S&P 500 Carry Adjusted Total Return Index Methodology

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1 S&P 500 Carry Adjusted Total Return Index Methodology S&P Dow Jones Indices: Index Methodology February 2016

2 Table of Contents Introduction 3 Highlights 3 Index Construction 4 Index Calculations 4 Index Maintenance 6 Reset 6 Currency of Calculation 6 Base Date and History Availability 6 Index Governance 7 Index Committee 7 Index Policy 8 Announcements 8 Holiday Schedule 8 Unscheduled Market Closures 8 Recalculation Policy 9 Real-Time Calculation 9 Index Dissemination 10 Tickers 10 FTP 10 Web site 10 Appendix 11 Special Opening Quotation ( SOQ ) 11 S&P Dow Jones Indices: S&P 500 Carry Adjusted Total Return Index Methodology 1

3 S&P Dow Jones Indices Contact Information 13 Index Management 13 Product Management 13 Media Relations 13 Client Services 13 Disclaimer 14 S&P Dow Jones Indices: S&P 500 Carry Adjusted Total Return Index Methodology 2

4 Introduction Highlights The S&P 500 Carry Adjusted Total Return Index ( S&P 500 CATR or the index ) seeks to replicate the economic performance of a total return swap on the gross dividends reinvested in the S&P 500. The index consists of two components: 1. Equity Component. This consists of the S&P 500 total return index ( S&P 500 TR ). 2. Funding Component. This consists of floating rate payments and uses a reference rate (three-month USD Libor) that is applied to the notional value of the index (as observed at the most recent reference observation) for the days since the last reset (calculated on a settlement date basis). The index is reset quarterly, consistent with standard total return swap treatment. The reset of the reference S&P 500 TR index level is observed on the Tuesday prior to the third Friday of the months of March, June, September, and December. This aligns the reset behavior of the index with the quarterly expiry of certain futures contracts which may be used as hedging instruments. It should be noted, that due to different settlement conventions between equity markets (generally T+3) and interest rate products (generally T+2), the new three-month USD Libor rate is observed on the Wednesday following the Tuesday reset. For details on the S&P 500 total return index, please refer to the S&P U.S. Indices Methodology available on our Web site, This methodology was created by S&P Dow Jones Indices in conjunction with the CME Group to achieve the aforementioned objective of measuring the underlying interest of the index governed by this methodology document. Any changes to or deviations from this methodology are made in the sole judgment and discretion of S&P Dow Jones Indices so that the index continues to achieve its objective. S&P Dow Jones Indices: S&P 500 Carry Adjusted Total Return Index Methodology 3

5 Index Construction The index seeks to replicate the economic performance of a total return swap on the gross dividends reinvested in the S&P 500. The index consists of two components: 1) the S&P 500 TR and 2) three-month USD Libor. Index Calculations The index value at time t = T(I T ) is calculated as follows: where: I T = I 0 S T I S 0 r 0 d 0 T (1) I T I 0 S T S 0 r 0 = The S&P 500 CATR index level at time t = T = The S&P 500 CATR closing index level on the Tuesday prior to the third Friday = The S&P 500 TR index level at time t = T = The S&P 500TR closing index level on the Tuesday prior to the third Friday = The three-month USD Libor rate on Wednesday prior to the third Friday d 0 T = The number of calendar days from t = 0 to t = T It should be noted that the subscript 0 refers to the most recent quarterly (March, June, September, and December) reference observations. It can be seen that the right hand side of equation (1) can be split into two components: I 0 S T S 0 corresponds to the equity leg and is the percentage change in the S&P 500TR from t = 0 to t = T. I 0 r 0 d 0 T is the floating leg and reflects the funding of the index (notional at 360 t = 0) for the number of calendar days from t = 0 to t = T. Equation (1) can be simplified giving: I T = I 0 S T r 0 d 0 T S (2) S&P Dow Jones Indices: S&P 500 Carry Adjusted Total Return Index Methodology 4

6 Expiring equity futures contracts using the S&P 500 CATR as the underlying index require settlement versus a final cash payment. S&P Dow Jones Indices calculates a Special Opening Quotation ( SOQ ) price for the S&P 500 CATR enabling settlement of relevant expiring futures contracts. Please refer to the Appendix of this document for further details on the SOQ. S&P Dow Jones Indices: S&P 500 Carry Adjusted Total Return Index Methodology 5

7 Index Maintenance Reset The index is reset quarterly, consistent with standard total return swap treatment. The reset of the reference S&P 500 TR index level is observed on the Tuesday prior to the third Friday of the months of March, June, September, and December. It should be noted, that due to different settlement conventions between equity markets (generally T+3) and interest rate products (generally T+2), the new three-month USD Libor rate is observed on the Wednesday following the Tuesday reset. Currency of Calculation The index is calculated in U.S. dollars. Base Date and History Availability Index history availability, base date and base value are shown in the table below. Index S&P 500 Carry Adjusted Total Return Index Launch Date First Value Date Base Date Base Value 02/08/ /03/ /03/ S&P Dow Jones Indices: S&P 500 Carry Adjusted Total Return Index Methodology 6

8 Index Governance Index Committee S&P Dow Jones Indices Americas Thematic & Strategy Index Committee maintains the index. All committee members are full-time professional members of S&P Dow Jones Indices staff. The committee meets monthly. At each meeting, the Index Committee reviews any significant market events. In addition, the Index Committee may revise index policy for timing of resets or other matters. S&P Dow Jones Indices considers information about changes to its indices and related matters to be potentially market moving and material. Therefore, all Index Committee discussions are confidential. For information on Quality Assurance and Internal Reviews of Methodology, please refer to S&P Dow Jones Indices Equity Indices Policies & Practices document located on our Web site, S&P Dow Jones Indices: S&P 500 Carry Adjusted Total Return Index Methodology 7

9 Index Policy Announcements Index methodology is constantly under review for best practices, and any changes are announced well ahead of time via the Web site and to all clients. For more information on S&P Dow Jones Indices announcements, please refer to the Announcement Policy found on our Web site, Holiday Schedule The index is calculated all business days of the year when the U.S. equity market is open. A complete holiday schedule for the year is available at Unscheduled Market Closures In situations where an exchange is forced to close early due to unforeseen events, such as computer or electric power failures, weather conditions or other events, S&P Dow Jones Indices will calculate the closing price of the indices based on (1) the closing prices published by the exchange, or (2) if no closing price is available, the last regular trade reported for each security before the exchange closed. If an exchange fails to open due to unforeseen circumstances, S&P Dow Jones Indices treats this closure as a standard market holiday. The index will use the prior day s closing prices and shifts any corporate actions to the following business day. If all exchanges fail to open or in other extreme circumstances, S&P Dow Jones Indices may determine not to publish the index for that day. For further information on Unexpected Exchange Closures, please refer to S&P Dow Jones Indices Equity Indices Policies & Practices document located on our Web site, S&P Dow Jones Indices: S&P 500 Carry Adjusted Total Return Index Methodology 8

10 Recalculation Policy S&P Dow Jones Indices reserves the right to recalculate an index under certain limited circumstances. S&P Dow Jones Indices may choose to recalculate and republish an index if it is found to be incorrect or inconsistent within two trading days of the publication of the index level in question for one of the following reasons: 1. Incorrect or revised closing price 2. Missed corporate event 3. Late announcement of a corporate event 4. Incorrect application of corporate action or index methodology Any other restatement or recalculation of an index is only done under extraordinary circumstances to reduce or avoid possible market impact or disruption as solely determined by the Index Committee. For more information on the recalculation policy, please refer to S&P Dow Jones Indices Equity Indices Policies & Practices document located on our Web site, Real-Time Calculation Real-time indices are not restated. For information on Calculations and Pricing Disruptions, Expert Judgment and Data Hierarchy, please refer to S&P Dow Jones Indices Equity Indices Policies & Practices document located on our Web site, S&P Dow Jones Indices: S&P 500 Carry Adjusted Total Return Index Methodology 9

11 Index Dissemination Index levels are available through S&P Dow Jones Indices Web site at major quote vendors (see codes below), numerous investment-oriented Web sites, and various print and electronic media. Tickers Index S&P 500 Carry Adjusted Total Return Index Bloomberg SPCATR FTP Daily index levels and data are available via FTP subscription. For product information, please contact S&P Dow Jones Indices, Web site For further information, please refer to S&P Dow Jones Indices Web site at S&P Dow Jones Indices: S&P 500 Carry Adjusted Total Return Index Methodology 10

12 Appendix Special Opening Quotation ( SOQ ) Expiring equity futures contracts using the S&P 500 CATR as the underlying index require settlement versus a final cash payment. Expiring equity futures are closed out by the exchange as though long holders had sold their positions and short holders covered. The exchange/clearing house requires an objectively observable price (SOQ) for this process to occur. S&P Dow Jones Indices calculates a SOQ price for the S&P 500 CATR, the S&P 500 Carry Adjusted Total Return SOQ Index ( S&P 500 CATR SOQ ). The S&P 500 CATR SOQ index value at time t = T(I SSS ) is calculated as follows: where: I SSS = I 0 S SSS S 0 I SSS I 0 S SSS S 0 r 0 I 0 r 0 d 0 T (3) 360 = The S&P 500 CATR SOQ index level at time t = T = The S&P 500 CATR closing index level on the Tuesday prior to the third Friday = The S&P 500 Total Return SOQ Index level at time t = T (see note below) = The S&P 500TR closing index level on the Tuesday prior to the third Friday = The three-month USD Libor rate on Wednesday prior to the third Friday d 0 T = The number of calendar days from t = 0 to t = T It should be noted that the subscript 0 refers to the most recent quarterly (March, June, September, and December) reference observations. Equation (3) can be simplified giving: I SSS = I 0 S SSS S 0 r 0 d 0 T (4) 360 Note: In order to calculate the S&P 500 CATR SOQ, the S&P 500 Total Return SOQ Index level is required. The SOQ of the S&P 500 TR is derived from the S&P 500 Price Return SOQ Index. The S&P 500 Price Return SOQ Index is based on the opening prices of the underlying stocks in the S&P 500 (commencing at the market open (09:30 AM ET) or the last price of a S&P Dow Jones Indices: S&P 500 Carry Adjusted Total Return Index Methodology 11

13 stock that does not open for trading on the relevant settlement day. 1 The S&P 500 Total Return SOQ Index is then derived from the S&P 500 Price Return SOQ Index by applying the same process used to calculate the S&P 500 TR from the S&P 500 Price Return index. This process reinvests gross dividends, with respect to the relevant stocks that have gone ex-dividend, across the index on the relevant day. For more information on SOQ index calculations, please refer to S&P Dow Jones Indices Index Mathematics Methodology available on our Web site, 1 The opening 30 minutes should be treated as a general guideline where constituents opening prices can be determined. However, this window could be extended to the end of the business day for a particular constituent if it has not already opened. S&P Dow Jones Indices: S&P 500 Carry Adjusted Total Return Index Methodology 12

14 S&P Dow Jones Indices Contact Information Index Management David M. Blitzer, Ph.D. Managing Director & Chairman of the Index Committee Product Management Philip Murphy Vice President, Equities Media Relations Soogyung Jordan Communications Client Services S&P Dow Jones Indices: S&P 500 Carry Adjusted Total Return Index Methodology 13

15 Disclaimer S&P Dow Jones Indices LLC, a part of McGraw Hill Financial All rights reserved. Standard & Poor s and S&P are registered trademarks of Standard & Poor s Financial Services LLC ( S&P ), a part of McGraw Hill Financial. Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC ( Dow Jones ). Trademarks have been licensed to S&P Dow Jones Indices LLC. Redistribution, reproduction and/or photocopying in whole or in part are prohibited without written permission. This document does not constitute an offer of services in jurisdictions where S&P Dow Jones Indices LLC, Dow Jones, S&P or their respective affiliates (collectively S&P Dow Jones Indices ) do not have the necessary licenses. All information provided by S&P Dow Jones Indices is impersonal and not tailored to the needs of any person, entity or group of persons. S&P Dow Jones Indices receives compensation in connection with licensing its indices to third parties. Past performance of an index is not a guarantee of future results. It is not possible to invest directly in an index. Exposure to an asset class represented by an index is available through investable instruments based on that index. S&P Dow Jones Indices does not sponsor, endorse, sell, promote or manage any investment fund or other investment vehicle that is offered by third parties and that seeks to provide an investment return based on the performance of any index. S&P Dow Jones Indices makes no assurance that investment products based on the index will accurately track index performance or provide positive investment returns. S&P Dow Jones Indices LLC is not an investment advisor, and S&P Dow Jones Indices makes no representation regarding the advisability of investing in any such investment fund or other investment vehicle. A decision to invest in any such investment fund or other investment vehicle should not be made in reliance on any of the statements set forth in this document. Prospective investors are advised to make an investment in any such fund or other vehicle only after carefully considering the risks associated with investing in such funds, as detailed in an offering memorandum or similar document that is prepared by or on behalf of the issuer of the investment fund or other vehicle. Inclusion of a security within an index is not a recommendation by S&P Dow Jones Indices to buy, sell, or hold such security, nor is it considered to be investment advice. These materials have been prepared solely for informational purposes based upon information generally available to the public and from sources believed to be reliable. No content contained in these materials (including index data, ratings, credit-related analyses and data, research, valuations, model, software or other application or output therefrom) or any part thereof (Content) may be modified, reverse-engineered, reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written permission of S&P Dow Jones Indices. The Content shall not be used for any unlawful or unauthorized purposes. S&P Dow Jones Indices and its third- S&P Dow Jones Indices: S&P 500 Carry Adjusted Total Return Index Methodology 14

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