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McGraw-Hill
S&P Dow Jones Indices ESG/Sustainability Index offerings
For Financial Professionals/Not for Public Distribution
Analytic services and products by S&P Dow Jones Indices are the result of separate activities designed to preserve the independence and objectivity of each analytic process. S&P Dow Jones Indices has established policies and procedures to maintain the confidentiality of non-public information received during each analytic process.
December 2012
ESG Index investments vis-à-vis market trends
• Growth of ESG Indices manifests synergy between two trends of the last decade:– Growth of passive investments (up to $6 trillion), particularly ETFs (up to $1.9 trillion)– Growth of Sustainable Investments. UN PRI signatories currently represent more than $30 trillion of assets under
management, up from $22 trillion two years ago. Among 1123 organizations who signed, 262 are asset owners, and 678 are investment managers.
• In the last several years, the pool of assets engaged in SRI strategies has grown more rapidly than the overall investment universe. During the sharpest phase of financial crisis, from 2007 to 2010, the overall universe of professionally managed assets has remained roughly flat while SRI assets grew by 13% (U.S. SIF data)
• In the U.S., professionally managed assets following SRI strategies stood at $5 trillion, having risen by 35% in the last 5 years (U.S.SIF)
• In Europe, according to the EuroSIF latest report issued in October 2012:
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Strategies 2009, €Bn 2011, €Bn Growth, %Susstainability themed investment 25 48 92%Best-in-class and positive screens 133 283 113%Norms-based screening 989 2,346 137%Exclusions 1,749 3,829 119%ESG Integration 2,811 3,204 14%Engagement and voting 1,668 1,950 17%Impact investing n/m 9 TOTAL 7,375 11,669 58%TOTAL w/o Exclusions 5,626 7,840 39%
Who Sustainable Investors are
• ESG investing is a viable option for those investors who have long-term horizon and want to make a difference
– They get a chance to reduce risks and spot out most innovative and sustainable companies – Simultaneously promote corporate citizenship– Get compliant with the UN PRI, Global Compact and other global principles
• Pension funds with their long-term horizon and asset size should be the main drivers of socially responsible investment. In Europe, the majority of pension funds (66%) feel that having an SRI policy is part of their fiduciary duty (EuroSIF Pension funds Survey 2011).
• Asset managers are widely involved, prompted by institutions and high net worth individuals • Retails investors are yet to come into play: In 2011, 94% of the SRI in Europe is instututional
investment, and only 6% retail; used to be 92 and 8 in 2009.• European retail green fund sales in August 2012 were up by €744.1m, beating mainstream
equity funds thanks to the rise of ESG labelled Scandinavian funds (Lipper FMI figures complied for Responsible Investor)
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S&PDJI ESG Focus
Broad market index trackers that reward more carbon efficient companies at the expense of less carbon efficient ones; passive exposure
Indices with Environmental, Social, and Governance (ESG) screens, not solely focused on environment
• Dow Jones Sustainability Indices (Since 1999; together with SAM; best-in-class)
• S&P ESG Indices in India, Egypt and Pan-Arab
• New broad-market Weight-Adjusted Index to be offered in 2013
Clean Industry
Low Carbon Beta
ESG/Sustainability Indices
Investments in companies which are actively developing clean technologies such as wind, water, solar, etc
Full list of S&P ESG Indices is given in the Appendix 1
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S&P U.S. and S&P/IFCI Carbon Efficient Indices: close tracking of the basic index since inception
S&P ESG India, Egypt and Pan-Arab Indices: better Beta, better Alpha
Source: S&P Indices. Data as of June 2012. Charts (Graphs) are provided for illustrative purposes. This chart (graph) may reflect hypothetical historical performance. Please see the Performance Disclosure at the end of this document for more information regarding the inherent limitations associated with back-tested performance.
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80
100
120
140
160
Sep-04 Mar-06 Sep-07 Mar-09 Sep-10 Mar-12
Historical Performance Through May 31, 2012
S&P US Carbon Efficient
S&P 500
50
70
90
110
130
150
170
Nov-06 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11
Historical Performance Through May 31, 2012
S&P/IFCI Carbon Efficient
S&P/IFCI Large-Mid
0
50
100
150
200
250
300
350
400
450
Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11
Historical Performance (Dec 2004 - - May 2012)
S&P ESG India
S&P CNX Nifty
40
60
80
100
120
140
160
180
Jun-07 Mar-08 Dec-08 Sep-09 Jun-10 Mar-11 Dec-11
Historical Performance (June 2007 - - May 2012)
S&P/EGX ESG
EGX 30
20
40
60
80
100
120
140
Nov-07 Nov-08 Nov-09 Nov-10 Nov-11
Historical Performance (Nov 2007 - May 2012)
S&P Pan Arab Composite
S&P/Hawkamah ESG
Leveraging our own capabilities: S&P Carbon Efficient and regional ESG Indices
How New Global S&P ESG Index methodology was designed
• Full broad market index coverage based on re-weighting of the index constituents, not “best in class”. Exclusions in extreme cases (e.g., cluster bombs, >50% of alcohol, pornography or weapons)
– Initial planned coverage: S&P Global 1200 Index including S&P 500, Europe 350, TOPIX 150, TSX 60, Asia 50, ASX All Australian 50; Latin America 40
– Potentially expanded to cover Global BMI (11,000 stocks)– Custom versions
• Developed together with SAM• Condensed, simple and balanced list of criteria (50-60), based on SAM Questionnaire• Transparent list of criteria, weights and key scoring policies • Focusing on value-chain approach for specific industries: how the company is
addressing its own risks and opportunities (industry-specific weights of criteria). Approaches are explained in Appendix 3
• Capturing trends over the last 3-5 years, not just assertive of the present status.• Integrating data from professional ESG information providers such as Asset4,
Trucost/CDP, GMI Ratings and RepRisk
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Criteria Selection Logic: Relevance-Reliability Dilemma
• The purpose is to focus on those ESG factors that are most relevant for financial investors• Not all relevant parameters are properly disclosed (e.g., employee turnover, injury rates, some
environemntal impacts)• Policies and disclosures can often serve as proxies for good behaviors, though they are less relevant. • Important: If a company violates its own policies, the policy scores will be discounted • Performance indicators have the biggest weights
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Type of Parameter Relevance Reliability Measurability
Performance High Low Low/Moderate
Policies Moderate Moderate Moderate
Transparency Low/Moderate High High
Environment Weight Social Weight Governance Weight Total weight
Transparency 17% Transparency 11% Transparency 35% 22%
Policies 13% Policies 34% Policies 28% 23%
Performance 70% Performance 55% Performance 37% 55%
42% 24% 34% 100%
Standard weights of pillars and sections in the S&P Global ESG Index methodology (for companies with moderate exposure):
Full list of S&P ESG Criteria is given in the Appendix 2
ESG Scoring Results Q2 2012
Company GICS sub-Industry
ESG Score
NYSE Euronext Specialized Finance 66,2%
Rockwell Automation Inc
Electrical Components & Equipment 62,7%
Prudential Financial Inc
Life & Health Insurance62,6%
Comerica Inc (MI) Diversified Banks 62,1%
Agilent Technologies Inc
Electronic Equipment & Instruments 61,8%
Metlife Inc Life & Health Insurance 61,1%
Cognizant Tech Solutions Corp
IT Consulting & Other Services 60,5%
SAIC IncIT Consulting & Other Services 60,3%
Northern Trust Corp (IL)
Asset Management & Custody Banks 60,0%
Staples Inc Specialty Stores 59,8%
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S&P 500 Top 10
Company GICS sub-Industry
ESG Score
Electricidade de Portugal SA
Electric Utilities68,2%
Invensys PlcIndustrial Machinery 66,9%
Red Electrica Corporacion SA
Electric Utilities66,4%
RSA Insurance Group Plc Multi-line Insurance 66,3%
KingfisherHome Improvement Retail 65,3%
Centrica Multi-Utilities 64,9%
Aviva
Multi-line Insurance
64,1%
Standard LifeLife & Health Insurance 63,8%
Prudential PlcLife & Health Insurance 63,5%
Provident Financial Consumer Finance 62,7%
S&P Europe 350 Top 10
Bottom – 21.6% Bottom – 28.2%
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APPENDIX 1 List of S&P ESG Indices
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S&P’s Presence in the ESG Space• ESG
• S&P ESG India – Jan 2008
• Partners: CRISIL & KLD
• S&P/EGX ESG (Egypt) – Mar 2010
• Partners: EloD and EGX
• S&P/Hawkamah Pan Arab ESG – Feb 2011
• Partner: Hawkamah of UAE
• Low Carbon Beta
• S&P U.S. Carbon Efficient – Mar 2009
• Partner: Trucost
• S&P/IFCI Carbon Efficient (Emerging Markets) – Dec 2009
• Partner: Trucost; Partially funded by IFC
• S&P/TOPIX Carbon Efficient (Japan) – Oct 2011
• Partner: Trucost
• Clean Industry
• S&P/TSX Clean Technology
• Partner: Jantzi-Sustainalytics
• S&P Global Eco, S&P Global Water, S&P Global Clean Energy, S&P Global Alternative Energy
• S&P Japan Eco, S&P Asia Water, S&P Asia Alternative Energy
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APPENDIX 2 ESG Criteria
ESG Criteria: Environment. 1.Transparency
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Category Indicator Principles of Assessment Sector specific?Max
score / Weight
1,1
Quality of environmental reporting
Disclosure of the amounts of GHG emissions Yes 21.1.1
1.1.2
Disclosure of the amounts of air, water and land pollution
Disclosure of all relevant parameters for each sub-industry
Yes, by industry mapping 3
1.1.3
Disclosure of the amount of hazardous waste produced
Yes 2
1.1.4
Disclosure of the use of main natural resources Disclosure of all key parameters relevant for the sub-industry. For conglomerates need to assess by each of the key business lines.
Yes, should be linked to industrial matrix of resources
1
1.1.5
Disclosure of the water consumption Yes 2
1.1.6
Disclosure of the energy consumption Direct plus Indirect energy Yes 2
1.1.7 Specification of environmental risks and related negative effects
Narrative form of disclosure, plus reserves for the environmental liabilities
Yes, excludes fin sector and others with low impact
2
ESG Criteria: Environment. 2.Policies
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2,1
Control of impact
2.1.1 Requirements for use of resources and energy, waste disposal and emissions
Whether the environmental policy/strategy states key requirements for use of resources and energy, waste disposal and emissions; it sets targets for prevention and reduction of negative environmental effects and assigns responsibilities.
Yes, excludes fin sector and others with low impact
2
2.1.2 Product responsibility policies Policies aimed at managing or minimizing the environmental impacts during the products' whole life cycle and the relevant monitoring processes
Yes 2
2,2 Operational standards
2.2.1 EMS (Environmental management system) or Products Control System: Certification/Audit/Verification - general
The existence and scope of international and national universal certifications (ISO 14001, JIS Q 14001, EMAS, or BS8555 process)
No 2
2.2.1.a EMS (Environmental management system): Certification/Audit/Verification - industry-specific
The existence and scope of international and national certifications, specific for particular industries
Yes, mapped against the list of existing certifications
2
2.2.1.b Coverage of business lines by the EMS (Environmental management system)
Assessed only if the score for 2.2.1 is >0 Yes 2
Category Indicator Principles of Assessment Sector specific?Max score / Weight
ESG Criteria: Environment.3.Performance
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3,1 Impact
3.1.1 Amounts of GHG emissions In relation to the annual company revenue (mlns of tons per milns of US$); GHG on
total, including carbon dioxide; expressed via carbon equivalent, measured against industry average. Data from Trucost (on all quantitative indicators below)
Yes, benchmarked by sub-sectors
43.1.1.a
Dynamics of GHG emissions Average year-on-year for the last 3 years Yes 23.1.2 Amounts of air, water & land pollution In relation to the annual company revenue (millions of metric tons per millions of US$) Yes, by industry mapping 43.1.2.a Dynamics of air, water & land pollution Average year-on-year for the last 3 years Same 23.1.3 Amounts of hazardous waste produced In relation to the annual company revenue (millions of tons per millions of US$) Yes 43.1.3.a Dynamics of hazardous waste produced Average year-on-year for the last 3 years Yes 23.1.4 Amounts of mineral resource consumption In relation to output/revenue and in dynamics. This indicator is irrelevant for companies
in the raw materials sector (Oil&Gas and Mining)Yes; needs to be mapped to industry-specific list of resources
4
3.1.4.a Dynamics of mineral resource consumption Average year-on-year for the last 3 years. This indicator is irrelevant for companies in the raw materials sector (Oil&Gas and Mining)
Yes 2
3.1.5 Amounts of water consumption In relation to the annual company revenue (mlns of cubic meters per mlns of US$) Yes 43.1.5.a Dynamics of water consumption Average year-on-year for the last 3 years Yes 23.1.6 Amounts of energy consumption In relation to the annual company revenue (millions of MwH per millions of US$) Yes 43.1.6.a Dynamics of energy consumption Average year-on-year for the last 3 years Yes 23.1.7 Amounts of Scope 3 GHG emissions In relation to the annual company revenue (mlns of tons per mlns of US$);
GHG on total, including carbon dioxide; expressed via carbon equivalentYes, benchmarked by sub-sectors
2
3.1.7.a Dynamics of Scope 3 GHG emissions Average year-on-year for the last 3 years Yes 13.1.8 Socio-economic cost of the
company's operationsIn relation to the annual company revenue. Trucost proprietory methodology. The average of direct & indirect."To the Gate Approach" - does not include the product impact
Yes 4
3.1.8.a Dynamics of the socio-economic cost of the company's operations
Average year-on-year for the last 3 years Yes 2
3,2 Eco-innovation
Amount of energy generated from primary renewable energy sources
As a percentage of total energy generated (for power utilities only) Yes (generating companies assessed separately from consuming companies)
23.2.1
3.2.1.a Dynamics of energy consumed or generated from primary renewable energy sources
Average year-on-year for the last 3 years Yes 2
3.2.2 By-products recycling Should be assessed as a complex of waste and water Yes 23.2.2.a Use of recycled materials The main focus is whether the company treats socio-environmental innovation as a
source for raising its competitiveness.Yes 2
3.2.3 Amount of environment-related R&D expenses per year
In relation to the annual company revenue and the amount of total R&D; average for the last three years (to avoid highlighting the recent peaks)
Yes 2
3,3 Contro-versies Historical record of spills, leakages or any
other environmental accidents or allegations against the company
Negative media appearances related to environmental issues, substantial financial & administrative penalties of an environmental nature during the last 3 years, and if any of the company's executives have been sued or investigated during the last 3 years on environmental allegations.
Yes 83.3.1
3.3.2 Supply chain environmental accidents Same type of accidents, but in supply chain Yes 6
Category Indicator Principles of Assessment Sector specific?W
ESG Criteria: Social. 1.Transparency, 2.Policies
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Category Indicator Principles of Assessment Sector specific?
Max score/ Weigh
t1,1 Community
relations
1.1.1 Disclosure of the charitable giving,
sponsorships and support of political parties
Political donations as disclosed by companies are compared against the size of political contributions as disclosed by the external sources - governmental bodies, and disclosure is not accounted for if it is under-reported.
No 2
1,2 Labor relations /
Health & safety
1.2.1
Disclosure of the rates of accidents and professional diseases
Only for those sectors, for which it is relevant Yes 3
2,1
Community and human rights policies
2.1.1
Procedures in place to receive, record and address stakeholder demands (Stakeholder dialogue)
With particular focus on community relations Rather No 1
2.1.2
Comprehensive policies and requirements on human rights
No 3
2.1.3
Policies that ensure observance of human rights in the supply chain
Focus on contractors (as this is where the main issues happen) Rather No (rather countries of supply chain)
2
2,2 Labor policies
2.2.1
Health and safety protection policies and systems
Policies including risk assessments and clearly assigning responsibilities. Yes 3
2.2.2 Health and safety management systems OHSAS 18001 and others Yes 12.2.3
Existence of unions, collective agreements and other employee relations tools
Only independent unions to be scored positively (not government-controlled ones, like in China)
Yes 2
2,3 Product stewardship
2.3.1
Quality control management systems ISO 9000 certification or any industry specific certification (QS-9000-automotive, TL 9000-telecommunications, AS9100-aerospace, ISO/TS 16949-automotive, etc.). Does the company claim to apply the Six Sigma, Lean Manufacturing, Lean Sigma, TQM or any other similar quality principles.
Yes (except certain sectors)
2
2.3.1.a
Scope of the quality control management systems
Only applicable to those companies who have quality control certifications Yes 2
ESG Criteria: Social. 3. Performance
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3,1
Community relations & human rights
3.1.1
Negative externalities for the community from the company's activities or controversies with local communities
No 4
3.1.2
Evidence of instances of discrimination, use of child or forced labor or other abuse of human rights by the company or its contractors
No 4
3,2 Labor relations
3.2.1
Working conditions in compliance with high standards Assesses quantitatively, through the rates of injury, occupational diseases and other work-related fatalities
Yes 4
3.2.1.a Dynamics of the working conditions Average year-on-year for the last 3 years Yes 2
3.2.2
Evidence of strikes, industrial disputes or labor-related allegations during the last three years
No 4
3,3
Product responsibility
3.3.1
Incidents of non-compliance with regulations and voluntary codes concerning public health and safety or negative social impacts of products and services
Yes 2
3.3.2
Share of socially sensitive products Looks at activities associated with production or selling of alcohol, tobacco, armament, pornography, gambling, stem cell research, GMO, cluster bombs, landmine
Yes 2
Category Indicator Principles of AssessmentSector
specific?
Max score/ Weight
ESG Criteria: Governance. 1. Transparency
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Category Indicator Principles of AssessmentSector
specific?
Max score / Weight
1,1 Ownership structure & rights
1.1.1 Disclosure of the ownership structure, influence and affiliation
Whether the ownership information is provided down to the identification of beneficiary shareholders holding 5 percent or more of the company shares
No 2
1.1.2 Disclosure of the articles of association and by-laws With a particular focus of shareholder rights and procesured explained No 1
1.1.3 Disclosure of the documents for shareholder meetings No 1
1,2 Operational and financial information
1.2.1 Comprehensive annual financial reporting Accounting choices should be reflective of the economics of the business. Where business is international or internationally funded, we assume that IFRS is an appropriate standard, because it is better understood by investors and because of the global tendency of shifting to it; US GAAP goes second-best. As the largest emerging economies, India, Brazil, China and Russia are moving towards IFRS, and the U.S. GAAP is gradually converging with the IFRS, we believe it is important to highlight the difference with countries where local reporting is far from being universally acceptable.
No 2
1.2.2 Revenue breakdown provided Segment and geographical reporting Yes 2
1.2.3 CSR report according to GRI standards Focus on the independent assurance No 3
1,3 Board and management structure & process
1.3.1 Disclosure of the board of directors composition and background
Name, age, professional background, academic degrees, roles on committees and other directorships
No 1
1.3.2 Disclosure of the executives' professional details Name, age, professional background, academic degrees, exact roles in the company and place in the executive structure; external directorships
No 1
1.3.3 Disclosure of the board of directors remuneration policy 1
1.3.3.a Disclosure of the board of directors remuneration levels No 2
1.3.4 Disclosure of the CEO remuneration policy No 3
ESG Criteria: Governance. 2. Policies
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2,1 Protection of shareholder rights
2.1.1 Key shareholder rights articulated In most cases, the country infrastructure score shall be applied universally to all companies in the country. This score shall be an integral assessment of the legal requirements & the enforcement system in a country allowing to understand the key issues, which should then be looked at more carefully. The score will be respectively reduced to reflect any missing rights or discrepancies between the stated rights & the actual practice.
No, country-specific & specific to the ownership profile
7
2.1.2 Anti-takeover defenses Same as 2.1.1. Only applied to those companies who do not have majority shareholder.
No, country-specific & specific to the ownership profile
2
2,2 Preventing conflicts of interest
2.2.1 Whistleblowing mechanisms No 1
2.2.2 Prevention of insider trading No 1
2.2.3 Long term incentives for the senior management, at least the CEO
Look at the CEO's policies in the first place. Others - if available No 2
2.2.3.a
Whether long-term incentives for senior management are linked to total shareholder returns & economic value added (EVA)
Assesses the inclusion of the risk-related element into the company returns
No 2
2.2.4 Extra-financial targets for senior management Yes 1
2.2.5 Internal audit department reports to the audit committee of the board
No 2
2,3 Policies on business ethics
2.3.1 Whether the Code of business ethics or other internal document includes anti-corruption policy, and whether there are mechanisms for its enforcement
No 3
2.3.2 Whether the company has a policy as responsible investor or shareholder
Yes 1
Category Indicator Principles of Assessment Sector specific?Max
score/ Weight
ESG Criteria: Governance. 3. Performance
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3,1 Board & management structure and process
3.1.1 Percent of non-executive and non-affiliated directors This is the closest proxy for assessing director independence. NOTE: True independence can never be assessed from public sources
No 2
3.1.2 Whether the Audit committee is totally non-executive and non-affiliated Same as above No 2
3.1.3 CEO/Chair Split No 1
3.1.4 Frequency and attendance rates of the board meetings No 2
3.1.5 CSR responsibility on the board Assessed in the case of disclosure, otherwise - N/A. Only applicable for industries that have the environmental or social impact.
Yes (may relevant for sectors with biggest impact)
2
3,2 Remuneration
3.2.1 Significant size of long-term incentives of the CEO Compare the maximum amounts that can be earned from long-term incentives with the total amounts
No 2
3.2.2 Consistency of the levels of director remuneration with the industry standards Yes, and country-specific too 1
3.2.3 Consistency of the levels of senior management remuneration with the industry standards
Judged by the average of top three executive compensations
Yes, and country-specific too 1
3,3 Controversies
3.3.1 Financial controversies Major earnings restatement or qualified auditor's opinion in the last three years
No 3
3.3.2 Controvercies related to shareholder rights (executive compensation) At the moment, only controversies with executive compensation are included. Need to also include other abuses & activated anti-takeover defences.
No 4
3.3.3 Controvercies related to bad business practices, including bribery and corruption or lobbying for lowering ESG standards
In certain cases check manually for the scope and impact of the controversy
Yes 4
3,1 Board & management structure and process
3.1.1 Percent of non-executive and non-affiliated directors This is the closest proxy for assessing director independence. NOTE: True independence can never be assessed from public sources
No 2
3.1.2 Whether the Audit committee is totally non-executive and non-affiliated Same as above No 2
CEO/Chair Split No 13.1.3
Category Indicator Principles of Assessment Sector specific? W
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APPENDIX 3 Differentiation Approaches
How we account for differences in exposures – Environment and Social
• In the Environment and Social pillars, we identify those GICS sub-industries where companies have the biggest exposure to certain indicators and double the weights of these indicators
• We also identify sub-industries having little or no exposure in certain aspects and lower their weights
• The company scores are changed in the same proportion
• As a result, the more exposed the sub-industry is, the bigger the weight of critical indicators in the Environment pillar and the weight of the Environment pillar in the total ESG score
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Example of materiality ranking: Environment Indicator 3.1.1 - Scope 1+2 Intensity*
Tending to
Double weight
Tending to
Standard weight
Tending to
Half-weight
Tending to
Zero weight
*Data from Trucost
How we account for differences in exposures - Governance
• In Governance, our model looks at country specifics, such as legal and listing requirements and rule of law. Based on that, we assess certain specific elements of companies’ governance. The scheme below explains this logic.
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Country levelCountry level
Key shareholder rightsarticulated in Law, Codes & Listing Requirements:
1.Policy on voting rights (one share – one vote), 2.Voting on director pay and management options; 3.Supermajority requirements for key issues4.Procedure on calling and conducting shareholders meetings5.Policy on election or removal of directors (annual re-election of
whole board, cumulative voting for election of directors)6.Absence of anti-takeover defenses7.Pre-emptive rights8.Tag-along policy (co-sale)9.Fair-price provisions
Enforcement assessed via expert sources
-High -Moderate-Low
Company levelCompany level
Abuses of shareholder rights
ESGScore
Key Issuesanalytical opinion
---
Country
score
Ultimate
company
G score
Policies that are not in compliance with regulations
or codes
Policies or PracticesExceeding
the country level
ESGScore
ESGScore
Chart is for illustrative purposes only.
Performance DisclosureThe inception date of S&P ESG India was January 31, 2008 at the market close. All information presented prior to the index inception date is back-tested. The back-test calculations are based on the same methodology that was in effect when the index was officially launched. Complete index methodology details are available at www.spindices.com. The inception date of S&P ESG Egypt was March 23, 2010 at the market close. All information presented prior to the index inception date is back-tested. The back-test calculations are based on the same methodology that was in effect when the index was officially launched. Complete index methodology details are available at www.spindices.com. The inception date of S&P ESG Pan-Arab was February 1, 2011 at the market close. All information presented prior to the index inception date is back-tested. The back-test calculations are based on the same methodology that was in effect when the index was officially launched. Complete index methodology details are available at www.spindices.com. Past performance is not an indication of future results. Prospective application of the methodology used to construct the indices may not result in performance commensurate with the back-test returns shown. The back-test period does not necessarily correspond to the entire available history of the index. Please refer to the methodology paper for the index, available at www.spindices.com for more details about the index, including the manner in which it is rebalanced, the timing of such rebalancing, criteria for additions and deletions, as well as all index calculations. It is not possible to invest directly in an Index. Also, another limitation of hypothetical information is that generally the index is prepared with the benefit of hindsight. Back-tested data reflect the application of the index methodology and selection of index constituents in hindsight. No hypothetical record can completely account for the impact of financial risk in actual trading. For example, there are numerous factors related to the equities (or fixed income, or commodities) markets in general which cannot be, and have not been accounted for in the preparation of the index information set forth, all of which can affect actual performance. The Index returns shown do not represent the results of actual trading of investible assets/securities. S&P Dow Jones Indices LLC maintains the Index and calculates the Index levels and performance shown or discussed, but does not manage actual assets. Index returns do not reflect payment of any sales charges or fees an investor may pay to purchase the securities underlying the Index or investment funds that are intended to track the performance of the Index. The imposition of these fees and charges would cause actual and back-tested performance of the securities/fund to be lower than the Index performance shown. As a simple example, if an index returned 10% on a US $100,000 investment for a 12-month period (or US$ 10,000) and an actual asset-based fee of 1.5% was imposed at the end of the period on the investment plus accrued interest (or US$ 1,650), the net return would be 8.35% (or US$ 8,350) for the year. Over 3 years, an annual 1.5% fee taken at year end with an assumed 10% return per year would result in a cumulative gross return of 33.10%, a total fee of US$ 5,375, and a cumulative net return of 27.2% (or US$ 27,200).
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