Guide to the LPX Equity Indices

Version 2.9

June 2011

Designed to represent

Alternative Asset Classes.

1 Notice and Disclaimer1 This document Guide to the LPX Equity Indices, hereafter Guide, and all the information contained in it, including all text, data, tables and all other information (collectively, the information) may not be reproduced or redisseminated in a whole or in part without prior written permission from LPX. Any use of the LPX indices or other information requires a license from LPX. All information set out in this Guide is for informational purpose only. The information may not be used to verify or correct other data, to create indices, or in connection with oering, sponsoring, managing or marketing any securities, portfolios, nancial instruments or other products. None of the information constitutes an oer to buy or sell, or a recommendation of, any security, nancial instrument and nancial product or trading strategy, and LPX does not endorse, approve or otherwise express any opinion regarding any issuer, securities, nancial products or instruments or trading strategies that may be described or mentioned herein. Further, none of the information is intended to constitute investment or tax advice or a recommendation to make any kind of investment decision. Without limiting any of the foregoing, in no event shall LPX have any liability regarding any of the information for any direct, indirect, special, punitive, consequential or any other damages. The Guide sets out the ground rules for the construction and maintenance of the LPX index family. The objective is to design, create and maintain a series of high quality indices for the international equity markets for use as a benchmark by the global investment community and as an underlying for tailored nancial products.

1 LPX, LPX50 and LPX Major Market are registered trademarks of LPX GmbH. A licence agreement is required to issue nancial instruments based on the LPX indices. Licences are issued for the commercial use of any aspects of the LPX indices. These uses include selecting the indices as the basis for benchmarks, nancial products and funds of any sort. Any commercial use of LPX trademarks and/or LPX indices without a valid licence agreement is not permitted. Contact LPX GmbH for information on licensing the LPX indices.

CONTENTS

Contents
1 General Index Information 1.1 The LPX (Listed Private Equity Index) Family . 1.1.1 Abbreviations . . . . . . . . . . . . . . . 1.1.2 Calculation . . . . . . . . . . . . . . . . 1.1.3 LPX Composite . . . . . . . . . . . . . . 1.1.4 LPX50 . . . . . . . . . . . . . . . . . . . 1.1.5 LPX Major Market . . . . . . . . . . . . 1.1.6 LPX Buyout . . . . . . . . . . . . . . . . 1.1.7 LPX Mezzanine . . . . . . . . . . . . . . 1.1.8 LPX Venture . . . . . . . . . . . . . . . . 1.1.9 LPX Direct . . . . . . . . . . . . . . . . . 1.1.10 LPX Indirect . . . . . . . . . . . . . . . . 1.1.11 LPX America . . . . . . . . . . . . . . . 1.1.12 LPX Europe . . . . . . . . . . . . . . . . 1.1.13 LPX UK . . . . . . . . . . . . . . . . . . 1.2 Reference Dating, Weighting and Cap Limit . . 1.3 Prices and Calculation Frequency . . . . . . . . 1.4 Country Allocation . . . . . . . . . . . . . . . . 1.5 Currency Conversion . . . . . . . . . . . . . . . 1.6 Error Correction Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 4 4 4 4 4 4 4 4 5 5 5 5 5 5 6 6 7 8 8 8 8 8 8 9 9 9 9 10 10 11 12 12 12 12 13 13 13 14 14 14 14 14 15 15 15 16 16

Choice of Index Constituents 2.1 Data Basis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2 Deletion or Suspension . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3 Liquidity Analysis (LA) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3.1 Historical Liquidity Analysis . . . . . . . . . . . . . . . . . . . . . . . . . 2.3.2 Current Liquidity Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3.2.1 Ratios . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3.2.2 Criteria . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3.2.3 Rankings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3.2.4 Time and Frequency of the LA . . . . . . . . . . . . . . . . . . . 2.3.3 Ordinary Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3.4 Extraordinary Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3.4.1 Replacement of a Constituent Due to Delisting . . . . . . . . . 2.3.4.2 Merger of Two Index Constituents . . . . . . . . . . . . . . . . 2.3.4.3 Merger of an Index Constituent with a Non-Index Constituent

Calculation Methods 3.1 Historical Reconstruction of the Indices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2 Index Formulae LPX Indices (Single Stock Distribution Reinvestment) . . . . . . . . . . . 3.3 LPX Index Calculation Algorithm (Dividend Reinvestment across all Constituents of the Index) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.4 Entry Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.5 Monitoring the Entry Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.6 Adjustment of Entry Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.7 Cap Limit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.8 Corporate Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.8.1 Cash Dividends and Special Distributions . . . . . . . . . . . . . . . . . . . . . . . . 3.8.2 Stock Splits and Reverse Splits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.8.3 Bonus Shares and Scrip Dividends of the same Company . . . . . . . . . . . . . . . 3.8.4 Subscription Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

LIST OF TABLES

Chaining 4.1 Ordinary Chaining . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.2 Extraordinary Chaining . . . . . . . . . . . . . . . . . . . . . . . . . . 4.2.1 Constituent is replaced due to a Delisting . . . . . . . . . . . . 4.2.2 Merger of two Index Constituents . . . . . . . . . . . . . . . . 4.2.3 Merger of an Index Constituent with a Non-index Constituent Index Board Amendments Data Vendor Codes

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16 16 17 17 17 17 18 18 18

5 6 7

List of Tables
1 2 3 4 5 6 Characteristics of the LPX Index Family Exchanges . . . . . . . . . . . . . . . . . Ratios of Liquidity Analysis . . . . . . . Ranking-Supported Adjustments . . . . Example: Subscription Rights . . . . . . Data Vendor Codes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 7 9 11 16 19

GENERAL INDEX INFORMATION

General Index Information

LPX GmbH is the rst to publish a Listed Private Equity (LPE) index family. LPX provides daily global LPE indices which have become the most widely used in the nancial industry in particular by institutional investors. The index family contributes to the investment process by serving as a relevant and adequate performance benchmark and as an eective research tool. Moreover, the index family provides a basis for various alternative investment vehicles. The LPX index family fulls the needs of institutional and private market participants. Thereby, the design, development and delivery of the LPX indices ensure that they are investable, tradable and transparent being key factors that underlie their commercial success. LPX consistently applies its index construction and maintenance methodology in order to qualify for the foremost provider of a listed private equity index family in the nancial industry.

1.1
1.1.1

The LPX (Listed Private Equity Index) Family

Abbreviations

PI: Price Index TR: Total Return 1.1.2 Calculation

The calculation algorithm of the LPX index family is detailed in section 3. 1.1.3 LPX Composite

The LPX Composite is a broad global LPE index whose number of constituents is not limited. The LPX Composite thus describes the development of the whole liquid LPE universe covered by LPX that fulls pre-dened liquidity criteria. The basis for the choice of constituents is the liquidity analysis described in section 2.3. 1.1.4 LPX50

The LPX50 is a global index that consists of the 50 largest liquid LPE companies covered by LPX. The basis for the choice of constituents is the liquidity analysis described in section 2.3. 1.1.5 LPX Major Market

The LPX Major Market represents the most actively traded LPE companies covered by LPX. The LPX Major Market reference date is 15 June 2005 and displaced the LPX HL. The basis for the choice of constituents is the liquidity analysis described in section 2.3. 1.1.6 LPX Buyout

The LPX Buyout represents the most actively traded LPE companies covered by LPX whose business model consists mainly in the appropriation of buyout capital or in the investment in such funds. The basis for the choice of constituents is the liquidity analysis described in section 2.3. 1.1.7 LPX Mezzanine

The LPX Mezzanine represents the most actively traded LPE companies covered by LPX whose business model consists mainly in the appropriation of mezzanine capital or in the investment in such funds. The basis for the choice of constituents is the liquidity analysis described in section 2.3.

GENERAL INDEX INFORMATION

1.1.8

LPX Venture

The LPX Venture represents the most actively traded LPE companies covered by LPX whose core business lies mainly in the provision of venture capital or in the investment in venture capital funds. The basis for the choice of constituents is the liquidity analysis described in section 2.3. 1.1.9 LPX Direct

The LPX Direct represents the largest liquid LPE companies covered by LPX that mainly pursue a direct private equity investment strategy. A LPE company is not an eligible candidate for the LPX Direct if the sum of the indirect private equity investment portfolio and the valuation of the private equity fund management exceeds 20% of the net assets of the company (refer to section 2.1). The LPX Direct was designed in cooperation with Bank Julius Baer & Co Ltd.2 The basis for the choice of constituents is the liquidity analysis described in section 2.3. 1.1.10 LPX Indirect

The LPX Indirect represents the largest liquid LPE companies covered by LPX that mainly pursue a indirect private equity investment strategy. The basis for the choice of constituents is the liquidity analysis described in section 2.3. 1.1.11 LPX America

The LPX America represents the most actively traded LPE companies covered by LPX that are listed on an exchange in North America. The basis for the choice of constituents is the liquidity analysis described in section 2.3. 1.1.12 LPX Europe

The LPX Europe represents the most actively traded LPE companies covered by LPX that are listed on a European exchange. The basis for the choice of constituents is the liquidity analysis described in section 2.3. 1.1.13 LPX UK

The LPX UK represents the largest liquid LPE companies covered by LPX that are listed on an exchange in the UK. The basis for the choice of constituents is the liquidity analysis described in section 2.3.

2 The

LPX Direct is composed and calculated by LPX GmbH. The index is revised by the LPX index board.

GENERAL INDEX INFORMATION

1.2

Reference Dating, Weighting and Cap Limit

The reference date (base date) is chosen such that a minimum of 10 initial constituents is ensured. LPX indices are calculated according to the calculation algorithm described in section 3 of this Guide. In order to limit the weight of individual constituents in the indices, a cap (the variable is dened as CAP in this Guide) is set for the market capitalisation of any single constituent of the index at the chaining date (see section 3 for details). If the number of constituents of an index is 15 or more, a cap of 15% or less is implemented for any single constituent (see table 1 for the current cap of the respective index). If the number of constituents of an index was less than 15 for a certain time period in the past, a cap of 20% was implemented. Historically, a weekly cap was implemented for the indices. The current calculation algorithm starts on June 15, 2005 for the LPX Major Market and on 14 December 2005 for the other indices (see section 3.2).3 An overview of the characteristics of LPX indices is given in table 1. Index LPX Composite LPX50 LPX Major Market LPX Buyout LPX Mezzanine LPX Venture LPX Direct LPX Indirect LPX America LPX Europe LPX UK Maximum Constituents n.a. 50 25 30 30 30 30 30 30 30 30 Reference date 31.12.2001 31.12.1993 31.12.1997 31.12.1993 31.12.2003 31.12.1993 31.12.1998 31.12.1999 31.12.1997 31.12.1993 31.12.1998 CAP 10% 10% 10% 10% 10% 15% 10% 10% 10% 10% 10% Chaining date 14.06 and 14.12 14.06 and 14.12 14.01 and 14.07 14.02 and 14.08 14.02 and 14.08 14.02 and 14.08 14.02 and 14.08 14.02 and 14.08 14.03 and 14.09 14.03 and 14.09 14.03 and 14.09

Table 1: Characteristics of the LPX Index Family

1.3

Prices and Calculation Frequency

Closing prices are used for the calculation of the LPX indices. The previous days value of all indices is calculated and published on a daily basis. The closing price is the last price traded that is allocated by an exchange to a share. If a share has not been traded for a whole day, the closing price of the previous day is used for calculating the index. In the event of a suspension during trading hours, the last price determined before such a suspension is used for subsequent calculations. If such suspension occurs before the start of trading, the closing price of the previous day is used. In the event of an exchange holiday, the closing prices from the previous day are used. LPX publishes the indices for every day except for Saturdays and Sundays. LPX also oers a customised real-time calculation of the LPX index family.

3 for

the LPX Direct, LPX Mezzanine and LPX UK the current calculation algorithm starts on 14 September 2007

GENERAL INDEX INFORMATION

1.4

Country Allocation

The LPX base universe includes companies that are traded at exchanges worldwide. The universe is subdivided into the following regions: Asia/Pacic Europe North America South America Other The base universe is continuously reviewed and new eligible companies are added in accordance with section 2.1. If a company is traded on dierent stock exchanges LPX uses the data of the exchange where the highest trading volume is observed. The data that LPX uses to calculate the liquidity ratios and indices come specically from the following exchanges: Country Australia Austria Belgium Brazil Canada Denmark Finland France Germany Germany Great Britain Great Britain Greece HongKong Ireland Israel Italy Japan Japan Korea, Republic of Netherlands Singapore South Africa Spain Sweden Switzerland USA USA Exchange ASX VSX BSE Bovespa TSX CSE HSE Euronext Paris Xetra FWB AIM(LSE) LSE ASE HKSE ISE TASE Borsa Italiana JASDAQ TSE KRX Euronext Amsterdam SGX JSE Bolsade Madrid SSE SWX NASDAQ NYSE Table 2: Exchanges Remark: LPX reserves the right to add further exchanges to the list above. Region Asia/Pacic Europe Europe South America North America Europe Europe Europe Europe Europe Europe Europe Europe Asia/Pacic Europe Europe Europe Asia/Pacic Asia/Pacic Asia/Pacic Europe Asia/Pacic Other Europe Europe Europe North America North America Currency AUD EUR EUR BRL CAD DKK EUR EUR EUR EUR GBP GBP EUR HKD EUR ISS EUR JPY JPY SKW EUR SGD SAR EUR SEK CHF USD USD

CHOICE OF INDEX CONSTITUENTS

1.5

Currency Conversion

The foreign exchange rates used in the calculation of the LPX Listed Private Equity Indices are the WM/Reuters Closing Spot Rates, compiled by The WM Company. The service, which was developed in consultation with leading nancial market practitioners, sets a daily standard for the foreign exchange rates required for index calculation, investment management and portfolio valuation. At short intervals before and after 16:00h London time, representative bid and oer rates against the US dollar for some 112 currencies are selected from a wide range of contributing banks and foreign exchange dealers. Anomalous data are screened out, and a median rate is selected for each currency. The choice of 16:00 London time as the reference point for the rates captures a large selection of timely quotes from Continental European contributors to the Reuters system and reects the peak trading period for the London and New York foreign exchange markets. In the event that WM/Reuters Closing Spot Rates are not published by the WM Company, the previous days rates will be used to calculate the LPX Listed Private Equity Indices.

1.6

Error Correction Policy

The objective is to maintain the LPX Listed Private Equity Indices to the highest standards of accuracy and integrity, using reliable data sources and following best practice in statistical and operational procedures. Where material errors occur in data or in calculation procedures, these are corrected promptly. However, LPX GmbH is conscious of the risk of damaging the condence of users through the frequent publication of amendments where trivial statistical errors have occurred that do not materially aect the accuracy of the published Index Series.

2
2.1

Choice of Index Constituents

Data Basis

A database of all LPE companies listed worldwide, to the extent known to LPX, serves as the base universe for the construction of all LPX indices. In order to be eligible for the inclusion in the database, the predominant business purpose of the company (at least 50% of net assets) must lie in the area of Private Equity (stake in companies not admitted for exchange quotation). Net assets are calculated by LPX on a daily basis through a standardised model that is applied to every company of the universe. The Private Equity part contains direct Private Equity investments, indirect Private Equity investments (limited partnerships), the valuation of the Private Equity fund management business as well as the position cash & cash equivalents. Additionally the company must be quoted at a stock exchange. Within the framework of a continuous research process, LPX checks whether a company currently in the base universe is still an eligible constituent or whether new companies that have previously not been considered should be included.

2.2

Deletion or Suspension

If the eligibility of the criteria as dened under section 2.1 are not met by a constituent, the deletion or suspension of all index calculation may be implemented after consideration of the LPX index committee and approved by LPX GmbH. The deletion or suspension becomes eective at the following rebalancingdate.

2.3

Liquidity Analysis (LA)

The current composition of the LPX indices is the result of a regularly occurring liquidity analysis. Hereby liquidity is dened as how often and in what volume a company is traded on an exchange.

CHOICE OF INDEX CONSTITUENTS

2.3.1

Historical Liquidity Analysis

For each index, LPX conducted a stand-alone historical liquidity analysis that was the starting point for the historical reconstruction of the indices. For this analysis the companies, relative to the entire duration of their listing, had to full the same criteria that were needed for the current liquidity analysis (see section 2.3.2.2). The procedure of 2.3.2.3 was also applied to the historical construction of the indices with the dierence that data was used from the entire listing duration of an LPE company. In contrast, the current analysis (see section 2.3.2) uses average annual data and is half-yearly conducted.4 2.3.2 Current Liquidity Analysis

Annual averages are used for the individual criteria for liquidity (see section 2.3.2.4). These criteria ensure the ability to replicate the indices. Five ratios are calculated within the framework of this analysis. 2.3.2.1 Ratios The specic ratios are:

a maximum average bid-ask spread (BAS) an average minimum market capitalisation [mEUR] (MV) an average minimum trading volume per trading day measured relative to the market capitalisation (TV) a minimum trade continuity (CT) 2.3.2.2 Criteria The following table summarizes the criteria that are applied to each of the indices. In the event a company does not full one of the criteria, it cannot be included in one of the indices (The criteria listed here are KO criteria)5 . Table 3: Ratios of Liquidity Analysis TV MV a 0.03%/0.05% 20 0.05% 80 0.08% 150 0.08% 150 0.08% 80 0.06% 20 0.08% 150 0.06% 20 0.08% 80 0.06% 80 0.06% 20

LPX Index LPX Composite LPX50 LPX Major Market LPX Buyout LPX Mezzanine LPX Venture LPX Direct LPX Indirect LPX America LPX Europe LPX UK
a

BAS 4.0% 3.0% 1.5% 1.5% 3.0% 4.0% 1.5% 4.0% 3.0% 3.0% 4.0%

CT >75% >80% >95% >95% >80% >75% >95% >75% >80% >80% >75%

Ranking A A B B B B B B B B B

dierent values for entering/leaving the index Abbreviations A: Ranking that is oriented to the market capitalisation (at the time of the liquidity analysis) B: Ranking that is oriented to the average (relative or absolute) trading volume

4 Between 5 LPX

March 2004 and June 2005 a quarterly LA occurred for the LPX50. reserves the right to deviate from these criteria

CHOICE OF INDEX CONSTITUENTS

10

2.3.2.3 Rankings It is determined which companies full the criteria from section 2.3.2.2. Afterwards two ranking lists are put together: Ranking that is oriented to market capitalisation (A): The companies that full the criteria are brought into a ranking list according to their market capitalisation (at the time of the liquidity analysis). Ranking that is oriented to the average (relative or absolute) trading volume (B): The companies that full the criteria are brought into a ranking list according to their average trading volume. The average trading volume is calculated with the daily data of the previous year (see section 2.3.2.4). A high rank is allocated to a company with a high average trading volume, while a low rank attends with a low average trading volume. 2.3.2.4 Time and Frequency of the LA The liquidity analysis is carried out twice a year by LPX as of December 01 and June 01 on every year. Potential index changes become eactive at the respective index chaining date (see table 1) for each index. Underlying data history for the LA: for the LA on 1 December: 1 December of the previous year until 1 December of the current year for the LA on 1 June: 1 June of the previous year until 1 June of the current year

CHOICE OF INDEX CONSTITUENTS

11

2.3.3

Ordinary Adjustment

An ordinary adjustment of the indices takes place after each LA. More precise it takes place half-yearly on the respective chaining date (see table 1) of each index. Companies that no longer full one of the KO criteria from section 2.3.2.2 are replaced. The successor is the company with the highest rank better than n6 that was not previously included in the index (where n indicates the number of companies in the respective index). The rank is determined from the ranking lists mentioned in 2.3.2.3. LPX also carries out ordinary adjustments that are supported only by the ranking lists named in section 2.3.2.3 (see table 4 below). Index LPX50 LPX Major Market LPX Buyout LPX Composite LPX Europe LPX America LPX Venture LPX Direct LPX Indirect LPX UK LPX Mezzanine R1 60 [n 1.2] [n 1.2] [n 1.2] [n 1.2] [n 1.2] [n 1.2] [n 1.2] [n 1.2] [n 1.2] [n 1.2] R2 50 n n n n n n n n n n R3 25 [n 2] [n 2] [n 2] [n 2] [n 2] n [2] [n 2] [n 2] [n 2] [n 2]

Table 4: Ranking-Supported Adjustments A constituent of the index that is ranked in the respective ranking list at R1 or worse is replaced, assuming a constituent exists which is ranked at R2 or better in the ranking list. A non-index-constituent that is ranked at R3 or better in the respective ranking list is included in the index, if a company currently in the index has a lower rank than R2. Concerning the LPX Composite, the adjustment procedure is slightly dierent. All LPE companies that full the ratios given in table 3 become constituents of the index since there is no maximal number of constituents. Consequently no ranking-supported adjustments occur in this case. At the end of the process of ordinary adjustments, there is a new constituent list for the respective index. At the same time, a new ranking list of possible successors is created. These ranking lists are created using the same method as those mentioned in section 2.3.2.3, i.e. those companies (not currently in the index) with the highest market capitalisaton or with the highest trading volume get the top rank and are therefore the rst candidates to advance in an ordinary adjustment (see section 2.3.4). The integration of extraordinary adjustments into the calculation of the indices is explained in section 4.2 of this Guide. Dealing with ordinary adjustments during the calculation of the indices is dened in section 4.1 of this Guide.

6 [x]

denotes the largest integer smaller than x.

CHOICE OF INDEX CONSTITUENTS

12

2.3.4

Extraordinary Adjustment

Adjustments due to extraordinary events will also be carried out: 2.3.4.1 Replacement of a Constituent Due to Delisting Constituents that have applied for a de-listing at an exchange or for whom bankruptcy proceedings have been adjudicated will be taken out of the index eective not later the day when the security is last traded at an exchange. In case the security is removed before that date LPX will communicate this in advance. The company with the highest rank on the successor list (see section 2.3.3 will succeed in the index.7 2.3.4.2 Merger of Two Index Constituents If an existing index constituent is acquired for eligible shares (or a combination of eligible shares and cash) by another index constituent, the existing constituent is deleted on the eective date of acquisition. The company with the highest rank on the successor list (see section 2.3.3) will move up. 2.3.4.3 Merger of an Index Constituent with a Non-Index Constituent If an existing index constituent is acquired for eligible shares (or a combination of eligible shares and cash) by a quoted non-constituent, then the merged company is continued in the index if eligible in all other respects of this Guide. If the requirements dened in section 2.1 are not fullled, the merged company is replaced by the company with the highest rank of the successor list. Dealing with extraordinary adjustments within the calculation of the indices is dened in section 4.1 of this Guide. LPX reserves the right to deviate from the said rules for ordinary or extraordinary adjustment in exceptional cases.

7 In the case of extraordinary adjustments (see also 2.3.4.2 and 2.3.4.3), LPX uses the most liquid or the most capitalised candidate resulting of the previous liquidity analysis (1 June and 14 December) no matter if this liquidity analysis has already become eective or not.

CALCULATION METHODS

13

3
3.1

Calculation Methods
Historical Reconstruction of the Indices

The formulae in section 3.2 of this Guide describe the current calculation algorithm starting from June 15, 2005 in the case of the LPX Major Market and December 14, 2005 for all other indices.8 For the historical reconstruction LPX used equivalent path-dependent formulas. Historically, adjusted prices and dividends in the respective currency of the indices as well as data on the market capitalisaton of the index constituents were used to take into consideration the relevant corporate actions and to calculate the indices.

3.2

Index Formulae LPX Indices (Single Stock Distribution Reinvestment)

nt p wi,t aai,t CTR i=1 i,t i, t n0 p aai,0 wi,0 i=1 i,0 nt p wi,t aai,t CPI i=1 i,t i,t n0 p aai,0 wi,0 i=1 i,0

The calculation of the LPX indices follows the following formula:9 TRIndext =
TR Kt

BasisTR 0

(1)

PIIndext = With: Index K n p w aa C Basis

PI Kt

BasisPI 0

(2)

t i

Level of the Index Index-specic chaining factor Number of constituents in the index Price in local currency Relevant exchange rate Capped number of shares (constant between chaining dates) Current adjustment factor Last value according to the old calculation algorithm (see comments in section 3.1) on 15 June 2005 for the LPX Major Market, on 14 December 2005 for all other indices except the LPX UK and the LPX Mezzanine (both 14 August 2007) Daily time index Index of constituents of the index

8 TBD 9 The formulae described in section 3.2 apply to all LPX indices with the exception of the LPX Composite which is calculated according to section 3.3 as of December 14, 2006.

CALCULATION METHODS

14

3.3

LPX Index Calculation Algorithm (Dividend Reinvestment across all Constituents of the Index)

Within this calculation algorithm, the index is calculated as follows:

nt i=1 nt1 i=1

TRIndext = TRIndext1

pi,t wi,t aai,t Ei,t

dt j=1

pi,t1 aai,t1 wi,t1 Ei,t1

nt i=1

DITR Q aa j,t w j,t E j, t j,t

(3)

PIIndext = PIIndext1

pi,t wi,t aai,t Ei,t

dt j=1

nt1 i=1

pi,t1 aai,t1 wi,t1 Ei,t1

DIPI Q aa j,t w j,t E j, t j,t

(4)

The index is calculated with the old index composition on chaining dates and with the new index composition after. d DITR DIPI E j TRIndex12/14/06 PIIndex12/14/06 Number of constituents that go ex dividend Cash dividends and special distributions Cash dividends and special distributions excluding regular dividends Current adjustment factor (see formula (6)) index j = 1, 2 d denotes the companies that go ex dividend 160.09 (in case of the LPX Composite TR) 135.42 (in case of the LPX Composite PI)

3.4

Entry Data

Essentially, data from international data providers are used for the calculation of the indices.

3.5

Monitoring the Entry Data

LPX denes a primary data source for the entry data in the calculation. A back-test with a secondary data source takes place. Should there be deviations between primary and secondary sources, LPX contacts third sources, such as exchanges or other data providers.

3.6

Adjustment of Entry Data

Errors in the entry data are corrected by the procedure described in section 3.5. In the event subsequent errors in the entry data still show up, a correction takes place as soon as possible for errors recognized within 5 days. If the error is discovered after 5 days, an adjustment is made only if the error is to be classied signicant.

3.7

Cap Limit

At the time of the semi-annual chaining date, the weight of any constituent is limited to a cap of Current CAP (as dened in table 1). Should the weight of any stock after appropriate adjustment between two LA either rise or fall under Current CAP%, the weight will not be re-adjusted to Current CAP% until the time of the next chaining date. On each chaining date LPX calculates the capped number of shares of any constituent (denoted by aa). This variable is chosen such that no constituent has a weight of more than Current CAP% at the chaining date. Between chaining dates, aa is constant.

CALCULATION METHODS

15

3.8

Corporate Actions

LPX indices take all the corporate actions listed in 3.8 into account. The adjustment factors are dened for both price (PI) and total return (TR) index. In general, the following formulae is applied for the adjustment factors: TR TR TR TR CTR (5) i,t = aai,t bi,t ei,t fi,t
PI PI PI PI CPI i,t = aai,t bi,t ei,t fi,t PI PI Ei,t = bPI i,t ei,t fi,t

(6) (7)

where the auxiliary factors a, b, e, f , for both the price (PI) and total return (TR) version are dened in 3.8.1 to 3.8.4. 3.8.1 Cash Dividends and Special Distributions

Cash dividends include regular dividends (denoted by and expressed per share on the ex date) as well as bonus and special dividends. Other special distributions include redemptions, bonus shares from another company as well as spin-os (denoted by SD and expressed per share on the ex date). For the TR indices all cash dividends and special distributions are included in the calculation. The following formulae apply to the auxiliary factor a: 1, TR a = i,t1 (1 + (1Q)Di,t ) aTR or (1 + pi,t1 (1Q)Di,t i,t1 if t = 1 if t k, Di,t = 0, SDi,t = 0
(1Q)SDi,t pi,t1 (1Q)SDi,t )

aTR i,t

(8) 0

aTR , i,t1

if t

k, Di,t

0 or SDi,t

aPI i,t with: k Q

1, aPI = i,t1 (1 + (1Q)SDi,t ) aPI or (1 + pi,t1 (1Q)SDi,t i,t1

if t = 1 if t k, SDi,t = 0
(1Q)SDi,t pi,t1 (1Q)SDi,t )

(9)

aTR , i,t1

if t

k, SDi,t

index of chaining dates (k = 1, 2, ) eective hypothetical withholding tax: 25%

3.8.2

Stock Splits and Reverse Splits

This section does not only include stock splits, but also reverse splits (stock consolidation). The split ratio is denoted by SPR on the ex date. The auxiliary adjustment factor b is calculated according to the following formulae: 1, if t = 1 TR TR b if t k, SPRi,t = 1 bi,t = (10) i,t1 SPRi,t bTR if t k, SPRi,t 0 t,t1
TR bPI i,t = bi,t for all i,t

(11)

CHAINING

16

3.8.3

Bonus Shares and Scrip Dividends of the same Company

Bonus shares from the same company are treated in the same ways as a stock split. B denotes the number of bonus shares per share held on the ex date. The following equations result: 1, TR e = i,t1 (1 + Bi,t ) eTR i,t1 if t = k if t k, Bi,t = 0 if t k, Bi,t 0

eTR i,t

(12)

TR ePI i,t = ei,t for all i,t

(13)

3.8.4

Subscription Rights

Subscription rights are not taken into account by LPX until the exercise date. At the exercise date the value of the subscription rights is reinvested in the company according to the subscription rate ratio SRR leading to the same amount of invested capital than before the transaction. 1, TR fi,t1 = SPRi,t f TR i,t1 if t = k if t k, SPRi,t = 1 if t k, SPRi,t 0

fiTR ,t

(14)

TR fiPI ,t = fi,t for all i,t

(15)

An analogous procedure is chosen for subscription rights to shares of another company. An exemplication is below-mentioned.
Formulae Shares to be issued Old number of shares Share pricet1 Issue price of new shares Subscription ratio Expected share price after the issue Value of subscription right (share price dilution) Number of shares in the index Value of subscription rights Number of additional shares Correction factor (1) (2) (3) (4) (5) (6) = [(1) (4) + (2) (3)] [(1) + (2)] (7) = [(3) (6)] (8) (9) = [(7) (8)] (10) = [(9) (6)] (11) = [[(10) + (8)] (8) Constituent A 1000 3000 100 80 3 95 5 3000 15000 157.89 1.05

Table 5: Example: Subscription Rights

4
4.1

Chaining
Ordinary Chaining

On every calculation day, LPX determines a chaining factor. The index-specic chaining factor K is calculated as follows: 1, if t = 0 TRIndex TR if t = j + 1 Kt = (16) ZWt= j TR Kt1 if t j + 1, t 0

CHAINING

17

PI Kt

1, PIIndex = ZWt= j KPI t1

if t = 0 if t = j + 1 if t j + 1, t 0

(17)

Thereby, the index is calculated with the old index composition at a chaining date, while the intermediate value ZW is calculated with the new index composition. The intermediate value is calculated as follows: ZWtTR =j = ZWtPI =j =
nt p i=1 i,t nt p i= 1 i, 0 nt p i=1 i,t nt p i=1 i,0

wi,t aai,t wi,0 aai,0 wi,t aai,t wi,0 aai,0

BasisTR 0 BasisPI 0

(18)

(19)

4.2

Extraordinary Chaining

In case of an extraordinary adjustment dened in section 2.3.4, LPX applies the following procedure: 4.2.1 Constituent is replaced due to a Delisting

The amount currently invested in the index of company i being replaced is completely shifted to successor j. In this general case no chaining takes place since only a simple transfer of invested capital occurs. Should a constituent with a high weight be replaced by a successor with a high potential weight, there can be a deviation from this practice whereby an adjustment of the weights of all index constituents takes place, meaning an analogous procedure to an ordinary chaining. En extraordinary chaining is implemented in the same way as an ordinary one, i.e. formulae (16)-(19) do apply in this case as well. Before each replacement LPX will communicate which of the two procedures take place. 4.2.2 Merger of two Index Constituents

A new company (successor) must be included in the index due to the merger of two index constituents. This new inclusion requires an adjustment of the weights of all index constituents or an extraordinary chaining. 4.2.3 Merger of an Index Constituent with a Non-index Constituent

The capital invested in the index from the acquiring company remains unchanged. At the next regular chaining date, the number of shares will be adjusted. If the stock is not created by the retainment of the listing of one of the old companies, the new company will be included in the index, whereby the invested capital of the company already represented in the index will be transferred. The number of shares will not be adjusted until the next regular chaining date. In the event the business purpose of a company after the merger no longer represents the denition of a LPE vehicle (described in section 2.1), a replacement and an extraordinary chaining will take place.

INDEX BOARD

18

Index Board

The rules dened in the Guide are frequently revised, in order to assure the highest industry standards and to audit the index calculation process. For this purpose, LPX established an index committee. The committee consists of well-known institutions and industry experts. The index committee meets on a semi-annual basis, prior to each liquidity analysis. The meeting is announced in advance and the decisions made are published on LPXs webpage, shortly after the meeting.

Amendments

The Guide will be checked on a regularly basis by LPX. Moreover the index calculation is monitored by an index committee, which ensures that the composition and calculation of the LPX index family are objective and transparent.

Data Vendor Codes

The LPX index family is disseminated through a broad array of data vendor channels. An overview on the various data vendor codes is depicted in Table 6.

DATA VENDOR CODES

19

Table 6: Data Vendor Codes

Total Return TR CCY LPX Composite EUR CHF EUR CHF Base Date 31.12.01 31.12.01 31.12.93 31.12.93 31.12.97 31.12.97 31.12.93 31.12.93 31.12.03 31.12.03 31.12.93 31.12.93 31.12.98 31.12.98 31.12.99 31.12.99 31.12.97 31.12.97 31.12.93 31.12.93 31.12.98 31.12.98 Valor CH CH2561635 CH3064810 CH2273754 CH3064806 CH2223370 CH2876564 CH2602948 CH2691113 CH3064813 CH3064814 CH2614410 CH3064807 CH3630400 CH3630407 CH2614436 CH3064809 CH2614430 CH3064808 CH2614420 CH2876579 CH3064811 CH3064812 ISIN CH0025616357 CH0030648106 CH0022737545 CH0030648064 CH0022233701 CH0028765649 CH0026029485 CH0026911138 CH0030648130 CH0030648148 CH0026144102 CH0030648072 CH0036304001 CH0036304076 CH0026144367 CH0030648098 CH0026144300 CH0030648080 CH0026144201 CH0028765797 CH0030648114 CH0030648122 Bloomberg LPXCMPTR LPXCMPTC LPX50TR LPX50TC LPXMMITR LPXMMITC LPXABOTR LPXABOTC LPXMEZTR LPXMEZTC LPXVENTR LPXVENTC LPXIDITR LPXIDITC LPXINDTR LPXINDTC LPXAMETR LPXAMETC LPXEURTR LPXEURTC LPXUKTR LPXUKTC Datastream LPXCOME Reuters .LPXCMTR .LPXCMTC .LPX50TR .LPX50TC .LPXMMTR .LPXMMTC .LPXBOTR .LPXBOTC .LPXMZTR .LPXMZTC .LPXVETR .LPXVETC .LPXDITR .LPXDITC .LPXINTR .LPXINTC .LPXAMTR .KPXAMTC .LPXEUTR .LPXEUTC .LPXUKTR .LPXUKTC

LPX50

LPX50IE

LPX Major Market EUR CHF LPX Buyout EUR CHF EUR CHF EUR CHF EUR CHF EUR CHF EUR CHF EUR CHF EUR CHF

LPXMAME

LPXBUYE

LPX Mezzanine

LPXMEZE

LPX Venture

LPXVENE

LPX Direct

LPXDIRE

LPX Indirect

LPXINDE

LPX America

LPXAMRE

LPX Europe

LPXEURE

LPX UK

LPXUKIE

Price Index PI LPX Composite EUR CHF EUR CHF 31.12.01 31.12.01 31.12.93 31.12.93 31.12.97 31.12.97 31.12.93 31.12.93 31.12.03 31.12.03 31.12.93 31.12.93 31.12.98 31.12.98 31.12.99 31.12.99 31.12.97 31.12.97 31.12.93 31.12.93 31.12.98 31.12.98 CH2561655 CH3064819 CH2390630 CH3064815 CH2354257 CH2876538 CH2602950 CH2691116 CH3064823 CH3064824 CH2614412 CH3064816 CH3630412 CH3630414 CH2614451 CH3064818 CH2614432 CH3064817 CH2614423 CH2876573 CH3064820 CH3064821 CH0025616555 CH0030648197 CH0023906305 CH0030648155 CH0023542571 CH0028765383 CH0026029501 CH0026911161 CH0030648239 CH0030648247 CH0026144128 CH0030648163 CH0036304126 CH0036304142 CH0026144516 CH0030648189 CH0026144326 CH0030648171 CH0026144235 CH0028765730 CH0030648205 CH0030648213 LPXCMPPI LPXCMPPC LPX50PI LPX50PC LPXMMIPI LPXMMIPC LPXABOPI LPXABOPC LPXMEZPI LPXMEZPC LPXVENPI LPXVENPC LPXIDIPI LPXIDIPC LPXINDPI LPXINDPC LPXAMEPI LPXAMEPC LPXEURPI LPXEURPC LPXUKPI LPXUKPC LPXCOME .LPXCMPI .LPXCMPC .LPX50PI .LPX50PC .LPXMMPI .LPXMMPC .LPXBOPI .LPXBOPC .LPXMZPI .LPXMZPC .LPXVEPI .LPXVEPC .LPXDIPI .LPXDIPC .LPXINPI .LPXINPC .LPXAMPI .LPXAMPC .LPXEUPI .LPXEUPC .LPXUKPI .LPXUKPC

LPX50

LPX50IE

LPX Major Market EUR CHF LPX Buyout EUR CHF EUR CHF EUR CHF EUR CHF EUR CHF EUR CHF EUR CHF EUR CHF

LPXMAME

LPXBUYE

LPX Mezzanine

LPXMEZE

LPX Venture

LPXVENE

LPX Direct

LPXDIRE

LPX Indirect

LPXINDE

LPX America

LPXAMRE

LPX Europe

LPXEURE

LPX UK

LPXUKIE

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