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 Diversified Agriculture Index Excess ReturnTM (the “DBIQ Diversified
Agriculture ERTM”, 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 agricultural sector. The commodities
comprising the Index are Corn, Soybeans, Wheat, Kansas City Wheat, Sugar, Cocoa,
Coffee, Cotton, Live Cattle, Feeder Cattle and Lean Hogs (each an “Index
Commodity”, and collectively, the “Index Commodities”).
The Commodity Futures Trading Commission (the “CFTC”) and/or commodity
exchanges, as applicable, impose position limits on market participants trading
in all eleven commodities included in the Index. 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. Because the Fund is
approaching or has reached position limits with respect to certain futures contracts
comprising the Index, the Fund has commenced investing in other futures contracts
based on commodities that comprise the Index and in futures contracts based
on commodities other than commodities that comprise the Index. 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 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 each Index Commodity, the Fund employs a rule-based approach
when it ‘rolls’ from one futures contract to another. The Index
is comprised of Optimum Yield (“OY”) Single Commodity Indexes and
non-OY Single Commodity Indexes. The Index Commodities that underlie the OY
Single Commodity Index are Corn, Soybeans, Wheat, Kansas City Wheat and Sugar.
The Index Commodities that underlie the non-OY Single Commodity Indexes are
Cocoa, Coffee, Cotton, Live Cattle, Feeder Cattle and Lean Hogs. The OY Single
Commodity Indexes are rolled 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 each OY Single Commodity Index. As a result,
each OY Single Commodity Index is able to potentially maximize the roll benefits
in backwardated markets and minimize the losses from rolling in contangoed markets
for such Index Commodity.
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.
The CFTC and/or commodity exchanges, as applicable, impose position limits on
market participants trading in all eleven commodities included in the Index.
As disclosed in the Fund’s Prospectus, 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 futures contract that is a part
of the Index, 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 a futures contract
that is a part of the Index. Because the Fund is approaching or has reached
position limits with respect to certain futures contracts comprising the Index,
the Fund has commenced investing in other futures contracts based on commodities
that comprise the Index and in future contracts based on commodities other than
commodities that comprise the Index. 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.
Effective as of the Closing Date, Morgan Stanley & Co. LLC, a Delaware
limited liability company, serves as the Fund’s clearing broker (the “Commodity
Broker”). Prior to the Closing Date, Deutsche Bank Securities Inc. (“DBSI”)
served as the commodity broker (the “Predecessor Commodity Broker”).
For the avoidance of doubt, from inception up to and excluding the Closing Date,
all commission payments were paid to the Predecessor Commodity Broker. Since
the Closing Date, the Commodity Broker has served as the Fund’s futures
clearing broker and all commission payment accruals since the Closing Date have
been paid to the Commodity Broker.
In its capacity as clearing broker, the Commodity Broker may execute or receive
transactions executed by others and clears all of the Fund’s futures transactions
and performs certain administrative and custodial services for the Fund. 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.
A variety of executing brokers execute futures transactions on behalf of the
Fund. Such executing brokers “give-up”, or transfer for clearing,
all such transactions to the Commodity Broker. The Commodity Broker is registered
with the CFTC as a futures commission merchant and is a member of the NFA in
such capacity.
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