Commodities:

1
Commodities
Spectrum of Investment Options
20 March 2007
Eileen Dowling Managing Director
For Use Only with Qualified Institutions
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Commodities Spectrum of Investment Options

• From Beta to Alpha
• Increasingly, clients are allocating to real
  assets, including commodities, commodity futures
  and commodity-related equities
• As investors become more familiar with
  commodities, they often seek ways to generate
  alpha in addition to receiving beta of commodity
  markets
• In this quest, investors often move from passive
  to more active management
• Commodities How to gain exposure
• Direct ownership of a physical commodity or a
  commodity future
• Exchange traded funds based on a physical
  commodity or a commodity future
• Investment products based on commodity futures
  indices
• Core indices (DJ-AIG, GSCI, and RJ-CRB)
• New indices (Enhanced DJ-AIG, Merrill, Lehman,
  Jefferies CRB)
• Commodity-related equities, including sectors
  such as energy, energy technology, metals and
  minerals, precious metals and basic industries
• Long Only
• Hedged
• Private investments
• BlackRock Commodities-Related Assets Under
  Management 34.3 billion

Assets as of November 30, 2006 for mutual funds
and separate accounts and as of December 1, 2006
for hedge funds
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Spot vs. Futures Returns

• Commodity futures returns are correlated to but
  different than spot returns
• Indices are limited to those commodities that
  have liquid futures markets

Commodity Future Returns vs. Spot Returns
The equally-weighted collateralized futures
index is constructed using data from the
Commodity Research Bureau (CRB) and the London
Metals Exchange (LME). The index includes every
commodity futures contract (one contract per
commodity) traded in the US and on the LME for
which data is available in the databases
maintained by CRB and LME. Contracts are
included in the index when data becomes
available. Each contract is given equal weight
and the index is reweighted monthly. Data from
July 1959 to December 2005. 1959 100.
Additional details available upon request. Past
performance is not indicative of future results.
Source AIG-FP.
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Commodity Futures, Stocks and Bonds

• Long term, commodity futures returns have matched
  stock returns over long time horizons

Historical Index Returns
Equally-weighted collateralized futures index,
Ibbotson Large Company Stocks and Long-Term
Corporate Bonds Indices.  Ibbotson Large Company
Stocks Index represents the Standard Poors 500
Index which is an unassigned group of securities
and is considered to be representative of the
stock market in general.  Long-Term Corporate
Bonds represent 20-year U.S. Corporate Bonds
while Treasury Bills is defined by the 30-day
U.S. Treasury Bill. Investors cannot invest
directly in these indices. Data from July 1959 to
December 2005. Past performance is not indicative
of future results. Source AIG-FP and Ibbotson
Associates.
5
Risk and Return by Asset Class

• Commodity futures have delivered equity-like
  returns with similar volatility

Risk vs. Return
Stocks
Commodities
Bonds
T-bills
Equally-weighted collateralized futures index,
Ibbotson Large Company Stocks, Long-Term
Corporate Bonds and Treasury Bill Indices.
 Ibbotson Large Company Stocks Index represents
the Standard Poors 500 Index which is an
unassigned group of securities and is considered
to be representative of the stock market in
general.  Long-Term Corporate Bonds represent
20-year U.S. Corporate Bonds while Treasury Bills
is defined by the 30-day U.S. Treasury Bill. 
Data from July 1959 to December 2005. Past
performance is not indicative of future results.
Source AIG-FP and Ibbotson Associates.
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Commodity Futures vs. Shares in Commodity
Companies
Commodity Futures vs. Commodity Company Stocks
Equally-weighted collateralized futures index,
and the stocks of commodity producing companies
as identified by SIC code. Data from December
1962 to December 2003. Past performance is not
indicative of future results. Source AIG-FP.
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Correlation of Commodity Futures With Other
Financial Assets and Inflation

• Commodity futures have been negatively correlated
  with traditional financial assets while
  positively correlated to inflation

Correlation of Commodity Futures
Equally-weighted collateralized futures index,
Ibbotson Large Company Stocks and Long-Term
Corporate Bond Indices, CPI-U.  Ibbotson Large
Company Stocks Index represents the Standard
Poors 500 Index which is an unassigned group of
securities and is considered to be representative
of the stock market in general.  Long-Term
Corporate Bonds represent 20-year U.S. Corporate
Bonds while Treasury Bills is defined by the
30-day U.S. Treasury Bill. Overlapping return
data from July 1959 to December 2005. Past
performance is not indicative of future results.
Source AIG-FP and Ibbotson Associates.
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Commodities Aid Portfolio Diversification

• In particular, commodity futures index returns
  are negatively correlated with those of other
  traditional asset classes, thereby having the
  ability to diversify portfolio risk
• Commodity returns have been highest near the peak
  of a business cycle, while fixed income and
  equity returns have been highest in anticipation
  of turns in a business cycle
• Commodities, commodity futures indices and
  commodity-related equities may improve the
  risk/reward profile of a balanced portfolio

10-Year Mean-Variance Efficient Frontier of Assets
As of September 30, 2006 Note Return data
reported monthly and correlation data based on
quarterly returns.
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Commodity Indices to Gain Passive Exposure

• Dow Jones-AIG Commodity and Goldman Sachs
  Commodities Indices
• The two most popular broad-based, diversified
  indices
• Both represent an investment in an unleveraged
  fully-collateralized basket of exchange-traded
  physical commodity futures

DJ-AIG Commodity Index Features
GS Commodities Index Features

• Weighted by both liquidity (2/3) and
  dollar-adjusted historical production (1/3)
• Annual price-percentage rebalancing
• Diversification rules limit exposure to any one
  commodity (15) or sector (33)
• 2 minimum allocation to any commodity

• Production weighted by 5-year historical
  production amounts
• Annual price-percentage rebalancing (no
  intra-year re-weighting)
• No predefined commodity or sector limits
• No minimum allocation to any commodity

Source Goldman Sachs
Source AIG
Indices are an industry benchmark. One cannot
invest directly in an index
As of November 30, 2006
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Spectrum of Investment Options Commodity Futures
Indices

• Considerations
• The total return of an investment in a commodity
  futures index is the aggregate of three sources
• Price return Derived from changes in the
  futures prices of commodities as a result of spot
  price changes of the underlying commodity
• Collateral return Earned on the cash portion of
  a fully collateralized futures investments
• Roll return Generated from rolling the
  existing futures contract to the contract of the
  next-nearest maturity

Contango
Backwardation
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Commodity-related Equities

• POSITIVES
• Ability to obtain exposure to those commodities
  where there is no futures market e.g. iron ore,
  thermal coal, met. coal
• Leverage to commodity price movements
• More liquid financial market
• Historic correlation and performance data readily
  available
• Additional return through dividends
• Alpha through active management

• NEGATIVES
• Correlation with equities markets
• Not necessarily, as active management has been
  shown to reduce correlation to the equity markets

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Risk Factors
This presentation is not intended to provide
investment advice. Nothing herein should be
construed as a solicitation or a recommendation
to buy or sell securities or other investments.
You should assess your own investment needs based
on your individual financial circumstances and
investment objectives. The opinions expressed
are those of the featured speaker as of March 20,
2007, and are subject to change at any time due
to changes in market or economic conditions. The
comments should not be construed as a
recommendation of any individual holdings or
market sectors. BlackRock does not guarantee
the accuracy or completeness of this information
and the information contained herein may not
reflect the views of BlackRock. This report was
last updated on March 2, 2007 and has not been
updated since then. It may not reflect the
current views of the featured speaker and may not
reflect recent market activity. Investing in
derivatives entails specific risks that may
reduce returns and/or increase volatility. Concen
trating investments in Commodity Futures means
that performance will be more susceptible to
factors affecting that sector. Investments in the
commodities industries can be significantly
affected by events relating to those industries,
such as variations in the commodities markets,
weather, disease, embargoes, international,
political and economic developments, the success
of exploration projects, tax and other government
regulations, as well as other factors.