Commodities Contracts, Funds & Hybrids (June 21, 1999)

"Would it be possible for you to tell me if the following three items are correct or if not -- direct me to someone who can.

1. Commodities Contracts -- You need to put up as little as 2% to 10% of the value of the underlying commodity contract to get in on the action. "

2. Commodity Funds -- Is there a secondary market?

3. Hybrid Commodity Funds Some brokerage firms offer the chance to take a toe-in-the-water approach to the commodities markets through hybrid instruments that combine a commodities investment with a safe one. Such hybrids may promise you your money back if you stay the course, plus a shot at making big money in the commodities market. Say that you invest $10,000. A hybrid fund may take $6,000 of that to buy US Treasury zero-coupon bonds that return $10,000 in five years at maturity. This means that you're fairly well assured of getting your original investment back if you hold your shares for five years. Your remaining $4,000 goes to a smart commodities manager who may just get you a nice additional profit. The problem with these funds is that they are expensive. One popular offering collects a fee of 6% per year on total net assets?even on funds just sitting there, invested in Treasury zeros. As noted in the fine print in the prospectus, that's equivalent to a 15% annual fee on the $4,000 you have invested in commodities. You could do a lot better on your own by finding a less risky speculation and buying your own T-zero.