The STARS performance chart on the preceding slides represent the results of S&P Global Market Intelligence model portfolios. Model performance has inherent limitations. S&P GLOBAL MARKET INTELLIGENCE maintains the model and calculates the model performance shown, but does not manage clients’ funds or securities. The U.S. STARS model performance charts are presented only as an illustration of S&P GLOBAL MARKET INTELLIGENCE’s equity research; it shows how U.S. common stocks, ADRs (American Depositary Receipts) and ADSs (American Depositary Shares), (collectively “equities”), that received STARS rankings performed. STARS ranking categories are models only; they are not collective investment funds. The STARS performance does not show how any actual portfolio has performed over time. STARS model performance does not represent the results of actual trading in an investor’s account. Thus, the model performance shown does not reflect the impact that material economic and market factors might have had on decision-making if actual investor money had been managed by S&P GLOBAL MARKET INTELLIGENCE. Performance is calculated using a time-weighted rate of return using daily valuations. While model performance for some or all STARS ranking categories performed better than the S&P 500 for the period shown, the performance during any shorter period may not have, and there is no assurance that they will perform better than the S&P 500 in the future. STARS does not take into account any particular investment objective, financial situation or need and is not intended as an investment recommendation or strategy. An investor should be aware that an individual’s investments based on the STARS methodology may lose money. Past model performance of STARS is no guarantee of future performance.
Effective February 3, 2014, S&P GLOBAL MARKET INTELLIGENCE introduced a new qualitative analyst workflow process (the “Process”). Compared to the prior qualitative Process, the new Process includes an expanded set of quantitative tools, data and analytics. The new Process includes a new STARS recommendation model which suggests STARS rankings based on a quantitative methodology. The new Process is used by analysts as an analytical tool to inform their qualitative determination of STARS rankings. The STARS performance chart reports performance since January 31, 2014 to measure performance after introduction of the new Process. All other performance periods in the chart include performance for the period after introduction of the new Process. There is no assurance that the new Process had a favorable impact on performance for the periods shown.
The equities within each STARS category at December 31, 1986, the inception date of US STARS, were equally weighted. Thereafter, additions to the composition of the equities in each STARS category are made at the average value of the STARS category at the preceding month end with no rebalancing. The average value of the equity equals the total market value of the STARS category at the prior month-end divided by the number of equities in the STARS category at the prior month-end. The number of shares of the new equity added equals the average value of an equity in the STARS category at the preceding month-end divided by the price of the added equity at the close of the day it was added. The number of shares remains fixed unless there is a subsequent distribution. Subsequent to the addition of the equity, the performance calculation is based on the number of shares and the daily closing prices. An equity is deleted in its entirety, and the deletion is made at the closing price of the day that the deletion is made. Since December 31, 2004, performance includes dividends. Equities in a STARS ranking category will change over time, and some or all of the equities that received a STARS ranking during the time period shown may not have maintained their STARS ranking during the entire period.
Model performance does not consider taxes and brokerage commissions, nor does it reflect the deduction of any advisory or other fees charged by advisors or other parties that investors will incur when their accounts are managed in accordance with the models. The imposition of these fees and charges would cause actual performance to be lower than the performance shown. For example, if a model returned 10 percent on a $100,000 investment for a 12-month period (or $10,000) and an annual asset-based fee of 1.5 percent were imposed at the end of the period (or $1,650), the net return would be 8.35 percent (or $8,350) for the year. Over 3 years, an annual 1.5% fee taken at year end with an assumed 10% return per year would result in a cumulative gross return of 33.1%, a total fee of $5,375 and a cumulative net return of 27.2% (or $27,200). Fees deducted on a frequency other than annual would result in a different cumulative net return in the preceding example.
Benchmark Disclosure: The S&P 500 Total Return Index is the benchmark for U.S. 5-STARS – Total Return and U.S. STARS – Total Return. The S&P 500 Index is the benchmark for U.S. STARS – Price Return. The S&P 500 Total Return Index and S&P 500 Index are calculated in U.S. dollars and include dividends. Indexes are unmanaged, statistical
composites and their returns do not include payment of any sales charges or fees an investor would pay to purchase the securities they represent. Such costs would lower performance. It is not possible to invest directly in an index. Both the S&P 500 Total Return Index and the S&P 500 Index include a different number of constituents and have different risk characteristics than the STARS equities. Some of the STARS equities may have been included in either the S&P 500 Total Return or S&P 500 Index for some (but not necessarily all) of the period covered in the chart, and some such equities may not have been included at all. The S&P 500 indices exclude ADRs and ADSs. The methodology for calculating the return of the S&P 500 Total Return Index and S&P 500 Index differs from the methodology of calculating the return for STARS. Past performance of the S&P 500 Total Return Index and the S&P 500 Index is no guarantee of future performance.
An investment based upon the STARS methodology should only be made after consulting with a financial advisor and with an understanding of the risks associated with any investment in securities, including, but not limited to, market risk, currency risk, political and credit risks, the risk of economic recession and the risk that issuers of securities or general stock market conditions may worsen, over time. Foreign investing involves certain risks, including currency fluctuations and controls, restrictions on foreign investments, less governmental supervision and regulation, less liquidity and the potential for market volatility and political instability. As with any investment, investment returns and principal value will fluctuate, so that when redeemed, an investor’s shares may be worth more or less than their original cost.