Indices - IGC

BOVESPA Indices - Special Corporate Governance Stock Index (IGC)

METHODOLOGICAL ASPECTS

Presentation

The IGC - Special Corporate Governance Stock Index is designed to measure the return of a theoretical portfolio composed of shares of companies with a good level of corporate governance. Such companies should be traded on BOVESPA's "Novo Mercado" or should be classified at BOVESPA's "Level 1" or "Level 2".

Shares Eligible for the Index

All shares issued by companies traded on the "Novo Mercado" or classified at Levels 1 and 2 shall be eligible for inclusion in the index theoretical portfolio.

Criteria for Inclusion in the Portfolio

All the companies authorized for trading on the "Novo Mercado" and at Levels 1 and 2 will be included in the index portfolio. The index inclusion procedures follow the rules below:

Shares of new companies:
Will be included after closing of the first regular trading session.
Shares of companies already traded on BOVESPA:
Will be included after closing of the trading session preceding the commencement of trading on the "Novo Mercado" or at Levels 1 or 2.

Once the company has adhered to Levels 1 or 2, all of its share types will participate in the index portfolio, except when the liquidity of the type is considered too narrow.

Cross trades shall not be considered for the purposes of liquidity calculation.

Criteria for Exclusion from the Portfolio

On the occasion of the periodical reevaluations a share may be excluded from the portfolio if its liquidity level has been significantly reduced.

If the issuing company enters a regime of judicial reorganization or files for bankruptcy, its shares will be excluded from the index portfolio. In the case of a public offering that results in the removal of a significant amount of shares from the market, the company's shares shall be excluded from the portfolio. In such circumstances, the index will be adjusted accordingly.

Periodical Reevaluations

Once every four months, at the end of April, August and December of each year, the theoretical IGC portfolio will be reevaluated so as to check that none of the companies surpassed the maximum participation limit (see "Weighting Criterion"). On this occasion, shares that do not meet the minimum liquidity requirements may also be excluded.

Weighting Criterion

The shares comprising the index portfolio will be weighted according to the multiplication of their respective market values (considering the outstanding shares) by a governance factor. This factor will be equal to 2 for the securities on the "Novo Mercado", 1.5 for securities at Level 2, and 1 for securities at Level 1.

A company's participation in the IGC (considering the total of its securities included in the theoretical portfolio) may not surpass 20%, at the time of inclusion or on the occasion of the periodical reevaluations. Should this occur, adjustments will be made in order to match the stock weight to this limit.

The base for the IGC has been set at 1,000 points, for the date of June 25th 2001. In order to be adapted to the initial base, the market value of the portfolio has been adjusted using a reducer (adjustment coefficient).

The index divisor will be altered whenever necessary to accommodate inclusions or exclusions and on the occasion of portfolio reevaluations, or in the case of adjustments arising from benefits/events given by the companies.

The specific weight of each share in the index may be altered during the term of the portfolio, due to the price evolution of each share and/or the distribution of benefits by the issuing company.

When the issuing companies of component shares distribute benefits, the necessary adjustments will be made to guarantee that the index reflects not only the share price variations, but also the impact of the benefit distribution. Because of this methodology, the IGC is considered to be an index that evaluates the total return on the shares comprising its portfolio.

Index Calculation

BOVESPA will calculate the IGC in real time, considering the prices of the last trades carried out on the cash market (round lot) up until the moment of calculation, with the portfolio component shares.

Suspension of Trading

In the case of suspension of a component share, the index will use the price of the last trade registered on the exchange until the resumption of trading. If trading is not permitted for a period of 50 days as of the date of suspension, or if there are no perspectives that trading will be resumed, or in the case of a portfolio periodical reevaluation, the share will be excluded from the portfolio. In such a case, the necessary adjustments will be made in the index.

Index Adjustments

In order to measure the total return on its theoretical portfolio, the IGC will be adjusted for all benefits distributed by the issuing companies of the shares included in the portfolio.

1. Adjustments for benefits in shares of the same type
(Bonuses/Splits/Reverse splits/Subscriptions)

After the last trading day prior to the benefit distribution, the market value of the component share/type is recalculated. In order to do so, the theoretical quantity adjusted to the benefit distributed and the "ex-theoretical" price of the share are used. The value thus obtained will be the basis for comparing the evolution of this share on the following trading session.

In the case of reverse splits, the theoretical quantity will be reduced on the proportion determined by the company and a special "ex-theoretical" price will be calculated in order to maintain the economic value of the component share/type unaltered.

Apart from these situations, whenever the issuing company communicates the occurrence of facts that result in changes in its total share quantity (conversion of debentures into shares, cancellation of shares, conversion of one type of share into another, etc.) the relevant adjustments will be carried out.

2. Benefits in cash or other events

After the closing of the trading session of the last trading day prior to benefit distribution, the market value of the component share/type is recalculated, maintaining the theoretical quantities of these shares in the portfolio unaltered and using their "ex-theoretical" price. This value will serve as a basis for comparison of the share prices evolution on the following day.

Special Procedures

1. Adjustments in the Case of Company Spin-off

a) Announcement/effect of the spin-off

The announcement of the issuing company's decision to make a spin-off does not alter its situation in the index theoretical portfolio.

Once the spin-off has been made and while awaiting the resulting companies to be operational and registered, these companies will be considered as a trading unit and will remain in the index portfolio.

For the purposes of trading on BOVESPA, the effect of the spin-off means the act by which the shares of the companies resultant from the spin-off start to be traded on the trading session.

b) Beginning of trading on the stock exchange of the companies resulting from the spin-off

The index theoretical portfolio will include the companies resulting from the spin-off.

2. Adjustments in the Case of Public Offerings

Whenever a company launches a public offering that results in the acquisition of a significant proportion of the outstanding shares, BOVESPA may adopt one of the following two procedures:

a) when the acquisition is lower than 2/3 (two thirds) of the outstanding shares, removal from the index of the percentage of outstanding shares bought by the company; or

b) removal of the share from the index when the acquisition is higher than 2/3 (two thirds) of the outstanding shares.
In either case, an adjustment will be made to the index reducer.

3. Adjustments in the Case of Mergers

a) Company with shares included in the index merges with a company whose shares also belong to the index

The shares of the incorporating company remain in the index.

b) Company with shares included in the index merges with a company whose shares do not belong to the index

The shares of the incorporating company remain in the index.

c) Company with shares included in the index is incorporated by a company whose shares are not included in the index

This situation will be analyzed on a case-by-case basis, and BOVESPA may, at its own discretion:

exclude the share from the index;

substitute the share of the incorporated company for shares of the incorporating company.

Note:
In any situation, adjustments will be made to the reducer and the new quantities of shares will be used.

CALCULATION FORMULA AND PROCEDURES

1. Formula for Calculating the IGC

The IGC may be calculated using the following formulas:

a) without using the reducer

IGC_(t)=IGC_(t-1)^*

where:

IGC_(t) = index value on day "t"
IGC_(t-1) = index value on day "t-1"
n = number of shares included in the index theoretical portfolio
Qi_t-1 = theoretical quantity of share "i" available for trading on day "t-1". In the event of distribution of shares of the same type by the company, it refers to the theoretical quantity of share "i" available for trading on day "t-1", recalculated because of such benefit.
Pi_t = price of share "i" at closing of day "t"
Pi_t-1 = closing price for share "i" on day "t-1", or its ex-theoretical price, in the case of benefit distribution on this day.

b) using the reducer:

where:

Index_t = index value at moment "t"
n = total number of companies (in the share/type) included in the index theoretical portfolio
Pi_t = last price of share "i at moment "t"
Qi_t = quantity of share "i in the theoretical portfolio at moment "t"
m = reducer used to adjust the index value to the current base

2. Adjustment Procedure for Benefits

The theoretical quantities of the companies in the share/type (i.e. their number of outstanding shares) will only be altered in the event of benefit distribution in shares of the same type by the issuing companies (bonuses, splits, subscription, etc.).

The adjustment of the theoretical quantities in the exact proportion to the distributed benefit is carried out after the closing of BOVESPA's trading session, on the last day prior to the ex-date of the corporate action.

The following formula is used:

Q_n = Q_a * (1 + B + S)

where:

Q_n = adjusted quantity of shares
Q_a = previous quantity of shares
B = percentage of bonus and/or split, in index number
S = percentage of subscription, in index number

In the event that an approved benefit is partially homologated, or is not homologated, the quantity of shares in the portfolio will be proportionally reduced to reflect the real quantity of outstanding shares.

This adjustment will be carried out on the trading session after the date of receipt, by BOVESPA, of the communication expedited by the issuing company providing information of these facts. The index reducer will be adapted so that the index value suffers no alteration.

General Formula for Calculation of the "Ex-theoretical" Price"

where:

P_ex = ex-theoretical price
P_c = last price before the benefit distribution
S = percentage of subscription, in index number
Z = issuing value of the share to be subscribed, in Brazilian currency
D = dividends received per share, in Brazilian currency
J = interest on capital, in Brazilian currency
V_et = theoretical economic value per share, resulting from benefits distributed in another share type/asset
B = percentage of bonus (or split), in index number

Note:
The V_et is calculated considering the financial amount which would be obtained from the sale of shares of another type and/or other assets (debentures, shares of another company, etc.) received. For example, suppose that company A is distributing to its shareholders, free of charge, one share of company B for every two shares held of company A, and that the shares of company B are evaluated at $ 5.00/share. In this case, the V_et will be equal to $2.50.