POS AM to Form S-1
As filed with the Securities and Exchange Commission on December 8, 2014
Registration No. 333-193222
Registration No. 333-193222-01
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 1 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
POWERSHARES DB
MULTI-SECTOR COMMODITY TRUST
(Registrant)
POWERSHARES DB SILVER FUND
(Co-Registrant)
(Exact name of registrant as specified in its charter)
|
|
|
|
|
| Delaware |
|
6799 |
|
87-0778053 (Trust) |
| (State of Organization) |
|
(Primary Standard Industrial
Classification Code Number) |
|
(I.R.S. Employer
Identification Number) |
|
|
|
| c/o DB Commodity Services LLC
60 Wall Street New York, New York 10005 (212) 250-5883 |
|
|
|
Martin Kremenstein c/o DB Commodity Services LLC 60 Wall Street
New York, New York 10005 (212) 250-8779 |
| (Address, including zip code, and telephone number including area code, of registrant’s principal
executive offices) |
|
|
|
(Name, address, including zip code, and telephone number, including area code, of agent for service) |
Copies to:
Michael J. Schmidtberger, Esq.
James C. Munsell, Esq.
Sidley Austin LLP
787 Seventh Avenue
New York, New York 10019
Approximate
date of commencement of proposed sale to the public:
As promptly as practicable after the effective date of this
Registration Statement.
If any of the securities being registered on this Form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. x
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same offering. ¨
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. ¨
If this
Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same
offering. ¨
Indicate by check mark whether the registrant is a
large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in
Rule 12b-2 of the Exchange Act.
|
|
|
|
|
|
|
| Large accelerated filer ¨ |
|
Accelerated filer ¨ |
|
Non-accelerated filer ¨ |
|
Smaller reporting company x |
|
|
|
|
(Do not check if a smaller
reporting company) |
|
|
The registrant hereby amends this Registration Statement on such date or dates as may be necessary to
delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act or until this
Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
EXPLANATORY NOTE
This Post-Effective Amendment No. 1 to the Registration Statement is being filed in anticipation of a change in control of the
registrant, PowerShares DB Multi-Sector Commodity Trust, or the Trust, a Delaware statutory trust organized in seven separate series, one of which, Powershares DB Silver Fund, or the Fund, is offered pursuant to this Registration Statement. As of
the date of this filing, DB Commodity Services LLC, or DBCS, is the managing owner of the Trust and the Fund. DBCS, DB U.S. Financial Markets Holding Corporation and Invesco PowerShares Capital Management LLC, or Invesco, entered into an Asset
Purchase Agreement, or the Agreement dated as of October 24, 2014. Pursuant to the Agreement, DBCS has agreed to transfer and sell to Invesco all of DBCS’ interest in the Trust and the Fund, including the sole and exclusive power to direct
the business and affairs of the Trust and the Fund, as well as certain other assets pertaining to the management of the Trust and the Fund, pursuant to the terms and conditions of the Agreement, or the Transaction. Upon consummation of the
Transaction, Invesco will become the managing owner, commodity pool operator and commodity trading advisor of the Trust and each Fund, in replacement of DBCS.
The registrant expects that it will request the Commission to declare this Registration Statement effective shortly after consummation of the Transaction. Accordingly, the information contained in this
Registration Statement (including the Prospectus that forms a part of this Registration Statement) assumes the consummation of the Transaction.
The information in this Prospectus is not complete and may be changed. We may not sell these
securities until the registration statement filed with the Securities and Exchange Commission is effective. This Prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any jurisdiction where the
offer or sale is not permitted.
Subject to completion, dated December 8, 2014.
POWERSHARES DB MULTI-SECTOR COMMODITY TRUST
|
|
|
|
|
| PowerShares DB Silver Fund |
|
39,000,000 |
|
Common Units of Beneficial Interest |
PowerShares DB Multi-Sector Commodity Trust, or the Trust, is organized in seven separate
series as a Delaware statutory trust, one of which is offered pursuant to this Prospectus. PowerShares DB Silver Fund, or the Fund, is a series of the Trust. The Fund issues common units of beneficial interest, or Shares, which represent units of
fractional undivided beneficial interest in and ownership of the Fund.
Authorized Participants may sell the Shares they
purchase from the Fund in blocks of 200,000 Shares, called Baskets, to other investors at prices that are expected to reflect, among other factors, the trading price of the Fund’s Shares on the NYSE Arca, Inc., or the NYSE Arca, and the supply
of and demand for Shares of the Fund at the time of sale and are expected to fall between net asset value and the trading price of the Shares of the Fund on the NYSE Arca at the time of sale.
The Shares trade on the NYSE Arca under the symbol “DBS.”
The Fund trades exchange-traded futures contracts on silver, which is the single commodity that comprises the DBIQ Optimum
Yield Silver Index Excess Return™, or the Index, with a view to tracking the Index over time. The Fund also earns interest income from United States Treasury and other high credit quality
short-term fixed income securities.
Silver is the single underlying commodity underlying the Index, or Index Commodity. The
Index intends to reflect the silver sector.
The common units of beneficial interest of five other series of the Trust,
PowerShares DB Energy Fund, PowerShares DB Oil Fund, PowerShares DB Precious Metals Fund, PowerShares DB Gold Fund and PowerShares DB Base Metals Fund, are offered pursuant to a separate and common prospectus. The common units of beneficial interest
of the seventh series of the Trust, PowerShares DB Agriculture Fund, are offered pursuant to a separate prospectus.
Except
when aggregated in Baskets, the Shares are not redeemable securities.
Invesco PowerShares Capital Management LLC serves
as the Managing Owner, commodity pool operator and commodity trading advisor of the Fund.
INVESTING IN THE
SHARES INVOLVES SIGNIFICANT RISKS.
PLEASE REFER TO “THE RISKS YOU FACE” BEGINNING ON PAGE 18.
| • |
|
Futures trading is volatile and even a small movement in market prices could cause large losses. |
| • |
|
The success of the Fund’s trading program depends upon the skill of the Managing Owner and its trading principals. |
| • |
|
You could lose all or substantially all of your investment.
|
| • |
|
The Index is highly concentrated in a single commodity. Concentration may result in greater volatility. |
| • |
|
Investors pay fees in connection with their investment in the Shares, including asset-based fees of 0.75% per annum. Additional charges include
brokerage fees of approximately [0.04]% per annum in the aggregate. |
Authorized
Participants may offer to the public, from time-to-time, Shares from any Baskets they create. Shares offered to the public by Authorized Participants will be offered at a per-Share offering price that will vary depending on, among other factors, the
trading price of the Shares on the NYSE Arca, the net asset value per Share and the supply of and demand for the Shares at the time of the offer. Shares initially comprising the same Basket but offered by Authorized Participants to the public at
different times may have different offering prices. Authorized Participants will not receive from the Fund, the Managing Owner or any of their affiliates, any fee or other compensation in connection with their sale of Shares to the public.
An Authorized Participant may receive commissions or fees from investors who purchase Shares through their commission or
fee-based brokerage accounts. In addition, the Managing Owner pays a distribution services fee to ALPS Distributors, Inc. and pays a marketing services fee to Deutsche Bank Securities Inc. without reimbursement from the Trust or the Fund. For more
information regarding items of compensation paid to FINRA members, please see the “Plan of Distribution” section on page [97].
These securities have not been approved or disapproved by the Securities and Exchange Commission or any state securities commission nor has the Securities and Exchange Commission or any state
securities commission passed upon the accuracy or adequacy of this Prospectus. Any representation to the contrary is a criminal offense. The Fund is not a mutual fund or any other type of investment company within the meaning of the Investment
Company Act of 1940, as amended, and the Fund is not subject to regulation thereunder.
THE COMMODITY FUTURES TRADING
COMMISSION HAS NOT PASSED UPON THE MERITS OF PARTICIPATING IN THIS POOL NOR HAS THE COMMISSION PASSED ON THE ADEQUACY OR ACCURACY OF THIS DISCLOSURE DOCUMENT.
The Shares are neither interests in nor obligations of any of the Managing Owner, the Trustee, Deutsche Bank, AG, Deutsche Bank, AG London, Deutsche Bank Securities Inc. or any of their respective
affiliates. The Shares are not insured by the Federal Deposit Insurance Corporation or any other governmental agency.
[ ]
[ ], 2014
COMMODITY FUTURES TRADING COMMISSION
RISK DISCLOSURE STATEMENT
YOU SHOULD CAREFULLY CONSIDER WHETHER YOUR FINANCIAL CONDITION PERMITS YOU TO PARTICIPATE IN A COMMODITY POOL. IN SO DOING, YOU SHOULD BE AWARE THAT COMMODITY INTEREST TRADING CAN QUICKLY LEAD TO LARGE
LOSSES AS WELL AS GAINS. SUCH TRADING LOSSES CAN SHARPLY REDUCE THE NET ASSET VALUE OF THE POOL AND CONSEQUENTLY THE VALUE OF YOUR INTEREST IN THE POOL. IN ADDITION, RESTRICTIONS ON REDEMPTIONS MAY AFFECT YOUR ABILITY TO WITHDRAW YOUR PARTICIPATION
IN THE POOL.
FURTHER, COMMODITY POOLS MAY BE SUBJECT TO SUBSTANTIAL CHARGES FOR MANAGEMENT, AND ADVISORY AND
BROKERAGE FEES. IT MAY BE NECESSARY FOR THOSE POOLS THAT ARE SUBJECT TO THESE CHARGES TO MAKE SUBSTANTIAL TRADING PROFITS TO AVOID DEPLETION OR EXHAUSTION OF THEIR ASSETS. THIS DISCLOSURE DOCUMENT CONTAINS A COMPLETE DESCRIPTION OF EACH EXPENSE TO
BE CHARGED THIS POOL AT PAGE 53 AND A STATEMENT OF THE PERCENTAGE RETURNS NECESSARY TO BREAK EVEN, THAT IS, TO RECOVER THE AMOUNT OF YOUR INITIAL INVESTMENT, AT PAGE 14.
THIS BRIEF STATEMENT CANNOT DISCLOSE ALL THE RISKS AND OTHER FACTORS NECESSARY TO EVALUATE YOUR PARTICIPATION IN THIS COMMODITY POOL. THEREFORE, BEFORE YOU DECIDE TO PARTICIPATE IN THIS COMMODITY POOL,
YOU SHOULD CAREFULLY STUDY THIS DISCLOSURE DOCUMENT, INCLUDING A DESCRIPTION OF THE PRINCIPAL RISK FACTORS OF THIS INVESTMENT, AT PAGES 18 THROUGH 29.
YOU SHOULD ALSO BE AWARE THAT THIS COMMODITY POOL MAY TRADE FOREIGN FUTURES OR OPTIONS CONTRACTS. TRANSACTIONS ON MARKETS LOCATED OUTSIDE THE UNITED STATES, INCLUDING MARKETS FORMALLY LINKED TO A
UNITED STATES MARKET, MAY BE SUBJECT TO REGULATIONS WHICH OFFER DIFFERENT OR DIMINISHED PROTECTION TO THE POOL AND ITS PARTICIPANTS. FURTHER, UNITED STATES REGULATORY AUTHORITIES MAY BE UNABLE TO COMPEL THE ENFORCEMENT OF THE RULES OF REGULATORY
AUTHORITIES OR MARKETS IN NON-UNITED STATES JURISDICTIONS WHERE TRANSACTIONS FOR THE POOL MAY BE EFFECTED.
THIS
PROSPECTUS DOES NOT INCLUDE ALL OF THE INFORMATION OR EXHIBITS IN THE REGISTRATION STATEMENT OF THE TRUST. YOU CAN READ AND COPY THE ENTIRE REGISTRATION STATEMENT AT THE PUBLIC REFERENCE FACILITIES MAINTAINED BY THE SEC IN WASHINGTON, D.C.
THE FUND FILES QUARTERLY AND ANNUAL REPORTS WITH THE SEC. YOU CAN READ AND COPY THESE REPORTS AT THE SEC PUBLIC
REFERENCE ROOM AT 100 F STREET, N.E., WASHINGTON, D.C. 20549. THE PUBLIC MAY OBTAIN INFORMATION ON THE OPERATION OF THE PUBLIC REFERENCE ROOM BY CALLING THE SEC AT 1-800-SEC-0330.
THE FILINGS OF THE TRUST ARE POSTED AT THE SEC WEBSITE AT HTTP://WWW.SEC.GOV.
REGULATORY NOTICES
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE TRUST, THE FUND, THE MANAGING OWNER, THE AUTHORIZED PARTICIPANTS OR ANY OTHER PERSON.
i
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION TO SELL OR A SOLICITATION OF
AN OFFER TO BUY, NOR SHALL THERE BE ANY OFFER, SOLICITATION, OR SALE OF THE SHARES IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION, OR SALE IS NOT AUTHORIZED OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE ANY SUCH OFFER, SOLICITATION, OR
SALE.
THE BOOKS AND RECORDS OF THE FUND ARE MAINTAINED AS FOLLOWS: ALL MARKETING MATERIALS ARE MAINTAINED AT THE OFFICES OF ALPS
DISTRIBUTORS, INC., 1290 BROADWAY, SUITE 1100, DENVER, COLORADO 80203, TELEPHONE NUMBER (303) 623-2577; BASKET CREATION AND REDEMPTION BOOKS AND RECORDS, ACCOUNTING AND CERTAIN OTHER FINANCIAL BOOKS AND RECORDS (INCLUDING FUND ACCOUNTING
RECORDS, LEDGERS WITH RESPECT TO ASSETS, LIABILITIES, CAPITAL, INCOME AND EXPENSES, THE REGISTRAR, TRANSFER JOURNALS AND RELATED DETAILS) AND TRADING AND RELATED DOCUMENTS RECEIVED FROM FUTURES COMMISSION MERCHANTS ARE MAINTAINED BY THE BANK OF NEW
YORK MELLON, 2 HANSON PLACE, BROOKLYN, NEW YORK 11217, TELEPHONE NUMBER (718) 315-7500. ALL OTHER BOOKS AND RECORDS OF THE FUND (INCLUDING MINUTE BOOKS AND OTHER GENERAL CORPORATE RECORDS, TRADING RECORDS AND RELATED REPORTS AND OTHER ITEMS
RECEIVED FROM THE FUND’S COMMODITY BROKERS) ARE MAINTAINED AT THE FUND’S PRINCIPAL OFFICE, C/O INVESCO POWERSHARES CAPITAL MANAGEMENT LLC, 3500 LACEY ROAD, SUITE 700, DOWNERS GROVE, ILLINOIS 60515; TELEPHONE NUMBER (800) 983-0903.
SHAREHOLDERS WILL HAVE THE RIGHT, DURING NORMAL BUSINESS HOURS, TO HAVE ACCESS TO AND COPY (UPON PAYMENT OF REASONABLE REPRODUCTION COSTS) SUCH BOOKS AND RECORDS IN PERSON OR BY THEIR AUTHORIZED ATTORNEY OR AGENT. MONTHLY ACCOUNT STATEMENTS FOR THE
FUND CONFORMING TO COMMODITY FUTURES TRADING COMMISSION (THE “CFTC”) AND THE NATIONAL FUTURES ASSOCIATION (THE “NFA”) REQUIREMENTS ARE POSTED ON THE MANAGING OWNER’S WEBSITE AT HTTP://WWW.INVESCOPOWERSHARES.COM.
ADDITIONAL REPORTS ARE POSTED ON THE MANAGING OWNER’S WEBSITE IN THE DISCRETION OF THE MANAGING OWNER OR AS REQUIRED BY REGULATORY AUTHORITIES. THERE WILL SIMILARLY BE DISTRIBUTED TO SHAREHOLDERS OF THE FUND, NOT MORE THAN 90 DAYS AFTER THE
CLOSE OF THE FUND’S FISCAL YEAR, CERTIFIED AUDITED FINANCIAL STATEMENTS AND (IN NO EVENT LATER THAN MARCH 15 OF THE IMMEDIATELY FOLLOWING YEAR) THE TAX INFORMATION RELATING TO SHARES OF THE FUND NECESSARY FOR THE PREPARATION OF
SHAREHOLDERS’ ANNUAL FEDERAL INCOME TAX RETURNS.
THE DIVISION
OF INVESTMENT MANAGEMENT OF THE SECURITIES AND EXCHANGE COMMISSION REQUIRES THAT THE FOLLOWING STATEMENT BE PROMINENTLY SET FORTH HEREIN: “NEITHER POWERSHARES DB MULTI-SECTOR COMMODITY TRUST NOR ANY SERIES THEREOF IS A MUTUAL FUND OR ANY OTHER
TYPE OF INVESTMENT COMPANY WITHIN THE MEANING OF THE INVESTMENT COMPANY ACT OF 1940, AS AMENDED, AND IS NOT SUBJECT TO REGULATION THEREUNDER.”
AUTHORIZED
PARTICIPANTS MAY BE REQUIRED TO DELIVER A PROSPECTUS WHEN TRANSACTING IN SHARES. SEE “PLAN OF DISTRIBUTION.”
ii
PART ONE
DISCLOSURE DOCUMENT.
iii
iv
v
PART TWO
STATEMENT OF ADDITIONAL
INFORMATION
vi
SUMMARY
This summary of material information contained or incorporated by reference in this Prospectus is intended for quick reference only
and does not contain all of the information that may be important to you. For ease of reference, any references throughout this Prospectus to various actions taken by the Fund are actually actions that the Trust has taken on behalf of the Fund. The
remainder of this Prospectus contains more detailed information. You should read the entire Prospectus, including the information incorporated by reference in this Prospectus, before deciding to invest in Shares of the Fund. Please see the section
“Incorporation by Reference of Certain Documents” on page 15 for information on how you can obtain the information that is incorporated by reference in this Prospectus. This Prospectus is dated
[ ] [ ], 2014.
The Trust and the Fund
PowerShares DB Multi-Sector Commodity Trust, or the Trust, was formed as a Delaware statutory trust, in seven separate series, or funds, on August 3, 2006. PowerShares DB Silver Fund, or the Fund, is
a series of the Trust. The Fund issues common units of beneficial interest, or Shares, which represent units of fractional undivided beneficial interest in and ownership of the Fund. The term of the Trust and the Fund is perpetual (unless terminated
earlier in certain circumstances). The principal offices of the Trust and the Fund are located at c/o Invesco PowerShares Capital Management LLC, 3500 Lacey Road, Suite 700, Downers Grove, IL 60515, and its telephone number is (800) 983-0903.
The Trust was organized in separate series as a Delaware statutory trust rather than as separate statutory trusts in
order to achieve certain administrative efficiencies. The interests of investors are not adversely affected by the choice of form of organization. As of the date of this Prospectus, the Trust consists of the following seven series – PowerShares
DB Energy Fund, PowerShares DB Oil Fund, PowerShares DB Precious Metals Fund, PowerShares DB Gold Fund, PowerShares DB Silver Fund, PowerShares DB Base Metals Fund and PowerShares DB Agriculture Fund. This Prospectus
is for the Fund only and not for the first 6 funds listed in the prior sentence, or the Sectors Funds. The Sectors Funds, which are series of the Trust, are not being offered by this Prospectus.
Information regarding both the Fund and the Sectors Funds (and any other additional series of the Trust, as applicable) is available at www.invescopowershares.com.
Shares Listed on the NYSE Arca
The Shares of the
Fund are listed on the NYSE Arca under the symbol “DBS.”
Secondary market purchases and sales of Shares will be
subject to ordinary brokerage commissions and charges.
Purchases and Sales in the Secondary
Market on the NYSE Arca
The Shares trade on the NYSE Arca like any other equity security.
Baskets may be created or redeemed only by Authorized Participants. It is expected that Baskets will be created when the market price per
Share is at a premium to the net asset value per Share. Authorized Participants are expected to sell such Shares, which are listed on the NYSE Arca, to the public at prices that are expected to reflect, among other factors, the trading price of the
Shares on the NYSE Arca and the supply of and demand for Shares at the time of sale and are expected to fall between net asset value and the trading price of the Shares on the NYSE Arca at the time of sale. Similarly, it is expected that Baskets
will be redeemed when the market price per Share is at a discount to the net asset value per Share. Retail investors seeking to purchase or sell Shares on any day are expected to effect such transactions in the secondary market, on the NYSE Arca, at
the market price per Share, rather than in connection with the creation or redemption of Baskets.
The market price of the
Shares may not be identical to the net asset value per Share, but these valuations are expected to be very close. Investors are able to use the indicative intra-day value per Share to determine if they want to purchase in the secondary market via
the NYSE Arca. The intra-day indicative value per Share is based on the prior day’s
1
final net asset value, adjusted four times per minute throughout the trading day to reflect the continuous price changes of the Fund’s futures positions, which provide a continuously updated
estimated net asset value per Share.
Retail investors may purchase and sell Shares through traditional brokerage
accounts. Purchases or sales of Shares may be subject to customary brokerage commissions. Investors are encouraged to review the terms of their brokerage accounts for applicable charges.
Pricing Information Available on the NYSE Arca and Other Sources
The following table lists additional NYSE Arca symbols and their meanings with respect to the Fund and the Index:
|
|
|
|
DBS |
|
Market price per Share on NYSE Arca |
| DBS.IV |
|
Indicative intra-day value per Share |
| DBS.NV |
|
End of day net asset value of the Fund |
| DBSLIX |
|
Intra-day Index closing level |
| DBCMYESI |
|
End of day Index closing level as of close of NYSE Arca |
The intra-day data in the above table is published once every fifteen seconds throughout each trading
day.
The Index Sponsor calculates and publishes the closing level of the Index daily. The Managing Owner publishes the
net asset value of the Fund and the net asset value per Share daily. Additionally, the Index Sponsor calculates and publishes the intra-day Index level, and the Index Sponsor calculates, and the Managing Owner publishes, the indicative value per
Share of the Fund (quoted in U.S. dollars) once every fifteen seconds throughout each trading day.
All of the foregoing
information is published as follows:
The intra-day level of the Index (symbol: DBSLIX) and the intra-day indicative value per
Share (symbol: DBS.IV) (each quoted in U.S.
dollars) are published once every fifteen seconds throughout each trading day on the consolidated tape, Reuters and/or Bloomberg and on the Managing Owner’s website at
http://www.invescopowershares.com, or any successor thereto.
The current trading price per Share (symbol: DBS) (quoted
in U.S. dollars) is published continuously as trades occur throughout each trading day on the consolidated tape, Reuters and/or Bloomberg and on the Managing Owner’s website at http://www.invescopowershares.com, or any successor thereto.
The most recent end-of-day Index closing level (symbol: DBCMYESI) is published as of the close of business for the NYSE Arca
each trading day on the consolidated tape, Reuters and/or Bloomberg and on the Managing Owner’s website at http://www.invescopowershares.com, or any successor thereto.
The most recent end-of-day net asset value of the Fund (symbol: DBS.NV) is published as of the close of business on Reuters and/or
Bloomberg and on the Managing Owner’s website at http://www.invescopowershares.com, or any successor thereto. In addition, the most recent end-of-day net asset value of the Fund (symbol: DBS.NV) is published the following morning on the
consolidated tape.
All of the foregoing information with respect to the Index, including the Index’s history, is
also published at https://index.db.com.
The Index Sponsor obtains information for inclusion in, or for use in the
calculation of, the Index from sources the Index Sponsor considers reliable. None of the Index Sponsor, the Managing Owner, the Fund or any of their respective affiliates accepts responsibility for or guarantees the accuracy and/or completeness of
the Index or any data included in the Index.
CUSIP Number
The CUSIP number of the Fund is 73936B309.
2
Risk Factors
An investment in the Shares is speculative and involves a high degree of risk. The summary risk factors set forth below are intended
merely to highlight certain risks of the Fund. The Fund has additional risks that are set forth elsewhere in this Prospectus.
| |
• |
|
Past performance is not necessarily indicative of future results; all or substantially all of an investment in the Fund could be lost.
|
| |
• |
|
The trading of the Fund takes place in very volatile markets. |
| |
• |
|
The Fund is subject to fees and expenses in the aggregate amount of approximately 0.79% per annum as described herein and will be successful only
if its annual returns from futures trading, plus its annual interest income from its holdings of United States Treasury securities and other high credit quality short-term fixed income securities, exceed such fees and expenses of approximately
0.79% per annum. The Fund is expected to earn interest income equal to 0.02% per annum, based upon the yield of 3-month U.S. Treasury bills as of November 24, 2014, or $0.01 per annum per Share at $25.00 as the net asset value per
Share. Therefore, based upon the difference between the current yield of 3-month U.S. Treasury bills and the annual fees and expenses, the Fund will be required to earn approximately 0.77% per annum, or $0.19 per annum per Share at $25.00 as
the net asset value per Share, in order for an investor to break-even on an investment during the first twelve months of an investment. Actual interest income could be higher or lower than the current yield of
3-month U.S. Treasury bills. |
| |
• |
|
As of the date of this Prospectus, the CFTC and/or commodity exchange rules imposes speculative position limits on market participants trading in the
Index Commodity, Silver, or the Affected Index Commodity. Because the Fund is subject to position limits, its ability to issue new |
| |
Baskets or its ability to reinvest income in
|
| |
additional futures contracts corresponding to the Affected Index Commodity may be impaired or limited to the extent that these activities would cause the Fund to exceed its applicable position
limits. Limiting the size of the Fund to stay within these position limits may affect the correlation between the price of its Shares, as traded on the NYSE Arca, and its net asset value. The inability to create additional Baskets could result in
Shares trading at a premium or discount to the net asset value of the Fund. |
| |
• |
|
If the Managing Owner determines in its commercially reasonable judgment that it has become impracticable or inefficient for any reason for the Fund to
gain full or partial exposure to the Index Commodity by investing in the specific futures contract that comprises the Index, the Fund may invest in a futures contract referencing the Index Commodity other than the specific contract that comprises
the Index or, in the alternative, invest in other futures contracts not based on the Index Commodity if, in the commercially reasonable judgment of the Managing Owner, such futures contracts tend to exhibit trading prices that correlate with a
futures contract that comprises the Index. |
| |
• |
|
There can be no assurance that the Fund will achieve profits or avoid losses, significant or otherwise. |
| |
• |
|
Performance of the Fund may not track the Index during particular periods or over the long term. Such tracking error may cause the Fund to outperform
or underperform the Index. |
| |
• |
|
Certain potential conflicts of interest exist between the Managing Owner, the Commodity Broker and their affiliates and the Shareholders. For example,
the Commodity Broker may have a conflict of interest between its execution of trades for the Fund and for its other customers. More specifically, the Commodity Broker will benefit from executing orders for other clients, whereas the Fund may be
harmed to the extent that the Commodity Broker has |
3
| |
|
fewer resources to allocate to the Fund’s accounts due to the existence of such other clients. Allocation of resources among the Commodity Broker’s clients adds to the potential
conflict. Proprietary trading by the affiliates of the Managing Owner and the Commodity Broker may create conflicts of interest from time-to-time because such proprietary trades may take a position that is opposite of that of the Fund or may compete
with the Fund for certain positions within the marketplace. See “Conflicts of Interest” for a more complete disclosure of various conflicts. Although the Managing Owner has established procedures designed to resolve certain of these
conflicts equitably, the Managing Owner has not established formal procedures to resolve all potential conflicts of interest. Consequently, investors may be dependent on the good faith of the respective parties subject to such conflicts to resolve
them equitably. Although the Managing Owner attempts to monitor these conflicts, it is extremely difficult, if not impossible, for the Managing Owner to ensure that these conflicts will not, in fact, result in adverse consequences to the Fund.
|
The Trustee
Wilmington Trust Company, or the Trustee, a Delaware trust company, is the sole trustee of the Trust. The Trustee delegated to the
Managing Owner all of the power and authority to manage the business and affairs of the Trust and the Fund and has only nominal duties and liabilities to the Trust and the Fund.
Investment Objective
The Fund seeks to track changes, whether positive or negative, in the level of the DBIQ Optimum Yield Silver Index Excess Return™, or the Index, over time, plus the excess, if any, of the Fund’s
interest income from its holdings of United States Treasury and other high credit quality short-term fixed income securities over its expenses. The Shares are designed for investors who want a cost-effective and convenient way to invest in commodity
futures on U.S. and non-U.S. markets.
Advantages of investing in the Shares include:
| |
• |
|
Ease and Flexibility of Investment. The Shares trade on the NYSE Arca and provide institutional and retail investors with indirect access to
commodity futures markets. The Shares may be bought and sold on the NYSE Arca like other exchange-listed securities. Retail investors may purchase and sell Shares through traditional brokerage accounts. |
| |
• |
|
Margin. Shares are eligible for margin accounts. |
| |
• |
|
Diversification. The Shares may help to diversify a portfolio because historically the Index has tended to exhibit low to negative correlation
with both equities and conventional bonds and positive correlation to inflation. |
| |
• |
|
Optimum Yield™. The Shares seek to track the Index, which employs the Optimum Yield™ rolling methodology, which seeks to minimize the
effects of negative roll yield that may be experienced by conventional commodities indexes. |
| |
• |
|
Transparency. The Shares provide a more direct investment in commodities than mutual funds that invest in commodity-linked notes, which have
implicit imbedded costs and credit risk. |
Investing in the Shares does not insulate Shareholders from
certain risks, including price volatility.
The Fund is designed to track the DBIQ Optimum Yield Silver Index Excess
Return™ (DBIQ-OY SI ER™), which is intended to reflect the changes in market value of silver. The single Index Commodity consists of Silver.
If the Managing Owner determines in its commercially reasonable judgment that it has become impracticable or inefficient for any reason for the Fund to gain full or partial exposure to the Index Commodity
by investing in a specific futures contract that comprises the Index, the Fund may invest in a futures contract referencing the Index Commodity other than the specific contract that comprises the
4
Index or, in the alternative, invest in other futures contracts not based on the Index Commodity if, in the commercially reasonable judgment of the Managing Owner, such futures contracts tend to
exhibit trading prices that correlate with the futures contract that comprises the Index.
The Index Sponsor calculates the
Index on both an excess return basis and a total return basis. The excess return basis calculation reflects the change in market value over time, whether positive or negative, of the underlying commodity futures only. The total return basis
calculation reflects the sum of the change in market value over time, whether positive or negative, of the underlying commodity futures plus the return on 3-month U.S. Treasury bills. The Fund seeks to track changes, whether positive or negative, in
the level of its Index over time, plus the excess, if any, of its interest income from its holdings of United States Treasury and other high credit quality short-term fixed income securities over its expenses.
The Fund will make distributions at the discretion of the Managing Owner. To the extent that the Fund’s actual and projected
interest income from its holdings of United States Treasury securities and other high credit quality short-term fixed income securities exceeds the actual and projected fees and expenses of the Fund, the Managing Owner expects periodically to make
distributions of the amount of such excess. The Fund currently does not expect to make distributions with respect to capital gains. Depending on the Fund’s performance for the taxable year and your own tax situation for such year, your income
tax liability for the taxable year for your allocable share of the Fund’s net ordinary income or loss and capital gain or loss may exceed any distributions you receive with respect to such year.
The Fund’s portfolio also will include United States Treasury securities and other high credit quality short-term fixed income
securities for deposit with the Fund’s Commodity Broker as margin.
General
Each of the DBIQ Optimum Yield Index Excess Return™, or DBIQ-OYER™, and the DBIQ Index Excess Return™, or DBIQ ER™
(“DBIQ-OYER™” and “DBIQ ER™,” collectively, “DBIQ™” or
“DBIQ ER™”), is intended to reflect the changes in market value, positive or negative, in certain sectors of commodities, or an index. The Index is calculated on an excess return,
or unfunded basis. The Index is rolled in a manner which is aimed at potentially maximizing the roll benefits in backwardated markets and minimizing the losses from rolling in contangoed markets, or Optimum YieldTM. The Index is comprised of one underlying commodity (silver), or
Index Commodity.
The Index has been calculated back to a base date, or Base Date. On the Base Date of December 2, 1988,
the closing level of the Index, or Closing Level, was 100.
The sponsor of the Index is Deutsche Bank Securities Inc., or
Index Sponsor.
Composition of the Index
The Index is composed of the notional amount of the underlying Index Commodity. The Closing Level of the Index is calculated on each
business day by the Index Sponsor based on the closing price of the futures contracts for the underlying Index Commodity and the notional amounts of such Index Commodity.
The composition of the Index may be adjusted in the event that the Index Sponsor is not able to calculate the closing prices of the Index Commodity.
The Index includes provisions for the replacement of futures contracts as they approach maturity. This replacement takes place over a
period of time in order to lessen the impact on the market for the futures contracts being replaced. With respect to the Index Commodity, the Fund employs a rule-based approach when it ‘rolls’ from one futures contract to another. Rather
than select a new futures contract based on a predetermined schedule (e.g., monthly), the Index Commodity rolls to the futures contract which generates the best possible ‘implied roll yield.’ The futures contract with a delivery month
within the next thirteen months which generates the best possible implied roll yield will be included in the Index. As a result, the Index Commodity is able to potentially maximize the roll benefits in backwardated markets and minimize the losses
from rolling in contangoed markets.
5
In general, as a futures contract approaches its expiration date, its price will move
towards the spot price in a contangoed market. Assuming the spot price does not change, this would result in the futures contract price decreasing and a negative implied roll yield. The opposite is true in a backwardated market. Rolling in a
contangoed market will tend to cause a drag on the Index Commodity’s contribution to the Fund’s return while rolling in a backwardated market will tend to cause a push on the Index Commodity’s contribution to the Fund’s return.
The futures contract price for the Index Commodity will be the exchange closing price for the Index Commodity on each weekday
when banks in New York, New York are open, or Index Business Days. If a weekday is not an Exchange Business Day (as defined in the following sentence) but is an Index Business Day, the exchange closing price from the previous Index Business Day will
be used for the Index Commodity. “Exchange Business Day” means, in respect of the Index Commodity, a day that is a trading day for the Index Commodity on the exchange (unless either an Index disruption event or force majeure event has
occurred).
Contract Selection
On the first New York business day, or Verification Date, of each month, each Index Commodity futures contract will be tested in order to
determine whether to continue including it in the Index. If the Index Commodity futures contract requires delivery of the underlying commodity in the next month, known as the Delivery Month, a new Index Commodity futures contract will be selected
for inclusion in the Index. For example, if the first New York business day is May 1, 2015, and the Delivery Month of the Index Commodity futures contract currently in the Index is June 2015, a new Index Commodity futures contract with a later
Delivery Month will be selected.
The new Index Commodity futures contract selected will be the Index Commodity futures
contract with the best possible “implied roll yield” based on the closing price for each eligible Index Commodity futures contract. Eligible Index Commodity futures contracts are any Index Commodity futures contracts having a Delivery
Month (i) no sooner than the month after the
Delivery Month of the Index Commodity futures contract currently in the Index, and (ii) no later than the 13th month after the Verification Date. For example, if the first New York business day is May 1, 2015 and the
Delivery Month of an Index Commodity futures contract currently in the Index is therefore June 2015, the Delivery Month of an eligible new Index Commodity futures contract must be between July 2015 and June 2016. The implied roll yield is then
calculated and the futures contract on the Index Commodity with the best possible implied roll yield is then selected. If two futures contracts have the same implied roll yield, the futures contract with the minimum number of months prior to the
Delivery Month is selected.
After the futures contract selection, the monthly roll for the futures
contract underlying the Index Commodity that is subject to a roll in that particular month unwinds the old futures contract and enters a position in the new futures contract. This takes place between the 2nd and 6th Index Business Day of the month.
On each day during the roll period, new notional holdings are calculated. The calculations for the old futures contracts underlying the Index Commodity that are leaving the Index and the new futures
contracts underlying the Index Commodity are then calculated.
On all days that are not monthly index roll days, the notional
holdings of the Index Commodity futures remain constant.
There can be no assurance that the Fund will achieve its
investment objective or avoid substantial losses.
Shares Should Track Closely the Value of
its Index
The Shares are intended to provide investment results that generally correspond to changes, positive or
negative, in the levels of the Index, over time.
The value of the Shares is expected to fluctuate in relation to changes in
the value of its portfolio. The market price of the Shares may not be identical to the net asset value per Share, but these two valuations are expected to be very close.
6
The Fund holds a portfolio of long futures contracts on the Index Commodity which comprise
its Index. The Fund also holds cash and United States Treasury securities and other high credit quality short-term fixed income securities for deposit with its Commodity Broker as margin. The Fund’s portfolio is traded with a view to tracking
the changes in its Index over time, whether the Index is rising, falling or flat over any particular period. The Fund is not “managed” by traditional methods, which typically involve effecting changes in the composition of a portfolio on
the basis of judgments relating to economic, financial and market considerations with a view to obtaining positive results.
The Managing Owner
Invesco PowerShares Capital Management LLC, a Delaware limited liability company, serves as Managing Owner of the Trust and the Fund. The Managing Owner was formed on February 7, 2003. The Managing Owner
is an affiliate of Invesco Ltd. The Managing Owner was formed to be the managing owner of investment vehicles such as exchange-traded funds and has been managing non-commodity futures based exchange-traded funds since 2003 and a commodity futures
based exchange-traded fund since 2014. The Managing Owner serves as the commodity pool operator and commodity trading advisor of the Trust and the Fund. The Managing Owner is registered as a commodity pool operator and commodity trading advisor with
the Commodity Futures Trading Commission, or the CFTC, and is a member of the National Futures Association, or the NFA. As a registered commodity pool operator and commodity trading advisor, with respect to both the Trust and the Fund, the Managing
Owner must comply with various regulatory requirements under the Commodity Exchange Act and the rules and regulations of the CFTC and the NFA, including investor protection requirements, antifraud prohibitions, disclosure requirements, and reporting
and recordkeeping requirements. The Managing Owner also is subject to periodic inspections and audits by the CFTC and NFA.
The Shares are not deposits or other obligations of the Managing Owner, the Trustee or any of their respective subsidiaries or affiliates
or any other bank, are not guaranteed by the Managing Owner, the
Trustee or any of their respective subsidiaries or affiliates or any other bank and are not insured by the Federal Deposit Insurance Corporation or any other governmental agency.
An investment in the Shares of the Fund is speculative and involves a high degree of risk.
The principal office of the Managing Owner is located at 3500 Lacey Road, Suite 700, Downers Grove, IL 60515. The telephone number of the
Managing Owner is (800) 983-0903.
PowerShares® is a registered service mark of Invesco PowerShares Capital Management, LLC.
The Fund pays the Managing Owner a Management Fee, monthly in arrears, in an amount equal to 0.75% per annum of the daily net asset value of the Fund.
The Management Fee is paid in consideration of the Managing Owner’s commodity futures trading advisory services.
The Commodity Broker
A variety of executing brokers execute futures transactions on behalf of the Fund. Such executing brokers give-up all such transactions to Morgan Stanley & Co. LLC, a Delaware limited liability
company, which serves as clearing broker, or Commodity Broker of the Fund. In its capacity as clearing broker, the Commodity Broker executes and clears the Fund’s futures transactions and performs certain administrative services for the Fund.
Morgan Stanley & Co. LLC is registered with the CFTC as a futures commission merchant and is a member of the NFA in such capacity.
The Fund pays to the Commodity Broker all brokerage commissions, including applicable exchange fees, NFA fees, give-up fees, pit brokerage fees and other transaction related fees and expenses charged in
connection with trading activities for the Fund. On average, total charges paid to the Commodity Broker are expected to be less than $[10.00] per round-turn trade, although the Commodity Broker’s brokerage commissions and trading fees are
determined on a contract-by-
7
contract basis. The Managing Owner does not expect brokerage commissions and fees to exceed [0.04]% of the net asset value of the Fund in any year, although the actual amount of brokerage
commissions and fees in any year or any part of any year may be greater.
A round-turn trade is a completed transaction
involving both a purchase and a liquidating sale, or a sale followed by a covering purchase.
The Administrator, Custodian and Transfer Agent
The Bank of New York Mellon is the administrator, or the Administrator, of the Fund and has entered into an Administration Agreement in
connection therewith. The Bank of New York Mellon serves as custodian, or Custodian, of the Fund and has entered into a Global Custody Agreement, or Custody Agreement, in connection therewith. The Bank of New York Mellon serves as the transfer
agent, or Transfer Agent, of the Fund and has entered into a Transfer Agency and Service Agreement in connection therewith.
The Bank of New York Mellon, a banking corporation organized under the laws of the State of New York with trust powers, has an office at 2 Hanson Place, Brooklyn, N.Y. 11217. The Bank of New York Mellon
is subject to supervision by the New York State Banking Department and the Board of Governors of the Federal Reserve System. Information regarding the net asset value of the Fund, creation and redemption transaction fees and the names of the parties
that have executed a Participant Agreement may be obtained from The Bank of New York Mellon by calling the following number: (718) 315-7500. A copy of the Administration Agreement is available for inspection at The Bank of New York
Mellon’s office identified above.
Pursuant to the Administration Agreement, the Administrator performs or supervises the
performance of services necessary for the operation and administration of the Fund (other than making investment decisions), including receiving and processing orders from Authorized Participants to create and redeem Baskets, net asset value
calculations, accounting and other fund administrative
services. The Administrator retains, separately for the Fund, certain financial books and records, including: Basket creation and redemption books and records, Fund accounting records, ledgers
with respect to assets, liabilities, capital, income and expenses, the registrar, transfer journals and related details and trading and related documents received from futures commission merchants, c/o The Bank of New York Mellon, 2 Hanson Place,
Brooklyn, New York 11217, telephone number (718) 315-7500.
The Administration Agreement is continuously in effect
unless terminated on at least 90 days’ prior written notice by either party to the other party. Notwithstanding the foregoing, the Administrator may terminate the Administration Agreement upon 30 days’ prior written notice if the Fund has
materially failed to perform its obligations under the Administration Agreement.
The Administration Agreement provides
for the exculpation and indemnification of the Administrator from and against any costs, expenses, damages, liabilities or claims (other than those resulting from the Administrator’s own bad faith, negligence or willful misconduct) which may be
imposed on, incurred by or asserted against the Administrator in performing its obligations or duties under the Administration Agreement. Key terms of the Administration Agreement are summarized under the heading “Material Contracts.”
The Administrator’s monthly fees are paid on behalf of the Fund by the Managing Owner out of the Management Fee.
The Administrator and any of its affiliates may from time-to-time purchase or sell Shares for their own account, as agent for
their customers and for accounts over which they exercise investment discretion.
The Transfer Agent receives a transaction
processing fee in connection with orders from Authorized Participants to create or redeem Baskets in the amount of $500 per order. These transaction processing fees are paid directly by the Authorized Participants and not by the Fund.
8
The Trust may retain the services of one or more additional service providers to assist
with certain tax reporting requirements of the Fund and the Shareholders of the Fund.
ALPS
Distributors, Inc.
ALPS Distributors, Inc., or ALPS Distributors, assists the Managing Owner and the Administrator
with certain functions and duties relating to distribution and marketing, including reviewing and approving marketing materials. ALPS Distributors retains all marketing materials at c/o ALPS Distributors, Inc., 1290 Broadway, Suite 1100, Denver,
Colorado 80203; telephone number (303) 623-2577. Investors may contact ALPS Distributors toll-free in the U.S. at (877) 369-4617. The Fund has entered into a Distribution Services Agreement with ALPS Distributors. ALPS Distributors is
affiliated with ALPS Fund Services, Inc., a Denver-based outsourcing solution for administration, compliance, fund accounting, legal, marketing, tax administration, transfer agency and shareholder services for open-end, closed-end, hedge and
exchange-traded funds. ALPS Fund Services, Inc. and its affiliates provide fund administration services to funds with assets in excess of $[48] billion. ALPS Distributors and its affiliates provide distribution services to funds with assets of more
than $[438] billion.
The Managing Owner, out of the Management Fee, pays ALPS Distributors for performing its duties on
behalf of the Fund and may pay ALPS Distributors additional compensation in consideration of the performance by ALPS Distributors of additional services. Such additional services may include, among other services, the development and implementation
of a marketing plan and the utilization of ALPS Distributors’ resources, which include an extensive broker database and a network of internal and external wholesalers.
Index Sponsor
The Managing
Owner, on behalf of the Fund, has appointed Deutsche Bank Securities Inc. to serve as the index sponsor, or the Index Sponsor. The Index Sponsor calculates and publishes the daily index levels and the indicative intraday index levels.
Additionally, the Index Sponsor also calculates the indicative value per Share of the Fund throughout each Business Day.
The Managing Owner pays the Index Sponsor a licensing fee and an index services fee for performing its duties.
Marketing Agent
The Managing Owner, on behalf
of the Fund, has appointed Deutsche Bank Securities Inc., or the Marketing Agent, to assist the Managing Owner by providing support to educate institutional investors about the Deutsche Bank indices and to complete governmental or institutional due
diligence questionnaires or requests for proposals related to the Deutsche Bank indices.
The Managing Owner pays the
Marketing Agent a marketing services fee.
The Marketing Agent will not open or maintain customer accounts or handle orders
for the Fund. The Marketing Agent has no responsibility for the performance of the Fund or the decisions made or actions taken by the Managing Owner.
“800” Number for Investors
Investors may contact the Managing Owner toll free in the U.S. at (800) 983-0903.
Limitation of Liabilities
Your investment in the Fund is part of the assets of the Fund, and it will therefore be subject to the risks of the Fund’s trading only. You cannot lose more than your investment in the Fund, and you
will not be subject to the losses or liabilities of any other series of the Trust in which you have not invested. We have received an opinion of counsel that the Fund is entitled to the benefits of the limitation on inter-series liability provided
under the Delaware Statutory Trust Act. Each Share, when purchased in accordance with the Fifth Amended and Restated Declaration of Trust and Trust Agreement of the Trust, or the Trust Declaration, shall, except as otherwise provided by law, be
fully-paid and non-assessable.
9
The debts, liabilities, obligations, claims and expenses of the Fund will be enforceable
against the assets of the Fund only, and not against the assets of the Trust generally or the assets of any other series of the Trust, and, unless otherwise provided in the Trust Declaration, none of the debts, liabilities, obligations and expenses
incurred, contracted for or otherwise existing with respect to the Trust generally or any other series thereof will be enforceable against the assets of the Fund, as the case may be.
Creation and Redemption of Shares
The Fund creates and redeems Shares from time-to-time, but only in one or more Baskets. A Basket is a block of 200,000 Shares. Baskets may
be created or redeemed only by Authorized Participants. Except when aggregated in Baskets, the Shares are not redeemable securities. Authorized Participants pay a transaction fee of $500 in connection with each order to create or redeem a Basket.
Authorized Participants may sell the Shares included in the Baskets they purchase from the Fund to other investors.
See
“Creation and Redemption of Shares” for more details.
The Offering
Unless otherwise agreed to by the Managing Owner and the Authorized Participant as provided in the next sentence, the Fund issues Shares
in Baskets to Authorized Participants continuously on the creation order settlement date as of 2:45 p.m., Eastern time, on the business day immediately following the date on which a valid order to create a Basket is accepted by the Fund, at the net
asset value of 200,000 Shares of the Fund as of the closing time of the NYSE Arca or the last to close of the exchange(s) on which the Fund’s futures contracts are traded, whichever is later, on the date that a valid order to create a Basket is
accepted by the Fund. Upon submission of a creation order, the Authorized Participant may request the Managing Owner to agree to a creation order settlement date up to 3 business days after the creation order date.
Authorized Participants
Baskets may be created or redeemed only by Authorized Participants. Each Authorized Participant must (1) be a registered
broker-dealer or other securities market participant such as a bank or other financial institution which is not required to register as a broker-dealer to engage in securities transactions, (2) be a participant in DTC, and (3) have entered
into an agreement with the Fund and the Managing Owner, or a Participant Agreement. The Participant Agreement sets forth the procedures for the creation and redemption of Baskets and for the delivery of cash required for such creations or
redemptions. A list of the current Authorized Participants can be obtained from the Administrator. See “Creation and Redemption of Shares” for more details.
Net Asset Value
Net asset value means the total
assets of the Fund including, but not limited to, all cash and cash equivalents or other debt securities less total liabilities of the Fund, each determined on the basis of generally accepted accounting principles in the United States, consistently
applied under the accrual method of accounting.
Net asset value per Share is the net asset value of the Fund divided by the
number of its outstanding Shares.
See “Description of the Shares; The Fund; Certain Material Terms of the Trust
Declaration-Net Asset Value” for more details.
Clearance and Settlement
The Shares are evidenced by global certificates that the Fund issues to DTC. The Shares are available only in book-entry form.
Shareholders may hold Shares through DTC, if they are participants in DTC, or indirectly through entities that are participants in DTC.
Segregated Accounts/Interest Income
The
proceeds of the offering are deposited in cash in a segregated account in its name at the Commodity Broker (or another eligible financial
10
institution, as applicable) in accordance with CFTC investor protection and segregation requirements. The Fund is credited with 100% of the interest earned on its average net assets on deposit
with the Commodity Broker or such other financial institution each week. In an attempt to increase interest income earned, the Managing Owner expects to invest non-margin assets of the Fund in United States government securities (which include any
security issued or guaranteed as to principal or interest by the United States), or any certificate of deposit for any of the foregoing, including United States Treasury bonds, United States Treasury bills and issues of agencies of the United States
government, and certain cash items such as money market funds, certificates of deposit (under nine months) and time deposits or other instruments permitted by applicable rules and regulations. Currently, the rate of interest expected to be earned by
the Fund is estimated to be 0.02% per annum, based upon the yield on 3-month U.S. Treasury bills as of November 24, 2014. This interest income is used by the Fund to pay its expenses. See “Fees and Expenses” for more details.
[Remainder of page left blank intentionally.]
11
Fees and Expenses
|
|
|
| Management Fee |
|
The Fund pays the Managing Owner a Management Fee,
monthly in arrears, in an amount equal to 0.75% per annum of its daily net asset value. The Management Fee is paid in consideration of the Managing Owner’s commodity futures trading advisory services. |
| Organization and Offering Expenses |
|
Expenses incurred in connection with organizing the Fund and the initial offering of
the Shares were paid by DB Commodity Services LLC, or the Predecessor Managing Owner. Expenses incurred in connection with the continuous offering of Shares of the Fund from commencement of the Fund’s trading operations up to the date of this
Prospectus were also paid by the Predecessor Managing Owner. Expenses incurred in connection with the continuous offering of Shares of the Fund on and after the date of this Prospectus are paid by the Managing Owner. |
| Brokerage Commissions and Fees |
|
The Fund pays to the Commodity Broker all brokerage commissions, including applicable
exchange fees, NFA fees, give-up fees, pit brokerage fees and other transaction related fees and expenses charged in connection with its trading activities. On average, total charges paid to the Commodity Broker are expected to be less than $[10.00]
per round-turn trade, although the Commodity Broker’s brokerage commissions and trading fees are determined on a contract-by-contract basis. The Managing Owner does not expect brokerage commissions and fees to exceed [0.04]% of the net asset
value of the Fund in any year, although the actual amount of brokerage commissions and fees in any year or any part of any year may be greater. |
| Routine Operational, Administrative and Other Ordinary Expenses |
|
The Managing Owner pays all of the routine operational, administrative and other
ordinary expenses of the Fund, including, but not limited to, computer services, the fees and expenses of the Trustee, license and service fees paid to Deutsche Bank Securities Inc., or DBSI, as Marketing Agent and Index Sponsor, legal and
accounting fees and expenses, tax preparation expenses, filing fees, and printing, mailing and duplication costs. |
| Non-Recurring Fees and Expenses |
|
The Fund pays all non-recurring and unusual fees and expenses (referred to as
extraordinary fees and expenses in the Trust Declaration), if any, of itself, as determined by the Managing Owner. Non-recurring and unusual fees and expenses are fees and expenses which are non-recurring and unusual in nature, such as legal claims
and liabilities, litigation costs or indemnification or other unanticipated expenses. Such non-recurring and unusual fees and expenses, by their nature, are unpredictable in terms of timing and amount. |
| Management Fee and Expenses to be Paid First out of Interest Income |
|
The Management Fee and the brokerage commissions and fees of the Fund are paid first
out of interest income from the Fund’s holdings of U.S. Treasury bills and other high credit quality short-term fixed income securities on deposit with the Commodity Broker as margin or otherwise. If the interest income is not sufficient to
cover the fees and expenses of the Fund during any period, the excess of such fees and expenses over such interest income will be paid out of income from futures trading, if any, or from sales of the Fund’s fixed income
securities. |
| Selling Commission |
|
Retail investors may purchase and sell Shares through traditional brokerage accounts.
Investors are expected to be charged a customary commission by their brokers in connection with purchases of Shares that will vary from investor to investor. Investors are encouraged to review the terms of their brokerage accounts for applicable
charges. |
12
Breakeven Amounts
The estimated amount of all fees and expenses which are anticipated to be incurred by a new investor in Shares during the first twelve
months of investment is 0.79% per annum of the net asset value of the Fund, plus the amount of any commissions charged by the investor’s broker in connection with an investor’s purchase of Shares.
The Fund will be successful only if its annual returns from futures trading, plus its annual interest income from its holdings of United
States Treasury securities and other high credit quality short-term fixed income securities, exceed these fees and expenses of approximately 0.79% per annum. The Fund is expected to earn interest income equal to 0.02% per annum, based upon
the yield of 3-month U.S. Treasury bills as of November 24, 2014, or $0.01 per annum per Share at $25.00 as the net asset value per Share. Therefore, based upon the difference between the current yield of 3-month U.S. Treasury bills and the annual
fees and expenses, the Fund will be required to earn approximately 0.77% per annum, or $0.19 per annum per Share at $25.00 as the net asset value per Share, in order for an investor to break-even on an investment during the first twelve months
of an investment. Actual interest income could be higher or lower than the current yield of 3-month U.S. Treasury bills.
Distributions
The Fund will make distributions
at the discretion of the Managing Owner. To the extent that the Fund’s actual and projected interest income from its holdings of United States Treasury securities and other high credit quality short-term fixed income securities exceeds the
actual and projected fees and expenses of the Fund, the Managing Owner expects periodically to make distributions of the amount of such excess. The Fund currently does not expect to make distributions with respect to capital gains. Depending on the
Fund’s performance for the taxable year and your own tax situation for such year, your income tax liability for the taxable year for your allocable share of the Fund’s net ordinary income or loss and capital gain or loss may exceed any
distributions you receive with respect to such year.
Fiscal Year
The fiscal year of the Fund ends on December 31 of each year.
U.S. Federal Income Tax Considerations
Subject to the discussion below in “Material U.S. Federal Income Tax Considerations,” the Fund will be classified as a
partnership for U.S. federal income tax purposes. Accordingly, the Fund will not incur U.S. federal income tax liability; rather, each beneficial owner of Shares will be required to take into account its allocable share of the Fund’s income,
gain, loss, deduction and other items for the Fund’s taxable year ending with or within the owner’s taxable year.
Additionally, please refer to the “Material U.S. Federal Income Tax Considerations” section below for information on the
potential U.S. federal income tax consequences of the purchase, ownership and disposition of Shares.
Breakeven Table
The Breakeven Table on page 14 indicates the approximate percentage and dollar returns required
for the value of an initial $25.00 investment in a Share to equal the amount originally invested twelve months after issuance.
The Breakeven Table as presented, is an approximation only. The capitalization of the Fund does not directly affect the level of its charges as a percentage of its net asset value, other than brokerage
commissions.
[Remainder of page left blank intentionally.]
13
BREAKEVEN TABLE
|
|
|
|
|
|
|
| |
|
Dollar Amount and Percentage of Expenses for
the Fund |
|
| Expense1 |
|
DBS |
|
| |
$
|
|
|
% |
|
| Management Fee2 |
|
$ 0.19 |
|
|
0.75 |
% |
| Organization and Offering Expense Reimbursement3 |
|
$ 0.00 |
|
|
0.00 |
% |
| Brokerage Commissions and Fees4 |
|
$ 0.01 |
|
|
[0.04] |
% |
| Routine Operational, Administrative and Other Ordinary Expenses5,6 |
|
$ 0.00 |
|
|
0.00 |
% |
| Interest Income7 |
|
$(0.01) |
|
|
(0.02 |
)% |
| 12-Month Breakeven8,9 |
|
$ 0.19 |
|
|
0.77 |
% |
| 1. |
The breakeven analysis assumes that the Shares have a constant month-end Fund net asset value and is based on $25.00 as the net asset value per Share. See
“Charges” on page 53 for an explanation of the expenses included in the Breakeven Table. The Managing Owner will pay a marketing services fee to the Marketing Agent and an index services fee to the Index Sponsor. Because the marketing
services fee and the index services fee are not paid by the Fund, these fees are not included in the breakeven analysis. |
| 2. |
From the Management Fee, the Managing Owner will be responsible for paying the fees and expenses of the Administrator, ALPS Distributors and the Index Sponsor.
|
| 3. |
The Predecessor Managing Owner was responsible for paying the organization and offering expenses prior to the date of this Prospectus. As of the date of this
Prospectus, the Managing Owner is responsible for paying the continuous offering costs of the Fund. |
| 4. |
The actual amount of brokerage commissions and trading fees to be incurred will vary based upon the trading frequency of the Fund and the specific futures contracts
traded. |
| 5. |
The Managing Owner is responsible for paying all routine operational, administrative and other ordinary expenses of the Fund. |
| 6. |
In connection with orders to create and redeem Baskets, Authorized Participants will pay a transaction fee in the amount of $500 per order. Because these transaction
fees are de minimis in amount, are charged on a transaction-by-transaction basis (and not on a Basket-by-Basket basis), and are borne by the Authorized Participants, they have not been included in the Breakeven Table.
|
| 7. |
Interest income currently is estimated to be earned at a rate of 0.02%, based upon the yield on 3-month U.S. Treasury bills as of November 24, 2014. Actual interest
income could be higher or lower than the current yield of 3-month U.S. Treasury bills. |
| 8. |
DBS is subject to (i) a Management Fee of 0.75% per annum and (ii) estimated brokerage commissions and fees of [0.04]% per annum. DBS is subject to fees
and expenses in the aggregate amount of approximately 0.79% per annum. DBS will be successful only if its annual returns from the underlying futures contracts, including annual income from 3-month U.S. Treasury bills, exceeds approximately
0.79% per annum. DBS is expected to earn 0.02% per annum, based upon the yield of 3-month U.S. Treasury bills as of November 24, 2014. Therefore, based upon the difference between the current yield of 3-month U.S. Treasury bills and
the annual fees and expenses, DBS would be required to earn approximately 0.77% per annum, in order for an investor to break-even on an investment during the first twelve months of an investment. Actual interest income could be higher or lower
than the current yield of 3-month U.S. Treasury bills. |
| 9. |
You may pay customary brokerage commissions in connection with purchases of the Shares. Because such brokerage commission rates are set by your broker, they will vary
from investor to investor and have not been included in the Breakeven Table. Investors are encouraged to review the terms of their brokerage accounts for applicable charges. |
14
Incorporation by Reference of Certain Documents
The Securities and Exchange Commission, or the SEC, allows us to “incorporate by reference” into this Prospectus
the information that we file with it, meaning we can disclose important information to you by referring you to those documents already on file with the SEC.
This filing incorporates by reference the following documents, which we have previously filed with the SEC, in response to certain disclosures:
| |
• |
|
The Annual Report on Form 10-K for the fiscal year ended December 31, 2013 filed on March 14, 2014. |
| |
• |
|
The Quarterly Reports on Form 10-Q for the quarters ended March 31, 2014, June 30, 2014 and September 30, 2014, filed May 9,
2014, August 6, 2014 and November 5, 2014, respectively; |
| |
• |
|
The Current Reports on Form 8-K filed January 15, 2014, March 13, 2014, June 11, 2014, August 15,
2014, October 30, 2014 and December 2, 2014; |
| |
• |
|
All other reports filed pursuant to Section 13(a) or 15(d) of the Exchange Act since December 31, 2013, except for information furnished
under Form 8-K, which is not deemed filed and not incorporated herein by reference. |
Any statement contained
in a document that is incorporated by reference will be modified or superseded for all purposes to the extent that a statement contained in this Prospectus modifies or is contrary to that previous statement. Any statement so modified or superseded
will not be deemed a part of this Prospectus except as so modified or superseded.
We will provide to you a copy of the
filings that have been incorporated by reference in this Prospectus upon your request, at no cost. Any request may be made by writing or calling us at the following address or telephone number:
Invesco PowerShares Capital Management LLC
3500 Lacey Road, Suite 700
Downers Grove, IL 60515
Telephone: (800) 983-0903
These documents may also be accessed through our website at
http://www.invescopowershares.com or as described herein under “Additional Information.” The information and other content contained on or linked from our website are not incorporated by reference in this Prospectus and should not
be considered a part of this Prospectus.
We file annual, quarterly, current reports and other information with the SEC. You
may read and copy these materials at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC
maintains an internet site at http://www.sec.gov that contains reports, proxy and information statements and other information regarding the Fund.
Reports to Shareholders
The Managing Owner
will furnish you with an annual report of the Fund within 90 calendar days after the end of the Fund’s fiscal year as required by the rules and regulations of the CFTC, including, but not limited to, an annual audited financial statement
certified by independent registered public accountants and any other reports required by any other governmental authority that has jurisdiction over the activities of the Fund. You also will be provided with appropriate information to permit you to
file your U.S. federal and state income tax returns (on a timely basis) with respect to your Shares. Monthly account statements conforming to CFTC and NFA requirements are posted on the Managing Owner’s website at
http://www.invescopowershares.com. Additional reports may be posted on the Managing Owner’s website in the discretion of the Managing Owner or as required by regulatory authorities.
Cautionary Note Regarding Forward-Looking Statements
This Prospectus includes forward-looking statements that reflect the Managing Owner’s current expectations about the future results,
performance, prospects and opportunities of the Fund. The Managing Owner has tried to identify these forward-looking statements by using words such as “may,” “will,” “expect,” “anticipate,”
“believe,” “intend,”
15
“should,” “estimate” or the negative of those terms or similar expressions. These forward-looking statements are based on information currently available to the Managing Owner
and are subject to a number of risks, uncertainties and other factors, both known, such as those described in “Risk Factors” in this Summary, in “The Risks You Face” and elsewhere in this Prospectus, and unknown, that could cause
the actual results, performance, prospects or opportunities of the Fund to differ materially from those expressed in, or implied by, these forward-looking statements.
You should not place undue reliance on any forward-looking statements. Except as expressly required by the federal securities laws, the Managing Owner undertakes no obligation to publicly update or revise
any forward-looking statements or the risks, uncertainties or other factors described in this Prospectus, as a result of new information, future events or changed circumstances or for any other reason after the date of this Prospectus.
THE SHARES ARE SPECULATIVE AND
INVOLVE A HIGH DEGREE OF RISK.
[Remainder of page left blank
intentionally.]
16
ORGANIZATION CHART
POWERSHARES DB MULTI-SECTOR COMMODITY TRUST
POWERSHARES DB SILVER FUND
| 1 |
PowerShares DB Energy Fund, PowerShares DB Oil Fund, PowerShares DB Precious Metals Fund, PowerShares DB Gold Fund, PowerShares DB Base Metals Fund and
PowerShares DB Agriculture Fund, which are the remaining series of the Trust, are not offered by this Prospectus. |
17
THE RISKS YOU FACE
You could lose money investing in the Shares. You should consider carefully the risks described below before making an investment
decision. You should also refer to the other information included in this Prospectus.
| (1) |
The Value of the Shares Relates Directly to the Value of the Futures Contracts and Other Assets Held by the Fund and Fluctuations in the Price of These Assets
Could Materially Adversely Affect an Investment in the Fund’s Shares. |
The Shares are designed to
reflect as closely as possible the changes, positive or negative, in the level of the Index, over time, through its portfolio of exchange traded futures contracts on the Index Commodity. The value of the Shares relates directly to the value of its
portfolio, less the liabilities (including estimated accrued but unpaid expenses) of the Fund. The price of the Index Commodity may fluctuate widely. Several factors may affect the prices of the Index Commodity, including, but not limited to:
| |
• |
|
Global supply and demand of the Index Commodity which may be influenced by such factors as forward selling by the various commodities producers,
purchases made by the commodities’ producers to unwind their hedge positions and production and cost levels in the major markets of the Index Commodity; |
| |
• |
|
Domestic and foreign interest rates and investors’ expectations concerning interest rates; |
| |
• |
|
Domestic and foreign inflation rates and investors’ expectations concerning inflation rates; |
| |
• |
|
Investment and trading activities of mutual funds, hedge funds and commodity funds; and |
| |
• |
|
Global or regional political, economic or financial events and situations. |
Effective as of August 15, 2014, the daily London silver fix, or the London Silver Fix, which has served as a global benchmark, was
replaced by an electronic silver benchmark operated by the CME
Group and Thomson Reuters, or the Replacement Silver Fix. The CME Group provides the pricing and Thomson Reuters provides the administration and the governance for the Replacement Silver Fix.
As of the date of this Prospectus, the Fund invests in silver futures contracts that trade on the CME. According to the rules
associated with these silver futures contracts, the silver that underlies these futures contracts must be silver that is produced by a list of specific producers. To the extent that these approved producers rely upon the Replacement Silver Fix on
and after August 15, 2014 with respect to the pricing of silver, the value of the Fund’s silver futures contracts and the value of the shares of the Fund may be affected adversely to the extent that the Replacement Silver Fix experiences
unexpected issues or has inherent design flaws, if any.
| (2) |
Net Asset Value May Not Always Correspond to Market Price and, as a Result, Baskets May be Created or Redeemed at a Value that Differs from the Market Price of
the Shares. |
The net asset value per Share will change as fluctuations occur in the market value of its
portfolio. Investors should be aware that the public trading price of a Basket may be different from the net asset value of a Basket (i.e., 200,000 Shares may trade at a premium over, or a discount to, net asset value of a Basket) and similarly the
public trading price per Share may be different from its net asset value per Share. Consequently, an Authorized Participant may be able to create or redeem a Basket of Shares at a discount or a premium to the public trading price per Share. This
price difference may be due, in large part, to the fact that supply and demand forces at work in the secondary trading market for Shares are closely related, but not identical to the same forces influencing the prices of the Index Commodity that
comprises the Index, trading individually or in the aggregate at any point in time. Investors also should note that the size of the Fund in terms of total assets held may change substantially over time and from time-to-time as Baskets are created
and redeemed.
Authorized Participants or their clients or customers may have an opportunity to realize a profit if they can
purchase a Basket at a discount to the public trading price of the Shares or can redeem a Basket at a premium over the public trading price of the Shares. The Managing Owner expects that the
18
exploitation of such arbitrage opportunities by Authorized Participants and their clients and customers will tend to cause the public trading price to track net asset value per Share closely over
time.
The value of a Share may be influenced by non-concurrent trading hours between the NYSE Arca and the futures exchange
on which the Index Commodity is traded. While the Shares trade on the NYSE Arca from 9:30 a.m. to 4:00 p.m. Eastern Standard Time, the trading hours for the futures exchange on which the Index Commodity trades may not necessarily coincide during all
of this time. For example, while the Shares trade on the NYSE Arca until 4:00 p.m. Eastern Standard Time, liquidity in the silver market will be reduced after the close of the COMEX at 1:25 p.m. Eastern Standard Time. As a result, during periods
when the NYSE Arca is open and the futures exchange on which the Index Commodity is traded is closed, trading spreads and the resulting premium or discount on the Shares may widen and, therefore, increase the difference between the price of the
Shares and the net asset value of the Shares.
| (3) |
Regulatory and Exchange Position Limits and Other Rules May Restrict the Creation of Baskets and the Operation of the Fund. |
CFTC and commodity exchange rules impose speculative position limits on market participants, including the Fund, trading in silver. These
position limits prohibit any person from holding a position of more than a specific number of such futures contracts. The purposes of speculative position limits are to diminish, eliminate or prevent sudden or unreasonable fluctuations or
unwarranted changes in the prices of futures contracts.
The CFTC and commodity exchange rules impose speculative position
limits on market participants trading in the Index Commodity included in the Index (Silver, or the Affected Index Commodity). Currently, speculative position limits (i) for corn, oats, wheat, soybean, soybean oil and cotton are determined by
the CFTC and (ii) for all other commodities are determined by the futures exchanges. Pursuant to the statutory mandate of the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, which was signed into law on
July 21, 2010, the CFTC adopted final regulations on October 18, 2011, or the
Regulations, which, in pertinent part, impose new federal position limits on futures and options on a subset of energy, metal, and agricultural commodities, or the Referenced Contracts, and
economically equivalent swaps. The Regulations were to go into effect 60 days after the term “swap” is further defined pursuant to Section 721 of the Dodd-Frank Act. However, on September 28, 2012, a federal court issued an order
vacating the Regulations. In vacating and remanding the new position limits rules, the court nevertheless upheld the CFTC’s revisions to the legacy position limits that amended previously-enacted position limits rules are already in place
pursuant to CFTC rules. On November 5, 2013, the CFTC re-proposed for public comment new position limits and an aggregation rule both of which are currently pending and have not yet been adopted. In addition, the CFTC proposed regulations that
would expand certain exemptions from aggregation of accounts of related parties. The CFTC directed staff to hold a public roundtable on June 19, 2014 to discuss certain position limit and aggregation issues. In order to provide interested
parties an opportunity to comment on these issues, the CFTC reopened the public comment periods for these proposed regulations until January 22, 2015. It remains to be seen whether the CFTC will modify the proposed regulations in response to
public comments.
The CFTC’s existing position limit regulations require that a trader aggregate all positions in
accounts which the trader owns or over which the trader controls trading. However, a trader is not required to aggregate positions in multiple accounts or commodity pools if that trader (or its applicable divisions/subsidiaries) qualifies as an
“independent account controller” under applicable CFTC regulations and avails itself of the independent account controller exemption under the regulations. The re-proposed regulations would maintain the independent account controller
exemption, which the Managing Owner intends to rely upon in order to disaggregate the positions of the Fund from certain other accounts. However, if the CFTC does not adopt or renew the independent account controller exemption, or if the exemption
were modified or otherwise unavailable, to the extent the Managing Owner avails itself of the exemption, it may be required to aggregate positions in multiple accounts or commodity pools for purposes of the CFTC’s position limits regulations.
In that case, it is possible that investment decisions of the Managing Owner
19
with respect to the Fund would be affected by positions maintained by the Managing Owner with respect to accounts other than for the Fund. It is likely that the Fund would be compelled to
liquidate futures contracts with respect to the Affected Index Commodities to come within position limits in the aggregate with other accounts or substitute a futures contract that exhibits trading prices that tend to correlate with a futures
contract with respect to an Affected Index Commodity, at the risk of variance with the Index. In addition, failure to comply with the requirements of the independent account controller exemption, if applicable, could lead to an enforcement
proceeding against the Managing Owner and could adversely affect the Fund.
Generally, speculative position limits in the
physical delivery markets are set at a stricter level during the spot month, the month when the futures contract matures and becomes deliverable, versus the limits set for all other months. If the Managing Owner determines that the Fund’s
trading may be approaching any of these speculative position limits, the Fund may reduce its trading in that commodity or trade in other commodities or instruments that the Index Sponsor determines comply with the rules and goals of the Index. Below
is a chart that sets forth certain relevant information, including current speculative position limits for the Affected Index Commodity that any person may hold, separately or in combination, net long or net short, for the purchase or sale of any
commodity futures contract or, on a futures-equivalent basis, options thereon. Speculative position limit levels remain subject to change by the CFTC or the relevant exchanges. Depending on the outcome of any future CFTC or futures exchange
rulemaking, as applicable, the rules concerning position limits may be amended in a manner that is detrimental to the Fund.
Exchanges may also establish accountability levels applicable to futures contracts. An exchange may order a person who holds or controls aggregate positions in excess of specified position accountability
levels not to further increase the positions, to comply with any prospective limit which exceeds the size of the position owned or controlled, or to reduce any open position which exceeds position accountability levels if the exchange determines
that such action is necessary to maintain an orderly market. Under current regulations, subject to any relevant exemptions, traders, such as the Fund,
may not exceed speculative position limits, either individually or in the aggregate with other persons with whom they are under common control or ownership. Under the vacated Regulations, the
CFTC would have required certain persons to aggregate exchange listed futures and economically equivalent swap positions owned or controlled by such persons.
[Remainder of page left blank intentionally.]
20
|
|
|
|
|
Affected
Index
Commodity |
|
Exchange
(Symbol)1 |
|
Exchange Position
Limits2 |
| Silver |
|
COMEX (SI) |
|
1,500 – Spot
Month 6,000 – Single Month 6,000 – All Months Combined |
| 1 |
“COMEX” means the Commodity Exchange Inc., New York, a part of the CME Group, or its successor. |
| 2 |
Subject to any additional limitations as may be required by an exchange. |
Because the Fund is currently subject to position limits and may be subject to new and expanded position limits, the Fund’s ability
to issue new Baskets, or the Fund’s ability to reinvest income in additional futures contracts corresponding to the Affected Index Commodity, may be impaired or limited to the extent these activities would cause the Fund to exceed its
applicable position limits. Limiting the size of the Fund to stay within these position limits may affect the correlation between the price of the Shares, as traded on the NYSE Arca, and the net asset value of the Shares. The inability to create
additional Baskets could result in Shares trading at a premium or discount to net asset value of the Shares.
| (4) |
The Fund’s Performance May Not Always Replicate Exactly the Changes in the Level of the Index. |
It is possible that the Fund’s performance may not fully replicate the changes in the level of the Index due to disruptions in the
markets for the Index Commodity, the imposition of speculative position limits (as discussed in “The Risks You Face - (3) Regulatory and Exchange Position Limits and Other Rules May
Restrict the Creation of Baskets and the Operation of the Fund”), or due to other extraordinary circumstances. As the Fund approaches or reaches position limits with respect to the Index Contract, the Fund may commence investing in other
futures contracts based on the Index Commodity and in futures contracts based on commodities other than the Index Commodity that, in the commercially reasonable judgment of the Managing Owner, tend to
exhibit trading prices that correlate with the Index Contract. In addition, the Fund is not able to replicate exactly the changes in the levels of the Index because the total return generated by
the Fund is reduced by expenses and transaction costs, including those incurred in connection with the Fund’s trading activities, and increased by interest income from the Fund’s holdings of short-term high credit quality fixed income
securities. Tracking the Index requires trading of the Fund’s portfolio with a view to tracking the Index over time and is dependent upon the skills of the Managing Owner and its trading principals, among other factors.
| (5) |
The Fund Is Not Actively Managed and Tracks its Index During Periods in Which the Index Is Flat or Declining as Well as When the Index Is Rising.
|
The Fund is not actively managed by traditional methods. Therefore, if positions in the Index Commodity
are declining in value, the Fund will not close out such positions, except in connection with a change in the composition or weighting of the Index. The Managing Owner will seek to cause the net asset value of the Fund to track its Index during
periods in which the Index is flat or declining as well as when the Index is rising.
| (6) |
The NYSE Arca May Halt Trading in the Shares of the Fund Which Would Adversely Impact Your Ability to Sell Shares. |
The Shares are listed on the NYSE Arca under the market symbol “DBS.” Trading in the Shares may be halted due to market
conditions or, in light of NYSE Arca rules and procedures, for reasons that, in the view of the NYSE Arca, make trading in the Shares inadvisable. In addition, trading is subject to trading halts caused by extraordinary market volatility pursuant to
“circuit breaker” rules that require trading to be halted for a specified period based on a specified market decline. There can be no assurance that the requirements necessary to maintain the listing of the Shares will continue to be met
or will remain unchanged. The Fund will be terminated if its Shares are delisted.
21
| (7) |
The Lack of an Active Trading Market for the Shares May Result in Losses on Your Investment in the Fund at the Time of Disposition of Your Shares.
|
Although the Shares are listed and traded on the NYSE Arca, there can be no guarantee that an active
trading market for the Shares will be maintained. If you need to sell your Shares at a time when no active market for them exists, the price you receive for your Shares, assuming that you are able to sell them, likely will be lower than that you
would receive if an active market did exist.
| (8) |
The Shares Could Decrease in Value if Unanticipated Operational or Trading Problems Arise. |
The mechanisms and procedures governing the creation, redemption and offering of the Shares have been developed specifically for this
securities product. Consequently, there may be unanticipated problems or issues with respect to the mechanics of the operations of the Fund and the trading of the Shares that could have a material adverse effect on an investment in the Shares. In
addition, although the Fund is not actively “managed” by traditional methods, to the extent that unanticipated operational or trading problems or issues arise, the Managing Owner’s past experience and qualifications may not be
suitable for solving these problems or issues.
| (9) |
As the Managing Owner and its Principals have a Short History of Operating an Exchange-Traded Fund that Invests in a Broad Range of Commodity Futures Contracts,
their Experience May be Relatively Inadequate or Unsuitable to Manage the Fund. |
The Managing Owner
manages a number of exchange-traded funds that use financial futures as part of their investment strategy and, only for a short time, has actively managed an exchange-traded fund related to a broad-based futures index. The past performance of these
funds is no indication of the Managing Owner’s ability to manage exchange-traded investment vehicles that track a commodities index such as the Fund. There can be no assurance that the Managing Owner will be able to cause the net asset value
per Share of the Fund to closely track the changes in the Index levels. If the experience of the Managing Owner and its principals is not
relatively adequate or suitable to manage investment vehicles such as the Fund, the operations of the Fund may be adversely affected.
| (10) |
You May Not Rely on Past Performance or Index Results in Deciding Whether to Buy Shares. |
Although past performance is not necessarily indicative of future results, the Fund’s performance history might (or might not)
provide you with more information on which to evaluate an investment in the Fund. Likewise, the Index has a history which might (or might not) be indicative of the future Index results, or of the future performance of the Fund. Therefore, you will
have to make your decision to invest in the Fund without relying on the Fund’s past performance history or the Index’s closing level history.
| (11) |
Fewer Representative Commodities May Result In Greater Index Volatility. |
The Index is concentrated in terms of the number of commodities represented. The Fund is concentrated in a single commodity. You should be
aware that other commodities indexes are more diversified in terms of both the number and variety of commodities included. Concentration in fewer commodities may result in a greater degree of volatility in the Index and the net asset value of the
Fund which tracks the Index under specific market conditions and over time.
| (12) |
Price Volatility May Possibly Cause the Total Loss of Your Investment. |
Futures contracts have a high degree of price variability and are subject to occasional rapid and substantial changes. Consequently, you
could lose all or substantially all of your investment in the Fund.
The following table* reflects various measures of
volatility** of the Index as calculated on an excess return basis:
|
|
|
|
|
| Volatility Type |
|
Volatility |
|
| Daily volatility over full history |
|
|
26.53 |
% |
| Average rolling 3-month daily volatility |
|
|
24.76 |
% |
| Monthly return volatility |
|
|
28.13 |
% |
| Average annual volatility |
|
|
24.34 |
% |
22
The following table reflects the daily volatility on an annual basis of the Index:
|
|
|
| Year*** |
|
Daily Volatility |
| 1988 |
|
10.73% |
| 1989 |
|
18.53% |
| 1990 |
|
19.41% |
| 1991 |
|
23.40% |
| 1992 |
|
15.67% |
| 1993 |
|
28.37% |
| 1994 |
|
23.28% |
| 1995 |
|
26.37% |
| 1996 |
|
17.62% |
| 1997 |
|
24.68% |
| 1998 |
|
29.22% |
| 1999 |
|
21.74% |
| 2000 |
|
14.41% |
| 2001 |
|
17.22% |
| 2002 |
|
17.43% |
| 2003 |
|
20.32% |
| 2004 |
|
35.48% |
| 2005 |
|
21.32% |
| 2006 |
|
41.21% |
| 2007 |
|
21.28% |
| 2008 |
|
43.01% |
| 2009 |
|
31.13% |
| 2010 |
|
26.40% |
| 2011 |
|
39.26% |
| 2012 |
|
25.27% |
| 2013 |
|
27.81% |
| 2014 |
|
16.68% |
| * |
As of October 31, 2014. Past Index levels are not necessarily indicative of future changes, positive or negative, in the Index levels. |
| ** |
Volatility, for these purposes, means the following: |
Daily Volatility: The relative rate at which the price of the Index moves up and down, found by calculating the annualized standard deviation of the daily change in price.
Monthly Return Volatility: The relative rate at which the price of the Index moves up and down, found by calculating the
annualized standard deviation of the monthly change in price.
Average Annual Volatility: The average of yearly
volatilities for a given sample period. The yearly volatility is the relative rate at which the price of the Index moves up and down, found by
calculating the annualized standard deviation of the daily change in price for each business day in the given year.
| *** |
As of December 31, except 1988 which is as of December 2 and 2014 which is as of October 31. |
Past Index results are not necessarily indicative of future changes, positive or negative, in the Index levels.
| (13) |
Unusually Long Peak-to-Valley Drawdown Periods With Respect To the Index May Be Reflected in Equally Long Peak-to-Valley Drawdown Periods with Respect to the
Performance of the Shares. |
Although past Index levels are not necessarily indicative of future Index
levels, the peak-to-valley drawdown periods that the Index has experienced has been unusually long and has lasted for multi-year drawdown periods.
Because it is expected that the Fund’s performance will track the change of the underlying Index, the Fund would suffer a continuous drawdown during the period that the Index suffers such a drawdown
period, and in turn, the value of your Shares will also suffer.
| (14) |
Fees and Commissions are Charged Regardless of Profitability and May Result in Depletion of Assets. |
The Fund is directly subject to the fees and expenses described herein which are payable irrespective of profitability. Such fees and
expenses include asset-based fees of 0.75% per annum. Additional charges include brokerage fees of approximately [0.04]% per annum in the aggregate and selling commissions. The Fund is expected to earn interest income at an annual rate of
0.02% per annum, based upon the yield on 3-month U.S. Treasury bills as of November 24, 2014. Because the Fund’s current interest income does not exceed its fees and expenses (other than selling commissions), the Fund will need to have a
positive performance that exceeds the difference between the Fund’s interest income and its fees and expenses (other than selling commissions) in order to break even. If the aggregate of the Fund’s performance and interest income do not
exceed the Fund’s fees and expenses described herein, then the expenses of the Fund
23
could, over time, result in losses to your investment therein. You may never achieve profits, significant or otherwise.
| (15) |
You Cannot Be Assured of the Managing Owner’s Continued Services, Which Discontinuance May Be Detrimental to the Fund. |
You cannot be assured that the Managing Owner will be willing or able to continue to service the Fund for any length of time. If the
Managing Owner discontinues its activities on behalf of the Fund, the Fund may be adversely affected.
| (16) |
Possible Illiquid Markets May Exacerbate Losses. |
Futures positions cannot always be liquidated at the desired price. It is difficult to execute a trade at a specific price when there is a relatively small volume of buy and sell orders in a market. A
market disruption, such as when foreign governments may take or be subject to political actions which disrupt the markets in their currency or major exports, can also make it difficult to liquidate a position.
There can be no assurance that market illiquidity will not cause losses for the Fund. The large size of the positions which the Fund may
acquire increases the risk of illiquidity by both making its positions more difficult to liquidate and increasing the losses incurred while trying to do so.
| (17) |
You May Be Adversely Affected by Redemption Orders that Are Subject To Postponement, Suspension or Rejection Under Certain Circumstances.
|
The Fund may, in its discretion, suspend the right of redemption or postpone the redemption settlement
date, (1) for any period during which an emergency exists as a result of which the redemption distribution is not reasonably practicable, or (2) for such other period as the Managing Owner determines to be necessary for the protection of
the Shareholders. In addition, the Fund will reject a redemption order if the order is not in proper form as described in the participant agreement among the Authorized Participant, the Managing Owner and the Managing Owner in its capacity as
managing owner of the Fund or if the fulfillment of the order, in the
opinion of its counsel, might be unlawful. Any such postponement, suspension or rejection could adversely affect a redeeming Authorized Participant. For example, the resulting delay may adversely
affect the value of the Authorized Participant’s redemption proceeds if the net asset value of the Fund declines during the period of delay. The Fund disclaims any liability for any loss or damage that may result from any such suspension or
postponement.
| (18) |
Because the Futures Contracts Have No Intrinsic Value, the Positive Performance of Your Investment Is Wholly Dependent Upon an Equal and Offsetting Loss.
|
Futures trading is a risk transfer economic activity. For every gain there is an equal and
offsetting loss rather than an opportunity to participate over time in general economic growth. Unlike most alternative investments, an investment in Shares does not involve acquiring any asset with intrinsic value. Overall stock and bond prices
could rise significantly and the economy as a whole prospers while Shares trade unprofitably.
| (19) |
Failure of Commodity Futures Markets to Exhibit Low to Negative Correlation to General Financial Markets Will Reduce Benefits of Diversification and May
Exacerbate Losses to Your Portfolio. |
Historically, commodity futures’ returns have tended to
exhibit low to negative correlation with the returns of other assets such as stocks and bonds. Although commodity futures trading can provide a diversification benefit to investor portfolios because of its low to negative correlation with other
financial assets, the fact that the Index is not 100% negatively correlated with financial assets such as stocks and bonds means that the Fund cannot be expected to be automatically profitable during unfavorable periods for the stock or bond market,
or vice-versa. If the Shares perform in a manner that correlates with the general financial markets or do not perform successfully, you will obtain no diversification benefits by investing in the Shares and the Shares may produce no gains to offset
your losses from other investments.
24
| (20) |
Shareholders Will Not Have the Protections Associated With Ownership of Shares in an Investment Company Registered Under the Investment Company Act of 1940.
|
The Fund is not registered as an investment company under the Investment Company Act of 1940, and is
not required to register under such Act. Consequently, Shareholders do not have the regulatory protections provided to the investors in registered and regulated investment companies.
| (21) |
Trading on Commodity Exchanges Outside the United States is Not Subject to U.S. Regulation. |
If speculative position limits with respect to an Index Contract underlying the Index Commodity have been reached, a portion of the
Fund’s trades may take place on markets or exchanges outside the United States. Trading on commodity exchanges outside the United States is not regulated by any United States governmental agency and may involve certain risks not applicable to
trading on United States exchanges, including different or diminished investor protections. In trading contracts denominated in currencies other than U.S. dollars, Shares are subject to the risk of adverse exchange-rate movements between the dollar
and the functional currencies of such contracts. Investors could incur substantial losses from trading on foreign exchanges which such investors would not have otherwise been subject had the Fund’s trading been limited to U.S. markets.
| (22) |
Various Actual and Potential Conflicts of Interest May Be Detrimental to Shareholders. |
The Fund is subject to actual and potential conflicts of interest involving the Managing Owner, various commodity futures brokers and
Authorized Participants. The Managing Owner and its principals, all of whom are engaged in other investment activities, are not required to devote substantially all of their time to the business of the Fund, which also presents the potential for
numerous conflicts of interest with the Fund. As a result of these and other relationships, parties involved with the Fund have a financial incentive to act in a manner other than in the best interests of the Fund and the Shareholders. The Managing
Owner has not established any formal procedure to resolve conflicts of interest. Consequently, investors are dependent on the good faith of the respective parties subject to such conflicts
to resolve them equitably. Although the Managing Owner attempts to monitor these conflicts, it is extremely difficult, if not impossible, for the Managing Owner to ensure that these conflicts do
not, in fact, result in adverse consequences to the Shareholders.
The Fund may be subject to certain conflicts with respect
to the Commodity Broker, including, but not limited to, conflicts that result from receiving greater amounts of compensation from other clients, or purchasing opposite or competing positions on behalf of third party accounts traded through the
Commodity Broker.
| (23) |
Shareholders Will Be Subject to Taxation on Their Allocable Share of the Fund’s Taxable Income, Whether or Not They Receive Cash Distributions.
|
Shareholders will be subject to U.S. federal income taxation and, in some cases, state, local, or
foreign income taxation on their allocable share of the Fund’s taxable income, whether or not they receive cash distributions from the Fund. Shareholders may not receive cash distributions equal to their share of the Fund’s taxable income
or even the tax liability that results from such income.
| (24) |
Items of Income, Gain, Loss and Deduction With Respect to Shares could be Reallocated if the IRS does not Accept the Assumptions or Conventions Used by the Fund
in Allocating Such Items. |
U.S. federal income tax rules applicable to partnerships are complex and
often difficult to apply to publicly traded partnerships. The Fund will apply certain assumptions and conventions in an attempt to comply with the applicable rules and to report items of income, gain, loss and deduction to the Fund’s
Shareholders in a manner that reflects the Shareholders’ beneficial interest in such tax items, but these assumptions and conventions may not be in compliance with all aspects of the applicable tax requirements. It is possible that the United
States Internal Revenue Service, or the IRS, will successfully assert that the conventions and assumptions used by the Fund do not satisfy the technical requirements of the Internal Revenue Code of 1986, as amended, or the Code, and/or Treasury
Regulations and could require that items of income,
25
gain, loss and deduction be adjusted or reallocated in a manner that adversely affects one or more Shareholders.
| (25) |
The Current Treatment of Long-Term Capital Gains Under Current U.S. Federal Income Tax Law May Be Adversely Affected, Changed or Repealed in the Future.
|
Under current law, long-term capital gains are taxed to non-corporate investors at reduced U.S. federal
income tax rates. This tax treatment may be adversely affected, changed or repealed by future changes in, or the expiration of, tax laws at any time.
PROSPECTIVE INVESTORS ARE STRONGLY URGED TO CONSULT THEIR OWN TAX ADVISERS AND COUNSEL WITH RESPECT TO THE POSSIBLE TAX CONSEQUENCES TO THEM OF AN INVESTMENT IN THE SHARES; SUCH TAX CONSEQUENCES MAY
DIFFER WITH RESPECT TO DIFFERENT INVESTORS.
| (26) |
Failure of Futures Commission Merchants or Commodity Brokers to Segregate Assets May Increase Losses; Despite Segregation of Assets, the Fund Remains at Risk of
Significant Losses Because the Fund May Only Receive a Pro-Rata Share of the Assets, or No Assets at All. |
The Commodity Exchange Act requires a clearing broker to segregate all funds received from customers from such broker’s proprietary assets. If the Commodity Broker fails to do so, the assets of the
Fund might not be fully protected in the event of the Commodity Broker’s bankruptcy. Furthermore, in the event of the Commodity Broker’s bankruptcy, the Fund could be limited to recovering either a pro rata share of all available funds
segregated on behalf of the Commodity Broker’s combined customer accounts or the Fund may not recover any assets at all, even though certain property specifically traceable to the Fund was held by the Commodity Broker. The Commodity Broker may,
from time-to-time, have been the subject of certain regulatory and private causes of action. Such material actions, if any, are described under “The Commodity Broker.”
In the event of a bankruptcy or insolvency of any exchange or a clearing house, the Fund could
experience a loss of the funds deposited through its Commodity Broker as margin with the exchange or clearing house, a loss of any unrealized profits on its open positions on the exchange, and
the loss of profits on its closed positions on the exchange.
| (27) |
The Effect Of Market Disruptions and Government Intervention Are Unpredictable And May Have An Adverse Effect On The Value Of Your Shares.
|
The global financial markets have in the past few years gone through pervasive and fundamental
disruptions that have led to extensive and unprecedented governmental intervention. Such intervention has in certain cases been implemented on an “emergency” basis, suddenly and substantially eliminating market participants’ ability
to continue to implement certain strategies or manage the risk of their outstanding positions. In addition – as one would expect given the complexities of the financial markets and the limited time frame within which governments have felt
compelled to take action – these interventions have typically been unclear in scope and application, resulting in confusion and uncertainty which in itself has been materially detrimental to the efficient functioning of the markets as well as
previously successful investment strategies.
The Fund may incur major losses in the event of disrupted markets and other
extraordinary events in which historical pricing relationships become materially distorted. The risk of loss from pricing distortions is compounded by the fact that in disrupted markets many positions become illiquid, making it difficult or
impossible to close out positions against which the markets are moving. The financing available to market participants from their banks, dealers and other counterparties is typically reduced in disrupted markets. Such a reduction may result in
substantial losses to the affected market participants. Market disruptions may from time to time cause dramatic losses, and such events can result in otherwise historically low-risk strategies performing with unprecedented volatility and risk.
26
| (28) |
Regulatory Changes or Actions, Including the Implementation of the Dodd-Frank Act, May Alter the Operations and Profitability of the Fund.
|
The regulation of commodity interest transactions in the United States is a rapidly changing area of law
and is subject to ongoing modification by governmental and judicial action. Considerable regulatory attention has been focused on non-traditional investment pools that are publicly distributed in the United States. The Dodd-Frank Act seeks to
regulate markets, market participants and financial instruments that previously have been unregulated and substantially alters the regulation of many other markets, market participants and financial instruments. Because many provisions of the
Dodd-Frank Act require rulemaking by the applicable regulators before becoming fully effective and the Dodd-Frank Act mandates multiple agency reports and studies (which could result in additional legislative or regulatory action), it is difficult
to predict the impact of the Dodd-Frank Act on the Fund, the Managing Owner, and the markets in which the Fund may invest, the Net Asset Value of the Fund or the market price of the Shares. The Dodd-Frank Act could result in the Fund’s
investment strategy becoming non-viable or non-economic to implement. Therefore, the Dodd-Frank Act and regulations adopted pursuant to the Dodd-Frank Act could have a material adverse impact on the profit potential of the Fund and in turn the value
of your Shares.
| (29) |
Lack of Independent Advisers Representing Investors. |
The Managing Owner has consulted with counsel, accountants and other advisers regarding the formation and operation of the Fund. No counsel has been appointed to represent you in connection with the
offering of the Shares. Accordingly, you should consult your own legal, tax and financial advisers regarding the desirability of an investment in the Shares.
| (30) |
Possibility of Termination of the Fund May Adversely Affect Your Portfolio. |
The Managing Owner may withdraw from the Trust upon 120 days’ notice, which would cause the Fund to terminate unless a substitute
managing owner was obtained. Owners of 50% of the Shares
have the power to terminate the Fund. If it is so exercised, investors who may wish to continue to invest in a vehicle that tracks the Fund’s Index will have to find another vehicle, and may
not be able to find another vehicle that offers the same features as the Fund. See “Description of the Shares; The Fund; Certain Material Terms of the Trust Declaration – Termination Events” for a summary of termination events. Such
detrimental developments could cause you to liquidate your investments and upset the overall maturity and timing of your investment portfolio. If the registrations with the CFTC or memberships in the NFA of the Managing Owner or the Commodity Broker
were revoked or suspended, such entity would no longer be able to provide services to the Fund.
| (31) |
Shareholders Do Not Have the Rights Enjoyed by Investors in Certain Other Vehicles. |
As interests in separate series of a Delaware statutory trust, the Shares have none of the statutory rights normally associated with the
ownership of shares of a corporation (including, for example, the right to bring “oppression” or “derivative” actions). In addition, the Shares have limited voting and distribution rights (for example, Shareholders do not have
the right to elect directors and the Fund is not required to pay regular distributions, although the Fund may pay distributions in the discretion of the Managing Owner).
| (32) |
An Investment in the Shares May Be Adversely Affected by Competition From Other Methods of Investing in Commodities. |
The Fund constitutes a relatively new type of investment vehicle. The Fund competes with other financial vehicles, including mutual funds,
and other registered investment companies, ETFs, other index tracking commodity pools, actively traded commodity pools, hedge funds, traditional debt and equity securities issued by companies in the commodities industry, other securities backed by
or linked to such commodities, and direct investments in the underlying commodities or commodity futures contracts. Market and financial conditions, and other conditions beyond the Managing Owner’s control, may make it more attractive to invest
in other financial vehicles or to invest in such commodities directly, which could limit the market for the Shares and therefore reduce the liquidity of the Shares.
27
| (33) |
Competing Claims Over Ownership of Intellectual Property Rights Related to the Fund Could Adversely Affect the Fund and an Investment in Shares.
|
While the Managing Owner believes that all intellectual property rights needed to operate the Fund are
either owned by or licensed to the Managing Owner or have been obtained, third parties may allege or assert ownership of intellectual property rights which may be related to the design, structure and operations of the Fund. To the extent any claims
of such ownership are brought or any proceedings are instituted to assert such claims, the negotiation, litigation or settlement of such claims, or the ultimate disposition of such claims in a court of law if a suit is brought, may adversely affect
the Fund and an investment in the Shares, for example, resulting in expenses or damages or the termination of the Fund.
| (34) |
The Value of the Shares Will be Adversely Affected if the Fund is Required to Indemnify the Trustee or the Managing Owner. |
Under the Trust Declaration, the Trustee and the Managing Owner have the right to be indemnified for any liability or expense either
incurs without gross negligence or willful misconduct. That means the Managing Owner may require the assets of the Fund to be sold in order to cover losses or liability suffered by it or by the Trustee. Any sale of that kind would reduce the net
asset value of the Fund and, consequently, the value of the Shares.
| (35) |
The Net Asset Value Calculation of the Fund May Be Overstated or Understated Due to the Valuation Method Employed When a Settlement Price is not Available on the
Date of Net Asset Value Calculation. |
Calculating the net asset value of the Fund includes, in part, any
unrealized profits or losses on open commodity futures contracts. Under normal circumstances, the net asset value of the Fund reflects the settlement price of open commodity futures contracts on the date when the net asset value is being calculated.
However, if a commodity futures contract traded on an exchange (both U.S. and, to the extent it becomes applicable, non-U.S. exchanges) could not be liquidated on such day (due to the operation of daily limits or other rules of the exchange upon
which that position is traded or
otherwise), the Managing Owner may value such futures contract pursuant to policies the Managing Owner has adopted, which are consistent with normal industry standards. In such a situation, there
is a risk that the calculation of the net asset value of the Fund on such day will not accurately reflect the realizable market value of such commodity futures contract. For example, daily limits are generally triggered in the event of a significant
change in market price of a commodity futures contract. Therefore, as a result of the daily limit, the current settlement price is unavailable. Because the Managing Owner may value such futures contract pursuant to policies the Managing Owner has
adopted, which are consistent with normal industry standards, there is a risk that the resulting calculation of the net asset value of the Fund could be under or overstated, perhaps to a significant degree.
| (36) |
Although the Shares are Limited Liability Investments, Certain Circumstances such as Bankruptcy of the Fund or Indemnification of the Fund by the Shareholders
will Increase the Shareholders’ Liability. |
The Shares are limited liability investments; investors
may not lose more than the amount that they invest plus any profits recognized on their investment. However, Shareholders could be required, as a matter of bankruptcy law, to return to the estate of the Fund any distribution they received at a time
when the Fund was in fact insolvent or in violation of its Trust Declaration. In addition, although the Managing Owner is not aware of this provision ever having been invoked in the case of any public futures fund, Shareholders agree in the Trust
Declaration that they will indemnify the Fund for any harm suffered by it as a result of
| |
• |
|
Shareholders’ actions unrelated to the business of the Fund, or |
| |
• |
|
taxes imposed on the Shares by the states or municipalities in which such investors reside. |
| (37) |
An Insolvency Resulting From Another Series in the Trust or the Trust Itself May Have a Material Adverse Effect On the Fund. |
This Fund is a series or a part of a Delaware statutory trust. Pursuant to Delaware law, the organization of the Trust provides that the
assets and
28
liabilities of this Fund is separate from the assets and liabilities of all other series of the Trust (e.g., the Sectors Funds), as well as the larger Trust itself. Though such organization may,
under state law, protect the assets of the Fund in an insolvency action brought by the creditors of one or more of the Sectors Funds, or series of the Trust, this may be insufficient to protect the assets of the Fund from such creditors in an
insolvency action in Federal court, or in a court in a foreign jurisdiction. Accordingly, an insolvency resulting from one or more of the Sectors Funds in the Trust or the Trust itself may have a material adverse effect on the Fund. The material
risks associated with the Sectors Funds have not been included in this disclosure document.
INVESTMENT OBJECTIVE
The Fund seeks to track changes, whether positive or negative, in the level of the DBIQ Optimum Yield Silver Index Excess Return™, or the Index, over time, plus the excess, if any, of the Fund’s
interest income from its holdings of United States Treasury and other high credit quality short-term fixed income securities over its expenses. The Shares are designed for investors who want a cost-effective and convenient way to invest in commodity
futures on U.S. and non-U.S. markets.
Advantages of investing in the Shares include:
| |
• |
|
Ease and Flexibility of Investment. The Shares trade on the NYSE Arca and provide institutional and retail investors with indirect access to
commodity futures markets. The Shares may be bought and sold on the NYSE Arca like other exchange-listed securities. Retail investors may purchase and sell Shares through traditional brokerage accounts. |
| |
• |
|
Margin. Shares are eligible for margin accounts. |
| |
• |
|
Diversification. The Shares may help to diversify a portfolio because historically the Index has tended to exhibit low to negative correlation
with both equities and conventional bonds and positive correlation to inflation. |
| |
• |
|
Optimum Yield™. The Shares seek to track the Index, which employs the Optimum Yield™ rolling methodology, which seeks
|
| |
|
to minimize the effects of negative roll yield that may be experienced by conventional commodities indexes. |
| |
• |
|
Transparency. The Shares provide a more direct investment in commodities than mutual funds that invest in commodity-linked notes, which have
implicit imbedded costs and credit risk. |
Investing in the Shares does not insulate Shareholders from
certain risks, including price volatility.
The Fund is designed to track the DBIQ Optimum Yield Silver Index Excess
Return™ (DBIQ-OY SI ER™), which is intended to reflect the changes in market value of the silver sector.
If the
Managing Owner determines in its commercially reasonable judgment that it has become impracticable or inefficient for any reason for the Fund to gain full or partial exposure to the Index Commodity by investing in a specific futures contract that
comprises the Index, the Fund may invest in a futures contract referencing the Index Commodity other than the specific contract that comprises the Index or, in the alternative, invest in other futures contracts not based on the Index Commodity if,
in the commercially reasonable judgment of the Managing Owner, such futures contracts tend to exhibit trading prices that correlate with a futures contract that comprises the Index.
The Fund will make distributions at the discretion of the Managing Owner. To the extent that the Fund’s actual and projected
interest income from its holdings of United States Treasury securities and other high credit quality short-term fixed income securities exceeds the actual and projected fees and expenses of the Fund, the Managing Owner expects periodically to make
distributions of the amount of such excess. The Fund currently does not expect to make distributions with respect to capital gains. Depending on the Fund’s performance for the taxable year and your own tax situation for such year, your income
tax liability for the taxable year for your allocable share of the Fund’s net ordinary income or loss and capital gain or loss may exceed any distributions you receive with respect to such year.
The sponsor of the Index, or the Index Sponsor, is Deutsche Bank Securities Inc.
29
Under the Trust Declaration, Wilmington Trust Company, the Trustee of the Fund, has
delegated to the Managing Owner the exclusive management and control of all aspects of the business of the Fund. The Trustee will have no duty or liability to supervise or monitor the performance of the Managing Owner, nor will the Trustee have any
liability for the acts or omissions of the Managing Owner.
The Shares are intended to provide investment results that
generally correspond to the changes, positive or negative, in the levels of the Index over time.
The value of the Shares is
expected to fluctuate in relation to changes in the value of its portfolio. The market price of the Shares may not be identical to the net asset value per Share, but these two valuations are expected to be very close. See “The Risks You Face
– (2) Net Asset Value May Not Always Correspond to Market Price and, as a Result, Baskets may be Created or Redeemed at a Value that Differs from the Market Price of the Shares.”
The Index Sponsor calculates and publishes the closing level of the Index daily. The Managing Owner publishes the net asset value of the
Fund and the net asset value per Share daily. Additionally, the Index Sponsor calculates and publishes the intra-day Index level, and the Index Sponsor calculates, and the Managing Owner publishes, the indicative value per Share of the Fund (quoted
in U.S. dollars) once every fifteen seconds throughout each trading day.
All of the foregoing information is published
as follows:
The intra-day level of the Index (symbol: DBSLIX) and the intra-day indicative value per Share (symbol:
DBS.IV) (each quoted in U.S. dollars) are published once every fifteen seconds throughout each trading day on the consolidated tape, Reuters and/or Bloomberg and on the Managing Owner’s website at http://www.invescopowershares.com, or
any successor thereto.
The current trading price per Share (symbol: DBS) (quoted in U.S. dollars) is published continuously
as trades occur throughout each trading day on the consolidated tape, Reuters and/or Bloomberg and on the Managing Owner’s website at http://www.invescopowershares.com, or any successor thereto.
The most recent end-of-day Index closing level (symbol: DBCMYESI) is published as of
the close of business for the NYSE Arca each trading day on the consolidated tape, Reuters and/or Bloomberg and on the Managing Owner’s website at http://www.invescopowershares.com, or any successor thereto.
The most recent end-of-day net asset value of the Fund (symbol: DBS.NV) is published as of the close of business on Reuters and/or
Bloomberg and on the Managing Owner’s website at http://www.invescopowershares.com, or any successor thereto. In addition, the most recent end-of-day net asset value of the Fund (symbol: DBS.NV) is published the following morning on the
consolidated tape.
All of the foregoing information with respect to the Index, including the Index’s history, is
also published at https://index.db.com.
The Index Sponsor obtains information for inclusion in, or for use in the
calculation of, the Index from sources the Index Sponsor considers reliable. None of the Index Sponsor, the Managing Owner, the Fund or any of their respective affiliates accepts responsibility for or guarantees the accuracy and/or completeness of
the Index or any data included in the Index.
The intra-day indicative value per Share is based on the prior day’s
final net asset value, adjusted four times per minute throughout the trading day to reflect the continuous price changes of the Fund’s futures positions, which provide a continuously updated estimated net asset value per Share. The final net
asset value of the Fund and the final net asset value per Share is calculated as of the closing time of the NYSE Arca or the last to close of the exchange(s) on which the Fund’s futures contracts are traded, whichever is later, and posted in
the same manner. Although a time gap may exist between the close of the NYSE Arca and the close of the exchange(s) on which the Fund’s futures contracts are traded, there is no effect on the net asset value calculations as a result.
There can be no assurance that the Fund will achieve its investment objective or avoid substantial losses.
30
Role of Managing Owner
The Managing Owner serves as the commodity pool operator and commodity trading advisor of the Fund.
Specifically, the Managing Owner:
| |
• |
|
selects the Trustee, Commodity Broker, Administrator, Index Sponsor, Custodian, Transfer Agent, Marketing Agent, distributor and auditor;
|
| |
• |
|
negotiates various agreements and fees; |
| |
• |
|
performs such other services as the Managing Owner believes that the Fund may from time-to-time require; and |
| |
• |
|
monitors the performance results of the Fund’s portfolio and reallocates assets within such portfolio with a view to causing the performance of
the Fund’s portfolio to track its Index over time. |
The Managing Owner is registered as a commodity
pool operator and commodity trading advisor with the CFTC and is a member of the NFA.
The principal office of the
Managing Owner is located at c/o Invesco PowerShares Capital Management LLC, 3500 Lacey Road, Suite 700, Downers Grove, IL 60515. The telephone number of the Managing Owner is (800) 983-0903.
Market Diversification
As global markets and investing become more complex, the inclusion of futures may continue to increase in traditional portfolios of stocks and bonds managed by advisors seeking improved balance and
diversification. The globalization of the world’s economy has the potential to offer significant investment opportunities, as major political and economic events continue to have an influence, in some cases a dramatic influence, on the
world’s markets, creating risk but also providing the potential for profitable trading opportunities. By allocating a portion of the risk segment of their portfolios to the Fund and investing in futures comprising its Index, investors have the
potential, if their Fund investments are successful, to reduce the volatility of their portfolios over time and the dependence of such portfolios on any single nation’s economy.
[Remainder of page left blank intentionally.]
31
PERFORMANCE OF POWERSHARES DB SILVER FUND (TICKER:
DBS), A SERIES OF
POWERSHARES DB MULTI-SECTOR COMMODITY TRUST
Name of Pool: PowerShares DB Silver Fund
Type of Pool: Public, Exchange-Listed Commodity Pool
Inception of
Trading: January 2007
Aggregate Gross Capital Subscriptions as of October 31, 2014: $520,816,331
Net Asset Value as of October 31, 2014: $20,901,793
Net Asset Value per Share as of October 31, 2014: $26.13
Worst
Monthly Drawdown: (28.30)% September 2011
Worst Peak-to-Valley Drawdown: (69.38)% April 2011 – October 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
| Monthly Rate of Return |
|
2014(%) |
|
2013(%) |
|
2012(%) |
|
2011(%) |
|
2010(%) |
|
2009(%) |
| January |
|
(1.52) |
|
3.81 |
|
19.37 |
|
(9.59) |
|
(4.06) |
|
11.40 |
| February |
|
11.31 |
|
(9.70) |
|
4.11 |
|
19.91 |
|
1.91 |
|
4.16 |
| March |
|
(7.30) |
|
(0.33) |
|
(6.33) |
|
12.35 |
|
6.15 |
|
(0.89) |
| April |
|
(3.27) |
|
(15.25) |
|
(4.74) |
|
28.28 |
|
6.20 |
|
(5.23) |
| May |
|
(2.68) |
|
(8.34) |
|
(10.74) |
|
(21.29) |
|
(1.11) |
|
26.80 |
| June |
|
13.14 |
|
(13.21) |
|
(0.73) |
|
(9.25) |
|
1.38 |
|
(13.00) |
| July |
|
(3.21) |
|
0.76 |
|
1.05 |
|
15.23 |
|
(3.92) |
|
2.46 |
| August |
|
(5.08) |
|
20.29 |
|
12.54 |
|
4.06 |
|
7.65 |
|
6.73 |
| September |
|
(13.26) |
|
(8.02) |
|
10.10 |
|
(28.30) |
|
12.36 |
|
11.63 |
| October |
|
(5.98) |
|
0.69 |
|
(6.72) |
|
14.33 |
|
12.61 |
|
(2.45) |
| November |
|
|
|
(9.04) |
|
2.85 |
|
(4.61) |
|
14.77 |
|
13.71 |
| December |
|
|
|
(3.59) |
|
(9.32) |
|
(15.07) |
|
9.63 |
|
(9.03) |
| Compound Rate of Return |
|
(18.92)%
(10 months) |
|
(37.98)% |
|
7.03% |
|
(11.13)% |
|
81.95% |
|
48.10% |
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
Footnotes to Performance Information
1. “Aggregate Gross Capital Subscriptions” is the aggregate of all amounts ever contributed to the pool, including investors who subsequently redeemed their investments.
2. “Net Asset Value” is the net asset value of the pool as of October 31, 2014.
3. “Net Asset Value per Share” is the Net Asset Value of the pool divided by the total number of Shares outstanding with respect
to the pool as of October 31, 2014.
4. “Worst Monthly Drawdown” is the largest single month loss sustained
since inception of trading. “Drawdown” as used in this section of the Prospectus means losses experienced by the pool over the specified period and is calculated on a rate of return basis, i.e., dividing net performance by beginning
equity. “Drawdown” is measured on the basis of monthly returns only, and does not reflect intra-month figures. “Month” is the month of the Worst Monthly Drawdown.
5. “Worst Peak-to-Valley Drawdown” is the largest percentage decline in the Net Asset Value per Share over the history of the
pool. This need not be a continuous decline, but can be a series of positive and negative returns where the negative returns are larger than the positive returns. “Worst Peak-to-Valley Drawdown” represents the greatest percentage decline
from any month-end Net Asset Value per Share that occurs without such month-end Net Asset Value per Share being equaled or exceeded as of a subsequent month-end. For example, if the Net Asset Value per Share of the pool declined by $1 in each of
January and February, increased by $1 in March and declined again by $2 in April, a “peak-to-valley drawdown” analysis conducted as of the end of April would consider that “drawdown” to be still continuing and to be $3 in amount,
whereas if the Net Asset Value per Share had increased by $2 in March, the January-February drawdown would have ended as of the end of February at the $2 level.
6. “Compound Rate of Return” of the pool is calculated by multiplying on a compound basis each of the monthly rates of return set forth in the chart above and not by adding or averaging such
monthly rates of return. For periods of less than one year, the results are year-to-date.
7.Prior and up to and including
December 31, 2010, the Fund tracked the Deutsche Bank Liquid Commodity Index-Optimum Yield Silver Excess Return™, or the Original Index. After December 31, 2010, the Fund tracked DBIQ Optimum Yield Silver Index Excess Return™, or
the Renamed Index. The Fund’s Original Index is identical to the Renamed Index, except with respect to the following non-substantive changes: (i) name of Index and (ii) ticker symbol. The inception date remains identical. The name of
the Original Index was changed to the name of the Renamed Index in October 2010 and such change became effective in January 3, 2011. Except as provided in the immediately preceding sentence, all prior underlying formulae, data (e.g., closing
levels, measure of volatility, all other numerical statistics and measures) and all other characteristics (e.g., Base Date, Index Sponsor, Inception Date, rolling, etc.) with respect to the Original Index are identical to the Renamed Index.
32
THE FUND’S PERFORMANCE INFORMATION FROM INCEPTION UP TO AND EXCLUDING THE DATE
OF THIS PROSPECTUS IS A REFLECTION OF THE PERFORMANCE ASSOCIATED WITH DB COMMODITY SERVICES LLC, WHICH SERVED AS THE PREDECESSOR MANAGING OWNER. ALL THE PERFORMANCE INFORMATION ON AND AFTER THE DATE OF THIS PROSPECTUS WILL REFLECT THE PERFORMANCE
ASSOCIATED WITH THE MANAGING OWNER.
[Remainder of page left blank intentionally.]
33
DESCRIPTION OF THE DBIQ OPTIMUM YIELD SILVER INDEX EXCESS
RETURN™
The PowerShares DB Silver Fund (the “Product”) is not sponsored or endorsed by Deutsche Bank
AG, Deutsche Bank Securities Inc. or any subsidiary or affiliate of Deutsche Bank AG or Deutsche Bank Securities Inc. (collectively, “Deutsche Bank”). The DBIQ Optimum Yield Silver Index Excess Return™ (the “DB Index”) is
the exclusive property of Deutsche Bank Securities Inc. “DBIQ” and “Optimum Yield” are service marks of Deutsche Bank AG and have been licensed for use for certain purposes by Deutsche Bank Securities Inc. Neither Deutsche Bank
nor any other party involved in, or related to, making or compiling the DB Index makes any representation or warranty, express or implied, concerning the DB Index, the Product or the advisability of investing in securities generally. Neither
Deutsche Bank nor any other party involved in, or related to, making or compiling the DB Index has any obligation to take the needs of Invesco PowerShares Capital Management LLC, the sponsor of the Product, or its clients into consideration in
determining, composing or calculating the DB Index. Neither Deutsche Bank nor any other party involved in, or related to, making or compiling the DB Index is responsible for or has participated in the determination of the timing of, prices at,
quantities or valuation of the Product. Neither Deutsche Bank nor any other party involved in, or related to, making or compiling the DB Index has any obligation or liability in connection with the administration or trading of the Product.
NEITHER DEUTSCHE BANK NOR ANY OTHER PARTY INVOLVED IN, OR RELATED TO, MAKING OR COMPILING THE DB INDEX, WARRANTS OR
GUARANTEES THE ACCURACY AND/OR THE COMPLETENESS OF THE DB INDEX OR ANY DATA INCLUDED THEREIN AND SHALL HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. NEITHER DEUTSCHE BANK NOR ANY OTHER PARTY INVOLVED IN, OR RELATED TO,
MAKING OR COMPILING THE DB INDEX, MAKES ANY WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY INVESCO POWERSHARES CAPITAL MANAGEMENT LLC FROM THE USE OF THE DB INDEX OR ANY DATA INCLUDED THEREIN. NEITHER DEUTSCHE BANK NOR ANY OTHER PARTY
INVOLVED IN, OR RELATED TO, MAKING OR COMPILING THE DB INDEX, MAKES ANY EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES, OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE OR USE WITH RESPECT TO THE DB INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL DEUTSCHE BANK OR ANY OTHER PARTY INVOLVED IN, OR RELATED TO, MAKING OR COMPILING THE DB INDEX HAVE ANY LIABILITY FOR
DIRECT, INDIRECT, PUNITIVE, SPECIAL, CONSEQUENTIAL OR ANY OTHER DAMAGES OR LOSSES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY THEREOF. EXCEPT AS EXPRESSLY PROVIDED TO THE CONTRARY, THERE ARE NO THIRD PARTY BENEFICIARIES OF ANY
AGREEMENTS OR ARRANGEMENTS BETWEEN DEUTSCHE BANK AND INVESCO POWERSHARES CAPITAL MANAGEMENT LLC.
No purchaser, seller
or holder of the shares of this Product, or any other person or entity, should use or refer to any Deutsche Bank trade name, trademark or service mark to sponsor, endorse, market or promote this Product without first contacting Deutsche Bank to
determine whether Deutsche Bank’s permission is required. Under no circumstances may any person or entity claim any affiliation with Deutsche Bank without the written permission of Deutsche Bank.
General
Each of the DBIQ Optimum Yield Index Excess Return™, or DBIQ-OYER™, and the DBIQ Index Excess Return™, or DBIQ ER™ (“DBIQ-OYER™” and “DBIQ ER™,”
collectively, “DBIQ™” or “DBIQ ER™”), is intended to reflect the changes in market value, over time, positive or negative, in certain sectors of commodities, or an index. The Index is calculated on an excess return, or
unfunded basis. The Index is rolled in a manner which is aimed at potentially maximizing the roll benefits in backwardated markets and minimizing the losses from rolling in contangoed markets, or Optimum YieldTM. The Index is comprised of one commodity (silver), or Index
Commodity.
34
DBIQ Optimum Yield Silver Index Excess Return™, or the Index, is intended to reflect
the changes in market value of the silver sector.
The Index has been calculated back to a base date, or Base Date. On the
Base Date of December 2, 1988, the closing level of the Index, or Closing Level, was 100.
The sponsor of the Index
is Deutsche Bank Securities Inc., or Index Sponsor. The Index Sponsor may from time-to-time subcontract the provision of the calculation and other services described below to one or more third parties.
Composition of the Index
The Index is composed of the notional amount of the underlying Index Commodity. The Closing Level of the Index is calculated on each business day by the Index Sponsor based on the closing price of the
futures contracts for the underlying Index Commodity and the notional amounts of such Index Commodity.
The composition of the
Index may be adjusted in the event that the Index Sponsor is not able to calculate the closing prices of the Index Commodity.
The Index includes provisions for the replacement of futures contracts as they approach maturity. This replacement takes place over a
period of time in order to lessen the impact on the market for the futures contracts being replaced. With respect to the Index Commodity, the Fund employs a rule-based approach when it ‘rolls’ from one futures contract to another. Rather
than select a new futures contract based on a predetermined schedule (e.g., monthly), the Index Commodity rolls to the futures contract which generates the best possible ‘implied roll yield.’ The futures contract with a delivery month
within the next thirteen months which generates the best possible implied roll yield will be included in the Index. As a result, the Index Commodity is able to potentially maximize the roll benefits in backwardated markets and minimize the losses
from rolling in contangoed markets.
In general, as a futures contract approaches its expiration date, its price will move
towards the spot price in a contangoed market. Assuming the spot price does not change, this would result in the futures
contract price decreasing and a negative implied roll yield. The opposite is true in a backwardated market. Rolling in a contangoed market will tend to cause a drag on the Index Commodity’s
contribution to the Fund’s return while rolling in a backwardated market will tend to cause a push on the Index Commodity’s contribution to the Fund’s return.
The Index is calculated in USD on both an excess return (unfunded) and total return (funded) basis.
The futures contract price for the Index Commodity will be the exchange closing price for the Index Commodity on each weekday when banks in New York, New York are open, or Index Business Days. If a
weekday is not an Exchange Business Day (as defined in the following sentence) but is an Index Business Day, the exchange closing price from the previous Index Business Day will be used for the Index Commodity. “Exchange Business Day”
means, in respect of the Index Commodity, a day that is a trading day for the Index Commodity on the exchange (unless either an Index disruption event or force majeure event has occurred).
Contract Selection
On the first New York business day, or Verification Date, of each month, each Index Commodity futures contract will be tested in order to determine whether to continue including it in the Index. If the
Index Commodity futures contract requires delivery of the underlying commodity in the next month, known as the Delivery Month, a new Index Commodity futures contract will be selected for inclusion in the Index. For example, if the first New York
business day is May 1, 2015, and the Delivery Month of the Index Commodity futures contract currently in the Index is June 2015, a new Index Commodity futures contract with a later Delivery Month will be selected.
The new Index Commodity futures contract selected will be the Index Commodity futures contract with the best possible “implied roll
yield” based on the closing price for each eligible Index Commodity futures contract. Eligible Index Commodity futures contracts are any Index Commodity futures contracts having a Delivery Month (i) no sooner than the month after the
Delivery Month of the Index Commodity futures
35
contract currently in the Index, and (ii) no later than the
13th month after the Verification Date. For example, if
the first New York business day is May 1, 2015 and the Delivery Month of an Index Commodity futures contract currently in the Index is therefore June 2015, the Delivery Month of an eligible new Index Commodity futures contract must be between
July 2015 and July 2016. The implied roll yield is then calculated and the futures contract on the Index Commodity with the best possible implied roll yield is then selected. If two futures contracts have the same implied roll yield, the futures
contract with the minimum number of months prior to the Delivery Month is selected.
After the
futures contract selection, the monthly roll for the Index Commodity that is subject to a roll in that particular month unwinds the old futures contract and enters a position in the new futures contract. This takes place between the 2nd and 6th Index Business Day of the month.
On each day during the roll period, new notional holdings are calculated. The calculations for the old futures contracts underlying the Index Commodity that are leaving the Index and the new futures
contracts underlying the Index Commodity are then calculated.
On all days that are not monthly index roll days, the notional
holdings of the Index Commodity futures remain constant.
Change in the Methodology of the Index
The Index Sponsor employs the methodology described above and its application of such methodology shall be conclusive and
binding. While the Index Sponsor currently employs the above described methodology to calculate the Index, no assurance can be given that fiscal, market, regulatory, juridical or financial circumstances (including, but not limited to, any changes to
or any suspension or termination of or any other events affecting the Index Commodity or a futures contract) will not arise that would, in the view of the Index Sponsor, necessitate a modification of or change to such methodology and in such
circumstances the Index Sponsor may make any such modification or change as it determines appropriate. The Index Sponsor may also make modifications to the terms of the Index in any manner that it may deem necessary or desirable, including
(without limitation) to correct any manifest or proven error or to cure, correct or supplement any defective provision of the Index. The Index Sponsor will publish notice of any such modification
or change and the effective date thereof as set forth below.
Publication of Closing Levels and
Adjustments
In order to calculate each indicative Index level, the Index Sponsor polls Reuters every 15 seconds to
determine the real time price of each underlying futures contract with respect to the Index Commodity of the Index. The Index Sponsor then applies a set of rules to these values to create the indicative level of the Index. These rules are consistent
with the rules which the Index Sponsor applies at the end of each trading day to calculate the closing level of the Index.
The intra-day indicative value per Share of the Fund is based on the prior day’s final net asset value, adjusted four times per
minute throughout the trading day to reflect the continuous price changes of the Fund’s futures positions, which provides a continuously updated estimated net asset value per Share.
The Index Sponsor calculates and publishes the closing level of the Index daily. The Managing Owner publishes the net asset value of the
Fund and the net asset value per Share daily. Additionally, the Index Sponsor calculates and publishes the intra-day Index level, and the Index Sponsor calculates, and the Managing Owner publishes, the indicative value per Share (quoted in U.S.
dollars) once every fifteen seconds throughout each trading day.
All of the foregoing information is published as
follows:
The intra-day level of the Index (symbol: DBSLIX) and the intra-day indicative value per Share (symbol: DBS.IV)
(each quoted in U.S. dollars) are published once every fifteen seconds throughout each trading day on the consolidated tape, Reuters and/or Bloomberg and on the Managing Owner’s website at http://www.invescopowershares.com, or any
successor thereto.
The current trading price per Share (symbol: DBS) (quoted in U.S. dollars) is published continuously
as trades occur throughout each trading
36
day on the consolidated tape, Reuters and/or Bloomberg and on the Managing Owner’s website at http://www.invescopowershares.com, or any successor thereto.
The most recent end-of-day Index closing level (symbol: DBCMYESI) is published as of the close of business for the NYSE Arca each trading
day on the consolidated tape, Reuters and/or Bloomberg and on the Managing Owner’s website at http://www.invescopowershares.com, or any successor thereto.
The most recent end-of-day net asset value of the Fund (symbol: DBS.NV) is published as of the close of business on Reuters and/or Bloomberg and on the Managing Owner’s website at
http://www.invescopowershares.com, or any successor thereto. In addition, the most recent end-of-day net asset value of the Fund (symbol: DBS.NV) is published the following morning on the consolidated tape.
All of the foregoing information with respect to the Index, including the Index’s history, is also published at
https://index.db.com.
The Index Sponsor obtains information for inclusion in, or for use in the calculation of, the
Index from sources the Index Sponsor considers reliable. None of the Index Sponsor, the Managing Owner, the Fund or any of their respective affiliates accepts responsibility for or guarantees the accuracy and/or completeness of the Index or any data
included in the Index.
Any adjustments made to the Index will be published on both https://index.db.com and at
http://www.invescopowershares.com, or any successor(s) thereto.
Interruption of Index
Calculation
Calculation of the Index may not be possible or feasible under certain events or circumstances, including,
without limitation, a systems failure, natural or man-made disaster, act of God, armed conflict, act of terrorism, riot or labor disruption or any similar intervening circumstance, that is beyond the reasonable control of the Index Sponsor and that
the Index Sponsor determines affects the Index or the Index Commodity. Upon the occurrence of such
force majeure events, the Index Sponsor may, in its discretion, elect one (or more) of the following options:
| |
• |
|
make such determinations and/or adjustments to the terms of the Index as it considers appropriate to determine any closing level on any such
appropriate Index Business Day; and/or |
| |
• |
|
defer publication of the information relating to the Index until the next Index Business Day on which it determines that no force majeure event exists;
and/or |
| |
• |
|
permanently cancel publication of the information relating to the Index. |
Additionally, calculation of the Index may also be disrupted by an event that would require the Index Sponsor to calculate the closing
price in respect of the relevant Index Commodity on an alternative basis were such event to occur or exist on a day that is a trading day for such Index Commodity on the relevant exchange. If such an Index disruption event in relation to the Index
Commodity as described in the prior sentence occurs and continues for a period of five successive trading days for the Index Commodity on the relevant exchange, the Index Sponsor will, in its discretion, either
| |
• |
|
to continue to calculate the relevant closing price for a further period of five successive trading days for the Index Commodity on the relevant
exchange or |
| |
• |
|
if such period extends beyond the five successive trading days, the Index Sponsor may elect to replace the exchange traded instrument with respect to
the Index Commodity and shall make all necessary adjustments to the methodology and calculation of an Index as it deems appropriate. |
Historical Closing Levels
Set out below are
the Closing Levels and related data with respect to the Index as of October 31, 2014.
With respect to each of the
Closing Levels Tables, historic daily Index Closing Levels have been calculated with respect to the Index since December 2, 1988, which is the Base Date of the Index.
37
The Base Date was selected by the Index Sponsor based on the availability of price data
with respect to the relevant underlying futures contracts on the Index Commodity.
Since June 2006, the historic data with
respect to the closing prices of futures contracts Silver (SI) originated from Reuters. Prior to June 2006, the closing prices of futures contracts on SI were obtained from publicly available information from Logical Information Machines
(http://www.lim.com), Bloomberg and Reuters. The Index Sponsor has not independently verified the information extracted from these sources. The Index calculation methodology and commodity future selection are the same prior to and following
June 2006.
Complete price histories regarding certain futures contracts on Silver may not have been available (e.g., due
to lack of trading on specific days). In the event that prices on such futures contracts on Silver were unavailable during a contract selection day, such futures contracts were excluded from the futures contract selection process. The Index Sponsor
believes that the incomplete price histories should not have a material impact on the calculation of the Index.
Each Index
Closing Level is equal to the weighted sum of the market value of the commodity futures contracts of the Index Commodity that comprises the Index. The market value of the commodity futures contracts of the Index Commodity is equal to the number of
commodity futures contracts of the Index Commodity held multiplied by the commodity futures contracts closing price of the Index Commodity.
Because the Index is comprised by a single Index Commodity, the Index Base Weight and the Index weights will equal to 100%.
The Index Commodity Weights Tables reflect the range of the weightings with respect to the Index Commodity used to calculate the Index.
The Index rules stipulate the composition and the holding in the Index Commodity futures contracts. Such holdings in
the futures contracts underlying the Index Commodity change during the period just prior to the upcoming expiration of the applicable futures contracts as determined by the Optimum YieldTM roll rules.
Cautionary Statement-Statistical Information
Various statistical information is presented on the following pages, relating to the Closing Levels of the Index, on an annual and
cumulative basis, including certain comparisons of the Index to other commodities indices. In reviewing such information, prospective investors should consider that:
| |
• |
|
Changes in Closing Levels of the Index during any particular period or market cycle may be volatile. |
|
|
|
|
|
| Index |
|
Worst Peak-to-
Valley
Drawdown and
Time
Period |
|
Worst
Monthly
Drawdown
and Month
and Year |
| DBIQ-OY SI ER™ |
|
(66.49)%,
12/88 – 11/01 |
|
(27.98)%,
9/11 |
For example, the “Worst Peak-to-Valley Drawdown” of the Index, represents the greatest
percentage decline from any month-end Closing Level, without such Closing Level being equaled or exceeded as of a subsequent month-end, which occurred during the above-listed time period.
The “Worst Monthly Drawdown” of the Index occurred during the above-listed month and year.
See “Risk Factor (12) – Price Volatility May Possibly Cause the Total Loss of Your Investment.” on page 22.
| |
• |
|
Neither the fees charged by the Fund nor the execution costs associated with establishing futures positions in the Index Commodity are incorporated
into the Closing Levels of the Index. Accordingly, such Index Levels have not been reduced by the costs associated with an actual investment, such as the Fund, with an investment objective of tracking the Index. |
| |
• |
|
The Index was established in June 2006 and is calculated by the Index Sponsor. The Index calculation methodology and commodity futures contracts
selection is the same before and after June 2006, as described above. Accordingly, the Closing Levels of the Index, terms of the Index methodology and Index Commodity, reflect an element of hindsight at the time the Index was established. See
“The Risks You Face-(10) You May Not Rely on Past |
38
| |
|
Performance or Index Results in Deciding Whether to Buy Shares” and “-(11) Fewer Representative Commodities May Result In Greater Index Volatility.”
|
WHILE THE FUND’S OBJECTIVE IS NOT TO GENERATE PROFIT THROUGH ACTIVE PORTFOLIO MANAGEMENT, BUT IS TO
TRACK THE INDEX, BECAUSE THE INDEX WAS ESTABLISHED IN JUNE 2006 (RENAMED OCTOBER 2010), CERTAIN INFORMATION RELATING TO INDEX CLOSING LEVELS MAY BE CONSIDERED TO BE “HYPOTHETICAL.” HYPOTHETICAL INFORMATION MAY HAVE CERTAIN INHERENT
LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW.
NO REPRESENTATION IS BEING MADE THAT THE INDEX WILL OR IS LIKELY TO ACHIEVE
ANNUAL OR CUMULATIVE CLOSING LEVELS CONSISTENT WITH OR SIMILAR TO THOSE SET FORTH HEREIN. SIMILARLY, NO REPRESENTATION IS BEING MADE THAT THE FUND WILL GENERATE PROFITS OR LOSSES SIMILAR TO THE FUND’S PAST PERFORMANCE, WHEN AVAILABLE, OR THE
HISTORICAL ANNUAL OR CUMULATIVE CHANGES IN THE INDEX CLOSING LEVELS. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY INVESTMENT METHODOLOGIES, WHETHER ACTIVE OR PASSIVE.
ONE OF THE LIMITATIONS OF HYPOTHETICAL INFORMATION IS THAT IT IS GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. TO THE
EXTENT THAT INFORMATION PRESENTED HEREIN RELATES TO THE PERIOD DECEMBER 1988 THROUGH MAY 2006, THE INDEX CLOSING LEVELS REFLECT THE APPLICATION OF THE INDEX’S METHODOLOGY, AND SELECTION OF INDEX COMMODITIES, IN HINDSIGHT.
NO HYPOTHETICAL RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THERE ARE NUMEROUS
FACTORS, INCLUDING THOSE DESCRIBED UNDER “THE RISKS YOU FACE” HEREIN, RELATED TO THE
COMMODITIES MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF THE FUND’S EFFORTS TO TRACK ITS INDEX OVER TIME WHICH CANNOT BE, AND HAVE NOT BEEN, ACCOUNTED FOR IN THE PREPARATION OF SUCH INDEX
INFORMATION SET FORTH ON THE FOLLOWING PAGES, ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL PERFORMANCE RESULTS FOR THE FUND. FURTHERMORE, THE INDEX INFORMATION DOES NOT INVOLVE FINANCIAL RISK OR ACCOUNT FOR THE IMPACT OF FEES AND COSTS ASSOCIATED WITH
THE FUND.
THE MANAGING OWNER AND ITS TRADING PRINCIPALS HAVE NO EXPERIENCE MANAGING THE DAY-TO-DAY OPERATIONS FOR THE
FUND AND HAVE ONLY MANAGED AN EXCHANGE-TRADED FUND THAT RELATES TO A BROAD-BASED COMMODITY INDEX FOR A SHORT PERIOD. BECAUSE THERE ARE NO ACTUAL PERFORMANCE RESULTS OF THE MANAGING OWNER THAT ARE COMPARABLE TO THE INDEX CLOSING LEVELS SET FORTH
HEREIN, PROSPECTIVE INVESTORS SHOULD BE PARTICULARLY WARY OF PLACING UNDUE RELIANCE ON THE ANNUAL OR CUMULATIVE INDEX RESULTS.
[Remainder of page left blank intentionally.]
39
CLOSING LEVELS TABLES*
DBIQ OPTIMUM YIELD SILVER INDEX EXCESS RETURN™
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
CLOSING LEVEL |
|
|
INDEX CHANGES |
|
| |
High1 |
|
|
Low2 |
|
|
Annual3 |
|
|
Since
Inception4 |
|
| 19885 |
|
|
99.56 |
|
|
|
96.35 |
|
|
|
-3.14 |
% |
|
|
-3.14 |
% |
| 1989 |
|
|
98.80 |
|
|
|
74.81 |
|
|
|
-21.67 |
% |
|
|
-24.12 |
% |
| 1990 |
|
|
77.71 |
|
|
|
52.83 |
|
|
|
-26.21 |
% |
|
|
-44.01 |
% |
| 1991 |
|
|
58.55 |
|
|
|
46.28 |
|
|
|
-14.31 |
% |
|
|
-52.02 |
% |
| 1992 |
|
|
53.20 |
|
|
|
42.91 |
|
|
|
-10.01 |
% |
|
|
-56.83 |
% |
| 1993 |
|
|
62.57 |
|
|
|
41.28 |
|
|
|
33.57 |
% |
|
|
-42.33 |
% |
| 1994 |
|
|
64.94 |
|
|
|
49.92 |
|
|
|
-8.36 |
% |
|
|
-47.15 |
% |
| 1995 |
|
|
64.61 |
|
|
|
46.95 |
|
|
|
-0.55 |
% |
|
|
-47.45 |
% |
| 1996 |
|
|
58.86 |
|
|
|
45.10 |
|
|
|
-13.26 |
% |
|
|
-54.41 |
% |
| 1997 |
|
|
56.61 |
|
|
|
38.79 |
|
|
|
17.06 |
% |
|
|
-46.63 |
% |
| 1998 |
|
|
61.92 |
|
|
|
41.66 |
|
|
|
-17.16 |
% |
|
|
-55.79 |
% |
| 1999 |
|
|
49.84 |
|
|
|
42.50 |
|
|
|
5.74 |
% |
|
|
-53.26 |
% |
| 2000 |
|
|
47.98 |
|
|
|
39.06 |
|
|
|
-16.40 |
% |
|
|
-60.93 |
% |
| 2001 |
|
|
40.38 |
|
|
|
32.68 |
|
|
|
-6.36 |
% |
|
|
-63.41 |
% |
| 2002 |
|
|
41.20 |
|
|
|
34.04 |
|
|
|
4.25 |
% |
|
|
-61.86 |
% |
| 2003 |
|
|
46.80 |
|
|
|
34.43 |
|
|
|
22.10 |
% |
|
|
-53.43 |
% |
| 2004 |
|
|
63.99 |
|
|
|
43.08 |
|
|
|
13.63 |
% |
|
|
-47.08 |
% |
| 2005 |
|
|
68.75 |
|
|
|
50.02 |
|
|
|
27.66 |
% |
|
|
-32.44 |
% |
| 2006 |
|
|
110.77 |
|
|
|
67.36 |
|
|
|
40.22 |
% |
|
|
-5.27 |
% |
| 2007 |
|
|
109.82 |
|
|
|
82.34 |
|
|
|
9.77 |
% |
|
|
3.99 |
% |
| 2008 |
|
|
142.11 |
|
|
|
59.28 |
|
|
|
-27.27 |
% |
|
|
-24.37 |
% |
| 2009 |
|
|
128.69 |
|
|
|
70.03 |
|
|
|
48.53 |
% |
|
|
12.34 |
% |
| 2010 |
|
|
204.78 |
|
|
|
98.82 |
|
|
|
82.29 |
% |
|
|
104.78 |
% |
| 2011 |
|
|
319.49 |
|
|
|
176.44 |
|
|
|
-10.28 |
% |
|
|
83.72 |
% |
| 2012 |
|
|
244.65 |
|
|
|
172.62 |
|
|
|
7.68 |
% |
|
|
97.82 |
% |
| 2013 |
|
|
212.37 |
|
|
|
120.96 |
|
|
|
-36.53 |
% |
|
|
25.55 |
% |
| 20146 |
|
|
142.63 |
|
|
|
103.68 |
|
|
|
-17.42 |
% |
|
|
3.68 |
% |
THE FUND WILL TRADE WITH A VIEW TO TRACKING THE
DBIQ OPTIMUM YIELD SILVER INDEX EXCESS RETURN™ OVER TIME.
NEITHER THE PAST PERFORMANCE OF THE FUND NOR THE PRIOR INDEX LEVELS AND CHANGES, POSITIVE AND NEGATIVE, SHOULD BE TAKEN AS AN INDICATION OF THE FUND’S FUTURE PERFORMANCE.
| * |
Prior and up to and including December 31, 2010, the Fund tracked the Deutsche Bank Liquid Commodity Index-Optimum Yield Silver Excess Return™, or the
Original Index. After December 31, 2010, the Fund tracked DBIQ Optimum Yield Silver Index Excess Return™, or the Renamed Index. The Fund’s Original Index is identical to the Renamed Index, except with respect to the following
non-substantive changes: (i) name of Index and (ii) ticker symbol. The inception date remains identical. The name of the Original Index was changed to the name of the Renamed Index in October 2010 and such change became effective in
January 3, 2011. Except as provided in the immediately preceding sentence, all prior underlying formulae, data (e.g., closing levels, measure of volatility, all other numerical statistics and measures) and all other characteristics (e.g., Base
Date, Index Sponsor, Inception Date, rolling, etc.) with respect to the Original Index are identical to the Renamed Index. |
See accompanying Notes and Legends.
40
DBIQ OPTIMUM YIELD SILVER INDEX TOTAL RETURN™
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
CLOSING LEVEL |
|
|
INDEX CHANGES |
|
| |
High1 |
|
|
Low2 |
|
|
Annual3 |
|
|
Since
Inception4 |
|
| 19885 |
|
|
99.79 |
|
|
|
96.94 |
|
|
|
-2.52 |
% |
|
|
-2.52 |
% |
| 1989 |
|
|
100.47 |
|
|
|
80.40 |
|
|
|
-14.91 |
% |
|
|
-17.05 |
% |
| 1990 |
|
|
85.46 |
|
|
|
62.18 |
|
|
|
-20.31 |
% |
|
|
-33.89 |
% |
| 1991 |
|
|
70.97 |
|
|
|
55.14 |
|
|
|
-9.48 |
% |
|
|
-40.16 |
% |
| 1992 |
|
|
66.46 |
|
|
|
55.38 |
|
|
|
-6.80 |
% |
|
|
-44.23 |
% |
| 1993 |
|
|
82.27 |
|
|
|
53.55 |
|
|
|
37.71 |
% |
|
|
-23.20 |
% |
| 1994 |
|
|
87.23 |
|
|
|
69.13 |
|
|
|
-4.33 |
% |
|
|
-26.53 |
% |
| 1995 |
|
|
91.63 |
|
|
|
65.91 |
|
|
|
5.16 |
% |
|
|
-22.73 |
% |
| 1996 |
|
|
86.97 |
|
|
|
69.54 |
|
|
|
-8.67 |
% |
|
|
-29.44 |
% |
| 1997 |
|
|
92.17 |
|
|
|
61.74 |
|
|
|
23.25 |
% |
|
|
-13.03 |
% |
| 1998 |
|
|
101.42 |
|
|
|
70.42 |
|
|
|
-13.04 |
% |
|
|
-24.37 |
% |
| 1999 |
|
|
88.05 |
|
|
|
73.64 |
|
|
|
10.85 |
% |
|
|
-16.16 |
% |
| 2000 |
|
|
86.50 |
|
|
|
74.17 |
|
|
|
-11.31 |
% |
|
|
-25.64 |
% |
| 2001 |
|
|
77.17 |
|
|
|
64.30 |
|
|
|
-3.02 |
% |
|
|
-27.89 |
% |
| 2002 |
|
|
81.81 |
|
|
|
67.18 |
|
|
|
5.98 |
% |
|
|
-23.58 |
% |
| 2003 |
|
|
94.72 |
|
|
|
69.16 |
|
|
|
23.36 |
% |
|
|
-5.73 |
% |
| 2004 |
|
|
129.84 |
|
|
|
87.49 |
|
|
|
15.21 |
% |
|
|
8.61 |
% |
| 2005 |
|
|
145.33 |
|
|
|
102.71 |
|
|
|
31.78 |
% |
|
|
43.13 |
% |
| 2006 |
|
|
238.54 |
|
|
|
142.80 |
|
|
|
47.15 |
% |
|
|
110.61 |
% |
| 2007 |
|
|
254.17 |
|
|
|
188.78 |
|
|
|
14.75 |
% |
|
|
141.68 |
% |
| 2008 |
|
|
331.73 |
|
|
|
139.67 |
|
|
|
-26.26 |
% |
|
|
78.23 |
% |
| 2009 |
|
|
303.70 |
|
|
|
165.04 |
|
|
|
48.75 |
% |
|
|
165.11 |
% |
| 2010 |
|
|
483.90 |
|
|
|
233.22 |
|
|
|
82.53 |
% |
|
|
383.90 |
% |
| 2011 |
|
|
755.24 |
|
|
|
416.99 |
|
|
|
-10.24 |
% |
|
|
334.36 |
% |
| 2012 |
|
|
578.47 |
|
|
|
408.27 |
|
|
|
7.77 |
% |
|
|
368.09 |
% |
| 2013 |
|
|
502.54 |
|
|
|
286.31 |
|
|
|
-36.50 |
% |
|
|
197.25 |
% |
| 20146 |
|
|
337.70 |
|
|
|
245.53 |
|
|
|
-17.40 |
% |
|
|
145.53 |
% |
THE FUND WILL NOT TRADE WITH A VIEW TO TRACKING THE
DBIQ OPTIMUM YIELD SILVER INDEX TOTAL RETURN™ OVER TIME.
NEITHER THE PAST PERFORMANCE OF THE FUND NOR THE PRIOR INDEX LEVELS AND CHANGES, POSITIVE AND NEGATIVE, SHOULD BE TAKEN AS AN INDICATION OF THE FUND’S FUTURE PERFORMANCE.
Prior and up to and including December 31, 2010, the Fund tracked the Deutsche Bank Liquid Commodity Index-Optimum Yield Silver Excess Return™,
or the Original Index. After December 31, 2010, the Fund tracked DBIQ Optimum Yield Silver Index Excess Return™, or the Renamed Index. The Fund’s Original Index is identical to the Renamed Index, except with respect to the following
non-substantive changes: (i) name of Index and (ii) ticker symbol. The inception date remains identical. The name of the Original Index was changed to the name of the Renamed Index in October 2010 and such change became effective in
January 3, 2011. Except as provided in the immediately preceding sentence, all prior underlying formulae, data (e.g., closing levels, measure of volatility, all other numerical statistics and measures) and all other characteristics (e.g., Base
Date, Index Sponsor, Inception Date, rolling, etc.) with respect to the Original Index are identical to the Renamed Index.
See accompanying Notes and Legends.
41
INDEX COMMODITIES WEIGHTS TABLES
DBIQ OPTIMUM YIELD SILVER INDEX EXCESS RETURN™
|
|
|
|
|
|
|
|
|
| |
|
SI7
|
|
| |
High1 |
|
|
Low2 |
|
| 19885 |
|
|
100 |
% |
|
|
100 |
% |
| 1989 |
|
|
100 |
% |
|
|
100 |
% |
| 1990 |
|
|
100 |
% |
|
|
100 |
% |
| 1991 |
|
|
100 |
% |
|
|
100 |
% |
| 1992 |
|
|
100 |
% |
|
|
100 |
% |
| 1993 |
|
|
100 |
% |
|
|
100 |
% |
| 1994 |
|
|
100 |
% |
|
|
100 |
% |
| 1995 |
|
|
100 |
% |
|
|
100 |
% |
| 1996 |
|
|
100 |
% |
|
|
100 |
% |
| 1997 |
|
|
100 |
% |
|
|
100 |
% |
| 1998 |
|
|
100 |
% |
|
|
100 |
% |
| 1999 |
|
|
100 |
% |
|
|
100 |
% |
| 2000 |
|
|
100 |
% |
|
|
100 |
% |
| 2001 |
|
|
100 |
% |
|
|
100 |
% |
| 2002 |
|
|
100 |
% |
|
|
100 |
% |
| 2003 |
|
|
100 |
% |
|
|
100 |
% |
| 2004 |
|
|
100 |
% |
|
|
100 |
% |
| 2005 |
|
|
100 |
% |
|
|
100 |
% |
| 2006 |
|
|
100 |
% |
|
|
100 |
% |
| 2007 |
|
|
100 |
% |
|
|
100 |
% |
| 2008 |
|
|
100 |
% |
|
|
100 |
% |
| 2009 |
|
|
100 |
% |
|
|
100 |
% |
| 2010 |
|
|
100 |
% |
|
|
100 |
% |
| 2011 |
|
|
100 |
% |
|
|
100 |
% |
| 2012 |
|
|
100 |
% |
|
|
100 |
% |
| 2013 |
|
|
100 |
% |
|
|
100 |
% |
| 20146 |
|
|
100 |
% |
|
|
100 |
% |
THE FUND WILL TRADE WITH A VIEW TO TRACKING THE
DBIQ OPTIMUM YIELD SILVER INDEX EXCESS RETURN™ OVER TIME.
NEITHER THE PAST PERFORMANCE OF THE FUND NOR THE PRIOR INDEX LEVELS AND
CHANGES,
POSITIVE AND NEGATIVE, SHOULD BE TAKEN AS AN INDICATION OF THE FUND’S
FUTURE PERFORMANCE.
Prior and up to and including December 31, 2010, the Fund tracked the Deutsche Bank Liquid Commodity Index-Optimum Yield Silver Excess Return™,
or the Original Index. After December 31, 2010, the Fund tracked DBIQ Optimum Yield Silver Index Excess Return™, or the Renamed Index. The Fund’s Original Index is identical to the Renamed Index, except with respect to the following
non-substantive changes: (i) name of Index and (ii) ticker symbol. The inception date remains identical. The name of the Original Index was changed to the name of the Renamed Index in October 2010 and such change became effective in
January 3, 2011. Except as provided in the immediately preceding sentence, all prior underlying formulae, data (e.g., closing levels, measure of volatility, all other numerical statistics and measures) and all other characteristics (e.g., Base
Date, Index Sponsor, Inception Date, rolling, etc.) with respect to the Original Index are identical to the Renamed Index.
See accompanying Notes and Legends.
42
DBIQ OPTIMUM YIELD SILVER INDEX TOTAL RETURN™
|
|
|
|
|
|
|
|
|
| |
|
SI7
|
|
| |
High1 |
|
|
Low2 |
|
| 19885 |
|
|
100 |
% |
|
|
100 |
% |
| 1989 |
|
|
100 |
% |
|
|
100 |
% |
| 1990 |
|
|
100 |
% |
|
|
100 |
% |
| 1991 |
|
|
100 |
% |
|
|
100 |
% |
| 1992 |
|
|
100 |
% |
|
|
100 |
% |
| 1993 |
|
|
100 |
% |
|
|
100 |
% |
| 1994 |
|
|
100 |
% |
|
|
100 |
% |
| 1995 |
|
|
100 |
% |
|
|
100 |
% |
| 1996 |
|
|
100 |
% |
|
|
100 |
% |
| 1997 |
|
|
100 |
% |
|
|
100 |
% |
| 1998 |
|
|
100 |
% |
|
|
100 |
% |
| 1999 |
|
|
100 |
% |
|
|
100 |
% |
| 2000 |
|
|
100 |
% |
|
|
100 |
% |
| 2001 |
|
|
100 |
% |
|
|
100 |
% |
| 2002 |
|
|
100 |
% |
|
|
100 |
% |
| 2003 |
|
|
100 |
% |
|
|
100 |
% |
| 2004 |
|
|
100 |
% |
|
|
100 |
% |
| 2005 |
|
|
100 |
% |
|
|
100 |
% |
| 2006 |
|
|
100 |
% |
|
|
100 |
% |
| 2007 |
|
|
100 |
% |
|
|
100 |
% |
| 2008 |
|
|
100 |
% |
|
|
100 |
% |
| 2009 |
|
|
100 |
% |
|
|
100 |
% |
| 2010 |
|
|
100 |
% |
|
|
100 |
% |
| 2011 |
|
|
100 |
% |
|
|
100 |
% |
| 2012 |
|
|
100 |
% |
|
|
100 |
% |
| 2013 |
|
|
100 |
% |
|
|
100 |
% |
| 20146 |
|
|
100 |
% |
|
|
100 |
% |
THE FUND WILL NOT TRADE WITH A VIEW TO TRACKING THE
DBIQ OPTIMUM YIELD SILVER INDEX TOTAL RETURN™ OVER TIME.
NEITHER THE PAST PERFORMANCE OF THE FUND NOR THE PRIOR INDEX LEVELS AND
CHANGES,
POSITIVE AND NEGATIVE, SHOULD BE TAKEN AS AN INDICATION OF THE FUND’S
FUTURE PERFORMANCE.
Prior and up to and including December 31, 2010, the Fund tracked the Deutsche Bank Liquid Commodity Index-Optimum Yield Silver Excess Return™,
or the Original Index. After December 31, 2010, the Fund tracked DBIQ Optimum Yield Silver Index Excess Return™, or the Renamed Index. The Fund’s Original Index is identical to the Renamed Index, except with respect to the following
non-substantive changes: (i) name of Index and (ii) ticker symbol. The inception date remains identical. The name of the Original Index was changed to the name of the Renamed Index in October 2010 and such change became effective in
January 3, 2011. Except as provided in the immediately preceding sentence, all prior underlying formulae, data (e.g., closing levels, measure of volatility, all other numerical statistics and measures) and all other characteristics (e.g., Base
Date, Index Sponsor, Inception Date, rolling, etc.) with respect to the Original Index are identical to the Renamed Index.
See accompanying Notes and Legends.
43
All statistics based on data from December 2, 1988 to October 31, 2014.
|
|
|
|
|
|
|
|
|
|
|
|
|
| VARIOUS STATISTICAL MEASURES |
|
DBIQ Optimum Yield
Silver ER8 |
|
|
DBIQ Optimum Yield
Silver TR9 |
|
|
Silver Spot Fix pm10 |
|
| Annualized Changes to Index Level11 |
|
|
0.1 |
% |
|
|
3.5 |
% |
|
|
3.8 |
% |
| Average rolling 3 month daily volatility12 |
|
|
24.8 |
% |
|
|
24.8 |
% |
|
|
26.6 |
% |
| Sharpe Ratio13 |
|
|
0.01 |
|
|
|
0.02 |
|
|
|
0.03 |
|
| % of months with positive change14 |
|
|
47 |
% |
|
|
49 |
% |
|
|
48 |
% |
| Average monthly positive change15 |
|
|
6.8 |
% |
|
|
6.8 |
% |
|
|
7.0 |
% |
| Average monthly negative change16 |
|
|
-5.5 |
% |
|
|
-5.4 |
% |
|
|
-5.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ANNUALIZED INDEX LEVELS17 |
|
DBIQ Optimum Yield
Silver ER8 |
|
|
DBIQ Optimum Yield
Silver TR9 |
|
|
Silver Spot Fix pm10 |
|
| 1 year |
|
|
-27.1 |
% |
|
|
-27.1 |
% |
|
|
-27.0 |
% |
| 3 year |
|
|
-22.8 |
% |
|
|
-22.8 |
% |
|
|
-22.1 |
% |
| 5 year |
|
|
-0.9 |
% |
|
|
-0.8 |
% |
|
|
-0.5 |
% |
| 7 year |
|
|
0.2 |
% |
|
|
0.6 |
% |
|
|
1.8 |
% |
| 10 year |
|
|
6.2 |
% |
|
|
7.8 |
% |
|
|
8.5 |
% |
| 15 year |
|
|
5.8 |
% |
|
|
7.8 |
% |
|
|
7.7 |
% |
NEITHER THE PAST PERFORMANCE OF THE FUND NOR THE PRIOR INDEX LEVELS AND CHANGES, POSITIVE AND NEGATIVE, SHOULD BE
TAKEN AS AN INDICATION OF THE FUND’S FUTURE PERFORMANCE.
WHILE THE FUND’S OBJECTIVE IS NOT TO GENERATE PROFIT THROUGH ACTIVE
PORTFOLIO MANAGEMENT, BUT IS TO TRACK THE INDEX, BECAUSE THE INDEX WAS ESTABLISHED IN JUNE 2006 (RENAMED OCTOBER 2010), CERTAIN INFORMATION RELATING TO INDEX CLOSING LEVELS MAY BE CONSIDERED TO BE “HYPOTHETICAL.” HYPOTHETICAL INFORMATION
MAY HAVE CERTAIN INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW.
NO REPRESENTATION IS BEING MADE THAT THE INDEX WILL OR IS LIKELY TO
ACHIEVE ANNUAL OR CUMULATIVE CLOSING LEVELS CONSISTENT WITH OR SIMILAR TO THOSE SET FORTH HEREIN. SIMILARLY, NO REPRESENTATION IS BEING MADE THAT THE FUND WILL GENERATE PROFITS OR LOSSES SIMILAR TO THE FUND’S PAST PERFORMANCE, WHEN AVAILABLE,
OR THE HISTORICAL ANNUAL OR CUMULATIVE CHANGES IN THE INDEX CLOSING LEVELS. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY INVESTMENT METHODOLOGIES, WHETHER ACTIVE OR
PASSIVE.
ONE OF THE LIMITATIONS OF HYPOTHETICAL INFORMATION IS THAT IT IS GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. TO THE EXTENT
THAT INFORMATION PRESENTED HEREIN RELATES TO THE PERIOD DECEMBER 1988 THROUGH MAY 2006, THE INDEX CLOSING LEVELS REFLECT THE APPLICATION OF THE INDEX’S METHODOLOGY, AND SELECTION OF INDEX COMMODITIES, IN HINDSIGHT.
NO HYPOTHETICAL RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THERE ARE NUMEROUS FACTORS, INCLUDING
THOSE DESCRIBED UNDER “THE RISKS YOU FACE” HEREIN, RELATED TO THE COMMODITIES MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF THE FUND’S EFFORTS TO TRACK ITS INDEX OVER TIME WHICH CANNOT BE, AND HAVE NOT BEEN, ACCOUNTED FOR IN THE
PREPARATION OF SUCH INDEX INFORMATION SET FORTH ON THE FOLLOWING PAGES, ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL PERFORMANCE RESULTS FOR THE FUND. FURTHERMORE, THE INDEX INFORMATION DOES NOT INVOLVE FINANCIAL RISK OR ACCOUNT FOR THE IMPACT OF FEES
AND COSTS ASSOCIATED WITH THE FUND.
See
accompanying Notes and Legends.
44
THE MANAGING OWNER AND ITS TRADING PRINCIPALS HAVE NO EXPERIENCE MANAGING THE DAY-TO-DAY OPERATIONS FOR
THE FUND AND HAVE ONLY MANAGED AN EXCHANGE-TRADED FUND THAT RELATES TO A BROAD-BASED COMMODITY INDEX FOR A SHORT PERIOD. BECAUSE THERE ARE NO ACTUAL PERFORMANCE RESULTS OF THE MANAGING OWNER THAT ARE COMPARABLE TO THE INDEX CLOSING LEVELS SET FORTH
HEREIN, PROSPECTIVE INVESTORS SHOULD BE PARTICULARLY WARY OF PLACING UNDUE RELIANCE ON THE ANNUAL OR CUMULATIVE INDEX RESULTS.
Prior and up
to and including December 31, 2010, the Fund tracked the Deutsche Bank Liquid Commodity Index-Optimum Yield Silver Excess Return™, or the Original Index. After December 31, 2010, the Fund tracked DBIQ Optimum Yield Silver Index Excess
Return™, or the Renamed Index. The Fund’s Original Index is identical to the Renamed Index, except with respect to the following non-substantive changes: (i) name of Index and (ii) ticker symbol. The inception date remains
identical. The name of the Original Index was changed to the name of the Renamed Index in October 2010 and such change became effective in January 3, 2011. Except as provided in the immediately preceding sentence, all prior underlying formulae,
data (e.g., closing levels, measure of volatility, all other numerical statistics and measures) and all other characteristics (e.g., Base Date, Index Sponsor, Inception Date, rolling, etc.) with respect to the Original Index are identical to the
Renamed Index.
See accompanying Notes and Legends.
45
COMPARISON OF DBIQ-OY SI ER, DBIQ-OY SI TR AND SILVER SPOT
FIX PM
NEITHER THE PAST PERFORMANCE OF THE FUND NOR THE PRIOR INDEX LEVELS AND CHANGES, POSITIVE AND NEGATIVE, SHOULD BE
TAKEN AS AN INDICATION OF THE FUND’S FUTURE PERFORMANCE.
Each of DBIQ-OY SI ER and DBIQ-OY SI TR are indices and do not reflect actual
trading. Silver Spot Fix pm reflects a composite of actual trading prices. DBIQ-OY SI TR is calculated on a total return basis and does not reflect any fees or expenses.
WHILE THE FUND’S OBJECTIVE IS NOT TO GENERATE PROFIT THROUGH ACTIVE PORTFOLIO MANAGEMENT, BUT IS TO TRACK THE INDEX, BECAUSE THE INDEX WAS ESTABLISHED IN JUNE 2006 (RENAMED OCTOBER 2010), CERTAIN
INFORMATION RELATING TO INDEX CLOSING LEVELS MAY BE CONSIDERED TO BE “HYPOTHETICAL.” HYPOTHETICAL INFORMATION MAY HAVE CERTAIN INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW.
NO REPRESENTATION IS BEING MADE THAT THE INDEX WILL OR IS LIKELY TO ACHIEVE ANNUAL OR CUMULATIVE CLOSING LEVELS CONSISTENT WITH OR SIMILAR TO THOSE SET
FORTH HEREIN. SIMILARLY, NO REPRESENTATION IS BEING MADE THAT THE FUND WILL GENERATE PROFITS OR LOSSES SIMILAR TO THE FUND’S PAST PERFORMANCE, WHEN AVAILABLE, OR THE HISTORICAL ANNUAL OR CUMULATIVE CHANGES IN THE INDEX CLOSING LEVELS. IN FACT,
THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY INVESTMENT METHODOLOGIES, WHETHER ACTIVE OR PASSIVE.
ONE OF THE LIMITATIONS OF HYPOTHETICAL INFORMATION IS THAT IT IS GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. TO THE EXTENT THAT INFORMATION PRESENTED HEREIN RELATES TO THE PERIOD DECEMBER 1988
THROUGH MAY 2006, THE INDEX CLOSING LEVELS REFLECT THE APPLICATION OF THE INDEX’S METHODOLOGY, AND SELECTION OF INDEX COMMODITIES, IN HINDSIGHT.
NO HYPOTHETICAL RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THERE ARE NUMEROUS FACTORS, INCLUDING THOSE DESCRIBED UNDER “THE RISKS YOU FACE”
HEREIN, RELATED TO THE COMMODITIES MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF THE FUND’S EFFORTS TO TRACK ITS INDEX OVER TIME WHICH CANNOT BE, AND HAVE NOT BEEN, ACCOUNTED FOR IN THE PREPARATION OF SUCH INDEX INFORMATION SET FORTH ON THE
FOLLOWING PAGES, ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL PERFORMANCE RESULTS FOR THE FUND. FURTHERMORE, THE INDEX INFORMATION DOES NOT INVOLVE FINANCIAL RISK OR ACCOUNT FOR THE IMPACT OF FEES AND COSTS ASSOCIATED WITH THE FUND.
See
accompanying Notes and Legends.
46
THE MANAGING OWNER AND ITS TRADING PRINCIPALS HAVE NO EXPERIENCE MANAGING THE DAY-TO-DAY OPERATIONS FOR
THE FUND AND HAVE ONLY MANAGED AN EXCHANGE-TRADED FUND THAT RELATES TO A BROAD-BASED COMMODITY INDEX FOR A SHORT PERIOD. BECAUSE THERE ARE NO ACTUAL PERFORMANCE RESULTS OF THE MANAGING OWNER THAT ARE COMPARABLE TO THE INDEX CLOSING LEVELS SET FORTH
HEREIN, PROSPECTIVE INVESTORS SHOULD BE PARTICULARLY WARY OF PLACING UNDUE RELIANCE ON THE ANNUAL OR CUMULATIVE INDEX RESULTS.
Prior and up
to and including December 31, 2010, the Fund tracked the Deutsche Bank Liquid Commodity Index-Optimum Yield Silver Excess Return™, or the Original Index. After December 31, 2010, the Fund tracked DBIQ Optimum Yield Silver Index Excess
Return™, or the Renamed Index. The Fund’s Original Index is identical to the Renamed Index, except with respect to the following non-substantive changes: (i) name of Index and (ii) ticker symbol. The inception date remains
identical. The name of the Original Index was changed to the name of the Renamed Index in October 2010 and such change became effective in January 3, 2011. Except as provided in the immediately preceding sentence, all prior underlying formulae,
data (e.g., closing levels, measure of volatility, all other numerical statistics and measures) and all other characteristics (e.g., Base Date, Index Sponsor, Inception Date, rolling, etc.) with respect to the Original Index are identical to the
Renamed Index.
See accompanying Notes and Legends.
47
COMPARISON OF DBIQ-OY SI TR AND SILVER SPOT FIX PM
NEITHER THE PAST PERFORMANCE OF THE FUND NOR THE PRIOR INDEXLEVELS AND CHANGES, POSITIVE AND NEGATIVE, SHOULD BE TAKEN
AS AN INDICATION OF THE FUND’S FUTURE PERFORMANCE.
DBIQ-OY SI TR is an index and does not reflect actual trading. Silver Spot Fix
pm reflects a composite of actual trading prices.
DBIQ-OY SI TR is calculated on a total return basis and does not reflect any fees or
expenses.
WHILE THE FUND’S OBJECTIVE IS NOT TO GENERATE PROFIT THROUGH ACTIVE PORTFOLIO MANAGEMENT, BUT IS TO TRACK THE INDEX, BECAUSE
THE INDEX WAS ESTABLISHED IN JUNE 2006 (RENAMED OCTOBER 2010), CERTAIN INFORMATION RELATING TO INDEX CLOSING LEVELS MAY BE CONSIDERED TO BE “HYPOTHETICAL.” HYPOTHETICAL INFORMATION MAY HAVE CERTAIN INHERENT LIMITATIONS, SOME OF WHICH ARE
DESCRIBED BELOW.
NO REPRESENTATION IS BEING MADE THAT THE INDEX WILL OR IS LIKELY TO ACHIEVE ANNUAL OR CUMULATIVE CLOSING LEVELS CONSISTENT
WITH OR SIMILAR TO THOSE SET FORTH HEREIN. SIMILARLY, NO REPRESENTATION IS BEING MADE THAT THE FUND WILL GENERATE PROFITS OR LOSSES SIMILAR TO THE FUND’S PAST PERFORMANCE, WHEN AVAILABLE, OR THE HISTORICAL ANNUAL OR CUMULATIVE CHANGES IN THE
INDEX CLOSING LEVELS. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY INVESTMENT METHODOLOGIES, WHETHER ACTIVE OR PASSIVE.
ONE OF THE LIMITATIONS OF HYPOTHETICAL INFORMATION IS THAT IT IS GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. TO THE EXTENT THAT INFORMATION
PRESENTED HEREIN RELATES TO THE PERIOD DECEMBER 1988 THROUGH MAY 2006, THE INDEX CLOSING LEVELS REFLECT THE APPLICATION OF THE INDEX’S METHODOLOGY, AND SELECTION OF INDEX COMMODITIES, IN HINDSIGHT.
NO HYPOTHETICAL RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THERE ARE NUMEROUS FACTORS, INCLUDING
THOSE DESCRIBED UNDER “THE RISKS YOU FACE” HEREIN, RELATED TO THE COMMODITIES MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF THE FUND’S EFFORTS TO TRACK ITS INDEX OVER TIME WHICH CANNOT BE, AND HAVE NOT BEEN, ACCOUNTED FOR IN THE
PREPARATION OF SUCH INDEX INFORMATION SET FORTH ON THE FOLLOWING PAGES, ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL PERFORMANCE RESULTS FOR THE FUND. FURTHERMORE, THE INDEX INFORMATION DOES NOT INVOLVE FINANCIAL RISK OR ACCOUNT FOR THE IMPACT OF FEES
AND COSTS ASSOCIATED WITH THE FUND.
See
accompanying Notes and Legends.
48
THE MANAGING OWNER AND ITS TRADING PRINCIPALS HAVE NO EXPERIENCE MANAGING THE DAY-TO-DAY OPERATIONS FOR
THE FUND AND HAVE ONLY MANAGED AN EXCHANGE-TRADED FUND THAT RELATES TO A BROAD-BASED COMMODITY INDEX FOR A SHORT PERIOD. BECAUSE THERE ARE NO ACTUAL PERFORMANCE RESULTS OF THE MANAGING OWNER THAT ARE COMPARABLE TO THE INDEX CLOSING LEVELS SET FORTH
HEREIN, PROSPECTIVE INVESTORS SHOULD BE PARTICULARLY WARY OF PLACING UNDUE RELIANCE ON THE ANNUAL OR CUMULATIVE INDEX RESULTS.
Prior and up
to and including December 31, 2010, the Fund tracked the Deutsche Bank Liquid Commodity Index-Optimum Yield Silver Excess Return™, or the Original Index. After December 31, 2010, the Fund tracked DBIQ Optimum Yield Silver Index Excess
Return™, or the Renamed Index. The Fund’s Original Index is identical to the Renamed Index, except with respect to the following non-substantive changes: (i) name of Index and (ii) ticker symbol. The inception date remains
identical. The name of the Original Index was changed to the name of the Renamed Index in October 2010 and such change became effective in January 3, 2011. Except as provided in the immediately preceding sentence, all prior underlying formulae,
data (e.g., closing levels, measure of volatility, all other numerical statistics and measures) and all other characteristics (e.g., Base Date, Index Sponsor, Inception Date, rolling, etc.) with respect to the Original Index are identical to the
Renamed Index.
See accompanying Notes and Legends.
49
NOTES AND LEGENDS:
1. “High” reflects the highest closing level of the Index during the applicable year.
2. “Low” reflects the lowest closing level of the Index during the applicable year.
3. “Annual Index Changes” reflect the change to the Index level on an annual basis as of December 31 of each applicable year.
4. “Index Changes Since Inception” reflects the change of the Index level since inception on a compounded annual basis as of December 31 of each applicable year.
5. Closing levels as of inception on December 2, 1988.
6. Closing levels as of October 31, 2014.
7. The DBIQ Optimum Yield
Silver Index Excess Return™ and DBIQ Optimum Yield Silver Index Total Return™ reflect the change in market value of SI (Silver) on an Optimum YieldTM basis.
8.
“DBIQ-OY SI ER™” is DBIQ Optimum Yield Silver Index Excess Return™.
9. “DBIQ-OY SI TR™” is DBIQ Optimum
Yield Silver Index Total Return™.
10. “Silver Spot Fix pm” was an internationally published benchmark for silver and was
available through The London Bullion Market Association’s (the “LBMA”) website at http://www.lbma.org.uk/pages/index.cfm?page_id=54&title=silver_fixings. The fixings were fully transparent and are therefore were used to
determine the accepted average price of silver. As a benchmark, many other financial instruments (such as cash-settled swaps and options) were priced off the fixing. The silver fixing started in 1897 and was terminated August 2014. Three market
making members of the LBMA conducted the Silver Fixing meeting under the chairmanship of The Bank of Nova Scotia-ScotiaMocatta by telephone at 12.00 noon each working day. The other two members of the Silver Fixing were Deutsche Bank AG and HSBC
Bank USA, NA.
11. “Annualized Changes to Index Level” reflect the change to the applicable index level on an annual basis as
of December 31 of each applicable year.
12. “Average rolling 3 month daily volatility.” The daily volatility reflects the
relative rate at which the price of the applicable index moves up and down, which is found by calculating the annualized standard deviation of the daily change in price. In turn, an average of this value is calculated on a 3 month rolling basis.
13. “Sharpe Ratio” compares the annualized rate of return minus the annualized risk-free rate of return to the annualized
variability - often referred to as the “standard deviation”– of the monthly rates of return. A Sharpe Ratio of 1:1 or higher indicates that, according to the measures used in calculating the ratio, the rate of return achieved by a
particular strategy has equaled or exceeded the risks assumed by such strategy. The risk-free rate of return that was used in these calculations was assumed to be 2.97%.
14. “% of months with positive change” during the period from inception to October 31, 2014.
15. “Average monthly positive change” during the period from inception to October 31, 2014.
16. “Average monthly negative change” during the period from inception to October 31, 2014.
17. “Annualized Index Levels” reflect the change to the level of the applicable index on an annual basis as of December 31 of each applicable time period (e.g., 1 year, 3, 5 or 7, 10 or 15
years, as applicable).
50
WHILE THE FUND’S OBJECTIVE IS NOT TO GENERATE PROFIT THROUGH ACTIVE PORTFOLIO MANAGEMENT, BUT IS TO
TRACK THE INDEX, BECAUSE THE INDEX WAS ESTABLISHED IN JUNE 2006 (RENAMED OCTOBER 2010), CERTAIN INFORMATION RELATING TO INDEX CLOSING LEVELS MAY BE CONSIDERED TO BE “HYPOTHETICAL.” HYPOTHETICAL INFORMATION MAY HAVE CERTAIN INHERENT
LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW.
NO REPRESENTATION IS BEING MADE THAT THE INDEX WILL OR IS LIKELY TO ACHIEVE ANNUAL OR
CUMULATIVE CLOSING LEVELS CONSISTENT WITH OR SIMILAR TO THOSE SET FORTH HEREIN. SIMILARLY, NO REPRESENTATION IS BEING MADE THAT THE FUND WILL GENERATE PROFITS OR LOSSES SIMILAR TO THE FUND’S PAST PERFORMANCE, WHEN AVAILABLE, OR THE HISTORICAL
ANNUAL OR CUMULATIVE CHANGES IN THE INDEX CLOSING LEVELS. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY INVESTMENT METHODOLOGIES, WHETHER ACTIVE OR PASSIVE.
ONE OF THE LIMITATIONS OF HYPOTHETICAL INFORMATION IS THAT IT IS GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. TO THE EXTENT THAT INFORMATION
PRESENTED HEREIN RELATES TO THE PERIOD DECEMBER 1988 THROUGH MAY 2006, THE INDEX CLOSING LEVELS REFLECT THE APPLICATION OF THE INDEX’S METHODOLOGY, AND SELECTION OF INDEX COMMODITIES, IN HINDSIGHT.
NO HYPOTHETICAL RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THERE ARE NUMEROUS FACTORS, INCLUDING
THOSE DESCRIBED UNDER “THE RISKS YOU FACE” HEREIN, RELATED TO THE COMMODITIES MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF THE FUND’S EFFORTS TO TRACK ITS INDEX OVER TIME WHICH CANNOT BE, AND HAVE NOT BEEN, ACCOUNTED FOR IN THE
PREPARATION OF SUCH INDEX INFORMATION SET FORTH ON THE FOLLOWING PAGES, ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL PERFORMANCE RESULTS FOR THE FUND. FURTHERMORE, THE INDEX INFORMATION DOES NOT INVOLVE FINANCIAL RISK OR ACCOUNT FOR THE IMPACT OF FEES
AND COSTS ASSOCIATED WITH THE FUND.
THE MANAGING OWNER AND ITS TRADING PRINCIPALS HAVE NO EXPERIENCE MANAGING THE DAY-TO-DAY OPERATIONS
FOR THE FUND AND HAVE ONLY MANAGED AN EXCHANGE-TRADED FUND THAT RELATES TO A BROAD-BASED COMMODITY INDEX FOR A SHORT PERIOD. BECAUSE THERE ARE NO ACTUAL PERFORMANCE RESULTS OF THE MANAGING OWNER THAT ARE COMPARABLE TO THE INDEX CLOSING LEVELS SET
FORTH HEREIN, PROSPECTIVE INVESTORS SHOULD BE PARTICULARLY WARY OF PLACING UNDUE RELIANCE ON THE ANNUAL OR CUMULATIVE INDEX RESULTS.
Prior
and up to and including December 31, 2010, the Fund tracked the Deutsche Bank Liquid Commodity Index-Optimum Yield Silver Excess Return™, or the Original Index. After December 31, 2010, the Fund tracked DBIQ Optimum Yield Silver Index
Excess Return™, or the Renamed Index. The Fund’s Original Index is identical to the Renamed Index, except with respect to the following non-substantive changes: (i) name of Index and (ii) ticker symbol. The inception date remains
identical. The name of the Original Index was changed to the name of the Renamed Index in October 2010 and such change became effective in January 3, 2011. Except as provided in the immediately preceding sentence, all prior underlying formulae,
data (e.g., closing levels, measure of volatility, all other numerical statistics and measures) and all other characteristics (e.g., Base Date, Index Sponsor, Inception Date, rolling, etc.) with respect to the Original Index are identical to the
Renamed Index.
PowerShares DB Silver Fund (the “Product”) is not sponsored or endorsed by Deutsche Bank AG, Deutsche Bank
Securities Inc. or any subsidiary or affiliate of Deutsche Bank AG or Deutsche Bank Securities Inc. (collectively, “Deutsche Bank”). The DBIQ Optimum Yield Silver Index Excess Return™ (the “DB Index”) is the exclusive
property of Deutsche Bank Securities Inc. “DBIQ” and “Optimum Yield” are service marks of Deutsche Bank AG and have been licensed for use for certain purposes by Deutsche Bank Securities Inc. Neither Deutsche Bank nor any other
party involved in, or related to, making or compiling the DB Index makes any representation or warranty, express or implied, concerning the DB Index, the Product or the advisability of investing in securities generally. Neither Deutsche Bank nor any
other party involved in, or related to, making or compiling the DB Index has any obligation to take the needs of Invesco PowerShares Capital Management LLC, the sponsor of the Product, or its clients into consideration in determining, composing or
calculating the DB Index. Neither Deutsche Bank nor any other party involved in, or related to, making or compiling the DB Index is responsible for or has participated in the determination of the timing of, prices at, quantities or valuation of the
Product. Neither Deutsche Bank nor any other party involved in, or related to, making or compiling the DB Index has any obligation or liability in connection with the administration or trading of the Product.
51
NEITHER DEUTSCHE BANK NOR ANY OTHER PARTY INVOLVED IN, OR RELATED TO, MAKING OR COMPILING THE DB INDEX,
WARRANTS OR GUARANTEES THE ACCURACY AND/OR THE COMPLETENESS OF THE DB INDEX OR ANY DATA INCLUDED THEREIN AND SHALL HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. NEITHER DEUTSCHE BANK NOR ANY OTHER PARTY INVOLVED IN, OR
RELATED TO, MAKING OR COMPILING THE DB INDEX, MAKES ANY WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY INVESCO POWERSHARES CAPITAL MANAGEMENT LLC FROM THE USE OF THE DB INDEX OR ANY DATA INCLUDED THEREIN. NEITHER DEUTSCHE BANK NOR ANY
OTHER PARTY INVOLVED IN, OR RELATED TO, MAKING OR COMPILING THE DB INDEX, MAKES ANY EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES, OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE DB INDEX OR
ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL DEUTSCHE BANK OR ANY OTHER PARTY INVOLVED IN, OR RELATED TO, MAKING OR COMPILING THE DB INDEX HAVE ANY LIABILITY FOR DIRECT, INDIRECT, PUNITIVE, SPECIAL,
CONSEQUENTIAL OR ANY OTHER DAMAGES OR LOSSES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY THEREOF. EXCEPT AS EXPRESSLY PROVIDED TO THE CONTRARY, THERE ARE NO THIRD PARTY BENEFICIARIES OF ANY AGREEMENTS OR ARRANGEMENTS BETWEEN
DEUTSCHE BANK AND INVESCO POWERSHARES CAPITAL MANAGEMENT LLC.
No purchaser, seller or holder of the shares of this Product, or any other
person or entity, should use or refer to any Deutsche Bank trade name, trademark or service mark to sponsor, endorse, market or promote this Product without first contacting Deutsche Bank to determine whether Deutsche Bank’s permission is
required. Under no circumstances may any person or entity claim any affiliation with Deutsche Bank without the written permission of Deutsche Bank.
52
USE OF PROCEEDS
A substantial amount of proceeds of the offering of the Shares are used by the Fund to engage in the trading of exchange-traded futures
on the Index Commodity with a view to tracking the changes, positive or negative, in the level of the Index over time, less the expenses of the operations of the Fund. The Fund’s portfolio also includes United States Treasury securities and
other high credit quality short-term fixed income securities for deposit with the Fund’s Commodity Broker as margin.
To
the extent that the Fund trades in futures contracts on United States exchanges, the assets deposited by the Fund with its Commodity Broker as margin must be segregated pursuant to the regulations of the CFTC. Such segregated funds may be invested
only in a limited range of instruments – principally U.S. government obligations.
To the extent, if any, that the Fund
trades in futures on markets other than regulated United States futures exchanges, funds deposited to margin positions held on such exchanges are invested in bank deposits or in instruments of a credit standing generally comparable to those
authorized by the CFTC for investment of “customer segregated funds,” although applicable CFTC rules prohibit funds employed in trading on foreign exchanges from being deposited in “customer segregated fund accounts.”
Although the following percentages may vary substantially over time, as of the date of this Prospectus, the Fund estimates that
approximately 100% of the net asset value of the Fund is maintained in segregated accounts in the name of the Fund with the Commodity Broker in the form of cash or United States Treasury bills. Approximately 10% of the net asset value of the Fund
may be held in cash at any one time. Such funds are segregated pursuant to CFTC rules.
The Managing Owner, a registered
commodity pool operator and commodity trading advisor, is responsible for the cash management activities of the Fund, including investing in United States Treasury and United States Government Agencies issues.
In addition, assets of the Fund not required to margin positions may be maintained in United States
bank accounts opened in the name of the Fund and may be held in United States Treasury bills (or other securities approved by the CFTC for investment of customer funds).
The Fund receives 100% of the interest income earned on its fixed income assets.
CHARGES
See “Summary – Breakeven Amounts” and “Summary – ‘Breakeven Table’” for additional breakeven related information.
Management Fee
The Fund pays the Managing Owner a Management Fee, monthly in arrears, in an amount equal to 0.75% per annum of its daily net asset value. The Management Fee is paid in consideration of the Managing
Owner’s commodity futures trading advisory services.
Organization and Offering Expenses
Expenses incurred in connection with organizing the Fund and the initial offering of the Shares were paid by DB
Commodity Services LLC, or the Predecessor Managing Owner. Expenses incurred in connection with the continuous offering of Shares of the Fund from commencement of the Fund’s trading operations up to the date of this Prospectus were also paid by
the Predecessor Managing Owner. Expenses incurred in connection with the continuous offering of Shares of the Fund on and after the date of this Prospectus are paid by the Managing Owner.
Organization and offering expenses relating to the Fund means those expenses incurred in connection with its formation, the qualification
and registration of the Shares and in offering, distributing and processing the Shares under applicable federal law, and any other expenses actually incurred and, directly or indirectly, related to the organization of the Fund or the offering of the
Shares, including, but not limited to, expenses such as:
| |
• |
|
initial and ongoing registration fees, filing fees and taxes; |
| |
• |
|
costs of preparing, printing (including typesetting), amending, supplementing,
|
53
| |
|
mailing and distributing the Registration Statement, the exhibits thereto and the Prospectus; |
| |
• |
|
the costs of qualifying, printing (including typesetting), amending, supplementing, mailing and distributing sales materials used in connection with
the offering and issuance of the Shares; |
| |
• |
|
travel, telegraph, telephone and other expenses in connection with the offering and issuance of the Shares; and |
| |
• |
|
accounting, auditing and legal fees (including disbursements related thereto) incurred in connection therewith. |
The Managing Owner will not allocate to the Fund the indirect expenses of the Managing Owner.
The pro-rated amount of the original organization and offering expenses for the Fund offered pursuant to this Prospectus was
approximately $446,429 and was paid by the Predecessor Managing Owner.
Brokerage
Commissions and Fees
The Fund pays to the Commodity Broker all brokerage commissions, including applicable exchange
fees, NFA fees, give-up fees, pit brokerage fees and other transaction related fees and expenses charged in connection with its trading activities. On average, total charges paid to the Commodity Broker are expected to be less than $[10.00] per
round-turn trade, although the Commodity Broker’s brokerage commissions and trading fees are determined on a contract-by-contract basis. A round-turn trade is a completed transaction involving both a purchase and a liquidating sale, or a sale
followed by a covering purchase. The Managing Owner does not expect brokerage commissions and fees to exceed [0.04]% of the net asset value of the Fund in any year, although the actual amount of brokerage commissions and fees in any year or any part
of any year may be greater.
Routine Operational, Administrative and Other Ordinary
Expenses
The Managing Owner pays all of the routine operational, administrative and other ordinary expenses of the Fund,
generally, as determined by the
Managing Owner, including, but not limited to, computer services, the fees and expenses of the Trustee, license and services fees paid to DBSI as Marketing Agent and Index Sponsor, legal and
accounting fees and expenses, tax preparation expenses, filing fees, and printing, mailing and duplication costs. The Managing Owner expects that all of the routine operational, administrative and other ordinary expenses of the Fund will be
approximately 0.33% per annum of the Fund’s net asset value.
Non-Recurring Fees
and Expenses
The Fund pays all non-recurring and unusual fees and expenses (referred to as extraordinary fees and expenses
in the Trust Declaration), if any, of itself, as determined by the Managing Owner. Non-recurring and unusual fees and expenses are fees and expenses which are non-recurring and unusual in nature, such as legal claims and liabilities and litigation
costs or indemnification or other unanticipated expenses. Such non-recurring and unusual fees and expenses, by their nature, are unpredictable in terms of timing and amount. Non-recurring and unusual fees and expenses will also include material
expenses which are not currently anticipated obligations of the Fund or of managed futures funds in general. Routine operational, administrative and other ordinary expenses will not be deemed non-recurring and unusual expenses.
Management Fee and Expenses to be Paid First out of Interest Income
The Management Fee and the brokerage commissions and fees of the Fund are paid first out of interest income from the Fund’s holdings
of U.S. Treasury bills and other high credit quality short-term fixed income securities on deposit with the Commodity Broker as margin or otherwise. If the interest income is not sufficient to cover the fees and expenses of the Fund during any
period, the excess of such fees and expenses over such interest income will be paid out of income from futures trading, if any, or from sales of the Fund’s fixed income securities.
Selling Commission
Retail investors may purchase and sell Shares through traditional brokerage accounts. Investors are expected to be charged a customary commission by their brokers in connection with purchases of Shares
54
that will vary from investor to investor. Investors are encouraged to review the terms of their brokerage accounts for applicable charges. Also, the excess, if any, of the price at which an
Authorized Participant sells a Share over the price paid by such Authorized Participant in connection with the creation of such Share in a Basket will be deemed to be underwriting compensation by the Financial Industry Regulatory Authority, or
FINRA, Corporate Financing Department.
WHO MAY SUBSCRIBE
Baskets may be created or redeemed only by Authorized Participants. Each Authorized Participant must (1) be a registered
broker-dealer or other securities market participant such as a bank or other financial institution which is not required to register as a broker-dealer to engage in securities transactions, (2) be a participant in DTC, and (3) have entered
into an agreement with the Fund and the Managing Owner, or a Participant Agreement. The Participant Agreement sets forth the procedures for the creation and redemption of Baskets and for the delivery of cash required for such creations or
redemptions. A list of the current Authorized Participants can be obtained from the Administrator. See “Creation and Redemption of Shares” for more details.
CREATION AND REDEMPTION OF SHARES
The Fund
creates and redeems Shares from time-to-time, but only in one or more Baskets. A Basket is a block of 200,000 Shares. Baskets may be created or redeemed only by Authorized Participants. Except when aggregated in Baskets, the Shares are not
redeemable securities. Authorized Participants pay a transaction fee of $500 in connection with each order to create or redeem a Basket. Authorized Participants may sell the Shares included in the Baskets they purchase from the Fund to other
investors.
Authorized Participants are the only persons that may place orders to create and redeem Baskets. Authorized
Participants must be (1) registered broker-dealers or other securities market participants, such as banks and other financial institutions, which are not required to register as broker-dealers to engage in securities transactions, and
(2) participants
in DTC. To become an Authorized Participant, a person must enter into a Participant Agreement with the Fund and the Managing Owner. The Participant Agreement sets forth the procedures for the
creation and redemption of Baskets and for the payment of cash required for such creations and redemptions. The Managing Owner may delegate its duties and obligations under the Participant Agreement to ALPS Distributors, the Administrator or the
Transfer Agent without consent from any Shareholder or Authorized Participant. The Participant Agreement and the related procedures attached thereto may be amended by the Managing Owner without the consent of any Shareholder or Authorized
Participant. To compensate the Transfer Agent for services in processing the creation and redemption of Baskets, an Authorized Participant is required to pay a transaction fee of $500 per order to create or redeem Baskets. Authorized Participants
who purchase Baskets from the Fund receive no fees, commissions or other form of compensation or inducement of any kind from either the Managing Owner or the Fund, and no such person has any obligation or responsibility to the Managing Owner or the
Fund to effect any sale or resale of Shares.
Authorized Participants are cautioned that some of their activities will
result in their being deemed participants in a distribution in a manner which would render them statutory underwriters and subject them to the prospectus delivery and liability provisions of the Securities Act of 1933, or the Securities Act, as
described in “Plan of Distribution.”
Each Authorized Participant must be registered as a broker-dealer under the
Exchange Act and regulated by FINRA, or exempt from being, or otherwise not be required to be, so regulated or registered, and qualified to act as a broker or dealer in the states or other jurisdictions where the nature of its business so requires.
Certain Authorized Participants may be regulated under federal and state banking laws and regulations. Each Authorized Participant will have its own set of rules and procedures, internal controls and information barriers as it determines is
appropriate in light of its own regulatory regime.
Authorized Participants may act for their own accounts or as agents for
broker-dealers, custodians and other securities market participants that wish to create or redeem Baskets.
55
Persons interested in purchasing Baskets should contact the Managing Owner or the
Administrator to obtain the contact information for the Authorized Participants. Shareholders who are not Authorized Participants will only be able to redeem their Shares through an Authorized Participant.
Under the Participant Agreements, the Managing Owner has agreed to indemnify the Authorized Participants and certain parties related to
the Authorized Participants against certain liabilities as a result of:
| |
• |
|
any breach by the Managing Owner, the Trust, or any of their respective agents or employees, of any provision of the Participant Agreement, including
any representations, warranties and covenants by any of them or the Trust therein or in the Officers’ Certificate (as defined in the Participant Agreement); |
| |
• |
|
any failure on the part of the Managing Owner to perform any obligation of the Managing Owner set forth in the Participant Agreement;
|
| |
• |
|
any failure by the Managing Owner to comply with applicable laws and regulations in connection with the Participant Agreement, except that the Managing
Owner will not be required to indemnify a Managing Owner Indemnified Party (as defined in the Participant Agreement) to the extent that such failure was caused by the reasonable reliance on instructions given or representations made by one or more
Managing Owner Indemnified Parties or the negligence or willful malfeasance of any Managing Owner Indemnified Party; |
| |
• |
|
any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, of which this Prospectus is a part of, or
arising out of or based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except those statements in the Registration Statement based on
information furnished in writing by or on behalf of the Authorized Participant expressly for use in the Registration Statement;
|
| |
• |
|
any untrue statement or alleged untrue statement of a material fact contained in the Prospectus or arising out of or based upon the omission or alleged
omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, except those statements in this Prospectus based on
information furnished in writing by or on behalf of the Authorized Participant expressly for use in the Prospectus. |
As provided in the Participant Agreements, in the absence of gross negligence, bad faith or willful misconduct, neither the Managing Owner nor an Authorized Participant will be liable to each other or to
any other person, including any party claiming by, through or on behalf of the Authorized Participant, for any losses, liabilities, damages, costs or expenses arising out of any mistake or error in data or other information provided to any of them
by each other or any other person or out of any interruption or delay in the electronic means of communications used by them.
The following description of the procedures for the creation and redemption of Baskets is only a summary and an investor should refer to
the relevant provisions of the Trust Declaration and the form of Participant Agreement for more detail. The Trust Declaration and the form of Participant Agreement are filed as exhibits to the registration statement of which this Prospectus is a
part.
Creation Procedures
On any business day, an Authorized Participant may place an order with the Transfer Agent to create one or more Baskets. For purposes of
processing both creation and redemption orders, a “business day” means any day other than a day when banks in New York City are required or permitted to be closed. Creation orders must be placed by 10:00 a.m., Eastern time. The day on
which the Transfer Agent receives a valid creation order is the creation order date. The day on which a creation order is settled is the creation order settlement date. As provided below, the creation order settlement date may occur up to 3 business
days after the creation order date. By placing a creation order, and prior to delivery of such
56
Baskets, an Authorized Participant’s DTC account is charged the non-refundable transaction fee due for the creation order.
Unless otherwise agreed to by the Managing Owner and the Authorized Participant as provided in the next sentence, Baskets are issued on
the creation order settlement date as of 2:45 p.m., Eastern time, on the business day immediately following the creation order date at the applicable net asset value per Share as of the closing time of the NYSE Arca or the last to close of the
exchanges on which its futures contracts are traded, whichever is later, on the creation order date, but only if the required payment has been timely received. Upon submission of a creation order, the Authorized Participant may request the Managing
Owner to agree to a creation order settlement date up to 3 business days after the creation order date. By placing a creation order, and prior to receipt of the Baskets, an Authorized Participant’s DTC account is charged the non-refundable
transaction fee due for the creation order.
Determination of Required Payment
The total payment required to create each Basket is the net asset value of 200,000 Shares as of the closing time of the NYSE Arca or the
last to close of the exchanges on which its futures contracts are traded, whichever is later, on the creation order date.
Because orders to purchase Baskets must be placed by 10:00 a.m., Eastern time, but the total payment required to create a Basket will not
be determined until 4:00 p.m., Eastern time, on the date the creation order is received, Authorized Participants will not know the total amount of the payment required to create a Basket at the time they submit the creation order for the Basket. The
net asset value of the Fund and the total amount of the payment required to create a Basket could rise or fall substantially between the time a creation order is submitted and the time the amount of the purchase price in respect thereof is
determined.
Rejection of Creation Orders
The Managing Owner or the Transfer Agent may reject a creation order if:
| |
• |
|
The Managing Owner or the Transfer Agent determines that the creation order is not in proper form;
|
| |
• |
|
The Managing Owner believes that the acceptance or receipt of the creation order would have adverse tax consequences to the Fund or its Shareholders;
or |
| |
• |
|
Circumstances outside the control of the Managing Owner or the Transfer Agent make it, for all practical purposes, not feasible to process creations of
Baskets. |
The Managing Owner will not be liable for the rejection of any creation order.
Redemption Procedures
The procedures by which an Authorized Participant can redeem one or more Baskets mirror the procedures for the creation of Baskets. On any business day, an Authorized Participant may place an order with
the Transfer Agent to redeem one or more Baskets. Redemption orders must be placed by 10:00 a.m., Eastern time. The day on which the Managing Owner receives a valid redemption order is the redemption order date. The day on which a redemption order
is settled is the redemption order settlement date. As provided below, the redemption order settlement date may occur up to 3 business days after the redemption order date. The redemption procedures allow Authorized Participants to redeem Baskets.
Individual Shareholders may not redeem directly from the Fund. Instead, individual Shareholders may only redeem Shares in integral multiples of 200,000 and only through an Authorized Participant.
Unless otherwise agreed to by the Managing Owner and the Authorized Participant as provided in the next sentence, by placing a redemption
order, an Authorized Participant agrees to deliver the Baskets to be redeemed through DTC’s book-entry system to the Fund not later than the redemption order settlement date as of 2:45 p.m., Eastern time, on the business day immediately
following the redemption order date. Upon submission of a redemption order, the Authorized Participant may request the Managing Owner to agree to a redemption order settlement date up to 3 business days after the redemption order date. By placing a
redemption order, and prior to receipt of the redemption proceeds, an Authorized Participant’s DTC account is charged the non-refundable transaction fee due for the redemption order.
57
Determination of Redemption Proceeds
The redemption proceeds from the Fund consist of the cash redemption amount. The cash redemption amount is equal to the net asset value of
the number of Basket(s) of the Fund requested in the Authorized Participant’s redemption order as of the closing time of the NYSE Arca or the last to close of the exchanges on which its futures contracts are traded, whichever is later, on the
redemption order date. The Managing Owner will distribute the cash redemption amount at the redemption order settlement date as of 2:45 p.m., Eastern time, on the redemption order settlement date through DTC to the account of the Authorized
Participant as recorded on DTC’s book-entry system.
Delivery of Redemption Proceeds
The redemption proceeds due from the Fund are delivered to the Authorized Participant at 2:45 p.m., Eastern time, on the
redemption order settlement date if, by such time, the Fund’s DTC account has been credited with the Baskets to be redeemed. If the Fund’s DTC account has not been credited with all of the Baskets to be redeemed by such time, the
redemption distribution is delivered to the extent of whole Baskets received. Any remainder of the redemption distribution is delivered on the next business day to the extent of remaining whole Baskets received if the Transfer Agent receives the fee
applicable to the extension of the redemption distribution date which the Managing Owner may, from time-to-time, determine and the remaining Baskets to be redeemed are credited to the Fund’s DTC account by 2:45 p.m., Eastern time, on such next
business day. Any further outstanding amount of the redemption order will be cancelled. The Managing Owner is also authorized to deliver the redemption distribution notwithstanding that the Baskets to be redeemed are not credited to the Fund’s
DTC account by 2:45 p.m., Eastern time, on the redemption order settlement date if the Authorized Participant has collateralized its obligation to deliver the Baskets through DTC’s book-entry system on such terms as the Managing Owner may
determine from time-to-time.
Suspension, Postponement or Rejection of Redemption Orders
The Managing Owner may, in its discretion, suspend the right of redemption, or postpone the
redemption order settlement date for (1) any period during which an emergency exists as a result of which the redemption distribution is not reasonably practicable, or (2) such other
period as the Managing Owner determines to be necessary for the protection of the Shareholders. The Managing Owner will not be liable to any person or in any way for any loss or damages that may result from any such suspension or postponement.
The Managing Owner or the Transfer Agent may reject a redemption order if the order is not in proper form as described in the
Participant Agreement. The Managing Owner or the Transfer Agent will reject a redemption order if the acceptance or receipt of the order, in the opinion of its counsel, might be unlawful.
Creation and Redemption Transaction Fee
To compensate the Transfer Agent for services in processing the creation and redemption of Baskets, an Authorized Participant is required
to pay a transaction fee of $500 per order to create or redeem Baskets. An order may include multiple Baskets. The transaction fee may be reduced, increased or otherwise changed by the Managing Owner. The Managing Owner will notify DTC of any
agreement to change the transaction fee and will not implement any increase in the fee for the redemption of Baskets until 30 days after the date of the notice.
Monthly account statements conforming to CFTC and NFA requirements are posted on the Managing Owner’s website at
http://www.invescopowershares.com. Additional reports may be posted on the Managing Owner’s website in the discretion of the Managing Owner or as required by regulatory authorities.
THE COMMODITY BROKER
A variety of executing brokers executes futures transactions on behalf of the Fund. Such executing brokers give-up all such transactions to Morgan Stanley & Co. LLC, a Delaware limited liability
company, which serves as the Fund’s clearing broker, or Commodity Broker. In its capacity as clearing broker, the Commodity Broker executes and clears each of the Fund’s futures transactions and performs
58
certain administrative services for the Fund. Morgan Stanley & Co. LLC is also registered with the Commodity Futures Trading Commission as a futures commission merchant and is a member
of the National Futures Association in such capacity.
On June 1, 2011, Morgan Stanley & Co. Incorporated
converted from a Delaware corporation to a Delaware limited liability company. As a result of that conversion, Morgan Stanley & Co. Incorporated is now named Morgan Stanley & Co. LLC (“MS&Co.” or the
“Company”).
MS&Co. is a wholly-owned, indirect subsidiary of Morgan Stanley, a Delaware holding company. Morgan
Stanley files periodic reports with the Securities and Exchange Commission as required by the Securities Exchange Act of 1934, which include current descriptions of material litigation and material proceedings and investigations, if any, by
governmental and/or regulatory agencies or self-regulatory organizations concerning Morgan Stanley and its subsidiaries, including MS&Co. As a consolidated subsidiary of Morgan Stanley, MS&Co. does not file its own periodic reports with the
SEC that contain descriptions of material litigation, proceedings and investigations. As a result, we refer you to the “Legal Proceedings” section of Morgan Stanley’s SEC 10-K filings for 2013, 2012, 2011, 2010, and 2009.
In addition to the matters described in those filings, in the normal course of business, each of Morgan Stanley and MS&Co. has been
named, from time to time, as a defendant in various legal actions, including arbitrations, class actions, and other litigation, arising in connection with its activities as a global diversified financial services institution. Certain of the legal
actions include claims for substantial compensatory and/or punitive damages or claims for indeterminate amounts of damages. Each of Morgan Stanley and MS&Co. is also involved, from time to time, in investigations and proceedings by governmental
and/or regulatory agencies or self-regulatory organizations, certain of which may result in adverse judgments, fines or penalties. The number of these investigations and proceedings has increased in recent years with regard to many financial
services institutions, including Morgan Stanley and MS&Co.
MS&Co. is a Delaware limited liability company with its
main business office located at
1585 Broadway, New York, New York 10036. Among other registrations and memberships, MS&Co. is registered as a futures commission merchant and is a member of the National Futures Association.
On May 7, 2009, MS&Co. was named as a defendant in a purported class action lawsuit brought under Sections 11, 12
and 15 of the Securities Act of 1933, as amended, which is now styled In re Morgan Stanley Mortgage Pass-Through Certificates Litigation and is pending in the United States District Court for the Southern District of New York (“SDNY”). The
third amended complaint, filed on September 30, 2011, alleges, among other things, that the registration statements and offering documents related to the offerings of certain mortgage pass-through certificates in 2006 contained false and
misleading information concerning the pools of residential loans that backed these securitizations. The plaintiffs seek, among other relief, class certification, unspecified compensatory and rescissionary damages, costs, interest and fees. On
July 22, 2014, the parties reached an agreement in principle to settle the litigation. The settlement is subject to approval by the court, which has set a final approval hearing for December 18, 2014.
On June 5, 2012, the Company consented to and became the subject of an Order Instituting Proceedings Pursuant to Sections 6(c) and
6(d) of the Commodity Exchange Act, as amended, Making Findings and Imposing Remedial Sanctions by The Commodity Futures Trading Commission (CFTC) to resolve allegations related to the failure of a salesperson to comply with exchange rules that
prohibit off-exchange futures transactions unless there is an Exchange for Related Position (EFRP). Specifically, the CFTC found that from April 2008 through October 2009, the Company violated Section 4c(a) of the Commodity Exchange Act and
Commission Regulation 1.38 by executing, processing and reporting numerous off-exchange futures trades to the Chicago Mercantile Exchange (CME) and Chicago Board of Trade (CBOT) as EFRPs in violation of CME and CBOT rules because those trades lacked
the corresponding and related cash, OTC swap, OTC option, or other OTC derivative position. In addition, the CFTC found that the Company violated CFTC Regulation 166.3 by failing to supervise the handling of the trades at issue and failing to have
adequate policies and procedures
59
designed to detect and deter the violations of the Act and Regulations. Without admitting or denying the underlying allegations and without adjudication of any issue of law or fact, the Company
accepted and consented to entry of findings and the imposition of a cease and desist order, a fine of $5,000,000, and undertakings related to public statements, cooperation and payment of the fine. The Company entered into corresponding and related
settlements with the CME and CBOT in which the CME found that the Company violated CME Rules 432.Q and 538 and fined the Company $750,000 and CBOT found that the Company violated CBOT Rules 432.Q and 538 and fined the Company $1,000,000.
On July 23, 2014, the U.S. Securities and Exchange Commission (“SEC”) approved a settlement by MS&Co. and certain
affiliates to resolve an investigation related to certain subprime RMBS transactions sponsored and underwritten by those entities in 2007. Pursuant to the settlement, MS&Co. and certain affiliates were charged with violating Sections 17(a)(2)
and 17(a)(3) of the Securities Act, agreed to pay disgorgement and penalties in an amount of $275 million and neither admitted nor denied the SEC’s findings.
On December 23, 2009, the Federal Home Loan Bank of Seattle filed a complaint against MS&Co. and an affiliate and other defendants in the Superior Court of the State of Washington, styled Federal
Home Loan Bank of Seattle v. Morgan Stanley & Co. Inc., et al. The amended complaint, filed on September 28, 2010, alleges that defendants made untrue statements and material omissions in the sale to plaintiff of certain mortgage
pass-through certificates backed by securitization trusts containing residential mortgage loans. The total amount of certificates allegedly sold to plaintiff by the Company was approximately $233 million. The complaint raises claims under the
Washington State Securities Act and seeks, among other things, to rescind the plaintiff’s purchase of such certificates. On October 18, 2010, defendants filed a motion to dismiss the action. By orders dated June 23, 2011 and
July 18, 2011, the court denied defendants’ omnibus motion to dismiss plaintiff’s amended complaint and on August 15, 2011, the court denied MS&Co.’s individual motion to dismiss the amended complaint. At June 25,
2014, the current unpaid balance of the mortgage pass-through certificates at issue in these cases was approximately $54 million, and the
certificates had not yet incurred actual losses. Based on currently available information, MS&Co. believes it and/or its affiliates could incur a loss for this action up to the difference
between the $54 million unpaid balance of these certificates (plus any losses incurred) and their fair market value at the time of a judgment against MS&Co. and/or its affiliates, or upon sale, plus pre- and post-judgment interest, fees and
costs. MS&Co. and/or its affiliates may be entitled to be indemnified for some of these losses and to an offset for interest received by the plaintiff prior to a judgment.
On March 15, 2010, the Federal Home Loan Bank of San Francisco filed two complaints against MS&Co. and other defendants in the Superior Court of the State of California. These actions are styled
Federal Home Loan Bank of San Francisco v. Credit Suisse Securities (USA) LLC, et al., and Federal Home Loan Bank of San Francisco v. Deutsche Bank Securities Inc. et al., respectively. Amended complaints filed on June 10, 2010 allege that
defendants made untrue statements and material omissions in connection with the sale to plaintiff of a number of mortgage pass-through certificates backed by securitization trusts containing residential mortgage loans. The amount of certificates
allegedly sold to plaintiff by MS&Co. in these cases was approximately $704 million and $276 million, respectively. The complaints raise claims under both the federal securities laws and California law and seek, among other things, to rescind
the plaintiff’s purchase of such certificates. On August 11, 2011, plaintiff’s Securities Act of 1933 claims were dismissed with prejudice. The defendants filed answers to the amended complaints on October 7, 2011. On
February 9, 2012, defendants’ demurrers with respect to all other claims were overruled. On December 20, 2013, plaintiff’s negligent misrepresentation claims were dismissed with prejudice. A bellwether trial is currently
scheduled to begin in January 2015. MS&Co. is not a defendant in connection with the securitizations at issue in that trial. On May 23, 2014, plaintiff and the defendants in the bellwether trial filed motions for summary adjudication, which
were denied. At September 25, 2014, the current unpaid balance of the mortgage pass-through certificates at issue in these cases was approximately $291 million, and the certificates had incurred actual losses of approximately $6 million. Based
on currently available information, MS&Co. believes it could incur a loss for this action up to the
60
difference between the $291 million unpaid balance of these certificates (plus any losses incurred) and their fair market value at the time of a judgment against MS&Co., or upon sale, plus
pre- and post-judgment interest, fees and costs. MS&Co. may be entitled to be indemnified for some of these losses and to an offset for interest received by the plaintiff prior to a judgment.
On July 9, 2010 and February 11, 2011, Cambridge Place Investment Management Inc. filed two separate complaints against
MS&Co. and/or its affiliates and other defendants in the Superior Court of the Commonwealth of Massachusetts, both styled Cambridge Place Investment Management Inc. v. Morgan Stanley & Co., Inc., et al. The complaints assert claims on
behalf of certain clients of plaintiff’s affiliates and allege that defendants made untrue statements and material omissions in the sale of a number of mortgage pass-through certificates backed by securitization trusts containing residential
mortgage loans. The total amount of certificates allegedly issued by MS&Co. and/or its affiliates or sold to plaintiff’s affiliates’ clients by MS&Co. and/or its affiliates in the two matters was approximately $263 million. On
February 11, 2014, the parties entered into an agreement to settle the litigation. On February 20, 2014, the court dismissed the action.
On July 15, 2010, China Development Industrial Bank (“CDIB”) filed a complaint against MS&Co. and an affiliate, which is styled China Development Industrial Bank v. Morgan
Stanley & Co. Incorporated et al., which is pending in the Supreme Court of the State of New York, New York County (“Supreme Court of NY, NY County”). The complaint relates to a $275 million credit default swap referencing the
super senior portion of the STACK 2006-1 CDO. The complaint asserts claims for common law fraud, fraudulent inducement and fraudulent concealment and alleges that MS&Co. and/or its affiliate misrepresented the risks of the STACK 2006-1 CDO to
CDIB, and that MS&Co. and/or its affiliate knew that the assets backing the CDO were of poor quality when it entered into the credit default swap with CDIB. The complaint seeks compensatory damages related to the approximately $228 million that
CDIB alleges it has already lost under the credit default swap, rescission of CDIB’s obligation to pay an additional $12 million, punitive damages, equitable relief, fees and costs. On February 28, 2011, the court presiding over this
action denied MS&Co. and its affiliate’s s motion to dismiss the complaint and on March 21, 2011, MS&Co. and its affiliate appealed that order. On July 7, 2011, the
appellate court affirmed the lower court’s decision denying the motion to dismiss. Based on currently available information, MS&Co. and/or its affiliate believes it and/or its affiliate could incur a loss of up to approximately $240 million
plus pre- and post-judgment interest, fees and costs.
On October 15, 2010, the Federal Home Loan Bank of Chicago filed a
complaint against MS&Co. and its affiliates and other defendants in the Circuit Court of the State of Illinois styled Federal Home Loan Bank of Chicago v. Bank of America Funding Corporation et al. The complaint alleges that defendants made
untrue statements and material omissions in the sale to plaintiff of a number of mortgage pass-through certificates backed by securitization trusts containing residential mortgage loans. The total amount of certificates allegedly sold to plaintiff
by MS&Co. and/or its affiliates in this action was approximately $203 million. The complaint raises claims under Illinois law and seeks, among other things, to rescind the plaintiff’s purchase of such certificates. On March 24, 2011,
the court granted plaintiff leave to file an amended complaint. MS&Co. and its affiliates filed an answer on December 21, 2012. On December 13, 2013, the court entered an order dismissing all claims related to one of the
securitizations at issue. At September 25, 2014, the current unpaid balance of the mortgage pass-through certificates at issue in this action was approximately $55 million and the certificates had not yet incurred actual losses. Based on
currently available information, MS&Co. believes it and/or its affiliates could incur a loss in this action up to the difference between the $55 million unpaid balance of these certificates (plus any losses incurred) and their fair market value
at the time of a judgment against MS&Co. and/or its affiliates, or upon sale, plus pre- and post-judgment interest, fees and costs. MS&Co. and/or its affiliates may be entitled to be indemnified for some of these losses and to an offset for
interest received by the plaintiff prior to a judgment.
On October 25, 2010, MS&Co., certain affiliates and Pinnacle
Performance Limited, a special purpose vehicle (“SPV”), were named as defendants in a purported class action related to securities issued by the SPV in Singapore, commonly referred to as Pinnacle Notes. The case is styled Ge Dandong, et
al.
61
v. Pinnacle Performance Ltd., et al. and is pending in the SDNY. An amended complaint was filed on October 22, 2012. The court denied defendants’ motion to dismiss the amended complaint
on August 22, 2013 and granted class certification on October 17, 2013. On October 30, 2013, defendants filed a petition for permission to appeal the court’s decision granting class certification. On January 31, 2014,
plaintiffs filed a second amended complaint. The second amended complaint alleges that the defendants engaged in a fraudulent scheme to defraud investors by structuring the Pinnacle Notes to fail and benefited subsequently from the securities’
failure. In addition, the second amended complaint alleges that the securities’ offering materials contained material misstatements or omissions regarding the securities’ underlying assets and the alleged conflicts of interest between the
defendants and the investors. The second amended complaint asserts common law claims of fraud, aiding and abetting fraud, fraudulent inducement, aiding and abetting fraudulent inducement, and breach of the implied covenant of good faith and fair
dealing. On July 17, 2014, the parties reached an agreement in principle to settle the litigation. The settlement is subject to court approval.
On July 5, 2011, Allstate Insurance Company and certain of its affiliated entities filed a complaint against MS&Co. and certain of its affiliates in the Supreme Court of NY, styled Allstate Insurance
Company, et al. v. Morgan Stanley, et al. An amended complaint was filed on September 9, 2011 and alleges that defendants made untrue statements and material omissions in the sale to plaintiff of certain mortgage pass-through certificates
backed by securitization trusts containing residential mortgage loans. The total amount of certificates allegedly issued and/or sold to plaintiffs by MS&Co. and/or its affiliates was approximately $104 million. The complaint raises common law
claims of fraud, fraudulent inducement, aiding and abetting fraud and negligent misrepresentation and seeks, among other things, compensatory and/or recessionary damages associated with plaintiffs’ purchases of such certificates. On
March 15, 2013, the court denied in substantial part the defendants’ motion to dismiss the amended complaint, which order MS&Co. and its affiliates appealed on April 11, 2013. On May 3, 2013, MS&Co. and its affiliates
filed an answer to the amended complaint. At September 25, 2014, the current unpaid balance of the mortgage pass-through
certificates at issue in this action was approximately $82 million, and the certificates had not yet incurred actual losses. Based on currently available information, MS&Co. believes it
and/or its affiliates could incur a loss in this action up to the difference between the $82 million unpaid balance of these certificates (plus any losses incurred) and their fair market value at the time of a judgment against MS&Co. and/or its
affiliates, or upon sale, plus pre- and post-judgment interest, fees and costs. MS&Co. and/or its affiliates may be entitled to an offset for interest received by the plaintiff prior to a judgment.
On July 18, 2011, the Western and Southern Life Insurance Company and certain affiliated companies filed a complaint against
MS&Co. and certain affiliates and other defendants in the Court of Common Pleas in Ohio, styled Western and Southern Life Insurance Company, et al. v. Morgan Stanley Mortgage Capital Inc., et al. An amended complaint was filed on April 2,
2012 and alleges that defendants made untrue statements and material omissions in the sale to plaintiffs of certain mortgage pass-through certificates backed by securitization trusts containing residential mortgage loans. The amount of the
certificates allegedly sold to plaintiffs by MS&Co. and/or its affiliates was approximately $153 million. The amended complaint raises claims under the Ohio Securities Act, federal securities laws, and common law and seeks, among other things,
to rescind the plaintiffs’ purchases of such certificates. MS&Co. and its affiliates filed an answer on August 17, 2012. Trial is currently scheduled to begin in July 2015. At September 25, 2014, the current unpaid balance of the
mortgage pass-through certificates at issue in this action was approximately $111 million, and the certificates had incurred actual losses of approximately $2 million. Based on currently available information, MS&Co. believes it and/or its
affiliates could incur a loss in this action up to the difference between the $111 million unpaid balance of these certificates (plus any losses incurred) and their fair market value at the time of a judgment against MS&Co. and/or its
affiliates, or upon sale, plus post-judgment interest, fees and costs. MS&Co. and/or its affiliates may be entitled to an offset for interest received by the plaintiff prior to a judgment.
On September 2, 2011, the Federal Housing Finance Agency (“FHFA”), as conservator for Fannie Mae and Freddie Mac, filed 17
complaints against numerous financial services companies, including
62
MS&Co. and certain affiliates. A complaint against MS&Co. and certain affiliates and other defendants was filed in the Supreme Court of NY, styled Federal Housing Finance Agency, as
Conservator v. Morgan Stanley et al. The complaint alleges that defendants made untrue statements and material omissions in connection with the sale to Fannie Mae and Freddie Mac of residential mortgage pass-through certificates with an original
unpaid balance of approximately $11 billion. The complaint raised claims under federal and state securities laws and common law and seeks, among other things, rescission and compensatory and punitive damages. On February 7, 2014, the parties
entered into an agreement to settle the litigation. On February 20, 2014, the court dismissed the action.
On
April 25, 2012, Metropolitan Life Insurance Company and certain affiliates filed a complaint against MS&Co. and certain affiliates in the Supreme Court of NY styled Metropolitan Life Insurance Company, et al. v. Morgan Stanley, et al. An
amended complaint was filed on June 29, 2012 and alleges that defendants made untrue statements and material omissions in the sale to plaintiffs of certain mortgage pass-through certificates backed by securitization trusts containing
residential mortgage loans. The total amount of certificates allegedly sponsored, underwritten and/or sold by MS&Co. and/or certain affiliates was approximately $758 million. The amended complaint raised common law claims of fraud, fraudulent
inducement, and aiding and abetting fraud and seeks, among other things, rescission, compensatory and/or rescissionary damages, as well as punitive damages, associated with plaintiffs’ purchases of such certificates. On January 23, 2014,
the parties reached an agreement in principle to settle the litigation. On April 25, 2014, the parties filed a stipulation of voluntary discontinuance of the action with prejudice.
On November 4, 2011, the Federal Deposit Insurance Corporation (“FDIC”), as receiver for Franklin Bank S.S.B., filed two
complaints against MS&Co. in the District Court of the State of Texas. Each was styled Federal Deposit Insurance Corporation, as Receiver for Franklin Bank S.S.B. v. Morgan Stanley & Company LLC F/K/A Morgan Stanley & Co. Inc.
and alleged that MS&Co. made untrue statements and material omissions in connection with the sale to plaintiff of mortgage pass-through certificates backed by securitization trusts containing residential mortgage loans. The
amount of certificates allegedly underwritten and sold to the plaintiff by MS&Co. in these cases was approximately $67 million and $35 million, respectively. The complaints each raised claims
under both federal securities law and the Texas Securities Act and each seeks, among other things, compensatory damages associated with plaintiff’s purchase of such certificates. On March 20, 2012, MS&Co. filed answers to the
complaints in both cases. On June 7, 2012, the two cases were consolidated. On January 10, 2013, MS&Co. filed a motion for summary judgment and special exceptions with respect to plaintiff’s claims. On February 6, 2013, the
FDIC filed an amended consolidated complaint. On February 25, 2013, MS&Co. filed a motion for summary judgment and special exceptions, which motion was denied in substantial part on April 26, 2013. On May 3, 2013, the FDIC filed a
second amended consolidated complaint. On October 7, 2014, the court denied MS&Co.’s motion for reconsideration of the court’s order denying its motion for summary judgment and granted its motion for reconsideration of the
court’s order denying permission for interlocutory appeal. On October 22, 2014, MS&Co. filed a petition for permissive interlocutory appeal with the appellate court. Trial is currently scheduled to begin in March 2015. At
September 25, 2014, the current unpaid balance of the mortgage pass-through certificates at issue in this action was approximately $44 million, and the certificates had incurred actual losses of approximately $5 million. Based on currently
available information, MS&Co. believes it could incur a loss in this action up to the difference between the $44 million unpaid balance of these certificates (plus any losses incurred) and their fair market value at the time of a judgment
against MS&Co., or upon sale, plus pre- and post-judgment interest, fees and costs. MS&Co. may be entitled to be indemnified for some of these losses and to an offset for interest received by the plaintiff prior to a judgment.
On April 25, 2012, The Prudential Insurance Company of America and certain affiliates filed a complaint against MS&Co. and
certain affiliates in the Superior Court of the State of New Jersey styled The Prudential Insurance Company of America, et al. v. Morgan Stanley, et al. The complaint alleges that defendants made untrue statements and material omissions in
connection with the sale to plaintiffs of certain mortgage pass-through certificates backed by
63
securitization trusts containing residential mortgage loans. The total amount of certificates allegedly sponsored, underwritten and/or sold by the Company is approximately $1 billion. The
complaint raises claims under the New Jersey Uniform Securities Law, as well as common law claims of negligent misrepresentation, fraud and tortious interference with contract and seeks, among other things, compensatory damages, punitive damages,
rescission and rescissionary damages associated with plaintiffs’ purchases of such certificates. On October 16, 2012, plaintiffs filed an amended complaint which, among other things, increases the total amount of the certificates at issue
by approximately $80 million, adds causes of action for fraudulent inducement, equitable fraud, aiding and abetting fraud, and violations of the New Jersey RICO statute, and includes a claim for treble damages. On March 15, 2013, the court
denied the defendants’ motion to dismiss the amended complaint. On April 26, 2013, the defendants filed an answer to the amended complaint. On June 5, 2014, the defendants filed a renewed motion to dismiss the amended complaint. At
September 25, 2014, the current unpaid balance of the mortgage pass-through certificates at issue in this action was approximately $613 million, and the certificates had not yet incurred actual losses. Based on currently available information,
MS&Co. believes it and/or its affiliates could incur a loss in this action up to the difference between the $613 million unpaid balance of these certificates (plus any losses incurred) and their fair market value at the time of a judgment
against MS&Co. and/or its affiliates, or upon sale, plus pre- and post-judgment interest, fees and costs. MS&Co. and/or its affiliates may be entitled to be indemnified for some of these losses and to an offset for interest received by the
plaintiff prior to a judgment.
On April 20, 2011, the Federal Home Loan Bank of Boston filed a complaint against the
MS&Co. and certain affiliates and other defendants in the Superior Court of the Commonwealth of Massachusetts styled Federal Home Loan Bank of Boston v. Ally Financial, Inc. F/K/A GMAC LLC et al. An amended complaint was filed on June 19,
2012 and alleges that defendants made untrue statements and material omissions in the sale to plaintiff of certain mortgage pass-through certificates backed by securitization trusts containing residential mortgage loans. The total amount of
certificates allegedly issued by MS&Co. and/or its affiliates or sold to
plaintiff by MS&Co. and/or its affiliates was approximately $385 million. The amended complaint raises claims under the Massachusetts Uniform Securities Act, the Massachusetts Consumer
Protection Act and common law and seeks, among other things, to rescind the plaintiff’s purchase of such certificates. On May 26, 2011, defendants removed the case to the United States District Court for the District of Massachusetts. On
October 11, 2012, defendants filed motions to dismiss the amended complaint, which was granted in part and denied in part on September 30, 2013. The defendants filed an answer to the amended complaint on December 16, 2013. Plaintiff
voluntarily dismissed its claims against MS&Co. and its affiliates with respect to two of the securitizations at issue. At September 25, 2014, the current unpaid balance of the mortgage pass-through certificates at issue in this action was
approximately $66 million, and the certificates had not yet incurred actual losses. Based on currently available information, MS&Co. believes it and/or its affiliates could incur a loss in this action up to the difference between the $66 million
unpaid balance of these certificates (plus any losses incurred) and their fair market value at the time of a judgment against MS&Co. and/or its affiliates, or upon sale, plus pre- and post-judgment interest, fees and costs. MS&Co. and/or its
affiliates may be entitled to be indemnified for some of these losses and to an offset for interest received by the plaintiff prior to a judgment.
On February 14, 2013, Bank Hapoalim B.M. filed a complaint against MS&Co. and certain affiliates in the Supreme Court of NY, styled Bank Hapoalim B.M. v. Morgan Stanley et al. The complaint
alleges that defendants made material misrepresentations and omissions in the sale to plaintiff of certain mortgage pass-through certificates backed by securitization trusts containing residential mortgage loans. The total amount of certificates
allegedly sponsored, underwritten and/or sold by MS&Co. and/or its affiliates to plaintiff was approximately $141 million. The complaint alleges causes of action against MS&Co. and its affiliates for common law fraud, fraudulent concealment,
aiding and abetting fraud, and negligent misrepresentation, and seeks, among other things, compensatory and punitive damages. On April 22, 2014, the defendants’ motion to dismiss was denied in substantial part. On August 29, 2014, the
defendants filed an answer to the complaint, and on September 18, 2014, the
64
defendants filed a notice of appeal from the ruling denying their motion to dismiss. At September 25, 2014, the current unpaid balance of the mortgage pass-through certificates at issue in
this action was approximately $73 million, and the certificates had not yet incurred actual losses. Based on currently available information, MS&Co. believes it and/or its affiliates could incur a loss in this action up to the difference between
the $73 million unpaid balance of these certificates (plus any losses incurred) and their fair market value at the time of a judgment against MS&Co. and/or its affiliates, or upon sale, plus pre- and post-judgment interest, fees and costs.
On May 3, 2013, plaintiffs in Deutsche Zentral-Genossenschaftsbank AG et al. v. Morgan Stanley et al. filed a complaint
against MS&Co., certain affiliates, and other defendants in the Supreme Court of NY. The complaint alleges that defendants made material misrepresentations and omissions in the sale to plaintiffs of certain mortgage pass-through certificates
backed by securitization trusts containing residential mortgage loans. The total amount of certificates allegedly sponsored, underwritten and/or sold by MS&Co. and/or its affiliates to plaintiff was approximately $694 million. The complaint
alleges causes of action against MS&Co. and its affiliates for common law fraud, fraudulent concealment, aiding and abetting fraud, negligent misrepresentation, and rescission and seeks, among other things, compensatory and punitive damages. On
June 10, 2014, the court denied defendants’ motion to dismiss. On July 10, 2014, MS&Co. and its affiliates filed a renewed motion to dismiss with respect to two certificates at issue in the case. On October 13, 2014, the
Company filed its answer to the complaint. At September 25, 2014, the current unpaid balance of the mortgage pass-through certificates at issue in this action was approximately $300 million, and the certificates had incurred actual losses of
approximately $78 million. Based on currently available information, MS&Co. believes it and/or its affiliates could incur a loss in this action up to the difference between the $300 million unpaid balance of these certificates (plus any losses
incurred) and their fair market value at the time of a judgment against MS&Co. and/or its affiliates, or upon sale, plus pre- and post-judgment interest, fees and costs. MS&Co. and/or its affiliates may be entitled to be indemnified for some
of these losses.
On September 23, 2013, plaintiffs in National Credit Union Administration Board v.
Morgan Stanley & Co. Inc., et al. filed a complaint against MS&Co. and certain affiliates in the United States District Court for the Southern District of New York. The complaint alleges that defendants made untrue statements of
material fact or omitted to state material facts in the sale to plaintiffs of certain mortgage pass-through certificates issued by securitization trusts containing residential mortgage loans. The total amount of certificates allegedly sponsored,
underwritten and/or sold by MS&Co. and/or its affiliates to plaintiffs was approximately $417 million. The complaint alleges causes of action against MS&Co. and its affiliates for violations of Section 11 and Section 12(a)(2) of
the Securities Act of 1933, violations of the Texas Securities Act, and violations of the Illinois Securities Law of 1953 and seeks, among other things, rescissory and compensatory damages. The defendants filed a motion to dismiss the complaint on
November 13, 2013. On January 22, 2014, the court granted defendants’ motion to dismiss with respect to claims arising under the Securities Act of 1933 and denied defendants’ motion to dismiss with respect to claims arising under
Texas Securities Act and the Illinois Securities Law of 1953. On April 28, 2014, the court granted in part and denied in part plaintiff’s motion to strike certain of the defendants’ affirmative defenses. On July 11, 2014, the
defendants filed a motion for reconsideration of the court’s order on the motion to dismiss the complaint or, in the alternative, for certification of interlocutory appeal and a stay of all proceedings, which was denied on September 30,
2014. At September 25, 2014, the current unpaid balance of the mortgage pass-through certificates at issue in this action was approximately $211 million, and the certificates had incurred actual losses of approximately $27 million. Based on
currently available information, MS&Co. believes it and/or its affiliates could incur a loss in this action up to the difference between the $211 million unpaid balance of these certificates (plus any losses incurred) and their fair market value
at the time of a judgment against MS&Co. and/or its affiliates, or upon sale, plus pre- and post-judgment interest, fees and costs. MS&Co. and/or its affiliates may be entitled to be indemnified for some of these losses and to an offset for
interest received by the plaintiff prior to a judgment.
65
Additional or replacement Commodity Brokers may be appointed in respect of the Fund in the future.
CONFLICTS OF INTEREST
General
The Managing Owner has not established formal procedures to resolve all potential conflicts of interest.
Consequently, investors may be dependent on the good faith of the respective parties subject to such conflicts to resolve them equitably. Although the Managing Owner attempts to monitor these conflicts, it is extremely difficult, if not impossible,
for the Managing Owner to ensure that these conflicts do not, in fact, result in adverse consequences to the Fund.
Prospective investors should be aware that the Managing Owner presently intends to assert that Shareholders have, by subscribing for
Shares, consented to the following conflicts of interest in the event of any proceeding alleging that such conflicts violated any duty owed by the Managing Owner to investors.
The Managing Owner
The Managing Owner has a conflict of interest in allocating its own limited resources among different clients and potential future business ventures, to each of which it owes fiduciary duties.
Additionally, certain of the professional staff of the Managing Owner may also service other affiliates of the Managing Owner and their respective clients. The Managing Owner may, from time-to-time, have conflicting demands in respect of its
obligations to the Fund and to other commodity pools and accounts. It is possible that current or future pools that the Managing Owner may become involved with may generate larger fees, resulting in increased payments to employees. Although the
Managing Owner and its professional staff cannot and will not devote all of its or their respective time or resources to the management of the business and affairs of the Fund, the Managing Owner intends to devote, and to cause its professional
staff to devote, sufficient time and resources to manage properly the business and affairs of the Fund consistent with its or their respective fiduciary duties to the Fund and others.
There is an absence of arm’s length negotiation with respect to some of the terms
of this offering, and there has been no independent due diligence conducted with respect to this offering.
The Commodity Broker
Shareholders should understand that the Commodity Broker receives a round-turn brokerage fee from
the Fund for serving as the Fund’s commodity broker. A round-turn trade is a completed transaction involving both a purchase and a liquidating sale, or a sale followed by a covering purchase.
The Commodity Broker may act from time-to-time as a commodity broker for other accounts with which it is affiliated or in which it or one
of its affiliates has a financial interest. The compensation received by the Commodity Broker from such accounts may be more or less than the compensation received for brokerage services provided to the Fund. Customers of the Commodity Broker who
maintain commodity trading accounts may pay commissions at negotiated rates which are greater or less than the rate paid by the Fund. In addition, various accounts traded through the Commodity Broker (and over which their personnel may have
discretionary trading authority) may take positions in the futures markets opposite to those of the Fund or may compete with the Fund for the same positions. The Commodity Broker may have a conflict of interest in its execution of trades for the
Fund and for other customers. The Managing Owner will, however, not retain any commodity broker for the Fund which the Managing Owner has reason to believe would knowingly or deliberately favor any other customer over the Fund with respect to the
execution of commodity trades.
The Commodity Broker will benefit from executing orders for other clients, whereas the
Fund may be harmed to the extent that the Commodity Broker has fewer resources to allocate to the Fund’s accounts due to the existence of such other clients.
Certain officers or employees of the Commodity Broker may be members of United States commodities exchanges and/or serve on the governing bodies and standing committees of such exchanges, their clearing
houses and/or various other industry organizations. In such capacities, these officers or employees may have a fiduciary duty to the exchanges, their clearing houses and/or such
66
various other industry organizations which could compel such employees to act in the best interests of these entities, perhaps to the detriment of the Fund.
Proprietary Trading/Other Clients
The Managing Owner does not trade for its own account.
Because the principals of the Managing Owner may trade for their own personal trading accounts (subject to certain internal Invesco Ltd. employee trading policies and procedures) at the same time that
they are managing the account of the Fund, prospective investors should be aware that the activities of the principals of the Managing Owner, subject to their fiduciary duties, may, from time-to-time, result in taking positions in their personal
trading accounts which are opposite of the positions taken for the Fund. Records of the Managing Owner principals’ personal trading accounts will not be available for inspection by Shareholders.
The Commodity Broker and its affiliates may trade in the commodity and foreign exchange markets for their own accounts and for the
accounts of their clients, and in doing so may take positions opposite to those held by the Fund or may compete with the Fund for positions in the marketplace. Such trading may create conflicts of interest in respect of their obligations to the
Fund. Records of proprietary trading and trading on behalf of other clients will not be available for inspection by Shareholders.
Because the Commodity Broker principals may trade for their own personal trading accounts (subject to certain internal trading policies and procedures with respect to both the Commodity Broker and its
principals) at the same time that the Managing Owner is managing the account of the Fund, prospective investors should be aware that such persons may from time-to-time take positions in their proprietary accounts which are opposite of the positions
taken for the Fund. Records of the Commodity Broker principals’ personal trading accounts will not be available for inspection by Shareholders.
DESCRIPTION OF THE SHARES; THE FUND; CERTAIN MATERIAL TERMS
OF THE TRUST DECLARATION
The following summary describes in brief the Shares and certain aspects of the operation
of the Trust, the Fund and the respective responsibilities of the Trustee and the Managing Owner concerning the Trust and the material terms of the Trust Declaration. Prospective investors should carefully review the Form of Trust Declaration filed
as an exhibit to the registration statement of which this Prospectus is a part and consult with their own advisers concerning the implications to such prospective subscribers of investing in a series of a Delaware statutory trust. Capitalized terms
used in this section and not otherwise defined shall have such meanings assigned to them under the Trust Declaration.
Description of the Shares
The Fund issues common units of beneficial interest, or Shares, which represent units of fractional undivided beneficial interest in and ownership of the Fund. The Shares are listed on the NYSE Arca under
the symbol “DBS.”
The Shares may be purchased from the Fund or redeemed on a continuous basis, but only by
Authorized Participants and only in blocks of 200,000 Shares, or Baskets. Individual Shares may not be purchased from the Fund or redeemed. Shareholders that are not Authorized Participants may not purchase from the Fund or redeem Shares or Baskets.
Principal Office; Location of Records
The Trust was organized under the Delaware Statutory Trust Act in seven separate series as a Delaware statutory trust rather than as
separate statutory trusts in order to achieve certain administrative efficiencies. The interests of investors are not adversely affected by the choice of form of organization. As of the date of this Prospectus, the Trust consists of the following
seven series—PowerShares DB Energy Fund, PowerShares DB Oil Fund, PowerShares DB Precious Metals Fund, PowerShares DB Gold Fund, PowerShares DB Silver Fund, PowerShares DB Base Metals Fund and PowerShares DB Agriculture Fund. This Prospectus
67
is for the Fund only and not for the remaining 6 funds listed in the prior sentence, or the Sectors Funds. The Sectors Funds, which are series of the Trust, are not being offered by this
Prospectus. Information regarding both the Fund and the Sectors Funds (and any other additional series of the Trust, as applicable) is available at http://www.invescopowershares.com. The Trust is managed by the Managing Owner, whose office is
located at 3500 Lacey Road, Suite 700, Downers Grove, IL 60515, telephone: (800) 983-0903.
The books and records of the Fund
are maintained as follows: all marketing materials are maintained at the offices of ALPS Distributors, Inc., 1290 Broadway, Suite 1100, Denver, Colorado 80203, telephone number (303) 623-2577; Basket creation and redemption books and records,
certain financial books and records (including Fund accounting records, ledgers with respect to assets, liabilities, capital, income and expenses, the registrar, transfer journals and related details) and trading and related documents received from
futures commission merchants are maintained by The Bank of New York Mellon, 2 Hanson Place, Brooklyn, New York 11217, telephone number (718) 315-7500. All other books and records of the Fund (including minute books and other general corporate
records, trading records and related reports and other items received from the Fund’s Commodity Brokers) are maintained at the Fund’s principal office, c/o Invesco PowerShares Capital Management LLC, 3500 Lacey Road, Suite 700, Downers
Grove, IL 60515; telephone number (800) 983-0903.
The books and records of the Fund are located at the foregoing
addresses, and available for inspection and copying (upon payment of reasonable reproduction costs) by Shareholders or their representatives for any purposes reasonably related to a Shareholder’s interest as a beneficial owner of the Fund
during regular business hours as provided in the Trust Declaration. The Managing Owner will maintain and preserve the books and records of the Fund for a period of not less than six years.
The Fund
Solely for the purposes of this sub-section, the term “Fund” or “Funds” refers to all the series of the Trust (including the DBS Fund). The term “DBS Fund” refers to the
series that is offered pursuant to
this Prospectus. The term “Non-DBS Funds” refers to all the remaining series of the Trust, excluding the DBS Fund.
The Trust was formed and is operated in a manner such that the Funds are liable only for obligations attributable to the applicable Funds
and the Shareholders of the Funds are not subject to the losses or liabilities of any of the other Funds. For example, if any creditor or Shareholder in a Non-DBS Fund asserted against the DBS Fund a valid claim with respect to its indebtedness or
Shares, the creditor or Shareholder of the Non-DBS Fund would only be able to recover money from that particular Non-DBS Fund. Accordingly, the debts, liabilities, obligations and expenses, or collectively, Claims, incurred, contracted for or
otherwise existing solely with respect to a particular Non-DBS Fund are enforceable only against the assets of that Non-DBS Fund and not against the DBS Fund or any other Non-DBS Fund or the Trust generally or any of their respective assets. The
assets of any particular Fund include only those funds and other assets that are paid to, held by or distributed to such Fund, including, without limitation, funds delivered to the Trust for the purchase of Shares in such Fund. This limitation on
liability is referred to as the “Inter-Series Limitation on Liability.” The Inter-Series Limitation on Liability is expressly provided for under the Delaware Statutory Trust Act, which provides that if certain conditions (as set forth in
Section 3804(a)) are met, then the debts of any particular series will be enforceable only against the assets of such series and not against the assets of any other Fund or the Trust generally. For the avoidance of doubt, the Inter-Series
Limitation on Liability applies to all series of the Trust, including those that are not being offered through this Prospectus.
In furtherance of the Inter-Series Limitation on Liability, every party providing services to the Trust, any Fund or the Managing Owner
on behalf of the Trust or any Fund has acknowledged and consented in writing to the Inter-Series Limitation on Liability with respect to such party’s Claims.
No special custody arrangements are applicable to any Fund, and the existence of a trustee should not be taken as an indication of any additional level of management or supervision over any Fund. To the
greatest extent permissible under Delaware law, the Trustee acts in an entirely passive role, delegating all
68
authority over the operation of the Trust, and each Fund to the Managing Owner.
Although Shares in the DBS Fund need not carry any voting rights, the Trust Declaration gives Shareholders of the DBS Fund voting rights in respect of the business and affairs of the DBS Fund comparable
to those typically extended to limited partners in publicly-offered futures funds.
The Trustee
Wilmington Trust Company, a Delaware trust company, is the sole Trustee of the Trust and the Fund. The Trustee’s
principal offices are located at Rodney Square North, 1100 North Market Street, Wilmington, Delaware 19890-0001. The Trustee is unaffiliated with the Managing Owner. The Trustee’s duties and liabilities with respect to the offering of the
Shares and the management of the Trust and the Fund are limited to its express obligations under the Trust Declaration.
The
rights and duties of the Trustee, the Managing Owner and the Shareholders are governed by the provisions of the Delaware Statutory Trust Act and by the Trust Declaration.
The Trustee serves as the sole trustee of the Trust in the State of Delaware. The Trustee accepts service of legal process on the Trust and the Fund in the State of Delaware and will make certain
filings under the Delaware Statutory Trust Act. The Trustee does not owe any other duties to the Trust, the Managing Owner or the Shareholders. The Trustee is permitted to resign upon at least sixty (60) days’ notice to the Trust,
provided, that any such resignation will not be effective until a successor Trustee is appointed by the Managing Owner. The Trust Declaration provides that the Trustee is compensated by the Fund, as appropriate, and is indemnified by the
Fund, as appropriate, against any expenses it incurs relating to or arising out of the formation, operation or termination of the Fund, as appropriate, or the performance of its duties pursuant to the Trust Declaration, except to the extent that
such expenses result from the gross negligence or willful misconduct of the Trustee. The Managing Owner has the discretion to replace the Trustee.
Only the Managing Owner has signed the registration statement of which this Prospectus is a
part, and only the assets of the Trust and the Managing Owner are subject to issuer liability under the federal securities laws for the information contained in this Prospectus and under federal
securities laws with respect to the issuance and sale of the Shares. Under such laws, neither the Trustee, either in its capacity as Trustee or in its individual capacity, nor any director, officer or controlling person of the Trustee is, or has any
liability as, the issuer or a director, officer or controlling person of the issuer of the Shares. The Trustee’s liability in connection with the issuance and sale of the Shares is limited solely to the express obligations of the Trustee set
forth in the Trust Declaration.
Under the Trust Declaration, the Trustee has delegated to the Managing Owner the exclusive
management and control of all aspects of the business of the Fund and the Trust. The Trustee has no duty or liability to supervise or monitor the performance of the Managing Owner, nor does the Trustee have any liability for the acts or omissions of
the Managing Owner. The Shareholders have no voice in the day-to-day management of the business and operations of the Fund and the Trust, other than certain limited voting rights as set forth in the Trust Declaration. In the course of its management
of the business and affairs of the Fund and the Trust, the Managing Owner may, in its sole and absolute discretion, appoint an affiliate or affiliates of the Managing Owner as additional managing owners (except where the Managing Owner has been
notified by the Shareholders that it is to be replaced as the managing owner) and retain such persons, including affiliates of the Managing Owner, as it deems necessary for the efficient operation of the Fund or the Trust, as appropriate.
Because the Trustee has delegated substantially all of its authority over the operation of the Fund and the Trust to the
Managing Owner, the Trustee itself is not registered in any capacity with the CFTC.
Performance information with respect
to the offered pool starts on page 32.
The Managing Owner
Background and Principals
Invesco PowerShares Capital Management LLC, a Delaware limited liability company, is the
69
Managing Owner of the Trust and the Fund. The Managing Owner serves as both commodity pool operator and commodity trading advisor of the Trust and the Fund. The Managing Owner has been registered
with the CFTC as a commodity pool operator since January 1, 2013 and commodity trading advisor since October 1, 2014 and has been a member of the NFA since January 1, 2013. Its principal place of business is 3500 Lacey Road, Downers Grove,
Illinois 60515, telephone number (800) 983-0903. The Managing Owner is an affiliate of Invesco Ltd. The registration of the Managing Owner with the CFTC and its membership in the NFA must not be taken as an indication that either the CFTC or the
NFA has recommended or approved the Managing Owner, the Trust or the Fund.
In its capacity as a commodity pool
operator, the Managing Owner is an organization which operates or solicits funds for commodity pools; that is, an enterprise in which funds contributed by a number of persons are combined for the purpose of trading futures contracts. In its capacity
as a commodity trading advisor, the Managing Owner is an organization which, for compensation or profit, advises others as to the value of or the advisability of buying or selling futures contracts.
Principals
The following principals serve in the below capacities on behalf of the Managing Owner:
|
|
|
| Name |
|
Capacity |
| Andrew Schlossberg |
|
Managing Director |
|
|
| Peter Hubbard |
|
Vice President and Director of Portfolio Management |
|
|
| David Warren |
|
Chief Administrative Officer |
|
|
| Daniel Draper |
|
Managing Director |
|
|
| Roderick Ellis |
|
Chief Financial Officer |
|
|
| Deanna Marotz |
|
Chief Compliance Officer |
|
|
| John Zerr |
|
General Counsel |
Invesco North American Holdings Inc. is also a principal of the Managing Owner.
The Managing Owner is managed by a Board of Managers. The Board of Managers is
comprised of Messrs. Draper, Warren and Zerr.
The Managing Owner has designated Mr. Hubbard as the trading principal of the
Fund.
Andrew Schlossberg (40) has been Principal Executive Officer of the Managing Owner since January
2010. Mr. Schlossberg has also been Managing Director, Head of US Distribution for Invesco Distributors, Inc. since 2012, where he has been responsible for Sales, Client Service, Product Management, and Marketing for Invesco’s United
States industry business, including the Managing Owner. He earned an MBA from the Kellogg School of Management at Northwestern University and a B.S. degree at Northwestern University and a B.S. degree in Finance and International Business from the
University of Delaware. Mr. Schlossberg was listed as a principal of the Managing Owner on December 4, 2012.
Peter Hubbard (34) joined the Managing Owner in May 2005 as a portfolio manager and has been Vice President, Director
of Portfolio Management since September 2012. In his role, Mr. Hubbard manages a team of 12 portfolio managers. His responsibilities include facilitating all portfolio management processes associated with more than 150 equity and fixed income
funds listed in the United States, Canada and Europe. He is a graduate of Wheaton College with a B.A. degree in Business & Economics. Mr. Hubbard was listed as a principal and registered as an associated person of the Managing Owner on
November 15, 2012 and January 1, 2013, respectively.
David Warren (56) is Chief Administrative
Officer, Americas, for Invesco Ltd. He was appointed to this position in 2007, and has also held the roles of Executive Vice President and Chief Financial Officer of Invesco Canada Ltd since January 2009. Also, he has been a Managing Director of the
Managing Owner since January 2010. He obtained a Bachelor’s Degree in Communications from the University of Toronto and is a member of the Canadian Institute of Chartered Accountants. Mr. Warren was listed as a principal of the Managing
Owner on November 21, 2012.
Daniel Draper (45) has been a Managing Director of the Managing Owner
since September
70
2013. In this role he is responsible for the management of the Managing Owner’s exchange traded fund business within Invesco with direct functional reporting responsibilities for the
Managing Owner’s portfolio management, products, marketing and capital markets teams. Previously, Mr. Draper was the Global Head of Exchange Traded Funds for Credit Suisse Asset Management based in London from March 2010 until June 2013.
From 2007 to 2010, he was the Global Head of Exchange Traded Funds for Lyxor Asset Management in London, a unit of Societe Generale Corporate & Investment Banking. Mr. Draper was previously registered as a Significant Influence
Functions (SIF) person with the UK’s Financial Conduct Authority. He withdrew this status on June 30, 2013 when he left Credit Suisse. Mr. Draper is currently registered with FINRA under Series 7, 24 and 63. Mr. Draper was listed
as a principal of the Managing Owner on December 16, 2013.
Roderick Ellis (47) has been a Chief
Accounting Officer for Invesco since April 2011. In this role, he is responsible for all aspects of Corporate Accounting including group financial reporting, internal controls and group accounting policies. Mr. Ellis is also responsible for
group insurance matters. Previously, Mr. Ellis was Global Director of Financial Planning and Analysis, and Treasurer since May 2007. Mr. Ellis earned a B.A. (with honors) in Economics and Social History from the University of Sheffield,
UK, in 1988. He is a member of the Institute of Chartered Accountants in England and Wales. Mr. Ellis was listed as a principal of the Managing Owner on November 30, 2012.
Deanna Marotz (49) has been Chief Compliance Officer of the Managing Owner since March 31, 2008. In her role as
Chief Compliance Officer she is responsible for all aspects of regulatory compliance for the Managing Owner. She is a registered representative of Invesco Distributors, Inc., and a principal of the National Futures Association. Ms. Marotz
earned a B.S. degree from Eastern Illinois University. Ms. Marotz was listed as a principal of the Managing Owner on November 15, 2012.
John Zerr (52) has been a Managing Director of the Managing Owner since September 2006. Mr. Zerr is also Managing Director and General Counsel – US Retail of Invesco
Management Group, Inc. since March 2006, where he is responsible for overseeing
the US Retail Legal Department for Invesco and its affiliated companies. Mr. Zerr has also been a Senior Vice President and Secretary of Invesco Distributors, Inc., a registered broker
dealer. He also served as a Director of that entity until February 2010. Mr. Zerr serves as Senior Vice President of Invesco Advisers, Inc., a registered investment adviser since December 2009. He also served as a Director, Secretary and
General Counsel of several affiliated predecessor companies of Invesco Advisers, Inc. from March 2006 through December 2009. Mr. Zerr serves as a Director, Vice President and Secretary of Invesco Investment Services, Inc., a registered transfer
agency since May 2007. Mr. Zerr serves as Director, Senior Vice President, General Counsel and Secretary of a number of other Invesco wholly-owned subsidiaries which service or serviced portions of Invesco’s US Retail business since May
2007 and since June 2010 with respect to certain Van Kampen entities which were acquired by Invesco from Morgan Stanley. Mr. Zerr serves as Chief Legal Officer for the PowerShares Exchange-Traded Funds, a family of registered investment
companies since June 2010. He also serves as Senior Vice President, Secretary and Chief Legal Officer of the Invesco Funds, a family of open-end and closed-end registered investment companies since March 2006. Mr. Zerr earned a BA degree in
economics from Ursinus College. He graduated cum laude with a J.D. from Temple University School of Law. Mr. Zerr was listed as a principal of the Managing Owner on December 6, 2012.
Invesco North American Holdings Inc, which is a wholly owned, indirect subsidiary of Invesco Ltd., has been a principal of
the Managing Owner since October, 2006.
Fiduciary and Regulatory Duties of
the Managing Owner
As managing owner of the Trust and the Fund, the Managing Owner effectively is subject to the
duties and restrictions imposed on “fiduciaries” under both statutory and common law. The Trust Declaration is filed as an exhibit to the registration statement of which this Prospectus is a part. The general fiduciary duties which would
otherwise be imposed on the Managing Owner (which would make the operation of the Trust and the Fund as described herein impracticable due to the strict prohibition imposed by such duties on, for example, conflicts of
71
interest on behalf of a fiduciary in its dealings with its beneficiaries), are defined and limited in scope by the disclosure of the business terms of the Trust and the Fund, as set forth herein
and in the Trust Declaration (to which terms all Shareholders, by subscribing to the Shares, are deemed to consent).
The
Trust Declaration provides that the Managing Owner and its affiliates, or Covered Persons, will have no liability to the Trust, the Fund or to any Shareholder, or other Covered Person or other person, for any loss suffered by the Trust or the Fund
arising out of any action or inaction of the Covered Person if the Covered Person, in good faith, determined that such course of conduct was in the best interests of the Trust or the Fund and such course of conduct did not constitute gross
negligence or willful misconduct by the Covered Person.
Each Covered Person will be indemnified by the Trust (or, as
provided in the Trust Declaration, any Fund separately to the extent the matter in question relates to a single Fund or is otherwise disproportionate) to the fullest extent permitted by law against any losses, judgments, liabilities, expenses, and
amounts paid in settlement of any claims sustained by it in connection with its activities for the Fund, except with respect to any matter as to which such Covered Person will have been finally adjudicated in any action, suit, or other proceeding
not to have acted in good faith in the reasonable belief that such Covered Person’s action was in the best interest of the Fund and except that no Covered Person will be indemnified against any liability to the Fund or to the limited owners by
reason of willful misconduct or gross negligence of such Covered Person. Any such indemnification will only be recoverable from the applicable Fund in the manner as provided in the Trust Declaration.
Under Delaware law, a beneficial owner of a business trust (such as a Shareholder of the Fund) may, under certain circumstances,
institute legal action on behalf of himself and all other similarly situated beneficial owners (a “class action”) to recover damages from a managing owner of such business trust for violations of fiduciary duties, or on behalf of a
business trust (a “derivative action”) to recover damages from a third party where a managing owner has failed or refused to institute proceedings to recover such damages. In addition, beneficial owners may have the right, subject to
certain legal requirements, to bring class actions in federal court to enforce their rights under the federal securities laws and the rules and regulations promulgated thereunder by the
Securities and Exchange Commission, or the SEC. Beneficial owners who have suffered losses in connection with the purchase or sale of their beneficial interests may be able to recover such losses from a managing owner where the losses result from a
violation by the Managing Owner of the anti-fraud provisions of the federal securities laws.
Under certain circumstances,
Shareholders also have the right to institute a reparations proceeding before the CFTC against the Managing Owner (a registered commodity pool operator and commodity trading advisor), the Commodity Broker (registered futures commission merchant), as
well as those of their respective employees who are required to be registered under the Commodity Exchange Act, as amended, and the rules and regulations promulgated thereunder. Private rights of action are conferred by the Commodity Exchange Act,
as amended. Investors in futures and in commodity pools may, therefore, invoke the protections provided thereunder.
There are
substantial and inherent conflicts of interest in the structure of the Trust and the Fund which are, on their face, inconsistent with the Managing Owner’s fiduciary duties. One of the purposes underlying the disclosures set forth in this
Prospectus is to disclose to all prospective Shareholders these conflicts of interest so that the Managing Owner may have the opportunity to obtain investors’ informed consent to such conflicts. Prospective investors who are not willing to
consent to the various conflicts of interest described under “Conflicts of Interest” and elsewhere should not invest in the Fund. The Managing Owner currently intends to raise such disclosures and consent as a defense in any proceeding
brought seeking relief based on the existence of such conflicts of interest.
The foregoing summary describing in general
terms the remedies available to Shareholders under federal law is based on statutes, rules and decisions as of the date of this Prospectus. This is a rapidly developing and changing area of the law. Therefore, Shareholders who believe that they may
have a legal cause of action against any of the foregoing parties should consult their own counsel as to their evaluation of the status of the applicable law at such time.
72
Ownership or Beneficial Interest in the Fund
As of the date of this Prospectus, the Managing Owner and the principals of the Managing Owner own less than 1% of the Shares of the
Fund.
Management; Voting by Shareholders
The Shareholders take no part in the management or control, and have no voice in the operations or the business of the Trust or the Fund.
Shareholders, voting together as a single series, may, however, remove and replace the Managing Owner as the managing owner of the Trust and the Fund, and may amend the Trust Declaration, except in certain limited respects, by the affirmative vote
of a majority of the outstanding Shares then owned by Shareholders (as opposed to by the Managing Owner and its affiliates). The owners of a majority of the outstanding Shares then owned by Shareholders may also compel dissolution of the Trust and
the Fund. The owners of 10% of the outstanding Shares then owned by Shareholders have the right to bring a matter before a vote of the Shareholders. The Managing Owner has no power under the Trust Declaration to restrict any of the
Shareholders’ voting rights. Any Shares purchased by the Managing Owner or its affiliates, as well as the Managing Owner’s general interests in the Fund, are non-voting.
The Managing Owner has the right unilaterally to amend the Trust Declaration as it applies to the Fund provided that any such amendment
is for the benefit of and not adverse to the Shareholders or the Trustee and also in certain unusual circumstances – for example, if doing so is necessary to comply with certain regulatory requirements.
Recognition of the Trust and the Fund in Certain States
A number of states do not have “business trust” statutes such as that under which the Trust has been formed in the State of
Delaware. It is possible, although unlikely, that a court in such a state could hold that, due to the absence of any statutory provision to the contrary in such jurisdiction, the Shareholders, although entitled under Delaware law to the same
limitation on personal liability as stockholders in a private corporation for profit organized under the laws of the State of Delaware, are not so entitled in such state. To protect Shareholders against any loss of limited liability, the Trust
Declaration provides that no written obligation
may be undertaken by the Fund unless such obligation is explicitly limited so as not to be enforceable against any Shareholder personally. Furthermore, the Fund itself indemnifies all its
Shareholders against any liability that such Shareholders might incur in addition to that of a beneficial owner.
Possible Repayment of Distributions Received by Shareholders; Indemnification by Shareholders
The Shares are limited
liability investments; investors may not lose more than the amount that they invest plus any profits recognized on their investment. However, Shareholders could be required, as a matter of bankruptcy law, to return to the estate of the Fund any
distribution they received at a time when the Fund was in fact insolvent or in violation of the Trust Declaration. In addition, although the Managing Owner is not aware of this provision ever having been invoked in the case of any public futures
fund, Shareholders agree in the Trust Declaration that they will indemnify the Fund for any harm suffered by it as a result of
| |
• |
|
Shareholders’ actions unrelated to the business of the Fund, or |
| |
• |
|
taxes separately imposed on the Fund by any state, local or foreign taxing authority. |
The foregoing repayment of distributions and indemnity provisions (other than the provision for Shareholders of the Fund indemnifying
such Fund for taxes imposed upon it by a state, local or foreign taxing authority, which is included only as a formality due to the fact that many states do not have business trust statutes so that the tax status of the Fund in such states might,
theoretically, be challenged – although the Managing Owner is unaware of any instance in which this has actually occurred) are commonplace in statutory trusts and limited partnerships.
Shares Freely Transferable
The Shares trade on the NYSE Arca and provide institutional and retail investors with direct access to the Fund. The Fund trades with a view of tracking the Index, over time, less expenses. The
Fund’s Shares may be bought and sold on the NYSE Arca like any other exchange listed security.
73
Book-Entry Form
Individual certificates will not be issued for the Shares. Instead, global certificates are deposited by the Trustee with DTC and
registered in the name of Cede & Co., as nominee for DTC. The global certificates evidence all of the Shares outstanding at any time. Under the Trust Declaration, Shareholders are limited to (1) participants in DTC such as banks,
brokers, dealers and trust companies (DTC Participants), (2) those who maintain, either directly or indirectly, a custodial relationship with a DTC Participant (Indirect Participants), and (3) those banks, brokers, dealers, trust companies
and others who hold interests in the Shares through DTC Participants or Indirect Participants. The Shares are only transferable through the book-entry system of DTC. Shareholders who are not DTC Participants may transfer their Shares through DTC by
instructing the DTC Participant holding their Shares (or by instructing the Indirect Participant or other entity through which their Shares are held) to transfer the Shares. Transfers are made in accordance with standard securities industry
practice.
Reports to Shareholders
The Managing Owner will furnish you with an annual report of the Fund within 90 calendar days after the end of its fiscal year as required
by the rules and regulations of the CFTC, including, but not limited to, an annual audited financial statement certified by independent registered public accountants and any other reports required by any other governmental authority that has
jurisdiction over the activities of the Trust and the Fund. You also will be provided with appropriate information to permit you to file your U.S. federal and state income tax returns (on a timely basis) with respect to your Shares. Monthly account
statements conforming to CFTC and NFA requirements are posted on the Managing Owner’s website at http://www.invescopowershares.com. Additional reports may be posted on the Managing Owner’s website in the discretion of the Managing
Owner or as required by applicable regulatory authorities.
The Managing Owner will notify Shareholders of any change in the
fees paid by the Trust or of any material changes to the Fund by filing with the SEC a supplement to this Prospectus and a Form 8-K, which will be publicly available at http://www.sec.gov and
at the Managing Owner’s website at http://www.invescopowershares.com. Any such notification will include a description of Shareholders’ voting rights.
Net Asset Value
Net asset value in respect of the Fund means the total assets of the Fund including, but not limited to, all cash and cash equivalents or other debt securities less total liabilities of the Fund, each
determined on the basis of generally accepted accounting principles in the United States, consistently applied under the accrual method of accounting. In particular, net asset value includes any unrealized profit or loss on open futures contracts,
and any other credit or debit accruing to the Fund but unpaid or not received by the Fund. All open futures contracts traded on a United States exchange are calculated at their then current market value, which are based upon the settlement price for
that particular futures contract traded on the applicable United States exchange on the date with respect to which net asset value is being determined; provided, that if a futures contract traded on a United States exchange could not be liquidated
on such day, due to the operation of daily limits or other rules of the exchange upon which that position is traded or otherwise, the Managing Owner may value such futures contract pursuant to policies the Managing Owner has adopted, which are
consistent with normal industry standards. The current market value of all open futures contracts traded on a non-United States exchange, to the extent applicable, will be based upon the settlement price for that particular futures contract traded
on the applicable non-United States exchange on the date with respect to which net asset value is being determined; provided further, that if a futures contract traded on a non-United States exchange, to the extent applicable, could not be
liquidated on such day, due to the operation of daily limits (if applicable) or other rules of the exchange upon which that position is traded or otherwise, the Managing Owner may value such futures contract pursuant to policies the Managing Owner
has adopted, which are consistent with normal industry standards. The Managing Owner may in its discretion (and under circumstances, including, but not limited to, periods during which a settlement price of a futures contract is not available due to
exchange limit orders or force majeure type events such as systems failure, natural or manmade disaster, act of God, armed conflict, act of terrorism, riot or labor
74
disruption or any similar intervening circumstance) value any asset of the Fund pursuant to such other principles as the Managing Owner deems fair and equitable so long as such principles are
consistent with normal industry standards. Interest earned on the Fund’s foreign exchange futures brokerage account is accrued at least monthly. The amount of any distribution will be a liability of the Fund from the day when the distribution
is declared until it is paid.
Net asset value per Share is the net asset value of the Fund divided by the number of its
outstanding Shares.
Termination Events
The Trust, or, as the case may be, the Fund, will dissolve at any time upon the happening of any of the following events:
| |
• |
|
The filing of a certificate of dissolution or revocation of the Managing Owner’s charter (and the expiration of 90 days after the date of notice
to the Managing Owner of revocation without a reinstatement of its charter) or upon the withdrawal, removal, adjudication or admission of bankruptcy or insolvency of the Managing Owner, or an event of withdrawal unless (i) at the time there is
at least one remaining Managing Owner and that remaining Managing Owner carries on the business of the Fund or (ii) within 90 days of such event of withdrawal all the remaining Shareholders agree in writing to continue the business of the Fund
and to select, effective as of the date of such event, one or more successor Managing Owners. If the Trust is terminated as the result of an event of withdrawal and a failure of all remaining Shareholders to continue the business of the Trust and to
appoint a successor Managing Owner as provided above within 120 days of such event of withdrawal, Shareholders holding Shares representing at least a majority (over 50%) of the net asset value of the Fund (not including Shares held by the Managing
Owner and its affiliates) may elect to continue the business of the Trust by forming a new statutory trust, or reconstituted trust, on the same terms and provisions as set forth in the Trust Declaration. Any such election must also
|
| |
|
provide for the election of a Managing Owner to the reconstituted trust. If such an election is made, all Shareholders will be bound thereby and continue as Shareholders of series of the
reconstituted trust. |
| |
• |
|
The occurrence of any event which would make unlawful the continued existence of the Trust or the Fund, as the case may be.
|
| |
• |
|
In the event of the suspension, revocation or termination of the Managing Owner’s registration as a commodity pool operator, or membership as a
commodity pool operator with the NFA (if, in either case, such registration is required at such time unless at the time there is at least one remaining Managing Owner whose registration or membership has not been suspended, revoked or terminated).
|
| |
• |
|
The Trust or the Fund, as the case may be, becomes insolvent or bankrupt. |
| |
• |
|
The Shareholders holding Shares representing at least a majority (over 50%) of the net asset value (which excludes the Shares of the Managing Owner)
vote to dissolve the Trust, notice of which is sent to the Managing Owner not less than ninety (90) Business Days prior to the effective date of termination. |
| |
• |
|
The determination of the Managing Owner that the aggregate net assets of the Fund in relation to the operating expenses of the Fund make it
unreasonable or imprudent to continue the business of the Fund, or, in the exercise of its reasonable discretion, the determination by the Managing Owner to dissolve the Trust because the aggregate net asset value of the Trust as of the close of
business on any business day declines below $10 million. |
| |
• |
|
The Trust or the Fund is required to be registered as an investment company under the Investment Company Act of 1940. |
| |
• |
|
DTC is unable or unwilling to continue to perform its functions, and a comparable replacement is unavailable.
|
75
DISTRIBUTIONS
The Managing Owner has discretionary authority over all distributions made by the Fund. To the extent that the Fund’s actual and
projected interest income from its holdings of United States Treasury securities and other high credit quality short-term fixed income securities exceeds the actual and projected fees and expenses of the Fund, the Managing Owner expects periodically
to make distributions of the amount of such excess. The Fund currently does not expect to make distributions with respect to capital gains. Depending on the Fund’s performance for the taxable year and your own tax situation for such year, your
income tax liability for the taxable year for your allocable share of the Fund’s net ordinary income or loss and capital gain or loss may exceed any distributions you receive with respect to such year.
THE ADMINISTRATOR, CUSTODIAN AND TRANSFER AGENT
The Bank of New York Mellon is the administrator of the Fund and has entered into an Administration Agreement in connection therewith.
The Bank of New York Mellon serves as custodian, or Custodian, of the Fund and has entered into a Global Custody Agreement, or Custody Agreement, in connection therewith. The Bank of New York Mellon serves as the transfer agent, or Transfer Agent,
of the Fund and has entered into a Transfer Agency and Service Agreement in connection therewith.
The Bank of New York
Mellon, a banking corporation organized under the laws of the State of New York with trust powers, has an office at 2 Hanson Place, Brooklyn, New York 11217. The Bank of New York Mellon is subject to supervision by the New York State Banking
Department and the Board of Governors of the Federal Reserve System. Information regarding the net asset value of the Fund, creation and redemption transaction fees and the names of the parties that have executed a Participant Agreement may be
obtained from The Bank of New York Mellon by calling the following number: (718) 315-7500. A copy of the Administration Agreement is available for inspection at The Bank of New York Mellon’s office identified above.
The Administrator retains, separately for the Fund, certain financial books and records,
including: Basket creation and redemption books and records, Fund accounting records, ledgers with respect to assets, liabilities, capital, income and expenses, the registrar, transfer journals and related details and trading and related documents
received from futures commission merchants, c/o The Bank of New York Mellon, 2 Hanson Place, Brooklyn, New York 11217, telephone number (718) 315-7500.
A summary of the material terms of the Administration Agreement is disclosed in the “Material Contracts” section.
The Administrator’s monthly fees of up to 0.05% per annum are paid on behalf of the Fund by the Managing Owner out of the Fund’s Management Fee.
The Administrator and any of its affiliates may from time-to-time purchase or sell Shares for their own account, as agent for their
customers and for accounts over which they exercise investment discretion.
The Administrator and any successor administrator
must be a participant in DTC or such other securities depository as shall then be acting.
The Transfer Agent receives a
transaction processing fee in connection with orders from Authorized Participants to create or redeem Baskets in the amount of $500 per order. These transaction processing fees are paid directly by the Authorized Participants and not by the Fund.
The Trust may retain the services of one or more additional service providers to assist with certain tax reporting
requirements of the Fund and the Shareholders of the Fund.
ALPS DISTRIBUTORS, INC.
ALPS Distributors, Inc., or ALPS Distributors, assists the Managing Owner and the Administrator with certain
functions and duties relating to distribution and marketing, which include the following: consultation with the marketing staff of the Managing Owner and its affiliates with respect to FINRA compliance in connection with marketing efforts; review
and filing of marketing materials with
76
FINRA; and consultation with the Managing Owner and its affiliates in connection with marketing and sales strategies. Investors may contact ALPS Distributors toll-free in the U.S. at
(877) 369-4617.
ALPS Distributors retains all marketing materials separately for the Fund, at the offices of ALPS
Distributors, Inc., 1290 Broadway, Suite 1100, Denver, Colorado 80203; telephone number (303) 623-2577.
The Managing
Owner, out of the Management Fee, pays ALPS Distributors for performing its duties on behalf of the Fund and may pay ALPS Distributors additional compensation in consideration of the performance by ALPS Distributors of additional services to the
Fund. Such additional services may include, among other services, the development and implementation of a marketing plan and the utilization of ALPS Distributors’ resources, which include an extensive broker database and a network of internal
and external wholesalers. ALPS Distributors is affiliated with ALPS Fund Services, Inc., a Denver-based outsourcing solution for administration, compliance, fund accounting, legal, marketing, tax administration, transfer agency and shareholder
services for open-end, closed-end, hedge and exchange-traded funds. ALPS Fund Services, Inc. and its affiliates provide fund administration services to funds with assets in excess of $[48] billion. ALPS Distributors and its affiliates provide
distribution services to funds with assets of more than $[438] billion.
INDEX SPONSOR
The Trust, on behalf of the Fund, has appointed Deutsche Bank Securities Inc. to serve as the index sponsor, or the Index
Sponsor. The Index Sponsor calculates and publishes the daily index levels and the indicative intraday index levels. Additionally, the Index Sponsor also calculates the indicative value per Share of the Fund throughout each Business Day. The Index
Sponsor may subcontract its services from time-to-time to one or more third parties.
The Managing Owner pays the Index
Sponsor a licensing fee and an index services fee for performing its duties. These fees constitute a portion of the routine operational, administrative and other ordinary expenses and are paid from out of the Management Fee and are not charged to or
reimbursed by the Fund.
Neither the Managing Owner nor any affiliate of the Managing Owner has any rights to
influence the selection of the futures contracts underlying each Index.
The Index Sponsor is not affiliated with each Fund,
or the Managing Owner. The Managing Owner has entered into a license agreement with the Index Sponsor to use each Index.
The
Fund is not sponsored, endorsed, sold or promoted by the Index Sponsor, and the Index Sponsor makes no representation regarding the advisability of investing in Shares of each Fund.
There is no relationship between the Index Sponsor and the Managing Owner or the Fund other than a services agreement and a license by
the Index Sponsor to the Managing Owner of certain of the Index Sponsor’s trademarks and trade names, and the Index, for use by the Managing Owner or the Fund. Such trademarks, trade names and the Index have been created and developed by the
Index Sponsor without regard to, and independently of, the Managing Owner and the Fund, their businesses, and/or any prospective investor. The Fund and the Managing Owner have arranged with the Index Sponsor to license the Index for possible
inclusion in funds which the Managing Owner independently intends to develop and promote. The licensing of the Index to the Managing Owner or the Fund is not an offer to purchase or sell, or a solicitation to purchase, Shares of the Fund. A
determination that any portion of an investor’s portfolio should be devoted to the Fund or any other ETF product developed by the Managing Owner with reference to the Index is a determination made solely by the Managing Owner serving the
investor or the investor himself, not the Index Sponsor. The Index Sponsor is not responsible for and has not participated in the determination of the prices and amount of Shares of the Fund or the timing of the issuance or sale of Shares of the
Fund or in the determination of any financial calculations relating thereto. The Index Sponsor has no obligation or liability in connection with the administration of the Fund, or marketing of the Shares of the Fund. The Index Sponsor does not
guarantee the accuracy and/or the completeness of the Index or any data included therein. The Index Sponsor shall have no liability for any errors, omissions, or interruptions therein. The Index Sponsor makes no warranty, express or implied, as to
results to be obtained by the Managing
77
Owner, the Fund or owners of Shares, or any other person or entity, from the use of the Index or any data included therein. The Index Sponsor makes no express or implied warranties, and expressly
disclaims all warranties of merchantability or fitness for a particular purpose or use with respect to the Index or any data included therein, the Fund, or the Shares of the Fund. Deutsche Bank Securities Inc., which also serves as the marketing
agent, has entered into a services agreement with the Managing Owner. The agreements between the Managing Owner and DBSI as Marketing Agent and Index Sponsor relate to the Managing Owner’s sponsorship not only of the Fund but of other commodity
pools and exchange-traded funds. These agreements are for an initial six year term beginning January [ ], 2015, with additional one-year renewal terms unless terminated.
Both the Managing Owner and DBSI have the right to terminate on notice subject to payment of a termination fee, both with respect to a
given fund and with respect to all funds subject to these agreements. Each party also has the right to terminate for cause, although the Managing Owner’s ability to exercise this right is restricted to a narrow set of circumstances during the
initial six-year term. Accordingly, there may be circumstances where the Managing Owner would otherwise believe cause exists to terminate DBSI but where it would have to rely on its right to terminate at will. The termination fee payable by the
Managing Owner would be based on anticipated fee payments under these agreements during the remainder of the initial six-year term, and therefore could be sufficiently high as to deter the Managing Owner from exercise of these termination rights.
These termination fees would also be triggered by certain other termination rights of DBSI, including in the event of a change of control of the Managing Owner or changes of law affecting the licenses or services to be provided by DBSI. As a
consequence of these termination fee rights, DBSI may elect to terminate these licenses and services under certain circumstances where, were these being provided under stand-alone arrangements in respect of the Fund, it might not elect to terminate
the business relationship. Termination of the agreements between DBSI and the Managing Owner could result in disruption to the affairs of the Fund, including the need to adopt new indices and engage a replacement index sponsor.
Without limiting any of the foregoing, in no event shall the Index Sponsor have any
liability for any special, punitive, indirect, or consequential damages (including lost profits) resulting from the use of each Index or any data included therein, each Fund, or the Shares of each Fund, even if notified of the possibility of such
damages.
The Index Sponsor shall not be liable to the Managing Owner, each Fund, or the owners of any Shares of each Fund for
any loss or damage, direct or indirect, arising from (i) any inaccuracy or incompleteness in, or delays, interruptions, errors or omissions in the delivery of the each Index or any data related thereto, the Index Data, or (ii) any decision
made or action taken by any customer or third party in reliance upon the Index Data. The Index Sponsor does not make any warranties, express or implied, to the Managing Owner, each Fund or owners of Shares or anyone else regarding the Index Data,
including without limitation, any warranties with respect to the timeliness, sequence, accuracy, completeness, currentness, merchantability, quality, or fitness for a particular purpose or any warranties as to the results to be obtained by the
Managing Owner, each Fund or owners of Shares or anyone else in connection with the use of the Index Data. The Index Sponsor shall not be liable to the Managing Owner, each Fund or owners of Shares or anyone else for loss of business revenues, lost
profits or any indirect, consequential, special or similar damages whatsoever, whether in contract, tort or otherwise, even if advised of the possibility of such damages.
The Managing Owner does not guarantee the accuracy and/or the completeness of each Index or any Index Data included therein, and the Managing Owner shall have no liability for any errors, omissions, or
interruptions therein. The Managing Owner makes no warranty, express or implied, as to results to be obtained by each Fund, owners of the Shares of each Fund or any other person or entity from the use of the each Index or any Index Data included
therein. The Managing Owner makes no express or implied warranties, and expressly disclaims all warranties of merchantability or fitness for a particular purpose or use with respect to each Underlying Index or any Index Data included therein.
Without limiting any of the foregoing, in no event shall the Managing Owner have any liability for any special, punitive, direct, indirect or consequential
78
damages (including lost profits) arising out of matters relating to the use of each Index even if notified of the possibility of such damages.
MARKETING AGENT
Pursuant to the services agreement, the Trust, on behalf of the Fund, has appointed Deutsche Bank Securities Inc., or the Marketing Agent, to assist the Managing Owner by providing support to educate
institutional investors about the Deutsche Bank indices and to complete governmental or institutional due diligence questionnaires or requests for proposals related to the Deutsche Bank indices.
The Managing Owner pays the Marketing Agent a marketing services fee for performing its duties.
The Marketing Agent will not open or maintain customer accounts or handle orders for the Fund. The Marketing Agent has no responsibility
for the performance of the Fund or the decisions made or actions taken by the Managing Owner.
“800” Number for Investors
Investors may contact the Managing Owner toll free in the U.S. at
(800) 983-0903.
THE SECURITIES DEPOSITORY; BOOK-ENTRY-ONLY SYSTEM; GLOBAL SECURITY
DTC acts as securities depository for the Shares. DTC is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of section 17A of the
Exchange Act. DTC was created to hold securities of DTC Participants and to facilitate the clearance and settlement of transactions in such securities among the DTC Participants through electronic book-entry changes. This eliminates the need for
physical movement of securities certificates. DTC Participants include securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations, some of whom (and/or their representatives) own DTC. Access to the
DTC system is also available to others
such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a DTC Participant, either directly or indirectly. DTC has agreed to administer its
book-entry system in accordance with its rules and by-laws and the requirements of law.
Individual certificates will not
be issued for the Shares. Instead, global certificates are signed by the Managing Owner on behalf of the Fund, registered in the name of Cede & Co., as nominee for DTC, and deposited with the Trustee on behalf of DTC. The global
certificates evidence all of the Shares outstanding at any time. The representations, undertakings and agreements made on the part of the Fund in the global certificates are made and intended for the purpose of binding only the Fund and not the
Trustee or the Managing Owner individually.
Upon the settlement date of any creation, transfer or redemption of Shares,
DTC credits or debits, on its book-entry registration and transfer system, the amount of the Shares so created, transferred or redeemed to the accounts of the appropriate DTC Participants. The Managing Owner and the Authorized Participants designate
the accounts to be credited and charged in the case of creation or redemption of Shares.
Beneficial ownership of the Shares
is limited to DTC Participants, Indirect Participants and persons holding interests through DTC Participants and Indirect Participants. Owners of beneficial interests in the Shares is shown on, and the transfer of ownership is effected only through,
records maintained by DTC (with respect to DTC Participants), the records of DTC Participants (with respect to Indirect Participants), and the records of Indirect Participants (with respect to Shareholders that are not DTC Participants or Indirect
Participants). Shareholders are expected to receive from or through the DTC Participant maintaining the account through which the Shareholder has purchased their Shares a written confirmation relating to such purchase.
Shareholders that are not DTC Participants may transfer the Shares through DTC by instructing the DTC Participant or Indirect Participant
through which the Shareholders hold their Shares to transfer the Shares. Shareholders that are DTC Participants may transfer the Shares by instructing DTC in
79
accordance with the rules of DTC. Transfers are made in accordance with standard securities industry practice.
DTC may decide to discontinue providing its service with respect to Baskets and/or the Shares by giving notice to the Trustee and the Managing Owner. Under such circumstances, the Trustee and the Managing
Owner will either find a replacement for DTC to perform its functions at a comparable cost or, if a replacement is unavailable, terminate the Fund.
The rights of the Shareholders generally must be exercised by DTC Participants acting on their behalf in accordance with the rules and procedures of DTC. Because the Shares can only be held in book-entry
form through DTC and DTC Participants, investors must rely on DTC, DTC Participants and any other financial intermediary through which they hold the Shares to receive the benefits and exercise the rights described in this section. Investors should
consult with their broker or financial institution to find out about procedures and requirements for securities held in book-entry form through DTC.
SHARE SPLITS
If the Managing Owner
believes that the per Share price in the secondary market for Shares has fallen outside a desirable trading price range, the Managing Owner may direct the Trustee to declare a split or reverse split in the number of Shares outstanding and to make a
corresponding change in the number of Shares constituting a Basket.
MATERIAL CONTRACTS
[Brokerage Agreement]
The Commodity Broker and the Trust (on behalf of the Fund) entered into the brokerage agreement with respect to the Fund, or, the
Brokerage Agreement. As a result the Commodity Broker:
| |
• |
|
acts as the clearing broker; |
| |
• |
|
acts as custodian of the Fund’s assets; and |
| |
• |
|
performs such other services for the Fund as the Managing Owner may from time-to-time request.
|
As clearing broker for the Fund, the Commodity Broker receives orders for trades from the
Managing Owner.
Confirmations of all executed trades are given to the Fund by the Commodity Broker. The Brokerage Agreement
incorporates the Commodity Broker’s standard customer agreements and related documents, which generally include provisions that:
| |
• |
|
all funds, futures and open or cash positions carried for the Fund are held as security for the Fund’s obligations to the Commodity Broker;
|
| |
• |
|
the margins required to initiate or maintain open positions are from time-to-time established by the Commodity Broker and may exceed exchange minimum
levels; and |
| |
• |
|
the Commodity Broker may close out positions, purchase futures or cancel orders at any time it deems necessary for its protection, without the consent
of the Trust on behalf of the Fund. |
As custodian of the Fund’s assets, the Commodity Broker is
responsible, among other things, for providing periodic accountings of all dealings and actions taken by the Trust on behalf of the Fund during the reporting period, together with an accounting of all securities, cash or other indebtedness or
obligations held by it or its nominees for or on behalf of the Fund.
Administrative functions provided by the Commodity
Broker to the Fund include, but are not limited to, preparing and transmitting daily confirmations of transactions and monthly statements of account, calculating equity balances and margin requirements.
As long as the Brokerage Agreement between the Commodity Broker and the Trust, on behalf of the Fund, is in effect, the Commodity Broker
will not charge the Fund a fee for any of the services it has agreed to perform, except for the agreed upon brokerage fee.
The Brokerage Agreement is not exclusive and runs for successive one-year terms to be renewed automatically each year unless terminated.
The Brokerage Agreement is terminable by the Trust, on behalf of the Fund, or the Commodity Broker without
80
penalty upon thirty (30) days’ prior written notice (unless where certain events of default occur or there is a material adverse change to the Fund’s financial position, in which
case only prior written notice is required to terminate the Brokerage Agreement).
The Brokerage Agreement provides that
neither the Commodity Broker nor any of its managing directors, officers, employees or affiliates will be liable for any costs, losses, penalties, fines, taxes and damages sustained or incurred by the Trust or the Fund other than as a result of the
Commodity Broker’s gross negligence or reckless or intentional misconduct or breach of such agreement.
Administration Agreement
Pursuant to the Administration Agreement among the Trust, on behalf of itself and on behalf
of the Fund, and the Administrator, the Administrator performs or supervises the performance of services necessary for the operation and administration of the Fund (other than making investment decisions), including receiving and processing orders
from Authorized Participants to create and redeem Baskets, net asset value calculations, accounting and other fund administrative services.
The Administration Agreement will continue in effect from the commencement of trading operations unless terminated on at least 90 days’ prior written notice by either party to the other party.
Notwithstanding the foregoing, the Administrator may terminate the Administration Agreement with respect to the Fund upon 30 days’ prior written notice if the Fund has materially failed to perform its obligations under the Administration
Agreement or upon the termination of the Global Custody Agreement.
The Administrator is both exculpated and indemnified under
the Administration Agreement.
Except as otherwise provided in the Administration Agreement, the Administrator will not be
liable for any costs, expenses, damages, liabilities or claims (including attorneys’ and accountants’ fees) incurred by the Trust or the Fund, except those costs, expenses, damages, liabilities or claims arising out of the
Administrator’s own gross negligence or willful misconduct. In no event will the Administrator be liable to the Trust, the Fund or any
third party for special, indirect or consequential damages, or lost profits or loss of business, arising under or in connection with the Administration Agreement, even if previously informed of
the possibility of such damages and regardless of the form of action. The Administrator will not be liable for any loss, damage or expense, including counsel fees and other costs and expenses of a defense against any claim or liability, resulting
from, arising out of, or in connection with its performance under the Administration Agreement, including its actions or omissions, the incompleteness or inaccuracy of any Proper Instructions (as defined therein), or for delays caused by
circumstances beyond the Administrator’s control, unless such loss, damage or expense arises out of the gross negligence or willful misconduct of the Administrator.
Subject to limitations, the Trust and/or the Fund will indemnify and hold harmless the Administrator from and against any and all costs, expenses, damages, liabilities and claims (including claims
asserted by the Trust or the Fund), and reasonable attorneys’ and accountants’ fees relating thereto, which are sustained or incurred or which may be asserted against the Administrator by reason of or as a result of any action taken or
omitted to be taken by the Administrator in good faith under the Administration Agreement or in reliance upon (i) any law, act, regulation or interpretation of the same even though the same may thereafter have been altered, changed, amended or
repealed, (ii) the registration statement or Prospectus, (iii) any Proper Instructions, or (iv) any opinion of legal counsel for the Fund or arising out of transactions or other activities of the Fund which occurred prior to the
commencement of the Administration Agreement; provided, that neither the Trust nor the Fund will indemnify the Administrator for costs, expenses, damages, liabilities or claims for which the Administrator is liable under the preceding
paragraph. This indemnity will be a continuing obligation of each of the Trust, the Fund and their respective successors and assigns, notwithstanding the termination of the Administration Agreement. Without limiting the generality of the foregoing,
the Trust and the Fund will indemnify the Administrator against and save the Administrator harmless from any loss, damage or expense, including counsel fees and other costs and expenses of a defense against any claim or liability, arising from any
one or more of the following: (i) errors in records or instructions, explanations,
81
information, specifications or documentation of any kind, as the case may be, supplied to the Administrator by any third-party described above or by or on behalf of the Fund; (ii) action
or inaction taken or omitted to be taken by the Administrator pursuant to Proper Instructions of the Trust, on behalf of the Fund, or otherwise without gross negligence or willful misconduct; (iii) any action taken or omitted to be taken by the
Administrator in good faith in accordance with the advice or opinion of counsel for the Trust or the Fund or its own counsel; (iv) any improper use by the Trust or the Fund or their respective agents, distributor or investment advisor of any
valuations or computations supplied by the Administrator pursuant to the Administration Agreement; (v) the method of valuation and the method of computing net asset value; or (vi) any valuations or net asset value provided by the Fund.
Actions taken or omitted in reliance on Proper Instructions, or upon any information, order, indenture, stock
certificate, power of attorney, assignment, affidavit or other instrument believed by the Administrator to be genuine or bearing the signature of a person or persons believed to be authorized to sign, countersign or execute the same, or upon the
opinion of legal counsel for the Trust, on behalf of the Fund, or its own counsel, will be conclusively presumed to have been taken or omitted in good faith.
Notwithstanding any other provision contained in the Administration Agreement, the Administrator will have no duty or obligation with respect to, including, without limitation, any duty or obligation to
determine, or advise or notify the Fund of: (a) the taxable nature of any distribution or amount received or deemed received by, or payable to the Fund; (b) the taxable nature or effect on the Fund or its shareholders of any corporate
actions, class actions, tax reclaims, tax refunds, or similar events; (c) the taxable nature or taxable amount of any distribution or dividend paid, payable or deemed paid by the Fund to their respective shareholders; or (d) the effect
under any federal, state, or foreign income tax laws of the Fund making or not making any distribution or dividend payment, or any election with respect thereto.
Global Custody Agreement
The Bank of New York Mellon serves as the Fund’s custodian, or Custodian. Pursuant to the Global Custody Agreement between the Trust,
on its own behalf and on behalf of the Fund, and the Custodian, or Custody Agreement, the Custodian serves as custodian of all securities and cash at any time delivered to Custodian by the Fund during the term of the Custody Agreement and has
authorized the Custodian to hold its securities in registered form in its name or the name of its nominees. The Custodian has established and maintains one or more securities accounts and cash accounts for the Fund pursuant to the Custody Agreement.
The Custodian maintains separate and distinct books and records segregating the assets of the Fund.
The Trust, on behalf of
the Fund, independently, and the Custodian may terminate the Custody Agreement by giving to the other party a notice in writing specifying the date of such termination, which will be not less than ninety (90) days after the date of such notice.
Upon termination thereof, the Fund will pay to the Custodian such compensation as may be due to the Custodian, and will likewise reimburse the Custodian for other amounts payable or reimbursable to the Custodian thereunder. The Custodian will follow
such reasonable oral or written instructions concerning the transfer of custody of records, securities and other items as the Trust, on behalf of the Fund, gives; provided, that (a) the Custodian will have no liability for shipping and
insurance costs associated therewith, and (b) full payment will have been made to the Custodian of its compensation, costs, expenses and other amounts to which it is entitled thereunder. If any securities or cash remain in any account, the
Custodian may deliver to the Trust, on behalf of the Fund, such securities and cash. Except as otherwise provided herein, all obligations of the parties to each other hereunder will cease upon termination of the Custody Agreement.
The Custodian is both exculpated and indemnified under the Custody Agreement.
Except as otherwise expressly provided in the Custody Agreement, the Custodian will not be liable for any costs, expenses, damages,
liabilities or claims, including attorneys’ and accountants’ fees, or losses, incurred by or asserted against the Trust or the Fund, except those losses arising out of the gross
82
negligence or willful misconduct of the Custodian. The Custodian will have no liability whatsoever for the action or inaction of any depository. Subject to the Custodian’s delegation of its
duties to its affiliates, the Custodian’s responsibility with respect to any securities or cash held by a subcustodian is limited to the failure on the part of the Custodian to exercise reasonable care in the selection or retention of such
subcustodian in light of prevailing settlement and securities handling practices, procedures and controls in the relevant market. With respect to any losses incurred by the Trust or the Fund as a result of the acts or the failure to act by any
subcustodian (other than an affiliate of the Custodian), the Custodian will take appropriate action to recover such losses from such subcustodian; and the Custodian’s sole responsibility and liability to the Trust or the Fund will be limited to
amounts so received from such subcustodian (exclusive of costs and expenses incurred by the Custodian). In no event will the Custodian be liable to the Trust or the Fund or any third-party for special, indirect or consequential damages, or lost
profits or loss of business, arising in connection with the Custody Agreement.
The Trust, on behalf of the Fund, as
applicable, will indemnify the Custodian and each subcustodian for the amount of any tax that the Custodian, any such subcustodian or any other withholding agent is required under applicable laws (whether by assessment or otherwise) to pay on behalf
of, or in respect of income earned by or payments or distributions made to or for the account of the Fund (including any payment of tax required by reason of an earlier failure to withhold). The Custodian will, or will instruct the applicable
subcustodian or other withholding agent to, withhold the amount of any tax which is required to be withheld under applicable law upon collection of any dividend, interest or other distribution made with respect to any security and any proceeds or
income from the sale, loan or other transfer of any security. In the event that the Custodian or any subcustodian is required under applicable law to pay any tax on behalf of the Fund, the Custodian is hereby authorized to withdraw cash from any
cash account in the amount required to pay such tax and to use such cash, or to remit such cash to the appropriate subcustodian, for the timely payment of such tax in the manner required by applicable law.
The Trust, on its own behalf and on behalf of the Fund, will indemnify the Custodian and
hold the Custodian harmless from and against any and all losses sustained or incurred by or asserted against the Custodian by reason of or as a result of any action or inaction, or arising out of the Custodian’s performance under the Custody
Agreement, including reasonable fees and expenses of counsel incurred by the Custodian in a successful defense of claims by the Fund; provided however, that the Trust, on its own behalf and on behalf of the Fund, as applicable, will not
indemnify the Custodian for those losses arising out of the Custodian’s gross negligence or willful misconduct. This indemnity will be a continuing obligation of the Trust, on its own behalf and on behalf of the Fund, as applicable, their
successors and assigns, notwithstanding the termination of the Custody Agreement.
Transfer
Agency and Service Agreement
The Bank of New York Mellon serves as the Fund’s transfer agent, or Transfer Agent.
Pursuant to the Transfer Agency and Service Agreement between the Trust, the Trust on its own behalf and on behalf of the Fund and the Transfer Agent, the Transfer Agent serves as the Fund’s transfer agent, dividend or distribution disbursing
agent, and agent in connection with certain other activities as provided under the Transfer Agency and Service Agreement.
The
term of the Transfer Agency and Service Agreement is one year from the effective date and will automatically renew for additional one year terms unless any party provides written notice of termination (with respect to the Fund) at least ninety
(90) days prior to the end of any one year term or, unless earlier terminated as provided below:
| |
• |
|
Either party terminates prior to the expiration of the initial term in the event the other party breaches any material provision of the Transfer Agency
and Service Agreement, including, without limitation in the case of the Trust, on behalf of the Fund, its obligations to compensate the Transfer Agent, provided that the non-breaching party gives written notice of such breach to the breaching party
and the breaching party does not cure such violation within 90 days of receipt of such notice. |
83
| |
• |
|
The Fund may terminate the Transfer Agency and Service Agreement prior to the expiration of the initial term upon ninety (90) days’ prior
written notice in the event that the Managing Owner determines to liquidate the Trust or the Fund and terminate its registration with the Securities and Exchange Commission other than in connection with a merger or acquisition of the Trust.
|
The Transfer Agent will have no responsibility and will not be liable for any loss or damage unless such
loss or damage is caused by its own gross negligence or willful misconduct or that of its employees, or its breach of any of its representations. In no event will the Transfer Agent be liable for special, indirect or consequential damages regardless
of the form of action and even if the same were foreseeable.
Pursuant to the Transfer Agency and Service Agreement, the
Transfer Agent will not be responsible for, and the Trust or the Fund will indemnify and hold the Transfer Agent harmless from and against, any and all losses, damages, costs, charges, counsel fees, payments, expenses and liability, or Losses,
arising out of or attributable to:
| |
• |
|
All actions of the Transfer Agent or its agents or subcontractors required to be taken pursuant to the Transfer Agency and Service Agreement, provided
that such actions are taken without gross negligence, or willful misconduct. |
| |
• |
|
The Trust’s or the Fund’s gross negligence or willful misconduct. |
| |
• |
|
The breach of any representation or warranty of the Trust thereunder. |
| |
• |
|
The conclusive reliance on or use by the Transfer Agent or its agents or subcontractors of information, records, documents or services which
(i) are received by the Transfer Agent or its agents or subcontractors, and (ii) have been prepared, maintained or performed by the Trust, on its own behalf or on behalf of the Fund, or any other person or firm on behalf of the Trust or
the Fund including but not limited to any previous transfer agent or registrar.
|
| |
• |
|
The conclusive reliance on, or the carrying out by the Transfer Agent or its agents or subcontractors of any instructions or requests of the Trust, on
its own behalf and on behalf of the Fund. |
| |
• |
|
The offer or sale of Shares in violation of any requirement under the federal securities laws or regulations or the securities laws or regulations of
any state that such Shares be registered in such state or in violation of any stop order or other determination or ruling by any federal agency or any state with respect to the offer or sale of such Shares in such state.
|
Distribution Services Agreement
ALPS Distributors provides certain distribution services to the Fund. Pursuant to the Distribution Services Agreement as amended from
time-to-time, between the Trust, with respect to the Fund and ALPS Distributors, ALPS Distributors will assist the Managing Owner and the Administrator with certain functions and duties relating to distribution and marketing including reviewing and
approving marketing materials.
The date of the Distribution Services Agreement is the effective date and such Agreement will
continue automatically for successive annual periods, provided that such continuance is specifically approved at least annually (i) by the Fund’s Managing Owner or (ii) otherwise as provided under the Distribution Services Agreement.
The Distribution Services Agreement is terminable without penalty on sixty days’ written notice by the Fund’s Managing Owner or by ALPS Distributors. The Distribution Services Agreement will automatically terminate in the event of its
assignment.
Pursuant to the Distribution Services Agreement, the Fund will indemnify ALPS Distributors as follows:
The Fund indemnifies and holds harmless ALPS Distributors and each of its directors and officers and each person, if any, who
controls ALPS Distributors within the meaning of Section 15 of the Securities Act, against any loss, liability, claim, damages or expenses (including the reasonable cost of investigating or defending any alleged loss, liability, claim, damages
or expenses and reasonable counsel
84
fees incurred in connection therewith) arising by reason of any person acquiring any Shares, based upon the ground that the registration statement, Prospectus, statement of additional
information, Shareholder reports or other information filed or made public by the Fund (as from time-to-time amended) included an untrue statement of a material fact or omitted to state a material fact required to be stated or necessary in order to
make the statements not misleading under the Securities Act or any other statute or the common law. However, the Fund does not indemnify ALPS Distributors or hold it harmless to the extent that the statement or omission was made in reliance upon,
and in conformity with, information furnished to the Fund by or on behalf of ALPS Distributors. In no case
| |
• |
|
is the indemnity of the Fund in favor of ALPS Distributors or any person indemnified to be deemed to protect ALPS Distributors or any person against
any liability to the Fund or its security holders to which ALPS Distributors or such person would otherwise be subject by reason of willful misfeasance, bad faith or negligence in the performance of its duties or by reason of its reckless disregard
of its obligations and duties under the Distribution Services Agreement, or |
| |
• |
|
is the Fund to be liable under its indemnity agreement contained in this paragraph with respect to any claim made against ALPS Distributors or any
person indemnified unless ALPS Distributors or person, as the case may be, will have notified the Fund in writing of the claim promptly after the summons or other first written notification giving information of the nature of the claims will have
been served upon ALPS Distributors or any such person (or after ALPS Distributors or such person will have received notice of service on any designated agent). |
However, failure to notify the Fund of any claim will not relieve the Fund from any liability which it may have to any person against
whom such action is brought otherwise than on account of its indemnity agreement described herein. The Fund will be entitled to participate at its own expense in the defense, or, if it so elects, to assume the defense of any suit brought to enforce
any claims, and if the
Fund elects to assume the defense, the defense will be conducted by counsel chosen by the Fund. In the event the Fund elects to assume the defense of any suit and retain counsel, ALPS
Distributors, officers or directors or controlling person(s), defendant(s) in the suit, will bear the fees and expenses of any additional counsel retained by them. If the Fund does not elect to assume the defense of any suit, it will reimburse ALPS
Distributors, officers or directors or controlling person(s) or defendant(s) in the suit for the reasonable fees and expenses of any counsel retained by them. The Fund agrees to notify ALPS Distributors promptly of the commencement of any litigation
or proceeding against it or any of its officers in connection with the issuance or sale of any of the Shares.
MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following discussion describes the material U.S. federal (and
certain state and local) income tax considerations associated with the purchase, ownership and disposition of Shares as of the date hereof by U.S. Shareholders (as defined below) and non-U.S. Shareholders (as defined below). Except where noted, this
discussion deals only with Shares held as capital assets by Shareholders who acquired Shares by purchase and does not address special situations, such as those of:
| |
• |
|
dealers in securities, commodities or currencies; |
| |
• |
|
financial institutions; |
| |
• |
|
regulated investment companies, or RICs, other than the status of the Fund as a qualified publicly traded partnership, or qualified PTP, within the
meaning of the Code; |
| |
• |
|
real estate investment trusts; |
| |
• |
|
tax-exempt organizations; |
| |
• |
|
persons holding Shares as a part of a hedging, integrated or conversion transaction or a straddle; |
| |
• |
|
traders in securities or commodities that elect to use a mark-to-market method of accounting for their securities or commodities holdings; or
|
85
| |
• |
|
persons liable for alternative minimum tax. |
Furthermore, the discussion below is based upon the provisions of the Code, the Treasury Regulations promulgated thereunder, and administrative and judicial interpretations thereof, all as of the date
hereof, and such authorities may be repealed, revoked, modified or subject to differing interpretations, possibly on a retroactive basis, so as to result in U.S. federal income tax consequences different from those described below.
A “U.S. Shareholder” means a beneficial owner of Shares that is for U.S. federal income tax purposes:
| |
• |
|
an individual citizen or resident of the United States; |
| |
• |
|
a corporation (or other entity taxable as a corporation) created or organized in or under the laws of the United States or any state thereof or the
District of Columbia; |
| |
• |
|
an estate the income of which is subject to U.S. federal income taxation regardless of its source; or |
| |
• |
|
a trust if it (1) is subject to the primary supervision of a court within the United States and one or more U.S. persons have the authority to
control all substantial decisions of such trust or (2) has a valid election in effect under applicable Treasury Regulations to be treated as a U.S. person. |
A “non-U.S. Shareholder” means a beneficial owner of Shares that is not a U.S. Shareholder.
If a partnership or other entity or arrangement treated as a partnership for U.S. federal income tax purposes holds Shares, the tax
treatment of a partner in such partnership will generally depend upon the status of the partner and the activities of the partnership. If you are a partner in a partnership holding Shares, we urge you to consult your own tax adviser.
No statutory, administrative or judicial authority directly addresses the treatment of Shares or instruments similar to Shares for
U.S. federal income tax purposes. As a result, we cannot assure you that the IRS or the courts will agree with the tax consequences described herein. A different treatment
from that described below could adversely affect the amount, timing and character of items of income, gain, loss or deduction in respect of an investment in the Shares. If you are
considering the purchase of Shares, we urge you to consult your own tax adviser concerning the particular U.S. federal income tax consequences to you of the purchase, ownership and disposition of Shares, as well as any consequences to you arising
under the laws of any other taxing jurisdiction.
Status of the Fund
Under current law and assuming full compliance with the terms of the Trust Declaration and applicable law (and other relevant documents),
in the opinion of Sidley Austin llp, the Fund will be classified as a partnership for U.S. federal income tax purposes. Accordingly, subject to the discussion below regarding publicly traded partnerships, the Fund will not be a taxable entity for
U.S. federal income tax purposes and the Fund will not incur U.S. federal income tax liability.
Special Rules for Publicly Traded Partnerships
A partnership is not a taxable entity and incurs no U.S. federal income tax liability. Section 7704 of the Code provides that
publicly traded partnerships will, as a general rule, be taxed as corporations. However, an exception exists with respect to publicly traded partnerships of which 90% or more of the gross income during each taxable year consists of “qualifying
income” within the meaning of Section 7704(d) of the Code, or the qualifying income exception. Qualifying income includes dividends, interest, capital gains from the sale or other disposition of stocks and debt instruments and, in the case
of a partnership (such as the Fund) a principal activity of which is the buying and selling of commodities or futures contracts with respect to commodities, income and gains derived from commodities or futures contracts with respect to commodities.
The Fund anticipates that at least 90% of its gross income for each taxable year will constitute qualifying income within the meaning of Section 7704(d) of the Code.
There can be no assurance that the IRS will not assert that the Fund should be treated as a publicly traded partnership taxable as a corporation. No ruling
86
has been or will be sought from the IRS, and the IRS has made no determination as to the status of the Fund for U.S. federal income tax purposes or whether the Fund’s operations generate
“qualifying income” under Section 7704(d) of the Code. Whether the Fund will continue to meet the qualifying income exception is a matter that will be determined by the Fund’s operations and the facts existing at the time of
future determinations. However, the Fund’s Managing Owner will use its best efforts to cause the Fund to operate in such manner as is necessary for the Fund to continue to meet the qualifying income exception.
If the Fund were taxable as a corporation in any taxable year, either as a result of a failure to meet the qualifying income exception
described above or otherwise, the Fund’s items of income, gain, loss and deduction would be reflected only on its tax return rather than being passed through to the Shareholders, and the Fund’s net income would be taxed to it at the income
tax rates applicable to domestic corporations. In addition, if the Fund were taxable as a corporation, any distribution made by the Fund to a Shareholder would be treated as taxable dividend income, to the extent of the Fund’s current or
accumulated earnings and profits, or, in the absence of current and accumulated earnings and profits, as a nontaxable return of capital to the extent of the Shareholder’s tax basis in its Shares, or as taxable capital gain, after the
Shareholder’s tax basis in its Shares is reduced to zero. Taxation of the Fund as a corporation could result in a material reduction in a Shareholder’s cash flow and after-tax return and thus could result in a substantial reduction of the
value of the Shares.
The discussion below is based on Sidley Austin llp’s opinion that the Fund will be classified as a
partnership for U.S. federal income tax purposes that is not subject to corporate income tax for U.S. federal income tax purposes.
U.S. Shareholders
Treatment of Fund
Income
A partnership does not incur U.S. federal income tax liability. Instead, each partner of a partnership is
required to take into account its share of items of income, gain, loss, deduction and other items of the partnership. Accordingly, each Shareholder will be required to include in income its allocable share of the Fund’s income, gain, loss,
deduction and other items for the Fund’s taxable year ending with or within its taxable year. In computing a partner’s U.S. federal income tax liability, the items must be included,
regardless of whether cash distributions are made by the partnership. Thus, Shareholders may be required to take into account taxable income without a corresponding current receipt of cash if the Fund generates taxable income but does not make cash
distributions in an amount equal to the taxable income, or if the Shareholder is not able to deduct, in whole or in part, the Shareholder’s allocable share of the Fund’s expenses or capital losses. The Fund’s taxable year will end on
December 31 unless otherwise required by law. The Fund will use the accrual method of accounting.
Shareholders will take
into account their respective shares of ordinary income realized by the Fund from accruals of interest on U.S. Treasury bills, or T-Bills, held in the Fund’s portfolio. The Fund may hold T-Bills or other debt instruments with “acquisition
discount” or “original issue discount”, in which case Shareholders will be required to include accrued amounts in taxable income on a current basis even though receipt of those amounts may occur in a subsequent year. The Fund may also
acquire debt instruments with “market discount.” Upon disposition of such obligations, gain will generally be required to be treated as interest income to the extent of the market discount and Shareholders will be required to include as
ordinary income their share of the market discount that accrued during the period the obligations were held by the Fund.
It
is expected that a substantial portion of the futures on the Index Commodity held by the Fund will constitute Section 1256 Contracts (as defined below). The Code generally applies a “mark-to-market” system of taxing unrealized gains
and losses on and otherwise provides for special rules of taxation with respect to futures and other contracts that are Section 1256 Contracts. A Section 1256 Contract includes certain regulated futures contracts. Section 1256
Contracts held by the Fund at the end of a taxable year of the Fund will be treated for U.S. federal income tax purposes as if they were sold by the Fund at their fair market value on the last business day of the taxable year. The net gain or loss,
if any, resulting from these deemed sales (known as “marking-to-market”), together with any gain or loss resulting from any actual sales of Section 1256 Contracts (or other termination of the Fund’s
87
obligations under such contracts), must be taken into account by the Fund in computing its taxable income for the year. If a Section 1256 Contract held by the Fund at the end of a taxable
year is sold in the following year, the amount of any gain or loss realized on the sale will be adjusted to reflect the gain or loss previously taken into account under the mark-to-market rules.
Capital gains and losses from Section 1256 Contracts generally are characterized as short-term capital gains or losses to the extent
of 40% of the gains or losses and as long-term capital gains or losses to the extent of 60% of the gains or losses. Thus, Shareholders will generally take into account their pro rata share of the long-term capital gains and losses and short-term
capital gains and losses from Section 1256 Contracts held by the Fund and taken into account by the Fund in computing its taxable income. If a non-corporate taxpayer incurs a net capital loss for a year, the portion of the loss, if any, which
consists of a net loss on Section 1256 Contracts may, at the election of the taxpayer, be carried back three years. A loss carried back to a year by a non-corporate taxpayer may be deducted only to the extent (1) the loss does not exceed
the net gain on Section 1256 Contracts for the year and (2) the allowance of the carryback does not increase or produce a net operating loss for the year.
Any futures on the Index Commodity held by the Fund that are not classified as Section 1256 Contracts will not be subject to the year end “mark-to-market” rules of Section 1256, as
described above. Accordingly, any long-term or short-term capital gains or losses with respect to such futures held by the Fund that are not classified as Section 1256 Contracts will only be recognized by the Fund when such futures positions
are assigned or closed (by offset or otherwise). The applicable holding period for qualification for long-term capital gain or loss treatment for the commodity futures held by the Fund that are not Section 1256 Contracts is more than six months
(rather than the more than one year holding period applicable to other capital assets).
Allocation of the Fund’s
Profits and Losses
For U.S. federal income tax purposes, a Shareholder’s distributive share of the Fund’s
income, gain, loss, deduction and other items will be determined by the Trust’s Declaration of Trust, unless an allocation under either agreement does not
have “substantial economic effect,” in which case the allocations will be determined in accordance with the “partners’ interests in the partnership.” Subject to the
discussion below under “-Monthly Allocation and Revaluation Conventions and Transferor/Transferee Allocations” and “-Section 754 Election,” the allocations pursuant to the Trust’s Declaration of Trust should be
considered to have substantial economic effect or deemed to be made in accordance with the partners’ interests in the Fund.
If the allocations provided by the Trust’s Declaration of Trust were successfully challenged by the IRS, the amount of income or loss allocated to Shareholders for U.S. federal income tax purposes
under the Declaration of Trust could be increased or reduced or the character of the income or loss could be modified or both.
As described in more detail below, the U.S. federal income tax rules that apply to partnerships are complex and their application is not
always clear. Additionally, the rules generally were not written for, and in some respects are difficult to apply to, publicly traded partnerships. The Fund will apply certain assumptions and conventions intended to comply with the intent of the
rules and to report income, gain, loss, deduction and credit to Shareholders in a manner that reflects the economic gains and losses, but these assumptions and conventions may not comply with all aspects of the applicable Treasury Regulations. It is
possible therefore that the IRS will successfully assert that assumptions made and/or conventions used do not satisfy the technical requirements of the Code or the Treasury Regulations and will require that tax items be adjusted or reallocated in a
manner that could adversely impact Shareholders.
Monthly Allocation and Revaluation Conventions and
Transferor/Transferee Allocations
In general, the Fund’s taxable income and losses will be determined monthly and
will be apportioned among the Shareholders in proportion to the number of Shares owned by each of them as of the close of the last trading day of the preceding month. By investing in Shares, a U.S. Shareholder agrees that, in the absence of an
administrative determination or judicial ruling to the contrary, it will report income and loss under the monthly allocation and revaluation conventions described below.
88
Under the monthly allocation convention, whomever is treated for U.S. federal income tax
purposes as holding Shares as of the close of the last trading day of the preceding month will be treated as continuing to hold the Shares until immediately before the close of the last trading day of the following month. With respect to any Shares
that were not treated as outstanding as of the close of the last trading day of the preceding month, the first person that is treated as holding such Shares (other than an underwriter or other person holding in a similar capacity) for U.S. federal
income tax purposes will be treated as holding such Shares for this purpose as of the close of the last trading day of the preceding month. As a result, a Shareholder who has disposed of Shares prior to the close of the last trading day of a month
may be allocated items of income, gain, loss and deduction realized after the date of transfer.
Section 706 of the Code
generally requires that items of partnership income and deductions be allocated between transferors and transferees of partnership interests on a daily basis. It is possible that transfers of Shares could be considered to occur for U.S. federal
income tax purposes when the transfer is completed without regard to the Fund’s monthly convention for allocating income and deductions. If this were to occur, the Fund’s allocation method might be considered a monthly convention that does
not literally comply with that requirement. If the IRS treats transfers of Shares as occurring throughout each month and a monthly convention is not allowed by the Treasury Regulations (or only applies to transfers of less than all of a
Shareholder’s Shares) or if the IRS otherwise does not accept the Fund’s convention, the IRS may contend that taxable income or losses of the Fund must be reallocated among the Shareholders. If such a contention was sustained, the
Shareholders’ respective tax liabilities would be adjusted to the possible detriment of certain Shareholders. The Managing Owner is authorized to revise the Fund’s methods of allocation between transferors and transferees (as well as among
Shareholders whose interests otherwise vary during a taxable period).
In addition, for any month in which a creation or
redemption of Shares takes place, the Fund generally will credit or debit, respectively, the “book” capital accounts of the existing Shareholders with any unrealized gain or loss in the Fund’s assets. This will
result in the allocation of the Fund’s items of income, gain, loss, deduction and credit to existing Shareholders to account for the difference between the tax basis and fair market value of
property owned by the Fund at the time new Shares are issued or old Shares are redeemed, or reverse Section 704(c) allocations. The intended effect of these allocations is to allocate any built-in gain or loss in the Fund’s assets at the
time of a creation or redemption of Shares to the investors that economically have earned such gain or loss.
As with the
other allocations described above, the Fund generally will use a monthly convention for purposes of the reverse Section 704(c) allocations. More specifically, the Fund generally will credit or debit, respectively, the “book” capital
accounts of the existing Shareholders with any unrealized gain or loss in the Fund’s assets based on a calculation utilizing the average price of the Shares during the month in which the creation or redemption transaction takes place, rather
than the fair market value of its assets at the time of such creation or redemption, or the revaluation convention. As a result, it is possible that, for U.S. federal income tax purposes, (i) a purchaser of newly issued Shares will be allocated
some or all of the unrealized gain in the Fund’s assets at the time it acquires the Shares or (ii) an existing Shareholder will not be allocated its entire share in the unrealized loss in the Fund’s assets at the time of such
acquisition. Furthermore, the applicable Treasury Regulations generally require that the “book” capital accounts be adjusted based on the fair market value of partnership property on the date of adjustment and do not explicitly allow the
adoption of a monthly revaluation convention.
The Code and applicable Treasury Regulations generally require that items of
partnership income and deductions be allocated between transferors and transferees of partnership interests on a daily basis, and that adjustments to “book” capital accounts be made based on the fair market value of partnership property on
the date of adjustment. The Code and Treasury Regulations do not contemplate monthly allocation or revaluation conventions. If the IRS does not accept the Fund’s monthly allocation or revaluation convention, the IRS may contend that taxable
income or losses of the Fund must be reallocated among the Shareholders of the Fund. If such a contention were sustained, the Shareholders’ respective tax liabilities would be adjusted to the
89
possible detriment of certain Shareholders. The Managing Owner is authorized to revise the Fund’s allocation and revaluation methods in order to comply with applicable law or to allocate
items of partnership income and deductions in a manner that reflects more accurately the Shareholders’ interests in the Fund.
Section 754 Election
The Fund has made the election permitted
by Section 754 of the Code. Such an election, once made, is irrevocable without the consent of the IRS. The making of the Section 754 election by the Fund will generally have the effect of requiring a purchaser of Shares to adjust its
proportionate share of the basis in the Fund’s assets, or the inside basis, pursuant to Section 743(b) of the Code to fair market value (as reflected in the purchase price for the purchaser’s Shares), as if it had acquired a direct
interest in the Fund’s assets. The Section 743(b) adjustment is attributed solely to a purchaser of Shares and is not added to the bases of the Fund’s assets associated with all of the other Shareholders. Depending on the relationship
between a Shareholder’s purchase price for Shares and its unadjusted share of the Fund’s inside basis at the time of the purchase, the Section 754 election may be either advantageous or disadvantageous to the Shareholder as compared
to the amount of gain or loss a Shareholder would be allocated absent the Section 754 election.
The calculations under
Section 754 of the Code are complex, and there is little legal authority concerning the mechanics of the calculations, particularly in the context of publicly traded partnerships. To help reduce the complexity of those calculations and the
resulting administrative costs, the Fund will apply certain conventions in determining and allocating the Section 743 basis adjustments. It is possible that the IRS will successfully assert that some or all of such conventions utilized by the
Fund do not satisfy the technical requirements of the Code or the Treasury Regulations and, thus, will require different basis adjustments to be made. If the IRS were to sustain such a position, a Shareholder may have adverse tax consequences.
In order to make the basis adjustments permitted by Section 754, the Fund will be required to obtain information
regarding each Shareholder’s secondary
market transactions in Shares as well as creations and redemptions of Shares. The Fund will seek the requested information from the record Shareholders, and, by purchasing Shares, each beneficial
owner of Shares will be deemed to have consented to the provision of the information by the record owner of the beneficial owner’s Shares. Notwithstanding the foregoing, however, there can be no guarantee that the Fund will be able to obtain
such information from record owners or other sources, or that the basis adjustments that the Fund makes based on the information it is able to obtain will be effective in eliminating disparity between a Shareholder’s outside basis in its Shares
and its interest in the inside basis in the Fund’s assets.
Constructive Termination
The Fund will experience a constructive termination for tax purposes if there is a sale or exchange of 50 percent or more of the total
Shares in the Fund within a 12-month period. A constructive termination results in the closing of the Fund’s taxable year for all Shareholders in the Fund. In the case of a Shareholder reporting on a taxable year other than the taxable year
used by the Fund (which is a fiscal year ending December 31), the early closing of the Fund’s taxable year may result in more than 12 months of its taxable income or loss being includable in the Shareholder’s taxable income for the
year of termination. The Fund would be required to make new tax elections after a termination, including a new election under Section 754. A termination could also result in penalties if the Fund were unable to determine that the termination
had occurred.
Treatment of Distributions
Distributions of cash by a partnership are generally not taxable to the distributee to the extent the amount of cash does not exceed the
distributee’s tax basis in its partnership interest. Thus, any cash distributions made by the Fund will be taxable to a Shareholder only to the extent the distributions exceed the Shareholder’s tax basis in the Shares it is treated as
owning (see “- Tax Basis in Fund Shares” below). Any cash distributions in excess of a Shareholder’s tax basis generally will be considered to be gain from the sale or exchange of the Shares (see “- Disposition of Shares”
below).
90
Creation and Redemption of Share Baskets
Shareholders, other than Authorized Participants (or holders for which an Authorized Participant is acting), generally will not recognize
gain or loss as a result of an Authorized Participant’s creation or redemption of a Basket. If the Fund disposes of assets in connection with the redemption of a Basket, however, the disposition may give rise to gain or loss that will be
allocated in part to Shareholders. An Authorized Participant’s creation or redemption of a Basket also may affect a Shareholder’s share of the Fund’s tax basis in its assets, which could affect the amount of gain or loss allocated to
the Shareholder on the sale or disposition of portfolio assets by the Fund.
Disposition of Shares
If a U.S. Shareholder transfers Shares and such transfer is a sale or other taxable disposition, the U.S. Shareholder will generally be
required to recognize gain or loss measured by the difference between the amount realized on the sale and the U.S. Shareholder’s adjusted tax basis in the Shares sold. The amount realized will include an amount equal to the U.S.
Shareholder’s share of the Fund’s liabilities, as well as any proceeds from the sale. The gain or loss recognized will generally be taxable as capital gain or loss. Capital gain of non-corporate U.S. Shareholders is eligible to be taxed at
reduced rates where the Shares sold are considered held for more than one year. Capital gain of corporate U.S. Shareholders is taxed at the same rate as ordinary income. Any capital loss recognized by a U.S. Shareholder on a sale of Shares will
generally be deductible only against capital gains, except that a non-corporate U.S. Shareholder may also offset up to $3,000 per year of ordinary income with capital losses.
Tax Basis in Fund Shares
A U.S. Shareholder’s initial tax
basis in its Shares will equal the sum of (a) the amount of cash paid by the U.S. Shareholder for its Shares and (b) the U.S. Shareholder’s share of the Fund’s liabilities. A U.S. Shareholder’s tax basis in its Shares will
be increased by (a) the U.S. Shareholder’s share of the Fund’s taxable income, including capital gain, (b) the U.S. Shareholder’s share of the Fund’s income, if any, that is exempt from tax and (c) any increase in
the U.S.
Shareholder’s share of the Fund’s liabilities. A U.S. Shareholder’s tax basis in Shares will be decreased (but not below zero) by (a) the amount of any cash distributed (or
deemed distributed) to the U.S. Shareholder, (b) the U.S. Shareholder’s share of the Fund’s losses and deductions, (c) the U.S. Shareholder’s share of the Fund’s expenditures that are neither deductible nor properly
chargeable to its capital account and (d) any decrease in the U.S. Shareholder’s share of the Fund’s liabilities.
Limitations on Interest Deductions
The deductibility of a
non-corporate U.S. Shareholder’s “investment interest expense” is generally limited to the amount of the Shareholder’s “net investment income.” Investment interest expense will generally include interest expense
incurred by the Fund, if any, and investment interest expense incurred by the U.S. Shareholder on any margin account borrowing or other loan incurred to purchase or carry Shares. Net investment income includes gross income from property held for
investment and amounts treated as portfolio income, such as dividends and interest, less deductible expenses, other than interest, directly connected with the production of investment income. For this purpose, any long-term capital gain or
qualifying dividend income that is taxable at long-term capital gains rates is excluded from net investment income unless the U.S. Shareholder elects to pay tax on such capital gain or dividend income at ordinary income rates.
Organization, Syndication and Other Expenses
In general, expenses incurred that are considered “miscellaneous itemized deductions” may be deducted by a U.S. Shareholder that is an individual, estate or trust only to the extent that they
exceed 2% of the adjusted gross income of the U.S. Shareholder. The Code imposes additional limitations on the amount of certain itemized deductions allowable to individuals, by reducing the otherwise allowable portion of such deductions by an
amount equal to the lesser of:
| |
• |
|
3% of the individual’s adjusted gross income in excess of certain threshold amounts; or |
| |
• |
|
80% of the amount of certain itemized deductions otherwise allowable for the taxable year.
|
91
In addition, these expenses are also not deductible in determining the alternative minimum
tax liability of a U.S. Shareholder. The Fund will report its expenses on a pro rata basis to the Shareholders, and each U.S. Shareholder will determine separately to what extent they are deductible on the U.S. Shareholder’s tax return. A U.S.
Shareholder’s inability to deduct all or a portion of the expenses could result in an amount of taxable income to the U.S. Shareholder with respect to the Fund that exceeds the amount of cash actually distributed to such U.S. Shareholder for
the year. It is anticipated that management fees the Fund will pay will constitute miscellaneous itemized deductions.
Under
Section 709(b) of the Code, amounts paid or incurred to organize a partnership may, at the election of the partnership, be treated as deferred expenses, which are allowed as a deduction ratably over a period of 180 months. The Fund has made a
Section 709(b) election. A non-corporate U.S. Shareholder’s allocable share of the organizational expenses will constitute miscellaneous itemized deductions. Expenditures in connection with the issuance and marketing of Shares (so called
“syndication fees”) are not eligible for the 180-month amortization provision and are not deductible.
Passive
Activity Income and Loss
Individuals are subject to certain “passive activity loss” rules under
Section 469 of the Code. Under these rules, losses from a passive activity generally may not be used to offset income derived from any source other than passive activities. Losses that cannot be currently used under this rule may generally be
carried forward. Upon an individual’s disposition of an interest in the passive activity, the individual’s unused passive losses may generally be used to offset other (i.e., non-passive) income. Under current Treasury Regulations, income
or loss from the Fund’s investments generally will not constitute income or losses from a passive activity. Therefore, income or loss realized by Shareholders will not be available to offset a U.S. Shareholder’s passive losses or passive
income from other sources.
Reporting by the Fund to its Shareholders
The Fund will file a partnership tax return. Accordingly, tax information will be provided to Shareholders on Schedule K-1 for each
calendar year
as soon as practicable after the end of such taxable year but in no event later than March 15. Each Schedule K-1 provided to a Shareholder will set forth the Shareholder’s share of the
Fund’s tax items (i.e., interest income from T-Bills, short-term and long-term capital gain or loss with respect to the futures contracts, and investment expenses for the year) in a manner sufficient for a U.S. Shareholder to complete its tax
return with respect to its investment in the Shares.
Each Shareholder, by its acquisition of Shares, will be deemed to agree
to allow brokers and nominees to provide to the Fund its name and address and the other information and forms as may be reasonably requested by the Fund for purposes of complying with their tax reporting and withholding obligations (and to waive any
confidentiality rights with respect to the information and forms for this purpose) and to provide information or forms upon request.
Given the lack of authority addressing structures similar to that of the Fund, it is not certain that the IRS will agree with the manner in which tax reporting by the Fund will be undertaken. Therefore,
Shareholders should be aware that future IRS interpretations or revisions to Treasury Regulations could alter the manner in which tax reporting by the Fund and any nominee will be undertaken.
Audits and Adjustments to Tax Liability
Any challenge by the IRS to the tax treatment by a partnership of any item must be conducted at the partnership, rather than at the partner, level. A partnership ordinarily designates a “tax matters
partner” (as defined under Section 6231 of the Code) as the person to receive notices and to act on its behalf in the conduct of such a challenge or audit by the IRS.
Pursuant to the governing documents, the Managing Owner has been appointed the “tax matters partner” of the Fund for all
purposes of the Code. The tax matters partner, which is required by the Trust Declaration to notify all U.S. Shareholders of any U.S. federal income tax audit of the Fund, has the authority under the Trust Declaration to conduct any IRS audits of
the Fund’s tax returns or other tax related administrative or judicial proceedings and to settle or further contest any issues in such proceedings. The decision in any proceeding initiated
92
by the tax matters partner will be binding on all U.S. Shareholders. As the tax matters partner, the Managing Owner has the right on behalf of all Shareholders to extend the statute of
limitations relating to the Shareholders’ U.S. federal income tax liabilities with respect to Fund items.
A U.S. federal
income tax audit of the Fund’s partnership tax return may result in an audit of the returns of the U.S. Shareholders, which, in turn, could result in adjustments of items of a Shareholder that are unrelated to the Fund as well as to the
Fund’s related items. In particular, there can be no assurance that the IRS, upon an audit of a partnership tax return of the Fund or of an income tax return of a U.S. Shareholder, might not take a position that differs from the treatment
thereof by the Fund. A U.S. Shareholder would be liable for interest on any deficiencies that resulted from any adjustments. Prospective U.S. Shareholders should also recognize that they might be forced to incur substantial legal and accounting
costs in resisting any challenge by the IRS to items in their individual returns, even if the challenge by the IRS should prove unsuccessful.
Non-U.S. Shareholders
The Fund will conduct its activities in
such a manner that a non-U.S. Shareholder who is not otherwise carrying on a trade or business in the United States will not be considered to be engaged in a trade or business in the United States as a result of an investment in the Shares. A
non-U.S. Shareholder’s share of the interest income realized by the Fund on its holdings of T-Bills will be exempt from U.S. withholding tax provided the non-U.S. Shareholder certifies on IRS Form W-8BEN or IRS Form W-8BEN-E (or other
applicable form) that the Shareholder is not a U.S. person, provides name and address information and otherwise satisfies applicable documentation requirements.
Non-U.S. Shareholders will not be subject to U.S. federal income tax on gains realized on the sale of Shares or on the non-U.S. Shareholder’s share of the Fund’s gains. However, in the case of
an individual non-U.S. Shareholder, the non-U.S. Shareholder will be subject to U.S. federal income tax on gains on the sale of Shares or the non-U.S. Shareholder’s distributive share of gains if the non-U.S. Shareholder is present in the
United States for 183 days or more during a taxable year and certain other conditions are met.
Non-U.S. Shareholders that are individuals will be subject to U.S. federal estate tax on
the value of U.S. situs property owned at the time of their death (unless a statutory exemption or tax treaty exemption applies). It is unclear whether partnership interests (such as the Shares) will be considered U.S. situs property. Accordingly,
non-U.S. Shareholders may be subject to U.S. federal estate tax on all or part of the value of the Shares owned at the time of their death.
Non-U.S. Shareholders are advised to consult their own tax advisers with respect to the particular tax consequences to them of an investment in the Shares.
Regulated Investment Companies
RICs may invest up to 25% of their assets in “qualified PTPs” and net income derived from such investments is qualifying income under the income source test applicable to entities seeking to
qualify for the special tax treatment available to RICs under the Code. In addition, interests in a qualified PTP are treated as issued by such PTP and a RIC is not required to look through to the underlying partnership assets when testing
compliance with the asset diversification tests applicable to RICs under the Code. The Fund anticipates that it will qualify as a qualified PTP for any taxable year in which the Fund realizes sufficient gross income from its commodities futures
transactions. However, qualification of the Fund as a qualified PTP depends on performance of the Fund for the particular tax year and there is no assurance that it will qualify in a given year or that future results of the Fund will conform to
prior experience. Additionally, there is, to date, no regulatory guidance on the application of these rules, and it is possible that future guidance may adversely affect qualification of the Fund as a qualified PTP. In a 2005 revenue ruling, the IRS
clarified that derivative contracts owned by a RIC that provide for a total-return exposure on a commodity index will not produce qualifying income for purposes of the RIC qualification rules. The IRS interpretation set forth in such ruling,
however, does not adversely affect the Fund’s ability to be treated as a qualified PTP for purposes of applying the RIC qualification rules. RIC investors are urged to monitor their investment in the Fund and consult with a tax advisor
concerning the impact of such an investment on their compliance with the income
93
source and asset diversification requirements applicable to RICs. The Fund will make available on the Managing Owner’s website periodic tax information designed to enable RIC investors in
its Shares to make a determination as to the Fund’s status under the qualified PTP rules.
Tax-Exempt Organizations
An organization that is otherwise exempt from U.S. federal income tax is nonetheless subject to taxation with respect
to its “unrelated business taxable income,” or UBTI. Except as noted below with respect to certain categories of exempt income, UBTI generally includes income or gain derived (either directly or through a partnership) from a trade or
business, the conduct of which is substantially unrelated to the exercise or performance of the organization’s exempt purpose or function.
UBTI generally does not include passive investment income, such as dividends, interest and capital gains, whether realized by the organization directly or indirectly through a partnership (such as the
Fund) in which it is a partner. This type of income is exempt, subject to the discussion of “unrelated debt-financed income” below, even if it is realized from securities trading activity that constitutes a trade or business.
UBTI includes not only trade or business income or gain as described above, but also “unrelated debt-financed income.” This
latter type of income generally consists of (1) income derived by an exempt organization (directly or through a partnership) from income producing property with respect to which there is “acquisition indebtedness” at any time during
the taxable year and (2) gains derived by an exempt organization (directly or through a partnership) from the disposition of property with respect to which there is acquisition indebtedness at any time during the twelve-month period ending with
the date of the disposition.
All of the income realized by the Fund is expected to be short-term or long-term capital gain
income, interest income or other passive investment income of the type specifically exempt from UBTI as discussed above. The Fund will not borrow funds for the purpose of acquiring or holding any investments or otherwise incur “acquisition
indebtedness” with respect to such investments. Therefore, a tax-exempt
entity purchasing Shares will not incur any UBTI by reason of its investment in the Shares or upon sale of such Shares provided that such tax-exempt entity does not borrow funds for the purpose
of investing in the Shares.
Certain State and Local Taxation Matters
Prospective Shareholders should consider, in addition to the U.S. federal income tax consequences described, potential state and local tax
considerations in investing in the Shares.
State and local laws often differ from U.S. federal income tax laws with respect
to the treatment of specific items of income, gain, loss, deduction and credit. A Shareholder’s distributive share of the taxable income or loss of the Fund generally will be required to be included in determining its reportable income for
state and local tax purposes in the jurisdiction in which the Shareholder is a resident. The Fund may conduct business in one or more jurisdictions that will subject a Shareholder to tax (and require a Shareholder to file an income tax return with
the jurisdiction in respect to the Shareholder’s share of the income derived from that business). A prospective Shareholder should consult its tax adviser with respect to the availability of a credit for such tax in the jurisdiction in which
the Shareholder is resident.
The Fund should not be subject to the New York City unincorporated business tax because such tax
is not imposed on an entity that is primarily engaged in the purchase and sale of financial instruments and securities for its “own account.” By reason of a similar “own account” exemption, it is also expected that a nonresident
individual U.S. Shareholder should not be subject to New York State personal income tax with respect to his or her share of income or gain recognized by the Fund. A nonresident individual U.S. Shareholder will not be subject to New York City
earnings tax on nonresidents with respect to his or her investment in the Fund. New York State and New York City residents will be subject to New York State and New York City personal income tax on their income recognized in respect of Shares.
Because the Fund may conduct its business, in part, in New York City, corporate U.S. Shareholders generally will be subject to the New York franchise tax and the New York City general corporation tax by reason of their investment in the Fund, unless
94
certain exemptions apply. However, pursuant to applicable regulations, non-New York corporate U.S. Shareholders not otherwise subject to New York State franchise tax or New York City general
corporation tax should not be subject to these taxes solely by reason of investing in shares based on qualification of the Fund as a “portfolio investment partnership” under applicable rules. No ruling from the New York State Department of
Taxation and Finance or the New York City Department of Finance has been, or will be, requested regarding such matters.
Backup Withholding
The Fund is required in certain circumstances to backup withhold on certain payments paid to non-corporate Shareholders that do not furnish the Fund with their correct taxpayer identification number (in
the case of individuals, their social security number) and certain certifications, or who are otherwise subject to backup withholding. Backup withholding is not an additional tax. Any amounts withheld from payments made to a Shareholder may be
refunded or credited against the Shareholder’s U.S. federal income tax liability, if any, provided that the required information is furnished to the IRS in a timely manner.
Shareholders should be aware that certain aspects of the U.S. federal, state and local income tax treatment regarding the purchase,
ownership and disposition of Shares are not clear under existing law. Thus, Shareholders are urged to consult their own tax advisers to determine the tax consequences of ownership of the Shares in their particular circumstances, including the
application of U.S. federal, state, local and foreign tax laws.
FATCA
The Foreign Account Tax Compliance Act (“FATCA”) (i) requires certain foreign entities that are foreign financial
institutions (as defined in Section 1471(d)(4) of the Code) to enter into an agreement with the IRS to disclose to the IRS the name, address and tax identification number of certain U.S. persons who own an interest in the foreign entity and
requires certain other foreign entities to provide certain other information; and (ii) imposes a 30% withholding tax on certain payments of U.S. source income and proceeds from
the sale of property that produces U.S. source interest or dividends if the foreign entity fails to enter into the agreement or satisfy its obligations under the legislation. Non-U.S.
Shareholders are encouraged to consult with their own tax advisors regarding the possible implications of FATCA on an investment in a Fund.
Tax on Net Investment Income
A 3.8% tax will be imposed on some or
all of the net investment income of certain individuals with modified adjusted gross income of over $200,000 ($250,000 in the case of joint filers) and the undistributed net investment income of certain estates and trusts. For these purposes, it is
expected that all or a substantial portion of a Shareholder’s share of Fund income will be net investment income. In addition, certain Fund expenses may not be deducted in calculating a Shareholder’s net investment income.
Tax Agent
The beneficial owners who are of a type, as identified by the nominee through whom their Shares are held, that do not ordinarily have U.S. federal tax return filing requirements (collectively,
“Certain K-1 Unitholders”) have designated the Managing Owner as their tax agent (the “Tax Agent”) in dealing with the Trust. In light of such designation and pursuant to Treasury Regulation section 1.6031(b)-1T(c), as amended
from time to time, the Trust will provide to the Tax Agent Certain K-1 Unitholders’ statements (as such term is defined under Treasury Regulation section 1.6031(b)-1T(a)(3)), as amended from time to time).
PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR TAX ADVISERS BEFORE DECIDING WHETHER TO INVEST IN THE SHARES.
PURCHASES BY EMPLOYEE BENEFIT PLANS
Although there can be no assurance that an investment in the Fund, or any other managed futures
95
product, will achieve the investment objectives of an employee benefit plan in making such investment, futures investments have certain features which may be of interest to such a plan. For
example, the futures markets are one of the few investment fields in which employee benefit plans can participate in leveraged strategies without being required to pay tax on “unrelated business taxable income.” See “Material U.S.
Federal Income Tax Considerations- ‘Tax-Exempt Organizations’” at page [94]. In addition, because they are not taxpaying entities, employee benefit plans are not subject to paying annual tax on profits (if any) of the Fund.
General
The following section sets forth certain consequences under the Employee Retirement Income Security Act of 1974, as amended, or ERISA, and the Code, which a fiduciary of an “employee benefit
plan” as defined in, and subject to the fiduciary responsibility provisions of, ERISA or of a “plan” as defined in and subject to Section 4975 of the Code who has investment discretion should consider before deciding to invest
the plan’s assets in the Fund (such “employee benefit plans” and “plans” being referred to herein as “Plans,” and such fiduciaries with investment discretion being referred to herein as “Plan
Fiduciaries”). The following summary is not intended to be complete, but only to address certain questions under ERISA and the Code which are likely to be raised by the Plan Fiduciary’s own counsel.
In general, the terms “employee benefit plan” as defined in ERISA and “plan” as defined in Section 4975 of the
Code together refer to any plan or account of various types which provide retirement benefits or welfare benefits to an individual or to an employer’s employees and their beneficiaries. Such plans and accounts include, but are not limited to,
corporate pension and profit-sharing plans, “simplified employee pension plans,” Keogh plans for self-employed individuals (including partners), individual retirement accounts described in Section 408 of the Code and medical benefit
plans.
Each Plan Fiduciary must give appropriate consideration to the facts and circumstances that are relevant to an
investment in the Fund, including the role an investment in the Fund plays in the Plan’s investment portfolio. Each Plan Fiduciary, before
deciding to invest in the Fund, must be satisfied that such investment in such Fund is a prudent investment for the Plan, that the investments of the Plan, including the investment in the Fund,
are diversified so as to minimize the risk of large losses and that an investment in the Fund complies with the documents of the Plan and related trust.
EACH PLAN FIDUCIARY CONSIDERING ACQUIRING SHARES MUST CONSULT WITH ITS OWN LEGAL AND TAX ADVISERS BEFORE DOING SO. AN INVESTMENT IN THE FUND IS SPECULATIVE AND INVOLVES A HIGH DEGREE OF RISK. THE FUND IS
NOT INTENDED AS A COMPLETE INVESTMENT PROGRAM.
“Plan Assets”
ERISA and a regulation issued thereunder, or the Plan Asset Rules, contain rules for determining when an investment by a Plan in an entity
will result in the underlying assets of such entity being assets of the Plan for purposes of ERISA and Section 4975 of the Code (i.e., “plan assets”). Those rules provide that assets of an entity will not be plan assets of a Plan
which purchases an interest therein if certain exceptions apply, including (i) an exception applicable if the equity interest purchased is a “publicly-offered security,” or the Publicly-Offered Security Exception, and (ii) an
exception applicable if the investment by all “benefit plan investors” is not “significant” or certain other exceptions apply, or the Insignificant Participation Exception.
The Publicly-Offered Security Exception applies if the equity interest is a security that is (1) “freely transferable,”
(2) part of a class of securities that is “widely held” and (3) either (a) part of a class of securities registered under Section 12(b) or 12(g) of the Securities Exchange Act of 1934, or (b) sold to the Plan as
part of a public offering pursuant to an effective registration statement under the Securities Act of 1933 and the class of which such security is a part is registered under the Securities Exchange Act of 1934 within 120 days (or such later time as
may be allowed by the SEC) after the end of the fiscal year of the issuer in which the offering of such security occurred. The Plan Asset Rules state that the determination of whether a security is “freely transferable” is to be made based
on all relevant facts and circumstances. Under the Plan Asset Rules, a
96
class of securities is “widely held” only if it is of a class of securities owned by 100 or more investors independent of the issuer and of each other.
The Shares should be considered to be publicly-offered securities. First, the Shares are being sold only as part of a public offering
pursuant to an effective registration statement under the Securities Act of 1933, and the Shares were timely registered under the Securities Exchange Act of 1934. Second, it appears that the Shares are freely transferable because the Shares may be
freely bought and sold on NYSE Arca like any other exchange-listed security. Third, the Shares have been owned by at least 100 investors independent of the Fund and of each other from the date the Shares were first sold. Therefore, the underlying
assets of the Fund should not be considered to constitute assets of any Plan which purchases Shares.
Ineligible Purchasers
In general, Shares may not be purchased with the assets of a Plan if the Managing Owner, the
Commodity Broker, the Administrator, ALPS Distributors, the Marketing Agent, the Trustee, the Index Sponsor, or any of their respective affiliates or any of their respective employees either: (a) has investment discretion with respect to the
investment of such plan assets; (b) has authority or responsibility to give or regularly gives investment advice with respect to such plan assets, for a fee, and pursuant to an agreement or understanding that such advice will serve as a primary
basis for investment decisions with respect to such plan assets and that such advice will be based on the particular investment needs of the Plan; or (c) is an employer maintaining or contributing to such Plan. A party that is described in
clause (a) or (b) of the preceding sentence is a fiduciary under ERISA and the Code with respect to the Plan, and any such purchase might result in a “prohibited transaction” under ERISA and the Code.
Except as otherwise set forth, the foregoing statements regarding the consequences under ERISA and the Code of an investment in the Fund
are based on the provisions of the Code and ERISA as currently in effect, and the existing administrative and judicial interpretations thereunder. No assurance can be given that administrative, judicial or legislative changes will not occur that
will not make the foregoing statements incorrect or incomplete.
THE PERSON WITH INVESTMENT DISCRETION SHOULD CONSULT WITH HIS OR HER ATTORNEY AND FINANCIAL
ADVISERS AS TO THE PROPRIETY OF AN INVESTMENT IN THE FUND IN LIGHT OF THE CIRCUMSTANCES OF THE PARTICULAR PLAN AND CURRENT TAX LAW.
PLAN OF DISTRIBUTION
Authorized Participants
Unless otherwise agreed to by the Managing Owner and the Authorized Participant as provided in
the next sentence, the Fund issues Shares in Baskets to Authorized Participants continuously on the creation order settlement date as of 2:45 p.m., Eastern time, on the business day immediately following the date on which a valid order to create a
Basket is accepted by the Fund, at the net asset value of 200,000 Shares as of the closing time of the NYSE Arca or the last to close of the exchanges on which the Fund’s futures contracts are traded, whichever is later, on the date that a
valid order to create a Basket is accepted by the Fund. Upon submission of a creation order, the Authorized Participant may request the Managing Owner to agree to a creation order settlement date up to 3 business days after the creation order date.
Authorized Participants may offer to the public, from time-to-time, Shares from any Baskets they create. Shares offered to
the public by Authorized Participants will be offered at a per Share offering price that will vary depending on, among other factors, the trading price of the Fund on the NYSE Arca, the net asset value per Share and the supply of and demand for the
Shares at the time of the offer. Shares initially comprising the same Basket but offered by Authorized Participants to the public at different times may have different offering prices. The excess, if any, of the price at which an Authorized
Participant sells a Share over the price paid by such Authorized Participant in connection with the creation of such Share in a Basket will be deemed to be underwriting compensation by the FINRA Corporate Financing Department. Authorized
Participants will not receive from the Fund, the Managing Owner or any of their affiliates, any fee or other compensation in connection with their sale of Shares to the public, although investors are expected to be charged a customary commission by
their
97
brokers in connection with purchases of Shares that will vary from investor to investor. Investors are encouraged to review the terms of their brokerage accounts for applicable charges.
As of the date of this Prospectus, each of Deutsche Bank Securities Inc., Merrill Lynch Professional Clearing Corp.,
Newedge USA LLC, Virtu Financial Capital Markets, LLC, Citigroup Global Markets Inc., J.P. Morgan Securities Inc., Credit Suisse Securities (USA) LLC, Virtu Financial BD LLC, Knight Capital Americas, LLC, Timber Hill LLC, Morgan Stanley &
Co. LLC, Jefferies LLC, Nomura Securities International Inc., RBC Capital Markets, LLC, UBS Securities LLC, Cantor Fitzgerald & Co., BNP Paribas Securities Corp., Goldman, Sachs & Co. and Goldman Sachs Execution &
Clearing, L.P. has executed a Participant Agreement and are the only Authorized Participants.
Likelihood of Becoming a Statutory Underwriter
The Fund issues Shares in Baskets to Authorized Participants from
time-to-time in exchange for cash. Because new Shares can be created and issued on an ongoing basis at any point during the life of the Fund, a “distribution,” as such term is used in the Securities Act, will be occurring. An Authorized
Participant, other broker-dealer firm or its client will be deemed a statutory underwriter, and thus will be subject to the prospectus-delivery and liability provisions of the Securities Act, if it purchases a Basket from the Fund, breaks the Basket
down into the constituent Shares and sells the Shares to its customers; or if it chooses to couple the creation of a supply of new Shares with an active selling effort involving solicitation of secondary market demand for the Shares. A determination
of whether one is an underwriter must take into account all the facts and circumstances pertaining to the activities of the broker-dealer or its client in the particular case, and the examples mentioned above should not be considered a complete
description of all the activities that would lead to categorization as an underwriter. Authorized Participants, other broker-dealers and other persons are cautioned that some of their activities will result in their being deemed participants in a
distribution in a manner which would render them statutory underwriters and subject them to the prospectus-delivery and liability provisions of the Securities Act.
Dealers who are neither Authorized Participants nor “underwriters” but are
participating in a distribution (as contrasted to ordinary secondary trading transactions), and thus dealing with Shares that are part of an “unsold allotment” within the meaning of section 4(3)(C) of the Securities Act, would be unable to
take advantage of the prospectus delivery exemption provided by section 4(3) of the Securities Act.
[Remainder of page left
blank intentionally.]
98
Summary of Items of Value Paid Pursuant to FINRA Rule 2310
|
|
|
|
|
|
|
|
|
| Nature of Payment |
|
Recipient |
|
Payor |
|
Amount of Payment |
|
Services Provided |
| Selling Commission |
|
Authorized
Participants |
|
Shareholders |
|
No greater than 0.99% of the gross offering proceeds. |
|
Brokering purchases and sales of the Shares and creating and redeeming Baskets for the
Fund. |
| Distribution Services Fee |
|
ALPS
Distributors |
|
Managing Owner |
|
Approximately $35,000 per annum, plus any fees or disbursements incurred; not to exceed 0.25% of the gross offering proceeds. |
|
Assisting the Managing Owner and the Administrator with certain functions and duties
relating to distribution and marketing, including reviewing and approving marketing materials, consulting with FINRA and ensuring compliance with FINRA marketing rules and maintaining certain books and records pertaining to the Trust and the
Fund. |
| Marketing Services Fee |
|
Marketing
Agent |
|
Managing Owner |
|
A range from 0.05%—0.345% per annum of the Total Average Net Assets (as defined herein) during each year calculated in U.S. dollars; not
to exceed 8.75% of the gross offering proceeds. |
|
Assisting the Managing Owner by providing support to educate institutional investors about
the Deutsche Bank indices and to complete governmental or institutional due diligence questionnaires or requests for proposals related to the Deutsche Bank indices. |
For additional details see below.
General
Retail investors may purchase and sell Shares through traditional brokerage accounts. Investors who purchase Shares through a
commission/fee-based brokerage account may pay commissions/fees charged by the brokerage account. Investors are encouraged to review the terms of their brokerage accounts for applicable charges.
Investors intending to create or redeem Baskets through Authorized Participants in transactions not involving a broker-dealer
registered in such investor’s state of domicile or residence should consult their legal advisor regarding applicable broker-dealer or securities regulatory requirements under the state securities laws prior to such creation or redemption.
The Managing Owner has agreed to indemnify certain parties against certain liabilities,
including liabilities under the Securities Act, and to contribute to payments that such parties may be required to make in respect of those liabilities. The Trustee has agreed to reimburse such parties, solely from and to the extent of the
Fund’s assets, for indemnification and contribution amounts due from the Managing Owner in respect of such liabilities to the extent the Managing Owner has not paid such amounts when due.
The offering of Baskets is being made in compliance with FINRA Rule 2310. Accordingly, the Authorized Participants will not make any
sales to any account over which they have discretionary
99
authority without the prior written approval of a purchaser of Shares. The maximum amount of items of value to be paid to FINRA Members in connection with the offering of the Shares by the Fund
will not exceed 10%.
The Authorized Participants will not charge a commission of greater than 0.99% of the gross
offering proceeds of such Shares (which represents a maximum of $12,440,142 of the $1,256,580,000 registered on this Registration Statement on Form S-1, SEC Registration Number 333-193222) of the Trust.
Pursuant to the Distribution Services Agreement, ALPS Distributors will be paid by the Managing Owner out of the
Management Fee in an amount of approximately either $35,000 per annum with respect to the Fund, plus any fees or disbursements incurred by ALPS Distributors in connection with the performance by ALPS Distributors of its duties on behalf of the Fund.
The Marketing Agent will be paid a marketing services fee by the Managing Owner. For each year ending on or prior to the
sixth anniversary of the date of the Services Agreement, the marketing services fee will equal to the sum of: (i) 0.00345 times the lesser of Total Average Net Assets and $6,000,000,000, plus (ii) If such Total Average Net Assets were
greater than $6,000,000,000, 0.002625 times the lesser of (A) the excess of such Total Average Net Assets over $6,000,000,000 and (B) $3,000,000,000, plus (iii) If such Total Average Net Assets were greater than $9,000,000,000,
0.000975 times the lesser of (A) the excess of such Total Average Net Assets over $9,000,000,000 and (B) $3,000,000,000, plus (iv) If such Total Average Net Assets were greater than $12,000,000,000, 0.00015 times the excess of such
Total Average Net Assets over $12,000,000,000. For each year ending on or after to the sixth anniversary of the date of the Services Agreement, the marketing services fee will equal to 0.0005 times Total Average Net Assets. “Total Average Net
Assets” means the sum of the “Average Net Assets” of all “Funds” for such period. “Average Net Assets” means in respect of any Fund, the average of the total net asset value of such Fund (determined as described in
its prospectus) as of the close of trading on each day of the applicable determination year during which the market on which such Fund is or was listed for trading was open for
trading. For the avoidance of doubt, if a Fund was opened or terminated, or the applicable marketing services from the Marketing Agent were initiated or terminated, in the course of a
determination year, the Average Net Assets will continue to be calculated with respect to all trading days in such determination year but with a value of zero for days on which the Fund did not exist or the Marketing Agent’s marketing services
had been terminated or not yet initiated. For purposes of this paragraph only, “Funds” means, collectively, PowerShares DB Agriculture Fund, PowerShares DB Base Metals Fund, PowerShares DB Commodity Index Tracking Fund, PowerShares DB
Energy Fund, PowerShares DB G10 Currency Harvest Fund, PowerShares DB Gold Fund, PowerShares DB Oil Fund, PowerShares DB Precious Metals Fund, PowerShares DB Silver Fund, PowerShares DB US Dollar Index Bearish Fund, PowerShares DB US Dollar Index
Bullish Fund, and “New Invesco ETFs”. New Invesco ETF means, in part, any fund that both (i) is formed and sponsored or advised on or after the date of the Services Agreement by the Managing Owner or an affiliate and (ii) meets
all of the following criteria: (1) is a any vehicle that both (a) is listed, traded or sold in North America, Central America or South America and (b) either (i) has an investment strategy substantially similar to that of a Fund
or (ii) satisfies (or would, if sponsored by the Managing Owner, satisfy) all of the criteria set forth in clauses (ii)(1) and (b) herein; (2) is marketed as having a principal investment objective of providing exposure to certain
designated commodities or derivatives thereof, whether long, short, or otherwise; and (3) (A) invests, is permitted to invest in, or which has as a principal investment strategy the investment of, more than 51% of its net assets in certain
designated commodities, or (B) establishes or maintains, is permitted to establish or maintain, or which has as a principal investment strategy to establish or maintain, exposure to derivatives of certain designated commodities with a gross
aggregate notional value greater than 51% of its net asset value.
The payments to ALPS Distributors and the Marketing Agent
will not, in the aggregate (of the Trust, and not on a Fund by Fund basis), exceed 0.25% and 8.75%, respectively, of the gross offering proceeds of the offering (which represents a maximum of $3,141,450 and $109,950,750 of the $1,256,580,000
registered on the Registration Statement on Form S-1, SEC Registration Number
100
333-193222) of the Trust. ALPS Distributors and the Marketing Agent will monitor compensation received in connection with the Fund to determine if the payments described hereunder must be
limited, when combined with selling commissions charged and any price spreads realized by other FINRA members, in order to comply with the 10% limitation on total underwriters’ compensation pursuant to FINRA Rule 2310.
The Marketing Agent’s compensation is also subject to the limitations under NASD Rule 2830, which governs the underwriting
compensation which may be paid in respect of investment companies.
The Shares of the Fund are listed on the NYSE Arca
under the symbol “DBS.”
LEGAL MATTERS
Sidley Austin llp has advised the Managing Owner in connection with the Shares being offered hereby. Sidley Austin llp also advises the
Managing Owner with respect to its responsibilities as managing owner of, and with respect to matters relating to the Trust and the Fund. Sidley Austin llp has prepared the sections “Material U.S. Federal Income Tax Considerations” and
“Purchases By Employee Benefit Plans” with respect to ERISA. Sidley Austin llp has not represented, nor will it represent the Trust or the Fund or the Shareholders in matters relating to the Trust or the Fund and no other counsel has been
engaged to act on their behalf. Certain opinions of counsel have been filed with the SEC as exhibits to the Registration Statement of which this Prospectus is a part.
Richards, Layton & Finger, P.A., special Delaware counsel to the Trust, has advised the Trust in connection with the legality of the Shares being offered hereby.
EXPERTS
PowerShares DB Silver Fund
The financial statements of PowerShares DB
Silver Fund as of and for the year ended December 31, 2013 and management’s assessment of the effectiveness of internal control over financial reporting (which is included in Management’s Report
on Internal Control over Financial Reporting) as of December 31, 2013 incorporated in this Prospectus by reference to the Annual Report on Form 10-K for the year ended December 31, 2013
have been so incorporated in reliance on the report of PricewaterhouseCoopers LLP, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.
The statement of financial condition, including the schedule of investments, of PowerShares DB Silver Fund, as of December 31, 2012
and the related statements of income and expenses, changes in shareholders’ equity, and cash flows for each of the years in the two year period ended December 31, 2012, have been incorporated by reference herein in reliance upon the report
of KPMG LLP, an independent registered public accounting firm, and upon the authority of said firm as experts in accounting and auditing.
DB Commodity Services LLC
DB Commodity Services LLC served as the
Predecessor Managing Owner.
The financial statements of DB Commodity Services LLC as of and for the year ended December 31,
2013 incorporated in this Prospectus by reference to the Current Report on Form 8-K dated March 13, 2014 have been so incorporated in reliance on the report of PricewaterhouseCoopers LLP, an independent registered public accounting firm, given
on the authority of said firm as experts in auditing and accounting.
The statement of financial condition of DB Commodity
Services LLC as of December 31, 2012 and the related statements of income and expenses, changes in member’s capital (deficit), and cash flows for the year then ended, have been incorporated by reference herein in reliance upon the report
of KPMG LLP, an independent registered accounting firm, and upon the authority of said firm as experts in accounting and auditing.
Effective May 28, 2013, PricewaterhouseCoopers LLP replaced KPMG LLP as the independent registered public accounting firm of the registrant.
101
ADDITIONAL INFORMATION
This Prospectus constitutes part of the Registration Statement filed by the Trust and the Trust on behalf of the Fund with the SEC in
Washington, D.C. Additionally, as further discussed under “Incorporation by Reference of Certain Documents,” we have incorporated by reference certain information. This Prospectus does not contain all of the information set forth in such
Registration Statement, certain portions of which have been omitted pursuant to the rules and regulations of the SEC, including, without limitation, certain exhibits thereto (for example, the forms of the Participant Agreement and the Customer
Agreement). The descriptions contained herein of agreements included as exhibits to the Registration Statement are necessarily summaries; the exhibits themselves may be inspected without charge at the public reference facilities maintained by the
SEC in Washington, D.C., and copies of all or part thereof may be obtained from the Commission upon payment of the prescribed fees. The SEC maintains a website that contains reports, proxy and information statements and other information regarding
registrants that file electronically with the SEC. The address of such site is http://www.sec.gov.
RECENT FINANCIAL INFORMATION AND ANNUAL REPORTS
The Managing Owner will furnish you with an annual report of the
Fund within 90 calendar days after the end of its fiscal year as required by the rules and regulations of the CFTC, including, but not limited to, an annual audited financial statement certified by independent registered public accountants and any
other reports required by any other governmental authority that has jurisdiction over the activities of the Fund. You also will be provided with appropriate information to permit you to file your U.S. federal and state income tax returns (on a
timely basis) with respect to your Shares. Monthly account statements conforming to CFTC and NFA requirements will be posted on the Managing Owner’s website at http://www.invescopowershares.com. Additional reports may be posted on the
Managing Owner’s website in the discretion of the Managing Owner or as required by regulatory authorities.
INCORPORATION BY REFERENCE OF CERTAIN DOCUMENTS
The Securities and Exchange Commission, or the SEC, allows us to “incorporate by reference” into this
Prospectus the information that we file with it, meaning we can disclose important information to you by referring you to those documents already on file with the SEC.
This filing incorporates by reference the following documents, which we have previously filed with the SEC, in response to certain disclosures:
| |
• |
|
The Annual Report on Form 10-K for the fiscal year ended December 31, 2013 filed on March 14, 2014. |
| |
• |
|
The Quarterly Reports on Form 10-Q for the quarters ended March 31, 2014, June 30, 2014 and September 30, 2014, filed May 9,
2014, August 6, 2014 and November 5, 2014, respectively; |
| |
• |
|
The Current Reports on Form 8-K filed January 15, 2014, March 13, 2014, June 11, 2014, August 15,
2014, October 30, 2014 and December 2, 2014; |
| |
• |
|
All other reports filed pursuant to Section 13(a) or 15(d) of the Exchange Act since December 31, 2013, except for information furnished
under Form 8-K, which is not deemed filed and not incorporated herein by reference. |
Any statement contained
in a document that is incorporated by reference will be modified or superseded for all purposes to the extent that a statement contained in this Prospectus modifies or is contrary to that previous statement. Any statement so modified or superseded
will not be deemed a part of this Prospectus except as so modified or superseded.
We will provide to you a copy of the
filings that have been incorporated by reference in this Prospectus upon your request, at no cost. Any request may be made by writing or calling us at the following address or telephone number:
Invesco PowerShares Capital Management LLC
3500 Lacey Road, Suite 700
Downers Grove, IL 60515
Telephone: (800) 983-0903
102
These documents may also be accessed through our website at
http://www.invescopowershares.com or as described herein under “Additional Information.” The information and other content contained on or linked from our website are not incorporated by reference in this Prospectus and should not
be considered a part of this Prospectus.
We file annual, quarterly, current reports and other information with the SEC. You
may read and copy these materials at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC
maintains an internet site at http://www.sec.gov that contains reports, proxy and information statements and other information regarding the Fund.
103
PART TWO
STATEMENT OF ADDITIONAL INFORMATION
POWERSHARES DB MULTI-SECTOR
COMMODITY TRUST
PowerShares DB Silver Fund
Shares of Beneficial Interest
The Shares
are speculative securities which involve the risk of loss.
Past performance is not necessarily indicative of future
results.
See “The Risks You Face” beginning at page 18 in Part One.
THIS PROSPECTUS IS IN TWO PARTS: A DISCLOSURE DOCUMENT
AND A STATEMENT OF ADDITIONAL INFORMATION. THESE
PARTS ARE BOUND
TOGETHER, AND BOTH CONTAIN
IMPORTANT INFORMATION. YOU MUST READ THE
STATEMENT OF ADDITIONAL INFORMATION
IN CONJUNCTION WITH THE
DISCLOSURE DOCUMENT.
[ ] [ ], 2014
Invesco PowerShares Capital Management LLC
Managing Owner
104
PART TWO
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
105
GENERAL INFORMATION RELATING TO INVESCO POWERSHARES
CAPITAL MANAGEMENT LLC
Invesco PowerShares is Leading the Intelligent ETF Revolution® through its family of more than 170 domestic and international ETFs, with franchise assets of over $96 billion as of
Dec. 31, 2013. PowerShares ETFs trade on US stock exchanges, as well as exchanges throughout Canada and Europe.
Invesco
PowerShares is anchored on a vision of delivering investment performance through the ETF structure. With this vision, Invesco PowerShares focuses on offering value-added and innovative ETFs; starting with the inception of the first two Dynamic ETFs
in May 2003. Integration with Invesco Ltd. since 2006 continues to give Invesco PowerShares a global presence.
Invesco
PowerShares is a part of Invesco Ltd., a leading independent global investment management company that provides comprehensive investment solutions and is listed on the New York Stock Exchange under the symbol IVZ.
THE FUTURES MARKETS
Futures Contracts
Futures contracts are
standardized contracts made on United States or foreign exchanges that call for the future delivery of specified quantities of various agricultural and tropical commodities, industrial commodities, currencies, financial instruments or metals at a
specified time and place. The contractual obligations, depending upon whether one is a buyer or a seller, may be satisfied either by taking or making, as the case may be, physical delivery of an approved grade of commodity or by making an offsetting
sale or purchase of an equivalent but opposite futures contract on the same, or mutually off-setting, exchange prior to the designated date of delivery. As an example of an offsetting transaction where the physical commodity is not delivered, the
contractual obligation arising from the sale of one contract of December 2015 wheat on a commodity exchange may be fulfilled at any time before delivery of the commodity is required by the purchase of one contract of December 2015 wheat on the same
exchange. The difference between the price at which the futures contract is sold
or purchased and the price paid for the offsetting purchase or sale, after allowance for brokerage commissions, constitutes the profit or loss to the trader. Certain futures contracts, such as
those for stock or other financial or economic indices approved by the CFTC or Eurodollar contracts, settle in cash (irrespective of whether any attempt is made to offset such contracts) rather than delivery of any physical commodity.
Hedgers and Speculators
The two broad classes of persons who trade futures interest contracts are “hedgers” and “speculators.” Commercial interests, including farmers, that market or process commodities, and
financial institutions that market or deal in commodities, including interest rate sensitive instruments, foreign currencies and stocks, and which are exposed to currency, interest rate and stock market risks, may use the futures markets for
hedging. Hedging is a protective procedure designed to minimize losses that may occur because of price fluctuations occurring, for example, between the time a processor makes a contract to buy or sell a raw or processed commodity at a certain price
and the time he must perform the contract. The futures markets enable the hedger to shift the risk of price fluctuations to the speculator. The speculator risks his capital with the hope of making profits from price fluctuations in futures interests
contracts. Speculators rarely take delivery of commodities, but rather close out their positions by entering into offsetting purchases or sales of futures interests contracts. Since the speculator may take either a long or short position in the
futures markets, it is possible for him to make profits or incur losses regardless of whether prices go up or down. Trading by the Fund will be for speculative rather than for hedging purposes.
Futures Exchanges
Futures exchanges provide centralized market facilities for trading futures contracts and options (but not forward contracts). Members of, and trades executed on, a particular exchange are subject to the
rules of that exchange. Among the principal exchanges in the United States are the Chicago Board of Trade, the Chicago Mercantile Exchange, the New York Mercantile Exchange, and ICE Futures U.S.
Each futures exchange in the United States has an associated “clearing house.” Once trades between
106
members of an exchange have been confirmed, the clearing house becomes substituted for each buyer and each seller of contracts traded on the exchange and, in effect, becomes the other party to
each trader’s open position in the market. Thereafter, each party to a trade looks only to the clearing house for performance. The clearing house generally establishes some sort of security or guarantee fund to which all clearing members of the
exchange must contribute; this fund acts as an emergency buffer that enables the clearing house, at least to a large degree, to meet its obligations with regard to the “other side” of an insolvent clearing member’s contracts.
Furthermore, clearing houses require margin deposits and continuously mark positions to market to provide some assurance that their members will be able to fulfill their contractual obligations. Thus, a central function of the clearing houses is to
ensure the integrity of trades, and members effecting futures transactions on an organized exchange need not worry about the solvency of the party on the opposite side of the trade; their only remaining concerns are the respective solvencies of
their commodity broker and the clearing house. The clearing house “guarantee” of performance on open positions does not run to customers. If a member firm goes bankrupt, customers could lose money.
Foreign futures exchanges differ in certain respects from their U.S. counterparts. In contrast to U.S. exchanges, certain foreign
exchanges are “principals’ markets,” where trades remain the liability of the traders involved, and the exchange clearing house does not become substituted for any party.
Speculative Position Limits
The CFTC and U.S.
futures exchanges have established limits, referred to as “speculative position limits” or “position limits,” on the maximum net long or net short speculative position that any person or group of persons (other than a hedger) may
hold, own or control in certain futures interests contracts. Among the purposes of speculative position limits is the desire to prevent a “corner” on a market or undue influence on prices by any single trader or group of traders. The CFTC
has jurisdiction to establish position limits with respect to all commodities. In addition, the CFTC requires each United States exchange to submit position limits for all commodities traded on such exchange for approval
by the CFTC. Position limits do not apply to forward contract trading or generally to trading on foreign exchanges.
Daily Limits
Most U.S. futures exchanges (but
generally not foreign exchanges or banks or dealers in the case of forward contracts) limit the amount of fluctuation in futures interests contract prices during a single trading day by regulation. These regulations specify what are referred to as
“daily price fluctuation limits” or more commonly “daily limits.” The daily limits establish the maximum amount that the price of a futures interests contract may vary either up or down from the previous day’s settlement
price. Once the daily limit has been reached in a particular futures interest, no trades may be made at a price beyond the limit. See “The Risks You Face—(34) The Net Asset Value Calculation of the Fund May Be Overstated or
Understated Due to the Valuation Method Employed When a Settlement Price is not Available on the Date of Net Asset Value Calculation.”
Regulations
Futures exchanges in the United States are subject to regulation under the Commodity Exchange Act, or CEAct, by the CFTC, the governmental agency having responsibility for regulation of futures exchanges
and trading on those exchanges. (Investors should be aware that no governmental U.S. agency regulates the OTC foreign exchange markets.)
The CEAct and the CFTC also regulate the activities of “commodity trading advisors” and “commodity pool operators” and the CFTC has adopted regulations with respect to certain of such
persons’ activities. Pursuant to its authority, the CFTC requires a commodity pool operator (such as the Managing Owner) to keep accurate, current and orderly records with respect to each pool it operates. The CFTC may suspend the registration
of a commodity pool operator if the CFTC finds that the operator has violated the CEAct or regulations thereunder and in certain other circumstances. Suspension, restriction or termination of the Managing Owner’s registration as a commodity
pool operator would prevent it, until such time (if any) as such registration were to be reinstated, from managing, and might result in the termination of, the Trust. The CEAct gives the CFTC similar authority
107
with respect to the activities of commodity trading advisors, such as the Managing Owner. If the registration of a Managing Owner as a commodity trading advisor were to be terminated, restricted
or suspended, the Managing Owner would be unable, until such time (if any) as such registration were to be reinstated, to render trading advice to the Fund. The Fund is not registered with the CFTC in any capacity.
The CEAct requires all “futures commission merchants,” such as the Commodity Broker, to meet and maintain specified fitness and
financial requirements, segregate customer funds from proprietary funds and account separately for all customers’ funds and positions, and to maintain specified book and records open to inspection by the staff of the CFTC.
The CEAct also gives the states certain powers to enforce its provisions and the regulations of the CFTC.
Shareholders are afforded certain rights for reparations under the CEAct. Shareholders may also be able to maintain a private right of
action for certain violations of the CEAct. The CFTC has adopted rules implementing the reparation provisions of the CEAct which provide that any person may file a complaint for a reparations award with the CFTC for violation of the CEAct against a
floor broker, futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, and their respective associated persons.
Pursuant to authority in the CEAct, the NFA has been formed and registered with the CFTC as a “registered futures association.” At the present time, the NFA is the only non-exchange
self-regulatory organization for commodities professionals. NFA members are subject to NFA standards relating to fair trade practices, financial condition, and consumer protection. As the self-regulatory body of the commodities industry, the NFA
promulgates rules governing the conduct of commodity professionals and disciplines those professionals who do not comply with such standards. The CFTC has delegated to the NFA responsibility for the registration of commodity trading advisors,
commodity pool operators, futures commission merchants, introducing brokers and their respective associated persons and floor brokers. The Commodity Broker and the Managing Owner are members of the NFA (the Fund is not required to become a member of
the NFA).
The CFTC has no authority to regulate trading on foreign commodity exchanges and markets.
Margin
“Initial” or “original” margin is the minimum amount of funds that must be deposited by a futures trader with his commodity broker in order to initiate futures trading or to maintain
an open position in futures contracts. “Maintenance” margin is the amount (generally less than initial margin) to which a trader’s account may decline before he must deliver additional margin. A margin deposit is like a cash
performance bond. It helps assure the futures trader’s performance of the futures interests which contracts he purchases or sells. Futures interests are customarily bought and sold on margins that represent a very small percentage (ranging
upward from less than 2%) of the purchase price of the underlying commodity being traded. Because of such low margins, price fluctuations occurring in the futures markets may create profits and losses that are greater, in relation to the amount
invested, than are customary in other forms of investment or speculation. The minimum amount of margin required in connection with a particular futures interests contract is set from time-to-time by the exchange on which such contract is traded, and
may be modified from time-to-time by the exchange during the term of the contract.
Brokerage firms carrying accounts for
traders in futures interests contracts may not accept lower, and generally require higher, amounts of margin as a matter of policy in order to afford further protection for themselves.
Margin requirements are computed each day by a commodity broker. When the market value of a particular open futures interests contract
position changes to a point where the margin on deposit does not satisfy maintenance margin requirements, a margin call is made by the commodity broker. If the margin call is not met within a reasonable time, the broker may close out the Fund’s
position. With respect to the Managing Owner’s trading, only the Managing Owner, and not the Fund or its Shareholders personally, will be subject to margin calls.
[Remainder of page left blank intentionally.]
108
PART II
Information Not Required in Prospectus
| Item 13. |
Other Expenses of Issuance and Distribution. |
The following expenses reflect the estimated amounts required to prepare and file this Registration Statement (other than selling commissions).
|
|
|
|
|
| |
|
Approximate
Amount |
|
| Securities and Exchange Commission Registration Fee* |
|
$ |
72,293 |
|
| The Financial Industry Regulatory Authority, Inc. Filing Fee |
|
|
500 |
|
| Printing Expenses |
|
|
125,000 |
|
| Fees of Independent Registered Public Accounting Firm** |
|
|
34,770 |
|
| Fees of Counsel |
|
|
75,000 |
|
|
|
|
|
|
| Total |
|
$ |
307,563 |
|
|
|
|
|
|
| * |
Already paid in connection with the filing of Form S-3 (333-184947). |
| ** |
Reflects the sum of $21,500 incurred with original registration statement, $10,750 to PricewaterhouseCoopers LLP and $2,520 to KPMG LLP. |
| Item 14. |
Indemnification of Directors and Officers. |
Section 4.7 of the Fifth Amended and Restated Declaration of Trust and Trust Agreement of the Trust filed as an exhibit to this Registration Statement, as amended from time-to-time, or the
Declaration of Trust, provides for the indemnification of Covered Persons (as such term is defined in the Declaration of Trust). Each Covered Person shall be indemnified by the Trust (or, in furtherance of Section 3.7 of the Declaration of
Trust, any Fund separately to the extent the matter in question relates to a single Fund or is otherwise disproportionate) to the fullest extent permitted by law against any losses, judgments, liabilities, expenses, and amounts paid in settlement of
any claims sustained by it in connection with its activities for the Trust, except with respect to any matter as to which such Covered Person shall have been finally adjudicated in any action, suit, or other proceeding not to have acted in good
faith in the reasonable belief that such Covered Person’s action was in the best interest of the Trust and except that no Covered Person shall be indemnified against any liability to the Trust or to the Limited Owners by reason of willful
misconduct or gross negligence of such Covered Person. Any such indemnification will only be recoverable from the applicable Trust Estate or Trust Estates (as such term is defined in the Declaration of Trust). All rights to indemnification permitted
therein and payment of associated expenses shall not be affected by the dissolution or other cessation to exist of the Managing Owner, or the withdrawal, adjudication of bankruptcy or insolvency of the Managing Owner, or the filing of a voluntary or
involuntary petition in bankruptcy under Title 11 of the Code by or against the Managing Owner.
| Item 15. |
Recent Sales of Unregistered Securities. |
None.
II-1
| Item 16. |
Exhibits and Financial Statement Schedules. |
(a) Exhibits. The following documents (unless otherwise indicated) are filed herewith and made a part of this Registration Statement:
|
|
|
|
|
| Exhibit
Number |
|
|
Description of Document |
| |
1.1 |
|
|
Form of Initial Purchaser Agreement1 |
|
|
| |
3.1 |
|
|
Form of Fifth Amended and Restated Declaration of Trust and Trust Agreement of the Registrant |
|
|
| |
4.1 |
|
|
Form of Participant Agreement2 |
|
|
| |
5.1 |
|
|
Form of Opinion of Richards, Layton & Finger as to legality |
|
|
| |
8.1 |
|
|
Opinion of Sidley Austin LLP as to income tax matters |
|
|
| |
10.1 |
|
|
Form of Customer Agreement2 |
|
|
| |
10.2 |
|
|
Form of Administration Agreement2 |
|
|
| |
10.3 |
|
|
Form of Global Custody Agreement2 |
|
|
| |
10.4 |
|
|
Form of Transfer Agency and Service
Agreement2 |
|
|
| |
10.5 |
|
|
Form of Distribution Services
Agreement2 |
|
|
| |
10.6 |
|
|
Form of Marketing Agreement2 |
|
|
| |
23.1 |
|
|
Consent of Sidley Austin LLP |
|
|
| |
23.2 |
|
|
Consent of Richards, Layton & Finger is included as part of Exhibit 5.1 |
|
|
| |
23.3 |
|
|
Consent of Sidley Austin LLP as tax counsel is included as part of Exhibit 8.1 |
|
|
| |
23.4 |
|
|
Consent of KPMG LLP, Independent Registered Public Accounting Firm |
|
|
| |
23.5 |
|
|
Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm |
| 1 |
Previously filed
as an exhibit to Pre-Effective Amendment No. 2 to Form S-1 on December 14, 2006. |
| 2 |
Previously filed as an exhibit to Pre-Effective Amendment No. 2 to Form S-1 on December 14, 2006. |
| 3 |
Previously filed as an exhibit to Pre-Effective Amendment No. 1 to Form S-1 on February 24, 2014. |
(b) The following financial statements are included in the Prospectus:
The financial statements of the Fund are incorporated by reference as described under “Incorporation by Reference of
Certain Documents”.
(a) The undersigned registrant hereby undertakes:
(1) To file,
during any period in which offers or sales are being made, a post-effective amendment to this registration statement;
(i) To include any prospectus required by section 10(a)(3) of the Securities Act of 1933, as amended;
(ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from
II-2
the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement;
(iii) To include any material information with respect to the plan of distribution not previously disclosed in the
registration statement or any material change to such information in the registration statement;
Provided,
however, That:
(A) Paragraphs (a)(1)(i) and (a)(1)(ii) of this section do not apply if the registration
statement is on Form S-8, and the information required to be included in a post-effective amendment by those paragraphs is contained in reports filed with or furnished to the Commission by the registrant pursuant to section 13 or section 15(d) of
the Securities Exchange Act of 1934 that are incorporated by reference in the registration statement; and
(B)
Paragraphs (a)(1)(i), (a)(1)(ii) and (a)(1)(iii) of this section do not apply if the registration statement is on Form S-3 or Form F-3 and the information required to be included in a post-effective amendment by those paragraphs is contained in
reports filed with or furnished to the Commission by the registrant pursuant to section 13 or section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the registration statement, or is contained in a form of
prospectus filed pursuant to Rule 424(b) that is part of the registration statement.
(2) That, for the
purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time
shall be deemed to be the bona fide offering thereof.
(3) To remove from registration by means of
a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
(4) That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser:
(i) If the registrant is relying on Rule 430B:
(A) Each
prospectus filed by the registrant pursuant to Rule 424(b)(3) shall be deemed to be part of the registration statement as of the date the filed prospectus was deemed part of and included in the registration statement; and
(B) Each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as part of a
registration statement in reliance on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (vii), or (x) for the purpose of providing the information required by section 10(a) of the Securities Act of 1933 shall be
deemed to be part of and included in the registration statement as of the earlier of the date such form of prospectus is first used after effectiveness or the date of the first contract of sale of securities in the offering described in the
prospectus. As provided in Rule 430B, for liability purposes of the issuer and any person that is at that date an underwriter, such date shall be deemed to be a new effective date of the registration statement relating to the securities in the
registration statement to which that prospectus relates, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Provided, however, that no statement made in a registration statement
or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a
time of contract of sale prior to such effective date, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such
effective date; or
(ii) If the registrant is subject to Rule 430C, each prospectus filed pursuant to
Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and
II-3
included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the
registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to
such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.
(5) That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in
the initial distribution of the securities:
(a) The undersigned registrant undertakes that in a primary
offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any
of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
(i) Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed
pursuant to Rule 424;
(ii) Any free writing prospectus relating to the offering prepared by or on behalf
of the undersigned registrant or used or referred to by the undersigned registrant;
(iii) The portion of any
other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and
(iv) Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.
(b) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of
prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4), or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any
liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for
liabilities arising under the Securities Act of 1933 may be permitted to officers, directors or controlling persons of the registrant pursuant to the foregoing provisions or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by an officer, director, or controlling person of the registrant in the successful defense of any such action, suit or proceeding) is asserted by such officer, director or controlling person in
connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification
by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Managing Owner of the Registrant and the
Co-Registrant has duly caused this Post-Effective Amendment No. 1 to Registration Statement on Form S-1 to be signed on their behalf by the undersigned, thereunto duly authorized, in the City of New York, State of New York, on the 8th day of December, 2014.
|
|
|
| PowerShares DB Multi-Sector Commodity Trust |
|
|
| By: |
|
DB Commodity Services LLC, |
|
|
its Managing Owner |
|
|
| By: |
|
/S/ MARTIN
KREMENSTEIN |
|
|
Name: Martin Kremenstein |
|
|
Title: Chief Executive Officer, Chief Investment
Officer and Director |
|
|
| By: |
|
/S/ MICHAEL
GILLIGAN |
|
|
Name: Michael Gilligan |
|
|
Title: Chief Financial Officer and Director |
| PowerShares DB Silver Fund, a series
of PowerShares DB Multi-Sector Commodity Trust |
|
|
| By: |
|
DB Commodity Services LLC, |
|
|
its Managing Owner |
|
|
| By: |
|
/S/ MARTIN
KREMENSTEIN |
|
|
Name: Martin Kremenstein |
|
|
Title: Chief Executive Officer, Chief Investment
Officer and Director |
|
|
| By: |
|
/S/ MICHAEL
GILLIGAN |
|
|
Name: Michael Gilligan |
|
|
Title: Chief Financial Officer and Director |
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective Amendment
No. 1 to the Registration Statement on Form S-1 has been signed by the following persons on behalf of the Managing Owner of the Registrant and the Co-Registrant in the capacities and on the date indicated.
|
|
|
|
|
| DB Commodity Services LLC,
Managing Owner Of Registrant and
Co-Registrant |
|
|
|
|
|
|
|
| /s/ MARTIN KREMENSTEIN
Name: Martin Kremenstein |
|
Chief Executive Officer, Chief
Investment Officer and Director
(Principal Executive Officer) |
|
December 8, 2014 |
|
|
|
| /s/ MICHAEL GILLIGAN
Name: Michael Gilligan |
|
Chief Financial Officer and Director
(Principal Financial Officer) |
|
December 8, 2014 |
|
|
|
| /s/ ALEX DEPETRIS
Name: Alex Depetris |
|
Chief Operating Officer
and Director |
|
December 8, 2014 |
(Being principal executive officer, the principal financial and accounting officer and all of the
managers of the Board of Managers of DB Commodity Services LLC)
|
|
|
|
|
| DB Commodity Services LLC,
Managing Owner Of Registrant |
|
|
|
|
|
|
|
| /s/ MARTIN KREMENSTEIN
Name: Martin Kremenstein |
|
Chief Executive Officer, Chief
Investment Officer and Director
(Principal Executive Officer) |
|
December 8, 2014 |
|
|
|
| /s/ MICHAEL GILLIGAN
Name: Michael Gilligan |
|
Chief Financial Officer and Director
(Principal Financial Officer) |
|
December 8, 2014 |
|
|
|
| /s/ ALEX DEPETRIS
Name: Alex Depetris |
|
Chief Operating Officer
and Director |
|
December 8, 2014 |
