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Dow Jones - AIG Commodity Index

Overview of Dow Jones - AIG Commodity Index

The Dow Jones - AIG Commodity Index (DJ-AIGCI)®  is composed of futures contracts on 19 physical commodities. Unlike equities, which entitle the holder to a continuing stake in a corporation, commodity futures contracts specify a delivery date for the underlying physical commodity. In order to avoid delivery and maintain a long futures position, nearby contracts must be sold and contracts that have not yet reached the delivery period must be purchased. This process is known as "rolling" a futures position. The DJ-AIGCI is a "rolling index."

The DJ-AIGCI is composed of commodities traded on U.S. exchanges, with the exception of aluminum, nickel and zinc, which trade on the London Metal Exchange (LME). Trading hours for the U.S. commodity exchanges are between 8:00 am and 3:00 pm ET. A daily settlement price for the index is published at approximately 5:00 pm ET.

Component Weightings of the Dow Jones - AIG Commodity Index

Dow Jones AIG Commodity Index
To determine its component weightings, the DJ-AIGCI relies primarily on liquidity data, or the relative amount of trading activity of a particular commodity. Liquidity is an important indicator of the value placed on a commodity by financial and physical market participants. The index also relies to a lesser extent on dollar-adjusted production data. The index thus relies on data that is endogenous to the futures markets (liquidity) and exogenous to the futures markets (production) in determining relative weightings. All data used in both the liquidity and production calculations is averaged over a five-year period.

The component weightings are also determined by several rules designed to insure diversified commodity exposure. Disproportionate weighting of any particular commodity or sector may increase volatility and negate the concept of a broad-based commodity index, unduly subjecting the investor to micro-economic shocks in one commodity or sector. To help insure diversified commodity exposure, the DJ-AIGCI relies on several diversification rules. Among these rules are the following:

* No related group of commodities (e.g., energy, precious metals, livestock and grains) may constitute more than 33% of the index as of the annual reweightings of the components.

* No single commodity may constitute less than 2% of the index.

An Oversight Committee meets annually to determine the composition of the index in accordance with the rules established in the DJ-AIGCI Handbook.  See below for current Dow Jones AIG Commodity Index composition weightings.

Investing in the Dow Jones AIG Commodity Index

Investors may invest in the Dow Jones AIG Commodity Index buy purchasing futures contracts traded on CBOT (Chicago Board of Trade).  Alternatively, they may also purchase Pimco Commodity Real Return Fund, which mimics the returns of the Dow Jones AIG Commodity Index.


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