Brock Capital Management LLC's unique professional trading approach to commodity markets can provide a useful means of diversification for many institutional or accredited investors. Through diversification, investors potentially are able to reduce exposure to risk by combining a number of investments, such as managed futures, equities, fixed income, and real estate. A diversified portfolio, in theory, is more able to absorb shocks that can occasionally occur in a specific sector as it is less likely that all assets of a diversified portfolio will move in an adverse direction at the same time. Through diversification, an investor’s portfolio may experience less volatility and more consistent returns given ever-changing economic conditions.

The chart to the right shows the potential benefit that can be obtained through diversification using Brock Capital Management LLC Agricultural Program.  Since 2004, an investor’s portfolio that perfectly tracked the S&P 500 Index would have shown annualized returns of 8.45% and a standard deviation of 1.97% through December 2006. If, on the other hand, the investor chose to diversify the portfolio by placing 20% of the assets in the Agricultural Program, and 80% into the S&P 500 Index, the portfolio annualized returns would have been increased to 10.73% and a standard deviation of 2.73%. While we show the effect of allocating 20% of your investment funds to the Agricultural Program, the percentage of an individual’s portfolio that consists of the Agricultural Program should be based on individual preference and ability to handle risk.

EFFICIENT FRONTIER IS BASED ON ACTUAL RESULTS OF THE DISCRETIONARY AGRICULTURAL PROGRAM* AND S&P 500. ALLOCATION INCREMENTS ARE HYPOTHETICAL AS THE PERCENT ALLOCATION WILL DEPEND ON INDIVIDUAL RISK PREFERENCE.

HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT 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 ACHIEVED BY ANY PARTICULAR TRADING PROGRAM.

ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE OF TRADING LOSSES ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS.

When looking for investments to diversify a portfolio, many individuals seek alternative asset classes that have little or negative correlation to assets within their existing portfolio. The Discretionary Agricultural Program* has very little correlation to equities or fixed income as returns to the Discretionary Agricultural Program* do not necessarily depend on economic prosperity, interest rate movements, or currency stability given that commodities are traded both from the long and short side.

The unique trading methodology implemented by Brock Capital Management LLC also resulted in the Discretionary Agricultural Program* having little correlation to other Commodity Trading Advisors (CTA) and even very little correlation with those CTA's who specialize in agricultural markets. Please see the table below to view the correlation of the Discretionary Agricultural Program* to major indices.

Managed futures funds are distinguishable from many other forms of investment as profit potential may increase during periods of economic uncertainty. Sharp price movements may materialize during periods of instability or economic change (for example: concerted governmental efforts to influence exchange rates, drought, shortages of strategic material, or international political unrest). During these times, the Discretionary Agricultural Program’s ability to capitalize on the movements can become increasingly more likely to develop. Consequently, by investing in the Discretionary Agricultural Program, you can diversify a traditional portfolio and also reduce your dependence on a generally stable world economy on which many other investments depend.

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.

Correlation Matrix of Monthly Returns Since Inception of the Discretionary Agricultural Program
	Discretionary Agricultural Program*	S&P 500	Dow Jones	Barclays CTA	Barclays Ag. Index
Discretionary Agricultural Program*	1.00
S&P 500	-0.07	1.00
Dow Jones	-0.10	0.93	1.00
Barclays CTA	0.02	-0.23	-0.23	1.00
Barclays Ag. Index	0.07	0.08	0.04	0.16	1.00

 

Correlation Matrix of Monthly Returns Since January 2002
	Discretionary Agricultural Program*	S&P 500	Dow Jones	Barclays CTA	Barclays Ag. Index
Discretionary Agricultural Program*	1.00
S&P 500	-0.16	1.00
Dow Jones	-0.21	0.95	1.00
Barclays CTA	-0.01	-0.13	-0.19	1.00
Barclays Ag. Index	-0.08	0.11	0.09	0.16	1.00

* Returns prior to February 2007 are from the Agricultural Program. Managed by Brock Capital Management LLC from June 2005 to January 2007 and previously managed by an affiliated company, Richard A. Brock & Associates, Inc.

**Barclays CTA: A leading industry benchmark of CTA's, published by the Barclays Group.
**Barclays Ag. Index: An equal weighted composite of managed futures program compiled by the Barclays Group.

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.

FUTURES AND OPTION TRADING CAN QUICKLY LEAD TO LARGE LOSSES AS WELL AS GAINS.
SUCH TRADING LOSSES CAN SHARPLY REDUCE YOUR CAPITAL.