Equity Research North America
Morgan Stanley ETF Team
Exchange-Traded Funds
Capital Link Forum
Closed-End Fund and Global ETF Conference
Index Strategies
June 9, 2004 ETFResearch@morganstanley.com
MORGAN STANLEY ETF RESEARCH TEAM
Paul Mazzilli Paul.Mazzilli@morganstanley.com
Dodd Kittsley, CFA Dodd.Kittsley@morganstanley.com
Dominic Maister Dominic.Maister@morganstanley.com
Anal yst
Erin P. Kim Erin.Kim@morganstanley.com
Please see analyst certification and other important disclosures starting on page 3.
Equity Research North America
Morgan Stanley ETF Team
Index-Linked ETF Strategies
“Managed Indexation” involves using active strategies with ETFs including:
Complete asset allocation
Core/Satellite approach
Market cap segment focus
Growth or Value style focus
Sector emphasis/rotation
Pair trades
Exposure to benchmark during manager transition / selection
Tax swaps or creation of more tax efficient portfolios
Risk management/hedging
Portfolio completion (filling missing sectors or styles)
Cash equitization (putting cash flow into equities)
Options strategies (72 ETFs have options)
Source: Morgan Stanley Research.
Please see analyst certification and other important disclosures starting on page 3. 2
Equity Research North America
Morgan Stanley ETF Team
Important Disclosures
Analyst Certification
The following analysts hereby certify that their views about the companies and their securities discussed in this report are accurately expressed and that they have not received and
will not receive direct or indirect compensation in exchange for expressing specific recommendations or views in this report: Paul Mazzilli.
Important US Regulatory Disclosures on Subject Companies
The information and opinions in this report were prepared by Morgan Stanley & Co. Incorporated and its affiliates (collectively, "Morgan Stanley").
Morgan Stanley policy prohibits research analysts, strategists and research associates from investing in securities in their sub industry as defined by the Global Industry Classification
Standard ("GICS," which was developed by and is the exclusive property of MSCI and S&P). Analysts may nevertheless own such securities to the extent acquired under a prior
policy or in a merger, fund distribution or other involuntary acquisition.
The research analysts, strategists, or research associates principally responsible for the preparation of this research report have received compensation based upon various factors,
including quality of research, investor client feedback, stock picking, competitive factors, firm revenues and overall investment banking revenues.
Please see analyst certification and other important disclosures starting on page 3. 3
Equity Research North America
Morgan Stanley ETF Team
Ratings Distribution and Definitions
Disclaimers
G lo b a l S t o c k R a t in g s D is t r ib u t io n
( a s o f A p r il 3 0 , 2 0 0 4 )
C o v e r a g e U n iv e r s e In v e s tm e n t B a n k i n g C lie n ts ( IB C )
% of % of % o f R a tin g
S to c k R a tin g C a t e g o r y Count T o ta l Count T o ta l IB C C a te g o r y
O v e r w e ig h t 614 34% 258 40% 42%
E q u a l-w e ig h t 805 45% 287 44% 36%
U n d e r w e ig h t 364 20% 102 16% 28%
T o ta l 1 ,7 8 3 647
D a ta in c lu d e c o m m o n s to c k a n d A D R s c u r r e n tly a s s ig n e d r a tin g s . F o r
d is c lo s u r e p u r p o s e s (in a c c o r d a n c e w ith N A S D a n d N Y S E
r e q u ir e m e n ts ), w e n o te th a t O v e r w e ig h t, o u r m o s t p o s itiv e s t o c k
r a tin g , m o s t c l o s e ly c o r r e s p o n d s to a b u y r e c o m m e n d a tio n ; E q u a l -
w e ig h t a n d U n d e r w e ig h t m o s t c lo s e ly c o r r e s p o n d to n e u tr a l a n d s e ll
r e c o m m e n d a tio n s , r e s p e c tiv e ly . H o w e v e r , O v e r w e ig h t, E q u a l - w e ig h t,
a n d U n d e r w e ig h t a r e n o t th e e q u iv a le n t o f b u y , n e u tr a l, a n d s e ll b u t
r e p r e s e n t r e c o m m e n d e d r e la tiv e w e ig h tin g s (s e e d e fin itio n s b e lo w ).
A n in v e s to r 's d e c is io n to b u y o r s e ll a s to c k s h o u ld d e p e n d o n
in d iv id u a l c ir c u m s ta n c e s (s u c h a s th e in v e s to r 's e x is tin g h o ld in g s ) a n d
o th e r c o n s id e r a tio n s . I n v e s tm e n t B a n k in g C lie n ts a r e c o m p a n ie s fr o m
w h o m M o r g a n S ta n le y o r a n a ffilia te r e c e iv e d in v e s tm e n t b a n k in g
c o m p e n s a tio n in th e la s t 1 2 m o n th s .
A n a l y s t S t o c k R a t in g s
O v e r w e i g h t ( O ) . T h e s to c k ’s t o ta l r e tu r n is e x p e c te d to e x c e e d th e a v e r a g e to ta l r e t u r n o f t h e a n a l y s t’ s in d u s tr y ( o r in d u s t r y
te a m ’s ) c o v e r a g e u n iv e r s e , o n a r is k - a d j u s te d b a s is , o v e r th e n e x t 1 2 -1 8 m o n t h s .
E q u a l- w e i g h t ( E ) . T h e s to c k ’s to ta l r e tu r n is e x p e c te d to b e in lin e w i th t h e a v e r a g e to ta l r e tu r n o f th e a n a l y s t ’s i n d u s tr y ( o r
in d u s tr y te a m ’ s ) c o v e r a g e u n i v e r s e , o n a r i s k -a d j u s te d b a s i s , o v e r th e n e x t 1 2 -1 8 m o n t h s .
U n d e r w e ig h t ( U ) . T h e s to c k ’ s to ta l r e tu r n is e x p e c te d to b e b e lo w t h e a v e r a g e to ta l r e tu r n o f th e a n a l y s t ’s i n d u s tr y ( o r in d u s tr y
te a m ’s ) c o v e r a g e u n iv e r s e , o n a r is k - a d j u s te d b a s is , o v e r th e n e x t 1 2 -1 8 m o n t h s .
M o r e v o la tile ( V ) . W e e s ti m a t e th a t th is s to c k h a s m o r e th a n a 2 5 % c h a n c e o f a p r ic e m o v e ( u p o r d o w n ) o f m o r e th a n 2 5 % in
a m o n t h , b a s e d o n a q u a n ti ta ti v e a s s e s s m e n t o f h is to r ic a l d a t a , o r in th e a n a l y s t ’s v ie w , it i s lik e l y to b e c o m e m a te r ia ll y m o r e
v o la tile o v e r t h e n e x t 1 - 1 2 m o n th s c o m p a r e d w i th t h e p a s t t h r e e y e a r s . S to c k s w i th le s s t h a n o n e y e a r o f tr a d i n g h is to r y a r e
a u to m a t ic a ll y r a te d a s m o r e v o la tile ( u n le s s o t h e r w is e n o te d ) . W e n o te th a t s e c u r itie s th a t w e d o n o t c u r r e n t l y c o n s id e r " m o r e
v o la tile " c a n s till p e r fo r m in t h a t m a n n e r .
U n le s s o th e r w i s e s p e c i fie d , th e ti m e fr a m e fo r p r ic e ta r g e ts in c lu d e d in t h i s r e p o r t is 1 2 to 1 8 m o n t h s . R a ti n g s p r io r to M a r c h
1 8 , 2 0 0 2 : S B = S tr o n g B u y ; O P = O u tp e r fo r m ; N = N e u tr a l; U P = U n d e r p e r fo r m . F o r d e fin itio n s , p l e a s e g o to
w w w . m o r g a n s ta n le y .c o m /c o m p a n y c h a r ts .
A n a l y s t In d u s t r y V ie w s
A ttr a c t iv e ( A ) . T h e a n a l y s t e x p e c ts th e p e r fo r m a n c e o f h is o r h e r in d u s tr y c o v e r a g e u n i v e r s e o v e r th e n e x t 1 2 -1 8 m o n th s to b e
a ttr a c tiv e v s . th e r e le v a n t b r o a d m a r k e t b e n c h m a r k n a m e d o n th e c o v e r o f t h i s r e p o r t .
I n - L i n e ( I ) . T h e a n a l y s t e x p e c ts th e p e r fo r m a n c e o f h is o r h e r in d u s tr y c o v e r a g e u n i v e r s e o v e r th e n e x t 1 2 -1 8 m o n t h s to b e in
lin e w it h t h e r e le v a n t b r o a d m a r k e t b e n c h m a r k n a m e d o n th e c o v e r o f th is r e p o r t .
C a u t io u s ( C ) . T h e a n a l y s t v ie w s th e p e r fo r m a n c e o f h i s o r h e r in d u s tr y c o v e r a g e u n iv e r s e o v e r th e n e x t 1 2 -1 8 m o n t h s w i th
c a u tio n v s . t h e r e le v a n t b r o a d m a r k e t b e n c h m a r k n a m e d o n t h e c o v e r o f th is r e p o r t .
S to c k p r ic e c h a r ts a n d r a tin g h is to r ie s fo r c o m p a n ie s d is c u s s e d in th is r e p o r t a r e a ls o a v a ila b le a t
w w w .m o r g a n s ta n le y .c o m /c o m p a n y c h a r ts . Y o u m a y a ls o r e q u e s t th is in fo r m a tio n b y w r itin g to M o r g a n S ta n le y a t 1 5 8 5
B r o a d w a y , 1 4 th F lo o r (A tte n tio n : R e s e a r c h D is c lo s u r e s ), N e w Y o r k , N Y , 1 0 0 3 6 U S A .
Please see analyst certification and other important disclosures starting on page 3. 4
Equity Research North America
Morgan Stanley ETF Team
Other Disclosures
Other Important Disclosures
For a discussion, if applicable, of the valuation methods used to determine the price targets included in this summary and the risks related to achieving these targets, please refer to the latest
relevant published research on these stocks. Research is available through your sales representative or on Client Link at www.morganstanley.com and other electronic systems.
This report does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives of persons who receive it.
The securities discussed in this report may not be suitable for all investors. Morgan Stanley recommends that investors independently evaluate particular investments and strategies, and
encourages investors to seek the advice of a financial adviser. The appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and
objectives.
This report is not an offer to buy or sell any security or to participate in any trading strategy. In addition to any holdings disclosed in the section entitled "Important US Regulatory
Disclosures on Subject Companies", Morgan Stanley and/or its employees not involved in the preparation of this report may have investments in securities or derivatives of securities of
companies mentioned in this report, and may trade them in ways different from those discussed in this report. Derivatives may be issued by Morgan Stanley or associated persons.
Morgan Stanley & Co. Incorporated and its affiliate companies do business that relates to companies covered in its research reports, including market making and specialized trading, risk
arbitrage and other proprietary trading, fund management, investment services and investment banking. Morgan Stanley sells to and buys from customers the equity securities of companies
covered in its research reports on a principal basis.
Morgan Stanley makes every effort to use reliable, comprehensive information, but we make no representation that it is accurate or complete. We have no obligation to tell you when
opinions or information in this report change apart from when we intend to discontinue research coverage of a subject company.
With the exception of information regarding Morgan Stanley, reports prepared by Morgan Stanley research personnel are based on public information. Facts and views presented in this
report have not been reviewed by, and may not reflect information known to, professionals in other Morgan Stanley business areas, including investment banking personnel.
Morgan Stanley research personnel conduct site visits from time to time but are prohibited from accepting payment or reimbursement by the company of travel expenses for such visits.
The value of and income from your investments may vary because of changes in interest rates or foreign exchange rates, securities prices or market indexes, operational or financial
conditions of companies or other factors. There may be time limitations on the exercise of options or other rights in your securities transactions. Past performance is not necessarily a guide
to future performance. Estimates of future performance are based on assumptions that may not be realized.
This publication is disseminated in Japan by Morgan Stanley Japan Limited; in Hong Kong by Morgan Stanley Dean Witter Asia Limited; in Singapore by Morgan Stanley Dean Witter
Asia (Singapore) Pte., regulated by the Monetary Authority of Singapore, which accepts responsibility for its contents; in Australia by Morgan Stanley Dean Witter Australia Limited
A.B.N. 67 003 734 576, a licensed dealer, which accepts responsibility for its contents; in Canada by Morgan Stanley Canada Limited, which has approved of, and has agreed to take
responsibility for, the contents of this publication in Canada; in Spain by Morgan Stanley, S.V., S.A., a Morgan Stanley group company, which is supervised by the Spanish Securities
Markets Commission (CNMV) and states that this document has been written and distributed in accordance with the rules of conduct applicable to financial research as established under
Spanish regulations; in the United States by Morgan Stanley & Co. Incorporated and Morgan Stanley DW Inc., which accept responsibility for its contents; and in the United Kingdom, this
publication is approved by Morgan Stanley & Co. International Limited, solely for the purposes of section 21 of the Financial Services and Markets Act 2000 and is distributed in the
European Union by Morgan Stanley & Co. International Limited, except as provided above. Private U.K. investors should obtain the advice of their Morgan Stanley & Co. International
Limited representative about the investments concerned. In Australia, this report, and any access to it, is intended only for “wholesale clients” within the meaning of the Australian
Corporations Act.
The trademarks and service marks contained herein are the property of their respective owners. Third-party data providers make no warranties or representations of any kind relating to the
accuracy, completeness, or timeliness of the data they provide and shall not have liability for any damages of any kind relating to such data. The Global Industry Classification Standard
("GICS") was developed by and is the exclusive property of MSCI and S&P.
This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of Morgan Stanley.
Morgan Stanley research is disseminated and available primarily electronically, and, in some cases, in printed form.
Additional information on recommended securities is available on request.
Please see analyst certification and other important disclosures starting on page 3. 5