Mount Lucas Management Corporation

MLM Index

Program Description The MLM Index is a recognized benchmark of the returns available to a futures investor. It is based on daily closing prices of the nearby contract month of a portfolio of the most active futures markets. Only highly liquid U.S. futures markets are currently included in the Index; the choice of markets for a calendar year is made in the December preceding the start of the year, and markets are not added to or deleted from the Index during the year. If a commodity is traded on more than one futures exchange, only the one with the largest open interest is included in the Index. For example, Chicago Board of Trade wheat has larger open interest thatn Kansas City Board of Trade wheat; consequently, Chicago Board of Trade wheat is included in the Index but Kansas City Board of Trade wheat is not. The monthly rate of return of the Index equals the simple average of the individual market monthly rates of return. The rate of return of an individual market depends on whether the market position is long or short. If the market position is long, then the market monthly rate of return equals the percentage change in the market price during the month, i.e., the market monthly rate of return (%) equals the closing price of the current month divided by the closing price of the prior month, minus 1, times 100. If the position is short, then the market monthly rate of return equals -1 (minus one) times the percentage change in the market price during the month, i.e., the market monthly rate of return equals the closing price of the current month divided by the closing price of the prior month, minus 1, times -100 (minus 100). The market position is long during the current month if the market's closing value of the prior month is greater than or equal to the market's 12-month moving average of closing value; otherwise, the market position is short. In order to assure that the Index is tradable, the next-to-last trading day of each month is used to determine market positions. The market position is then established on the last trading day of the month and is held throughout the coming month. A market's 12-month moving average of closing values is defined as the average of the 12 closing unit asset values for the next-to-last day of the 12 months immediately preceding the beginning of the current calendar month. For example, to find the 12-month moving average for June 1992, first find the unit asset value for the next-to-last trading day of each of the prior 12 months, June 1991 through May 1992. The average of those 12 values equals the 12-month moving average. The value of the MLM Index is computed by compounding the Index monthly rates of return. The beginning value of the Index is defined to be 100 in January 1961. Each month thereafter, the Index is changed by the monthly rate of return. That is, each month's Index value is determined by multiplying the prior month's value by 1 plus the current monthly rate of return.