INDEX DESCRIPTION Commerzbank Global Equty Rsk Prema 15% Rsk Control Excess Return Index The Commerzbank Global Equty Rsk Prema 15% Rsk Control Excess Return Index descrbed below s a vrtual rules-based ndex. There s no oblgaton of the Index Sponsor or the Index Calculaton Agent to actually nvest n the Equty Indces. The Commerzbank Global Equty Rsk Prema 15% Rsk Control Excess Return Index s not a recognsed fnancal ndex, but rather a customsed ndex composed and calculated for the purpose of servng as underlyng for fnancal products ssued by Commerzbank Aktengesellschaft (the "Issuer"). Commerzbank Aktengesellschaft or any of ts afflates may enter nto transactons or purchase assets n order to hedge the rsk of enterng nto and performng ts oblgatons wth respect to the securtes lnked to the Index (the "Hedgng Transactons"). These Hedgng Transactons wll depend on the number of such fnancal products held by nvestors. An ncrease n the level of the Commerzbank Global Equty Rsk Prema 15% Rsk Control Excess Return Index cannot be guaranteed. The Index Calculaton Agent s not responsble for the performance of the Index. The tasks of the Index Calculaton Agent are lmted to the calculaton and publcaton of the Index. 1. Index Objectves The Commerzbank Global Equty Rsk Prema 15%RC ER Index (the "Index") ams to gve the nvestor exposure to European and U.S. stock markets by takng a notonal long poston n an equally weghted basket of eght (8) rsk prema factor-ndces (the "MSCI Factor Index/Indces" see detals n Secton 2), each of whch s calculated and publshed by MSCI Inc. (the "Factor Index Provder"). For clarty, the notonal long poston benefts from an ncrease n the level of the underlyng MSCI Factor Indces and suffers negatvely from a decrease n the level of the underlyng MSCI Factor Indces. The Index s denomnated n USD. The Index s subject to the daly accrued Index Fees and Adjustment Factor (further detals n Secton 3 and Secton 5). The applcaton of both Index Fees and Adjustment Factor reduces the performance of the Index. Investment Ratonale The MSCI Factor Indces am to delver long-term outperformance, over and above the MSCI Europe Index and the MSCI US Index ( the Benchmark Index/Indces ), by explotng market behavoural effects such as valuaton bases (value and low volatlty), herdng tendences (momentum) and survvorshp bas (qualty). The MSCI Factor Indces are net total return ndces, meanng that dvdends pad on any of the shares n the ndex are renvested back nto the ndex, accordng to the rules set by the Factor Index Provder. Index Calculaton Methodology Overvew The Index s calculated as the multplcaton of () () a dynamc partcpaton factor (the "P-Factor"), and the daly performance of the sub-ndex (the "Core Index"). P-Factor The P-Factor s adjusted wth respect to each Index Calculaton Date dependng on the realsed volatlty of the Core Index and a fxed rsk control level of 15%. The result of the rsk control level s that whenever the realsed volatlty s below the rsk control level the P-Factor s at or above 100% and capped at 150% and when the realsed volatlty s above the rsk control level the P-Factor falls below 100% accordng to the formula as set out under "P-Factor Calculaton" n Secton 3 below. Core Index The Core Index s composed of the basket of 8 fx-hedged strateges (each a FX-Hedged Strategy ). The basket of 8 FX-Hedged Strateges s weghted equally on a daly bass (see Secton 3 FX-Hedged Strategy Calculaton for further detals). Page 1
FX-Hedged Strategy Each FX-Hedged Strategy s determned by applcaton of a EUR/USD exchange rate hedgng mechansm (where applcable) on the correspondng excess return strategy ( Excess Return Strategy ). Excess Return Strategy Each Excess Return Strategy s determned as the outperformance of themsci Factor Index aganst the correspondng Money Market Rate (see Secton 2, MSCI Factor Index/Indces ). The Index s calculated n accordance wth Secton 3 Index Calculaton and publshed n accordance wth Secton 4 Index Publcaton by the Index Calculaton Agent. 2. Index Defntons For the purposes of ths Index Descrpton, the followng defntons shall apply: "Bankng Day" means any calendar day (other than a Saturday or Sunday) on whch the London Stock Exchange, New York Stock Exchange and the Frankfurt Stock Exchange are all open for tradng. "Benchmark Indces" means the followng ndces, as sponsored, mantaned and publshed by the Factor Index Provder. Index Bloomberg Tcker Currency MSCI Europe Net Total Return Index MSDEE15N Index EUR MSCI US Net Total Return Index NDDUUS Index USD "Closng Level" means, wth respect to an Equty Index, the closng prce of the respectve Equty Index as publshed by the Data Vendor on each Index Calculaton Date. "Core Index Commencement Date" means 02 nd January 2002. "Consttuent(s)/ Index Consttuent(s)" means the Equty Index/Indces. "Data Vendor" means Bloomberg. "Equty Index/Indces" means the MSCI Factor Index/Indces. "Equty Index Sponsor" means MSCI Inc. Eurbor 3 Month ACT / 360 means the 3-month Eurbor rate for Euros as publshed by the European Bankng Federaton on Bloomberg page "EUR003M Index" (or any successor page of the aforementoned agency or a screen page of another agency whch dsplays that rate) (the "Screen Page") at 11am Brussels tme "EURUSD" means the exchange rate for EUR 1 n USD expressed n USD based on the md BBG NY close fxng for the relevant date as publshed on Bloomberg page EURUSD F170 Curncy at or around 5 pm New York tme. LIBOR USD 3 Month means the 3-months Lbor rate for USD as publshed on Bloomberg page "US0003M Index" (or any successor page of the aforementoned agency or a screen page of another agency whch dsplays that rate) (the "Screen Page") at or around 11:00 a.m. (London tme) on that day. "Index Calculaton Agent" and "Index Sponsor" means Commerzbank Aktengesellschaft. "Index Calculaton Date" means any Bankng Day on whch all MSCI Factor Indces and the Benchmark Indces are publshed by the Factor Index Provder "Index Commencement Date" means 31 st January 2002. "Index Currency" means USD. Page 2
"Index Launch Date" means 27 February 2017 "Index Level" means the prce of the Index as calculated by the Index Calculaton Agent n accordance wth Secton 3 Index Calculaton, and publshed n accordance wth Secton 4 Index Publcaton. "MSCI Factor Index/Indces" means the followng ndces, as sponsored, mantaned and publshed by the Factor Index Provder. Factor ID MSCI Factor Index Bloomberg Tcker Currency Money Market Rate 1 MSCI Europe Sector Neutral Qualty Net Total Return Index 2 MSCI Europe Mnmum Volatlty Net Total Return Index 3 MSCI Europe Momentum Net Total Return Index 4 MSCI Europe Enhanced Value Net Total Return Index 5 MSCI USA Qualty Net Total Return Index 6 MSCI USA Mnmum Volatlty Net Total Return Index 7 MSCI USA Momentum Net Total Return Index 8 MSCI USA Enhanced Value Net Total Return Index M7ESNQ Index EUR Eurbor 3 Month ACT / 360 MAEUVOE Index EUR Eurbor 3 Month ACT / 360 MAEUMMT Index EUR Eurbor 3 Month ACT / 360 M7EUEV Index EUR Eurbor 3 Month ACT / 360 M1USQU Index USD LIBOR USD 3 Month M1USMVOL Index USD LIBOR USD 3 Month M1US000$ Index USD LIBOR USD 3 Month M1USEV Index USD LIBOR USD 3 Month 3. Index Calculaton Intal Index Calculaton The Index was ntally calculated on the Index Commencement Date. The ntal Index level (the "Intal Index Level") on the Index Commencement Date s 100 ndex ponts, one ndex pont correspondng to USD 1.00. Daly Index Calculaton On each Index Calculaton Date followng the Index Launch Date, the Index Calculaton Agent wll calculate the Index Level once. The Index Level wll be publshed by the Index Calculaton Agent n accordance wth Secton 4 Index Publcaton. Calculatons wll be made on the bass of the followng formula: Index (t) Core(t) dc Index(t 1) 1 PF(t 1) x 1 ( IF AF) Core(t 1) 365 Index (t) Means the Index Level on the Index Calculaton Date (t) Index(t 1) Means the Index Level on the Index Calculaton Date mmedately precedng (t) PF (t 1) Means the P-Factor on Index Calculaton Date mmedately precedng (t) ( see below sub-secton ttled "P-Factor Calculaton") (t) Core Means the level of Core Index on the Index Calculaton Date (t) ( see below subsecton ttled "Core Index Calculaton") Page 3
Core(t 1) Means the level of Core Index on the Index Calculaton Date mmedately precedng (t) ( see below sub-secton ttled "Core Index Calculaton") IF Means the ndex fees (the Index Fees ), equal to 1% (see Secton 5) dc Means the number of calendar days between Index Calculaton Date (t) (ncluded) and Index Calculaton Date (t-1) (not ncluded) AF Means the adjustment factor (the Adjustment Factor ), equal to 2.5% (see Secton 5) P-Factor Calculaton The P-Factor s adjusted wth respect to each Index Calculaton Date dependng on the realsed volatlty of the Core Index and a fxed rsk control level of 15%. The result of the rsk control level s that whenever the realsed volatlty s below the rsk control level the P-Factor s at or above 100% and capped at 150% and when the realsed volatlty s above the rsk control level the P-Factor falls below 100%. RC PF(t) Mn( 1. 5;Max( 0; ) RV(t 1) PF(t) Means the P-Factor on Index Calculaton Date (t) RC Means a fxed rsk control level, equal to 15% RV(t 1) Means the realsed volatlty of the Core Index on Index Calculaton Date mmedately precedng (t), calculated as per the below formula : RV(t 1) RV(t 2) 252 20 2 20 j1 Core(t j) ln Core(t j 1) f t 0 Core(t 1) 252(1 ) ln Core(t 2) 2 2 f t 0 Means 0.93 t=0 Means the Index Commencement Date RV(t 2) Means the realsed volatlty of the Core Index on the Index Calculaton Date mmedately precedng (t-1) Core(t k) Means the level of the Core Index on (k) Index Calculaton Dates mmedately precedng (t), where k refers to j, (j-1), 1 or 2 n the above formula ( see below subsecton ttled "Core Index Calculaton") Core Index Calculaton The Core Index s calculated on each Index Calculaton Date startng from the Core Index Commencement Date. The Core Index s composed of a basket of 8 FX Hedged Strateges. The weght allocated to each FX Hedged Strategy s fxed and rebalanced on each Index Calculaton Date. Page 4
Core (t) Core t 8 1 1 PW 1 FI 1 1 (t ) FI (t) Core(t) Core(t-1) Core(0) Means the level of the Core Index on Index Calculaton Date (t) Means the level of the Core Index on Index Calculaton Date mmedately precedng (t) Means the level of the Core Index on the Core Index Commencement Date, equal to USD 100 PW Means the percentage weght of th F hedged Strategy, equal to 0.125 (=1/8) FI (t) Means the level of th ( equals1 to 8) FX Hedged Strategy on Index Calculaton Date (t), calculated accordng to the formulae below FI (t 1) Means the level of th ( equals1 to 8) FX Hedged Strategy on Index Calculaton Date mmedately precedng (t), calculated accordng to the formulae below FX Hedged Strategy Calculaton Each FX-Hedged Strategy s calculated on every Index Calculaton Date startng from the Core Index Commencement Date based on the formulae below. For = 1 to 4 (EUR denomnated) FI (t) FI ECL (t) t 1 1 1 ECL (t 1) FX(t 1) FX(t) FI (t) Means the level of th ( equals1 to 4) FX Hedged Strategy on Index Calculaton Date (t) FI (t 1) Means the level of th ( equals1 to 4) FX Hedged Strategy on Index Calculaton Date mmedately precedng (t) FI ( 0 ) Means the level of the th ( equals 1 to 4) FX Hedged Strategy on the Core Index Commencement Date, equal to USD 100. ECL (t) Means the level of the th ( equals1 to 4) Excess Return Strategy on Index Calculaton Date (t), calculated accordng to the formulae below ECL (t 1) Means the level of the th ( equals1 to 4) Excess Return Strategy on Index Calculaton Date mmedately precedng (t), calculated accordng to the formulae below FX (t) Means the level of EURUSD on Index Calculaton Date (t) FX(t 1) Means the level of EURUSD on Index Calculaton Date mmedately precedng (t) For = 5 to 8 (USD denomnated) FI (t) ECL (t) FI (t) Means the level of th ( equals 5 to 8) FX Hedged Strategy on Index Calculaton Date (t) Page 5
ECL (t) Means the level of the th ( equals 5 to 8) Excess Return Strategy on Index Calculaton Date (t), calculated accordng to the formulae below Excess Return Strategy Calculaton Each Excess Return Strategy s calculated on every Index Calculaton Date startng from the Core Index Commencement Date based on the formulae below. For =1 to 8: ECL (t) ECL CL (t) dc t 1 1 1 3M (t 1) CL (t 1) 360 ECL (t) Means the level of the th ( equals1 to 8) Excess Return Strategy on Index Calculaton Date (t) ECL (t 1) Means the level of the th ( equals1 to 8) Excess Return Strategy on Index Calculaton Date mmedately precedng (t) 0 ECL Means the level of the th ( equals 1 to 8) Excess Return Strategy on the Core Index Commencement Date, equal to USD 100 CL (t) Means the Closng Level of th ( equals1 to 8) MSCI Factor Index on Index Calculaton Date (t) CL(t 1) Means the Closng Level of th ( equals1 to 8) MSCI Factor Index on Index Calculaton Date mmedately precedng (t) 3M (t 1) Means the Money Market Rate correspondng to the th ( equals 1 to 8) MSCI Factor Index on the Index Calculaton Date mmedately precedng (t); as descrbed n Secton 2 dc Means the number of calendar days between Index Calculaton Date (t) (ncluded) and Index Calculaton Date (t-1) (not ncluded) 4. Index Publcaton The Index Calculaton Agent wll publsh the Index Level on Bloomberg page CBKIRPGL Index for all Index Calculaton Dates on the Index Calculaton Date followng the day on whch the respectve Index Level becomes avalable. The composton of the Core Index wll be avalable from the Index Calculaton Agent upon request to nvestors n fnancal products that are lnked to the Index. 5. Index Fees (and Adjustment Factor) The Index Calculaton Agent wll deduct the Index Fee n connecton wth ts servces and n accordance wth Secton 3 above. For clarty, the daly Index Fee wll be calculated as the product of () 1.00% per annum (on the bass of a year comprsng 365 days),.e., 0.00274% and () the relevant level of the Index. In the same way, there s an Adjustment Factor deducted from the Index. For clarty, the daly Adjustment Factor wll be calculated as the product of () 2.5% per annum (on the bass of a year comprsng 365 days),.e., 0.00685% and () the relevant level of the Index. 6. Addtonal Provsons relatng to the Index Suspenson of the Calculaton of the Index The Index Calculaton Agent wll suspend the calculaton of the Index f on a Bankng Day the Closng Level of one or more Equty Indces ncluded n the Core Index s/are not determned (the "Suspenson of the Calculaton of the Index"). The occurrence of such suspenson shall be publshed by the Index Calculaton Agent n accordance wth Secton 4 of ths Index Descrpton. Extraordnary Index Adjustments Page 6
Upon the occurrence of an Equty Index Extraordnary Event n relaton to one or several Equty Indces ncluded n the Core Index whch has a materal effect on the relevant Equty Index or the level of the Equty Index, the Index Sponsor shall make any such adjustments to the Index as are necessary to account for the economc effect of the Equty Index Extraordnary Event on the Index and to preserve, to the extent possble, the economc profle of the Index pror to the occurrence of the Equty Index Extraordnary Event n accordance wth the followng provsons (each an "Equty Index Adjustment"). The Index Sponsor shall decde n ts reasonable dscreton (bllges Ermessen, 315 German Cvl Code (BGB)) whether an Equty Index Extraordnary Event has occurred and whether such Equty Index Extraordnary Event has a materal effect on the relevant Equty Index. An Equty Index Adjustment may result n () the relevant Equty Index beng replaced by another ndex (a "Equty Index Replacement") whch s economcally comparable to the relevant Equty Index and/or () ncreases or decreases of specfed varables and values n the calculaton of the Index takng nto account a. the effect of the Equty Index Extraordnary Event on the level of the respectve Equty Index; b. the dlutng or concentratve effect of an Equty Index Extraordnary Event on the theoretcal value of the relevant Equty Index; or c. any cash compensaton or other compensaton n connecton wth a Equty Index Replacement; and/or () consequental amendments to the Equty Index related provsons of the terms of the Index that are requred to fully reflect the consequences of the Equty Index Replacement. (a) Equty Index Adjustments shall correspond to the adjustments to opton or futures contracts relatng to the relevant Equty Index made by the relevant Futures Exchange (a "Equty Index Futures Exchange Adjustment"). () The Index Sponsor shall not be requred to make adjustments to the Index by reference to Equty Index Futures Exchange Adjustments, n cases where (aa) the Equty Index Futures Exchange Adjustments would result n economcally rrelevant adjustments to the Index; the Index Sponsor shall decde n ts reasonable dscreton (bllges Ermessen) ( 315 German Cvl Code (BGB)) whether ths s the case; (bb) the Equty Index Futures Exchange Adjustments volate the prncples of good fath or would result n adjustments of the Index contrary to the prncple to preserve the economc profle of the Index pror to the occurrence the Equty Index Extraordnary Event and to compensate for the economc effect thereof on the level of the relevant Equty Index; the Index Sponsor shall decde n ts reasonable dscreton (bllges Ermessen) ( 315 German Cvl Code (BGB)) whether ths s the case; or (cc) n cases where no Equty Index Futures Exchange Adjustment occurs but where such Equty Index Futures Exchange Adjustment would be requred pursuant to the adjustment rules of the Futures Exchange; n such case, the Index Sponsor shall decde n ts reasonable dscreton (bllges Ermessen) ( 315 German Cvl Code (BGB)) whether ths s the case and shall make Equty Index Adjustments n accordance wth the adjustment rules of the Futures Exchange. () In the event of any doubts regardng the applcaton of the Equty Index Futures Exchange Adjustment or adjustment rules of the Futures Exchange or where no Futures Exchange exsts, the Index Sponsor shall make such adjustments to the Index whch are requred n ts reasonable dscreton (bllges Ermessen) ( 315 German Cvl Code (BGB)) to preserve the economc profle of the Index pror to the Page 7
occurrence of the Equty Index Extraordnary Event and to compensate for the economc effect thereof on the level of the relevant Equty Index. (b) (c) (d) Any reference made to the Equty Index and/or the Equty Index Sponsor (as defned below) n ths ndex descrpton shall, f the context so admts, then refer to the replacement ndex and/or the ndex sponsor of the replacement ndex. All related defntons shall be deemed to be amended accordngly. Equty Index Adjustments shall take effect as from the date (the "Cut-off Date") determned by the Index Sponsor n ts reasonable dscreton (bllges Ermessen) ( 315 German Cvl Code (BGB)), provded that (f the Index Sponsor takes nto consderaton the manner n whch adjustments are or would be made by the Futures Exchange) the Index Sponsor shall take nto consderaton the date at whch such adjustments take effect or would take effect at the Futures Exchange. Equty Index Adjustments as well as ther Cut-off Date shall be made avalable by the Index Calculaton Agent n accordance wth secton 4 Index Publcaton. "Equty Index Extraordnary Event" wth respect to an Equty Index means: (a) (b) (c) (d) (e) (f) (g) the cancellaton or replacement of the relevant Equty Index or the replacement of the Equty Index Sponsor by another person, company or nsttuton not acceptable to the Index Sponsor and/or the Index Calculaton Agent; the termnaton, mparment, cessaton or dspute of the lcense granted by the Equty Index Sponsor to the Index Sponsor and/or the Index Calculaton Agent and/or any of ther respectve Afflates to use such relevant Equty Index n connecton wth the Index; the adjustment of opton or futures contracts relatng to the relevant Equty Index or contaned n the relevant Equty Index on the relevant Futures Exchange(s) or the announcement of such adjustment; the termnaton of tradng n, or early settlement of, opton or futures contracts relatng to the relevant Equty Index or contaned n the relevant Equty Index on the relevant Futures Exchange(s), or the announcement of such termnaton or early settlement; a change n the currency n one or more components of the relevant Equty Index f such change has a materal effect on the level of the relevant Equty Index. The Index Sponsor shall decde n ts reasonable dscreton (bllges Ermessen, 315 German Cvl Code (BGB)) whether ths s the case; the Equty Index Sponsor () ceases the calculaton of the relevant Equty Index and/or materally or frequently delays the publcaton of the level of the relevant Equty Index or the relevant data for calculatng the level of the relevant Equty Index and the Index Calculaton Agent s not able to calculate the level of the relevant Equty Index wthout the relevant Equty Index Sponsor s nformaton and/or () f the relevant Equty Index Sponsor materally modfes ts terms and condtons for the use of the relevant Equty Index and/or materally ncreases ts fees for the use or calculaton of the relevant Equty Index so that t s no longer economcally reasonable to reference the relevant Equty Index. The Index Sponsor shall decde n ts reasonable dscreton (bllges Ermessen, 315 German Cvl Code (BGB)) whether ths s the case; or any other event beng economcally equvalent to the before-mentoned events wth regard to ther effects. The Index Sponsor shall decde n ts reasonable dscreton (bllges Ermessen, 315 German Cvl Code (BGB)) whether ths s the case. If the relevant Equty Index s no longer calculated and publshed by the Equty Index Sponsor but by another acceptable person, company or nsttuton as the new Equty Index Sponsor (the " Successor Equty Index Sponsor"), the Index wll be determned on the bass of such Equty Index beng calculated and publshed by the Successor Equty Index Sponsor and any reference made to the Equty Index Sponsor n ths ndex descrpton shall, f the context so admts, then refer to the Successor Equty Index Sponsor. The Index Sponsor shall decde n ts reasonable dscreton (bllges Ermessen) ( 315 German Cvl Code (BGB)) whether ths s the case. If an Equty Index Sponsor materally modfes the calculaton method of an Equty Index wth effect on or after the Index Commencement Date, or materally modfes such Equty Index n any other way (except for modfcatons whch are contemplated n the calculaton method of the Equty Index relatng Page 8
to a change wth respect to any ndex components, the market captalsaton or wth respect to any other routne measures, each an "Equty Index Modfcaton"), then the Index Sponsor s enttled to contnue the calculaton and publcaton of such Equty Index on the bass of the former concept of the Equty Index and ts last determned level. The Index Sponsor shall decde n ts reasonable dscreton (bllges Ermessen) ( 315 German Cvl Code (BGB)) whether an Equty Index Modfcaton has occurred. Changes n the Calculaton of the Index The Index Calculaton Agent starts the calculaton of the Index on the Index Commencement Date n complance wth the Index calculaton method and ths Index descrpton. Although the Index Sponsor ntends to apply ths Index Descrpton from the Index Commencement Date, t cannot be ruled out that tax, regulatory, statutory, economc or other crcumstances mght apply that, n the reasonable dscreton ( 315 of the German Cvl Code (BGB)) of the Index Sponsor, wll necesstate changes wth regard to ths Index Descrpton. In that case, the Index Sponsor may n ts reasonable dscreton ( 315 of the German Cvl Code (BGB)) devate from, or perform changes to, ths Index Descrpton. Any devatons from ths Index Descrpton are subject to the provso that the general concept and, thus, the nvestment objectves of the Index n partcular are mantaned. In the event of a change to the calculaton method as detaled n ths Index Descrpton, the Index Calculaton Agent wll publsh the relevant change n accordance wth Secton 4. Correctons If the Index Calculaton Agent dentfes an error or omsson n any of ts calculatons or determnatons n respect of the Index, then the Index Calculaton Agent may, f practcable and f the Index Calculaton Agent determnes actng n good fath that such correcton, error or omsson (as the case may be) s materal, adjust or correct the relevant calculaton or determnaton and/or the Index Level as of any Index Calculaton Date The Index Calculaton Agent shall publsh such correcton n accordance wth Secton 4. Dscontnuaton of the Calculaton of the Index If, n the case of any crcumstances that requre any changes to the Index as descrbed n the secton Changes n the Calculaton of the Index above, or, upon occurrence of an Equty Index Extraordnary Event, an Equty Index Adjustment s not be possble whle retanng the general concept and, thus, the objectves pursued by the Index, the Index Calculaton Agent wll dscontnue the calculaton of the Index (the "Dscontnuaton of the Calculaton of the Index"). The Index Calculaton Agent wll decde n ts reasonable dscreton (bllges Ermessen) ( 315 German Cvl Code (BGB)) whether ths s the case. Index Dsclamer and Condtons of Use The Index Sponsor shall obtan nformaton for ncluson n, or for use n the calculaton of, the Index from sources that the Index Sponsor consders relable. However, the Index Sponsor accepts no responsblty for, and shall have no lablty for any errors, omssons or nterruptons n respect of such sources or the nformaton obtaned therefrom. The Index Sponsor does not guarantee the accuracy and/or the completeness of the Index or any data ncluded theren. The Index Sponsor makes no warranty, express or mpled, as to the results to be obtaned by any person or entty from the use of the Index or any data ncluded theren. The Index Sponsor makes no express or mpled warrantes and expressly dsclams all condtons and warrantes mpled by statute, general law or custom wth respect to the Index or any data ncluded theren. MSCI ndexes (collectvely, the "MSCI Indexes") were provded to the Index Sponsor on an "as s" bass. MSCI Inc. ("MSCI") does not n any way sponsor, support, promote or endorse the Index whch s based on the MSCI Indexes. MSCI was not and s not nvolved n any way n the creaton, calculaton, mantenance or revew of the Index. MSCI s not the benchmark admnstrator for the Index. MSCI Inc., each of ts afflates and each other person nvolved n or related to complng, computng or creatng the MSCI Indexes (collectvely, the "MSCI Partes") expressly dsclam all warrantes (ncludng, wthout lmtaton, any warrantes of orgnalty, accuracy, completeness, tmelness, non-nfrngement, merchantablty and ftness for a partcular purpose). Wthout lmtng any of the foregong, n no event shall any MSCI Party have any lablty for any drect, ndrect, specal, ncdental, puntve, consequental (ncludng, wthout lmtaton, lost profts) or any other damages n connecton wth the MSCI Indexes or the Index. 7. Index Specfc Rsks INDEX DESCRIPTION LIMITATIONS Page 9
The performance of the Index s dependent on the pre-defned rules-based methodology set out n the Index Descrpton. There s no assurance that other methodologes would not result n better performance than the methodology set out n the Index Descrpton. UNDERPERFORMANCE RISK The Index provdes exposure to notonal long postons n MSCI Factor Indces. The Index s constructed under the assumpton that the MSCI Factor Indces wll outperform the Benchmark Indces over the long term. It s a rsk that these MSCI Factor Indces wll not outperform the Benchmark Indces. EFFECT OF INDEX FEES AND ADJUSTMENT FACTOR The Index Level ncludes a deducton of a notonal Index Fee and an Adjustment Factor (as specfed n Secton 5). Investors n any product lnked to the Index are advsed to scrutnze and understand the mpact of both the Index Fee and the Adjustment Factor as they wll ultmately serve to act as a drag on the Index Level and wll reduce the return avalable (f any) under such product. VOLATILITY TARGET The exposure of the Index to the Core Index s adjusted, on a daly bass, n accordance wth a formula whch seeks to mantan an overall specfed annualsed volatlty level for the Index Level of 15% (the "Volatlty Target"). The exposure s determned by reference to the recent volatlty of the Core Index. Although the volatlty of the Core Index and the exposure of the Index thereto s determned and adjusted daly, the actual volatlty of the Index may be greater or less than the Volatlty Target. As the Volatlty Target s assessed daly, ths can lead to a daly change n the exposure of the Index to the Core Index. Another frequency for determnng ths may have dfferent results. The applcaton of the Volatlty Target s based on the hstorcal exponental volatlty of the Core Index. Ths means there may be a sgnfcant perod of tme before the Index reduces exposure to account for any ncrease n volatlty. Ths could result n a lower level of the Index than would preval f the exposure had been adjusted more quckly. The exposure of the Index to the Core Index s desgned not to exceed 150% and, therefore, leverage may be appled to the Index, whch wll have a magnfyng effect on the performance of the Index (whether postve or negatve). Durng perods when the realsed volatlty of the Core Index s hgher than the Volatlty Target, partcularly n bull markets, the volatlty targetng mechansm may lead the Index to underperform relatve to the Core Index and/or compared wth ndces that do not use such a mechansm. There can be no assurance that the volatlty targetng mechansm used to construct the Index wll be successful or that the Index wll outperform the strategy or any alternatve volatlty adjusted ndex that mght be constructed by reference to the Core Index. CONCENTRATION RISK The Index Consttuents and therefore the Index s composed of only stocks. Therefore, the Index may be less dversfed than an nvestment n any fund, nvestment portfolo or other product whch nvests n or tracks a dversfed nvestment portfolo wth exposure to multple asset classes, and therefore could experence greater volatlty. FIXED ALGORITHMIC MODEL PARAMETERS In common wth all algorthmc strateges, the Index uses a rules-based methodology whch contans fxed parameters. For example, the Index gves an equal weght to each MSCI Factor Index. The Index methodology assumes that these parameters and other fxed parameters are reasonable n the context of the Index. However, alternatve parameters could have a postve effect on the performance of the Index. LIMITED OPERATING HISTORY The Index was launched by the Index Sponsor on the specfed Index Launch Date and has been calculated by the Index Calculaton Agent for the perod from the specfed Index Start Date. The Index Sponsor has publshed lmted nformaton about how the Index would have performed had t been calculated pror to the Index Launch Date. Due to the fact that the Index (and ts Consttuents) was each created relatvely recently, and lmted hstorcal performance data exst wth respect to t, an nvestment n a product lnked to the Index may nvolve a greater rsk than an nvestment n a fnancal product lnked to one or more ndces wth a more establshed record of performance. Furthermore, any back - testng or smlar performance analyss performed by any person n respect of the Index must be consdered llustratve only and may be based on estmates or assumptons not used by the Index Calculaton Agent when determnng the Index Level. Page 10