SM Bache Commodity Index SM 2007 Annual Review
The Bache Commodity Index SM Built for Commodity Investors The Bache Commodity Index SM (BCI SM ) is a transparent, fully investable commodity index. Our unique method of constructing the index results in lower turnover and lower risk than other commodity indices, while maintaining the potential returns. Predictable, Consistent Exposure The BCI SM is designed so that the index does not become dominated by a single commodity sector or by several commodities within a commodity sector. This is accomplished by employing upper and lower bounds on investment in each sector and each commodity, and by rebalancing the BCI SM each day to maintain the desired exposure to each commodity market. BCI SM Benefits from Multiple Sources of Return The BCI SM is designed to capture more sources of return to investing in commodities than are available with existing commodity indices. In our historical tests, our asset allocation and roll methods contributed an additional 45% to the total return over a 15-year period. Momentum Means Greater Return, Less Risk Commodity markets have historically exhibited short-term momentum. Our view is that using momentum to decide which positions to reduce and which to increase is more profitable than holding fixed positions. By tactically reducing the risk of different commodities, the BCI SM holds an average of 30% less exposure than a fully invested strategy. As a result, the volatility of the BCI SM is roughly 30% less than equivalent indices. Diversification, Inflation Hedge for Portfolios Like other commodity indices on the market, the BCI SM offers positive returns, may offer some inflation protection, and diversification benefits. Unlike other indices, the BCI SM offers these benefits while reducing the downside risk that can occur with commodity investing.
Table of Contents Performance Summary 1 Index Composition 2007 BCI SM Performance Comparison with Commodity Benchmarks Economic Environment for Commodities Appendices BCI SM Commodity Markets 2007 BCI SM Component Weights 2007 Roll Schedule for BCI SM Components BCI SM Total Returns 1991-2007 1 This report was prepared by Alternative Investment Analytics LLC under the direction of Bache s Global Commodities Group. Bache Commodities Limited is authorised and regulated by the Financial Services Authority. For more information, please contact Stephen Ilnitzki (stephen.ilnitzki@bache.com) or Mitzi Noma (mitzi.noma@bache.com). 1See disclosure on Page 12.
8% 6% 4% 2% 0% -2% Exhibit 1: Monthly BCI SM Returns, Jan-Dec 2007 2007 Annual Report The Annual Report for the Bache Commodity Index SM (BCI SM ) contains a summary of index performance, return attribution, economic analysis of key commodity markets, and a discussion of changes in BCI SM composition during 2007. Performance Summary 1 The BCI SM Total Return index gained 22.6% during 2007. Exhibit 1 shows the monthly returns during 2007. The index had a positive return in eight months and declined in four months during the year. Performance was positive in each of the four quarters. The largest monthly gain was 6.7% in September 2007. The largest decline was in August, on the heels of the Sub-Prime Mortgage Crisis and the resulting instability in the financial markets. -4% J F M A M J J A S O N D Source: Global Commodities Group Exhibit 3: BCI SM Weights 2007 (%) Commodity Market 2007* Weights 2006 Weight Change 2007* Coffee 2.5 2.5 - Corn 5.0 5.0 - Cotton 2.5 2.5 - Lean Hogs 2.5 2.5 - Live Cattle 2.5 5.0 (2.5) Soybeans 5.0 5.0 - Sugar 2.5-2.5 Wheat 5.0 5.0 - Agriculture 27.5 27.5 - Brent Crude 5.0 5.0 - Gasoline 5.0 7.5 (2.5) Heating Oil 10.0 10.0 - Natural Gas 10.0 12.5 (2.5) WTI Crude Oil 20.0 20.0 - Energy 50.0 55.0 (5.0) Aluminum 5.0 5.0 - Comex Copper - 7.5 (7.5) Copper 7.5-7.5 Gold 5.0 5.0 - Silver 2.5-2.5 Zinc 2.5-2.5 Metal 22.5 17.5 5.0 *Effective April 1, 2007 Exhibit 2 compares index performance in 2007 with historical figures. The return in 2007 of 22.6% was higher than the 3-, 5-, and 10-year index performance. The annualized volatility in 2007 of 10.8% was slightly lower than the 3-, 5-, and 10-year norms. The risk-adjusted return, or Sharpe ratio, of the BCI SM during 2007 was also higher than historical norms. Exhibit 2: Historical Performance of the BCI SM 1 Year 3 Years 5 Years 10 Years 2007 05-07 03-07 98-07 Annual Return (%) 22.6 13.7 16.6 12.7 Standard Deviation (%) 10.8 13.1 13.4 13.9 Sharpe Ratio 1.53 0.73 0.99 0.68 Index Composition 2007 Three new commodity markets were added to the BCI SM in 2007: Sugar (ICE), Silver (Comex), and Zinc (LME). In addition, the copper allocation was re-benchmarked to the LME Copper contract rather than the Comex Copper contract. These changes were implemented in the index beginning April 1, 2007. Exhibit 3 compares index composition in 2007 with 2006. The BCI SM grew to 18 commodity markets in 2007. The largest single allocation was to WTI Crude Oil (20%), reflecting current strength. All other commodities had an allocation of 10% or lower. The energy sector was the most concentrated, with 50% of the index allocation across five markets. The agriculture sector was the most diffuse, with eight markets and a 27.5% weight in the BCI SM. 1 1 1See disclosure on Page 12.
Exhibit 4: BCI SM Return Attibution by Commodity Market in 2007 (%) WTI Crude Heating Oil 4.0 Gasoline 2.6 Wheat 2.5 Soybeans 2.4 Brent Crude 2.0 Gold 1.2 Copper 1.2 Corn 0.6 Live Cattle 0.2 Sugar 0.2 Silver 0.2 Cotton 0.1 Coffee 0.0 Zinc -0.4 Lean Hogs -0.4 Aluminum -0.5 Natural Gas -1.6 Source: Global Commodities Group Exhibit 5: Performance of Individual BCI SM Commodities Total Return (%) 2007 8.1 Energy Markets Gasoline 47.9 Heating Oil 42.3 WTI Crude Oil 41.1 Brent Crude 41.0 Natural Gas (16.7) Agriculture Markets Wheat 53.8 Soybeans 51.4 Corn 7.6 Live Cattle 4.3 Cotton 2.8 Coffee (1.4) Sugar (2.7) Lean Hogs (13.7) Metals Markets Gold 23.3 Copper 15.0 Silver 4.5 Aluminum (9.1) Zinc (25.6) Source: Global Commodities Group BCI SM Performance The largest contributor to BCI SM performance in 2007 was WTI Crude Oil (see Exhibit 4). This market added 8.1%, which was more than a third of the 22.6% annual return. Brent Crude Oil added 2.0%, Heating Oil contributed 4.0%, and RBOB Gasoline added 2.6%. Combined, the petroleum sector accounted for 16.7% of BCI SM returns in 2007. Energy markets were consistently strong in 2007, boosted by strong global demand and a weaker dollar. The grain sector also posted impressive gains. Wheat added 2.5%, Soybeans 2.4%, and Corn 0.6%, for a total contribution from the grains sector of 5.5%. Prices were boosted by demand for bio-fuels and by drought in some key areas of the globe. In the metals sector, Gold, Silver, and Copper rose during the year, but Aluminum and Zinc declined, leaving the metals sector with a small positive contribution overall. Concerns about slowing economic growth weighed on industrial metals prices. The only significant decline was in Natural Gas, which contributed 1.6% to BCI SM performance during the year. Decomposition of BCI SM Returns 2007 The BCI SM is designed to capture more sources of investment return in commodities than are available with existing commodity indices. The contribution of these sources of return to overall performance is analyzed in Exhibit 6. The beta factor contributed 14.7% during 2007. This is the market factor that will be reflected in all commodity indices. The daily roll methodology provided an additional 1.3% to the index return versus a passive roll strategy. The structured asset allocation feature added 1.2% of return versus holding static weights throughout the year. The Treasury Bill, or T-Bill, collateral return added 5.1%. Exhibit 6: BCI SM Style Factor Decomposition Beta Factor (70%) Daily Roll Factor (70%) Asset Allocation Collateral Return (T-Bill) BCI Total Return Est. Return (%) 1.3 1.2 5.1 14.7 22.6 0 5 10 15 20 25 1See disclosure on Page 12. Source: Global Commodities Group 2
0% -1% -2% -3% -4% -5% -6% -7% -8% -9% The BCI SM earned higher risk-adjusted returns versus other benchmark commodity indices over 1-, 3-, 5-, and 10- year periods, as a result of its unique methodology 1. Exhibit 7: Commodity Index Performance During Subprime Crisis BCI SPGSCI DJAIG -4.9% -8.1% -5.8% Total Return, Jul 31 - Aug 22, 2007 Source: Global Commodities Group Structured Risk Reduction The BCI SM employs a structured risk reduction methodology that dynamically reduces exposure to commodities when prices falter. Assets that are not held in commodities are held in a cash reserve. In 2007, the BCI SM had an average cash allocation of 28%. A fully invested index would have had a higher performance because commodities had such a strong price performance in 2007. When commodities perform significantly above their long-term trend, as they did in 2007, the cash allocation feature of the index can result in lower returns. However, in periods like August 2007 when commodity prices fell significantly, the ability of the BCI SM to move positions partially into cash helped bolster the index value. BCI SM and the Subprime Mortgage Crisis In August 2007, the world saw the onset of a global liquidity crisis, precipitated by the collapse of the subprime mortgage market in the U.S. The liquidity crisis that began in August was on a global scale, and spread rapidly from subprime mortgage lenders to hedge funds, banks, and other firms. In August, the dominant factors driving commodity prices downward were liquidity, leverage, and rebalancing. The BCI SM s structured risk reduction methodology significantly lowered the target allocation of the commodities in the index, thus the BCI SM was able to outperform against competing indices during the August 2007 Subprime Mortgage Crisis. Exhibit 7 demonstrates the BCI SM s outperformance at the height of the Subprime Mortgage Crisis. The structured asset allocation feature of the BCI SM methodology enables the index to hold more or less of a commodity based on recent price movements. When prices are falling, the BCI SM is able to move positions into cash and out of volatile commodity components. The BCI SM is designed to perform well during periods when simply diversifying across commodities is not enough to protect the value of a commodity investment. 3 1See disclosure on Page 12.
Exhibit 8: BCI SM Performance Relative to DJAIG and SPGSCI* Return(%) 2007 3 Yrs 5 Yrs 10 Yrs BCI SM 22.6 13.7 16.6 12.7 SPGSCI 32.7 12.2 14.9 9.3 DJAIG 16.2 12.9 14.3 9.0 StDev(%) 2007 3 Yrs 5 Yrs 10 Yrs BCI SM 10.8 13.1 13.4 13.9 SPGSCI 17.0 21.8 22.4 22.1 DJAIG 11.4 14.1 13.9 14.5 Sharpe Ratio 2007 3 Yrs 5 Yrs 10 Yrs BCI SM 1.53 0.73 0.99 0.68 SPGSCI 1.49 0.45 0.60 0.35 DJAIG 0.98 0.64 0.81 0.42 *Total Return Indices High Return/Low Risk Highlighted Source: Global Commodities Group, Bloomberg Global commodity prices experienced strong gains in 2007, boosted by macro-economic trends including a weaker U.S. dollar, increasing demand from China, and rising energy prices. Comparison with Commodity Benchmarks The BCI SM return in 2007 was lower than the S&P Goldman Sachs Commodity Index (SPGSCI) total return but higher than the return of the Dow Jones AIG Commodity Index (DJAIG). The differences are largely due to energy exposure: The SPGSCI has a heavier energy concentration than the BCI SM, while the DJAIG has a lower one. As shown in Exhibit 8, at left, for 3-, 5-, and 10-year horizons, the BCI SM return was higher than both the SPGSCI and the DJAIG commodity indices. Over longer time horizons, the energy allocation in a commodity index becomes a less important driver of returns. The index methodology tends to dominate performance when measured over many years. The BCI SM experienced lower volatility than the comparison indices in 2007. Over longer time horizons, the BCI SM has a volatility that is comparable to the DJAIG index. The lower volatility of the BCI SM resulted in a higher Sharpe ratio than the SPGSCI in 2007. The BCI SM has higher risk-adjusted returns than both the SPGSCI and the DJAIG over 1-, 3-, 5-, and 10-year horizons. Economic Environment for Commodities Global commodity prices experienced strong gains in 2007, boosted by macro-economic trends including a weaker U.S dollar, increasing demand from China, and rising energy prices. Energy prices were driven by growing demand, largely from Asia, as well as the weaker dollar. Grain prices were supported by a combination of lower-than-expected production in some key growing areas and increased demand from ethanol production. Precious metals prices rose as rising inflation and a weakening U.S. dollar spurred a flight to hard assets. Tight supplies were responsible for the run-up in crude oil prices during the latter part of 2007. As shown in Exhibit 9 on the following page, the number of days of crude oil in storage in the U.S. fell from 23 days mid-year to below 19 days at year-end. The tight supplies pushed up prices at the front part of the crude oil delivery curve, resulting in positive roll returns for the first time in three years. Metals markets saw inventories building through much of the year. For example, LME aluminum warehouse storage increased by a third during the year, from below 0.7 million tons to above 0.9 million tons (see Exhibit 10 on the following page). Storage of other industrial metals rose as well, relieving the supply shortages that persisted in 2006. As a result, industrial metals prices did not change much during 2007. 4
24 23 22 21 20 19 18 1 0.9 0.8 0.7 Exhibit 9: U.S. Days Supply of Crude Oil in Storage 2007 (Source: DOE) 12-06 3-07 6-07 9-07 12-07 Exhibit 10: LME Aluminum Warehouse Stocks 2007 (Million Metric Tons, Source: LME) Global Economic Growth The year 2007 was marked by different economic environments in the first and second halves of the year, cleaved by the onset of a global liquidity crisis at mid-year. The first half saw steady growth and some central bank tightening of monetary policy. In the second half, the sub-prime crisis challenged policymakers to maintain stability in financial markets, provide sufficient liquidity to investors and financial institutions, and ensure that the consumer was not battered by the turn of events. Geopolitical turmoil continued with the U.S. war in Iraq, concerns about a nuclear program in Iran, and the assassination of former Pakistan Prime Minister Benazir Bhutto at the end of 2007. However, events took place at a time when global growth was supported by high employment, solid corporate profits, steady world trade, and growing emerging markets economies that did benefit from the rising prices of commodities. Central banks were able to respond flexibly to the mid-year financial instability by providing liquidity to interbank markets, as well as lower interest rates. In the end, the global economy registered a sixth year of expansion for 2007, with the International Monetary Fund estimating that global growth for the year was 4.7%. United States: U.S. economic growth was hit in 2007 by the macro-economic themes of weaker housing, financial market stress, and rising energy prices. According to the OECD, however, healthy gains in private consumption helped to keep GDP growth above trend in 2007. U.S monetary policy turned slightly accommodative as the year wore on. Overall, the FOMC lowered benchmark lending rates by 1.0% to 4.25% in three steps over the year, beginning in September 2007. In the fourth quarter in particular, the economic picture in the U.S. faltered. The U.S. Commerce Department said the economy grew 0.6% in the fourth quarter, according to advance estimates, following third-quarter growth of 4.9%. The downturn in housing took a toll on copper and other industrial metal prices, although demand for energy remained strong. In December, U.S. manufacturing shrank the most in almost five years, boosting speculation that the Federal Reserve will continue to cut rates into 2008. The Institute for Supply Management s factory index fell to 47.7 at year-end from 50.8 the prior month, with 50 said to divide economic contraction and expansion. New mandates for ethanol production were put in place at the end of 2007. These new mandates will require an increase in corn production in the U.S. to meet the new demand. Traders were also concerned that a shift to corn production may reduce the soybean crop, so the prices of both grains rose strongly at the end of 2007. 0.6 12-06 3-07 6-07 9-07 12-07 5
Commodity News Highlights 2007 -- Crude Rises 57% in 2007 Crude oil prices rose 57% in 2007, which was the biggest annual percentage gain since 2002. Gains were supported by tensions in the Middle East, rising demand, and disruptions in supply. Gold rises 31% in 2007 Gold rose 31% in 2007, which was the seventh straight annual gain. Supportive factors included the dollar hitting a record low versus the euro, and weakening against the pound and the Canadian dollar. Copper Up Least Since 2001 In 2007, copper experienced its smallest annual gain since 2001. Copper s gain diminished to 5.9% in 2007 on slowing usage in the U.S., which is the world s second-largest copper consumer after China. The price of copper had previously gained 41% in 2006. Wheat Surges 77% in 2007 Wheat prices jumped 77% in 2007. That annual gain was the largest for wheat in 34 years. Corn Gains 17% in 2007 Corn prices gained 17% in 2007. Prices were boosted in that year by demand to produce ethanol. Europe: The European economic expansion continued in 2007, but at a slower rate. The OECD is predicting economic growth of 2.6% for 2007. While the European employment rate was at a 25-year low, higher interest rates, a stronger euro, and tighter credit conditions weighed on activity. European growth slowed in the second half of the year, and economist expectations are that fourth-quarter growth will be around 1.5% due to weak consumption and depressed household spending. The ECB raised its key interest rates 50 basis points in 2007, ending the year at 4.0%. Japan: Growth in Japan was somewhat tepid in 2007, with some deceleration in the pace of growth from earlier in the year. OECD expectations for economic growth are at 1.9% for 2007. The country s benchmark interest rate remained at 0.5%, the lowest in the industrialized world. For the fourth quarter, the Cabinet Office s composite index of private consumption for November indicated that consumer spending was higher than expected given weak wage growth and higher consumer prices. However, small firms business sentiment worsened significantly in December, with the Shoko Chukin Bank small firm business sentiment index falling in December to the lowest level since 2003. China: After moderating in the second half of 2006, economic growth in China reached 11.4% for 2007, according to the preliminary estimates from the National Bureau of Statistics. The inflation rate was projected to be 4.5% in 2007. The government allowed the yuan to float more freely in 2007. This policy shift may mean greater valuation versus the U.S. dollar, and ultimately, higher prices for dollar-denominated commodities. Chinese consumer spending growth is expected to have remained strong in 2007. Chinese demand continued to bolster global commodity prices throughout 2007. Global Equity Markets Despite the turmoil in the financial markets in the second half of the year, global equity markets were able to register some gains in 2007. Some major developed markets had single-digit returns, while some lesser developed countries marked double-digit gains in stocks. After some sharp falls in August, the S&P 500 Index gained 3.5% for the year. The UK s FTSE rose 3.8%. The DJ Euro Stoxx 50 gained 6.8%. Emerging market equity indices showed some particularly remarkable gains, with the Brazil Bovespa Stock Index up 43.7%, India s BSE Sensex 30 Index higher by 47.2%, and Turkey s ISE National 100 Index up 42.0%. China s Shanghai SE Composite IX continued to show strength with gains of 96.7%. On the downside, Japan s Nikkei 225 Index fell 11.1%. Source: Bloomberg News 6
After moderating in the second half of 2006, economic growth in China reached 11.4% for the year, according to preliminary government estimates. Dollar weakness boosted commodity prices, which are primarily dollardenominated. The dollar also tends to move opposite to gold and energy prices, which remained vibrant during 2007. Currency Markets The major foreign exchange theme for the year was prolonged weakness in the U.S. dollar, which proved to be a boon for commodity prices. Deterioration in relative growth and interest rate differentials between the U.S. and the rest of the world, as well as increased concerns over the health of the US financial system, weighed on the U.S. currency. Diversification of central banks foreign exchange reserves away from the dollar also took its toll. In 2007, the dollar weakened against several actively traded currencies. The dollar plummeted to $1.4967 versus the euro on November 23, the weakest value since the euro began trading in 1999. The dollar weakened 6.2% against the yen in 2007, and 14.4% versus the Canadian dollar. The euro is up 3.7% against the yen for 2007, which is an eighth-straight annual gain. Dollar weakness boosted commodity prices, which are primarily dollardenominated. The dollar also tends to move opposite to gold and energy prices, which remained vibrant through 2007. Global Forecasts for 2008 According to OECD projections, the global economy is expected to continue to grow, but at a slower pace in 2008. Expectations are for more easing in monetary policy in the U.S. and Europe. However, global inflation is also expected to rise. 7
A1. BCI SM Commodity Markets 2007 Commodity Exchange Sector Sub-Sector Market Corn CBT Agriculture Grains Soybeans CBT Agriculture Grains Wheat CBT Agriculture Grains Live Cattle CME Agriculture Livestock Lean Hogs CME Agriculture Livestock Coffee NYBOT Agriculture Soft Cotton NYBOT Agriculture Soft Sugar NYBOT Agriculture Soft Crude Oil WTI NYMEX Energy Petroleum Crude Brent ICE Energy Petroleum Heating Oil NYMEX Energy Petroleum Unleaded Gas NYMEX Energy Petroleum Natural Gas NYMEX Energy Natural Gas Copper LME Metals Industrial Aluminum LME Metals Industrial Zinc LME Metals Industrial Gold COMEX Metals Precious Silver COMEX Metals Precious Notes i. BCI SM returns quoted in this report are for the Total Return version of the index, which includes the return to a 3-month Treasury Bill yield in addition to the return attributable to changes in the underlying futures contracts. ii. Standard deviation is calculated as annualized standard deviation of monthly total returns. iii. Beta Factor is 70% of the return to the fully invested index (Excess Return). iv. Momentum Factor is the return provided by the dynamic risk reduction methodology. v. Daily Roll Factor is the incremental return attributable to the use of the daily roll methodology versus rolling at the end of the roll period. vi. Collateral is based on the 3-month Treasury Bill yield. vii. Fully Invested Index is calculated using the same weights and roll schedule as the BCI SM, but assumes that rolls take place at the end of the BCI SM roll period (rather than the daily roll methodology actually employed by the BCI SM ) and is also calculated without the dynamic risk reduction feature of the BCI SM. As such, the comparison index is always fully invested. viii. Bloomberg LP is the source for DJAIG and SPGSCI returns. 8
A2. BCI SM Component Weights 2007 (%) Sector 2007 Weight 2006 Weight Change 2007 Agriculture 27.5 27.5 - Energy 50.0 55.0 (5.0) Metals 22.5 17.5 5.0 Sub-Sector 2007 Weight 2006 Weight Change 2007 Grains 15.0 15.0 - Livestock 5.0 7.5 (2.5) Softs 7.5 5.0 2.5 Crude Oil 25.0 25.0 - Refined Petroleum 15.0 17.5 (2.5) Natural Gas 10.0 12.5 (2.5) Industrial Metals 15.0 12.5 2.5 Precious Metals 7.5 5.0 2.5 Commodity 2007 Weight 2006 Weight Change 2007 Corn 5.0 5.0 - Soybeans 5.0 5.0 - Wheat 5.0 5.0 - Live Cattle 2.5 5.0 (2.5) Lean Hogs 2.5 2.5 - Coffee 2.5 2.5 - Cotton 2.5 2.5 - Sugar 2.5-2.5 WTI Crude Oil 20.0 20.0 - Brent Crude 5.0 5.0 - Heating Oil 10.0 10.0 - Unleaded Gas 5.0 7.5 (2.5) Natural Gas 10.0 12.5 (2.5) Comex Copper - 7.5 (7.5) Copper 7.5-7.5 Aluminum 5.0 5.0 - Zinc 2.5-2.5 Gold 5.0 5.0 - Silver 2.5-2.5
A3. Roll Schedule for Bache Commodity Index SM Components. Roll Date: 5 th Day of: Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Energy Crude Oil WTI Nymex Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Crude Oil Brent ICE Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Natural Gas Nymex Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Heating Oil Nymex Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan RBOB Gasoline Nymex Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Metals Copper LME Mar May Jul Sep Dec Aluminum LME Mar May Jul Sep Dec Zinc LME Mar May Jul Sep Dec Gold Comex Feb Apr Jun Aug Oct Dec Silver Comex Mar May Jul Sep Dec Agriculture Corn CBT Mar May Jul Sep Dec Soybeans CBT Mar May Jul Sep Nov Jan Wheat CBT Mar May Jul Sep Dec Live Cattle CME Feb Apr Jun Aug Oct Dec Lean Hogs CME Feb Apr Jun Aug Oct Dec Coffee Nybot Mar May Jul Sep Dec Cotton Nybot Mar May Jul Oct Dec Sugar Nybot Mar May Jul Oct Notes: Date is Last Roll Date for Contract nearest to expiration For example, January 5th is the last roll date for the February WTI Crude Oil Contract
A4. Bache Commodity Index SM. Total Returns (USD). January 1991 to Dec 2007 Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Annual Stdev 1991-5.6 0.9 1.4 2.0 0.2-2.0 2.7 2.0 0.8 2.4-2.8-3.4-1.7 9.3 1992 0.9-0.5 1.3 2.5 3.6-0.3 1.2-0.1 1.7-1.6-0.1 0.4 9.3 5.0 1993-0.6 1.7 2.0 1.1-1.9-0.4 1.2-0.4-1.8-2.3-1.2 0.6-2.0 5.1 1994 3.9-1.6 0.1 3.8 6.0 3.4 2.8-4.1-0.2 0.1-0.5 1.5 15.9 9.8 1995-0.3 1.6 1.6 3.1-1.1-0.8 1.2 2.0 0.0 0.1 2.0 7.3 17.8 7.9 1996-0.5 3.8 6.5 5.7-1.0 2.3-1.8 4.9 3.4 0.2 5.8 3.0 37.2 9.9 1997 0.1 0.1 1.7 2.2 1.5-4.7 2.0 0.9 1.4 1.3-4.3-2.5-0.6 8.5 1998 0.5-2.8-0.1-1.4-2.2-0.6-3.9-2.5 6.0-4.4-6.0-0.6-17.0 10.5 1999-0.6-2.1 12.7 4.7-4.7 4.7 2.3 5.4 4.5-3.4 3.5 2.3 32.1 16.3 2000 5.5 4.9 0.0-0.4 8.5 4.4-4.7 9.2-0.1-0.7 6.3-0.1 37.1 14.9 2001-2.9 0.1-1.4 2.5-2.2-3.6 0.9-0.2-7.6-1.8-1.5-1.2-17.8 8.7 2002-1.2 2.3 11.8-0.4-2.6 2.0-0.1 3.4 3.4-1.4 0.6 5.2 24.7 13.4 2003 8.2 6.2-8.3-1.8 4.5-0.5 1.3 3.3-2.0 2.1 0.1 5.5 18.9 15.5 2004 3.0 7.1 2.5 0.8 4.0-3.5 4.2-1.4 7.7 2.8-1.3-4.0 23.4 13.2 2005 2.4 4.5 6.0-5.3-1.4 1.5 4.5 10.2 2.8-5.1 0.0 1.8 22.9 15.3 2006 3.5-5.8 2.5 5.1 0.2-0.6 2.0-4.6-3.9 0.8 3.6-4.3-2.5 12.8 2007-0.2 3.3 2.1 1.2-1.1 1.4 3.5-3.1 6.7 5.8-2.6 4.0 22.6 12.4 Full Period 11.6 11.9 Average in 0.9 1.4 2.5 1.5 0.6 0.2 1.1 1.5 1.3-0.3 0.1 0.9 Notes: Returns Total returns include 90-day Treasury bill return, in percent. Annual Compounded annual return for all years. StDev Annualized standard deviation of monthly returns. Average in Month Average return during the calendar month. Not compounded. Full period Compounded annualized return, annualized standard deviation of all monthly returns Source: Global Commodities Group
Disclosure The returns presented in this document prior to February 1, 2007, were determined based on the pro forma calculations of the historical performance of the BCI SM. Because the BCI SM was not actually being calculated and published during these prior periods, and no actual trading was conducted in accordance with the BCI SM, these returns could be considered to be hypothetical performance results. Hypothetical performance results have many inherent limitations, some of which are described below. No representation is being made that any trading program or strategy will or is likely to achieve profits or losses similar to those shown. In fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved. One of the limitations of hypothetical performance results is that they are necessarily prepared with the benefit of hindsight and, if the BCI SM were actually being calculated and published during these periods, it might have been based on different criteria and a different methodology. Moreover, the market conditions that existed during prior periods will most likely not be repeated and this difference could adversely affect performance. There are numerous factors related to the markets in general or the implementation of any investment strategy, which cannot be fully accounted for in the preparation of hypothetical results and all of which can adversely affect actual trading results, including but not limited to market liquidity, general levels of interest rates and the effect on the relevant markets of political, economic or other external events. In addition, hypothetical performance results do not involve financial risk, and no hypothetical performance results can completely account for the impact of financial risk in actual performance. The hypothetical performance results shown were derived from a model based on an asset allocation strategy and daily roll strategy. The hypothetical performance reflects the historical contract daily return plus daily interest on the funds hypothetically committed to the investment. The hypothetical performance returns are estimates using current and historical futures price data as described. Historical results should not and cannot be viewed as an indicator of future results. For a more complete description of the BCI SM, reference is made to The Guide to the Bache Commodity Index SM. The hypothetical performance results do not reflect any management fees, transaction costs or expenses which would reduce your actual return. Indexes are unmanaged and one cannot invest directly in an index. Past performance is no guarantee of future results. The comments, opinions, and estimates contained in this document are based on, or derived from publicly available information from sources that Bache s Global Commodities Group believes to be reliable. We do not guarantee their accuracy. This information is provided for informational purposes only and sets forth our views as of this date. The underlying assumptions, and these views are subject to change. There is no guarantee that the views expressed will be realized. Bache Commodities Group from time to time, issues reports based on fundamentals, such as expected trends in supply and demand, as well as reports based on technical factors, such as price and volume movements. Since such reports rely upon different criteria, there may be instances when their conclusions are not in concert. Information for inclusion in, or for use in, the calculation of the Index is obtained from sources whose accuracy is believed to be reliable but which may be subject to errors in data sources. Copyright 2008 Bache Commodities. The Rock logo, BCI SM, Bache Commodity Index SM are service marks of Bache Commodities Limited and its affiliates. Bache Commodities Limited is authorised and regulated by the Financial Services Authority. The methodology of, and intellectual property rights in, the Bache Commodity Index SM are proprietary to, and owned by, PFDS Holdings, LLC and may be covered by one or more pending patent applications.