S&P U.S. Corporate Bond Indices Methodology

Transcription

1 S&P U.S. Corporate Bond Indces Methodology S&P Dow Jones Indces: Index Methodology March 2015

2 Table of Contents Introducton 3 Index Famly 3 Elgblty Crtera 4 Elgblty Factors 4 Tmng of Changes 5 Monthly Rebalancng 6 Sub-Index Rules 7 S&P U.S. Investment Grade Sub-Indces 7 S&P U.S. Hgh Yeld Sub-Indces 8 S&P Crossover Rated 9 Index Constructon 10 Index Calculatons 10 Index Mantenance 11 Rebalancng 11 Base Dates and Hstory Avalablty 11 Index Governance 13 Index Commttee 13 Index Polcy 14 Announcements 14 Holday Schedule 14 End-of-Day Calculaton 14 Index Releases 14 Recalculaton Polcy 14 S&P Dow Jones Indces: S&P U.S. Corporate Bond Indces Methodology 1

3 Index Dssemnaton 16 Tckers 16 FTP 17 Web ste 17 Appendx I Index Calculatons 18 Calculaton of Securty Market Values 18 Calculaton of Securty Returns 18 Calculaton of Daly Index Returns and Levels 20 Renvestment Returns from Monthly Cash Flows 21 Appendx II Dow Jones Equal Weght U.S. Issued Calculatons 22 Calculaton of Securty Market Values and Weghts 22 Calculaton of Securty Returns 23 Calculaton of Daly Index Returns and Levels 24 Renvestment Returns from Monthly Cash Flows 25 S&P Dow Jones Indces Contact Informaton 26 Index Management 26 Product Management 26 Meda Relatons 26 Clent Servces 26 Dsclamer 27 The S&P U.S. Corporate Bond Indces and Dow Jones Equal Weght U.S. Issued are propretary ndces of S&P Dow Jones Indces. Prcng provded by Interactve Data Corporaton and ndces calculated by Interactve Data Corporaton. S&P Dow Jones Indces: S&P U.S. Corporate Bond Indces Methodology 2

4 Introducton The S&P U.S. Famly s comprsed of a unverse of corporate bonds ssued by U.S. and foregn domcled corporatons denomnated n U.S. dollars. The ndces cover elgble securtes across the ratngs spectrum and are desgned to measure U.S. dollar-denomnated corporate bond market performance. Ths methodology was created by S&P Dow Jones Indces to acheve the aforementoned objectve of measurng the underlyng nterest of each ndex governed by ths methodology document. Any changes to or devatons from ths methodology are made n the sole judgment and dscreton of S&P Dow Jones Indces so that the ndex contnues to acheve ts objectve. Index Famly The structure of the S&P U.S. Famly currently conssts of: S&P Dow Jones Indces: S&P U.S. Corporate Bond Indces Methodology 3

5 Elgblty Crtera Elgblty Factors U.S. SEC Regstered and 144a securtes, wth or wthout regstraton rghts, qualfy for ncluson n the Index. Orgnal ssue zero coupon bonds and pay-n-knd securtes, ncludng toggle notes, bonds that are callable/putable, and bonds wth snkng funds also qualfy for ncluson. Step-up coupons and those that change accordng to a predetermned schedule are also ncluded. Captal securtes wth coupons that convert from fxed to floatng rate are ndex elgble, gven that they are currently fxed rate; the maturty date then equals the converson date. Callable perpetual securtes qualfy. Fxed-to-floatng rate securtes also qualfy. Warrant-bearng, Convertble, Preferred, DRD-elgble (Dvdend Receved Deducton), Qualfed Dvdend Income (QDI) elgble securtes, structured or lnked notes and defaulted securtes are excluded from the ndex Currency. Securtes must be ssued n U.S. dollars. Country. The parent nvestment grade and hgh yeld ndces contan U.S. and foregn ssued corporate securtes. The country of ncorporaton of the ssuer must be the U.S. for the U.S. ssued ndex seres. The country of ncorporaton of the ssuer must be non- U.S. for the foregn ssued ndex seres. Maturty. Each bond must have a maturty greater than or equal to one month from the rebalancng date. No bonds mature n the ndex. Maturty sub-sectors are defned by the constrants. Ratngs. Ratngs crtera are as follows: New Issues. New ssues must be rated by at least one ratng agency to be consdered at the next rebalancng. Non-rated and Defaulted Bonds. Bonds that are not rated are removed at the frst rebalancng. Defaulted bonds are removed at the frst rebalancng. Investment Grade. The mnmum credt ratng for ncluson n nvestment grade ndces s BBB-/Baa3/BBB-. For an ssue rated by S&P, Moody s, and Ftch, the lowest of the three ratngs s used as the ssue's credt ratng. When there are two ratngs, the lower of the two ratngs must be consdered nvestment grade. When there s only one ratng, that ratng must be consdered nvestment grade. S&P Dow Jones Indces: S&P U.S. Corporate Bond Indces Methodology 4

6 Hgh Yeld. The maxmum credt ratng for ncluson n hgh yeld ndces s BB+/Ba1/BB+. For an ssue rated by S&P, Moody s, and Ftch, the lowest of the three ratngs s used as the ssue's credt ratng. When there are two ratngs, the lower of the two s consdered. When there s only one ratng, that ratng must be consdered below nvestment grade. Crossover. For ncluson n the S&P Crossover Rated, a bond s credt ratng must fall on or between BB-/Ba3/BB- and BBB+/Baa1/ BBB+. For an ssue rated by S&P, Moody s, and Ftch, the lowest of the three ratngs s used as the ssue's credt ratng. When there are two ratngs, the lower of the two ratngs must fall on or wthn the range. When there s only one ratng, that ratng s consdered. For ratngs based sub-ndces, the above rules are appled to the approprate ratngs band. Prcng. Daly prcng s provded by Interactve Data Corporaton (IDC). Coupon. Bonds must have a fxed coupon schedule. Debt Senorty. Senor and subordnated bonds are ncluded. Covered bonds and equpment trust certfcates are excluded. Bond Type. The followng corporate structures are ncluded: debentures, MTN, zero coupon bonds, corporate PIK bonds, and corporate nsured bank notes are elgble. Captal securtes (hybrd captal) are elgble durng ther fxed-rate term and ext the ndex one month pror to ther converson to floatng-coupon securtes. Convertble bonds are excluded. Perpetual bonds are ncluded. Fxed-to-Float bonds must have a fxed rate perod greater than or equal to one-month as of the rebalancng date to be consdered. The followng structures are excluded: Government bonds, convertble securtes, Reg S bonds, lnked bonds, defaulted bonds, blls, CDs, equpment trust certfcates, loan certfcates, equty-backed bonds, prvate placement bonds not governed by 144a, and floatng rate notes. Optonalty. Callable/Putable bonds are ncluded. Market of Issue. Elgble securtes nclude those ssued n U.S. and non-u.s. markets. Sze. For nvestment grade bonds, a mnmum par of US$ 250 mllon at each rebalancng s requred. For hgh yeld bonds, a mnmum par of US$ 100 mllon at each rebalancng s requred. For the S&P U.S. Issued Large Cap CCC & Above Hgh Yeld and Dow Jones Equal Weght U.S. Issued, a mnmum par of US$ 500 mllon at each rebalancng s requred. Tmng of Changes The ndces are revewed and rebalanced on a monthly bass. S&P Dow Jones Indces: S&P U.S. Corporate Bond Indces Methodology 5

7 Monthly Rebalancng Based on new ssuance, sze and maturty, the bonds n the ndex are subject to change every month, effectve after the close of the last busness day of the month. Addtons, deletons and other changes to the ndces arsng from the monthly rebalancng are publshed on a best efforts bass, after the close of busness, three busness days pror to the last busness day of the month (the announcement date). Any market events after ths date that affect the consttuent membershp are made on the next rebalancng date. Changes to the ndces that are publshed n the announcement are not normally subject to revson and are effectve after the close on the last busness day of the month (the rebalancng date). S&P Dow Jones Indces: S&P U.S. Corporate Bond Indces Methodology 6

8 Sub-Index Rules S&P U.S. Investment Grade Sub-Indces The followng are sub-ndces of the S&P U.S. Investment Grade. They are market weghted ndces subject to the constrants detaled n the table below: Index S&P U.S. Issued Investment Grade S&P U.S. Issued AAA Investment Grade S&P U.S. Issued AA Investment Grade S&P U.S. Issued A Investment Grade S&P U.S. Issued BBB Investment Grade S&P U.S. Foregn Issued Investment Grade Corporate Bond Index Constrant The lowest credt ratng for ndex ncluson must be BBB-/Baa3/BBB-. The lowest credt ratng for ndex ncluson must be AAA/Aaa/AAA. The lowest credt ratng for ndex ncluson must fall on or between AA+/Aa1/AA+ and AA-/Aa3/AA-. The lowest credt ratng for ndex ncluson must fall on or between A+/A1/A+ and A-/A3/A-. The lowest credt ratng for ndex ncluson must fall on or between BBB+/Baa1/BBB+ and BBB- /Baa3/BBB-. The lowest credt ratng for ndex ncluson must be BBB-/Baa3/BBB-. Dow Jones Equal Weght U.S. Issued. Ths s a sub-ndex of the S&P U.S. Issued Investment Grade. It s an equal weghed ndex comprsed of 96 bonds. An ssuer may have up to four bonds n the ndex, but no more than one n each maturty cell. In order to enter a maturty cell, a bond s remanng tme to maturty must be at least sx months longer than the mnmum maturty horzon for that cell. A bond already n a cell may reman untl the end of the month pror to the month ts maturty would fall below the ndex s mnmum. The ndex s also subject to the followng applcable rules: Ratng. Only ratngs ssued by S&P and Moody s are consdered. A bond must retan ts nvestment grade ratng to reman n the ndex. Coupon. Only fxed rate bonds are consdered. Zero coupon bonds are excluded. Optonalty. Callable/Putable bonds are excluded. Bonds wth make-whole calls are ncluded. Market of Issue. Securtes must be publcly ssued n the U.S. SEC regstered markets. 144a securtes are excluded. S&P Dow Jones Indces: S&P U.S. Corporate Bond Indces Methodology 7

9 S&P U.S. Hgh Yeld Sub-Indces The followng are sub-ndces of the S&P U.S. Hgh Yeld. They are market weghted ndces subject to the constrants detaled n the table below: Index S&P U.S. Issued Hgh Yeld S&P U.S. Issued BB Hgh Yeld S&P U.S. Issued B Hgh Yeld S&P U.S. Issued CCC & Lower Hgh Yeld S&P U.S. Issued Large Cap CCC & Above Hgh Yeld Corporate Bond Index S&P U.S. Foregn Issued Hgh Yeld S&P 0-3 Year Hgh Yeld S&P 3-5 Year Hgh Yeld S&P 5-7 Year Hgh Yeld S&P 7-10 Year Hgh Yeld S&P 10+ Year Hgh Yeld S&P U.S. Dstressed Hgh Yeld Constrant The lowest credt ratng for ndex ncluson must be C/Ca/C. The lowest credt ratng for ndex ncluson must fall on or between BB+/Ba1/BB+ and BB-/Ba3/BB-. The lowest credt ratng for ndex ncluson must fall on or between B+/B1/B+ and B-/B3/B-. The lowest credt ratng for ndex ncluson must fall on or between CCC+/Caa1/CCC+ and C/Ca/C. The lowest credt ratng for ndex ncluson must be CCC/Caa2/CCC. The lowest credt ratng for ndex ncluson must be C/Ca/C. For ndex ncluson, bonds must have a maturty less than or equal to three years from the rebalancng date. For ndex ncluson, bonds must have a maturty greater than three years, but less than or equal to fve years from the rebalancng date. For ndex ncluson, bonds must have a maturty greater than fve years, but less than or equal to seven years from the rebalancng date. For ndex ncluson, bonds must have a maturty greater than seven years, but less than or equal to 10 years from the rebalancng date. For ndex ncluson, bonds must have a maturty greater than 10 years from the rebalancng date. For ndex ncluson, elgble bonds must have an Opton Adjusted Spread (OAS) greater than or equal to 1,000 bass ponts. S&P U.S. Issued Capped Hgh Yeld. Ths s the S&P U.S. Issued Hgh Yeld wth an ssuer cap exposure of 2%. The groupng of bonds by ssuer s determned by Interactve Data Corporaton s Busness Entty Servce. The same ratng rules as detaled above for the S&P U.S. Issued Hgh Yeld apply. Cappng Rules. The ndex has the same consttuents as the S&P U.S. Issued Hgh Yeld, wth no one ssuer havng a weght greater than 2% of the ndex. Durng the monthly rebalancng process, total weght by ssuer s calculated and f any ssuer has a weght greater than 2% of the ndex, that excess weght s dstrbuted pro-rata to the remanng consttuents n the ndex. If ths results n any ssuer now havng a weght over 2% that prevously dd not, the process s repeated. Ths occurs untl no ssuer has a weght greater than 2%. Whle mantanng the weght, excess weghts are redstrbuted. S&P Dow Jones Indces: S&P U.S. Corporate Bond Indces Methodology 8

10 S&P Crossover Rated The ndex s a market weghted ndex that straddles the nvestment grade/hgh yeld cutoff. The ndex s formed from consttuents of both the S&P U.S. Investment Grade and S&P U.S. Hgh Yeld. For ndex ncluson, a bond s credt ratng must fall on or between BB-/Ba3/BB- and BBB+/Baa1/ BBB+. S&P Dow Jones Indces: S&P U.S. Corporate Bond Indces Methodology 9

11 Index Constructon Index Calculatons The ndces are market-value-weghted. The total return s calculated by aggregatng the nterest return, reflectng the return due to pad and accrued nterest, and prce return, reflectng the gans or losses due to changes n the end-of-day prce and prncpal repayments. For further detals regardng Index Calculatons please refer to the Appendx I. Dow Jones Equal Weght U.S. Issued. The Dow Jones Equal Weght U.S. Issued s an equal market value weghted ndex and the total return s the sum of prce return and nterest return. Weghts return to equal market weghtng wth each monthly rebalancng. For further detals regardng Index Calculatons please refer to the Appendx II. S&P Dow Jones Indces: S&P U.S. Corporate Bond Indces Methodology 10

12 Index Mantenance Rebalancng The ndces are revewed and rebalanced on a monthly bass. The Index Commttee, nevertheless, reserves the rght to make adjustments to the ndces at any tme that t beleves approprate. Pro-forma addtons, deletons and other changes to the ndces arsng from the monthly rebalancng are publshed, after the close of busness, no earler than three busness days pror to the last busness day of the month. These may be subject to change. Fnal addtons, deletons and other changes to the ndces arsng from the monthly rebalancng are publshed one busness day pror to the last busness day of the month (the announcement dates). Changes are effectve after the close on the last busness day of the month (the rebalancng date). The Dow Jones Equal Weght U.S. Issued. The fnal selecton lst s dstrbuted on the last day of the month. The revew process starts wth a revew of the current component basket, removng any bonds that fal to meet the above-mentoned constrants. Base Dates and Hstory Avalablty Index hstory avalablty, base date and base value are shown n the table below. Index S&P U.S. Investment Grade Corporate Bond Index S&P U.S. Issued Investment Grade S&P U.S. Issued AAA Investment Grade S&P U.S. Issued AA Investment Grade S&P U.S. Issued A Investment Grade S&P U.S. Issued BBB Investment Grade Dow Jones Equal Weght U.S. Issued S&P U.S. Foregn Issued Investment Grade Launch Date Frst Value Date Base Date Base Value 05/01/ /02/ /31/ /09/ /01/ /31/ /15/ /31/ /31/ /15/ /31/ /31/ /15/ /31/ /31/ /15/ /31/ /31/ /30/ /31/ /31/ /01/ /31/ /31/ S&P Dow Jones Indces: S&P U.S. Corporate Bond Indces Methodology 11

13 Launch Frst Base Index Date Value Date Base Date Value S&P Crossover Rated 08/01/ /31/ /31/ S&P U.S. Hgh Yeld 05/01/ /02/ /31/ S&P 0-3 Year Hgh Yeld Corporate Bond Index 08/01/ /31/ /31/ S&P 3-5 Year Hgh Yeld Corporate Bond Index 08/01/ /31/ /31/ S&P 5-7 Year Hgh Yeld Corporate Bond Index 08/01/ /31/ /31/ S&P 7-10 Year Hgh Yeld Corporate Bond Index 08/01/ /31/ /31/ S&P 10+ Year Hgh Yeld Corporate Bond Index 08/01/ /31/ /31/ S&P U.S. Dstressed Hgh Yeld Corporate Bond Index 08/01/ /02/ /31/ S&P U.S. Issued Hgh Yeld Corporate Bond Index 04/09/ /01/ /31/ S&P U.S. Issued Capped Hgh Yeld 09/23/ /02/ /31/ S&P U.S. Issued BB Hgh Yeld 07/15/ /31/ /31/ S&P U.S. Issued B Hgh Yeld Corporate Bond Index 07/15/ /31/ /31/ S&P U.S. Issued CCC & Lower Hgh Yeld 07/15/ /31/ /31/ S&P U.S. Issued Large Cap CCC & Above Hgh Yeld 04/09/ /01/ /31/ S&P U.S. Foregn Issued Hgh Yeld 05/01/ /31/ /31/ S&P Dow Jones Indces: S&P U.S. Corporate Bond Indces Methodology 12

14 Index Governance Index Commttee S&P Dow Jones Indces Fxed Income Index Commttee mantans the ndces. All commttee members are full-tme professonals at S&P Dow Jones Indces. Meetngs are held quarterly and whenever deemed approprate. The Index Commttee oversees the management of the ndces, ncludng determnatons of ntra-rebalancng changes, mantenance and ncluson polces, and other matters affectng the mantenance and calculaton of the ndces. In fulfllng ts responsbltes, the Index Commttee has full and complete dscreton to () amend, apply, or exempt the applcaton of ndex rules and polces as crcumstances may requre and () add, remove, or by-pass any bond n determnng the composton of an ndex. The Index Commttee may rely on any nformaton or documentaton submtted to t or gathered by t that the Index Commttee beleves to be accurate. The Index Commttee reserves the rght to renterpret publcly avalable nformaton and to make changes to the ndces based on a new nterpretaton of that nformaton at ts sole dscreton. All Index Commttee dscussons are confdental. For nformaton on Qualty Assurance and Internal Revews of Methodology, please refer to S&P Dow Jones Indces Fxed Income Polces & Practces document located on our Web ste, S&P Dow Jones Indces: S&P U.S. Corporate Bond Indces Methodology 13

15 Index Polcy Announcements Announcements of any relevant nformaton pertanng to the ndces are made at approxmately 06:00 PM EST. Press releases are posted on the S&P Dow Jones Indces Web ste at Holday Schedule The ndces are calculated when the Securtes Industry and Fnancal Markets Assocaton (SIFMA ) declares the U.S. fxed ncome markets to be open. A complete holday schedule for the year s avalable on S&P Dow Jones Indces Web ste at End-of-Day Calculaton Index levels are calculated at the end of each busness day, at approxmately 06:00 PM EST, va S&P Dow Jones Indces Web ste. Ths may be subject to change. Index Releases Releases are ssued by S&P Dow Jones Indces at the end of the busness day. The release tme s generally 06:00 PM ET. Recalculaton Polcy S&P Dow Jones Indces reserves the rght to recalculate an ndex under certan lmted crcumstances. S&P Dow Jones Indces may choose to recalculate and republsh an ndex f t s found to be ncorrect or nconsstent wthn two tradng days of the publcaton of the ndex level n queston for one of the followng reasons: 1. Index methodology event 2. Late announcement 3. Revsed source data Any other restatement or recalculaton of an ndex s only done under extraordnary crcumstances to reduce or avod possble market mpact or dsrupton as solely determned by the Index Commttee. S&P Dow Jones Indces: S&P U.S. Corporate Bond Indces Methodology 14

16 For more nformaton on the recalculaton polcy please refer to S&P Dow Jones Indces Fxed Income Polces & Practces document located on our Web ste, For nformaton on Calculatons and Prcng Dsruptons, Expert Judgment and Data Herarchy, please refer to S&P Dow Jones Indces Fxed Income Polces & Practces document located on our Web ste, S&P Dow Jones Indces: S&P U.S. Corporate Bond Indces Methodology 15

17 Index Dssemnaton Index levels are avalable through S&P Dow Jones Indces Web ste at major quote vendors (see codes below), numerous nvestment-orented Web stes, and varous prnt and electronc meda. Tckers Index (Total Return) S&P U.S. Investment Grade S&P U.S. Issued Investment Grade S&P U.S. Issued AAA Investment Grade S&P U.S. Issued AA Investment Grade S&P U.S. Issued A Investment Grade S&P U.S. Issued BBB Investment Grade Dow Jones Equal Weght U.S. Issued S&P U.S. Foregn Issued Investment Grade S&P Crossover Rated S&P U.S. Hgh Yeld S&P 0-3 Year Hgh Yeld S&P 3-5 Year Hgh Yeld S&P 5-7 Year Hgh Yeld S&P 7-10 Year Hgh Yeld S&P 10+ Year Hgh Yeld S&P U.S. Dstressed Hgh Yeld S&P U.S. Issued Hgh Yeld S&P U.S. Issued Capped Hgh Yeld S&P U.S. Issued BB Hgh Yeld S&P U.S. Issued B Hgh Yeld S&P U.S. Issued CCC & Lower Hgh Yeld S&P U.S. Issued Large Cap CCC & Above Hgh Yeld Corporate Bond Index S&P U.S. Foregn Issued Hgh Yeld Tcker SPFICIG SPUSCIG SPUSG3AT SPUSG2AT SPUSG1AT SPUSG3BT DJCBT2 SPFIFIG SPUSCRS SPFICHY SPUSHY3 SPUSHY5 SPUSHY7 SPUSHY1 SPUSHY0 SPUSDHY SPUSCHY SPUSHY2 SPUSH2BT SPUSH1BT SPUSC3BT SPUSCLC SPFIFIH S&P Dow Jones Indces: S&P U.S. Corporate Bond Indces Methodology 16

18 FTP Daly ndex levels and ndex data are avalable va FTP subscrpton. For product nformaton, please contact S&P Dow Jones Indces, Web ste For further nformaton, please refer to S&P Dow Jones Indces Web ste at S&P Dow Jones Indces: S&P U.S. Corporate Bond Indces Methodology 17

19 Appendx I Index Calculatons Calculaton of Securty Market Values A market value s calculated for each ndex securty as of the close on each day, as follows: ( Pt + AIt) MVt = PARt (1) 100 where: MV t = Market value of the securty on day t. PAR t = Par amount of the securty as of the last monthly rebalancng, adjusted for prncpal pre-payments up to and ncludng day t. P t = Prce of the securty on day t. AI t = Accrued nterest 1 on the securty up to and ncludng day t. If the valuaton date s not a tradng day, the market value s based on the prce as of the mmedate pror tradng day, plus nterest accrued to the valuaton date. Calculaton of Securty Returns Total Return The month-to-date (MTD) total return (TR) of a securty on day t s the sum of the MTD nterest return and the MTD prce return: t = IRt PRt (2) TR + where: IR t = MTD nterest return on day t. PR t = MTD market prce return on day t. Prce return measures the return due to the change n the market prce of the securty. Interest return (or coupon return) ncludes the return due to the nterest earned on that securty. 1 AI t n (1) s calculated on a calendar date bass and uses the conventons for calculatng settlement accrued. Accordngly, accrued nterest s zero on a coupon payment date. S&P Dow Jones Indces: S&P U.S. Corporate Bond Indces Methodology 18

20 Interest Return The MTD nterest return on an ndvdual securty on day t s as follows: II t = PPP RR AAx AA RR 100 +PPP x AA t AA x +III 100 RR,t (3) MM RR where: IR t = MTD nterest return at tme t. AI t = Accrued nterest, up to and ncludng day t. AI RB = Accrued nterest as of the last monthly rebalancng. AI x = Accrued nterest, up to the nterest payout day x, RB < x <= t. PAR RB = Int RB, t = Par amount of the securty as of the last monthly rebalancng. Interest payment occurrng after the pror rebalancng and up to and ncludng day t. MV RB = Market value as of the last monthly rebalancng. Daly nterest return at tme t: Prce Return (1 + IRt) r t = 1 (4) (1 + IRt 1) The formula for the prce return for a securty at tme t s as follows: PP t = PPP RR P x P RR +PPP 100 x P t P x 100 +PPPP RR,t (5) MM RR where: PR t = MTD prce return on day t. PAR RB = Par amount of the securty as of the last monthly rebalancng. P t = Securty prce on day t. P RB = Securty prce as of the last monthly rebalancng. PAR x = Par amount of the securty from the prncpal payout date x, RB < x <= t. P x = Securty prce on the prncpal payout date x. Prn RB, t = Prncpal prepayments from last rebalance date RB to day t. MV RB = Market value as of the last monthly rebalancng. S&P Dow Jones Indces: S&P U.S. Corporate Bond Indces Methodology 19

21 Daly prce return at tme t: (1 + PRt) pr t = 1 (6) (1 + PRt 1) Calculaton of Daly Index Returns and Levels Daly Index Returns The ndvdual securty returns are aggregated to calculate returns for the ndex. Specfcally, on a gven day, the total return, nterest return and prce return for the ndex are equal to a weghted average of the returns of the securtes that consttute the ndex. The weght of each securty return beng equal to the relatve weght of that securty n the ndex as of the prevous calendar day (adjusted for prncpal pre-payments, etc.). The formulae are as follows: IndexTR IndexIR t = t = MV MV MV t 1 MV t 1 t 1 tr t + CASH t 1 r t + CASH t 1 t 1 + Rate MV t 1 t 1 * CASH + CASH t 1 t 1 (7) (8) IndexPR t = MV MV t 1 t 1 pr t + CASH t 1 (9) where: IndexTR t = Index total return on day t. IndexIR t = Index nterest return on day t. IndexPR t = Index prce return on day t. tr t = Total return of securty on day t (r t + pr t). r t = Interest return of securty on day t. pr t = Prce return of securty on day t. MV t-1 = Market value of securty, at the close of day t-1. CASH t-1 = Cumulatve cash receved n the ndex from the rebalancng date up to the close of day t-1. Rate t-1 = Daly cash renvestment rate on day t-1. S&P Dow Jones Indces: S&P U.S. Corporate Bond Indces Methodology 20

22 Daly Index Values Index values are calculated each day by applyng the current day s ndex return to the prevous day s ndex value, as follows: TRIV t = TRIVt 1+ PRIV t = PRIVt 1+ IRIV t t + ( IndexTRt) 1 (10) ( IndexPRt) 1 (11) ( IndexIRt) = IRIV 1 1 (12) where: TRIV t = Total return ndex value on day t. PRIV t = Prce return ndex value on day t. IRIV t = Interest return ndex value on day t. IndexTR t = Index total return on day t. IndexIR t = Index nterest return on day t. IndexPR t = Index prce return on day t. Renvestment Returns from Monthly Cash Flows The ndces are rebalanced monthly. All cash, ncludng nterest payments and prncpal prepayments, are kept n cash untl the next rebalancng date. In other words, Rate t-1 s zero n the equaton (7). S&P Dow Jones Indces: S&P U.S. Corporate Bond Indces Methodology 21

23 Appendx II Dow Jones Equal Weght U.S. Issued Calculatons Calculaton of Securty Market Values and Weghts Market Value A market value s calculated for each securty n the ndex as of the close on each day, as follows: MM t = PPP RR (P t+aa t ) 100 (1) where: MV t = Market value of the securty on day t. PAR RB = Par amount of the securty as of the last monthly rebalancng. P t = Prce of the securty on day t. AI t = Accrued nterest 2 on the securty up to and ncludng day t. If the valuaton date s not a tradng day, the market value wll be based on the prce as of the mmedate pror tradng day, plus nterest accrued to the valuaton date. Index Market Value The ndex market value of a securty used for calculaton of the ndex s defned as follows: III t = MM t AAA RR (2) where: IMV t = Index market value of the securty on day t. MV t = Market value of the securty on day t. AWF RB = Adjustable weght factor of the securty as calculated on the last rebalancng date. 2 AI t n (1) s calculated on a calendar date bass and uses the conventons for calculatng settlement accrued. Accordngly, accrued nterest s zero on a coupon payment date. S&P Dow Jones Indces: S&P U.S. Corporate Bond Indces Methodology 22

24 Adjustable Weght Factor The Adjustable Weght Factor (AWF) s used to tlt the orgnal market value weght of a securty wthn the ndex. It s calculated on the monthly rebalancng date and remans statc untl the subsequent monthly rebalancng. The calculaton of a securty s AWF s as follows: N MM AAA = 1 1 (3) N MM where: AWF = Adjustable weght factor of securty. N = Number of securtes n the ndex. MV = Market value of the securtes n the ndex. N 1 MM = Aggregate market value of all the securtes n the ndex. Index Weghts The weght of a securty wthn the ndex s defned as the ndex market value of that securty,, expressed as a percentage of the aggregate ndex market value of all securtes n the ndex, as follows: II = III N 1 III (4) where: IW = Index market value weght of securty. IMV = Index market value of securty. Calculaton of Securty Returns Total Return The total return (TR) of a securty on day t s the sum of the market prce return and the nterest return on day t: TT t = II t + PP t (5) where: IR t = Interest return on day t. PR t = Market prce return on day t. Prce return measures the return due to the change n the market prce of the securty. Interest return (or coupon return) ncludes the return due to the nterest earned on that securty. S&P Dow Jones Indces: S&P U.S. Corporate Bond Indces Methodology 23

25 Interest Return The nterest return on an ndvdual securty on day t s as follows: II t = (AA t AA t 1 )+I t P t 1 +AA t 1 (7) where: IR t = Interest return at tme t. AI t = Accrued nterest, up to and ncludng day t. AI t-1 = Accrued nterest, up to and ncludng day t-1. I t = Interest payment on day t. P t-1 = Prce the securty on day t-1. Prce Return The formula for the prce return for a securty at tme t s as follows: PP t = P t P t 1 P t 1 +AA t 1 (8) where: PR t = Prce return on day t. P t = Securty prce on day t. P t-1 = Securty prce on day t-1. AI t-1 = Accrued nterest, up to and ncludng day t-1. Calculaton of Daly Index Returns and Levels Daly Index Returns The ndvdual securty returns are aggregated to calculate returns for the ndex. Specfcally, on a gven day t, the total return, nterest return and prce return for the ndex are equal to a weghted average of the returns of the securtes that consttute the ndex. The weght of each ndex securty used n the calculaton s the relatve weght of that securty n the ndex as of the prevous busness day. The formulae are as follows: III t = TT,t II,t 1 (9) III t = II,t II,t 1 (10) III t = PP,t II,t 1 (11) S&P Dow Jones Indces: S&P U.S. Corporate Bond Indces Methodology 24

26 where: ITR t = Index total return on day t. IIR t = Index nterest return on day t. IPR t = Index prce return on day t. TR,t = Total return of securty on day t. IR,t = Interest return of securty on day t. PR,t = Prce return of securty on day t. IW,t-1 = Index market value weght of securty on day t-1. Daly Index Values Index values are calculated each day by applyng the current day s ndex return to the prevous day s ndex value, as follows: TTTT t = TTTT t 1 (1 + III t ) (12) IIII t = IIII t 1 (1 + III t ) (13) PPPP t = PPPP t 1 (1 + III t ) (14) where: TRIV t = Total return ndex value on day t. IRIV t = Interest return ndex value on day t. PRIV t = Prce return ndex value on day t. Renvestment Returns from Monthly Cash Flows The ndex s rebalanced on a monthly bass. All cash, ncludng nterest payments and prncpal prepayments, are kept n cash as a cash securty untl the next rebalancng date. In other words there s zero return on cash. S&P Dow Jones Indces: S&P U.S. Corporate Bond Indces Methodology 25

27 S&P Dow Jones Indces Contact Informaton Index Management Davd M. Bltzer, Ph.D. Managng Drector & Charman of the Index Commttee Way Kng Drector, Fxed Income Indces Product Management J.R. Reger Vce Presdent, Fxed Income Indces Kevn Horan Drector, Fxed Income Indces Meda Relatons Davd Guarno Communcatons Clent Servces Bejng Duba Hong Kong London New York or Sydney Tokyo S&P Dow Jones Indces: S&P U.S. Corporate Bond Indces Methodology 26

28 Dsclamer S&P Dow Jones Indces LLC, a part of McGraw Hll Fnancal All rghts reserved. Standard & Poor s and S&P are regstered trademarks of Standard & Poor s Fnancal Servces LLC ( S&P ) a part of McGraw Hll Fnancal. Dow Jones s a regstered trademark of Dow Jones Trademark Holdngs LLC ( Dow Jones ). Trademarks have been lcensed to S&P Dow Jones Indces LLC. Redstrbuton, reproducton and/or photocopyng n whole or n part are prohbted wthout wrtten permsson. Ths document does not consttute an offer of servces n jursdctons where S&P Dow Jones Indces LLC, Dow Jones, S&P or ther respectve afflates (collectvely S&P Dow Jones Indces ) do not have the necessary lcenses. All nformaton provded by S&P Dow Jones Indces s mpersonal and not talored to the needs of any person, entty or group of persons. S&P Dow Jones Indces receves compensaton n connecton wth lcensng ts ndces to thrd partes. Past performance of an ndex s not a guarantee of future results It s not possble to nvest drectly n an ndex. Exposure to an asset class represented by an ndex s avalable through nvestable nstruments based on that ndex. S&P Dow Jones Indces does not sponsor, endorse, sell, promote or manage any nvestment fund or other nvestment vehcle that s offered by thrd partes and that seeks to provde an nvestment return based on the performance of any ndex. S&P Dow Jones Indces makes no assurance that nvestment products based on the ndex wll accurately track ndex performance or provde postve nvestment returns. S&P Dow Jones Indces LLC s not an nvestment advsor, and S&P Dow Jones Indces makes no representaton regardng the advsablty of nvestng n any such nvestment fund or other nvestment vehcle. A decson to nvest n any such nvestment fund or other nvestment vehcle should not be made n relance on any of the statements set forth n ths document. Prospectve nvestors are advsed to make an nvestment n any such fund or other vehcle only after carefully consderng the rsks assocated wth nvestng n such funds, as detaled n an offerng memorandum or smlar document that s prepared by or on behalf of the ssuer of the nvestment fund or other nvestment vehcle. S&P Dow Jones Indces LLC s not a tax advsor. A tax advsor should be consulted to evaluate the mpact of any tax-exempt securtes on portfolos and the tax consequences of makng any partcular nvestment decson. Incluson of a securty wthn an ndex s not a recommendaton by S&P Dow Jones Indces to buy, sell, or hold such securty, nor s t consdered to be nvestment advce. These materals have been prepared solely for nformatonal purposes based upon nformaton generally avalable to the publc from sources beleved to be relable. No content contaned n these materals (ncludng ndex data, ratngs, credt-related analyses and data, model, software or other applcaton or output therefrom) or any part thereof (Content) may be modfed, reverse-engneered, reproduced or dstrbuted n any form by S&P Dow Jones Indces: S&P U.S. Corporate Bond Indces Methodology 27

29 any means, or stored n a database or retreval system, wthout the pror wrtten permsson of S&P Dow Jones Indces. The Content shall not be used for any unlawful or unauthorzed purposes. S&P Dow Jones Indces and ts thrd-party data provders and lcensors (collectvely S&P Dow Jones Indces Partes ) do not guarantee the accuracy, completeness, tmelness or avalablty of the Content. S&P Dow Jones Indces Partes are not responsble for any errors or omssons, regardless of the cause, for the results obtaned from the use of the Content. THE CONTENT IS PROVIDED ON AN AS IS BASIS. S&P DOW JONES INDICES PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT S FUNCTIONING WILL BE UNINTERRUPTED OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Dow Jones Indces Partes be lable to any party for any drect, ndrect, ncdental, exemplary, compensatory, puntve, specal or consequental damages, costs, expenses, legal fees, or losses (ncludng, wthout lmtaton, lost ncome or lost profts and opportunty costs) n connecton wth any use of the Content even f advsed of the possblty of such damages. Credt-related and other analyses, ncludng ratngs, research and valuatons are generally provded by afflates of S&P Dow Jones Indces, ncludng but not lmted to Standard & Poor s Fnancal Servces LLC and Captal IQ, Inc. Such analyses and statements n the Content are statements of opnon as of the date they are expressed and not statements of fact. Any opnon, analyses and ratng acknowledgement decsons are not recommendatons to purchase, hold, or sell any securtes or to make any nvestment decsons, and do not address the sutablty of any securty. S&P Dow Jones Indces does not assume any oblgaton to update the Content followng publcaton n any form or format. The Content should not be reled on and s not a substtute for the skll, judgment and experence of the user, ts management, employees, advsors and/or clents when makng nvestment and other busness decsons. S&P Dow Jones Indces LLC does not act as a fducary or an nvestment advsor. Whle S&P Dow Jones Indces has obtaned nformaton from sources they beleve to be relable, S&P Dow Jones Indces does not perform an audt or undertake any duty of due dlgence or ndependent verfcaton of any nformaton t receves. To the extent that regulatory authortes allow a ratng agency to acknowledge n one jursdcton a ratng ssued n another jursdcton for certan regulatory purposes, S&P Ratngs Servces reserves the rght to assgn, wthdraw or suspend such acknowledgement at any tme and n ts sole dscreton. S&P Dow Jones Indces, ncludng S&P Ratngs Servces dsclam any duty whatsoever arsng out of the assgnment, wthdrawal or suspenson of an acknowledgement as well as any lablty for any damage alleged to have been suffered on account thereof. Afflates of S&P Dow Jones Indces LLC may receve compensaton for ts ratngs and certan credt-related analyses, normally from ssuers or underwrters of securtes or from oblgors. Such afflates of S&P Dow Jones Indces LLC reserve the rght to dssemnate ts opnons and analyses. Publc ratngs and analyses from S&P Ratngs Servces are made avalable on ts Web stes, (free of charge), and and (subscrpton), and may be S&P Dow Jones Indces: S&P U.S. Corporate Bond Indces Methodology 28

30 dstrbuted through other means, ncludng va S&P Ratng Servces publcatons and thrd-party redstrbutors. Addtonal nformaton about our ratngs fees s avalable at S&P Dow Jones Indces keeps certan actvtes of ts busness unts separate from each other n order to preserve the ndependence and objectvty of ther respectve actvtes. As a result, certan busness unts of S&P Dow Jones Indces may have nformaton that s not avalable to other busness unts. S&P Dow Jones Indces has establshed polces and procedures to mantan the confdentalty of certan non-publc nformaton receved n connecton wth each analytcal process. In addton, S&P Dow Jones Indces provdes a wde range of servces to, or relatng to, many organzatons, ncludng ssuers of securtes, nvestment advsers, broker-dealers, nvestment banks, other fnancal nsttutons and fnancal ntermedares, and accordngly may receve fees or other economc benefts from those organzatons, ncludng organzatons whose securtes or servces they may recommend, rate, nclude n model portfolos, evaluate or otherwse address. S&P Dow Jones Indces: S&P U.S. Corporate Bond Indces Methodology 29