ISE High Income Index Methodology

Transcription

1 ISE Hgh Income Index Methodology Index Descrpton The ISE Hgh Income Index s desgned to track the returns and ncome of the top 30 U.S lsted Closed-End Funds. Index Calculaton The ISE Hgh Income Index s a modfed lnear weghted ndex. The value of the Index equals the aggregate value of the Index share weghts, also known as the Index Shares, of each of the Index Securtes multpled by each such securty s Last Sale Prce 1, and dvded by the dvsor of the Index. The dvsor serves the purpose of scalng such aggregate value to a lower order of magntude whch s more desrable for Index reportng purposes. If tradng n an Index Securty s halted on ts prmary lstng market, the most recent Last Sale Prce for that securty s used for all ndex computatons untl tradng on such market resumes. Lkewse, the most recent Last Sale Prce s used f tradng n a securty s halted on ts prmary lstng market before the market s open. The Index began on December 31, 2003 wth a base value of The formula for ndex value s as follows: Aggregate Adjusted Market Value/Dvsor The formula for the dvsor s as follows: (Market Value after Adjustments/Market Value before Adjustments) X Dvsor before Adjustments Three versons of the Index are calculated: The prce return ndex (Nasdaq: YLDA) s ordnarly calculated wthout regard to cash dvdends on Index Securtes. The total return Index (Nasdaq: YLDATR) renvests cash dvdends on the ex-date. The net total return ndex (Nasdaq: YLDANTR) renvests cash dvdends on the exdate and adjusts for an Index Securty s country of ncorporaton wthholdng rate. The net total return ndex began on February 6, 2017 at a base value of 150. The Indexes are calculated and dssemnated once per second from 9:30:01 to 17:16:00 Eastern Tme (ET) n USD. The closng value of the Indexes may change up untl 17:15:00 ET due to correctons to the Last Sale Prce of the Index Securtes. 1 For purposes of ths document, Last Sale Prce refers to the last regular way trade reported on such securty s Index Market. The Index Market s the lstng market for whch prces are receved and used by Nasdaq n the Index calculaton and generally wll represent the most lqud tradng market of the Index Securty. If a securty does not trade on ts Index Market on a gven day or the Index Market has not opened for tradng, the most recent last sale prce from the Index Market (adjusted for corporate actons, f any) s used. For securtes where Nasdaq s the Index Market, the Last Sale Prce may be the Nasdaq Offcal Closng Prce (NOCP) when Nasdaq s closed. 1

2 Elgblty Index elgblty s lmted to specfc securty types only. It must be a closed-end fund and not an operatng company, exchange-traded fund (ETF), holdng company, commodty pool, or Real Estate Investment Trust (REIT). Elgblty Crtera To be elgble for ncluson n the Index, a securty must meet the followng crtera: be lsted on The Nasdaq Stock Market (Nasdaq ), the New York Stock Exchange or NYSE MKT a mnmum market captalzaton of $500 mllon; and a daly sx month average traded value of at least $1 mllon. Stock Selecton Securtes meetng the crtera are then evaluated as followed: 1. Rank each fund by the followng crtera:. Fund yeld (descendng). Fund share prce Premum / Dscount to Net Asset Value (ascendng). Fund Average Daly Value (ADV) of shares traded (descendng) 2. Calculate an overall rank for each fund usng the followng calculaton: R ( R 0.50) + ( R 0.25) + ( R 0.25) Yld PD ADV R Rank of each component R Yld Rank of Fund Yeld R PD Rank of Fund Premum / Dscount R ADV Rank of Fund Average Daly Value of Shares Traded 3. Sort all funds (ascendng) on overall rank and select the top 30 names. 4. Adjust each component s weghtng to a multple of the weghtng of the smallest component usng the followng equaton: W CR ( n + 1) ( CR ) 1 W Weght of each component CR Component rank n Number of components 5. If component weght s greater than 4.25% then that weght s adjusted to be no more than 4.25%. 6. Set lqudty s: 2

3 a. Calculate sx month average daly value traded (n USD) for each component based on daly closng prce and number of shares traded b. Set percentage of sx month average daly value traded to 100% c. Set nvestment to $10 mllon 7. Determne component percentage of average daly value traded gven the nvestment and the calculated weght of the component usng the followng equaton: ADV % W $10,000,000 ADV $ W Weght of each component ADV % Percentage of sx month average daly value traded for component ADV $ Sx month average daly dollar value traded for component 8. If component percentage of average daly value traded s less than the percentage average daly value traded then that weght does not need to be adjusted. 9. If component percentage of average daly value traded s greater than the percentage average daly value traded then assgn new component weght such that percentage of average daly value traded s equal to the percentage average daly value traded usng the followng steps: a. Calculate component weght based on the nvestment and sx month average daly value traded usng the follow equaton: ADV$ W ' $10,000,000 W I Modfed weght of each component ADV $ Sx month average daly dollar value traded for component b. Take the aggregate dfference between the ntal and adjusted weghts of those components where percentage of average daly value traded s greater than percentage average daly value traded and dstrbute evenly among stocks where percentage of average daly value traded s less than percentage average daly value traded usng the followng equatons: W adj 1 ( W W ' ) n' 3

4 W Intal weght of each component wth percentage of average daly value traded s greater than percentage average daly value traded W Modfed weght of each component percentage of average daly value traded s greater than percentage average daly value traded W adj Adjustment for ndex weght of component where the percentage of sx month average daly value traded s less than the sx month average daly value traded n Number of components wth percentage of sx month average daly value traded less than the sx month average daly value traded c. Adjust weght of components wth percentage of sx month average daly value traded less than the sx month average daly value traded usng the followng equaton: W '' W + W adj W Weght of each component wth percentage of sx month average daly value traded less than the sx month average daly value traded W Modfed weght of each component wth percentage of sx month average daly value traded less than the sx month average daly value traded W adj Adjustment for ndex weght of component where the percentage of sx month average daly value traded s less than the sx month average daly value traded d. If a component s weght s ncreased from below 4.25% to 4.25% or greater, then that components weght shall be set at 4.25% 10. Repeat steps 8 through 11 untl all component percentage of average daly value traded s less than or equal to the percentage average daly value traded Note that whle the Index seeks to have thrty (30) components that number should be consdered a maxmum lmt and not a fxed target. No sngle component stock represents more than 24% of the weght of the ndex, and the cumulatve weght of all components wth an ndvdual weght of 5% or greater do not n the aggregate account for more than 50% of the weght of the ndex. Ths partcular requrement wll be satsfed at the concluson of the Index annual rebalance perod. 4

5 Index Evaluaton The Index s evaluated n December. The ndex follows a rollng rebalance schedule n whch one thrd of securty changes are appled at the close of tradng on every frst, second and thrd tradng days n January of the subsequent year and the change becomes operatonal at the openng on the second, thrd and fourth tradng day of the new year, n that order. Addtonally, f at any tme durng the year other than the Evaluaton, an Index Securty s determned to have become nelgble for contnued ncluson n the Index due to bankruptcy, delstng, or a defntve agreement that would lkely result n the securty no longer beng Index elgble, the securty s removed from the Index and s not replaced. In the case of mergers and acqustons, the Index Securty may be removed the day followng the shareholder vote or the expected expraton of the tender offer, provded the acquston s not contested. In the event the acquston s contested then the deleton wll occur as soon as reasonably practcable, once results have been receved that ndcate the acquston wll lkely be successful. Ordnarly, a securty wll be removed from the Index at ts Last Sale Prce. If, however, at the tme of ts removal the Index Securty s halted from tradng on ts prmary lstng market and an offcal closng prce cannot readly be determned, the Index Securty may, n Nasdaq s dscreton, be removed at a zero prce. The zero prce wll be appled to the Index Securty after the close of the market but pror to the tme the offcal closng value of the Index s dssemnated, whch s ordnarly 17:16:00 ET. Index Mantenance Index Share changes are not made durng the quarter however changes arsng from stock dvdends and stock splts are made to the Index on the evenng pror to the effectve date of such corporate acton. In the case of certan spn-offs or rghts ssuances, the prce of the Index Securty s adjusted and a correspondng adjustment s made to the Index Shares such that the weght of the Index Securty does not change as a result of the acton. Addtonally, for a spn-off event, f there s a no when-ssued tradng avalable for the spnco securty, the spn-co securty may be added to the ndex at a zero value. In ths case, the spn-co securty wll be removed from the Index after two full days of tradng. A specal cash dvdend announced by the lstng exchange, wll result n an adjustment to the Last Sale Prce for the specal amount dstrbuted and a correspondng adjustment to the Index Shares of an Index Securty pror to market open on the ex-date such that the weght of the Index Securty wll not change as a result of the acton. A specal dvdend may also be referred to as extra, extraordnary, non-recurrng, one-tme, unusual, etc. Whenever there s a change n an Index Securty as noted above, the dvsor s adjusted to ensure that there s no dscontnuty n the value of the Index whch mght otherwse be caused by any such change. All changes are announced n advance and are reflected n the Index pror to market open on the Index effectve date. Unscheduled component weght adjustments may occur between revew perods f any component accounts for more than 24% of the ndex weght. The market captalzaton of any component representng more than 24% of the ndex weght wll be adjusted such that ts new weght s no more than 20%. Even though the weghtng lmt s 30% for a sngle component, all components accountng for over 24% of the ndex market value are adjusted to 20% to avod future unscheduled rebalancng events. 5

6 Nasdaq may, from tme to tme, exercse reasonable dscreton as t deems approprate n order to ensure Index ntegrty. February