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Bache Commodity IndexBache Commodity IndexBache Commodity IndexBache Commodity IndexSMSMSMSM
Q2 2008 Review Q2 2008 Review Q2 2008 Review Q2 2008 Review
SM
The Bache Commodity IndexThe Bache Commodity IndexThe Bache Commodity IndexThe Bache Commodity IndexSM Built for Commodity InvestorsBuilt for Commodity InvestorsBuilt for Commodity InvestorsBuilt for Commodity Investors
The Bache Commodity IndexSM (BCISM) is a transparent, fully investable com-
modity index. Our unique method of constructing the index results in lower turn-over and lower risk than other commodity indices, while maintaining the poten-tial returns. Predictable, Consistent ExposurePredictable, Consistent ExposurePredictable, Consistent ExposurePredictable, Consistent Exposure
The BCISM 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 sec-
tor and each commodity, and by rebalancing the BCISM each day to maintain the
desired exposure to each commodity market.
BCIBCIBCIBCISM Benefits from Multiple Sources of Return Benefits from Multiple Sources of Return Benefits from Multiple Sources of Return Benefits from Multiple Sources of Return
The BCISM is designed to capture more sources of return to investing in com-
modities 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 RiskMomentum Means Greater Return, Less RiskMomentum Means Greater Return, Less RiskMomentum 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 in-crease is more profitable than holding fixed positions. By tactically reducing the
risk of different commodities, the BCISM holds an average of 30% less exposure
than a fully invested strategy. As a result, the volatility of the BCISM is roughly
30% less than equivalent indices. Diversification, Inflation Hedge for PortfoliosDiversification, Inflation Hedge for PortfoliosDiversification, Inflation Hedge for PortfoliosDiversification, Inflation Hedge for Portfolios
Like other commodity indices on the market, the BCISM offers positive returns,
may offer some inflation protection, and diversification benefits. Unlike other
indices, the BCISM offers these benefits while reducing the downside risk that
can occur with commodity investing.
Table of ContentsTable of ContentsTable of ContentsTable of Contents
Performance Summary
Economic Environment for Commodities
Sector Analysis
Analysis of Return Sources Q2 2008
Summary
Appendices Appendices Appendices Appendices
Weights of BCISM Commodities and Sub-Indices
Analysis of Dynamic Weighting Changes Q2 2008
Monthly BCISM Returns January 1991 to June 2008
This report was prepared by Alternative Investment Analytics LLC under the direc-
tion of Bache’s Global Commodities Group. Bache Commodities Limited is author-
ised and regulated by the Financial Services Authority. For more information, please contact Stephen Ilnitzki ([email protected]) or Mitzi Noma ([email protected]).
* Normalized to 100 on December 31, 1990* Normalized to 100 on December 31, 1990* Normalized to 100 on December 31, 1990* Normalized to 100 on December 31, 1990
1
Exhibit 1: BCISM Daily Total Return Index Jan 1-Jun 30, 2008
630
680
730
780
830
1/01 2/01 3/03 4/01 5/01 6/02 6/30
Exhibit 2: BCIExhibit 2: BCIExhibit 2: BCIExhibit 2: BCIS MS MS MS M
Composite Index Performance Composite Index Performance Composite Index Performance Composite Index Performance
Apr 2008 Apr 2008 Apr 2008 Apr 2008
( %)( %)( %)( %)
May 2008 May 2008 May 2008 May 2008
( %)( %)( %)( %)
Jun 2008 Jun 2008 Jun 2008 Jun 2008
( %)( %)( %)( %)
Q2 2008 Q2 2008 Q2 2008 Q2 2008
( %)( %)( %)( %)
2008 Y TD 2008 Y TD 2008 Y TD 2008 Y TD
( %)( %)( %)( %)
BCIBCIBCIBCIS MS MS MS M
Total Return Total Return Total Return Total Return 5.0 6.2 7.5 19.8 30.3
BCIBCIBCIBCIS MS MS MS M
Excess Return Excess Return Excess Return Excess Return 4.9 6.0 7.4 19.4 29.1
BCIBCIBCIBCIS MS MS MS M
Sector and Single-Commodity Performance Sector and Single-Commodity Performance Sector and Single-Commodity Performance Sector and Single-Commodity Performance
(Total Returns)(Total Returns)(Total Returns)(Total Returns)
Apr 2008 Apr 2008 Apr 2008 Apr 2008
( %)( %)( %)( %)
May 2008 May 2008 May 2008 May 2008
( %)( %)( %)( %)
Jun 2008 Jun 2008 Jun 2008 Jun 2008
( %)( %)( %)( %)
Q2 2008 Q2 2008 Q2 2008 Q2 2008
( %)( %)( %)( %)
2008 Y TD 2008 Y TD 2008 Y TD 2008 Y TD
( %)( %)( %)( %)
Max Max Max Max
Alloc ation in Alloc ation in Alloc ation in Alloc ation in
BCIBCIBCIBCIS MS MS MS M
( %) ( %) ( %) ( %)
Q2 2008 Q2 2008 Q2 2008 Q2 2008
Average Average Average Average
Weight in Weight in Weight in Weight in
BCIBCIBCIBCIS MS MS MS M
( %) ( %) ( %) ( %)
Commodity Sector Per formanceCommodity Sector Per formanceCommodity Sector Per formanceCommodity Sector Per formance
AgricultureAgricultureAgricultureAgriculture 1.9 (0.3) 9.1 10.8 18.2 27.5 20.0
EnergyEnergyEnergyEnergy 9.9 13.3 8.8 35.4 45.9 50.0 49.0
MetalMetalMetalMetal (1.9) (1.2) 2.4 (0.7) 11.8 22.5 14.1
Individual Commodity Per formanceIndividual Commodity Per formanceIndividual Commodity Per formanceIndividual Commodity Per formance
CoffeeCoffeeCoffeeCoffee 2.4 (1.0) 9.1 10.6 5.0 2.5 1.5
CornCornCornCorn 4.7 (1.6) 18.4 22.0 48.6 7.5 7.1
CottonCottonCottonCotton (1.5) (3.6) 2.2 (3.1) (4.1) 2.5 1.4
Lean HogsLean HogsLean HogsLean Hogs 3.4 1.9 (6.8) (1.8) (8.9) 2.5 1.7
Live CattleLive CattleLive CattleLive Cattle 2.7 2.5 2.4 7.8 2.1 2.5 1.9
SoybeansSoybeansSoybeansSoybeans 4.8 4.7 14.9 26.1 27.8 5.0 3.8
SugarSugarSugarSugar (2.6) (5.8) 6.5 (2.3) 5.6 2.5 1.3
WheatWheatWheatWheat (8.2) (1.8) 3.4 (6.8) 1.5 2.5 1.3
Brent CrudeBrent CrudeBrent CrudeBrent Crude 10.4 15.0 9.2 38.7 42.8 5.0 4.9
GasoilGasoilGasoilGasoil 9.3 15.5 5.6 33.3 50.7 7.5 7.2
GasolineGasolineGasolineGasoline 9.4 15.0 6.4 33.9 26.2 5.0 4.9
Heating OilHeating OilHeating OilHeating Oil 9.6 15.9 5.6 34.1 44.2 5.0 4.9
Natural GasNatural GasNatural GasNatural Gas 6.6 6.7 13.6 29.2 64.4 7.5 7.4
WTI C rude OilWTI C rude OilWTI C rude OilWTI C rude Oil 11.3 13.3 9.3 37.8 40.4 20.0 19.7
AluminumAluminumAluminumAluminum (2.7) 0.4 3.5 1.2 17.5 5.0 3.5
CopperCopperCopperCopper 1.9 (4.9) 3.4 0.3 20.3 5.0 3.6
GoldGoldGoldGold (3.6) 0.8 2.5 (0.3) 8.4 7.5 4.3
SilverSilverSilverSilver (2.8) 0.4 1.8 (0.6) 14.4 2.5 1.5
ZincZincZincZinc (1.9) (4.5) (1.4) (7.7) (14.0) 2.5 1.2
2008 Q2 Report2008 Q2 Report2008 Q2 Report2008 Q2 Report
Performance SummaryPerformance SummaryPerformance SummaryPerformance Summary
In the second quarter of 2008, the Bache Commodity IndexSM (BCISM) posted a return of nearly 20%, setting an all-time high during the quarter. Exhibit 1 at left summarizes the daily growth of the total return indexi during the quarter. While the Agriculture sector re-turned a substantial 10.8%, the real story was Energy, with the sector value soaring 35.4% for the quarter. Both the BCI Energy composite and the BCI Agriculture composite also set all-time highs. Exhibit 2 at left shows the composite index, sector, and individual commod-ity performance for the quarter. As shown in Exhibit 3 below, the average return during the quarter was 6.2%, far surpassing the long-run average monthly return of 1.0%.
Economic Environment for CommoditiesEconomic Environment for CommoditiesEconomic Environment for CommoditiesEconomic Environment for Commodities Global Economic GrowthGlobal Economic GrowthGlobal Economic GrowthGlobal Economic Growth The second quarter saw an increasingly troubled global economy, with tight credit condi-tions, rising energy and food prices, and a struggling U.S. housing market weighing on growth. Inflation flourished as energy prices skyrocketed and food prices shadowed that rise. The rising costs of food fuelled instability in lower-income countries around the world. The finance ministers from the Group of Eight industrialized nations stated in June that escalating oil and food prices posed a serious challenge to stable growth worldwide. Inflation was pervasive, spreading globally throughout the quarter. Some 50 economies around the world were posting inflation above 10%, according to analyst reports. The Inter-national Monetary Fund (IMF) warned in June that the inflation speed-up could undermine prospects for restoring the low-inflationary, solid growth that prevailed earlier in the dec-ade. Shifts in global growth projections seemed to play out those fears. According to the Organisation for Economic Co-operation and Development (OECD), eco-nomic growth overall in the 30 developed OECD economies will slow to 1.8% this year and 1.7% in 2009. That projection marks a significant decline from the group’s December 2007 forecast of 2.3% for 2008 and 2.4% for 2009. The OECD said that the global outlook is being dragged down by the U.S. economy, which is predicted to expand just 1.2% this year and 1.1% in 2009, compared to previous OECD growth forecasts for the U.S. of 2.0% in 2008 and 2.2% in 2009.
2
Exhibit 3 : BCIExhibit 3 : BCIExhibit 3 : BCIExhibit 3 : BCISMSMSMSM Q2 2008 Performance Compared to Historical Q2 2008 Performance Compared to Historical Q2 2008 Performance Compared to Historical Q2 2008 Performance Compared to Historical
Pro Forma BCIPro Forma BCIPro Forma BCIPro Forma BCISMSMSMSM Total Returns* Total Returns* Total Returns* Total Returns*
Q2 2008 1991-2007
Average Monthly Return 6.2% 1.0%
Highest Monthly Return 7.5% 12.7%
Lowest Monthly Return 5.0% -8.3%
Standard Deviationii 18.0% 11.6%
* Returns prior to 2007 are pro forma.
* Normalized to 100 on December 31, 1990* Normalized to 100 on December 31, 1990* Normalized to 100 on December 31, 1990* Normalized to 100 on December 31, 1990 3
Exhibit 4: BCISM Agriculture Total Return Index Jan 1-Jun 30, 2008*
270
280
290
300
310
320
330
1/01 2/01 3/03 4/01 5/01 6/02 6/30
Exhibit 5: BCISM Energy Total Return Index Jan 1-Jun 30, 2008*
960
1,060
1,160
1,260
1,360
1,460
1,560
1/01 2/01 3/03 4/01 5/01 6/02 6/30
Exhibit 6: BCISM Metals Total Return Index Jan 1-Jun 30, 2008*
530
550
570
590
610
630
650
670
1/01 2/01 3/03 4/01 5/01 6/02 6/30
The U.S. economy expanded 1.0% in the first quarter of 2008 from the fourth quarter of 2007, according to final data from the U.S. Department of Commerce. The odds of the U.S. entering a reces-sion in the next 12 months were 50%, according to the median forecast of 61 economists in a June Bloomberg survey. The OECD expects economic growth for both the Euro area and Japan to be 1.7% for this year. With the combination of increasing inflation but sluggish growth, the European Central Bank (ECB) and the Bank of Japan opted to leave benchmark interest rates static in the second quarter. The U.S. Federal Reserve, however, lowered its target for the federal funds rate by another 25 basis points to 2.0% in late April. At the end of the quarter, the yen fell to a record low against the euro on speculation the ECB might increase interest rates in the third quar-ter. Surprisingly, currency volatility fell in the second quarter by the most since 1999. The drop in volatility may indicate that traders are comfortable with the relative valuation of the major currencies. Rising inflation also seemed to weigh on global stock markets in the second quarter. The S&P 500 Total Return Index fell 2.73% for the second quarter, and the MSCI World Index was 1.66% lower. The Lehman Global Aggregate Index fell 2.91% for the quarter.
Comparison with Commodity BenchmarksComparison with Commodity BenchmarksComparison with Commodity BenchmarksComparison with Commodity Benchmarks Given the significant outperformance of the Energy sector over the past year, the major commodity indices performed relative to the size of their allocations in energy products. The S&P Goldman Sachs Commodity Index (SPGSCI) has the largest allocation to en-ergy of the three indices. The BCISM total return index underper-formed the SPGSCI over the past year, but mostly outperformed the Dow Jones-AIG Commodity Index (DJAIG). Exhibit 7 shows relative performance of the three indices. Due to its lower volatility, the BCISM outperformed the other benchmarks on a risk-adjusted (Sharpe ratio) basis during the second quarter of 2008 and for the first six months of the year.
Sector AnalysisSector AnalysisSector AnalysisSector Analysis • Agriculture:Agriculture:Agriculture:Agriculture: The BCISM Agriculture sector composite was up
10.8% in the second quarter, in part due to gains of over 20% in Corn and Soybeans. Exhibit 4 shows sector performance.
• Energy: Energy: Energy: Energy: The BCISM Energy sector composite gained 35.4% in
the second quarter of 2008. Energy sector returns dominated the index, with all markets returning close to 30% or above for the quarter. Exhibit 5 shows sector performance.
• Metals: Metals: Metals: Metals: The BCISM Metals sector composite was the only declin-
Commodity News
Highlights
Crude Oil Reaches New Highs
Crude oil prices traded above
143 on an intraday basis in June,
with investors shunning stocks
and flocking to oil instead.
Natural Gas Highest in 2 Years
Natural gas prices climbed to the
highest levels in more than two
years in June.
Zinc Down on Supply Concerns
Zinc prices fell in the second
quarter on fears that supply may
surpass demand.
Corn and Soybeans Gain
Corn and soybean prices have
made strong gains in the second
quarter, on demand for biofuels,
and production concerns.
Source: Bloomberg News
4
Exhibit 7: BCISM Performance Relative to
DJAIG and SPGSCI*
Return
(%)
Q2
2008
Q1
2008
Q4
2007
Q3
2007
YTD
2008
BCISM 19.8% 8.7% 7.2% 7.5% 30.3%
SPGSCI 28.7% 9.9% 11.6% 12.3% 41.4%
DJAIG 16.1% 9.6% 4.7% 6.9% 27.2%
StDev (%)
Q2
2008
Q1
2008
Q4
2007
Q3
2007
YTD
2008
BCISM 18.0% 20.8% 15.0% 11.0% 19.4%
SPGSCI 26.1% 27.0% 21.6% 15.8% 26.5%
DJAIG 19.3% 22.9% 14.7% 13.5% 21.1%
Sharpe
Rat io
Q2
2008
Q1
2008
Q4
2007
Q3
2007
YTD
2008
BCISM 3.88 1.55 1.60 2.16 2.63
SPGSCI 3.78 1.40 1.87 2.58 2.57
DJAIG 2.99 1.56 1.03 1.62 2.21
* Total Return Indices
High Return/Low Risk Highlighted
5
Exhibit 8: BCISM Market Factor
Decomposition* Q2 2008
-2.0 0.0 2.0 4.0 6.0 8.0
WTI Crude Oil 7.09%
Gasoil 2.42%
Natural Gas 2.19%
Brent Crude 1.81%
Corn 1.76%
Heating Oil 1.62%
Gasoline 1.61%
Soybeans 1.31%
Coffee 0.30%
Live Cattle 0.21%
Aluminum 0.09%
Copper 0.02%
Gold 0.00%
Silver -0.01%
Sugar -0.05%
Lean Hogs -0.06%
Cotton -0.08%
Wheat -0.17%
Zinc -0.22%
*BCISM return attributable to each commodity.
Exhibit 10: BCISM Style Factor
Decomposition* Q2 2008
14.54
0.55
4.27
0.49
19.85
0.0 5.0 10.0 15.0 20.0
Be t a
Fac t or
( 7 0%)
Da i l y Rol l
Fac t or
( 7 0%)
S t r uc t ur ed
Asse t
A l l oca t i on
Fac t or
Col l a t e r a l
BCI Tot a l
Re t ur n
Est. Return (%)
*Factor contribution to BCISM total return.
Exhibit 11: Q2 2008 BCISM and
Fully Invested Index
-4%
0%
4%
8%
12%
16%
20%
24%
28%
32%
36%
40%
Co
mp
osi
te
Ag
ricu
ltu
re
En
erg
y
Me
tals
BCI
Fully Invested
Exhibit 12: Q2 2008 Volatility of
BCISM and Fully Invested Index
0%
4%
8%
12%
16%
20%
24%
28%
32%
Co
mp
osi
te
Ag
ricu
ltu
re
En
erg
y
Me
tals
BCI
Fully Invested
Exhibit 13: Q2 2008 Sharpe Ratio of
BCISM and Fully Invested Index
-1
0
1
2
3
4
5
6
Co
mp
osi
te
Ag
ricu
ltu
re
En
erg
y
Me
tals
BCI
Fully Invested
Exhibit 9: BCISM Sector
Decomposition* Q2 2008
-0.2 3.8 7.8 11.8 15.8
Energy 16.75%
Agricult ure
3.21%
Met als -0.12%
*BCISM return attributable to each sector.
ing sector for the quarter, falling 0.7%. Copper, Gold, and Silver were basically flat for the quarter after a run-up in the first quarter. Exhibit 6 shows sector performance.
Analysis of Return Sources Q2 2008Analysis of Return Sources Q2 2008Analysis of Return Sources Q2 2008Analysis of Return Sources Q2 2008
Contribution of Individual Commodity MarketsContribution of Individual Commodity MarketsContribution of Individual Commodity MarketsContribution of Individual Commodity Markets Eight commodities accounted for the entire gain in the BCISM during the second quarter. The six energy markets, Corn, and Soybeans each increased more than 20% in value dur-ing the quarter. The combined contribution of the remaining 11 commodity markets was close to zero. It is unusual to see such highly concentrated movement in the index. In 2007, for example, there was a much broader rally with participation from each of the ma-jor commodity sectors. Exhibit 8 shows the contribution of each commodity market to the overall BCISM performance in the second quarter. Exhibit 9 shows the contribution of each commodity sub-sector to the overall BCISM performance in the second quarter.
Contribution of BCIContribution of BCIContribution of BCIContribution of BCISMSMSMSM Return Factors Return Factors Return Factors Return Factors Exhibit 10 shows the contribution of each BCISM style factor to the total return. The Beta Factoriii was once again the dominant driver of BCISM returns, accounting for 14.54% of the
19.85% earned by the BCI� in the second quarter. The Structured Asset Allocation Factoriv
added 4.27% to the BCI�. This is well above the long-run average contribution of this fac-tor, which averaged 220 basis points per year from 1991-2006. The Daily Roll Factorv added an additional 55 basis points, and the Treasury Bill collateral returnvi added 49 ba-sis points to the BCISM total return.
Comparison of BCIComparison of BCIComparison of BCIComparison of BCISMSMSMSM Returns with a static commodity index Returns with a static commodity index Returns with a static commodity index Returns with a static commodity index
Exhibit 11 compares the return of the BCISMand BCISM sectors to the fully invested indexvii. The fully invested index excludes the structured asset allocation and the daily roll factors.
The BCI� slightly underperformed the static index during the second quarter in all sectors. However, in the second quarter the BCISM had a lower volatility than the fully invested index across all sectors (Exhibit 12) due to its risk reduction mechanism. Normally, this differ-ence is more pronounced. However, the asset allocation model kept most commodities in the Energy sector at or near full allocation during the quarter. After adjusting for relative
risk, the BCI� composite returned more than the fully invested index, and all sectors ex-cept metals outperformed their fully invested counterparts on a risk-adjusted basis. Exhibit 13 compares the risk-adjusted returns of the BCISM and BCISM sectors to the fully invested index.
SummarySummarySummarySummary A dramatic upsurge in inflation in the price of energy and agricultural products was detri-mental for global economic growth in the second quarter, but meant that commodity prices had a banner performance. The BCISM has positive returns in five out of six months thus far in 2008 and in 13 out of 18 months since the start of 2007. The global economic slowdown will inevitably be a drag on commodity prices. However, reflationary trends tend to play out over the course of years rather than months, so the current upward price trend could persist for some time.
6
7
A1: BCIA1: BCIA1: BCIA1: BCIS MS MS MS M
Commodity Markets effective June 30, 2008 Commodity Markets effective June 30, 2008 Commodity Markets effective June 30, 2008 Commodity Markets effective June 30, 2008
Commodity Exchange Sector Sub-Sector BCISM
Allocation (%)Coffee NYBOT Agriculture Soft 2.5
Corn CBOT Agriculture Grains 7.5
Cotton NYBOT Agriculture Soft 2.5
Lean Hogs CME Agriculture Livestock 2.5
Live Cattle CME Agriculture Livestock 2.5
Soybeans CBOT Agriculture Grains 5.0
Sugar NYBOT Agriculture Soft 2.5
Wheat CBOT Agriculture Grains 2.5
Brent Crude ICE Energy Crude Oil 5.0
Gasoil ICE Energy Distillates 7.5
Gasoline NYMEX Energy Distillates 5.0
Heating Oil NYMEX Energy Distillates 5.0
Natural Gas NYMEX Energy Natural Gas 7.5
WTI Crude Oil NYMEX Energy Crude Oil 20.0
Aluminum LME Metal Industrial 5.0
Copper LME Metal Industrial 5.0
Gold COMEX Metal Precious 7.5
Silver COMEX Metal Precious 2.5
Zinc LME Metal Industrial 2.5
A2: BCIA2: BCIA2: BCIA2: BCISMSMSMSM Analysis of Dynamic Weighting Changes Q2 2008 Analysis of Dynamic Weighting Changes Q2 2008 Analysis of Dynamic Weighting Changes Q2 2008 Analysis of Dynamic Weighting Changes Q2 2008
End Mar
2008
End Jun
2008
Q2 2008
Change
Min Q2
Weight
Average Q2
Weight
Max Q2
Weight
Corn 6.7 7.2 0.6 5.8 7.1 7.8
WTI Crude Oil 19.6 20.1 0.5 16.2 19.7 20.4
Brent Crude 4.9 5.0 0.1 4.0 4.9 5.2
Cotton 2.0 1.2 (0.8) 1.0 1.4 2.0
Gold 6.1 4.7 (1.4) 2.9 4.3 6.1
Heating Oil 4.9 4.8 (0.2) 4.1 4.9 5.2
Gasoline 3.7 5.0 1.3 3.5 4.9 5.1
Coffee 1.5 2.2 0.7 1.1 1.6 2.1
Aluminum 4.1 4.0 (0.1) 2.6 3.5 4.3
Live Cattle 1.0 2.5 1.5 1.0 1.9 2.5
Lean Hogs 1.0 1.7 0.7 1.0 1.7 2.0
Copper 4.1 3.1 (1.0) 2.0 3.6 5.1
Zinc 2.1 1.0 (1.1) 1.0 1.3 2.1
Natural Gas 6.8 7.6 0.8 5.9 7.4 7.7
Gasoil 7.7 7.5 (0.2) 5.8 7.2 7.7
Soybeans 3.3 5.1 1.8 2.7 3.8 5.2
Sugar 1.6 1.5 (0.2) 1.0 1.3 1.9
Silver 2.0 1.5 (0.5) 1.0 1.5 2.0
Wheat 2.0 1.9 (0.2) 1.0 1.3 2.0
Total Commodity 85.1 87.5 2.5 75.9 83.2 87.5
Cash 15.0 12.5 (2.5) 12.5 16.8 24.1
NotesNotesNotesNotes i. BCIBCIBCIBCISMSMSMSM returns returns returns returns quoted in this report are for the Total Return version of the Index, which includes the re-
turn to a 3-Month Treasury Bill yield in addition to the return attributable to changes in the underlying
futures contracts.
ii. Standard deviation Standard deviation Standard deviation Standard deviation is calculated as annualized standard deviation of daily total returns.
iii. Beta Factor Beta Factor Beta Factor Beta Factor is 70% of the return to the Fully Invested Index (Excess Return).
iv. Momentum Factor Momentum Factor Momentum Factor Momentum Factor is the return provided by the dynamic risk reduction methodology.
v. Daily Roll Factor Daily Roll Factor Daily Roll Factor 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 Collateral Collateral Collateral is based on the 90-day Treasury bill yield.
vii. Fully Invested Index Fully Invested Index Fully Invested Index Fully Invested Index is calculated using the same weights and roll schedule as the BCISM, but assumes that rolls take place at the end of the BCISM roll period (rather than the daily roll methodology actually employed by the BCISM) and is also calculated without the dynamic risk reduction feature of the BCISM.
As such, the comparison index is always fully invested.
8
A3: Bache Commodity IndexA3: Bache Commodity IndexA3: Bache Commodity IndexA3: Bache Commodity IndexSMSMSMSM Total Returns (USD), January 1991 to June 2008* Total Returns (USD), January 1991 to June 2008* Total Returns (USD), January 1991 to June 2008* Total Returns (USD), January 1991 to June 2008*
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) 12.0
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 6.7
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) 5.8
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 8.9
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 6.6
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 12.1
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) 8.6
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) 8.5
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 12.6
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 14.2
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) 11.3
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 13.3
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 14.8
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 15.8
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 14.0
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) 12.4
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 12.2
2008 1.5 9.8 (2.5) 5.0 6.2 7.5 30.3 19.3
Full Period 13.0 11.9
Avg in Month 1.0 1.9 2.2 1.7 0.9 0.6 1.1 1.5 1.3 (0.3) 0.1 0.9
* Returns prior to January 2007 are pro forma.
**Standard deviation is calculated as annualized standard deviation of daily total returns.
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 BCISM. Because the BCISM was not actually being calculated and published during these prior periods, and no actual trading was conducted in accordance with the BCISM, 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 BCISM were actually being calculated and published during these periods, it might have been based on different criteria and a differ-ent 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 in-vestment 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 lim-ited to market liquidity, general levels of interest rates and the effect on the relevant mar-kets of political, economic or other external events. In addition, hypothetical performance results do not involve financial risk, and no hypothetical performance results can com-pletely 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 BCISM, reference is made to The Guide to the Bache Commodity IndexSM. 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 Commodi-ties 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 conclu-sions 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, BCISM, Bache Commodity IndexSM 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 IndexSM are proprietary to, and owned by, PFDS Holdings, LLC and may be covered by one or more pending patent applications.
Disclosure