INDEX METHODOLOGYMSCI JAPAN IMICUSTOM LIQUIDITYAND YIELD LOW
VOLATILITY INDEXMETHODOLOGYOctober 2015

OCTOBER 2015

MSCI JAPAN IMI CUSTOM LIQUIDITY AND YIELD LOW VOLATILITY INDEXMETHODOLOGY | OCTOBER 2015

CONTENTS

1Introduction ................................................................................ 3

2

Index Construction Methodology ................................................ 43

2.1

Defining the Eligible Universe .................................................................. 4

2.2

Applying Liquidity and Yield Screens........................................................ 4

2.3

Optimization for Risk Reduction .............................................................. 5

Maintaining the Index ................................................................. 63.1

Quarterly Index Reviews .......................................................................... 63.2

Ongoing Event Related changes............................................................... 6

APPENDIX I: Handling Infeasible Optimizations.................................. 7© 2015 MSCI Inc. All rights reserved. Please refer to the disclaimer at the end of this document.

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1INTRODUCTIONThe MSCI Japan IMI Custom Liquidity and Yield Low Volatility Index (the “Index”) is a customindex constructed by applying an optimization process to achieve total risk minimization fora set of companies with high yield and liquidity within the Parent Index.

© 2015 MSCI Inc. All rights reserved. Please refer to the disclaimer at the end of this document.

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2INDEX CONSTRUCTION METHODOLOGY
The MSCI Japan IMI Custom Liquidity and Yield Low Volatility Index is constructed from theMSCI Japan Investible Market Index (the “Parent Index”). The following steps are applied atinitial construction and subsequent Quarterly Reviews of the Index.

2.1



Defining the Eligible Universe

Applying Liquidity and Yield ScreensOptimization for Risk Reduction

DEFINING THE ELIGIBLE UNIVERSE
All securities belonging to the Parent Index are eligible for inclusion in the Index, with theexception of the securities classified in the below industry groups and industry according tothe Global Industry Classification Standard (GICS®):

2.2



4010 - Banks

4020 - Diversified Financials

4030 - Insurance



404020 - Real Estate Investment Trusts (REITs)

APPLYING LIQUIDITY AND YIELD SCREENS
The following liquidity and yield screens are applied sequentially for the eligible securities
from the Parent Index
In the first step, select all constituents of the eligible universe with a 1-monthFrequency of Trading (FoT)1 greater than or equal to 85%

In the second step, rank all constituents from the first step in descending order of
their 1-month Annualized Traded Value (ATV)2 and select the top 400 securities

In the final screening step, rank all constituents from the second step in descendingorder of their dividend yield3 and select the top 150 securities

1MSCI Global Investable Market Indexes Methodology at https://www.msci.com/index-methodology

2MSCI Index Calculation Methodology at https://www.msci.com/index-methodology

3

MSCI Fundamental Data Methodology at https://www.msci.com/index-methodology© 2015 MSCI Inc. All rights reserved. Please refer to the disclaimer at the end of this document.

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MSCI JAPAN IMI CUSTOM LIQUIDITY AND YIELD LOW VOLATILITY INDEXMETHODOLOGY | OCTOBER 2015

Securities for which any of the above parameters are missing are not eligible for inclusion inthe Index.

2.3

OPTIMIZATION FOR RISK REDUCTION
The final Index is constructed by using an optimization process to target the lowest total riskon the set of securities selected after the screening process defined in section 2.2 byapplying the MSCI Global Minimum Volatility Indexes Methodology 4 . The following
constraints are used as part of the optimization.

4The maximum weight of an Index constituent is restricted to 1%



The minimum weight of an Index constituent is 0.05%

The optimization currency for the Index is the Japanese Yen

No active sector weight constraints are appliedNo active Barra risk index constraints are applied

The one way turnover of the Index is constrained to a maximum of 20% at eachSemi-Annual Index Review.

MSCI Global Minimum Volatility Indexes Methodology at https://www.msci.com/index-methodology© 2015 MSCI Inc. All rights reserved. Please refer to the disclaimer at the end of this document.

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3MAINTAINING THE INDEX

3.1

QUARTERLY INDEX REVIEWS
The Index is reviewed on a quarterly basis coinciding with the May and November SemiAnnual Index Reviews and the February and August Quarterly Index Reviews of the ParentIndex. Fundamental variables as of the end of January, April, July and October are used forthe Index Reviews. The pro forma Index is typically announced nine business days before theeffective date.

3.2

ONGOING EVENT RELATED CHANGESIn general, the Index follows the event maintenance of the Parent Index.
In between Index Reviews, securities deleted from the Parent Index are simultaneously
deleted from the Index. Securities in the Index that migrate to the excluded industry groups
and industry in section 2.1 in between Index Reviews are simultaneously excluded from theIndex.
There will be no additions to the Index in between Index Reviews.

© 2015 MSCI Inc. All rights reserved. Please refer to the disclaimer at the end of this document.

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APPENDIX I: HANDLING INFEASIBLE OPTIMIZATIONS
During the Quarterly Index Review, in the event that there is no optimal solution thatsatisfies all the optimization constraints defined in Section 2.3, the following constraints will
be relaxed, until an optimal solution is found:•Relax the turnover constraint in steps of 5%, up to a maximum of 100%

•Relax the minimum weight constraint in steps of 0.01% up to a minimum of 0.01%© 2015 MSCI Inc. All rights reserved. Please refer to the disclaimer at the end of this document.

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