The Fund is a separate series of the Trust. The Trust is a Delaware statutory
trust organized in seven separate series and was formed on August 3, 2006. The
Predecessor Managing Owner seeded the Fund with a capital contribution of $1,000
in exchange for 40 General Shares of the Fund. The General Shares were sold
to the Managing Owner by the Predecessor Managing Owner pursuant to the terms
of the Agreement. The fiscal year end of the Fund is December 31st. The term
of the Fund is perpetual (unless terminated earlier in certain circumstances)
as provided for in the Fifth Amended and Restated Declaration of Trust and Trust
Agreement of the Trust (the “Trust Agreement”). The Fund has an
unlimited number of shares authorized for issuance.
The Fund offers common units of beneficial interest (the “Shares”)
only to certain eligible financial institutions (the “Authorized Participants”)
in one or more blocks of 200,000 Shares, called a Basket. The proceeds from
the offering of Shares are invested in the Fund. The Fund commenced investment
operations on January 3, 2007. The Fund commenced trading on the American Stock
Exchange (which became the NYSE Alternext US LLC (the “NYSE Alternext”))
on January 5, 2007 and, as of November 25, 2008, is listed on the NYSE Arca,
Inc. (the “NYSE Arca”).
Each of Deutsche Bank Securities Inc., Merrill Lynch Professional Clearing
Corp., 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 & Company Inc., Nomura Securities International Inc., RBC
Capital Markets, LLC, UBS Securities LLC, Cantor Fitzgerald & Co., BNP Paribas
Securities Corp., Goldman, Sachs & Co., Goldman Sachs Execution & Clearing,
L.P. and Citadel Securities LLC has executed a Participant Agreement.
The Fund seeks to track changes, whether positive or negative, in the level
of the DBIQ Optimum Yield Industrial Metals Index Excess Return™ (the
“DBIQ OY Industrial Metals ER™” or the “Index”)
over time, plus the excess, if any, of the Fund’s interest income from
its holdings of United States Treasury Obligations over the expenses of the
Fund. The Index is intended to reflect the change in market value of the base
metals sector. The commodities comprising the Index are aluminum, zinc and copper—Grade
A (each, an “Index Commodity”, and collectively, the “Index
Commodities”). The Shares are designed for investors who want a cost-effective
and convenient way to invest in a group of commodity futures contracts on U.S.
and non-U.S. markets.
The Index Commodities are currently trading on the London Metals Exchange (the
“LME”). The Index is comprised of futures contracts on each of the
Index Commodities that expire in a specific month and trade on a specific exchange
(the “Index Contracts”). 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 any Index Commodity
by investing in a specific Index Contract, the Fund may invest in (i) a futures
contract referencing the particular Index Commodity other than the Index Contract
or, in the alternative, invest in (ii) other futures contracts not based on
the particular Index Commodity ((i) and (ii) collectively, the “Alternative
Futures Contracts”) if, in the commercially reasonable judgment of the
Managing Owner, such Alternative Futures Contracts tend to exhibit trading prices
that correlate with such Index Commodity. Although the LME does not currently
impose position limits on the Index Commodities, the LME may in the future impose
position limits on market participants trading in certain commodities included
in the Index. Further, in the event the Fund invests in Alternative Futures
Contracts as described above, that trade on a U.S. exchange, the Commodity Futures
Trading Commission (the “CFTC”) and the applicable commodity exchanges
may impose position limits on market participants trading in the Index Commodities.
Please see http://www.invescopowershares.com with respect to the most recently
available weighted composition of the Fund and the composition of the Index
on the Base Date.
The Managing Owner pays the Index Sponsor (as defined below) 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
which are paid 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 the Index. After
the Closing Date, the Index Sponsor is not affiliated with the Fund or the Managing
Owner. The Managing Owner has entered into a license agreement with the Index
Sponsor to use the Index.
The Index is composed of notional amounts of each of the underlying Index Commodities.
The notional amount of each Index Commodity included in the Index is intended
to reflect the changes in market value of each such Index Commodity within the
Index. 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 each
of the underlying Index Commodities and the notional amounts of such Index Commodities.
Rather than select a new futures contract based on a predetermined schedule
(e.g., monthly), each 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 Fund is able
to potentially maximize the roll benefits in backwardated markets and minimize
the losses from rolling in contangoed markets for each Index Commodity, respectively.
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 an Index Commodity’s
contribution to the Fund’s return while rolling in a backwardated market
will tend to cause a push on an Index Commodity’s contribution to the
Fund’s return.
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 any Index Commodity by investing in a specific Index
Contract, the Fund may invest in Alternative Futures Contracts if, in the commercially
reasonable judgment of the Managing Owner, such Alternative Futures Contracts
tend to exhibit trading prices that correlate with an Index Contract. Please
see http://www.invescopowershares.com with respect to the most recently available
weighted composition of the Fund and the composition of the Index on the Base
Date.
The DBIQ Optimum Yield Industrial Metals Index is calculated in USD on both
an excess return (unfunded) and total return (funded) basis.
The futures contract price for each Index Commodity will be the exchange closing
price for such Index Commodity on each weekday when banks in New York, New York
are open (the “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 each Index Commodity. “Exchange Business Day” means, in
respect of an Index Commodity, a day that is a trading day for such Index Commodity
on the relevant exchange (unless either an Index disruption event or force majeure
event has occurred).
On the first New York business day (the “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, 2016, and the Delivery Month of the Index Commodity futures contract
currently in such Index is June 2016, a new Index Commodity futures contract
with a later Delivery Month will be selected.
For each underlying Index Commodity of the Index, 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 such 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, 2016 and the Delivery Month of an Index Commodity futures contract
currently in the Index is June 2016, the Delivery Month of an eligible new Index
Commodity futures contract must be between July 2016 and May 2017. 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.