On May 27, 1996, in commemoration of the hundredth anniversary of the Dow Jones Industrial Average, Dow Jones & Company introduced its Dow Jones China Index series. As the first series of indexes developed by a global index provider for Mainland China's stock markets, the Dow Jones China Indexes are designed to give investors worldwide a powerful tool for gauging the performance of China's domestic equities markets.

The Dow-China Index series includes four indexes: the Dow Jones China Broad Market Index, the Dow Jones China 88 Index, the Dow Jones Shanghai Index, and the Dow Jones Shenzhen Index.

Float shares, which exclude state-owned shares, institutional shares and unlisted employee shares, are used for stock selection and index calculation, in order to provide an accurate representation of the shares that are actually available to investors for trading. In calculating free-float for selection of component stocks, the Dow-China Indexes exclude block holdings of individuals, other companies or governments that exceed 5% of total market value.

The Dow-Shanghai and Dow-Shenzhen index components are drawn from the universe of all stocks traded on the Shanghai Stock Exchange and the Shenzhen Stock Exchange, respectively. Each index is designed to cover 95% of the overall market capitalization. Components are selected based on float-adjusted market capitalization and liquidity. In order to achieve diversified representation across economic sectors and industry groups, sector allocation is also considered in the component selection process.

The Dow-China Total Market Index, which represents 95% of shares traded on the Shanghai and Shenzhen exchanges, is constructed by combining the Dow-Shanghai and Dow-Shenzhen indexes. All three indexes are benchmarks designed to track the general trends in China's growing equity markets. They provide Chinese investors with accurate and powerful tools with which to measure the movements of the broad market.

The Dow-China 88 Index is made up of the 88 largest and most liquid stocks in the Dow-China Total Market Index. The two primary criteria used in the component selection process are market capitalization and trading liquidity, as measured by average daily turnover. Buffers are in place to ensure that the Dow-China 88's component turnover rate remains low.

All stocks are classified based upon the Industry Classification Benchmark (ICB), a four-tier hierarchy that includes ten industry groups, 18 supersectors, 39 sectors and 104 subgroups. The ten industry groups at the top level include Oil & Gas, Basic Materials, Industrials, Consumer Goods, Health Care, Consumer Services, Telecommunications, Utilities, Financials and Technology.

Like all the indexes in the Dow Jones Global Index series, the Dow Jones China Indexes were constructed to ensure: consistently high quality; transparency of methodology; objectivity in component selection rules, by solely using market performance criteria; and flexibility to allow future innovation as financial markets evolve. Components are selected and reviewed using a systematic and transparent approach, that applies quantitative rules to reduce human bias and to support back-testing.

The Dow Jones China Index series is reviewed on a quarterly basis for component adjustments. A relatively high turnover rate for the Dow-China Indexes is to be expected while China's burgeoning stock markets continue to expand and undergo structural change.

All four China indexes, which are denominated in the Chinese yuan, have a base value of 100 as of December 31, 1993. While the Shanghai and Shenzhen stock exchanges started their operations in December 1990, we decided not to build index histories going further back. The trading prior to the end of 1993 appeared irregular due to multiple factors, ranging from an insufficient number of listings and heavily speculative trading to a lack of standardized market regulation.

Dow Jones Indexes, one of the leading global index providers, develops and maintains more than 3,000 global indexes for use as benchmarks and as the basis of investment products. Dow Jones indexes form the basis for a variety of financial products in today's marketplace, including futures and options, mutual funds, exchange-traded funds, equity-indexed annuities, and structured products such as OTC options, swaps, warrants, and equity-linked notes.