Index Rulebook BofAML European Style Indices NTR · Index Rulebook BofAML European Style Indices...

Index Sponsor

Merrill Lynch International

Dated as of 08 January 2016

(as may be amended from time to time)

Private and Confidential

Index Rulebook

BofAML European Style Indices NTR

BofAML European Style Indices

1. INDEX OBJECTIVE ............................................................................................................................3

2. INDEX OVERVIEW AND MANAGEMENT ....................................................................................3

2.1 Overview ...................................................................................................................................3

2.2 Index Valuation Day .................................................................................................................4

2.3 Eligible Universe ......................................................................................................................4

2.4 Index-weighting scheme ...........................................................................................................4

2.4.1 Fundamental Factor Risk Model .........................................................................................4 2.4.2 Portfolio Optimization Tool ................................................................................................5

2.5 Rebalancing schedule ................................................................................................................6

2.6 Index ESG Agent ......................................................................................................................7

2.7 Index Sponsor ...........................................................................................................................7

2.8 Index Calculation Agent ...........................................................................................................8

2.9 Index Rebalancing Agent ..........................................................................................................8

2.10 Index Committee .......................................................................................................................8

2.11 Index Publication ......................................................................................................................8

2.12 Index Base Date and Value .......................................................................................................9

3. INDEX CONSTRUCTION ...................................................................................................................9

3.1 Index Value ...............................................................................................................................9

3.2 Post Rebalancing Adjustment ................................................................................................. 13

4. INDEX DISRUPTION EVENTS, AMENDMENT AND CANCELLATION ............................... 13

4.1 Index Disruption Events .......................................................................................................... 13

4.2 Index Amendment ................................................................................................................... 14

4.3 Index Cancellation .................................................................................................................. 14

5. DEFINED TERMS .............................................................................................................................. 15

6. RISK PROVISION .............................................................................................................................. 16

7. DISCLAIMER ..................................................................................................................................... 18


1. INDEX OBJECTIVE

The BofAML European Style Indices NTR (each a “Style Index” and together the “Style Indices”) are

members of a family of equity indices denominated in Euro that reflect the net total return of dynamic

portfolios of shares.

Each Style Index aims to provide exposure to specific Style Factor returns thanks to a rebalancing schedule

and an index-weighting scheme developed by Merrill Lynch International, as set out below in 2.4.

The universe (the “Eligible Universe”) is comprised of (i) all the companies from a Benchmark Index (ii)

that are not incompatible with “Environmental, Societal and Governance” considerations. Details on the

determination of the constituent of the Eligible Universe can be found in Section 2.3.

The Benchmark Index is the STOXX 600 Index sponsored by Stoxx Ltd (each constituent a “Benchmark

Constituent” and its weight in the Benchmark Index a “Benchmark Weight”).

s Style Index Name Ticker Style Factor

1 BofAML Europe Size Index NTR MLFPSSET Index Size

2 BofAML Europe Growth Index NTR MLFPSGET Index Growth

3 BofAML Europe Momentum Index NTR MLFPSMET Index Momentum

4 BofAML Europe Value Index NTR MLFPSVET Index Value

5 BofAML Europe Volatility Index NTR MLFPSWET Index Volatility

Table 1: List of Style Indices

Unless defined otherwise, terms used in this Index Rulebook shall have the meaning ascribed to them in

Section 4 below.

2. INDEX OVERVIEW AND MANAGEMENT

2.1 Overview

The Style Indices are based on the following premises:

Stock returns are influenced by a finite set of style factor returns, which vary across time and regions.

Index-weighting schemes based on quantitative models can be used to construct indices that offer

exposure to certain style factor returns.

Index-weighting schemes that do not allocate according to market capitalisation have demonstrated

outperformance over traditional market-cap weighting schemes1.

Innovative, non-standard portfolio construction techniques can exploit behavioural market

inefficiencies and add further value, in addition to the above2.

1. Index Valuation Days are days where all the constituent of the Benchmark Index are scheduled to be open for their regular

trading session. Jason Hsu, “Value Investing: Smart Beta versus Style Indexes” - Journal of Index Investing, Summer 2014, Vol5

2. Bruce I. Jacobs ; Kenneth N. Levy, “Smart Beta versus Smart Alpha” – The Journal of Portfolio Management, Summer

2014


2.2 Index Valuation Day

Index Valuation Days are days where all the constituent of the Benchmark Index are scheduled to be open

for their regular trading session.

2.3 Eligible Universe

The Eligible Universe with respect to a Potential Rebalancing Date consists of all the shares as of the

immediately preceding Index Valuation Day that (each a “Potential Constituent”):

Belonged to the Benchmark Index, provided that if an issuer has several share types within the

Benchmark Index, then only the share type with the largest 20 days average traded volume shall be

made part of the Eligible Universe.

Did not belong to the Active List of Non ESG Compliant List, list updated from time to time by

the Index ESG Agent with shares from the Benchmark Index.

2.4 Index-weighting scheme

On each Potential Rebalancing Date and for each Style Index, the Rebalancing Agent will determine for

each Potential Constituent:

A Style Weight,

A Theoretical Style Weight whose function is to determine whether the Style Weight needs to be

implemented at the close on such day as further described in 2.5.

To this purpose, the Rebalancing Agent will use a Fundamental Factor Risk Model described in section

2.4.1 and a Portfolio Optimization Tool described in section 2.4.2.

Graph 1. Index weighting scheme diagram

2.4.1 Fundamental Factor Risk Model

The Fundamental Factor Risk Model employed is the Axioma Europe 2.1 Medium-Horizon Fundamental

Model2. It contains Style Scores for each Potential Constituent. It also contains covariance values for each

2Please see www.axioma.com for further details regarding the methodology behind these models.

Scores for Size

Style Factor

Scores for

Growth Style

Factor

Scores for

Value Style

Factor

Scores for

Volatility Style

Factor

Fundamental Factor

Risk Model

Portfolio Optimization

Tool

Index

weighting

scheme

BofAML Europe

Size Index NTR

BofAML Europe

Growth Index NTR

BofAML Europe

Momentum Index

NTR

BofAML Europe

Value Index NTR

BofAML Europe

Volatility Index

NTR

Scores for

Momentum Style

Factor

Eligible Universe on Potential Rebalancing Date

Portfolio Optimization Tool

Covariance Matrix


pair of Potential Constituents (together a “Covariance Matrix”). Style Scores and Covariance Matrix are

updated on each Index Valuation Day by Axioma. The Rebalancing Agent always uses the Fundamental

Factor Risk Model from the Index Valuation Day immediately preceding a Potential Rebalancing Date.

The 5 Style Factors can be described as follows:

Style Factor Description

Growth Provides an indication of a company’s historical rate of growth based on fundamental

data such as return on equity, dividend payout rate, earnings growth rate. Companies

with larger historical rates of growth are assigned larger score. The BofAML Europe

Growth Index NTR has a positive exposure to the Growth factor

Momentum Provides an indication of a company’s annual price performance, excluding the

previous month’s performance. Companies with a larger annual price performance are

assigned a larger score. The BofAML Europe Momentum Index NTR has a positive

exposure to the Momentum factor.

Size Provides a measure of the market capitalisation of a company. Larger companies are

assigned a larger score. The BofAML Europe Size Index NTR has a negative exposure

to the Size factor.

Value Provides a measure of how fairly a company’s share is priced based on fundamental

data such as book-to-price and earning-to-price. Companies with a higher value

relative to their share price are assigned larger scores. The BofAML Europe Value

Index NTR has a positive exposure to the Value factor.

Volatility Provides a measure of the volatility of the daily returns of a share relative to its

benchmark. Companies with higher volatilities are assigned higher scores. The

BofAML Europe Volatility Index NTR has a negative exposure to the Volatility

factor.

Table 2: Style Factor definition

2.4.2 Portfolio Optimization Tool

The Portfolio Optimization Tool implements an algorithm that translates the Style Scores and the

Covariance Matrix into Style Weights and Theoretical Style Weight for each Potential Constituent. It is

based on criteria for index construction designed by BofAML and implemented within the Axioma

Portfolio OptimizerTM

version 6.9.3 for Windows7 64-bit, Matlab and the Java Running Environment.

2.4.2.1 Construction Specification for the determination of Style Weight

For each Style Index, the optimization objective is set to minimise the risk of the index and the

optimization constraints are set to the following:

Constraint Definition

Style Weight No Style Weight can be negative

Sum of Style

Weight

The sum of all the Style Weights must be equal to 1

Target Style

Exposure

For the Momentum, Value and Growth Style Factor, the Target Style Exposure must

be equal to 50%, where the Target Style Exposure represents the weighted average of

the Style Scores. For the Size and Volatility Style Factors, the Target Style Exposure

must be equal to -50%.

Other Style

Exposures

should be within +/-20%, where Other Style Exposure corresponds to the sum of the

weighted average of all the Style Factor different to the targeted Factor Style

Sector Limits For all Potential Constituents sharing the same Global Industry Classification Standard

(GICS®) sector classification, the sum of their Style Weights must be within +/-10% of

the cumulative Benchmark Weights of that GICS® sector


Country Limits For all the Potential Constituents sharing the same country (as defined in the

Fundamental Factor Risk Model), the sum of their Style Weight must be within +/-

10% of the cumulative Benchmark Weights of that country

Position Limits Each Style Weight is less than or equal to 3%

Liquidity

Holding Limits

Each Style Weight is capped at 20% x 20day average daily volume in Euro / Euro

500m

Liquidity Trade

Limits

Each Style Weight is capped at 5% x 20day average daily volume in Euro / Euro

500m for every name traded

Turnover Limits The sum of the absolute change of Style Weight is limited to 25%

Constraint

Hierarchy

Axioma’s Portfolio OptimizerTM

software allows constraints to be relaxed according to

an order of prioritization in cases of infeasibility. The constraint priority are:

Target Style Exposure: Priority 1

All other Style Exposure: Priority 2

Sector Limits: Priority 1

Country Limits: Priority 1

Position Limits: Priority 1

Liquidity Holding Limits: Priority 3

Turnover Limit: Priority 4

All other constraints are hard constraints (i.e., must be satisfied)

Table 3: Constraints used in the Portfolio Optimisation Tool

Should the Portfolio Optimization Model not provide a solution for a specific Style Index, then the Style

Weight with respect to such Style Index shall remain unchanged until the following Potential Rebalancing

Date.

2.4.2.2 Construction Specification for the determination of Theoretical Constituent Style Weight

A set of Theoretical Style Weights are calculated for each Potential Constituent using the same

optimisation objectives and constraints defined in Section 2.4.2.1 with the exception of the “Turnover

Limits” and “Liquidity Holding Limits”, which are omitted. These Theoretical Style Weights are using to

potentially trigger a Rebalancing, as described in Section 2.5.

2.5 Rebalancing schedule

The Potential Rebalancing Dates are the 5th

, 10th

, 15th Index Valuation Days immediately following the first

Index Valuation Day of each calendar month and the last Index Valuation Day of the month. For example,

for the beginning of 2014, the Potential Rebalancing Dates are 8th

, 15th

, 22nd

and 30th

of January, 2014.

On such day and for each Style Index, the Rebalancing Agent will

Determine the Style Weight as well as the Theoretical Style Weight as described in 2.4.2 using the

Fundamental Factor Risk Model from the Index Valuation Day immediately preceding such Potential

Rebalancing Date.

Calculate a tracking error using the following formula:


Where

Term Definition

i,j Refers to the ith

and jth

shares that are both Potential Constituent as well as current

Index Constituent for the Style Indexs

s Refers to the sth

Style Index as described in Table 1

t-1 Refers to the Index Valuation Dayt immediately preceding such Potential Rebalancing

Date.

M The number of shares that are both Potential Constituent and current Index

Constituents

Style Weight as of the immediately preceding Index Valuation Day

Theoretical Style Weight as of such Potential Rebalancing Date

Covariance between the ith

and jth

share, according to the latest Fundamental Factor

Risk Model as of the immediately preceding Index Valuation Day, as described in 2.4.

Table 4: Definition of terms used in the calculation of the Tracking Error

Determine for each Style Index whether a rebalancing should occur at the closing time on such

Potential Rebalancing Date. For this, the Rebalancing Agent will check that either condition (1), (2) or

(3) below is met:

1. There have been more than 11 Potential Rebalancing Dates since the last Rebalancing Date

2. (i) The Tracking Errors,t is above 1.5%, (ii) the absolute value of Target Style Exposure (see

2.4.2.1) is less than the minimum threshold of 40%, and (iii) there have been at least two (2)

Potential Rebalancing Dates since the last rebalancing.

3. (i) The Tracking Error is above 2%, and (ii) there have been at least two (2) Potential

Rebalancing Dates since the last rebalancing.

If the Rebalancing Agent determines that a rebalancing should occur for a Style Index, then the Style Index

will rebalance with the calculated Style Weight at the close of such Index Valuation Day. Such day shall

become a “Rebalancing Date” with respect to such Style Index and all the “Potential Constituent” shall

become “Index Constituents” with respect to such Style Index and such Rebalancing Date.

2.6 Index ESG Agent

Sustainalytics or any successor, in its capacity of Index ESG Agent, shall maintain a list of shares from the

Benchmark Index that it deems highly controversial from an Environmental, Societal and Governance.

Constituent of the Benchmark Index with a controversy level of 4 and 5 appear on this list. For more

information www.Sustainalytics.com

2.7 Index Sponsor

Merrill Lynch International in its capacity as Index Sponsor is responsible for the day-to-day management

and maintenance of the Index, as well as the publication of the Index Value. Whilst the Index Sponsor

currently employs the rules, procedures and methodology described in this Index Rulebook, no assurance

can be given that market, regulatory, judicial, fiscal or other circumstances will not arise that would, in the

view of the Index Sponsor, necessitate a modification, adjustment and/or deletion of this Index Rulebook or

any provision herein.

The most recent Index Rulebook together with details of any modification, adjustment and/or deletion is

available upon request to the Index Sponsor at the following email address:

[email protected].


2.8 Index Calculation Agent

Merrill Lynch International in its capacity as Index Calculation Agent will employ the methodology

described in this Index Rulebook, as may be modified and/or adjusted and/or subject to deletions from time

to time, in its calculation of the Index Value in respect of each Index Valuation Day.

Subject to the terms of this Index Rulebook, any determination by the Index Calculation Agent will (i) be

made in its sole and absolute discretion by reference to such factors as it deems appropriate at such time,

and (ii) will, in the absence of manifest error, be final, conclusive and binding.

2.9 Index Rebalancing Agent

EvalueServe, or any successor, in its capacity as Rebalancing Agent will employ the methodology

described in this Index Rulebook, as may be modified and/or adjusted and/or subject to deletions from time

to time, in its calculation of all the Style Weights in respect of each Index Valuation Day.

2.10 Index Committee

The primary role of the Index Committee is to determine whether a proposed modification, adjustment

and/or deletion of this Index Rulebook or any provision herein (including, without limitation, the

methodology) is necessary, in order to:

(a) ensure continuity in the calculation and publication of the Index;

(b) preserve or enhance performance of the Index; and/or

(c) maintain the integrity of the Index,

to the extent possible, given its stated objective.

Modifications or adjustments which the Index Committee is authorised to make include, without limitation,

amendments to the methodology, and substitution or removal of Underlying Indices from the notional

portfolio, which, in each case, may have a negative impact on the performance of the Index.

The Index Committee will be periodically convened, and at any other time, at the request of the Index

Sponsor, for the purposes of considering any event contemplated in Section 4 or any other issue or concern

which in the determination of the Index Sponsor may have a material impact on the Index or the terms of

this Index Rulebook.

The Index Committee will not be required, at any time or in any manner, to have regard for the interests of

any particular investor or group of investors when considering any action to be taken in relation to the

Index or this Index Rulebook.

2.11 Index Publication

Subject to Section 4 below, the Index Sponsor shall publish the Index Value in respect of each Index

Valuation Day on the relevant Bloomberg page (see Table 1) or any successor financial information service

as determined by the Index Sponsor in its sole and absolute discretion. The Index Sponsor shall publish the

Index Value in the Base Currency, as calculated by the Index Calculation Agent and rounded to the two

nearest decimal places (0.005 being rounded up).

Under normal market conditions the Index Value in respect of an Index Valuation Day will be calculated

and published no later than 5pm (London time) the date occurring two Index Valuation Days following

such Index Valuation Day. The Index Sponsor may delay publication of the Index Value if, in its

determination, there are circumstances which prevent an accurate calculation of the Index Value by the

Index Calculation Agent.


If a material error has occurred in the calculation of the Index, resulting in publication of a materially

inaccurate Index Value, the Index Sponsor reserves the right to publish any corrected Index Value

calculated by the Index Calculation Agent and shall determine, in its sole and absolute discretion, whether

such corrected Index Value shall apply on a retrospective basis or only from the date such correction is

published.

2.12 Index Base Date and Value

Each Index had an Index Value of 100.00 in the Base Currency on the Index Base Date.

3. INDEX CONSTRUCTION

3.1 Index Value

The Index Value with respect to each Style Index “s” and Index Valuation Day “t” shall be calculated

according to the following formula:

Where

Term Definition

TCs,t See section 3.2 below

Index

Constituent

Same definition as above in section 2.5

Style Weight Same definition as above in section 2.5

s Refers to the sth

Style Index as described in Table 1

t Refers to the tth

Index Valuation Day since the Index Base Date

j,t,s With respect to a Style Index , refers to the jth

Index Constituent present at the opening on

Index Valuation Dayt

T,s With respect to a Style Index, refers to the Index Rebalancing Date immediately preceding


Ut,s With respect to a Style Index , means the number of Index Constituent present at the open of


Pj,t,s Shall mean the official closing price of Index Constituentj,t,s on Exchangej,t,s. If no such official

closing price is available on such day, then Pj,t,s shall mean the last available official closing

price on Exchangej,t,s

FXj,t,s Shall mean

If Currencyj,s,t is the Base Currency then shall be 1

If Currencyj,s,t is not the Base Currency then shall mean the mid foreign exchange

rate used to convert one unit of Currencyj,s,t into the Base Currency as published by

W/M Reuters with respect to the 4.00 p.m. London time fixing on Index Valuation

Dayt. In the event that the foreign exchange rate fixing is not published for such day,

then the immediately preceding foreign exchange rate shall be used.

Currencyj,t,s The currency that Index Constituentj,s,t is denominated in

Exchangej,t,s Shall mean the exchange where Index Constituentj,s,t has its primary listing

APj,t,s Shall mean an Adjusted Opening Price determined on the opening of Index Valuation Dayt

according to:

• If Index Constituentj,t,s shall open ex-date in respect of a corporate action, then APj,t,s


shall be determined according to Table 6 below

• Otherwise

Nj,t,s Shall mean a Number of Shares determined according to:

ANj, t,s Shall mean an Adjusted Opening Number of Shares determined according to:

• If such day is also the opening immediately following a Rebalancing DayT and if

o Index Constituentj,t,s opens ex-date in respect of a corporate action, then

ANj,t,s shall be determined according to Table 3 below, where Nj,t-1,s shall be

replaced with

o Index Constituentj,t,s does not opens ex-date in respect of a corporate action,

then ANj,t,s shall be determined according

• On any other day

Where Weightj,t-1,s means the Style Weight with respect to the Index Constituents,t-1 present at

the open of Index Valuation Dayt

Divisort,s

Shall mean a divisor determined on the opening of Index Valuation Dayt,s according to

• If such day is also the opening immediately following a Rebalancing DayT

• And otherwise

Shall mean a value determined on the opening of Index Valuation Dayt,s according to

Where i shall represent the Index Constituents,t-1 present at the open of Index Valuation Dayt-1

Table 5: Definition of terms used in the calculation of the Index


Corporate

action type

Adjustment

Cash

distribution

Where

• Dj,t,s shall mean the gross dividend cash payment made in respect of Index

Constituentj,t,s to the holders of such Index Constituentj,t,s other than an extraordinary

dividend

• FXd,t-1 shall mean FX with respect to the currency that the dividend is paid into.

• Withholding_Taxj,s means the maximum with-holding tax that applies in the country

of incorporation of the issuer of Index Constituentj,t,s to institutional investors who

do not benefit from double taxation treaties.

Stock

distribution

Where ShareRatioj,t,s shall mean the number of shares net of Withholding_Taxj,s issued for

every Index Constituentj,t,s held.

Stock

distribution of

another

company

Where

• Pf,t-1,s shall mean the official closing price of the distributed shares on the exchange

where they have their primary listing, ShareRatiof,t,s shall mean the number of the

distributed shares issued for every Index Constituentj,t,s held.

• FXd,t-1 shall mean FX with respect to the currency that the distributed share is

denominated into

Share

repurchase in

the form of a

tender offer to

shareholders

Where

• Cj,t,s shall mean the official tender price, ShareRatioj,t,s shall mean the number of

shares that can be sold for every Index Constituentj,t,s held.

Capital

increase

If Bj,t,s < Pj,t,s then

And otherwise, - and -


Where Bj,t,s shall mean the official subscription price of each new share, ShareRatioj,t,s shall

mean the number of new shares that can be subscribed for every Index Constituentj,t,s held.

Stock split

Where ShareRatioj,t,s shall mean the number of shares after the split for every Index

Constituentj,t,s held.

In relation to any of the events above (“Share Adjustment Events”), the following shall apply:

1. If, in relation to Index Constituentj,t,s, there is an option to elect between different types of distribution, the

default election shall apply.

2. If on Index Valuation Datet, an Index Constituent opens ex-date in respect of a Share Adjustment Event

but the details of such Share Adjustment Event are not known, then if the Index Calculation Agent, acting

in a commercially reasonable manner, determines that:

(i) an estimate can be made, then APj,t,s and ANj,t,s shall be determined based on such estimate; or

(ii) no estimate can be made, then APj,t,s shall be equal to Pj,t-1,s and ANj,t,s shall be equal to Nj,t-1,s.

Where the Index Calculation Agent, acting in a commercially reasonable manner, determines to make an

estimate pursuant to this paragraph 2, it shall inform the Index Committee of the proposed estimate, the

source based on which an estimate is made, and the justification for using such source and applying such

estimate.

3. If the details of a Share Adjustment Event as known on its payment date differ from the details used for

determining APj,t,s and ANj,t,s on its ex-date (whether such details so used are based on the

announcement of the Index Constituent on the ex-date, or based on an estimate made pursuant to

paragraph 2(i) above; or where no estimate is made on the ex-date pursuant to paragraph 2(ii) above), then

the Index Calculation Agent shall make an adjustment to the Post Rebalancing Adjustment (as set out in

section 3.3) to account for such difference. This adjustment shall be applied on the Index Valuation Dayt

immediately following such payment date

Where

• APj,t%,s and ANj,t%,s means APj,t,s and ANj,t,s determined on the open of the ex-date based on estimates

of the details of the Share Adjustment Event pursuant to paragraph 2 above,

• FXj,t%-1,s means FXj,t,s determined on the Index Valuation Day immediately preceding the ex-date

• APj,t*,s and ANj,t*,s means APj,t,s and ANj,t,s with respect to the ex-date determined using details of the

Share Adjustment known on payment date relating to such Share Adjustment.

For the avoidance of doubt, an estimate (and in the case of paragraph 2(ii) above, zero estimate) will be

applied on the ex-date and any adjustment will be applied on the Index Valuation Dayt immediately

following the relevant payment date. No adjustment will be made during the interim period from (and

including) the ex-date to (and including) the payment date.


Table 6: Definition of the adjustment according to various corporate actions

3.2 Post Rebalancing Adjustment

Shall mean with respect to an Index Valuation Dayt and a Style Indexs following an Index Rebalancing

DateT,s:

Term Definition

k Refers to the kth

share of a hypothetical portfolio determined on the immediately preceding

Index Rebalancing DateT,s comprising (i) all Index Constituentj,t,s present at the opening of

Index Rebalancing DateT and (ii) all Index Constituentj,t+1,s present at the open of the Index

Valuation Dayt+1 immediately following Index Rebalancing DayT. The number of

constituent of this hypothetical portfolio is “ ”.

N,k,T,s Shall mean the with respect to Index Rebalancing DateT,s:

Nk,t,s shall be zero for Index Constituentj,t+1,s that were not also Index Constituentj,t,s

Nk,t+1,s shall be zero for Index Constituentj,t,s that are no longer Index Constituentj,t+1,s

Cumulated

Adjustmentt,s

Means in respect of an Index Rebalancing DateT,s and all the Index Constituents which

are subject to adjustment pursuant to section 3.2 above, the sum of all the

Adjustmentt*+1,s, as defined in section 3.2, from (but excluding) the immediately

preceding Index Rebalancing Date to (and including) such Index Valuation Dayt

Table 6: Definition of terms used in the calculation of TC

4. INDEX DISRUPTION EVENTS, AMENDMENT AND CANCELLATION

4.1 Index Disruption Events

If, on any Index Valuation Day, the Index Sponsor determines, in its sole and absolute discretion, that an

Index Disruption Event has occurred then, in the sole discretion of the Index Sponsor, (i) the Index Sponsor

may determine the value of any disrupted Index Constituent as of such Index Valuation Day in a

commercially reasonable manner which reflects the nature of the Index Disruption Event, or (ii) calculation

and publication of the Index Value in respect of an Index Valuation Day may be suspended, delayed or

postponed.

If an Index Disruption Event occurs or has occurred, the Index Sponsor may, in its sole and absolute

discretion, convene the Index Committee to determine what action, if any, is appropriate in accordance with

this Index Rulebook.

“I de D up ve ” means any event which (in the determination of the Index Sponsor):

(a) materially disrupts, or impairs the accuracy of, the determination of the Index Value;

(b) materially disrupts or impairs the ability of market participants in general to effect transactions in

or obtain market values for any Index Constituent;


(c) has a material impact on integrity of the Index or the ability of the Index to achieve its stated

objective; or

(d) would otherwise require the Index Sponsor and/or Index Calculation Agent to depart from the

terms of this Index Rulebook in the management, maintenance, calculation or publication of the

Index for the purposes of maintaining the objective of the Index.

The following is a non-exhaustive list of examples of Index Disruption Events:

(a) There has been a material delay or failure in the calculation or publication of values for any of the

Index Constituent;

(b) A Index Constituent is subject to a merger event or a spin-off.

(c) A scheduled distribution linked to a Index Constituent cannot be reliably estimated according to

market convention ahead of such stock commencing to trade ex-distribution.

(d) There has been a suspension or disruption in the trading or settlement of any Index Constituent;

(e) An event resulting in the breakdown in any means of communication which is utilised in the

determination of the Index Value where, as a consequence, in the determination of the Index

Sponsor, the last reported Index Value should not be relied upon;

( f) Any event preventing the prompt or accurate determination of the Index Value by the Index

Calculation Agent; or

(g) A determination by the Index Sponsor (acting through the Index Committee) that there should be

an amendment to this Index Rulebook in accordance with Section 4.2 below, and it is impractical,

prior to the implementation of such change, for the Index Calculation Agent to continue its

calculation and/or for the Index Sponsor to continue its publication, of the Index.

4.2 Index Amendment

As detailed in Section 2.8, the Index Sponsor may at any time, request that the Index Committee be

convened to consider any issue or concern that has arisen which, in the determination of the Index Sponsor

may have a material impact on the Index.

The Index Sponsor (acting always through the Index Committee) reserves the right to take any such actions

that it believes are necessary and/or appropriate in order to preserve or enhance the ability of the Index to

achieve its objectives , provided that any such action that is taken will be published, and further provided

that the amended Index Rulebook reflecting such change, and if such change will not be reflected in an

amended Index Rulebook then the change itself, is published prior to the change becoming effective where

that is reasonably practicable in the circumstances and if not, then as soon as reasonable practicable

following the effective date of such change.Such actions include but are not limited to:

(a) replacement of the Index with a successor index; and

(b) removal, replacement or addition of any Index Constituent and any subsequent modification of this

Index Rulebook to reflect such removal, replacement or addition; and

(c) an amendment of the characteristics or terms of any Index Constituent.

The Index Sponsor will maintain a record of any amendment or modification to this Index Rulebook, which

is available upon request to the Index Sponsor at the following email address:

[email protected]

4.3 Index Cancellation

The Index Sponsor (acting through the Index Committee, but otherwise in its sole and absolute discretion)

may at any time, for any reason and with prior publication permanently cancel (and instruct the Index

Calculation Agent to cease its calculation of) the Index.


The following is a non-exhaustive list of events on the occurrence of which the Index Sponsor (acting

through the Index Committee) may determine that it is appropriate to permanently cancel the Index:

(a) the Index Notional has fallen below the level at which it is considered justifiable and economical to

maintain the Index;

(b) a material increase in the costs incurred by the Index Sponsor and/or the Index Calculation Agent in

the maintenance and publication and/or, as the case may be, calculation of the Index;

(c) any Index Constituent is terminated, permanently cancelled or is materially amended; or

(d) a Change in Law.

5. DEFINED TERMS

Term Definition

Affiliate In relation to any entity (the “First Entity”), any entity controlled, directly or

indirectly, by the First Entity, any entity that controls, directly or indirectly, the First

Entity or any entity directly or indirectly under common control with the First

Entity. For these purposes, “control” means ownership of a majority of the voting

power of an entity

Base Currency EUR

BofAML Bank of America Corporation, and its Affiliates, including Merrill Lynch

International

Change in Law (a) the adoption of, or any change in, applicable law or regulation (including, without

limitation, any tax law) or (b) the promulgation of, or any change in the

interpretation by any court, tribunal or regulatory authority with competent

jurisdiction of, any applicable law or regulation (including action taken by a taxing

authority) which, in the determination of the Index Sponsor (in its sole discretion)

would (i) make it illegal for the Index Sponsor to perform its duties or (ii) cause the

Index Sponsor to incur a materially increased cost of performing its obligations

under this Index Rulebook (including, without limitation, due to any increase in tax

liability, decrease in tax benefit or other adverse effect on its tax position)

Index Base Date 1 July 1994

Index Valuation

Day

Index Valuation Days are days where all the constituent of the Benchmark Index are

scheduled to be open for their regular trading session.

Index Calculation

Agent

Merrill Lynch International, as replaced or substituted from time to time

Index Committee A committee consisting of representatives from certain businesses and control

functions of Merrill Lynch International and/or its Affiliates

Index Live Date 8 January 2016, being the first date that an Index Rulebook for the Index was

published by the Index Sponsor

Index Notional The notional value of any OTC derivatives, funds, securities or other financial

products or instruments which reference, or the return of which is linked in whole or

in part to the performance of, the Index

Index Rulebook This document, as updated and amended from time to time

Index Sponsor Merrill Lynch International as replaced or substituted from time to time

Index Value In relation to an Index Valuation Day, the value of the Index, expressed as an amount

in the Base Currency, which is determined by the Index Calculation Agent in

accordance with this Index Rulebook and published by the Index Sponsor

Table 7: Definition of main terms


6. RISK PROVISION

Without prejudice to the Disclaimers in Section 7, regard should be had to the non-exhaustive risk factors

below which describe events or circumstances that may affect the calculation and/or the performance of the

Index and may be material for the purposes of assessing the risks associated with any investment related to

the Index.

NATURE OF THE INDEX

The Index is a rules-based formula that enables the Index Value to be calculated from time to time.

Although instruments may be issued or entered into whose return is linked to the Index performance, the

Index is not itself an investment or instrument and does not give any person any entitlement to, or

ownership interest in, the Index, any underlying index or constituent, or any other obligation referenced

(directly or indirectly) by the Index.

POTENTIAL CONFLICTS OF INTEREST

Potential conflicts of interest may exist in the internal teams and divisions of Merrill Lynch International or

across different entities within the BofAML group. For example, one team may calculate and publish the

level of the Index, while another team within the organisation may issue or promote/sell products linked to

the Index or underlying index or constituent. In addition, a further team within the organisation may have

trading positions in or relating to instruments and assets to which the performance of the Index is directly or

indirectly linked (including any underlying index or constituent). Entities within the BofAML group may

be active and significant participants in or act as market maker in relation to a wide range of markets for

currencies, commodities, securities and derivatives. Such activities may be undertaken on such a scale as to

affect, either temporarily or on a long-term basis, the price of such investments which may impact

adversely on the Index Value. No entity within the BofAML group shall have any duty or obligation to take

into account any impact in the performance of the Index when effecting transactions in such markets.

PAST PERFORMANCE

Past performance of the Index is not a reliable guide to future performance and the past performance of the

Index may have been determined on terms different to those described in the Index Rulebook. No

assurance, representation or warranty is given with respect to the future performance of the Index or that it

will achieve its objective. Instruments linked to the Index can fluctuate in price or value and prices, values

or income may fall against the interests of any investor exposed to the performance of the Index. Changes

in rates of exchange, rates of interest and prices of any underlying index or constituent, among other things,

may have an adverse affect on the Index Value.

SIMULATED HISTORICAL PERFORMANCE

Index Values prior to the Index Live Date have been determined by reference to historical data and must be

considered as simulated and thus purely hypothetical. The methodology used to calculate Index Values

prior to the Index Live Date, and the assumptions upon which such Index Values are based, may be

different to those applied from the Index Live Date and in the future. Whilst any such methodology or

assumption is, in the view of the Index Sponsor, reasonable, the use of historical data may result in material

differences between the simulated performance of the Index, prior to the Index Live Date, and any

subsequent actual performance.

INDEX VALUES PRIOR TO INDEX LIVE DATE


Index Values prior to the Index Live Date have been determined by the Index Calculation Agent and

published on Bloomberg or any successor financial information service as determined by the Index Sponsor

in its sole and absolute discretion. These Index Values have been determined without reference to the Index

Rulebook or Index Committee and the methodology used to calculate the Index Values prior to the Index

Live Date, and the assumptions upon which such Index Values are based, may be different to those applied

using the terms of the Index Rulebook from the Index Live Date. Whilst any such methodology or

assumption is, in the view of the Index Sponsor, reasonable, this may result in material differences between

the performance of the Index, prior to the Index Live Date, and any subsequent performance.

AMENDMENT, DELAY, SUSPENSION OR CANCELLATION OF THE INDEX

Merrill Lynch International, as Index Sponsor and/or Index Calculation Agent, may in accordance with the

terms of this Index Rulebook, adjust the calculation of, delay publication of the value of, suspend or

permanently cancel the Index and may have no obligation to continue the calculation, publication and

dissemination of the Index. Any such calculation adjustment, delay, suspension, cancellation or non-

publication may have a negative impact on any instruments linked to the Index.

MARKET DISRUPTION

Local market disruptions can have a global effect. Market disruptions can severely adversely affect the

performance of the Index.

COUNTERPARTY RISK

Instruments linked to the Index may be exposed to counterparty credit risk. If BofAML trades, enters into

or issues any such instruments and becomes insolvent it may not be able to meet all of its payment

obligations.

CREDIT RATING

The credit rating of any entity with the BofAML group may be downgraded or withdrawn without notice.

Any credit rating is not a recommendation as to creditworthiness or the risks, returns or suitability of the

Index or instruments linked to the Index.

INTERACTION RISK

The Index Value is based on the performance of different investment types. Different types of financial risk

may interact unpredictably on these investments, particularly in times of market stress.

TAX

The value of the underlying indices or constituents may be reduced for certain taxes, withholding and other

deductions and therefore, may impact the performance of the Index and returns on any instruments linked

to the Index.

DUTY OF CARE

Subject always to their regulatory obligations and except as may be required by applicable law, neither the

Index Sponsor (including where it acts through the Index Committee) nor the Index Calculation Agent shall

have a duty of care or any fiduciary duty to any person in respect of the Index including any investor in any

instrument linked to the Index. Neither the Index Sponsor nor the Index Calculation Agent is acting as an


investment adviser or manager or providing advice of any nature in relation to the Index or any instrument

linked to the Index.

OTHER RISKS

There is no guarantee, warranty or assurance that this Index Rulebook discloses all possible factors that

may affect the performance of the Index and the risks of investing in any instrument that is linked to the

Index. Before investing in any such instrument, you must satisfy yourself that you fully understand the risks

of such investment and you are solely responsible for making an independent appraisal of and investigation

into the Index and should not rely on this Index Rulebook as constituting investment advice.

7. DISCLAIMER

MERRILL LYNCH INTERNATIONAL IS THE INDEX SPONSOR AND INDEX CALCULATION

AGENT FOR THE INDEX.

THE INDEX SPONSOR AND THE INDEX CALCULATION AGENT MAY EACH BE SUBJECT

TO A NUMBER OF CONFLICTS OF INTEREST IN CONNECTION WITH THEIR ROLE AND

SERVICES PERFORMED WITH RESPECT TO THE INDEX. IN THE EVENT THAT SUCH

CONFLICTS ARISE, THE INDEX SPONSOR AND INDEX CALCULATION AGENT SHALL

USE THEIR REASONABLE ENDEAVOURS TO RESOLVE SUCH CONFLICTS OF INTEREST

FAIRLY (HAVING REGARD TO THEIR RESPECTIVE OBLIGATIONS AND DUTIES).

ALTHOUGH THE INDEX SPONSOR WILL OBTAIN INFORMATION FOR INCLUSION IN OR

FOR USE IN THE CALCULATION OF THE INDEX FROM SOURCES WHICH THE INDEX

SPONSOR CONSIDERS RELIABLE, THE INDEX SPONSOR WILL NOT INDEPENDENTLY

VERIFY SUCH INFORMATION AND DOES NOT GUARANTEE THE ACCURACY AND/OR

THE COMPLETENESS OF THE INDEX OR ANY DATA INCLUDED THEREIN (INCLUDING

ANY DATA PROVIDED BY THIRD PARTIES). THE INDEX IS CALCULATED BY THE INDEX

CALCULATION AGENT. POTENTIAL INVESTORS SHOULD BE AWARE THAT THE INDEX

CALCULATION AGENT HAS A NUMBER OF SIGNIFICANT DISCRETIONS IN RELATION

TO THE CALCULATION OF THE INDEX.

MERRILL LYNCH INTERNATIONAL OR ANY OF ITS AFFILIATES DO NOT MAKE ANY

EXPRESS OR IMPLIED WARRANTY OR REPRESENTATION WHATSOEVER AS TO (A) ANY

INVESTMENTS OR TRADING PRODUCTS OR STRATEGIES BASED ON, INDEXED TO OR

OTHERWISE RELATED TO THE INDEX, (B) THE RESULTS TO BE OBTAINED FROM THE

USE OF THE INDEX, (C) THE LEVEL AT WHICH THE INDEX STANDS OR WILL STAND,

ANY UNDERLYING INDEX OR CONSTITUENT, OR THE WEIGHT OF ANY UNDERLYING

INDEX OR CONSTITUENT AT ANY PARTICULAR TIME ON ANY PARTICULAR DAY OR

(D) ANY OTHER MATTER. A POTENTIAL INVESTOR IN, OR COUNTERPARTY TO,

PRODUCTS BASED ON THE INDEX HAS NO DIRECT RECOURSE TO MERRILL LYNCH

INTERNATIONAL OR ANY OF ITS AFFILIATES AND THE CHARACTERISTICS AND RISKS

ASSOCIATED WITH SUCH PRODUCTS ARE AVAILABLE IN THE PRODUCT RELATED

DOCUMENTS.

MERRILL LYNCH INTERNATIONAL OR ANY OF ITS AFFILIATES SHALL NOT BE LIABLE

(IN NEGLIGENCE OR OTHERWISE) TO ANY PERSON FOR ANY ERROR IN THE INDEX,

OR ANY DELAY, OMISSION, QUALITY, ACCURACY, TIMELINESS AND/OR

COMPLETENESS OF THE INDEX RULEBOOK AND IT SHALL NOT BE UNDER ANY


OBLIGATION TO ADVISE ANY PERSON OF THE FOREGOING. WITHOUT LIMITING ANY

OF THE FOREGOING, IN NO EVENT SHALL MERRILL LYNCH INTERNATIONAL OR ANY

OF ITS AFFILIATES HAVE ANY LIABILITY (WHETHER IN NEGLIGENCE OR

OTHERWISE) TO ANY PERSON FOR ANY INDIRECT, SPECIAL, PUNITIVE OR

CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS) EVEN IF NOTIFIED OF THE

POSSIBILITY OF SUCH DAMAGES.

THE INDEX RULES ARE SOLELY FOR YOUR INTERNAL USE AND MAY NOT BE USED AS

THE BASIS OF ANY PRODUCT, OR REPRODUCED, REDISTRIBUTED OR TRANSMITTED,

IN WHOLE OR PART, IN ANY FORM OR BY ANY MEANS, ELECTRONIC OR

MECHANICAL, OR BY AN INFORMATION STORAGE OR RETRIEVAL SYSTEM, WITHOUT

THE EXPRESS PRIOR WRITTEN CONSENT OF THE INDEX SPONSOR. MERRILL LYNCH

INTERNATIONAL AND ITS AFFILIATES OWN INTELLECTUAL PROPERTY RIGHTS IN

THE INDEX AND THESE INDEX RULES. ANY USE OF SUCH INTELLECTUAL PROPERTY

MUST BE WITH THE CONSENT OF MERRILL LYNCH INTERNATIONAL.

IN THE EVENT THAT THE INDEX SPONSOR HAS PROVIDED ITS PERMISSION FOR YOU

TO REPRODUCE OR MAKE REFERENCE TO ALL OR SOME OF THIS INDEX RULEBOOK,

NEITHER MERRILL LYNCH INTERNATIONAL NOR ANY OF ITS AFFILIATES SHALL BE

LIABLE (IN NEGLIGENCE OR OTHERWISE) TO ANY PARTY FOR THE ACCURACY OR

COMPLETENESS OF ANY SUCH REPRODUCTION OR USE (INCLUDING, WITHOUT

LIMITATION, ANY SUMMARY OR TRANSLATIONS) OF THE INDEX RULEBOOK BY YOU

OR YOUR AGENTS (INCLUDING, WITHOUT LIMITATION, IN ANY PROSPECTUSES,

MARKETING MATERIALS, OFFER DOCUMENTATION, SUBMISSIONS TO REGULATORS,

ANY COMMUNICATIONS OR OTHERWISE). YOU WILL ASSUME EXCLUSIVE

RESPONSIBILITY FOR ANY SUCH INFORMATION OR COMMUNICATIONS. YOU SHALL

ENSURE THAT ANY SUCH INFORMATION OR COMMUNICATIONS APPROPRIATELY

DISCLAIM ANY LIABILITY OF MERRILL LYNCH INTERNATIONAL AND ITS AFFILIATES

IN RESPECT OF SUCH INFORMATION OR COMMUNICATIONS. YOU SHALL ENSURE

THAT ANY RISKS IN RESPECT OF THE INDEX AND INVESTING IN ANY INVESTMENTS

OR TRADING PRODUCTS OR STRATEGIES BASED ON, INDEXED TO OR OTHERWISE

RELATED TO THE INDEX ARE APPROPRIATELY SET DOWN AS REQUIRED UNDER ANY

LAW APPLICABLE TO THE OFFERING OF ANY SUCH INVESTMENTS OR TRADING

PRODUCTS OR STRATEGIES. UNLESS OTHERWISE EXPRESSLY AGREED BY MERRILL

LYNCH INTERNATIONAL, YOU WILL NOT PERMIT OR CAUSE THE NAME, OR ANY

TRADEMARKS OR LOGOS OF MERRILL LYNCH INTERNATIONAL OR ANY OF ITS

AFFILIATES TO APPEAR ON ANY SUCH INFORMATION OR COMMUNICATION. NONE OF

THE SPONSORS OF ANY OF THE UNDERLYING INDEX (INCLUDING ANY SPONSORS OF

ANY INDICES THAT MAY BE A COMPONENT OF AN UNDERLYING INDEX) MAKES ANY

EXPRESS OR IMPLIED REPRESENTATION OR WARRANTY WHATSOEVER IN RELATION

TO THE INDEX (INCLUDING THE RESULTS TO BE OBTAINED FROM THE USE OF THE

INDEX AND/OR THE LEVELS AT WHICH THE INDEX STANDS AT ANY PARTICULAR

TIME ON ANY PARTICULAR DATE OR OTHERWISE) OR TO A POTENTIAL INVESTOR IN,

OR COUNTERPARTY TO, PRODUCTS BASED ON THE INDEX REGARDING THE

ADVISABILITY OF INVESTING IN, TRADING IN OR ASSUMPTION OF ANY RISK IN

CONNECTION WITH SUCH PRODUCTS. THE SPONSORS OF ANY OF THE UNDERLYING

INDICES (INCLUDING SPONSORS OF ANY INDICES THAT MAY BE A COMPONENT OF AN

UNDERLYING INDEX) ARE NOT RESPONSIBLE FOR AND HAVE NOT AND WILL NOT

PARTICIPATE IN THE DETERMINATION OF THE COMPOSITION OF THE INDEX,


INCLUDING ANY CALCULATIONS USED THEREOF AT ANY TIME AND THEY HAVE NO

OBLIGATION OR LIABILITY IN CONNECTION WITH THE ADMINISTRATION OR

MARKETING RELATING TO THE INDEX. ANY DISCLAIMER RELATING TO EACH OF

THE UNDERLYING INDICES (INCLUDING ANY INDICES THAT MAY BE A COMPONENT

OF ANY UNDERLYING INDEX) IS DEEMED TO BE INCORPORATED HEREIN AND SHALL

APPLY TO THE INDEX RULES.

BLOOMBERG L.P. AND ITS AFFILIATES CANNOT AND DO NOT WARRANT AS TO THE

ACCURACY, COMPLETENESS, CURRENTNESS, NON-INFRINGEMENT,

MERCHANTABILITY OR FITNESS OF THE INFORMATION FOR ANY PURPOSE,

INCLUDING BUT NOT LIMITED TO, THE ASSIGNMENT OF COMPANIES TO A REGIONAL

INDUSTRY SECTOR AND THE CALCULATION OF THE INDEX. NEITHER BLOOMBERG

L.P. NOR ANY OF ITS AFFILIATES SHALL BE LIABLE TO ANY INVESTOR OR ANYONE

ELSE FOR ANY LOSS OR INJURY CAUSED IN WHOLE OR PART BY ITS NEGLIGENCE OR

CONTINGENCIES BEYOND ITS CONTROL IN PROCURING, COMPILING, INTERPRETING,

REPORTING OR DELIVERING SUCH INFORMATION. IN NO EVENT WILL BLOOMBERG

L.P. OR ITS AFFILIATES BE LIABLE TO ANY INVESTOR OR ANYONE ELSE FOR ANY

DECISION MADE OR ACTION TAKEN BY ANY INVESTOR IN RELIANCE ON SUCH

INFORMATION OR FOR ANY CONSEQUENTIAL, SPECIAL OR SIMILAR DAMAGES, EVEN

IF ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. BY ACCESSING THE

INFORMATION, ANY INVESTOR ACKNOWLEDGES AND AGREES TO THE FOREGOING.

YOU SHALL ENSURE THAT ANY DISCLAIMER OF LIABILITY OF MERRILL LYNCH

INTERNATIONAL AND ANY ITS AFFILIATES OR ANY OTHER PARTY AS PROVIDED FOR

IN THIS INDEX RULEBOOK IS APPROPRIATELY INCLUDED IN ANY INFORMATION OR

COMMUNICATIONS RELATING TO THE OFFER OR SALE OF ANY INVESTMENTS OR

TRADING PRODUCTS OR STRATEGIES BASED ON, INDEXED TO OR OTHERWISE

RELATED TO THE INDEX AND AS MAY BE REQUIRED UNDER ANY LAW APPLICABLE TO

THE OFFERING OF ANY SUCH INVESTMENTS OR TRADING PRODUCTS OR STRATEGIES.

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