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Currency Sources and Notes S&P/EMDB INDEX FAMILY: A REFERENCE GUIDE S&P/EMDB INDICES | A REFERENCE GUIDE TABLE OF CONTENTS INDEX OVERVIEW........................................................................................................................... 3 INDEX EVOLUTION ......................................................................................................................... 3 FREQUENTLY ASKED QUESTIONS ................................................................................................ 6 CURRENCY SOURCES AND NOTES ............................................................................................... 8 CURRENCY CHANGES .................................................................................................................. 10 APPENDIX A: SUMMARY OF HISTORICAL INDEX RULE CHANGES ........................................... 14 APPENDIX B: HISTORICAL COUNTRY INCLUSION/REMOVAL GUIDE........................................ 17 McGRAW-HILL FINANCIAL 2 S&P/EMDB INDICES | A REFERENCE GUIDE INDEX OVERVIEW The International Finance Corporation (IFC) began producing its own standardized stock indices, known as the EMDB (Emerging Markets Database) Indices, for emerging market countries in mid- 1981. The initiative was taken in response to the need for a better means of evaluating the performance of emerging stock markets. Before the inception of the EMDB Indices, only local stock price indices were available, and each index was calculated in a unique way using its own set of stock selection criteria. The EMDB indices provided common data structures and a standard methodology, which allowed the indices to be easily combined to form composite, regional, and industry indices. These indices were better equipped to measure return and diversification benefits from broad-based emerging market investments. INDEX EVOLUTION . The original EMDB Indices were calculated just once a year, used month-end prices and were based on the ten to 20 most active stocks in each of the ten emerging markets. The indices were also equally weighted and available on a "price only" and total return basis. Nine of the ten markets had a history dating back to December 1975; one (Jordan) had a base in January 1978 when the Amman Financial Market first opened. In addition to individual market indices, a composite index was prepared. Gradually, calculation periods increased to once a quarter using month-end prices. In late 1985, in response to growing interest in emerging markets among the international fund management community, the IFC decided to switch from an equal weighting methodology to one using market capitalization weighting, improve the timeliness of its month-end index calculations by moving from a quarterly lag to a one-month lag, expand the number of stocks covered and increase the number of markets covered from 10 to 17. Regional indices for Latin America and Asia were also added to supplement the existing all-market composite index. The new indices launched in January 1987 proved very popular with the investment community. Portugal and Turkey were added to the coverage in 1989 and Indonesia was added in 1990. In response to user demand, the IFC again improved the timeliness of index calculation from month- end (with a considerable lag) to week-end (with a one-week lag), beginning in 1988. From 1988 until 1992, efforts were devoted to expanding the number of stocks covered in the indices and adding to the number of data variables available for each stock. In mid-1991, industry indices were also released, which sorted the stocks of the composite index into their respective sector and industry categories. By 1992, there was a greater need for more sophisticated indices to be used for institutional investment in emerging markets. The IFC responded to this demand by tightening features of its basic index methodology and by introducing a new set of indices in March 1993. These indices, called the IFC Investable (IFCI) Indices, were designed specifically to be benchmarks for international portfolio managers by taking into account the impact of foreign investment restrictions on the weighting of index constituents. Likewise, they had more stringent inclusion thresholds, which were designed to enhance investability. The original series of indices was McGRAW-HILL FINANCIAL 3 S&P/EMDB INDICES | A REFERENCE GUIDE renamed the IFC Global (IFCG) to distinguish it from the new series. In the fall of 1995, the IFCG and IFCI Index series began calculating on a daily basis. In January 1996, adjustments for cross-holding of shares in the indices began. The adjustments eliminated distortions caused by double-counting of share capitalization and thereby reduced the weights of several index stocks and markets where cross-holding is prevalent. At the same time, the IFC began excluding government holdings that accounted for more than 10% of an index constituent’s total market capitalization. A year later, this threshold was changed to exclude all government holdings from the index market capitalization. In September 1996, the IFC began calculating monthly indices for 14 frontier markets — Bangladesh, Botswana, Bulgaria, Cote d’Ivoire, Ecuador, Ghana, Jamaica, Kenya, Lithuania, Mauritius, Slovakia, Slovenia, Trinidad & Tobago and Tunisia. Simultaneously, the IFC introduced a global frontier composite index, which was calculated on a monthly basis, with data going back to December 31, 1995. When the IFCI and IFCG indices were acquired by Standard & Poor’s (now S&P Indices) in 2000, the index calculation methodology remained largely unchanged. However, the index names were changed to S&P/IFCI and S&P/IFCG, respectively. In November 2000, Standard & Poor’s began adjusting market capitalization for strategic holdings to better reflect float available for trading. This process was completed in November 2003 when all strategic holdings greater than 10% were excluded from index market capitalization. Taken together, adjustments for cross-holdings, strategic ownership and government ownership helped Standard & Poor’s to more accurately approximate free float. In February 2003, Standard & Poor’s adopted the Global Industry Classification Standard (GICS®), replacing the Standard Industry Classification (SIC). GICS sector and industry-level indices are calculated on a monthly basis with a history dating back to January 2000. In 2008, Standard & Poor’s – as part of its efforts to streamline its global index offerings – switched from using the chained Paasche method to calculate the S&P/EMDB Indices to the divisor-based methodology used in most S&P indices. This change was implemented on August 1, 2008 for all S&P Frontier Market Indices and on November 1, 2008 for all S&P/IFCI Indices. The S&P/IFCG indices were discontinued effective November 2008. The S&P/IFCI became a subset of the S&P Global BMI (Broad Market Index). Both the chained Paasche and S&P divisor index methodologies adjust for changes in the market capitalization of index constituents; the issuance of new shares, rights issues and stock splits all necessitate adjustments. Because both index methodologies are market capitalization weighted, respective index levels calculated using the two methodologies are nearly identical. The slight difference between the respective outcomes of the two methodologies (if calculated concurrently) would be related to the treatment of rights issues. The divisor methodology assumes no new cash inflows for the exercise of rights issues (rights purchases are supported by a reallocation of the portfolio), while the original chained Paasche methodology assumes that rights issues are exercised through new cash investments. In addition, the two methodologies record the timing of new issues McGRAW-HILL FINANCIAL 4 S&P/EMDB INDICES | A REFERENCE GUIDE and rights issues in slightly different manners. In general, the chained Paasche methodology shows these corporate events one day in advance of the day that they would appear using the S&P divisor methodology. In order to best represent the index calculation under the divisor methodology, some historical index data has been revised; the date of some corporate actions have been shifted to when they impact the index rather than the date they were originally reported when calculated using the chained Paasche methodology. Criteria for inclusion in the IFCI and IFCG Indices, likewise, have evolved throughout the years. For full details on historical changes of index rules and inclusion criteria, please see Appendix A. McGRAW-HILL FINANCIAL 5 S&P/EMDB INDICES | A REFERENCE GUIDE FREQUENTLY ASKED QUESTIONS 1. A number of stocks were written down to a price of .001 on October 28, 1999. Why? At the November 1, 1999 annual index rebalancing, stocks that were suspended from trading and scheduled for removal from index coverage had their price written down to 1/1000 (0.001) of the national currency unit. The price write-down took place on October 28, 1999. Stocks removed from index coverage during other periods were also written down to 1/100 (0.010) or 1/1000 (0.001) if they were suspended from trading at the time of removal. Adjustments were designed to minimize tracking error. 2. Are historical SEDOLs for IFCI and IFCG index constituents available back to 1988 and 1975, respectively? Historical SEDOLs for index constituents have been included in the files on a best efforts basis. In addition, unique identifiers are available in the IFC ID files for each index constituent back to the date of their inclusion in an IFCG or IFCI index. These
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