Dow Jones Industrial Average A Relevant and Representative Measure of the U.S. Market

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1 SM Dow Jones Industrial Average Introduction Since its inception in 1896, the Dow Jones Industrial Average SM has been considered synonymous with U.S. equity markets. Even as it has grown from its original 12 components, to its current 30, The Dow is regularly used by investors, media and the general public to describe stock markets. It is universally known and accepted by traders around the globe. It is also considered by many to be a barometer of overall U.S. economic health and includes some of the best known companies in America. The Dow is considered the market s measure in part due to its consistent and remarkable ability to capture the characteristics of the larger U.S. market, but with a blue chip bent. The Dow is highly correlated with broader U.S. equity benchmarks, such as the Dow Jones Total Stock Market Index SM, and has remained a reliable and trusted market indicator for 115 years. Figure 1: Dow Jones Industrial Average Components Company Ticker # Years in The Dow Company Ticker # Years in The Dow 3M Co. MMM 35 Intel Corp. INTC 12 Alcoa Inc. AA 52 International Business Machines Corp. IBM 39 American Express Co. AXP 29 Johnson & Johnson JNJ 14 AT&T Inc. T 12 JPMorgan Chase & Co. JPM 20 Bank of America Corp. BAC 3 Kraft Foods Inc. Cl A KFT 3 Boeing Co. BA 24 McDonald's Corp. MCD 26 Caterpillar Inc. CAT 20 Merck & Co. Inc. MRK 32 Chevron Corp. CVX 73 Microsoft Corp. MSFT 12 Cisco Systems Inc. CSCO 2 Pfizer Inc. PFE 7 Coca-Cola Co. KO 27 Procter & Gamble Co. PG 79 E.I. DuPont de Nemours & Co. DD 77 Travelers Cos. Inc. TRV 2 Exxon Mobil Corp. XOM 80 United Technologies Corp. UTX 73 General Electric Co. GE 108 Verizon Communications Inc. VZ 7 Hewlett-Packard Co. HPQ 14 Wal-Mart Stores Inc. WMT 14 Home Depot Inc. HD 12 Walt Disney Co. DIS 20 CME Group Index Services LLC 2011 Market Representation The Dow s components are very large blue-chip companies that represent leading industries driving the U.S. market. While the number of stocks in the U.S. market fluctuates over time, The Dow has been fixed at 30 stocks for more than 80 years. With just a small fraction of the stocks that are available in the U.S. market, The Dow still manages to capture almost a quarter of the full U.S. market capitalization through its inclusion of large, well-recognized stocks. Indeed, since 1995, The Dow has grown from covering 17% of the total U.S. market (as measured by the Dow Jones U.S. Total Stock Market Index) to 24% at the end of 2010 (Figure 2).

2 Figure 2: Dow Representation of the U.S. Market $ Trillion Dow Jones U.S. Total Stock Market Index Full Market Capitalization ($ trillion) % represented by The Dow Year 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% As of December 31, 2010 Dividends In addition to a considerable representation in terms of market capitalization, The Dow represents a significant portion of U.S. market in terms of dividend payments. As of March 2011, The Dow is completely comprised of dividend-paying companies. The total estimated annual dividend payments for all 30 components totaled $93.2 billion at the end of Q1 2011, or 40% of the estimated annual dividend payments of the total U.S. market ii. This makes for a 12.95% increase on the annual payments of The Dow components at the end of Q1 2010, when they were estimated $87.4 billion (Figure 3). Since that time, 20 companies in The Dow have increased their dividends, one company initiated dividend payments and nine companies left their dividends unchanged. In addition, the top 10 dividendpaying companies by total dollar value of estimated annual dividend payments in the U.S. market are all components of The Dow. Figure 3: Estimated Annual Cash Dividend Payments of The Dow 100,000 98,710 $MM USD 95,000 90,000 95,000 93,217 91,898 90,184 87,391 80,000 Q Q Q Q Q Performance In terms of performance, The Dow remains competitive with other U.S. equity benchmarks. Based on annualized price returns since December 1986, The Dow is up 8.02%, outperforming the S&P 500 (7.26%), the Russell 3000 Index (7.42%) and the Dow Jones U.S. Total Stock Market Index (7.45%) (Figure 4). The Dow tracks closely with these other major market indexes even though they tend to have more complex methodologies and larger component numbers (Figure 5). During the same time period, The Dow has exhibited a lower measure of risk than the broader U.S. equity benchmarks based upon annualized standard deviation (15.68%) (Figure 6). In general, The Dow has a similar risk return profile to these indexes regardless of the time horizon; however, it also has slightly higher risk-adjusted returns over the long term (Figure 7). 2

3 Figure 4: Annualized Price Return Performance 1-Year 3-Year 5-Year 10-Year 25-Year The Dow 13.48% 0.15% 2.09% 2.23% 8.02% S&P % 0.08% 0.47% 1.34% 7.26% Russell 3000 Index 15.26% 1.26% 0.92% 2.25% 7.42% Dow Jones U.S. Total Stock Market Index SM 15.59% 1.54% 1.17% 2.71% 7.45% Figure 5: Price Return Performance The Dow [649.79] S&P 500 [547.48] Russell 3000 [567.05] Dow Jones U.S. TSM [571.20] 0 Dec-86 Dec-87 Dec-88 Dec-89 Dec-90 Dec-91 Dec-92 Dec-93 Dec-94 Dec-95 Dec-96 Dec-97 Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Comparison Period: December 1986 March 2011 Figure 6: Annualized Risk 1-Year 3-Year 5-Year 10-Year 25-Year The Dow 16.28% 20.07% 16.49% 15.57% 15.68% S&P % 21.91% 17.89% 15.97% 15.70% Russell 3000 Index 18.54% 22.67% 18.47% 16.39% 15.88% Dow Jones U.S. Total Stock Market Index 18.43% 22.51% 18.35% 16.30% 15.93% Figure 7: Risk-Return 9.0% 8.8% 8.6% Annualized Return 8.4% 8.5% 8.0% 7.8% 7.6% 7.4% The Dow S&P 500 Dow Jones U.S. Total Stock Market 7.2% 7.0% Russell 3000 Index 15.0% 15.2% 15.4% 15.6% 15.8% 16.0% Annualized Risk Comparison Period: December 1986 March

4 Correlations Separate from the competitive performance results, history also indicates that The Dow has a tendency to move in tandem with the other major U.S. equity market indexes. Based on a rolling 36-month average, The Dow has had a standard correlation of more than 0.91 with the S&P 500, Russell 3000 Index, and Dow Jones U.S. Total Stock Market Index. Its current 36-month correlations are even higher (0.97 or more). On average, The Dow exhibits the highest correlations when compared to the S&P 500 (Figure 8). As a result of its significant market representation of the total U.S. market, The Dow s performance is closely linked with that of indexes containing hundreds or even thousands of stocks. Figure 8: Correlations vs. The Dow Rolling 36-Month Average Current 36-Month Average S&P Russell 3000 Index Dow Jones U.S. Total Stock Market Index Comparison Period: December 1986 March 2011 March 2008 March 2011 Drawdowns During the most recent market downturn, in which all four benchmarks bottomed out in February 2009, The Dow declined 49.30%, while the S&P 500, Russell 3000 Index, and Dow Jones U.S. Total Stock Market Index had drawdowns of approximately -52.5% (Figure 9). Although the S&P 500 requires the largest gain to fully recover (16.86%) to October 2007 peak, The Dow requires 13.07% similar to the gains needed by Russell 3000 Index (13.13%) and Dow Jones U.S. Total Stock Market Index (12.12%). Figure 9: Drawdowns Peak Date Through Date Maximum Drawdown Required Back to Peak The Dow Oct-07 Feb % 13.07% S&P 500 Oct-07 Feb % 16.86% Russell 3000 Index Oct-07 Feb % 13.13% Dow Jones U.S. Total Stock Market Index Oct-07 Feb % 12.12% Figure 10: Sector Allocation S&P 500 The Dow Oil & Gas 11.77% 12.95% Basic Materials 3.40% 4.46% Industrials 11.79% 23.56% Consumer Goods 10.17% 9.79% Health Care 6.92% 10.63% Consumer Services 11.62% 12.80% Telecommunications 3.06% 4.25% Utilities 3.35% 0.00% Financials 10.08% 16.34% Technology 16.70% 16.39% 0.00% 5.00% 10.00% 15.00% 20.00% 25.00%, based on ICB classification 4

5 Sector Allocations In terms of sector allocation based upon the Industry Classification Benchmark (ICB), The Dow exhibits some expected differences when compared solely to the S&P 500. The Dow is overweight in Industrials by 11.77% and underweight in Financials by 6.26%. The Utilities sector is not represented in The Dow (due to the existence of the separate Dow Jones Utility Average). However, The Dow s allocation to Telecommunications and Technology (4.25% and 16.39%, respectively) is similar to the S&P 500 (3.06% and 16.70%). Conclusion Although The Dow has only 30 blue-chip components and is priceweighted, it has provided an important representation of the U.S. market with performance characteristics similar to the larger marketcapitalization weighted S&P 500, Russell 3000 Index and Dow Jones U.S. Total Stock Market Index. The Dow continues to be a relevant and effective benchmark for the American stock market just as it has been for the past 115 years. For more information on the Dow Jones Industrial Average, djindexsupport@djindexes.com or call U.S ; Asia ; Europe Learn more at CME Group Index Services LLC All rights reserved. The Dow Jones Industrial Average and the Dow Jones U.S. Total Stock Market Index are products of Dow Jones Indexes, the marketing name and a licensed trademark of CME Group Index Services LLC ( CME Indexes ). Dow Jones, Dow Jones Indexes and the names identifying the indexes referenced herein are service marks of Dow Jones Trademark Holdings, LLC ( Dow Jones ), and have been licensed for use by CME Indexes. CME is a trademark of Chicago Mercantile Exchange Inc. S&P 500 is a trademark and/or service mark of and proprietary to Standard & Poors Financial Services LLC. Russell 3000 Index is a trademark and/or service mark of and proprietary to Russell Investments. The Industry Classification Benchmark (ICB) is a joint product of FTSE International Limited and Dow Jones Indexes, and has been licensed for use. FTSE is a trade and service mark of London Stock Exchange and The Financial Times Limited. FTSE, Dow Jones Indexes and their respective licensors and affiliates do not accept any liability to any person for any loss or damage arising out of any error or omission in the ICB. All information in these materials is provided as is. CME Indexes and its affiliates do not make any representation regarding the accuracy or completeness of these materials, the content of which may change without notice, and each of CME Indexes and its affiliates disclaims liability related to these materials. All information provided by CME Indexes is impersonal and not tailored to the needs of any person, entity or group of persons. Dow Jones, its affiliates and CME Indexes do not sponsor, endorse, sell, promote or manage any investment fund or other vehicle that is offered by third parties and that seeks to provide an investment return based on the returns of any index. CME Indexes is not an investment advisor, and CME Indexes makes no representation regarding the advisability of investing in any such investment fund or other vehicle. Inclusion of a company within an index is not a recommendation by Dow Jones, CME Indexes or their respective affiliates to buy, sell, or hold such futures company, nor is it considered to be investment advice. Exposure to an asset class is available through investable instruments based on an index. It is not possible to invest directly in an index. There is no assurance that investment products based on the index will accurately track index performance or provide positive investment returns. Redistribution, reproduction and/or photocopying in whole or in part is prohibited without written permission. i Russell 3000 Index S&P 500 Index i i Estimated annual dividend payment for a company is based on IAD (Indicated Annual Dividend most recent quarterly dividend payment multiplied by four) and shares outstanding. U.S. market is based on the components of the Dow Jones U.S. Index.