WILDERHILL CLEAN ENERGY INDEX® (ECO)

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Philosophy Behind WilderHill Clean Energy Index (ECO)

A priority of the WilderHill Index (ECO) is to define and track the Clean Energy sector: specifically, businesses that stand to benefit substantially from a societal transition toward use of cleaner energy and conservation. Stocks and sector weightings within the ECO Index are based on their significance for clean energy, technological influence and relevance to preventing pollution in the first place. We emphasize new solutions that make both ecological and economic sense, and aim to be the leaders in this field.

Visit the New York Stock Exchange (NYSE) website, for specifications, history, and information on live calculations of the WilderHill Index, symbol ECO. The PowerShares WilderHill Clean Energy Portfolio, symbol PBW, seeks to mirror the performance of ECO. Investors who wish to trade the clean energy sector as defined by the WilderHill Index—via that independent fund PBW—can contact their Broker, or PowerShares. We note that Exchange-Traded Funds (ETFs) generally carry the characteristics of intra-day trading and transparency.

For more on the antecedents to the WilderHill Clean Energy Index, see "Capitalizing on Solutions that Can Make Ecological and Economic Sense.". We subscribe to modern portfolio theory and believe that for ECO the advantages of an indexing approach are persuasive. We pursue 'intelligent-indexing' combining analysis-based stock selection with sector weightings, according to technological and ecological considerations. Notably we don't change composition more often than Quarterly Index rebalancings. We don't try to 'beat the market'-nor try to pick 'under-valued' stocks.

We do not take defensive positions within the Index when the markets decline, appear over-valued, or the Index is experiencing unusual volatility. Rather than try to select Index components based on financial or market data, we robustly look at clean energy broadly conceived and select stocks and sectors on technical and environmental criteria. We judge our performance by how well the Index tracks movements of the clean energy sector-down and upwards-and anticipate significant ongoing volatility in this sector.

We apply qualitative analysis at the Quarterly rebalancings to determine Index securities, sectors and weightings. Criteria include the importance of the stock and sector to clean energy, relevance to climate change, pollution prevention, technological significance, intellectual property rights, salience to preserving biodiversity or ecological integrity and other non-financial criteria. The Index is expected to be a diversification tool. Given the inherent volatility of this sector with many small high-tech companies and strong price movement, the WilderHill Index is expected to be notably volatile as well.

We weight the Index sectors according to importance and technological relevance, not views about individual stocks. ECO components are evenly divided within a sector to assign weights--we feel this modified equal weighting is the most intellectually-robust approach for ECO. Following Quarterly rebalancings, stocks will move for the next three months according to their respective prices, and then are automatically reset for the next Quarter's start.

WilderShares, LLC is an Index Provider and the source for the WilderHill Clean Energy Index (ECO). Our emphasis is on new solutions that make ecological and economic sense. The real-time Indexes from WilderShares are designed to be leading benchmarks, and may be licensed to third parties offering tracking funds seeking to mirror the performance of our Indexes. WilderShares, LLC is an independent company.

ECO INDEX® CONSTRUCTION

(1) The Clean Energy Index uses modified equal dollar weighting. No single stock may exceed 4% of the total Clean Energy Index weight at the start of quarterly rebalancings.

(2) For a stock to be included in the selection universe, the company must be identified as one that has a significant exposure to clean energy, or contribute to the advancement of clean energy, or be important to the development of clean energy.

  • Companies in the Clean Energy Index generally (i) work to further renewable energy efforts and do so in ecologically and economically sensible ways; or (ii) help prevent pollutants, such as CO2, NOx, SOx or particulates-avoiding carbon or contaminants that harm oceans, land, air, or ecosystems structure; or (iii) de facto incorporate ideals of the precautionary principle or pollution prevention into their energy efforts.
  • Companies in the Clean Energy Index generally will not have their majority interests in the highest-carbon fuels: oil or coal.
  • Large companies with interests outside clean energy may be included if they are significant to this sector.

(3) Market capitalization for a majority of Clean Energy Index stocks is typically $200 million and above. To account for notable but smaller companies sometimes significant to the clean energy field, a minority of Clean Energy Index stocks may have market capitalizations between $50 million and $200 million.

(4) Stocks in the Clean Energy Index generally as a guideline should:
  1. have three-month average market capitalization of at least $50 million;
  2. have a three-month average closing price above $1.00;
  3. be listed on a major U.S. exchange such as the NYSE, AMEX or NASDAQ and if a foreign company have their ADR listed on one of these exchanges;
  4. reach minimum average daily liquidity requirements for sufficient trade volume.

CALCULATION METHODOLOGY

The Index is calculated using a modified equal dollar weighting methodology. Component securities and weights are determined by their respective sector and size. Each Sector is assigned an aggregate weight within the index. Components less than $200 million in total market capitalization are set to one-half of a percent (0.5%). The remaining components in each Sector are equally weighted by using the Sector weightings minus the sum of the weights of less than $200 million in market capitalization. Sector weightings were initially determined by the Index Provider and are reviewed each quarter in conjunction with the scheduled quarterly review of the Index. Within each sector the components weighting cannot exceed four percent (4%) of the index.

(Prior to Sept. 2006 the Index was calculated using a modified equal weighting methodology with components equally weighted within their respective Sector, each Sector assigned an aggregate weight, sector weightings initially determined by the Index Provider and reviewed each quarter in conjunction with quarterly review, and within each sector components weighting could not exceed three percent (3%) of the index).

Stock Universe

Companies selected include those focusing on the technologies for utilizing greener, renewable sources of energy. These technologies include renewable energy harvesting or production, energy conversion, energy storage, pollution prevention, improving efficiency, power delivery, energy conservation, and monitoring information.

There is a strong bias in favor of the pure-play companies in wind power, solar power, hydrogen and fuel cells, biofuels, and related fields; companies in relevant fields such as hydroelectric, geothermal, wave, tidal, waste heat recapture and others will be considered with respect to carbon content, the impacts upon marine and terrestrial biodiversity, and degree to which they advance or reflect the clean energy sector.

The Index is generally comprised of companies in the following areas:

Renewable Energy Supplies - Harvesting: These are producers of energy that's renewably-made, or the companies relevant to clean energy production such as the makers of blades or materials used in wind power, the makers of solar photovoltaic (PV) panels, companies in solar thermal generation, thin films, those working in geothermal and recovered energy generation, ocean power, etc. These generally renewable methods can often supply the desired power directly where needed –- or 'green' energy might be stored to become desirable firm power. Solar, wind, geothermal, small hydro, greener waste-to-energy, etc all notably carry less burden of pollution, CO2, prevent harm in the first place and many of these sources may allow for Distributed Generation.

Energy Storage: This wide-ranging category includes advanced batteries that can store energy in both familiar and innovative new ways, the materials and their precursors in battery chemistries; nanotechnology for better storage as well as exotic materials and processes; thermal storage using molten salts; hydrogen storage by compression, hydrides; the flywheels that make use of momentum and spinning at high speeds to store energy, and other innovations in storage: for example, supercapacitors that build and release large amounts of power very quickly. Because most renewable power is not 'firm' meaning not always on -- like the solar generation that will work only by day, or the wind power available mainly during windy times -- joining renewable power with these advanced means of energy storage systems often makes sense.

Cleaner Fuels: Includes makers and facilitators of biofuels derived from renewable crops; for example using cellulosic, sugar, or other feedstock in ethanol, biobutanol, or biogasoline — or using vegetable oil feedstock in biodiesel, etc. Biomass, better waste to energy, etc may be included as well. In the future hydrogen too as lightest and most abundant element may become an energy carrier, moving power made one place to where it’s helpfully needed. However there are numerous daunting technical challenges here including lack of hydrogen infrastructure and very high current costs. Hydrogen and fuel cells are only in early technical development, not widely commercialized, and still prototypes that are far more costly than fossil fuels in practice.

Energy Conversion: Includes complex integrated conversion systems that yield or produce useful work, such as electric cars and plug-in hybrid vehicles; also innovative parts of systems like advanced electric motors or propulsion for useful energy conversion. Includes too at component level devices that convert fuel, etc to desired power where needed. Fuel cells too are included as electrochemical devices that convert hydrogen-rich fuel to desired electricity, as are diverse processes such as thermoelectric conversion that may utilize waste heat etc.

Greener Utilities: Among utilities, some increasingly look to cleaner methods of making electric power including by wind, solar, geothermal, hydro and other means that prevent pollution while helping add price stability for the consumer. Unlike at conventional plants, price of renewable energy - while still costly - is widely declining. Should traditional fuels like coal or natural gas grow constrained or greater demand force prices to rise, or pollution and CO2 from fossil fuels become more significant such as via a cap and trade system or carbon tax - then alternative, independent, renewable means of producing firm utility power to grid could grow increasingly relevant. Also potentially included here are innovative means to cap and trade or reduce pollution from utilities. Consider however even greener utilities are typically not clean energy purer plays, and this Sector of the Index is perhaps most likely to see some inclusion of securities with fossil fuel interests.

Power Delivery and Conservation: Of importance in clean energy systems are electronics needed to monitor, smooth power outputs, convert DC to AC and match power loads to output. Included are inverters and equipment for power conditioning, monitoring, and smart power management. Also the varied means to conserve energy in the first place such as by LEDs and substrates, efficient lighting, displays, motors, heating, cooling, and innovative technology such as IC chips, nano, or superconductors made of exotic materials that allow power to be delivered efficiently at distance etc. Producers of fabrication equipment such as for making improved solar modules, or wind power manufacturing etc may be included. Notably products and actions for efficiency and conservation broadly conceived are included too: this includes demand-side and end-use improvements such as exceptionally efficient goods, products or activities curtailing need for power in the first place.

INDEX (ECO) SECTOR & STOCK WEIGHTS FOR THE START OF Q3 2010. 54 STOCKS.

Each stock freely floats according to its share price after rebalance.

* Stocks below $200 million in size at rebalance are banded with a 0.5% weight.

Renewable Energy Harvesting - 29% sector weight (11 stocks @2.40% each; +5 banded stocks)
*Ascent Solar, ASTI. Solar, early-development stages for thin film CIGS flexible PV.
Broadwind Energy, BWEN. Wind, holds firms across supply chain for wind energy.
Canadian Solar, CSIQ. Solar, China based vertical-integrated solar manufacturer.
*China Wind Systems, CWS. Wind power, large forged components in turbines.
*Emcore, EMKR. Solar, Concentrating PV, CPV for terrestrial uses, also for satellites.
Energy Conversion, ENER. Thin film, amorphous flexible PV panels; also batteries.
First Solar, FSLR. Thin film, CdTe solar panels reduce silicon need, and costs.
JA Solar, JASO. Solar, China-based sells PV modules in Asia, Europe, U.S. etc.
*Ocean Power Technologies, OPTT. Wave power, in speculative very early-stage.
Ormat, ORA. Geothermal power, works too in areas of recovered heat energy.
SunPower, SPWR. Solar, Efficient PV panels with all-rear-contact cells.
SunTech Power, STP. Solar, major producer of PV and is based in China.
Trina Solar, TSL. Solar, produces ingots, wafers, solar PV modules; China-based.
*U.S. Geothermal, HTM. Geothermal, site acquisition, PPAs, development-stage.
Yingli Green Energy, YGE. Vertically-integrated solar PV manufacturer, China.
Zoltek, ZOLT. Wind, makes carbon fiber for wind blades, product ‘lightening’.

Power Delivery & Conservation - 30% sector weight (13 stocks @2.30%)
Aixtron Aktiengesellschaft, AIXG. Deposition tools for efficient (O)LED, displays.
Applied Materials, AMAT. PV & semi fabrication, LCD displays, crystalline solar.
Comverge, COMV. Demand-side energy management, building smarter grids.
Cree, CREE. LEDs for efficient lighting, manufacturer for power-saving lights.
Echelon, ELON. Networking, better management of whole energy systems.
GT Solar, SOLR. Solar, PV manufacturing lines with automated fabrication.
Itron, ITRI. Energy monitoring, new measurement and management systems.
MEMC, WFR. Producer of polysilicon used in many crystalline solar PV cells.
Quanta Services, PWR. Infrastructure, modernized grid, smart power transmission.
ReneSola, SOL. Wafers, for silicon PV, mono and multicrystalline, China-based.
Rubicon, RBCN. Maker of substrates used in production of LEDs and lighting.
STR Holdings, STRI. Encapsulants, broad technology covers range of PV panels.
Universal Display, PANL. Organic light emitting diodes, OLED panel displays.

Energy Storage - 17% sector weight (7 stocks @2.28% each; +2 banded stocks)
Advanced Battery, ABAT. Batteries, China based maker of Li-ion for diverse uses.
A123 Systems, AONE. Batteries, nano phosphate for new EVs, grid, portable power.
*Beacon, BCON. Flywheels, non-chemical firm power alternative; also inverters.
*China BAK, CBAK. Batteries, large China based OEM manufacturer of Li-ion cells.
Ener1, HEV. Batteries, diverse in Li-ion power storage, nanotechnology; fuel cells.
Maxwell, MXWL. Ultracapacitors, alternative supplement to batteries, hybrids, UPS.
OM Group, OMG. Cobalt and other precursors, producer for Li-Ion batteries, FCs.
Polypore Intl., PPO. Batteries, separator membranes in Li-ion, Pb-acid cells.
Sociedad de Chile, SQM. Lithium, major Li supplier for batteries; also STEG storage.

Energy Conversion - 12% sector weight (4 stocks @2.25% each; +6 banded stocks)
American Superconductor, AMSC. Wind power converters; and superconductor HTS.
*Amerigon, ARGN. Thermoelectrics, in waste heat to power energy conversion.
*Ballard Power, BLDP. Mid-size fuel cell R&D, PEM FCs potential for transportation.
*FuelCell Energy, FCEL. Large fuel cells as stationary high-temp flex-fuel MCFCs.
Fuel Systems Solutions, FSYS. Gaseous fuels, for ICEs in cleaner-fuel vehicles.
International Rectifier, IRF. Energy-saving in power conversion and conditioning.
*Quantum, QTWW. Alternative fuels for vehicle propulsion; also solar nexus.
*Raser, RZ. Speculative stage licensing firm, small geothermal & electric motors.
Satcon, SATC. Inverters, DC/AC conversion for larger utility-scale renewables.
*UQM Technologies, UQM. Motors and controller systems, EVs & hybrid vehicles.

Cleaner Fuels - 5% sector weight (2 stocks @2.25% each +1 banded stock)
Air Products & Chemicals, APD. Hydrogen, is a supplier of industrial gases.
Cosan, CZZ. Biofuels, Brazil based uses sugarcane feedstock, an ethanol exporter.
*Gushan, GU. Biodiesel, vegetable oil, used-cooking oil etc feedstock; China based.

Greener Utilities – 7% sector weight (3 stocks @2.33% each)
Calpine, CPN. Geothermal: a major North American producer; low-carbon assets.
CPFL Energia S.A, CPL. Brazil Utility with both large and small hydroelectric.
Idacorp, IDA. Hydroelectric, Utility with sizeable hydroelectric, some small hydro.

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