Asset Allocation: How Big a Role Should Commodities Play in a Portfolio?

Asset Allocation: How Big a Role Should Commodities Play in a Portfolio? Dave Nadig, Moderator Director of Research, IndexUniverse John Catizone, Panelist Managing Director, Head of Institutional Sales, BNP Paribas Kyle Cooper, Panelist Managing Director of Research, Cypress Energy Management, LP Martin Kremenstein, Panelist CIO, COO, DB Commodity Services David Steinberg, Panelist Managing Partner, Founder, DLS Capital Management

Asset Allocation: How Big a Role Should Commodities Play in a Portfolio? Dave Nadig Moderator Director of Research IndexUniverse

Martin Kremenstein Panelist CIO, COO DB Commodity Services Kyle Cooper Panelist Managing Director of Research Cypress Energy Management, LP John Catizone Panelist Managing Director Head of Institutional Sales BNP Paribas David Steinberg Panelist Managing Partner, Founder DLS Capital Management

Risks & Correlations: The Case for a Blended Portfolio Martin Kremenstein Panelist CIO, COO DB Commodity Services

Why Invest in Commodities Asset Allocation: Historically, commodities have followed different return patterns than stocks and bonds and have provided a low-correlated alternative to investors. By adding relatively low-correlated assets such as commodities to a portfolio, an investor may also potentially improve both absolute and risk-adjusted returns. 1 Hedging Against Inflation: As physical assets, commodities have historically exhibited strong positive correlation to inflation and may be able to help a portfolio mitigate the destructive effects of inflation. 2 Participate In Emerging Market Growth: Emerging market countries have increasingly become drivers of new commodity demand. 1 See slide 5 for more detail. Source: Bloomberg, L.P., as of June 30, 2012. U.S. stocks and U.S. bonds are represented by the S&P 500 Index, Barclays Capital U.S. Aggregate Index and Commodities by a composite of the Dow Jones UBS Commodity Index from June 2002 to February 2006 and the DB Diversified Commodity Index from February 2006 to June 2012, respectively. 2 Source: Bloomberg, L.P., as of March 31, 2012. Inflation is measured by changes in the Consumer Price Index (CPI) and commodities by a composite of the Dow Jones UBS Commodity Index from June 2002 to February 2006 and the DB Diversified Commodity Index from February 2006 to June 2012.

1.00 0.90 0.80 0.70 0.60 0.50 0.40 0.30 0.20 0.10 0.00 Asset Allocation Commodities have historically low-correlations to other asset classes 10-Year Correlation to Commodities Bonds Real Estate TIPS U.S. Stocks Gold Emerging Markets Source: Bloomberg, L.P., as of 06/30/02 06/30/12. U.S. stocks, bonds, real estate, gold, tips and emerging markets are represented by the S&P 500 Index, Barclays Capital U.S. Aggregate Index, FTSE NAREIT All Equity REITS Index, spot gold, Barclays Aggregate TIPS Index and MSCI Emerging Markets Index and Commodities by a composite of the Dow Jones UBS Commodity Index from June 2002 to February 2006 and the DB Diversified Commodity Index from February 2006 to June 2012, respectively. PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. An investor cannot invest directly in an index. Stocks are more volatile than bonds and bonds are subject to the effects of changing interest rates. Commodities may subject an investor to greater volatility than traditional securities such as stocks and bonds.

Asset Allocation Potential for Increased Absolute and Risk-Adjusted Portfolio Returns 60% 50% 40% 30% 20% 10% 0% 10- Year Hypothetical Allocation 10 Year Return Volatility Sharpe Ratio 100% Commodities 8.2% 0.196 0.325 60% Stocks 40% Bonds 5.9% 0.095 0.439 45% Stocks 35% Bonds 20%Commodities 6.7% 0.095 0.518 Rebalanced Quarterly data as of 06.30.2012 Return Sharpe Ratio 100% Commodities 60% Stocks 40% Bonds 45% Stocks 35% Bonds 20% Commodities Source: Bloomberg, L.P., as of June 30, 2012. Stocks and bonds are represented by the S&P 500 Index, bonds by the Barclays U.S. Aggregate Index, commodities by a composite of the Dow Jones UBS Commodity Index from June 2002 to February 2006 and the DB Diversified Commodity Index from February 2006 to June 2012. PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. An investor cannot invest directly in an index. Stocks are more volatile than bonds and bonds are subject to the effects of changing interest rates. Commodities may subject an investor to greater volatility than traditional securities such as stocks and bonds.

0.6 0.4 0.2 0-0.2-0.4-0.6 Hedging Against Inflation Real assets such as commodities tend to exhibit strong positive correlation to inflation. 10-Year Correlation to Inflation Commodities Emerging Markets Source: Bloomberg, L.P., as of 06/30/02 06/30/12. Inflation is measured by changes in the Consumer Price Index (CPI). U.S. Stocks are represented by the S&P 500 Index, bonds by the Barclays U.S. Aggregate Index, commodities by a composite of the Dow Jones UBS Commodity Index from June 2002 to February 2006 and the DB Diversified Commodity Index from February 2006 to June 2012, Treasury Inflation Protection Securities (TIPS) by the Barclays Aggregate TIPS Index, gold by spot and emerging markets by the MSCI Emerging Markets Index. PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. An investor cannot invest directly in an index. Stocks are more volatile than bonds and bonds are subject to the effects of changing interest rates. Commodities may subject an investor to greater volatility than traditional securities such as stocks and bonds. U.S. Stocks TIPS Gold Bonds

Asset Allocation: How Big a Role Should Commodities Play in a Portfolio? John Catizone Panelist Managing Director Head of Institutional Sales BNP Paribas

Facts & Fantasies: Commodity Futures Historical Returns of Stocks, Bonds and Commodities (1959 2004) Historical Returns of Stocks, Bonds and Commodities (2001 2011) 300.00 250.00 EFFAS Bond Index Liquid All S&P 500 TR DJUBS TR 200.00 150.00 100.00 50.00 0.00 Source: K. Geert Rouwenhorst, (Yale) & Gary Gorton (Wharton) Facts and Fantasies About Commodity Futures (June 2004) Aug-01 Aug-02 Aug-03 Aug-04 Aug-05 Aug-06 Aug-07 Aug-08 Source: BNP Paribas, Bloomberg Aug-09 Aug-10 Aug-11 1970-2004 US Equity US Bonds Commodities Return 11.2 8.7 12.4 Volatility 17.2 7.1 19.9 2001-2011 US Equity US Bonds Commodities Annualized Return Annualized Volatility 2.7% 6.1% 6.9% 21.4% 6.4% 18.4% 10

Why Invest in Commodities In a Barclays Capital commodity investing survey of over 100 institutional investors. For more than 70% of the survey the appropriate long-term average weighting for commodities in a portfolio is over 6%, a long way above current norms. Source: S&P, Barclays Capital, Commodities Research, Commodity Cross Currents Commodity investing to rebound, February 2012

What s a Roll? Commodity Indices Reference Futures Contracts which are Rolled Before Expiring The Performance of an Index Can be Broken Down Into: Spot return: A result of commodities becoming more, or less, expensive over time Roll return: Impact of rolling the futures contract. Excess returns are simply the sum of spot and roll returns The Roll Generates a: Positive return in backwardation (negative slope of the forward curve): The new contract is purchased at a lower price than the current one is sold for Negative return in contango (positive slope of the forward curve): The new contract is bought at a higher price than the current one is sold for

What s a Roll? To start off, we buy a 1-month maturity contract One month later, this contract is about to expire. It is sold and we buy a new contract (with a 1-month maturity) Forward curve in backwardation Price Forward curve in contango Price Roll Profit Roll Cost 1m 2m 3m 4m Maturity 1m 2m 3m 4m Maturity The new contract is purchased at a lower price than the current one is sold for: Positive roll return The new contract is purchased at a higher price than the current one is sold for: Negative roll return

Commodities vs. Treasuries and the S&P 500 Kyle Cooper Panelist Managing Director of Research Cypress Energy Management, LP

Commodities in a Portfolio Must understand the risk and volatility New correlations, EVERYBODY wants to avoid 2008 Must be realistic of risk tolerance, understanding a 10% monthly drawdown and living through it are completely different Identify active professional managers Consider participation and investment philosophy Analyze allocations within overall portfolio

Total Return S&P 500, Treasuries & Commodities 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Source: futures contract prices Corn Wheat Soybeans Sugar Coffee Zinc Platinum Gold Silver Copper Nat Gas WTI Brent 30 Year S&P 500 DXY Average

Total Return S&P 500 vs. Grains 6% 5% 4% 3% 2% 1% 0% 1/3/00 1/3/02 1/3/04 1/3/06 1/3/08 1/3/10 1/3/12 Source: futures contract prices S&P 500 Corn Wheat Soybeans

Total Return S&P 500 vs. Precious Metals 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% 1/3/00 1/3/02 1/3/04 1/3/06 1/3/08 1/3/10 1/3/12 Source: futures contract prices S&P 500 Platinum Gold Silver

Total Return S&P 500 vs. Energy 7% 6% 5% 4% 3% 2% 1% 0% 1/3/00 1/3/02 1/3/04 1/3/06 1/3/08 1/3/10 1/3/12 Source: futures contract prices S&P 500 Nat Gas WTI Brent

An Equity Approach to Commodity Investing David Steinberg Panelist Managing Partner, Founder DLS Capital Management

Projected Government Debt Growth ('11-'16 G7 Debt Size & Growth: Nearly all developed countries are debasing their currency but the U.S. Dollar is concerning due to its relative growth and sheer size. 8.0% Measures of Government Debt - Bubbles Are Total Amount of Debt 7.0% 6.0% US 5.0% 4.0% 3.0% Italy France Japan UK 2.0% 1.0% Germany Canada 0.0% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% Past Government Debt Growth ('06-'11) Source: IMF Global Database, Bloomberg

Global Gold: Gold is a tiny fraction of global financial holdings. Any trend toward historical norms would mean huge increases in gold prices.

Population (millions) Drivers of Emerging Market Growth: Projected Population Growth by Development Level 9,000 8,000 7,000 6,852 7,597 8,259 6,000 5,000 4,000 3,000 2,000 1,000 96% of growth coming from less developed 97% of growth coming from less developed nations - 2009 2020 2030 Less Developed Countries Developed Countries

Middle Class Population (millions) Shifting to Middle Class: 5,000 4,500 Projected Growth of Middle Class by Continent 4,884 4,000 3,500 3,000 3,249 2,500 2,000 1,500 1,000 500-1,845 Asia = 28% Asia = 54% 2009 2020 2030 Asia/Pacific Europe North America South America Other Asia = 66%

Drivers of Our Investment Strategy: Central Banks continue to print currency Policy solutions are unlikely given current political climate Developing markets continue to grow Commodity prices remain elevated despite slowdown in developed markets Equity valuations at historical lows Limited choices for yield or return Potential exists for massive reallocation from perceived safe assets to return assets - $2 trillion for every 1% shift

Investment Strategies Gold Commodity Producers/Servicers/Suppliers Producers. Barrrick, Anglo Gold, Kinross, Goldcorp, Newmont, Yamana, juniors Servicers/Suppliers Caterpillar, Joy Global Silver Hecla, Silver Wheaton, Pan American Caterpillar, Joy Global Oil Natural Gas Coal Exploration & Production, Resource Plays Exploration & Production, Resource Plays Alpha, Patriot, Consol, Arch, Peabody, James River Transocean, Rowan, Halliburton, Schlumberger, Cooper Cameron, National Oilwell Varco, etc. Transocean, Rowan, Halliburton, Schlumberger, Cooper Cameron, National Oilwell Varco, etc. Caterpillar, Joy Global Copper Freeport, Southern Copper, Caterpillar, Joy Global Aluminum Alcoa Caterpillar, Joy Global Multiple Metals BHP, Vale, Rio Tinto, Cliffs Caterpillar, Joy Global Agricultural Bunge, AMD Deere, Agrium, Potash, CF, etc. Note: All companies mentioned in this presentation have more than adequate liquidity. There are many liquid equities that offer indirect exposure to commodities. Most of these companies have been previously owned and/or researched by DLS. This list is illustrative and not exhaustive. Many similar companies could also be considered.

APPENDIX Risk Factors Any person or entity investing in accounts or funds managed by DLS Capital Management, L.L.C. (the Accounts ) must be able to bear the risks involved and must meet the Accounts suitability requirements. In this regard, an investment in the Accounts may not be suitable for certain investors. The risks that DLS Capital Management wants to call attention to include: Past results are not necessarily indicative of future performance. No assurance can be given that the Accounts investment, research and/or risk management processes will be successful or that the Accounts investment objectives will be achieved. The Accounts are speculative and involve a great degree of risk. An investor could lose all or a substantial amount of the investment. DLS Capital Management has total trading authority over the Accounts. The use of a single advisor could mean lack of diversification and, consequently, higher risk.

Thank You. Questions?