|
Term
sheet
To
prospectus dated December 1, 2005,
prospectus supplement dated October 12, 2006 and product supplement no. 54-IV dated May 4, 2007 |
Term
Sheet to
Product
Supplement No. 54-IV
Registration
Statement No. 333-130051
Dated April 16, 2008; Rule 433 |
 |
|
Structured
Investments |
JPMorgan
Chase & Co.
$ Return
Enhanced Notes Linked to the MSCI Taiwan Index due October 22,
2009
|
General
| · |
The
notes are
designed for investors who seek a return of three times the appreciation
of the MSCI Taiwan Index up to a maximum total return on the
notes of
69.45%* at maturity. Investors should be willing to forgo interest
and
dividend payments and, if the Index declines, be willing to lose
some or
all of their principal.
|
| · |
Senior
unsecured obligations of JPMorgan Chase & Co. maturing October 22,
2009†.
|
| · |
Minimum
denominations of $20,000 and integral multiples of $1,000 in
excess
thereof.
|
| · |
The
notes are
expected to price on or about April 17, 2008 and are expected
to settle on
or about April 22,
2008.
|
Key
Terms
|
Index:
|
The
MSCI
Taiwan Index (the “Index”)
|
|
|
Upside
Leverage Factor:
|
3
|
|
|
Payment
at
Maturity:
|
If
the MSCI
Taiwan Closing Level is greater than the MSCI Taiwan Starting Level,
you
will receive a cash payment that provides you with a return per
$1,000
principal amount note equal to the MSCI Taiwan Return multiplied
by three,
subject to a Maximum Total Return on the notes of 69.45%*. For
example, if
the MSCI Taiwan Return is more than 23.15%, you will receive the
Maximum
Total Return on the notes of 69.45%*, which entitles you to a maximum
payment at maturity of $1,694.50 for every $1,000 principal amount
note
that you hold. Accordingly, if the MSCI Taiwan Return is positive,
your
payment per $1,000 principal amount note will be calculated as
follows,
subject to the Maximum Total Return:
|
|
|
$1,000
+[$1,000 x (MSCI Taiwan Return x 3)]
*The
actual
Maximum Total Return on the notes will be set on the pricing date
and will
not be less than 69.45%.
|
||
|
Your
investment will be fully exposed to any decline in the
Index.
If the MSCI
Taiwan Closing Level declines from the MSCI Taiwan Starting Level,
you
will lose 1% of the principal amount of your notes for every 1%
that the
Index declines beyond the MSCI Taiwan Starting Level. Accordingly,
if the
MSCI Taiwan Return is negative, your payment per $1,000 principal
amount
note will be calculated as follows:
|
||
|
$1,000
+
($1,000 x MSCI Taiwan Return)
|
||
|
You
will
lose some or all of your investment at maturity if the MSCI Taiwan
Closing
Level declines from the MSCI Taiwan Starting Level.
|
||
|
MSCI
Taiwan
Return:
|
The
performance of the Index from the MSCI Taiwan Starting Level to
the MSCI
Taiwan Closing Level, calculated as follows:
|
|
|
MSCI
Taiwan Closing Level - MSCI Taiwan Starting Level
MSCI
Taiwan
Starting Level
|
||
|
MSCI
Taiwan
Starting Level:
|
The
closing
level of the Index on the pricing date.
|
|
|
MSCI
Taiwan
Closing Level:
|
The
arithmetic average of the closing levels of the Index on each of
the five
Ending Averaging Dates.
|
|
|
Ending
Averaging Dates†:
|
October
13,
2009, October 14, 2009, October 15, 2009, October 16, 2009 and
October 19,
2009
|
|
|
Maturity
Date†:
|
October
22,
2009
|
|
|
CUSIP:
|
||
| † |
Subject
to
postponement in the event of a market disruption event and
as described
under “Description of Notes — Payment at Maturity” in the accompanying
product supplement no. 54-IV.
|
Investing
in the Return Enhanced Notes involves a number of risks. See “Risk Factors”
beginning on page PS-11 of the accompanying product supplement no. 54-IV
and
“Selected Risk Considerations” beginning on page TS-3 of this term
sheet.
JPMorgan
Chase
& Co. has filed a registration statement (including a prospectus) with
the
Securities and Exchange Commission, or SEC, for the offering to which
this term
sheet relates. Before you invest, you should read the prospectus in that
registration statement and the other documents relating to this offering
that
JPMorgan Chase & Co. has filed with the SEC for more complete information
about JPMorgan Chase & Co. and this offering. You may get these documents
without cost by visiting EDGAR on the SEC website at www.sec.gov. Alternatively,
JPMorgan Chase & Co., any agent or any dealer participating in this offering
will arrange to send you the prospectus, each prospectus supplement,
product
supplement no. 54-IV and this term sheet if you so request by calling
toll-free
866-535-9248.
You
may
revoke your offer to purchase the notes at any time prior to the time
at which
we accept such offer by notifying the applicable agent. We reserve the
right to
change the terms of, or reject any offer to purchase the notes prior
to their
issuance. In the event of any changes to the terms of the notes, we will
notify
you and you will be asked to accept such changes in connection with your
purchase. You may also choose to reject such changes in which case we
may reject
your offer to purchase.
Neither
the
Securities and Exchange Commission nor any state securities commission
has
approved or disapproved of the notes or passed upon the accuracy or the
adequacy
of this term sheet or the accompanying prospectus supplements and prospectus.
Any representation to the contrary is a criminal
offense.
|
Price
to Public
|
Fees
and Commissions (1)
|
Proceeds
to Us
|
|
|
Per
note
|
$
|
$
|
$
|
|
Total
|
$
|
$
|
$
|
| (1) |
Please
see
“Supplemental Underwriting Information” in this term sheet for information
about fees and
commissions.
|
The
notes are
not bank deposits and are not insured by the Federal Deposit Insurance
Corporation or any other governmental agency, nor are they obligations
of, or
guaranteed by, a bank.
JPMorgan
April
16, 2008
Additional
Terms Specific To the Notes
You
should read
this term sheet together with the prospectus dated December 1, 2005,
as
supplemented by the prospectus supplement dated October 12, 2006 relating
to our
Series E medium-term notes of which these notes are a part, and the more
detailed information contained in product supplement no. 54-IV dated
May 4,
2007. This
term
sheet, together with the documents listed below, contains the terms of
the notes
and supersedes all other prior or contemporaneous oral statements as
well as any
other written materials including preliminary or indicative pricing terms,
correspondence, trade ideas, structures for implementation, sample structures,
fact sheets, brochures or other educational materials of
ours.
You should
carefully consider, among other things, the matters set forth in “Risk Factors”
in the accompanying product supplement no. 54-IV, as the notes involve
risks not
associated with conventional debt securities. We urge you to consult
your
investment, legal, tax, accounting and other advisers before you invest
in the
notes.
You
may access
these documents on the SEC website at www.sec.gov as
follows (or if
such address has changed, by reviewing our filings for the relevant date
on the
SEC website):
| · | Product supplement no. 54-IV dated May 4, 2007: |
| · |
Prospectus
supplement dated October 12, 2006:
|
| · |
Prospectus
dated December 1, 2005:
|
Our
Central Index
Key, or CIK, on the SEC website is 19617. As used in this term sheet, the
“Company,” “we,” “us,” or “our” refers to JPMorgan Chase & Co.
What
Is the Total Return on the Notes at Maturity Assuming a Range of Performance
for
the Index?
The
following table
and graph illustrate the hypothetical total return at maturity on the
notes. The
“total return” as used in this term sheet is the number, expressed as a
percentage, that results from comparing the payment at maturity per $1,000
principal amount note to $1,000. The hypothetical total returns set forth
below
assume an MSCI Taiwan Starting Level of 340 and a Maximum Total Return
on the
notes of 69.45%. The hypothetical total returns set forth below are for
illustrative purposes only and may not be the actual total returns applicable
to
a purchaser of the notes. The numbers appearing in the following table,
graph
and examples have been rounded for ease of analysis.
|
MSCI
Taiwan
Closing
Level
|
MSCI
Taiwan Return
|
Total
Return
|
|
612.00
|
80.00%
|
69.45%
|
|
561.00
|
65.00%
|
69.45%
|
|
510.00
|
50.00%
|
69.45%
|
|
476.00
|
40.00%
|
69.45%
|
|
442.00
|
30.00%
|
69.45%
|
|
418.71
|
23.15%
|
69.45%
|
|
408.00
|
20.00%
|
60.00%
|
|
374.00
|
10.00%
|
30.00%
|
|
357.00
|
5.00%
|
15.00%
|
|
343.40
|
1.00%
|
3.00%
|
|
340.00
|
0.00%
|
0.00%
|
|
306.00
|
-10.00%
|
-10.00%
|
|
272.00
|
-20.00%
|
-20.00%
|
|
238.00
|
-30.00%
|
-30.00%
|
|
204.00
|
-40.00%
|
-40.00%
|
|
170.00
|
-50.00%
|
-50.00%
|
|
136.00
|
-60.00%
|
-60.00%
|
|
102.00
|
-70.00%
|
-70.00%
|
|
68.00
|
-80.00%
|
-80.00%
|
|
34.00
|
-90.00%
|
-90.00%
|
|
0
|
-100.00%
|
-100.00%
|
JPMorgan
Structured Investments —
Return
Enhanced Notes Linked to the MSCI Taiwan
Index
TS-1
Hypothetical
Examples of Amounts Payable at Maturity
The
following
examples illustrate how the total returns set forth in the table and
graph above
are calculated.
Example
1:
The level of the Index increases from the MSCI Taiwan Starting Level
of 340 to
an MSCI Taiwan Closing Level of 357. Because
the MSCI
Taiwan Closing Level of 357 is greater than the MSCI Taiwan Starting
Level of
340 and the MSCI Taiwan Return of 5% multiplied by 3 does not exceed
the
hypothetical Maximum Total Return of 69.45%, the investor receives a
payment at
maturity of $1,150 per $1,000 principal amount note, calculated as
follows:
$1,000
+ [$1,000 x
(5% x 3)] = $1,150
Example
2:
The level of the Index increases from the MSCI Taiwan Starting Level
of 340 to
an MSCI Taiwan Closing Level of 442.
Because the MSCI
Taiwan Closing level of 442 is greater than the MSCI Taiwan Starting
Level of
340 and the MSCI Taiwan Return of 30% multiplied by 3 exceeds the hypothetical
Maximum Total Return of 69.45%, the investor receives a payment at maturity
of
$1,694.50 per $1,000 principal amount note, the maximum payment on the
notes.
Example
3:
The level of the Index decreases from the MSCI Taiwan Starting Level
of 340 to
an MSCI Taiwan Closing Level of 272.
Because the MSCI
Taiwan Closing Level of 272 is less than the MSCI Taiwan Starting Level
of 340,
the MSCI Taiwan Return is negative and the investor receives a payment
at
maturity of $800 per $1,000 principal amount note, calculated as
follows:
$1,000
+ ($1,000 x
-20%) = $800
Selected
Purchase Considerations
| · |
APPRECIATION
POTENTIAL — The notes provide the
opportunity to enhance equity returns by multiplying a
positive MSCI
Taiwan Return by three, up to the Maximum Total Return
on the notes of
69.45%, or $1,694.50 for every $1,000 principal amount
note. The actual
Maximum Total Return on the notes will be set on the pricing
date and will
not be less than 69.45%. Because the notes are our senior
unsecured
obligations, payment of any amount at maturity is subject
to our ability
to pay our obligations as they become due.
|
| · |
DIVERSIFICATION
OF THE MSCI TAIWAN INDEX — The return on the notes is linked to
the MSCI Taiwan Index. The MSCI Taiwan Index, which is
calculated by MSCI,
is a free float-adjusted market capitalization index of
securities listed
on the Taiwan Stock Exchange. MSCI Inc., the sponsor of
the Index, has
announced changes to the indes methodology of the Index.
For additional
information about the Index, see the information set forth
under “The MSCI
Taiwan Index” in the accompanying product supplement no. 54-IV, as
supplemented by the information set forth under “Supplemental Information
— Transition of the MSCI Taiwan Index to a New Index Methodology” in this
term sheet.
|
| · |
CAPITAL
GAINS TAX TREATMENT — You should review carefully the section
entitled “Certain U.S. Federal Income Tax Consequences” in the
accompanying product supplement no. 54-IV. Subject to the
limitations
described therein, and based on certain factual representations
received
from us, in the opinion of our special tax counsel, Davis
Polk &
Wardwell, it is reasonable to treat your purchase and ownership
of the
notes as an “open transaction” for U.S. federal income tax purposes.
Assuming this characterization is respected, your gain
or loss on the
notes should be treated as long-term capital gain or loss
if you hold the
notes for more than a year, whether or not you are an initial
purchaser of
notes at the issue price. However, the Internal Revenue
Service (the
“IRS”) or a court may not respect this characterization or treatment
of
the notes, in which case the timing and character of any
income or loss on
the notes could be significantly and adversely affected.
In addition, on
December 7, 2007, Treasury and the IRS released a notice
requesting
comments on the U.S. federal income tax treatment of “prepaid forward
contracts” and similar instruments, such as the notes. The notice
focuses
in particular on whether to require holders of these instruments
to accrue
income over the term of their investment. It also asks
for comments on a
number of related topics, including the character of income
or loss with
respect to these instruments; the relevance of factors
such as the nature
of the underlying property to which the instruments are
linked; the
degree, if any, to which income (including any mandated
accruals) realized
by Non-U.S. Holders should be subject to withholding tax;
and whether
these instruments are or should be subject to the “constructive ownership”
regime, which very generally can operate to recharacterize
certain
long-term capital gain as ordinary income that is subject
to an interest
charge. While the notice requests comments on appropriate
transition rules
and effective dates, any Treasury regulations or other
guidance
promulgated after consideration of these issues could materially
and
adversely affect the tax consequences of an investment
in the notes,
possibly with retroactive effect. Both U.S. and Non-U.S.
Holders should
consult their tax advisers regarding the U.S. federal income
tax
consequences of an investment in the notes, including possible
alternative
treatments and the issues presented by this
notice.
|
JPMorgan
Structured Investments —
Return
Enhanced Notes Linked to the MSCI Taiwan
Index
TS-2
Selected
Risk Considerations
An
investment in the notes involves significant risks. Investing in the notes
is
not equivalent to investing directly in the Index or any of the component
stocks
of the Index. These risks are explained in more detail in the “Risk Factors”
section of the accompanying product supplement no. 54-IV dated May 4,
2007.
| · |
YOUR
INVESTMENT IN THE NOTES MAY RESULT IN A LOSS —
The
notes
do not guarantee any return of principal. The return on the notes
at
maturity is linked to the performance of the Index and will depend
on
whether, and the extent to which, the MSCI Taiwan Return is positive
or
negative. Your investment will be fully exposed to any decline
in the MSCI
Taiwan Closing Level as compared to the MSCI Taiwan Starting
Level.
|
| · |
YOUR
MAXIMUM GAIN ON THE NOTES IS LIMITED TO THE MAXIMUM TOTAL
RETURN —
If
the MSCI
Taiwan Closing Level is greater than the MSCI Taiwan Starting
Level, for
each $1,000 principal amount note, you will receive at maturity
$1,000
plus an additional amount that will not exceed a predetermined
percentage
of the principal amount, regardless of the appreciation in the
Index,
which may be significant. We refer to this percentage as the
Maximum Total
Return, which will be set on the pricing date and will not be
less than
69.45%.
|
| · |
CERTAIN
BUILT-IN COSTS ARE LIKELY TO ADVERSELY AFFECT THE VALUE OF THE
NOTES PRIOR
TO MATURITY —
While
the
payment at maturity described in this term sheet is based on
the full
principal amount of your notes, the original issue price of the
notes
includes the agent’s commission and the cost of hedging our obligations
under the notes through one or more of our affiliates. As a result,
the
price, if any, at which J.P. Morgan Securities Inc., which we
refer to as
JPMSI, will be willing to purchase notes from you in secondary
market
transactions, if at all, will likely be lower than the original
issue
price, and any sale prior to the maturity date could result in
a
substantial loss to you. The notes are not designed to be short-term
trading instruments. Accordingly, you should be able and willing
to hold
your notes to maturity.
|
| · |
NO
INTEREST OR DIVIDEND PAYMENTS OR VOTING RIGHTS —
As
a holder
of the notes, you will not receive interest payments, and you
will not
have voting rights or rights to receive cash dividends or other
distributions or other rights that holders of securities composing
the
Index would have.
|
| · |
NO
DIRECT EXPOSURE TO FLUCTUATIONS IN FOREIGN EXCHANGE
RATES —
The
value of
your notes will not be adjusted for exchange rate fluctuations
between the
U.S. dollar and the currencies in which the stocks composing
the Index are
denominated, although any currency fluctuations could affect
the
performance of the Index. Therefore, if the applicable currencies
appreciate or depreciate relative to the U.S. dollar over the
term of the
notes, you will not receive any additional payment or incur any
reduction
in your payment at maturity.
|
| · |
LACK
OF LIQUIDITY —
The
notes
will not be listed on any securities exchange. JPMSI intends
to offer to
purchase the notes in the secondary market but is not required
to do so.
Even if there is a secondary market, it may not provide enough
liquidity
to allow you to trade or sell the notes easily. Because other
dealers are
not likely to make a secondary market for the notes, the price
at which
you may be able to trade your notes is likely to depend on the
price, if
any, at which JPMSI is willing to buy the notes.
|
| · |
POTENTIAL
CONFLICTS —
We
and our
affiliates play a variety of roles in connection with the issuance
of the
notes, including acting as calculation agent and hedging our obligations
under the notes. In performing these duties, the economic interests
of the
calculation agent and other affiliates of ours are potentially
adverse to
your interests as an investor in the
notes.
|
| · |
MANY
ECONOMIC AND MARKET FACTORS WILL IMPACT THE VALUE OF THE
NOTES —
In
addition
to the level of the Index on any day, the value of the notes
will be
affected by a number of economic and market factors that may
either offset
or magnify each other, including:
|
|
·
|
the
expected
volatility of the Index;
|
|
·
|
the
time to
maturity of the notes;
|
|
·
|
the
dividend
rate on the common stocks underlying the
Index;
|
|
·
|
interest
and
yield rates in the market
generally;
|
|
·
|
a
variety of
economic, financial, political, regulatory or judicial events;
|
|
·
|
the
exchange
rate and volatility of the exchange rate between the U.S. Dollar
and the
New Taiwan Dollar; and
|
|
·
|
our
creditworthiness, including actual or anticipated downgrades
in our credit
ratings.
|
JPMorgan
Structured Investments —
Return
Enhanced Notes Linked to the MSCI Taiwan
Index
TS-3
Historical
Information
The
following graph
sets forth the historical performance of the MSCI Taiwan Index based
on the
weekly historical closing levels of the Index from January 3, 2003 through
April
11, 2008. The closing level of the Index on April 15, 2008 was 342.50.
We
obtained the closing levels of the Index below from Bloomberg Financial
Markets.
We make no representation or warranty as to the accuracy or completeness
of the
information obtained from Bloomberg Financial Markets.
The
historical
levels of the Index should not be taken as an indication of future performance,
and no assurance can be given as to the closing level of the Index on
any of the
Ending Averaging Dates. We cannot give you assurance that the performance
of the
Index will result in the return of any of your initial investment.
Supplemental
Underwriting Information
JPMSI,
acting as
agent for JPMorgan Chase & Co., will receive a commission that will depend
on market conditions on the pricing date. In no event will that commission,
which includes structuring and development fees, exceed $20.00
per
$1,000 principal amount note. See “Underwriting” beginning on page PS-125 of the
accompanying product supplement no. 54-IV.
For
a different
portion of the notes to be sold in this offering, an affiliated bank
will
receive a fee and another affiliate will receive a structuring and
development
fee. In no event will the total amount of these fees exceed $20.00
per $1,000
principal amount note.
JPMorgan
Structured Investments —
Return
Enhanced Notes Linked to the MSCI Taiwan
Index
TS-4
Supplemental
Information — Transition of the MSCI Taiwan Index to a New Index
Methodology
The
information
contained in this section supplements the information set forth under
“The MSCI
Taiwan Index” in the accompanying product supplement no. 54-IV. We have derived
all information regarding the MSCI Taiwan Index contained in this section
from
the MSCI Global Investable Market Indices Methodology published by
MSCI and
other publicly available information. We make no representation or
warranty as
to the accuracy or completeness of such information. Additional information
concerning the transition of the MSCI Taiwan Index may be obtained
from the MSCI
website (www.mscibarra.com). Information contained in the MSCI website
is not
incorporated by reference in, and should not be considered part of,
this pricing
supplement or the accompanying product supplement no. 54-IV.
Transition
MSCI
recently
announced changes to the methodology used to calculate its MSCI Standard
Indices, including the MSCI Taiwan Index. The current MSCI Standard
and MSCI
Small Cap Indices, along with the other MSCI equity indices based on
them, are
transitioning to the Global Investable Market Indices methodology described
below. During the transition period, MSCI will publish the MSCI Provisional
Standard and Provisional Small Cap Indices to assist investors in understanding
the changes that would occur if the Global Investable Market Indices
methodology
were immediately implemented in the current MSCI Standard and Small
Cap Indices.
The first phase of the transition of the MSCI Standard Indices was
completed on
November 30, 2007. Currently, half of the differences between the Provisional
Standard Indices or the Provisional Small Cap Indices, as applicable,
and the
Standard Indices or Small Cap Indices, as applicable, have been implemented.
All
companies in a Provisional Standard Index or Provisional Small Cap
Index, as
applicable, not in the corresponding Standard Index or Small Cap Index
were
added to the Standard Index or Small Cap Index, as applicable, at half
of their
free float-adjusted market capitalization, and companies previously
in the
Standard Index or Small Cap Index, as applicable, and not in the corresponding
Provisional Standard Index or Provisional Small Cap Index, as applicable,
had
half of their free float-adjusted market capitalization removed.
The
second phase of
the transition of the MSCI Standard and the MSCI Small Cap Indices
to the MSCI
Global Investable Market Indices methodology will take place on May
30, 2008
(the first phase having been completed on November 30, 2007). The final
additions and deletions of constituents for the second phase will be
announced
at least four weeks in advance of their implementation in the Standard
and Small
Cap Indices. All indices derived from the MSCI Standard Indices will
follow the
two−phase transition, except for the MSCI Euro and Pan Euro Indices which
were
transitioned in one phase on November 30, 2007. The transition will
be
synchronized for all markets and composites.
At
the end of the transition period (May 30, 2008), the current MSCI Standard
Indices will be composed of the MSCI Large Cap and Mid Cap Indices.
The current
MSCI Small Cap Index will transition to the MSCI Small Cap Index resulting
from
the new methodology. Together, the relevant MSCI Large Cap, Mid Cap
and Small
Cap Indices will make up the MSCI Investable Market Index for each
country,
composite, sector and style index that MSCI offers.
Constructing
the MSCI Global Investable Market Indices
MSCI
undertakes an
index construction process, which involves: (i) defining the Equity
Universe;
(ii) determining the Market Investable Equity Universe for each market;
(iii)
determining market capitalization size segments for each market; (iv)
applying
Index Continuity Rules for the MSCI Standard Index; (v) creating style
segments
within each size segment within each market; and (vi) classifying securities
under the Global Industry Classification Standard (the “GICS”).
Defining
the
Equity Universe
| (i) |
Identifying
Eligible Equity Securities: The Equity Universe initially
looks at
securities listed in any of the countries in the MSCI Global
Index Series,
which will be classified as either Developed Markets (“DM”) or Emerging
Markets (“EM”). All listed equity securities, or listed securities that
exhibit characteristics of equity securities, except mutual
funds, ETFs,
equity derivatives, limited partnerships, and most investment
trusts, are
eligible for inclusion in the Equity Universe. Real Estate
Investment
Trusts (“REITs”) in some countries and certain income trusts in Canada are
also eligible for inclusion.
|
| (ii) |
Country
Classification of Eligible Securities: Each company and
its securities
(i.e., share classes) are classified in one and only one
country, which
allows for a distinctive sorting of each company by its
respective
country.
|
Determining
the
Market Investable Equity Universes
A
Market Investable Equity Universe for a market is derived by applying
investability screens to individual companies and securities in the
Equity
Universe that are classified in that market. A market is equivalent
to a single
country, except in DM Europe, where all DM countries in Europe are
aggregated
into a single market for index construction purposes. Subsequently,
individual
DM Europe country indices within the MSCI Europe Index are derived
from the
constituents of the MSCI Europe Index under the Global Investable Market
Indices
methodology.
The
investability
screens used to determine the Investable Equity Universe in each market
are as
follows:
|
(i)
|
Equity
Universe Minimum Size Requirement: This investability screen
is applied at
the company level. In order to be included in a Market Investable
Equity
Universe, a company must have the required minimum full market
capitalization.
|
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|
(ii)
|
Equity
Universe Minimum Float−Adjusted Market Capitalization Requirement: This
investability screen is applied at the individual security
level. To be
eligible for inclusion in a Market Investable Equity Universe,
a security
must have a free float−adjusted market capitalization equal to or higher
than 50% of the Equity Universe Minimum Size
Requirement.
|
|
(iii)
|
DM
and EM
Minimum Liquidity Requirement: This investability screen
is applied at the
individual security level. To be eligible for inclusion in
a Market
Investable Equity Universe, a security must have adequate
liquidity. The
Annualized Traded Value Ratio (“ATVR”), a measure that offers the
advantage of screening out extreme daily trading volumes
and taking into
account the free float−adjusted market capitalization size of securities,
is used to measure liquidity. In the calculation of the ATVR,
the trading
volumes in depository receipts associated with that security,
such as ADRs
or GDRs, are also considered. A minimum liquidity level of
20% ATVR is
required for inclusion of a security in a Market Investable
Equity
Universe of a Developed Market, and a minimum liquidity level
of 15% ATVR
is required for inclusion of a security in a Market Investable
Equity
Universe of an Emerging Market.
|
|
(iv)
|
Global
Minimum Foreign Inclusion Factor Requirement: This investability
screen is
applied at the individual security level. To be eligible
for inclusion in
a Market Investable Equity Universe, a security’s Foreign Inclusion Factor
(“FIF”) must reach a certain threshold. The FIF of a security is
defined
as the proportion of shares outstanding that is available
for purchase in
the public equity markets by international investors. This
proportion
accounts for the available free float of and/or the foreign
ownership
limits applicable to a specific security (or company). In
general, a
security must have an FIF equal to or larger than 0.15 to
be eligible for
inclusion in a Market Investable Equity
Universe.
|
|
(v)
|
Minimum
Length of Trading Requirement: This investability screen
is applied at the
individual security level. For an initial public offering
(“IPO”) to be
eligible for inclusion in a Market Investable Equity Universe,
the new
issue must have started trading at least four months before
the
implementation of the initial construction of the index or
at least three
months before the implementation of a Semi−Annual Index Review. This
requirement is applicable to small new issues in all markets.
Large IPOs
are not subject to the Minimum Length of Trading Requirement
and may be
included in a Market Investable Equity Universe and the Standard
Index
outside of a Quarterly or Semi−Annual Index
Review.
|
Defining
Market
Capitalization Size Segments for Each Market
Once
a Market
Investable Equity Universe is defined, it is segmented into the following
size−based indices:
|
·
|
Investable
Market Index (Large + Mid + Small)
|
|
·
|
Standard
Index (Large + Mid)
|
|
·
|
Large
Cap
Index
|
|
·
|
Mid
Cap
Index
|
|
·
|
Small
Cap
Index
|
Creating
the Size
Segment Indices in each market involves the following steps: (i) defining
the
Market Coverage Target Range for each size segment; (ii) determining
the Global
Minimum Size Range for each size segment; (iii) determining the Market
Size−Segment Cutoffs and associated Segment Number of Companies; (iv) assigning
companies to the size segments; and (v) applying final size−segment
investability requirements.
Index
Continuity Rules for the Standard Indices
In
order to achieve index continuity, as well as provide some basic level
of
diversification within a market index, notwithstanding the effect of
other index
construction rules, a minimum number of five constituents will be maintained
for
a DM Standard Index and a minimum number of three constituents will
be
maintained for an EM Standard Index.
If
after the application of the index construction methodology, a Standard
Index
contains fewer than five securities in a Developed Market or three
securities in
an Emerging Market, then the largest securities by free float-adjusted
market
capitalization are added to the Standard Index in order to reach five
constituents in that Developed Market or three in that Emerging Market.
At
subsequent Index Reviews, if the free float-adjusted market capitalization
of a
non-index constituent is at least 1.50 times the free float-adjusted
market
capitalization of the smallest existing constituent after rebalancing,
the
larger free float-adjusted market capitalization security replaces
the smaller
one.
Creating
Style
Indices within Each Size Segment
All
securities in
the investable equity universe are classified into Value or Growth
segments
using the MSCI Global Value and Growth methodology.
Classifying
Securities under the Global Industry Classification Standard
All
securities in
the Global Investable Equity Universe are assigned to the industry
that best
describes their business activities. To this end, MSCI has designed,
in
conjunction with Standard & Poor’s, the Global Industry Classification
Standard. Under the GICS, each company is assigned uniquely to one
sub−industry
according to its principal business activity. Therefore, a company
can belong to
only one industry grouping at each of the four levels of the GICS.
Index
Maintenance
The
MSCI Global
Investable Market Indices are maintained with the objective of reflecting
the
evolution of the underlying equity markets and segments on a timely
basis, while
seeking to achieve index continuity, continuous investability of constituents
and replicability of the indices, and index stability and low index
turnover.
In
particular, index maintenance involves:
| (i) |
Semi−Annual
Index Reviews (“SAIRs”) in May and November of the Size Segment and Global
Value and Growth Indices which
include:
|
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|
·
|
Updating
the
indices on the basis of a fully refreshed Equity
Universe.
|
|
·
|
Taking
buffer
rules into consideration for migration of securities across
size and style
segments.
|
|
·
|
Updating
FIFs
and Number of Shares (“NOS”).
|
The
objective of
the SAIRs is to systematically reassess the various dimensions of the
Equity
Universe for all markets on a fixed semi-annual timetable. A SAIR involves
a
comprehensive review of the Size Segment and Global Value and Growth
Indices.
| (ii) |
Quarterly
Index Reviews (“QIRs”) in February and August of the Size Segment Indices
aimed at:
|
|
·
|
Including
significant new eligible securities (such as IPOs that were
not eligible
for earlier inclusion) in the
index.
|
|
·
|
Allowing
for
significant moves of companies within the Size Segment Indices,
using
wider buffers than in the SAIR.
|
|
·
|
Reflecting
the impact of significant market events on FIFs and updating
NOS.
|
QIRs
are designed
to ensure that the indices continue to be an accurate reflection of
the evolving
equity marketplace. This is achieved by a timely reflection of significant
market driven changes that were not captured in the index at the time
of their
actual occurrence but are significant enough to be reflected before
the next
SAIR. QIRs may result in additions or deletions due to migration to
another Size
Segment Index, and changes in FIFs and in NOS. Only additions of significant
new
investable companies are considered, and only for the Standard Index.
The buffer
zones used to manage the migration of companies from one segment to
another are
wider than those used in the SAIR. The style classification is reviewed
only for
companies that are reassigned to a different size segment.
|
(iii)
|
Ongoing
event−related changes. Ongoing event-related changes to the indices
are
the result of mergers, acquisitions, spin-offs,bankruptcies,
reorganizations and other similar corporate events. They
can also result
from capital reorganizations in the form of rights issues,
bonus issues,
public placements and other similar corporate actions that
take place on a
continuing basis. These changes generally are reflected in
the indices at
the time of the event. Significantly large IPOs are included
in the
indices after the close of the company’s tenth day of
trading.
|
Announcement
Policy
The
results of the
SAIRs are announced at least two weeks in advance of their effective
implementation dates as of the close of the last business day of May
and
November.
The
results of the
QIRs are announced at least two weeks in advance of their effective
implementation dates as of the close of the last business day of February
and
August.
All
changes
resulting from corporate events are announced prior to their
implementation.
The
changes are
typically announced at least ten business days prior to the changes
becoming
effective in the indices as an “expected” announcement, or as an “undetermined”
announcement, when the effective dates are not known yet or when aspects
of the
event are uncertain. MSCI sends “confirmed” announcements at least two business
days prior to events becoming effective in the indices, provided that
all
necessary public information concerning the event is available. The
full list of
all new and pending changes is delivered to clients on a daily basis,
at 5:30
p.m., US Eastern Time.
In
exceptional cases, events are announced during market hours for same
or next day
implementation. Announcements made by MSCI during market hours are
usually
linked to late company disclosure of corporate events or unexpected
changes to
previously announced corporate events.
In
the case of secondary offerings representing more than 5% of a security’s number
of shares for existing constituents, these changes will be announced
prior to
the end of the subscription period when possible and a subsequent announcement
confirming the details of the event (including the date of implementation)
will
be made as soon as the results are available.
Both
primary equity
offerings and secondary offerings for U.S. securities, representing
at least 5%
of the security’s number of shares, will be confirmed through an announcement
during market hours for next day or shortly after implementation, as
the
completion of the events cannot be confirmed prior to the notification
of the
pricing.
Early
deletions of
constituents due to bankruptcy or other significant cases are announced
as soon
as practicable prior to their implementation.
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