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The primary driver of commodity returns over the past seven years has been the imbalance between global supply and demand for commodities.
After the Technology Bubble ended in 2000, commodities began to experience a major bull run. This rise in commodity prices has been driven by factors including:
* Economists continue to debate whether this bull run is part of a short-term market cycle or the beginning of a secular trend that could drive commodity prices for a longer time period.
Over the seven-year period ended May 31, 2007, the aggregate return (not annualized) of the S&P GSCI™ Total Return Index was 69% and the Dow Jones AIG Commodity IndexSM - Total Return was 108% compared to 21% for the S&P 500®. (see below)
* The performance of commodities as an asset class is often measured by the returns on a commodity index. We use the S&P Goldman Sachs Commodities Index Total Return and the Dow Jones AIG Commodity IndexSM - Total Return. These indices track returns from passive investments in commodity futures contracts.
* Commodities have also experienced periods of underperformance. For example, during the Technology Bubble of the late 1990's, commodities significantly underperformed equity indices such as the S&P 500®. In addition, commodities also underperform equities during periods preceding the Technology Bubble.
Commodities have experienced and may continue to experience significant short-term and long-term price volatility. Past performance is no guarantee of future results.