db Idex Developme Sepember 2014 DBIQ Idex Guide DBIQ USD Ivesme Grade Corporae Bod Ieres Rae Hedged Idex Summary The DBIQ USD Ivesme Grade Corporae Bod Ieres Rae Hedged Idex (he Idex ) is a rule based idex ha racks he performace of a baske of US dollar deomiaed Ivesme Grade liquid corporae bods. The reasury rae exposure of he USD IG Corp bods is hedged by a Duraio-mached shor posiio i US Treasury bods. The Idex is comprised of a baske of Ivesme Grade Corporae Bods issued i USD wih a leas 3 years o mauriy o he log side ad machig USD Treasury bods o he shor side. The Idex is recosiued ad rebalaced o he las busiess day of each moh. Idex Publicaio The Idex is calculaed ad published o Bloomberg as follows Idex Name DBIQ USD Ivesme Grade Corporae Bod Ieres Rae Hedged Idex Reur Type Toal Reur Currecy USD Bloomberg Ticker DBIQIGIH Idex Reuers Ticker.DBIQIGIH Idex Developme Coacs: Lodo: +44 (0)207 545 0505 Hog Kog: +852 2203 6786 New York: +1 212 250 8998
db Idex Developme Idex Descripio The DBIQ USD Ivesme Grade Corporae Bod Ieres Rae Hedged Idex ( Idex ) racks he performace of a baske of liquid US dollar deomiaed Ivesme Grade corporae bods. The reasury rae exposure of he USD IG Corp bods is hedged by a Duraio-mached shor posiio i US Treasury bods. The idex is hece composed of wo sub-porfolio: he Log Posiio: DBIQ USD Ivesme Grade Corporae Bod Porfolio ( DBIQ USD IG Porfolio ) ad he shor posiio: DBIQ Ivesme Grade Corporae Bod Treasury Hedge Porfolio ( Hedge Porfolio ). The uiverse of bods eligible for iclusio i he DBIQ USD IG Porfolio (he Selecio Pool ) icludes hose bods ha fulfil he followig codiios: The Log Posiio: DBIQ USD Ivesme Grade Corporae Bod Porfolio ( DBIQ USD IG Porfolio ) Marke Issue: Corporae deb oly. The followig marke ypes are excluded: Goverme deb, quasi-sovereig deb, deb guaraeed or backed by govermes, REGS securiies, privae placemes, muicipal bods, Brady bods ad resrucured bods. Bod Type: Fixed coupo bods, sep-up bods drive by raig, medium erm oe ( MTNs ), callable ad puable bods, as well as 144A securiies are icluded. The followig bod ypes are excluded: zero coupo bods, floaig/variable coupo bods, coveribles, iflaio-liked bods, perpeual bods, accrued oly bods, Eurobods, siker, sep-up bods o drive by raig, ex-divided bods, Pay-i kid bods Collaeral Type: Covered bods/oes are excluded. Coury of risk: Bods wih coury of risk classified as developed markes 1 by Solacive idex commiee are eligible. The followig couries are classified as developed markes as of Ocober 2014: Ausralia, Ausria, Belgium, Caada, Demark, Filad, Frace, Germay, Hog Kog, Icelad, Irelad, Ialy, Japa, Greece, Luxembourg, Neherlads, New Zealad, Norway, Porugal, Sigapore, Spai, Swede, Swizerlad, Uied Kigdome, Uied Saes Time o mauriy: Bod ha is already par of he Idex mus have a leas 3 years o mauriy o a rebalacig day. A bod ha eers he Porfolio or Idex mus have a leas 3.5 years o mauriy. Currecy: US Dollar deomiaed. Amou Ousadig per bod of a leas USD 750 millio. Issuer oal remaiig pricipal amou ousadig of all bods from he issuer is a leas USD 2 b. Credi raig: Mus be raed by a leas oe of hese 2 raig agecies: Sadard & Poor s, Moody s. The composie raig calculaed from available raigs amog he hree should be ivesme grade, i.e. composie DB raig bewee AAA ad BBB- (boh iclusive). Please see he Composie ad Average Raig Calculaio secio for DB composie raig calculaio. The Shor Posiio: DBIQ Ivesme Grade Corporae Bod Treasury Hedge Porfolio ( Hedge Porfolio ) The shor posiio rebalaces mohly o he las busiess day of each moh. Cheapes o deliver (CTD) reasury bods for US Treasury bod fuures are used o creae a Duraio-mached shor posiio o hedge reasury rae exposure of he log USD IG Corp bod posiio. The CTD bods for he 5 fro quarer US Treasury bod fuures 1 are seleced. O each mohly rebalacig day, Duraio of all Corporae bods i he log posiio ad Duraio of he 5 CTD bods eligible for he shor posiio are calculaed. All 5 CTD bods ca be icluded i he idex. A CTD bod will oly o be icluded if i receives a weigh of 0% (see Idex Rebalacig ad Weighig ). 1 2-Year US Treasury oe fuure (TH), 5-Year US Treasury oe fuure (FV), 10-Year US Treasury oe fuure (TY), US Treasury log bod fuure (US) ad Ulra US Treasury bod fuure (WN). 2
The DBIQ USD IG Porfolio, he Hedge Porfolio ad he DBIQ USD Ivesme Grade Corporae Bod Ieres Rae Hedged Idex are calculaed o each Busiess Day. Busiess Days are defied as days o which he New York Sock Exchage (NYSE) is ope for busiess. A commiee composed of saff from Solacive AG (he Idex Commiee ) is resposible for amedmes o he rules ad he Idex Admiisraor is resposible for decisios regardig he composiio of he Idex. Oversigh of he Idex is he resposibiliy of he Idex Commiee. Each member of he Idex Commiee is subjec o procedures desiged o preve he use ad dissemiaio of maerial o-public iformaio regardig he Idex. The fuure composiio of he Idex is se by he Idex Calculaio Age o he Selecio Days (as defied herei). The Idex Calculaio Age also makes decisios regardig he fuure composiio of he Idex if ay Exraordiary Eves (as defied herei) should occur ad he implemeaio of ay ecessary adjusmes. Members of he Idex Calculaio Age ca recommed a ay ime chages o he composiio of he Idex or o he rules ad submi hem o he Idex Commiee for approval i order o address exraordiary circumsaces. Idex Calculaio ad Publicaio Solacive AG ( Solacive ) serves as he Idex Admiisraor ad Calculaio Age. The price of he Idex is calculaed o each Busiess Day based o bid prices provided by Ieracive Daa or ay appoied successor for he Idex compoes ( Idex Compoes ). The mos rece prices of all Idex Compoes are used. The Idex is calculaed every Busiess Day aroud 4:45 pm New York ime. Coupos are reivesed o he respecive ex rebalacig day. Deusche Bak marke makers ad Reuers/EJV oher hird pary pricig sources are also used i he verificaio process ad also used whe prices from he primary sources are uavailable for a paricular bod ad dae. DB does o use algorihm o auomaically geerae or icorporae hird pary pricig sources. The Idex is published via he price markeig services ad Boerse Sugar AG ad is disribued o all affiliaed vedors. All specificaios ad iformaio releva for calculaig he Idex are made available o he hp://www.solacive.com web page ad sub-pages. Idex Rebalacig ad Weighig The composiio of he Idex is deermied hree days prior o he las Busiess Day of each moh (he Selecio Day ). The composiio of he Idex is ordiarily adjused mohly o he las Busiess Day of each moh (he Adjusme Day ). The firs adjusme will ake place o he las busiess day i November 2014. As of each Selecio Day, all bods which mee he requiremes of he Selecio Pool are icluded i he Idex. Addiioally, o he Selecio Day of each moh, he Idex Commiee evaluaes wheher all curre Idex Compoes sill mee he requiremes of he Selecio Pool ad if ecessary ay Idex Compoes which do o pass his scree are removed from he Idex as soo as reasoably pracicable. O each Selecio Day, Solacive ideifies he Selecio Pool. The Idex Commiee will decide abou he fuure composiio ad he implemeaio of ay ecessary adjusmes of he Idex if a Exraordiary Eve (as defied below) regardig oe or more Idex Compoes occurs. The Log Posiio A he respecive Selecio Day prior o he Adjusme Day, issuer weighs are capped a 3%. Excess weighs will be redisribued o a pro raa basis amog issuers whose weighs are less ha 3%. The process is ieraed ill o issuer has weigh higher ha 3%. The resulig weighs are called fial issuer capped weigh. Fial issuer capped weighs are disribued amog heir issuaces proporioally. 3
db Idex Developme The Shor Posiio O he respecive Selecio Day prior o he Adjusme day, weighs of he 5 CTD Treasury bods seleced for he shor posiio are calculaed as below. USD IG Corporae bods i he log posiio are divided io 5 buckes correspodig o he 5 seleced CTD Treasury bods. Each Corporae bod is grouped wih he CTD Treasury bod wih he closes Duraio mach. The par amou of each Treasury bod is assiged such ha he Duraio of he Treasury bod is equal o he aggregae Duraio of all Corporae bods i he correspodig bucke. I he case where he combied marke value of he shor posiios is o equal o he marke value of he log posiio, he marke value of he loges ad shores Treasury bods i he shor posiio are adjused so ha he oal marke value of he log posiio ad shor posiio agree while holdig he aggregae Duraio cosa. Idex Calculaio Idex formula The DB Low Duraio Ivesme Grade Corporae Bod Ieres Rae Hedged Idex level is calculaed as LSIdex Log Shor Porfolio Porfolio LSIdex *(1 ) LSIdex 1 *( FF 1 * DCF ) Log Shor Porfolio Porfolio Where: LSIdex = Value of he Log Shor Idex o Adjusme Day LSIdex Idex Idex Idex Idex Log Log Shor Shor = Value of he Log Shor Idex o Calculaio Day = Value of he Log Porfolio o Calculaio Day = Value of he Log Porfolio o Adjusme Day = Value of he Shor Porfolio o Calculaio Day = Value of he Shor Porfolio o Adjusme Day FF 1 = Federal Fuds Effecive Rae as of -1 divided by 100 DCF = divided by 360 Day Cou Fracio, which shows he differece of he las Calculaio Day -1 uil Calculaio Day The DBIQ USD IG Porfolio level ad Hedge Porfolio level is calculaed as: As a formula: Porfolio Porfolio MarkeValue PaidCash BaseValue a MarkeValu e ( DiryPricei, CPAdji, ) Amoui, Capfacori, rb i1 PaidCash a i1 Coupo i, Amou i, Capfacor i, rb a BaseValue ( DiryPricei, CPAdji, ) Amoui, Capfacori, rb i1 4
Whereas: Porfolio Porfolio CPAdj i, Diry Price i, Diry Price i, Amou i, PaidCash Coupo i, Capfacor i, rb = Value of he Porfolio o Busiess Day. = Value of he Porfolio o he las Adjusme Day. = Variable Coupo Adjusme Facor i o Busiess Day is 0 if a bod eers he porfolio durig a ex-divided period. If he bod is already i he idex durig he ex-divided period, he Variable Coupo Adjusme Facor equals he coupo amou. = Diry Price of he bod i o Busiess Day, whereas Diry Price is he sum of he clea price of he bod i o Busiess Day ad he accrued ieres o Busiess Day. = Diry Price of he bod i o he las Adjusme Day, whereas Diry Price is he sum of he clea price of he bod i o he las Adjusme Day ad he accrued ieres o he las Adjusme Day. = Amou Ousadig of he respecive bod as defied o he las Adjusme Day. = a) Value of he coupo paymes bewee Adjusme Days. b) If a bod i will be removed from he porfolio bewee Adjusme Days, he resulig payme of he bod will be icluded i he Paid Cash compoe of he porfolio. O he ex Adjusme Day Paid Cash will be reivesed i he porfolio. = Coupo payme of bod i bewee payme dae ad Adjusme Day. I case here is o coupo payme, Coupo i, is 0. = Weighig Cap Facor of porfolio compoe i deermied o Selecio day rb, o cap he weighig as described uder Idex Rebalacig ad Weighig The value of he Idex will be rouded o four decimal places. The idex was lauched o he Ocober 31 s 2014. The hisory is backesed sice December 31 s 2011. Accordig o he erms of he bod, he Calculaio Age will ake he followig coveios io accou: Ac/Ac Ac/360 Ac/365 30/360 ISMA 30/360 The Idex or Porfolio does o ake axes io accou ad assumes gross coupo paymes ad seleme coveio of +0. 5
db Idex Developme Adjusmes Idices eed o be adjused for sysemaic chages i prices oce hese become effecive. Followig he Idex Commiee s decisio he followig Corporae Acios will resul i chages or adjusmes o a idex or Porfolio as idicaed below bewee Adjusme Days: For Full Teder, Early Redempio or Full Call, he bod proceeds will be held i Paid Cash uil he reivesme a he ex rebalacig day. For he avoidace of doub a eder mus be madaory, he pure offer o eder a bod will o lead o a adapio of he idex or porfolio. Fla Tradig: A bod is fla radig if he bod issuer will o mee is coupo payme obligaio which meas ha he buyer of a bod is o resposible for payig he ieres ha has accrued sice he las payme. If a bod is defied o be fla radig bewee wo adjusme days he respecive Accrued Ieress ad coupos will be se o 0. The bod will o be removed uil he ex adjusme dae. Defauled bods: If a bod s saus chages o i defaul i will be removed from he idex or porfolio a he las available evaluaed price from he pricig source ad he proceeds will be held i Paid Cash ad reivesed a he ex rebalacig day. Noe: Deb issuaces of a exisig bod will o be cosidered uil he ex Adjusme Day. Defiiios A credi eve is he suspesio of deb service, isolvecy or failure o pay. Exraordiary eve is a early redempio of a bod or a credi eve "Las price" is (aside from he rules referred o i exraordiary eves ) he las available evaluaed price. A Busiess Day is a day o which New York Sock Exchage is ope for radig. The Calculaio Age is Solacive AG or ay oher appropriaely appoied successor i his fucio. The idex currecy is he U.S. dollar Log Porfolio is he DBIQ USD IG Porfolio Shor Porfolio is he Hedged Porfolio Selecio Day is he busiess day 3 days prior o he Adjusme day. Adjusme Day is he las busiess day of he moh. Composie ad Average Raig Calculaio Bod raigs from Sadard ad Poor s, Moody s ad Fich are mapped o umerical raigs bewee 1 ad 22 as below: SP Moody Numerical AAA Aaa 1 AA+ Aa1 2 AA Aa2 3 AA- Aa3 4 6
A+ A1 5 A A2 6 A- A3 7 BBB+ Baa1 8 BBB Baa2 9 BBB- Baa3 10 BB+ Ba1 11 BB Ba2 12 BB- Ba3 13 B+ B1 14 B B2 15 B- B3 16 CCC+ Caa1 17 CCC Caa2,caa 18 CCC- Caa3 19 CC Ca 20 C C 21 D,SD D 22 Composie umerical raig of a bod is calculaed as he average umerical raigs from all available raigs, rouded o sigal digi, wih.5 rouded up. The composie umerical raig ca he be mapped o a DB composie raig i srig as below: Numerical DB Raig AAA 1 AA+ 2 AA 3 AA- 4 A+ 5 A 6 A- 7 BBB+ 8 BBB 9 BBB- 10 BB+ 11 BB 12 BB- 13 B+ 14 B 15 B- 16 CCC+ 17 CCC 18 CCC- 19 CC 20 C 21 D 22 7
db Idex Developme Idex Guide Disclaimers This docume is ieded for iformaio oly ad does o creae ay legally bidig obligaios o he par of Deusche Bak AG ad/or is affiliaes ( DB ). This docume is ieded o provide a summary of he idex i purpors o describe. No warray or represeaio is made as o he correcess, compleeess ad accuracy of he iformaio. Wihou limiaio, his docume does o cosiue a offer, a iviaio o offer or a recommedaio o eer io ay rasacio. Whe makig a ivesme decisio, you should rely solely o he fial documeaio relaig o he rasacio. Producs based o he idex or idices described i his docume may o be appropriae for all ivesors ad before eerig io ay rasacio you should ake seps o esure ha you fully udersad he rasacio ad have made a idepede assessme of he appropriaeess of he rasacio i he ligh of your ow objecives ad circumsaces, icludig he possible risks ad beefis of eerig io such rasacio. Refer o your DB Sales perso for produc relaed iformaio. For geeral iformaio regardig he aure ad risks of he proposed rasacio ad ypes of fiacial isrumes please go o www.globalmarkes.db.com/riskdisclosures. You should also cosider seekig advice from your ow advisers i makig his assessme. If you decide o eer io a rasacio wih DB, you do so i reliace o your ow judgme. Pas performace is o idicaio of fuure resuls. This maerial was prepared by DBIQ. I is o ivesme research, ad has o bee prepared i accordace wih legal requiremes desiged o promoe he idepedece of such. Ay opiios expressed herei may differ from he opiios expressed by oher DB deparmes icludig he Research Deparme. DB may egage i rasacios i a maer icosise wih ay views discussed herei. DB rades or may rade as pricipal i isrumes (or relaed derivaives) liked o he idex or idices described i his docume, ad may have proprieary posiios i he isrumes (or relaed derivaives). DB may make a marke i such isrumes (or relaed derivaives), which may i exreme circumsaces affec he levels of he idex or idices described. I o eve shall DB have ay liabiliy (wheher i egligece or oherwise) o ay perso i coecio wih such perso's use of he Idex, uless such use is pursua o a rasacio bewee ha pary ad DB relaig o he Idex ad such liabiliy resuls from wilful defaul ad/or gross egligece o he par of DB. The disribuio of his docume ad availabiliy of relaed producs ad services i cerai jurisdicios may be resriced by law. You may o disribue his docume, i whole or i par, wihou our express wrie permissio. DB specifically disclaims all liabiliy for ay direc, idirec, cosequeial or oher losses or damages icludig loss of profis icurred by you or ay hird pary ha may arise from ay reliace o his docume or for he reliabiliy, accuracy, compleeess or imeliess hereof. DB is auhorized by Budesasal für Fiazdiesleisugsaufsich uder Germa Bakig Law (compee auhoriy: BaFi - Federal Fiacial Supervisig Auhoriy) ad regulaed i he UK by he Fiacial Services Auhoriy for he coduc of UK busiess. Uless goverig law provides oherwise, all rasacios should be execued hrough he Deusche Bak eiy i he ivesor's home jurisdicio. I he U.S. his repor is approved ad/or disribued by Deusche Bak Securiies Ic., a member of he NYSE, FINRA, NFA ad SIPC. I Germay his repor is approved ad/or commuicaed by Deusche Bak AG Frakfur auhorized by he BaFi. I he Uied Kigdom his repor is approved ad/or commuicaed by Deusche Bak AG Lodo, a member of he Lodo Sock Exchage ad regulaed by he Fiacial Services Auhoriy for he coduc of ivesme busiess i he UK ad auhorized by he BaFi. This repor is disribued i Hog Kog by Deusche Bak AG, Hog Kog Brach, i Korea by Deusche Securiies Korea Co. This repor is disribued i Sigapore by Deusche Bak AG, Sigapore Brach, ad recipies i Sigapore of his repor are o coac Deusche Bak AG, Sigapore Brach i respec of ay maers arisig from, or i coecio wih, his repor. Where his repor is issued or promulgaed i Sigapore o a perso who is o a accredied ivesor, exper ivesor or isiuioal ivesor (as defied i he applicable Sigapore laws ad regulaios), Deusche Bak AG, Sigapore Brach acceps legal resposibiliy o such perso for he coes of his repor. I Japa his repor is approved ad/or disribued by Deusche Securiies Ic. The iformaio coaied i his repor does o cosiue he provisio of ivesme advice. I Ausralia, reail clies should obai a copy of a Produc Disclosure Saeme (PDS) relaig o ay fiacial produc referred o i his repor ad cosider he PDS before makig ay decisio abou wheher o acquire he produc. Deusche Bak AG Johaesburg is icorporaed i he Federal Republic of Germay (Brach Regiser Number i Souh Africa: 1998/003298/10). Addiioal iformaio relaive o securiies, oher fiacial producs or issuers discussed i his repor is available upo reques. This repor may o be reproduced, disribued or published by ay perso for ay purpose wihou Deusche Bak's prior wrie cose. Please cie source whe quoig. Copyrigh 2014 Deusche Bak AG 8