Morningstar Wide Moat Focus Total Return Index (WMW): Prospectus, Portfolio

Index Construction

The Index is comprised of the twenty eligible companies in the Morningstar Wide Moat universe with the highest ratios of Fair Value Price to stock price.

Wide Moat companies: (i) a maintainable ROIC exceeding cost of capital and (ii) a sustainable competitive advantages (About 10 percent of companies in the Morningstar US Market Index).

The “Fair Value Price” of a company is calculated based on projections of future cash flows over three periods – (1) the succeeding 5 years, (2) year 6 until “perpetuity,” which is defined as when a company’s ROIC equals its cost of capital and (3) perpetuity. The sum of the projected future cash flows over these three periods is discounted to present value, netted against the company’s debt and adjusted for off-balance sheet assets and liabilities to arrive at a company’s fair value.

Reconstitution and Rebalancing

The Index is reconstituted and rebalanced such that the Index membership is reset and the weights of the Index Components are adjusted quarterly on the Monday following the third Friday of March, June, September and December of each year. Reconstitution and rebalancing are carried out after the day’s closing Index levels have been determined. The Index is equally weighted upon reconstitution and rebalancing and each Index Component has an initial weight of 5% of the Index.

Calculation of the Index

The Index is calculated daily using the following formula:

Index(t) = sum(pi(t)* si(t)) / C(t)*sum(pi(0)*si(0)), sums are over n stocks in the index

= (M(t)/B(t)) * Base IndexValue

The above formula can be simplified as:

Index(t) = M(t)/D(t)

where:

D(t) = divisor at time (t) = B(t)/Base Index Level

n = number of stocks in the Index

pj(0) = closing price of stock j at the base date

sj(0) = constructed shares of company j at the base date

pi(t) = price of stock i at time (t)

si(t) = constructed shares of company i at time (t)

C(t) = adjustment factor for the base date market capitalization

t = time the Index is calculated

M(t) = market capitalization of the Index at time (t)

B(t) = adjusted base date market capitalization of the Index at time (t)

The shares (si(t)) for the Index Components are artificial constructs used for calculation purposes. Generally, because the Index is not market capitalization weighted, changes to the share capital structure of the Index Components do not affect the component weights. All dividends, regular or otherwise, paid on the Index Components are treated as reinvested in the Index and reflected in the Index level.