S&P U.S. Issued Corporate Bond Index Methodology

Transcription

1 S&P U.S. Issued Corporate Bond Index Methodology October 2013 S&P Dow Jones Indces: Index Methodology

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. Issued AAA Investment Grade Corporate Bond Index 7 S&P U.S. Issued AA Investment Grade Corporate Bond Index 7 S&P U.S. Issued A Investment Grade Corporate Bond Index 7 S&P U.S. Issued BBB Investment Grade Corporate Bond Index 8 Dow Jones Equal Weght U.S. Issued Corporate Bond Index 8 S&P U.S. Issued Capped Hgh Yeld Corporate Bond Index 9 S&P U.S. Issued BB Hgh Yeld Corporate Bond Index 9 S&P U.S. Issued B Hgh Yeld Corporate Bond Index 10 S&P U.S. Issued CCC & Lower Hgh Yeld Corporate Bond Index 10 S&P U.S. Issued Large Cap CCC & Above Hgh Yeld Corporate Bond Index 10 Index Constructon 11 Index Calculatons 11 Index Mantenance 12 Rebalancng 12 Base Dates and Launch Dates 12 Index Governance 13 Index Commttee 13 S&P Dow Jones Indces: S&P U.S. Issued Corporate Bond Index Methodology 1

3 Index Polcy 14 Announcements 14 Holday Schedule 14 Index Dssemnaton 15 Tckers 15 FTP 15 Web ste 15 Appendx 16 Calculaton of Index Bond Market Values 16 Calculaton of Index Bond Returns 16 Daly Index Returns 18 Daly Index Values 19 Renvestment Returns from Monthly Cash Flows 19 S&P Dow Jones Indces Contact Informaton 20 Index Management 20 Product Management 20 Meda Relatons 20 Clent Servces 20 Dsclamer 21 The S&P U.S. Issued Corporate Bond Index s a propretary ndex of S&P Dow Jones Indces. Prcng provded by Interactve Data Corporaton and ndex calculated by Interactve Data Corporaton. S&P Dow Jones Indces: S&P U.S. Issued Corporate Bond Index Methodology 2

4 Introducton The S&P U.S. Issued Corporate Bond Famly s comprsed of a unverse of corporate bonds ssued by U.S. domcled corporatons denomnated n U.S. dollars. The ndces n ths famly facltate extensve use by nsttutonal nvestment managers, mutual fund managers, and professonal advsors. Index Famly The S&P U.S. Issued Corporate Bond Famly s desgned to measure nvestment grade and hgh yeld bond market performance for U.S. dollar denomnated bonds ssued by U.S. domcled corporatons. The structure of the S&P U.S. Issued Corporate Bond Famly currently conssts of: The S&P U.S. Issued Corporate Bond Famly covers elgble securtes across the ratngs spectrum and s desgned to measure U.S. ssued corporate bond market performance whle also meetng nvestable crtera. S&P Dow Jones Indces: S&P U.S. Issued Corporate Bond Index Methodology 3

5 Elgblty Crtera Elgblty Factors Elgble Issuers. Elgble ssuers are descrbed below. Index S&P U.S. Issued Investment Grade Corporate Bond Index S&P U.S. Issued Hgh Yeld Corporate Bond Index Issuer The ssuer must be a U.S. corporaton ssung nvestment grade rated bonds n US$. The ssuer must be a U.S. corporaton ssung below nvestment grade rated bonds n US$. 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 country of ncorporaton of the ssuer must be the U.S. 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. Ratng (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. New ssues must be rated by at least one ratng agency to be consdered at the next rebalancng. Bonds that are not rated are removed at the frst rebalancng. Defaulted securtes are removed at the frst S&P Dow Jones Indces: S&P U.S. Issued Corporate Bond Index Methodology 4

6 rebalancng. For ratngs based sub-ndces, the above rules are appled to the approprate ratng band. Ratng (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. New ssues must be rated by at least one ratng agency to be consdered at the next rebalancng. Bonds that are not-rated are removed at the frst rebalancng. For ratngs based sub-ndces, the above rules are appled to the approprate ratng 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. Non-corporate bonds secured by mortgages are also 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. If a bond s Fxed-to-Float, t must currently be n the fxed rate perod. For fxed-to-float bonds currently n the fxed rate perod, the reset date must be greater than or equal to 1 month from the frst day of the current ndex rebalance date. Optonalty. Callable/Putable bonds are ncluded. Market of Issue. Securtes must be publcly ssued n the U.S. SEC regstered or 144a 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. Tmng of Changes The ndces that are members of the S&P U.S. Issued Corporate Bond Famly are revewed and rebalanced on a monthly bass. S&P Dow Jones Indces: S&P U.S. Issued Corporate Bond Index 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 calendar day of the month. Addtons, deletons and other changes to the ndces that are members of the S&P U.S. Issued Corporate Bond Famly 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 post ths date that affect the consttuent membershp are made on the next rebalancng date. Changes to the ndces n the S&P U.S. Issued Corporate Bond Famly 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. Issued Corporate Bond Index Methodology 6

8 Sub-Index Rules S&P U.S. Issued AAA Investment Grade Corporate Bond Index Ths s a sub-ndex of the S&P U.S. Issued Investment Grade Corporate Bond Index. It s a market weghted ndex that has ratngs constrants. Ratng. In addton to the ratng rules mentoned above that are applcable to nvestment grade, the lowest credt ratng for ncluson must be AAA/Aaa/AAA. Sze. A mnmum outstandng value of US$ 250 mllon s requred. S&P U.S. Issued AA Investment Grade Corporate Bond Index Ths s a sub-ndex of the S&P U.S. Issued Investment Grade Corporate Bond Index. It s a market weghted ndex that has ratngs constrants. Ratng. In addton to the ratng rules mentoned above that are applcable to nvestment grade, the lowest credt ratng for ncluson must fall on or between AA+/Aa1/AA+ and AA-/Aa3/AA-. Sze. A mnmum outstandng value of US$ 250 mllon s requred. S&P U.S. Issued A Investment Grade Corporate Bond Index Ths s a sub-ndex of the S&P U.S. Issued Investment Grade Corporate Bond Index. It s a market weghted ndex that has ratngs constrants. Ratng. In addton to the ratng rules mentoned above that are applcable to nvestment grade, the lowest credt ratng for ncluson must fall on or between A+/A1/A+ and A-/A3/A-. Sze. A mnmum outstandng value of US$ 250 mllon s requred. S&P Dow Jones Indces: S&P U.S. Issued Corporate Bond Index Methodology 7

9 S&P U.S. Issued BBB Investment Grade Corporate Bond Index Ths s a sub-ndex of the S&P U.S. Issued Investment Grade Corporate Bond Index. It s a market weghted ndex that has ratngs constrants. Ratng. In addton to the ratng rules mentoned above that are applcable to nvestment grade, the lowest credt ratng for ncluson must fall on or between BBB+/Baa1/BBB+ and BBB-/Baa3/BBB-. Sze. A mnmum outstandng value of US$ 250 mllon s requred. Dow Jones Equal Weght U.S. Issued Corporate Bond Index The Dow Jones Equal Weght U.S. Issued Corporate Bond Index s a sub-ndex of the S&P U.S. Issued Investment Grade Corporate Bond Index. It s an equal weghed ndex comprsed of 96 bonds. Sectors. Each bond n the Dow Jones Equal Weght U.S. Issued Corporate Bond Index s classfed nto one of three sectors: Fnancals, Industrals or Utltes. The Fnancals sector ncludes banks, nsurance companes, and fnancal servce companes. The Utltes sector ncludes gas companes, electrc companes, and water companes. The Industrals sector ncludes companes n all other ndustres of the Dow Jones Equal Weght U.S. Issued Corporate Bond Index. Issuer. An ssuer may have up to four bonds n the ndex, but no more than one n each maturty cell. 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. Sze. A mnmum outstandng value of US$ 500 mllon s requred. Monthly Rebalancng. The ndex s rebalanced to an equal weghted ndex at the rebalancng date. 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. Research on new on-the-run bonds s conducted to dentfy those ssues that meet all constrants. Of these bonds, any ssue that has an outstandng value greater than or equal to the outstandng value of the smallest current ndex component n the correspondng maturty bracket of ts sector qualfes for the ndex. Wthn each maturty bracket of each S&P Dow Jones Indces: S&P U.S. Issued Corporate Bond Index Methodology 8

10 sector, elgble bonds are ranked by the average of ther 1-month and 3-month volumes. Bonds wth the hghest average volumes are added untl the specfed component count s satsfed. For scenaros where no on-the-run bonds are elgble for selecton and addtonal components are needed, all qualfed outstandng bonds are consdered for selecton. These bonds are subject to the same requrement for 1-month and 3-month average volume. Newly selected on-the-run bonds are retaned n the ndex for a mnmum of three months. S&P U.S. Issued Capped Hgh Yeld Corporate Bond Index Ths s the S&P U.S. Issued Hgh Yeld Corporate Bond Index wth an ssuer cap exposure of 2%. Groupng of bonds by ssuer s determned by the Interactve Data Corporaton s Busness Entty Servce. Ratng. Same ratng rules as mentoned above for the S&P U.S. Issued Hgh Yeld Corporate Bond Index. Sze. A mnmum outstandng value of US$ 100 mllon s requred. Cappng Rules. The S&P U.S. Issued Capped Hgh Yeld Corporate Bond Index has the same consttuents as the U.S. Issued Hgh Yeld Corporate Bond Index, wth no one ssuer havng a weght greater than 2% of the ndex. Durng the monthly rebalance process, total weght by ssuer s calculated and f any one or more 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%. S&P U.S. Issued BB Hgh Yeld Corporate Bond Index Ths s a sub-ndex of the S&P U.S. Issued Hgh Yeld Corporate Bond Index. It s a market weghted ndex that has ratngs constrants. Ratng. In addton to the ratng rules mentoned above that are applcable to hgh yeld, the lowest credt ratng for ncluson must fall on or between BB+/Ba1/BB+ and BB-/Ba3/BB-. Sze. A mnmum outstandng value of US$ 100 mllon s requred. S&P Dow Jones Indces: S&P U.S. Issued Corporate Bond Index Methodology 9

11 S&P U.S. Issued B Hgh Yeld Corporate Bond Index Ths s a sub-ndex of the S&P U.S. Issued Hgh Yeld Corporate Bond Index. It s a market weghted ndex that has ratngs constrants. Ratng. In addton to the ratng rules mentoned above that are applcable to hgh yeld, the lowest credt ratng for ncluson must fall on or between B+/B1/B+ and B-/B3/B-. Sze. A mnmum outstandng value of US$ 100 mllon s requred. S&P U.S. Issued CCC & Lower Hgh Yeld Corporate Bond Index Ths s a sub-ndex of the S&P U.S. Issued Hgh Yeld Corporate Bond Index. It s a market weghted ndex that has ratngs constrants. Ratng. In addton to the ratng rules mentoned above that are applcable to hgh yeld, the lowest credt ratng for ncluson must fall on or between CCC+/Caa1/CCC+ and C/Ca/C. Sze. A mnmum outstandng value of US$ 100 mllon s requred. S&P U.S. Issued Large Cap CCC & Above Hgh Yeld Corporate Bond Index Ths s a sub-ndex of the S&P U.S. Issued Hgh Yeld Corporate Bond Index. It s a market weghted ndex that has ratngs constrants and a hgher mnmum outstandng value than ts parent ndex. Ratng. In addton to the ratng rules mentoned above that are applcable to hgh yeld, the lowest credt ratng for ncluson s CCC/Caa2/CCC. Sze. A mnmum outstandng value of US$ 500 mllon s requred. S&P Dow Jones Indces: S&P U.S. Issued Corporate Bond Index Methodology 10

12 Index Constructon Index Calculatons The S&P U.S. Issued Investment Grade Corporate Bond Index and S&P U.S. Issued Hgh Yeld Corporate Bond Index and ther sub-ndces are market-value-weghted ndces. 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. The Dow Jones Equal Weght U.S. Issued Corporate Bond Index 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. S&P Dow Jones Indces: S&P U.S. Issued Corporate Bond Index Methodology 11

13 Index Mantenance Rebalancng The ndces that comprse the S&P U.S. Issued Corporate Bond Famly 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). Base Dates and Launch Dates Index launch dates, base dates and base values are shown n the table below. Index Launch Date Base Date Base Value S&P U.S. Issued Investment Grade Corporate Bond Index 04/09/ /31/ S&P U.S. Issued AAA Investment Grade Corporate Bond Index 07/22/ /31/ S&P U.S. Issued AA Investment Grade Corporate Bond Index 07/22/ /31/ S&P U.S. Issued A Investment Grade Corporate Bond Index 07/22/ /31/ S&P U.S. Issued BBB Investment Grade Corporate Bond Index 07/22/ /31/ Dow Jones Equal Weght U.S. Issued Corporate Bond Index 11/30/ /31/ S&P U.S. Issued Hgh Yeld Corporate Bond Index 04/09/ /31/ S&P U.S. Issued Capped Hgh Yeld Corporate Bond Index 09/23/ /31/ S&P U.S. Issued BB Hgh Yeld Corporate Bond Index 07/22/ /31/ S&P U.S. Issued B Hgh Yeld Corporate Bond Index 07/22/ /31/ S&P U.S. Issued CCC & Lower Hgh Yeld Corporate Bond Index 07/22/ /31/ S&P U.S. Issued Large Cap CCC & Above Hgh Yeld Corporate Bond Index 04/09/ /31/ S&P Dow Jones Indces: S&P U.S. Issued Corporate Bond Index 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, but nterm meetngs may be held whenever deemed approprate. The Index Commttee oversees the day-to-day management of the ndces, ncludng the monthly rebalancng, determnatons of ntra-rebalancng changes to the ndces, and mantenance and ncluson polces, ncludng addtons or deletons of bonds 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. S&P Dow Jones Indces: S&P U.S. Issued Corporate Bond Index Methodology 13

15 Index Polcy Announcements Announcements of any relevant nformaton pertanng to the S&P U.S. Issued Investment Grade Corporate Bond Index and S&P U.S. Issued Hgh Yeld Corporate Bond Index and ther related sub-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 S&P U.S. Issued Investment Grade Corporate Bond Index and S&P U.S. Issued Hgh Yeld Corporate Bond Index and ther related sub-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 S&P Dow Jones Indces: S&P U.S. Issued Corporate Bond Index Methodology 14

16 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. Issued Investment Grade Corporate Bond Index S&P U.S. Issued AAA Investment Grade Corporate Bond Index S&P U.S. Issued AA Investment Grade Corporate Bond Index S&P U.S. Issued A Investment Grade Corporate Bond Index S&P U.S. Issued BBB Investment Grade Corporate Bond Index Dow Jones Equal Weght U.S. Issued Corporate Bond Index S&P U.S. Issued Hgh Yeld Corporate Bond Index S&P U.S. Issued Capped Hgh Yeld Corporate Bond Index S&P U.S. Issued BB Hgh Yeld Corporate Bond Index S&P U.S. Issued B Hgh Yeld Corporate Bond Index S&P U.S. Issued CCC & Lower Hgh Yeld Corporate Bond Index S&P U.S. Issued Large Cap CCC & Above Hgh Yeld Corporate Bond Index Bloomberg SPUSCIG SPUSG3AT SPUSG2AT SPUSG1AT SPUSG3BT DJCBT SPUSCHY SPUSHY2 SPUSH2BT SPUSH1BT SPUSC3BT SPUSCLC FTP Daly ndex levels and ndex data s avalable va FTP on subscrpton. For further nformaton, please refer to S&P Dow Jones Indces Web ste at 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. Issued Corporate Bond Index Methodology 15

17 Appendx Calculaton of Index Bond Market Values A market value s calculated for each ndex bond as of the close on each day, as follows: where: ( Pt + AIt) MVt = PARt (1) 100 MV t = Market value of the ndex bond on day t. PAR t = Par amount of the ndex bond as of the last monthly rebalancng, adjusted for prncpal pre-payments up to and ncludng day t. P t = Prce of the ndex bond on day t. AI t = Accrued nterest 1 on the ndex bond 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 Index Bond Returns Total Return The month-to-date (MTD) total return (TR) of an ndex bond on day t s the sum of the MTD nterest return and the MTD prce return: where: TR + t = IRt PRt (2) IR t = MTD nterest return on day t. PR t = MTD market prce return on day t. 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. Issued Corporate Bond Index Methodology 16

18 Prce return measures the return due to the change n the market prce of the bond. Interest return (or coupon return) ncludes the return due to the nterest earned on that bond. Interest Return The MTD nterest return on an ndvdual Index Bond on day t s as follows: where: IR t = PAR RB AIx AI RB 100 IR t = MTD nterest return at tme t. +PAR x AI t AI x +Int 100 RB,t (3) MV RB 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 ndex bond 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 an ndex bond at tme t s as follows: where: PR t = PAR RB P x P RB +PAR 100 x P t P x 100 +Prn RB,t (5) MV RB PR t = MTD prce return on day t. PAR RB = Par amount of the ndex bond as of the last monthly rebalancng. P t = Bond prce on day t. P RB = Bond prce as of the last monthly rebalancng. PAR x = Par amount of the ndex bond from the prncpal payout date x, RB < x <= t. S&P Dow Jones Indces: S&P U.S. Issued Corporate Bond Index Methodology 17

19 P x = Bond 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. Daly prce return at tme t: (1 + PRt) pr t = 1 (6) (1 + PRt 1) Daly Index Returns The ndvdual ndex bond 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 ndex bonds that consttute the ndex. The weght of each ndex bond return beng equal to the relatve weght of that ndex bond n the ndex as of the prevous calendar day (adjusted for prncpal pre-payments, etc.). The formulae are as follows: where: IndexTR IndexIR IndexPR t = t = t = MV MV MV MV t 1 MV t 1 MV t 1 t 1 tr t + CASH t 1 r t + CASH t 1 pr t 1 t 1 t + CASH t 1 + Rate MV t 1 t 1 * CASH + CASH t 1 t 1 (7) (8) (9) 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 ndex bond on day t (r t + pr t). r t = Interest return of ndex bond on day t. pr t = Prce return of ndex bond on day t. MV t-1 = Market value of ndex bond, at the close of day t-1. CASH t-1 = Cumulatve cash receved n the ndex from the rebalancng date S&P Dow Jones Indces: S&P U.S. Issued Corporate Bond Index Methodology 18

20 Rate t-1 up to the close of day t-1. = Daly cash renvestment rate 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: where: TRIV t = TRIVt 1+ PRIV t = PRIVt 1+ IRIV t = IRIVt 1+ ( IndexTRt) 1 (10) ( IndexPRt) 1 (11) ( IndexIRt) 1 (12) 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 = IndexIR t = IndexPR t = Index total return on day t Index nterest return on day t Index prce return on day t Renvestment Returns from Monthly Cash Flows The ndces that are members of the S&P U.S. Issued Corporate Bond Famly are rebalanced monthly. All cash, ncludng nterest payments and prncpal prepayments, are kept n cash untl the next rebalance date. In other words, Rate t-1 s zero n the equaton (7). S&P Dow Jones Indces: S&P U.S. Issued Corporate Bond Index Methodology 19

21 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. Issued Corporate Bond Index Methodology 20

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