A Suggested Hedging Strategy for A Changing Market Using ETFs, ETNs, and Closed-end Investment Companies

by

Ronald E. Copley, Phd, CFACopley Investment Management

5025 B Wrightsville Ave, Wilmington, NC 28403E: Ron.Copley@gmail.com

CIIA 10th Anniversary Seminar

The Securities Analysts Association of Japan

November 11, 2010

Presentation Overview

•How the Lehman Brothers bankruptcy changed portfolio management from dealing with risk to dealing with uncertainty

•Copley Investment Management’s Hedge Strategy—an overlay strategy designed to provide insurance to an existing portfolio using newly introduced instruments

Slide 2

Portfolio Management Before and After Crisis

▫ Before crisis, portfolio managers: Assumed measurable risk (i.e. normal distribution) Based decisions on historical data assuming future would look like the past

(mean reversion) Had false impression that they could insure against default using Credit

Default Swaps

▫ After crisis, we learned hard lessons that: Black swan events and six sigma events introduced immeasurable

uncertainty Hedging strategies have become increasingly important

Slide 3

Financial Crisis Overview

•Worst crisis since the Great Depression•Greenspan- Caused by the “Under pricing of risk

worldwide”•Risk management models inability to manage the risk

of the entire financial system breaking down (systematic risk)

Slide 4

Effects of Lehman Failure•Questions that came about:

▫What is the proper role of government? What is the proper amount of regulation? Should government bailout the private sector? What is acceptable level of debt—private and public?

▫Are credit rating agencies truly independent?▫Should the Fed act before or after bubble occurs?▫Is capitalism flawed?

Slide 5

Why Lehman went Bankrupt

•Large positions in subprime mortgages•High Leverage Ratio: 30.7 : 1

▫Small loss in value of the mortgages’ underlying assets destroys their equity

▫Example: Asset decline of only 3-4% would wipe out all equity

Slide 6

Lehman Bankruptcy

•On Sept. 15 2008 Lehman Brothers filed for bankruptcy protection▫DJIA closed down over 500 points (-4.4%)▫Largest point decline since 9/11 attacks at the time

•Largest bankruptcy in U.S. history▫$613 billion

Slide 7

Changes in Portfolio Management

•More defensive and more active•Renewed interest in diversification—searching for

new asset classes

Slide 8

New Risks to Portfolio Managers

• Increased market volatility•Huge budget deficits mean government intrusion in

market•Easy monetary policies of central bank create bubbles•Potential inflation/deflation•Potential Stagflation

Slide 9

Reasons for Increased Volatility in U.S.• Austerity measures in Europe• Weak housing market and persistently high unemployment• Increase in Government spending offset by decrease in

Consumer spending—net effect: decrease in aggregate demand

• China slowing growth in order to reduce inflationary pressures• Possible Stagflation—higher interest rates necessary to attract

international investors will choke off recovery

Slide 10

Keynes on Unemployment

Slide 11

US is following Keynesian Approach in Fighting Unemployment

•Very loose monetary policy has driven interest rates down to historic lows

•Aggressive fiscal policy stimulus used to complement monetary policy expansion

Goal: To increase confidence of employers and consumers

Slide 12

Problems with Keynesian Approach• Major problems:

▫When should Fed withdrawal excess liquidity from market in order to avoid inflation down the road?

▫How will Government retire huge debt without inflating?

▫Is Government’s objective to redistribute wealth as opposed to generating growth?

Many investors view Governmental intervention as increasing uncertainty as opposed to reducing it.

Slide 13

Problems with Keynesian Approach•Other problems:

▫Government crowds out private sector▫Politicians cannot be trusted to reduce deficits once

economy recovers▫Moral Hazard from Bailout policies▫General distrust of Big Government infringing on

personal freedoms

Slide 14

CIM’s Hedging Strategy

• Creates a defensive strategy to protect a client’s portfolio against increasing uncertainty from macro factors

• Uses new instruments (ETFs and ETNs) coupled with Closed end Investment Companies

• Gives clients the benefits of a hedge fund, without the excessive costs and lack of liquidity

See Appendix for a complete list of ETFs, ETNs and CEFs we use in creating hedging strategy.

Slide 15

Risks of Hedging Strategy• Incorrect Timing

▫ The strategy could be right but the timing wrong• Excessive Global Capacity

▫Constrains inflation; allows central bank to keep interest rates low possibly for many years

• Opportunity Cost▫Missed positive returns in global equity markets

• Low Trading Volume of selected securities▫Hard to buy and sell large quantities

Slide 16

What is an Exchange Traded Fund (ETF)?

An Exchange Traded Fund (ETF):▫Tracks an index of assets▫Trades like a stock on an exchange▫Arbitrage prevents premiums and discounts by creating

new ETF units or redeeming old ETF units depending on demand

Slide 17

What is an iPath Exchange Traded Notes (ETNs)?

An iPath ETN is:▫Senior, unsecured, unsubordinated debt securities▫A way for investors to access the returns of market

benchmarks at a low cost▫Traded on an exchange and can be shorted ▫Similar to an ETF—no premiums or discounts

Slide 18

What is a Closed-end Investment Company?

•A Closed-end Investment Company:▫Has a fixed number of shares outstanding▫Does not redeem shares the way a typical mutual fund does▫Shares trade on a stock exchange▫Fund is not obligated to issue new shares or

redeem outstanding shares like an ETF or ETN▫Price of a share driven by market demand—shares can trade

either at a discount or a premium

Slide 19

Benefits of ETFs and ETNs

• Good liquidity in carefully selected funds• Allows for investment in specific indexes of stocks, bonds or

commodities• Close to 1,000 listed ETFs in the U.S. and growing• Lower cost than traditional mutual funds

▫Gaining market share at the expense of open-ended funds▫Have tax advantages relative to mutual funds—an ETF is a

swap

Slide 20

Asset Allocation (for illustration purposes only)

• Commodities (40%)—ETFs and ETNs▫Agriculture (10%)▫Metals (30%)▫Energy (10%)

• Currencies (40%)--ETFs▫Emerging Markets (30%)▫Developed Markets (20%)

• Floating Rate Senior Bank Loans (20%)—Closed End Investment Companies

Slide 21

Commodities-Agriculture

• Possible Investments (Soybeans, Corn, Wheat):▫ETF: DBA--tracks performance of futures

contracts corn, wheat, soybeans and sugar.

 ETN: JJA--tracks performance of futures contracts on soybeans, corn, wheat, cotton, soybean oil, coffee and sugar.

Slide 22

Commodities-Precious Metals

•Broad Precious Metal Investments: JJP—unleveraged gold and silver futures contracts

•Gold: GLD—replicates the price of gold •Silver: SLV—reflects the price of silver •Platinum: PGM—unleveraged platinum futures

contracts

Slide 23

Commodities-Energy

•Oil, Natural Gas, Alternative Energy: XLE-includes companies from the oil, gas, energy equipment & services industries

•Oil: OIL- seeks returns of unlevered investment in Goldman Sachs Crude Oil Return index plus T-bill rate of interest

•Natural Gas: GAZ- seeks to replicate performance of the Dow Jones-UBS Natural Gas Total Return Sub-Index.

Slide 24

Benefit of Diversification with Commodities

Slide 25

Historical Returns (%)

Slide 26

Currencies• Emerging Market Currencies

▫Chinese Yuan: CYB (long) ▫ Indian Rupee: ICN (long) ▫Mexican Peso: FXM (long) ▫Russian Ruble: XRU (long)

• Developed Market Currencies▫Euro: DRR (Short) ▫US Dollar: UDN (bearish) ▫UUP (bullish) ▫ Jpn Yen: JYN (long) ▫British Pound: GBB (long)

Slide 27

Currencies

Slide 28

Floating Rate Senior Bank Loans• Perform well when the economy is improving and credit

spreads are tightening• Benefits

▫Good hedge against rising interest rates Yields rise along with rates in broader market

▫Higher default recovery rate than high-yield bonds• Risks - High Credit Risk• Closed - End Investment Companies:

• Eaton Vance Senior Income Trust (EVF) • Nuveen Senior Income Fund (NSL)

Slide 29

Comparison of a Hedge Fund with CIM’s Hedging Strategy

Slide 30

Conclusions

• The Lehman Brothers bankruptcy changed portfolio management toward greater defensiveness due to greater market volatility

• CIM’s hedge strategy seeks to provide a measure of protection against market volatility—the strategy is low risk but not no risk

ご清聴ありがとうございましたSlide 31

Sources1. ANDERSON, JENNY. "For Lehman, More Cuts and Anxiety - NYTimes.com." The New York Times - Breaking News, World News & Multimedia.

N.p., 28 Aug. 2008. Web. 9 July 2010. <http://www.nytimes.com/2008/08/29/business/29wall.html?em>.

2. Benjamin, Jeff. "Time to look at alternative mutual funds." Investment News Jun. - Jul. 2010: 5, 39. Print.

3. Blinder, Alan. "Keynesian Economics: The Concise Encyclopedia of Economics | Library of Economics and Liberty." Library of Economics and Liberty. N.p., n.d. Web. 22 July 2010. <http://www.econlib.org/library/Enc/KeynesianEconomics.html

4. Campbell, Ryan. "The Volatility Index: Reading Market Sentiment." Investopedia.com - Your Source For Investing Education. N.p., n.d. Web. 10 July 2010. http://www.investopedia.com/articles/optioninvestor/09/implied-volatility-contrary-indicator.asp.

5. "Charts and Price Projections ." 2010 U.S. and World Agricultural Outlook. Food and Agricultural Policy Research Institute, n.d. Web. 18 July 2010. <www.fapri.iastate.edu/outlook/2009/text/3ChartsPriceProjections.pdf

6. CUI, CAROLYN. "New ETF Focuses on Lithium and Battery Makers ." The Wall Street Journal - WSJ.com. N.p., 18 July 2010. Web. 21 July 2010. <http://online.wsj.com/article/SB10001424052748704229004575371651065871956.html?mod=WSJ_hpp_sections_business

7. Dow Jones Industrial Average: INDEXDJX:.DJI quotes & news - Google Finance." Google. N.p., n.d. Web. 14 July 2010. http://www.google.com/finance?chdnp=1&chdd=1&chds=1&chdv=1&chvs=maximized&chdeh=0&chfdeh=0&chdet=1230325200000&chddm=98923&chls=IntervalBasedLine&q=INDEXDJX:.DJI&ntsp=0.

8. "Effective demand ." Wikipedia, the free encyclopedia. N.p., n.d. Web. 22 July 2010. <http://en.wikipedia.org/wiki/EffectiveSlide 32

Sources9. El-Erian, Mohamed . "PIMCO - Secular Outlook May 2009 El-Erian." PIMCO. N.p., n.d. Web. 23 July 2010.

<http://www.pimco.com/LeftNav/PIMCO+Spotlight/2009/Secular+Outlook+May+2009+El-Erian.htm>.

10. "farmdoc - Management - US Price History ." farmdoc : Farm Decision Outreach Central, University of Illinois at Urbana-Champaign. N.p., n.d. Web. 15 July 2010. <http://www.farmdoc.illinois.edu/manage/uspricehistory/us_price_history.html>.

11. "Fed Funds Target Rate History (Historical)." Prime Rate. N.p., n.d. Web. 7 July 2010. http://www.wsjprimerate.us/fedfundsrate/federal_funds_rate_history.htm.

12. Gorenstein, Peter. "mish say no to stocks because optimism is "insane": Tech Ticker, Yahoo! Finance." Yahoo! Finance - Business Finance, Stock Market, Quotes, News. N.p., 9 July 2010. Web. 10 July 2010. <http://finance.yahoo.com/tech-ticker/mish-say-no-to-stocks-because-optimism-is-%22insane%22-518098.html?tickers=tlt,gld,spy,%5Egspc,%5Edji,qqqq&sec=topstories&pos

13. "Historical Crude Oil Prices Table." Inflation Data.com. N.p., n.d. Web. 23 July 2010. <http://inflationdata.com/inflation /inflation_rate/historical_oil_prices_table.asp

14. "Ibbotson Commodity Study." PIMCO. N.p., 27 Mar. 2006. Web. 21 July 2010. <http://www.pimco.com/LeftNav/Viewpoints/2006/Ibbotson+Commodity+Study.htm

15. "Is Gold really an Inflation hedge?." Inflation Data.com. N.p., 24 June 2010. Web. 14 July 2010. <http://inflationdata.com/inflation

16. "Item 6. Selected financial data." Lehman Brothers Holdings Inc. 10-K. United States Securities and Exchange Commission, 29 Jan. 2008. Web. 9 July 2010. <http://www.secinfo.com/d11MXs.t5Bb.htm#_item6_selectedfinancialdata_003911>.

Slide 33

Sources17. Jackson, David . "Build Your Own Hedge Fund, Part II: A Long-Short Portfolio With IVV, XLI, XLK and XLY -- Seeking Alpha." Seeking

Alpha. N.p., 17 May 2005. Web. 21 July 2010. <http://seekingalpha.com/article/592-build-your-own-hedge-fund-part-ii-a-long-short-portfolio-with-ivv-xli-xlk-and-xly>.

18. "Low interest rates: do the risks outweigh the rewards?." Bank for International Settlements. N.p., 28 June 2010. Web. 23 July 2010. <http://www.bis.org/publ/arpdf/ar2010e3.htm)

19. Lydon, Tom. "AdvisorShares Debuts Active ETF with a Twist ." ETF Trends. N.p., n.d. Web. 23 July 2010. <http://www.etftrends.com/2010/07/advisorshares-debuts-active-etf-twist/>.

20. Mamudi, Sam. "Lehman folds with record $613 billion debt - MarketWatch." MarketWatch - Stock Market Quotes, Business News, Financial News. N.p., 15 Sept. 2008. Web. 9 July 2010. http://www.marketwatch.com/story/lehman-folds-with-record-613-billion-debt?siteid=rss.

21. Serchuk, David . "We're Not Japan ." Forbes.com . N.p., 8 Oct. 2009. Web. 23 July 2010. <http://www.forbes.com/2009/10/08/usa-japan-recession-intelligent-investing-deflation.html>.

22. Skidelsky, Robert. Keynes: The Return of the Master. New York: PublicAffairs, 2009. Print. Pgs xii-xv, 111-112

23. "Stock-Encyclopedia.com ." ETF Guide. N.p., n.d. Web. 23 July 2010. <http://etf.stock-encyclopedia.com>.

24. "The Global Savings Glut and the U.S. Current Account Deficit." The Federal Reserve Board. N.p., 10 Mar. 2005. Web. 20 July 2010. <www.federalreserve.gov/boarddocs/speeches/2005/200503102/ >.

Slide 34

Sources25. "U.S. Bureau of Labor Statistics." Databases, Tables & Calculators by Subject. N.p., n.d. Web. 22 July 2010.

<http://data.bls.gov/PDQ/servlet/SurveyOutputServlet

26. VIX - CBOE Volatility Index." Investopedia.com - Your Source For Investing Education. N.p., n.d. Web. 10 July 2010. http://www.investopedia.com/terms/v/vix.asp.

27. Waggoner, John. "Fears of inflation, or worse, fuel gold price rise. But wait. - USATODAY.com." News, Travel, Weather, Entertainment, Sports, Technology, U.S. & World - USATODAY.com. USA Today, 25 June 2010. Web. 14 July 2010.

28. Yearly Gold Prices Since 1793." Gold Coins- Gold Information Network. N.p., n.d. Web. 23 July 2010. <http://goldinfo.net/yearly.html

29. ZWEIG, JASON. "The Intelligent Investor: Should You Bet on Rising Risk? - WSJ.com." Business News & Financial News - The Wall Street Journal - WSJ.com. N.p., n.d. Web. 5 July 2010. http://online.wsj.com/article/SB10001424052748704699604575342911446889540.html.

30. "^DJI: Basic Chart for Dow Jones Industrial Average - Yahoo! Finance." Yahoo! Finance . N.p., n.d. Web. 23 July 2010. <http://finance.yahoo.com/q/bc?s=%5EDJI&t=2y&l=on&z=m&q=l&c=>.

Slide 35

Selected ETFs• PowerShares DB Agriculture (DBA): seeks to track the price and yield performance, before fees and expenses, of the Deutsche Bank Liquid

Commodity Index - Optimum Yield Agriculture Excess Return. The index is a rules-based index composed of futures contracts on some of the most liquid and widely traded agricultural commodities – corn, wheat, soy beans and sugar. The index is intended to reflect the performance of the agricultural sector.

• SPDR Gold Shares (GLD): seeks to replicate the performance, net of expenses, of the price of gold bullion. The trust holds gold, and is expected to issue baskets in exchange for deposits of gold, and to distribute gold in connection with redemption of baskets. The gold held by the trust will only be sold on an as-needed basis to pay trust expenses, in the event the trust terminates and liquidates its assets, or as otherwise required by law or regulation.

• Ultra Gold ProShares (UGL): will seek to replicate, net of expenses, twice the performance of gold bullion as measured by the U.S. Dollar p.m. fixing price for delivery in London. The fund normally invests assets in financial instruments with economic characteristics twice the return of the index. It may employ leveraged investment techniques in seeking its investment objective.

• iShares Silver Trust (SLV): objective of the investment is to reflect the price of silver owned by the trust less the trust's expenses and liabilities. The fund is intended to constitute a simple and cost-effective means of making an investment similar to an investment in silver. Although the fund is not the exact equivalent of an investment in silver, they provide investors with an alternative that allows a level of participation in the silver market through the securities market.

Slide 36

Selected ETFs• PowerShares DB Precious Metals (DBP): seeks to track the price and yield performance, before fees and expenses, of the Deutsche Bank Liquid

Commodity Index - Optimum Yield Precious Metals Excess Return. The index is a rules-based index composed of futures contracts on two of the most important precious metals—gold and silver. The index is intended to reflect the performance of the precious metals sector.

• Ultra Silver ProShares (AGQ): will seek to replicate, net of expenses, twice the performance of silver bullion as measured by the U.S. Dollar fixing price for delivery in London. The fund normally invests assets in financial instruments with economic characteristics twice the return of the index. It may employ leveraged investment techniques in seeking its investment objective.

• Energy Select Sector SPDR (XLE): includes companies from the following industries: oil, gas, energy equipment & services. The fund will normally invest at least 95% of its total assets in common stocks that comprise the relevant Select Sector Index. The Funds have adopted a policy that requires each fund to provide shareholders with at least 60 days notice prior to any significant material change in a fund's policy or its underlying index. It is nondiversified.

• iShares Dow Jones US Energy (IYE): seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the Dow Jones U.S. Oil & Gas index. The fund uses a representative sampling strategy to try to track the index. The index measures the performance of the oil and gas sector of the U.S. equity market. The index includes companies in the following sectors: oil and gas producers and oil equipment, services and distribution. It is nondiversified.

Slide 37

Selected ETFs• iShares S&P Global Energy (IXC): seeks investment results that correspond closely to the performance, before fees and expenses, of the S&P Global

Energy Sector index. The fund generally invests at least 90% of assets in securities of the underlying index and in depositary receipts representing securities of the underlying index. It may invest the remainder of assets in securities not included in the underlying index but which the Advisor believes will help the fund track the underlying index. The fund is nondiversified.

• Oil Services HOLDRs (OIH): seeks to diversify your investments in the oil service industry through a single, exchange-listed instrument representing your undivided beneficial ownership of the underlying securities. The investment holds shares of common stock issued by specified companies that, when initially selected, were involved in the oil service industry. Except when a reconstitution event, distribution of securities by an underlying issuer or other event occurs, the group of companies will not change. There are currently 18 companies included in the investment.

• Ultra Oil & Gas ProShares (DIG): seeks daily investment results, before fees and expenses, which correspond to twice the daily performance of the Dow Jones U.S. Oil & Gas index. The fund normally invests 80% of assets in financial instruments with economic characteristics that should be twice the return of the index. It may employ leveraged investment techniques in seeking its investment objective. The fund is nondiversified.

• SPDR S&P Oil & Gas Exploration & Prod (XOP): seeks to replicate as closely as possible, before expenses, the performance of an index derived from the oil and gas exploration and production segment of a U.S. total market composite index. The fund uses a passive management strategy to track the total return performance of the S&P Oil & Gas Exploration & Production Select Industry index. The index is derived from the oil and gas exploration and production portion of the S&P Total Market index. It is an equal weighted market cap index. The fund is nondiversified.

Slide 38

Selected ETFs• PowerShares DB Silver (DBS): seeks to track the price and yield performance, before fees and expenses, of the Deutsche Bank Liquid Commodity

Index - Optimum Yield Silver Excess Return. The index is a rules-based index composed of futures contracts on silver and is intended to reflect the performance of silver.

• Vanguard Energy ETF (VDE): seeks to track the performance of a benchmark index that measures the investment return of energy stocks. The fund employs a passive management investment approach to track the performance of the MSCI US Investable Market Energy Index, an index made up of stocks of large, medium-size, and small U.S. companies within the energy sector. The sector includes the construction or provision of oil rigs, drilling equipment, and other energy-related equipment and services; or companies engaged in the exploration, production, marketing, refining, and/or transportation of oil and gas products. It is non diversified.

• WisdomTree Dreyfus Chinese Yuan (CYB): seeks to achieve total returns reflective of both money market rates in China available to foreign investors and changes in value of the Chinese Yuan relative to the U.S. dollar. The fund normally invests in a combination of U.S. money market securities with forward currency contracts and currency swaps which is designed to create a position economically similar to money market securities denominated in Chinese Yuan. The average portfolio maturity is 90 days or less. It does not purchase any money market securities with a remaining maturity of more than 397 calendar days. The fund is non diversified.

• sWisdomTree Dreyfus Indian Rupee (ICN): seeks to achieve total returns reflective of both money market rates in India available to foreign investors and changes in value of the Indian Rupee relative to the U.S. dollar. The fund normally invests in a combination of U.S. money market securities with forward currency contracts and currency swaps which are designed to create a position economically similar to money market securities denominated in Indian Rupee. The average portfolio maturity is 90 days or less. It does not purchase any securities with a remaining maturity of more than 397 calendar days. The fund is non diversified.

Slide 39

Selected ETFs• CurrencyShares Mexican Peso Trust (FXM): seeks to track the price of the Mexican Peso, net of trust expenses. The fund seeks to reflect the price of

the Mexican Peso. The sponsor believes that, for many investors, the shares represent a cost-effective investment relative to traditional means of investing in the foreign exchange market. The fund is nondiversified.

• CurrencyShares Russian Ruble Trust (XRU): seeks to replicate, net of expenses, the price of the Russian Ruble.

• WisdomTree Dreyfus Japanese Yen (JYF): seeks to earn current income reflective of money market rates in Japan available to foreign investors and seeks to maintain liquidity and preserve capital measured in Japanese Yen. The fund normally invests in very short-term, investment grade money market securities denominated in Japanese Yen with a weighted average maturity of 60 days or less and does not purchase securities with a remaining maturity of more than 397 calendar days. It is nondiversified.

• CurrencyShares British Pound Sterling Tr (FXB): seeks to track the price of the British Pound Sterling, net of trust expenses. The fund seeks to reflect the price of the British Pound Sterling. The sponsor believes that, for many investors, the shares represent a cost-effective investment relative to traditional means of investing in the foreign exchange market. The fund is nondiversified.

Slide 40

Selected ETFs• PowerShares DB US Dollar Index Bearish (UDN): seeks to track the price and yield performance, before fees and expenses, of the Deutsche Bank

Short US Dollar Futures index. The index is comprised solely of short futures contracts. The futures contract is designed to replicate the performance of being short the US Dollar against the Euro, Japanese Yen, British Pound, Canadian Dollar, Swedish Krona and Swiss Franc.

• PowerShares DB US Dollar Index Bullish (UUP): seeks to track the price and yield performance, before fees and expenses, of the Deutsche Bank Long US Dollar Futures index. The index is comprised solely of long futures contracts. The futures contract is designed to replicate the performance of being long the US Dollar against the Euro, Japanese Yen, British Pound, Canadian Dollar, Swedish Krona and Swiss Franc.

• CurrencyShares Euro Trust (FXE): seeks to track the price of the Euro, net of trust expenses. The fund seeks to reflect the price of the Euro. The sponsor believes that, for many investors, the shares represent a cost-effective investment relative to traditional means of investing in the foreign exchange market.

Slide 41

Selected ETNs• iPath Dow Jones UBS Agriculture (JJA): seeks results that correspond generally to the price and yield performance, before fees and expenses, of the

Dow Jones-UBS Agriculture Total Return Sub-Index. The note is designed to reflect the performance of agricultural commodities. The index is composed of seven futures contracts: soybeans, corn, wheat, cotton, soybean oil, coffee and sugar.

• UBS E-TRACS CMCI Agriculture TR ETN (UAG): seeks to track the price and performance yield, before fees and expenses, of the UBS Bloomberg CMCI Agriculture Total Return index. The fund is designed to be representative of the entire liquid forward curve of each commodity in the index. The index measures the collateralized returns from a diversified basket of agriculture futures contracts. It is comprised of the 12 agriculture futures contracts included in the CMCI with three target maturities for each individual commodity.

• UBS E-TRACS CMCI Food TR ETN (FUD): seeks to track the price and performance yield, before fees and expenses, of the UBS Bloomberg CMCI Food Total Return index. The fund is designed to be representative of the entire liquid forward curve of each commodity in the index. The index measures the collateralized returns from a diversified basket of agriculture and livestock futures contracts. It is comprised of the 11 agriculture futures contracts and two livestock futures contracts included in the CMCI with three target maturities for each individual commodity.

• ELEMENTS Rogers Intl Commodity Agri ETN (RJA): seeks to replicate, net of expenses, the Rogers International Commodity Index – Agriculture Total Return index. The index represents the value of a basket of 20 agricultural commodity futures contracts.

Slide 42

Selected ETNs• iPath DJ-UBS Prec Metals TR Sub-Idx ETN (JJP): seeks to replicate, net of expenses, the Dow Jones-UBS Precious Metals Total Return Sub-Index.

The index is intended to reflect the returns that are potentially available through an unleveraged investment in gold and silver futures contracts as well as the rate of interest that could be earned on cash collateral invested in specified Treasury Bills..

• UBS E-TRACS S&P 500 Gold Hedged Idx ETN (SPGH): seeks to simulate the combined returns of investing equal dollar amounts in the S&P 500 Total Return Index and long positions in near-term exchange-traded COMEX gold futures contracts, providing exposure to U.S. large-cap equities along with a potential hedge against periodic declines in the value of the U.S. dollar, as expressed in the corresponding increases in the price of gold.

• PowerShares DB Agriculture Dble Long ETN (DAG): seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the Deutsche Bank Liquid Commodity index - Optimum Yield Agriculture. The fund is a senior unsecured obligation that allows investors to take a leveraged view on the performance of the agriculture sector. The index is composed of roughly equal percentages of corn, wheat, soybean, and sugar futures contracts.

• PowerShares DB Agriculture Long ETN (AGF): seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the Deutsche Bank Liquid Commodity index - Optimum Yield Agriculture. The fund is a senior unsecured obligation. The index is composed of roughly equal percentages of corn, wheat, soybean, and sugar futures contracts.

Slide 43

Selected ETNs• PowerShares DB Gold Double Long ETN (DGP): seeks to replicate, net of expenses, twice the daily performance of the Deutsche Bank Liquid

Commodity index - Optimum Yield Gold Excess Return. The index is intended to reflect changes in the market value of certain gold futures contracts and is comprised of a single unfunded gold futures contract.

• UBS E-TRACS CMCI Silver TR ETN (USV): seeks to track the price and performance yield, before fees and expenses, of the UBS Bloomberg CMCI Silver Total Return index. The fund is designed to be representative of the entire liquid forward curve of the silver contracts. The index measures the collateralized returns from a basket of silver futures contracts. It is comprised of the silver futures contracts included in the CMCI with five target maturities.

• iPath DJ-UBS Platinum TR Sub-Idx ETN (PGM): seeks to replicate, net of expenses, the Dow Jones-UBS Platinum Total Return Sub-Index The index is intended to reflect the returns that are potentially available through an unleveraged investment in platinum futures contracts as well as the rate of interest that could be earned on cash collateral invested in specified Treasury Bills.

• iPath DJ-UBS Energy TR Sub-Idx ETN (JJE): seeks results that correspond generally to the price and yield performance, before fees and expenses, of the Dow Jones-UBS Energy Total Return Sub-Index. The note is designed to reflect the performance of energy-related commodities. The index is composed of four futures contracts: crude oil, heating oil, natural gas and unleaded gasoline.

Slide 44

Selected ETNs• iPath S&P GSCI Crude Oil Ttl Ret Idx ETN (OIL): is linked to the performance of the Goldman Sachs Crude Oil Return Index and reflects the returns

that are potentially available through an unleveraged investment in the futures contacts comprising the index plus the Treasury Bill rate of interest that could be earned on funds committed to the trading of the underlying contracts. The index is derived from the West Texas Intermediate (WTI) crude oil futures contract traded on the New York Mercantile Exchange. The fund is nondiversified.

• UBS E-TRACS Long Platinum TR ETN (PTM): seeks to replicate, net of expenses, the UBS Bloomberg CMCI Platinum Total Return Index. The index measures the collateralized returns from platinum futures contracts. It is designed to be representative of the entire liquid forward curve of platinum contracts. The index, which is rebalanced monthly, is comprised of the platinum futures contracts eligible for inclusion in the CMCI with a single target maturity of three months.

• iPath DJ-UBS Natural Gas TR Sub-Idx ETN (GAZ): seeks results that correspond generally to the price and yield performance, before fees and expenses, of the Dow Jones-UBS Natural Gas Total Return Sub-Index. The note is designed to reflect the performance of natural gas. The index is composed of the Henry Hub Natural Gas futures contract traded on the New York Mercantile Exchange.

• Market Vectors Double Short Euro ETN (DRR): seeks to replicate, net of expenses, the Double Short Euro Index. As the index is two-times leveraged, for every 1% weakening of the euro relative to the U.S. dollar, the level of the index will generally increase by 2%, while for every 1% strengthening of the euro relative to the U.S. dollar, the index will generally decrease by 2%.

Slide 45

Selected ETNs• iPath JPY/USD Exchange Rate ETN (JYN): seeks to track the price and yield performance, net of expenses, of the Japanese Yen/U.S. dollar exchange

rate.

• iPath GBP/USD Exchange Rate ETN (GBB): seeks to track the price and yield performance, net of expenses, of the British Pound/U.S. dollar exchange rate.

• ETFS Physical Silver Shares (SIVR): holds silver bullion and issues shares in exchange for deposits of silver and distributes silver in connection with the redemption of Baskets.

• ETFS Physical Swiss Gold Shares (SGOL): objective of the Trust is for the Shares to reflect the performance of the price of gold bullion, less the expenses of the Trust’s operations

Slide 46

Selected Closed-End Investment Funds

• Eaton Vance Senior Income Trust (EVF): is a closed-ended fixed income mutual fund launched and managed by Eaton Vance Management. The fund invests in the fixed income markets of the United States. It seeks to invest in the securities of companies operating across the diversified sectors. The fund primarily invests in senior secured floating rate loans. It benchmarks the performance of its portfolio against the S&P/LSTA Leveraged Loan Index. Eaton Vance Senior Income Trust was formed on October 30, 1998 and is domiciled in the United States.

• Nuveen Senior Income Fund (NSL): is a close ended fixed income mutual fund launched by Nuveen Investments, Inc. It is co-managed by Nuveen Asset Management and Symphony Asset Management LLC. The fund invests in fixed income markets of the United States. It primarily invests in adjustable rate senior secured loans. Nuveen Senior Income Fund was formed on October 26, 1999 and is domiciled in the United States.

Slide 47