG Raings as of he close of rading he snapsho dae. On he firs Friday of December, he Compilaion Agen shall provide he Commee, or s designee, wh a lis of consuens for he TRSNESGIs. The Commee shall approve or rejec he changes and noify he calculaion agen of s decisions no laer han he Tuesday following he firs Friday of December. v) No laer han he Tuesday following he firs Friday of December, he Index Commee or s designee will issue a press release announcing addions and deleions o TRSNESGIs. The press release will be posed on he TRSNESG webse. XIII. vi) vii) viii) ix) The Compilaion Agen will provide final share weighs o he Commee or s designee on he Monday following he second Friday of December. Share weighs will be based on prices as of he close of rading on he second Friday of December ( he record dae ). The TRSNESG Index Commee or s designee will approve he final share weighs prior o he close of US markes on he nex business day and will disribue his informaion o he Calculaion Agen and all TRSNESGI licensees. The effecive dae of he reconsuion will be on he close of business on he hird Friday of December. The Compilaion Agen will pos all final rebalancing daa and informaion on s FTP server prior o he open on he nex business day following he reconsuion dae. TRSNESGIs will pos all reconsuion daa on s webse prior o he open on he nex business day following he reconsuion dae. Calculaion of Index Values i) The Calculaion Agen will calculae price-only index values using price daa on each repored rade receives on each componen secury. ii) iii) iv) The Calculaion Agen will disribue index values o vendors via he New York Sock Exchange Global Index Feed a se 15-second inervals. The index calculaions will sar each rading day a 7:00PM (EST - US) (opening price) and will cease calculaion each rading day a approximaely 4:30PM (EST- US) (closing price). The Indices will be calculaed and disseminaed in USD and EUR. 8

9 v) The Calculaion Agen will also disribue oal reurn index values immediaely following he close of rading on US sock markes on each business day. XIV. Disseminaion Index values are disseminaed in US dollars and Euro via he NYSE: Price Indices: Thomson Reuers/S-Nework US Large-Cap ESG Bes Pracices Index Thomson Reuers/S-Nework US Large-Cap Environmenal Bes Pracices Index Thomson Reuers/S-Nework US Large-Cap Social Bes Pracices Index Thomson Reuers/S-Nework US Large-Cap Governance Bes Pracices Index Thomson Reuers/S-Nework Developed Markes (ex-us) ESG Bes Pracices Index Thomson Reuers/S-Nework Developed Markes (ex-us) Environmenal Bes Pracices Index Thomson Reuers/S-Nework Developed Markes (ex-us) Social Bes Pracices Index Thomson Reuers/S-Nework Developed Markes (ex-us) Governance Bes Pracices Index Thomson Reuers/S-Nework Europe ESG Bes Pracices Index Thomson Reuers/S-Nework Europe Environmenal Bes Pracices Index Thomson Reuers/S-Nework Europe Social Bes Pracices Index Thomson Reuers/S-Nework Europe Governance Bes Pracices Index Thomson Reuers/S-Nework Emerging Markes ESG Bes Pracices Index Thomson Reuers/S-Nework Emerging Markes Environmenal Bes Pracices Index Thomson Reuers/S-Nework Emerging Markes Social Bes Pracices Index Thomson Reuers/S-Nework Emerging Markes Governance Bes Pracices Index TRESGUS TRENVUS TRSCUS TRCGVUS TRESGDX TRENVDX TRSCDX TRCGVDX TRESGEU TRENVEU TRSCEU TRCGVEU TRESGEX TRENVEX TRSCEX TRCGVEX Toal Reurn Indices: Thomson Reuers/S-Nework US Large-Cap ESG Bes Pracices TR Index Thomson Reuers/S-Nework US Large-Cap Environmenal Bes Pracices TR Index Thomson Reuers/S-Nework US Large-Cap Social Bes Pracices TR Index Thomson Reuers/S-Nework US Large-Cap Governance Bes Pracices TR Index TRESGUSTR TRENVUSTR TRSCUSTR TRCGVUSTR Thomson Reuers/S-Nework Developed Markes (ex-us) ESG Bes Pracices TR Index TRESGDXTR Thomson Reuers/S-Nework Developed Markes (ex-us) Environmenal Bes Pracices TR Index TRENVDXTR Thomson Reuers/S-Nework Developed Markes (ex-us) Social Bes Pracices TR Index TRSCDXTR Thomson Reuers/S-Nework Developed Markes (ex-us) Governance Bes Pracices TR Index TRCGVDXTR Thomson Reuers/S-Nework Europe ESG Bes Pracices TR Index Thomson Reuers/S-Nework Europe Environmenal Bes Pracices TR Index Thomson Reuers/S-Nework Europe Social Bes Pracices TR Index Thomson Reuers/S-Nework Europe Governance Bes Pracices TR Index Thomson Reuers/S-Nework Emerging Markes ESG Bes Pracices TR Index Thomson Reuers/S-Nework Emerging Markes Environmenal Bes Pracices TR Index Thomson Reuers/S-Nework Emerging Markes Social Bes Pracices TR Index Thomson Reuers/S-Nework Emerging Markes Governance Bes Pracices TR Index TRESGEUT TRENVEUT TRSCEUT TRCGVEUT TRESGEXT TRENVEXT TRSCEXT TRCGVEXT Values for he Thomson Reuers/S-Nework ESG Bes Pracices Price Indices are disribued in real-ime, ha is, in 15-second snapshos, beween approximaely 7:00PM (EST) and 4:30PM (EST) Sunday hrough Friday, excluding US exchange holidays. Values for he Thomson Reuers Toal Reurn Indices are disribued once daily, a approximaely 4:30PM (EST), Monday hrough Friday, excluding exchange holidays. 9

10 XV. Ongoing Mainenance i) In addion o he scheduled quarerly reviews, he TRSNESGIs are reviewed on an ongoing basis. Changes in index composion and relaed weigh adjusmens are necessary whenever here are exraordinary evens such as liquidaions, conversions, delisings, bankrupcies, mergers or akeovers involving index componens. In hese cases, each even will be aken ino accoun on s effecive dae. Whenever possible, he changes in he index s componens will be announced a leas wo business days prior o heir implemenaion dae. ii) iii) iv) Changes of Eligible Securies. In he even ha a componen no longer mees he eligibily requiremens described in Secion IV herein, will be removed from he index on he effecive dae of he nex rebalancing. Changes of Secor Classificaion. Socks are eligible for inclusion in he TRSNESGIs based on heir inclusion in an applicable secor. Mergers, akeovers, and spin-offs, may cause a sock o lose s eligibily. In such a circumsance, he sock will be deleed from he index on he effecive dae of he nex rebalancing. A sock s classificaion may also require an immediae change as he resul of a special even such as a merger, akeover or spin-off. Mergers. If wo index consuens merge, he replaced posion will be allocaed proporionally o surviving consuens. If an index consuen merges wh a noncomponen sock, s componen posion will be replaced by he new sock, provided he new sock mees he eligibily creria for he S-Nework SNDMI Universe. If he combined sock fails o mee he eligibily creria for he universe, will be deleed from he index unless oherwise deermined by he Index Commee. If deleed, he weigh of he merged index consuen shall be redisribued proporionaely o he remaining consuens in he index. v) Takeovers. If an index componen is aken over by anoher componen sock, he former will be removed from he index immediaely upon compleion of he akeover. If an index componen is aken over by a non-componen sock, will be replaced by he acquiring sock immediaely, if he acquiring sock mees he eligibily creria for he universe. If he acquiring sock does no mee he eligibily creria for he universe, he weigh of he removed sock will be reallocaed proporionaely o he remaining consuens in he index. vi) vii) viii) Conversions: If an index componen is convered o a non-eligible financial secury, will be deleed from he index 5 business days following he effecive dae of he conversion and he weigh of he removed sock will be reallocaed proporionaely o he remaining consuens in he index, unless oherwise deermined by he Index Commee. Share Offerings, Tenders and Purchases. All Share Offerings, Tenders and Purchases ha resul in an increase or decrease of shares will be implemened a he quarerly reconsuion. Removal of Sock from he universe. If a curren componen of he TRSNESGI is removed from he universe will also be deleed from TRSNESGI. The weigh of he 10

11 removed sock will be reallocaed proporionaely o he remaining consuens of he index. ix) Removal of Socks Due o Delising, Bankrupcy or Exreme Financial Disress. If an index consuen is de-lised by s primary marke, or is in bankrupcy proceedings, will be removed from he index. * If an index componen is de-lised by s primary marke due o failure o mee financial or regulaory requiremens, will be removed from he index and s weigh will be reallocaed o he remaining consuens in he index. * If an index componen eners bankrupcy proceedings, will be removed from he index and will remain ineligible for re-inclusion unil has emerged from bankrupcy. However, he Commee may, following a review of he bankrup company and he issues involved in he filing, decide o keep he sock in he index. * The Commee may, a s discreion, remove a sock has deermined o be in exreme financial disress or subjec o regulaory acion from he TRSNESGI, if he Commee deems he removal necessary o proec he inegry of he index and he ineress of invesors in producs linked o he index. x) Pricing of Socks in Exreme Financial Disress for Index Mainenance. * When a sock is suspended from rading due o financial disress and subsequenly de-lised by s primary marke prior o resumpion of rading, he Calculaion Agen will use he bes-available alernae pricing source o deermine he value a which he sock should be removed from he index. * If he sock s primary marke price is no longer available due o s suspension or de-lising, a curren price from anoher exchange, such as a regional or elecronic markeplace, may be used. In he absence of hose prices in he case of U.S. securies, OTC Bullein Board, OTC Equy (non-otcbb socks), and Pink Shee raded prices could be applied in ha order. * If neher a raded price nor a bid/asked range is available, he Commee will evaluae he saus of he suspended sock. The Commee may consul wh managers of porfolios linked o indices in which he sock is a consuen in deermining he value of he sock. If he Commee concludes ha he secury has become worhless or is likely o remain oo illiquid o be raded, will be removed from he index a.01 local currency of he sock. XVI. Calculaion and Adjusmens i) Inpu Daa Sources * Real-ime sock prices are provided by Reuers. The laes rading price is used for index calculaion. * The number of shares is deermined separaely for each class of sock. This informaion is obained from regulaory filings and a variey of daa vendors. The daa also may be sourced from he consuen socks hemselves. 11

12 * Corporae acions are sourced from public news services, regulaory filings and daa vendors. The consuen socks hemselves may be used as an addional source. ii) Index Formula. The TRSNESGIs are calculaed using a Laspeyres formula. This formula is used for he calculaion of he reurn index and he price index. The only difference is ha he divisor D is differen for he wo indices (reurn index and price index). The index is compued as follows: Index C n i1 p n i1 x q p q i0 r f i0 rio f io Base Index Value M B Base Index Value The above menioned formula can be simplified as: Where: D n p i0 B = = divisor a ime () base index value q i0 = = he number of socks in he index = he closing price of sock i a he base dae he number of shares of sock i a he base dae r io = he exchange rae from local currency o USD a he base dae f io = he floa facor of company i a he base dae p q = he price of sock i a ime () = he number of shares of sock i a ime () r = he exchange rae from local currency o USD a ime () f = he floa facor of company i a ime () C M B = he adjusmen facor for he base dae marke capalizaion = he ime he index is compued Index M D = marke capalizaion of he index a ime () = adjused base dae marke capalizaion of he index a ime () Dividend paymens are no aken ino accoun in he price indices, whereas dividend paymens are reinvesed in he index consuens of he oal reurn index on a proporional basis. The adjusmen proecs he indices from he effecs of changes in index composion and he impac of corporae acions. 12

13 iii) iv) Divisor Adjusmens. Corporae acions affec he share capal of componen socks and herefore rigger increases or decreases in he index. To avoid disorion, he divisor of he index is adjused accordingly. Changes in he index s marke capalizaion due o changes in he composion (addions, deleions or replacemens), weighing (following quarerly reviews, corporae acions (mergers, or special cash or sock disribuions of oher socks) resul in a divisor change o mainain he index s coninuy. By adjusing he divisor, he index value reains s coninuy before and afer he even. For righs offerings, he Calculaion Agen will price he righs during he subscripion period, no before or afer. Alernaively, he Calculaion Agen may sar pricing he righs afer he exdae and before he subscripion period, under he condion ha he righs are priced daily. * Formulae for Divisor Adjusmen. The following formulae will be used for divisor adjusmens. (Noe: No divisor adjusmens are necessary for sock spls, since marke capalizaion does no change and he share number and share price are adjused prior o he opening of rading on he spl's ex-dae.) Where: D +1 D D 1 p q r f D = divisor a ime () = divisor a ime (+1) r p x q = sock price of sock i a ime () f r p x q MC f = number of shares of sock i a ime () = he exchange rae from local currency o USD a ime () = he floa facor of company i a ime () +1 MC +1 = add new componens marke capalizaion and adjused marke capalizaion (calculaed wh adjused closing prices and shares effecive a ime +1 and/or minus marke capalizaion of socks o be deleed (calculaed wh closing prices and shares a ime ) Noe: If he curren rading price of an issue is unavailable, he previous rading session s closing price is used. However, if he issue is affeced by any corporae acion ha requires an adjusmen, hen he adjused price is used. * Adjusmens for Corporae Acions. An index divisor may decrease ( ) or increase ( ) or keep consan ( ) when corporae acions occur for a componen sock. Assuming shareholders receive B new shares for every A share held for he following corporae acions: A) CASH DIVIDEND (applied for reurn index only) adjused price = closing price - dividend announced by he sock 13

14 B) SPECIAL CASH DIVIDEND (applied for price and reurn index) adjused price = closing price - dividend announced by he sock C) SPLIT AND REVERSE SPLIT adjused price = closing price * A / B new number of shares = old number of shares * B / A D) RIGHTS OFFERING adjused price = (closing price * A + subscripion price * B) / (A + B) new number of shares = old number of shares * (A + B) / A E) STOCK DIVIDEND adjused price = closing price * A / (A + B) new number of shares = old number of shares * (A + B) / A F) STOCK DIVIDEND OF A DIFFERENT STOCK SECURITY adjused price =(closing price * A - price of he differen sock secury * B)/A G) COMBINATION STOCK DISTRIBUTION (DIVIDEND OR SPLIT) AND RIGHTS OFFERING Shareholders receive B new shares from he disribuion and C new shares from he righs offering for every A shares held: * If righs are applicable afer sock disribuion (one acion applicable o oher). adjused price = [closing price * A + subscripion price * C * (1 + B / A)] / [ (A + B) * (1 + C / A) ] new number of shares = old number of shares * [(A + B) * (1 + C / A)] / A * If sock disribuion is applicable afer righs (one acion applicable o oher). adjused price = [closing price * A + subscripion price * C] / [(A + C) * (1 + B / A)] new number of shares = old number of shares * [ ( A + C ) * ( 1 + B / A) ] H) STOCK DISTRIBUTION AND RIGHTS (NEITHER ACTION IS APPLICABLE TO THE OTHER) adjused price = [closing price * A + subscripion price * C] / [A + B + C] new number of shares = old number of shares * [A + B + C] v) Compuaional Precision. Index values are rounded o wo decimal places and divisors are rounded o inegers. Any values derived by he index calculaion engine from a corporae acion used for he divisor adjusmens and index compuaions are rounded o seven decimal places. XVII. Daa Correcion Policy To mainain a high sandard of daa inegry, a series of procedures have been implemened o ensure accuracy, imeliness and consisency. Inpu prices are monored using a variey of compuerized range-check warning sysems for boh icker-plan and real-ime index sysems. Faul oleran mehods are employed in he collecion of marke and corporae acion daa. Various verificaion and aud asks are performed o ensure he qualy of he real-ime daa feeds and relaed marke daa. While every effor is aken o ensure he accuracy of he informaion used for he index calculaion, an index error may occur due o incorrec or missing 14

15 daa, including rading prices, exchange raes, shares ousanding and corporae acions, due o operaional errors or oher reasons. i) Inraday Correcions. Reasonable effors are employed o preven erroneous daa from affecing he indices. Correcions will be made for bad prices and incorrec or missing corporae acions as soon as possible afer deecion. ii) iii) iv) Since he indices are calculaed on a real-ime basis, an incorrec index value ick will no be fixed reroacively. Incorrec daily high/low index values will be correced as soon as pracicable. Index-Relaed Daa and Divisor Correcions. Incorrec pricing and corporae acion daa for individual issues in he daabase will be correced upon deecion. In addion, an incorrec divisor of an index, if discovered whin five days of s occurrence, will always be fixed on he day is discovered o pre-ven an error from being carried forward. If a divisor error is discovered more han five days afer occurrence, he adjusmen will depend upon how significan he error is, how far back he error occurred and he feasibily of performing he adjusmen. XVIII. APPENDIX REVIEW SCHEDULE Consuen Changes Frequency: Annually Effecive dae: The hird Friday of December Advance noice: Approximaely 2 weeks Quarerly Rebalance Frequency: Quarerly Effecive dae: The close of rading on he 3rd Friday of ha monh Advance noice: A leas 1 week News Noificaion* Frequency: As needed Effecive dae: As announced Advance noice: A leas wo business days whenever possible * Includes evens such as de-lisings, mergers, bankrupcies and oher exraordinary evens. * Based on available news. 15