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Strategy

The Underlying Fund invests under normal circumstances at least 80% of its net assets (plus any borrowings for investment purposes) in equity securities represented in the MSCI World SRI Index (the Underlying Index) and in derivatives and other instruments that have economic characteristics similar to such securities. The Underlying Index includes common stocks of large- and mid-capitalization companies from 23 developed market countries, including the U.S.

The Underlying Index is a free float-adjusted market capitalization weighted index that is designed to represent the performance of companies that have high Environmental, Social and Governance (ESG) ratings relative to their sector peers, as determined by MSCI Inc. (MSCI), the index provider of the Underlying Index. The investment universe for the Underlying Index starts with constituents (i.e., a company or stock that is part of the index) included in the MSCI Global Investable Market Index. Companies are then excluded from the Underlying Index if: (1) they have any tie to controversial weapons; (2) they are manufacturers or producers, as determined by MSCI, of civilian firearms, nuclear weapons, or tobacco; or (3) their revenues from alcohol, adult entertainment, conventional weapons, gambling, genetically modified organisms, nuclear power, or thermal coal exceed the business involvement thresholds determined by MSCI. MSCI utilizes proprietary ratings and research provided by MSCI ESG Research LLC (MSCI ESG Research) to assign the remaining companies an “ESG Rating” and an “ESG Controversy Score.” Companies must meet a minimum ESG Rating and ESG Controversy Score to be eligible for inclusion in the Underlying Index. An ESG Rating is based on a company’s ability to manage ESG risks and opportunities relative to its industry peers. MSCI ESG Research uses a quantitative model to evaluate the ability of companies to manage key issues, such as carbon intensity, water intensity, or injury rates within their respective industries Points of data include the company’s risk exposure to a particular issue (by evaluating certain business metrics such as core product and business segments) and the company’s demonstrated management capabilities (by evaluating its management strategies and track record of performance in managing risks or opportunities). Other factors, such as a company’s ability to capitalize on certain opportunities presented by a particular risk and the company’s alleged involvement in ESG controversies, are also evaluated. Companies are assigned scores based on these various factors, which are then combined and normalized relative to their industry peers to create the final ESG Ratings. The Underlying Index methodology targets securities of companies making up the top 25% of the free float-adjusted market capitalization in each representative sector according to their ESG Ratings. An ESG Controversy Score is based on a company’s involvement in serious controversies involving the ESG impact of its operations and/or products and services that are linked to specific international norms and principles represented by the UN Declaration of Human Rights, the ILO Declaration on Fundamental Principles and Rights at Work, and the UN Global Compact. The Underlying Index is rebalanced quarterly and reconstituted annually. The Fund is rebalanced and reconstituted in accordance with the Underlying Index.

The Underlying Fund can invest in derivative instruments, such as futures contracts, including index futures, to gain exposure to equity securities represented in the Underlying Index while managing cash balances.