As Filed with the Securities and Exchange Commission on March 16, 2006
Registration
No. 333-[ ]
Registration
No. 333-[ ]
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT
OF 1933
DB CURRENCY INDEX VALUE FUND
DB
CURRENCY INDEX VALUE MASTER FUND
(Rule 140 Co-Registrant)
(Exact name of each registrant as specified in its charter)
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Delaware
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6799
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[ ] (Registrant)
[ ] (Co-Registrant)
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(State of Organization)
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(Primary Standard Industrial
Classification Number)
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(I.R.S. Employer
Identification Number)
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c/o DB Commodity Services LLC
60 Wall Street
New York, New York 10005
(212) 250-5883
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Kevin Rich
c/o DB Commodity Services LLC
60 Wall
Street
New York, New York 10005
(212) 250-5883
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(Address, including zip code, and
telephone number, including
area code, of registrant’s principal
executive offices)
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(Name, address, including zip code,
and telephone number,
including area code, of agent for
service)
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Copies to:
Michael J. Schmidtberger
Sidley Austin LLP
787 Seventh Avenue
New York, New York 10019
Approximate date of commencement of proposed sale to the public:
From time to
time 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, 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.
¨
CALCULATION OF REGISTRATION FEE
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Title of Securities to be Registered
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Proposed Maximum
Aggregate Offering Price†
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Amount of
Registration Fee‡
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Common Units of Beneficial Interest
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$
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2,000,000,000
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$
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214,000
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†
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The proposed maximum aggregate offering price has been calculated assuming that all Shares are sold at a price of $25 per Share.
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‡
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The amount of the registration fee of the Shares is calculated in reliance upon Rule 457(o) under the Securities Act and using the proposed maximum aggregate offering price as
described above.
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The registrants hereby amend
this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrants 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.
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 state where the offer or sale is not
permitted.
Subject to completion, dated
, 2006
DB
CURRENCY INDEX VALUE FUND
$2,000,000,000 Common Units of Beneficial Interest
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DB Currency Index Value Fund, or the Fund, is organized as a Delaware statutory trust. The Fund will issue common units of
beneficial interest, or Shares, which represent units of fractional undivided beneficial interest in and ownership of the Fund. Shares may be purchased from the Fund only in one or more blocks of 200,000 Shares, called a Basket. The Fund will issue
Shares in Baskets to Authorized Participants continuously as of noon, New York 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 American Stock Exchange, or Amex, or the last to close of the exchanges on which the Master Fund’s assets are traded, whichever is later, on the date that a valid order to create a Basket is accepted by the
Fund.
Authorized Participants may sell the Shares comprising the Baskets they purchase from the Fund to other investors at prices that
are expected to reflect, among other factors, the trading price of the Shares on the Amex 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 Amex at
the time of sale.
The Shares will trade on the Amex under the symbol “DBV”.
The Fund will invest the proceeds of its offering of Shares in DB Currency Index Value Master Fund, or the Master Fund. The Master Fund is organized
as a Delaware statutory trust.
DB Commodity Services LLC will serve as the Managing Owner and commodity pool operator of each of the
Fund and the Master Fund. The Master Fund actively will trade exchange-traded futures on the currencies comprising the Deutsche Bank G10 Currency Future Harvest Index
™
– Excess Return, or the Index, with a view to tracking the
performance of the Index over time. The Master Fund’s portfolio also will include United States Treasury securities for deposit with commodities brokers as margin and other high credit quality short-term fixed income securities.
The Index is designed to reflect the return from investing on a 2:1 leveraged basis in long currency futures positions for certain currencies
associated with relatively high yielding interest rates and in short currency futures positions for certain currencies associated with relatively low yielding interest rates. The Index is designed to exploit the trend that currencies associated with
relatively high interest rates, on average, tend to rise in value relative to currencies associated with relatively low interest rates. The Index exploits this trend using both long and short futures positions, which is expected to provide more
consistent and less volatile returns than could be obtained by taking long positions only or short positions only.
The Index, at any
time, is comprised of six of the following Group of Ten, or G10, currencies: United States Dollars, Euros, Japanese Yen, Canadian Dollars, Swiss Francs, British Pounds, Australian Dollars, New Zealand Dollars, Norwegian Krone and Swedish Krona, or,
collectively, the Eligible Index
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Currencies. At any time, the Index is comprised of long futures positions in the three Eligible Index Currencies associated with the highest interest
rates and short futures positions in the three Eligible Index Currencies associated with the lowest interest rates. The Index’s six component currencies from time to time, comprised of the three long and three short futures positions, are
referred to as the Index Currencies and are used to calculate the value of the Index. Allocations among the Eligible Index Currencies are adjusted quarterly to take into account changes in the relevant interest rates. To track the Index, the Master
Fund generally will establish long futures positions in the three Eligible Index Currencies associated with the highest interest rates and short futures positions in the three Eligible Index Currencies associated with the lowest interest rates and
will adjust its holdings quarterly as the Index is adjusted. However, if the United States Dollar, or USD, is among the Index Currencies from time to time, the Master Fund will not establish a long or short futures position (as the case may be) in
USD, because USD is the Fund’s home currency and, as a consequence, the Master Fund never can enjoy profit or suffer loss from long or short futures positions in USD. When the USD is not associated with the highest or lowest interest rates
among the Eligible Index Currencies, the aggregate notional value of the Master Fund’s futures contracts at the time they are established will be double the value of the Master Fund’s holdings of United States Treasury and other high
credit quality short-term fixed income securities, which means the Fund will have a leverage ratio at such time of 2:1. If the USD is associated with the highest or lowest interest rates among the Eligible Index Currencies, the aggregate notional
value of the Master Fund’s futures contracts at the time they are established will be approximately 1.66 times the value of the Master Fund’s holdings of United States Treasury and other high credit quality short-term fixed income
securities, which means the Fund will have a leverage ratio at such time of approximately 1.66:1. The Master Fund’s ability to track the Index will not be affected by the presence or absence of the USD among the Index Currencies. Because the
notional value of the Master Fund’s futures positions can rise or fall over time, the leverage ratio could be higher or lower between quarterly adjustments of the Index Currencies. All of the futures contracts in which the Master Fund currently
expects to invest are traded on the Chicago Mercantile Exchange, or the CME, although currency futures contracts on the Eligible Index Currencies also trade on other exchanges in the United States and the Master Fund may invest in such
contracts.
The sponsor of the Index, or the Index Sponsor, is Deutsche Bank AG London. DBCFHI
™
-ER and Deutsche Bank G10
Currency Future Harvest Index
™
– Excess Return are trade marks of Deutsche Bank AG and are the subject of Community Trade Mark Nos. [ ] and
[ ]. Trade Mark applications in the United States are pending. Deutsche Bank AG is an affiliate of the Fund, the Master Fund and the Managing Owner.
Except when aggregated in Baskets, the Shares are not redeemable securities.
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These are speculative securities. Before you decide whether to invest in the Fund, read this
entire Prospectus carefully.
A patent application directed to the creation and operation of the Fund is pending at the United States
Patent and Trademark Office.
The Shares are speculative securities and their purchase involves a high degree of risk.
YOU SHOULD CONSIDER ALL RISK FACTORS BEFORE INVESTING IN THE FUND. PLEASE REFER TO “
THE RISKS YOU FACE
” BEGINNING ON PAGE 19 OF THIS PROSPECTUS.
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Futures trading is volatile and even a small movement in market prices could cause large losses.
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Investors will pay fees in connection with their investment in Shares including asset-based fees of up to 0.85% per annum. Additional charges include brokerage fees and operating
expenses expected to be approximately 0.11% per annum in the aggregate. 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.
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The success of the Master Fund’s trading program will depend upon the skill of the Managing Owner and its trading principals.
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You could lose all or substantially all of your investment.
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On [
·
], 2006,
[ ], as the Initial Purchaser, subject to certain conditions, agreed to purchase and took delivery of [2,000,000] Shares, which comprise the initial
Baskets, at a purchase price of $[25.00] per Share ($[5,000,000] per Basket), as described in “Plan of Distribution.” The Initial Purchaser proposes to offer to the public these [2,000,000] Shares at a per-share offering price that will
vary depending upon, among other factors, the trading price of the Shares on the Amex, the net asset value per Share and the supply of and demand for Shares at the time of offer. Shares offered by the Initial Purchaser at different times may have
different offering prices. The Initial Purchaser 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. The Initial Purchaser may charge a
customary brokerage commission.
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 Amex, 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.
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
details on 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 may be deemed to be
underwriting compensation.
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. Neither DB Currency Index
Value Fund nor DB Currency Index Value Master Fund 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.
THE COMMODITY FUTURES TRADING COMMISSION HAS NOT PASSED UPON THE MERITS OF PARTICIPATING IN THIS POOL NOR HAS THE COMMISSION PASSED UPON THE ADEQUACY
OR ACCURACY OF THIS DISCLOSURE DOCUMENT. The Shares are neither interests in nor obligations of any of the Managing Owner, the Trustee, the Initial Purchaser, or any of their respective affiliates. The Shares are not insured by the Federal Deposit
Insurance Corporation or any other governmental agency.
[Name of Initial Purchaser]
[ ], 2006 (Not for use after
[ ], 2006)
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 FUTURES 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 TO THIS POOL AT PAGE 46 AND A STATEMENT OF THE PERCENTAGE RETURN 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 19 THROUGH 28.
THIS POOL HAS
NOT COMMENCED TRADING AND DOES NOT HAVE ANY PERFORMANCE HISTORY.
THIS PROSPECTUS DOES NOT INCLUDE ALL OF THE INFORMATION OR EXHIBITS IN THE REGISTRATION STATEMENT OF THE FUND AND THE MASTER FUND. YOU CAN READ AND COPY THE ENTIRE REGISTRATION STATEMENT AT THE PUBLIC REFERENCE FACILITIES MAINTAINED BY
THE SEC IN WASHINGTON, D.C.
THE FUND AND THE MASTER FUND WILL FILE QUARTERLY AND ANNUAL REPORTS WITH THE SEC. YOU CAN READ AND COPY THESE REPORTS AT THE SEC PUBLIC REFERENCE
FACILITIES IN WASHINGTON, D.C. PLEASE CALL THE SEC AT 1-800-SEC-0330 FOR FURTHER INFORMATION.
THE FILINGS OF THE FUND AND THE MASTER FUND 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 FUND, THE MASTER FUND, THE MANAGING OWNER, THE AUTHORIZED PARTICIPANTS OR ANY OTHER PERSON.
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THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE
SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION MAY NOT LAWFULLY BE MADE.
THE BOOKS AND RECORDS OF THE FUND
AND THE MASTER FUND WILL BE MAINTAINED AS FOLLOWS: ALL MARKETING MATERIALS AND BASKET CREATION AND REDEMPTION BOOKS AND RECORDS WILL BE MAINTAINED AT THE OFFICES OF ALPS DISTRIBUTORS, INC., 1625 BROADWAY, SUITE 2200, DENVER, COLORADO 80202;
TELEPHONE NUMBER (303) 623-2577; 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 WILL BE MAINTAINED BY THE BANK OF NEW YORK, 2 HANSON PLACE, 12TH FLOOR, BROOKLYN, NEW YORK 11217, TELEPHONE NUMBER (718) 315-4850. ALL OTHER BOOKS AND
RECORDS OF THE FUND AND THE MASTER FUND (INCLUDING MINUTE BOOKS AND OTHER GENERAL CORPORATE RECORDS, TRADING RECORDS AND RELATED REPORTS AND OTHER ITEMS RECEIVED FROM THE MASTER FUND’S COMMODITY BROKERS) WILL BE MAINTAINED AT THE FUND’S
PRINCIPAL OFFICE, C/O DB COMMODITY SERVICES LLC, 60 WALL STREET, NEW YORK, NEW YORK 10005; TELEPHONE NUMBER (212) 250-5883. 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 CONFORMING TO COMMODITY FUTURES TRADING COMMISSION (THE “CFTC”) AND THE NATIONAL FUTURES ASSOCIATION (THE
“NFA”) REQUIREMENTS WILL BE POSTED ON THE FUND’S WEBSITE AT WWW.DBVFUND.DB.COM. ADDITIONAL REPORTS MAY BE POSTED ON THE FUND’S WEBSITE IN THE DISCRETION OF THE MANAGING OWNER OR AS REQUIRED BY REGULATORY AUTHORITIES. THERE WILL
SIMILARLY BE DISTRIBUTED TO SHAREHOLDERS, NOT MORE THAN 90 DAYS AFTER THE CLOSE OF EACH OF THE FUND’S FISCAL YEARS, 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 DB CURRENCY INDEX VALUE FUND NOR DB CURRENCY INDEX VALUE MASTER FUND 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.”
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DB CURRENCY INDEX VALUE FUND
Table of
Contents
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v
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Prospectus Section
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Page
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DB Currency Index Value Master Fund Notes to Financial Statements
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93
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Report of Independent Registered Public Accounting Firm dated October 21, 2005
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97
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DB Commodity Services LLC Statement of Financial Condition September 15, 2005
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98
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DB Commodity Services LLC Statement of Changes in Member’s Capital for the period from May 23, 2005 (inception) through September 15, 2005
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99
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DB Commodity Services LLC Statement of Cash Flows for the period from May 23, 2005 (inception) through September 15, 2005
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100
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DB Commodity Services LLC Notes to Statement of Financial Condition
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101
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DB Commodity Services LLC Statement of Financial Condition December 31, 2005 (unaudited)
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103
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DB Commodity Services LLC Statement of Changes in Member’s Capital for the period from September 15, 2005 through December 31, 2005 (unaudited)
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104
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DB Commodity Services LLC Statement of Cash Flows for the period from September 15, 2005 through December 31, 2005 (unaudited)
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105
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DB Commodity Services LLC Notes to Financial Statements (unaudited)
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106
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To be filed by amendment.
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SUMMARY
This summary of all
material information provided in this Prospectus is intended for quick reference only. The remainder of this Prospectus contains more detailed information; you should read the entire Prospectus, including all exhibits to the Prospectus, before
deciding to invest in any Shares. This Prospectus is intended to be used beginning [ ], 2006.
The Fund; The Master Fund
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DB Currency Index Value Fund, or the Fund, was formed as a Delaware statutory trust on
[ ], 2006. The Fund will issue 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 Fund is perpetual (unless terminated earlier in certain circumstances). The principal offices of the Fund are located at c/o DB Commodity Services LLC, 60 Wall Street, New York, New
York 10005, and its telephone number is (212) 250-5883.
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DB Currency Index Value Master Fund, or the Master Fund, was formed as a Delaware statutory trust on
[ ], 2006. The Master Fund will issue common units of beneficial interest, or Master Fund Units, which represent units of
fractional undivided beneficial interest in and ownership of the Master Fund. The term of the Master Fund is perpetual (unless terminated earlier in certain circumstances). The principal offices of the Master Fund are located at c/o DB Commodity
Services LLC, 60 Wall Street, New York, New York 10005, and its telephone number is (212) 250-5883.
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Shares Listed on the Amex
The
Shares of the Fund will be listed on the Amex under the symbol “DBV.” 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 Amex
The Shares of the Fund will trade on the Amex like any other equity security.
Baskets of Shares may be created or redeemed only by Authorized Participants. It is expected that Baskets will be created when there is sufficient demand
for Shares that the market price per Share is at a premium to the net asset value per Share. Authorized Participants will then sell such Shares, which will be listed on the Amex, to the public at prices that are expected to reflect, among other
factors, the trading price of the Shares on the Amex 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 Amex 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 Amex, 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 will
be able to use the indicative intra-day value of the Fund to determine if they want to purchase on the secondary market via the Amex.
Purchases or sales of Shares may be subject to customary brokerage commissions. Investors are encouraged to review the terms of their brokerage accounts
for details on applicable charges.
Pricing Information Available on the Amex and Other Sources
The following table lists additional Amex symbols and their meanings with respect to the Fund and the Index:
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DBB
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Indicative intra-day value per Share of the Fund
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DBBNV
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End of day net asset value of the Fund
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DBVI
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Intra-day and Index closing level as of close of Amex from the prior day
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The intra-day data in
the above table will be published once every fifteen seconds throughout each trading day.
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The Index Sponsor will publish the daily closing level of the Index as of the close of the Amex. The Managing Owner will publish the net asset value of the
Fund and the net asset value per Share daily. Additionally, the Index Sponsor will publish the intra-day Index level, and the Managing Owner will publish 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 will be published as follows:
The intra-day level of the Index (symbol: DBVI) and the intra-day indicative value per Share of the Fund (symbol: DBB) (each quoted in U.S. dollars) will be published once every fifteen seconds throughout each trading
day on the consolidated tape, Reuters and/or Bloomberg and on Deutsche Bank’s website at http://www.dbvfund.db.com, or any successor thereto.
The current trading price per Share (symbol: DBV) (quoted in U.S. dollars) will be published continuously as trades occur throughout each trading day on
the consolidated tape, Reuters and/or Bloomberg and on Deutsche Bank’s website at http://www.dbvfund.db.com, or any successor thereto.
The most recent end-of-day Index closing level (symbol: DBVI) will be published as of the close of business for the Amex each trading day on the
consolidated tape, Reuters and/or Bloomberg and on Deutsche Bank’s website at http://www.dbvfund.db.com, or any successor thereto.
The most recent end-of-day net asset value of the Fund (symbol: DBBNV) will be published as of the close of business on Reuters and/or Bloomberg and on
Deutsche Bank’s website at http://www.dbvfund.db.com, or any successor thereto. In addition, the most recent end-of-day net asset value of the Fund (symbol: DBBNV) will be published the following morning on the consolidated tape.
CUSIP
The Fund’s CUSIP
number is [ ].
The Master-Feeder Structure
The
Fund will invest substantially all of its assets in the Master Fund in a master-feeder
structure. The Fund will hold no investment assets other than Master Fund Units. The Master Fund will be wholly-owned
by the Fund and the Managing Owner. Each Share issued by the Fund will correlate with a Master Fund Unit issued by the Master Fund and held by the Fund.
Risk Factors
An investment in Shares is
speculative and involves a high degree of risk.
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The Fund and the Master Fund have no operating history. Therefore, a potential investor does not have any performance history to serve as a factor for evaluating an investment in
the Fund.
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Past performance is not necessarily indicative of future results; all or substantially all of an investment in the Fund could be lost.
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The trading of the Master Fund takes place in very volatile markets.
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Because the Master Fund’s trading will be leveraged, a relatively small movement in the price of a futures contract owned by the Master Fund may cause greater losses.
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Investment in foreign exchange related products are subject to many factors which contribute or increase potential volatility, including, but not limited to:
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National debt levels and trade deficits, including changes in balances of payments and trade;
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Domestic and foreign inflation rates and investors’ expectations concerning inflation rates;
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Domestic and foreign interest rates and investors’ expectations concerning interest rates;
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Currency exchange rates;
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Investment and trading activities of mutual funds, hedge funds and currency funds;
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Global or regional political, economic or financial events and situations;
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Supply and demand changes which influence the foreign exchange rates of various currencies;
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Monetary policies of governments (including exchange control programs, restrictions on local exchanges or markets and limitations on foreign investment in a country or on
investment by residents of a country in other countries), trade restrictions, currency devaluations and revaluations;
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Governmental intervention in the currency market, directly and by regulation, in order to influence currency prices directly; and
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Expectations among market participants that a currency’s value soon will change.
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The Fund and the Master Fund are subject to the fees and expenses described herein and will be successful only if significant losses are avoided. To break even in one year on Shares
purchased, the Fund must not generate, on an annual basis, losses in excess of 3.63%.
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There can be no assurance that either the Shares or the Master Fund Units will achieve profits or avoid losses, significant or otherwise.
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•
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Performance 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.
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Certain potential conflicts of interest exist between the Managing Owner and its affiliates and the Shareholders. For example, because the Managing Owner and the Commodity Broker
are both wholly-owned subsidiaries of Deutsche Bank AG, the Managing Owner has a disincentive to replace the Commodity Broker. The Commodity Broker may have a conflict of interest between its execution of trades for the Master Fund and for its other
customers. More specifically, the Commodity Broker will benefit from executing orders for other clients, whereas the Master Fund may be
harmed to the extent that the Commodity Broker has fewer resources
to allocate to the Master Fund’s accounts due to the existence of such other clients. Proprietary trading by the principals and/or 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 Master Fund or may compete with the Master 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.
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The Trustee
Wilmington Trust
Company, or the Trustee, a Delaware banking corporation, is the sole trustee of the Fund and the Master Fund. The Trustee delegated to the Managing Owner certain of the power and authority to manage the business and affairs of the Fund and the
Master Fund and has duties and liabilities to the Fund and the Master Fund.
Investment Objective
The
investment objective of the Fund and the Master Fund is to reflect the performance of the Deutsche Bank Currency Future Harvest Index
™
—Excess Return, or the Index, over time, less the expenses of the operations of the Fund and the Master Fund. The Index is designed to reflect the
return from investing on a 2:1 leveraged basis in long currency futures positions for certain currencies associated with relatively high yielding interest rates and in short currency futures positions for certain
3
currencies associated with relatively low yielding interest rates. The Index is designed to exploit the trend that currencies associated with relatively high
interest rates, on average, tend to rise in value relative to currencies associated with relatively low interest rates. The Index exploits this trend using both long and short futures positions, which is expected to provide more consistent and less
volatile returns than could be obtained by taking long positions only or short positions only.
Advantages of investing in the Shares include:
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Ease and Flexibility of Investment
. The Shares will trade on the Amex. The Shares may be bought and sold on the Amex like other exchange-listed securities.
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Shares May Provide More Cost Effective Alternative.
Investing in the Shares can be easier and less expensive for an investor than constructing and trading a comparable
foreign currency futures portfolio.
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The Fund May Provide Gains on Both the Upside and Downside Price Movements of the Index Currencies.
The Index will rise as a result of any upward price movement of the Index
Currencies that are expected to gain relative to the USD by investing in long futures positions on such Index Currencies. The Index also will rise as a result of any downward price movement of the Index Currencies that are expected to lose relative
to the USD by investing in short futures positions on such Index Currencies.
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Margin.
Shares will be eligible for margin accounts.
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Investing in the Shares does not insulate Shareholders from certain risks, including price volatility.
The sponsor of the Index, or the Index Sponsor, is Deutsche Bank AG London.
The composition of the Index may be adjusted in the Index Sponsor’s discretion.
The currencies that are eligible for inclusion in the Index, or Eligible Index Currencies, are the currencies of The Group of Ten, or G10, countries, which include the following currencies:
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Eligible Index Currency
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Symbol
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United States Dollar
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USD
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Euro
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EUR
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Japanese Yen
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JPY
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Canadian Dollar
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CAD
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Swiss Franc
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CHF
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British Pound
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GBP
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Australian Dollar
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AUD
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New Zealand Dollar
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NZD
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Norwegian Krone
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NOK
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Swedish Krona
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SEK
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Futures contracts
referencing each of the Eligible Index Currencies (except the USD) currently are traded on the Chicago Mercantile Exchange, or CME, although currency futures contracts on the Eligible Index Currencies also trade on other exchanges in the United
States and the Master Fund may invest in such contracts.
At
any time, the Index is comprised of long futures positions in the three Eligible Index Currencies associated with the highest interest rates and short futures positions in the three Eligible Index Currencies associated with the lowest interest
rates. The Index’s six component currencies from time to time, comprised of the three long and three short futures positions, are referred to as the Index Currencies and are used to calculate the value of the Index. 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 Currencies.
The Index Sponsor calculates the Index on both an excess return basis and a total return basis. The excess return index reflects the return of the
applicable underlying currencies. The total return is the sum of the return of the applicable underlying currencies plus the return of 3 month U.S. Treasury bills. The Fund will trade in a manner consistent with the excess return calculation of the
Index.
4
In order to determine which Eligible Index Currencies to include in the Index from time to time, the
Index Sponsor will review the composition of the Index on a quarterly basis as described in “Description of the Deutsche Bank G10 Currency Future Harvest Index
™
—Excess Return.”
The Index Sponsor will review the three month Libor rate for each Eligible Index Currency other than the SEK and NOK and will review the three month
Stibor rate and the three month Nibor rate for the SEK and NOK, respectively. The Libor, Stibor and Nibor rates for the Eligible Index Currencies, as applicable, means the London, Stockholm and Norway interbank offered rates for overnight deposits,
respectively, each of which are published by Reuters on pages libor01 and libor02 with respect to Libor and pages SIDE and NIBR with respect to Stibor and Nibor. The Eligible Index Currencies are then ranked according to yield. The three highest
yielding and three lowest yielding are selected as Index Currencies for inclusion in calculating the Index. If two Index Currencies have the same yield, then the previous quarter’s ranking will be used.
The Index is re-weighted quarterly. Upon re-weighting, the high yielding
Index Currencies are allocated a base weight of 33
1
/
3
% and the low yielding Index Currencies are allocated a
base weight of -33
1
/
3
%. These new weights are applied during the Index Re-Weighting Period, as described in
“Description of the Deutsche Bank G10 Currency Future Harvest Index
™
—Excess Return.”
The CME-traded futures contract of each applicable Index Currency that is closest to expiration is used in the Index calculation. The futures contracts on the Index Currencies are rolled during the Index Re-Weighting Period. The new futures
contract on an Index Currency that has the next closest expiration date is selected. The calculation of the Index on an excess return basis is the weighted average return on the change in price of the futures contracts on the Index Currencies.
A 3 month U.S. Treasury bill return is then
calculated and included to calculate the total return index. Please refer to Exhibit B of the Amended and Restated Declaration of Trust of the Master Fund for the mathematical formula of the Index.
The Index has been calculated using historical data since March 12,
1993. The Index is composed of notional amounts of each Index Currency. The notional amounts of the Index Currencies included in the Index reflect an arithmetic weighted average of the change in the Index Currencies exchange rates against the U.S.
dollar since March 12, 1993. March 1993 was chosen as a starting period because it represents the earliest date on which reliable data for all the Eligible Index Currencies exists. On March 12, 1993, the closing Index level was $100.
Between March 12, 1993 to February 8, 2006, the Index level as calculated on an excess return basis has ranged from as high as $286.00 (December 5, 2005) to as low as $94.03 (July 30, 1993). Past performance is not necessarily
indicative of future results.
The Fund will pursue its
investment objective by investing substantially all of its assets in the Master Fund. To track the Index, the Master Fund generally will establish long futures positions in the three Index Currencies associated with the highest interest rates and
short futures positions in the three Index Currencies associated with the lowest interest rates and will adjust its holdings quarterly as the Index is adjusted. However, if the United States Dollar, or USD, is among the Index Currencies from time to
time, the Master Fund will not establish a long or short futures position (as the case may be) in USD, because USD is the Fund’s home currency and, as a consequence, the Master Fund never can enjoy profit or suffer loss from long or short
futures positions in USD. When the USD is not associated with the highest or lowest interest rates among the Eligible Index Currencies, the aggregate notional value of the Master Fund’s futures contracts at the time they are established will be
double the value of the Master Fund’s holdings of United States Treasury and other high credit quality short term fixed income securities, which means the Fund will have a leverage ratio at such time of 2:1. If the USD is associated with the
highest or lowest interest rates among the Eligible Index Currencies, the aggregate notional value of the Master Fund’s futures contracts at the time they are established will be approximately 1.66 times the value of the Master Fund’s
holdings of United States Treasury and other high credit quality short term fixed income securities, which means the Fund will have a leverage ratio at such time of
5
approximately 1.66:1. Holding futures positions with a notional amount in excess of the Master Fund’s net asset value constitutes a form of leverage.
The use of leverage will increase the potential for both trading profits and losses, depending on the performance of the Index. The Master Fund’s ability to track the Index will not be affected by the presence or absence of the USD among the
Index Currencies. Because the notional value of the Master Fund’s futures positions can rise or fall over time, the leverage ratio could be higher or lower between quarterly adjustments of the Index Currencies.
The use of long and short positions in the construction of the Index causes
the Index to rise as a result of any upward price movement of Index Currencies expected to gain relative to the USD and to rise as a result of any downward price movement of Index Currencies expected to lose relative to the USD. The inclusion of
both long and short positions is also expected to reduce the volatility of the Index (and, therefore, risk in connection with an investment in the Fund) relative to a directional (outright long or short) exposure to any or all of the Index
Currencies.
There can be no assurance that the use of both
long and short positions will reduce the volatility of the Index during any or all market cycles or performance periods, or that the Master Fund will achieve its objectives.
The Master Fund will be required to deposit a greater proportion of its net assets as margin, not expected to exceed 5% of
net assets, and will incur brokerage commissions at a higher level than would be the case were it to hold futures positions equal to 100% of its net asset value.
The Master Fund’s portfolio also will include United States Treasury securities for deposit with the Master Fund’s
Commodity Broker as margin and other high credit quality short-term fixed income securities.
Under the Trust Declarations of the Fund and the Master Fund, Wilmington Trust Company, the Trustee of the Fund and the Master Fund, has delegated to the Managing Owner the exclusive management and control of all
aspects of the business of the Fund and the Master 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.
There can
be no assurance that the Fund or the Master Fund will achieve its investment objective or avoid substantial losses. The Master Fund has not commenced trading and does not have any performance history. The value of the Shares is expected to fluctuate
generally in relation to changes in the value of the Master Fund Units.
Shares Should Track Closely the Value of the Index
The Shares are intended to provide investment results that generally correspond to the performance of the Index.
The value of the Shares is expected to fluctuate in relation to changes in the value of the Master Fund’s 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.
The Index Sponsor will publish the closing level of the Index daily. The Managing Owner will publish the net asset value of the Fund and the net asset
value per Share daily. Additionally, the Index Sponsor will publish the intra-day Index level, and the Managing Owner will publish 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 will be published as follows:
The intra-day level of the Index (symbol: DBVI) and the intra-day indicative value per Share of the Fund (symbol: DBB) (each quoted in U.S. dollars) will be published once every fifteen seconds throughout each trading day on the
consolidated tape, Reuters and/or Bloomberg and on Deutsche Bank’s website at http://www.dbvfund.db.com, or any successor thereto.
The current trading price per Share (symbol: DBV) (quoted in U.S. dollars) will be published continuously as trades occur throughout each trading day on
the consolidated tape, Reuters and/or Bloomberg and on Deutsche Bank’s website at http://www.dbvfund.db.com, or any successor thereto.
6
The most recent end-of-day Index closing level (symbol: DBVI) will be published as of the close of business for the Amex each trading day on the consolidated
tape, Reuters and/or Bloomberg and on Deutsche Bank’s website at http://www.dbvfund.db.com, or any successor thereto.
The most recent end-of-day net asset value of the Fund (symbol: DBBNV) will be published as of the close of business on Reuters and/or Bloomberg and on
Deutsche Bank’s website at http://www.dbvfund.db.com, or any successor thereto. In addition, the most recent end-of-day net asset value of the Fund (symbol: DBBNV) will be published the following morning on the consolidated tape.
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, the Master 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 Master Fund will hold a leveraged portfolio of both long and short futures contracts on the Index Currencies which comprise the Index from time to time (other than the USD), each of which are traded on various currency futures markets
in the United States. The Master Fund will also hold cash and United States Treasury securities for deposit with the Master Fund’s Commodity Broker as margin and other high credit quality short-term fixed income securities. The Master
Fund’s portfolio is traded with a view to reflecting the performance of the Index over time, whether the Index is rising, falling or flat over any particular period. The Master Fund is not “managed” by traditional methods, which
typically involve effecting changes in the composition of the Master Fund’s portfolio on the basis of judgments relating to economic, financial and market considerations with a view to obtaining positive results under all market conditions. To
maintain the correspondence between the composition and weightings of the Index Currencies of the Index to the Fund, the Managing Owner will adjust the Portfolio on a quarterly basis to conform to periodic changes in the composition and relative
weightings
of the Index Currencies. The Managing Owner may make certain adjustments or changes to the portfolio more frequently in the case of significant changes due to volatile markets.
The Managing Owner
DB Commodity
Services LLC, a Delaware limited liability company, will serve as Managing Owner of the Fund and the Master Fund. The Managing Owner was formed on May 23, 2005. The Managing Owner is an affiliate of Deutsche Bank AG. The Managing Owner will
serve as the commodity pool operator and commodity trading advisor of the Fund and the Master Fund. The Managing Owner and its trading principals have limited experience in operating a commodity pool and in managing a futures trading account. 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 Fund and the Master 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 is also 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 is speculative and involves a high degree of risk.
The principal office of the Managing Owner is located at 60 Wall Street, New York, New York 10005. The telephone number of the Managing Owner is
(212) 250-5883.
7
The Commodity Broker
A variety
of executing brokers will execute futures transactions on behalf of the Master Fund. Such executing brokers will give-up all such transactions to Deutsche Bank Securities Inc., a Delaware corporation, which will serve as the Master Fund’s
clearing broker, or Commodity Broker. The Commodity Broker is an affiliate of the Managing Owner. In its capacity as clearing broker, the Commodity Broker will execute and clear each of the Master Fund’s futures transactions and will perform
certain administrative services for the Master Fund. Deutsche Bank Securities Inc. is registered with the Commodity Futures Trading Commission as a futures commission merchant and is a member of the National Futures Association in such capacity.
The Master Fund will pay 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. 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 will be determined on a contract-by-contract basis. The Managing Owner does not expect brokerage commissions and fees
to exceed 0.06% of the net asset value of the Master Fund in any year, although the actual amount of brokerage commissions and fees in any year may be greater.
The Administrator
The Managing
Owner, on behalf of the Fund and the Master Fund, has appointed The Bank of New York as the administrator, or Administrator, of the Fund and the Master Fund and has entered into an Administration Agreement in connection therewith. The Bank of New
York will serve 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 will serve 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, a banking corporation organized under the laws of the State of New York
with trust powers, has an office at 2 Hanson Place, 12
th
Floor, Brooklyn, N.Y. 11217. The Bank of New York 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 by calling the following number: (718) 315-4412. A copy of the Administration Agreement is available for inspection at The Bank of New York’s trust office identified above.
Pursuant to the Administration Agreement, the Administrator will perform or
supervise the performance of services necessary for the operation and administration of the Fund and the Master Fund (other than making investment decisions), including net asset value calculations, accounting and other fund administrative services.
The Administrator will retain 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, c/o The Bank of New York, 2 Hanson Place, 12
th
Floor,
Brooklyn, New York 11217, telephone number (718) 315-4850.
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 upon 30 days’ prior written notice if the Fund and/or Master 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.”
8
The Administrator’s monthly fees of [0.05]% per annum are paid on behalf of the Fund and the Master
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 Administrator also will receive 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 indirectly by the Authorized Participants and not by the Fund or the Master Fund.
The Fund is expected to retain the services of one or more additional
service providers to assist with certain tax reporting requirements of the Fund and its Shareholders.
The Distributor
The Managing
Owner, on behalf of the Fund and the Master Fund, has appointed ALPS Distributors, Inc., or the Distributor, to assist the Managing Owner and the Administrator with certain functions and duties relating to the creation and redemption of Baskets,
including receiving and processing orders from Authorized Participants to create and redeem Baskets, coordinating the processing of such orders and related functions and duties The Distributor will retain all marketing materials and Basket creation
and redemption books and records at c/o ALPS Distributors, Inc., 1625 Broadway, Suite 2200, Denver, Colorado 80202; Telephone number (303) 623-2577. Investors may contact the Distributor toll-free in the U.S. at (877) 369-4617. The Fund
has entered into a Distribution Services Agreement with the Distributor. The Distributor is affiliated with ALPS Mutual Fund Services, Inc., a Denver-based service provider of administration, fund accounting, transfer agency and shareholder services
for mutual funds, closed-end funds and exchange-traded funds, with over 100,000 shareholder accounts and approximately $10 billion in client mutual fund assets under administration. The Distributor provides distribution services and has
approximately $120 billion in client assets under distribution.
The Managing Owner, out of the Management Fee, will pay the Distributor approximately $50,000 per annum, plus any fees or disbursements incurred by the Distributor in connection with the performance by the Distributor of its duties on
behalf of the Fund and the Master Fund and may pay the Distributor additional compensation in consideration of the performance by the Distributor of additional marketing, distribution and ongoing support services. Such additional services may
include, among other services, the development and implementation of a marketing plan and the utilization of the Distributor’s resources, which include an extensive broker database and a network of internal and external wholesalers.
Limitation of Liabilities
You
cannot lose more than your investment in the Shares. Shareholders will be entitled to limitation on liability equivalent to the limitation on liability enjoyed by stockholders of a Delaware business corporation for profit.
Creation and Redemption of Shares
The Fund will create and redeem 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 of Shares. Authorized Participants may sell the Shares included in the Baskets they purchase from
the Fund to other investors.
The Master Fund will create and
redeem Master Fund Units from time-to-time, but only in one or more Master Unit Baskets. A Master Unit Basket is a block of 200,000 Master Fund Units. Master Unit Baskets may be created or redeemed only by the Fund. The Master Fund will be
wholly-owned by the Fund and the Managing Owner. Each Share issued by the Fund will correlate with a Master Fund Unit issued by the Master Fund and held by the Fund.
See “Creation and Redemption of Shares” for more details.
9
The Offering
On [
·
], 2006, [ ], as the Initial Purchaser,
subject to certain conditions, agreed to purchase and took delivery of [2,000,000] Shares, which comprise the initial Baskets, at a purchase price of $[25.00] per Share ($[5,000,000] per Basket), as described in “Plan of Distribution.”
The Fund will issue Shares in Baskets to Authorized
Participants continuously as of noon, New York 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 Amex or
the last to close of the exchanges on which the Master Fund’s assets are traded, whichever is later, on the date that a valid order to create a Basket is accepted by the Fund. The Managing Owner may terminate the offering at any time.
The Master Fund will issue Master Fund Units in Master Unit
Baskets to the Fund continuously as of noon, New York time, on the business day immediately following the date on which a valid order to create a Master Unit Basket is accepted by the Master Fund, at the net asset value of 200,000 Master Fund Units
as of the closing time of the Amex or the last to close of the exchanges on which the Master Fund’s assets are traded, whichever is later, on the date that a valid order to create a Master Unit Basket is accepted by the Master Fund. The Master
Fund will be wholly-owned by the Fund and the Managing Owner. Each Share issued by the Fund will correlate with a Master Fund Unit issued by the Master Fund and held by the Fund.
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 (a Participant Agreement). The Participant Agreement sets forth the
procedures for the creation and redemption of Baskets of Shares 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. A similar agreement between the Fund and the Master Fund sets forth the procedures for the creation and redemption of Master Unit Baskets by the Fund. See “Creation and Redemption of Shares” for more details.
Net Asset Value
Net asset value
means the total assets of the Master Fund including, but not limited to, all cash and cash equivalents or other debt securities less total liabilities of the Master 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 Master Fund Unit is the net asset value of the Master Fund divided by the number of outstanding Master Fund Units. Because there will be a one-to-one correlation between Shares and Master Fund
Units and the Master Fund has assumed all liabilities of the Fund, the net asset value per Share and the net asset value per Master Fund Unit will be equal.
See “Description of the Shares and the Master Fund Units; Certain Material Terms of the Trust Declarations—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 their Shares through DTC, if they are participants in DTC, or indirectly through entities that are
participants in DTC. The Master Fund Units are uncertificated and held by the Fund in book-entry form.
Segregated Accounts/Interest Income
The proceeds of the offering will be deposited in cash in a segregated account in the name of the Master Fund at the Commodity Broker (or another eligible financial institution, as applicable) in accordance with CFTC investor protection and
segregation requirements. The Master Fund will be credited with 100% of the interest earned on its
10
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 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 is estimated to be 4.59% per annum, based upon the current yield on 3 month U.S. Treasury bills. This interest income will be used
to pay the expenses of the Fund and the Master Fund. See “Fees and Expenses” for more details.
[Remainder of page left blank intentionally.]
11
Fees and Expenses
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Management Fee
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The Master Fund will pay the Managing Owner a Management Fee, monthly in arrears, in an amount equal to 0.75% per annum of the net asset
value of the Master Fund. No separate management fee will be paid by the Fund. The Management Fee will be paid in consideration of the grant of Deutsche Bank AG’s revocable license to use Deutsche Bank AG’s name and the Index in addition
to the Managing Owner’s commodity futures trading advisory services.
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Organization and Offering Expenses
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Expenses incurred in connection with organizing the Fund and the Master Fund and the initial offering of the Shares will be paid by the Managing
Owner, subject to reimbursement by the Master Fund, without interest, in 36 monthly payments during each of the first 36 months after the commencement of the Master Fund’s trading operations, subject to a cap in the amount of 2.50% of the
aggregate amount of all subscriptions for Shares prior to the commencement of trading and during the first 36 months of the Master Fund’s trading operations. Expenses incurred in connection with the continuous offering of Shares after the
commencement of the Master Fund’s trading operations also will be paid by the Managing Owner, subject to reimbursement by the Master Fund, without interest, in 36 monthly payments during each of the 36 months following the month in which such
expenses were paid by the Managing Owner. If the Fund and the Master Fund terminate before the Managing Owner has been fully reimbursed for any of the foregoing expenses, the Managing Owner will not be entitled to receive any unreimbursed portion of
such expenses outstanding as of the termination date. In no event will the aggregate amount of payments by the Master Fund to the Managing Owner in any month in respect of reimbursement of organizational or offering expenses exceed 0.10% per
annum of the net asset value of the Master Fund as of the beginning of such month. The Managing Owner currently estimates that the aggregate amount of the organization and offering expenses will be approximately $ [ ] million.
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Brokerage Commissions and Fees
|
The Master Fund will pay 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. 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 will be determined on a contract-by-contract basis. The Managing Owner does not expect brokerage commissions and fees to exceed 0.06% of the net asset value of the Master Fund in any year,
although the actual amount of brokerage commissions and fees in any year may be greater.
|
|
Routine Operational, Administrative and Other Ordinary Expenses
|
The Master Fund will pay all of the routine operational, administrative and other ordinary expenses of the Fund and the
|
12
|
|
Master Fund, including, but not limited to, computer services, the fees and expenses of the Trustee, legal and accounting fees and expenses, tax preparation
expenses, filing fees, and printing, mailing and duplication costs. Such routine expenses are not expected to exceed 0.05% of the net asset value of the Master Fund in any year, although the actual amounts of the routine operational, administrative
and other ordinary expenses may be greater.
|
|
Extraordinary Fees and Expenses
|
The Master Fund will pay all the extraordinary fees and expenses, if any, of the Fund and the Master Fund. Such extraordinary 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 organizational, offering and ordinary ongoing expenses of the Fund and the Master Fund will be paid first out of
interest income from the Master 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. It is expected that such interest income may be
sufficient to cover a significant portion of the fees and expenses of the Fund and the Master Fund.
|
|
Selling Commission
|
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 details on 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 may be deemed to be underwriting compensation.
|
[Remainder of page left blank intentionally.]
13
Breakeven Amounts
The estimated
amount of all fees and expenses which are anticipated to be incurred by a new investor in Shares of the Fund during the first twelve months of investment is 0.96% per annum of the net asset value in respect of Shares purchased plus the amount
of any commissions charged by the investor’s broker. Interest income is expected to be approximately 4.59% per annum, based upon the current yield on 3 month U.S. Treasury bills. Consequently, the Fund is expected to break even in twelve
months provided that it does not lose more than 3.63% per annum in respect of Shares purchased plus the amount of any commissions charged by the investor’s broker. The brokerage commission rates an investor may pay to the investor’s
broker in connection with a purchase of Shares will vary from investor to investor.
Distributions
The Master Fund
will make distributions at the discretion of the Managing Owner. Because the Managing Owner does not presently intend to make ongoing distributions (but may do so from time-to-time in its sole discretion), your income tax liability for your pro rata
share of the Fund’s income and gain on the Master Fund Units held will, in all likelihood, exceed any distributions you receive.
Fiscal Year
The Fund’s
fiscal year ends on December 31 of each year.
Financial Information
The Fund
and the Master Fund have only recently been organized and have no financial history.
U.S. Federal Income Tax Considerations
Subject to the discussion below in “Material U.S. Federal Income Tax Considerations,” the Fund will not be classified as an association taxable as a corporation. Instead, the Fund expects that it will be classified as a grantor
trust for United States federal income tax purposes. As a result, for United States federal income tax purposes, you generally will be
treated as the beneficial owner of a
pro rata
portion of the
interests in the Master Fund held by the Fund. Subject to the discussion below in “Material U.S. Federal Income Tax Considerations,” the Master Fund will be classified as a partnership for United States federal income tax purposes.
Accordingly, neither the Master Fund nor the Fund will incur United States federal income tax liability; rather, each beneficial owner of the Fund’s Shares will be required to take into account its allocable share of the Master Fund’s
income, gain, loss, deductions and other items for the Master Fund’s taxable year ending with or within the owner’s taxable year.
Investors in Shares that are regulated investment companies (“RICs”) will be treated as owning a proportionate share of the Master Fund’s
assets and will take into account their allocable share of the Master Fund’s income, gain and loss when testing compliance with the asset, income and other statutory requirements specifically applicable to them. The Master Fund does not meet
the definition of a qualified publicly traded partnership (“qualified PTP”) within the meaning of the Code for purposes of satisfying the qualification requirements specifically applicable to RICs. However, under current interpretation of
the RIC qualification rules, a RIC’s allocable share of income from the Master Fund’s currency futures transactions and interest income from its investment in debt obligations is treated as qualifying income. Because the Master Fund is not
a qualified PTP, a RIC’s investment in Shares would not be counted against the 25 percent limit on a RIC’s permitted investment in securities issued by qualified PTPs, and a RIC need not limit its investment in the Shares provided it
otherwise can satisfy the qualification requirements. The IRS has specific authority to promulgate regulations to exclude from the definition of qualifying income foreign currency gains which are unrelated to the RIC’s business of investing in
stocks or securities, although to date no such regulations have been issued or proposed. Nonetheless, there is a risk that at some future date, regulations could be issued which would recharacterize all or a portion of the income from the Master
Fund’s foreign currency futures transactions as nonqualifying income for a RIC. The Master Fund does not intend to seek a ruling on this issue, and no assurance can be given that any future regulations would not have retroactive effect.
Prospective RIC
14
investors should consult a tax adviser regarding the treatment of an investment in the Master Fund to them under current tax rules.
Please refer to the “Material U.S. Federal Income Tax
Considerations” section below for information on the potential United States federal income tax consequences of the purchase, ownership and disposition of Shares.
“Breakeven Table”
The
“Breakeven Table” on the following page indicates the approximate percentage and dollar returns required for the value of an initial $25.00 investment in a Share or an initial $5 million investment in a Basket, respectively, 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 (i) administrative expenses
(which are assumed for purposes of the “Breakeven Table” to equal the maximum estimated percentage of the average beginning of month net asset value) (ii) organizational and offering expenses (which are assumed for purposes of the
“Breakeven Table” to equal the maximum permissible percentage of the average beginning of month net asset value) and (iii) brokerage commissions.
[Remainder of page left blank intentionally.]
15
“Breakeven Table”
|
|
|
|
|
|
|
|
|
|
|
|
Shares of the Fund
1
|
|
|
Expense
|
|
$
|
|
|
%
|
|
|
Management Fee
2
|
|
$
|
0.19
|
|
|
0.75
|
%
|
|
Organization and Offering Expense Reimbursement
3
|
|
$
|
0.03
|
|
|
0.10
|
%
|
|
Brokerage Commissions and Fees
4
|
|
$
|
0.02
|
|
|
0.06
|
%
|
|
Routine Operational, Administrative and Other Ordinary Expenses
5
|
|
$
|
0.01
|
|
|
0.05
|
%
|
|
Interest Income
6
|
|
$
|
(1.15
|
)
|
|
(4.59
|
)%
|
|
12-Month Breakeven
7,8
|
|
$
|
(0.91
|
)
|
|
(3.63
|
)%
|
|
1.
|
The breakeven analysis set forth in this column assumes that the Shares have a constant month-end net asset value and is based on $25.00 as the net asset value per Share. See
“Charges” on page 46 for an explanation of the expenses included in the “Breakeven Table.”
|
|
2.
|
From the Management Fee, the Managing Owner will be responsible for paying the fees and expenses of the Administrator and the Distributor.
|
|
3.
|
Expense levels are assumed to be at the maximum permissible amount. Actual expenses may be lower.
|
|
4.
|
Estimated brokerage commissions are based on the anticipated notional exposure of the portfolio and quarterly rebalancing. The actual amount of brokerage commissions and trading
fees to be incurred will vary based upon the trading frequency of the Master Fund and the specific futures contracts traded.
|
|
5.
|
Routine operational, administrative and other ordinary expenses not paid by the Managing Owner out of the Management Fee include annual legal and audit expenses and other expenses
that are fixed in amount and not charged as a percentage of net asset value. Consequently, the percentage of net asset value represented by these expenses will decrease as net asset value increases and vice versa. These estimates are based on a net
asset value of $50 million.
|
|
6.
|
Interest income currently is estimated to be earned at a rate of 4.59%, based upon the current yield on 3 month U.S. Treasury bills.
|
|
7.
|
It is expected that interest income will exceed the fees and costs incurred by the Fund and the Master Fund.
|
|
8.
|
You may pay customary brokerage commissions in connection with purchases of the Shares. Because such brokerage commission rates will vary from investor to investor, such brokerage
commissions have not been included in the Breakeven Table. Investors are encouraged to review the terms of their brokerage accounts for details on applicable charges.
|
16
Reports to Shareholders
The
Managing Owner will furnish you with annual reports as required by the rules and regulations of the SEC as well as with those reports required by the CFTC and the NFA, including, but not limited to, an annual audited financial statement certified by
independent public accountants and any other reports required by any other governmental authority that has jurisdiction over the activities of the Fund and the Master Fund. You also will be provided with appropriate information to permit you to file
your United States 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 Fund’s website at www.dbvfund.db.com Additional
reports may be posted on the Fund’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 and the Master Fund. The
Managing Owner has tried to identify these forward-looking statements by using words such as “may,” “will,” “expect,” “anticipate,” “believe,” “intend,” “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 and the Master 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.
Patent Application Pending
A
patent application directed to the creation and operation of the Fund is pending at the United States Patent and Trademark Office.
[Remainder of page left blank intentionally.]
17
DB CURRENCY INDEX VALUE FUND
18
THE RISKS YOU FACE
You could
lose money investing in 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 on the Index Currencies and Other Assets Held by the Master Fund and Fluctuations in the Price
of These Assets Could Materially Adversely Affect an Investment in the Shares.
|
The Shares are designed to reflect as closely as possible the performance of the Index through the Master Fund’s portfolio of exchange traded futures
contracts on the Index Currencies. The value of the Shares relates directly to the value of the portfolio, less the liabilities (including estimated accrued but unpaid expenses) of the Fund and the Master Fund. The price of the Index Currencies may
fluctuate widely. Several factors may affect the price of the Index Currencies, including, but not limited to:
|
|
•
|
|
National debt levels and trade deficits, including changes in balances of payments and trade;
|
|
|
•
|
|
Domestic and foreign inflation rates and investors’ expectations concerning inflation rates;
|
|
|
•
|
|
Domestic and foreign interest rates and investors’ expectations concerning interest rates;
|
|
|
•
|
|
Currency exchange rates;
|
|
|
•
|
|
Investment and trading activities of mutual funds, hedge funds and currency funds;
|
|
|
•
|
|
Global or regional political, economic or financial events and situations;
|
|
|
•
|
|
Supply and demand changes which influence the foreign exchange rates of various currencies;
|
|
|
•
|
|
Monetary policies of governments (including exchange control programs, restrictions on local exchanges or markets and limitations on foreign investment in a country or on investment
by residents of a country in other countries), trade restrictions, currency devaluations and revaluations;
|
|
|
•
|
|
Governmental intervention in the currency market, directly and by regulation, in order to influence currency prices directly; and
|
|
|
•
|
|
Expectations among market participants that a currency’s value soon will change.
|
|
(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 of the
Shares will change as fluctuations occur in the market value of the Master Fund’s portfolio. Investors should be aware that the public trading price of a Basket of Shares may be different from the net asset value of a Basket of Shares (i.e.,
200,000 Shares may trade at a premium over, or a discount to, net asset value of a Basket of Shares) and similarly the public trading price per Share may be different from the 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 is closely related, but not identical, to the same forces influencing the prices of the Index Currencies 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 riskless profit if they can purchase a Creation Basket at a
discount to the public trading price of the Shares or can redeem a Redemption Basket at a premium over the public trading price of the Shares. The Managing Owner expects that the 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 Amex and the various futures exchanges on which the Index Currencies
are traded. As a result, during periods when the Amex is open and the futures exchanges on which the Index Currencies are traded are closed, trading spreads and the resulting premium or
19
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)
|
The Fund May Not Always Be Able to Replicate Exactly the Performance of the Index.
|
It is possible that the Fund may not fully replicate the performance of the Index due to disruptions in the markets for the
Index Currencies or due to other extraordinary circumstances. In addition, the Fund is not able to replicate exactly the performance of the Index because the total return generated by the Master Fund is reduced by expenses and transaction costs,
including those incurred in connection with the Master Fund’s trading activities, and increased by interest income from the Master Fund’s holdings of short-term high quality fixed income securities. Tracking the Index requires active
trading of the Master Fund’s portfolio and is dependent upon the skills of the Managing Owner and its trading principals, among other factors.
|
(4)
|
The Master Fund Is Not Actively Managed and Will Track the Index During Periods in which the Index Is Flat or Declining as well as when the Index Is Rising.
|
The Master Fund is not actively managed
by traditional methods. Therefore, if positions in any one or more of the Index Currencies are declining in value, the Master 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 to track the Index during periods in which the Index is flat or declining as well as when the Index is rising.
|
(5)
|
The Dual Assumptions Underpinning the Index that High Yielding Interest Rates With Respect to Certain Index Currencies Suggest Taking Long Positions in Futures Contracts in
Such Currencies and Low Yielding Interest Rates With Respect to Certain Index Currencies Suggest Taking Short Positions in Futures Contracts in Such Currencies May Be Detrimental to the Value of Your Shares Should Either or Both Assumptions Fail.
|
The Index is expected to rise as a
result of any upward price movement on long positions in futures
contracts on the Index Currencies when the prices of these long futures contracts increase relative to the USD. The Index also is expected
to rise as a result of any downward price movement on short positions in futures contracts on the Index Currencies when the prices of these short futures contracts decrease relative to the USD. Because the price of your Shares is expected to track
the Index, if the price of the Master Fund’s long futures contracts decreases relative to the USD or the price of the Master Fund’s short futures contracts increases relative to the USD on any or all of the Index Currencies, the value of
your Shares may decrease. The decrease in the value of your Shares will be amplified if both assumptions fail simultaneously (i.e., both the price of the Master Fund’s long futures contracts decreases relative to the USD and the price of the
Master Fund’s short futures contracts increases relative to the USD on any or all of the Index Currencies).
|
(6)
|
Amex May Halt Trading in the Shares Which Would Adversely Impact Your Ability to Sell Shares.
|
The Shares will be listed for trading on the Amex under the market symbol
DBV. Trading in Shares may be halted due to market conditions or, in light of Amex rules and procedures, for reasons that, in the view of the Amex, make trading in 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 and the Master Fund will be terminated if the Shares are delisted.
|
(7)
|
The Lack of An Active Trading Market for the Shares May Result in Losses on Your Investment at the Time of Disposition of Your Shares.
|
Although we anticipate that the Shares will be listed and traded on the
Amex, there can be no guarantee that an active trading market for the Shares will develop or 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.
20
|
(8)
|
The Shares Are a New Securities Product and Their Value Could Decrease 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 Master Fund and the trading of the
Shares that could have a material adverse effect on an investment in the Shares. In addition, although the Master 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 Only a Limited History of Operating an Investment Vehicle like the Fund or the Master Fund, their Experience may be Inadequate or
Unsuitable to Manage the Fund or the Master Fund.
|
The Managing Owner was formed to be the managing owner of investment vehicles such as the Fund and the Master Fund and has only a limited history of past performance. The past performances of the Managing Owner’s
management in other positions are no indication of its ability to manage an investment vehicle such as the Fund or the Master Fund. If the experience of the Managing Owner and its principals is not adequate or suitable to manage an investment
vehicle such as the Fund and the Master Fund, the operations of the Fund and the Master Fund may be adversely affected.
|
(10)
|
You May Not Rely on Past Performance in Deciding Whether to Buy Shares.
|
Neither the Fund nor the Master Fund has commenced trading and neither has any performance history upon which to evaluate
your investment in the Fund and the Master Fund. Although past performance is not necessarily indicative of future results, if the Fund and the Master Fund had a performance history, such performance history might provide you with more information
on which to evaluate an investment in the Fund and the Master Fund. Likewise, the Index has had no performance history which might be indicative of the future
performance of the Index, or of the Fund or
the Master Fund. As neither the Fund nor the Master Fund has commenced trading and has no performance history, you will have to make your decision to invest in the Fund without such information.
|
(11)
|
Fewer Representative Index Currencies May Result In Greater Index Volatility.
|
The ten Eligible Index Currencies are United States Dollars, Euro, Japanese Yen, Canadian Dollars, Swiss Francs, British
Pounds, Australian Dollars, New Zealand Dollars, Norwegian Krone and Swedish Krona. The Index is comprised of only six of the ten Eligible Index Currencies from time to time. Accordingly, the Index is concentrated in terms of the number of
currencies represented. You should be aware that other currency indices are more diversified in terms of the number of currencies included. Concentration in fewer currencies may result in a greater degree of volatility in the Index under specific
market conditions and over time.
|
(12)
|
Leverage Will Fluctuate Between Index Re-Weighting Periods and May be Greater or Less than the Leverage on Each Index Re-Weighting Period
|
Although the Master Fund will not establish positions that exceed a leverage
ratio of 2:1 at the time of establishment, movements in the market price of the Master Fund’s futures positions between the Index Re-Weighting Periods may increase or decrease the Master Fund’s leverage ratio.
|
(13)
|
Because the Fund’s Trading will be Leveraged, a Relatively Small Movement in the Price of a Contract May Cause Greater Losses.
|
The Master Fund will take long futures positions in the high-yielding Index
Currencies and will take short futures positions in the low-yielding Index Currencies with a view to tracking the performance of the Index over time. Assuming that the USD is not one of the three highest or lowest yielding currencies during any
Index Re-Weighting Period, the long futures positions and short futures positions in the Index Currencies will each have a notional value approximately equal to the Master Fund’s net asset value. Accordingly, if the USD is not one of the three
highest or lowest yielding currencies during any the Index Re-Weighting Period, the aggregate notional
21
amount of the futures positions held by the Master Fund is expected to be approximately, but not in excess of, 200% of the Master Fund’s net asset
value. If the USD is one of the three highest or lowest yielding currencies, the Master Fund will not establish a long or short futures position (as the case may be) in USD, as the Master Fund never can enjoy profit or suffer loss from long or short
futures positions in USD because USD is the Fund’s home currency. Consequently, if USD is one of the three highest or lowest yielding currencies, the aggregate notional amount of the futures positions held by the Master Fund is expected to be
approximately, but not in excess of, 166
2
/
3
% of the Master Fund’s net asset value. Holding futures
positions with a notional amount in excess of the Master Fund’s net asset value constitutes a form of leverage. The use of leverage will increase the potential for both trading profits and losses, depending on the performance of the Index
Currencies in which the Master Fund has long futures positions relative to the Index Currencies in which the Master Fund has short futures positions.
The use of long and short positions in the construction of the Index causes the Index to rise as a result of any upward price movement of Index Currencies
expected to gain relative to the USD and to rise as a result of any downward price movement of Index Currencies expected to lose relative to the USD. The inclusion of both long and short positions is also expected to reduce the volatility of the
Index (and, therefore, risk in connection with an investment in the Fund) relative to a directional (outright long or short) exposure to any or all of the Index Currencies.
There can be no assurance that the use of both long and short positions will reduce the volatility of the Index during any
or all market cycles or performance periods, or that the Master Fund will achieve its objectives. It is possible that, prior to an Index rebalancing, that Index Currencies expected to lose relative to the USD may rise and/or Index Currencies
expected to gain relative to the USD may fall. In such cases, the Master Fund may experience losses in both its long and short positions at the same time. Such losses will be greater as a result of the Master Fund’s use of leverage, reflected
in its long futures exposure to Index Currencies with a notional value of up to 100% of the Master Fund’s net asset value and its short futures exposure to Index Currencies with a notional value of up to 100% of the
Master Fund’s net asset value. Under such circumstances, the Master Fund’s losses would be greater as a result of its leverage than would be the case were it to limit its overall exposure to Index Currencies
with a notional value of 100% of the Master Fund’s net assets.
The Master Fund also will be required to deposit a greater proportion of its net assets as margin, not expected to exceed 5% of net assets, and will incur brokerage commissions at a higher level than would be the case were it to hold
futures positions equal to 100% of its net assets.
|
(14)
|
Short Selling Theoretically Exposes the Master Fund to Unlimited Losses
|
The Master Fund will hold short futures positions in the three lowest-yielding Index Currencies (other than the USD).
A long futures position in a foreign currency requires the
Master Fund to purchase at a future date the equivalent in USD of a fixed amount of a foreign currency at a fixed price in USD. The Master Fund will profit if the price of the foreign currency rises relative to the USD while the contract is open and
the Master Fund will suffer loss if the price of the foreign currency falls relative to the USD while the contract is open. Because the price in USD of the foreign currency cannot fall below zero, the Master Fund’s exposure to loss is limited
to the value in USD of the fixed amount of the foreign currency at the time of the establishment of the long futures contract.
By contrast, a short futures position in a foreign currency requires the Master Fund to deliver at a future date an amount in USD equal to the price in
USD of a fixed amount of the foreign currency at that future date. The Master Fund will profit if the price of the foreign currency falls relative to the USD while the contract is open and the Master Fund will suffer loss if the price of the foreign
currency rises relative to the USD while the contract is open. Because the price in USD of a fixed amount of the foreign currency could, in theory, rise to infinity, a short futures position exposes the Master Fund to theoretically unlimited
liability.
The Master Fund’s losses could result in the
total loss of your investment.
22
|
(15)
|
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 history of the Index as calculated on an excess return basis:
|
|
|
|
|
|
Volatility Type
|
|
Volatility
|
|
|
Daily volatility over full history
|
|
7.28
|
%
|
|
Average rolling 3 month daily volatility
|
|
6.96
|
%
|
|
Monthly return volatility
|
|
7.44
|
%
|
|
Average annual volatility
|
|
7.10
|
%
|
|
*
|
As of February 8, 2006. Past performance is not indicative of future performance.
|
The following table reflects the daily volatility on an annual basis of the Index:
|
|
|
|
|
|
Year
|
|
Daily
Volatility
|
|
|
1993***
|
|
8.67
|
%
|
|
1994
|
|
4.97
|
%
|
|
1995
|
|
10.98
|
%
|
|
1996
|
|
7.01
|
%
|
|
1997
|
|
7.73
|
%
|
|
1998
|
|
8.90
|
%
|
|
1999
|
|
5.70
|
%
|
|
2000
|
|
6.17
|
%
|
|
2001
|
|
5.37
|
%
|
|
2002
|
|
7.45
|
%
|
|
2003
|
|
6.69
|
%
|
|
2004
|
|
7.90
|
%
|
|
2005
|
|
5.41
|
%
|
|
2006*
|
|
6.45
|
%
|
|
*
|
As of February 8, 2006. Past performance is not indicative of future performance.
|
|
**
|
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 March 12, 1993.
|
|
(16)
|
Fees and Commissions are Charged Regardless of Profitability and May Result in Depletion of Assets.
|
The Fund indirectly is subject to the fees and expenses described herein
which are payable irrespective of profitability. Such fees and expenses include asset-based fees of up to 0.85% per annum. Additional charges include brokerage fees and operating expenses expected to be approximately 0.11% per annum in the
aggregate and selling commissions. The Fund is expected to earn interest income at an annual rate of 4.59% per annum, based upon the current yield on 3 month U.S. Treasury bills. Consequently, it is expected that interest income will exceed
fees, however, if interest rates fall below 1.32%, the Fund will need to have positive performance in order to break even net of fees and expenses. Consequently, depending upon the interest rate environment, the expenses of the Master Fund could,
over time, result in significant losses to your investment therein. You may never achieve profits, significant or otherwise.
|
(17)
|
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.
|
(18)
|
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
23
the markets in their currency or major exports, can also make it difficult to liquidate a position. Such periods of illiquidity and the events that trigger
them are difficult to predict and there can be no assurance that the Managing Owner will be able to do so.
There can be no assurance that market illiquidity will not cause losses for the Fund. The large size of the positions which the Master Fund may acquire on
behalf of the Fund increases the risk of illiquidity by both making its positions more difficult to liquidate and increasing the losses incurred while trying to do so.
|
(19)
|
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 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 the delay. The Fund disclaims any liability for any loss or damage that may result from any such suspension or postponement.
|
(20)
|
Because the Master Fund will not Acquire Any Asset with 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 prosper while Shares trade unprofitably.
|
(21)
|
Failure of Currency Futures Trading to Exhibit Low Correlation to General Financial Markets Will Reduce Benefits of Diversification and May Exacerbate Losses to Your
Portfolio.
|
Historically, currency
futures’ returns have exhibited low correlation with the returns of other assets such as stocks and bonds. Although currency futures trading can provide a diversification benefit to investor portfolios because of its low correlation with other
financial assets, the fact that the Shares are not 100% negatively correlated with financial assets such as stocks and bonds means they cannot be expected to be automatically profitable during unfavorable periods for the stock or bond market, or
vice-versa. If 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 Shares and Shares may produce no gains to offset your losses
from other investments.
|
(22)
|
Shareholders Will Not Have the Protections Associated With Ownership of Shares in an Investment Company Registered Under the Investment Company Act of 1940.
|
Neither the Fund nor the Master Fund is
registered as an investment company under the Investment Company Act of 1940 and is not required to register under such act. Consequently, Shareholders will not have the regulatory protections provided to investors in investment companies.
|
(23)
|
Various Actual and Potential Conflicts of Interest May Be Detrimental to Shareholders.
|
The Fund and the Master Fund are 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 and the
Master Fund, which also presents the potential for numerous conflicts of interest with the Fund and the Master Fund. As a result of these and other relationships, parties involved with the Fund and the Master Fund have a financial incentive to act
24
in a manner other than in the best interests of the Fund and the Master Fund and the Shareholders. The Managing Owner has not established any formal
procedure to resolve conflicts of interest. Consequently, investors will 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 Shareholders.
The Fund may be subject to certain conflicts with respect to its Commodity Broker, but not limited to, conflicts that result
from receiving greater amounts of compensation from other clients, purchasing opposite or competing positions on behalf of third party accounts traded through the Commodity Broker.
|
(24)
|
Shareholders Will Be Subject to Taxation on Their Shares of the Master Fund’s Taxable Income, Whether or Not They Receive Cash Distributions.
|
Shareholders will be subject to United
States federal income taxation and, in some cases, state, local, or foreign income taxation on their share of the Master 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 Master Fund’s taxable income or even the tax liability that results from such income.
|
(25)
|
Items of Income, Gain, Deduction, Loss and Credit with respect to Fund Shares could be Reallocated if the IRS does not Accept the Assumptions or Conventions Used by the Master
Fund in Allocating Master Fund Tax Items.
|
U.S. federal income tax rules applicable to partnerships are complex and often difficult to apply to publicly traded partnerships. The Master Fund will apply certain assumptions and conventions in an attempt to comply with applicable rules
and to report income, gain, deduction, loss and credit to Fund Shareholders in a manner that reflects Shareholders’ beneficial shares of partnership items, but these assumptions and conventions may not be in compliance with all aspects of
applicable tax requirements. It is possible that the IRS will
successfully assert that the conventions and assumptions used by the Master Fund do not satisfy the technical requirements of the Code and/or
Treasury regulations and could require that items of income, gain, deduction, loss or credit be adjusted or reallocated in a manner that adversely affects you.
|
(26)
|
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 a maximum United States federal income tax rate of 15%. This tax treatment may be adversely affected, changed or repealed by future changes in tax laws at any time and is currently scheduled to expire
for tax years beginning after December 31, 2008.
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 IN RESPECT OF DIFFERENT
INVESTORS.
|
(27)
|
Failure or Lack of Segregation of Assets May Increase Losses.
|
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 Master 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, any Master Fund Units could be
limited to recovering only a pro rata share of all available funds segregated on behalf of the Commodity Broker’s combined customer accounts, even though certain property specifically traceable to the Master 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 are described under “The Commodity Broker.”
In the event of a bankruptcy or insolvency of any exchange or a clearing
house, the Master Fund could experience a loss of the funds deposited
25
through its Commodity Broker as margin with the exchange or clearing house, a loss of any profits on its open positions on the exchange, and the loss of
unrealized profits on its closed positions on the exchange.
|
(28)
|
Regulatory Changes or Actions May Alter the Nature of an Investment in the Fund.
|
Considerable regulatory attention has been focused on non-traditional investment pools which are publicly distributed in the
United States.
There is a possibility of future regulatory changes altering, perhaps to a material extent, the nature of an investment in the Fund or the ability of the Fund to continue to implement its investment strategy
.
The futures markets are subject to comprehensive statutes, regulations, and
margin requirements. In addition, the CFTC and the exchanges are authorized to take extraordinary actions in the event of a market emergency, including, for example, the retroactive implementation of speculative position limits or higher margin
requirements, the establishment of daily price limits and the suspension of trading. The regulation of futures transactions in the United States is a rapidly changing area of law and is subject to modification by government and judicial action. The
effect of any future regulatory change on the Fund is impossible to predict, but could be substantial and adverse.
|
(29)
|
Lack of Independent Experts Representing Investors.
|
The Managing Owner has consulted with counsel, accountants and other experts regarding the formation and operation of the Fund and the Master 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 Fund upon 120 days’ notice, which would cause the Fund and the Master Fund to
terminate unless a
substitute managing owner were 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 the
Index through the vehicle of the Fund 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 and the Master Fund Units; Certain Material Terms of
the Trust Declarations—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 and the Master Fund.
|
(31)
|
Shareholders Do Not Have the Rights Enjoyed by Investors in Certain Other Vehicles.
|
As interests in an investment 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 dividends, although the Fund may pay dividends 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 Currencies.
|
The Fund and the Master Fund constitute a new, and thus untested, type of
investment vehicle. They compete with other financial vehicles, including other commodity pools, hedge funds, traditional debt and equity securities issued by companies and foreign governments, other securities backed by or linked to currencies, and
direct investments in the underlying currencies or currencies 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 currencies directly, which could limit the market for the Shares and reduce the liquidity of the Shares.
26
|
(33)
|
Competing Claims Over Ownership of Intellectual Property Rights Related to the Fund Could Adversely Affect the Fund and an Investment in the 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 or the Master Fund is Required to Indemnify the Trustee or the Managing Owner.
|
Under the Trust Declarations, the Trustee and the Managing Owner have the
right to be indemnified for any liability or expense either incurs without negligence or misconduct. That means the Managing Owner may require the assets of the Master 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 Master Fund and the value of the Shares.
|
(35)
|
The Net Asset Value Calculation of the Master 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 Master Fund (and, in turn, the Fund) includes, in part, any unrealized profits or losses on open foreign exchange futures contracts. Under normal circumstances, the net asset value of the Master Fund
reflects the settlement price of open foreign exchange futures contracts on the date when the net asset value is being calculated. However, if a foreign exchange 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 or otherwise), the settlement price on the most recent day on which
the position could have been liquidated will be the basis for determining the market value of such position for such day. In such a situation, there is a risk that the calculation of the net asset value of the Master Fund on such day will not
accurately reflect the realizable market value of such foreign exchange futures contract. For example, daily limits are generally triggered in the event of a significant change in market price of a foreign exchange futures contract. Therefore, as a
result of the daily limit, the current settlement price is unavailable. Because the settlement price on the most recent day on which the position could have been liquidated would be used in lieu of the actual settlement price on the date of
determination, there is a risk that the resulting calculation of the net asset value of the Master Fund (and, in turn, the Fund) could be under or overstated, perhaps to a significant degree. Although the Eligible Index Currencies that the Master
Fund will invest in are not currently subject to “daily limits,” the terms and conditions of these contracts may change in the future, and thus, may subject the Fund to the above-described risks.
|
(36)
|
Exchange Rates on the Index Currencies Could be Volatile and Could Materially and Adversely Affect the Performance of the Shares.
|
Foreign exchange rates are influenced by national debt levels and trade
deficits, domestic and foreign inflation rates and investors’ expectations concerning inflation rates, domestic and foreign interest rates and investors’ expectations concerning interest rates, currency exchange rates, investment and
trading activities of mutual funds, hedge funds and currency funds; and global or regional political, economic or financial events and situations. Additionally, foreign exchange rates on the Index Currencies may also be influenced by changing supply
and demand for a particular Index Currency, monetary policies of governments (including exchange control programs, restrictions on local exchanges or markets and limitations on foreign investment in a country or on investment by residents of a
country in other countries), changes in balances of payments and trade, trade restrictions, currency devaluations and revaluations. Also, governments from time to time intervene in the currency markets, directly and by regulation, in order to
influence
27
prices directly. Additionally, expectations among market participants that a currency’s value soon will change may also affect exchange rates on the
Index Currencies. These events and actions are unpredictable. The resulting volatility in the exchange rates on the underlying Index Currencies may materially and adversely affect the performance of the futures contracts on the Index Currencies,
which would then negatively impact the value of your Shares.
|
(37)
|
Substantial Sales of Index Currencies by the Official Sector Could Adversely Affect an Investment in the Shares.
|
The official sector consists of central banks, other governmental agencies
and multi-lateral institutions that buy, sell and hold certain Index Currencies as part of their reserve assets. The official sector holds a significant amount of Index Currencies that can be mobilized in the open market. In the event that future
economic, political or social conditions or pressures require members of the official sector to sell their Index Currencies simultaneously or in an uncoordinated manner, the demand for Index Currencies might not be sufficient to accommodate the
sudden increase in the supply of certain Index Currencies to the market. Consequently, the price of an Index Currency may decline, which may then negatively impact the Shares.
THE MASTER-FEEDER STRUCTURE
The
Fund will invest substantially all of its assets in the Master Fund in a master-feeder structure. The Fund will hold no investment assets other than Master Fund Units. The Master Fund will be wholly-owned by the Fund and the Managing Owner. Each
Share issued by the Fund will correlate with a Master Fund Unit issued by the Master Fund and held by the Fund.
INVESTMENT OBJECTIVE
The
investment objective of the Fund and the Master Fund is to reflect the performance of the Deutsche Bank Currency Future Harvest Index™—Excess Return, or the Index, over time, less the expenses of the operations of the Fund and the Master
Fund. The Index is designed to reflect the return from investing on a 2:1 leveraged basis in long currency futures positions for certain currencies
associated with relatively high yielding interest rates
and in short currency futures positions for certain currencies associated with relatively low yielding interest rates. The Index is designed to exploit the trend that currencies associated with relatively high interest rates, on average, tend to
rise in value relative to currencies associated with relatively low interest rates. The Index exploits this trend using both long and short futures positions, which is expected to provide more consistent and less volatile returns than could be
obtained by taking long positions only or short positions only.
Advantages of investing in the Shares include:
|
|
•
|
|
Ease and Flexibility of Investment
. The Shares will trade on the Amex. The Shares may be bought and sold on the Amex like other exchange-listed securities.
|
|
|
•
|
|
Shares May Provide More Cost Effective Alternative.
Investing in the Shares can be easier and less expensive for an investor than constructing and trading a comparable
foreign currency futures portfolio.
|
|
|
•
|
|
The Fund May Provide Gains on Both the Upside and Downside Price Movements of the Index Currencies.
The Index will rise as a result of any upward price movement of the Index
Currencies that are expected to gain relative to the USD by investing in long futures positions on such Index Currencies. The Index also will rise as a result of any downward price movement of the Index Currencies that are expected to lose relative
to the USD by investing in short futures positions on such Index Currencies.
|
|
|
•
|
|
Margin.
Shares will be eligible for margin accounts.
|
Investing in the Shares does not insulate Shareholders from certain risks, including price volatility.
Role of Managing Owner
The
Managing Owner will serve as the commodity pool operator and commodity trading advisor of the Fund and the Master Fund.
Specifically, with respect to the Fund and the Master Fund, the Managing Owner:
|
|
•
|
|
selects the Trustee, administrator, distributor and auditor;
|
28
|
|
•
|
|
negotiates various agreements and fees; and
|
|
|
•
|
|
performs such other services as the Managing Owner believes that the Fund and the Master Fund may from time-to-time require.
|
Specifically, with respect to the Master Fund, the Managing Owner:
|
|
•
|
|
selects the Commodity Broker; and
|
|
|
•
|
|
monitors the performance results of the Master Fund’s portfolio and reallocates assets within the portfolio with a view to causing the performance of the Master Fund’s
portfolio to track that of the Index over time.
|
The Managing Owner is registered as a commodity pool operator and commodity trading advisor with the Commodity Futures Trading Commission and is a member of the National Futures Association.
The principal office of the Managing Owner is located at 60 Wall Street, New
York, New York 10005. The telephone number of the Managing Owner is (212) 250-5883.
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, which invests through the Master Fund in futures related to the 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.
DESCRIPTION OF THE DEUTSCHE BANK
G10 CURRENCY FUTURE HARVEST
INDEX
™
—EXCESS RETURN
DBCFHI
™
-ER and
Deutsche Bank G10 Currency Future Harvest Index
™
—Excess Return are trade marks of the Index Sponsor and are the subject of Community Trade Mark Nos. [ ] and
[ ]. Trade Mark applications in the United States are pending. Any use of these marks must be with the consent of or under license from the Index Sponsor. The Fund, Master Fund
and the Managing Owner have been licensed to use DBCFHI
™
-ER and Deutsche Bank G10 Currency Future Harvest Index
™
—Excess Return. The Index Sponsor does not approve, endorse or recommend the Fund, the Master Fund or the Managing Owner.
General
The sponsor of the
Index, or the Index Sponsor, is Deutsche Bank AG London. The composition of the Index may be adjusted in the Index Sponsor’s discretion.
Index Calculation and Rules
The
currencies that are eligible for inclusion in the Index, or Eligible Index Currencies, are the currencies of The Group of Ten, or G10, countries, which include the following currencies:
|
|
|
|
|
Eligible Index Currency
|
|
Symbol
|
|
United States Dollar
|
|
USD
|
|
Euro
|
|
EUR
|
|
Japanese Yen
|
|
JPY
|
|
Canadian Dollar
|
|
CAD
|
|
Swiss Franc
|
|
CHF
|
|
British Pound
|
|
GBP
|
|
Australian Dollar
|
|
AUD
|
|
New Zealand Dollar
|
|
NZD
|
|
Norwegian Krone
|
|
NOK
|
|
Swedish Krona
|
|
SEK
|
Futures contracts
referencing each of the Eligible Index Currencies (except the USD) currently are traded on the Chicago Mercantile Exchange, or CME, although currency futures contracts on the Eligible Index Currencies also trade on other exchanges in the United
States and the Master Fund may invest in such contracts.
29
At any time, the Index is comprised of long futures positions in the three Eligible Index Currencies
associated with the highest interest rates and short futures positions in the three Eligible Index Currencies associated with the lowest interest rates. The Index’s six component currencies from time to time, comprised of the three long and
three short futures positions, are referred to as the Index Currencies and are used to calculate the value of the Index. 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 Currencies.
The Index Sponsor calculates the Index
on both an excess return basis and a total return basis. The excess return index reflects the return of the applicable underlying currencies. The total return is the sum of the return of the applicable underlying currencies plus the return of 3
month U.S. Treasury bills. The Fund will trade in a manner consistent with the excess return calculation of the Index.
In order to determine which Eligible Index Currencies to include in the Index from time to time, the Index Sponsor will review the composition of the
Index on a quarterly basis.
The Index Sponsor will review the
three month Libor rate for each Eligible Index Currency other than the SEK and NOK and will review the three month Stibor rate and the three month Nibor rate for the SEK and NOK, respectively. The Libor, Stibor and Nibor rates for the Eligible Index
Currencies, as applicable, means the London, Stockholm and Norway interbank offered rates for overnight deposits, respectively, each of which are published by Reuters. The Eligible Index Currencies are then ranked according to yield. The three
highest yielding and three lowest yielding are selected as Index Currencies for inclusion in calculating the Index. If two Index Currencies have the same yield, then the previous quarter’s ranking will be used.
The Index is re-weighted quarterly. Upon re-weighting, the high yielding
Index Currencies are allocated a base weight of 33
1
/
3
% and the low yielding Index Currencies are allocated a
base weight of -33
1
/
3
%. These new weights are applied during the Index re-weighting period, which takes place
between the fourth and third Index Business Days prior to the applicable Settlement Date, or Index Re-Weighting Period.
The CME traded futures contract of each applicable Index Currency that is closest to expiration is used in the Index calculation. The futures contracts on
the Index Currencies are rolled during the Index Re Weighting Period. The new futures contract on an Index Currency that has the next closest expiration date is selected. The calculation of the Index on an excess return basis is the weighted average
return on the change in price of the futures contracts on the Index Currencies.
A 3 month U.S. Treasury bill return is then calculated and included to calculate the total return index. Please refer to Exhibit B of the Amended and Restated Declaration of Trust of the Master Fund for the
mathematical formula of the Index.
The Index has been
calculated using historical data since March 12, 1993. The Index is composed of notional amounts of each Index Currency. The notional amounts of the Index Currencies included in the Index reflect an arithmetic weighted average of the change in
the Index Currencies exchange rates against the U.S. dollar since March 12, 1993. March 1993 was chosen as a starting period because it represents the earliest date on which reliable data for all the Eligible Index Currencies exists. On
March 12, 1993, the closing Index level was $100. Between March 12, 1993 to February 8, 2006, the Index level as calculated on an excess return basis has ranged from as high as $286.00 (December 5, 2005) to as low as $94.03 (July 30,
1993). Past performance is not necessarily indicative of future results.
The Fund will pursue its investment objective by investing substantially all of its assets in the Master Fund. To track the Index, the Master Fund generally will establish long futures positions in the three Index
Currencies associated with the highest interest rates and short futures positions in the three Index Currencies associated with the lowest interest rates and will adjust its holdings quarterly as the Index is adjusted. However, if the United States
Dollar, or USD, is among the Index Currencies from time to time, the Master Fund will not establish a long or short futures position (as the case may be) in USD, because USD is the Fund’s home currency and, as a consequence, the Master Fund
never can enjoy profit or suffer loss from long or short futures positions in USD. When the USD is not associated with the highest or lowest interest rates among the
30
Eligible Index Currencies, the aggregate notional value of the Master Fund’s futures contracts at the time they are established will be double the value
of the Master Fund’s holdings of United States Treasury and other high credit quality short term fixed income securities, which means the Fund will have a leverage ratio at such time of 2:1. If the USD is associated with the highest or lowest
interest rates among the Eligible Index Currencies, the aggregate notional value of the Master Fund’s futures contracts at the time they are established will be approximately 1.66 times the value of the Master Fund’s holdings of United
States Treasury and other high credit quality short term fixed income securities, which means the Fund will have a leverage ratio at such time of approximately 1.66:1. Holding futures positions with a notional amount in excess of the Master
Fund’s net asset value constitutes a form of leverage. The use of leverage will increase the potential for both trading profits and losses, depending on the performance of the Index. The Master Fund’s ability to track the Index will not be
affected by the presence or absence of the USD among the Index Currencies. Because the notional value of the Master Fund’s futures positions can rise or fall over time, the leverage ratio could be higher or lower between quarterly adjustments
of the Index Currencies.
The use of long and short positions
in the construction of the Index causes the Index to rise as a result of any upward price movement of Index Currencies expected to gain relative to the USD and to rise as a result of any downward price movement of Index Currencies expected to lose
relative to the USD. The inclusion of both long and short positions is also expected to reduce the volatility of the Index (and, therefore, risk in connection with an investment in the Fund) relative to a directional (outright long or short)
exposure to any or all of the Index Currencies.
There can be
no assurance that the use of both long and short positions will reduce the volatility of the Index during any or all market cycles or performance periods, or that the Master Fund will achieve its objectives. It is possible that, prior to an Index
rebalancing, that Index Currencies expected to lose relative to the USD may rise and/or Index Currencies expected to gain relative to the USD may fall. In such cases, the Master Fund may experience losses in both its long and short positions at the
same time. Such losses will be greater as a result of the Master Fund’s use of leverage, reflected in its long
futures exposure to Index Currencies with a notional value of up to 100% of the Master
Fund’s net asset value and its short futures exposure to Index Currencies with a notional value of up to 100% of the Master Fund’s net asset value. Under such circumstances, the Master Fund’s losses would be greater as a result of its
leverage than would be the case were it to limit its overall exposure to Index Currencies with a notional value of 100% of the Master Fund’s net asset value.
The Master Fund will be required to deposit a greater proportion of its net assets as margin, not expected to exceed 5% of
net assets, and will incur brokerage commissions at a higher level than would be the case were it to hold futures positions equal to 100% of its net assets.
The Master Fund’s portfolio also will include United States Treasury securities for deposit with the Master Fund’s Commodity Broker as margin
and other high credit quality short-term fixed income securities.
Under the Trust Declarations of the Fund and the Master Fund, Wilmington Trust Company, the Trustee of the Fund and the Master Fund, has delegated to the Managing Owner the exclusive management and control of all aspects of the business of
the Fund and the Master 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.
There can be no assurance that the Fund or the Master Fund will achieve
its investment objective or avoid substantial losses. The Master Fund has not commenced trading and does not have any performance history. The value of the Shares is expected to fluctuate generally in relation to changes in the value of the Master
Fund Units.
Publication of Closing Levels and Adjustments
In order to calculate the indicative Index level, the Index Sponsor will poll Reuters every 15 seconds to determine the real time price of each underlying futures contract with respect to each Index Currency of the
Index. The Index Sponsor will then apply a set of rules to these values to create the indicative level
31
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. A similar polling process is applied to the U.S. Treasury bills to determine the indicative value of the U.S. Treasury bills held by the Fund every 15 seconds throughout the trading day.
The intra-day indicative value per Share of the Fund is calculated by adding
the intra-day U.S. Treasury bills level plus the intra-day Index level which will then be applied to the last published net asset value of the Fund, less accrued fees.
The Index Sponsor will publish the closing level of the Index daily. The Managing Owner will publish the net asset value of
the Fund and the net asset value per Share daily. Additionally, the Index Sponsor will publish the intra-day Index level, and the Managing Owner will publish 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 will be published as follows:
The intra-day level of the Index (symbol: DBVI) and the intra-day indicative value per Share of the Fund (symbol: DBB) (each quoted in U.S. dollars) will
be published once every fifteen seconds throughout each trading day on the consolidated tape, Reuters and/or Bloomberg and on Deutsche Bank’s website at http://www.dbvfund.db.com, or any successor thereto.
The current trading price per Share (symbol: DBV) (quoted in U.S. dollars)
will be published continuously as trades occur throughout each trading day on the consolidated tape, Reuters and/or Bloomberg and on Deutsche Bank’s website at http://www.dbvfund.db.com, or any successor thereto.
The most recent end-of-day Index closing level (symbol: DBVI) will be
published as of the close of business for the Amex each trading day on the consolidated tape, Reuters and/or Bloomberg and on Deutsche Bank’s website at http://www.dbvfund.db.com, or any successor thereto.
The most recent end-of-day net asset value of the Fund (symbol: DBBNV) will
be published as of the close of business on Reuters and/or Bloomberg and on Deutsche Bank’s website at http://www.dbvfund.db.com, or any successor thereto. In addition, the most recent end-of-day net asset value
of the Fund (symbol: DBBNV) will be published the following morning on the consolidated tape.
The Index Sponsor will publish any adjustments made to the Index on Deutsche Bank’s website http://www.dbvfund.db.com, or any successor thereto.
The final net asset value of the Fund and the final net asset
value per Share will be calculated as of the closing time of the Amex or the last to close of the exchanges on which the Master Fund’s assets are traded, whichever is later, and posted in the same manner. Although a time gap may exist between
the close of the Amex and the close of the CME, there is no effect on the net asset value calculations as a result.
The Shares are intended to provide investment results that generally correspond to the performance of the Index. The value of the Shares is expected to
fluctuate in relation to changes in the value of the Master Fund’s 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.”
There can be no assurance that the Fund or the Master Fund will achieve
its investment objective or avoid substantial losses. The Master Fund has not commenced trading and does not have any performance history. The value of the Shares is expected to fluctuate generally in relation to changes in the value of the Master
Fund Units.
Change in the Methodology of the Index
The Index Sponsor will employ the methodology described above and its application of such methodology shall be conclusive and binding. While the Index Sponsor currently intends to employ 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 any Index Currency 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
32
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.
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 any Index Currency. 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 Currency on an alternative basis were such event to occur or exist on a day that is a trading day for such Index Currency on the relevant exchange. If such an Index disruption event in relation to an Index Currency as described in
the prior sentence occurs and continues for a period of five successive trading days for such Index Currency on the relevant exchange, the Index Sponsor will, in its discretion, either
|
|
•
|
|
continue to calculate the relevant closing price for a further period of five successive trading days for such Index Currency 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 a specific Index Currency and
shall make all necessary adjustments to the methodology and calculation of the Index as it deems appropriate.
|
Historical Closing Levels
Set
out below are the closing levels based on historical data from March 12, 1993 to February 8, 2006.
The following Closing Levels table starts from March 12, 1993 and reflects both the high and low closing values, the annual performance and
performance since inception of the Index. Since March 13, 2003, CME currency futures close prices were used in the Index calculation. The Index Sponsor has not independently verified the CME currency futures close prices obtained from
Bloomberg. Since February 1, 2006, the Index Sponsor expects to obtain the CME currency futures close prices from Reuters. Prior to March 13, 2003, implied futures prices were calculated using the relevant currencies spot rates, money
market rates and USD money market rates obtained from Reuters, Bloomberg and WM Company. Implied futures prices are an accurate proxy for the futures close prices due to the high liquidity in foreign exchange forward markets.
It is not necessary to have a USD futures contract because the forward rate
of the USD vis-à-vis the USD will be equal. Whenever USD was used to calculate the value of the Index, the futures price of USD was assumed to be 100.
The Index Sponsor used 3 month money market rates as a proxy to 3 month Libor fixings with respect to the USD on and prior to June 10, 1998.
The Index Sponsor used 3 month money market rates as a proxy
to 3 month Libor fixings with respect to the EUR, JPY, GBP, CHF, CAD and AUD on and prior to March 11, 1998.
The Index Sponsor used 3 month money market rates as a proxy to 3 month Libor fixings with respect to the NZD on and prior to September 10, 2003.
33
The Index Sponsor used 3 month money market rates as a proxy to 3 month Stibor fixings with respect to
the SEK on and prior to December 9, 1998.
The Index
Sponsor used 3 month money market rates as a proxy to 3 month Nibor fixings with respect to the NOK on and prior to December 9, 1998.
The Libor, Stibor and Nibor rates for the Eligible Index Currencies, as applicable, means the London, Stockholm and Norway interbank offered rates for
overnight deposits, respectively, each of which are published by Reuters on pages libor01 and libor02 with respect to Libor and pages SIDE and NIBR with respect to Stibor and Nibor.
The CME-traded futures contract of each applicable Index Currency that is closest to expiration is used in the Index
calculation. The futures contracts on the Index Currencies are rolled during the Index Re-Weighting Period. The new futures contract on an Index Currency that has the next closest expiration date is selected. The calculation of the Index on an
excess return basis is the weighted average return on the change in price of the futures contracts on the Index Currencies.
The Index is calculated on both an excess return basis and a total return basis. The excess return index reflects the return of the applicable underlying
currencies. The total return is the sum of the return of the applicable underlying currencies plus the return of 3 month U.S. Treasury bills. The following tables reflect both the excess return calculation and the total return calculation of the
Index.
[Remainder of page left blank intentionally.]
34
DEUTSCHE BANK G10 CURRENCY FUTURE HARVEST INDEX
™
—EXCESS RETURN
CLOSING LEVELS TABLE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closing Level
|
|
Annual
Performance
3
|
|
|
Performance
Since Inception
|
|
|
|
|
High
1
|
|
Low
2
|
|
|
|
1993
4
|
|
105.60
|
|
94.03
|
|
-0.19
|
%
|
|
-0.19
|
%
|
|
1994
|
|
108.79
|
|
99.81
|
|
7.42
|
%
|
|
7.22
|
%
|
|
1995
|
|
110.52
|
|
94.16
|
|
2.66
|
%
|
|
10.07
|
%
|
|
1996
|
|
140.05
|
|
110.42
|
|
27.23
|
%
|
|
40.05
|
%
|
|
1997
|
|
146.72
|
|
137.83
|
|
2.58
|
%
|
|
43.67
|
%
|
|
1998
|
|
151.79
|
|
132.52
|
|
-6.35
|
%
|
|
34.55
|
%
|
|
1999
|
|
151.12
|
|
134.71
|
|
9.81
|
%
|
|
47.76
|
%
|
|
2000
|
|
158.57
|
|
146.79
|
|
4.73
|
%
|
|
54.74
|
%
|
|
2001
|
|
171.15
|
|
154.68
|
|
10.61
|
%
|
|
71.15
|
%
|
|
2002
|
|
199.51
|
|
172.25
|
|
15.76
|
%
|
|
98.13
|
%
|
|
2003
|
|
234.45
|
|
199.00
|
|
18.33
|
%
|
|
134.45
|
%
|
|
2004
|
|
252.31
|
|
230.02
|
|
6.67
|
%
|
|
150.09
|
%
|
|
2005
|
|
286.00
|
|
248.29
|
|
10.66
|
%
|
|
176.75
|
%
|
|
2006
5
|
|
279.89
|
|
271.64
|
|
0.96
|
%
|
|
179.40
|
%
|
THE FUND WILL TRADE WITH A VIEW TO TRACK THE
PERFORMANCE OF THE DEUTSCHE BANK G10 CURRENCY FUTURE HARVEST INDEX
™
—EXCESS RETURN.
PAST PERFORMANCE SHOULD NOT BE TAKEN AS AN INDICATION OF FUTURE
PERFORMANCE.
DEUTSCHE BANK G10 CURRENCY FUTURE HARVEST
INDEX
™
—TOTAL RETURN
CLOSING LEVELS TABLE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closing Level
|
|
Annual
Performance
3
|
|
|
Performance
Since Inception
|
|
|
|
|
High
1
|
|
Low
2
|
|
|
|
1993
4
|
|
106.15
|
|
95.13
|
|
2.30
|
%
|
|
2.30
|
%
|
|
1994
|
|
116.32
|
|
102.32
|
|
12.15
|
%
|
|
14.73
|
%
|
|
1995
|
|
124.55
|
|
102.55
|
|
8.56
|
%
|
|
24.55
|
%
|
|
1996
|
|
166.84
|
|
125.01
|
|
33.95
|
%
|
|
66.84
|
%
|
|
1997
|
|
180.54
|
|
164.92
|
|
8.01
|
%
|
|
80.19
|
%
|
|
1998
|
|
195.70
|
|
172.90
|
|
-1.68
|
%
|
|
77.17
|
%
|
|
1999
|
|
203.96
|
|
177.49
|
|
15.12
|
%
|
|
103.96
|
%
|
|
2000
|
|
227.93
|
|
202.75
|
|
11.11
|
%
|
|
126.61
|
%
|
|
2001
|
|
259.57
|
|
226.67
|
|
14.55
|
%
|
|
159.57
|
%
|
|
2002
|
|
307.46
|
|
261.27
|
|
17.68
|
%
|
|
205.47
|
%
|
|
2003
|
|
365.18
|
|
306.83
|
|
19.55
|
%
|
|
265.18
|
%
|
|
2004
|
|
398.14
|
|
359.55
|
|
8.16
|
%
|
|
294.97
|
%
|
|
2005
|
|
465.01
|
|
392.58
|
|
14.23
|
%
|
|
351.19
|
%
|
|
2006
5
|
|
458.13
|
|
444.08
|
|
1.37
|
%
|
|
357.39
|
%
|
THE FUND WILL NOT TRADE WITH A VIEW TO TRACK THE
PERFORMANCE OF THE DEUTSCHE BANK G10 CURRENCY FUTURE HARVEST INDEX
™
—TOTAL RETURN.
PAST PERFORMANCE SHOULD NOT BE TAKEN AS AN INDICATION OF FUTURE
PERFORMANCE.
Please refer to notes and legends that follow on page 41.
35
INDEX CURRENCY WEIGHTS TABLE
DEUTSCHE BANK G10 CURRENCY FUTURE HARVEST INDEX
™
—EXCESS RETURN
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
USD
|
|
|
EUR
|
|
|
JPY
|
|
|
CAD
|
|
|
CHF
|
|
|
GBP
|
|
|
AUD
|
|
|
NZD
|
|
|
NOK
|
|
|
SEK
|
|
|
|
High
1
|
|
|
Low
2
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
1993
4
|
|
-31.6
|
%
|
|
-36.8
|
%
|
|
33.8
|
%
|
|
34.0
|
%
|
|
-33.7
|
%
|
|
-37.2
|
%
|
|
0.0
|
%
|
|
-36.8
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
-31.1
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
33.9
|
%
|
|
34.1
|
%
|
|
33.9
|
%
|
|
32.3
|
%
|
|
1994
|
|
0.0
|
%
|
|
-33.3
|
%
|
|
-33.0
|
%
|
|
32.5
|
%
|
|
-33.1
|
%
|
|
-32.5
|
%
|
|
0.0
|
%
|
|
-33.4
|
%
|
|
-33.1
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
33.2
|
%
|
|
0.0
|
%
|
|
33.3
|
%
|
|
33.6
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
33.4
|
%
|
|
33.2
|
%
|
|
1995
|
|
0.0
|
%
|
|
0.0
|
%
|
|
-33.7
|
%
|
|
-35.7
|
%
|
|
-33.1
|
%
|
|
-39.1
|
%
|
|
0.0
|
%
|
|
35.9
|
%
|
|
-33.7
|
%
|
|
-36.8
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
32.4
|
%
|
|
0.0
|
%
|
|
33.0
|
%
|
|
36.3
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
36.2
|
%
|
|
34.6
|
%
|
|
1996
|
|
0.0
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
-33.5
|
%
|
|
-31.7
|
%
|
|
-32.5
|
%
|
|
-32.1
|
%
|
|
0.0
|
%
|
|
-31.5
|
%
|
|
-33.3
|
%
|
|
33.3
|
%
|
|
0.0
|
%
|
|
32.4
|
%
|
|
33.3
|
%
|
|
32.6
|
%
|
|
33.3
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
33.2
|
%
|
|
1997
|
|
0.0
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
-31.5
|
%
|
|
-30.6
|
%
|
|
-31.7
|
%
|
|
-33.1
|
%
|
|
-32.2
|
%
|
|
-30.4
|
%
|
|
33.2
|
%
|
|
31.7
|
%
|
|
31.9
|
%
|
|
31.5
|
%
|
|
32.6
|
%
|
|
32.3
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
1998
|
|
0.0
|
%
|
|
0.0
|
%
|
|
-32.3
|
%
|
|
-36.7
|
%
|
|
-32.9
|
%
|
|
-40.1
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
-31.8
|
%
|
|
-37.5
|
%
|
|
32.3
|
%
|
|
36.0
|
%
|
|
34.2
|
%
|
|
0.0
|
%
|
|
34.2
|
%
|
|
36.5
|
%
|
|
0.0
|
%
|
|
35.7
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
1999
|
|
32.6
|
%
|
|
33.0
|
%
|
|
-31.6
|
%
|
|
-32.2
|
%
|
|
-31.3
|
%
|
|
-34.4
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
-31.4
|
%
|
|
-32.0
|
%
|
|
31.6
|
%
|
|
32.5
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
32.1
|
%
|
|
34.1
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
2000
|
|
31.9
|
%
|
|
33.3
|
%
|
|
-29.4
|
%
|
|
-33.7
|
%
|
|
-30.8
|
%
|
|
-32.9
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
-30.5
|
%
|
|
-33.5
|
%
|
|
31.6
|
%
|
|
33.5
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
31.6
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
33.5
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
2001
|
|
-33.1
|
%
|
|
33.1
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
-32.1
|
%
|
|
-32.4
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
-32.5
|
%
|
|
-34.5
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
32.7
|
%
|
|
0.0
|
%
|
|
33.0
|
%
|
|
34.1
|
%
|
|
32.8
|
%
|
|
34.1
|
%
|
|
0.0
|
%
|
|
-33.7
|
%
|
|
2002
|
|
-33.2
|
%
|
|
-32.9
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
-33.1
|
%
|
|
-31.6
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
-33.5
|
%
|
|
-32.7
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
33.3
|
%
|
|
32.6
|
%
|
|
33.5
|
%
|
|
33.1
|
%
|
|
33.5
|
%
|
|
33.0
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
2003
|
|
-33.0
|
%
|
|
-33.2
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
-33.0
|
%
|
|
-33.4
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
-33.5
|
%
|
|
-34.2
|
%
|
|
33.7
|
%
|
|
0.0
|
%
|
|
33.4
|
%
|
|
33.2
|
%
|
|
33.4
|
%
|
|
33.9
|
%
|
|
0.0
|
%
|
|
34.1
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
2004
|
|
0.0
|
%
|
|
-34.6
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
-33.2
|
%
|
|
-33.5
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
-33.0
|
%
|
|
-34.7
|
%
|
|
33.4
|
%
|
|
34.1
|
%
|
|
33.6
|
%
|
|
32.6
|
%
|
|
33.4
|
%
|
|
32.3
|
%
|
|
-33.1
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
2005
|
|
0.0
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
-29.1
|
%
|
|
-34.4
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
-30.7
|
%
|
|
-32.8
|
%
|
|
30.7
|
%
|
|
32.7
|
%
|
|
31.2
|
%
|
|
33.9
|
%
|
|
32.7
|
%
|
|
33.2
|
%
|
|
0.0
|
%
|
|
-33.2
|
%
|
|
-30.2
|
%
|
|
0.0
|
%
|
|
2006
5
|
|
0.0
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
-32.1
|
%
|
|
-34.2
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
-33.0
|
%
|
|
-34.8
|
%
|
|
33.2
|
%
|
|
34.3
|
%
|
|
33.5
|
%
|
|
34.5
|
%
|
|
33.2
|
%
|
|
33.8
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
-33.8
|
%
|
|
-35.6
|
%
|
THE FUND WILL TRADE WITH A VIEW TO TRACK THE
PERFORMANCE OF THE DEUTSCHE BANK G10 CURRENCY FUTURE HARVEST INDEX
™
—EXCESS RETURN.
PAST PERFORMANCE SHOULD
NOT BE TAKEN AS AN INDICATION OF FUTURE PERFORMANCE.
Please refer to notes and legends that follow on page 41.
36
DEUTSCHE BANK G10 CURRENCY FUTURE HARVEST INDEX
™
—TOTAL RETURN
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
USD
|
|
|
EUR
|
|
|
JPY
|
|
|
CAD
|
|
|
CHF
|
|
|
GBP
|
|
|
AUD
|
|
|
NZD
|
|
|
NOK
|
|
|
SEK
|
|
|
|
High
1
|
|
|
Low
2
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
1993
4
|
|
-31.6
|
%
|
|
-36.8
|
%
|
|
33.6
|
%
|
|
34.0
|
%
|
|
-34.8
|
%
|
|
-37.2
|
%
|
|
0.0
|
%
|
|
-36.8
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
-30.3
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
33.6
|
%
|
|
34.1
|
%
|
|
34.7
|
%
|
|
32.3
|
%
|
|
1994
|
|
0.0
|
%
|
|
-33.3
|
%
|
|
-33.1
|
%
|
|
32.5
|
%
|
|
-33.1
|
%
|
|
-32.5
|
%
|
|
0.0
|
%
|
|
-33.4
|
%
|
|
-33.1
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
33.2
|
%
|
|
0.0
|
%
|
|
33.3
|
%
|
|
33.6
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
33.4
|
%
|
|
33.2
|
%
|
|
1995
|
|
0.0
|
%
|
|
0.0
|
%
|
|
-33.5
|
%
|
|
-35.7
|
%
|
|
-32.9
|
%
|
|
-39.1
|
%
|
|
0.0
|
%
|
|
35.9
|
%
|
|
-33.6
|
%
|
|
-36.8
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
33.4
|
%
|
|
0.0
|
%
|
|
33.4
|
%
|
|
36.3
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
33.2
|
%
|
|
34.6
|
%
|
|
1996
|
|
0.0
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
-33.5
|
%
|
|
-31.7
|
%
|
|
-32.5
|
%
|
|
-32.1
|
%
|
|
0.0
|
%
|
|
-31.5
|
%
|
|
-33.3
|
%
|
|
33.3
|
%
|
|
0.0
|
%
|
|
32.4
|
%
|
|
33.3
|
%
|
|
32.6
|
%
|
|
33.3
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
33.2
|
%
|
|
1997
|
|
32.4
|
%
|
|
0.0
|
%
|
|
-32.1
|
%
|
|
0.0
|
%
|
|
-30.0
|
%
|
|
-30.6
|
%
|
|
0.0
|
%
|
|
-33.1
|
%
|
|
-32.8
|
%
|
|
-30.4
|
%
|
|
34.0
|
%
|
|
31.7
|
%
|
|
0.0
|
%
|
|
31.5
|
%
|
|
31.3
|
%
|
|
32.3
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
1998
|
|
0.0
|
%
|
|
0.0
|
%
|
|
-32.3
|
%
|
|
-36.7
|
%
|
|
-32.9
|
%
|
|
-40.1
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
-31.8
|
%
|
|
-37.5
|
%
|
|
32.3
|
%
|
|
36.0
|
%
|
|
34.2
|
%
|
|
0.0
|
%
|
|
34.2
|
%
|
|
36.5
|
%
|
|
0.0
|
%
|
|
35.7
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
1999
|
|
33.1
|
%
|
|
33.0
|
%
|
|
-32.5
|
%
|
|
-32.2
|
%
|
|
-32.9
|
%
|
|
-34.4
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
-32.4
|
%
|
|
-32.0
|
%
|
|
32.8
|
%
|
|
32.5
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
32.8
|
%
|
|
34.1
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
2000
|
|
32.9
|
%
|
|
33.3
|
%
|
|
0.0
|
%
|
|
-33.7
|
%
|
|
-32.3
|
%
|
|
-32.9
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
-33.7
|
%
|
|
-33.5
|
%
|
|
0.0
|
%
|
|
33.5
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
34.0
|
%
|
|
0.0
|
%
|
|
33.4
|
%
|
|
33.5
|
%
|
|
-33.0
|
%
|
|
0.0
|
%
|
|
2001
|
|
-33.1
|
%
|
|
33.1
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
-32.1
|
%
|
|
-32.4
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
-32.5
|
%
|
|
-34.5
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
32.7
|
%
|
|
0.0
|
%
|
|
33.0
|
%
|
|
34.1
|
%
|
|
32.8
|
%
|
|
34.1
|
%
|
|
0.0
|
%
|
|
-33.7
|
%
|
|
2002
|
|
-33.2
|
%
|
|
-32.9
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
-33.1
|
%
|
|
-31.6
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
-33.5
|
%
|
|
-32.7
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
33.3
|
%
|
|
32.6
|
%
|
|
33.5
|
%
|
|
33.1
|
%
|
|
33.5
|
%
|
|
33.0
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
2003
|
|
-33.0
|
%
|
|
-33.2
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
-33.0
|
%
|
|
-33.4
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
-33.5
|
%
|
|
-34.2
|
%
|
|
33.7
|
%
|
|
0.0
|
%
|
|
33.4
|
%
|
|
33.2
|
%
|
|
33.4
|
%
|
|
33.9
|
%
|
|
0.0
|
%
|
|
34.1
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
2004
|
|
0.0
|
%
|
|
-34.6
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
-33.2
|
%
|
|
-33.5
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
-33.0
|
%
|
|
-34.7
|
%
|
|
33.4
|
%
|
|
34.1
|
%
|
|
33.6
|
%
|
|
32.6
|
%
|
|
33.4
|
%
|
|
32.3
|
%
|
|
-33.1
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
2005
|
|
0.0
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
-29.1
|
%
|
|
-34.5
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
-30.7
|
%
|
|
-32.8
|
%
|
|
30.7
|
%
|
|
32.8
|
%
|
|
31.2
|
%
|
|
34.0
|
%
|
|
32.7
|
%
|
|
33.2
|
%
|
|
0.0
|
%
|
|
-33.2
|
%
|
|
-30.2
|
%
|
|
0.0
|
%
|
|
2006
5
|
|
0.0
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
-32.1
|
%
|
|
-34.2
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
-33.0
|
%
|
|
-34.8
|
%
|
|
33.2
|
%
|
|
34.3
|
%
|
|
33.5
|
%
|
|
34.5
|
%
|
|
33.2
|
%
|
|
33.8
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
-33.8
|
%
|
|
-35.6
|
%
|
THE FUND WILL NOT TRADE WITH A VIEW TO TRACK THE
PERFORMANCE OF THE DEUTSCHE BANK G10 CURRENCY FUTURE HARVEST INDEX
™
—TOTAL RETURN.
PAST PERFORMANCE SHOULD NOT
BE TAKEN AS AN INDICATION OF FUTURE PERFORMANCE.
Please refer to notes and legends that follow on page 41.
37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VARIOUS STATISTICAL MEASURES*
|
|
INDEX-TR
6
|
|
|
INDEX-ER
7
|
|
|
DXY
8
|
|
|
EFFAS US
Treasuries
9
|
|
|
S&P 500 TR
10
|
|
|
DBLCI
11
|
|
|
Annualized Return
12
|
|
12.3
|
%
|
|
8.1
|
%
|
|
-0.1
|
%
|
|
6.2
|
%
|
|
10.5
|
%
|
|
13.7
|
%
|
|
Average rolling 3 month daily volatility
13
|
|
7.0
|
%
|
|
7.0
|
%
|
|
7.8
|
%
|
|
4.6
|
%
|
|
15.4
|
%
|
|
19.1
|
%
|
|
Sharpe Ratio
14
|
|
1.27
|
|
|
0.67
|
|
|
-0.45
|
|
|
0.61
|
|
|
0.46
|
|
|
0.54
|
|
|
% of months with positive return
|
|
73
|
%
|
|
69
|
%
|
|
48
|
%
|
|
68
|
%
|
|
64
|
%
|
|
57
|
%
|
|
Average monthly positive return
|
|
2.0
|
%
|
|
1.8
|
%
|
|
1.8
|
%
|
|
1.2
|
%
|
|
3.4
|
%
|
|
5.1
|
%
|
|
Average monthly negative return
|
|
-1.7
|
%
|
|
-1.8
|
%
|
|
-1.6
|
%
|
|
-0.9
|
%
|
|
-3.4
|
%
|
|
-3.9
|
%
|
|
|
|
|
|
|
|
|
|
CORRELATION OF MONTHLY RETURNS*
,15
|
|
INDEX
|
|
|
INDEX-ER
|
|
|
DXY
|
|
|
EFFAS US
Treasuries
|
|
|
S&P 500 TR
|
|
|
DBLCI
|
|
|
Index-TR
|
|
100
|
%
|
|
100
|
%
|
|
20
|
%
|
|
-3
|
%
|
|
18
|
%
|
|
12
|
%
|
|
Index-ER
|
|
|
|
|
100
|
%
|
|
18
|
%
|
|
-4
|
%
|
|
17
|
%
|
|
11
|
%
|
|
DXY
|
|
|
|
|
|
|
|
100
|
%
|
|
-15
|
%
|
|
4
|
%
|
|
-13
|
%
|
|
EFFAS US Treasuries
|
|
|
|
|
|
|
|
|
|
|
100
|
%
|
|
-9
|
%
|
|
2
|
%
|
|
S&P 500 TR
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100
|
%
|
|
2
|
%
|
|
DBLCI
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100
|
%
|
PAST
PERFORMANCE SHOULD NOT BE TAKEN AS AN INDICATION OF FUTURE PERFORMANCE.
Please refer to notes and legends that follow on page 41.
38
COMPARISON OF THE INDICES WITH CERTAIN GENERAL MARKET INDICES REPRESENTING CURRENCIES, BONDS, STOCKS
AND COMMODITIES
(MARCH, 1993—FEBRUARY, 2006)*
PAST PERFORMANCE
SHOULD NOT BE TAKEN AS AN INDICATION OF FUTURE PERFORMANCE.
Please refer to notes and legends that follow on page 41.
39
COMPARISON OF ANNUAL RETURNS OF THE INDICES WITH CERTAIN GENERAL MARKET INDICES REPRESENTING BONDS AND
STOCKS
(MARCH, 1993—FEBRUARY, 2006)*
PAST PERFORMANCE
SHOULD NOT BE TAKEN AS AN INDICATION OF FUTURE PERFORMANCE.
Please refer to notes and legends that follow on page 41.
40
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 Performance” reflects the performance of the Index on an annual basis as of December 31 of each applicable year.
|
|
4.
|
Closing levels as of inception on March 12, 1993.
|
|
5.
|
Closing levels as of February 8, 2006.
|
|
6.
|
“INDEX-TR” is Deutsche Bank G10 Currency Future Harvest Index
™
—Total Return.
|
|
7.
|
“INDEX-ER” is the Deutsche Bank G10 Currency Future Harvest Index
™
—Excess Return.
|
|
8.
|
“DXY” is U.S. Dollar Index
®
. The U.S. Dollar Index
®
The provides a general indication of the international value of the U.S. dollar by averaging the exchange rates between the U.S. dollar and the six major world currencies the U.S. Dollar Index
®
—Euro, Japanese Yen, British Pound, Canadian
Dollar, Swedish Krona and Swiss Franc. U.S. Dollar Index
®
is a registered service mark of the Board of Trade of the City of New York, Inc.
|
|
9.
|
“EFFAS US Treasuries” is Bloomberg/EFFAS Index of U.S. Treasuries. The Bloomberg/EFFAS indices are designed as transparent benchmarks for government bond markets. Indices
are grouped by country and maturity sectors. Bloomberg computes daily returns and index characteristics for each sector. The Bloomberg/EFFAS Index of U.S. Treasuries includes treasuries with more than one year prior to maturity and is representative
of the bond market.
|
|
10.
|
“S&P 500 TR” is the Standard & Poor’s index calculated on a total return basis. Widely regarded as the benchmark gauge of the U.S. equities market, this
index includes a representative sample of 500 leading companies in leading industries of the U.S. economy. Although the S&P 500 focuses on the large-cap segment of the market, with over 80% coverage of U.S. equities, it also serves as a proxy
for the total market. The total return calculation provides investors with a price-plus-gross cash dividend return. Gross cash dividends are applied on the ex-date of the dividend.
|
|
11.
|
“DBLCI” is the Deutsche Bank Liquid Commodity Index
™
—Total Return. This Index is intended to reflect the performance the following commodities: Light, Sweet Crude Oil, Heating Oil, Aluminum, Gold,
Corn and Wheat. The notional amounts of each index commodity included in this index are broadly in proportion to historical levels of the world’s production and stocks of the index commodities. The sponsor of the Index, or the Index Sponsor, is
Deutsche Bank AG London. Deutsche Bank Liquid Commodity Index
™
—Total Return is a trade mark of Deutsche Bank AG and is the subject of Community Trade Mark Number 3054996. Trade Mark applications in the United States are pending.
|
|
12.
|
“Annualized Return” reflects the performance of the applicable index on an annual basis as of December 31 of each applicable year.
|
|
13.
|
“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.
|
|
14.
|
“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.
|
|
15.
|
“Correlation of Monthly Returns.” Every investment asset, by definition, has a correlation coefficient of 1.0 with itself; 1.0 indicates 100% positive correlation. Two
investments that always move in the opposite direction from each other have a correlation coefficient of -1.0; -1.0 indicates 100% negative correlation. Two investments that perform entirely independently of each other have a correlation coefficient
of 0; 0 indicates 100% non-correlation.
|
|
*
|
For the period from March 12, 1993 to February 8, 2006.
|
41
HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO
REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY
ACHIEVED BY ANY PARTICULAR TRADING PROGRAM.
ONE OF THE
LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE
IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE OF TRADING LOSSES ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE
NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL
TRADING RESULTS.
THE MANAGING OWNER HAS HAD NO MATERIAL
EXPERIENCE IN TRADING ACTUAL ACCOUNTS FOR ITSELF OR FOR CUSTOMERS. BECAUSE THERE ARE NO ACTUAL TRADING RESULTS TO COMPARE TO THE HYPOTHETICAL PERFORMANCE RESULTS, CUSTOMERS SHOULD BE PARTICULARLY WARY OF PLACING UNDUE RELIANCE ON THESE HYPOTHETICAL
PERFORMANCE RESULTS.
ALTHOUGH THE INDEX SPONSOR WILL OBTAIN
INFORMATION FOR INCLUSION IN OR FOR USE IN THE CALCULATION OF THE INDEX FROM SOURCE(S) WHICH THE INDEX SPONSOR CONSIDERS RELIABLE, THE INDEX SPONSOR WILL NOT INDEPENDENTLY VERIFY SUCH INFORMATION AND DOES NOT GUARANTEE THE ACCURACY AND/OR THE
COMPLETENESS OF THE INDEX OR ANY DATA INCLUDED THEREIN. THE INDEX SPONSOR SHALL NOT BE LIABLE (WHETHER IN NEGLIGENCE OR OTHERWISE) TO ANY PERSON FOR ANY ERROR IN THE INDEX AND THE INDEX SPONSOR IS UNDER NO OBLIGATION TO ADVISE ANY PERSON OF ANY
ERROR THEREIN.
UNLESS OTHERWISE SPECIFIED, NO TRANSACTION
RELATING TO THE INDEX IS SPONSORED, ENDORSED, SOLD OR PROMOTED BY THE INDEX SPONSOR AND THE INDEX SPONSOR MAKES NO EXPRESS OR IMPLIED REPRESENTATIONS OR WARRANTIES AS TO (A) THE ADVISABILITY OF PURCHASING OR ASSUMING ANY RISK IN CONNECTION WITH
ANY SUCH TRANSACTION (B) THE LEVELS AT WHICH THE INDEX STANDS AT ANY PARTICULAR TIME ON ANY PARTICULAR DATE (C) THE RESULTS TO BE OBTAINED BY THE ISSUER OF ANY SECURITY OR ANY COUNTERPARTY OR ANY SUCH ISSUER’S SECURITY HOLDERS OR
CUSTOMERS OR ANY SUCH COUNTERPARTY’S CUSTOMERS OR COUNTERPARTIES OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE INDEX OR ANY DATA INCLUDED THEREIN IN CONNECTION WITH ANY LICENSED RIGHTS OR FOR ANY OTHER USE OR (D) ANY OTHER MATTER. THE
INDEX SPONSOR MAKES NO EXPRESS OR IMPLIED REPRESENTATIONS OR WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO THE INDEX OR ANY DATA INCLUDED THEREIN.
WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL THE INDEX SPONSOR HAVE ANY LIABILITY (WHETHER IN NEGLIGENCE OR
OTHERWISE) TO ANY PERSON FOR ANY DIRECT, INDIRECT, SPECIAL, PUNITIVE, CONSEQUENTIAL OR ANY OTHER DAMAGES (INCLUDING LOST PROFITS) EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
42
INFORMATION BARRIERS BETWEEN THE
INDEX SPONSOR AND THE
MANAGING OWNER
It is Deutsche Bank’s policy that procedures are implemented to prevent the improper sharing of information between different departments of the
bank. Specifically, the procedures discussed below create an information barrier between the personnel within Deutsche Bank AG London that calculate and reconstitute the Index, or the Calculation Group, and other Deutsche Bank personnel, including
but not limited to the Managing Owner, those in sales and trading, external or internal fund managers and bank personnel who are involved in hedging the bank’s exposure to instruments linked to the Index, or Public Personnel, in order to
prevent the improper sharing of information relating to the recomposition of the Index. Effective information barriers between the Calculation Group and Public Personnel will help ensure that Public Personnel may continue to trade in the futures
contracts underlying the Index and securities linked to the Index (otherwise, restrictions might apply regarding trading on nonpublic information under the securities laws of the United States).
As such, the information barriers erected under these procedures require the
Calculation Group to adhere to the following procedures:
|
|
•
|
|
The Calculation Group may not share any non-public, proprietary or confidential information concerning the Index. In particular, the Calculation Group may not release any
information concerning a change in the methodology of calculating the Index or a new composition of the Index to Public Personnel or others unless and until such information has been previously published by Amex, on Reuters, or Bloomberg under the
symbols DBVI, DBB, DBBNV and DBV and on Deutsche Bank’s website http://www.dbvfund.db.com, or any successor thereto.
|
|
|
•
|
|
The Calculation Group and Public Personnel may not coordinate or seek to coordinate decision-making on the selection of the Index constituent instruments.
|
|
|
•
|
|
The Calculation Group also may not enter into any trades based on any non-public, proprietary or confidential information with respect to the Index.
|
These procedures supplement and do not override policies and procedures
concerning information barriers otherwise adopted by Deutsche Bank AG or any of Deutsche Bank’s affiliates.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Critical Accounting Policies
Preparation of the financial statements and related disclosures in compliance with accounting principles generally accepted in the United States of
America requires the application of appropriate accounting rules and guidance, as well as the use of estimates. Both the Fund’s and the Master Fund’s application of these policies involves judgments and actual results may differ from the
estimates used.
Liquidity and Capital Resources
As of the date of this Prospectus, the Master Fund has
not begun trading activities. Once the Master Fund begins trading activities, it is anticipated that all of its total net assets will be allocated to foreign exchange futures contracts trading. A significant portion of the net asset value is likely
to be held in U.S. Treasury bills and cash, which will be used as margin for the Master Fund’s trading in foreign exchange futures contracts. The percentage that U.S. Treasury bills will bear to the total net assets will vary from period to
period as the market values of the foreign exchange futures contracts change. The balance of the net assets will be held in the Master Fund’s commodity trading account. Interest earned on the Master Fund’s interest-bearing funds will be
paid to the Master Fund.
The Master Fund’s foreign
exchange futures contracts will be subject to periods of illiquidity because of market conditions, regulatory considerations and other reasons. For example, commodity exchanges may limit fluctuations in certain futures contract prices during a
single day by regulations referred to as “daily limits.” During a single day, no trades may be executed at prices beyond the daily limit. Once the price of a futures contract has increased or decreased by an amount equal to the daily
limit, such positions can neither be taken nor liquidated unless the traders are willing to effect trades at or within the limit. Futures contract
43
prices have occasionally moved the daily limit for several consecutive days with little or no trading. Such market conditions could prevent the Master Fund
from promptly liquidating its futures positions. Although the Eligible Index Currencies that the Master Fund will invest in are not currently subject to “daily limits,” the terms and conditions of these contracts may change in the future.
Since the Master Fund will trade futures contracts, its
capital will be at risk due to changes in the value of these contracts (market risk) or the inability of counterparties to perform under the terms of the contracts (credit risk).
Market risk
Trading in futures contracts will involve the Master Fund entering into contractual commitments to purchase or sell futures contracts on the Index
Currencies at a specified date and price. The market risk to be associated with the Master Fund’s commitments to purchase Index Currencies will be limited to the gross or face amount of the contracts held. However, should the Master Fund enter
into a contractual commitment to sell the Index Currencies, it would be required to make delivery of the underlying Index Currencies at the contract price and then repurchase the contract at prevailing market prices or settle in cash. Since the
repurchase price to which the Index Currencies can rise is unlimited, entering into commitments to sell Index Currencies will expose the Master Fund to theoretically unlimited risk.
The Master Fund’s exposure to market risk will be influenced by a number of factors including the volatility of
interest rates and foreign currency exchange rates, the liquidity of the markets in which the contracts are traded and the relationships among the contracts held. The inherent uncertainty of the Master Fund’s speculative trading as well as the
development of drastic market occurrences could ultimately lead to a loss of all or substantially all of investors’ capital.
Credit risk
When the Master Fund enters into futures contracts, the Master Fund will be exposed to credit risk that the counterparty to the contract will not meet its
obligations. The counterparty for futures contracts traded on United States and on most foreign futures
exchanges is the clearing house associated with the particular exchange. In general, clearing houses
are backed by their corporate members who may be required to share in the financial burden resulting from the nonperformance by one of their members and, as such, should significantly reduce this credit risk. In cases where the clearing house is not
backed by the clearing members (
i.e.
, some foreign exchanges, which may become applicable in the future), it may be backed by a consortium of banks or other financial institutions. There can be no assurance that any counterparty, clearing
member or clearing house will meet its obligations to the Master Fund.
The Managing Owner will attempt to minimize these market and credit risks by requiring the Master Fund to abide by various trading limitations and policies, which will include limiting margin accounts, trading only in liquid markets and
permitting the use of stop-loss provisions. The Managing Owner will implement procedures which will include, but will not be limited to:
|
|
•
|
|
executing and clearing trades with creditworthy counterparties;
|
|
|
•
|
|
limiting the amount of margin or premium required for any one currency or all currencies combined; and
|
|
|
•
|
|
generally limiting transactions to contracts which will be traded in sufficient volume to permit the taking and liquidating of positions.
|
The Commodity Broker, when acting as the Master Fund’s futures
commission merchant in accepting orders for the purchase or sale of domestic futures contracts, will be required by CFTC regulations to separately account for and segregate as belonging to the Master Fund, all assets of the Master Fund relating to
domestic futures trading and the Commodity Broker will not be allowed to commingle such assets with other assets of the Commodity Broker. In addition, CFTC regulations will also require the Commodity Broker to hold in a secure account assets of the
Master Fund related to foreign futures trading.
OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS
As of the date of this Prospectus, the Fund and the Master Fund have not utilized, nor do they expect
44
to utilize in the future, special purpose entities to facilitate off-balance sheet financing arrangements and have no loan guarantee arrangements or
off-balance sheet arrangements of any kind other than agreements entered into in the normal course of business, which may include indemnification provisions related to certain risks service providers undertake in performing services which are in the
best interests of the Fund and the Master Fund. While the Fund’s and the Master Fund’s exposure under such indemnification provisions cannot be estimated, these general business indemnifications are not expected to have a material impact
on either the Fund’s or the Master Fund’s financial position.
The Master Fund’s contractual obligations are with the Managing Owner and the commodity brokers. Management Fee payments made to the Managing Owner are calculated as a fixed percentage of the Master Fund’s Net Asset Value.
Commission payments to the Commodity Broker are on a contract-by-contract, or round-turn, basis. As such, the Managing Owner cannot anticipate the amount of payments that will be required under these arrangements for future periods as net asset
values are not known until a future date. These agreements are effective for one year terms, renewable automatically for additional one year terms unless terminated. Additionally, these agreements may be terminated by either party for various
reasons.
USE OF PROCEEDS
A substantial
amount of proceeds of the offering of the Shares are used by the Fund, through the Master Fund, to engage in the speculative trading of exchange-traded futures on the Index Currencies with a view to reflecting the performance of the Index over time,
less the expenses of the operations of the Fund and the Master Fund. The Master Fund’s portfolio also will include United States Treasury securities for deposit with the Master Fund’s Commodity Broker as margin and other high credit
quality short-term fixed income securities.
To the extent that
the Master Fund trades in futures contracts on United States exchanges, the assets deposited by the Master 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 Master 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 percentages set forth below may vary substantially over time, as of the date of this Prospectus, the Master Fund estimates:
(i) up to approximately 5% of the net asset value of the Master Fund will be placed in segregated accounts in the name of the Master Fund with the
Commodity Broker (or another eligible financial institution, as applicable) in the form of cash or United States Treasury bills to margin positions of all commodities combined. Such funds will be segregated pursuant to CFTC rules;
(ii) approximately 95% of the net asset value of the Master Fund will be
maintained in segregated accounts in the name of the Master Fund in bank deposits or United States Treasury and United States Government Agencies issues.
It is expected that the Master Fund will commit 5% or less of net assets to margin its futures positions in the Index Currencies.
The Managing Owner, a registered commodity pool operator and commodity
trading advisor, will be responsible for the cash management activities of the Master Fund, including investing in United States Treasury and United States Government Agencies issues.
In addition, assets of the Master Fund not required to margin positions may be maintained in United States bank accounts
opened in the name of the Master Fund and may be held in United States Treasury bills (or other securities approved by the CFTC for investment of customer funds).
The Master Fund receives 100% of the interest income earned on its fixed income assets.
45
CHARGES
See
“Summary—Breakeven Amounts” and “Summary—‘Breakeven Table’” for additional breakeven related information.
Management Fee
The Master Fund
will pay the Managing Owner a Management Fee, monthly in arrears, in an amount equal to 0.75% per annum of the net asset value of the Master Fund. No separate fee will be paid by the Fund. The Management Fee will be paid in consideration of the
grant of Deutsche Bank AG’s revocable license to use Deutsche Bank AG’s name and the Index in addition to the Managing Owner’s commodity futures trading advisory services.
Organization and Offering Expenses
Expenses incurred in connection with organizing the Fund and the Master Fund and the initial offering of the Shares will be paid by the Managing Owner, subject to reimbursement by the Master Fund, without interest, in 36 monthly payments
during each of the first 36 months after the commencement of the Master Fund’s trading operations, subject to a cap in the amount of 2.50% of the aggregate amount of all subscriptions for Shares prior to the commencement of trading and during
the first 36 months of the Master Fund’s trading operations. Expenses incurred in connection with the continuous offering of Shares after the commencement of the Master Fund’s trading operations also will be paid by the Managing Owner,
subject to reimbursement by the Master Fund, without interest, in 36 monthly payments during each of the 36 months following the month in which such expenses were paid by the Managing Owner. If the Fund and the Master Fund terminate before the
Managing Owner has been fully reimbursed for any of the foregoing expenses, the Managing Owner will not be entitled to receive any unreimbursed portion of such expenses outstanding as of the termination date. In no event will the aggregate amount of
payments by the Master Fund to the Managing Owner in any month in respect of reimbursement of organizational or offering expenses exceed 0.10% per annum of the net asset value of the Master Fund as of the beginning of such month.
Organization and offering expenses relating to both the Master Fund and the
Fund, as applicable,
means those expenses incurred in connection with their 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 and Master 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, 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;
|
|
|
•
|
|
accounting, auditing and legal fees (including disbursements related thereto) incurred in connection therewith; and
|
|
|
•
|
|
any extraordinary expenses (including, but not limited to, legal claims and liabilities and litigation costs and any permitted indemnification associated therewith) related thereto.
|
The Managing Owner will not allocate to the Fund
or the Master Fund the indirect expenses of the Managing Owner.
The Managing Owner currently estimates that the aggregate amount of the organization and offering expenses will be approximately [$ ].
Brokerage Commissions and Fees
The Master Fund will pay 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. On average, total charges paid to the Commodity Broker are expected to be less than $10.00 per round-turn trade, although the Commodity
46
Broker’s brokerage commissions and trading fees will be determined on a contract-by-contract basis. The Managing Owner does not expect brokerage
commissions and fees to exceed 0.06% of the net asset value of the Master Fund in any year, although the actual amount of brokerage commissions and fees in any year may be greater.
Routine Operational, Administrative and Other Ordinary Expenses
The Master Fund will pay all of the routine operational, administrative and other ordinary expenses of the Fund and the Master Fund generally, as determined by the Managing Owner including, but not limited to,
computer services, the fees and expenses of the Trustee, legal and accounting fees and expenses, tax preparation expenses, filing fees, and printing, mailing and duplication costs. Such routine expenses are not expected to exceed 0.05% of the net
asset value of the Master Fund in any year, although the actual amounts of the routine operational, administrative and other ordinary expenses may be greater. Routine operational, administrative and other ordinary expenses not paid by the Managing
Owner out of the Management Fee include annual legal and audit expenses and other expenses that are fixed in amount and not changed as a percentage of the Trust’s net asset value. Consequently, the percentage of the Trust’s net asset value
represented by these expenses will decrease as net asset value increases and vice-versa. These estimates are based on a net asset value of $50 million.
Extraordinary Fees and Expenses
The Master Fund will pay all its extraordinary fees and expenses, if any, of the Fund and Master Fund generally, if any, as determined by the Managing Owner. Extraordinary fees and expenses are fees and expenses which are non-recurring and
unusual in nature, such as legal claims and liabilities and litigation costs and any permitted indemnification payments related thereto. Extraordinary fees and expenses shall also include material expenses which are not currently anticipated
obligations of the Fund or Master Fund or of managed futures funds in general. Routine operational, administrative and other ordinary expenses will not be deemed extraordinary expenses.
Management Fee and Expenses to be Paid First out of Interest Income
The Management Fee and the organizational, offering and ordinary ongoing expenses of the Fund and the Master Fund will be paid first out of interest
income from the Master 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. It is expected that such interest income may be
sufficient to cover a significant portion of the fees and expenses of the Fund and the Master Fund.
Selling Commissions
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 details on 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 may be deemed to be underwriting
compensation.
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 (a Participant Agreement). The Participant Agreement sets forth the procedures for
the creation and redemption of Baskets of Shares 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. A similar agreement between the Fund and
the Master Fund sets forth the procedures for the creation and redemption of Master Unit Baskets by the Fund. See “Creation and Redemption of Shares” for more details.
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CREATION AND REDEMPTION OF SHARES
The Fund will create and redeem 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. Authorized Participants pay a transaction
fee of $500 in connection with each order to create or redeem a Basket of Shares. Authorized Participants may sell the Shares included in the Baskets they purchase from the Fund to other investors.
The Master Fund will create and redeem Master Fund Units from time-to-time,
but only in one or more Master Unit Baskets. A Master Unit Basket is a block of 200,000 Master Fund Units. Master Unit Baskets may be created or redeemed only by the Fund. The Master Fund will be wholly-owned by the Fund and the Managing Owner. Each
Share issued by the Fund will correlate with a Master Fund Unit issued by the Master Fund and held by the Fund.
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 to the Distributor or the Administrator 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 Administrator 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 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 (the Securities Act), as described in “Plan of Distribution.”
Each Authorized Participant will be registered as a broker-dealer under the
Securities Exchange Act of 1934 (the Exchange Act) and regulated by the NASD, or will be exempt from being, or otherwise will not be required to be, so regulated or registered, and will be 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.
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 against certain liabilities, including liabilities under the Securities Act, and to contribute to the payments the Authorized Participants may be required to make in respect of those
liabilities. The Managing Owner has agreed to reimburse the Authorized Participants, solely from and to the extent of the Master 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 following description of the procedures for the creation and redemption of Baskets is only a summary and an investor should refer to the relevant
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provisions of the Fund’s Trust Declaration and the form of Participant Agreement for more detail. The Fund’s 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 Managing Owner to create one or more Baskets. For purposes of processing both
purchase 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. Purchase orders must be placed by 1:00 p.m., New York time. The day on which the Managing
Owner receives a valid purchase order is the purchase order date. Purchase orders are irrevocable. By placing a purchase order, and prior to delivery of such Baskets, an Authorized Participant’s DTC account will be charged the non-refundable
transaction fee due for the purchase 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 Amex or the last to close of the exchanges on which the Master Fund’s assets are traded, whichever is later, on the purchase order date. Baskets will be issued
as of noon, New York time, on the Business Day immediately following the purchase order date at net asset value per Share as of the closing time of the Amex or the last to close of the exchanges on which the Master Fund’s assets are traded,
whichever is later, on the purchase order date, but only if the required payment has been timely received.
Because orders to purchase Baskets must be placed by 1:00 p.m., New York time, but the total payment required to create a Basket will not be determined
until 4:00 p.m., New York time, on the date the purchase order is received, Authorized Participants will not know the total amount of the payment required to create a Basket at the time they submit an irrevocable purchase order for the Basket. The
Fund’s net asset value and the total amount of the payment required to create a Basket could rise or fall substantially between the time an irrevocable purchase order is submitted and the time the amount of the purchase price in respect thereof
is determined.
Rejection of purchase orders
The Managing Owner may reject a purchase order if:
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It determines that the purchase order is not in proper form;
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The Managing Owner believes that the purchase order would have adverse tax consequences to the Fund or its Shareholders; or
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Circumstances outside the control of the Managing Owner make it, for all practical purposes, not feasible to process creations of Baskets.
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The Managing Owner will not be liable for the rejection of any purchase
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 Managing Owner to redeem one or more Baskets. Redemption orders must be placed by 1:00 p.m., New York time. The day
on which the Managing Owner receives a valid redemption order is the redemption order date. Redemption orders are irrevocable. 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.
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 noon, New York time, on the business day immediately following the redemption order date. By placing a redemption order, and prior to receipt of the redemption proceeds, an Authorized Participant’s DTC account will be charged the
non-refundable transaction fee due for the redemption order.
Determination of redemption proceeds
The
redemption proceeds from the Fund consist of the cash redemption amount. The cash redemption
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amount is equal to the net asset value of the number of Basket(s) requested in the Authorized Participant’s redemption order as of the closing time of
the Amex or the last to close of the exchanges on which the Master Fund’s assets are traded, whichever is later, on the redemption order date. The Managing Owner will distribute the cash redemption amount at noon, New York time, on the business
day immediately following the redemption order 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 noon, New York time, on the business day immediately following
the redemption order date if, by such time on such business day immediately following the redemption order date, 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 Managing Owner 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 noon, New York time, on such next business day. Any further outstanding amount of the redemption order shall 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 noon, New York time, on the business day immediately following the redemption order 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 or rejection of redemption orders
The Managing Owner 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. 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 will reject a redemption order if the order is not in proper form as described in the Participant
Agreement or if the fulfillment of the order, in the opinion of its counsel, might be unlawful.
Creation And Redemption Transaction Fee
To compensate the Administrator 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 shall 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.
The Managing Owner has no current intention of making any distribution from the profits of the Shares to its Shareholders.
Monthly account statements conforming to CFTC and NFA requirements will be posted on the Fund’s website at www.dbvfund.db.com. Additional reports may
be posted on the Fund’s website in the discretion of the Managing Owner or as required by regulatory authorities.
THE COMMODITY BROKER
A variety
of executing brokers will execute futures transactions on behalf of the Master Fund. Such executing brokers will give-up all such transactions to Deutsche Bank Securities Inc., a Delaware corporation, which will serve as the Master Fund’s
clearing broker, or Commodity Broker. The Commodity Broker is an affiliate of Deutsche Bank AG. In its capacity as clearing broker, the Commodity Broker will execute and clear each of the Master Fund’s futures transactions and will perform
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certain administrative services for the Master Fund. Deutsche Bank Securities Inc. 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.
There is no litigation pending regarding Deutsche Bank Securities Inc. that would materially adversely affect its ability to carry on its commodity
futures, foreign exchange futures and options brokerage business.
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 of the Fund, 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, the professional staff of the Managing Owner also
service other affiliates of the Managing Owner and their respective clients. 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 and the Master Fund, the Managing Owner intends to devote, and to cause its professional staff to devote, sufficient time and resources properly to manage the business and affairs of
the Fund and the Master Fund consistent with its or their respective fiduciary duties to the Fund and the Master Fund and others.
Relationship of the Managing Owner to the Commodity Broker
The Managing Owner and the Commodity Broker are wholly-owned subsidiaries of Deutsche Bank AG. The Commodity Broker receives a brokerage commission for futures interests transactions effected for the Master Fund.
Customers of the Commodity Broker who maintain commodity and foreign exchange trading accounts may pay commissions at negotiated rates which are greater or less than the rate paid by the Master Fund.
The Managing Owner has a disincentive to replace the Commodity Broker as the
Master Fund’s broker because it is an affiliate of the Managing Owner. In connection with this conflict of interest, Shareholders should understand that the Commodity Broker receives a round-turn brokerage fee from the Master Fund for serving
as the Master Fund’s commodity broker.
The Managing Owner
and the Commodity Broker may, from time-to-time, have conflicting demands in respect of their obligations to the Master Fund and to the Fund and, in the future, to other commodity pools and accounts. It is possible that future pools that the
Managing Owner may be come involved with may generate larger brokerage commissions, resulting in increased payments to employees.
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
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
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from such accounts may be more or less than the compensation received for brokerage services provided to the Master 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 Master Fund or may compete with the Master Fund for the same positions.
The Commodity Broker may have a conflict of interest in its execution of trades for the Master Fund and for other customers. The Managing Owner will, however, not retain any commodity broker for the Master Fund which the Managing Owner has reason to
believe would knowingly or deliberately favor any other customer over the Master Fund with respect to the execution of commodity trades.
The Commodity Broker will benefit from executing orders for other clients, whereas the Master Fund may be harmed to the extent that the Commodity Broker
has fewer resources to allocate to the Master 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 various other
industry organizations which could compel such employees to act in the best interests of these entities, perhaps to the detriment of the Master Fund.
Proprietary Trading/Other Clients
The Managing Owner, the Commodity Broker and their respective principals and 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 Master Fund or may compete with the Master Fund for positions in the marketplace. Such trading may create conflicts of interest on behalf of one or more such persons in respect of their obligations to the Master Fund.
Records of proprietary trading and trading on behalf of other clients will not be available for inspection by Shareholders.
Because the Managing Owner, the Commodity Broker and their respective principals and affiliates may trade for their own accounts at the same time that
they are managing the account of the Master Fund, prospective investors should be aware that—as a result of a neutral allocation system, testing a new trading system, trading their proprietary accounts more aggressively or other activities not
constituting a breach of fiduciary duty—such persons may from time-to-time take positions in their proprietary accounts which are opposite, or ahead of, the positions taken for the Master Fund.
No Distributions
The Managing
Owner has discretionary authority over all distributions made by the Fund. In view of the Fund’s objective of seeking significant capital appreciation, the Managing Owner currently does not intend to make any distributions, but, has the sole
discretion to do so from time-to-time. Greater management fees will be generated to the benefit of the Managing Owner if the Fund’s assets are not reduced by distributions to the Shareholders.
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DESCRIPTION OF THE SHARES AND THE
MASTER FUND UNITS;
CERTAIN MATERIAL TERMS OF THE
TRUST
DECLARATIONS
The following summary describes in brief
the Shares and the Master Fund Units and certain aspects of the operation of the Fund and the Master Fund and the respective responsibilities of the Trustee and the Managing Owner concerning the Fund and Master Fund and the material terms of the
Declarations of Trust, each of which are substantially identical except as set forth below. Prospective investors should carefully review the Forms of Declarations of Trust filed as exhibits 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 Delaware statutory trust. Capitalized terms used in this section and not otherwise defined shall have such meanings assigned to
them under the applicable Trust Declaration.
Description of the Shares and the Master Fund Units
The Fund will issue common units of beneficial interest, or Shares, which represent units of fractional undivided beneficial interest in and ownership of the Fund. The Shares will be listed on the Amex under the
symbol “DBV.”
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.
The Fund
will invest the proceeds of its offering of Shares in the Master Fund. The Master Fund will issue common units of beneficial interest, or Master Fund Units, which represent units of fractional undivided beneficial interest in and ownership of the
Master Fund. Master Fund Units may be purchased or redeemed on a continuous basis, but only by the Fund and only in blocks of 200,000 Master Fund Units, or Master Unit Baskets. The Master Fund will be wholly-owned by the Fund and the Managing Owner.
Each Share issued by the Fund will correlate with a Master Fund Unit issued by the Master Fund and held by the Fund.
Principal Office; Location of Records
Each of the Fund and the Master Fund is organized as a statutory trust under the Delaware Statutory Trust Act. The Fund and Master Fund are managed by the Managing Owner, whose office is located 60 Wall Street, New York, New York 10005,
telephone: (212) 250-5883.
The books and records of the
Fund and the Master Fund will be maintained as follows: all marketing materials and Basket creation and redemption books and records will be maintained at the offices of ALPS Distributors, Inc., 1625 Broadway, Suite 2200, Denver, Colorado 80202;
telephone number (303) 623-2577; 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 will be maintained by The Bank of New York, 2 Hanson Place, 12
th
Floor, Brooklyn, New York 11217, telephone number (718) 315-4850. All other books and records of the Fund and the Master Fund (including minute books and other general corporate records, trading records and related
reports and other items received from the Master Fund’s Commodity Brokers) will be maintained at the Fund’s principal office, c/o DB Commodity Services LLC, 60 Wall Street, New York, New York 10005; telephone number (212) 250-5883.
The books and records of the Fund and the Master 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 such Shares during regular business hours as provided in the Declarations of Trust. The Managing Owner will maintain and preserve the books and records of the Fund and the Master Fund for a period of not less than six years.
The Trustee
Wilmington Trust
Company, a Delaware banking corporation, is the sole Trustee of the Fund and Master Fund. The Trustee’s principal offices are located Rodney Square North, 1100 North Market Street, Wilmington, Delaware 19890-0001. The Trustee is unaffiliated
with the Managing Owner.
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The Trustee’s duties and liabilities with respect to the offering of the Shares and the management of the Fund and Master Fund are limited to its
express obligations under the Trust Declarations.
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 applicable Trust Declaration.
The Trustee serves as the sole trustee of the Fund and the Master Fund in the State of Delaware. The Trustee will accept
service of legal process on the Fund and the Master 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 Fund or the Master Fund, the Managing Owner or
the Shareholders. The Trustee is permitted to resign upon at least sixty (60) days’ notice to the Fund and the Master Fund,
provided
, that any such resignation will not be effective until a successor Trustee is appointed by the
Managing Owner. Each of the Trust Declarations provides that the Trustee is compensated by the Fund or Master Fund, as appropriate, and is indemnified by the Fund or Master Fund, as appropriate, against any expenses it incurs relating to or arising
out of the formation, operation or termination of the Fund or Master Fund, as appropriate, or the performance of its duties pursuant to the Trust Declarations, 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 Fund, the Master Fund 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 each Trust Declaration.
Under each 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 Master 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 Shareholders have no voice
in the day-to-day management of the business and operations of the Fund or the Master Fund, other than certain limited voting rights as set forth in each Trust Declaration. In the course of its management of the business and affairs of the Fund and
the Master Fund, 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 Master Fund, as appropriate.
Because the Trustee has delegated substantially all of its authority over the
operation of the Fund and the Master Fund to the Managing Owner, the Trustee itself is not registered in any capacity with the CFTC.
The Managing Owner
Background and Principals
DB Commodity
Services LLC, a Delaware limited liability company, is the Managing Owner of the Fund and the Master Fund. The Managing Owner serves as both commodity pool operator and commodity trading advisor of the Fund and Master Fund. The Managing Owner has
been registered with the CFTC as a commodity pool operator and commodity trading advisor since June 7, 2005 and is a member in good standing of the NFA in such capacity. Its principal place of business is 60 Wall Street, New York, New York
10005, telephone number (212) 250-5883. The Managing Owner is a wholly-owned subsidiary of DB U.S. Financial Markets Holding Corporation, which is a wholly-owned, indirect subsidiary of Deutsche Bank AG. DB U.S. Financial Markets Holding
Corporation has been a principal of the Managing Owner since June 7, 2005.
The registration of the Managing Owner with the CFTC and its membership in the NFA must not be taken as an indication that either
54
the CFTC or the NFA has recommended or approved the Managing Owner, the Fund or the Master Fund.
In its capacity as a commodity pool operator, the Managing Owner is an
organization which operates or solicits funds for a commodity pool; 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 and Key Employees
Kevin Rich, Noam Berk and Robert Lazarus serve as the Chief Executive Officer, Treasurer and Compliance Officer of the
Managing Owner, respectively.
The Managing Owner is managed by
a Board of Managers. The Board of Managers is comprised of Messrs. Rich, Berk and Lazarus.
Kevin Rich
joined Deutsche Bank AG in June 2003 and serves as a Director in the Commodities Asset Structuring Group with responsibility for providing commodity-based investor solutions to the DB sales
force in the Americas. Mr. Rich serves as an associated person and principal of the Managing Owner. Prior to joining Deutsche Bank, Mr. Rich was a Regional Vice President from November 2002 through May 2003 in Product Distribution for
Claymore Securities, Inc. (“Claymore”), responsible for distribution of closed-end funds and unit investment trusts in the State of New York. Mr. Rich acted as an independent product development consultant prior to joining Claymore
(August through October, 2002). From January 2000 through July 2002, Mr. Rich worked at Lehman Brothers, Inc. Mr. Rich served in several roles supporting the equities, fixed income and investment banking product lines. Mr. Rich
received his MBA in Finance from the New York University Leonard N. Stern School of Business in 1996 and his Bachelors of Science in Business Administration from Taylor University in Upland, Indiana in 1983.
Noam Berk
served as a Vice President in the Project and
Structured Finance Group of Deutsche Bank AG from January 2000 through June 2003.
Mr. Berk joined the Commodities Structuring Group of Deutsche Bank AG in June 2003. Mr. Berk has been a Director
of the Commodities Structuring Group since February 2005 and is responsible for providing for a wide range of structured commodity products to Deutsche Bank’s corporate and institutional client base. Mr. Berk serves as a principal of the
Managing Owner. Mr. Berk received his MBA in Finance from Columbia Business School in 1996, a Master of Arts from the University of North Carolina at Chapel Hill in 1993 and a Bachelors of Arts from Rutgers University in 1991.
Robert Lazarus
joined Deutsche Bank Securities Inc. in November
2003 as a Commodities and Futures Compliance Officer. His role was expanded in June 2004 to include Foreign Exchange compliance responsibilities. Mr. Lazarus became a Director in February 2005. From March 2001 through September 2003,
Mr. Lazarus was the Compliance Officer responsible for Commodities and Futures for Barclays Capital Inc. Mr. Lazarus was on sabbatical during October 2003. From January 2000 to March 2001, Mr. Lazarus held positions including,
Director—Head of Exchange Traded Derivatives and also Head of Capital Markets Fixed Income Compliance at PaineWebber Inc./UBS Securities Inc. Mr. Lazarus serves as a principal of the Managing Owner. Mr. Lazarus received his B.B.A.
from Bernard M. Baruch College in 1983.
Fiduciary
Obligations of the Managing Owner
As managing owner of
the Fund and the Master Fund, the Managing Owner effectively is subject to the duties and restrictions imposed on “fiduciaries” under both statutory and common law. The Managing Owner has a fiduciary responsibility to the Shareholders to
exercise good faith, fairness and loyalty in all dealings affecting the Fund and the Master Fund, consistent with the terms of the Trust Declarations. A form of each of the Trust Declarations 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 Fund and the Master Fund as described herein impracticable due to the strict prohibition
imposed by such duties on, for example, conflicts of interest on behalf of a fiduciary in its dealings with its beneficiaries), are defined and limited in scope by the disclosure of the business
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terms of the Fund and the Master Fund, as set forth herein and in the Trust Declarations (to which terms all Shareholders, by subscribing to the Shares, are
deemed to consent).
The Trust Declarations provide that the
Managing Owner and its affiliates shall have no liability to the Fund or the Master Fund or to any Shareholder for any loss suffered by the Fund or the Master Fund arising out of any action or inaction of the Managing Owner or its affiliates or
their respective directors, officers, shareholders, partners, members, managers or employees (the “Managing Owner Related Parties”) if the Managing Owner Related Parties, in good faith, determined that such course of conduct was in the
best interests of the Fund or the Master Fund, as applicable, and such course of conduct did not constitute negligence or misconduct by the Managing Owner Related Parties. The Fund and the Master Fund have agreed to indemnify the Managing Owner
Related Parties against claims, losses or liabilities based on their conduct relating to the Fund and the Master Fund, provided that the conduct resulting in the claims, losses or liabilities for which indemnity is sought did not constitute
negligence or misconduct and was done in good faith and in a manner reasonably believed to be in the best interests of the Fund or the Master Fund, as applicable.
Fiduciary and Regulatory Duties of the Managing Owner
An investor should be aware that the Managing Owner has a fiduciary responsibility to the Shareholders to exercise good faith and fairness in all dealings affecting the Fund and the Master Fund.
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 (“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 Fund and the Master 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.
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Ownership or Beneficial Interest in the Fund and Master Fund
The Managing Owner has made and expects to maintain an aggregate investment of $[25,000] in the Fund and the Master Fund. No principal has an ownership or beneficial interest in either the Fund or the Master 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 Fund or the Master Fund. Shareholders, may, however, remove and replace the Managing Owner as the managing owner of the
Fund, and may amend the Trust Declaration of the Fund, 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 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 liability
interest in the Fund or Master Fund, are non-voting.
The
Managing Owner has the right unilaterally to amend the Trust Declaration 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 Fund and the Master Fund in Certain States
A number of states do not have “business trust” statutes such as that under which the Fund and the Master Fund have 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 Declarations provide
that no written obligation may be undertaken by the Fund or Master Fund unless such obligation is explicitly limited so as not to be enforceable against any Shareholder personally. Furthermore, each of the Fund and Master Fund itself indemnifies all
its Shareholders against any liability that such Shareholders might incur in addition to that of a beneficial owner. The Managing Owner is itself generally liable for all obligations of the Fund and the Master Fund and will use its assets to satisfy
any such liability before such liability would be enforced against any Shareholder individually.
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 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
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Shareholders’ actions unrelated to the business of the Fund, or
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taxes imposed on the Shares by the states or municipalities in which such investors reside.
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The foregoing repayment of distributions and indemnity provisions (other than the provision for Shareholders indemnifying
the Fund for taxes imposed upon it by the state or municipality in which particular Shareholders reside, 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.
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Shares Freely Transferable
The
Shares will trade on the Amex and provide institutional and retail investors with direct access to the Fund. The Fund will hold no investment assets other than Master Fund Units. The Master Fund trades with a view to tracking the Index over time,
less expenses. The Fund’s Shares may be bought and sold on the Amex like any other exchange-listed security.
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 Fund’s 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 annual reports as required by the rules and regulations of the SEC as well as with those reports required by the CFTC and the National Futures Association, or the NFA, including, but not limited to, an annual
audited financial statement certified by independent public accountants and any other reports required by any other governmental authority that has jurisdiction over the activities of the Fund and the Master Fund. You also will be provided with
appropriate information to permit you to file your United States 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
Fund’s website at
www.dbvfund.db.com. Additional reports may be posted on the Fund’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 Fund and the Master Fund or of any material changes to the Fund or the Master Fund. Any such notification shall include a description of Shareholders’ voting rights.
Net Asset Value
Net asset
value means the total assets of the Master Fund including, but not limited to, all cash and cash equivalents or other debt securities less total liabilities of the Master 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 Master Fund but unpaid
or not received by the Master Fund. All open futures contracts traded on a United States exchange will be calculated at their then current market value, which will be 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 settlement price on the most recent day on which the position could have been liquidated will be the basis for determining the market value of such position
for such day. 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 settlement price on the most recent day on which the position could have been liquidated will be the basis for determining
the market value of such position for
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such day. The Managing Owner may in its discretion (and under extraordinary 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 man-made disaster, act of God, armed conflict, act of terrorism, riot or labor disruption or any similar
intervening circumstance) value any asset of the Master 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 Master
Fund’s foreign exchange futures brokerage account will be accrued at least monthly. The amount of any distribution will be a liability of the Master Fund from the day when the distribution is declared until it is paid.
Net asset value per Master Fund Unit is the net asset value of the Master
Fund divided by the number of outstanding Master Fund Units. Because there will be a one-to-one correlation between Shares and Master Fund Units, the net asset value per Share and the net asset value per Master Fund Unit will be equal.
Termination Events
The Fund
will dissolve at any time upon the happening of any of the following events:
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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 Fund is terminated as the result of an event of withdrawal and a failure of all remaining Shareholders to continue the business of the Fund 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 (not including Shares
held by the Managing Owner and its affiliates) may elect to continue the business of the Fund 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 of the Fund shall be bound thereby and continue as Shareholders of the reconstituted trust.
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The occurrence of any event which would make unlawful the continued existence of the Fund.
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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.
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The Fund becomes insolvent or bankrupt.
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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 Fund,
notice of which is sent to the Managing Owner not less than ninety (90) Business Days prior to the effective date of termination.
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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 Fund because the aggregate net asset value of the Fund as of the close of business on any business day declines below $10
million.
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The Fund becoming required to be registered as an investment company under the Investment Company Act of 1940.
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DTC is unable or unwilling to continue to perform its functions, and a comparable replacement is unavailable.
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THE ADMINISTRATOR
The Managing
Owner, on behalf of the Fund and the Master Fund, has appointed The Bank of New York as the administrator of the Fund and the Master Fund and has entered into an Administration Agreement in connection therewith.
The Bank of New York, a banking corporation organized under the laws of the
State of New York with trust powers, has an office at 2 Hanson Place, 12
th
Floor, Brooklyn, New York 11217. The Bank
of New York 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 by calling the following number: (718) 315-4412. A copy of the Administration Agreement is available for inspection at The Bank of New York’s
trust office identified above.
The Administrator will retain
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, c/o The Bank of New York, 2 Hanson Place, 12th Floor, Brooklyn, New York 11217, telephone number (718) 315-4850.
A summary of the material terms of the Administration Agreement is disclosed in the “Material Contracts” section.
The Administrator’s monthly fees of 0.05% per annum are paid 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 Administrator and any successor administrator must be a participant in
DTC or such other securities depository as shall then be acting.
The Administrator also will receive 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 indirectly by
the Authorized Participants and not by the Fund or the Master Fund.
The Fund is expected to retain the services of one or more additional service providers to assist with certain tax reporting requirements of the Fund and its shareholders.
THE DISTRIBUTOR
The Managing
Owner, on behalf of the Fund and the Master Fund, has appointed ALPS Distributors, Inc. or ALPS, to assist the Managing Owner and the Administrator with certain functions and duties relating to the creation and redemption of Baskets. Such services
will include the following: review of distribution-related legal documents and contracts; coordination of processing of Basket creations and redemptions; coordination and assistance with maintenance of creation and redemption records; consultation
with the marketing staff of the Managing Owner and its affiliates with respect to NASD compliance in connection with marketing efforts; review and filing of marketing materials with the NASD; and consultation with the Managing Owner and its
affiliates in connection with marketing and sales strategies. Investors may contact the Distributor toll-free in the U.S. at (877) 369-4617.
The Distributor will retain all marketing materials and Basket creation and redemption books and records at the offices of ALPS Distributors, Inc., 1625
Broadway, Suite 2200, Denver, Colorado 80202; telephone number (303) 623-2577.
The Managing Owner, out of the Management Fee will pay the Distributor approximately $50,000 per annum, plus any fees or disbursements incurred
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by the Distributor in connection with the performance by the Distributor of its duties on behalf of the Fund and the Master Fund and may pay the Distributor
additional compensation in consideration of the performance by the Distributor of additional marketing, distribution and ongoing support services. Such additional services may include, among other services, the development and implementation of a
marketing plan and the utilization of the Distributor’s resources, which include an extensive broker database and a network of internal and external wholesalers. ALPS is affiliated with ALPS Mutual Fund Services, Inc., a Denver-based service
provider for administration, fund accounting, transfer agency and shareholder services for mutual funds, closed-end funds and exchange-traded funds with over 100,000 shareholder accounts and approximately $10 billion in client mutual fund assets
under administration. ALPS provides distribution services and has approximately $120 billion in client assets under distribution.
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 Trustee and 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 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
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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 Master Fund entered into a brokerage agreement, or Brokerage Agreement. As a result the Commodity Broker:
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acts as the clearing broker;
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acts as custodian of the Master Fund’s assets; and
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performs such other services for the Master Fund as the Managing Owner may from time-to-time request.
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As clearing broker for the Master Fund, the Commodity Broker receive orders for trades from the Managing Owner.
Confirmations of all executed trades are given to the Master Fund by the
Commodity Broker. The
Brokerage Agreement incorporates the Commodity Broker’s standard customer agreements and related documents, which generally include provisions that:
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all funds, futures and open or cash positions carried for the Master Fund will be held as security for the Master Fund’s obligations to the Commodity Broker;
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the margins required to initiate or maintain open positions will be as from time-to-time established by the Commodity Broker and may exceed exchange minimum levels; and
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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 Master Fund.
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As custodian of the Master Fund’s assets,
the Commodity Broker is responsible, among other things, for providing periodic accountings of all dealings and actions taken by the Master 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 Master Fund.
Administrative functions provided by the Commodity Broker to the Master 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 Master Fund is in effect, the Commodity Broker will not charge the Master 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 Master Fund or the Commodity Broker without penalty upon thirty (30) days’ prior written notice (unless where
certain events of default occur or there is a material adverse change the Master Fund’s financial position, in which case only prior written notice is required to terminate the Brokerage Agreement).
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The Brokerage Agreement provides that neither the Commodity Broker nor any of its managing directors, officers, employees or affiliates shall be liable for
any costs, losses, penalties, fines, taxes and damages sustained or incurred by the Master 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 Fund, the Master Fund and the Administrator, the Administrator will perform or supervise the performance of services necessary for the operation and administration of the Fund and the
Master Fund (other than making investment decisions), including 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 upon 30 days prior written notice if the Fund and/or Master 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 shall not be liable for any costs, expenses, damages, liabilities or
claims (including attorneys’ and accountants’ fees) incurred by either the Fund or Master Fund, except those costs, expenses, damages, liabilities or claims arising out of the Administrator’s own gross negligence or willful
misconduct. In no event shall the Administrator be liable to either the Fund, Master 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 shall 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.
Both the Fund and Master Fund shall indemnify
and hold harmless the Administrator from and against any and all costs, expenses, damages, liabilities and claims (including claims asserted by either the Fund or Master 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 Master Fund, or arising out of transactions or other activities of the Fund or Master Fund which occurred prior to the commencement of the Administration Agreement; provided, that neither the
Fund nor Master Fund shall indemnify the Administrator for costs, expenses, damages, liabilities or claims for which the Administrator is liable under the preceding paragraph. This indemnity shall be a continuing obligation of both the Fund and
Master Fund, their successors and assigns, notwithstanding the termination of the Administration Agreement. Without limiting the generality of the foregoing, each of the Fund or Master Fund shall 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, 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 or Master Fund; (ii) action or inaction taken or omitted
to be taken by the Administrator pursuant to Proper Instructions of the Fund or Master Fund or otherwise without gross negligence or willful misconduct; (iii) any action taken or omitted to be
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taken by the Administrator in good faith in accordance with the advice or opinion of counsel for the Fund or Master Fund or its own counsel; (iv) any
improper use by the Fund or Master Fund or their 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 or Master 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 Fund or Master
Fund or its own counsel, shall be conclusively presumed to have been taken or omitted in good faith.
Notwithstanding any other provision contained in the Administration Agreement, the Administrator shall have no duty or obligation with respect to,
including, without limitation, any duty or obligation to determine, or advise or notify the Fund or Master Fund of: (a) the taxable nature of any distribution or amount received or deemed received by, or payable to the Fund or Master Fund;
(b) the taxable nature or effect on the Fund or Master Fund or their 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 or Master Fund to their shareholders; or (d) the effect under any federal, state, or foreign income tax laws of the Fund or Master Fund making or not making any distribution or dividend payment,
or any election with respect thereto.
Global Custody Agreement
The
Bank of New York will serve as the Fund’s custodian, or Custodian. Pursuant to the Global Custody Agreement between the Fund and the Custodian, or Custody Agreement, the Custodian serves as custodian of all the Fund’s securities and cash
at any time delivered to Custodian 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 will maintain one or more securities accounts and cash accounts pursuant to the Custody Agreement. The Custodian shall maintain books and records segregating the assets.
Either party may terminate the Custody Agreement by giving to the other party
a notice in writing specifying the date of such termination, which shall be not less than ninety (90) days after the date of such notice. Upon termination thereof, the Fund shall pay to the Custodian such compensation as may be due to the
Custodian, and shall likewise reimburse the Custodian for other amounts payable or reimbursable to the Custodian thereunder. The Custodian shall follow such reasonable oral or written instructions concerning the transfer of custody of records,
securities and other items as Customer shall give; provided, that (a) the Custodian shall have no liability for shipping and insurance costs associated therewith, and (b) full payment shall have been made to Custodian of its compensation,
costs, expenses and other amounts to which it is entitled hereunder. If any securities or cash remain in any account, Custodian may deliver to Customer such securities and cash. Except as otherwise provided herein, all obligations of the parties to
each other hereunder shall 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 shall not be liable for any costs, expenses, damages, liabilities or
claims, including attorneys’ and accountants’ fees, or losses, incurred by or asserted against Fund, except those losses arising out of the gross negligence or willful misconduct of the Custodian. The Custodian shall 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 Fund as a result of the acts or the failure
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to act by any subcustodian (other than an affiliate of the Custodian), the Custodian shall take appropriate action to recover such losses from such
subcustodian; and the Custodian’s sole responsibility and liability to Fund shall be limited to amounts so received from such subcustodian (exclusive of costs and expenses incurred by the Custodian). In no event shall the Custodian be liable to
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 Fund shall 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 Fund (including any payment of tax required by
reason of an earlier failure to withhold). The Custodian shall, or shall 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 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 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 Fund; provided however, that Fund shall not indemnify the Custodian for those losses arising
out of the Custodian’s gross negligence or willful misconduct. This indemnity shall be a continuing obligation of Fund, its successors and assigns, notwithstanding the termination of the Custody Agreement.
Transfer Agency and Service Agreement
The Bank of New York will serve as the Fund’s transfer agent, or Transfer Agent. Pursuant to the Transfer Agency and Service Agreement between the Fund and the Transfer Agent, the Transfer Agent will serve as the Fund’s transfer
agent, dividend 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 shall automatically renew for additional one year terms
unless either party provides written notice of termination at least ninety (90) days prior to the end of any one year term or, unless earlier terminated as provided below:
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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, 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.
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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 and terminate its registration with the Securities and Exchange Commission other than in connection with a merger or acquisition of the Trust.
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The Transfer Agent shall have no responsibility and shall 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 shall the Transfer Agent be liable for special, indirect or
consequential damages regardless of the form of action and even if the same were foreseeable.
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Pursuant to the Transfer Agency and Service Agreement, the Transfer Agent shall not be responsible for, and the Fund shall 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:
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All actions of the Transfer Agent or its agents or subcontractors required to be taken pursuant to this Agreement, provided that such actions are taken without gross negligence, or
willful misconduct.
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The Fund’s gross negligence or willful misconduct.
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The breach of any representation or warranty of the Fund thereunder.
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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 Fund or any other person or firm on behalf of the Fund including but not limited to any previous transfer agent or registrar.
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The conclusive reliance on, or the carrying out by the Transfer Agent or its agents or subcontractors of any instructions or requests of the Fund on behalf of the Fund.
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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.
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Distribution Services Agreement
ALPS will provide certain distribution services to the Fund. Pursuant to the Distribution Services Agreement between the Fund and the Distributor, the Distributor will assist the Managing Owner and the Administrator with certain functions
and duties relating to the creation and redemption of Baskets.
The date of the Distribution Services Agreement shall be the effective date and such Agreement shall
continue until two years from such date and thereafter shall continue automatically for
successive annual periods, provided that such continuance is specifically approved at least annually (i) by the Fund’s Managing Owner or 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 the Distributor. The Distribution Services Agreement shall automatically terminate in the event of its assignment.
Pursuant to the Distribution Services Agreement, the Fund shall indemnify the
Distributor as follows:
The Fund indemnifies and holds
harmless the Distributor and each of its directors and officers and each person, if any, who controls the Distributor 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 expense and reasonable counsel 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 the Distributor 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 the Distributor. In no case
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is the indemnity of the Fund in favor of the Distributor or any person indemnified to be deemed to protect the Distributor or any person against any liability to the Fund or its
security holders to which the Distributor 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
this Agreement, or
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is the Fund to be liable under its indemnity agreement contained in this paragraph with respect to any claim made against the Distributor or any person indemnified unless the
Distributor or person, as the case may be, shall 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 shall have been served upon the Distributor
or any such person (or after the Distributor or such person shall have received notice of service on any designated agent).
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However, failure to notify the Fund of any claim shall 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 contained in this paragraph. The Fund shall 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 shall be conducted by counsel chosen by the Fund. In the event the Fund elects to assume the defense of any suit and retain counsel, the Distributor, officers or directors or
controlling person(s), defendant(s) in the suit, shall 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 the Distributor, 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 the Distributor 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 United States federal (and certain state and local) income tax considerations associated with the purchase, ownership and disposition of Shares as of the date hereof
by United States Shareholders (as defined below) and non-United States Shareholders (as defined below). Except where noted, this discussion deals only with Shares held as capital assets by Shareholders who acquired Shares upon
their original issuance and does not address special situations, such as those of:
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dealers in securities or currencies;
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financial institutions;
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regulated investment companies, other than the application of certain qualification requirements to an investment in the Shares;
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real estate investment trusts;
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tax-exempt organizations;
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persons holding Shares as a part of a hedging, integrated or conversion transaction or a straddle;
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traders in securities that elect to use a mark-to-market method of accounting for their securities holdings; or
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persons liable for alternative minimum tax.
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Furthermore, the discussion below is based upon the provisions of the Internal Revenue Code of 1986, as amended, or the Code, the Treasury regulations
promulgated thereunder, or the Regulations, 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 United States federal income tax consequences different from those described below.
A “U.S. Shareholder” of Shares means a beneficial owner of Shares that is for United States federal income tax purposes:
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an individual citizen or resident of the United States;
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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;
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an estate the income of which is subject to United States federal income taxation regardless of its source; or
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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 Regulations to be treated as a U.S. person.
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A “non-U.S. Shareholder” of Shares 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
United States federal income tax purposes holds Shares, the tax treatment of a partner will generally depend upon the status of the partner and the activities of the partnership. If you are a partner of 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 United States federal income tax purposes. As a result, we cannot assure you that the United States Internal Revenue Service, or 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 income, gain or loss 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 United States 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 other relevant documents), in the opinion of Sidley Austin
LLP
, the Fund will not be classified as an association taxable as a corporation. As a
result, for tax purposes, you will be treated as the beneficial owner of a pro rata portion of the interests in the Master Fund held by the Fund. The Fund intends to take the position that it is a grantor trust for Federal income tax purposes,
although it is possible that the IRS might disagree and choose to treat it as a partnership or disregarded entity. While such recharacterization would impact the manner in which the Fund’s annual tax information is reported to Shareholders, it
should not materially impact the timing of income or loss recognition or character of income realized by Shareholders. As described herein, the underlying Master Fund is classified as a partnership and the Fund will not under any characterization be
subject to
entity-level income tax. If the Fund were to be treated as a disregarded entity, Shareholders would be treated as directly owning a proportionate share of the Fund’s partnership interest
in the Master Fund and would take into account their allocable share of Master Fund tax items, a result identical to that described above for treatment of the Fund as a grantor trust. If the Fund were classified as a partnership, Fund Shareholders
would be treated as owning interests in a holding partnership whose only investment is an equity interest in the Master Fund. Because ownership of the Fund and Master Fund will be identical (except for the small equity interest of the Managing Owner
in the Master Fund), the tax years of the two partnerships would always be the same and Shareholders in the Fund would look through to the assets and tax items of the Master Fund when determining their federal income tax liability for any particular
tax year. This tax treatment is, likewise, the same as if the Fund were characterized as a grantor trust. The only impact a reclassification of the Fund would have on Shareholders is the manner in which their annual share of tax items related to the
underlying Master Fund assets is reported to them. If the Managing Owner determines, based on a challenge to the Fund’s tax status or otherwise, that the existence of the Fund results or is reasonably likely to result in a material tax
detriment to Shareholders, then the Managing Owner may, among other things, agree to dissolve the Fund and transfer the Master Fund interests to Shareholders in exchange for their Shares.
Status of the Master Fund
A
partnership is not a taxable entity and incurs no United States 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 (“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 Master Fund) a principal activity of which is the buying
and selling of regulated futures contracts with respect to currencies, income and gains derived from regulated futures contracts with respect to currencies. The
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Master 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.
Under current law and
assuming full compliance with the terms of the Trust Declaration (and other relevant documents) and based upon factual representations made by the Master Fund, in the opinion of Sidley Austin
LLP
, the Master Fund will be
classified as a partnership for United States federal income tax purposes. The factual representations upon which Sidley Austin
LLP
has relied are: (a) the Master Fund has not elected and will not elect to be treated as a
corporation for United States federal income tax purposes; and (b) for each taxable year, 90% or more of the Master Fund’s gross income will be qualifying income.
There can be no assurance that the IRS, will not assert that the Master Fund should be treated as a publicly traded
partnership taxable as a corporation. No ruling has been or will be sought from the IRS, and the IRS has made no determination as to the status of the Master Fund for United States federal income tax purposes or whether the Master Fund’s
operations generate “qualifying income” under Section 7704(d) of the Code. Whether the Master Fund will continue to meet the qualifying income exception is a matter that will be determined by the Master Fund’s operations and the
facts existing at the time of future determinations. However, the Master Fund’s Managing Owner will use its best efforts to cause the operation of the Master Fund in such manner as is necessary for the Master Fund to continue to meet the
qualifying income exception.
If the Master Fund fails to
satisfy the qualifying income exception described above (other than a failure which is determined by the IRS to be inadvertent and which is cured within a reasonable period of time after the discovery of such failure), the Master Fund will be
treated as if it had transferred all of its assets, subject to its liabilities, to a newly formed corporation, on the first day of the year in which it failed to satisfy the exception, in return for stock in that corporation, and then distributed
that stock to the Shareholders in liquidation of their interests in the company. This contribution and liquidation generally should be tax free to Shareholders and the Master Fund so long as the
Master
Fund, at that time, does not have liabilities in excess of its tax basis in its assets. Thereafter, the Master Fund would be treated as a corporation for United States federal income tax purposes. If the Master 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, its items of income, gain, loss and deduction would be reflected only on its tax return rather than being passed through to the
Shareholders, and its net income would be taxed to it at the income tax rates applicable to domestic corporations. In addition, any distribution made to the Fund would be treated as taxable dividend income, to the extent of the Master Fund’s
current or accumulated earnings and profits, or, in the absence of current and accumulated earnings and profits, a nontaxable return of capital to the extent of each Shareholder’s tax basis in its Shares, or taxable capital gain, after the
Shareholder’s tax basis in its Shares is reduced to zero. Taxation of the Master 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 Master Fund will be classified as a partnership that is not subject to corporate income tax for United States federal income tax purposes.
U.S. Shareholders
Treatment of the Master Fund Income
A
partnership does not incur United States 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 Master Fund’s income, gain, loss, deduction and other items for the Master Fund’s taxable year ending with or within its taxable year. In computing a
partner’s United States federal income tax liability, such 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 Master Fund generates taxable income but does not make cash distributions. The Master Fund’s taxable year
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will end on December 31 unless otherwise required by law. The Master Fund will use the accrual method of accounting.
Fund Shareholders will take into account their share of ordinary income
realized by the Master Fund from accruals of interest on Treasury Bills (“T-Bills”) held in the Master Fund portfolio. The Master Fund may hold T-Bills with “original issue discount”, in which case Fund Shareholders would 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 Master Fund may also acquire T-Bills with “market discount.” Upon disposition of such
obligations, gain would generally be required to be treated as interest income to the extent of the market discount and Fund Shareholders would be required to include as ordinary income their share of such market discount that accrued during the
period the obligations were held by the Master Fund.
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 Section 1256 Contracts. A Section 1256 Contract includes certain regulated
futures contracts. It is expected that the futures on the Index held by the Master Fund will constitute Section 1256 Contracts. Section 1256 Contracts held by the Master Fund at the end of a taxable year of the Master Fund will be treated
for United States federal income tax purposes as if they were sold by the Master 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 Master Fund’s obligations under such contracts), must be taken into account by the Master
Fund in computing its taxable income for the year. If a Section 1256 Contract held by the Master 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.
Shareholders of Fund 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 Master Fund. If a noncorporate 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 noncorporate taxpayer may be deducted only to the extent (1) the loss does not exceed the net carryback 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.
Because the regulated currency futures contracts in which the Master Fund will invest are Section 1256 Contracts, the provisions of Code Section 988, relating to foreign currency-related gains and losses,
will not apply to such futures contracts. However, investors in the Shares are permitted to elect to have the provisions of Section 988 apply with respect to their allocable share of the Master Fund’s currency futures contracts. If such
election is made in a timely manner, such investor’s allocable share of the gains and losses from such contracts would receive ordinary income or ordinary loss treatment rather than capital gain or loss treatment (as discussed above). The
mark-to-market rules of Section 1256 would continue to apply to such contracts. If such election is made, the Section 988 rules would apply to all of the taxpayer’s regulated futures contracts and non-equity options that are
Section 988 transactions for the year in which such election is made and succeeding years, unless such election is revoked with the consent of the IRS.
Allocation of the Master Fund’s Profits and Losses
For United States federal income tax purposes, a Shareholder’s distributive share of the Master Fund’s income,
gain, loss, deduction and other items will be determined by the Master Fund’s Trust Declaration, unless an allocation under the 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 “—Section 754 Election,” the allocations pursuant
to the Master
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Fund’s Trust Declaration should be considered to have substantial economic effect or deemed to be made in accordance with the partners’ interests
in the partnership.
If the allocations provided by the Master
Fund’s Trust Declaration were successfully challenged by the IRS, the amount of income or loss allocated to Shareholders for United States federal income tax purposes under the agreement could be increased or reduced or the character of the
income or loss could be modified.
As described in more detail
below, the U.S 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
Master Fund will apply certain assumptions and conventions intended to comply with the intent of the rules and to report income, gain, deduction, loss 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 you.
Monthly Allocation and Revaluation Conventions
In general, the Master Fund’s taxable income and losses will be determined monthly and will be apportioned among the holders of Fund Shares in
proportion to the number of Shares treated as owned by each of them as of the close of the last trading day of the preceding month. By investing in Fund Shares, a U.S. Holder 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.
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 close of the last trading day of the following month. As a result, a holder who has disposed of shares
prior to the close of the last trading day of a month may be allocated income, gain, loss and deduction realized after the date of transfer.
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 Master Fund’s monthly convention for allocating income and deductions.
If this were to occur, the Master Fund’s allocation method might be deemed to violate that requirement.
In addition, for any month in which a creation or redemption of Shares takes place, the Master Fund generally will credit or debit, respectively, the
“book” capital accounts of the holders of existing Shares with any unrealized gain or loss in the Master Fund’s assets. This will result in the allocation of items of the Master Fund’s income, gain, loss, deduction and credit to
existing holders of Shares to account for the difference between the tax basis and fair market value of property owned by the Master Fund at the time new Shares are issued or old Shares are redeemed (“reverse section 704(c) allocations”).
The intended effect of these allocations is to allocate any built-in gain or loss in the Master 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 Master Fund generally will
use a monthly convention for purposes of the reverse section 704(c) allocations. More specifically, the Master Fund generally will credit or debit, respectively, the “book” capital accounts of the holders of existing Shares with any
unrealized gain or loss in the Master Fund’s assets based on a calculation utilizing the lowest trading price of the Master Fund’s 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 (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
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be allocated some or all of the unrealized gain in the Master Fund’s assets at the time it acquires the Shares or (ii) an existing holder of Shares
will not be allocated its entire share in the unrealized loss in the Master Fund’s assets at the time of such acquisition. Furthermore, the applicable Treasury regulations generally require that the “book” capital accounts will 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
regulations do not contemplate monthly allocation or revaluation conventions. If the IRS does not accept the Master Fund’s monthly allocation or revaluation convention, the IRS may contend that taxable income or losses of the Master Fund must
be reallocated among the holders of Shares. If such a contention were sustained, the holders’ respective tax liabilities would be adjusted to the possible detriment of certain holders. The Manager is authorized to revise the Master 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 Master Fund.
Section 754 Election
The Master Fund intends to make 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 such election by the Master Fund will generally have the effect of requiring a purchaser of Shares to adjust its proportionate share of the basis
in the Master 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 Master
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 Master Fund’s assets associated with all of the other Shareholders. Depending on the relationship between
a holder’s purchase price for Shares and its
unadjusted share of the Master Fund’s inside basis at the time of the purchase, the Section 754 election may be either advantageous or
disadvantageous to the holder as compared to the amount of gain or loss a holder 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. Therefore, if the Master Fund makes the election under Code Section 754, it is expected that the Master Fund will apply certain conventions in determining and allocating the
Section 743 basis adjustments to help reduce the complexity of those calculations and the resulting administrative costs to the Master Fund. It is possible that the IRS will successfully assert that some or all of such conventions utilized by
the Master Fund do not satisfy the technical requirements of the Code or the Regulations and, thus, will require different basis adjustments to be made.
In order to make the basis adjustments permitted by Section 754, the Master Fund will be required to obtain information regarding each holder’s
secondary market transactions in Shares as well as creations and redemptions of Shares. The Master Fund will seek such information from the record holders of Shares, and, by purchasing Shares, each beneficial owner of Shares will be deemed to have
consented to the provision of such information by the record owner of such beneficial owner’s Shares. Notwithstanding the foregoing, however, there can be no guarantee that the Master Fund will be able to obtain such information from record
owners or other sources, or that the basis adjustments that the Master Fund makes based on the information it is able to obtain will be effective in eliminating disparity between a holder’s outside basis in its share of the Master Fund
Interests and its share of inside basis.
Constructive
Termination
The Master Fund will be considered to
have terminated for tax purposes if there is a sale or exchange of 50 percent or more of the total Shares within a 12-month period. A constructive termination results in the closing of the Master Fund’s taxable year for all holders of Shares.
In the case of a holder of Shares reporting on a taxable year other than the
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taxable year used by the Master Fund (which is expected to be a fiscal year ending December 31), the early closing of the Master Fund’s taxable
year may result in more than 12 months of its taxable income or loss being includable in such holder’s taxable income for the year of termination. The Master 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 Master 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 Master Fund will be taxable to a Shareholder only to the extent such distributions exceed the Shareholder’s tax basis in the partnership
interests it is treated as owning (see “—Tax Basis in Partnership Interests” 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).
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 of
Shares. If the Master Fund disposes of assets in connection with the redemption of a Basket of Shares, however, the disposition may give rise to gain or loss that will be allocated in part to you. An Authorized Participant’s creation or
redemption of a Basket of Shares also may affect your share of the Master Fund’s tax basis in its assets, which could affect the amount of gain or loss allocated to you on the a sale or disposition of portfolio assets by the Master Fund.
Disposition of Shares
If a U.S. Shareholder transfers Shares, it will be treated for United States
federal income tax purposes as transferring its
pro rata
share of the partnership interests held by Fund. If 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 partnership interests deemed sold. The amount realized will include
the U.S. Shareholder’s share of the Master 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 Master Fund Units deemed 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.
Tax Basis in Master Fund Units
A U.S. Shareholder’s initial tax basis in the partnership interests it
is treated as holding will equal the sum of (a) the amount of cash paid by such U.S. Shareholder for its Shares and (b) such U.S. Shareholder’s share of the Master Fund’s liabilities. A U.S. Shareholder’s tax basis in the
Master Fund Units it is treated as holding will be increased by (a) the U.S. Shareholder’s share of the Master Fund’s taxable income, including capital gain, (b) the U.S. Shareholder’s share of the Master Fund’s income,
if any, that is exempt from tax and (c) any increase in the U.S. Shareholder’s share of the Master Fund’s liabilities. A U.S. Shareholder’s tax basis in the Fund Shares it is treated as holding 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 Master Fund’s losses and deductions, (c) the U.S. Shareholder’s share of the
Master 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 Master 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 that Shareholder’s “net investment income.” Investment interest expense would generally include interest expense incurred by
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the Master 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 Fund Shares. Net investment income includes gross income from property held for investment and amounts treated as portfolio income, such as dividends and interest, under the passive loss rules, 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 such U.S. Shareholder. The Code imposes additional limitations (which are scheduled to be phased out between 2006 and 2010) 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:
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3% of the individual’s adjusted gross income in excess of certain threshold amounts; or
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80% of the amount of certain itemized deductions otherwise allowable for the taxable year.
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In addition, these expenses are also not deductible in determining the alternative minimum tax liability of a U.S.
Shareholder. The Master Fund will report such expenses on a
pro rata
basis to the Shareholders, and each U.S. Shareholder will determine separately to what extent they are deductible on such U.S. Shareholder’s tax return. A U.S.
Shareholder’s inability to deduct all or a portion of such expenses could result in an amount of taxable income to such U.S. Shareholder with respect to the Master Fund that exceeds the amount of cash actually distributed to such U.S.
Shareholder for the year. It is anticipated that management fees the Master 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 not less than 60 months. The Master Fund has not yet determined whether it will make such an election. A U.S.
Shareholder’s distributive share of such organizational expenses would constitute miscellaneous itemized deductions. Expenditures in connection with the issuance and marketing of Shares (so called “syndication fees”) are not eligible
for the 60-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 temporary Regulations, income or loss from the Master Fund’s investments generally will not constitute income or losses from a passive activity. Therefore, income or loss from the Master
Fund’s investments will not be available to offset a U.S. Shareholder’s passive losses or passive income from other sources.
Transferor/Transferee Allocations
In general, the Master Fund’s taxable income and losses will be determined monthly and will be apportioned among the Fund’s Shareholders in
proportion to the number of Master Fund Units treated as owned by each of them as of the close of the last trading day of the preceding month. With respect to any Master Fund Unit that was 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 Master Fund Unit (other than an underwriter or other person holding in a similar capacity) for United States federal income tax purposes will be treated as holding
such Master Fund Unit for this purpose as of the close of the last trading day of the preceding month. As a result, a Shareholder transferring its Shares may be allocated income, gain, loss and deduction realized after the date of transfer.
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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 United States federal income tax purposes when the transfer is completed without regard to the Master Fund’s convention for
allocating income and deductions. In that event, the Master 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
Regulations (or only applies to transfers of less than all of a Shareholder’s Shares) or if the IRS otherwise does not accept the Master Fund’s convention, the IRS may contend that taxable income or losses of the Master Fund must be
reallocated among the Shareholders. If such a contention were sustained, the Shareholders’ respective tax liabilities would be adjusted to the possible detriment of certain Shareholders. The Master Fund’s Managing Owner is authorized to
revise the Master Fund’s methods of allocation between transferors and transferees (as well as among Shareholders whose interests otherwise vary during a taxable period).
Tax Reporting by the Fund and the Master Fund
Information returns will be filed with the IRS, as required, with respect to income, gain, loss, deduction and other items
derived from the Fund’s Shares. The Master Fund will file a partnership return with the IRS and intends to issue a Schedule K-1 to the trustee on behalf of the Shareholders. The trustee of the Fund intends to report to you all necessary items
on a tax information statement or some other form as required by law. If you hold your Shares through a nominee (such as a broker), we anticipate that the nominee will provide you with an IRS Form 1099 or substantially similar form, which will be
supplemented by additional tax information that we will make available directly to you at a later date, but in time for you to prepare your federal income tax return. Each holder of Shares hereby agrees to allow brokers and nominees to report to the
Master Fund its name and address and such other information as may be reasonably requested by the Master Fund for
purposes of complying with its tax reporting obligations. We note that, given the lack of
authority addressing structures similar to that of the Fund and the Master Fund, it is not certain that the IRS will agree with the manner in which tax reporting by the Fund and the Master Fund will be undertaken. Furthermore, Shareholders should be
aware that Regulations have been proposed which, if finalized, could alter the manner in which tax reporting by the Fund and any nominee will be undertaken.
Treatment of Securities Lending Transactions involving Shares
A Shareholder whose Shares are loaned to a “short seller” to cover a short sale of Shares may be considered as
having disposed of those Shares. If so, such Shareholder would no longer be a beneficial owner of a
pro rata
portion of the partnership interests with respect to those Shares during the period of the loan and may recognize gain or loss from
the disposition. As a result, during the period of the loan, (1) any of Master Fund’s income, gain, loss, deduction or other items with respect to those Shares would not be reported by the Shareholder, and (2) any cash distributions
received by the Shareholder as to those Shares could be fully taxable, likely as ordinary income. Accordingly, Shareholders who desire to avoid the risk of income recognition from a loan of their Shares to a short seller are urged to modify any
applicable brokerage account agreements to prohibit their brokers from borrowing their Shares.
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 Master Fund’s Trust Declaration the Managing Owner will be appointed the “tax matters
partner” of the Master Fund for all purposes pursuant to Sections 6221-6231 of the Code. The tax matters partner, which is required by the Master Fund’s Trust Declaration to notify all U.S. Shareholders of any United States federal income
tax
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audit of the Master Fund, will have the authority under the Trust Declaration to conduct any IRS audits of the Master 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 by the tax matters partner will be binding on all U.S. Shareholders. As the tax matters partner,
the Managing Owner will have the right on behalf of all Shareholders to extend the statute of limitations relating to the Shareholders’ United States federal income tax liabilities with respect to Master Fund items.
A United States federal income tax audit of the Master Fund’s
information 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 Master Fund as well as to the Master Fund related items. In
particular, there can be no assurance that the IRS, upon an audit of an information return of the Fund or the Master 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
Master Fund. A U.S. Shareholder would be liable for interest on any deficiencies that resulted from any adjustments. Potential 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.
Foreign Tax Credits
Subject to generally applicable limitations, U.S. Shareholders will be able to claim foreign tax credits with respect to certain foreign income taxes paid
or incurred by the Master Fund, withheld on payments made to us or paid by us on behalf of Fund Shareholders. If a Shareholder elects to claim foreign tax credit, it must include in its gross income, for United States federal income tax purposes,
both its share of the Master Fund’s items of income and gain and also its share of the amount which is deemed to be the Shareholder’s portion of foreign income taxes paid with respect to, or withheld from, interest or other income derived
by the Master Fund. U.S. Shareholders may then subtract from their United States federal income tax the amount of such taxes withheld, or else treat such foreign taxes as deductions from gross income; however, as in the
case of investors receiving income directly from foreign sources, the above described tax credit or deduction is subject to certain limitations. Even if the Shareholder is unable to claim a credit, he or she must
include all amounts described above in income. U.S. Shareholders are urged to consult their tax advisers regarding this election and its consequences to them.
Tax Shelter Disclosure Rules
There are circumstances under which certain transactions must be disclosed to the IRS in a disclosure statement attached to a taxpayer’s United
States federal income tax return. (A copy of such statement must also be sent to the IRS Office of Tax Shelter Analysis.) In addition, the Code imposes a requirement on certain “material advisers” to maintain a list of persons
participating in such transactions, which list must be furnished to the IRS upon written request. These provisions can apply to transactions not conventionally considered to involve abusive tax planning. Consequently, it is possible that such
disclosure could be required by the Master Fund or the Shareholders (1) if a Shareholder incurs a loss (in each case, in excess of a threshold computed without regard to offsetting gains or other income or limitations) from the disposition
(including by way of withdrawal) of Shares or (2) possibly in other circumstances. Furthermore, the Master Fund’s material advisers could be required to maintain a list of persons investing in the Master Fund pursuant to the Code. While
the tax shelter disclosure rules generally do not apply to a loss recognized on the disposition of an asset in which the taxpayer has a qualifying basis (generally a basis equal to the amount of cash paid by the taxpayer for such asset), such rules
will apply to a taxpayer recognizing a loss with respect to interests in a pass through entity (such as the Shares) even if its basis in such interests is equal to the amount of cash it paid. In addition, under recently enacted legislation,
significant penalties may be imposed in connection with a failure to comply with these reporting requirements. U.S. Shareholders are urged to consult their tax advisers regarding the tax shelter disclosure rules and their possible application to
them.
Non-U.S. Shareholders
A non-U.S. Shareholder will not be subject to United States federal income
tax on such Shareholder’s
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distributive share of the Master Fund’s income, provided that such income is not considered to be income of the Shareholder that is effectively
connected with the conduct of a trade or business within the United States. In the case of an individual non-U.S. Shareholder, such Shareholder will be subject to United States federal income tax on gains on the sale of Shares in the Master
Fund’s or such Shareholder’s distributive share of gains if such Shareholder is present in the United States for 183 days or more during a taxable year and certain other conditions are met.
If the income from the Master Fund is “effectively connected” with
a U.S. trade or business carried on by a non-U.S. Shareholder (and, if certain income tax treaties apply, is attributable to a U.S. permanent establishment), then such Shareholder’s share of any income and any gains realized upon the sale or
exchange of Shares will be subject to United States federal income tax at the graduated rates applicable to United States citizens and residents and domestic corporations. Non-U.S. Shareholders that are corporations may also be subject to a 30% U.S.
branch profits tax (or lower treaty rate, if applicable) on their effectively connected earnings and profits that are not timely reinvested in a U.S. trade or business.
Non-U.S. Shareholders that are individuals will be subject to United States federal estate tax on the value of United States
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 interests of the Master Fund) will be considered United States 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
Regulated investment company (“RIC”)
investors in Shares will be treated as owning a proportionate share of the Master Fund’s assets and will take into account their allocable share of the
Master Fund’s income, gains and losses
when testing the various compliance requirements specifically applicable to them. The Master Fund does not meet the definition of a qualified publicly traded partnership for purposes of the newly created category of qualifying RIC income added to
the Code by the American Jobs Creation Act of 2004. However, under current interpretation of the RIC qualification rules, a RIC’s allocable share of income from the Master Fund’s currency futures transactions and interest income from its
investment in debt obligations are treated as qualifying income. Because the Master Fund is not a qualified PTP, a RIC’s investment in the Shares will not be counted against the 25 percent limit on a RIC’s permitted investment in
securities issued by qualified PTPs, and a RIC need not limit its investment in Shares provided it otherwise can satisfy the qualification requirements. The IRS has specific statutory authority (granted in 1987) to promulgate regulations excluding
from the definition of qualifying income foreign currency gains which are not directly related to the company’s principal business in stock or securities (or options and futures with respect to stock or securities), although to date no such
regulations have been issued or proposed. For this reason, there are some RICs which do not invest in foreign currencies except as a way to hedge risk for investments which may be denominated in or affected by certain foreign currency fluctuations.
At least one RIC has obtained a private ruling from the IRS that gains on its derivative investments used to obtain exposure to foreign currencies would constitute qualifying income under current law and, additionally, if the ruling is revoked or
modified based on future regulations, the finding of the ruling will likely not be modified retroactively. RIC investors that have not sought their own rulings on the issue face a risk that future regulations will recharacterize foreign currency
gains received by them as nonqualifying income and be retroactive in application. Prospective RIC investors should consult a tax adviser regarding the treatment of an investment in the Master Fund to them under current tax rules.
Tax-Exempt Organizations
An organization that is otherwise exempt from United States federal income
tax is nonetheless subject to taxation with respect to its “unrelated business taxable income,” or UBTI, to the extent that its UBTI from all sources exceeds $1,000 in any
77
taxable year. 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 Master 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.
To the extent the Master Fund recognizes gain from property with respect to which there is “acquisition
indebtedness,” the portion of the gain that will be treated as UBTI will be equal to the amount of the gain times a fraction, the numerator of which is the highest amount of the “acquisition indebtedness” with respect to the property
during the twelve-month period ending with the date of their disposition, and the denominator of which is the “average amount of the adjusted basis” of the property during the period such property is held by the Master Fund during the
taxable year. In determining the unrelated debt-financed income of the Master Fund, an allocable portion of deductions directly connected with the Master Fund’s debt financed property will be taken into account. In making such a determination,
for instance, a portion of losses from debt financed securities (determined in the manner described above for evaluating the portion of any gain that would be treated as UBTI)
would offset gains treated
as UBTI. A charitable remainder trust will not be exempt from United States federal income tax under the Code for any year in which it has UBTI; in view of the potential for UBTI, the Shares are not a suitable investment for a charitable remainder
trust.
Certain State and Local Taxation Matters
Prospective Shareholders should consider, in addition
to the United States federal income tax consequences described, potential state and local tax considerations in investing in the Shares.
State and local laws often differ from United States 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 Master 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 Master 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 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 Master 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
Fund Shares. Because the Master Fund may conduct its business, in part, in New York City, corporate U.S. Shareholders generally will be subject to the
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New York franchise tax and the New York City general corporation tax by reason of their investment in the Fund, unless 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 noncorporate shareholders of Fund Shares who 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 you may be refunded or credited against your United States federal income tax liability, if any, provided
that the required information is furnished to the IRS.
Shareholders should be aware that certain aspects of the United States 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 United States federal, state, local and foreign tax laws.
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 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 77. 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 (“ERISA”), and the Code, which a fiduciary of an “employee benefit plan” as defined in and subject to 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 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 that such an investment would play in the Plan’s overall investment portfolio. Each Plan Fiduciary, before deciding to invest in the Fund, must be satisfied that
such investment is prudent for the Plan,
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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 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”
A
regulation issued under ERISA (the “ERISA Regulation”) contains rules for determining when an investment by a Plan in an equity interest of an entity will result in the underlying assets of such entity being considered to constitute 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 considered assets of a Plan which purchases an equity interest in the entity if
certain exceptions apply, including (i) an exception applicable if the equity interest purchased is a “publicly-offered security” (the “Publicly-Offered Security Exception”) and (ii) an exception applicable if the
equity interest purchased is an “insignificant participation” (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 Publicly Offered Security Exception applies with respect to the Shares due to their Amex listing.
The Master Fund will be able to rely on the Insignificant Participation
Exception. Because the Publicly Offered Security Exception applies to the Fund’s Shares, the Master Fund’s assets will not be “plan assets.” In turn, because the Fund and the Managing Owner are the only investors in the Master
Fund and the assets of the Managing Owner are not “plan assets” either, the Master Fund will not have any plan asset investors, and therefore, qualifies for the Insignificant Participation Exception.
Ineligible Purchasers
Shares
may not be purchased with the assets of a Plan if the Managing Owner, the Commodity Broker or any of their respective affiliates, any of their respective employees or any employees of their respective affiliates: (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 Shares of 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 SHARES
IN LIGHT OF THE CIRCUMSTANCES OF THE PARTICULAR PLAN AND CURRENT TAX LAW.
80
PLAN OF DISTRIBUTION
Initial Purchaser
[ ] is the Initial Purchaser. On [
·
], 2006, the Initial Purchaser purchased and took delivery of [2,000,000] Shares, which comprise the initial Baskets, at a purchase price of $[25.00] per Share ($[5,000,000] per Basket), pursuant to an Initial
Purchaser Agreement. The Initial Purchaser proposes to offer to the public these [2,000,000] Shares at a per-Share offering price that will vary depending, among other factors, the trading price of the Shares on the Amex, the net asset value per
Share and the supply of and demand for the Shares at the time of the offer. Shares offered by the Initial Purchaser at different times may have different offering prices. The Initial Purchaser will not receive from the Fund, the Managing Owner or
any of their affiliates, any fee or other compensation in connection with the sale of the Shares to the public.
The Fund will not bear any expenses in connection with the offering or sales of the Shares composing the initial Baskets.
The Managing Owner has agreed to indemnify the Initial Purchaser against
certain liabilities, including liabilities under the Securities Act of 1933, and to contribute to payments that the Initial Purchaser may be required to make in respect thereof.
The Initial Purchaser will not act as an Authorized Participant with respect to the initial Baskets, and its activities with
respect to the initial Baskets will be distinct from those of an Authorized Participant.
Authorized Participants
The
Fund will issue Shares in Baskets to Authorized Participants continuously as of noon New York 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 Amex or the last to close of the exchanges on which the Master Fund’s assets are traded, whichever is later, on the date that a valid order to create a Basket is accepted by the Fund.
The Master Fund will issue Master Fund Units in Master Unit Baskets to the
Fund continuously as
of noon New York time on the business day immediately following the date on which a valid order to create a Master Unit Basket is accepted by the Master Fund, at the net asset value
of 200,000 Master Fund Units as of the closing time of the Amex or the last to close of the exchanges on which the Master Fund’s assets are traded, whichever is later, on the date that a valid order to create a Master Unit Basket is accepted by
the Master Fund. The Master Fund will be wholly-owned by the Fund and the Managing Owner. Each Share issued by the Fund will correlate with a Master Fund Unit issued by the Master Fund and held by the Fund.
Authorized Participants are expected to offer to the public the Shares they
create at a per share offering price that will vary depending upon, among other factors, net asset value, the trading price of the Shares on the Amex and the supply of and demand for 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 Person sells a Share over the price paid by such Authorized Participant
in connection with the creation of such Share in a Basket may be deemed to be underwriting compensation. No selling commission will be paid by the Fund to any Authorized Participant in connection with creations of Baskets, although 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 details on applicable
charges.
As of the date of this prospectus, Deutsche Bank
Securities Inc. has executed a Participant Agreement and is the only Authorized Participant.
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
81
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. It is expected that Authorized Participants will avail themselves of any relief that becomes available with respect to being
deemed as a statutory underwriter.
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.
General
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 details on applicable charges.
The Managing Owner intends to qualify the Shares in certain states and
through broker-dealers who are members of the NASD. 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 Conduct Rule 2810 of the NASD. Accordingly, neither the Initial Purchaser nor the Authorized
Participants will make any sales to any account over which they have discretionary authority without the prior written approval of a purchaser of Shares. The maximum amount of items of value to be paid to NASD Members in connection with the offering
of the Shares by the Fund will not exceed 10% plus 0.5% for bona fide due diligence.
The Fund’s Shares will trade on the Amex under the symbol “DBV.”
[Remainder of page left blank intentionally.]
82
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 Fund and the Master 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 Fund or the Shareholders in matters relating to the Fund.
EXPERTS
A Form of Statement of
Financial Condition of the Fund has been filed herewith and the audited Statement of Financial Condition of the Fund will be furnished by amendment.
A Form of Statement of Financial Condition of the Master Fund has been filed herewith and the audited Statement of Financial Condition of the Master Fund
will be furnished by amendment.
The Statement of Financial
Condition of DB Commodity Services LLC, the Managing Owner, dated September 15, 2005 and the related statements of changes in member’s capital and cash flows for the period from May 23, 2005 (inception) through September 15, 2005
included in this Prospectus have been audited by KPMG LLP, independent auditors, as stated in their report appearing herein, and has been so included in reliance upon such report given upon the authority of that firm as experts in auditing and
accounting.
The Statement of Financial Condition of DB
Commodity Services LLC, the Managing Owner, dated December 31, 2005 and the related statements of changes in member’s capital and cash flows for the period from September 15, 2005 through December 31, 2005 included in this
Prospectus is unaudited. In the opinion of DB Commodity Services LLC, such unaudited statements reflects all adjustments, which were of a normal and recurring nature, necessary for a fair presentation of financial position.
ADDITIONAL INFORMATION
This
Prospectus constitutes part of the Registration Statement filed by the Fund and the Master Fund with the SEC in Washington, D.C. 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 annual reports as required by the
rules and regulations of the SEC as well as with those reports required by the CFTC and the NFA, including, but not limited to, an annual audited financial statement certified by independent public accountants and any other reports required by any
other governmental authority that has jurisdiction over the activities of the Fund and the Master Fund. You also will be provided with appropriate information to permit you to file your United States 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 Fund’s website at www.dbvfund.db.com. Additional reports may be posted on the Fund’s website in the discretion of
the Managing Owner or as required by regulatory authorities.
PRIVACY POLICY OF
THE MANAGING OWNER
The Managing Owner collects non-public information about you from the
following sources: (i) information received from you on applications or
83
other forms; and (ii) information about your transactions with the Managing Owner and others. The Managing Owner does not disclose any non-public
personal information about you to anyone, other than as set forth below, as permitted by applicable law and regulation. The Managing Owner may disclose non-public personal information about you to the funds in which you invest. The Managing Owner
may disclose non-public personal information about you to non-affiliated companies that work with the Managing Owner to service your account(s), or to provide services or process transactions that you have requested. The Managing Owner may disclose
non-public personal information about you to parties representing you, such as your investment representative, your accountant, your tax adviser, or to other third parties at your direction/consent. If you decide to close your account(s) or become
an inactive customer, the Managing Owner will adhere to the privacy policies and practices as described in this notice. The Managing Owner restricts access to your personal and account information to those employees who need to know that information
to provide products and services to you. The Managing Owner maintains appropriate physical, electronic and procedural safeguards to guard your non-public personal information.
[Remainder of page left blank intentionally.]
84
INDEX TO FINANCIAL STATEMENTS
|
|
|
|
|
|
|
Page
|
|
DB Currency Index Value Fund
|
|
|
|
|
|
|
Report of Independent Registered Public Accounting Firm] dated [ ], 2006*
|
|
86
|
|
Statement of Financial Condition dated [ ], 2006*
|
|
87
|
|
Notes to Statement of Financial Condition
|
|
88
|
|
|
|
|
DB Currency Index Value Master Fund
|
|
|
|
|
|
|
Report of Independent Registered Public Accounting Firm dated [ ], 2006*
|
|
91
|
|
Statement of Financial Condition dated [ ], 2006*
|
|
92
|
|
Notes to Financial Statements
|
|
93
|
|
|
|
|
DB Commodity Services LLC
|
|
|
|
|
|
|
Independent Auditor’s Report dated October 21, 2005
|
|
97
|
|
Statement of Financial Condition dated September 15, 2005
|
|
98
|
|
Statement of Changes in Member’s Capital for the period from May 23, 2005 (inception) through September 15, 2005
|
|
99
|
|
Statement of Cash Flows for the period from May 23, 2005 (inception) through September 15, 2005
|
|
100
|
|
Notes to Financial Statements
|
|
101
|
|
Statement of Financial Condition dated December 31, 2005 (unaudited)
|
|
103
|
|
Statement of Changes in Member’s Capital for the period from September 15, 2005 through December 31, 2005 (unaudited)
|
|
104
|
|
Statement of Cash Flows for the period from September 15, 2005 through December 31, 2005 (unaudited)
|
|
105
|
|
Notes to Financial Statements (unaudited)
|
|
106
|
|
*
|
To be furnished by amendment.
|
85
Report of Independent Registered Public Accounting Firm*
The Unitholder
DB Currency Index Value Fund:
|
*
|
To be furnished by amendment.
|
86
DB CURRENCY INDEX VALUE FUND
(An Indirect Wholly Owned Subsidiary of
Deutsche Bank AG)
Form of Statement of Financial Condition*
, 2006
|
*
|
To be furnished by amendment.
|
THE FUND AND THE MASTER FUND HAVE NOT COMMENCED OPERATIONS AND, CONSEQUENTLY, HAVE NO ASSETS OR LIABILITIES.
THE FUND HAS NOT COMMENCED TRADING AND DOES NOT HAVE A PERFORMANCE HISTORY.
87
DB CURRENCY INDEX VALUE FUND
(An Indirect Wholly Owned Subsidiary of
Deutsche Bank AG)
Notes to Statement of Financial Condition
, 2006
(1) Organization
The DB Currency Index Value Fund (the Fund), an indirect wholly-owned subsidiary of Deutsche Bank AG, was formed as a Delaware statutory trust on
[ ], 2006, and has not yet commenced operations. The Fund will offer common units of beneficial interest (the Shares). [Upon
inception of the Fund, 40 General Units of the Fund will be issued to DB Commodity Services LLC in exchange for a capital contribution of $1,000 to the Fund.] The Managing Owner will serve the Fund as commodity pool operator, commodity trading
advisor, and managing owner. Similarly, the Managing Owner will also serve the Master Fund as commodity pool operator, commodity trading advisor, and managing owner.
The proceeds of the offering of Shares will be invested in DB Currency Index Value Master Fund (the Master Fund). The Master
Fund actively will trade exchange-traded futures on the currencies comprising the Deutsche Bank G10 Currency Future Harvest Index
™
—Excess Return, or the Index, with a view to tracking the performance of the Index over time. The Master Fund will hold a leveraged portfolio of
both long and short futures contracts (in the ratio of either 1.66:1 or 2:1) on the Index Currencies (as defined in the next paragraph) which comprise the Index. The Master Fund’s portfolio also will include United States Treasury securities
for deposit with the Master Fund’s commodities brokers as margin and other high credit quality short term fixed income securities.
The Index is designed to reflect the return from investing on a 2:1 leveraged basis in long currency futures positions for certain currencies associated
with relatively high yielding interest rates and in short currency futures positions for certain currencies associated with relatively low yielding interest rates. The Index is designed to exploit the trend that currencies associated with relatively
high interest rates, on average, tend to rise in value relative to currencies associated with relatively low interest rates. The Index exploits this trend using both long and short futures positions, which is expected to provide more consistent and
less volatile returns than could be obtained by taking long positions only or short positions only.
The Index, at any time, is comprised of six of the following Group of Ten, or G10, currencies: United States Dollars, Euros, Japanese Yen, Canadian
Dollars, Swiss Francs, British Pounds, Australian Dollars, New Zealand Dollars, Norwegian Krone and Swedish Krona, or, collectively, the Eligible Index Currencies. At any time, the Index is comprised of long futures positions in the three Eligible
Index Currencies associated with the highest interest rates and short futures positions in the three Eligible Index Currencies associated with the lowest interest rates. The Index’s six component currencies, from time to time, are comprised of
the three long and three short futures positions are referred to as the Index Currencies, and are used to calculate the value of the Index. Allocations among the Eligible Index Currencies are adjusted quarterly to take into account changes in the
relevant interest rates. To track the Index, the Master Fund generally will establish long futures positions in the three Eligible Index Currencies associated with the highest interest rates and short futures positions in the three Eligible Index
Currencies associated with the lowest interest rates and will adjust its holdings quarterly as the Index is adjusted. However, if the United States Dollar, or USD, is among the Index Currencies from time to time, the Master Fund will not establish a
long or short futures position (as the case may be) in USD, because USD is the Fund’s home currency and, as a consequence, the Master Fund never can enjoy profit or suffer loss from long or short futures positions in USD. When the USD is not
one of the three highest or three lowest yielding currencies, the aggregate notional value of the Master Fund’s futures contracts will be double the value of the Master Fund’s holdings of United States Treasury and other high credit
quality short term fixed income securities, which means the Fund will have a leverage ratio of 2:1. If the USD is one of the three highest or lowest yielding currencies, the aggregate notional value of the Master Fund’s futures contracts will
be approximately 1.66 times the value of the Master Fund’s holdings of United States Treasury and other high credit
88
DB CURRENCY INDEX VALUE FUND
(An Indirect Wholly Owned Subsidiary of
Deutsche Bank AG)
Notes to Statement of Financial Condition
, 2006
quality short term fixed income securities, which means the Fund will have a leverage ratio of approximately 1.66:1. The Master Fund’s ability to track
the Index will not be affected by the presence or absence of the USD among the Index Currencies. Because the notional value of the Master Fund’s futures positions can rise or fall over time, the leverage ratio could be higher or lower between
quarterly adjustments of the Index Currencies. All of the futures contracts in which the Master Fund currently expects to invest are traded on the Chicago Mercantile Exchange, or the CME, although currency futures contracts on the Eligible Index
Currencies also trade on other exchanges and the Master Fund may invest in such contracts.
The Managing Owner and the Shareholders will share in any profits and losses of the Fund attributable to the Fund in proportion to the percentage interest owned by each.
(2) Summary of Significant Accounting Policies
(a) Basis of Accounting
The accompanying statement of financial condition has been prepared in
conformity with accounting principles generally accepted in the United States of America.
(b) Use of Estimates
The preparation of the statement of financial condition in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at the date of the statement of financial condition. Actual results could differ from those estimates.
(c) Cash and cash equivalents
The Company defines cash and cash equivalents to be highly liquid investments, with original maturities of three months or
less.
(d) Income Taxes
No provision for Federal, state, and local income taxes has been made in the
accompanying statement of financial condition, as investors are individually responsible for their own income taxes.
(3) The Offering of the Shares
Shares may be purchased from the Fund only by Authorized Participants in one or more blocks of 200,000 Shares, called a Basket. The Fund will issue Shares
in Baskets only to Authorized Participants continuously as of noon, New York 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 American Stock Exchange (Amex) or the last to close of the exchanges on which the Master Fund’s assets are traded, whichever is later, on the date that a valid order to create a Basket is accepted by the Fund.
(4) Operating Expenses, Organizational and Offering Costs
Pursuant to the Amended and Restated Declaration of Trust and Trust
Agreement, the Master Fund has agreed to assume all of the Fund’s expenses and costs of each and every type whatsoever, although organizational and offering costs will be paid by the Managing Owner or Deutsche Bank AG, subject to reimbursement
by the Master Fund as described in the Prospectus.
89
DB CURRENCY INDEX VALUE FUND
(An Indirect Wholly Owned Subsidiary of
Deutsche Bank AG)
Notes to Statement of Financial Condition
, 2006
(5) Termination
The term of the Fund is perpetual (unless terminated earlier in certain circumstances) as defined in the Prospectus.
(6) Redemptions
On any business day, an Authorized Participant may place an order with the Distributor to redeem one or more Baskets.
Redemption orders must be placed by 1:00 p.m., New York time. The day on which the Distributor receives a valid redemption order is 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 amounts equal to at least one Basket and only through an Authorized Participant.
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 noon, New York time, on the business day immediately following the redemption order date. By placing a redemption order, and prior to receipt of the
redemption distribution, an Authorized Participant’s DTC account will be charged the nonrefundable transaction fee due for the redemption order.
The redemption distribution from the Fund consists of the cash redemption amount. The cash redemption amount is equal to the net asset value of the number
of Basket(s) requested in the Authorized Participant’s redemption order as of the closing time of the Amex or the last to close of the exchanges on which the Master Fund’s assets are traded, whichever is later on the redemption order date.
The Fund will distribute the cash redemption amount at noon, New York time, on the business day immediately following the redemption order date through DTC to the account of the Authorized Participant as recorded on DTC’s book entry system.
The redemption distribution due from the Fund is delivered to
the Authorized Participant at noon, New York time, on the business day immediately following the redemption order date if, by such time on such business day immediately following the redemption order date, 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 Administrator 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 noon, New York time, on such next business day. Any further outstanding amount of the redemption order shall be canceled. The
Administrator 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 noon, New York time, on the business day immediately following the redemption
order date if the Authorized Participant has collateralized its obligation to deliver the Baskets through DTC’s book entry system on such terms as the Administrator and the Managing Owner may from time to time agree upon.
90
Report of Independent Registered Public Accounting Firm*
The Unitholder
DB Currency Index Value Master Fund:
|
*
|
To be furnished by amendment.
|
91
DB CURRENCY INDEX VALUE MASTER FUND
(An Indirect Wholly Owned Subsidiary of
Deutsche Bank AG)
Form of Statement of Cash Flows *
As of
, 2006
|
*
|
To be furnished by amendment.
|
THE FUND AND THE MASTER FUND HAVE NOT COMMENCED OPERATIONS AND, CONSEQUENTLY, HAVE NO ASSETS OR LIABILITIES.
THE FUND HAS NOT COMMENCED TRADING AND DOES NOT HAVE A PERFORMANCE HISTORY.
92
DB CURRENCY INDEX VALUE MASTER FUND
(An Indirect Wholly Owned Subsidiary of
Deutsche Bank AG)
Notes to Financial Statements
, 2006
(1) Organization
The DB Currency Index Value Master Fund (the Master Fund) was formed as a Delaware statutory trust on
, 2006, and has not yet commenced operations. The Master Fund will offer units of beneficial interest (the Units), and the sole Unitholders will be DB Currency Index Value Fund
(the Fund) and DB Commodity Services, LLC (the Managing Owner). The Managing Owner and the Unitholders will share in any profits and losses of the Master Fund attributable to the Master Fund in proportion to the percentage interest owned by each.
[Upon inception of the Master Fund, 40 General Units of the
Master Fund will be issued to DB Commodity Services LLC in exchange for a capital contribution of $1,000 to the Master Fund.] The Managing Owner will serve the Master Fund as commodity pool operator, commodity trading advisor, and managing owner.
Similarly, the Managing owner will also serve the Fund as commodity pool operator, commodity trading advisor, and managing owner.
The Master Fund actively will trade exchange-traded futures on the currencies comprising the Deutsche Bank G10 Currency Future Harvest
Index™—Excess Return, or the Index, with a view to tracking the performance of the Index over time. The Master Fund will hold a leveraged portfolio of both long and short futures contracts (not to exceed 2:1) on the Index Currencies (as
defined in the next paragraph). The Master Fund’s portfolio also will include United States Treasury securities for deposit with the Master Fund’s commodities brokers as margin and other high credit quality short term fixed income
securities.
The Index is designed to reflect the return from
investing on a 2:1 leveraged basis in long currency futures positions for certain currencies associated with relatively high yielding interest rates and in short currency futures positions for certain currencies associated with relatively low
yielding interest rates. The Index is designed to exploit the trend that currencies associated with relatively high interest rates, on average, tend to rise in value relative to currencies associated with relatively low interest rates. The Index
exploits this trend using both long and short futures positions, which is expected to provide more consistent and less volatile returns than could be obtained by taking long positions only or short positions only.
The Index, at any time, is comprised of six of the following Group of Ten, or
G10, currencies: United States Dollars, Euros, Japanese Yen, Canadian Dollars, Swiss Francs, British Pounds, Australian Dollars, New Zealand Dollars, Norwegian Krone and Swedish Krona, or, collectively, the Eligible Index Currencies. At any time,
the Index is comprised of long futures positions in the three Eligible Index Currencies associated with the highest interest rates and short futures positions in the three Eligible Index Currencies associated with the lowest interest rates. The
Index’s six component currencies, from time to time, are comprised of the three long and three short futures positions are referred to as the Index Currencies, and are used to calculate the value of the Index. Allocations among the Eligible
Index Currencies are adjusted quarterly to take into account changes in the relevant interest rates. To track the Index, the Master Fund generally will establish long futures positions in the three Eligible Index Currencies associated with the
highest interest rates and short futures positions in the three Eligible Index Currencies associated with the lowest interest rates and will adjust its holdings quarterly as the Index is adjusted. However, if the United States Dollar, or USD, is
among the Index Currencies from time to time, the Master Fund will not establish a long or short futures position (as the case may be) in USD, because USD is the Fund’s home currency and, as a consequence, the Master Fund never can enjoy profit
or suffer loss from long or short futures positions in USD. When the USD is not one of the three highest or three lowest yielding currencies, the aggregate notional value of the Master Fund’s futures contracts will be double the value of the
Master Fund’s holdings of United States Treasury and other high credit quality short term fixed income securities, which means the Fund will have a leverage ratio of 2:1. If the USD is one of the three highest or
93
DB CURRENCY INDEX VALUE MASTER FUND
(An Indirect Wholly Owned Subsidiary of
Deutsche Bank AG)
Notes to Financial Statements
, 2006
lowest yielding currencies, the aggregate notional value of the Master Fund’s futures contracts will be approximately 1.66 times the value of the Master
Fund’s holdings of United States Treasury and other high credit quality short term fixed income securities, which means the Fund will have a leverage ratio of approximately 1.66:1. The Master Fund’s ability to track the Index will not be
affected by the presence or absence of the USD among the Index Currencies. Because the notional value of the Master Fund’s futures positions can rise or fall over time, the leverage ratio could be higher or lower between quarterly adjustments
of the Index Currencies. All of the futures contracts in which the Master Fund currently expects to invest are traded on the Chicago Mercantile Exchange, or the CME, although currency futures contracts on the Eligible Index Currencies also trade on
other exchanges and the Master Fund may invest in such contracts.
(2)
Summary of Significant Accounting Policies
(a)
Basis of Accounting
The accompanying financial
statements have been prepared in conformity with accounting principles generally accepted in the United States of America.
(b) Use of Estimates
The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities and revenue and expense and disclosure of contingent assets and liabilities during the reporting period of the financial statements. Actual
results could differ from those estimates.
(c) Cash and
cash equivalents
The Company defines cash and cash
equivalents to be highly liquid investments, with original maturities of three months or less.
(d) Income Taxes
No provision for Federal, state, and local income taxes has been made in the accompanying financial statements, as investors are individually responsible for their own income taxes.
(3) The Offering of the Units
Master Fund Units may be purchased from the Master Fund only by the Fund in
one or more blocks of 200,000 Master Fund Units, called a Master Unit Basket. The Master Fund will issue Master Fund Units in Master Unit Baskets only to the Fund continuously as of noon, New York time, on the business day immediately following the
date on which a valid order to create a Master Unit Basket is accepted by the Master Fund, at the net asset value of 200,000 Master Fund Units as of the closing time of the American Stock Exchange (Amex) or the last to close of the exchanges on
which the Master Fund’s assets are traded, whichever is later, on the day that a valid order to create a Master Unit Basket is accepted by the Master Fund.
(4) Operating Expenses, Organizational and Offering Costs
Pursuant to the Amended and Restated Declaration of Trust and Trust Agreement of the Master Fund, the Master Fund has agreed to assume all of the
Fund’s expenses and costs of each and every type whatsoever, although organizational and offering costs will be paid by the Managing Owner or Deutsche Bank AG, subject to reimbursement by the Master Fund as described in the Prospectus.
94
DB CURRENCY INDEX VALUE MASTER FUND
(An Indirect Wholly Owned Subsidiary of
Deutsche Bank AG)
Notes to Financial Statements
, 2006
(a) Management Fee
Upon commencement of operations, the Master Fund will pay the Managing Owner a management fee, or Management Fee, monthly in
arrears, in an amount equal to 0.75% per annum of the net asset value of Master Fund. No separate management fee will be paid by the Fund. The Management Fee will be paid in consideration of the grant of Deutsche Bank AG’s revocable
license to use Deutsche Bank AG’s name and the Index in addition to commodity futures trading advisory services.
(b) Organization and Offering Expenses
Expenses incurred in connection with organizing the Fund and the Master Fund and the initial offering of the Shares will be paid by the Managing Owner or
Deutsche Bank AG, subject to reimbursement by the Master Fund, without interest, in 36 monthly payments during each of the first 36 months after the commencement of the Master Fund’s trading operations, subject to a cap in the amount of 2.50%
of the aggregate amount of all subscriptions for Shares prior to the commencement of trading and during the first 36 months of the Master Fund’s trading operations. Expenses incurred in connection with the continuous offering of Shares after
the commencement of the Master Fund’s trading operations also will be paid by the Managing Owner or Deutsche Bank AG, subject to reimbursement by the Master Fund, without interest, in 36 monthly payments during each of the 36 months following
the month in which such expenses were paid by the Managing Owner or Deutsche Bank AG. If the Fund and the Master Fund terminate before the Managing Owner or Deutsche Bank AG have been fully reimbursed for any of the foregoing expenses, the Managing
Owner or Deutsche Bank AG will not be entitled to receive any unreimbursed portion of such expenses outstanding as of the termination date. In no event will the aggregate amount of payments by the Master Fund to the Managing Owner or Deutsche Bank
AG in any month in respect of reimbursement of organizational or offering expenses exceed 0.10% per annum of the net asset value of the Master Fund as of the beginning of such month.
Should the Master Fund and the Fund not commence operations, none of the organization and offering costs will be reimbursed
by the Master Fund. Approximately $[ ] of organization and offering costs have been incurred by Deutsche Bank AG on behalf of the Fund, which have been recorded as due to
Deutsche Bank AG on the statement of financial condition at , 2006. Because these costs have yet to be paid by Deutsche Bank AG,
$[ ] has been classified as contra-equity on the statement of financial condition as of , 2006.
(c) Brokerage Commissions and Fees
Upon commencement of operations, the Master Fund will pay to the
Commodity Broker all brokerage commissions, including applicable exchange fees, licensing fees, give up fees, pit brokerage fees and other transaction related fees and expenses charged in connection with trading activities. On average, total charges
paid to the Commodity Broker is expected to be less than $10.00 per round-turn trade, although the Commodity Broker’s brokerage commissions and trading fees will be determined on a contract-by-contract basis. The Managing Owner does not expect
brokerage commissions and fees to exceed 0.06% of the net asset value of the Master Fund in any year.
(d) Routine Operational, Administrative and Other Ordinary Expenses
The Master Fund will pay all of the routine operational, administrative and other ordinary expenses of the Fund and the
Master Fund, including, but not limited to, accounting and computer services, the fees and expenses
95
DB CURRENCY INDEX VALUE MASTER FUND
(An Indirect Wholly Owned Subsidiary of
Deutsche Bank AG)
Notes to Financial Statements
, 2006
of the Trustee, legal and accounting fees and expenses, tax preparation expenses, filing fees, and printing, mailing and duplication costs. Such routine
expenses are not expected to exceed 0.05% of the net asset value of the Master Fund in any year.
(e) Extraordinary Fees and Expenses
The Master Fund will pay all the extraordinary fees and expenses, if any, of the Fund and the Master Fund. Such extraordinary fees and expenses, by their
nature, are unpredictable in terms of timing and amount.
(f) Management Fee and Expenses to be Paid First out of Interest Income
The Management Fee and the organizational, offering and ordinary ongoing expenses will be paid first out of interest income from the Master Fund’s
holdings of U.S. Treasury bills and other high credit quality short-term fixed income securities on deposit with the Commodity Brokers as margin or otherwise. It is expected that such interest income may be sufficient to cover a significant portion
of the fees and expenses of the Fund and the Master Fund.
(5) Termination
The term of the Fund is perpetual (unless terminated
earlier in certain circumstances) as defined in the Prospectus.
(6)
Redemptions
On any business day, the Fund may place an
order with the Administrator to redeem one or more Baskets. Redemption orders must be placed by 1:00 p.m., New York time. The day on which the Administrator receives a valid redemption order is the redemption order date. The redemption procedures
allows the Fund to redeem Baskets.
The redemption distribution
from the Master Fund consists of the cash redemption amount. The cash redemption amount is equal to the net asset value of the number of Basket(s) requested in the Fund’s redemption order as of the closing time of the Amex or the last to close
of the exchanges on which the Master Fund’s assets are traded, whichever is later, on the redemption order date. The Master Fund will distribute the cash redemption amount to the Fund at noon, New York time, on the business day immediately
following the redemption order date.
The redemption
distribution due from the Master Fund is delivered to the Fund at noon, New York time, on the business day immediately following the redemption order date if, by such time on such business day immediately following the redemption order date, the
Master Fund account has been credited with the Baskets to be redeemed. If the Master Fund’s 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 Administrator 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 Master Fund’s account by noon, New York time, on such next business day. Any further outstanding amount of the
redemption order shall be cancelled. The Administrator is also authorized to deliver the redemption distribution notwithstanding that the Baskets to be redeemed are not credited to the Master Fund’s account by noon, New York time, on the
business day immediately following the redemption order date if the Fund has collateralized its obligation to deliver the Baskets on such terms as the Master Fund and the Managing Owner may from time to time agree upon.
96
Independent Auditors’ Report
The
Unitholder
DB Commodity Services LLC:
We have audited the accompanying statement of financial condition of DB Commodity Services LLC (the Company) as of September 15, 2005, and the
related statements of changes of member’s capital and cash flows for the period from May 23, 2005 (inception) to September 15, 2005. These financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable
basis for our opinion.
In our opinion, the financial
statements referred to above present fairly, in all material respects, the financial position of DB Commodity Services LLC as of September 15, 2005, and changes in its member’s capital and its cash flows for the period from May 23,
2005 (inception) to September 15, 2005, in conformity with accounting principles generally accepted in the United States of America.
/s/ KPMG LLP
New York, New York
October 21, 2005
97
DB COMMODITY SERVICES LLC
(A Wholly Owned Subsidiary of
Deutsche Bank AG)
Statement of Financial Condition
September 15, 2005
|
|
|
|
|
|
Assets
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
50,000
|
|
Investment in DB Commodity Index Tracking Fund
|
|
|
1,000
|
|
Investment in DB Commodity Index Tracking Master Fund
|
|
|
1,000
|
|
|
|
|
|
|
Total assets
|
|
$
|
52,000
|
|
|
|
|
|
|
Liabilities and Member’s Capital
|
|
|
|
|
Liabilities:
|
|
|
|
|
Due to DB U.S. Financial Markets Holding Corporation
|
|
$
|
2,000
|
|
|
|
|
Member’s Capital:
|
|
|
50,000
|
|
|
|
|
|
|
Total member’s capital
|
|
|
50,000
|
|
|
|
|
|
|
Total liabilities and member’s capital
|
|
$
|
52,000
|
|
|
|
|
|
See accompanying notes
to financial statements.
98
DB COMMODITY SERVICES LLC
(A Wholly Owned Subsidiary of
Deutsche Bank AG)
Statement of Changes in Member’s Capital
Period from May 23, 2005 (inception)
through September 15, 2005
|
|
|
|
|
|
Member’s Capital, May 23, 2005 (inception):
|
|
$
|
—
|
|
Capital contribution from DB U.S. Financial Markets Holding Corporation
|
|
|
50,000
|
|
|
|
|
|
|
Member’s capital, September 15, 2005
|
|
$
|
50,000
|
|
|
|
|
|
See accompanying notes
to financial statements.
99
DB COMMODITY SERVICES LLC
(A Wholly Owned Subsidiary of
Deutsche Bank AG)
Statement of Cash Flows
Period from May 23, 2005 (inception) to September 15,
2005
|
|
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
Increase in due to DB U.S. Financial Markets Holding Corporation
|
|
$
|
2,000
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
2,000
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
Payment for investments in the Fund and Master Fund
|
|
|
(2,000
|
)
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(2,000
|
)
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
Capital contribution from DB U.S. Financial Markets Holding Corporation
|
|
|
50,000
|
|
|
|
|
|
|
|
|
Net cash provided by investing activities
|
|
|
50,000
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
50,000
|
|
|
|
|
|
Cash at May 23, 2005 (inception)
|
|
|
—
|
|
|
|
|
|
|
|
|
Cash at September 15, 2005
|
|
$
|
50,000
|
|
|
|
|
|
|
|
See accompanying notes
to financial statements.
100
DB COMMODITY SERVICES LLC
(A Wholly Owned Subsidiary of
Deutsche Bank AG)
Notes to Statement of Financial Condition
September 15, 2005
(1) Organization and Basis of Presentation
DB Commodity Services LLC (the Company, or the Managing Owner), a Delaware
limited liability company, was formed on May 23, 2005, and is a wholly owned subsidiary of Deutsche Bank AG. The Company is registered as a commodity pool operator and commodity trading advisor with the Commodity Futures Trading Commission and
is a member of the National Futures Association. The Company serves as the managing owner of DB Commodity Index Tracking Fund (the Fund) and DB Commodity Index Tracking Master Fund (the Master Fund) and is also the commodity pool operator and
commodity trading advisor for the Master Fund and the Fund.
(2) Summary of
Significant Accounting Policies
(a) Basis of
Accounting
The accompanying financial statements have
been prepared in conformity with accounting principles generally accepted in the United States of America. As the Company does not have any revenues or expenses during the period from May 23, 2005 (inception) through September 15, 2005, a
statement of operations is not presented herein.
(b) Use
of Estimates
The preparation of the financial
statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and revenues and expenses and
disclosure of contingent assets and liabilities during the reporting period of the financial statements. Actual results could differ from those estimates.
(c) Cash and cash equivalents
The Company defines cash and cash equivalents to be highly liquid investments, with original maturities of three months or less.
(d) Income Taxes
As the Company does not have any revenues or expenses during the period from
May 23, 2005 (inception) through September 15, 2005, no provision for United States federal or state income taxes has been made.
(e) Related Party Transactions
Upon commencement of operations of the Master Fund, the Master Fund will pay the Company a management fee equal to 0.95% per annum of the net asset
value of the Master Fund in consideration of the grant of Deutsche Bank AG’s revocable license to use Deutsche Bank AG’s name and the Deutsche Bank Liquid Commodity Index
™
—Excess Return in addition to commodity futures trading advisory services.
Expenses incurred in connection with organizing the Fund and
the Master Fund and the initial offering of the Fund’s shares (the Shares) will be paid by the Managing Owner or Deutsche Bank AG, subject to reimbursement by the Master Fund, without interest, in 36 monthly payments during each of the first 36
months after the commencement of the Master Fund’s trading operations, subject to a cap in the amount of 2.50% of the aggregate amount of all subscriptions for Shares during the initial offering period and during the first 36 months
101
DB COMMODITY SERVICES LLC
(A Wholly Owned Subsidiary of
Deutsche Bank AG)
Notes to Statement of Financial Condition
September 15, 2005
of the Master Fund’s trading operations. Expenses incurred in connection with the continuous offering of Shares after the commencement of the Master
Fund’s trading operations also will be paid by the Managing Owner or Deutsche Bank AG, subject to reimbursement by the Master Fund, without interest, in 36 monthly payments during each of the 36 months following the month in which such expenses
were paid by the Managing Owner or Deutsche Bank AG. If the Fund and the Master Fund terminate before the Managing Owner or Deutsche Bank AG have been fully reimbursed for any of the foregoing expenses, the Managing Owner or Deutsche Bank AG will
not be entitled to receive any unreimbursed portion of such expenses outstanding as of the termination date. In no event will the aggregate amount of payments by the Master Fund to the Managing Owner or Deutsche Bank AG in respect of reimbursement
of organizational or offering expenses exceed 0.50% per annum of the net asset value of the Master Fund.
Should the Master Fund or the Fund not commence operations, none of the organization and offering costs will be reimbursed by the Master Fund. As of
September 15, 2005, approximately $1,763,000 of organization costs have been incurred by Deutsche Bank AG.
Upon inception of the Fund and the Master Fund, 40 General Units of each of the Fund and the Master Fund were issued to Deutsche Bank AG in exchange for a
capital contribution of $1,000 to the Fund and $1,000 to the Master Fund funded on behalf of Deutsche Bank AG by DB U.S. Financial Markets Holding Corporation, a wholly owned subsidiary of Deutsche Bank AG. The General Units subsequently were
transferred to the Managing Owner in consideration of the Managing Owner’s assumption of the corresponding $2,000 debt to DB U.S. Financial Markets Holding Corporation, which will be remitted to DB U.S. Financial Markets Holding Corporation by
the Managing Owner upon commencement of operations of the Fund and the Master Fund.
102
DB COMMODITY SERVICES LLC
(A Wholly Owned Subsidiary of
Deutsche Bank AG)
Statement of Financial Condition (unaudited)
December 31, 2005
|
|
|
|
|
|
Assets
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
50,000
|
|
Investment in DB Commodity Index Tracking Fund
|
|
|
1,000
|
|
Investment in DB Commodity Index Tracking Master Fund
|
|
|
1,000
|
|
|
|
|
|
|
Total assets
|
|
$
|
52,000
|
|
|
|
|
|
|
Liabilities and Member’s Capital
|
|
|
|
|
Liabilities:
|
|
|
|
|
Due to DB U.S. Financial Markets Holding Corporation
|
|
$
|
2,000
|
|
|
|
|
Member’s Capital:
|
|
|
50,000
|
|
|
|
|
|
|
Total member’s capital
|
|
|
50,000
|
|
|
|
|
|
|
Total liabilities and member’s capital
|
|
$
|
52,000
|
|
|
|
|
|
See accompanying notes
to financial statements.
103
DB COMMODITY SERVICES LLC
(A Wholly Owned Subsidiary of
Deutsche Bank AG)
Statement of Changes in Member’s Capital (unaudited)
Period from
September 15, 2005 through December 31, 2005
|
|
|
|
|
|
Member’s capital, September 15, 2005:
|
|
$
|
50,000
|
|
Net income
|
|
|
0
|
|
|
|
|
|
|
Member’s capital, December 31, 2005
|
|
$
|
50,000
|
|
|
|
|
|
See accompanying notes
to financial statements.
104
DB COMMODITY SERVICES LLC
(A Wholly Owned Subsidiary of
Deutsche Bank AG)
Statement of Cash Flows (unaudited)
Period from September 15, 2005 through
December 31, 2005
|
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
Net cash provided by operating activities
|
|
|
0
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
Payment for investments in the Fund and Master Fund
|
|
|
0
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
0
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
Net cash provided by investing activities
|
|
|
0
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
0
|
|
|
|
|
Cash at September 15, 2005
|
|
|
50,000
|
|
|
|
|
|
|
Cash at December 31, 2005
|
|
$
|
50,000
|
|
|
|
|
|
See accompanying notes
to financial statements.
105
DB COMMODITY SERVICES LLC
(A Wholly Owned Subsidiary of
Deutsche Bank AG)
Notes to Statement of Financial Condition (unaudited)
December 31, 2005
(1) Organization and Basis of Presentation
DB Commodity Services LLC (the Company, or the Managing Owner), a Delaware
limited liability company, was formed on May 23, 2005, and is a wholly owned subsidiary of Deutsche Bank AG. The Company is registered as a commodity pool operator and commodity trading advisor with the Commodity Futures Trading Commission and
is a member of the National Futures Association. The Company serves as the managing owner of DB Commodity Index Tracking Fund (the Fund) and DB Commodity Index Tracking Master Fund (the Master Fund) and is also the commodity pool operator and
commodity trading advisor for the Master Fund and the Fund.
(2) Summary of
Significant Accounting Policies
(a) Basis of
Accounting
The accompanying financial statements have
been prepared in conformity with accounting principles generally accepted in the United States of America. As the Company does not have any revenues or expenses during the period from September 15, 2005 through December 31, 2005, a
statement of operations is not presented herein.
(b) Use
of Estimates
The preparation of the financial
statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and revenues and expenses and
disclosure of contingent assets and liabilities during the reporting period of the financial statements. Actual results could differ from those estimates.
(c) Cash and cash equivalents
The Company defines cash and cash equivalents to be highly liquid investments, with original maturities of three months or less.
(d) Income Taxes
As the Company does not have any revenues or expenses during the period from
September 15, 2005 through December 31, 2005, no provision for United States federal or state income taxes has been made.
(e) Related Party Transactions
Upon commencement of operations of the Master Fund, the Master Fund will pay the Company a management fee equal to 0.95% per annum of the net asset
value of the Master Fund in consideration of the grant of Deutsche Bank AG’s revocable license to use Deutsche Bank AG’s name and the Deutsche Bank Liquid Commodity Index
™
—Excess Return in addition to commodity futures trading advisory services.
Expenses incurred in connection with organizing the Fund and
the Master Fund and the initial offering of the Fund’s shares (the Shares) will be paid by the Managing Owner or Deutsche Bank AG, subject to reimbursement by the Master Fund, without interest, in 36 monthly payments during each of the first 36
months after the commencement of the Master Fund’s trading operations, subject to a cap in the amount of 2.50% of the aggregate amount of all subscriptions for Shares during the initial offering period and during the first 36 months
106
DB COMMODITY SERVICES LLC
(A Wholly Owned Subsidiary of
Deutsche Bank AG)
Notes to Statement of Financial Condition (unaudited)
December 31, 2005
of the Master Fund’s trading operations. Expenses incurred in connection with the continuous offering of Shares after the commencement of the Master
Fund’s trading operations also will be paid by the Managing Owner or Deutsche Bank AG, subject to reimbursement by the Master Fund, without interest, in 36 monthly payments during each of the 36 months following the month in which such expenses
were paid by the Managing Owner or Deutsche Bank AG. If the Fund and the Master Fund terminate before the Managing Owner or Deutsche Bank AG have been fully reimbursed for any of the foregoing expenses, the Managing Owner or Deutsche Bank AG will
not be entitled to receive any unreimbursed portion of such expenses outstanding as of the termination date. In no event will the aggregate amount of payments by the Master Fund to the Managing Owner or Deutsche Bank AG in respect of reimbursement
of organizational or offering expenses exceed 0.50% per annum of the net asset value of the Master Fund.
Should the Master Fund or the Fund not commence operations, none of the organization and offering costs will be reimbursed by the Master Fund. As of
December 31, 2005, approximately $2,246,954 of organization costs have been incurred by Deutsche Bank AG.
Upon inception of the Fund and the Master Fund, 40 General Units of each of the Fund and the Master Fund were issued to Deutsche Bank AG in exchange for a
capital contribution of $1,000 to the Fund and $1,000 to the Master Fund funded on behalf of Deutsche Bank AG by DB U.S. Financial Markets Holding Corporation, a wholly owned subsidiary of Deutsche Bank AG. The General Units subsequently were
transferred to the Managing Owner in consideration of the Managing Owner’s assumption of the corresponding $2,000 debt to DB U.S. Financial Markets Holding Corporation, which will be remitted to DB U.S. Financial Markets Holding Corporation by
the Managing Owner upon commencement of operations of the Fund and the Master Fund.
107
PART TWO
STATEMENT OF ADDITIONAL INFORMATION
DB CURRENCY INDEX VALUE FUND
Shares of Beneficial Interest
This is a speculative investment which involves the risk of loss.
Past
performance is not necessarily indicative of future results.
See “
The Risks You Face
” beginning at page 19 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
[DATE], 2006
DB Commodity Services LLC
Managing Owner
108
PART TWO
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
109
GENERAL INFORMATION RELATING TO DEUTSCHE BANK AG
Deutsche Bank AG is a banking company with limited liability incorporated under the laws of the Federal Republic of Germany under registration number HRB 30 000. Deutsche Bank AG has its registered office at
Taunusanlage 12, D-60325 Frankfurt am Main. Deutsche Bank AG originated from the reunification of Norddeutsche Bank Aktiengesellschaft, Hamburg, Deutsche Bank Aktiengesellschaft West, Düsseldorf, and Süddeutsche Bank Aktiengesellschaft,
Munich; pursuant to the Law on the Regional Scope of Credit Institutions, these had been disincorporated in 1952 from Deutsche Bank, founded in 1870. The merger and the name were entered in the Commercial Register of the District Court in Frankfurt
am Main on May 2, 1957.
Deutsche Bank AG is the parent
company of the Deutsche Bank Group, consisting of banks, capital market companies, fund management companies and a property finance company, installment financing companies, research and consultancy companies and other domestic and foreign
companies. The Deutsche Bank Group has over 1,500 branches and offices engaged in banking business and other financial businesses worldwide.
The objectives of Deutsche Bank AG, as set forth in its Articles of Association, include the transaction of all kinds of banking businesses, the provision
of financial and other services and the promotion of international economic relations. Deutsche Bank AG may realize these objectives itself or through subsidiaries and affiliated companies. To the extent permitted by law, Deutsche Bank AG is
entitled to transact all business and to take all steps which appear likely to promote the objectives of Deutsche Bank AG, in particular, to acquire and dispose of real estate, to establish branches at home and abroad, to acquire, administer and
dispose of participations in other enterprises, and to conclude enterprise agreements.
The activities of the Deutsche Bank Group include traditional deposit-taking and lending business for private clients, corporate and public sector entities, including mortgage lending, payment transactions, securities
brokerage for customers, asset management, investment banking, project finance,
structured finance, foreign trade finance, money and foreign exchange dealing, building savings business
(Bauspargeschäft), as well as cash management, payment and securities settlement, and payment cards and point-of-sale services.
As of December 31, 2004, the issued share capital of Deutsche Bank AG amounted to euro 1,392,266,870, consisting of 543,854,246 ordinary registered
shares without par value. These shares are fully paid up and in registered form. The shares are listed for trading and official quotation on all the German stock exchanges. They are also listed on the stock exchanges in Amsterdam, Brussels, London,
Luxembourg, New York, Paris, Tokyo and Vienna and on the Swiss Exchange.
As of December 31, 2004, the Deutsche Bank Group had total assets of euro 840.1 billion, total liabilities of euro 814.2 billion and shareholders’ equity of euro 25.9 billion. Please refer to Deutsche Bank
AG’s Annual Report on Form 20-F, which is incorporated by reference herein, for additional financial information and financial statements relating to the Issuer.
Deutsche Bank AG London is the London branch of Deutsche Bank AG. Deutsche Bank AG, New York branch, is the New York branch
of Deutsche Bank AG and operates pursuant to license issued by the Superintendent of Banks of the State of New York on July 14, 1978.
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
110
from the sale of one contract of December 2005 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 2005 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 Master 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 the New York Board of Trade.
Each futures exchange in the United States has an associated “clearing
house.” Once trades between 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.
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”
111
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 May Face—Possible Illiquid Markets May
Exacerbate Losses.”
Although the Eligible Index
Currencies that the Master Fund will invest in from time to time are not currently subject to “daily limits,” the terms and conditions of these contracts may change in the future.
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 Fund and the Master Fund. The CEAct gives the CFTC similar authority 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 and the Master Fund. The Fund and the Master Fund themselves are 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 and the Master Fund themselves are not required to become members 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
112
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 Master 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.
113
EXHIBIT A
PRIVACY NOTICE
The importance of protecting the investors’ privacy
is recognized by DB Currency Index Value Fund (the “Fund”) and DB Commodity Services LLC (the “Managing Owner”). The Fund and the Managing Owner protect personal information they collect about you by maintaining physical,
electronic and procedural safeguards to maintain the confidentiality and security of such information.
Categories Of Information Collected.
In the normal course of business, the Fund and the Managing Owner may collect the following types of
information concerning investors in the Fund who are natural persons:
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•
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Information provided in the Participant Agreements and other forms (including name, address, social security number, income and other financial-related information); and
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•
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Data about investor transactions (such as the types of investments the investors have made and their account status).
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How the Collected Information is Used.
Any and all nonpublic personal
information received by the Fund or the Managing Owner with respect to the investors who are natural persons, including the information provided to the Fund by such an investor in the Participant Agreement, will not be shared with nonaffiliated
third parties which are not service providers to the Fund or the Managing Owner without prior notice to such investors. Such service providers include but are not limited to the Selling Agents, the Commodity Broker, administrators, auditors and the
legal advisers of the Fund. Additionally, the Fund and/or the Managing Owner may disclose such nonpublic personal information as required by applicable laws, statutes, rules and regulations of any government, governmental agency or self-regulatory
organization or a court order. The same privacy policy will also apply to the Shareholders who have fully redeemed.
For questions about the privacy policy, please contact the Fund.
P-1
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 and complete the offering of the Shares
(other than selling commissions).
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Approximate
Amount
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Securities and Exchange Commission Registration Fee
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$
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214,000
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National Association of Securities Dealers, Inc. Filing Fee
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75,500
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Printing Expenses
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200,000
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Fees of Certified Public Accountants
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100,000
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Fees of Counsel
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120,000
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Total
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$
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709,500
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Item 14. Indemnification of Directors and Officers.
Section 4.7 of the Amended and Restated Declaration of Trust and Trust Agreement of each of the Fund and the Master
Fund filed as exhibits to this Registration Statement and, as amended from time-to-time, provides for the indemnification of the Managing Owner. The Managing Owner (including Covered Persons as provided under each Amended and Restated Declaration of
Trust and Trust Agreement) shall be indemnified by the Fund or the Master Fund, as the case may be, 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 or the Master Fund, as the case may be, provided that (i) the Managing Owner was acting on behalf of or performing services for the Fund or the Master Fund, as the case may be, and has determined, in good faith, that such course of
conduct was in the best interests of the Fund or the Master Fund, as the case may be, and such liability or loss was not the result of negligence, misconduct, or a breach of the Amended and Restated Declaration of Trust and Trust Agreement on the
part of the Managing Owner and (ii) any such indemnification will only be recoverable from the Trust Estate (as such term is defined in the Amended and Restated Declaration of Trust and Trust Agreement). 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 U.S. Code by or against the Managing Owner. The source of payments made in respect of indemnification under either Amended and Restated Declaration of Trust and Trust Agreement shall be from
assets of the Fund or the Master Fund, as the case may be.
Item 15.
Recent Sales of Unregistered Securities.
(a) Securities
Sold.
[Upon inception of the DB Currency Index Value Fund
(“Fund”) and the DB Currency Index Value Master Fund (“Master Fund”), 40 General Units of each of the Fund and the Master Fund will be issued to DB Commodity Services LLC in exchange for a capital contribution of $1,000 to the
Fund and $1,000 to the Master Fund.]
On [
·
], 2006, [ ], as the Initial Purchaser,
purchased and took delivery from the Fund [2,000,000] units of beneficial interest of the Fund for an aggregate purchase price of $[50,000,000]. The Fund contributed the proceeds of the sale to the Fund in return for an increase of its equity
interest in the Master Fund. The Master Fund used the contributed proceeds to commence its activities.
II-1
Item 16. Exhibits and Financial Statement Schedules.
The following documents (unless otherwise indicated) are filed herewith and
made a part of this Registration Statement:
(a) Exhibits.
The following exhibits are filed herewith:
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Exhibit
Number
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Description of Document
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1.1.
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Form of Initial Purchaser Agreement*
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4.1
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Form of Amended and Restated Declaration of Trust and Trust Agreement of the Registrant
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4.2
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Form of Amended and Restated Declaration of Trust and Trust Agreement of the Co-Registrant
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4.3
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Form of Participant Agreement
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4.4
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Form of Privacy Notice (annexed to the Prospectus as Exhibit A)
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5.1
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Form of Opinion of Richards, Layton & Finger as to legality*
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8.1
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Form of Opinion of Sidley Austin
LLP
as to income tax matters*
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10.1
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Form of Customer Agreement between DB Currency Index Value Master Fund and Deutsche Bank Securities Inc.
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10.2
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Form of Administration Agreement
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10.3
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Form of Global Custody Agreement
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10.4
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Form of Transfer Agency and Service Agreement
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10.5
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Form of Distribution Services Agreement
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23.1
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Consent of Sidley Austin
LLP
is included as part of Registration Statement*
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23.2
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Consent of Richards, Layton & Finger is included as part of Exhibit 5.1*
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23.3
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Consent of Sidley Austin
LLP
as tax counsel is included as part of Registration Statement*
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23.4
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Consent of KPMG
LLP
, Independent Registered Public Accounting Firm, is included as part of Registration Statement
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* To be filed by amendment.
(b) The following financial statements are included in the Prospectus:
(1) DB Currency Index Value Fund
(i) Report of Independent Registered Public Accounting
Firm dated [ ], 2006*
(ii) Statement of Financial Condition dated
[ ], 2006*
(iii) Notes to Statement of Financial Condition
(2) DB Currency Index Value Master Fund
(i) Report of Independent Registered Public Accounting Firm dated
[ ], 2006*
(ii) Statement of Financial Condition dated
[ ], 2006*
(iii) Statement of Operations dated
[ ], 2006*
(iv) Statement of Changes in Net Assets dated
[ ], 2006*
(v) Statement of Cash Flows dated
[ ], 2006*
(vi) Notes to Statement of Financial Condition*
II-2
(3) DB Commodity Services LLC
(i) Independent Auditor’s Report dated October 21,
2005
(ii) Statement of Financial Condition
September 15, 2005
(iii) Statement of
Changes in Member’s Capital for the period from May 23, 2005 (inception) through September 15, 2005
(iv) Statement of Cash Flows for the period from May 23, 2005 (inception) through September 15, 2005
(v) Notes to Statement of Financial Condition
(vi) Statement of Financial Condition December 31, 2005
(unaudited)
(vii) Statement of Changes in
Member’s Capital for the period from September 15, 2005 through December 31, 2005 (unaudited)
(viii) Statement of Cash Flows for the period from September 15, 2005 through December 31, 2005 (unaudited)
(ix) Notes to Financial Statements (unaudited)
* To be filed by amendment.
Item 17. Undertakings.
(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 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 paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the registration
statement is on Form S-3, Form S-8 or Form F-3, and the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed with or furnished to the Commission by the registrant pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference 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
II-3
(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 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 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:
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
II-4
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) Insofar as indemnification for liabilities under the Securities Act of
1933 may be permitted to officers, directors or controlling persons of the registrant pursuant to the provisions described in Item 14 above, 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-5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Managing Owner of the Registrant and Co-Registrant has duly
caused this 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 16
th
day of March, 2006.
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DB Currency Index Value Fund
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By:
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DB Commodity Services LLC,
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its Managing Owner
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By:
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/s/ K
EVIN
R
ICH
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Name:
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Kevin Rich
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Title:
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Director and Chief Executive Officer
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DB Currency Index Value Master Fund
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By:
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DB Commodity Services LLC,
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its Managing Owner
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By:
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/s/ K
EVIN
R
ICH
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Name:
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Kevin Rich
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Title:
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Director and Chief Executive Officer
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Pursuant to the
requirements of the Securities Act of 1933, this Registration Statement on Form S-1 has been signed by the following persons on behalf of the Managing Owner of the Registrant and Co-Registrant in the capacities and on the date indicated.
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DB Commodity Services LLC,
Managing Owner Of
Registrant
and Co-Registrant
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/s/ K
EVIN
R
ICH
Name: Kevin Rich
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Director and Chief Executive Officer
(Principal Executive Officer)
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March 16, 2006
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/s/ N
OAM
B
ERK
Name: Noam Berk
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Director and Treasurer
(Principal Financial Officer)
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March 16, 2006
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/s/ R
OBERT
L
AZARUS
Name: Robert Lazarus
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Director
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March 16, 2006
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II-6
(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)
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DB Commodity Services LLC,
Managing Owner Of
Registrant
and Co-Registrant
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/s/ K
EVIN
R
ICH
Name: Kevin Rich
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Director and Chief Executive Officer
(Principal Executive Officer)
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March 16, 2006
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/s/ N
OAM
B
ERK
Name: Noam Berk
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Director and Treasurer
(Principal Financial Officer)
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March 16, 2006
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/s/ R
OBERT
L
AZARUS
Name: Robert Lazarus
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Director
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March 16, 2006
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II-7
EXHIBIT 4.1
AMENDED AND RESTATED
DECLARATION OF TRUST
AND
TRUST AGREEMENT
OF
DB CURRENCY INDEX VALUE FUND
Dated as of
, 2006
By and Among
DB
COMMODITY SERVICES LLC
WILMINGTON TRUST COMPANY
and
THE UNITHOLDERS
from time to time hereunder
TABLE OF CONTENTS
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Page
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ARTICLE I
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DEFINITIONS; THE TRUST
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1
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SECTION 1.1.
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Definitions
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1
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SECTION 1.2.
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Name
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6
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SECTION 1.3.
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Delaware Trustee; Business Offices
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6
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SECTION 1.4.
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Declaration of Trust
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6
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SECTION 1.5.
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Purposes and Powers
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7
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SECTION 1.6.
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Tax Treatment
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7
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SECTION 1.7.
|
|
General Liability of the Managing Owner
|
|
8
|
|
SECTION 1.8.
|
|
Legal Title
|
|
8
|
|
SECTION 1.9.
|
|
Commencement of Business
|
|
8
|
|
|
|
|
ARTICLE II
|
|
|
|
|
|
|
THE TRUSTEE
|
|
8
|
|
|
|
|
|
SECTION 2.1.
|
|
Term; Resignation
|
|
8
|
|
SECTION 2.2.
|
|
Powers
|
|
9
|
|
SECTION 2.3.
|
|
Compensation and Expenses of the Trustee
|
|
9
|
|
SECTION 2.4.
|
|
Indemnification
|
|
9
|
|
SECTION 2.5.
|
|
Successor Trustee
|
|
10
|
|
SECTION 2.6.
|
|
Liability of Trustee
|
|
10
|
|
SECTION 2.7.
|
|
Reliance; Advice of Counsel
|
|
11
|
|
SECTION 2.8.
|
|
Payments to the Trustee
|
|
12
|
|
|
|
|
ARTICLE III
|
|
|
|
|
|
|
UNITS; CAPITAL CONTRIBUTIONS
|
|
12
|
|
|
|
|
|
SECTION 3.1.
|
|
General
|
|
12
|
|
SECTION 3.2.
|
|
Offer of Limited Units
|
|
12
|
|
SECTION 3.3.
|
|
Procedures for Creation and Issuance of Creation Baskets
|
|
12
|
|
SECTION 3.4.
|
|
Book-Entry-Only System, Global Security
|
|
14
|
|
SECTION 3.5.
|
|
Assets
|
|
17
|
|
SECTION 3.6.
|
|
Liabilities
|
|
17
|
|
SECTION 3.7.
|
|
Distributions
|
|
17
|
|
SECTION 3.8.
|
|
Voting Rights
|
|
18
|
|
SECTION 3.9.
|
|
Equality
|
|
18
|
i
|
|
|
|
|
|
|
ARTICLE IV
|
|
|
|
|
|
|
THE MANAGING OWNER
|
|
18
|
|
|
|
|
|
SECTION 4.1.
|
|
Management of the Trust
|
|
18
|
|
SECTION 4.2.
|
|
Authority of Managing Owner
|
|
18
|
|
SECTION 4.3.
|
|
Obligations of the Managing Owner
|
|
19
|
|
SECTION 4.4.
|
|
General Prohibitions
|
|
20
|
|
SECTION 4.5.
|
|
Liability of Covered Persons
|
|
20
|
|
SECTION 4.6.
|
|
Fiduciary Duty
|
|
21
|
|
SECTION 4.7.
|
|
Indemnification of the Managing Owner
|
|
22
|
|
SECTION 4.8.
|
|
Expenses and Limitations Thereon
|
|
23
|
|
SECTION 4.9.
|
|
Compensation to the Managing Owner
|
|
25
|
|
SECTION 4.10.
|
|
Other Business of Unitholders
|
|
25
|
|
SECTION 4.11.
|
|
Voluntary Withdrawal of the Managing Owner
|
|
25
|
|
SECTION 4.12.
|
|
Authorization of Registration Statements
|
|
25
|
|
SECTION 4.13.
|
|
Litigation
|
|
25
|
|
|
|
|
ARTICLE V
|
|
|
|
|
|
|
TRANSFERS OF UNITS
|
|
26
|
|
|
|
|
|
SECTION 5.1.
|
|
General Prohibition
|
|
26
|
|
SECTION 5.2.
|
|
Transfer of Managing Owner’s General Units
|
|
26
|
|
SECTION 5.3.
|
|
Transfer of Limited Units
|
|
26
|
|
|
|
|
ARTICLE VI
|
|
|
|
|
|
|
DISTRIBUTIONS
|
|
27
|
|
|
|
|
|
SECTION 6.1.
|
|
Distributions of Cash Received from the Master Fund Other than Redemption Proceeds
|
|
27
|
|
SECTION 6.2.
|
|
Liability for State and Local and Other Taxes
|
|
27
|
|
|
|
|
ARTICLE VII
|
|
|
|
|
|
|
REDEMPTIONS
|
|
27
|
|
|
|
|
|
SECTION 7.1.
|
|
Redemption of Redemption Baskets
|
|
27
|
|
SECTION 7.2.
|
|
Other Redemption Procedures
|
|
29
|
|
|
|
|
ARTICLE VIII
|
|
|
|
|
|
|
THE LIMITED OWNERS
|
|
29
|
|
|
|
|
|
SECTION 8.1.
|
|
No Management or Control; Limited Liability; Exercise of Rights through DTC
|
|
29
|
|
SECTION 8.2.
|
|
Rights and Duties
|
|
30
|
|
SECTION 8.3.
|
|
Limitation on Liability
|
|
30
|
ii
|
|
|
|
|
|
|
ARTICLE IX
|
|
|
|
|
|
|
BOOKS OF ACCOUNT AND REPORTS
|
|
31
|
|
|
|
|
|
SECTION 9.1.
|
|
Books of Account
|
|
31
|
|
SECTION 9.2.
|
|
Annual Reports and Monthly Statements
|
|
32
|
|
SECTION 9.3.
|
|
Tax Information
|
|
32
|
|
SECTION 9.4.
|
|
Calculation of Net Asset Value
|
|
32
|
|
SECTION 9.5.
|
|
Maintenance of Records
|
|
32
|
|
SECTION 9.6.
|
|
Certificate of Trust
|
|
32
|
|
|
|
|
ARTICLE X
|
|
|
|
|
|
|
FISCAL YEAR
|
|
32
|
|
|
|
|
|
SECTION 10.1.
|
|
Fiscal Year
|
|
32
|
|
|
|
|
ARTICLE XI
|
|
|
|
|
|
|
AMENDMENT OF TRUST AGREEMENT; MEETINGS
|
|
33
|
|
|
|
|
|
SECTION 11.1.
|
|
Amendments to the Trust Agreement
|
|
33
|
|
SECTION 11.2.
|
|
Meetings of the Trust
|
|
34
|
|
SECTION 11.3.
|
|
Action Without a Meeting
|
|
35
|
|
|
|
|
ARTICLE XII
|
|
|
|
|
|
|
|
TERM
|
|
|
|
35
|
|
|
|
|
|
SECTION 12.1.
|
|
Term
|
|
35
|
|
|
|
|
ARTICLE XIII
|
|
|
|
|
|
|
TERMINATION
|
|
35
|
|
|
|
|
|
SECTION 13.1.
|
|
Events Requiring Dissolution of the Trust
|
|
35
|
|
SECTION 13.2.
|
|
Distributions on Dissolution
|
|
37
|
|
SECTION 13.3.
|
|
Termination; Certificate of Cancellation
|
|
37
|
|
|
|
|
ARTICLE XIV
|
|
|
|
|
|
|
POWER OF ATTORNEY
|
|
37
|
|
|
|
|
|
SECTION 14.1.
|
|
Power of Attorney Executed Concurrently
|
|
37
|
|
SECTION 14.2.
|
|
Effect of Power of Attorney
|
|
38
|
|
SECTION 14.3.
|
|
Limitation on Power of Attorney
|
|
38
|
iii
|
|
|
|
|
|
|
ARTICLE XV
|
|
|
|
|
|
|
MISCELLANEOUS
|
|
39
|
|
|
|
|
|
SECTION 15.1.
|
|
Governing Law
|
|
39
|
|
SECTION 15.2.
|
|
Provisions In Conflict With Law or Regulations
|
|
39
|
|
SECTION 15.3.
|
|
Construction
|
|
40
|
|
SECTION 15.4.
|
|
Notices
|
|
40
|
|
SECTION 15.5.
|
|
Counterparts
|
|
40
|
|
SECTION 15.6.
|
|
Binding Nature of Trust Agreement
|
|
40
|
|
SECTION 15.7.
|
|
No Legal Title to Trust Estate
|
|
40
|
|
SECTION 15.8.
|
|
Creditors
|
|
40
|
|
SECTION 15.9.
|
|
Integration
|
|
41
|
|
SECTION 15.10.
|
|
Goodwill; Use of Name
|
|
41
|
|
|
|
|
|
EXHIBIT A
|
|
|
|
Form of Certificate of Trust of DB Currency Index Value
Fund
|
|
A-1
|
|
EXHIBIT B
|
|
|
|
Form of Global Certificate
|
|
B-1
|
|
EXHIBIT C
|
|
|
|
Form of Participant Agreement
|
|
C-1
|
|
EXHIBIT D
|
|
|
|
Form of Initial Purchaser Agreement
|
|
D-1
|
iv
DB CURRENCY INDEX VALUE FUND
AMENDED AND RESTATED
DECLARATION OF TRUST
AND TRUST AGREEMENT
This AMENDED AND
RESTATED DECLARATION OF TRUST AND TRUST AGREEMENT of
DB CURRENCY INDEX VALUE FUND
is made and entered into as of the
day of
, 2006,
by and among
DB COMMODITY SERVICES LLC
, a Delaware limited liability company,
WILMINGTON TRUST COMPANY
, a Delaware banking company, as trustee, and the
UNITHOLDERS
from time to time hereunder.
* * *
RECITALS
WHEREAS, the
Trust was formed on
, 2006 pursuant to the execution and filing by the Trustee of the Certificate of Trust on
, 2006 and the execution and delivery by each of the Trustee and the Managing Owner of a Declaration of Trust and Trust Agreement dated as
of
, 2006 (the “Original Agreement”);
WHEREAS, currently, there are and have been no Limited Owners;
WHEREAS, the Trustee and the Managing Owner
desire to amend the Original Agreement to make the amendments effectuated hereby.
NOW, THEREFORE, pursuant to Section 8 of the
Original Agreement, the Trustee and the Managing Owner hereby amend and restate the Original Agreement in its entirety as set forth below.
ARTICLE I
DEFINITIONS; THE TRUST
SECTION 1.1.
Definitions
. As used in this Trust Agreement, the following terms shall have the following meanings unless the context otherwise requires:
“Administrator” means any Person from time to time engaged to provide administrative services to the Trust pursuant to authority delegated by
the Managing Owner.
“Affiliate” – An “Affiliate” of a “Person” means (i) any Person directly or
indirectly owning, controlling or holding with power to vote 10% or more of the outstanding voting securities of such Person, (ii) any Person 10% or more of whose outstanding voting securities are directly or indirectly owned, controlled or
held with power to vote by such Person, (iii) any Person, directly or indirectly, controlling, controlled by or under common control of such Person, (iv) any employee, officer, director, member, manager or partner of such Person, or
(v) if such Person is an employee, officer, director, member, manager or partner, any Person for which such Person acts in any such capacity.
1
“Basket” means a Creation Basket or a Redemption Basket, as the context may require.
“Beneficial Owners” shall have the meaning assigned to such term in Section 3.4(d).
“Business Day” means a day other than Saturday, Sunday or other day when banks and/or securities exchanges in the City of New York or the City
of Wilmington are authorized or obligated by law or executive order to close.
“Capital Contributions” means the amounts of cash
contributed and agreed to be contributed to the Trust by any Participant or by the Managing Owner, as applicable, in accordance with Article III hereof.
“CE Act” means the Commodity Exchange Act, as amended.
“Certificate of Trust” means
the Certificate of Trust of the Trust in the form attached hereto as Exhibit A, filed with the Secretary of State of the State of Delaware pursuant to Section 3810 of the Delaware Trust Statute.
“CFTC” means the Commodity Futures Trading Commission.
“Code” means the Internal Revenue Code of 1986, as amended.
“Corporate Trust Office”
means the principal office at which at any particular time the corporate trust business of the Trustee is administered, which office at the date hereof is located at Rodney Square North, 1100 North Market Street, Wilmington, Delaware 19890,
Attention: Corporate Trust Administration.
“Covered Person” means the Trustee, the Managing Owner and their respective
Affiliates.
“Currencies” means positions in Currency Contracts, forward contracts, other foreign exchange positions, as well as
cash resulting from any of the foregoing positions.
“Currency Contract” means any futures contract or option thereon providing
for the delivery or receipt at a future date of a specified amount of a traded currency at a specified price and delivery point, or any other futures contract or option thereon approved for trading for U.S. persons.
“Creation Basket” means the minimum number of Limited Units that may be created at any one time, which shall be 200,000 or such greater or
lesser number as the Managing Owner may determine from time to time.
“Creation Basket Capital Contribution” means a Capital
Contribution made by a Participant in connection with a Purchase Order Subscription Agreement and the creation of a Creation Basket in an amount equal to the product obtained by multiplying (i) the number of
2
Creation Baskets set forth in the relevant Purchase Order Subscription Agreement by (ii) the Net Asset Value per
Basket as of closing time of the Exchange or the last to close of the exchanges on which any one of the Index Currencies is traded, whichever is later, on the Purchase Order Subscription Date.
“Delaware Trust Statute” means the Delaware Statutory Trust Act, Chapter 38 of Title 12 of the Delaware Code, 12 Del. C. § 3801
et
seq.
, as the same may be amended from time to time.
“Depository” means The Depository Trust Company, New York, New York, or
such other depository of Limited Units as may be selected by the Managing Owner as specified herein.
“Depository Agreement”
means the Letter of Representations from the Managing Owner to the Depository, dated as of
, 2006 as the same may be amended or supplemented from time to time.
“Distributor” means any Person from time to time engaged to provide distribution services or related services to the Trust
pursuant to authority delegated by the Managing Owner.
“DTC” shall have the meaning assigned to such term in
Section 3.4(b).
“DTC Participants” shall have the meaning assigned to such term in Section 3.4(c).
“Exchange” means the American Stock Exchange or, if the Limited Units shall cease to be listed on the American Stock Exchange and are listed on
one or more other exchanges, the exchange on which the Units are principally traded, as determined by the Managing Owner.
“Fiscal
Quarter” shall mean each period ending on the last day of each March, June, September and December of each Fiscal Year.
“Fiscal
Year” shall have the meaning set forth in Article X hereof
“Global Security” means the global certificate or certificates
issued to the Depository as provided in the Depository Agreement, each of which shall be in substantially the form attached hereto as Exhibit B.
“Index Currencies” means the underlying Currencies which comprise the Deutsche Bank G10 Currency Future Harvest Index™—Excess Return from time to time, as described in the Prospectus.
“Indirect Participants” shall have the meaning assigned to such term in Section 3.4 (c).
“Initial Purchaser Agreement” means an agreement among the Trust, the Managing Owner and the Initial Purchaser, substantially in the form of
Exhibit D hereto, as it may be amended from time to time in accordance with its terms.
“Initial Purchaser”
[
], a
[
].
3
“Internal Revenue Service” or “IRS” means the U.S. Internal Revenue Service or any
successor thereto.
“Limited Owner” means any person or entity who is or becomes a Beneficial Owner of Limited Units.
“Managing Owner” means DB Commodity Services LLC, or any substitute therefor as provided herein, or any successor thereto by merger or
operation of law.
“Master Fund” means DB Currency Index Value Master Fund, a Delaware statutory trust.
“Master Fund Shares” means the common units of fractional undivided beneficial interest with limited liability in the profits, losses,
distributions, capital and assets of, and ownership of the Master Fund.
“Net Asset Value” at any time means the total assets in
the Trust Estate, determined on the basis of generally accepted accounting principles in the United States, consistently applied under the accrual method of accounting. The amount of any distribution made pursuant to Article VI hereof shall be a
liability of the Trust from the day when the distribution is declared until it is paid.
“Net Asset Value Per Basket” means the
product obtained by multiplying the Net Asset Value Per Unit by the number of Limited Units comprising a Basket at such time.
“Net
Asset Value per Unit” means the Net Asset Value divided by the number of Units outstanding on the date of calculation.
“NFA” means the National Futures Association.
“Order Cut-Off Time” means 1:00 pm, New York time, on a
Business Day.
“Organization and Offering Expenses” shall have the meaning assigned thereto in Section 4.8(a)(iv).
“Participant” means a Person that is a DTC Participant and has entered into a Participant Agreement which, at the relevant time,
is in full force and effect.
“Participant Agreement” means an agreement among the Trust, the Managing Owner and a Participant,
substantially in the form of Exhibit C hereto, as it may be amended or supplemented from time to time in accordance with its terms.
“Person” means any natural person, partnership, limited liability company, statutory trust, corporation, association, or other legal entity.
“Prospectus” means the final prospectus and disclosure document of the Trust, constituting a part of a Registration Statement, as filed with the SEC and declared effective thereby, as the same may at any
time and from time to time be amended or supplemented.
4
“Purchase Order Subscription Agreement” shall have the meaning assigned thereto in
Section 3.3(a)(i).
“Purchase Order Subscription Date” shall have the meaning assigned thereto in Section 3.3(a)(i).
“Redemption Basket” means the minimum number of Limited Units that may be redeemed pursuant to Section 7.1, which shall be
the number of Limited Units constituting a Creation Basket on the relevant Redemption Order Date.
“Redemption Distribution”
means the cash delivered in satisfaction of a redemption of a Redemption Basket as specified in Section 7.1(c).
“Redemption
Order” shall have the meaning assigned thereto in Section 7.1(a).
“Redemption Order Date” shall have the meaning
assigned thereto in Section 7.1(b).
“Redemption Settlement Time” shall have the meaning assigned thereto in
Section 7.1(d).
“Registration Statement” means a registration statement on Form S-1, as it may be amended from time to
time, filed with the Securities and Exchange Commission pursuant to which the Trust registered the Limited Units, as the same may at any time and from time to time be further amended or supplemented.
“SEC” means the Securities and Exchange Commission.
“Sponsor” means any person directly or indirectly instrumental in organizing the Trust or any person who will manage or participate in the management of the Trust, including the Managing Owner or an
Affiliate of the Managing Owner, who pays any portion of the Organizational Expenses of the Trust and any other person who regularly performs or selects the persons who perform services for the Trust. Sponsor does not include wholly independent
third parties such as attorneys, accountants and underwriters whose only compensation is for professional services rendered in connection with the offering of the Units. The term “Sponsor” shall be deemed to include its Affiliates.
“Subscribing Participant” means a Participant who has submitted a Purchase Order Subscription Agreement to create one or more
Units that has not yet been filled or accepted by the Trust.
“Suspended Redemption Order” shall have the meaning assigned
thereto in Section 7.1(d).
“Transaction Fee” shall have the meaning assigned thereto in Section 3.3(d).
“Treasury Regulations” means regulations, including proposed or temporary regulations, promulgated under the Code. References herein to
specific provisions of proposed or temporary regulations shall include analogous provisions of final Treasury Regulations or other successor Treasury Regulations.
5
“Trust” means DB Currency Index Value Fund, the Delaware statutory trust formed pursuant to the
Certificate of Trust, the business and affairs of which are governed by this Trust Agreement.
“Trust Agreement” means this
Amended and Restated Declaration of Trust and Trust Agreement as the same may at any time or from time to time be amended.
“Trustee” means Wilmington Trust Company or any substitute therefor as provided herein, acting not in its individual capacity but solely as trustee of the Trust.
“Trust Estate” means all property and cash held by the Trust, and all proceeds therefrom.
“Unitholders” means the Managing Owner and all Limited Owners, as holders of Units, where no distinction is required by the context in which
the term is used.
“Units” means the common units of fractional undivided beneficial interest in the profits, losses,
distributions, capital and assets of, and ownership of, the Trust. The Managing Owner’s Capital Contributions shall be represented by “General” Units and a Limited Owner’s Capital Contributions shall be represented by
“Limited” Units.
SECTION 1.2.
Name
.
(a) The name of the Trust is “DB Currency Index Value Fund” in which name the Trustee and the Managing Owner may engage in the business of the Trust, make and execute contracts and other instruments on
behalf of the Trust and sue and be sued on behalf of the Trust.
SECTION 1.3.
Delaware Trustee; Business Offices.
(a) The sole Trustee of the Trust is Wilmington Trust Company, which is located at the Corporate Trust Office or at such other address in the State of
Delaware as the Trustee may designate in writing to the Unitholders. The Trustee shall receive service of process on the Trust in the State of Delaware at the foregoing address. In the event Wilmington Trust Company resigns or is removed as the
Trustee, the Trustee of the Trust in the State of Delaware shall be the successor Trustee.
(b) The principal office of the Trust, and such
additional offices as the Managing Owner may establish, shall be located at such place or places inside or outside the State of Delaware as the Managing Owner may designate from time to time in writing to the Trustee and the Unitholders. Initially,
the principal office of the Trust shall be at 60 Wall Street, New York, New York 10005.
SECTION 1.4.
Declaration of Trust
. The
Trustee hereby acknowledges that the Trust has received the sum of $1,000 in bank accounts in the name of the Trust controlled by the Managing Owner from the Managing Owner as grantor of the Trust, and hereby declares that it shall hold such sum in
trust, upon and subject to the conditions set forth herein for the use and
6
benefit of the Unitholders. It is the intention of the parties hereto that the Trust shall be a statutory trust under the
Delaware Trust Statute and that this Trust Agreement shall constitute the governing instrument of the Trust. It is not the intention of the parties hereto to create a general partnership, limited partnership, limited liability company, joint stock
association, corporation, bailment or any form of legal relationship other than a Delaware statutory trust except to the extent that the Trust is deemed to constitute a grantor trust under the Code and applicable state and local tax laws. Nothing in
this Trust Agreement shall be construed to make the Unitholders partners or members of a joint stock association. The Managing Owner shall not be liable to any person for the failure of the Trust to qualify as a grantor trust under the Code or any
comparable provision of the laws of any State or other jurisdiction where such treatment is sought. Effective as of the date hereof, the Trustee and the Managing Owner shall have all of the rights, powers and duties set forth herein and in the
Delaware Trust Statute with respect to accomplishing the purposes of the Trust. The Trustee has filed the certificate of trust required by Section 3810 of the Delaware Trust Statute in connection with the formation of the Trust under the
Delaware Trust Statute.
SECTION 1.5.
Purposes and Powers
. The purposes of the Trust shall be to acquire, hold and redeem Master
Fund Shares and to enter into any lawful transaction and engage in any lawful activities in furtherance of or incidental to the foregoing purposes. The Trust shall not engage in any other business or activity and shall not acquire or own any other
assets or take any of the actions set forth in Section 4.4. The Trust shall have all of the powers specified in Section 15.1 hereof, including, without limitation, all of the powers which may be exercised by a Managing Owner on behalf of
the Trust under this Trust Agreement. Nothing in this Agreement shall be construed to give the Trustee or the Managing Owner the power to vary the investment of the Beneficial Owners within the meaning of Treasury Regulation
Section 301.7701-4(c) or similar or successor provisions of United States Treasury Regulations under the Code, nor shall the Managing Owner take any action that would vary the investment of the Beneficial Owners.
SECTION 1.6.
Tax Treatment.
(a) Each
of the parties hereto, by entering into this Trust Agreement, (i) expresses its intention that the Units will qualify under applicable tax law as interests in a grantor trust which holds the Trust Estate for their benefit, (ii) agrees that
it will file its own Federal, state and local income, franchise and other tax returns in a manner that is consistent with the treatment of the Trust as a grantor trust in which each of the Unitholders thereof is a beneficiary and (iii) agrees
to use reasonable efforts to notify the Managing Owner promptly upon a receipt of any notice from any taxing authority having jurisdiction over such holders of Units with respect to the treatment of the Units as anything other than interests in a
grantor trust.
(b) The Managing Owner shall prepare or cause to be prepared and filed the Trust’s tax returns as a grantor trust for
Federal, state and local tax purposes. Subject to Section 4.7, the Trust hereby indemnifies, to the full extent permitted by law, the Managing Owner from and against any damages or losses (including attorneys’ fees) arising out of or
incurred in connection with any action taken or omitted to be taken by it in carrying out its responsibilities under this Section 1.6(b), provided such action taken or omitted to be taken does not constitute fraud, negligence or misconduct.
7
(c) Each Unitholder shall furnish the Managing Owner and the Trustee with information necessary to enable
the Managing Owner to comply with U.S. federal income tax information reporting requirements in respect of such Unitholder’s Units.
SECTION 1.7.
General Liability of the Managing Owner.
(a) The Managing Owner shall be liable for the acts, omissions,
obligations and expenses of the Trust, to the extent not paid out of the assets of the Trust, to the same extent the Managing Owner would be so liable if the Trust were a partnership under the Delaware Revised Uniform Limited Partnership Act and the
Managing Owner were a general partner of such partnership. The foregoing provision shall not, however, limit the ability of the Managing Owner to limit its liability by contract. The obligations of the Managing Owner under this Section 1.7
shall be evidenced by its ownership of the General Units which, solely for purposes of the Delaware Trust Statute, will be deemed to be a separate class of Units. Without limiting or affecting the liability of the Managing Owner as set forth in this
Section 1.7, notwithstanding anything in this Trust Agreement to the contrary, Persons having any claim against the Trust by reason of the transactions contemplated by this Trust Agreement and any other agreement, instrument, obligation or
other undertaking to which the Trust is a party, shall look only to the Trust Estate for payment or satisfaction thereof.
(b) Subject to
Sections 8.1 and 8.3 hereof, no Unitholder, other than the Managing Owner, to the extent set forth above, shall have any personal liability for any liability or obligation of the Trust.
SECTION 1.8.
Legal Title
. Legal title to all of the Trust Estate shall be vested in the Trust as a separate legal entity;
provided
,
however
, that where applicable law in any jurisdiction requires any part of the Trust Estate to be vested otherwise, the Managing Owner may cause legal title to the Trust Estate or any portion thereof to be held by or in the name of the
Managing Owner or any other Person (other than a Unitholder) as nominee.
SECTION 1.9.
Commencement of Business.
The Commencement of
the Trust’s business and the sale of the Limited Units to the Initial Purchaser pursuant to the Initial Purchaser Agreement shall commence at such time as the Managing Owner shall determine.
ARTICLE II
THE TRUSTEE
SECTION 2.1.
Term; Resignation.
(a) Wilmington Trust Company has been appointed and hereby agrees to serve as the Trustee of the Trust. The Trust shall have only one trustee unless otherwise determined by the Managing Owner. The Trustee shall serve
until such time as the Managing Owner removes the Trustee or the Trustee resigns and a successor Trustee is appointed by the Managing Owner in accordance with the terms of Section 2.5 hereof.
(b) The Trustee may resign at any time upon the giving of at least 60 days’ advance written notice to the Trust; provided, that such resignation
shall not become effective
8
unless and until a successor Trustee shall have been appointed by the Managing Owner in accordance with Section 2.5
hereof. If the Managing Owner does not act within such sixty (60) day period, the Trustee may apply, at the expense of the Trust, to the Court of Chancery of the State of Delaware for the appointment of a successor Trustee.
SECTION 2.2.
Powers
. Except to the extent expressly set forth in Section 1.3(a) and this Article II, the duty and authority of the Trustee to
manage the business and affairs of the Trust is hereby delegated to the Managing Owner, which duty and authority the Managing Owner may further delegate as provided herein, all pursuant to Section 3806(b)(7) of the Delaware Trust Statute. The
Trustee shall have only the rights, obligations and liabilities specifically provided for herein and shall have no implied rights, duties, obligations and liabilities with respect to the business and affairs of the Trust. The Trustee shall have the
power and authority to execute and file certificates as required by the Delaware Trust Statute and to accept service of process on the Trust in the State of Delaware. The Trustee shall provide prompt notice to the Managing Owner of its performance
of any of the foregoing. The Managing Owner shall reasonably keep the Trustee informed of any actions taken by the Managing Owner with respect to the Trust that would reasonably be expected to affect the rights, obligations or liabilities of the
Trustee hereunder or under the Delaware Trust Statute.
SECTION 2.3.
Compensation and Expenses of the Trustee
. The Trustee shall be
entitled to receive from the Managing Owner or an Affiliate of the Managing Owner (including the Trust) reasonable compensation for its services hereunder as set forth in a separate fee agreement and shall be entitled to be reimbursed by the
Managing Owner or an Affiliate of the Managing Owner (including the Trust) for reasonable out-of-pocket expenses incurred by it in the performance of its duties hereunder, including without limitation, the reasonable compensation, out-of-pocket
expenses and disbursements of counsel and such other agents as the Trustee may employ in connection with the exercise and performance of its rights and duties hereunder.
SECTION 2.4.
Indemnification
. The Managing Owner agrees (and any additional Managing Owner admitted pursuant to Section 4.2(g) will be deemed to agree), whether or not any of the transactions contemplated
hereby shall be consummated, to assume liability for, and does hereby indemnify, protect, save and keep harmless Wilmington Trust Company (in its capacity as Trustee and individually) and its successors, assigns, legal representatives, officers,
directors, employees, agents and servants (the “Indemnified Parties”) from and against any and all liabilities, obligations, losses, damages, penalties, taxes (excluding any taxes payable by the Trustee on or measured by any compensation
received by the Trustee for its services hereunder or any indemnity payments received by the Trustee pursuant to this Section 2.4), claims, actions, suits, costs, expenses or disbursements (including legal fees and expenses) of any kind and
nature whatsoever (collectively, “Expenses”), which may be imposed on, incurred by or asserted against the Indemnified Parties in any way relating to or arising out of the formation, operation or termination of the Trust, the execution,
delivery and performance of any other agreements to which the Trust is a party or the action or inaction of the Trustee hereunder or thereunder, except for Expenses resulting from the gross negligence or willful misconduct of the Indemnified
Parties. The indemnities contained in this Section 2.4 shall survive the termination of this Trust Agreement or the removal or resignation of the Trustee. The Indemnified Parties shall not be entitled to indemnification from any Trust Estate.
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SECTION 2.5.
Successor Trustee
. Upon the resignation or removal of the Trustee, the Managing Owner
shall appoint a successor Trustee by delivering a written instrument to the outgoing Trustee. Any successor Trustee must satisfy the requirements of Section 3807 of the Delaware Trust Statute. Any resignation or removal of the Trustee and
appointment of a successor Trustee shall not become effective until a written acceptance of appointment is delivered by the successor Trustee to the outgoing Trustee and the Managing Owner and any fees and expenses due to the outgoing Trustee are
paid. Following compliance with the preceding sentence, the successor Trustee shall become fully vested with all of the rights, powers, duties and obligations of the outgoing Trustee under this Trust Agreement, with like effect as if originally
named as Trustee, and the outgoing Trustee shall be discharged of its duties and obligations under this Trust Agreement.
SECTION 2.6.
Liability of Trustee
. Except as otherwise provided in this Article II, in accepting the trust created hereby, Wilmington Trust Company acts solely as Trustee hereunder and not in its individual capacity, and all Persons having any claim
against Wilmington Trust Company by reason of the transactions contemplated by this Trust Agreement and any other agreement to which the Trust is a party shall look only to the Trust Estate for payment or satisfaction thereof;
provided
,
however
, that in no event is the foregoing intended to affect or limit the liability of the Managing Owner as set forth in Section 1.7 hereof. The Trustee shall not be liable or accountable hereunder to the Trust or to any other Person
or under any other agreement to which the Trust is a party, except for the Trustee’s own gross negligence or willful misconduct. In particular, but not by way of limitation:
(a) The Trustee shall have no liability or responsibility for the validity or sufficiency of this Trust Agreement or for the form, character, genuineness,
sufficiency, value or validity of any Trust Estate;
(b) The Trustee shall not be liable for any actions taken or omitted to be taken by it
in accordance with the instructions of the Managing Owner or the Liquidating Trustee;
(c) The Trustee shall not have any liability for the
acts or omissions of the Managing Owner or its delegatees;
(d) The Trustee shall not be liable for its failure to supervise the
performance of any obligations of the Managing Owner or its delegatees or any Participant;
(e) No provision of this Trust Agreement shall
require the Trustee to act or expend or risk its own funds or otherwise incur any financial liability in the performance of any of its rights or powers hereunder if the Trustee shall have reasonable grounds for believing that such action, repayment
of such funds or adequate indemnity against such risk or liability is not reasonably assured or provided to it;
(f) Under no circumstances
shall the Trustee be liable for indebtedness evidenced by or other obligations of the Trust arising under this Trust Agreement or any other agreements to which the Trust is a party;
(g) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Trust Agreement, or to institute, conduct or
defend any litigation
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under this Trust Agreement or any other agreements to which the Trust is a party, at the request, order or direction of
the Managing Owner unless the Managing Owner has offered to Wilmington Trust Company (in its capacity as Trustee and individually) security or indemnity satisfactory to it against the costs, expenses and liabilities that may be incurred by
Wilmington Trust Company (including, without limitation, the reasonable fees and expenses of its counsel) therein or thereby;
(i) Notwithstanding anything contained herein to the contrary, the Trustee shall not be required to take any action in any jurisdiction other than in the State of Delaware if the taking of such action will require the consent or approval or
authorization or order of or the giving of notice to, or the registration with or taking of any action in respect of, any state or other governmental authority or agency of any jurisdiction other than the State of Delaware, (ii) result in any
fee, tax or other governmental charge under the laws of any jurisdiction or any political subdivision thereof in existence as of the date hereof other than the State of Delaware becoming payable by the Trustee or (iii) subject the Trustee to
personal jurisdiction, other than in the State of Delaware, for causes of action arising from personal acts unrelated to the consummation of the transactions by the Trustee, as the case may be, contemplated hereby; and
(ii) To the extent that, at law or in equity, the Trustee has duties (including fiduciary duties) and liabilities relating thereto to the
Trust, the Unitholders or to any other Person, the Trustee acting under this Agreement shall not be liable to the Trust, the Unitholders or to any other Person for its good faith reliance on the provisions of this Agreement. The provisions of this
Agreement, to the extent that they restrict the duties and liabilities of the Trustee otherwise existing at law or in equity are agreed by the parties hereto to replace such other duties and liabilities of the Trustee.
SECTION 2.7.
Reliance; Advice of Counsel.
(a) In the absence of bad faith, the Trustee may conclusively rely upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Trust Agreement in determining the truth of the statements and the
correctness of the opinions contained therein, and shall incur no liability to anyone in acting on any signature, instrument, notice, resolutions, request, consent, order, certificate, report, opinion, bond or other document or paper believed by it
to be genuine and believed by it to be signed by the proper party or parties and need not investigate any fact or matter pertaining to or in any such document; provided, however, that the Trustee shall have examined any certificates or opinions so
as to reasonably determine compliance of the same with the requirements of this Trust Agreement. The Trustee may accept a certified copy of a resolution of the board of directors or other governing body of any corporate party as conclusive evidence
that such resolution has been duly adopted by such body and that the same is in full force and effect. As to any fact or matter the method of the determination of which is not specifically prescribed herein, the Trustee may for all purposes hereof
rely on a certificate, signed by the president or any vice president or by the treasurer or other authorized officers of the relevant party, as to such fact or matter, and such certificate shall constitute full protection to the Trustee for any
action taken or omitted to be taken by it in good faith in reliance thereon.
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(b) In the exercise or administration of the Trust hereunder and in the performance of its duties and
obligations under this Trust Agreement, the Trustee, at the expense of the Managing Owner or an Affiliate of the Managing Owner (including the Trust) (i) may act directly or through its agents, attorneys, custodians or nominees pursuant to
agreements entered into with any of them, and the Trustee shall not be liable for the conduct or misconduct of such agents, attorneys, custodians or nominees if such agents, attorneys, custodians or nominees shall have been selected by the Trustee
with reasonable care and (ii) may consult with counsel, accountants and other skilled professionals to be selected with reasonable care by it. The Trustee shall not be liable for anything done, suffered or omitted in good faith by it in
accordance with the opinion or advice of any such counsel, accountant or other such Persons.
SECTION 2.8.
Payments to the Trustee.
Any amounts paid to the Trustee pursuant to this Article shall be deemed not to be a part of the Trust Estate immediately after such payment. Any amounts owing to the Trustee under this Trust Agreement shall constitute a claim against the Trust
Estate.
ARTICLE III
UNITS; CAPITAL CONTRIBUTIONS
SECTION 3.1.
General
. The Managing Owner shall have the power and authority, without
Limited Owner approval, to issue Units from time to time as it deems necessary or desirable. The number of Units authorized shall be unlimited, and the Units so authorized may be represented in part by fractional Units, calculated to four decimal
places. From time to time, the Managing Owner may divide or combine the Units into a greater or lesser number without thereby changing the proportionate beneficial interests. The Managing Owner may issue Units for such consideration and on such
terms as it may determine (or for no consideration if pursuant to a Unit dividend or split-up), all without action or approval of the Limited Owners. All Units when so issued on the terms determined by the Managing Owner shall be fully paid and
non-assessable. The Units initially shall be divided into two classes: General Units and Limited Units. Every Unitholder, by virtue of having purchased or otherwise acquired a Unit, shall be deemed to have expressly consented and agreed to be bound
by the terms of this Trust Agreement.
SECTION 3.2.
Offer of Limited Units
. The Trust may offer Limited Units to Participants in
Creation Baskets and admit additional Limited Owners and/or accept additional contributions from existing Limited Owners pursuant to the Prospectus, Sections 3.3 and 3.4 of this Trust Agreement and the Participant Agreements. The Trust is
specifically authorized hereby to enter into and perform its obligations under the Initial Purchaser Agreement.
SECTION 3.3.
Procedures
for Creation and Issuance of Creation Baskets.
(a)
General
. The following procedures, as supplemented by the more detailed
procedures specified in the attachment to the Participant Agreement, which may be amended from time to time in accordance with the provisions of the Participant Agreement (and any such amendment will not constitute an amendment of this Trust
Agreement), will govern the Trust
12
with respect to the creation and issuance of additional Creation Baskets. Subject to the limitations upon and
requirements for issuance of Creation Baskets stated herein and in such procedures, the number of Creation Baskets which may be issued by the Trust is unlimited.
(i) On any Business Day, a Participant may submit to the Managing Owner a purchase order and subscription agreement to subscribe for and
agree to purchase one or more Creation Baskets (such request by a Participant, a “Purchase Order Subscription Agreement”) in the manner provided in the Participant Agreement. Purchase Order Subscription Agreements must be received by the
Order Cut-Off Time on a Business Day (the “Purchase Order Subscription Date”). The Managing Owner will process Purchase Order Subscription Agreements only from Participants with respect to which the Participant Agreement is in full force
and effect. The Managing Owner will maintain and make available at the Trust’s principal offices during normal business hours a current list of the Participants with respect to which the Participant Agreement is in full force and effect. The
Managing Owner will deliver (or cause to be delivered) a copy of the Prospectus to each Participant prior to its execution and delivery of the Participant Agreement and prior to accepting any Purchase Order Subscription Agreement.
(ii) Any Purchase Order Subscription Agreement is subject to rejection by the Managing Owner pursuant to Section 3.3(c).
(iii) After accepting a Participant’s Purchase Order Subscription Agreement, the Managing Owner will issue and deliver Creation
Baskets to fill a Participant’s Purchase Order Subscription Agreement as of noon New York time on the business day immediately following the Purchase Order Subscription Date, but only if by such time the Managing Owner has received (A) for
its own account, the Transaction Fee, and (B) for the account of the Trust the Creation Basket Capital Contribution due from the Participant submitting the Purchase Order Subscription Agreement.
(b)
Deposit with the Depository
. Upon issuing a Creation Basket pursuant to a Purchase Order Subscription Agreement, the Managing Owner will cause
the Trust to deposit the Creation Basket with the Depository in accordance with the Depository’s customary procedures, for credit to the account of the Participant that submitted the Purchase Order Subscription Agreement.
(c)
Rejection
. The Managing Owner shall have the absolute right, but shall have no obligation, to reject any Purchase Order Subscription Agreement
or Creation Basket Capital Contribution: (i) determined by the Managing Owner not to be in proper form; (ii) that the Managing Owner has determined would have adverse tax consequences to the Trust or to Limited Owners; (iii) the
acceptance or receipt of which would, in the opinion of counsel to the Managing Owner, be unlawful; or (iv) if circumstances outside the control of the Managing Owner make it for all practical purposes not feasible to process creations of
Creation Baskets. The Managing Owner shall not be liable to any person by reason of the rejection of any Purchase Order Subscription Agreement or Creation Basket Capital Contribution.
(d)
Transaction Fee
. A non-refundable transaction fee will be payable by a Participant to the Managing Owner for its own account in connection
with each Purchase Order
13
Subscription Agreement pursuant to this Section and in connection with each Redemption Order of such Participant pursuant
to Section 7.1 (each a “Transaction Fee”). The Transaction Fee charged in connection with each such creation and redemption shall be initially $500, but may be changed as provided below. Even though a single Purchase Order
Subscription Agreement or Redemption Order may relate to multiple Creation Baskets, only a single Transaction Fee will be due for each Purchase Order or Redemption Order. The Transaction Fee may subsequently be waived, modified, reduced, increased
or otherwise changed by the Managing Owner, but will not in any event exceed 0.10% of the Net Asset Value Per Basket at the time of creation of a Creation Basket or redemption of a Redemption Basket, as the case may be. The Managing Owner shall
notify the Depository of any agreement to change the Transaction Fee and shall not implement any increase for redemptions of outstanding Units until 30 days after the date of that notice. The amount of the Transaction Fee in effect at any given time
shall be made available by the Trustee upon request.
(e)
Global Certificate Only
. Certificates for Creation Baskets will not be
issued, other than the Global Security issued to the Depository. So long as the Depository Agreement is in effect, Creation Baskets will be issued and redeemed and Limited Units will be transferable solely through the book-entry systems of the
Depository and the DTC Participants and their Indirect Participants as more fully described in Section 3.4. The Depository may determine to discontinue providing its service with respect to Creation Baskets and Limited Units by giving notice to
the Managing Owner pursuant to and in conformity with the provisions of the Depository Agreement and discharging its responsibilities with respect thereto under applicable law. Under such circumstances, the Managing Owner shall take action either to
find a replacement for the Depository to perform its functions at a comparable cost and on terms acceptable to the Managing Owner or, if such a replacement is unavailable, to terminate the Trust.
SECTION 3.4.
Book-Entry-Only System, Global Security.
(a)
Global Security
. The Trust and the Managing Owner will enter into the Depository Agreement pursuant to which the Depository will act as securities depository for Limited Units. Limited Units will be
represented by the Global Security (which may consist of one or more certificates as required by the Depository), which will be registered, as the Depository shall direct, in the name of Cede & Co., as nominee for the Depository and
deposited with, or on behalf of, the Depository. No other certificates evidencing Limited Units will be issued. The Global Security shall be in the form attached hereto as Exhibit B and shall represent such Limited Units as shall be specified
therein, and may provide that it shall represent the aggregate amount of outstanding Limited Units from time to time endorsed thereon and that the aggregate amount of outstanding Limited Units represented thereby may from time to time be increased
or decreased to reflect creations or redemptions of Baskets. Any endorsement of a Global Security to reflect the amount, or any increase or decrease in the amount, of outstanding Limited Units represented thereby shall be made in such manner and
upon instructions given by the Managing Owner on behalf of the Trust as specified in the Depository Agreement.
(b)
Legend
. Any
Global Security issued to The Depository Trust Company or its nominee shall bear a legend substantially to the following effect: “Unless this certificate is presented by an authorized representative of The Depository Trust Company, a New York
14
corporation (“DTC”), to the Trust or its agent for registration of transfer, exchange, or payment, and any
certificate issued is registered in the name of Cede & Co. or in such other name as is requested by an authorized representative of DTC (and any payment is made to Cede & Co. or to such other entity as is required by an authorized
representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest herein.”
(c)
The Depository
. The Depository has advised the Trust and the Managing Owner as follows: The Depository is a limited-purpose trust company
organized under the laws of the State of New York, a member of the U.S. 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 Securities Exchange Act of 1934, as amended. The Depository was created to hold securities of its participants (the “DTC Participants”) and to facilitate the clearance and settlement of securities
transactions among the DTC Participants in such securities through electronic book-entry changes in accounts of the DTC Participants, thereby eliminating 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 the Depository. Access to the Depository’s 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 (“Indirect Participants”).
(d)
Beneficial Owners
. As provided in the Depository Agreement, upon the settlement date of any creation, transfer or redemption of Limited Units,
the Depository will credit or debit, on its book-entry registration and transfer system, the number of Limited Units so created, transferred or redeemed to the accounts of the appropriate DTC Participants. The accounts to be credited and charged
shall be designated by the Managing Owner on behalf of the Trust and each Participant, in the case of a creation or redemption of Baskets. Ownership of beneficial interest in Limited Units will be limited to DTC Participants, Indirect Participants
and persons holding interests through DTC Participants and Indirect Participants. Owners of beneficial interests in Limited Units (“Beneficial Owners”) will be shown on, and the transfer of beneficial ownership by Beneficial Owners will be
effected only through, in the case of DTC Participants, records maintained by the Depository and, in the case of Indirect Participants and Beneficial Owners holding through a DTC Participant or an Indirect Participant, through those records or the
records of the relevant DTC Participants. Beneficial Owners are expected to receive from or through the broker or bank that maintains the account through which the Beneficial Owner has purchased Limited Units a written confirmation relating to their
purchase of Limited Units.
(e)
Reliance on Procedures
. So long as Cede & Co., as nominee of the Depository, is the
registered owner of Limited Units, references herein to the registered or record owners of Limited Units shall mean Cede & Co. and shall not mean the Beneficial Owners of Limited Units. Beneficial Owners of Limited Units will not be
entitled to have Limited Units registered in their names, will not receive or be entitled to receive physical delivery of certificates in definitive form and will not be considered the record or registered holder of Limited Units under this
Agreement. Accordingly, to exercise any rights of a holder of Limited
15
Units under the Agreement, a Beneficial Owner must rely on the procedures of the Depository and, if such Beneficial Owner
is not a DTC Participant, on the procedures of each DTC Participant or Indirect Participant through which such Beneficial Owner holds its interests. The Trust and the Managing Owner understand that under existing industry practice, if the Trust
requests any action of a Beneficial Owner, or a Beneficial Owner desires to take any action that the Depository, as the record owner of all outstanding Limited Units, is entitled to take, in the case of a Trustee request, the Depository will notify
the DTC Participants regarding such request, such DTC Participants will in turn notify each Indirect Participant holding Limited Units through it, with each successive Indirect Participant continuing to notify each person holding Limited Units
through it until the request has reached the Beneficial Owner, and in the case of a request or authorization to act being sought or given by a Beneficial Owner, such request or authorization is given by the Beneficial Owner and relayed back to the
Trust through each Indirect Participant and DTC Participant through which the Beneficial Owner’s interest in the Limited Units is held.
(f)
Communication between the Trust and the Beneficial Owners
. As described above, the Trust will recognize the Depository or its nominee as the owner of all Limited Units for all purposes except as expressly set forth in this
Agreement. Conveyance of all notices, statements and other communications to Beneficial Owners will be effected as follows. Pursuant to the Depository Agreement, the Depository is required to make available to the Trust upon request and for a fee to
be charged to the Trust a listing of the Limited Unit holdings of each DTC Participant. The Trust shall inquire of each such DTC Participant as to the number of Beneficial Owners holding Limited Units, directly or indirectly, through such DTC
Participant. The Trust shall provide each such DTC Participant with sufficient copies of such notice, statement or other communication, in such form, number and at such place as such DTC Participant may reasonably request, in order that such notice,
statement or communication may be transmitted by such DTC Participant, directly or indirectly, to such Beneficial Owners. In addition, the Trust shall pay to each such DTC Participant an amount as reimbursement for the expenses attendant to such
transmittal, all subject to applicable statutory and regulatory requirements.
(g)
Distributions
. Distributions on Limited Units
pursuant to Section 3.7 shall be made to the Depository or its nominee, Cede & Co., as the registered owner of all Limited Units. The Trust and the Managing Owner expect that the Depository or its nominee, upon receipt of any payment
of distributions in respect of Limited Units, shall credit immediately DTC Participants’ accounts with payments in amounts proportionate to their respective beneficial interests in Limited Units as shown on the records of the Depository or its
nominee. The Trust and the Managing Owner also expect that payments by DTC Participants to Indirect Participants and Beneficial Owners held through such DTC Participants and Indirect Participants will be governed by standing instructions and
customary practices, as is now the case with securities held for the accounts of customers in bearer form or registered in a “street name,” and will be the responsibility of such DTC Participants and Indirect Participants. None of the
Trust, the Trustee or the Managing Owner will have any responsibility or liability for any aspects of the records relating to or notices to Beneficial Owners, or payments made on account of beneficial ownership interests in Limited Units, or for
maintaining, supervising or reviewing any records relating to such beneficial ownership interests or for any other aspect of the relationship between the Depository and the DTC Participants or the relationship between such DTC Participants and
16
the Indirect Participants and Beneficial Owners owning through such DTC Participants or Indirect Participants or between
or among the Depository, any Beneficial Owner and any person by or through which such Beneficial Owner is considered to own Limited Units.
(h)
Limitation of Liability
. The Global Security to be issued hereunder is executed and delivered solely on behalf of the Trust by the Managing Owner, as Managing Owner, in the exercise of the powers and authority conferred and
vested in it by this Trust Agreement. The representations, undertakings and agreements made on the part of the Trust in the Global Security are made and intended not as personal representations, undertakings and agreements by the Managing Owner or
the Trustee, but are made and intended for the purpose of binding only the Trust. Nothing in the Global Security shall be construed as creating any liability on the Managing Owner or the Trustee, individually or personally, to fulfill any
representation, undertaking or agreement other than as provided in this Agreement.
(i)
Successor Depository
. If a successor to The
Depository Trust Company shall be employed as Depository hereunder, the Trust and the Managing Owner shall establish procedures acceptable to such successor with respect to the matters addressed in this Section 3.4.
SECTION 3.5.
Assets
. All consideration received by the Trust for the issue or sale of Units together with all of the Trust Estate in which such
consideration is invested, all income, earnings, profits, and proceeds thereof, including any proceeds derived from the sale, exchange or liquidation of such assets, shall belong to the Trust for all purposes, subject only to the rights of creditors
of the Trust and except as may otherwise be required by applicable tax laws, and shall be so recorded upon the books of account of the Trust.
SECTION 3.6.
Liabilities
. The Trust Estate shall be charged with the liabilities of the Trust; and all expenses, costs, charges and reserves attributable to the Trust. The Managing Owner shall have full discretion, to the extent not
inconsistent with applicable law, to determine which items shall be treated as income and which items as capital, and each such determination and allocation shall be conclusive and binding upon the Unitholders.
SECTION 3.7.
Distributions
.
(a)
Distributions on Units may be paid with such frequency as the Managing Owner may determine, which may be daily or otherwise, to the Unitholders, from such of the income and capital gains, accrued or realized, from the Trust Estate, after providing
for actual and accrued liabilities. All distributions on Units thereof shall be distributed pro rata to the Unitholders in proportion to the total outstanding Units held by such Unitholders at the date and time of record established for the payment
of such distribution and in accordance with Section 3.4(g). Such distributions may be made in cash or Units as determined by the Managing Owner or pursuant to any program that the Managing Owner may have in effect at the time for the election
by each Unitholder of the mode of the making of such distribution to that Unitholder.
(b) The Units shall represent units of beneficial
interest in the Trust Estate. Each Unitholder shall be entitled to receive its pro rata share of distributions of income and capital gains in accordance with Section 3.7(a).
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SECTION 3.8.
Voting Rights
. Notwithstanding any other provision hereof, on each matter submitted
to a vote of the Unitholders, each Unitholder shall be entitled to a proportionate vote based upon the product of the Net Asset Value per Unit multiplied by the number of Units, or fraction thereof, standing in its name on the books of the Trust in
accordance with Section 3.4(g).
SECTION 3.9.
Equality
. Except as provided herein, all Units shall represent an equal
proportionate beneficial interest in the assets of the Trust subject to the liabilities of the Trust, and each Unit shall be equal to each other Unit. The Managing Owner may from time to time divide or combine the Units into a greater or lesser
number of Units without thereby changing the proportionate beneficial interest in the assets of the Trust or in any way affecting the rights of Unitholders.
ARTICLE IV
THE MANAGING OWNER
SECTION 4.1.
Management of the Trust
. Pursuant to Section 3806(b)(7) of the Delaware Trust Statute, the Trust shall be managed by the
Managing Owner and the conduct of the Trust’s business shall be controlled and conducted solely by the Managing Owner in accordance with this Trust Agreement.
SECTION 4.2.
Authority of Managing Owner
. In addition to and not in limitation of any rights and powers conferred by law or other provisions of this Trust Agreement, and except as limited, restricted or
prohibited by the express provisions of this Trust Agreement or the Delaware Trust Statute, the Managing Owner shall have and may exercise on behalf of the Trust, all powers and rights necessary, proper, convenient or advisable to effectuate and
carry out the purposes, business and objectives of the Trust, which shall include, without limitation, the following:
(a) To enter into,
execute, deliver and maintain, and to cause the Trust to perform its obligations under, contracts, agreements and any or all other documents and instruments, and to do and perform all such things as may be in furtherance of Trust purposes or
necessary or appropriate for the offer and sale of the Units and the conduct of Trust activities;
(b) To establish, maintain, deposit
into, sign checks and/or otherwise draw upon accounts on behalf of the Trust with appropriate banking and savings institutions, and execute and/or accept any instrument or agreement incidental to the Trust’s business and in furtherance of its
purposes, any such instrument or agreement so executed or accepted by the Managing Owner in the Managing Owner’s name shall be deemed executed and accepted on behalf of the Trust by the Managing Owner;
(c) To deposit, withdraw, pay, retain and distribute the Trust Estate or any portion thereof in any manner consistent with the provisions of this Trust
Agreement;
(d) To supervise the preparation and filing of the Registration Statement and supplements and amendments thereto, and the
Prospectus;
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(e) To pay or authorize the payment of distributions to the Unitholders and expenses of the Trust;
(f) To make any elections on behalf of the Trust under the Code, or any other applicable U.S. federal or state tax law as the Managing
Owner shall determine to be in the best interests of the Trust; and
(g) In the sole discretion of the Managing Owner, to admit an
Affiliate or Affiliates of the Managing Owner as additional Managing Owners; provided, that notwithstanding the foregoing, the Managing Owner may not admit Affiliate(s) of the Managing Owner as an additional Managing Owner if it has received notice
of its removal as a Managing Owner, pursuant to Section 8.2(d) hereof, or if the concurrence of at least a majority in interest (over 50%) of the outstanding Units (not including Units owned by the Managing Owner) is not obtained.
SECTION 4.3.
Obligations of the Managing Owner
. In addition to the obligations expressly provided by the Delaware Trust Statute or this Trust
Agreement, the Managing Owner shall:
(a) Devote such of its time to the business and affairs of the Trust as it shall, in its discretion
exercised in good faith, determine to be necessary to conduct the business and affairs of the Trust for the benefit of the Trust and the Limited Owners;
(b) Execute, file, record and/or publish all certificates, statements and other documents and do any and all other things as may be appropriate for the formation, qualification and operation of the Trust and for the
conduct of its business in all appropriate jurisdictions;
(c) Retain independent public accountants to audit the accounts of the Trust;
(d) Employ attorneys to represent the Trust;
(e) Use its best efforts to maintain the status of the Trust as a “statutory trust” for state law purposes, and as a “grantor trust” for U.S. federal income tax purposes;
(f) Have fiduciary responsibility for the safekeeping and use of the Trust Estate, whether or not in the Managing Owner’s immediate possession or
control;
(g) enter into a Participant Agreement with each Participant and discharge the duties and responsibilities of the Trust and the
Managing Owner thereunder;
(h) receive from Participants and process properly submitted Purchase Order Subscription Agreements, as
described in Section 3.1(a)(iii);
(i) in connection with Purchase Order Subscription Agreements, receive Creation Basket Capital
Contributions from Participants;
(j) in connection with Purchase Order Subscription Agreements, deliver or cause the delivery of Creation
Baskets to the Depository for the account of the Participant
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submitting a Purchase Order Subscription Agreement for which the Managing Owner has received the requisite Transaction
Fee and the Trust has received the requisite Purchase Order Capital Contribution, as described in Section 3.3(c);
(k) receive from
Participants and process properly submitted Redemption Orders, as described in Section 7.1(a), or as may from time to time be permitted by Section 7.2;
(l) in connection with Redemption Orders, receive from the redeeming Participant through the Depository, and thereupon cancel or cause to be cancelled, Limited Units corresponding to the Redemption Baskets to be
redeemed as described in Section 7.1, or as may from time to time be permitted by Section 7.2;
(m) interact with the Depository
as required; and
(n) delegate those of its duties hereunder as it shall determine from time to time to one or more Administrators or
Distributors.
SECTION 4.4.
General Prohibitions
. The Trust shall not:
(a) Invest proceeds received on the issuance or sale of Units in anything other than Master Fund Shares;
(b) Reinvest distributions received in respect of Master Fund Shares;
(c) Redeem Master Fund Shares other than to fund a redemption request by a Participant;
(d) Borrow money
from or loan money to any Unitholder (including the Managing Owner) or other Person;
(e) Create, incur, assume or suffer to exist any
lien, mortgage, pledge conditional sales or other title retention agreement, charge, security interest or encumbrance, except (i) liens for taxes not delinquent or being contested in good faith and by appropriate proceedings and for which
appropriate reserves have been established, (iii) deposits or pledges to secure obligations under workmen’s compensation, social security or similar laws or under unemployment insurance, (iv) deposits or pledges to secure contracts
(other than contracts for the payment of money), leases, statutory obligations, surety and appeal bonds and other obligations of like nature arising in the ordinary course of business, or (v) mechanic’s, warehousemen’s,
carrier’s, workmen’s, materialmen’s or other like liens arising in the ordinary course of business with respect to obligations which are not due or which are being contested in good faith, and for which appropriate reserves have been
established if required by generally accepted accounting principles, and liens arising under ERISA; or
(f) Cause the Trust to elect to be
treated as an association taxable as a corporation for U.S. federal income tax purposes.
SECTION 4.5.
Liability of Covered Persons
.
A Covered Person shall have no liability to the Trust or to any Unitholder or other Covered Person for any loss suffered by the
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Trust which arises out of any action or inaction of such Covered Person if such Covered Person, in good faith, determined
that such course of conduct was in the best interest of the Trust and such course of conduct did not constitute negligence or misconduct of such Covered Person. Subject to the foregoing, neither the Managing Owner nor any other Covered Person shall
be personally liable for the return or repayment of all or any portion of the capital or profits of any Limited Owner or assignee thereof, it being expressly agreed that any such return of capital or profits made pursuant to this Trust Agreement
shall be made solely from the assets of the Trust without any rights of contribution from the Managing Owner or any other Covered Person. A Covered Person shall not be liable for the conduct or misconduct of any Administrator or other delegatee
selected by the Managing Owner with reasonable care.
SECTION 4.6.
Fiduciary Duty
.
(a) To the extent that, at law or in equity, the Managing Owner has duties (including fiduciary duties) and liabilities relating thereto to the Trust, the
Unitholders or to any other Person, the Managing Owner acting under this Agreement shall not be liable to the Trust, the Unitholders or to any other Person for its good faith reliance on the provisions of this Agreement subject to the standard of
care in Section 4.5 herein. The provisions of this Agreement, to the extent that they restrict the duties and liabilities of the Managing Owner otherwise existing at law or in equity are agreed by the parties hereto to replace such other duties
and liabilities of the Managing Owner. Any material changes in the Trust’s basic investment policies or structure shall occur only upon the written approval or affirmative vote of Limited Owners holding Units equal to at least a majority (over
50%) of the Net Asset Value (excluding Units held by the Managing Owner and its Affiliates) of the Trust pursuant to Section 11.1(a) below.
(b) Unless otherwise expressly provided herein:
(i) whenever a conflict of interest exists or arises between the
Managing Owner or any of its Affiliates, on the one hand, and the Trust or any Unitholder or any other Person, on the other hand; or
(ii) whenever this Agreement or any other agreement contemplated herein or therein provides that the Managing Owner shall act in a manner that is, or provides terms that are, fair and reasonable to the Trust, any Unitholder or any other
Person,
the Managing Owner shall resolve such conflict of interest, take such action or provide such terms, considering in each case the relative interest
of each party (including its own interest) to such conflict, agreement, transaction or situation and the benefits and burdens relating to such interests, any customary or accepted industry practices, and any applicable generally accepted accounting
practices or principles. In the absence of bad faith by the Managing Owner, the resolution, action or terms so made, taken or provided by the Managing Owner shall not constitute a breach of this Agreement or any other agreement contemplated herein
or of any duty or obligation of the Managing Owner at law or in equity or otherwise.
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(c) The Managing Owner and any Affiliate of the Managing Owner may engage in or possess an interest in
other profit-seeking or business ventures of any nature or description, independently or with others, whether or not such ventures are competitive with the Trust and the doctrine of corporate opportunity, or any analogous doctrine, shall not apply
to the Managing Owner. If the Managing Owner acquires knowledge of a potential transaction, agreement, arrangement or other matter that may be an opportunity for the Trust, it shall have no duty to communicate or offer such opportunity to the Trust,
and the Managing Owner shall not be liable to the Trust or to the Unitholders for breach of any fiduciary or other duty by reason of the fact that the Managing Owner pursues or acquires for, or directs such opportunity to another Person or does not
communicate such opportunity or information to the Trust. Neither the Trust nor any Unitholder shall have any rights or obligations by virtue of this Agreement or the trust relationship created hereby in or to such independent ventures or the income
or profits or losses derived therefrom, and the pursuit of such ventures, even if competitive with the activities of the Trust, shall not be deemed wrongful or improper. Except to the extent expressly provided herein, the Managing Owner may engage
or be interested in any financial or other transaction with the Trust, the Unitholders or any Affiliate of the Trust or the Unitholders.
SECTION 4.7.
Indemnification of the Managing Owner.
(a) The Managing Owner shall be indemnified by the Trust 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, provided that (i) the Managing Owner was acting on behalf of or performing services for the
Trust and has determined, in good faith, that such course of conduct was in the best interests of the Trust and such liability or loss was not the result of negligence, misconduct, or a breach of this Trust Agreement on the part of the Managing
Owner and (ii) any such indemnification will only be recoverable from the Trust Estate. All rights to indemnification permitted herein 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. The source of
payments made in respect of indemnification under this Trust Agreement shall be the assets of the Trust.
(b) Notwithstanding the
provisions of Section 4.7(a) above, the Managing Owner and any Person acting as broker-dealer for the Trust shall not be indemnified for any losses, liabilities or expenses arising from or out of an alleged violation of U.S. federal or state
securities laws unless (i) there has been a successful adjudication on the merits of each count involving alleged securities law violations as to the particular indemnitee and the court approves the indemnification of such expenses (including,
without limitation, litigation costs), (ii) such claims have been dismissed with prejudice on the merits by a court of competent jurisdiction as to the particular indemnitee and the court approves the indemnification of such expenses
(including, without limitation, litigation costs) or (iii) a court of competent jurisdiction approves a settlement of the claims against a particular indemnitee and finds that indemnification of the settlement and related costs should be made.
(c) The Trust shall not incur the cost of that portion of any insurance which insures any party against any liability, the indemnification
of which is herein prohibited.
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(d) Expenses incurred in defending a threatened or pending civil, administrative or criminal action suit
or proceeding against the Managing Owner shall be paid by the Trust in advance of the final disposition of such action, suit or proceeding, if the legal action relates to the performance of duties or services by the Managing Owner on behalf of the
Trust; (ii) the legal action is initiated by a third party who is not a Limited Owner or the legal action is initiated by a Limited Owner and a court of competent jurisdiction specifically approves such advance; and (iii) the Managing
Owner undertakes to repay the advanced funds with interest to the Trust in cases in which it is not entitled to indemnification under this Section 4.7.
(e) The term “Managing Owner” as used only in this Section 4.7 shall include, in addition to the Managing Owner, any other Covered Person performing services on behalf of the Trust and acting within the
scope of the Managing Owner’s authority as set forth in this Trust Agreement.
(f) In the event the Trust is made a party to any
claim, dispute, demand or litigation or otherwise incurs any loss, liability, damage, cost or expense as a result of or in connection with any Limited Owner’s (or assignee’s) obligations or liabilities unrelated to Trust business, such
Limited Owner (or assignees cumulatively) shall indemnify, defend, hold harmless, and reimburse the Trust for all such loss, liability, damage, cost and expense incurred, including attorneys’ and accountants’ fees.
SECTION 4.8.
Expenses and Limitations Thereon.
(a) (i) The Managing Owner or an Affiliate of the Managing Owner shall be responsible for the payment of all Organization and Offering Expenses incurred in connection with the creation of the Trust and sale of
Units pursuant to the Initial Purchaser Agreement;
provided, however
, that the amount of such Organization and Offering Expenses paid by the Managing Owner shall be subject to reimbursement by the Trust to the Managing Owner, without
interest, in up to 36 monthly payments during each of the first 36 months of the Trust’s operations. In the event that the amount of the Organization and Offering Expenses incurred in connection with the creation of the Trust and sale of Units
pursuant to the Initial Purchaser Agreement and paid by the Managing Owner is not fully reimbursed by the end of the 36th month of the Trust’s operations, the Managing Owner shall not be entitled to receive, and the Trust shall not be required
to pay, any unreimbursed portion of such expenses outstanding as of such date. In the event the Trust terminates prior to the completion of any reimbursement contemplated by this Section 4.8(a)(i), the Managing Owner shall not be entitled to
receive, and the Trust shall not be required to pay, any unreimbursed portion of such expenses outstanding as of the date of such termination.
(ii) The Managing Owner or an Affiliate of the Managing Owner also shall be responsible for the payment of all Organization and Offering Expenses incurred after the commencement of the Trust’s operations;
provided, however
, that the amount of such Organization and Offering Expenses paid by the Managing Owner shall be subject to reimbursement by the Trust to the Managing Owner, without interest, in up to 36 monthly payments during each of the
first 36 months following the month in which such expenses were paid by the Managing Owner. In the event that the amount of the
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Organization and Offering Expenses incurred after the commencement of the Trust’s operations paid by
the Managing Owner is not fully reimbursed by the end of the 36th month following the month in which such expenses were paid by the Managing Owner, the Managing Owner shall not be entitled to receive, and the Trust shall not be required to pay, any
unreimbursed portion of such expenses outstanding as of such date. In the event the Trust terminates prior to the completion of any reimbursement contemplated by this Section 4.8(a)(ii), the Managing Owner shall not be entitled to receive, and
the Trust shall not be required to pay, any unreimbursed portion of such expenses outstanding as of the date of such termination.
(iii) In no event shall the Managing Owner be entitled to reimbursement under Section 4.8(a)(i) in an aggregate amount in excess of 2.50% of the aggregate amount of all subscriptions accepted prior to the end of the 36
th
month of the Trust’s operations. In no event shall the aggregate amount of the reimbursement payments from the Trust to
the Managing Owner under Sections 4.8(a)(i) and (ii) in any month exceed 0.10% per annum of the Net Asset Value of the Trust as of the beginning of such month.
(iv) Organization and Offering Expenses shall mean those expenses incurred in connection with the formation, qualification and
registration of the Trust and the Units and in offering, distributing and processing the Units under applicable U.S. federal and state law, and any other expenses actually incurred and, directly or indirectly, related to the organization of the
Trust or the offering of the Units, including, but not limited to, expenses such as: (i) initial and ongoing registration fees, filing fees, escrow fees and taxes, (ii) costs of preparing, printing (including typesetting), amending,
supplementing, mailing and distributing the Registration Statement, the Exhibits thereto and the Prospectus prior to the commencement of the Trust’s operations, (iii) the costs of qualifying, printing (including typesetting), amending,
supplementing, mailing and distributing sales materials used in connection with the offering and issuance of the Units pursuant to the Initial Purchaser Agreement, (iv) travel, telegraph, telephone and other expenses in connection with the
offering and issuance of the Units pursuant to the Initial Purchaser Agreement, (v) accounting, auditing and legal fees (including disbursements related thereto) incurred in connection therewith, and (vi) any extraordinary expenses
(including, but not limited to, legal claims and liabilities and litigation costs and any permitted indemnification associated therewith) related thereto.
(b) All ongoing charges, costs and expenses of the Trust’s operation, including, but not limited to, the routine expenses associated with (i) preparation of monthly, quarterly, annual and other reports
required by applicable U.S. federal and state regulatory authorities; (ii) Trust meetings and preparing, printing and mailing of proxy statements and reports to Unitholders; (iii) the payment of any distributions related to redemption of
Units; (iv) routine services of the Trustee, legal counsel and independent accountants; (v) routine accounting and bookkeeping services, whether performed by an outside service provider or by Affiliates of the Managing Owner;
(vi) postage and insurance; (vii) client relations and services; (viii) computer equipment and system maintenance; (ix) the Management Fee; and (x) extraordinary expenses (including, but not limited to, legal claims and
liabilities and litigation costs and any indemnification related thereto) shall be billed to and/or paid by the Trust.
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(c) The Managing Owner or any Affiliate of the Managing Owner may only be reimbursed for the actual cost
to the Managing Owner or such Affiliate of any expenses which it advances on behalf of the Trust for which payment the Trust is responsible. In addition, payment to the Managing Owner or such Affiliate for indirect expenses incurred in performing
services for the Trust in its capacity as the managing owner of the Trust, such as salaries and fringe benefits of officers and directors, rent or depreciation, utilities and other administrative items generally falling within the category of the
Managing Owner’s “overhead,” is prohibited.
SECTION 4.9.
Compensation to the Managing Owner
. The Managing Owner
shall be entitled to compensation for its services as managing owner of the Trust as set forth in the Prospectus.
SECTION 4.10.
Other
Business of Unitholders
. Except as otherwise specifically provided herein, any of the Unitholders and any shareholder, officer, director, employee or other person holding a legal or beneficial interest in an entity which is a Unitholder, may
engage in or possess an interest in other business ventures of every nature and description, independently or with others, and the pursuit of such ventures, even if competitive with the business of the Trust, shall not be deemed wrongful or
improper.
SECTION 4.11.
Voluntary Withdrawal of the Managing Owner
. The Managing Owner may withdraw voluntarily as the Managing
Owner of the Trust only upon one hundred and twenty (120) days’ prior written notice to all Limited Owners and the Trustee. If the withdrawing Managing Owner is the last remaining Managing Owner, Limited Owners holding Units equal to at
least a majority (over 50%) of the Net Asset Value (not including Units held by the Managing Owner) may vote to elect and appoint, effective as of a date on or prior to the withdrawal, a successor Managing Owner who shall carry on the business of
the Trust. In the event of its removal or withdrawal, the Managing Owner shall be entitled to a redemption of its Units at the Net Asset Value. If the Managing Owner withdraws and a successor Managing Owner is named, the withdrawing Managing Owner
shall pay all expenses as a result of its withdrawal.
SECTION 4.12.
Authorization of Registration Statements
. Each Limited Owner
(or any permitted assignee thereof) hereby agrees that the Trust, the Managing Owner and the Trustee are authorized to execute, deliver and perform the agreements, acts, transactions and matters contemplated hereby or described in or contemplated by
the Registration Statements on behalf of the Trust without any further act, approval or vote of the Limited Owners of the Trust, notwithstanding any other provision of this Trust Agreement, the Delaware Trust Statute or any applicable law, rule or
regulation.
SECTION 4.13.
Litigation
. The Managing Owner is hereby authorized to prosecute, defend, settle or compromise actions or
claims at law or in equity as may be necessary or proper to enforce or protect the Trust’s interests. The Managing Owner shall satisfy any judgment, decree or decision of any court, board or authority having jurisdiction or any settlement of
any suit or claim prior to judgment or final decision thereon, first, out of any insurance proceeds available therefor, next, out of the Trust’s assets and, thereafter, out of the assets (to the extent that it is permitted to do so under the
various other provisions of this Agreement) of the Managing Owner.
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ARTICLE V
TRANSFERS OF UNITS
SECTION 5.1.
General Prohibition
. A Limited Owner may not sell, assign,
transfer or otherwise dispose of, or pledge, hypothecate or in any manner encumber any or all of his Units or any part of his right, title and interest in the capital or profits in the Trust except as permitted in this Article V and any act in
violation of this Article V shall not be binding upon or recognized by the Trust (regardless of whether the Managing Owner shall have knowledge thereof), unless approved in writing by the Managing Owner.
SECTION 5.2.
Transfer of Managing Owner’s General Units
.
(a) Upon an Event of Withdrawal (as defined in Section 13.1), the Managing Owner’s General Units shall be purchased by the Trust for a purchase price in cash equal to the Net Asset Value thereof. The
Managing Owner will not cease to be a Managing Owner of the Trust merely upon the occurrence of its making an assignment for the benefit of creditors, filing a voluntary petition in bankruptcy, filing a petition or answer seeking for itself any
reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any statute, law or regulation, filing an answer or other pleading admitting or failing to contest material allegations of a petition filed
against it in any proceeding of this nature or seeking, consenting to or acquiescing in the appointment of a trustee, receiver or liquidator for itself or of all or any substantial part of its properties.
(b) To the full extent permitted by law, and on sixty (60) days’ prior written notice to the Limited Owners, of their right to vote thereon, if
the transaction is other than with an Affiliated entity, nothing in this Trust Agreement shall be deemed to prevent the merger of the Managing Owner with another corporation or other entity, the reorganization of the Managing Owner into or with any
other corporation or other entity, the transfer of all the capital stock of the Managing Owner or the assumption of the rights, duties and liabilities of the Managing Owner by, in the case of a merger, reorganization or consolidation, the surviving
corporation or other entity by operation of law or the transfer of the Managing Owner’s Units to an Affiliate of the Managing Owner. Without limiting the foregoing, none of the transactions referenced in the preceding sentence shall be deemed
to be a voluntary withdrawal for purposes of Section 4.11 or an Event of Withdrawal or assignment of Units for purposes of Sections 5.2(a) or 5.2(c).
(c) Upon assignment of all of its Units, the Managing Owner shall not cease to be a Managing Owner of the Trust, or to have the power to exercise any rights or powers as a Managing Owner, or to have liability for the
obligations of the Trust under Section 1.7 hereof, until an additional Managing Owner, who shall carry on the business of the Trust, has been admitted to the Trust.
SECTION 5.3.
Transfer of Limited Units
. Beneficial Owners that are not DTC Participants may transfer Limited Units by instructing the DTC Participant or Indirect Participant holding the Limited Units for such
Beneficial Owner in accordance with standard securities industry practice. Beneficial Owners that are DTC Participants may transfer Limited Units by instructing the Depository in accordance with the rules of the Depository and standard securities
industry practice.
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ARTICLE VI
DISTRIBUTIONS
SECTION 6.1.
Distributions of Cash Received from the Master Fund Other than
Redemption Proceeds
. In the event the Trust receives any distributions of cash from the Master Fund other than from the Trust’s redemption of interests in the Master Fund, the Managing Owner shall cause the Trust to distribute such amounts
to the Unitholders in accordance with their interests therein as promptly as practicable. Any such distributions shall be made in a manner that is in compliance with the Federal income tax rules applicable to grantor trusts and Treasury Regulation
301.7701-4(c). Any temporary investment of such cash receipts prior to their distribution shall be made in short-term debt instruments in compliance with the requirements of Treasury Regulation § 301.7701-4(c) as interpreted by the IRS so
as to ensure that the Trust maintains its status as a fixed investment trust within the meaning of such Regulation.
SECTION 6.2.
Liability for State and Local and Other Taxes
. In the event that the Trust shall be separately subject to taxation by any state or local or by any foreign taxing authority, the Trust shall be obligated to pay such taxes to such jurisdiction.
In the event that the Trust shall be required to make payments to any Federal, state or local or any foreign taxing authority in respect of any Unitholder’s allocable share of income, the amount of such taxes shall be considered a loan by the
Trust to such Unitholder, and such Unitholder shall be liable for, and shall pay to the Trust, any taxes so required to be withheld and paid over by the Trust within ten (10) days after the Managing Owner’s request therefor. Such
Unitholder shall also be liable for (and the Managing Owner shall be entitled to redeem additional Units of the foreign Unitholder as necessary to satisfy) interest on the amount of taxes paid over by the Trust to the IRS or other taxing authority,
from the date of the Managing Owner’s request for payment to the date of payment or the redemption, as the case may be, at the rate of two percent (2%) over the prime rate charged from time to time by Citibank, N.A. The amount, if any,
payable by the Trust to the Unitholder in respect of its Units so redeemed, or in respect of any other actual distribution by the Trust to such Unitholder, shall be reduced by any obligations owed to the Trust by the Unitholder, including, without
limitation, the amount of any taxes required to be paid over by the Trust to the IRS or other taxing authority and interest thereon as aforesaid. Amounts, if any, deducted by the Trust from any actual distribution or redemption payment to such
Unitholder shall be treated as an actual distribution to such Unitholder for all purposes of this Trust Agreement.
ARTICLE VII
REDEMPTIONS
SECTION 7.1.
Redemption of Redemption Baskets.
The following procedures, as supplemented by the more detailed procedures specified in the attachment to the Participant Agreement, which may be amended from time to time in accordance
with the provisions of the Participant Agreement (and any such amendment will not constitute an amendment of this Trust Agreement), will govern the Trust with respect to the redemption of Redemption Baskets.
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(a) On any Business Day, a Participant with respect to which a Participant Agreement is in full force and
effect (as reflected on the list maintained by the Managing Owner pursuant to Section 3.3(a)(i)) may redeem one or more Redemption Baskets standing to the credit of the Participant on the records of the Depository by delivering a request for
redemption to the Managing Owner (such request, a “Redemption Order”) in the manner specified in the procedures specified in the attachment to the Participant Agreement, as amended from time to time in accordance with the provisions of the
Participant Agreement (and any such amendment will not constitute an amendment of this Agreement).
(b) To be effective, a Redemption Order
must be submitted on a Business Day by the Order Cut-Off Time in form satisfactory to the Managing Owner (the Business Day on which the Redemption Order is so submitted, the “Redemption Order Date”). The Managing Owner shall reject any
Redemption Order the fulfillment of which its counsel advises may be illegal under applicable laws and regulations, and the Managing Owner shall have no liability to any person for rejecting a Redemption Order in such circumstances.
(c) Subject to deduction of any tax or other governmental charges due thereon, the redemption distribution (“Redemption Distribution”) shall
consist of cash in an amount equal to the product obtained by multiplying (i) the number of Redemption Baskets set forth in the relevant Redemption Order by (ii) the Net Asset Value Per Basket as of the closing time of the Exchange or the
last to close of the exchanges on which any of the Index Currencies is traded, whichever is later, on the Redemption Order Date.
(d) By
noon, New York time, on the Business Day immediately following the Redemption Order Date (the “Redemption Settlement Time”), if the Managing Owner’s account at the Depository has by noon, New York time, on such day been credited with
the Redemption Baskets being tendered for redemption and the Managing Owner has by such time received the Transaction Fee, the Managing Owner shall deliver the Redemption Distribution through the Depository to the account of the Participant as
recorded on the book entry system of the Depository. If by such Redemption Settlement Time the Managing Owner has not received from a redeeming Participant all Redemption Baskets comprising the Redemption Order, the Managing Owner will
(i) settle the Redemption Order to the extent of whole Redemption Baskets received from the Participant and (ii) keep the redeeming Participant’s Redemption Order open until noon, New York time, on the first Business Day following the
Redemption Settlement Date as to the balance of the Redemption Order (such balance, the “Suspended Redemption Order”). If the Redemption Basket(s) comprising the Suspended Redemption Order are credited to the Managing Owner’s account
at the Depository by noon, New York time, on such following Business Day, the Redemption Distribution with respect to the Suspended Redemption Order shall be paid in the manner provided in the second preceding sentence. If by such Redemption
Settlement Time the Managing Owner has not received from the redeeming Participant all Redemption Baskets comprising the Suspended Redemption Order, the Managing Owner will settle the Suspended Redemption Order to the extent of whole Redemption
Baskets then received and any balance of the Suspended Redemption will be cancelled. Notwithstanding the foregoing, when and under such conditions as the Managing Owner may from time to time
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determine, the Managing Owner shall be authorized to deliver the Redemption Distribution notwithstanding that a
Redemption Basket has not been credited to the Trust’s account at the Depository if the Participant has collateralized its obligation to deliver the Redemption Basket on such terms as the Managing Owner may, in its sole discretion, from time to
time agree.
(e) The Managing Owner may, in its discretion, suspend the right of redemption, or postpone the Redemption Settlement Date,
(i) for any period during which the Exchange is closed other than customary weekend or holiday closings, or trading is suspended or restricted; (ii) for any period during which an emergency exists as a result of which delivery, disposal or
evaluation of the Trust’s assets is not reasonably practicable; or (iii) for such other period as the Managing Owner determines to be necessary for the protection of Beneficial Owners. The Managing Owner is not liable to any person or in
any way for any loss or damages that may result from any such suspension or postponement.
(f) Redemption Baskets effectively redeemed
pursuant to the provisions of this Section 7.1 shall be cancelled by the Trust in accordance with the Depository’s procedures.
SECTION 7.2.
Other Redemption Procedures.
The Managing Owner from time to time may, but shall have no obligation to, establish procedures with respect to redemption of Limited Units in lot sizes smaller than the Redemption Basket and
permitting the Redemption Distribution to be in a form, and delivered in a manner, other than that specified in Section 7.1.
ARTICLE VIII
THE LIMITED OWNERS
SECTION 8.1.
No Management or Control; Limited Liability; Exercise of Rights through DTC
. The Limited Owners shall not participate in the management or control of the Trust’s business nor shall they
transact any business for the Trust or have the power to sign for or bind the Trust, said power being vested solely and exclusively in the Managing Owner. Except as provided in Section 8.3 hereof, no Limited Owner shall be bound by, or be
personally liable for, the expenses, liabilities or obligations of the Trust in excess of his Capital Contribution plus his share of any Trust Estate in which such Limited Owner owns a Unit and profits remaining, if any. Except as provided in
Section 8.3 hereof, each Limited Unit owned by a Limited Owner shall be fully paid and no assessment shall be made against any Limited Owner. No salary shall be paid to any Limited Owner in his capacity as a Limited Owner, nor shall any Limited
Owner have a drawing account or earn interest on his contribution. By the purchase and acceptance or other lawful delivery and acceptance of Limited Units, each Beneficial Owner shall be deemed to be a Limited Owner and beneficiary of the Trust and
vested with beneficial undivided interest in the Trust to the extent of the Limited Units owned beneficially by such Beneficial Owner, subject to the terms and conditions of this Trust Agreement. The rights of Beneficial Owners under this Trust
Agreement must be exercised by DTC Participants acting on their behalf in accordance with the rules and procedures of the Depository, as provided in Section 3.4.
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SECTION 8.2.
Rights and Duties
. The Limited Owners shall have the following rights, powers,
privileges, duties and liabilities:
(a) The Limited Owners shall have the right to obtain from the Managing Owner information of all things
affecting the Trust, provided that such is for a purpose reasonably related to the Limited Owner’s interest as a beneficial owner of the Trust, including, without limitation, such reports as are set forth in Article IX and the list of
Participants contemplated by Section 3.3(a)(i). In the event that the Managing Owner neglects or refuses to produce or mail to a Limited Owner a copy of the list of Participants contemplated by Section 3.3(a)(i), the Managing Owner shall
be liable to such Limited Owner for the costs, including reasonable attorney’s fees, incurred by such Limited Owner to compel the production of such information, and for any actual damages suffered by such Limited Owner as a result of such
refusal or neglect; provided, however, it shall be a defense of the Managing Owner that the actual purpose of the Limited Owner’s request for such information was not reasonably related to the Limited Owner’s interest as a beneficial owner
in the Trust (e.g., to secure such information in order to sell it, or to use the same for a commercial purpose unrelated to the participation of such Limited Owner in the Trust). The foregoing rights are in addition to, and do not limit, other
remedies available to Limited Owners under U.S. federal or state law.
(b) The Limited Owners shall receive the share of the distributions
provided for in this Trust Agreement in the manner and at the times provided for in this Trust Agreement.
(c) Except for the Limited
Owners’ redemption rights set forth in Article VII hereof, Limited Owners shall have the right to demand the return of their capital account only upon the dissolution and winding up of the Trust and only to the extent of funds available
therefor. In no event shall a Limited Owner be entitled to demand or receive property other than cash. No Limited Owner shall have priority over any other Limited Owner either as to the return of capital or as to profits, losses or distributions. No
Limited Owner shall have the right to bring an action for partition against the Trust.
(d) Limited Owners holding Units representing at
least a majority (over 50%) in Net Asset Value (not including Units held by the Managing Owner and its Affiliates) may vote to (i) continue the Trust as provided in Section 13.1(a), (ii) remove the Managing Owner on reasonable prior
written notice to the Managing Owner, (iii) elect and appoint one or more additional Managing Owners, or consent to such matters as are set forth in Section 5.2(b), (iv) approve a material change in the trading policies, as set forth
in the Prospectus, which change shall not be effective without the prior written approval of such majority, (v) approve the termination of any agreement entered into between the Trust and the Managing Owner or any Affiliate of the Managing
Owner for any reason, without penalty, (vi) approve amendments to this Trust Agreement as set forth in Section 11.1 hereof, and (vii) terminate the Trust as provided in Section 13.1(e), and in the case of (iii), (iv) and
(v) in each instance on 60 days’ prior written notice.
Except as set forth above, the Limited Owners shall have no voting or
other rights with respect to the Trust.
SECTION 8.3.
Limitation on Liability.
(a) Except as provided in Sections 4.7(f), and 6.2 hereof, and as otherwise provided under Delaware law, the Limited Owners shall be entitled to the same
limitation of
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personal liability extended to stockholders of private corporations for profit organized under the general corporation
law of Delaware and no Limited Owner shall be liable for claims against, or debts of the Trust in excess of his Capital Contribution and his share of the applicable Trust Estate and undistributed profits. In addition, and subject to the exceptions
set forth in the immediately preceding sentence, the Trust shall not make a claim against a Limited Owner with respect to amounts distributed to such Limited Owner or amounts received by such Limited Owner upon redemption unless, under Delaware law,
such Limited Owner is liable to repay such amount.
(b) The Trust shall indemnify to the full extent permitted by law and the other
provisions of this Agreement, and to the extent of the applicable Trust Estate, each Limited Owner (excluding the Managing Owner to the extent of its ownership of any Limited Units) against any claims of liability asserted against such Limited Owner
solely because he is a beneficial owner of one or more Units as a Limited Owner (other than for taxes for which such Limited Owner is liable under Section 6.2 hereof).
(c) Every written note, bond, contract, instrument, certificate or undertaking made or issued by the Managing Owner shall give notice to the effect that
the same was executed or made by or on behalf of the Trust and that the obligations of such instrument are not binding upon the Limited Owners individually but are binding only upon the assets and property of the Trust, and no resort shall be had to
the Limited Owners’ personal property for satisfaction of any obligation or claim thereunder, and appropriate references may be made to this Trust Agreement and may contain any further recital which the Managing Owner deems appropriate, but the
omission thereof shall not operate to bind the Limited Owners individually or otherwise invalidate any such note, bond, contract, instrument, certificate or undertaking. Nothing contained in this Section 8.3 shall diminish the limitation on the
liability of the Trust to the extent set forth in Section 3.5 and 3.6 hereof.
ARTICLE IX
BOOKS OF ACCOUNT AND REPORTS
SECTION
9.1.
Books of Account
. Proper books of account for the Trust shall be kept and shall be audited annually by an independent certified public accounting firm selected by the Managing Owner in its sole discretion, and there shall be entered
therein all transactions, matters and things relating to the Trust’s business as are required by the CE Act and regulations promulgated thereunder, and all other applicable rules and regulations, and as are usually entered into books of account
kept by Persons engaged in a business of like character. The books of account shall be kept at the principal office of the Trust and each Limited Owner (or any duly constituted designee of a Limited Owner) shall have, at all times during normal
business hours, free access to and the right to inspect and copy the same for any purpose reasonably related to the Limited Owner’s interest as a beneficial owner of the Trust, including such access as is required under CFTC rules and
regulations. Such books of account shall be kept, and the Trust shall report its Profits and Losses on, the accrual method of accounting for financial accounting purposes on a Fiscal Year basis as described in Article X.
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SECTION 9.2.
Annual Reports and Monthly Statements
. Each Limited Owner shall be furnished as of
the end of each month and as of the end of each Fiscal Year with (a) such reports (in such detail) as are required to be given to Limited Owners by the CFTC and the NFA, (b) any other reports (in such detail) required to be given to
Limited Owners by any other governmental authority which has jurisdiction over the activities of the Trust and (c) any other reports or information which the Managing Owner, in its discretion, determines to be necessary or appropriate.
SECTION 9.3.
Tax Information
. Appropriate tax information (adequate to enable each Limited Owner to complete and file his U.S.
federal tax return) shall be delivered to each Limited Owner as soon as practicable following the end of each Fiscal Year but generally no later than March 15.
SECTION 9.4.
Calculation of Net Asset Value
. Net Asset Value shall be calculated at such times as the Managing Owner shall determine from time to time.
SECTION 9.5.
Maintenance of Records
. The Managing Owner shall maintain: (a) for a period of at least six Fiscal Years all books of account
required by Section 9.1 hereof; a list of the names and last known address of, and number of Units owned by, all Unitholders, a copy of the Certificate of Trust and all certificates of amendment thereto, together with executed copies of any
powers of attorney pursuant to which any certificate has been executed; copies of the Trust’s Federal, state and local income tax returns and reports, if any; and a record of the information obtained to indicate that a Limited Owner meets the
investor suitability standards set forth in the Prospectus, and (b) for a period of at least six Fiscal Years copies of any effective written trust agreements, subscription agreements and any financial statements of the Trust. The Managing
Owner may keep and maintain the books and records of the Trust in paper, magnetic, electronic or other format at the Managing Owner may determine in its sole discretion, provided the Managing Owner uses reasonable care to prevent the loss or
destruction of such records.
SECTION 9.6.
Certificate of Trust
. Except as otherwise provided in the Delaware Trust Statute or this
Trust Agreement, the Managing Owner shall not be required to mail a copy of any Certificate of Trust filed with the Secretary of State of the State of Delaware to each Limited Owner; however, such certificates shall be maintained at the principal
office of the Trust and shall be available for inspection and copying by the Limited Owners in accordance with this Trust Agreement.
ARTICLE X
FISCAL YEAR
SECTION 10.1.
Fiscal Year
. The Fiscal Year shall begin on the 1st day of January and end on the 31
st
day of December of each year. The first Fiscal Year of the Trust shall commence on the date of filing of the Certificate of Trust and end on the 31
st
day of December [2006]. The Fiscal Year in which the Trust shall terminate shall end on the date of termination.
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ARTICLE XI
AMENDMENT OF TRUST AGREEMENT; MEETINGS
SECTION 11.1.
Amendments to the Trust Agreement.
(a) Amendments to this Trust Agreement may be proposed by the Managing Owner or by Limited Owners holding Units equal to at least 10% of
the Net Asset Value of the Trust. Following such proposal, the Managing Owner shall submit to the Limited Owners a verbatim statement of any proposed amendment, and statements concerning the legality of such amendment and the effect of such
amendment on the limited liability of the Limited Owners. The Managing Owner shall include in any such submission its recommendations as to the proposed amendment. The amendment shall become effective only upon the written approval or affirmative
vote of Limited Owners holding Units (excluding Units held by the Managing Owner and its Affiliates) equal to at least a majority (over 50%) of the Net Asset Value (excluding Units held by the Managing Owner and its Affiliates) of the Trust or such
higher percentage as may be required by applicable law, and upon receipt of an opinion of independent legal counsel to the effect that the amendment is legal, valid and binding and will not adversely affect the limitations on liability of the
Limited Owners as described in Section 8.3 of this Trust Agreement. Notwithstanding the foregoing, where any action taken or authorized pursuant to any provision of this Trust Agreement requires the approval or affirmative vote of Limited
Owners holding a greater interest in Limited Units than is required to amend this Trust Agreement under this Section 11.1, and/or the approval or affirmative vote of the Managing Owner, an amendment to such provision(s) shall be effective only
upon the written approval or affirmative vote of the minimum number of Unitholders which would be required to take or authorize such action, or as may otherwise be required by applicable law, and upon receipt of an opinion of independent legal
counsel as set forth above in this Section 11.1. In addition, except as otherwise provided below, reduction of the capital account of any assignee or modification of the percentage of Profits, Losses or distributions to which an assignee is
entitled hereunder shall not be affected by amendment to this Trust Agreement without such assignee’s approval.
(b) Notwithstanding
any provision to the contrary contained in Section 11.1(a) hereof, the Managing Owner may, without the approval of the Limited Owners, make such amendments to this Trust Agreement which (i) are necessary to add to the representations,
duties or obligations of the Managing Owner or surrender any right or power granted to the Managing Owner herein, for the benefit of the Limited Owners, (ii) are necessary to cure any ambiguity, to correct or supplement any provision herein
which may be inconsistent with any other provision herein or in the Prospectus, or to make any other provisions with respect to matters or questions arising under this Trust Agreement or the Prospectus which will not be inconsistent with the
provisions of the Trust Agreement or the Prospectus, or (iii) the Managing Owner deems advisable, provided, however, that no amendment shall be adopted pursuant to this clause (iii) unless the adoption thereof (A) is not adverse to
the interests of the Limited Owners; (B) is consistent with Section 4.1 hereof; (C) except as otherwise provided in Section 11.1(c) below, does not affect the allocation of Profits and Losses among the Limited Owners or between
the Limited Owners and the Managing Owner; and (D) does not adversely affect the limitations on liability of the Limited Owners, as described in Article VIII hereof or the status of the Trust as a grantor trust for U.S. federal income tax
purposes. Amendments to this document which
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adversely affect (i) the rights of Limited Owners, (ii) the appointment of a new Managing Owner pursuant to
Section 4.2(g) above, (iii) the dissolution of the Trust pursuant to Section 13.1(f) below and (iv) any material changes in the Trust’s basic investment policies or structure shall occur only upon the written approval or
affirmative vote of Limited Owners holding Units equal to at least a majority (over 50%) of the Net Asset Value (excluding Units held by the Managing Owner and its Affiliates) pursuant to Section 11.1(a) above.
(c) Notwithstanding any provision to the contrary contained in Sections 11.1(a) and (b) hereof, the Managing Owner may, without the approval of the
Limited Owners, amend the provisions of this Trust Agreement if the Trust is advised at any time by the Trust’s accountants or legal counsel that the amendments made are necessary to ensure that the Trust’s status as a grantor trust will
be respected for U.S. federal income tax purposes.
(d) Upon amendment of this Trust Agreement, the Certificate of Trust shall also be
amended, if required by the Delaware Trust Statute, to reflect such change.
(e) No amendment shall be made to this Trust Agreement without
the consent of the Trustee if it reasonably believes that such amendment adversely affects any of the rights, duties or liabilities of the Trustee; provided, however, that the Trustee may not withhold its consent for any action which the Limited
Owners are permitted to take under Section 8.2(d) above. At the expense of the Managing Owner, the Trustee shall execute and file any amendment to the Certificate of Trust if so directed by the Managing Owner or if such amendment is required in
the opinion of the Trustee.
(f) The Trustee shall be under no obligation to execute any amendment to the Trust Agreement or to any
agreement to which the Trust is a party until it has received an instruction letter from the Managing Owner, in form and substance reasonably satisfactory to the Trustee (i) directing the Trustee to execute such amendment,
(ii) representing and warranting to the Trustee that such execution is authorized and permitted by the terms of the Trust Agreement and (if applicable) such other agreement to which the Trust is a party and does not conflict with or violate any
other agreement to which the Trust is a party and (iii) confirming that such execution and acts related thereto are covered by the indemnity provisions of the Trust Agreement in favor of the Trustee.
(g) No provision of this Agreement may be amended, waived or otherwise modified orally but only by a written instrument adopted in accordance with this
Section.
SECTION 11.2.
Meetings of the Trust
. Meetings of the Unitholders may be called by the Managing Owner and will be called by
it upon the written request of Limited Owners holding Units equal to at least 10% of the Net Asset Value of the Trust. Such call for a meeting shall be deemed to have been made upon the receipt by the Managing Owner of a written request from the
requisite percentage of Limited Owners. The Managing Owner shall deposit in the United States mails, within 15 days after receipt of said request, written notice to all Unitholders thereof of the meeting and the purpose of the meeting, which shall
be held on a date, not less than 30 nor more than 60 days after the date of mailing of said notice, at a reasonable time and place. Any notice of meeting shall be accompanied by a description of the action to be taken at the meeting and an opinion
of independent counsel as to the effect of such proposed action on the liability of Limited Owners for the debts of the Trust. Unitholders may vote in person or by proxy at any such meeting.
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SECTION 11.3.
Action Without a Meeting
. Any action required or permitted to be taken by
Unitholders by vote may be taken without a meeting by written consent setting forth the actions so taken. Such written consents shall be treated for all purposes as votes at a meeting. If the vote or consent of any Unitholder to any action of the
Trust or any Unitholder, as contemplated by this Agreement, is solicited by the Managing Owner, the solicitation shall be effected by notice to each Unitholder given in the manner provided in Section 15.4. The vote or consent of each Unitholder
so solicited shall be deemed conclusively to have been cast or granted as requested in the notice of solicitation, whether or not the notice of solicitation is actually received by that Unitholder, unless the Unitholder expresses written objection
to the vote or consent by notice given in the manner provided in Section 15.4 below and actually received by the Trust within 20 days after the notice of solicitation is effected. The Managing Owner and all persons dealing with the Trust shall
be entitled to act in reliance on any vote or consent which is deemed cast or granted pursuant to this Section and shall be fully indemnified by the Trust in so doing. Any action taken or omitted in reliance on any such deemed vote or consent of one
or more Unitholders shall not be void or voidable by reason of timely communication made by or on behalf of all or any of such Unitholders in any manner other than as expressly provided in Section 15.4.
ARTICLE XII
TERM
SECTION 12.1.
Term
. The term for which the Trust is to exist shall commence on the date of the filing of the Certificate of Trust, and shall
terminate pursuant to the provisions of Article XIII hereof or as otherwise provided by law.
ARTICLE XIII
TERMINATION
SECTION 13.1.
Events
Requiring Dissolution of the Trust
. The Trust shall dissolve at any time upon the happening of any of the following events:
(a) 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 (each of the foregoing events an “Event of Withdrawal”) unless at the time there is at least one remaining Managing Owner and that remaining Managing
Owner carries on the business of the Trust or (ii) within 90 days of such Event of Withdrawal all the remaining Unitholders agree in writing to continue the business of the Trust 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 Unitholders to continue the business of the Trust and to appoint a successor Managing Owner as provided in clause
(a)(ii) above, within 120 days of such Event of Withdrawal, Limited
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Owners holding Units representing at least a majority (over 50%) of the Net Asset Value (not including Units held by the
Managing Owner and its Affiliates) may elect to continue the business of the Trust by forming a new statutory trust (the “Reconstituted Trust”) on the same terms and provisions as set forth in this Trust Agreement (whereupon the parties
hereto shall execute and deliver any documents or instruments as may be necessary to reform the Trust). Any such election must also provide for the election of a Managing Owner to the Reconstituted Trust. If such an election is made, all Limited
Owners of the Trust shall be bound thereby and continue as Limited Owners of the Reconstituted Trust.
(b) The occurrence of any event
which would make unlawful the continued existence of the Trust.
(c) In the event of the suspension, revocation or termination of the
Managing Owner’s registration as a commodity pool operator under the CE Act, or membership as a commodity pool operator with the NFA (if, in either case, such registration is required under the CE Act or the rules promulgated thereunder) unless
at the time there is at least one remaining Managing Owner whose registration or membership has not been suspended, revoked or terminated.
(d) The Trust becomes insolvent or bankrupt.
(e) The Limited Owners holding Units representing at least a majority (over 50%) of
the Net Asset Value (which excludes the Units 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.
(f) The determination of the Managing Owner that the aggregate net assets of the Trust in relation to the operating expenses of the Trust make it
unreasonable or imprudent to continue the business of the Trust, 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.
(g) The Trust is required to be registered as an investment company under the
Investment Company Act of 1940.
(h) DTC is unable or unwilling to continue to perform its functions, and a comparable replacement is
unavailable.
The death, legal disability, bankruptcy, insolvency, dissolution, or withdrawal of any Limited Owner (as long as such Limited
Owner is not the sole Limited Owner of the Trust) shall not result in the termination of the Trust, and such Limited Owner, his estate, custodian or personal representative shall have no right to withdraw or value such Limited Owner’s Units.
Each Limited Owner (and any assignee thereof) expressly agrees that in the event of his death, he waives on behalf of himself and his estate, and he directs the legal representative of his estate and any person interested therein to waive the
furnishing of any inventory, accounting or appraisal of the assets of the Trust and any right to an audit or examination of the books of the Trust, except for such rights as are set forth in Article IX hereof relating to the Books of Account and
reports of the Trust.
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SECTION 13.2.
Distributions on Dissolution
. Upon the dissolution of the Trust, the Managing Owner
(or in the event there is no Managing Owner, such person (the “Liquidating Trustee”) as the majority in interest of the Limited Owners may propose and approve) shall take full charge of the Trust Estate. Any Liquidating Trustee so
appointed shall have and may exercise, without further authorization or approval of any of the parties hereto, all of the powers conferred upon the Managing Owner under the terms of this Trust Agreement, subject to all of the applicable limitations,
contractual and otherwise, upon the exercise of such powers, and provided that the Liquidating Trustee shall not have general liability for the acts, omissions, obligations and expenses of the Trust. Thereafter, in accordance with
Section 3808(e) of the Delaware Trust Statute, the business and affairs of the Trust shall be wound up and all assets shall be liquidated as promptly as is consistent with obtaining the fair value thereof, and the proceeds therefrom shall be
applied and distributed in the following order of priority: to the expenses of liquidation and termination and to creditors, including Unitholders who are creditors, to the extent otherwise permitted by law, in satisfaction of liabilities of the
Trust (whether by payment or the making of reasonable provision for payment thereof) other than liabilities for distributions to Unitholders, and (b) to the Managing Owner and each Limited Owner pro rata in accordance with his positive book
capital account balance, less any amount owing by such Unitholder, after giving effect to all adjustments made pursuant to Article VI and all distributions theretofore made to the Unitholders pursuant to Article VI.
SECTION 13.3.
Termination; Certificate of Cancellation
. Following the dissolution and distribution of the assets of the Trust, the Trust shall
terminate and the Managing Owner or Liquidating Trustee, as the case may be, shall instruct the Trustee to execute and cause such certificate of cancellation of the Certificate of Trust to be filed in accordance with the Delaware Trust Statute.
Notwithstanding anything to the contrary contained in this Trust Agreement, the existence of the Trust as a separate legal entity shall continue until the filing of such certificate of cancellation.
ARTICLE XIV
POWER OF ATTORNEY
SECTION 14.1.
Power of Attorney Executed Concurrently
. Concurrently with the written acceptance and adoption of the provisions
of this Trust Agreement, each Limited Owner shall execute and deliver to the Managing Owner a Power of Attorney as part of the Subscription Agreement, or in such other form as may be prescribed by the Managing Owner. Each Limited Owner, by its
execution and delivery hereof, irrevocably constitutes and appoints the Managing Owner and its officers and directors, with full power of substitution, as the true and lawful attorney-in-fact and agent for such Limited Owner with full power and
authority to act in his name and on his behalf in the execution, acknowledgment, filing and publishing of Trust documents, including, but not limited to, the following:
(a) Any certificates and other instruments, including but not limited to, any applications for authority to do business and amendments thereto, which the Managing Owner
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deems appropriate to qualify or continue the Trust as a business or statutory trust in the jurisdictions in which the
Trust may conduct business, so long as such qualifications and continuations are in accordance with the terms of this Trust Agreement or any amendment hereto, or which may be required to be filed by the Trust or the Unitholders under the laws of any
jurisdiction;
(b) Any instrument which may be required to be filed by the Trust under the laws of any state or by any governmental agency,
or which the Managing Owner deems advisable to file; and
(c) This Trust Agreement and any documents which may be required to effect an
amendment to this Trust Agreement approved under the terms of the Trust Agreement, and the continuation of the Trust, the admission of the signer of the Power of Attorney as a Limited Owner or of others as additional or substituted Limited Owners,
or the termination of the Trust, provided such continuation, admission or termination is in accordance with the terms of this Trust Agreement.
SECTION 14.2.
Effect of Power of Attorney
. The Power of Attorney concurrently granted by each Limited Owner to the Managing Owner:
(a) Is a special, irrevocable Power of Attorney coupled with an interest, and shall survive and not be affected by the death, disability, dissolution, liquidation, termination or incapacity of the Limited Owner;
(b) May be exercised by the Managing Owner for each Limited Owner by a facsimile signature of one of its officers or by a single signature of one of its
officers acting as attorney-in-fact for all of them; and
(c) Shall survive the delivery of an assignment by a Limited Owner of the whole
or any portion of his Limited Units; except that where the assignee thereof has been approved by the Managing Owner for admission to the Trust as a substituted Limited Owner, the Power of Attorney of the assignor shall survive the delivery of such
assignment for the sole purpose of enabling the Managing Owner to execute, acknowledge and file any instrument necessary to effect such substitution.
Each Limited Owner agrees to be bound by any representations made by the Managing Owner and by any successor thereto, determined to be acting in good faith pursuant to such Power of Attorney and not constituting
negligence or misconduct.
SECTION 14.3.
Limitation on Power of Attorney
. The Power of Attorney concurrently granted by each Limited
Owner to the Managing Owner shall not authorize the Managing Owner to act on behalf of Limited Owners in any situation in which this Trust Agreement requires the approval of Limited Owners unless such approval has been obtained as required by this
Trust Agreement. In the event of any conflict between this Trust Agreement and any instruments filed by the Managing Owner or any new Managing Owner pursuant to this Power of Attorney, this Trust Agreement shall control.
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ARTICLE XV
MISCELLANEOUS
SECTION 15.1.
Governing Law
. The validity and construction of this Trust
Agreement and all amendments hereto shall be governed by the laws of the State of Delaware, and the rights of all parties hereto and the effect of every provision hereof shall be subject to and construed according to the laws of the State of
Delaware without regard to the conflict of laws provisions thereof; provided, however, that causes of action for violations of U.S. federal or state securities laws shall not be governed by this Section 15.1, and provided, further, that the
parties hereto intend that the provisions hereof shall control over any contrary or limiting statutory or common law of the State of Delaware (other than the Delaware Trust Statute) and that, to the maximum extent permitted by applicable law, there
shall not be applicable to the Trust, the Trustee, the Managing Owner, the Unitholders or this Trust Agreement any provision of the laws (statutory or common) of the State of Delaware (other than the Delaware Trust Statute) pertaining to trusts
which relate to or regulate in a manner inconsistent with the terms hereof: (a) the filing with any court or governmental body or agency of trustee accounts or schedules of trustee fees and charges, (b) affirmative requirements to post
bonds for trustees, officers, agents, or employees of a trust, (c) the necessity for obtaining court or other governmental approval concerning the acquisition, holding or disposition of real or personal property, (d) fees or other sums
payable to trustees, officers, agents or employees of a trust, (e) the allocation of receipts and expenditures to income or principal, (f) restrictions or limitations on the permissible nature, amount or concentration of trust investments
or requirements relating to the titling, storage or other manner of holding of trust assets, or (g) the establishment of fiduciary or other standards or responsibilities or limitations on the acts or powers of trustees or managers that are
inconsistent with the limitations on liability or authorities and powers of the Trustee or the Managing Owner set forth or referenced in this Trust Agreement. Section 3540 of Title 12 of the Delaware Code shall not apply to the Trust. The Trust
shall be of the type commonly called a “statutory trust,” and without limiting the provisions hereof, the Trust may exercise all powers that are ordinarily exercised by such a trust under Delaware law. The Trust specifically reserves the
right to exercise any of the powers or privileges afforded to statutory trusts and the absence of a specific reference herein to any such power, privilege or action shall not imply that the Trust may not exercise such power or privilege or take such
actions.
SECTION 15.2.
Provisions In Conflict With Law or Regulations
.
(a) The provisions of this Trust Agreement are severable, and if the Managing Owner shall determine, with the advice of counsel, that any one or more of
such provisions (the “Conflicting Provisions”) are in conflict with the Code, the Delaware Trust Statute or other applicable U.S. federal or state laws, the Conflicting Provisions shall be deemed never to have constituted a part of this
Trust Agreement, even without any amendment of this Trust Agreement pursuant to this Trust Agreement; provided, however, that such determination by the Managing Owner shall not affect or impair any of the remaining provisions of this Trust Agreement
or render invalid or improper any action taken or omitted prior to such determination. No Managing Owner or Trustee shall be liable for making or failing to make such a determination.
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(b) If any provision of this Trust Agreement shall be held invalid or unenforceable in any jurisdiction,
such holding shall not in any manner affect or render invalid or unenforceable such provision in any other jurisdiction or any other provision of this Trust Agreement in any jurisdiction.
SECTION 15.3.
Construction
. In this Trust Agreement, unless the context otherwise requires, words used in the singular or in the plural include
both the plural and singular and words denoting any gender include all genders. The title and headings of different parts are inserted for convenience and shall not affect the meaning, construction or effect of this Trust Agreement.
SECTION 15.4.
Notices
. All notices or communications under this Trust Agreement (other than requests for redemption of Units, notices of
assignment, transfer, pledge or encumbrance of Units, and reports and notices by the Managing Owner to the Limited Owners) shall be in writing and shall be effective upon personal delivery, or if sent by mail, postage prepaid, or if sent
electronically, by facsimile or by overnight courier; and addressed, in each such case, to the address set forth in the books and records of the Trust or such other address as may be specified in writing, of the party to whom such notice is to be
given, upon the deposit of such notice in the United States mail, upon transmission and electronic confirmation thereof or upon deposit with a representative of an overnight courier, as the case may be. Requests for redemption, notices of
assignment, transfer, pledge or encumbrance of Units shall be effective upon timely receipt by the Managing Owner in writing.
SECTION
15.5.
Counterparts
. This Trust Agreement may be executed in several counterparts, and all so executed shall constitute one agreement, binding on all of the parties hereto, notwithstanding that all the parties are not signatory to the original
or the same counterpart.
SECTION 15.6.
Binding Nature of Trust Agreement
. The terms and provisions of this Trust Agreement shall be
binding upon and inure to the benefit of the heirs, custodians, executors, estates, administrators, personal representatives, successors and permitted assigns of the respective Unitholders. For purposes of determining the rights of any Unitholder or
assignee hereunder, the Trust and the Managing Owner may rely upon the Trust records as to who are Unitholders and permitted assignees, and all Unitholders and assignees agree that the Trust and the Managing Owner, in determining such rights, shall
rely on such records and that Limited Owners and assignees shall be bound by such determination.
SECTION 15.7.
No Legal Title to Trust
Estate
. Subject to the provisions of Section 1.8 in the case of the Managing Owner, the Unitholders shall not have legal title to any part of the Trust Estate.
SECTION 15.8.
Creditors
. No creditors of any Unitholders shall have any right to obtain possession of, or otherwise exercise legal or equitable remedies with respect to the Trust Estate.
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SECTION 15.9.
Integration
. This Trust Agreement constitutes the entire agreement among the parties
hereto pertaining to the subject matter hereof and supersedes all prior agreements and understandings pertaining thereto.
SECTION 15.10.
Goodwill; Use of Name.
No value shall be placed on the name or goodwill of the Trust, which shall belong exclusively to DB Commodity Services LLC.
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IN WITNESS WHEREOF
, the undersigned have duly executed this Amended and Restated Declaration of
Trust and Trust Agreement as of the day and year first above written.
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WILMINGTON TRUST COMPANY,
as
Trustee
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By:
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Name:
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Title:
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DB COMMODITY SERVICES LLC,
as
Managing Owner
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By:
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Name:
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Title:
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All Limited Owners now and hereafter admitted as Limited Owners of the Trust and reflected in the records maintained by the Depository, the DTC Participants or the Indirect
Participants, as the case may be, as Limited Owners from time to time, pursuant to powers of attorney now and hereafter executed in favor of, and granted and delivered to, the Managing Owner by each of the Limited Owners
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By:
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DB COMMODITY SERVICES LLC,
as
attorney-in-fact
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By:
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Name:
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Title:
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42
EXHIBIT A
CERTIFICATE OF TRUST
OF
DB CURRENCY INDEX VALUE FUND
THIS Certificate of Trust of DB Currency
Index Value Fund (the “Trust”) is being duly executed and filed on behalf of the Trust by the undersigned, as trustee, to form a statutory trust under the Delaware Statutory Trust Act (12
Del. C.
§ 3801
et seq
.
)
(the “Act”).
1.
Name
. The name of the statutory trust formed by this Certificate of Trust is DB Currency Index Value
Fund.
2.
Delaware Trustee
. The name and business address of the trustee of the Trust in the State of Delaware are Wilmington Trust
Company, 1100 North Market Street, Wilmington, DE 19890.
3.
Effective Date
. This Certificate of Trust shall be effective upon
filing.
IN WITNESS WHEREOF, the undersigned has duly executed this Certificate of Trust in accordance with Section 3811(a)(1) of the
Act.
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WILMINGTON TRUST COMPANY, not in its
individual capacity but solely as Trustee of the
Trust
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By:
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Name:
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Title:
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A-1
EXHIBIT B
FORM OF GLOBAL CERTIFICATE
CERTIFICATE OF BENEFICIAL INTEREST
-Evidencing-
All Limited Units
-in-
DB CURRENCY
INDEX VALUE FUND
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK
CORPORATION (“DTC”), TO THE TRUST OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUIRED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL
INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
This is to certify that CEDE & CO. is the owner and
registered holder of this Certificate evidencing the ownership of all issued and outstanding Limited Units (“Units”), each of which represents a fractional undivided unit of beneficial interest in DB Currency Index Value Fund (the
“Trust”), a Delaware statutory trust formed under the Delaware Statutory Trust Act (12 Del. C. § 3801
et seq
.) pursuant to a Certificate of Trust, dated as of and filed in the offices of the Secretary of State of the
State of Delaware on
, 2006, and a Amended and Restated Declaration of Trust and Trust
Agreement, dated as of
, 2006, by and among DB Commodity Services
LLC, a Delaware limited liability company, as managing owner, Wilmington Trust Company, a Delaware banking company, as trustee, and the unitholders from time to time thereunder (hereinafter called the “Trust Agreement”), copies of which
are available at the principal offices of the Trust.
At any given time this Certificate shall represent all limited units of beneficial
interest in the Trust, which shall be the total number of Units that are outstanding at such time. The Trust Agreement provides for the deposit of cash with the Trust from time to time and the issuance by the Trust of additional Creation Baskets
representing the undivided units of beneficial interest in the assets of the Trust. At the request of the registered holder this Certificate may be exchanged for one or more Certificates issued to the registered holder in such denominations as the
registered holder may request, provided, however, that, in the aggregate, the Certificates issued to the registered holder hereof shall represent all Units outstanding at any given time.
B-1
Each Authorized Participant hereby grants and conveys all of its rights, title and interest in and to the
Trust to the extent of the undivided interest represented hereby to the registered holder of this Certificate subject to and in pursuance of the Trust Agreement, all the terms, conditions and covenants of which are incorporated herein as if fully
set forth at length.
The registered holder of this Certificate is entitled at any time upon tender of this Certificate to the Trust,
endorsed in blank or accompanied by all necessary instruments of assignment and transfer in proper form, at its principal office in the State of New York and, upon payment of any tax or other governmental charges, to receive at the time and in the
manner provided in the Trust Agreement, such holder’s ratable portion of the assets of the Trust for each Redemption Basket tendered and evidenced by this Certificate.
The holder of this Certificate, by virtue of the purchase and acceptance hereof, assents to and shall be bound by the terms of the Trust Agreement,
copies of which are on file and available for inspection at reasonable times during business hours at the principal office of the Trust, to which reference is made for all the terms, conditions and covenants thereof.
The Trust may deem and treat the person in whose name this Certificate is registered upon the books of the Trust as the owner hereof for all purposes and
the Trust shall not be affected by any notice to the contrary.
The Trust Agreement permits, with certain exceptions as therein provided,
the amendment thereof, by the Managing Owner with the consent of the Beneficial Owners holding Units (excluding Units held by the Managing Owner and its Affiliates) equal to at least a majority (over 50%) of the net asset value of the Trust or such
higher percentage as may be required by applicable law, and upon receipt of an opinion of independent legal counsel to the effect that the amendment is legal, valid and binding and will not adversely affect the limitations on liability of the
Beneficial Owners; provided, however that the Managing Owner may, without the approval of the Beneficial Owners, make such amendments to the Trust Agreement which (i) are necessary to add to the representations, duties or obligations of the
Managing Owner or surrender any right or power granted to the Managing Owner in the Trust Agreement, for the benefit of the Beneficial Owners, (ii) are necessary to cure any ambiguity, to correct or supplement any provision in the Trust
Agreement which may be inconsistent with any other provision in the Trust Agreement or in the Prospectus, or to make any other provisions with respect to matters or questions arising under the Trust Agreement or the Prospectus which will not be
inconsistent with the provisions of the Trust Agreement or the Prospectus, or (iii) the Managing Owner deems advisable, provided, however, that no amendment shall be adopted pursuant to clause (iii) unless the adoption thereof (A) is
not adverse to the interests of the Beneficial Owners; (B) is consistent with Managing Owner’s control of and power to conduct the business of the Trust; (C) with certain exceptions, does not affect the allocation of Profits and
Losses among the Beneficial Owners or between the Beneficial Owners and the Managing Owner; and (D) does not adversely affect the limitations on liability of the Beneficial Owners or the status of the Trust as a grantor trust for U.S. federal
income tax purposes. Any such consent or waiver by the holder of Units shall be conclusive and binding upon such holder of Units and upon all future holders of Units, and shall be binding upon any Units, whether evidenced by a Certificate or held in
uncertificated form, issued upon the registration or transfer hereof whether or not notation of such consent or waiver is made upon this Certificate and whether or not the
B-2
Units evidenced hereby are at such time in uncertificated form. The Agreement also permits the amendment thereof, in
certain limited circumstances, without the consent of any holders of Units.
The Trust Agreement, and this Certificate, is executed and
delivered by DB Commodity Services LLC, as Managing Owner, in the exercise of the powers and authority conferred and vested in it by the Trust Agreement. The representations, undertakings and agreements made on the part of the Trust in the Trust
Agreement or this Certificate are made and intended not as personal representations, undertakings and agreements by DB Commodity Services LLC but are made and intended for the purpose of binding only the Trust. Nothing in the Agreement or this
Certificate shall be construed as creating any liability on DB Commodity Services LLC, individually or personally, to fulfill any representation, undertaking or agreement other than as provided in the Trust Agreement or this Certificate.
This Certificate shall not become valid or binding for any purpose until properly executed by the Managing Owner pursuant to the Trust Agreement.
Terms not defined herein have the same meaning as in the Trust Agreement.
IN WITNESS WHEREOF, DB Commodity Services LLC, as Managing Owner, has caused this Certificate to be executed in its name by the manual or facsimile
signature of one of its Authorized Officers.
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DB Commodity Services LLC,
as Managing Owner
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By:
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Authorized Officer
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Date:
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, 2006
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B-3
EXHIBIT C
FORM OF PARTICIPANT AGREEMENT
C-1
EXHIBIT D
FORM OF INITIAL PURCHASER AGREEMENT
D-1
EXHIBIT 4.2
AMENDED AND RESTATED
DECLARATION OF TRUST
AND
TRUST AGREEMENT
OF
DB CURRENCY INDEX VALUE MASTER
FUND
Dated as of
,
2006
By and Among
DB COMMODITY SERVICES LLC
WILMINGTON TRUST COMPANY
and
DB CURRENCY INDEX VALUE FUND
TABLE OF CONTENTS
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Page
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ARTICLE I
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DEFINITIONS; THE MASTER FUND
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1
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SECTION 1.1
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Definitions
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1
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SECTION 1.2
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Name
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7
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SECTION 1.3
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Delaware Trustee; Business Offices
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7
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SECTION 1.4
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Declaration of Trust
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7
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SECTION 1.5
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Purposes and Powers
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8
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SECTION 1.6
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Tax Treatment
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8
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SECTION 1.7
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General Liability of the Managing Owner
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9
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SECTION 1.8
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Legal Title
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9
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SECTION 1.9
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Commencement of Business
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9
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ARTICLE II
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THE TRUSTEE
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9
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SECTION 2.1
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Term; Resignation
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9
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SECTION 2.2
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Powers
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10
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SECTION 2.3
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Compensation and Expenses of the Trustee
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10
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SECTION 2.4
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Indemnification
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10
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SECTION 2.5
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Successor Trustee
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11
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SECTION 2.6
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Liability of Trustee
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11
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SECTION 2.7
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Reliance; Advice of Counsel
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12
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SECTION 2.8
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Payments to the Trustee
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13
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ARTICLE III
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CREATIONS AND ISSUANCE OF CREATION BASKETS
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13
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SECTION 3.1
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General
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13
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SECTION 3.2
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Offer of Limited Shares; Procedures for Creation and Issuance of Creation Baskets
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13
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SECTION 3.3
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Assets of the Master Fund
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14
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SECTION 3.4
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Liabilities
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15
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SECTION 3.5
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Distributions
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15
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SECTION 3.6
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Voting Rights
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15
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SECTION 3.7
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Equality
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15
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ARTICLE IV
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THE MANAGING OWNER
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15
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SECTION 4.1
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Management of the Master Fund
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15
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SECTION 4.2
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Authority of Managing Owner
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15
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SECTION 4.3
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Obligations of the Managing Owner
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16
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SECTION 4.4
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General Prohibitions
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17
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SECTION 4.5
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Liability of Covered Persons
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19
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SECTION 4.6
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Fiduciary Duty
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19
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SECTION 4.7
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Indemnification of the Managing Owner
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20
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SECTION 4.8
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Expenses and Limitations Thereon
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21
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SECTION 4.9
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Compensation to the Managing Owner
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23
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SECTION 4.10
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Other Business of Shareholders
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SECTION 4.11
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Voluntary Withdrawal of the Managing Owner
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23
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SECTION 4.12
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Authorization of Registration Statements
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24
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SECTION 4.13
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Litigation
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24
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ARTICLE V
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TRANSFERS OF SHARES
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24
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SECTION 5.1
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Transfer of Managing Owner’s General Shares
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24
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SECTION 5.2
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Transfer of Limited Shares
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25
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ARTICLE VI
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DISTRIBUTIONS AND ALLOCATIONS
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27
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SECTION 6.1
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Capital Accounts
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27
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SECTION 6.2
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Monthly Closing of Books
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28
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SECTION 6.3
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Monthly Allocations
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28
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SECTION 6.4
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Code Section 754 Adjustments
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29
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SECTION 6.5
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Allocation of Profit and Loss for U.S. Federal Income Tax Purposes
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29
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SECTION 6.6
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Effect of Section 754 Election
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30
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SECTION 6.7
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Allocation of Distributions
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30
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SECTION 6.8
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Admissions of Shareholders; Transfers
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31
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SECTION 6.9
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Liability for State and Local and Other Taxes
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31
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SECTION 6.10
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Consent to Methods
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31
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ARTICLE VII
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REDEMPTIONS
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32
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SECTION 7.1
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Redemption of Redemption Baskets
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32
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SECTION 7.2
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Other Redemption Procedures
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33
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ARTICLE VIII
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THE LIMITED OWNER
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33
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SECTION 8.1
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No Management or Control; Limited Liability
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33
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SECTION 8.2
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Rights and Duties
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33
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SECTION 8.3
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Limitation on Liability
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34
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ARTICLE IX
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BOOKS OF ACCOUNT AND REPORTS
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35
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SECTION 9.1
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Books of Account
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35
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SECTION 9.2
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Annual Reports and Monthly Statements
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35
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SECTION 9.3
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Tax Information
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35
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SECTION 9.4
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Calculation of Net Asset Value
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35
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SECTION 9.5
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Maintenance of Records
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36
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SECTION 9.6
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Certificate of Trust
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36
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SECTION 9.7
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Registration of Shares
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36
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ARTICLE X
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FISCAL YEAR
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36
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SECTION 10.1
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Fiscal Year
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36
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ARTICLE XI
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AMENDMENT OF TRUST AGREEMENT; MEETINGS
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37
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SECTION 11.1
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Amendments to the Trust Agreement
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37
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SECTION 11.2
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Meetings of the Master Fund
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38
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SECTION 11.3
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Action Without a Meeting
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39
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ARTICLE XII
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TERM
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39
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SECTION 12.1
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Term
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39
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ii
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ARTICLE XIII
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TERMINATION
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39
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SECTION 13.1
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Events Requiring Dissolution of the Master Fund
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39
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SECTION 13.2
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Distributions on Dissolution
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40
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SECTION 13.3
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Termination; Certificate of Cancellation
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41
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ARTICLE XIV
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POWER OF ATTORNEY
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41
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SECTION 14.1
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Power of Attorney Executed Concurrently
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41
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SECTION 14.2
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Effect of Power of Attorney
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42
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SECTION 14.3
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Limitation on Power of Attorney
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42
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ARTICLE XV
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MISCELLANEOUS
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43
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SECTION 15.1
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Governing Law
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43
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SECTION 15.2
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Provisions In Conflict With Law or Regulations
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43
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SECTION 15.3
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Construction
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44
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SECTION 15.4
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Notices
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44
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SECTION 15.5
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Counterparts
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44
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SECTION 15.6
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Binding Nature of Trust Agreement
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44
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SECTION 15.7
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No Legal Title to Trust Estate
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44
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SECTION 15.8
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Creditors
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44
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SECTION 15.9
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Integration
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45
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SECTION 15.10
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Goodwill; Use of Name
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45
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EXHIBIT A
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Form of Certificate of Trust of DB Currency Index Value Master Fund
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A-1
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EXHIBIT B
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Description of the Index
|
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B-1
|
iii
DB CURRENCY INDEX VALUE MASTER FUND
AMENDED AND RESTATED
DECLARATION OF TRUST
AND TRUST AGREEMENT
This AMENDED AND RESTATED
DECLARATION OF TRUST AND TRUST AGREEMENT of DB CURRENCY INDEX VALUE MASTER FUND is made and entered into as of the
day of
, 2006, by and among DB COMMODITY SERVICES LLC, a Delaware limited liability company, WILMINGTON TRUST COMPANY, a Delaware
banking company, as trustee, and DB CURRENCY INDEX VALUE FUND, a Delaware statutory trust.
* * *
RECITALS
WHEREAS, the Trust was formed on
, 2006 pursuant to the execution and filing by the Trustee of the Certificate of Trust on
, 2006 and the execution and delivery by each of the Trustee and the Managing Owner of a
Declaration of Trust and Trust Agreement dated as of
, 2006 (the “Original
Agreement”);
WHEREAS, currently, there is and has not been any Limited Owner;
WHEREAS, the Trustee and the Managing Owner desire to amend the Original Agreement to make the amendments effectuated hereby.
NOW, THEREFORE, pursuant to Section 8 of the Original Agreement, the Trustee and the Managing Owner hereby amend and restate the Original Agreement
in its entirety as set forth below.
ARTICLE I
DEFINITIONS; THE MASTER FUND
SECTION 1.1
Definitions
. As used in this Trust Agreement, the
following terms shall have the following meanings unless the context otherwise requires:
“Administrator” means any person from
time-to-time performing administrative services for the Master Fund pursuant to authority delegated by the Managing Owner.
“Adjusted
Capital Account” means, as of the last day of a taxable period, a Shareholder’s Capital Account as maintained pursuant to Section 6.1, (a) increased by any amounts which such Shareholder is obligated to restore pursuant to any
provision of this Agreement or is deemed to be obligated to restore pursuant to Treasury Regulation section 1.704-2 and decreased by the amount of all losses and deductions that, as of the end of the taxable period, are reasonably expected to be
allocated to such Shareholder in subsequent years under sections 704(e)(2) and 706(d) of the Code and the amount of all distributions that, as of the end of such
1
taxable period, are reasonably expected to be made to such Shareholder in subsequent years in accordance with the terms
of this Agreement or otherwise to the extent they exceed offsetting increases to such Capital Account that are reasonably expect to occur during or prior to the year in which such distributions are reasonably expected to be made. The foregoing
definition of Adjusted Capital Account is intended to comply the provisions of Treasury Regulation section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.
“Adjusted Property” means any property the adjusted basis of which has been adjusted pursuant to Sections 6.1(a) and (b).
“Affiliate” – An “Affiliate” of a “Person” means (i) any Person directly or indirectly owning, controlling or
holding with power to vote 10% or more of the outstanding voting securities of such Person, (ii) any Person 10% or more of whose outstanding voting securities are directly or indirectly owned, controlled or held with power to vote by such
Person, (iii) any Person, directly or indirectly, controlling, controlled by or under common control of such Person, (iv) any employee, officer, director, member, manager or partner of such Person, or (v) if such Person is an
employee, officer, director, member, manager or partner, any Person for which such Person acts in any such capacity.
“Basket”
means a Creation Basket or a Redemption Basket, as the context may require.
“Book-Tax Disparity” means with respect to any item
of Adjusted Property, as of the date of any determination, the difference between the adjusted value of such property and the adjusted basis thereof for federal income tax purposes as of such date. A Shareholder’s portion of the Master
Fund’s Book-Tax Disparities in all of its Adjusted Property will be reflected by the difference between such Shareholder’s Capital Account balance as maintained pursuant to Section 6.1 and the hypothetical balance of such
Shareholder’s Capital Account computed as if it had been maintained strictly in accordance with federal income tax accounting principles.
“Business Day” means a day other than Saturday, Sunday or other day when banks and/or securities exchanges in the City of New York or the City of Wilmington are authorized or obligated by law or executive order to close.
“Capital Account” means the capital account maintained for a Shareholder or Transferee pursuant to 6.1.
“Capital Contributions” means the amounts of cash contributed to the Master Fund by a Shareholder in accordance with Article III hereof.
“CE Act” means the Commodity Exchange Act, as amended.
“Certificate of Trust” means the Certificate of Trust of the Master Fund in the form attached hereto as Exhibit A, filed with the Secretary of
State of the State of Delaware pursuant to Section 3810 of the Delaware Trust Statute.
“CFTC” means the Commodity Futures
Trading Commission.
“Code” means the Internal Revenue Code of 1986, as amended.
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“Commodity Broker” means any person who engages in the business of effecting transactions in
Currency Contracts for the account of others or for his or her own account.
“Corporate Trust Office” means the principal office
at which at any particular time the corporate trust business of the Trustee is administered, which office at the date hereof is located at Rodney Square North, 1100 North Market Street, Wilmington, Delaware 19890, Attention: Corporate Trust
Administration.
“Covered Person” means the Trustee, the Managing Owner and their respective Affiliates.
“Creation Basket” means the minimum number of Limited Shares that may be created at any one time, which shall be 200,000 or such greater or
lesser number as the Managing Owner may determine from time-to-time.
“Creation Basket Capital Contribution” means a Capital
Contribution made by the Limited Owner in connection with a Purchase Order Subscription Agreement and the creation of a Creation Basket in an amount equal to the product obtained by multiplying (i) the number of Creation Baskets set forth in
the relevant Purchase Order Subscription Agreement by (ii) the Net Asset Value per Basket as of closing time of the Exchange or the last to close of the exchanges on which any one of the Index Currencies is traded, whichever is later, on the
Purchase Order Subscription Date.
“Currencies” means positions in Currency Contracts, forward contracts, other foreign exchange
positions, as well as cash resulting from any of the foregoing positions.
“Currency Contract” means any futures contract or
option thereon providing for the delivery or receipt at a future date of a specified amount of a traded currency at a specified price and delivery point, or any other futures contract or option thereon approved for trading for U.S. persons.
“Delaware Trust Statute” means the Delaware Statutory Trust Act, Chapter 38 of Title 12 of the Delaware Code, 12 Del. C. §
3801 et seq., as the same may be amended from time-to-time.
“Exchange” means the American Stock Exchange or, if the common units
of fractional undivided beneficial interest with limited liability in the profits, losses, distributions, capital and assets of, and ownership of, the Limited Owner shall cease to be listed on the American Stock Exchange and are listed on one or
more other exchanges, the exchange on which such common units of the Limited Owner are principally traded, as determined by the Managing Owner.
“Fiscal Quarter” shall mean each period ending on the last day of each March, June, September and December of each Fiscal Year, or, if the Fund is required by law to have a Fiscal Year other than a calendar year, such other
applicable quarterly period.
“Fiscal Year” shall have the meaning set forth in Article X hereof.
“Index” means the Deutsche Bank G10 Currency Future Harvest Index™ – Excess Return more fully described in Exhibit B hereto, as it
may be amended from time-to-time.
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“Index Currencies” means the underlying Currencies which comprise the Index from time-to-time.
“Limited Owner” means DB Currency Index Value Fund, a Delaware statutory trust.
“Limited Shares” means Shares that are owned by the Limited Owner.
“Losses” means, in respect of each Fiscal Year of the Master Fund, losses of the Master Fund as determined for U.S. federal income tax
purposes, and each item of income, gain, loss or deduction entering into the computation thereof.
“Managing Owner” means DB
Commodity Services LLC, or any substitute therefor as provided herein, or any successor thereto by merger or operation of law.
“Management Fee” means the management fee set forth in Section 4.9.
“Margin Call” means a demand for
additional funds after the initial good faith deposit required to maintain a customer’s account in compliance with the requirements of a particular commodity exchange or of a commodity broker.
“Master Fund” means DB Currency Index Value Master Fund, the Delaware statutory trust formed pursuant to the Certificate of Trust, the business
and affairs of which are governed by this Trust Agreement.
“Net Asset Value” means the total assets of the Trust Estate of the
Master Fund including, but not limited to, all cash and cash equivalents or other securities less total liabilities of the Master Fund, each determined on the basis of generally accepted accounting principles in the United States, consistently
applied under the accrual method of accounting, including, but not limited to, the extent specifically set forth below:
(a) Net Asset Value
shall include any unrealized profit or loss on open Currencies positions and any other credit or debit accruing to the Master Fund but unpaid or not received by the Master Fund.
(b) All open currency futures contracts and options traded on a United States exchange are calculated at their then current market value, which shall be
based upon the settlement price for that particular currency futures contract and options traded on the applicable United States exchange on the date with respect to which Net Asset Value is being determined; provided, that if a currency futures
contract or option 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 settlement price on the most recent
day on which the position could be liquidated shall be the basis for determining the market value of such position for such day. The current market value of all open currency futures contracts and options traded on a non-United States exchange shall
be based upon the settlement price for that particular currency futures contract option traded on the applicable non-United States exchange on the date with respect to which Net Asset Value is being determined; provided, that if a currency futures
contract or options traded on a non-United States exchange could not be liquidated on such day, due to the operation of daily limits (if applicable) or other rules of the
4
exchange upon which that position is traded or otherwise, the settlement price on the most recent day on which the
position could be liquidated shall be the basis for determining the market value of such position for such day. The current market value of all open forward contracts entered into by the Master Fund shall be the mean between the last bid and last
asked prices quoted by the bank or financial institution which is a party to the contract on the date with respect to which Net Asset Value is being determined; provided, that if such quotations are not available on such date, the mean between the
last bid and asked prices on the first subsequent day on which such quotations are available shall be the basis for determining the market value of such forward contract for such day. The Managing Owner may in its discretion value any of the Trust
Estate pursuant to such other principles as it may deem fair and equitable so long as such principles are consistent with normal industry standards.
(c) Interest earned on the Master Fund’s commodity brokerage account shall be accrued at least monthly.
(d) The amount of any distribution made pursuant to Article VI hereof shall be a liability of the Master Fund from the day when the distribution is declared until it is paid.
“Net Asset Value Per Share” means the Net Asset Value divided by the number of Shares outstanding on the date of calculation.
“Net Asset Value Per Basket” means the product obtained by multiplying the Net Asset Value Per Share by the number of Limited Shares comprising
a Basket at such time.
“NFA” means the National Futures Association.
“Order Cut-Off Time” means 1:00 p.m. New York time, on a Business Day.
“Organization and Offering Expenses” shall have the meaning assigned thereto in Section 4.8(a)(iv).
“Percentage Interest” shall be a fraction, the numerator of which is the number of any Shareholder’s Shares and the denominator of which
is the total number of Shares outstanding as of the date of determination.
“Person” means any natural person, partnership,
limited liability company, statutory trust, corporation, association, or other legal entity.
“Pit Brokerage Fee” shall include
floor brokerage, clearing fees, National Futures Association fees and exchange fees.
“Profits” means, for each Fiscal Year of
the Master Fund, profits of the Master Fund as determined for U.S. federal income tax purposes, and each item of income, gain, loss or deduction entering into the computation thereof.
“Prospectus” means the final prospectus and disclosure document of the Trust, constituting a part of a Registration Statement, as filed with
the SEC and declared effective thereby, as the same may at any time and from time to time be amended or supplemented.
5
“Purchase Order Subscription Agreement” shall have the meaning assigned thereto in
Section 3.2(a)(i).
“Purchase Order Subscription Date” shall have the meaning assigned thereto in Section 3.2(a)(i).
“Pyramiding” mean the use of unrealized profits on existing Currencies to provide margin for additional Currencies positions of
the same or related Currency.
“Redemption Basket” means the minimum number of Limited Shares that may be redeemed pursuant to
Section 7.1, which shall be the number of Limited Shares constituting a Creation Basket on the relevant Redemption Order Date.
“Redemption Distribution” means the cash delivered in satisfaction of a redemption of a Redemption Basket in accordance with Section 7.1(c).
“Redemption Order” shall have the meaning assigned thereto in Section 7.1(a).
“Redemption Order Date” shall have the meaning assigned thereto in Section 7.1(b).
“Redemption Settlement
Time” shall have the meaning assigned thereto in Section 7.1(d).
“Shareholders” generally means the Managing Owner and
the Limited Owner, as holders of Shares, where no distinction between them is required by the context in which the term is used. However, if the Master Fund is notified in a manner satisfactory to the Managing Owner as to the identity of a
beneficial owner of applicable Shares, such beneficial owner will be treated as a Shareholder owning a direct interest in the Master Fund for purposes of Article VI of this Agreement.
“Shares” means the common units of fractional undivided beneficial interest in the profits, losses, distributions, capital and assets of, and
ownership of, the Master Fund. The Managing Owner’s Capital Contributions shall be represented by “General” Shares and the Limited Owner’s Capital Contributions shall be represented by “Limited” Shares. Shares need not
be represented by certificates.
“Suspended Redemption Order” shall have the meaning assigned thereto in Section 7.1(d).
“Trust Agreement” means this Amended and Restated Declaration of Trust and Trust Agreement, as it may at any time or from
time-to-time be amended.
“Trustee” means Wilmington Trust Company or any substitute therefor as provided herein, acting not in
its individual capacity but solely as trustee of the Master Fund.
“Trust Estate” means any cash, commodity futures, forward and
option contracts, all funds on deposit in the Master Fund’s accounts, and any other property held by the Master Fund, and all proceeds therefrom, including any rights of the Master Fund pursuant to any other agreements to which the Master Fund
is a party.
6
“Unrealized Gain” attributable to a Master Fund property means, as of any date of
determination, the excess, if any, of the fair market value of such property as of such date over the property’s adjusted basis for federal income tax purposes as of the date of determination.
“Unrealized Loss” attributable to a Master Fund property means, as of any date of determination, the excess, if any, of the property’s
adjusted basis for federal income tax purposes as of the date of determination over the fair market value of such property as of such date of determination.
SECTION 1.2
Name
.
(a) The name of the Master Fund is “DB Currency Index Value Master Fund”
in which name the Trustee and the Managing Owner may engage in the business of the Master Fund, make and execute contracts and other instruments in the name and on behalf of the Master Fund and sue and be sued in the name and on behalf of the Master
Fund.
SECTION 1.3
Delaware Trustee; Business Offices
.
(a) The sole Trustee of the Master Fund is Wilmington Trust Company, which is located at the Corporate Trust Office or at such other address in the State of Delaware as the Trustee may designate in writing to the
Shareholders. The Trustee shall receive service of process on the Master Fund in the State of Delaware at the foregoing address. In the event Wilmington Trust Company resigns or is removed as the Trustee, the Trustee of the Master Fund in the State
of Delaware shall be the successor Trustee.
(b) The principal office of the Master Fund, and such additional offices as the Managing Owner
may establish, shall be located at such place or places inside or outside the State of Delaware as the Managing Owner may designate from time to time in writing to the Trustee and the Limited Owner. Initially, the principal office of the Master Fund
shall be at 60 Wall Street, New York, New York 10005.
SECTION 1.4
Declaration of Trust
. The Trustee hereby acknowledges that the
Master Fund has received the sum of $1,000 in a bank account in the name of the Master Fund controlled by the Managing Owner from the Managing Owner as grantor of the Trust, and hereby declares that it shall hold such sum in trust, upon and subject
to the conditions set forth herein for the use and benefit of the Shareholders. It is the intention of the parties hereto that the Master Fund shall be a statutory trust under the Delaware Trust Statute and that this Trust Agreement shall constitute
the governing instrument of the Master Fund. It is not the intention of the parties hereto to create a general partnership, limited partnership, limited liability company, joint stock association, corporation, bailment or any form of legal
relationship other than a Delaware statutory trust except to the extent that the Master Fund is deemed to constitute a partnership under the Code and applicable state and local tax laws. Nothing in this Trust Agreement shall be construed to make the
Shareholders partners or members of a joint stock association except to the extent such Shareholders are deemed to be partners under the Code and applicable state and local tax laws. Notwithstanding the foregoing, it is the intention of the
7
parties hereto to create a partnership among the Shareholders for purposes of taxation under the Code and applicable
state and local tax laws. Effective as of the date hereof, the Trustee and the Managing Owner shall have all of the rights, powers and duties set forth herein and in the Delaware Trust Statute with respect to accomplishing the purposes of the Master
Fund. The Trustee has filed the certificate of trust required by Section 3810 of the Delaware Trust Statute in connection with the formation of the Master Fund under the Delaware Trust Statute.
SECTION 1.5
Purposes and Powers
. The purpose of the Master Fund shall be: (a) directly or indirectly to trade, buy, sell, spread or otherwise
acquire, hold or dispose of Index Currencies, including, but not limited to, exchange-traded futures on the Index Currencies with a view to tracking the performance of the Index over time; (b) to enter into forward contracts referencing the
Index or one or more of the Index Currencies with a view to tracking the performance of the Index over time; (c) to enter into any lawful transaction and engage in any lawful activities in furtherance of or incidental to the foregoing purposes;
and (d) as determined from time to time by the Managing Owner, to engage in any other lawful business or activity for which a statutory trust may be organized under the Delaware Trust Statute. The Master Fund shall have all of the powers
specified in Section 15.1 hereof, including, without limitation, all of the powers which may be exercised by a Managing Owner on behalf of the Master Fund under this Trust Agreement.
SECTION 1.6
Tax Treatment
.
(a) Each
of the parties hereto, by entering into this Trust Agreement directly, or indirectly as a purchaser of units in DB CURRENCY INDEX VALUE FUND, (i) expresses its intention that the Shares will qualify under applicable tax law as interests in a
partnership which holds the Trust Estate for their benefit, (ii) agrees that it will file its own U.S. federal, state and local income, franchise and other tax returns in a manner that is consistent with the treatment of the Master Fund as a
partnership in which each of the Shareholders thereof is a partner, either directly or indirectly, by virtue of holding units in DB CURRENCY INDEX VALUE FUND and (iii) agrees to use reasonable efforts to notify the Managing Owner promptly upon
a receipt of any notice from any taxing authority having jurisdiction over such holders of Shares with respect to the treatment of the Shares as anything other than interests in a partnership.
(b) The Tax Matters Partner (as defined in Section 6231 of the Code and any corresponding state and local tax law) initially shall be the Managing
Owner. The Tax Matters Partner, at the expense of the Master Fund, shall prepare or cause to be prepared and filed tax returns as a partnership for U.S. federal, state and local tax purposes and (ii) shall be authorized to perform all duties
imposed by § 6221 et seq. of the Code, including, without limitation, (A) the power to conduct all audits and other administrative proceedings with respect to tax items; (B) the power to extend the statute of limitations for all
Shareholders with respect to tax items; (C) the power to file a petition with an appropriate U.S. federal court for review of a final administrative adjustment; and (D) the power to enter into a settlement with the IRS on behalf of, and
binding upon, the Limited Owner. The designation made by each Shareholder in this Section 1.6(b), either directly or, indirectly as a holder of units in DB CURRENCY INDEX VALUE FUND, is hereby approved by each Shareholder as an express
condition to becoming a Shareholder. Each Shareholder agrees to take any further action as may be required by regulation or otherwise to effectuate such designation. Subject to Section 4.7, the Master Fund
8
hereby indemnifies, to the full extent permitted by law, the Managing Owner from and against any damages or losses
(including attorneys’ fees) arising out of or incurred in connection with any action taken or omitted to be taken by it in carrying out its responsibilities as Tax Matters Partner, provided such action taken or omitted to be taken does not
constitute fraud, negligence or misconduct.
(c) Each Shareholder shall furnish the Managing Owner and the Trustee with information
necessary to enable the Managing Owner to comply with U.S. federal income tax information reporting requirements in respect of such Shareholder’s Shares.
SECTION 1.7
General Liability of the Managing Owner
.
(a) The Managing Owner shall be liable for the
acts, omissions, obligations and expenses of the Master Fund, to the extent not paid out of the assets of the Master Fund, to the same extent the Managing Owner would be so liable as if the Master Fund was a partnership under the Delaware Revised
Uniform Limited Partnership Act and the Managing Owner were a general partner of such partnership. The foregoing provision shall not, however, limit the ability of the Managing Owner to limit its liability by contract. The obligations of the
Managing Owner under this Section 1.7 shall be evidenced by its ownership of the General Shares which, solely for purposes of the Delaware Trust Statute, will be deemed to be a separate class of Shares. Without limiting or affecting the
liability of the Managing Owner as set forth in this Section 1.7, notwithstanding anything in this Trust Agreement to the contrary, Persons having any claim against the Master Fund by reason of the transactions contemplated by this Trust
Agreement and any other agreement, instrument, obligation or other undertaking to which the Master Fund is a party, shall look only to the appropriate Master Fund Estate for payment or satisfaction thereof.
(b) Subject to Sections 8.1 and 8.3 hereof, no Shareholder, other than the Managing Owner, to the extent set forth above, shall have any personal
liability for any liability or obligation of the Master Fund thereof.
SECTION 1.8
Legal Title
. Legal title to the Trust Estate
shall be vested in the Master Fund as a separate legal entity; provided, however, that where applicable law in any jurisdiction requires any part of the Trust Estate to be vested otherwise, the Managing Owner may cause legal title to the Trust
Estate or any portion thereof to be held by or in the name of the Managing Owner or any other Person (other than a Shareholder) as nominee.
SECTION 1.9
Commencement of Business.
The Commencement of the Trust’s business shall commence at such time as the Managing Owner shall determine.
ARTICLE II
THE TRUSTEE
SECTION 2.1
Term; Resignation
.
(a)
Wilmington Trust Company has been appointed and hereby agrees to serve as the Trustee of the Master Fund. The Master Fund shall have only one Trustee unless otherwise determined by the Managing Owner. The Trustee shall serve until such time as the
Managing Owner removes the Trustee or the Trustee resigns and a successor Trustee is appointed by the Managing Owner in accordance with the terms of Section 2.5 hereof.
9
(b) The Trustee may resign at any time upon the giving of at least 60 days’ advance written notice
to the Master Fund; provided, that such resignation shall not become effective unless and until a successor Trustee shall have been appointed by the Managing Owner in accordance with Section 2.5 hereof. If the Managing Owner does not act within
such sixty (60) day period, the Trustee may apply, at the expense of the Trust, to the Court of Chancery of the State of Delaware for the appointment of a successor Trustee.
SECTION 2.2
Powers
. Except to the extent expressly set forth in Section 1.3 and this Article II, the duty and authority of the Trustee to
manage the business and affairs of the Master Fund is hereby delegated to the Managing Owner, which duty and authority the Managing Owner may further delegate as provided herein, all pursuant to Section 3806(b)(7) of the Delaware Trust Statute.
The Trustee shall have only the rights, obligations and liabilities specifically provided for herein and shall have no implied rights, duties, obligations and liabilities with respect to the business and affairs of the Master Fund. The Trustee shall
have the power and authority to execute and file certificates as required by the Delaware Trust Statute and to accept service of process on the Master Fund in the State of Delaware. The Trustee shall provide prompt notice to the Managing Owner of
its performance of any of the foregoing. The Managing Owner shall reasonably keep the Trustee informed of any actions taken by the Managing Owner with respect to the Master Fund that would reasonably be expected to affect the rights, obligations or
liabilities of the Trustee hereunder or under the Delaware Trust Statute.
SECTION 2.3
Compensation and Expenses of the Trustee
. The
Trustee shall be entitled to receive from the Managing Owner or an Affiliate of the Managing Owner (including the Master Fund) reasonable compensation for its services hereunder as set forth in a separate fee agreement and shall be entitled to be
reimbursed by the Managing Owner or an Affiliate of the Managing Owner (including the Master Fund) for reasonable out-of-pocket expenses incurred by it in the performance of its duties hereunder, including without limitation, the reasonable
compensation, out-of-pocket expenses and disbursements of counsel and such other agents as the Trustee may employ in connection with the exercise and performance of its rights and duties hereunder.
SECTION 2.4
Indemnification
. The Managing Owner agrees (and any additional Managing Owner admitted pursuant to Section 4.2(g) will be deemed
to agree), whether or not any of the transactions contemplated hereby shall be consummated, to assume liability for, and does hereby indemnify, protect, save and keep harmless Wilmington Trust Company (in its capacity as Trustee and individually)
and its successors, assigns, legal representatives, officers, directors, employees, agents and servants (the “Indemnified Parties”) from and against any and all liabilities, obligations, losses, damages, penalties, taxes (excluding any
taxes payable by the Trustee on or measured by any compensation received by the Trustee for its services hereunder or any indemnity payments received by the Trustee pursuant to this Section 2.4), claims, actions, suits, costs, expenses or
disbursements (including legal fees and expenses) of any kind and nature whatsoever (collectively, “Expenses”), which may be imposed on, incurred by or asserted against the Indemnified Parties in any way relating to or arising out of the
formation, operation or termination of the Master Fund, the execution, delivery and performance of any other
10
agreements to which the Master Fund is a party or the action or inaction of the Trustee hereunder or thereunder, except
for Expenses resulting from the gross negligence or willful misconduct of the Indemnified Parties. The indemnities contained in this Section 2.4 shall survive the termination of this Trust Agreement or the removal or resignation of the Trustee.
The Indemnified Parties shall not be entitled to indemnification from any Master Fund Estate.
SECTION 2.5
Successor Trustee
.
Upon the resignation or removal of the Trustee, the Managing Owner shall appoint a successor Trustee by delivering a written instrument to
the outgoing Trustee. Any successor Trustee must satisfy the requirements of Section 3807 of the Delaware Trust Statute. Any resignation or removal of the Trustee and appointment of a successor Trustee shall not become effective until a written
acceptance of appointment is delivered by the successor Trustee to the outgoing Trustee and the Managing Owner and any fees and expenses due to the outgoing Trustee are paid. Following compliance with the preceding sentence, the successor Trustee
shall become fully vested with all of the rights, powers, duties and obligations of the outgoing Trustee under this Trust Agreement, with like effect as if originally named as Trustee, and the outgoing Trustee shall be discharged of its duties and
obligations under this Trust Agreement.
SECTION 2.6
Liability of Trustee
. Except as otherwise provided in this Article II, in
accepting the trust created hereby, Wilmington Trust Company acts solely as Trustee hereunder and not in its individual capacity, and all Persons having any claim against Wilmington Trust Company by reason of the transactions contemplated by this
Trust Agreement and any other agreement to which the Master Fund is a party shall look only to the Master Fund Estate for payment or satisfaction thereof; provided, however, that in no event is the foregoing intended to affect or limit the liability
of the Managing Owner as set forth in Section 1.7 hereof. The Trustee shall not be liable or accountable hereunder to the Trust or to any other Person or under any other agreement to which the Master Fund is a party, except for the
Trustee’s own gross negligence or willful misconduct. In particular, but not by way of limitation:
(a) The Trustee shall have no
liability or responsibility for the validity or sufficiency of this Trust Agreement or for the form, character, genuineness, sufficiency, value or validity of the Trust Estate;
(b) The Trustee shall not be liable for any actions taken or omitted to be taken by it in accordance with the instructions of the Managing Owner or the
Liquidating Trustee;
(c) The Trustee shall not have any liability for the acts or omissions of the Managing Owner or its delegatees;
(d) The Trustee shall not be liable for its failure to supervise the performance of any obligations of the Managing Owner or its
delegatees or any commodity broker;
(e) No provision of this Trust Agreement shall require the Trustee to act or expend or risk its own
funds or otherwise incur any financial liability in the performance of any of its rights or powers hereunder if the Trustee shall have reasonable grounds for believing that such action, repayment of such funds or adequate indemnity against such risk
or liability is not reasonably assured or provided to it;
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(f) Under no circumstances shall the Trustee be liable for indebtedness evidenced by or other obligations
of the Master Fund arising under this Trust Agreement or any other agreements to which the Master Fund is a party;
(g) The Trustee shall
be under no obligation to exercise any of the rights or powers vested in it by this Trust Agreement, or to institute, conduct or defend any litigation under this Trust Agreement or any other agreements to which the Master Fund is a party, at the
request, order or direction of the Managing Owner unless the Managing Owner has offered to Wilmington Trust Company (in its capacity as Trustee and individually) security or indemnity satisfactory to it against the costs, expenses and liabilities
that may be incurred by Wilmington Trust Company (including, without limitation, the reasonable fees and expenses of its counsel) therein or thereby;
(h) Notwithstanding anything contained herein to the contrary, the Trustee shall not be required to take any action in any jurisdiction other than in the State of Delaware if the taking of such action will require the
consent or approval or authorization or order of or the giving of notice to, or the registration with or taking of any action in respect of, any state or other governmental authority or agency of any jurisdiction other than the State of Delaware,
(ii) result in any fee, tax or other governmental charge under the laws of any jurisdiction or any political subdivision thereof in existence as of the date hereof other than the State of Delaware becoming payable by the Trustee or
(iii) subject the Trustee to personal jurisdiction, other than in the State of Delaware, for causes of action arising from personal acts unrelated to the consummation of the transactions by the Trustee, as the case may be, contemplated hereby;
and
(i) To the extent that, at law or in equity, the Trustee has duties (including fiduciary duties) and liabilities relating thereto to
the Master Fund, the Shareholders or to any other Person, the Trustee acting under this Trust Agreement shall not be liable to the Master Fund, the Shareholders or to any other Person for its good faith reliance on the provisions of this Trust
Agreement. The provisions of this Trust Agreement, to the extent that they restrict the duties and liabilities of the Trustee otherwise existing at law or in equity are agreed by the parties hereto to replace such other duties and liabilities of the
Trustee.
SECTION 2.7
Reliance; Advice of Counsel
.
(a) In the absence of bad faith, the Trustee may conclusively rely upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Trust Agreement in determining the truth of the
statements and the correctness of the opinions contained therein, and shall incur no liability to anyone in acting on any signature, instrument, notice, resolutions, request, consent, order, certificate, report, opinion, bond or other document or
paper believed by it to be genuine and believed by it to be signed by the proper party or parties and need not investigate any fact or matter pertaining to or in any such document; provided, however, that the Trustee shall have examined any
certificates or opinions so as to reasonably determine compliance of the same with the requirements of this Trust Agreement. The Trustee may accept a certified copy of a resolution of the board of directors or other governing body of any corporate
party as conclusive evidence that such resolution has been duly adopted by such body and that the same is in full force and effect. As to any fact or matter the method of the determination of which is not specifically prescribed herein, the Trustee
may for all purposes
12
hereof rely on a certificate, signed by the president or any vice president or by the treasurer or other authorized
officers of the relevant party, as to such fact or matter, and such certificate shall constitute full protection to the Trustee for any action taken or omitted to be taken by it in good faith in reliance thereon.
(b) In the exercise or administration of the Master Fund hereunder and in the performance of its duties and obligations under this Trust Agreement, the
Trustee, at the expense of the Managing Owner or an Affiliate of the Managing Owner (including the Master Fund) may act directly or through its agents, attorneys, custodians or nominees pursuant to agreements entered into with any of them, and the
Trustee shall not be liable for the conduct or misconduct of such agents, attorneys, custodians or nominees if such agents, attorneys, custodians or nominees shall have been selected by the Trustee with reasonable care and (ii) may consult with
counsel, accountants and other skilled professionals to be selected with reasonable care by it. The Trustee shall not be liable for anything done, suffered or omitted in good faith by it in accordance with the opinion or advice of any such counsel,
accountant or other such Persons.
SECTION 2.8
Payments to the Trustee
. Any amounts paid to the Trustee pursuant to this Article
shall be deemed not to be a part of the Trust Estate immediately after such payment. Any amounts owing to the Trustee under this Trust Agreement shall constitute a claim against the Trust Estate.
ARTICLE III
CREATIONS AND ISSUANCE
OF CREATION BASKETS
SECTION 3.1
General
. The Managing Owner shall have the power and authority, without Limited Owner approval,
to issue Shares from time to time as it deems necessary or desirable. The number of Shares authorized shall be unlimited, and the Shares so authorized may be represented in part by fractional Shares, calculated to four decimal places. From
time-to-time, the Managing Owner may divide or combine the Shares into a greater or lesser number without thereby changing the proportionate beneficial interests. The Managing Owner may issue Shares for such consideration and on such terms as it may
determine (or for no consideration if pursuant to a Share dividend or split-up), all without action or approval of the Limited Owner. All Shares when so issued on the terms determined by the Managing Owner shall be fully paid and non-assessable. The
Shares initially shall be divided into two classes: General Shares and Limited Shares. Every Shareholder, by virtue of having purchased or otherwise a acquired Share, shall be deemed to have expressly consented and agreed to be bound by the terms of
this Trust Agreement.
SECTION 3.2
Offer of Limited Shares; Procedures for Creation and Issuance of Creation Baskets
.
(a)
General
. The following procedures, as supplemented by the more detailed procedures agreed from time to time between the Managing Owner and the
Limited Owner, will govern the Trust with respect to the creation and issuance of Creation Baskets. Subject to the limitations upon and requirements for issuance of Creation Baskets stated herein and in such procedures, the number of Creation
Baskets which may be issued by the Master Fund is unlimited.
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(i) On any Business Day, the Limited Owner may submit to the Managing Owner a purchase
order and subscription agreement to subscribe for and agree to purchase one or more Creation Baskets (such request by the Limited Owner, a “Purchase Order Subscription Agreement”). Purchase Order Subscription Agreements must be received by
the Managing Owner from the Limited Owner no later than the Order Cut-Off Time on a Business Day (the “Purchase Order Subscription Date”). The Managing Owner will process Purchase Order Subscription Agreements only from the Limited Owner.
(ii) Any Purchase Order is subject to rejection by the Managing Owner pursuant to Section 3.2(c).
(iii) After accepting a Purchase Order Subscription Agreement from the Limited Owner, the Managing Owner will issue and deliver Creation
Baskets to fill the Limited Owner’s Purchase Order Subscription Agreement as of noon New York time on the Business Day immediately following the Purchase Order Subscription Date, but only if by such time the Managing Owner has received
(A) for its own account, the Transaction Fee, and (B) for the account of the Master Fund the Creation Basket Capital Contribution due from the Limited Owner in respect of such Purchase Order Subscription Agreement.
(b)
Issuance of Creation Basket
. Upon issuing a Creation Basket pursuant to a Purchase Order Subscription Agreement, the Managing Owner will issue
the Creation Basket to the Limited Owner.
(c)
Rejection
. The Managing Owner shall have the absolute right, but shall have no
obligation, to reject any Purchase Order Subscription Agreement or Creation Basket Capital Contribution (i) determined by the Managing Owner not to be in proper form; (ii) that the Managing Owner has determined would have adverse tax
consequences to the Master Fund or to the Limited Owner; (iii) the acceptance or receipt of which would, in the opinion of counsel to the Managing Owner, be unlawful; or (iv) if circumstances outside the control of the Managing Owner make
it for all practical purposes not feasible to process creations of Creation Baskets. The Managing Owner shall not be liable to any person by reason of the rejection of any Purchase Order Subscription Agreement or Creation Basket Capital
Contribution.
SECTION 3.3
Assets of the Master Fund
. All consideration received by the Master Fund for the issue or sale of
Creation Baskets together with all of the Trust Estate in which such consideration is invested or reinvested, all income, earnings, profits, and proceeds thereof, including any proceeds derived from the sale, exchange or liquidation of such assets,
and any funds or payments derived from any reinvestment of such proceeds in whatever form the same may be, shall irrevocably belong to the Master Fund for all purposes, subject only to the rights of creditors of the Master Fund and except as may
otherwise be required by applicable tax laws, and shall be so recorded upon the books of account of the Master Fund.
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SECTION 3.4
Liabilities
. The Trust Estate shall be charged with the liabilities of the Master
Fund; and all expenses, costs, charges and reserves attributable to the Master Fund. The Managing Owner shall have full discretion, to the extent not inconsistent with applicable law, to determine which items shall be treated as income and which
items as capital, and each such determination and allocation shall be conclusive and binding upon the Shareholders.
SECTION 3.5
Distributions
. Distributions on Shares may be paid with such frequency as the Managing Owner may determine, which may be daily or otherwise, to the Shareholders from such of the income and capital gains, accrued or realized, as the Managing
Owner may determine, after providing for actual and accrued liabilities of the Master Fund. All distributions on Shares shall be distributed pro rata to the Shareholders in proportion to the total outstanding Shares held by such Shareholders at the
date and time of record established for the payment of such distribution.
SECTION 3.6
Voting Rights
. Notwithstanding any other
provision hereof, on each matter submitted to a vote of the Shareholders, each Shareholder shall be entitled to a proportionate vote based upon the product of the Net Asset Value per Share multiplied by the number of Shares, or fraction thereof,
standing in its name on the books of the Master Fund.
SECTION 3.7
Equality
. Except as provided herein, all Shares shall represent
an equal proportionate beneficial interest in the assets of the Master Fund subject to the liabilities of the Master Fund, and each Share shall be equal to each other Share. The Managing Owner may from time to time divide or combine the Shares into
a greater or lesser number of Shares without thereby changing the proportionate beneficial interest in the assets of the Master Fund or in any way affecting the rights of Shareholders.
ARTICLE IV
THE MANAGING OWNER
SECTION 4.1
Management of the Master Fund
. Pursuant to Section 3806(b)(7) of the Delaware Trust Statute, the Master Fund shall be managed by
the Managing Owner and the conduct of the Master Fund’s business shall be controlled and conducted solely by the Managing Owner in accordance with this Trust Agreement.
SECTION 4.2
Authority of Managing Owner
. In addition to and not in limitation of any rights and powers conferred by law or other provisions of this
Trust Agreement, and except as limited, restricted or prohibited by the express provisions of this Trust Agreement or the Delaware Trust Statute, the Managing Owner shall have and may exercise on behalf of the Master Fund, all powers and rights
necessary, proper, convenient or advisable to effectuate and carry out the purposes, business and objectives of the Master Fund, which shall include, without limitation, the following:
(a) To enter into, execute, deliver and maintain, and to cause the Master Fund to perform its obligations under, contracts, agreements and any or all
other documents and instruments, and to do and perform all such things as may be in furtherance of Master Fund purposes or necessary or appropriate for the offer and sale of the Shares and the conduct of
15
Master Fund activities, including, but not limited to, contracts with third parties for commodity brokerage services
and/or administrative services, provided, however, that such services may be performed by an Affiliate or Affiliates of the Managing Owner so long as the Managing Owner has made a good faith determination that: (A) the Affiliate which it
proposes to engage to perform such services is qualified to do so (considering the prior experience of the Affiliate or the individuals employed thereby); (B) the terms and conditions of the agreement pursuant to which such Affiliate is to
perform services for the Master Fund are no less favorable to the Master Fund than could be obtained from equally-qualified unaffiliated third parties; and (C) the maximum period covered by the agreement pursuant to which such affiliate is to
perform services for the Master Fund shall not exceed one year, and such agreement shall be terminable without penalty upon sixty (60) days’ prior written notice by the Master Fund.
(b) To establish, maintain, deposit into, sign checks and/or otherwise draw upon accounts on behalf of the Master Fund with appropriate banking and
savings institutions, and execute and/or accept any instrument or agreement incidental to the Master Fund’s business and in furtherance of its purposes, any such instrument or agreement so executed or accepted by the Managing Owner in the
Managing Owner’s name shall be deemed executed and accepted on behalf of the Master Fund by the Managing Owner;
(c) To deposit,
withdraw, pay, retain and distribute the Trust Estate or any portion thereof in any manner consistent with the provisions of this Trust Agreement;
(d) To supervise the preparation and filing of the Registration Statement and supplements and amendments thereto, and the Prospectus;
(e) To pay or authorize the payment of distributions to the Shareholders and expenses of the Master Fund;
(f) To make any
elections on behalf of the Master Fund under the Code, or any other applicable U.S. federal or state tax law as the Managing Owner shall determine to be in the best interests of the Master Fund;
(g) In the sole discretion of the Managing Owner, to admit an Affiliate or Affiliates of the Managing Owner as additional Managing Owners.
Notwithstanding the foregoing, the Managing Owner may not admit Affiliate(s) of the Managing Owner as an additional Managing Owner if it has received notice of its removal as a Managing Owner, pursuant to Section 8.2(d) hereof, or if the
concurrence of at least a majority in interest (over 50%) of the outstanding Shares (not including Shares owned by the Managing Owner) is not obtained; and
SECTION 4.3
Obligations of the Managing Owner
. In addition to the obligations expressly provided by the Delaware Trust Statute or this Trust Agreement, the Managing Owner shall:
(a) Devote such of its time to the business and affairs of the Master Fund as it shall, in its discretion exercised in good faith, determine to be
necessary to conduct the business and affairs of the Master Fund for the benefit of the Master Fund and the Limited Owner;
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(b) Execute, file, record and/or publish all certificates, statements and other documents and do any and
all other things as may be appropriate for the formation, qualification and operation of the Master Fund and for the conduct of its business in all appropriate jurisdictions;
(c) Retain independent public accountants to audit the accounts of the Master Fund;
(d) Employ attorneys to represent the Master Fund;
(e) Select the Master Fund’s Trustee, Administrator, and Clearing Brokers;
(f) Use its best efforts to maintain the status
of the Master Fund as a “statutory trust” for state law purposes, and as a “partnership” for U.S. federal income tax purposes;
(g) Monitor the brokerage fees charged to the Master Fund, and the services rendered by futures commission merchants to the Master Fund, to determine whether the fees paid by, and the services rendered to, the Master Fund for futures
brokerage are at competitive rates and are the best price and services available under the circumstances, and if necessary, renegotiate the brokerage fee structure to obtain such rates and services for the Master Fund. No material change related to
brokerage fees shall be made except upon 60 Business Days’ prior notice to the Limited Owner, which notice shall include a description of the Limited Owner’s voting rights as set forth in Section 8.2 hereof and a description of the
Limited Owner’s redemption rights as set forth in Section 7.1 hereof;
(h) Have fiduciary responsibility for the safekeeping and
use of the Trust Estate, whether or not in the Managing Owner’s immediate possession or control, and the Managing Owner will not employ or permit others to employ such funds or assets (including any interest earned thereon as provided for in
the Prospectus) in any manner except for the benefit of the Master Fund, including, among other things, the utilization of any portion of the Trust Estate as compensating balances for the exclusive benefit of the Managing Owner. The Managing Owner
shall at all times act with integrity and good faith and exercise due diligence in all activities relating to the conduct of the business of the Master Fund and in resolving conflicts of interest;
(i) Refuse to recognize any attempted transfer or assignment of a Share that is not made in accordance with the provisions of Article V; and
(j) Perform such other services as the Managing Owner believes that the Master Fund may from time to time require.
SECTION 4.4
General Prohibitions
. The Master Fund shall not:
(a) Borrow money from or loan money to any Shareholder (including the Managing Owner) or other Person, except that the foregoing is not intended to prohibit (i) the deposit on margin with respect to the
initiation and maintenance of Currencies positions or (ii) obtaining lines of credit for the trading of forward contracts; provided, however, that the Master Fund is prohibited from incurring any indebtedness on a non-recourse basis;
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(b) Create, incur, assume or suffer to exist any lien, mortgage, pledge conditional sales or other title
retention agreement, charge, security interest or encumbrance, except (i) the right and/or obligation of a commodity broker to close out sufficient currencies positions of the Master Fund so as to restore the Master Fund’s account to
proper margin status in the event that the Master Fund fails to meet a Margin Call, (ii) liens for taxes not delinquent or being contested in good faith and by appropriate proceedings and for which appropriate reserves have been established,
(iii) deposits or pledges to secure obligations under workmen’s compensation, social security or similar laws or under unemployment insurance, (iv) deposits or pledges to secure contracts (other than contracts for the payment of
money), leases, statutory obligations, surety and appeal bonds and other obligations of like nature arising in the ordinary course of business, or (v) mechanic’s, warehousemen’s, carrier’s, workmen’s, materialmen’s or
other like liens arising in the ordinary course of business with respect to obligations which are not due or which are being contested in good faith, and for which appropriate reserves have been established if required by generally accepted
accounting principles, and liens arising under ERISA;
(c) Commingle its assets with those of any other Person, except to the extent
permitted under the CE Act and the regulations promulgated thereunder;
(d) Engage in Pyramiding of its Currencies positions; provided,
however, that the Managing Owner may take into account open trade equity positions in determining generally whether to require additional Currencies positions;
(e) Permit rebates to be received by the Managing Owner or any Affiliate of the Managing Owner, or permit the Managing Owner or any Affiliate of the Managing Owner to engage in any reciprocal business arrangements
which would circumvent the foregoing prohibition;
(f) Permit the Managing Owner to share in any portion of brokerage fees related to
commodity brokerage services paid with respect to commodity trading activities;
(g) Enter into any contract with the Managing Owner or an
Affiliate of the Managing Owner (except for selling agreements for the sale of Shares) which has a term of more than one year and which does not provide that it may be canceled by the Master Fund without penalty on sixty (60) days prior written
notice or for the provision of goods and services, except at rates and terms at least as favorable as those which may be obtained from third parties in arms-length negotiations;
(h) Permit churning of its Currency trading account(s) for the purpose of generating excess brokerage commissions;
(i) Enter into any exclusive brokerage contract; or
(j) Cause the Master Fund to elect to be treated as an association taxable as a corporation for U.S. federal income tax purposes.
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SECTION 4.5
Liability of Covered Persons
. A Covered Person shall have no liability to the Master
Fund or to any Shareholder or other Covered Person for any loss suffered by the Master Fund which arises out of any action or inaction of such Covered Person if such Covered Person, in good faith, determined that such course of conduct was in the
best interest of the Master Fund and such course of conduct did not constitute negligence or misconduct of such Covered Person. Subject to the foregoing, neither the Managing Owner nor any other Covered Person shall be personally liable for the
return or repayment of all or any portion of the capital or profits of the Limited Owner or assignee thereof, it being expressly agreed that any such return of capital or profits made pursuant to this Trust Agreement shall be made solely from the
assets of the Master Fund without any rights of contribution from the Managing Owner or any other Covered Person.
SECTION 4.6
Fiduciary
Duty
.
(a) To the extent that, at law or in equity, the Managing Owner has duties (including fiduciary duties) and liabilities relating
thereto to the Master Fund, the Shareholders or to any other Person, the Managing Owner acting under this Trust Agreement shall not be liable to the Master Fund, the Shareholders or to any other Person for its good faith reliance on the provisions
of this Trust Agreement subject to the standard of care in Section 4.5 herein. The provisions of this Trust Agreement, to the extent that they restrict the duties and liabilities of the Managing Owner otherwise existing at law or in equity are
agreed by the parties hereto to replace such other duties and liabilities of the Managing Owner. Any material changes in the Master Fund’s basic investment policies or structure shall occur only upon the written approval or affirmative vote of
Limited Shares equal to at least a majority (over 50%) of the Net Asset Value of the Master Fund (excluding Shares held by the Managing Owner and its Affiliates) of the Master Fund pursuant to Section 11.1(a) below.
(b) Unless otherwise expressly provided herein:
(i) whenever a conflict of interest exists or arises between the Managing Owner or any of its Affiliates, on the one hand, and the Master Fund or any Shareholder or any other Person, on the other hand; or
(ii) whenever this Trust Agreement or any other agreement contemplated herein or therein provides that the Managing Owner shall act in
a manner that is, or provides terms that are, fair and reasonable to the Master Fund, any Shareholder or any other Person,
the Managing Owner shall
resolve such conflict of interest, take such action or provide such terms, considering in each case the relative interest of each party (including its own interest) to such conflict, agreement, transaction or situation and the benefits and burdens
relating to such interests, any customary or accepted industry practices, and any applicable generally accepted accounting practices or principles. In the absence of bad faith by the Managing Owner, the resolution, action or terms so made, taken or
provided by the Managing Owner shall not constitute a breach of this Trust Agreement or any other agreement contemplated herein or of any duty or obligation of the Managing Owner at law or in equity or otherwise.
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(c) The Managing Owner and any Affiliate of the Managing Owner may engage in or possess an interest in
other profit-seeking or business ventures of any nature or description, independently or with others, whether or not such ventures are competitive with the Master Fund and the doctrine of corporate opportunity, or any analogous doctrine, shall not
apply to the Managing Owner. If the Managing Owner acquires knowledge of a potential transaction, agreement, arrangement or other matter that may be an opportunity for the Master Fund, it shall have no duty to communicate or offer such opportunity
to the Master Fund, and the Managing Owner shall not be liable to the Master Fund or to the Shareholders for breach of any fiduciary or other duty by reason of the fact that the Managing Owner pursues or acquires for, or directs such opportunity to
another Person or does not communicate such opportunity or information to the Master Fund. Neither the Master Fund nor any Shareholder shall have any rights or obligations by virtue of this Trust Agreement or the Master Fund relationship created
hereby in or to such independent ventures or the income or profits or losses derived therefrom, and the pursuit of such ventures, even if competitive with the activities of the Master Fund, shall not be deemed wrongful or improper. Except to the
extent expressly provided herein, the Managing Owner may engage or be interested in any financial or other transaction with the Master Fund, the Shareholders or any Affiliate of the Master Fund or the Shareholders.
SECTION 4.7
Indemnification of the Managing Owner
.
(a) The Managing Owner shall be indemnified by the Master Fund against any losses, judgments, liabilities, expenses and amounts paid in settlement of any claims sustained by it in connection with its activities for
the Master Fund, provided that (i) the Managing Owner was acting on behalf of or performing services for the Master Fund and has determined, in good faith, that such course of conduct was in the best interests of the Master Fund and such
liability or loss was not the result of negligence, misconduct, or a breach of this Trust Agreement on the part of the Managing Owner and (ii) any such indemnification will only be recoverable from the Master Fund Estate. All rights to
indemnification permitted herein 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 U.S. Code by or against the Managing Owner. The source of payments made in respect of indemnification under this Trust Agreement shall be from assets of the Master
Fund.
(b) Notwithstanding the provisions of Section 4.6(a) above, the Managing Owner and any Person acting as broker-dealer for the
Master Fund shall not be indemnified for any losses, liabilities or expenses arising from or out of an alleged violation of U.S. federal or state securities laws unless (i) there has been a successful adjudication on the merits of each count
involving alleged securities law violations as to the particular indemnitee and the court approves the indemnification of such expenses (including, without limitation, litigation costs), (ii) such claims have been dismissed with prejudice on
the merits by a court of competent jurisdiction as to the particular indemnitee and the court approves the indemnification of such expenses (including, without limitation, litigation costs) or (iii) a court of competent jurisdiction approves a
settlement of the claims against a particular indemnitee and finds that indemnification of the settlement and related costs should be made.
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(c) The Master Fund shall not incur the cost of that portion of any insurance which insures any party
against any liability, the indemnification of which is herein prohibited.
(d) Expenses incurred in defending a threatened or pending civil,
administrative or criminal action suit or proceeding against the Managing Owner shall be paid by the Master Fund in advance of the final disposition of such action, suit or proceeding, if (i) the legal action relates to the performance of
duties or services by the Managing Owner on behalf of the Master Fund; (ii) the legal action is initiated by a third party who is not the Limited Owner or the legal action is initiated by the Limited Owner and a court of competent jurisdiction
specifically approves such advance; and (iii) the Managing Owner undertakes to repay the advanced funds with interest to the Master Fund in cases in which it is not entitled to indemnification under this Section 4.7.
(e) The term “Managing Owner” as used only in this Section 4.7 shall include, in addition to the Managing Owner, any other Covered Person
performing services on behalf of the Master Fund and acting within the scope of the Managing Owner’s authority as set forth in this Trust Agreement.
(f) In the event the Master Fund is made a party to any claim, dispute, demand or litigation or otherwise incurs any loss, liability, damage, cost or expense as a result of or in connection with the Limited
Owner’s (or assignee’s) obligations or liabilities unrelated to Master Fund business, the Limited Owner (or assignees cumulatively) shall indemnify, defend, hold harmless, and reimburse the Master Fund for all such loss, liability, damage,
cost and expense incurred, including attorneys’ and accountants’ fees.
SECTION 4.8
Expenses and Limitations Thereon
.
(a)
Organization and Offering Expenses
.
(i) The Managing Owner or an Affiliate of the Managing Owner shall be responsible for the payment of all Organization and Offering
Expenses incurred in connection with the creation of the Master Fund and sale of Shares; provided, however, that the amount of such Organization and Offering Expenses paid by the Managing Owner shall be subject to reimbursement by the Master Fund to
the Managing Owner, without interest, in up to 36 monthly payments during each of the first 36 months of the Trust’s Operations. In the event that the amount of the Organization and Offering Expenses incurred in connection with the creation of
the Master Fund and paid by the Managing Owner is not fully reimbursed by the end of the 36th month of the Trust’s Operations, the Managing Owner shall not be entitled to receive, and the Master Fund shall not be required to pay, any
unreimbursed portion of such expenses outstanding as of such date. In the event the Master Fund terminates prior to the completion of any reimbursement contemplated by this Section 4.8(a)(i), the Managing Owner shall not be entitled to receive,
and the Master Fund shall not be required to pay, any unreimbursed portion of such expenses outstanding as of the date of such termination.
(ii) The Managing Owner or an Affiliate of the Managing Owner also shall be responsible for the payment of all Organization and Offering Expenses incurred
21
after the commencement of the Trust’s operations; provided, however, that the amount of such
Organization and Offering Expenses paid by the Managing Owner shall be subject to reimbursement by the Master Fund to the Managing Owner, without interest, in up to 36 monthly payments during each of the first 36 months following the month in which
such expenses were paid by the Managing Owner. In the event that the amount of the Organization and Offering Expenses incurred after the commencement of the Trust’s operations and paid by the Managing Owner is not fully reimbursed by the end of
the 36th month following the month in which such expenses were paid by the Managing Owner, the Managing Owner shall not be entitled to receive, and the Master Fund shall not be required to pay, any unreimbursed portion of such expenses outstanding
as of such date. In the event the Master Fund terminates prior to the completion of any reimbursement contemplated by this Section 4.8(a)(ii), the Managing Owner shall not be entitled to receive, and the Master Fund shall not be required to
pay, any unreimbursed portion of such expenses outstanding as of the date of such termination.
(iii) In no event shall the
Managing Owner be entitled to reimbursement under Section 4.8(a)(i) in an aggregate amount in excess of 2.50% of the aggregate amount of all subscriptions accepted prior to the end of the 36
th
month of the Trust’s Operations. In no event shall the aggregate amount of the reimbursement payments from the Master Fund to the Managing Owner under
Sections 4.8(a)(i) and (ii) exceed 0.10% per annum of the Net Asset Value of the Master Fund and the beginning of such month.
(iv) Organization and Offering Expenses shall mean those expenses incurred in connection with the formation, qualification and registration of the Master Fund and the Shares and in offering, distributing and
processing the Shares under applicable U.S. federal law, and any other expenses actually incurred and, directly or indirectly, related to the organization of the Master Fund or the offering of the Shares, including, but not limited to, expenses such
as: (i) initial and ongoing registration fees, filing fees, escrow fees and taxes, (ii) costs of preparing, printing (including typesetting), amending, supplementing, mailing and distributing the Registration Statement, the Exhibits
thereto and the Prospectus prior to the commencement of the Trust’s operations, (iii) 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, (iv) travel, telegraph, telephone and other expenses in connection with the offering and issuance of the Shares, (v) accounting, auditing and legal fees (including disbursements related thereto)
incurred in connection therewith, and (vi) any extraordinary expenses (including, but not limited to, legal claims and liabilities and litigation costs and any permitted indemnification associated therewith) related thereto.
(b)
Routine Operational, Administrative and Other Ordinary and Extraordinary Expenses
. All ongoing charges, costs and expenses of the Master
Fund’s operation, including, but not limited to, the routine expenses associated with (i) 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; (ii) preparation of monthly, quarterly, annual and other reports required by applicable U.S. federal and state regulatory authorities; (iii) Master Fund meetings and preparing,
printing and mailing
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of proxy statements and reports to Shareholders; (iv) the payment of any distributions related to redemption of
Baskets; (v) routine services of the Trustee, legal counsel and independent accountants; (vi) routine accounting and bookkeeping services, whether performed by an outside service provider or by Affiliates of the Managing Owner;
(vii) postage and insurance; (viii) client relations and services; (ix) computer equipment and system maintenance; (x) the Management Fee; (xi) required payments to any other service providers of the Master Fund pursuant to
any applicable contract; and (xii) extraordinary expenses (including, but not limited to, legal claims and liabilities and litigation costs and any indemnification related thereto) shall be billed to and/or paid by the Master Fund.
(c) The Managing Owner or any Affiliate of the Managing Owner may only be reimbursed for the actual cost to the Managing Owner or such Affiliate of
any expenses which it advances on behalf of the Master Fund for which payment the Master Fund is responsible. In addition, payment to the Managing Owner or such Affiliate for indirect expenses incurred in performing services for the Master Fund in
its capacity as the managing owner of the Master Fund, such as salaries and fringe benefits of officers and directors, rent or depreciation, utilities and other administrative items generally falling within the category of the Managing Owner’s
“overhead,” is prohibited.
(d) The Master Fund hereby assumes all of the Limited Owner’s expenses and costs of each and
every type whatsoever, which shall be deemed to be and treated for all purposes of this Trust Agreement as expenses and costs of the Master Fund.
SECTION 4.9
Compensation to the Managing Owner
. The Master Fund shall pay to the Managing Owner, monthly in arrears, a management fee in an amount equal to 0.000625% (0.75% per annum) (the “Management Fee”) of the Master
Fund’s Net Asset Value as of the end of each month. The Managing Owner shall, in its capacity as a Shareholder, be entitled to receive allocations and distributions pursuant to the provisions of this Trust Agreement.
SECTION 4.10
Other Business of Shareholders
. Except as otherwise specifically provided herein, any of the Shareholders and any shareholder,
officer, director, employee or other person holding a legal or beneficial interest in an entity which is a Shareholder, may engage in or possess an interest in other business ventures of every nature and description, independently or with others,
and the pursuit of such ventures, even if competitive with the business of the Master Fund, shall not be deemed wrongful or improper.
SECTION 4.11
Voluntary Withdrawal of the Managing Owner
. The Managing Owner may withdraw voluntarily as the Managing Owner of the Master Fund only upon one hundred and twenty (120) days’ prior written notice to the Limited
Owner and the Trustee. If the withdrawing Managing Owner is the last remaining Managing Owner, the Limited Owner may appoint, effective as of a date on or prior to the withdrawal, a successor Managing Owner who shall carry on the business of the
Master Fund. In the event of its removal or withdrawal, the Managing Owner shall be entitled to a redemption of its Share at the Net Asset Value thereof on the next Redemption Date following the date of removal or withdrawal. If the Managing Owner
withdraws and a successor Managing Owner is named, the withdrawing Managing Owner shall pay all expenses as a result of its withdrawal.
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SECTION 4.12
Authorization of Registration Statements
. The Limited Owner hereby agrees that the
Master Fund, the Managing Owner and the Trustee are authorized to execute, deliver and perform the agreements, acts, transactions and matters contemplated hereby or described in or contemplated by the Registration Statements on behalf of the Master
Fund without any further act, approval or vote of the Limited Owner, notwithstanding any other provision of this Trust Agreement, the Delaware Trust Statute or any applicable law, rule or regulation.
SECTION 4.13
Litigation
. The Managing Owner is hereby authorized to prosecute, defend, settle or compromise actions or claims at law or in equity
as may be necessary or proper to enforce or protect the Master Fund’s interests. The Managing Owner shall satisfy any judgment, decree or decision of any court, board or authority having jurisdiction or any settlement of any suit or claim prior
to judgment or final decision thereon, first, out of any insurance proceeds available therefor, next, out of the Master Fund’s assets and, thereafter, out of the assets (to the extent that it is permitted to do so under the various other
provisions of this Trust Agreement) of the Managing Owner.
ARTICLE V
TRANSFERS OF SHARES
SECTION 5.1
Transfer of Managing Owner’s General
Shares
.
(a) Upon an Event of Withdrawal (as defined in Section 13.1), the Managing Owner’s General Shares shall be purchased
by the Master Fund for a purchase price in cash equal to the Net Asset Value thereof. The Managing Owner will not cease to be a Managing Owner of the Master Fund merely upon the occurrence of its making an assignment for the benefit of creditors,
filing a voluntary petition in bankruptcy, filing a petition or answer seeking for itself any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any statute, law or regulation, filing an answer
or other pleading admitting or failing to contest material allegations of a petition filed against it in any proceeding of this nature or seeking, consenting to or acquiescing in the appointment of a Trustee, receiver or liquidator for itself or of
all or any substantial part of its properties.
(b) To the full extent permitted by law, and on sixty (60) days’ prior written
notice to the Limited Owner, of its right to vote thereon, if the transaction is other than with an Affiliated entity, nothing in this Trust Agreement shall be deemed to prevent the merger of the Managing Owner with another corporation or other
entity, the reorganization of the Managing Owner into or with any other corporation or other entity, the transfer of all the capital stock of the Managing Owner or the assumption of the Shares, rights, duties and liabilities of the Managing Owner
by, in the case of a merger, reorganization or consolidation, the surviving corporation or other entity by operation of law or the transfer of the Managing Owner’s Shares to an Affiliate of the Managing Owner. Without limiting the foregoing,
none of the transactions referenced in the preceding sentence shall be deemed to be a voluntary withdrawal for purposes of Section 4.11 or an Event of Withdrawal or assignment of Shares for purposes of Sections 5.2(a) or 5.2(c).
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(c) Upon assignment of all of its Shares, the Managing Owner shall not cease to be a Managing Owner of
the Master Fund, or to have the power to exercise any rights or powers as a Managing Owner, or to have liability for the obligations of the Master Fund under Section 1.7 hereof, until an additional Managing Owner, who shall carry on the
business of the Master Fund, has been admitted to the Master Fund.
SECTION 5.2
Transfer of Limited Shares
.
(a) The Managing Owner reserves the right to permit or deny, in its sole discretion, any written requests from the Limited Owner with respect to
transferring Limited Shares. Permitted assignees of the Limited Owner shall be admitted as a substitute Limited Owner pursuant to this Article V only upon the Managing Owner’s prior written consent.
(i) A substituted Limited Owner is a permitted assignee that has been admitted as a Limited Owner with all the rights and powers of a
Limited Owner hereunder. If all of the conditions provided in Section 5.2(b) below are satisfied, the Managing Owner shall admit permitted assignees into the Master Fund as a Limited Owner by making an entry on the books and records of the
Master Fund reflecting that such permitted assignees have been admitted as a Limited Owner, and such permitted assignees will be deemed a Limited Owner at such time as such admission is reflected on the books and records of the Master Fund.
(ii) A permitted assignee is a Person to whom a Limited Owner has assigned his Limited Shares with the consent of the
Managing Owner, as provided below in Section 5.2(d) but who has not become a substituted Limited Owner. A permitted assignee shall have no right to vote, to obtain any information on or account of the Master Fund’s transactions or to
inspect the Master Fund’s books, but shall only be entitled to receive the share of the profits, or the return of the Capital Contribution, to which his assignor would otherwise be entitled as set forth in Section 5.2(d) below to the
extent of the Limited Shares assigned. The Limited Owner agrees that any permitted assignee may become a substituted Limited Owner without the further act or consent of the Limited Owner, regardless of whether his permitted assignee becomes a
substituted Limited Owner.
(iii) A Limited Owner shall bear all extraordinary costs (including attorneys’ and
accountants’ fees), if any, related to any transfer, assignment, pledge or encumbrance of his Limited Shares.
(b) No permitted
assignee of the whole or any portion of a Limited Owner’s Limited Shares shall have the right to become a substituted Limited Owner in place of his assignor unless all of the following conditions are satisfied:
(i) The written consent of the Managing Owner to such substitution shall be obtained, the granting or denial of which shall be within the
sole and absolute discretion of the Managing Owner, subject to the provisions of Section 5.2(d)(i).
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(ii) A duly executed and acknowledged written instrument of assignment has been filed
with the Master Fund setting forth the intention of the assignor that the permitted assignee become a substituted Limited Owner in his place;
(iii) The assignor and permitted assignee execute and acknowledge and/or deliver such other instruments as the Managing Owner may deem necessary or desirable to effect such admission, including his execution and
delivery to the Managing Owner, as a counterpart to this Trust Agreement, of a Power of Attorney in the form set forth in the Subscription Agreement; and
(iv) Upon the request of the Managing Owner, an opinion of the Master Fund’s independent legal counsel is obtained to the effect that (A) the assignment will not jeopardize the Master Fund’s tax
classification as a partnership and (B) the assignment does not violate this Trust Agreement or the Delaware Trust Statute.
(c) Any
Person admitted as a Shareholder shall be subject to all of the provisions of this Trust Agreement as if an original signatory hereto.
(d)
(i) Subject to the provisions of Section 5.2(e) below and to the provisions of this Section generally, a Limited Owner, subject to the Managing Owner’s consent, may have the right to assign all or any of his Limited Shares to any
assignee by a written assignment (on a form acceptable to the Managing Owner) the terms of which are not in contravention of any of the provisions of this Trust Agreement, which assignment has been executed by the assignor and received by the Master
Fund and recorded on the books thereof. An assignee of a Limited Share (or any interest therein) will not be recognized as a permitted assignee without the consent of the Managing Owner, which consent the Managing Owner may withhold in its sole
discretion. The Managing Owner shall incur no liability to any investor or prospective investor for any action or inaction by it in connection with the foregoing, provided it acted in good faith.
(i) Except as specifically provided in this Trust Agreement, a permitted assignee of a Share shall be entitled to receive distributions
attributable to the Share acquired by reason of such assignment from and after the effective date of the assignment of such Share to him. The “effective date” of an assignment of a Limited Share shall be determined by the Managing Owner in
its sole discretion.
(ii) Anything herein to the contrary notwithstanding, the Master Fund and the Managing Owner shall be
entitled to treat the permitted assignor of such Share as the absolute owner thereof in all respects, and shall incur no liability for distributions made in good faith to him, until such time as the written assignment has been received by, and
recorded on the books of, the Master Fund.
(iii) No assignment or transfer of a Share may be made which would result in the
Limited Owner and permitted assignees of the Limited Owner owning, directly or indirectly, individually or in the aggregate, 5% or more of the stock of the Managing Owner or any related person as defined in Sections 267(b) and 707(b)(1) of the Code.
If any such assignment or transfer would otherwise be made by bequest,
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inheritance of operation of law, the Share transferred shall be deemed sold by the transferor to the
Master Fund immediately prior to such transfer in the same manner as provided in Section 5.2(e)(ii).
(e) The Managing Owner, in its
sole discretion, may cause the Master Fund to make, refrain from making, or once having made, to revoke, the election referred to in section 754 of the Code, and any similar election provided by state or local law, or any similar provision enacted
in lieu thereof.
(f) The Managing Owner, in its sole discretion, may cause the Master Fund to make, refrain from making, or once having
made, to revoke the election by a qualified fund under Code section 988(c)(1)(E)(iii)(V), and any similar election provided by state or local law, or any similar provision enacted in lieu thereof.
(g) The Limited Owner hereby agrees to indemnify and hold harmless the Master Fund and each Shareholder against any and all losses, damages, liabilities
or expense (including, without limitation, tax liabilities or loss of tax benefits) arising, directly or indirectly, as a result of any transfer or purported transfer by the Limited Owner in violation of any provision contained in this
Section 5.2.
(h) A transferee of a Master Fund interest shall succeed to a pro rata portion of the Capital Account of the transferor
relating to the Master Fund interest so transferred provided, however, that if the transfer is found to cause a termination of the partnership under section 708(b)(1)(B) of the Code, the Master Fund’s properties shall be deemed to have been
distributed in liquidation of the Master Fund to the Shareholders (including any transferee) pursuant to Article VIII (after adjusting the balance of the Capital Accounts of Shareholders as provided in Section 6.1) and recontributed by such
Shareholders in reconstitution of the Master Fund. Any such deemed distribution shall be treated as an actual distribution for purposes of this Agreement.
ARTICLE VI
DISTRIBUTIONS AND ALLOCATIONS
SECTION 6.1
Capital Accounts
. The Master Fund shall maintain for each Shareholder (which includes beneficial owners of Master Fund interests where
information regarding the identity of such owner has been furnished to the Master Fund in accordance with section 6031(c) or the Code or any other method acceptable to the Managing Owner in its sole discretion) owning a Master Fund interest a
separate Capital Account with respect to such Master Fund interest in accordance with the rules of Treasury Regulation section 1.704-1(b)(2)(iv). The initial balance of each Shareholder’s book capital account shall be the amount of his initial
Capital Contribution. Such Capital Account shall be (i) increased by the amount of all Capital Contributions made with respect to the Master Fund interest and all items of Master Fund income and gain computed and allocated to the Master Fund
Shares in accordance with this Agreement and (ii) decreased by the amount of cash distributions made with respect to such Master Fund interest and all items of Master Fund deduction and loss computed and allocated in accordance with this
Agreement.
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(a) Consistent with the provisions of Treasury Regulation section 1.704-1(b)(2)(iv)(f), upon an issuance
of additional Shares for cash, the Capital Accounts of all Shareholders shall, immediately prior to such issuances, be adjusted (consistent with the provisions hereof) upwards or downwards to reflect any Unrealized Gain or Unrealized Loss
attributable to each Master Fund property, as if such Unrealized Gain or Loss had been recognized upon an actual sale of each such property, immediately prior to such issuance, and had been allocated to the Shareholders at such time pursuant to
Section 6.3.
(b) In accordance with Treasury Regulation section 1.704-1(b)(2)(iv)(f), immediately prior to the distribution of cash
in redemption of all or a portion of a Shareholder’s Shares, the capital accounts of all Shareholders shall, immediately prior to any such distribution, be adjusted (consistent with the provisions hereof) upward or downward to reflect any
Unrealized Gain or Unrealized Loss attributable to each Master Fund property, as if such Unrealized Gain or Unrealized Loss had been recognized upon an actual sale of each property, immediately prior to such distribution, and had been allocated to
the Shareholders at such time pursuant to Section 6.3.
SECTION 6.2
Monthly Closing of Books.
Within 45 days after the end of
each calendar month or such shorter period as required for the final closing of the books for the taxable year, the Master Fund shall conduct an interim closing of the books as of the end of the last day of that calendar month. On the basis of the
closing of the books for each calendar month, the Master Fund shall determine the amount of Profit and Loss attributable to that calendar month. Profits and Losses shall be determined in accordance with the accounting methods followed by the Master
Fund for federal income tax purposes.
SECTION 6.3
Monthly Allocations
. All allocations to Shareholders of items included within the
Master Fund’s Profits and Losses attributable to each calendar month shall be allocated solely among the Shareholders recognized as shareholders as of the close of the last trading day of the preceding month, as follows:
(a) For purposes of maintaining the Capital Accounts and in determining the rights of the Shareholders among themselves, except as otherwise provided in
this Article VI, each item of income, gain, loss and deduction shall be allocated among Shareholders in accordance with their respective Percentage Interests.
(b) Any item of loss or deduction otherwise allocated to the Managing Owner pursuant to Section 6.3(a) which is in excess of such Managing Owner’s positive Adjusted Capital Account balance (following
adjustment to reflect the allocation of all other items for such period) shall instead be allocated to the other Shareholders in accordance with their respective Percentage Interests to the extent such item of loss or deduction exceeds such Managing
Owner’s Adjusted Capital Account balance; provided that the allocation of any such item to such other Shareholders shall only be made hereunder to the extent the allocation would not result in or increase a negative balance in the Adjusted
Capital Account of such other Shareholder. If such an allocation occurs, items of income or gain that would otherwise be allocated to the Managing Owner equal to the amount of such allocated loss or deduction will be allocated to the other
Shareholders in accordance with their Percentage Interests as quickly as possible.
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(c) If any Shareholder unexpectedly receives any adjustments, allocations or distributions described in
Treasury Regulation sections 1.704-1(b)(ii)(d)(4), (5) or (6), items of Master Fund income and gain shall be specially allocated to such Shareholder in an amount and manner sufficient to eliminate a deficit in its Adjusted Capital Account
created by such adjustments, allocations or distributions as quickly as possible. This section 6.3(c) is intended to constitute a “qualified income offset” within the meaning of Treasury Regulation section 1.704-1(b)(2)(ii)(d).
(d) Notwithstanding any other provision of this Agreement, upon or prior to the issuance of additional Shares, the Managing Owner shall have the sole
and complete discretion, without the approval of any other Shareholder, to amend any provision of this Article VI in any manner, as is necessary, appropriate or advisable to comply with any current or future provisions of the Code or the Treasury
Regulations or to implement the terms and conditions of any Shares.
SECTION 6.4
Code Section 754 Adjustments.
To the extent an
adjustment to the tax basis of any Master Fund asset pursuant to Section 743(b) or 743(c) of the Code is required, pursuant to Treasury Regulation section 1.704-1(b)(2)(iv)(m), to be taken into account in determining Capital Accounts, the
amount of such adjustment to the Capital Accounts shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases such basis) and such item of gain or loss shall be specially allocated to
the Shareholders in a manner consistent with the manner in which their Capital Accounts are required to be adjusted pursuant to such regulation. For purposes of computing the adjustments under section 743(b) of the Code, the Master Fund is
authorized (but not required) to adopt a convention whereby the price paid by a transferee of Shares will be deemed to be the lowest quoted closing price of the Shares on the American Stock Exchange during the calendar month in which such transfer
is deemed to occur pursuant to Section 5.2 without regard to the actual price paid by the transferee.
SECTION 6.5
Allocation of
Profit and Loss for U.S. Federal Income Tax Purposes
.
(a) Except as otherwise provided, each item of income, gain, loss, deduction and
credit of the Master Fund shall be allocated among the Shareholders in accordance with their respective Percentage Interests.
(b) In an
attempt to eliminate Book-Tax Disparities attributable to Adjusted Property, items of income, gain, and loss will be allocated for federal income tax purposes among the Shareholders as follows:
(i) Items attributable to an Adjusted Property will be allocated among the Shareholders in a manner consistent with the principles of
section 704(c) of the Code to take into account the Unrealized Gain or Loss attributable to the property and the allocations thereof pursuant to Section 6.3(a) and (b).
(ii) Any items of income, gain, loss or deduction otherwise allocable under this Section 6.5 shall be subject to allocation by the
Managing Owner in a manner designed to eliminate, to the maximum extent possible, Book-Tax Disparities in an Adjusted Property otherwise resulting from the application of the ceiling limitation under section 704(c) principles to the allocations
provided under this Section.
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(iii) Subject to this Section 6.5(b), any items of income, gain, loss or deduction
otherwise allocable to the Managing Owner pursuant to Section 6.3(a) that constitutes the tax corollary of an item of “book” income, gain, loss or deduction that has been allocated to the other Shareholders pursuant to
Section 6.3(b) shall be allocated to the other Shareholders in the same manner and to the same extent provided in this Section 6.5(b).
(iv) If any Shareholder unexpectedly receives any adjustments, allocations or distributions described in Treasury Regulation section 1.704-1(b)(2)(ii)(d), items of income and gain shall be specially allocated to such
Shareholder in an amount and manner consistent with the allocations of income and gain pursuant to Section 6.3(c).
(c) The tax
allocations prescribed by this Section 6.5 shall be made to each holder of a Share whether or not the holder is a substituted Limited Owner. For purposes of this Section 6.5, tax allocations shall be made to the Managing Owner’s
Shares on a Share-equivalent basis.
(d) The allocation of income and loss (and items thereof) for U.S. federal income tax purposes set
forth in this Section 6.4 is intended to allocate taxable income and loss among Shareholders generally in the ratio and to the extent that net profit and net loss shall be allocated to such Shareholders under Section 6.3 so as to
eliminate, to the extent possible, any disparity between a Shareholder’s book capital account and his tax capital account, consistent with the principles set forth in sections 704(b) and (c)(2) of the Code.
(e) Notwithstanding this Section 6.5, if after taking into account any distributions to be made with respect to such Share for the relevant period
pursuant to Section 6.7 herein, any allocation would produce a deficit in the book capital account of a Share, the portion of such allocation that would create such a deficit shall instead be allocated pro rata to the book capital accounts of
all the remaining Shareholders (subject to the same limitation).
SECTION 6.6
Effect of Section 754 Election.
All items of
income, gain, loss, deduction and credit recognized by the Master Fund for federal income tax purposes and allocated to Shareholders in accordance with the provisions of this Agreement shall be determined without regard to any election under section
754 of the Code which may be made by the Master Fund; provided, however, that such allocations, once made, shall be adjusted as necessary or appropriate to take into account those adjustments permitted or required by sections 734 or 743 of the Code.
SECTION 6.7
Allocation of Distributions
. Initially, distributions shall be made by the Managing Owner, and the Managing Owner shall
have sole discretion in determining the amount and frequency of distributions, other than redemptions, with respect to the Shares; provided, however, that no distribution shall be made that violates the Delaware Trust Statute. The aggregate
distributions made in a Fiscal Year (other than distributions on termination, which shall be allocated in the manner described in Article XIII) shall be allocated among the holders
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of record of Shares in the ratio in which the number of Shares held of record by each of them bears to the number of
Shares held of record by all of the Shareholders as of the record date of such distribution; provided, further, however, that any distribution made in respect of a Share shall not exceed the book capital account for such Share.
SECTION 6.8
Admissions of Shareholders; Transfers
. For purposes of this Article VI, items of the Master Fund’s income, gain, loss, deduction
and credit attributable to a transferred Share shall, for federal income tax purposes, be determined on an annual basis and prorated on a monthly basis (or other basis, as required or permitted by section 706 of the Code) and shall be allocated to
the Shareholders who own the Shares as of the close of the American Stock Exchange on the last day of the month in which the transfer is recognized by the Master Fund; provided that, gain or loss on the sale or other disposition of all or a
substantial portion of the assets of the Master Fund shall be allocated to the Shareholders who own Shares as of the close of the American Stock Exchange on the last day of the month in which such gain or loss is recognized for federal income tax
purposes. The Managing Owner may revise, alter or otherwise modify such methods of determination and allocation as it determine necessary, to the extent permitted by section 706 of the Code and the regulations or rulings promulgated thereunder.
SECTION 6.9
Liability for State and Local and Other Taxes
. In the event that the Master Fund shall be separately subject to
taxation by any state or local or by any foreign taxing authority, the Master Fund shall be obligated to pay such taxes to such jurisdiction. In the event that the Master Fund shall be required to make payments to any U.S. federal, state or local or
any foreign taxing authority in respect of any Shareholder’s allocable share of income, the amount of such taxes shall be considered a loan by the Master Fund to such Shareholder, and such Shareholder shall be liable for, and shall pay to the
Master Fund, any taxes so required to be withheld and paid over by the Master Fund within ten (10) days after the Managing Owner’s request therefor. Such Shareholder shall also be liable for (and the Managing Owner shall be entitled to
redeem additional Shares of the foreign Shareholder as necessary to satisfy) interest on the amount of taxes paid over by the Master Fund to the IRS or other taxing authority, from the date of the Managing Owner’s request for payment to the
date of payment or the redemption, as the case may be, at the rate of two percent (2%) over the prime rate charged from time to time by Citibank, N.A. The amount, if any, payable by the Master Fund to the Shareholder in respect of its Shares so
redeemed, or in respect of any other actual distribution by the Master Fund to such Shareholder, shall be reduced by any obligations owed to the Master Fund by the Shareholder, including, without limitation, the amount of any taxes required to be
paid over by the Master Fund to the IRS or other taxing authority and interest thereon as aforesaid. Amounts, if any, deducted by the Master Fund from any actual distribution or redemption payment to such Shareholder shall be treated as an actual
distribution to such Shareholder for all purposes of this Trust Agreement.
SECTION 6.10
Consent to Methods
. The methods set forth
in this Article VI by which Distributions are made and items of Profit and Loss are allocated are hereby expressly consented to by each Shareholder as an express condition to becoming a Shareholder.
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ARTICLE VII
REDEMPTIONS
SECTION 7.1
Redemption of Redemption Baskets
. The following procedures, as
supplemented by the more detailed procedures agreed from time-to-time between the Managing Owner and the Limited Owner, will govern the Trust with respect to the redemption of Redemption Baskets.
(a) On any Business Day, a Shareholder may redeem one or more Redemption Baskets by delivering a request for redemption to the Managing Owner (such
request a “Redemption Order”) in accordance with such procedures as the Managing Owner shall from time-to-time determine.
(b) To
be effective, a Redemption Order must be submitted on a Business Day by the Order Cut-Off Time in form satisfactory to the Managing Owner (the Business Day on which the Redemption Order is so submitted, the “Redemption Order Date”). The
Managing Owner shall reject any Redemption Order the fulfillment of which its counsel advises may be illegal under applicable laws and regulations, and the Managing Owner shall have no liability to any person for rejecting a Redemption Order in such
circumstances.
(c) Subject to deduction of any tax or other governmental charges due thereon, if any, the redemption distribution
(“Redemption Distribution”) shall consist of in an amount equal to the product obtained by multiplying (i) the number of Redemption Baskets set forth in the relevant Redemption Order by (ii) the Net Asset Value Per Basket as of
the closing time of the Exchange or the last to close of the exchanges on which any of the Index Currencies is traded, whichever is later, on the Redemption Order Date.
(d) By noon New York time on the Business Day immediately following the Redemption Order Date (the “Redemption Settlement Time”), if the Managing Owner’s account at the Depository has by noon, New York
time, on such day been credited with the Redemption Baskets being tendered for redemption and the Managing Owner has by such time received the Transaction Fee, the Managing Owner shall deliver the Redemption Distribution by means of such procedures
as the Managing Owner shall determine from time-to-time. If by such Redemption Settlement Time, the Managing Owner has not received from a redeeming Shareholder all Redemption Baskets comprising the Redemption Order, the Managing Owner will
(i) settle the Redemption Order to the extent of whole Redemption Baskets received from the Shareholder and (ii) keep the Shareholder’s Redemption Order open until noon, New York time, on the first Business Day following the
Redemption Settlement Date as to the balance of the Redemption Order (such balance, the “Suspended Redemption Order”). If the Redemption Basket(s) comprising the Suspended Redemption Order are credited to Managing Owner’s account by
noon, New York time, on such following Business Day, the Redemption Distribution with respect to the Suspended Redemption Order shall be paid in the manner provided in the second preceding sentence. If by such Redemption Settlement Time, the
Managing Owner has not received from the redeeming Shareholder all Redemption Baskets comprising the Suspended Redemption Order, the Managing Owner will settle the Suspended Redemption Order to the extent of whole Redemption Baskets then received
and any balance of the Suspended
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Redemption will be cancelled. Notwithstanding the foregoing, when and under such conditions as the Managing Owner may
from time to time determine, the Managing Owner shall be authorized to deliver the Redemption Distribution notwithstanding that a Redemption Basket has not been credited to the Trust’s account if the Shareholder has collateralized its
obligation to deliver the Redemption Basket on such terms as the Managing Owner may, in its sole discretion, from time to time agree.
(e)
The Managing Owner may, in its discretion, suspend the right of redemption, or postpone the Redemption Settlement Date, (i) for any period during which the Exchange is closed other than customary weekend and holiday closings, or trading is
suspended or restricted; (ii) for any period during which an emergency exists as a result of which delivery, disposal or evaluation of the Master Fund’s assets is not reasonably practicable, or (iii) for such other period as the
Managing Owner determines to be necessary for the protection of the Limited Owner. 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.
(f) Redemption Baskets effectively redeemed pursuant to the provisions of this Section 7.1 shall be cancelled.
SECTION 7.2
Other Redemption Procedures
. The Managing Owner from time to time may, but shall have no obligation to, establish procedures with
respect to redemption of Limited Shares in lot sizes smaller than the Redemption Basket and permitting the Redemption Distribution to be in a form, and delivered in a manner, other than that specified in Section 7.1.
ARTICLE VIII
THE LIMITED OWNER
SECTION 8.1
No Management or Control; Limited Liability
. The Limited Owner shall not participate in the management or control
of the Master Fund’s business nor shall it transact any business for the Master Fund or have the power to sign for or bind the Master Fund, said power being vested solely and exclusively in the Managing Owner. Except as provided in
Section 8.3 hereof, the Limited Owner shall not be bound by, or be personally liable for, the expenses, liabilities or obligations of the Master Fund in excess of his Capital Contribution plus its share of any Trust Estate in which the Limited
Owner owns a share and profits remaining, if any. Except as provided in Section 8.3 hereof, each Limited Share owned by the Limited Owner shall be fully paid and no assessment shall be made against the Limited Owner. No salary shall be paid to
the Limited Owner in its capacity as the Limited Owner, nor shall the Limited Owner have a drawing account or earn interest on his contribution.
SECTION 8.2
Rights and Duties
. The Limited Owner shall have the following rights, powers, privileges, duties and liabilities:
(a) The Limited Owner shall have the right to obtain from the Managing Owner information of all things affecting the Master Fund, provided that such is for a purpose reasonably related to the Limited Owner’s interest as a beneficial
owner of the Master Fund, including, without limitation, such reports as are set forth in Article IX. The foregoing rights are in addition to, and do not limit, other remedies available to the Limited Owner under U.S. federal or state law.
33
(b) The Limited Owner shall receive the share of the distributions provided for in this Trust Agreement
in the manner and at the times provided for in this Trust Agreement.
(c) Except for the Limited Owner’s redemption rights set forth
in Article VII hereof, the Limited Owner shall have the right to demand the return of its capital account only upon the dissolution and winding up of the Master Fund and only to the extent of funds available therefor. In no event shall the Limited
Owner be entitled to demand or receive property other than cash. The Limited Owner shall not have any right to bring an action for partition against the Master Fund.
(d) The Limited Owner may (i) continue the Master Fund as provided in Section 13.1(b), (ii) remove the Managing Owner on reasonable prior written notice to the Managing Owner, (iii) elect and
appoint one or more additional Managing Owners, or consent to such matters as are set forth in Section 5.2(b), (iv) approve a material change in investment policies, as set forth in the Prospectus, (v) approve the termination of any
agreement entered into between the Master Fund and the Managing Owner or any Affiliate of the Managing Owner for any reason, without penalty, (vi) approve amendments to this Trust Agreement as set forth in Section 11.1 hereof, and
(vii) terminate the Trust as provided in Section 13.1(e), and in the case of (iii), (iv) and (v) in each instance on 60 days’ prior written notice.
Except as set forth above, the Limited Owner shall have no voting or other rights with respect to the Master Fund.
SECTION 8.3
Limitation on Liability
.
(a) Except as provided in Sections 4.7(f), 5.2(h) and 6.6 hereof, and as otherwise provided under Delaware law, the Limited Owner shall be entitled to the same limitation of personal liability extended to stockholders of private
corporations for profit organized under the general corporation law of Delaware and no Limited Owner shall be liable for claims against, or debts of the Master Fund in excess of his Capital Contribution and his share of the applicable Master Fund
Estate and undistributed profits, except in the event that the liability is founded upon misstatements or omissions contained in such Limited Owner’s Feeder Fund Participant Agreement delivered in connection with his purchase of Shares. In
addition, and subject to the exceptions set forth in the immediately preceding sentence, the Master Fund shall not make a claim against a Limited Owner with respect to amounts distributed to such Limited Owner or amounts received by such Limited
Owner upon redemption unless, under Delaware law, such Limited Owner is liable to repay such amount.
(b) The Master Fund shall indemnify
to the full extent permitted by law and the other provisions of this Trust Agreement, and to the extent of the applicable Master Fund Estate, each Limited Owner (excluding the Managing Owner to the extent of its ownership of any Limited Shares)
against any claims of liability asserted against such Limited Owner solely because he is a beneficial owner of Shares as a Limited Owner (other than for taxes for which such Limited Owner is liable under Section 6.6 hereof).
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(c) Every written note, bond, contract, instrument, certificate or undertaking made or issued by the
Managing Owner shall give notice to the effect that the same was executed or made by or on behalf of the Master Fund and that the obligations of such instrument are not binding upon the Limited Owner individually but are binding only upon the assets
and property of the Master Fund, and no resort shall be had to the Limited Owner’s personal property for satisfaction of any obligation or claim thereunder, and appropriate references may be made to this Trust Agreement and may contain any
further recital which the Managing Owner deems appropriate, but the omission thereof shall not operate to bind the Limited Owner individually or otherwise invalidate any such note, bond, contract, instrument, certificate or undertaking. Nothing
contained in this Section 8.3 shall diminish the limitation on the liability of the Master Fund to the extent set forth in Section 3.3 and 3.4 hereof.
ARTICLE IX
BOOKS OF ACCOUNT AND REPORTS
SECTION 9.1
Books of Account
. Proper books of account for the Master Fund shall be kept and shall be audited annually by an independent certified
public accounting firm selected by the Managing Owner in its sole discretion, and there shall be entered therein all transactions, matters and things relating to the Master Fund’s business as are required by the CE Act and regulations
promulgated thereunder, and all other applicable rules and regulations, and as are usually entered into books of account kept by Persons engaged in a business of like character. The books of account shall be kept at the principal office of the
Master Fund and each Limited Owner (or any duly constituted designee of a Limited Owner) shall have, at all times during normal business hours, free access to and the right to inspect and copy the same for any purpose reasonably related to the
Limited Owner’s interest as a beneficial owner of the Master Fund, including such access as is required under CFTC rules and regulations. Such books of account shall be kept, and the Master Fund shall report its Profits and Losses on, the
accrual method of accounting for financial accounting purposes on a Fiscal Year basis as described in Article X.
SECTION 9.2
Annual
Reports and Monthly Statements
. Each Limited Owner shall be furnished as of the end of each month and as of the end of each Fiscal Year with (a) such reports (in such detail) as are required to be given to the Limited Owner by the CFTC and
the NFA, (b) any other reports (in such detail) required to be given to the Limited Owner by any other governmental authority which has jurisdiction over the activities of the Master Fund and (c) any other reports or information which the
Managing Owner, in its discretion, determines to be necessary or appropriate.
SECTION 9.3
Tax Information
. Appropriate tax
information (adequate to enable the Limited Owner to complete and file his U.S. federal tax return) shall be delivered to the Limited Owner as soon as practicable following the end of each Fiscal Year but generally no later than March 15.
SECTION 9.4
Calculation of Net Asset Value
. Net Asset Value shall be calculated at such times as the Managing Owner shall determine
from time-to-time.
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SECTION 9.5
Maintenance of Records
. The Managing Owner shall maintain: (a) for a period of at
least six Fiscal Years all books of account required by Section 9.1 hereof; a list of the names and last known address of, and number of Shares owned by, all Shareholders, a copy of the Certificate of Trust and all certificates of amendment
thereto, together with executed copies of any powers of attorney pursuant to which any certificate has been executed; copies of the Master Fund’s U.S. federal, state and local income tax returns and reports, if any; and (b) for a period of
at least six Fiscal Years copies of any effective written Trust Agreements, Feeder Fund Participant Agreements and any financial statements of the Master Fund. The Managing Owner may keep and maintain the books and records of the Master Fund in
paper, magnetic, electronic or other format at the Managing Owner may determine in its sole discretion, provided the Managing Owner uses reasonable care to prevent the loss or destruction of such records.
SECTION 9.6
Certificate of Trust
. Except as otherwise provided in the Delaware Trust Statute or this Trust Agreement, the Managing Owner shall not
be required to mail a copy of any Certificate of Trust filed with the Secretary of State of the State of Delaware to the Limited Owner; however, such certificates shall be maintained at the principal office of the Master Fund and shall be available
for inspection and copying by the Limited Owner in accordance with this Trust Agreement. The Certificate of Trust shall not be amended in any respect if the effect of such amendment is to diminish the limitation on interseries liability under
Section 3804 of the Delaware Trust Statute.
SECTION 9.7
Registration of Shares
. The Managing Owner shall keep, at the Master
Fund’s principal place of business, a Share Register in which, subject to such reasonable regulations as it may provide, it shall provide for the registration of Shares and of transfers of Shares. Subject to the provisions of Article V, the
Managing Owner may treat the Person in whose name any Share shall be registered in the Share Register as the Shareholder of such Share for the purpose of receiving distributions pursuant to Article VI and for all other purposes whatsoever.
ARTICLE X
FISCAL
YEAR
SECTION 10.1
Fiscal Year
. The Master Fund initially will adopt the calendar year as its taxable year (“Fiscal
Year”). The first Fiscal Year of the Master Fund shall commence on the date of filing of the Certificate of Trust. If, after commencement of operations, applicable tax rules require the Master Fund to adopt a taxable year other than the
calendar year, Fiscal Year shall mean such other taxable year as required by Code section 706 or an alternative taxable year chosen by the Managing Owner which has been approved by the Internal Revenue Service. The Fiscal Year in which the Master
Fund shall terminate shall end on the date of termination.
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ARTICLE XI
AMENDMENT OF TRUST AGREEMENT; MEETINGS
SECTION 11.1
Amendments to the Trust Agreement
.
(a) Amendments to this Trust Agreement may be proposed by the Managing Owner or by the Limited Owner holding Shares equal to at least 10%
of the Net Asset Value of the Master Fund. Following such proposal, the Managing Owner shall submit to the Limited Owner a verbatim statement of any proposed amendment, and statements concerning the legality of such amendment and the effect of such
amendment on the limited liability of the Limited Owner. The Managing Owner shall include in any such submission its recommendations as to the proposed amendment. The amendment shall become effective only upon the written approval or affirmative
vote of the Limited Owner, and upon receipt of an opinion of independent legal counsel as set forth in Section 8.2 hereof and to the effect that the amendment is legal, valid and binding and will not adversely affect the limitations on
liability of the Limited Owner as described in Section 8.3 of this Trust Agreement. Notwithstanding the foregoing, where any action taken or authorized pursuant to any provision of this Trust Agreement requires the approval or affirmative vote
of the Limited Owner, and/or the approval or affirmative vote of the Managing Owners, an amendment to such provision(s) shall be effective only upon the written approval or affirmative vote of the Shareholders required to take or authorize such
action, or as may otherwise be required by applicable law, and upon receipt of an opinion of independent legal counsel as set forth above in this Section 11.1. In addition, except as otherwise provided below, reduction of the capital account of
any assignee or modification of the percentage of Profits, Losses or distributions to which an assignee is entitled hereunder shall not be affected by amendment to this Trust Agreement without such assignee’s approval.
(b) Notwithstanding any provision to the contrary contained in Section 11.1(a) hereof, the Managing Owner may, without the approval of the Limited
Owner, make such amendments to this Trust Agreement which (i) are necessary to add to the representations, duties or obligations of the Managing Owner or surrender any right or power granted to the Managing Owner herein, for the benefit of the
Limited Owner, (ii) are necessary to cure any ambiguity, to correct or supplement any provision herein which may be inconsistent with any other provision herein or in the Prospectus, or to make any other provisions with respect to matters or
questions arising under this Trust Agreement or the Prospectus which will not be inconsistent with the provisions of the Trust Agreement or the Prospectus, or (iii) the Managing Owner deems advisable, provided, however, that no amendment shall
be adopted pursuant to this clause (iii) unless the adoption thereof (A) is not adverse to the interests of the Limited Owner; (B) is consistent with Section 4.1 hereof; (C) except as otherwise provided in
Section 11.1(c) below, does not affect the allocation of Profits and Losses among the Limited Owner or between the Limited Owner and the Managing Owner; and (D) does not adversely affect the limitations on liability of the Limited Owner,
as described in Article VIII hereof or the status of the Master Fund as a partnership for U.S. federal income tax purposes. (i) Amendments to this document which adversely affect the rights of Limited Owner, (ii) the appointment of a new
Managing Owner pursuant to Section 4.2(g) above, (iii) the dissolution of the Master Fund pursuant to Section 13.1(f) below and (iv) any material changes in the Master Fund’s basic investment policies or structure shall
occur only upon the written approval or affirmative vote of the Limited Owner holding Shares equal to at least a majority (over 50%) of the Net Asset Value of the Master Fund (excluding Shares held by the Managing Owner and its Affiliates) pursuant
to Section 11.1(a) above.
(c) Notwithstanding any provision to the contrary contained in Sections 11.1(a) and (b) hereof, the
Managing Owner may, without the approval of the Limited Owner,
37
amend the provisions of Article VI of this Trust Agreement relating to the allocations of Profits, Losses, Disposition
Gain, Disposition Loss and distributions among the Shareholders if the Master Fund is advised at any time by the Master Fund’s accountants or legal counsel that the allocations provided in Article VI of this Trust Agreement are unlikely to be
respected for U.S. federal income tax purposes, either because of the promulgation of new or revised Treasury Regulations under Section 704 of the Code or other developments in the law. The Managing Owner is empowered to amend such provisions
to the minimum extent necessary in accordance with the advice of the accountants and counsel to effect the allocations and distributions provided in this Trust Agreement. New allocations made by the Managing Owner in reliance upon the advice of the
accountants or counsel described above shall be deemed to be made pursuant to the obligation of the Managing Owner to the Master Fund and the Limited Owner, and no such new allocation shall give rise to any claim or cause of action by the Limited
Owner.
(d) Upon amendment of this Trust Agreement, the Certificate of Trust shall also be amended, if required by the Delaware Trust
Statute, to reflect such change.
(e) No amendment shall be made to this Trust Agreement without the consent of the Trustee if it
reasonably believes that such amendment adversely affects any of the rights, duties or liabilities of the Trustee; provided, however, that the Trustee may not withhold its consent for any action which the Limited Owner is permitted to take under
Section 8.2(d) above. At the expense of the Managing Owner, the Trustee shall execute and file any amendment to the Certificate of Trust if so directed by the Managing Owner or if such amendment is required in the opinion of the Trustee.
(f) The Trustee shall be under no obligation to execute any amendment to the Trust Agreement or to any agreement to which the Master Fund
is a party until it has received an instruction letter from the Managing Owner, in form and substance reasonably satisfactory to the Trustee (i) directing the Trustee to execute such amendment, (ii) representing and warranting to the
Trustee that such execution is authorized and permitted by the terms of the Trust Agreement and (if applicable) such other agreement to which the Master Fund is a party and does not conflict with or violate any other agreement to which the Master
Fund is a party and (iii) confirming that such execution and acts related thereto are covered by the indemnity provisions of the Trust Agreement in favor of the Trustee.
(g) No provision of this Trust Agreement may be amended, waived or otherwise modified orally but only by a written instrument adopted in accordance with
this Section.
SECTION 11.2
Meetings of the Master Fund
. Meetings of the Shareholders of the Master Fund may be called by the
Managing Owner and will be called by it upon the written request of the Limited Owner. Such call for a meeting shall be deemed to have been made upon the receipt by the Managing Owner of a written request from the requisite percentage of Limited
Owners. The Managing Owner shall deposit in the United States mails, within 15 days after receipt of said request, written notice to all Shareholders of the Master Fund of the meeting and the purpose of the meeting, which shall be held on a date,
not less than 30 nor more than 60 days after the date of mailing of said notice, at a reasonable time and place. Any notice of meeting shall be accompanied by a description of the action to be taken at the meeting and an opinion of
38
independent counsel as to the effect of such proposed action on the liability of Limited Owner for the debts of the
Master Fund. Shareholders may vote in person or by proxy at any such meeting.
SECTION 11.3
Action Without a Meeting
. Any action
required or permitted to be taken by Shareholders by vote may be taken without a meeting by written consent setting forth the actions so taken. Such written consents shall be treated for all purposes as votes at a meeting. If the vote or consent of
any Shareholder to any action of the Master Fund or any Shareholder, as contemplated by this Trust Agreement, is solicited by the Managing Owner, the solicitation shall be effected by notice to each Shareholder given in the manner provided in
Section 15.4. The vote or consent of each Shareholder so solicited shall be deemed conclusively to have been cast or granted as requested in the notice of solicitation, whether or not the notice of solicitation is actually received by that
Shareholder, unless the Shareholder expresses written objection to the vote or consent by notice given in the manner provided in Section 15.4 below and actually received by the Master Fund within 20 days after the notice of solicitation is
effected. The Managing Owner and all persons dealing with the Master Fund shall be entitled to act in reliance on any vote or consent which is deemed cast or granted pursuant to this Section and shall be fully indemnified by the Master Fund in so
doing. Any action taken or omitted in reliance on any such deemed vote or consent of one or more Shareholders shall not be void or voidable by reason of timely communication made by or on behalf of all or any of such Shareholders in any manner other
than as expressly provided in Section 15.4.
ARTICLE XII
TERM
SECTION 12.1
Term
. The term for which the Master Fund is to exist
shall commence on the date of the filing of the Certificate of Trust, and shall terminate pursuant to the provisions of Article XIII hereof or as otherwise provided by law.
ARTICLE XIII
TERMINATION
SECTION 13.1
Events Requiring Dissolution of the Master Fund
. The Master Fund shall dissolve at any time upon the happening of any of the
following events:
(a) 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 (each of the foregoing events
an “Event of Withdrawal”) unless at the time there is at least one remaining Managing Owner and that remaining Managing Owner carries on the business of the Master Fund or (ii) within 90 days of such Event of Withdrawal all the
remaining Shareholders agree in writing to continue the business of the Master Fund and to select, effective as of the date of such event, one or more successor Managing Owners. If the Master Fund is terminated as the result of an Event of
Withdrawal and a failure of all remaining Shareholders to continue the business of the Master
39
Fund and to appoint a successor Managing Owner as provided in clause (a)(ii) above, within 120 days of such Event of
Withdrawal, the Limited Owner may elect to continue the business of the Master Fund by forming a new statutory trust (the “Reconstituted Master Fund”) on the same terms and provisions as set forth in this Trust Agreement (whereupon the
parties hereto shall execute and deliver any documents or instruments as may be necessary to reform the Master Fund). Any such election must also provide for the election of a Managing Owner to the Reconstituted Master Fund. If such an election is
made, the Limited Owner of the Master Fund shall be bound thereby and continue as the Limited Owner of the Reconstituted Master Fund.
(b)
The occurrence of any event which would make unlawful the continued existence of the Master Fund.
(c) In the event of the suspension,
revocation or termination of the Managing Owner’s registration as a commodity pool operator or commodity trading advisor under the CE Act, or membership as a commodity pool operator or commodity trading advisor with the NFA unless at the time
there is at least one remaining Managing Owner whose registration or membership has not been suspended, revoked or terminated.
(d) The
Master Fund becomes insolvent or bankrupt.
(e) The Limited Owner determines to dissolve the Master Fund, notice of which is sent to the
Managing Owner not less than ninety (90) Business Days prior to the effective date of termination.
(f) The determination of the
Managing Owner that the aggregate net assets of the Master Fund in relation to the operating expenses of the Master Fund make it unreasonable or imprudent to continue the business of the Master Fund, or, in the exercise of its reasonable discretion,
the determination by the Managing Owner to dissolve the Master Fund because the aggregate Net Asset Value of the Master Fund as of the close of business on any Business Day declines below $10 million.
(g) The Master Fund is required to be registered as an investment company under the Investment Company Act of 1940.
(h) DTC is unable or unwilling to continue to perform its functions, and a comparable replacement is unavailable.
The death, legal disability, bankruptcy, insolvency, dissolution, or withdrawal of the Limited Owner shall not result in the termination of the Master Fund, and such
Limited Owner, his estate, custodian or personal representative shall have no right to withdraw or value such Limited Owner’s Shares except as provided in Section 7.1 hereof.
SECTION 13.2
Distributions on Dissolution
. Upon the dissolution of the Master Fund, the Managing Owner (or in the event there is no Managing
Owner, such person (the “Liquidating Trustee”) as the Limited Owner may propose and approve) shall take full charge of the Master Fund Estate. Any Liquidating Trustee so appointed shall have and may exercise, without further authorization
or approval of any of the parties hereto, all of the powers conferred upon the Managing Owner under the terms of this Trust Agreement, subject to all of the
40
applicable limitations, contractual and otherwise, upon the exercise of such powers, and provided that the Liquidating
Trustee shall not have general liability for the acts, omissions, obligations and expenses of the Master Fund. Thereafter, in accordance with Section 3808(e) of the Delaware Trust Statute the business and affairs of the Master Fund shall be
wound up and all assets shall be liquidated as promptly as is consistent with obtaining the fair value thereof, and the proceeds therefrom shall be applied and distributed in the following order of priority: to the expenses of liquidation and
termination and to creditors, including Shareholders who are creditors, to the extent otherwise permitted by law, in satisfaction of liabilities of the Master Fund (whether by payment or the making of reasonable provision for payment thereof) other
than liabilities for distributions to Shareholders, and (b) to the Managing Owner and the Limited Owner pro rata in accordance with his positive book capital account balance, less any amount owing by such Shareholder to the Master Fund, after
giving effect to all adjustments made pursuant to Article VI and all distributions theretofore made to the Shareholders pursuant to Article VI. After the distribution of all remaining assets of the Master Fund, the Managing Owner will contribute to
the Master Fund an amount equal to the lesser of (i) the deficit balance, if any, in its book capital account, and (ii) the total Capital Contributions of the Limited Owner. Any Capital Contributions made by the Managing Owner pursuant to
this Section shall be applied first to satisfy any amounts then owed by the Master Fund to its creditors, and the balance, if any, shall be distributed to those Shareholders whose book capital account balances (immediately following the distribution
of any liquidation proceeds) were positive, in proportion to their respective positive book capital account balances.
SECTION 13.3
Termination
;
Certificate of Cancellation
. Following the dissolution and distribution of the assets of the Master Fund, the Master Fund shall terminate and the Managing Owner or Liquidating Trustee, as the case may be, shall instruct
the Trustee to execute and cause such certificate of cancellation of the Certificate of Trust to be filed in accordance with the Delaware Trust Statute. Notwithstanding anything to the contrary contained in this Trust Agreement, the existence of the
Master Fund as a separate legal entity shall continue until the filing of such certificate of cancellation.
ARTICLE XIV
POWER OF ATTORNEY
SECTION 14.1
Power of Attorney Executed Concurrently
. Concurrently with the written acceptance and adoption of the provisions of this Trust Agreement, the Limited Owner shall execute and deliver to the Managing Owner a Power of Attorney as part of the
Feeder Fund Participant Agreement, or in such other form as may be prescribed by the Managing Owner. The Limited Owner, by its execution and delivery hereof, irrevocably constitutes and appoints the Managing Owner and its officers and directors,
with full power of substitution, as the true and lawful attorney-in-fact and agent for the Limited Owner with full power and authority to act in his name and on his behalf in the execution, acknowledgment, filing and publishing of Master Fund
documents, including, but not limited to, the following:
(a) Any certificates and other instruments, including but not limited to, any
applications for authority to do business and amendments thereto, which the Managing Owner deems appropriate to qualify or continue the Master Fund as a business Master Fund in the
41
jurisdictions in which the Master Fund may conduct business, so long as such qualifications and continuations are in
accordance with the terms of this Trust Agreement or any amendment hereto, or which may be required to be filed by the Master Fund or the Shareholders under the laws of any jurisdiction;
(b) Any instrument which may be required to be filed by the Master Fund under the laws of any state or by any governmental agency, or which the Managing
Owner deems advisable to file; and
(c) This Trust Agreement and any documents which may be required to effect an amendment to this Trust
Agreement approved under the terms of the Trust Agreement, and the continuation of the Master Fund, the admission of the signer of the Power of Attorney as a Limited Owner or of others as additional or substituted Limited Owner, or the termination
of the Master Fund, provided such continuation, admission or termination is in accordance with the terms of this Trust Agreement.
SECTION
14.2
Effect of Power of Attorney
. The Power of Attorney concurrently granted by the Limited Owner to the Managing Owner:
(a) Is a
special, irrevocable Power of Attorney coupled with an interest, and shall survive and not be affected by the death, disability, dissolution, liquidation, termination or incapacity of the Limited Owner;
(b) May be exercised by the Managing Owner for the Limited Owner by a facsimile signature of one of its officers or by a single signature of one of its
officers acting as attorney-in-fact for all of them; and
(c) Shall survive the delivery of an assignment by the Limited Owner of the whole
or any portion of his Limited Shares; except that where the assignee thereof has been approved by the Managing Owner for admission to the Master Fund as a substituted Limited Owner, the Power of Attorney of the assignor shall survive the delivery of
such assignment for the sole purpose of enabling the Managing Owner to execute, acknowledge and file any instrument necessary to effect such substitution.
The Limited Owner agrees to be bound by any representations made by the Managing Owner and by any successor thereto, determined to be acting in good faith pursuant to such Power of Attorney and not constituting negligence or misconduct.
SECTION 14.3
Limitation on Power of Attorney
. The Power of Attorney concurrently granted by the Limited Owner to the Managing Owner
shall not authorize the Managing Owner to act on behalf of the Limited Owner in any situation in which this Trust Agreement requires the approval of the Limited Owner unless such approval has been obtained as required by this Trust Agreement. In the
event of any conflict between this Trust Agreement and any instruments filed by the Managing Owner or any new Managing Owner pursuant to this Power of Attorney, this Trust Agreement shall control.
42
ARTICLE XV
MISCELLANEOUS
SECTION 15.1
Governing Law
. The validity and construction of this Trust
Agreement and all amendments hereto shall be governed by the laws of the State of Delaware, and the rights of all parties hereto and the effect of every provision hereof shall be subject to and construed according to the laws of the State of
Delaware without regard to the conflict of laws provisions thereof; provided, however, that causes of action for violations of U.S. federal or state securities laws shall not be governed by this Section, and provided, further, that the parties
hereto intend that the provisions hereof shall control over any contrary or limiting statutory or common law of the State of Delaware (other than the Delaware Trust Statute) and that, to the maximum extent permitted by applicable law, there shall
not be applicable to the Master Fund, the Trustee, the Managing Owner, the Shareholders or this Trust Agreement any provision of the laws (statutory or common) of the State of Delaware (other than the Delaware Trust Statute) pertaining to Master
Funds which relate to or regulate in a manner inconsistent with the terms hereof: (a) the filing with any court or governmental body or agency of Trustee accounts or schedules of Trustee fees and charges, (b) affirmative requirements to
post bonds for Trustees, officers, agents, or employees of a Master Fund, (c) the necessity for obtaining court or other governmental approval concerning the acquisition, holding or disposition of real or personal property, (d) fees or
other sums payable to Trustees, officers, agents or employees of a Master Fund, (e) the allocation of receipts and expenditures to income or principal, (f) restrictions or limitations on the permissible nature, amount or concentration of
Master Fund investments or requirements relating to the titling, storage or other manner of holding of Master Fund assets, or (g) the establishment of fiduciary or other standards or responsibilities or limitations on the acts or powers of
Trustees or managers that are inconsistent with the limitations on liability or authorities and powers of the Trustee or the Managing Owner set forth or referenced in this Trust Agreement. Section 3540 of Title 12 of the Delaware Code shall not
apply to the Master Fund. The Master Fund shall be of the type commonly called a “statutory trust,” and without limiting the provisions hereof, the Master Fund may exercise all powers that are ordinarily exercised by such a Master Fund
under Delaware law. The Master Fund specifically reserves the right to exercise any of the powers or privileges afforded to statutory trusts and the absence of a specific reference herein to any such power, privilege or action shall not imply that
the Master Fund may not exercise such power or privilege or take such actions.
SECTION 15.2
Provisions In Conflict With Law or
Regulations
.
(a) The provisions of this Trust Agreement are severable, and if the Managing Owner shall determine, with the advice of
counsel, that any one or more of such provisions (the “Conflicting Provisions”) are in conflict with the Code, the Delaware Trust Statute or other applicable U.S. federal or state laws, the Conflicting Provisions shall be deemed never to
have constituted a part of this Trust Agreement, even without any amendment of this Trust Agreement pursuant to this Trust Agreement; provided, however, that such determination by the Managing Owner shall not affect or impair any of the remaining
provisions of this Trust Agreement or render invalid or improper any action taken or omitted prior to such determination. No Managing Owner or Trustee shall be liable for making or failing to make such a determination.
43
(b) If any provision of this Trust Agreement shall be held invalid or unenforceable in any jurisdiction,
such holding shall not in any manner affect or render invalid or unenforceable such provision in any other jurisdiction or any other provision of this Trust Agreement in any jurisdiction.
SECTION 15.3
Construction
. In this Trust Agreement, unless the context otherwise requires, words used in the singular or in the plural include
both the plural and singular and words denoting any gender include all genders. The title and headings of different parts are inserted for convenience and shall not affect the meaning, construction or effect of this Trust Agreement.
SECTION 15.4
Notices
. All notices or communications under this Trust Agreement (other than requests for redemption of Shares, notices of
assignment, transfer, pledge or encumbrance of Shares, and reports and notices by the Managing Owner to the Limited Owner) shall be in writing and shall be effective upon personal delivery, or if sent by mail, postage prepaid, or if sent
electronically, by facsimile or by overnight courier; and addressed, in each such case, to the address set forth in the books and records of the Master Fund or such other address as may be specified in writing, of the party to whom such notice is to
be given, upon the deposit of such notice in the United States mail, upon transmission and electronic confirmation thereof or upon deposit with a representative of an overnight courier, as the case may be. Requests for redemption, notices of
assignment, transfer, pledge or encumbrance of Shares shall be effective upon timely receipt by the Managing Owner in writing.
SECTION
15.5
Counterparts
. This Trust Agreement may be executed in several counterparts, and all so executed shall constitute one agreement, binding on all of the parties hereto, notwithstanding that all the parties are not signatory to the original
or the same counterpart.
SECTION 15.6
Binding Nature of Trust Agreement
. The terms and provisions of this Trust Agreement shall be
binding upon and inure to the benefit of the heirs, custodians, executors, estates, administrators, personal representatives, successors and permitted assigns of the respective Shareholders. For purposes of determining the rights of any Shareholder
or assignee hereunder, the Master Fund and the Managing Owner may rely upon the Master Fund records as to who are Shareholders and permitted assignees, and all Shareholders and assignees agree that the Master Fund and the Managing Owner, in
determining such rights, shall rely on such records and that Limited Owner and assignees shall be bound by such determination.
SECTION
15.7
No Legal Title to Trust Estate
. Subject to the provisions of Section 1.8 in the case of the Managing Owner, the Shareholders shall not have legal title to any part of the Trust Estate.
SECTION 15.8
Creditors
. No creditors of any Shareholders shall have any right to obtain possession of, or otherwise exercise legal or equitable
remedies with respect to the Master Fund Estate.
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SECTION 15.9
Integration
. This Trust Agreement constitutes the entire agreement among the parties
hereto pertaining to the subject matter hereof and supersedes all prior agreements and understandings pertaining thereto.
SECTION 15.10
Goodwill; Use of Name
. No value shall be placed on the name or goodwill of the Trust, which shall belong exclusively to DB Commodity Services LLC.
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IN WITNESS WHEREOF
, the undersigned have duly executed this Amended and Restated Declaration of
Trust and Trust Agreement as of the day and year first above written.
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WILMINGTON TRUST COMPANY,
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as Trustee
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By:
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Name:
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Title:
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DB COMMODITY SERVICES LLC,
as
Managing Owner
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By:
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Name:
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Title:
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DB CURRENCY INDEX VALUE FUND,
as
Limited Owner
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By:
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DB Commodity Services LLC, its sole Managing Owner
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By:
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Name:
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Title:
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46
EXHIBIT A
CERTIFICATE OF TRUST
OF
DB CURRENCY INDEX VALUE MASTER FUND
THIS Certificate of Trust of DB Currency
Index Value Master Fund (the “Trust”) is being duly executed and filed on behalf of the Trust by the undersigned, as trustee, to form a statutory trust under the Delaware Statutory Trust Act (12 Del. C. § 3801 et seq.) (the
“Act”).
1.
Name
. The name of the statutory trust formed by this Certificate of Trust is DB Currency Index Value Master
Fund.
2.
Delaware Trustee
. The name and business address of the trustee of the Trust in the State of Delaware are Wilmington Trust
Company, 1100 North Market Street, Wilmington, DE 19890.
3.
Effective Date
. This Certificate of Trust shall be effective upon
filing.
IN WITNESS WHEREOF, the undersigned has duly executed this Certificate of Trust in accordance with Section 3811(a)(1) of the
Act.
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WILMINGTON TRUST COMPANY, not in its individual capacity but solely as Trustee of the Trust
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By:
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Name:
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Title:
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A-1
Exhibit B
DESCRIPTION OF THE
Deutsche Bank G10 Currency Future Harvest Index™ – Excess Return
DBCFHI™-ER and Deutsche Bank G10 Currency Future Harvest Index™ – Excess Return are trade marks of the Index Sponsor (as defined
below) and are the subject of Community Trade Mark Nos. [
] and [
]. Trade Mark applications
in the United States are pending. Any use of these marks must be with the consent of or under license from the Index Sponsor.
General
The Deutsche Bank G10 Currency Future Harvest Index™ – Excess Return (the “Index”) is designed to reflect the return from investing
in long currency futures positions for certain currencies associated with relatively high yielding interest rates and in short currency futures positions for certain currencies associated with relatively low yielding interest rates. The Index is
designed to exploit the trend that currencies associated with relatively high interest rates, on average, tend to rise in value relative to currencies associated with relatively low interest rates. The Index exploits this trend using both long and
short futures positions, which is expected to provide more consistent and less volatile returns than could be obtained by taking long positions only or short positions only. The use of long and short positions in the construction of the Index causes
the Index to rise as a result of any upward price movement of Index Currencies (as defined below) expected to gain relative to the USD and to rise as a result of any downward price movement of Index Currencies expected to fall relative to the USD.
The inclusion of both long and short positions is also expected to reduce the volatility of the Index relative to a directional (outright long or short) exposure to any or all of the Index Currencies.
Chicago Mercantile Exchange FX Futures are used in the index calculation. FX Futures based on the G10 currencies vs. USD are eligible for selection in the Index. The G10
currencies, or Eligible Index Currencies, are United States Dollar (USD), Euro (EUR), Japanese Yen (JPY), Canadian Dollar (CAD), Swiss Franc (CHF), British Pound (GBP), Australian Dollar (AUD), New Zealand Dollar (NZD), Norwegian Krone (NOK) and
Swedish Krona (SEK). The Index is published as provided below.
The sponsor of the Index, or the Index Sponsor, is Deutsche Bank AG London. The composition
of the Index may be adjusted in the Index Sponsor’s discretion.
The Index Sponsor calculates the Closing Level (as defined below) of the Index on
both an excess return basis and a total return basis. The excess return index reflects the return of the applicable underlying currencies. The total return is the sum of the return of the applicable underlying currencies plus the return of 3 month
U.S. Treasury bills.
For the purposes of this Description:
“
Closing Level
” means, in respect of an Index Business Day (as defined below), the closing level of the Index for such Index Business Day.
Index Calculation and Rules
Currency Future Selection
The Index will include six of the Eligible Index Currencies, or Index Currencies. 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 Currencies.
In order to determine which Eligible Index Currencies to include in the Index from time-to-time, the Index Sponsor will
review the composition of the Index on a quarterly basis five Index Business Days (as defined below) prior to the applicable Settlement Date.
The Index
Sponsor will review the three month Libor rate for each Eligible Index Currency other than the SEK and NOK and will review the three month Stibor rate and the three month Nibor rate of the SEK and NOK, respectively. The Libor, Stibor and Nibor rates
for the Eligible Index Currencies, as applicable, means the London, Stockholm and Norway interbank offered rates for overnight deposits, respectively, each of which are published by Reuters on pages libor01 and libor02 with respect to Libor and
pages SIDE and NIBR with respect to Stibor and Nibor. The Eligible Index Currencies are then ranked according to yield. The three highest yielding and three lowest yielding are selected as Index Currencies for inclusion in calculating the Index. If
two Index Currencies have the same yield, then the previous quarter’s ranking will be used.
The Index is re-weighted quarterly. Upon re-weighting,
the high yielding Index Currencies are allocated a base weight of 33
1
/
3
% and the low yield Index Currencies are
allocated a base weight of -33
1
/
3
%. These new weights are applied during the Index Re-Weighting Period.
For the purposes of this Description:
“
Index Re-Weighting Period
” takes place between the fourth and third Index Business Days prior to the applicable Settlement Date.
“
Settlement Date
” means the third Wednesday of March, June, September and December.
Excess Return Index Calculation
The CME-traded futures contract of
each applicable Index Currency that is closest to expiration is used in the Index calculation. The futures contracts on the Index Currencies are rolled during the Index Re-Weighting Period. The new futures contract on an Index Currency that has the
next closest expiration date is selected. The calculation of the Index on an excess return basis is the weighted average return of the change in price of the futures contracts on the Index Currencies. The excess return index is calculated as
follows:
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ILer(t)
=
|
|
S
FP
(
t,i
) *
N
(
t
– 1,
i
)
i
|
|
*
ILer
(
t
– 1)
|
|
|
S
FP
(
t
– 1,
i
) *
N
(
t
– 1,
i
)
i
|
|
3 Month U.S. Treasury Bill Return Calculation
A 3 month U.S. Treasury bill return is used in the calculation of the Index on a total return basis. The return for the 3 month U.S. Treasury bill investment is calculated on a daily basis using:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rt(t) =
|
|
(
|
|
1 –
|
|
91
|
|
y
(
t
– 1)
|
|
)
|
|
-
|
|
(
|
|
1
91
|
|
)
|
|
– 1
|
|
|
|
|
|
|
360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Return Index Calculation
The calculation of the Index on a total return basis represents the return from investing in both currency futures contracts and 3 month U.S. Treasury bills and is calculated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ILtr(t) =
|
|
(
|
|
|
|
ILer(t)
|
|
+ Rt(t)
|
|
)
|
|
* (1 +
Rt
(
t
))
d
(
t,t
– 1)
*
ILtr
(
t
– 1)
|
|
|
|
|
|
ILer(t – 1)
|
|
|
|
B-2
Index Re-Weighting
Currency futures positions on the Index Currencies are adjusted during the Index Re-Weighting Period. The notional value of the currency futures positions on the Index Currencies remains constant on all other days that do not fall within
the Index Re-Weighting Period. This constant notional value is expressed as:
N(t,i) = N
(
t
– 1,
i)
Index Re-Weighting Period
On each day during the Index Re-Weighting
Period, a new notional value of each Index Currency futures position is calculated. The calculations for the old futures that are leaving the index and the new futures that are entering are different.
Notional Value Calculations of Index Currencies to be Removed from the Index
:
The notional value of the Index Currency futures position on the first day of Index Re-Weighting Period (which is four Index Business Days prior to the Settlement Date) is expressed as:
|
|
|
|
|
N(t
,
i)
= N(t –
1
,i) *
|
|
1
|
|
|
2
|
The notional value of the Index Currency futures position on the second day of Index Re-Weighting Period (which is
three Index Business Days prior to the Settlement Date) is expressed as:
N(t,i) =
0
Notional Value Calculations of Index Currencies to be Added to the Index
:
The notional value of the Index Currency futures position on the first day of Index Re-Weighting Period (which is four Index Business Days prior to the Settlement Date) is expressed as:
|
|
|
|
|
N(t,j) =
|
|
ILer(t) * w(t,j)
|
|
|
Fp(t,j) *
2
|
The notional value of the Index Currency futures position on the second day of Index Re-Weighting Period (which is
three Index Business Days prior to the Settlement Date) is expressed as:
|
|
|
|
|
N(t,j) =
|
|
ILer(t) * w(t,j)
|
|
|
Fp(t,j)
|
Initial Index Notional Value
On the index inception date of March 12, 1993, the initial notional value of the Index Currency futures positions were calculated using:
|
|
|
|
|
N(t,i) =
|
|
100 *
w(t,i)
|
|
|
Fp(t,i)
|
B-3
|
|
|
|
|
Where:
|
|
|
|
i
|
|
= Index Currency
|
|
t
|
|
= Index calculation date
|
|
rd
|
|
= Last currency future roll date
|
|
r
|
|
= Last index re-weighting date
|
|
Fp(t,i)
|
|
= Currency future price for currency i on day t
|
|
y(t)
|
|
= T-bill yield on day t
|
|
Rt(t)
|
|
= T-bill return on t
|
|
ILer(t)
|
|
= DBCFH Excess Return Index level on day t
|
|
ILtr(t)
|
|
= DBCFH Total Return Index level on day t
|
|
w(r)
|
|
= Weight of currency i on last index re-weighting day r
|
|
d(t,t-1)
|
|
= Number of calendar days between day t and index calculation day t-1 excluding day t
|
|
N(t,i)
|
|
= Notional holding of old currency future i on index calculation day t
|
|
N(t,j)
|
|
= Notional holding of new currency future j on index calculation day t
|
Index Disruption Event
If an Index Disruption Event in relation to an Index Currency or an Exchange Instrument on such Index Currency continues for a period of five successive Exchange Business Days, the Index Sponsor will, in its discretion, either
(i) continue to calculate the relevant Closing Price by reference to the Closing Price of the Exchange Instrument on such Index Currency on the immediately preceding Valid Date (as provided in the definition of the relevant Closing Price) for a
further period of five successive Exchange Business Days or (ii) select:
|
|
(a)
|
an Exchange Traded Instrument relating to the relevant Index Currency or in the determination of the Index Sponsor a currency substantially similar to the relevant Index Currency
published in U.S. Dollars; or
|
|
|
(b)
|
if no Exchange Traded Instrument as described in (a) above is available or the Index Sponsor determines that for any reason (including, without limitation, the liquidity or
volatility of such Exchange Traded Instrument at the relevant time) the inclusion of such Exchange Traded Instrument in the Index would not be appropriate, an Exchange Traded Instrument relating to the relevant Index Currency or in the determination
of the Index Sponsor a currency substantially similar to the relevant Index Currency published in a currency other than U.S. Dollars;
|
in
each case to replace the Exchange Instrument relating to the relevant Index Currency, all as determined by the Index Sponsor.
In the case of
(a) above, if an Index Disruption Event in relation to the relevant Exchange Instrument on an Index Currency continues for the further period of five successive Exchange Business Days referred to therein, on the expiry of such period the
provisions of (b) above shall apply.
In the case of a replacement of an Exchange Traded Instrument as described in (b) above, the Index Sponsor
will make such adjustments to the methodology and calculation of the Index as it determines to be appropriate to account for the relevant replacement and will publish such adjustments in accordance with the section “Publication of Closing
Levels and Adjustments” below.
B-4
For the purposes of this Description:
“
Valid Date
” means, in respect of an Index Currency, a day which is an Exchange Business Day in respect of such Index Currency and a day on which an
Index Disruption Event in respect of such Index Currency or a related Exchange Instrument on such Index Currency does not occur.
“
Exchange
Business Day
” means, in respect of a futures contract on an Index Currency, a day that is (or, but for the occurrence of an Index Disruption Event or Force Majeure Event would have been) a trading day for such Index Currency on the CME.
“
Closing Price
” means, in respect of an Index Business Day, the closing price on CME of the relevant Exchange Instrument, as published by
CME for that Index Business Day or, if in the determination of the Index Sponsor such Index Business Day is not a Valid Date, the closing price on CME of the relevant Exchange Instrument published by CME for the immediately preceding Valid Date,
subject as provided in the sections “Index Disruption Event” and “Force Majeure.”
“
Exchange Instrument
” means, in
respect of each Index Currency, an instrument for future delivery of that Index Currency on a specified delivery date traded on the CME.
“
Exchange
Traded Instrument
” means, in respect of an Index Currency, an instrument for future delivery of that Index Currency on a specified delivery date traded on an exchange.
“
Index Business Day
” means a day (other than a Saturday or Sunday) on which commercial banks and foreign exchange markets settle payments and are open for general business (including dealings in
foreign exchange and foreign currency deposits) in New York City.
“
Index Disruption Event
” means, in respect of an Index Currency or a
Exchange Instrument on such Index Currency, an event (other than a Force Majeure Event) that would require the Index Sponsor to calculate the Closing Price in respect of the relevant Exchange Instrument on such Index Currency on an alternative basis
were such event to occur or exist on a day that is an Exchange Business Day (or, if different, the day on which the Closing Price for such Exchange Instrument on such Index Currency for the relevant Index Business Day would, in the ordinary course,
be published or announced by the CME).
Force Majeure
If a Force Majeure Event occurs on an Index Business Day, the Index Sponsor may in its discretion:
|
|
(i)
|
make such determinations and/or adjustments to the terms of this Description of the Index as it considers appropriate to determine any Closing Level on any such Index Business Day;
and/or
|
|
|
(ii)
|
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
|
|
|
(iii)
|
permanently cancel publication of the information relating to the Index.
|
For the purposes of this Description:
“
Force Majeure Event
” means an event or circumstance (including, without limitation, a systems failure, natural or man-made disaster, act of God, armed conflict, act of terrorism, riot or labour 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, any Index Currency or any Exchange Instrument.
B-5
Change in the Methodology of the Index
The Index Sponsor will, subject as provided below, employ the methodology described above and its application of such methodology shall be conclusive and binding. While the Index Sponsor currently intends to employ
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 any Index Currency 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 contained in this Description of the Index. The Index Sponsor will publish notice of any such modification or change and the effective date thereof in accordance with Publication of
Closing Levels and Adjustments below.
Publication of Closing Levels and Adjustments
In order to calculate the indicative Index level, the Index Sponsor will poll Reuters every 15 seconds to determine the real time price of each underlying futures contract with respect to each Index Currency of the
Index. The Index Sponsor will then apply 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. A similar polling process is applied to the U.S. Treasury bills to determine the indicative value of the U.S. Treasury bills held by the Fund every 15 seconds throughout the trading day.
The Index Sponsor will publish the closing level of the Index daily. Additionally, the Index Sponsor will publish the intra-day Index level once every fifteen seconds
throughout each trading day.
All of the foregoing information will be published as follows:
The intra-day level of the Index (symbol: DBVI) (quoted in USD) will be published once every fifteen seconds throughout each trading day on the consolidated tape, Reuters
and/or Bloomberg and on Deutsche Bank’s website at http://www.dbvfund.db.com, or any successor thereto.
The most recent end-of-day Index closing
level (symbol: DBVI) will be published as of the close of business for the Amex each trading day on the consolidated tape, Reuters and/or Bloomberg and on Deutsche Bank’s website at http://www.dbvfund.db.com, or any successor thereto.
The Index Sponsor will publish any adjustments made to the Index on Deutsche Bank’s website http://www.dbvfund.db.com, or any successor thereto.
Historical Closing Levels
Set out
below are the closing levels based on historical data from March 12, 1993 to February 8, 2006.
The following Closing Levels
table starts from March 12, 1993 and reflects both the high and low closing values, the annual performance and performance since inception of the Index. Since March 13, 2003, CME currency futures close prices were used in the Index
calculation. The Index Sponsor has not independently verified the CME currency futures close prices obtained from Bloomberg. Since February 1, 2006, the Index Sponsor expects to obtain the CME currency futures close prices from Reuters. Prior
to March 13, 2003, implied futures prices were calculated using the relevant currencies spot rates, money market rates and USD money market rates obtained from Reuters, Bloomberg and WM Company. Implied futures prices are an accurate proxy for
the futures close prices due to the high liquidity in foreign exchange forward markets.
B-6
It is not necessary to have a USD futures contract because the forward rate of the USD vis à vis
the USD will be equal. Whenever USD was used to calculate the value of the Index, the futures price of USD was assumed to be 100.
The
Index Sponsor used 3 month money market rates as a proxy to 3 month Libor fixings with respect to the USD on and prior to June 10, 1998.
The Index Sponsor used 3 month money market rates as a proxy to 3 month Libor fixings with respect to the EUR, JPY, GBP, CHF, CAD and AUD on and prior to March 11, 1998.
The Index Sponsor used 3 month money market rates as a proxy to 3 month Libor fixings with respect to the NZD on and prior to September 10, 2003.
The Index Sponsor used 3 month money market rates as a proxy to 3 month Stibor fixings with respect to the SEK on and prior to
December 9, 1998.
The Index Sponsor used 3 month money market rates as a proxy to 3 month Nibor fixings with respect to the NOK on
and prior to December 9, 1998.
The Libor, Stibor and Nibor rates for the Eligible Index Currencies, as applicable, means the London,
Stockholm and Norway interbank offered rates for overnight deposits, respectively, each of which are published by Reuters on pages libor01 and libor02 with respect to Libor and pages SIDE and NIBR with respect to Stibor and Nibor.
The CME traded futures contract of each applicable Index Currency that is closest to expiration is used in the Index calculation. The futures contracts
on the Index Currencies are rolled during the Index Re Weighting Period. The new futures contract on an Index Currency that has the next closest expiration date is selected. The calculation of the Index on an excess return basis is the weighted
average return on the change in price of the futures contracts on the Index Currencies.
The Index is calculated on both an excess return
basis and a total return basis. The excess return index reflects the return of the applicable underlying currencies. The total return is the sum of the return of the applicable underlying currencies plus the return of 3 month U.S. Treasury bills.
The following tables reflect both the excess return calculation and the total return calculation of the Index.
B-7
DEUTSCHE BANK G10 CURRENCY FUTURE HARVEST INDEX™ – EXCESS RETURN
CLOSING LEVELS TABLE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closing Level
|
|
Annual
Performance
3
|
|
|
Performance
Since Inception
|
|
|
|
|
High
1
|
|
Low
2
|
|
|
|
1993
4
|
|
106.15
|
|
95.13
|
|
-0.19
|
%
|
|
-0.19
|
%
|
|
1994
|
|
116.32
|
|
102.32
|
|
7.42
|
%
|
|
7.22
|
%
|
|
1995
|
|
124.55
|
|
102.55
|
|
2.66
|
%
|
|
10.07
|
%
|
|
1996
|
|
166.84
|
|
125.01
|
|
27.23
|
%
|
|
40.05
|
%
|
|
1997
|
|
180.54
|
|
164.92
|
|
2.58
|
%
|
|
43.67
|
%
|
|
1998
|
|
195.70
|
|
172.90
|
|
-6.35
|
%
|
|
34.55
|
%
|
|
1999
|
|
203.96
|
|
177.49
|
|
9.81
|
%
|
|
47.76
|
%
|
|
2000
|
|
227.93
|
|
202.75
|
|
4.73
|
%
|
|
54.74
|
%
|
|
2001
|
|
259.57
|
|
226.67
|
|
10.61
|
%
|
|
71.15
|
%
|
|
2002
|
|
307.46
|
|
261.27
|
|
15.76
|
%
|
|
98.13
|
%
|
|
2003
|
|
365.18
|
|
306.83
|
|
18.33
|
%
|
|
134.45
|
%
|
|
2004
|
|
398.14
|
|
359.55
|
|
6.67
|
%
|
|
150.09
|
%
|
|
2005
|
|
465.01
|
|
392.58
|
|
10.66
|
%
|
|
176.75
|
%
|
|
2006
5
|
|
458.13
|
|
444.08
|
|
0.96
|
%
|
|
179.40
|
%
|
PAST PERFORMANCE SHOULD NOT BE TAKEN AS AN INDICATION OF FUTURE PERFORMANCE.
DEUTSCHE BANK G10 CURRENCY FUTURE HARVEST INDEX™ – TOTAL RETURN
CLOSING LEVELS TABLE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closing Level
|
|
Annual
Performance
3
|
|
|
Performance
Since Inception
|
|
|
|
|
High
1
|
|
Low
2
|
|
|
|
1993
4
|
|
106.15
|
|
95.13
|
|
2.30
|
%
|
|
2.30
|
%
|
|
1994
|
|
116.32
|
|
102.32
|
|
12.15
|
%
|
|
14.73
|
%
|
|
1995
|
|
124.55
|
|
102.55
|
|
8.56
|
%
|
|
24.55
|
%
|
|
1996
|
|
166.84
|
|
125.01
|
|
33.95
|
%
|
|
66.84
|
%
|
|
1997
|
|
180.54
|
|
164.92
|
|
8.01
|
%
|
|
80.19
|
%
|
|
1998
|
|
195.70
|
|
172.90
|
|
-1.68
|
%
|
|
77.17
|
%
|
|
1999
|
|
203.96
|
|
177.49
|
|
15.12
|
%
|
|
103.96
|
%
|
|
2000
|
|
227.93
|
|
202.75
|
|
11.11
|
%
|
|
126.61
|
%
|
|
2001
|
|
259.57
|
|
226.67
|
|
14.55
|
%
|
|
159.57
|
%
|
|
2002
|
|
307.46
|
|
261.27
|
|
17.68
|
%
|
|
205.47
|
%
|
|
2003
|
|
365.18
|
|
306.83
|
|
19.55
|
%
|
|
265.18
|
%
|
|
2004
|
|
398.14
|
|
359.55
|
|
8.16
|
%
|
|
294.97
|
%
|
|
2005
|
|
465.01
|
|
392.58
|
|
14.23
|
%
|
|
351.19
|
%
|
|
2006
5
|
|
458.13
|
|
444.08
|
|
1.37
|
%
|
|
357.39
|
%
|
PAST PERFORMANCE SHOULD NOT BE TAKEN AS AN INDICATION OF FUTURE PERFORMANCE.
Please refer to notes and legends that follow on page B-14.
B-8
INDEX CURRENCY WEIGHTS TABLE
DEUTSCHE BANK G10 CURRENCY FUTURE HARVEST INDEX™ – EXCESS RETURN
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
USD
|
|
|
EUR
|
|
|
JPY
|
|
|
CAD
|
|
|
CHF
|
|
|
GBP
|
|
|
AUD
|
|
|
NZD
|
|
|
NOK
|
|
|
SEK
|
|
|
|
High
1
|
|
|
Low
2
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
1993
4
|
|
-31.6
|
%
|
|
-36.8
|
%
|
|
33.6
|
%
|
|
34.0
|
%
|
|
-34.8
|
%
|
|
-37.2
|
%
|
|
0.0
|
%
|
|
-36.8
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
-30.3
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
33.6
|
%
|
|
34.1
|
%
|
|
34.7
|
%
|
|
32.3
|
%
|
|
1994
|
|
0.0
|
%
|
|
-33.3
|
%
|
|
-33.1
|
%
|
|
32.5
|
%
|
|
-33.1
|
%
|
|
-32.5
|
%
|
|
0.0
|
%
|
|
-33.4
|
%
|
|
-33.1
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
33.2
|
%
|
|
0.0
|
%
|
|
33.3
|
%
|
|
33.6
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
33.4
|
%
|
|
33.2
|
%
|
|
1995
|
|
0.0
|
%
|
|
0.0
|
%
|
|
-33.5
|
%
|
|
-35.7
|
%
|
|
-32.9
|
%
|
|
-39.1
|
%
|
|
0.0
|
%
|
|
35.9
|
%
|
|
-33.6
|
%
|
|
-36.8
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
33.4
|
%
|
|
0.0
|
%
|
|
33.4
|
%
|
|
36.3
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
33.2
|
%
|
|
34.6
|
%
|
|
1996
|
|
0.0
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
-33.5
|
%
|
|
-31.7
|
%
|
|
-32.5
|
%
|
|
-32.1
|
%
|
|
0.0
|
%
|
|
-31.5
|
%
|
|
-33.3
|
%
|
|
33.3
|
%
|
|
0.0
|
%
|
|
32.4
|
%
|
|
33.3
|
%
|
|
32.6
|
%
|
|
33.3
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
33.2
|
%
|
|
1997
|
|
32.4
|
%
|
|
0.0
|
%
|
|
-32.1
|
%
|
|
0.0
|
%
|
|
-30.0
|
%
|
|
-30.6
|
%
|
|
0.0
|
%
|
|
-33.1
|
%
|
|
-32.8
|
%
|
|
-30.4
|
%
|
|
34.0
|
%
|
|
31.7
|
%
|
|
0.0
|
%
|
|
31.5
|
%
|
|
31.3
|
%
|
|
32.3
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
1998
|
|
0.0
|
%
|
|
0.0
|
%
|
|
-32.3
|
%
|
|
-36.7
|
%
|
|
-32.9
|
%
|
|
-40.1
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
-31.8
|
%
|
|
-37.5
|
%
|
|
32.3
|
%
|
|
36.0
|
%
|
|
34.2
|
%
|
|
0.0
|
%
|
|
34.2
|
%
|
|
36.5
|
%
|
|
0.0
|
%
|
|
35.7
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
1999
|
|
33.1
|
%
|
|
33.0
|
%
|
|
-32.5
|
%
|
|
-32.2
|
%
|
|
-32.9
|
%
|
|
-34.4
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
-32.4
|
%
|
|
-32.0
|
%
|
|
32.8
|
%
|
|
32.5
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
32.8
|
%
|
|
34.1
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
2000
|
|
32.9
|
%
|
|
33.3
|
%
|
|
0.0
|
%
|
|
-33.7
|
%
|
|
-32.3
|
%
|
|
-32.9
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
-33.7
|
%
|
|
-33.5
|
%
|
|
0.0
|
%
|
|
33.5
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
34.0
|
%
|
|
0.0
|
%
|
|
33.4
|
%
|
|
33.5
|
%
|
|
-33.0
|
%
|
|
0.0
|
%
|
|
2001
|
|
-33.1
|
%
|
|
33.1
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
-32.1
|
%
|
|
-32.4
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
-32.5
|
%
|
|
-34.5
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
32.7
|
%
|
|
0.0
|
%
|
|
33.0
|
%
|
|
34.1
|
%
|
|
32.8
|
%
|
|
34.1
|
%
|
|
0.0
|
%
|
|
-33.7
|
%
|
|
2002
|
|
-33.2
|
%
|
|
-32.9
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
-33.1
|
%
|
|
-31.6
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
-33.5
|
%
|
|
-32.7
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
33.3
|
%
|
|
32.6
|
%
|
|
33.5
|
%
|
|
33.1
|
%
|
|
33.5
|
%
|
|
33.0
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
2003
|
|
-33.0
|
%
|
|
-33.2
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
-33.0
|
%
|
|
-33.4
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
-33.5
|
%
|
|
-34.2
|
%
|
|
33.7
|
%
|
|
0.0
|
%
|
|
33.4
|
%
|
|
33.2
|
%
|
|
33.4
|
%
|
|
33.9
|
%
|
|
0.0
|
%
|
|
34.1
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
2004
|
|
0.0
|
%
|
|
-34.6
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
-33.2
|
%
|
|
-33.5
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
-33.0
|
%
|
|
-34.7
|
%
|
|
33.4
|
%
|
|
34.1
|
%
|
|
33.6
|
%
|
|
32.6
|
%
|
|
33.4
|
%
|
|
32.3
|
%
|
|
-33.1
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
2005
|
|
0.0
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
-29.1
|
%
|
|
-34.5
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
-30.7
|
%
|
|
-32.8
|
%
|
|
30.7
|
%
|
|
32.8
|
%
|
|
31.2
|
%
|
|
34.0
|
%
|
|
32.7
|
%
|
|
33.2
|
%
|
|
0.0
|
%
|
|
-33.2
|
%
|
|
-30.2
|
%
|
|
0.0
|
%
|
|
2006
5
|
|
0.0
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
-32.1
|
%
|
|
-34.2
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
-33.0
|
%
|
|
-34.8
|
%
|
|
33.2
|
%
|
|
34.3
|
%
|
|
33.5
|
%
|
|
34.5
|
%
|
|
33.2
|
%
|
|
33.8
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
-33.8
|
%
|
|
-35.6
|
%
|
PAST PERFORMANCE SHOULD NOT BE TAKEN AS AN INDICATION OF FUTURE PERFORMANCE.
Please refer to notes and legends that follow on page B-14.
B-9
INDEX CURRENCY WEIGHTS TABLE
DEUTSCHE BANK G10 CURRENCY FUTURE HARVEST INDEX™ – TOTAL RETURN
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
USD
|
|
|
EUR
|
|
|
JPY
|
|
|
CAD
|
|
|
CHF
|
|
|
GBP
|
|
|
AUD
|
|
|
NZD
|
|
|
NOK
|
|
|
SEK
|
|
|
|
High
1
|
|
|
Low
2
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
1993
4
|
|
-31.4
|
%
|
|
-36.7
|
%
|
|
33.4
|
%
|
|
33.9
|
%
|
|
-34.6
|
%
|
|
-37.1
|
%
|
|
0.0
|
%
|
|
-36.6
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
-30.1
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
33.4
|
%
|
|
33.9
|
%
|
|
34.4
|
%
|
|
32.2
|
%
|
|
1994
|
|
0.0
|
%
|
|
-33.2
|
%
|
|
-33.0
|
%
|
|
32.5
|
%
|
|
-33.0
|
%
|
|
-32.4
|
%
|
|
0.0
|
%
|
|
-33.4
|
%
|
|
-33.0
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
33.1
|
%
|
|
0.0
|
%
|
|
33.3
|
%
|
|
33.5
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
33.3
|
%
|
|
33.2
|
%
|
|
1995
|
|
0.0
|
%
|
|
0.0
|
%
|
|
-33.4
|
%
|
|
-35.4
|
%
|
|
-32.8
|
%
|
|
-38.8
|
%
|
|
0.0
|
%
|
|
35.7
|
%
|
|
-33.5
|
%
|
|
-36.6
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
33.3
|
%
|
|
0.0
|
%
|
|
33.3
|
%
|
|
36.0
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
33.2
|
%
|
|
34.4
|
%
|
|
1996
|
|
0.0
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
-33.4
|
%
|
|
-31.6
|
%
|
|
-32.5
|
%
|
|
-32.0
|
%
|
|
0.0
|
%
|
|
-31.4
|
%
|
|
-33.2
|
%
|
|
33.3
|
%
|
|
0.0
|
%
|
|
32.3
|
%
|
|
33.2
|
%
|
|
32.5
|
%
|
|
33.2
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
33.1
|
%
|
|
1997
|
|
32.0
|
%
|
|
0.0
|
%
|
|
-31.8
|
%
|
|
0.0
|
%
|
|
-29.7
|
%
|
|
-30.4
|
%
|
|
0.0
|
%
|
|
-32.9
|
%
|
|
-32.4
|
%
|
|
-30.1
|
%
|
|
33.6
|
%
|
|
31.5
|
%
|
|
0.0
|
%
|
|
31.3
|
%
|
|
31.0
|
%
|
|
32.1
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
1998
|
|
0.0
|
%
|
|
0.0
|
%
|
|
-32.1
|
%
|
|
-36.6
|
%
|
|
-32.8
|
%
|
|
-40.0
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
-31.7
|
%
|
|
-37.3
|
%
|
|
32.2
|
%
|
|
35.9
|
%
|
|
34.0
|
%
|
|
0.0
|
%
|
|
34.0
|
%
|
|
36.3
|
%
|
|
0.0
|
%
|
|
35.6
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
1999
|
|
32.9
|
%
|
|
32.9
|
%
|
|
-32.4
|
%
|
|
-32.1
|
%
|
|
-32.8
|
%
|
|
-34.3
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
-32.3
|
%
|
|
-31.9
|
%
|
|
32.7
|
%
|
|
32.4
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
32.7
|
%
|
|
34.0
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
2000
|
|
32.8
|
%
|
|
33.1
|
%
|
|
0.0
|
%
|
|
-33.5
|
%
|
|
-32.2
|
%
|
|
-32.8
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
-33.6
|
%
|
|
-33.4
|
%
|
|
0.0
|
%
|
|
33.4
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
34.0
|
%
|
|
0.0
|
%
|
|
33.4
|
%
|
|
33.4
|
%
|
|
-32.9
|
%
|
|
0.0
|
%
|
|
2001
|
|
-33.0
|
%
|
|
33.0
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
-32.1
|
%
|
|
-32.3
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
-32.5
|
%
|
|
-34.4
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
32.7
|
%
|
|
0.0
|
%
|
|
32.9
|
%
|
|
34.0
|
%
|
|
32.8
|
%
|
|
34.0
|
%
|
|
0.0
|
%
|
|
-33.6
|
%
|
|
2002
|
|
-33.1
|
%
|
|
-32.8
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
-32.9
|
%
|
|
-31.6
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
-33.2
|
%
|
|
-32.7
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
33.3
|
%
|
|
32.6
|
%
|
|
33.2
|
%
|
|
33.1
|
%
|
|
33.4
|
%
|
|
32.9
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
2003
|
|
-33.0
|
%
|
|
-33.2
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
-33.0
|
%
|
|
-33.3
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
-33.5
|
%
|
|
-34.2
|
%
|
|
33.7
|
%
|
|
0.0
|
%
|
|
33.4
|
%
|
|
33.1
|
%
|
|
33.4
|
%
|
|
33.8
|
%
|
|
0.0
|
%
|
|
34.1
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
2004
|
|
0.0
|
%
|
|
-34.5
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
-33.2
|
%
|
|
-33.4
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
-33.0
|
%
|
|
-34.6
|
%
|
|
33.4
|
%
|
|
34.0
|
%
|
|
33.5
|
%
|
|
32.5
|
%
|
|
33.4
|
%
|
|
32.2
|
%
|
|
-33.1
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
2005
|
|
0.0
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
-28.8
|
%
|
|
-34.4
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
-30.4
|
%
|
|
-32.8
|
%
|
|
30.4
|
%
|
|
32.7
|
%
|
|
31.0
|
%
|
|
33.9
|
%
|
|
32.4
|
%
|
|
33.2
|
%
|
|
0.0
|
%
|
|
-33.2
|
%
|
|
-29.9
|
%
|
|
0.0
|
%
|
|
2006
5
|
|
0.0
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
-31.9
|
%
|
|
-34.1
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
-32.8
|
%
|
|
-34.6
|
%
|
|
33.0
|
%
|
|
34.2
|
%
|
|
33.3
|
%
|
|
34.3
|
%
|
|
33.0
|
%
|
|
33.7
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
-33.6
|
%
|
|
-35.5
|
%
|
PAST PERFORMANCE SHOULD NOT BE TAKEN AS AN INDICATION OF FUTURE PERFORMANCE.
Please refer to notes and legends that follow on page B-14.
B-10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VARIOUS STATISTICAL MEASURES*
|
|
INDEX-TR
6
|
|
|
INDEX-ER
7
|
|
|
DXY
8
|
|
|
EFFAS US
Treasuries
9
|
|
|
S&P 500 TR
10
|
|
|
DBLCI
11
|
|
|
Annualized Return
12
|
|
12.3
|
%
|
|
8.1
|
%
|
|
-0.1
|
%
|
|
6.2
|
%
|
|
10.5
|
%
|
|
13.7
|
%
|
|
Average rolling 3 month daily volatility
13
|
|
7.0
|
%
|
|
7.0
|
%
|
|
7.8
|
%
|
|
4.6
|
%
|
|
15.4
|
%
|
|
19.1
|
%
|
|
Sharpe Ratio
14
|
|
1.27
|
|
|
0.67
|
|
|
-0.45
|
|
|
0.61
|
|
|
0.46
|
|
|
0.5
|
4
|
|
% of months with positive return
|
|
73
|
%
|
|
69
|
%
|
|
48
|
%
|
|
68
|
%
|
|
64
|
%
|
|
57
|
%
|
|
Average monthly positive return
|
|
2.0
|
%
|
|
1.8
|
%
|
|
1.8
|
%
|
|
1.2
|
%
|
|
3.4
|
%
|
|
5.1
|
%
|
|
Average monthly negative return
|
|
-1.7
|
%
|
|
-1.8
|
%
|
|
-1.6
|
%
|
|
-0.9
|
%
|
|
-3.4
|
%
|
|
-3.9
|
%
|
|
|
|
|
|
|
|
|
|
CORRELATION OF MONTHLY RETURNS*
,15
|
|
INDEX
|
|
|
INDEX-ER
|
|
|
DXY
|
|
|
EFFAS US
Treasuries
|
|
|
S&P 500 TR
|
|
|
DBLCI
|
|
|
Index-TR
|
|
100
|
%
|
|
100
|
%
|
|
20
|
%
|
|
-3
|
%
|
|
18
|
%
|
|
12
|
%
|
|
Index-ER
|
|
|
|
|
100
|
%
|
|
18
|
%
|
|
-4
|
%
|
|
17
|
%
|
|
11
|
%
|
|
DXY
|
|
|
|
|
|
|
|
100
|
%
|
|
-15
|
%
|
|
4
|
%
|
|
-13
|
%
|
|
EFFAS US Treasuries
|
|
|
|
|
|
|
|
|
|
|
100
|
%
|
|
-9
|
%
|
|
2
|
%
|
|
S&P 500 TR
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100
|
%
|
|
2
|
%
|
|
DBLCI
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100
|
%
|
PAST PERFORMANCE SHOULD NOT BE TAKEN AS AN INDICATION OF FUTURE PERFORMANCE.
Please refer to notes and legends that follow on page B-14.
B-11
COMPARISON OF THE INDICES WITH CERTAIN GENERAL MARKET INDICES
REPRESENTING CURRENCIES, BONDS, STOCKS AND COMMODITIES
(MARCH, 1993 – FEBRUARY, 2006)*
PAST PERFORMANCE SHOULD NOT BE TAKEN AS AN INDICATION OF FUTURE PERFORMANCE.
Please refer to notes and legends that follow on page B-14.
B-12
COMPARISON OF ANNUAL RETURNS OF THE INDICES WITH CERTAIN GENERAL MARKET INDICES REPRESENTING
BONDS AND STOCKS
(MARCH, 1993 – FEBRUARY, 2006)*
PAST PERFORMANCE SHOULD NOT BE TAKEN AS AN INDICATION OF FUTURE PERFORMANCE.
Please refer to notes and legends that follow on page B-14.
B-13
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 Performance” reflects the performance of the Index on an annual basis as of December 31 of each applicable year.
4. Closing levels as of inception on March 12, 1993.
5. Closing levels as of February 8, 2006.
6. “INDEX-TR” is Deutsche Bank G10 Currency Future Harvest Index™ – Total Return.
7. “INDEX-ER” is the Deutsche Bank G10 Currency Future Harvest Index™ – Excess Return.
8. “DXY” is U.S. Dollar Index®. The U.S. Dollar Index® The provides a general indication of the international value of the U.S. dollar by
averaging the exchange rates between the U.S. dollar and the six major world currencies the U.S. Dollar Index® — Euro, Japanese Yen, British Pound, Canadian Dollar, Swedish Krona and Swiss Franc. U.S. Dollar Index® is a
registered service mark of the Board of Trade of the City of New York, Inc.
9. “EFFAS US Treasuries” is Bloomberg/EFFAS Index of U.S.
Treasuries. The Bloomberg/EFFAS indices are designed as transparent benchmarks for government bond markets. Indices are grouped by country and maturity sectors. Bloomberg computes daily returns and index characteristics for each sector. The
Bloomberg/EFFAS Index of U.S. Treasuries includes treasuries with more than one year prior to maturity and is representative of the bond market.
10.
“S&P 500 TR” is the Standard & Poor’s index calculated on a total return basis. Widely regarded as the benchmark gauge of the U.S. equities market, this index includes a representative sample of 500 leading companies in
leading industries of the U.S. economy. Although the S&P 500 focuses on the large-cap segment of the market, with over 80% coverage of U.S. equities, it also serves as a proxy for the total market. The total return calculation provides investors
with a price-plus-gross cash dividend return. Gross cash dividends are applied on the ex-date of the dividend.
11. “DBLCI” is the Deutsche Bank
Liquid Commodity Index™ – Total Return. This Index is intended to reflect the performance the following commodities: Light, Sweet Crude Oil, Heating Oil, Aluminum, Gold, Corn and Wheat. The notional amounts of each index commodity included
in this index are broadly in proportion to historical levels of the world’s production and stocks of the index commodities. The sponsor of the Index, or the Index Sponsor, is Deutsche Bank AG London. Deutsche Bank Liquid Commodity Index™
– Total Return is a trade mark of Deutsche Bank AG and is the subject of Community Trade Mark Number 3054996. Trade Mark applications in the United States are pending.
12. “Annualized Return” reflects the performance of the applicable index on an annual basis as of December 31 of each applicable year.
13. “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.
B-14
14. “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.
15. “Correlation of Monthly Returns.” Every
investment asset, by definition, has a correlation coefficient of 1.0 with itself; 1.0 indicates 100% positive correlation. Two investments that always move in the opposite direction from each other have a correlation coefficient of -1.0; -1.0
indicates 100% negative correlation. Two investments that perform entirely independently of each other have a correlation coefficient of 0; 0 indicates 100% non-correlation.
|
*
|
For the period from March 12, 1993 to February 8, 2006.
|
HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. IN FACT, THERE ARE
FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM.
ONE
OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT
FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE OF TRADING LOSSES ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS.
THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY
AFFECT ACTUAL TRADING RESULTS.
THE MANAGING OWNER HAS HAD NO MATERIAL EXPERIENCE IN TRADING ACTUAL ACCOUNTS FOR ITSELF OR FOR CUSTOMERS. BECAUSE THERE ARE
NO ACTUAL TRADING RESULTS TO COMPARE TO THE HYPOTHETICAL PERFORMANCE RESULTS, CUSTOMERS SHOULD BE PARTICULARLY WARY OF PLACING UNDUE RELIANCE ON THESE HYPOTHETICAL PERFORMANCE RESULTS.
ALTHOUGH THE INDEX SPONSOR WILL OBTAIN INFORMATION FOR INCLUSION IN OR FOR USE IN THE CALCULATION OF THE INDEX FROM SOURCE(S) WHICH THE INDEX SPONSOR CONSIDERS RELIABLE, THE INDEX SPONSOR WILL NOT INDEPENDENTLY VERIFY
SUCH INFORMATION AND DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE INDEX OR ANY DATA INCLUDED THEREIN. THE INDEX SPONSOR SHALL NOT BE LIABLE (WHETHER IN NEGLIGENCE OR OTHERWISE) TO ANY PERSON FOR ANY ERROR IN THE INDEX AND THE INDEX
SPONSOR IS UNDER NO OBLIGATION TO ADVISE ANY PERSON OF ANY ERROR THEREIN.
UNLESS OTHERWISE SPECIFIED, NO TRANSACTION RELATING TO THE INDEX IS SPONSORED,
ENDORSED, SOLD OR PROMOTED BY THE INDEX SPONSOR AND THE INDEX SPONSOR MAKES NO EXPRESS OR IMPLIED REPRESENTATIONS OR WARRANTIES AS TO (A) THE ADVISABILITY OF PURCHASING OR ASSUMING ANY RISK IN CONNECTION WITH ANY SUCH TRANSACTION (B) THE
LEVELS AT WHICH THE INDEX STANDS AT ANY PARTICULAR TIME ON ANY PARTICULAR DATE (C) THE RESULTS TO BE OBTAINED BY THE ISSUER OF ANY SECURITY OR ANY COUNTERPARTY OR ANY SUCH ISSUER’S SECURITY HOLDERS OR CUSTOMERS OR ANY SUCH
COUNTERPARTY’S CUSTOMERS OR COUNTERPARTIES OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE INDEX OR ANY DATA INCLUDED THEREIN IN CONNECTION WITH ANY LICENSED RIGHTS OR FOR ANY OTHER USE OR (D) ANY OTHER MATTER. THE INDEX SPONSOR MAKES NO
EXPRESS OR IMPLIED REPRESENTATIONS OR WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO THE INDEX OR ANY DATA INCLUDED THEREIN.
B-15
WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL THE INDEX SPONSOR HAVE ANY LIABILITY (WHETHER IN NEGLIGENCE OR
OTHERWISE) TO ANY PERSON FOR ANY DIRECT, INDIRECT, SPECIAL, PUNITIVE, CONSEQUENTIAL OR ANY OTHER DAMAGES (INCLUDING LOST PROFITS) EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
B-16
EXHIBIT 4.3
FORM OF
DB CURRENCY INDEX VALUE FUND
PARTICIPANT AGREEMENT
This DB Currency Index Value Fund Participant Agreement (the
“Agreement”), dated as of
20
, is entered into by and among
(the “Authorized Participant”), DB Currency Index Value Fund, a Delaware statutory trust (the “Trust”), and DB Commodity Services LLC, a Delaware
limited liability company, as managing owner of the Trust (the “Managing Owner”).
SUMMARY
As provided in the Amended and Restated Declaration of Trust and Trust Agreement of the Trust (the “Trust Agreement”) as currently in effect
and described in the Prospectus (defined below), units of fractional undivided beneficial interest in and ownership of the Trust (the “Shares”) may be created or redeemed by the Managing Owner for an Authorized Participant in aggregations
of two hundred thousand (200,000) Shares (each aggregation, a “Basket”). Baskets are offered only pursuant to the registration statement of the Trust on Form S-1, as amended (Registration Nos.:
333-
and 333-
-01), as declared effective by the Securities and Exchange Commission
(“SEC”) and as the same may be amended from time to time thereafter or any successor registration statement in respect of Shares of the Trust (collectively, the “Registration Statement”) together with the prospectus of the Trust
(the “Prospectus”) included therein. Under the Trust Agreement, the Managing Owner is authorized to issue Baskets to, and redeem Baskets from, Authorized Participants, only through the facilities of the Depository Trust Company
(“DTC” or the “Depository”), or a successor depository, and only in exchange for cash. This Agreement sets forth the specific procedures by which an Authorized Participant may create or redeem Baskets.
Because new Shares can be created and issued on an ongoing basis, at any point during the life of the Trust, a “distribution,” as such term is
used in the Securities Act of 1933, as amended (“1933 Act”), may be occurring. The Authorized Participant is cautioned that some of its activities may result in its being deemed a participant in a distribution in a manner which would
render it a statutory underwriter and subject it to the prospectus-delivery and liability provisions of the 1933 Act. The Authorized Participant should review the “Plan of Distribution” portion of the Prospectus and consult with its own
counsel in connection with entering into this Agreement and submitting a Purchase Order Subscription Agreement (defined below).
Capitalized terms used but not defined in this Agreement shall have the meanings assigned to such terms in the Trust Agreement. To the extent there is a conflict between any provision of this Agreement and the provisions of the Trust
Agreement, the provisions of the Trust Agreement shall control.
To give effect to the foregoing premises and in consideration of the mutual covenants and agreements set
forth below, the parties hereto agree as follows:
Section 1.
Order Placement
. To place orders for the Managing Owner to create
or redeem one or more Baskets, Authorized Participants must follow the procedures for creation and redemption referred to in Section 3 of this Agreement and the procedures described in Attachment A hereto (the “Procedures”), as each
may be amended, modified or supplemented from time to time.
Section 2.
Status of Authorized Participant
. The Authorized
Participant represents and warrants and covenants the following:
(a) The Authorized Participant is a participant of DTC (as such a
participant, a “DTC Participant”). If the Authorized Participant ceases to be a DTC Participant, the Authorized Participant shall give immediate notice to the Managing Owner of such event, and this Agreement shall terminate immediately as
of the date the Authorized Participant ceased to be a DTC Participant.
(b) Unless Section 2(c) applies, the Authorized Participant
either (i) is registered as a broker-dealer under the Securities Exchange Act of 1934, as amended (“1934 Act”), and is a member in good standing of the National Association of Securities Dealers, Inc. (the “NASD”), or
(ii) is exempt from being, or otherwise is not required to be, licensed as a broker-dealer or a member of the NASD, and in either case is qualified to act as a broker or dealer in the states or other jurisdictions where the nature of its
business so requires. The Authorized Participant will maintain any such registrations, qualifications and membership in good standing and in full force and effect throughout the term of this Agreement. The Authorized Participant will comply with all
applicable federal laws, including without limitation, the delivery requirements of Section 5 of the 1933 Act and all applicable rules of the SEC, the laws of the states or other jurisdictions concerned, and the rules and regulations
promulgated thereunder, and with the Constitution, By-Laws and Conduct Rules of the NASD (if it is a NASD member), and will not offer or sell Shares in any state or jurisdiction where they may not lawfully be offered and/or sold.
(c) If the Authorized Participant is offering or selling Shares in jurisdictions outside the several states, territories and possessions of the United
States and is not otherwise required to be registered, qualified or a member of the NASD as set forth in Section 2(b) above, the Authorized Participant will (i) observe the applicable laws of the jurisdiction in which such offer and/or
sale is made, (ii) comply with the full disclosure requirements of the 1933 Act, and the regulations promulgated thereunder, and (iii) conduct its business in accordance with the spirit of the NASD Conduct Rules.
(d) The Authorized Participant is in compliance with the money laundering and related provisions of the Uniting and Strengthening America by Providing
Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the “USA PATRIOT Act”), and the regulations promulgated thereunder, if the Authorized Participant is subject to the requirements of the USA PATRIOT Act.
Section 3.
Orders
. (a) All orders to create or redeem Baskets shall be made in accordance with the terms of the Trust
Agreement, this Agreement and the Procedures. Each party will comply with such foregoing terms and procedures to the extent applicable to it. The Authorized Participant hereby consents to the use of recorded telephone lines whether or not
2
such use is reflected in the Procedures. The Managing Owner may issue additional or other procedures from time to time
relating to the manner of creating or redeeming Baskets which are not related to the Procedures, and the Authorized Participant will comply with such procedures of which it has been notified in accordance with this Agreement.
(b) The Authorized Participant acknowledges and agrees on behalf of itself and any party for which it is acting (whether such party is a customer or
otherwise) that each order to create a Basket (a “Purchase Order Subscription Agreement”) and each order to redeem a Basket (a “Redemption Order”, and each Purchase Order Subscription Agreement and Redemption Order, an
“Order”) may not be revoked by the Authorized Participant upon its delivery to the Managing Owner. A form of Purchase Order Subscription Agreement is attached hereto as Exhibit B and a form of Redemption Order is attached hereto as Exhibit
C.
(c) The Managing Owner shall have the absolute right, but shall have no obligation, to reject any Purchase Order Subscription Agreement
or Creation Basket Capital Contribution (i) determined by the Managing Owner not to be in proper form; (ii) that the Managing Owner has determined would have adverse tax consequences to the Trust or to the Beneficial Owners; (iii) the
acceptance or receipt of which could, in the opinion of counsel to the Managing Owner be unlawful; or (iv) if circumstances outside the control of the Managing Owner make it for all practical purposes not feasible to process creations of
Creation Baskets. The Managing Owner shall not be liable to any person by reason of the rejection of any Purchase Order Subscription Agreement or Creation Basket Capital Contribution.
(d) The Managing Owner shall reject any Redemption Order the fulfillment of which its counsel advises would be illegal under applicable laws and
regulations, and the Managing Owner shall have no liability to any person for rejecting a Redemption Order in such circumstances.
(e) The
Managing Owner may, in its discretion, suspend the right of redemption, or postpone the applicable Redemption Settlement Time, (i) for any period during which the American Stock Exchange or any exchange on which the Trust’s assets are
regularly traded is closed other than for customary weekend or holiday closings, or trading is suspended or restricted; (ii) for any period during which an emergency exists as a result of which delivery, disposal or evaluation of the
Trust’s assets is not reasonably practicable; or (iii) for such other period as the Managing Owner determines to be necessary for the protection of the Beneficial Owners. The Managing Owner is not liable to any person or in any way for any
loss or damages that may result from any such suspension or postponement.
Section 4.
Fees
. In connection with each Order by an
Authorized Participant to create or redeem one or more Baskets, the Managing Owner shall charge, and the Authorized Participant shall pay from its DTC account to the Managing Owner, the Transaction Fee prescribed in the Trust Agreement applicable to
such creation or redemption. The initial Transaction Fee shall be five hundred dollars ($500). The Transaction Fee may be adjusted from time to time as set forth in the Trust Agreement and Prospectus. As described in the Procedures, the Authorized
Participant will be charged by the Managing Owner an additional processing charge if the Authorized Participant fails timely to deliver the Creation Basket Capital Contribution (in the case of a Purchase Order Subscription Agreement) or the Baskets
(in the case of a Redemption Order).
3
Section 5.
Authorized Persons
. Concurrently with the execution of this Agreement and from
time to time thereafter, the Authorized Participant shall deliver to the Managing Owner notarized and duly certified as appropriate by its secretary or other duly authorized official, a certificate in the form of Exhibit A setting forth the names
and signatures of all persons authorized to give instructions relating to activity contemplated hereby or by any other notice, request or instruction given on behalf of the Authorized Participant (each, an “Authorized Person”). The
Managing Owner may accept and rely upon such certificate as conclusive evidence of the facts set forth therein and shall consider such certificate to be in full force and effect until the Managing Owner receives a superseding certificate bearing a
subsequent date. Upon the termination or revocation of authority of any Authorized Person by the Authorized Participant, the Authorized Participant shall give immediate written notice of such fact to the Managing Owner and such notice shall be
effective upon receipt by the Managing Owner. The Managing Owner shall issue to each Authorized Person a unique personal identification number (the “PIN Number”) by which such Authorized Person shall be identified and by which instructions
issued by the Authorized Participant hereunder shall be authenticated. The PIN Number shall be kept confidential by the Authorized Participant and shall only be provided to the Authorized Person. If, after issuance, the Authorized Person’s PIN
Number is changed, the new PIN Number shall become effective on a date mutually agreed upon by the Authorized Participant and the Managing Owner.
Section 6.
Redemption
. The Authorized Participant represents and warrants that it will not obtain an Order Number (as described in the Procedures) from the Managing Owner for the purpose of redeeming a Basket unless it first
ascertains that (i) it or its customer, as the case may be, owns outright or has full legal authority and legal and beneficial right to tender for redemption the Baskets to be redeemed and to receive the entire proceeds of the redemption, and
(ii) such Baskets have not been loaned or pledged to another party and are not the subject of a repurchase agreement, securities lending agreement or any other arrangement which would preclude the delivery of such Baskets to the Managing Owner
on the Business Day following the Redemption Order Date.
Section 7.
Role of Authorized Participant
. (a) The Authorized
Participant acknowledges that, for all purposes of this Agreement and the Trust Agreement, the Authorized Participant is and shall be deemed to be an independent contractor and has and shall have no authority to act as agent for the Trust or the
Managing Owner in any matter or in any respect.
(b) The Authorized Participant will make itself and its employees available, upon request,
during normal business hours to consult with the Managing Owner or its designees concerning the performance of the Authorized Participant’s responsibilities under this Agreement.
(c) With respect to any creation or redemption transaction made by the Authorized Participant pursuant to this Agreement for the benefit of any customer
or any other DTC Participant or Indirect Participant, or any other Beneficial Owner, the Authorized Participant shall extend to any such party all of the rights, and shall be bound by all of the obligations, of a DTC Participant in addition to any
obligations that it undertakes hereunder or in accordance with the Trust Agreement.
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(d) The Authorized Participant will maintain records of all sales of Shares made by or through it and
will furnish copies of such records to the Managing Owner upon the reasonable request of the Managing Owner.
Section 8.
Indemnification
.
(a) The Authorized Participant hereby indemnifies and holds harmless the Trust and the Managing Owner, their
respective direct or indirect affiliates (as defined below) and their respective directors, trustees, managing owners, partners, members, managers, officers, employees and agents (each, an “AP Indemnified Party”) from and against any
losses, liabilities, damages, costs and expenses (including attorney’s fees and the reasonable cost of investigation) incurred by such AP Indemnified Party as a result of or in connection with: (i) any breach by the Authorized Participant
of any provisions of this Agreement, including its representations, warranties and covenants; (ii) any failure on the part of the Authorized Participant to perform any of its obligations set forth in this Agreement; (iii) any failure by
the Authorized Participant to comply with applicable laws and the rules and regulations of self-regulatory organizations; (iv) any actions of such AP Indemnified Party in reliance upon any instructions issued in accordance with the Procedures
believed by the AP Indemnified Party to be genuine and to have been given by the Authorized Participant; or (v) (A) any representation by the Authorized Participant, its employees or its agents or other representatives about the Shares,
any AP Indemnified Party or the Trust that is not consistent with the Trust’s then-current Prospectus made in connection with the offer or the solicitation of an offer to buy or sell Shares and (B) any untrue statement or alleged untrue
statement of a material fact contained in any research reports, marketing material and sales literature described in Section 12(b) or any alleged omission to state therein a material fact required to be stated therein or necessary to make the
statements therein not misleading to the extent that such statement or omission relates to the Shares, any AP Indemnified Party or the Trust, unless, in either case, such representation, statement or omission was made or included by the Authorized
Participant at the written direction of the Managing Owner or is based upon any omission or alleged omission by the Managing Owner to state a material fact in connection with such representation, statement or omission necessary to make such
representation, statement or omission not misleading.
(b) The Managing Owner hereby agrees to indemnify and hold harmless the Authorized
Participant, its respective subsidiaries, affiliates, directors, officers, employees and agents, and each person, if any, who controls such persons within the meaning of Section 15 of the 1933 Act (each, a “Managing Owner Indemnified
Party”) from and against any losses, liabilities, damages, costs and expenses (including attorneys’ fees and the reasonable cost of investigation) incurred by such Managing Owner Indemnified Party as a result of (i) any breach by the
Managing Owner of any provision of this Agreement that relates to the Managing Owner; (ii) any failure on the part of the Managing Owner to perform any obligation of the Managing Owner set forth in this Agreement; (iii) any failure by the
Managing Owner to comply with applicable laws; or (iv) any untrue statement or alleged untrue statement of a material fact contained in the registration statement of the Trust as originally filed with the SEC or in any amendment thereof, or in
any prospectus, or in any amendment thereof or supplement thereto, or
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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 or the Prospectus based on information furnished in writing by or on behalf of the Authorized Participant expressly for use in
the Registration Statement or the Prospectus.
(c) This Section 8 shall not apply to the extent any such losses, liabilities, damages,
costs and expenses are incurred as a result or in connection with any gross negligence, bad faith or willful misconduct on the part of the AP Indemnified Party or the Managing Owner Indemnified Party, as the case may be. The term
“affiliate” in this Section 8 shall include, with respect to any person, entity or organization, any other person, entity or organization which directly, or indirectly through one or more intermediaries, controls, is controlled by or
is under common control with such person, entity or organization.
(d) If the indemnification provided for in this Section 8 is
unavailable to an indemnified party under Sections 8(a) or 8(b) or insufficient to hold an indemnified party harmless in respect of any losses, liabilities, damages, costs and expenses referred to therein, then each applicable indemnifying party
shall contribute to the amount paid or payable by such indemnified party as a result of such losses, liabilities, damages, costs and expenses (i) in such proportion as is appropriate to reflect the relative benefits received by the Managing
Owner and the Trust, on the one hand, and by the Authorized Participant, on the other hand, from the services provided hereunder or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion
as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Managing Owner and the Trust, on the one hand, and of the Authorized Participant, on the other hand, in connection
with, to the extent applicable, the statements or omissions which resulted in such losses, liabilities, damages, costs and expenses, as well as any other relevant equitable considerations. The relative benefits received by the Managing Owner and the
Trust, on the one hand, and the Authorized Participant, on the other hand, shall be deemed to be in the same respective proportions as the amount of cash transferred to the Trust under this Agreement on the one hand (expressed in dollars) bears to
the amount of economic benefit received by the Authorized Participant in connection with this Agreement on the other hand. To the extent applicable, the relative fault of the Managing Owner on the one hand and of the Authorized Participant on the
other shall be determined by reference to, among other things, whether the untrue statement or alleged untrue statement of a material fact or omission or alleged omission relates to information supplied by the Managing Owner or by the Authorized
Participant and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid or payable by a party as a result of the losses, liabilities, damages, costs and
expenses referred to in this Section 8(d) shall be deemed to include any legal or other fees or expenses reasonably incurred by such party in connection with investigating, preparing to defend or defending any action, suit or proceeding (each a
“Proceeding”) related to such losses, liabilities, damages, costs and expenses.
(e) The Managing Owner and the Authorized
Participant agree that it would not be just and equitable if contribution pursuant to this Section 8 were determined by pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred
to in Section 8(d) above. The Authorized Participant shall not be required to contribute any amount in excess of the amount by which the total price at which the Shares
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created by the Authorized Participant and distributed to the public exceeds the amount of any damage which the Authorized
Participant has otherwise been required to pay by reason of such untrue statement or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933
Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation.
(f) The indemnity and
contribution agreements contained in this Section 8 shall remain in full force and effect regardless of any investigation made by or on behalf of the Authorized Participant, its partners, stockholders, members, directors, officers, employees
and or any person (including each partner, stockholder, member, director, officer or employee of such person) who controls the Authorized Participant within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act, or by or
on behalf of the Managing Owner, its partners, stockholders, members, managers, directors, officers, employees or any person who controls the Managing Owner within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act,
and shall survive any termination of this Agreement. The Managing Owner and the Authorized Participant agree promptly to notify each other of the commencement of any Proceeding against it and, in the case of the Managing Owner, against any of the
Managing Owner’s officers or directors, in connection with the issuance and sale of the Shares or in connection with the Registration Statement or the Prospectus.
Section 9. (a)
Limitation of Liability
. Neither the Managing Owner nor the Authorized Participant shall 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.
(b)
Tax Liability
. The Authorized Participant shall be responsible
for the payment of any transfer tax, sales or use tax, stamp tax, recording tax, value added tax and any other similar tax or government charge applicable to the creation or redemption of any Basket made pursuant to this Agreement, regardless of
whether or not such tax or charge is imposed directly on the Authorized Participant. To the extent the Managing Owner or the Trust is required by law to pay any such tax or charge, the Authorized Participant agrees to promptly indemnify such party
for any such payment, together with any applicable penalties, additions to tax or interest thereon.
Section 10.
Acknowledgment
. The Authorized Participant acknowledges receipt of a (i) copy of the Trust Agreement and (ii) the current Prospectus of the Trust and represents that it has reviewed and understands such documents.
Section 11.
Effectiveness and Termination
. Upon the execution of this Agreement by the parties hereto, this Agreement shall become effective
in this form as of the date first set forth above, and may be terminated at any time by any party upon thirty (30) days prior written notice to the other parties unless earlier terminated: (i) in accordance with Section 2(a);
(ii) upon notice to the Authorized Participant by the Managing Owner in the event of a breach by the Authorized Participant of this Agreement or the procedures described or incorporated herein; (iii) immediately in the circumstances
described in Section 17(j); or (iv) at such time as the Trust is terminated pursuant to the Trust Agreement.
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Section 12.
Marketing Materials; Representations Regarding Shares; Identification in Registration
Statement
.
(a) The Authorized Participant represents, warrants and covenants that (i), without the written consent of the Managing
Owner, the Authorized Participant will not make, or permit any of its representatives to make, any representations concerning the Shares or any AP Indemnified Party other than representations contained (A) in the then-current Prospectus of the
Trust, (B) in printed information approved by the Managing Owner as information supplemental to such Prospectus or (C) in any promotional materials or sales literature furnished to the Authorized Participant by the Managing Owner, and
(ii) the Authorized Participant will not furnish or cause to be furnished to any person or display or publish any information or material relating to the Shares, any AP Indemnified Person or the Trust that are not consistent with the
Trust’s then current Prospectus. Copies of the then current Prospectus of the Trust and any such printed supplemental information will be supplied by the Managing Owner to the Authorized Participant in reasonable quantities upon request.
(b) Notwithstanding the foregoing, the Authorized Participant may without the written approval of the Managing Owner prepare and circulate
in the regular course of its business research reports, marketing material and sales literature that includes information, opinions or recommendations relating to the Shares (i) for public dissemination, provided that such research reports,
marketing material or sales literature compare the relative merits and benefits of Shares with other products; and (ii) for internal use by the Authorized Participant. The Authorized Participant will file all such research reports, marketing
material and sales literature related to the Shares with the NASD to the extent required by the NASD Conduct Rules.
(c) The Authorized
Participant hereby agrees that for the term of this Agreement the Managing Owner may deliver the then-current Prospectus, and any supplements or amendments thereto or recirculation thereof, to the Authorized Participant in Portable Document Format
(“PDF”) via electronic mail in lieu of delivering the Prospectus in paper form. The Authorized Participant may revoke the foregoing agreement at any time by delivering written notice to the Managing Owner and, whether or not such agreement
is in effect, the Authorized Participant may, at any time, request reasonable quantities of the Prospectus, and any supplements or amendments thereto or recirculation thereof, in paper form from the Managing Owner. The Authorized Participant
acknowledges that it has the capability to access, view, save and print material provided to it in PDF and that it will incur no appreciable extra costs by receiving the Prospectus in PDF instead of in paper form. The Managing Owner will when
requested by the Authorized Participant make available at no cost the software and technical assistance necessary to allow the Authorized Participant to access, view and print the PDF version of the Prospectus.
(d) For as long as this Agreement is effective, the Authorized Participant agrees to be identified as an authorized participant of the Trust (i) in
the section of the Prospectus included within the Registration Statement entitled “Creation and Redemption of Shares” and in any other section as may be required by the SEC and (ii) on the Trust’s website. Upon the termination of
this Agreement, (i) during the period prior to when the Managing Owner qualifies and in its sole discretion elects to file on Form S-3, the Managing Owner will remove such identification from the Prospectus in the amendment of the Registration
Statement next occurring after the date of
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the termination of this Agreement and, during the period after when the Managing Owner qualifies and in its sole
discretion elects to file on Form S-3, the Managing Owner will promptly file a current report on Form 8-K indicating the withdrawal of the Authorized Participant as an authorized participant of the Trust and (ii) the Managing Owner will
promptly update the Trust’s website to remove any identification of the Authorized Participant as an authorized participant of the Trust.
Section 13.
Certain Covenants of the Managing Owner
. The Managing Owner, on its own behalf and as sponsor of the Trust, covenants and agrees:
(a) to advise the Authorized Participant promptly of the happening of any event during the term of this Agreement which could require the making of any change in the Prospectus then being used so that the Prospectus
would not include an untrue statement of material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they are made, not misleading, and, during such time, to prepare and
furnish, at the expense of the Trust, to the Authorized Participant promptly such amendments or supplements to such Prospectus as may be necessary to reflect any such change;
(b) to furnish to the Authorized Participant, at each time (i) the Registration Statement or the Prospectus is amended or supplemented by the filing
of a post-effective amendment, (ii) a new Registration Statement is filed to register additional Shares in reliance on Rule 429, and (iii) there is financial information incorporated by reference into the Registration Statement or the
Prospectus, an opinion of either (x) Sidley Austin
LLP
, counsel for the Managing Owner, or (y) special Delaware counsel for the Managing Owner addressed to the Authorized Participant and dated such dates in form and
substance satisfactory to the Authorized Participant, stating that:
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1.
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the Trust is validly existing as a statutory trust under the Delaware Statutory Trust Act, as described in the Registration Statement and the Prospectus, and has all power and
authority to issue and deliver the Shares as contemplated therein and to execute and deliver this Agreement;
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2.
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the Managing Owner has been duly formed and is validly existing as a limited liability company in good standing under the laws of the State of Delaware, with full power and
authority to conduct its business as described in the Registration Statement and the Prospectus and to execute and deliver this Agreement;
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3.
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the Managing Owner is duly qualified and is in good standing in each jurisdiction where the conduct of its business requires such qualification;
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4.
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this Agreement has been duly authorized, executed and delivered by the Managing Owner;
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5.
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the Shares issuable by the Trust as described in the Registration Statement, when issued in accordance with the terms of the Trust Agreement as described in the Registration
Statement, will have been duly authorized and validly issued and fully paid and non-assessable;
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6.
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the Shares conform to the description thereof contained in the Registration Statement and the Prospectus;
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7.
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the Registration Statement and the Prospectus (except as to the financial statements and schedules and other financial information contained therein, as to which such counsel need
express no opinion) comply as to form in all material respects with the requirements of the 1933 Act;
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8.
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the Registration Statement has become effective under the 1933 Act and, to such counsel’s knowledge, no stop order proceedings with respect thereto are pending or threatened
under the 1933 Act and any required filing of the Prospectus and any supplement thereto pursuant to Rule 424 under the 1933 Act has been made in the manner and within the time period required by such Rule 424;
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9.
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no approval, authorization, consent or order of or filing with any federal, or Delaware governmental or regulatory commission, board, body, authority or agency is required in
connection with the issuance and sale of the Shares and consummation by the Trust and the Managing Owner of the transactions contemplated in the Prospectus other than registration of the Shares under the 1933 Act (except such counsel need express no
opinion as to any necessary qualification under the state securities or blue sky laws of any state or the laws of any jurisdictions outside the United States);
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10.
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the execution, delivery and performance of this Agreement by the Managing Owner, the issuance and delivery of the Shares by the Trust and the consummation by the Managing Owner on
behalf of the Trust of the transactions contemplated hereby do not and will not conflict with, result in any breach or violation of or constitute a default under (nor constitute any event which with notice, lapse of time or both would result in any
breach or violation of or constitute a default under) the limited liability company agreement of the Managing Owner or the Trust Agreement, or any indenture, mortgage, deed of trust, bank loan or credit agreement or other evidence of indebtedness,
or any license, lease, contract or other agreement or instrument known to such counsel (based on a certificate of an officer of the Managing Owner) to which the Managing Owner or the Trust is a party or by which the Managing Owner or the Trust or
any of their respective properties may be bound or affected, or any federal, or Delaware law, regulation or rule or any decree, judgment or order applicable to the Managing Owner or the Trust (based, in the case of any decree, judgment or order, on
a certificate of an officer of the Managing Owner);
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11.
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to such counsel’s knowledge, neither the Managing Owner nor the Trust is in breach or violation of or in default under (nor has any event occurred which with notice, lapse of
time, or both would result in any breach or violation of, or constitute a default under) their respective constitutive documents, or any federal or Delaware law, regulation or rule applicable to the Managing Owner or the Trust;
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12.
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to such counsel’s knowledge, there are no affiliate transactions, off-balance sheet transactions, contracts, licenses, agreements, leases or documents of a character which are
required to be described in the Registration Statement or the Prospectus or to be filed as an exhibit to the Registration Statement which have not been so described or filed;
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13.
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to such counsel’s knowledge, there are no actions, suits, claims, investigations or proceedings pending, or threatened to which the Managing Owner is or would be a party or to
which any of its properties is or would be subject at law or in equity, before or by any federal, state, local or foreign governmental or regulatory commission, board, body, authority or agency which are required to be described in the Registration
Statement or the Prospectus but are not so described;
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14.
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the Trust is not and, after giving effect to the offering and sale of the Shares, will not be required to be registered as an investment company under the Investment Company Act of
1940, as amended (the “Investment Company Act”); and
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15.
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the information in the Registration Statement and the Prospectus under the headings “Material U. S. Federal Income Tax Considerations,” and “Description of the Shares
and the Master Fund Units; Certain Material Terms of the Trust Declarations,” insofar as such statements constitute a summary of documents or matters of law, are accurate in all material respects and present fairly the information required to
be shown.
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In addition, such counsel shall state that such counsel has participated in conferences with officers and other
representatives of the Managing Owner, representatives of the independent public accountants of the Trust and representatives of the Authorized Participant at which the contents of the Registration Statement and the Prospectus were discussed and,
although such counsel is not passing upon and does not assume responsibility for the accuracy, completeness or fairness of the statements contained in the Registration Statement or the Prospectus (except as and to the extent stated in subparagraphs
(6) and (15) above), on the basis of the foregoing nothing has come to the attention of such counsel that causes them to believe that the Registration Statement or any amendment thereto at the time such Registration Statement or amendment
became effective contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading, or that the Prospectus or any supplement thereto at the
date of such Prospectus or such supplement, and at the time of purchase of the Shares by the Authorized Participant hereunder, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under which they were made, not misleading (it being understood that such counsel need express no opinion with respect to the financial statements and schedules and other
financial information included in the Registration Statement or the Prospectus);
(c) to cause KPMG LLP to deliver, at each time
(i) the Registration Statement or the Prospectus is amended or supplemented by the filing of a post-effective amendment, (ii) a new Registration Statement is filed to register additional Shares in reliance on Rule 429, and (iii) there
is financial information incorporated by reference into the Registration Statement or the
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Prospectus, letters dated such dates and addressed to the Authorized Participant, containing statements and information of the type ordinarily included in
accountants’ letters to underwriters with respect to the financial statements and other financial information contained in or incorporated by reference into the Registration Statement and the Prospectus;
(d) to deliver to the Authorized Participant, at each time (i) the Registration Statement or the Prospectus is amended or supplemented by the filing
of a post-effective amendment, (ii) a new Registration Statement is filed to register additional Shares in reliance on Rule 429, and (iii) there is financial information incorporated by reference into the Registration Statement or the
Prospectus, a certification by a duly authorized officer of the Managing Owner in the form attached hereto as Exhibit D.
In addition, any
certificate signed by any officer of the Managing Owner and delivered to the Authorized Participant or counsel for the Authorized Participant pursuant hereto shall be deemed to be a representation and warranty by the Managing Owner as to matters
covered thereby to the Authorized Participant;
(e) to cause the Trust to file a post-effective amendment to the Registration Statement no
less frequently than once per calendar quarter on or about the same time that the Trust files a quarterly or annual report pursuant to Section 13 or 15(d) of the 1934 Act (including the information contained in such report), until such time as
the Trust’s reports filed pursuant to Section 13 or 15(d) of the 1934 Act are incorporated by reference in the Registration Statement.
Section 14.
Third Party Beneficiaries
. Each AP Indemnified Party, to the extent it is not a party to this Agreement, is a third-party beneficiary of this Agreement (each, a “Third Party Beneficiary”) and may proceed
directly against the Authorized Participant (including by bringing proceedings against the Authorized Participant in its own name) to enforce any obligation of the Authorized Participant under this Agreement which directly or indirectly benefits
such Third Party Beneficiary.
Section 15.
Force Majeure
. No party to this Agreement shall incur any liability for any delay in
performance, or for the non-performance, of any of its obligations under this Agreement by reason of any cause beyond its reasonable control. This includes any act of God or war or terrorism, any breakdown, malfunction or failure of transmission in
connection with or other unavailability of any wire, communication or computer facilities, any transport, port, or airport disruption, industrial action, acts and regulations and rules of any governmental or supra-national bodies or authorities or
regulatory or self-regulatory organization or failure of any such body, authority or organization for any reason, to perform its obligations.
Section 16.
Ambiguous Instructions
. If a Purchase Order Subscription Agreement or a Redemption Order otherwise in good form contains order terms that differ from the information provided in the telephone call at the time of
issuance of the applicable order number, the Managing Owner will attempt to contact one of the Authorized Persons of the Authorized Participant to request confirmation of the terms of the Order. If an Authorized Person confirms the terms as they
appear in the Order, then the Order will be accepted and processed. If an Authorized Person contradicts the Order terms, the Order will be deemed invalid, and a corrected Order must be received by the Managing Owner, as the case may be, not later
than the earlier of:
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(i) within 15 minutes of such contact with the Authorized Person; or (ii) 45 minutes after the Order Cut-Off Time.
If the Managing Owner is not able to contact an Authorized Person, then the Order shall be accepted and processed in accordance with its terms notwithstanding any inconsistency from the terms of the telephone information. In the event that an Order
contains terms that are illegible, the Order will be deemed invalid and the Managing Owner will attempt to contact one of the Authorized Persons of the Authorized Participant to request retransmission of the Order. A corrected Order must be received
by the Managing Owner not later than the earlier of (i) within 15 minutes of such contact with the Authorized Person or (ii) 45 minutes after the Order Cut-Off Time, as the case may be.
Section 17.
Miscellaneous
.
(a)
Amendment and Modification
. This Agreement, the Procedures attached as Attachment A and the Exhibits hereto may be amended, modified or supplemented by the Trust and the Managing Owner, without consent of any Beneficial Owner or Authorized
Participant from time to time by the following procedure. After the amendment, modification or supplement has been agreed to, the Managing Owner will mail a copy of the proposed amendment, modification or supplement to the Authorized Participant.
For the purposes of this Agreement, mail will be deemed received by the recipient thereof on the third (3
rd
) day following the deposit of such mail into the United States postal system. Within ten (10) calendar days after its deemed receipt, the amendment, modification or supplement will become part of this Agreement, the
Attachments or the Exhibits, as the case may be, in accordance with its terms. If at any time there is any material amendment, modification or supplement of any DB Currency Index Value Fund Participant Agreement (other than this Agreement), the
Managing Owner will promptly mail a copy of such amendment, modification or supplement to the Authorized Participant.
(b)
Waiver of
Compliance
. Any failure of any of the parties to comply with any obligation, covenant, agreement or condition herein may be waived by the party entitled to the benefits thereof only by a written instrument signed by the party granting such
waiver, but any such written waiver, or the failure to insist upon strict compliance with any obligation, covenant, agreement or condition herein, shall not operate as a waiver of, or estoppel with respect to, any subsequent or other failure.
(c)
Notices
. Except as otherwise specifically provided in this Agreement, all notices required or permitted to be given pursuant to
this Agreement shall be given in writing and delivered by personal delivery, by postage prepaid registered or certified United States first class mail, return receipt requested, by nationally recognized overnight courier (delivery confirmation
received) or by telex, telegram or telephonic facsimile or similar means of same day delivery (transmission confirmation received), with a confirming copy regular mail, postage prepaid. For avoidance of doubt, notices may not be given or transmitted
by electronic mail. Unless otherwise notified in writing, all notices to the Trust shall be given or sent to the Managing Owner. All notices shall be directed to the address or telephone or facsimile numbers indicated below the signature line of the
parties on the signature page hereof.
(d)
Successors and Assigns
. This Agreement and all of the provisions hereof shall be binding
upon and inure to the benefit of the parties and their respective successors and permitted assigns.
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(e)
Assignment
. Neither this Agreement nor any of the rights, interests or obligations hereunder
shall be assigned by any party without the prior written consent of the other parties, except that any entity into which a party hereto may be merged or converted or with which it may be consolidated or any entity resulting from any merger,
conversion, or consolidation to which such party hereunder shall be a party, or any entity succeeding to all or substantially all of the business of the party, shall be the successor of the party under this Agreement and except that the Managing
Owner may delegate its obligations hereunder to the Distributor or the Administrator by notice to the Authorized Participant. The party resulting from any such merger, conversion, consolidation or succession shall notify the other parties hereto of
the change. Any purported assignment in violation of the provisions hereof shall be null and void. Notwithstanding the foregoing, this Agreement shall be automatically assigned to any successor trustee or Managing Owner at such time such successor
qualifies as a successor trustee or Managing Owner under the terms of the Trust Agreement.
(f)
Governing Law; Consent to
Jurisdiction
. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware (regardless of the laws that might otherwise govern under applicable Delaware conflict of laws principles) as to all matters,
including matters of validity, construction, effect, performance and remedies. Each party hereto irrevocably consents to the jurisdiction of the courts of the State of New York and of any federal court located in the Borough of Manhattan in such
State in connection with any action, suit or other proceeding arising out of or relating to this Agreement or any action taken or omitted hereunder, and waives any claim of forum non conveniens and any objections as to laying of venue. Each party
further waives personal service of any summons, complaint or other process and agrees that service thereof may be made by certified or registered mail directed to such party at such party’s address for purposes of notices hereunder.
(g)
Counterparts
. This Agreement may be executed in one or more counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to constitute one and the same agreement, and it shall not be necessary in making proof of this Agreement as to any party hereto to produce or account for more than one such counterpart
executed and delivered by such party.
(h)
Interpretation
. The article and section headings contained in this Agreement are solely
for the purpose of reference, are not part of the agreement of the parties and shall not in any way affect the meaning or interpretation of this Agreement.
(i)
Entire Agreement
. This Agreement and the Trust Agreement, along with any other agreement or instrument delivered pursuant to this Agreement and the Trust Agreement, supersede all prior agreements and
understandings between the parties with respect to the subject matter hereof, provided, however, that the Authorized Participant shall not be deemed by this provision to be a party to the Trust Agreement.
(j)
Severance
. If any provision of this Agreement is held by any court or any act, regulation, rule or decision of any other governmental or supra
national body or authority or regulatory or self-regulatory organization to be invalid, illegal or unenforceable for any reason, it shall be invalid, illegal or unenforceable only to the extent so held and shall not affect the validity, legality or
enforceability of the other provisions of this Agreement and this Agreement
14
will be construed as if such invalid, illegal, or unenforceable provision had never been contained herein, unless the
Managing Owner determines in its discretion that the provision of this Agreement that was held invalid, illegal or unenforceable does affect the validity, legality or enforceability of one or more other provisions of this Agreement, and that this
Agreement should not be continued without the provision that was held invalid, illegal or unenforceable, and in that case, upon the Managing Owner’s notification of the trustee of such a determination, this Agreement shall immediately terminate
and the Managing Owner will so notify the Authorized Participant immediately.
(k)
No Strict Construction
. The language used in this
Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rule of strict construction will be applied against any party.
(l)
Survival
. Sections 8 (Indemnification) and 14 (Third Party Beneficiaries) hereof shall survive the termination of this Agreement.
(m)
Other Usages
. The following usages shall apply in interpreting this Agreement: (i) references to a governmental or quasigovernmental
agency, authority or instrumentality shall also refer to a regulatory body that succeeds to the functions of such agency, authority or instrumentality; and (ii) “including” means “including, but not limited to.”
[Signature Page Follows]
15
IN WITNESS WHEREOF, the Authorized Participant and the Managing Owner, on behalf of the Trust, have
caused this Agreement to be executed by their duly authorized representatives as of the date first set forth above.
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DB Commodity Services LLC
Managing Owner of
the DB Currency Index
Value Fund
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DB Currency Index Value Fund
By DB Commodity Services LLC,
as Managing Owner
of
DB Currency Index Value Fund
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By:
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By:
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Name:
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Name:
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Title:
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Title:
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By:
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By:
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Name:
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Name:
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Title:
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Title:
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Address:
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60 Wall Street
New York, New York 10005
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Address:
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60 Wall Street
New York, New York 10005
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Telephone:
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(212) 250-5883
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Telephone:
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(212) 250-5883
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Facsimile:
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(212) 797-4469
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Facsimile:
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(212) 797-4469
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[Name of Authorized Participant]
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By:
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Name:
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Title:
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Address:
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Telephone:
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Facsimile:
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16
EXHIBIT A
DB CURRENCY INDEX VALUE FUND
FORM OF CERTIFIED AUTHORIZED PERSONS OF AUTHORIZED PARTICIPANT
The following are the names, titles and signatures of all persons (each an “Authorized Person”) authorized to give instructions relating to any
activity contemplated by the Participant Agreement or any other notice, request or instruction on behalf of the Authorized Participant pursuant to the DB Currency Index Value Fund Participant Agreement.
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Name:
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Name:
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Title:
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Title:
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Signature:
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Signature:
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Name:
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Name:
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Title:
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Title:
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Signature:
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Signature:
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The undersigned, [name], [title] of [company], does hereby certify that the persons listed above
have been duly elected to the offices set forth beneath their names, that they presently hold such offices, that they have been duly authorized to act as Authorized Persons pursuant to the DB Currency Index Value Fund Participant Agreement by and
between [name of Authorized Participant], DB Currency Index Value Fund and DB Commodity Services LLC, dated [date], and that their signatures set forth above are their own true and genuine signatures.
In Witness Whereof, the undersigned has hereby set his/her hand and the seal of [company] on the date set forth below.
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Subscribed and sworn to before me
this
day of
, 20
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By:
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Name:
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Title:
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Notary Public
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Date:
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A-1
EXHIBIT B
DB CURRENCY INDEX VALUE FUND
FORM OF PURCHASE ORDER SUBSCRIPTION AGREEMENT
TRUSTEE, The BANK of NEW YORK 718-315-4969 / 4967 / 4449
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Authorized Participant:
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DTC Clearing #:
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Authorized Participant FAX No.#:
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Trade Date:
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Order Number:
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Number of CU’s Created:
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Number of Shares to be issued:
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USD:
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(to be provided by The Bank of New York)
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All Purchase Order Subscription Agreements are subject to the terms and conditions of the Amended and Restated
Declaration of Trust and Trust Agreement (the “Trust Agreement”) of DB Currency Index Value Fund (the “Trust”) as currently in effect and the DB Currency Index Value Fund Participant Agreement among the Authorized Participant,
the Trust and the Managing Owner named therein. All representations and warranties of the Authorized Participant set forth in such DB Currency Index Value Fund Participant Agreement are incorporated herein by reference. Capitalized terms used but
not defined herein have the meaning given in the Trust Agreement.
The undersigned understands that by submitting this Purchase Order and Subscription
Agreement he/she is making the representations and warranties set forth in Annex A to this Purchase Order Subscription Agreement and is also granting an irrevocable Power of Attorney. The undersigned understands that its DTC account will be charged
the Transaction Fee as set forth in the currently effective copy of the Prospectus.
The undersigned does hereby certify as of the date set forth below
that he/she is an Authorized Person under the DB Currency Index Value Fund Participant Agreement and that he/she is authorized to deliver this Purchase Order Subscription Agreements to the Managing Owner on behalf of the Authorized Participant.
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(Please Print Name of Authorized Participant)
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Date:
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By:
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Accepted by:
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Name:
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DB Currency Index Value Fund
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Title:
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By:
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DB Commodity Service LLC, as manager owner
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By:
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Name:
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Title:
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By:
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Name:
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Title:
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B-1
ANNEX TO EXHIBIT B
TO
PURCHASE ORDER SUBSCRIPTION AGREEMENT
PURCHASER’S REPRESENTATIONS AND WARRANTIES AND
POWER OF ATTORNEY
1.
CFTC Registration Status
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The Authorized Participant either is not required to be registered with the Commodity Futures Trading
Commission (“CFTC”) or to be a member of the National Futures Association (“NFA”), or, if required to be so registered, is duly registered with the CFTC and is a member in good standing of the NFA.
The Authorized Participant
agrees to supply the Managing Owner with such information as the Managing Owner may reasonably request in order to verify the foregoing representation. Vehicles for collective investment which acquire Shares may, as a result, themselves become
“commodity pools” within the intent of applicable CFTC and NFA rules, and their sponsors, accordingly, will be required to register as “commodity pool operators.”
2.
Disclosure Document
. The Authorized Participant has received the Trust’s Prospectus which constitutes its CFTC Disclosure Document.
3.
Monthly Report
. If trading for the Trust has commenced, the Authorized Participant has obtained a copy of the most recent
monthly report from the Trust’s website at www.dbvfund.db.com.
4.
Power of Attorney
. In connection with the Authorized
Participant’s acceptance of an interest in the Trust, the Authorized Participant does hereby irrevocably constitute and appoint the Managing Owner, and its successors and assigns, as its true and lawful Attorney-in-Fact, with full power of
substitution, in my name, place and stead, in the execution, acknowledgment, filing and publishing of Trust documents, including, but not limited to, the following: (i) Any certificates and other instruments, including but not limited to, any
applications for authority to do business and amendments thereto, which the Managing Owner deems appropriate to qualify or continue the Trust as a business or statutory trust in the jurisdictions in which the Trust may conduct business, so long as
such qualifications and continuations are in accordance with the terms of the Amended and Restated Declaration of Trust and Trust Agreement of the Trust (the “Trust Agreement”) or any amendment hereto, or which may be required to be filed
by the Trust or the Shareholders under the laws of any jurisdiction; (ii) Any instrument which may be required to be filed by the Trust under the laws of any state or by any governmental agency, or which the Managing Owner deems advisable to
file; and (iii) The Trust Agreement and any documents which may be required to effect an amendment to the Trust Agreement approved under the terms of the Trust Agreement, and the continuation of the Trust, the admission of the signer of the
Power of Attorney as a Limited Owner or of others as additional or substituted Limited Owners, or the termination of the Trust, provided such continuation, admission or termination is in accordance with the terms of the Trust Agreement. The Power of
Attorney granted hereby shall be deemed to be coupled with an interest and shall be irrevocable and shall survive, and shall not be affected by, the Authorized Participant’s subsequent insolvency or dissolution or any delivery by the Authorized
Participant of an assignment of the whole or any portion of the Authorized Participant’s Units.
B-2
EXHIBIT C
DB CURRENCY INDEX VALUE FUND
FORM OF REDEMPTION ORDER
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Authorized Participant:
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Date:
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Submission Number:
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PIN Number:
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Number of Shares to be Issued:
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All Redemption Orders are subject to the terms and conditions of the Amended and Restated Declaration of Trust and
Trust Agreement of DB Currency Index Value Fund (the “Trust”) as currently in effect and the DB Currency Index Value Fund Participant Agreement among the Authorized Participant, the Trust and the Managing Owner named therein. All
representations and warranties of the Authorized Participant set forth in such DB Currency Index Value Fund Participant Agreement are incorporated herein by reference.
The undersigned understands that its DTC account will be charged the Transaction Fee as set forth in the currently effective copy of the Prospectus including an additional fee as provided under Section 4(a) of
the Trust’s Participant Agreement if the Redemption Order is held open.
The undersigned does hereby certify as of the date set forth below that
he/she is an Authorized Person under the DB Currency Index Value Fund Participant Agreement and that he/she is authorized to deliver this Redemption Order to the Managing Owner on behalf of the Authorized Participant.
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[NAME OF AUTHORIZED PARTICIPANT]
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Date:
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By:
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Name:
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Title:
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C-1
EXHIBIT D
DB CURRENCY INDEX VALUE FUND
DB COMMODITY SERVICES LLC
OFFICER’S CERTIFICATE
The undersigned,
each a duly authorized officer of DB Commodity Services LLC, a Delaware limited liability company (the “Managing Owner”) of the DB Currency Index Value Fund (the “Trust”), and pursuant to Section 13(d) of the DB Currency
Index Value Fund Participant Agreement (the “Agreement”), dated as of
200
, by and between the Managing Owner and
(the “Authorized Participant”), hereby certify that:
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1.
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Each of the following representations and warranties of the Managing Owner is true and correct in all material respects as of the date hereof:
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(a)
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the Prospectus does not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading; the Registration Statement complies in all material respects with the requirements of the 1933 Act and the Prospectus complies in all material respects with the requirements of
the 1933 Act and any statutes, regulations, contracts or other documents that are required to be described in the Registration Statement or the Prospectus or to be filed as exhibits to the Registration Statement have been so described or filed; the
conditions to the use of Form S-1 or S-3, if applicable, have been satisfied; the Registration Statement does not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the
statements therein not misleading and the Prospectus does not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading; provided, however, that the Managing Owner makes no warranty or representation with respect to any statement contained in the Registration Statement or any Prospectus in reliance upon and in conformity
with information concerning the Authorized Participant and furnished in writing by or on behalf of the Authorized Participant to the Managing Owner expressly for use in the Registration Statement or such Prospectus; and neither the Managing Owner
nor any person known to the Managing Owner acting on behalf of the Trust has distributed nor will distribute any offering material other than the Registration Statement or the Prospectus;
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(b)
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the Trust has been duly formed and is validly existing as an investment trust under the laws of the State of Delaware, as described in the Registration Statement and the Prospectus,
and the Amended and Restated
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D-1
Declaration of Trust and Trust Agreement (the “Trust Agreement”) authorizes the Managing Owner
to issue and deliver the Shares to the Authorized Participant hereunder as contemplated in the Registration Statement and the Prospectus;
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(c)
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the Managing Owner has been duly organized and is validly existing as a limited liability company in good standing under the laws of the State of Delaware, with full power and
authority to conduct its business as described in the Registration Statement and the Prospectus, and has all requisite power and authority to execute and deliver this Agreement;
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(d)
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the Managing Owner is duly qualified and is in good standing in each jurisdiction where the conduct of its business requires such qualification; and the Trust is not required to so
qualify in any jurisdiction;
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(e)
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complete and correct copies of the Trust Agreement, and any and all amendments thereto, have been delivered to the Authorized Participant, and no changes thereto have been made;
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(f)
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the outstanding Shares have been duly and validly issued and are fully paid and non-assessable and free of statutory and contractual preemptive rights, rights of first refusal and
similar rights;
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(g)
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the Shares conform in all material respects to the description thereof contained in the Registration Statement and the Prospectus and the holders of the Shares will not be subject
to personal liability by reason of being such holders;
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(h)
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the Agreement has been duly authorized, executed and delivered by the Trust and the Managing Owner and constitutes the valid and binding obligations of the Trust and the Managing
Owner, enforceable against the Trust and the Managing Owner in accordance with its terms;
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(i)
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neither the Managing Owner nor the Trust is in breach or violation of or in default under (nor has any event occurred which with notice, lapse of time or both would result in any
breach or violation of, constitute a default under or give the holder of any indebtedness (or a person acting on such holder’s behalf) the right to require the repurchase, redemption or repayment of all or a part of such indebtedness under) its
respective constitutive documents, or any indenture, mortgage, deed of trust, bank loan or credit agreement or other evidence of indebtedness, or any license, lease, contract or other agreement or instrument to which the Managing Owner or the Trust
is a party or by which any of them or any of their properties may be bound or affected, and the execution, delivery and performance of this Agreement, the issuance and sale of Shares to the Authorized Participant hereunder and the consummation of
the transactions contemplated hereby does not conflict with, result in any
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D-2
breach or violation of or constitute a default under (nor constitute any event which with notice, lapse
of time or both would result in any breach or violation of or constitute a default under), respectively, the limited liability company agreement of the Managing Owner or the Trust Agreement, or any indenture, mortgage, deed of trust, bank loan or
credit agreement or other evidence of indebtedness, or any license, lease, contract or other agreement or instrument to which the Managing Owner or the Trust is a party or by which, respectively, the Managing Owner or the Trust or any of their
respective properties may be bound or affected, or any federal, state, local or foreign law, regulation or rule or any decree, judgment or order applicable to the Managing Owner or the Trust;
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(j)
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no approval, authorization, consent or order of or filing with any federal, state, local or foreign governmental or regulatory commission, board, body, authority or agency is
required in connection with the issuance and sale of Shares to the Authorized Participant hereunder or the consummation by the Managing Owner or the Trust of the transactions contemplated hereunder other than registration of the Shares under the
1933 Act, which has been effected, and any necessary qualification under the securities laws of the various jurisdictions in which the Shares are being offered or under the rules and regulations of the National Association of Securities Dealers (the
“NASD”);
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(k)
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except as set forth in the Registration Statement and the Prospectus (i) no person has the right, contractual or otherwise, to cause the Trust to issue or sell to it any Shares
or other equity interests of the Trust, and (ii) no person has the right to act as an underwriter or as a financial advisor to the Trust in connection with the offer and sale of the Shares, in the case of each of the foregoing clauses (i), and
(ii), whether as a result of the filing or effectiveness of the Registration Statement or the sale of the Shares as contemplated thereby or otherwise; no person has the right, contractual or otherwise, to cause the Managing Owner on behalf of the
Trust or the Trust to register under the 1933 Act any other equity interests of the Trust, or to include any such shares or interests in the Registration Statement or the offering contemplated thereby, whether as a result of the filing or
effectiveness of the Registration Statement or the sale of the Shares as contemplated thereby or otherwise;
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(l)
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each of the Managing Owner and the Trust has all necessary licenses, authorizations, consents and approvals and has made all necessary filings required under any federal, state,
local or foreign law, regulation or rule, and has obtained all necessary authorizations, consents and approvals from other persons, in order to conduct its respective business; neither the Managing Owner nor the Trust is in violation of, or in
default under, or has received notice of any proceedings relating to revocation or modification of, any such license, authorization, consent or approval or any federal, state, local or foreign law, regulation or rule or any decree, order or judgment
applicable to the Managing Owner or the Trust;
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D-3
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(m)
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all legal or governmental proceedings, affiliate transactions, off-balance sheet transactions, contracts, licenses, agreements, leases or documents of a character required to be
described in the Registration Statement or the Prospectus or to be filed as exhibits to the Registration Statement have been so described or filed as required;
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(n)
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except as set forth in the Registration Statement and the Prospectus, there are no actions, suits, claims, investigations or proceedings pending or threatened or contemplated to
which the Managing Owner or the Trust, or any of the Managing Owner’s directors or officers, is or would be a party or of which any of their respective properties are or would be subject at law or in equity, before or by any federal, state,
local or foreign governmental or regulatory commission, board, body, authority or agency;
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(o)
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KPMG LLP, whose report on the audited financial statements of the Trust is filed with the SEC as part of the Registration Statement and the Prospectus, are independent public
accountants as required by the 1933 Act;
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(p)
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the audited financial statement(s) included in the Prospectus, together with the related notes and schedules, presents fairly the financial position of the Trust as of the date
indicated and has been prepared in compliance with the requirements of the 1933 Act and in conformity with generally accepted accounting principles; there are no financial statements (historical or pro forma) that are required to be included in the
Registration Statement and the Prospectus that are not included as required; and the Trust does not have any material liabilities or obligations, direct or contingent (including any off-balance sheet obligations), not disclosed in the Registration
Statement and the Prospectus;
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(q)
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subsequent to the respective dates as of which information is given in the Registration Statement and the Prospectus, there has not been (i) any material adverse change, or any
development involving a prospective material adverse change affecting the Managing Owner or the Trust, (ii) any transaction which is material to the Managing Owner or the Trust taken as a whole, (iii) any obligation, direct or contingent
(including any off-balance sheet obligations), incurred by the Managing Owner or the Trust, which is material to the Trust, (iv) any change in the Shares purchased by the Authorized Participant or outstanding indebtedness of the Managing Owner
or the Trust or (v) any dividend or distribution of any kind declared, paid or made on such Shares;
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D-4
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(r)
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the Trust is not and, after giving effect to the offering and sale of the Shares, will not be required to be registered as an investment company under the Investment Company Act;
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(s)
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except as set forth in the Registration Statement and the Prospectus, the Managing Owner and the Trust own, or have obtained valid and enforceable licenses for, or other rights to
use, the inventions, patent applications, patents, trademarks (both registered and unregistered), tradenames, copyrights, trade secrets and other proprietary information described in the Registration Statement and the Prospectus as being owned or
licensed by them or which are necessary for the conduct of their respective businesses, (collectively, “Intellectual Property”); (i) to the knowledge of the Managing Owner or the Trust, there are no third parties who have or will be
able to establish rights to any Intellectual Property, except for the ownership rights of the owners of the Intellectual Property which is licensed to the Managing Owner or the Trust; (ii) to the knowledge of the Managing Owner or the Trust,
there is no infringement by third parties of any Intellectual Property; (iii) there is no pending or, to the knowledge of the Managing Owner or the Trust, threatened action, suit, proceeding or claim by others challenging the Managing
Owner’s or the Trust’s rights in or to any Intellectual Property, and the Managing Owner and the Trust are unaware of any facts which could form a reasonable basis for any such claim; (iv) there is no pending or, to the knowledge of
the Managing Owner or the Trust, threatened action, suit, proceeding or claim by others challenging the validity or scope of any Intellectual Property, and the Managing Owner and the Trust are unaware of any facts which could form a reasonable basis
for any such claim; and (v) there is no pending or, to the knowledge of the Managing Owner or the Trust, threatened action, suit, proceeding or claim by others that the Managing Owner or the Trust infringes or otherwise violates any patent,
trademark, copyright, trade secret or other proprietary rights of others, and the Managing Owner and the Trust are unaware of any facts which could form a reasonable basis for any such claim;
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(t)
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all tax returns required to be filed by the Trust have been filed, and all taxes and other assessments of a similar nature (whether imposed directly or through withholding)
including any interest, additions to tax or penalties applicable thereto due or claimed to be due from such entities have been paid; and no tax returns or tax payments are due with respect to the Trust as of the date of this Agreement;
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(u)
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neither the Managing Owner nor the Trust has sent or received any communication regarding termination of, or intent not to renew, any of the contracts or agreements referred to or
described in, or filed as an exhibit to, the Registration Statement, and no such termination or non-renewal has been threatened by the Managing Owner or the Trust or any other party to any such contract or agreement;
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D-5
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(v)
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with respect to its activities on behalf of the Trust, as provided for in the Trust Agreement, the Managing Owner maintains a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance with the Trust Agreement and the Managing Owner’s duties thereunder; (ii) transactions with respect to the Trust are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted accounting principles and to maintain accountability for assets; and (iii) assets are held for the Trust in accordance with the Trust Agreement;
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(w)
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on behalf of the Trust, the Managing Owner has established and maintains disclosure controls and procedures (as such term is defined in Rule 13a-14 and 15d-14 under the 1934 Act,
giving effect to the rules and regulations, and SEC staff interpretations (whether or not public), thereunder)); such disclosure controls and procedures are designed to ensure that material information relating to the Trust, is made known to the
Managing Owner, and such disclosure controls and procedures are effective to perform the functions for which they were established; on behalf of the Trust, the Managing Owner has been advised of: (i) any significant deficiencies in the design
or operation of internal controls which could adversely affect the Trust’s ability to record, process, summarize, and report financial data; and (ii) any fraud, whether or not material, that involves management or other employees who have
a role in the Trust’s internal controls; any material weaknesses in internal controls have been identified for the Trust’s auditors;
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(x)
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any statistical and market-related data included in the Registration Statement and the Prospectus are based on or derived from sources that the Managing Owner believes to be
reliable and accurate, and the Managing Owner has obtained the written consent to the use of such data from such sources to the extent required; and
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(y)
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neither the Managing Owner, nor any of the Managing Owner’s directors, members, managers, officers, affiliates or controlling persons nor the Trustee has taken, directly or
indirectly, any action designed, or which has constituted or might reasonably be expected to cause or result in, under the 1934 Act or otherwise, the stabilization or manipulation of the price of any security or asset of the Trust to facilitate the
sale or resale of the Shares; and there are no affiliations or associations between any member of the NASD and any of the Managing Owner’s officers, directors or 5% or greater security holders, except as set forth in the Registration Statement
and the Prospectus.
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For purposes hereof, the term “Registration Statement” shall mean the Registration Statement
as amended or supplemented from time to time to the date hereof and the term “Prospectus” shall mean the Prospectus as amended or supplemented from time to time to the date hereof.
D-6
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2.
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Each of the obligations of the Managing Owner to be performed by it on or before the date hereof pursuant to the terms of the Agreement, and each of the provisions thereof to be
complied with by the Managing Owner on or before the date hereof, has been duly performed and complied with in all material respects.
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Capitalized terms used, but not defined herein shall have the meanings assigned to such terms in the Agreement.
[SIGNATURE PAGE TO FOLLOW]
D-7
IN WITNESS WHEREOF, I have hereunto, on behalf of the Managing Owner, subscribed my name this
day of
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By:
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Name:
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Title:
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By:
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Name:
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Title:
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I,
, in my capacity as [title], hereby certify that
and
, are the duly elected
and
, respectively, of the Managing Owner, and that the signatures set forth immediately above are their genuine signatures.
IN WITNESS WHEREOF, I have hereunto set my hand as of the date first set forth above.
D-8
FORM OF
DB CURRENCY INDEX VALUE FUND
PARTICIPANT AGREEMENT
ATTACHMENT A
DB CURRENCY INDEX VALUE FUND PROCEDURES
CREATION AND REDEMPTION OF
DB CURRENCY INDEX
VALUE FUND SHARES
Scope of Procedures and Overview
These procedures (the “Procedures”) describe the processes by which one or more Baskets of DB Currency Index Value Fund shares (the “Shares”) issuable by DB Currency Index Value Fund (the
“Trust”), may be purchased or, once Shares have been issued, redeemed by an Authorized Participant (a “Participant”). Shares may be created or redeemed only in blocks of 200,000 Shares (each such block, a “Basket”).
Capitalized terms used in these Procedures without further definition have the meanings assigned to them in the Amended and Restated Declaration of Trust
and Trust Agreement of the Trust (the “Trust Agreement”), dated as of March
, 2006, between Wilmington Trust Company, as trustee of the Trust (the “Trustee”) DB Commodity Services LLC, as managing
owner (the “Managing Owner”) and the Unitholders party thereto from time to time or the Participant Agreement entered into by each Participant with the Trust and the Managing Owner.
For purposes of these Procedures, a “Business Day” means a day other than Saturday, Sunday or other day when banks and/or securities exchanges in the City of
New York or the City of Wilmington are authorized or obligated by law or executive order to close.
“Order Cut-Off
Time” means 1:00 pm, New York time, on each Business Day.
Baskets are issued pursuant to the Prospectus, which will be delivered by the Managing
Owner to each Participant prior to its execution of the Participant Agreement, and are issued and redeemed in accordance with the Trust Agreement and the Participant Agreement. Baskets may be issued and redeemed on any Business Day by the Managing
Owner in exchange for the Creation Basket Capital Contribution, which the Managing Owner receives from Participants or Redemption Distributions to Participants, in each case on behalf of the Trust. Participants will be required to pay a
nonrefundable per order transaction fee of $500 to the Managing Owner (the “Transaction Fee”).
Each Participant is responsible for ensuring that
the Creation Basket Capital Contribution it intends to transfer to the Trust in exchange for Creation Baskets is available for transfer to the Trust in the manner and at the times described in these Procedures.
Upon acceptance of the Participant Agreement by the Managing Owner, the Managing Owner will assign a personal identification number (a “PIN number”) to each
Authorized Person
authorized to act for the Participant. This will allow the Participant through its Authorized Person(s) to place Purchase
Order Subscription Agreement(s) or Redemption Order(s) for Baskets.
Important Notes:
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Any Order is subject to rejection by the Managing Owner for the reasons set forth in the Trust Agreement or the Participant Agreement.
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All Orders are subject to the provisions of the Trust Agreement and the Participant Agreement relating to unclear or ambiguous instructions.
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CREATION PROCESS
An order to purchase one or more Creation
Baskets placed by a Participant with the Managing Owner by a telephone call placed by the Order Cut-Off Time on a Business Day (such day, “Purchase Order Subscription Date”) results in the issuance and delivery of Creation Baskets at noon,
New York time, on the Business Day immediately following the Purchase Order Subscription Date if the Managing Owner has received:
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for its own account, the Transaction Fee, and
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for the account of the Trust the Creation Basket Capital Contribution due from the Participant submitting the Purchase Order Subscription Agreement.
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CREATION PROCEDURES
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1.
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By the Order Cut-Off Time (1:00 p.m. N.Y. time) on the Purchase Order Subscription Date, an Authorized Person of the Participant calls the Managing Owner at (718) 315-4417 to
notify the Managing Owner that the Participant wishes to place a Purchase Order and Subscription Agreement with the Managing Owner to create an identified number of Creation Baskets and to request that the Managing Owner provide an order number (an
“Order Number”). Calls placed before the Order Cut-Off Time will be processed even if the call is taken after that time. The Authorized Person provides a PIN number as identification to the Managing Owner. The Managing Owner provides the
Participant with an Order Number for the Participant’s Purchase Order and Subscription Agreement. The Participant then completes and faxes to the Managing Owner the Purchase Order Subscription Agreement included as Exhibit B to the Participant
Agreement. The Purchase Order Subscription Agreement must be completed and also include the Authorized Person’s signature, the number of Creation Baskets being purchased, and the Order Number previously provided by the Managing Owner.
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2.
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If the Managing Owner has not received the Purchase Order Subscription Agreement from the Participant within 15 minutes after the Managing Owner receives the phone call from the
Participant referenced in item (1) above, the Managing Owner places a phone call to the Participant to enquire about the status of the Order. If the Participant does not fax the Purchase Order Subscription
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Agreement to the Managing Owner within 15 minutes after the Managing Owner’s phone call, the
Participant’s Order is cancelled. The Managing Owner will then notify the Participant that the Order has been cancelled via telephone call.
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3.
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If the Managing Owner has received the Participant’s Purchase Order and Subscription Agreement on time in accordance with the preceding timing rules, then by 2:30 p.m. N.Y.
time the Managing Owner returns to the Participant a copy of the Purchase Order and Subscription Agreement submitted, marking it “Accepted.”
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4.
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As promptly as practicable following the publication of the net asset value of the Trust and the net asset value per Share of the Shares on the Purchase Order Subscription Date, the
Managing Owner shall communicate to the Authorized Participant the amount of cash necessary for the Creation Basket Capital Contribution and details of the method of payment required for the Creation Basket Capital Contribution.
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5.
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If the Managing Owner rejects a Purchase Order Subscription Agreement pursuant to the Trust Agreement or the Participant Agreement, the Managing Owner will notify the Participant
whose Purchase Order Subscription Agreement was rejected.
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6.
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At noon, New York time, on the Business Day immediately following the Purchase Order Subscription Date the Managing Owner authorizes the creation and issuance of the Creation
Baskets ordered by each Participant on the Purchase Order Subscription Date for which the Managing Owner has received confirmation of receipt of (A) for its own account, the Transaction Fee, and (B) for the account of the Trust the
Creation Basket Capital Contribution due from the Participant submitting the Purchase Order Subscription Agreement.
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7.
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The Managing Owner will cause the Trust to deposit the Creation Basket with the Depository in accordance with the Depository’s customary procedures, for the credit of the
account of the Participant that placed the Purchase Order Subscription Agreement.
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8.
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If by noon, New York time, on the Business Day immediately following the Purchase Order Subscription Date the Managing Owner authorizes the creation and issuance of the Creation
Baskets ordered by each Participant on the Purchase Order Subscription Date for which the Managing Owner has received confirmation of receipt of (A) for its own account, the Transaction Fee, and (B) for the account of the Trust the
Creation Basket Capital Contribution due from the Participant submitting the Purchase Order Subscription Agreement, the Participant will be charged by the Managing Owner an additional processing charge of $2,000.
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[Redemption Process Follows on Next Page]
3
REDEMPTION PROCESS
An order to redeem one or more Redemption Baskets placed by a Participant with the Managing Owner by a telephone call placed by the Order Cut-off Time on a Business Day (such day, “Redemption Order Date”)
results in the following taking place by noon, New York time, on the Business Day immediately following the Redemption Order Date (the “Redemption Settlement Time”):
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if the Fund’s account at the Depository has by the Redemption Settlement Time been credited with the Redemption Baskets being tendered for redemption and the Managing Owner has
by such time received the Transaction Fee, the Managing Owner shall deliver the Redemption Distribution through the Depository to the account of the Participant as recorded on the book entry system of the Depository.
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REDEMPTION PROCEDURES
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1.
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By the Order Cut-off Time (1:00 p.m. N.Y. time), an Authorized Person of the Participant calls the Managing Owner at (718) 315-4417 to notify the Managing Owner that the
Participant wishes to place a Redemption Order with the Managing Owner to redeem an identified number of Redemption Baskets and to request that the Managing Owner provide an Order Number. Calls placed before the Order Cut-Off Time will be processed
even if the call is taken after that time. The Authorized Person provides a PIN number as identification to the Managing Owner. The Managing Owner provides the Participant with an Order Number for the Participant’s Redemption Order Form. The
Participant then completes and faxes to the Managing Owner the Redemption Order Form included as Exhibit C to the Participant Agreement. The Redemption Order Form must include the Authorized Person’s signature, the number of Redemption Baskets
redeemed, and the Order Number previously provided by the Managing Owner.
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2.
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If the Managing Owner has not received the Redemption Order Form from the Participant within 15 minutes after the Managing Owner receives the phone call from the Participant
referenced in item (1) above, the Managing Owner places a phone call to the Participant to enquire about the status of the Order. If the Participant does not fax the Redemption Order Form to the Managing Owner within 15 minutes after the
Managing Owner’s phone call, the Participant’s Order is cancelled. The Managing Owner will then notify the Participant that the Order has been cancelled via telephone call.
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3.
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If the Managing Owner has received the Participant’s Redemption Order Form on time in accordance with the preceding timing rules, then by 2:30 p.m. N.Y. time the Managing Owner
returns to the Participant a copy of the Redemption Order Form submitted, marking it “Affirmed.”
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4.
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As promptly as practicable following the publication of the net asset value of the Trust and the net asset value per Share of the Shares on the Redemption Order Date, the Managing
Owner shall communicate to the Authorized Participant the amount of cash to be delivered in the Redemption Distribution.
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5.
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If the Managing Owner rejects a Redemption Order pursuant to the Trust Agreement or the Participant Agreement, the Managing Owner will notify the Participant whose Redemption Order
was rejected and the amount of cash contained in the rejected Redemption Order.
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6.
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By the “Redemption Settlement Time,” if the Managing Owner’s account at the Depository has by such time been credited with the Redemption Baskets being tendered for
redemption and the Managing Owner has by such time received the Transaction Fee, the Managing Owner shall deliver the Redemption Distribution through the Depository to the account of the Participant as recorded on the book entry system of the
Depository.
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7.
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If by the Redemption Settlement Time the Managing Owner has not received from a redeeming Participant all Redemption Baskets comprising the Redemption Order, the Managing Owner will
(i) settle the Redemption Order to the extent of whole Redemption Baskets received from the Participant and (ii) keep the redeeming Participant’s Redemption Order open until noon, New York time, on the first Business Day following the
Redemption Settlement Date as to the balance of the Redemption Order (such balance, the “Suspended Redemption Order”).
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8.
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If the Redemption Basket(s) comprising the Suspended Redemption Order are credited to the Trust’s account at the Depository by noon, New York time, on such following Business
Day, the Redemption Distribution with respect to the Suspended Redemption Order shall be paid in the manner provided in item (5) above.
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9.
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If by such Redemption Settlement Time the Fund has not received from the redeeming Participant all Redemption Baskets comprising the Suspended Redemption Order, the Managing Owner
will settle the Suspended Redemption Order to the extent of whole Redemption Baskets then received and any balance of the Suspended Redemption will be cancelled. Notwithstanding the foregoing, when and under such conditions as the Managing Owner may
from time to time determine, the Managing Owner shall be authorized to deliver the Redemption Distribution notwithstanding that a Redemption Basket has not been credited to the Trust’s account at the Depository if the Participant has
collateralized its obligation to deliver the Redemption Basket on such terms as the Managing Owner may, in its sole discretion, from time to time agree.
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10.
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If, by the Redemption Settlement Time the Trust has not received from a redeeming Participant all Redemption Baskets comprising the Redemption Order or the Suspended Redemption
Order, as applicable, the Participant will be charged by the Managing Owner an additional processing charge of $2,000.
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Exhibit 10.1
Global Futures and Options Department
Deutsche Bank Securities Inc.
60 Wall Street
New York, New York 10019
Telephone (212) 250-2034
Telefax (212) 797-2042
FORM OF
FUTURES AND OPTIONS AGREEMENT
FOR INSTITUTIONAL CUSTOMERS
In consideration of the acceptance by Deutsche Bank Securities Inc.
(which, together with its affiliates (“Affiliates”) is referred to as “DBSI” unless otherwise specified herein) of one or more accounts for the undersigned (“Customer”) (all accounts of the Customer with DBSI being
collectively referred to as the “Account”), Customer agrees that this Agreement shall govern all dealings between Customer and DBSI relating to transactions that DBSI may execute, clear and/or carry on Customer’s behalf for the
purchase or sale of futures contracts (“Futures Contracts”) or options thereon (“Option Contracts”; Futures Contracts and Option Contracts collectively being “Contracts”).
1. Relevant Law.
The Account and every Contract
executed and/or cleared by DBSI on Customer’s behalf shall be subject to (a) this Agreement; (b) the Commodity Exchange Act, as amended (“CEA”) and all rules, regulations and interpretations of the Commodity Futures Trading
Commission (the “Commission”); (c) all rules, regulations and interpretations of the National Futures Association (“NFA”); and (d) the constitution, by-laws, rules, interpretations and customs of each applicable
exchange and clearing organization (each exchange and clearing house being collectively an “Exchange”) ((b) through (d), as in effect from time to time, collectively being “Relevant Law”).
2. Margin.
(a) Customer agrees that it will deposit
and maintain cash, acceptable securities or other assets (as defined in Section 2(d)), in order to satisfy initial and variation margin requirements and make any premium payments in connection with each Contract, in the amount, at the times and
in the manner required by DBSI or Relevant Law. DBSI has no obligation to set uniform margin requirements, commissions or other charges and DBSI’s margin requirements may exceed Exchange requirements. After providing Customer with reasonable
prior notice, DBSI, exercising reasonable discretion, may change the margin requirements for any Account or Contract.
(b) DBSI will comply
with all applicable provisions of the CEA and Commission regulations relating to the segregation and handling of customer property with respect to property deposited by Customer. Without limitation of the foregoing, DBSI will not pledge,
rephypothecate, loan or invest any such property except in connection with the margining of Contracts entered into by Customer. Any property deposited by Customer may be transferred or pledged by DBSI to any Exchange or clearing broker to satisfy
obligations of customers of DBSI.
(c) DBSI agrees that it will pay Customer interest on cash margin deposited by Customer at rates
mutually agreed to from time to time. Customer will receive all interest or other distributions or income on securities Customer has deposited with DBSI.
(d) For purposes of this Section, acceptable securities or other assets means securities or other assets acceptable (i) under the rules of the relevant Exchange and (ii) to DBSI in its reasonable discretion.
The value of acceptable securities or other assets deposited in Customer’s Accounts will be determined by DBSI in its reasonable judgment.
(e) Customer will be entitled to or responsible for any profit, loss or risk, and any related costs, arising from currency conversions or exposures incidental to Customer’s trading of Contracts (including those related to the margining
of Contracts denominated in currencies other than those deposited by Customer). Any currency conversions will be made at DBSI’s then current rates of exchange.
3. Other Payments To DBSI.
Customer agrees to pay (i) commissions and brokerage charges for each Contract and Account as mutually agreed by Customer and DBSI from time to time; (ii) all fees, charges, taxes, fines and penalties
incurred by DBSI or imposed by any regulatory or self-regulatory organization (including any Exchange) with respect to such Contracts or Accounts; (iii) any and all losses, debit balances or deficiencies in any Account; and (iv) any
interest on any deficiencies or debit balance in such Account and on any funds advanced to or provided on behalf of Customer at a rate to be agreed upon by Customer and DBSI. Such interest rate shall be confirmed to Customer in writing.
4. Option Exercise; Delivery.
(a) Customer is
required to give DBSI notice of any intention to make or take delivery under any Futures Contract or to exercise any Option Contract, in accordance with DBSI’s instructions, and to satisfy any payment or delivery requirements in connection with
its performance under such Futures or Option Contracts.
(b) Customer understands that certain Option Contracts are subject to exercise at
any time. Upon the receipt of an exercise notice for this type of Option Contract, DBSI will allocate the notices in accordance with Relevant Law to customers who have open short positions in the Option Contract (including Customer). The assignment
of any exercise notice to Customer by DBSI will be final and binding upon Customer. DBSI will use reasonable efforts to notify Customer of any assignment of an exercise notice to Customer.
(c) If Customer does not furnish DBSI with instructions regarding the disposition of a Contract within the time specified by DBSI, DBSI will be entitled
to take or refrain from taking any action it deems appropriate and will have no liability to Customer. These actions might include the exercise of, or failure to exercise, an Option Contract or the liquidation of any Contract on any Exchange
(including those Exchanges whose rules provide for automatic exercise).
5. Position Limits.
(a) Customer agrees to comply with the position limits established by Relevant Law, to notify DBSI promptly if it is required to file any position report
and, upon request, promptly to provide copies of any such reports to DBSI.
(b) Upon reasonable notice to Customer, DBSI may limit the size
and number of open Contracts (net or gross) that Customer may execute, clear and/or carry with it. DBSI’s position limits may be more restrictive than the limits imposed under Relevant Law. Customer agrees that it will not place any order,
which, if filled, would cause Customer to exceed these limits. Further, DBSI may require Customer to liquidate any open positions carried in Customer’s Account, and may refuse to accept any order of Customer establishing a new position in order
to comply with such limits.
(c) DBSI may in its sole discretion select executing brokers, clearing and non-clearing brokers and floor
brokers, whether or not affiliated or related to DBSI, to execute, clear or carry Customer’s transactions hereunder.
6. Advice; No Warranty as to
Information, Etc.
(a) Customer acknowledges and agrees that: (i) Customer and any advisor of Customer have sole responsibility for
all decisions for the Account; (ii) DBSI is not an advisor or fiduciary with respect to Customer, any Account or any action of Customer in connection with an Account or Contract and DBSI assumes no responsibility for compliance with any law or
regulation governing the conduct of any such fiduciary or advisor or for Customer’s compliance with any law or regulation governing or affecting Customer; (iii) DBSI makes no representation, warranty or guarantee as to, and will not be
liable or responsible for, the accuracy, completeness or reliability of any advice or recommendation, or any market information, furnished to Customer; (iv) recommendations to Customer as to any particular transaction at any given time may
differ among DBSI’s personnel and may vary from any recommendations made to others; and (v) any advice provided by DBSI with respect to a Contract or Account is incidental to DBSI’s business as a futures commission merchant and will
not serve as the primary basis for any decision by or on behalf of Customer.
(b) Customer agrees that DBSI, its officers, directors,
stockholders, representatives or associated persons may have certain conflicts of interest in connection with the services contemplated hereby, including but not limited to conflicts arising from positions established for their proprietary accounts
in Contracts that are the subject of market recommendations furnished to Customer. Such positions or other actions of such persons may not be consistent with any recommendations furnished to Customer by DBSI.
7. Customer Representations, Warranties and Agreements.
Customer represents and warrants to DBSI that as of the date of this Agreement and on the date each transaction relating to a Contract or Account is entered into under this Agreement:
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(a) (i) Customer is duly organized under the laws of the applicable jurisdiction and the execution,
delivery and performance of this Agreement by Customer have been authorized by all necessary corporate or other action; (ii) Customer has full power and authority to enter into this Agreement and to perform its obligations under this Agreement;
(iii) this Agreement is valid and binding on Customer, is enforceable against it in accordance with its terms and neither this Agreement nor the trading of Contracts violate Relevant Law or any other law or regulation governing or affecting
Customer’s activities under this Agreement or any order or agreement applicable to Customer or Customer’s property; (iv) Customer has and will maintain in full force and effect any and all necessary governmental or other approvals or
authorizations to execute and deliver this Agreement, perform its obligations hereunder; (v) Customer, and any other person involved in the management of Customer or its Account, are in compliance with all Relevant Law and any other law or
regulation governing or affecting Customer’s activities under this Agreement, including but not limited to all applicable registration requirements; and (vi) Customer is acting solely as principal and no person other than Customer has any
interest in or any control over any Account of Customer.
(b) Customer is not an employee, partner, officer, director or owner of more than
ten percent of the equity interest of a futures commission merchant, an introducing broker, Exchange or any self-regulatory organization nor is Customer an employee or commissioner of the Commission, except as previously disclosed in writing to
DBSI.
(c) If Customer is subject to the Financial Institution Reform, Recovery and Enforcement Act of 1989, the certified resolutions set
forth following this Agreement have been caused to be reflected in the minutes of Customer’s Board of Directors (or other comparable governing body) and this Agreement is and shall be, continuously from the date hereof, an official record of
Customer.
(d) If Customer is an insured depository subject to the Federal Deposit Insurance Act, Customer has taken all action and
maintained such records required to be taken or maintained by it to effect and maintain the enforceability of this Agreement pursuant to the Federal Deposit Insurance Act, and the person executing this Agreement on behalf of Customer is an
authorized person with at least the rank of vice president.
(e) Unless Customer notifies DBSI to the contrary, Customer is a “U.S.
Person.” For purposes of this Section 7(e), a “U.S. Person” is a Customer located in the United States, its territories or possessions, or if Customer is a foreign incorporated collective investment vehicle (a fund) whose place
of business is outside of the United States, its territories and possessions, such Customer will be deemed to be a “U.S. Person” if 10% or more of such Customer is beneficially owned by residents of the United States, its territories or
possessions.
(f) Customer agrees promptly to notify DBSI in writing if any of the warranties or representations contained in this
Section 7 becomes inaccurate or incomplete in any respect and to provide financial and other information to DBSI at any time upon its reasonable request, and represents that any such information will be accurate and complete in every material
respect. Customer shall also notify DBSI promptly of any material adverse change in the financial condition of Customer, regardless of whether Customer has previously furnished financial information to DBSI.
8. Indemnification; Limitation of Liability.
(a)
Customer shall indemnify, defend and hold harmless DBSI and its officers, employees and agents for any fine, penalty, tax, loss, liability or cost, including reasonable attorneys’ fees, incurred by DBSI that directly or indirectly arises out of
or is related to (i) Customer’s refusal or failure to comply with Relevant Law or any other law or regulation governing or affecting Customer’s activities under this Agreement or any provision of this Agreement or
(ii) Customer’s breach of any representation, warranty, covenant or obligation contained in this Agreement. In addition, Customer agrees to pay any attorneys’ fees and expenses incurred by DBSI in collecting any amount due by Customer
under this Agreement or in defending against any claim brought by Customer in any suit, arbitration or reparations proceeding in which DBSI is the prevailing party.
(b) Customer acknowledges that DBSI does not guarantee the performance by any Exchange or other third party, including any third party clearing or intermediate broker, with respect to any Contract and, accordingly,
Customer agrees that DBSI has no responsibility or liability to Customer for any loss or cost sustained or incurred by Customer due to Customer’s, an Exchange’s or any other third party’s actions or omissions in connection with any
Contract unless caused solely by DBSI’s gross negligence or willful breach of this Agreement.
(c) DBSI shall not be liable for the
non-performance of any obligation, or any fine, sanction, penalty, expense, tax, loss, liability or cost, caused by any events outside the control of DBSI, including but not limited to any (i) action or order of any government, judicial
institution, Exchange or other self regulatory organization, (ii) temporary or permanent suspension or termination of trading for whatever reason, (iii) failure or malfunction of transmission or communication facilities, (iv) delay or
failure by any Exchange to enforce its rules or pay or return any amount owed with respect to any Contracts executed and/or cleared for Customer’s Accounts or (v) actions or omissions of third party brokers.
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(d) NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE CONTRARY, IN NO EVENT SHALL DBSI OR ANY OF ITS
DIRECTORS, OFFICERS, EMPLOYEES OR AGENTS BE LIABLE UNDER ANY THEORY OF TORT, CONTRACT, STRICT LIABILITY OR OTHER LEGAL OR EQUITABLE THEORY FOR LOST PROFITS, LOST REVENUES, LOST BUSINESS OPPORTUNITIES OR EXEMPLARY, PUNITIVE, SPECIAL, INCIDENTAL,
INDIRECT, CONSEQUENTIAL OR SIMILAR DAMAGES, EACH OF WHICH IS HEREBY EXCLUDED BY AGREEMENT OF THE PARTIES, REGARDLESS OF WHETHER SUCH DAMAGES WERE FORESEEABLE OR WHETHER DBSI HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
9. Communication Between the Parties; Confirmations Conclusive.
(a) Customer must specify in a written notice to DBSI the persons authorized to place orders or give DBSI instructions on Customer’s behalf. Any additions or amendments to this notice must be communicated to DBSI
and any oral communication of such an addition or amendment must be promptly confirmed by Customer in writing. DBSI will not be bound by such amendments or additions until written confirmation is received.
(b) DBSI may rely on any order for the purchase or sale of Contracts, or any notice or other communications that are given by Customer or that DBSI
reasonably believes to have originated from Customer or from Customer’s duly authorized agent and Customer shall be bound by any such order, notice or communication and any action taken or not taken by DBSI in reliance thereon.
(c) Confirmations of trades and any other similar notices, including but not limited to purchase and sale statements, sent to Customer shall be
conclusive and binding unless Customer or Customer’s agent notifies DBSI to the contrary, (i) where a report is made orally, orally at the time received by Customer or its agent, or (ii) where a report or notice is in writing, in
writing prior to the opening of trading on the next day following receipt of the report on which the relevant Exchange is open for business. Monthly statements of the Account shall be conclusive and binding unless Customer or Customer’s agent
notifies DBSI to the contrary within five business days of Customer’s receipt thereof.
(d) DBSI shall transmit all communications to
Customer at Customer’s address, telex, telefax or telephone number or to such other address as Customer may hereafter direct in writing. Customer shall transmit all communications to DBSI to the address, telex, telefax or telephone number at
the beginning of this Agreement, Attention: Futures Administrator. All payments and deliveries to DBSI shall be wired, mailed or otherwise transmitted to DBSI pursuant to DBSI’s instructions and shall be deemed received only when actually
received by DBSI.
10. Security Interest.
All money, credit balances, Contracts and other property in which Customer has any ownership interest, now or at any future time held in Customer’s Account or otherwise held by DBSI for Customer or any affiliate of Customer and any
amount due to DBSI for Customer’s Account from any Exchange or clearing broker in connection with any Contracts, and all proceeds thereof, is hereby pledged to DBSI and shall be subject to a general lien and first priority security interest and
right of setoff in DBSI’s favor to secure any indebtedness of Customer to DBSI arising under this Agreement or any transactions in Contracts hereunder.
11. DBSI’s Right to Liquidate Customer Positions.
(a) In addition to all other rights of DBSI set forth in this
Agreement, DBSI has the right, upon the occurrence of any of the events specified in (i) through (viii) below, to take any or all of the actions specified in subdivision (b) of this Section:
(i) if DBSI is so directed or required by a regulatory or self-regulatory organization or Exchange having jurisdiction over DBSI or the Account;
(ii) if Customer repudiates, violates, breaches or fails to perform on a timely basis any obligation, term, covenant or condition required
to be performed by Customer under this Agreement;
(iii) if Customer fails to post the initial or variation margin required by this
Agreement, or fails to pay any required premium or make any other payments required under this Agreement or in connection with any Contract;
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(iv) if Customer is in material breach of or in material default under any contract or agreement to which
it is a party or by which it or any of its assets are bound;
(v) if any representation made by Customer or by Customer’s Advisor, if
any, is not accurate or complete, or ceases to be accurate or complete in any material respect;
(vi) if a voluntary or involuntary case or
other proceeding is commenced by or against Customer seeking liquidation, reorganization or other relief with respect to itself or any of its debts under any bankruptcy, insolvency or similar law, or seeking the appointment of a trustee, receiver,
liquidator, conservator, administrator, custodian or other similar official of it or any substantial part of its assets, or if Customer enters into or proposes to enter into any arrangement for the benefit of any of its creditors, or if Customer or
any or all of its property is or becomes subject to any agreement, order, judgment or decree that provides for Customer’s merger, consolidation, dissolution, winding-up, liquidation, reorganization or appointment of a trustee, receiver,
liquidator, conservator, custodian or similar officer for Customer or for Customer’s property, or if Customer takes any corporate action to authorize any of the foregoing;
(vii) if the Account, any other account maintained by Customer or an affiliate of Customer with DBSI or the property described in Section 10 becomes
subject to any lien, warrant, attachment or similar order or encumbrance; or
(viii) if, after allowing Customer an opportunity to provide
assurances acceptable to DBSI within a reasonable time period, DBSI reasonably determines such action is necessary for its protection.
(b)
In each such instance, DBSI may (1) satisfy any obligations due DBSI out of any of Customer’s property in DBSI’s custody or control, (2) liquidate any or all of Customer’s Contracts, (3) decline to execute any or all of
Customer’s outstanding orders, (4) make Customer’s obligations to DBSI immediately due and payable, (5) acting in a commercially reasonable manner, sell any or all of Customer’s property in DBSI’s custody or control and
set off and apply any such property or the proceeds of the sale of such property to satisfy any amounts owed by Customer to DBSI, (6) set off any obligations of DBSI under this Agreement against the obligations of Customer to DBSI hereunder,
(7) set off any cash, Contracts or property held for Customer by DBSI against amounts owed to DBSI by Customer hereunder, (8) purchase or borrow any securities or other property required to settle any outstanding transactions or positions
for the Account, and (9) settle any outstanding transactions or positions for the Account.
(c) Before exercising any rights under
Section 11(b), DBSI will send a notice to customer of the action that it intends to take
provided that
DBSI will be entitled to take any such action regardless of whether such notice is received by Customer. Any prior demand or notice by
DBSI shall not be a waiver of any right of DBSI to take any action authorized by this Agreement or Relevant Law.
(d) At all times,
Customer will be liable for the payment of any debit balance or deficiency in the Account, together with interest on such amounts and all costs relating to any liquidation or collection, including reasonable attorneys’ fees.
12. Payment Netting and Setoff.
Customer
acknowledges and agrees that DBSI has the right to setoff and apply any amounts, fees or charges due to it hereunder against amounts held in any Accounts of Customer subject to this Agreement
provided that
any Account subject to setoff under
this Section is owned solely by the same Customer.
13. Termination.
A party wishing to terminate this Agreement must provide the other party with written notice of termination sent by certified mail specifying the
effective date of such termination. Any termination under this Section will not affect any transactions entered into prior to the effective date of such termination or any liability or obligation incurred prior to such date. Upon termination under
this Section, DBSI will either transfer all open positions in Customer’s Account to another futures commission merchant of Customer’s choice, if so instructed by Customer, or liquidate all such positions. DBSI will not transfer any of
Customer’s property or Contracts held or controlled by it until Customer satisfies all obligations to DBSI arising under this Agreement, including the payment of any fees for the transfer of Contracts to another futures commission merchant upon
termination of this Agreement.
-5-
14. Governing Law; Consent to Jurisdiction.
(a) In case of a dispute between Customer and DBSI arising out of or related to this Agreement or any transaction hereunder,
(i) the construction,
validity, performance and enforcement of this Agreement will be governed by the laws of the State of New York in all respects (without giving effect to principles of conflict of laws)
, and (ii) Customer and DBSI each agrees to bring any
legal proceeding against the other party exclusively in, and each such party consents in any legal proceeding brought by the other party in connection with or related to this Agreement or breach thereof, the Account or any transactions entered into
hereunder to the jurisdiction of, any state or federal court located within the City of New York.
(b) Customer and DBSI each expressly
waives (i) all objections it may at any time have as to the jurisdiction of any court described in Section 14(a) above in which any such legal proceedings may be commenced and (ii) any defense of sovereign immunity or other immunity
from suit or enforcement, whether before or after judgment. Customer and DBSI each also agrees that any service of process mailed to it at any address provided by the receiving party shall be deemed a proper service.
15. Miscellaneous.
(a)
Available Funds
.
Customer agrees that all payments of cash by it to DBSI shall be made in immediately available funds in such currency and to such bank account as DBSI may from time to time specify. If Customer is required by law to make any deduction or
withholding, Customer will pay such amount to DBSI as will result in DBSI’s receiving an amount equal to the full amount which would have been received had no such deduction or withholding been required.
(b)
Consent to Recording
. Customer and DBSI each consents to the electronic recording of any or all telephone conversations with the other party
(without automatic tone warning device), the use of same as evidence by either party in any action or proceeding arising out of the Agreement and the recording party’s erasure, at its sole discretion, of any recording as part of its regular
procedure for handling of recordings.
(c)
Authority to Disclose Information
. Customer hereby authorizes DBSI to disclose any
financial, credit or business information it has obtained concerning Customer to any Affiliate of DBSI, and authorizes any such Affiliate to disclose like information to DBSI, in either case solely for the purpose of permitting DBSI to perform its
obligations, or enforce its rights, under this Agreement. Any such information will be kept confidential according to the internal policies of DBSI and its Affiliates.
(d)
Modification
. This Agreement may only be modified or amended by mutual written consent of DBSI and Customer. Any modification, amendment, alteration or waiver of this Agreement will not affect any
outstanding orders or transactions or any legal rights or obligations that may have already arisen between DBSI and Customer.
(e)
Cumulative Rights; No Waiver
. The rights and remedies conferred upon DBSI will be cumulative, and its forbearance to exercise any right or remedy under this Agreement will not waive its right to take such action at any later time, nor shall
such forbearance constitute a modification of this Agreement.
(f)
Successors and Assigns
. This Agreement will inure to the benefit
of DBSI, its permitted successors and assigns, and will be binding upon Customer and Customer’s successors and assigns,
provided
, however, that this Agreement may not be assigned or delegated by either party without the prior written
consent of the other party hereto and any purported assignment or delegation without such consent shall be void.
(g)
Severability
.
If any term or provision of this Agreement or the application thereof to any persons or circumstances is found to be inconsistent with any Relevant Law or otherwise to be invalid or unenforceable, such inconsistent, invalid or unenforceable
provision will be deemed to be superseded or modified to conform to such Relevant Law, but the remainder of this Agreement and/or the application of such term or provision to persons or circumstances other than those as to which it is contrary,
invalid or unenforceable, will not be affected thereby.
(h)
Counterparts
. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument.
(i)
Entire Agreement
. This Agreement, together with any Annexes hereto entered into between DBSI and Customer, constitutes the entire agreement between Customer and DBSI with respect to the subject matter
hereof and supersedes any prior agreements between the parties with respect to such subject matter.
(j)
Multiple Customers
. If the
signatory of this Agreement has the authority to enter into the Agreement on behalf of more than one Customer (each such Customer being identified on the attached
Schedule I
), the execution of the Agreement by such signatory shall be
sufficient to bind each such Customer to the terms of the Agreement to the same extent and with the same force and effect as if each Customer had executed a separate Agreement.
-6-
16. Acknowledgment of Receipt of Disclosure Statements; Hedging Election.
(a) Customer acknowledges and agrees that it has received from DBSI and has read and understood the following document:
(Please check box to so acknowledge)
¨
Risk Disclosure Statement For Futures and Options pursuant to Appendix A to CFTC Regulation 1.55(c).
(b) Pursuant to CFTC Regulation 190.06(d), Customer specifies and agrees, with respect to hedging transactions in the Account, that, in the unlikely
event of DBSI’s bankruptcy, it prefers that the bankruptcy trustee (check appropriate box):
¨
Election A - Liquidate all open contracts without first seeking instructions either from or on behalf of Customer.
¨
Election B - Attempt to obtain instructions with respect to the disposition of all open contracts.
(If neither box is checked, Customer shall be deemed to have elected A.)
The undersigned has read, understands and agrees to all of the provisions of this Agreement.
-7-
Dated
Customer Name:
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By:
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Authorized Signature
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Authorized Signature
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Print Name and Title
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Print Name and Title
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Address
City, State
Zip Code
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Schedule I—Independent Customers Deemed to Have Entered Into Separate Agreements Hereunder
Exhibit 10.2
FORM OF
FUND ADMINISTRATION AND ACCOUNTING AGREEMENT
AGREEMENT made as of
,
2006, by and between each entity listed on Exhibit A hereto (each, a “Fund”; collectively, the “Funds”), and The Bank of New York, a New York banking organization (“BNY”).
W
I
T
N
E
S
S
E
T
H
:
WHEREAS, each Fund desires to retain BNY to provide the services described herein, and BNY is willing to provide such services, all as more fully set
forth below;
NOW, THEREFORE, in consideration of the mutual promises and agreements contained herein, the parties hereby agree as follows:
Each Fund hereby appoints BNY as its
agent for the term of this Agreement to perform the services described herein. BNY hereby accepts such appointment and agrees to perform the duties hereinafter set forth.
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2.
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Representations and Warranties
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Each Fund hereby
represents and warrants to BNY, which representations and warranties shall be deemed to be continuing, that:
(a) It is duly organized and
existing under the laws of the jurisdiction of its organization, with full power to carry on its business as now conducted, to enter into this Agreement and to perform its obligations hereunder;
(b) This Agreement has been duly authorized, executed and delivered by the Fund in accordance with all requisite action and constitutes a valid and
legally binding obligation of the Fund, enforceable in accordance with its terms;
(c) It is conducting its business in compliance with all
applicable laws and regulations, both state and federal, and has obtained all regulatory licenses, approvals and consents necessary to carry on its business as now conducted; there is no statute, regulation, rule,
order or judgment binding on it and no provision of its charter or by-laws, nor of any mortgage, indenture, credit agreement or other contract binding on it
or affecting its property which would prohibit its execution or performance of this Agreement; and
(d) To the extent the performance of
any services described in Schedule II attached hereto by BNY in accordance with the then effective Prospectus (as hereinafter defined) for the Funds would violate any applicable laws or regulations, the Funds shall immediately so notify BNY in
writing and thereafter shall either furnish BNY with the appropriate valuations, net asset value or other computation, as the case may be, or, subject to the prior approval of BNY, instruct BNY in writing to value assets and/or compute net asset
value or other computations in a manner the Fund specifies in writing, and either the furnishing of such values or the giving of such instructions shall constitute a representation by the Fund that the same is consistent with all applicable laws and
regulations and with its Prospectus.
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3.
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Delivery of Documents
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(a) Each Fund will promptly
deliver to BNY true and correct copies of each of the following documents as currently in effect and will promptly deliver to it all future amendments and supplements thereto, if any:
(i) The Fund’s organizational document and all amendments thereto (the “Charter”);
(ii) The Fund’s registration statement most recently filed with the Securities and Exchange Commission (the “SEC”) relating to the shares
of the Fund (the “Registration Statement”) and the prospectus therein contained (the “Prospectus”);
(b) Each copy of
the Fund’s certificate of trust shall be certified by the Secretary of State (or other appropriate official) of the State of Delaware, and if the Fund’s certificate of trust is required by law also to be filed with a county or other
officer or official body, a certificate of such filing shall be filed with a certified copy submitted to BNY. Each copy of the Registration Statement and Prospectus, and all amendments thereto, shall be certified by DB Commodity Services LLC, in its
capacity as managing owner of each of the Funds.
(c) It shall be the sole responsibility of each Fund to deliver to BNY its currently
effective Prospectus and BNY shall not be deemed to have notice of any information contained in such Prospectus until it is actually received by BNY.
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4.
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Duties and Obligations of BNY
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(a) Subject to the
direction and control of DB Commodity Services LLC, in its capacity as managing owner of each of the Funds, and the provisions of this Agreement, BNY shall provide to each Fund (i) the administrative services set forth on Schedule I attached
hereto and (ii) the valuation and computation services listed on Schedule II attached hereto. Without limiting the foregoing, it is agreed that all services with respect to federal, state and local income tax matters, including the preparation
and filing of returns and reports, shall be provided by a third party retained by or on behalf of the Funds, initially Price Waterhouse Coopers, and not by the Bank.
(b) In performing hereunder, BNY shall provide, at its expense, office space, facilities, equipment and personnel.
(c) BNY shall not provide any services relating to the management, investment advisory or sub-advisory functions of any Fund, distribution of shares of any Fund, maintenance of any Fund’s financial records, other than those listed in
Schedules I and II attached hereto, or other services normally performed by the Funds’ respective counsel or independent auditors.
(d) Upon receipt of a Fund’s prior written consent (which shall not be unreasonably withheld), BNY may delegate any of its duties and obligations hereunder to any delegee or agent whenever and on such terms and conditions as it deems
necessary or appropriate. Notwithstanding the foregoing, no Fund consent shall be required for any such delegation to any other subsidiary of The Bank of New York Company, Inc. BNY shall not be liable to any Fund for any loss or damage arising out
of, or in connection with, the actions or omissions to act of any delegee or agent utilized hereunder so long as BNY acts in good faith and without negligence or willful misconduct in the selection of such delegee or agent.
(e) Each Fund shall cause its officers, advisors, sponsor, distributor, legal counsel, independent accountants, current administrator (if any) and
transfer agent to cooperate with BNY and to provide BNY, upon request, with such information, documents and advice relating to such Fund as is within the possession or knowledge of such persons, in order to enable BNY to perform its duties
hereunder. In connection with its duties hereunder, BNY shall be entitled to rely, and shall be held harmless by each Fund when acting in reliance, upon the information, documents and advice
relating to such Fund provided to BNY by any of the aforementioned persons or Proper Instructions (as hereinafter defined). BNY shall not be liable for any
loss, damage or expense resulting from or arising out of the failure of the Fund to cause any information, documents or advice to be provided to BNY as provided herein. All fees or costs charged by such persons shall be borne by the appropriate
Fund.
(f) Nothing in this Agreement shall limit or restrict BNY, any affiliate of BNY or any officer or employee thereof from acting for
or with any third parties, and providing services similar or identical to same or all of the services provided hereunder.
(g) Each Fund
shall furnish BNY with any and all instructions, explanations, information, specifications and documentation deemed necessary by BNY in the performance of its duties hereunder, including, without limitation, the amounts or written formula for
calculating the amounts and times of accrual of Fund liabilities and expenses. BNY shall not be required to include as Fund liabilities and expenses, nor as a reduction of net asset value, any accrual for any federal, state, or foreign income taxes
unless the Fund shall have specified to BNY the precise amount of the same to be included in liabilities and expenses or used to reduce net asset value. Each Fund shall also furnish BNY by Proper Instruction with bid, offer, or market values of
assets if BNY notifies such Fund that same are not available to BNY from a pricing or similar service utilized, or subscribed to, by BNY which BNY in its judgment deems reliable at the time such information is required for calculations hereunder. At
any time and from time to time, the Fund also may furnish BNY by Proper Instruction with bid, offer, or market values of assets and instruct BNY to use such information in its calculations hereunder. BNY shall at no time be required or obligated to
commence or maintain any utilization of, or subscriptions to, any pricing or similar service. In no event shall BNY be required to determine, or have any obligations with respect to, whether a market price represents any fair or true value, nor to
adjust any price to reflect any events or announcements, including, without limitation, those with respect to the issuer thereof, it being agreed that all such determinations and considerations shall be solely for the Fund.
(h) BNY may apply to an officer of any Fund for Proper Instructions with respect to any matter arising in
connection with BNY’s performance hereunder for such Fund, and BNY shall not be liable for any action taken or omitted to be taken by it in good faith in accordance with such Proper Instructions. Such application for Proper Instructions may, at
the option of BNY, set forth in writing any action proposed to be taken or omitted to be taken by BNY with respect to its duties or obligations under this Agreement and the date on and/or after which such action shall be taken, and BNY shall not be
liable for any action taken or omitted to be taken in accordance with a proposal included in any such application on or after the date specified therein unless, prior to taking or omitting to take any such action, BNY has received Proper
Instructions in response to such application specifying the action to be taken or omitted.
(i) BNY may consult with counsel to the
appropriate Fund or its own counsel, at such Fund’s expense, and shall be fully protected with respect to anything done or omitted by it in good faith in accordance with the advice or opinion of such counsel.
(j) Notwithstanding any other provision contained in this Agreement or Schedule I or II attached hereto, BNY shall have no duty or obligation to with
respect to, including, without limitation, any duty or obligation to determine, or advise or notify any Fund of: (i) the taxable nature of any distribution or amount received or deemed received by, or payable to, a Fund, (ii) the taxable
nature or effect on a Fund or its shareholders of any corporate actions, class actions, tax reclaims, tax refunds or similar events, (iii) the taxable nature or taxable amount of any distribution or dividend paid, payable or deemed paid, by a
Fund to its shareholders; or (iv) the effect under any federal, state, or foreign income tax laws of a Fund making or not making any distribution or dividend payment, or any election with respect thereto.
(k) BNY shall have no duties or responsibilities whatsoever except such duties and responsibilities as are specifically set forth in this Agreement and
Schedules I and II attached hereto, and no covenant or obligation shall be implied against BNY in connection with this Agreement.
(l) BNY,
in performing the services required of it under the terms of this Agreement, shall be entitled to rely fully on the accuracy and validity of any and all Proper Instructions furnished to it by a Fund and shall have no duty or obligation to review the
accuracy,
validity or propriety of such Proper Instructions including, without limitation, evaluations; the amounts or formula for calculating the amounts and times of
accrual of liabilities and expenses; the amounts receivable and the amounts payable on the sale or purchase of assets; and amounts receivable or amounts payable for the sale or redemption of Fund shares effected by or on behalf of a Fund. In the
event BNY’s computations hereunder rely, in whole or in part, upon information, including, without limitation, bid, offer or market values of assets, or accruals of interest or earnings thereon, from a pricing or similar service utilized, or
subscribed to, by BNY which BNY in its judgment deems reliable, BNY shall not be responsible for, under any duty to inquire into, or deemed to make any assurances with respect to, the accuracy or completeness of such information. Without limiting
the generality of the foregoing, BNY shall not be required to inquire into any valuation of other assets by a Fund or any third party described in this (l) even though BNY in performing services similar to the services provided pursuant to this
Agreement for others may receive different valuations of the same or different securities of the same issuers.
(m) BNY, in performing the
services required of it under the terms of this Agreement, shall not be responsible for determining whether any interest accruable to a Fund is or will be actually paid, but will accrue such interest until otherwise instructed by such Fund.
(n) BNY shall not be responsible for delays or errors which occur by reason of circumstances beyond its control in the performance of its
duties under this Agreement, including, without limitation, labor difficulties within or without BNY, mechanical breakdowns, flood or catastrophe, acts of God, failures of transportation, interruptions, loss, or malfunctions of utilities,
communications or computer (hardware or software) services. Nor shall BNY be responsible for delays or failures to supply the information or services specified in this Agreement where such delays or failures are caused by the failure of any
person(s) other than BNY to supply any instructions, explanations, information, specifications or documentation deemed necessary by BNY in the performance of its duties under this Agreement.
(o) BNY shall provide the Funds with custodial and transfer agency services on BNY’s standard terms for no additional consideration.
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5.
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Allocation of Expenses
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Except as otherwise
provided herein, all costs and expenses arising or incurred in connection with the performance of this Agreement shall be paid by the appropriate Fund, including but not limited to, organizational costs and costs of maintaining corporate existence,
taxes, interest, brokerage fees and commissions, insurance premiums, compensation and expenses of such Fund’s officers or employees, legal, accounting and audit expenses, management, advisory, sub-advisory, administration and shareholder
servicing fees, charges of custodians, transfer and dividend disbursing agents, expenses (including clerical expenses) incident to the issuance, redemption or repurchase of Fund shares, fees and expenses incident to the registration or qualification
under federal or state securities laws of the Fund or its shares, costs (including printing and mailing costs) of preparing and distributing Prospectuses, reports, notices and proxy material to such Fund’s shareholders, all expenses incidental
to holding meetings of such Fund’s shareholders, and extraordinary expenses as may arise, including litigation affecting such Fund and legal obligations relating thereto for which the Fund may have to indemnify third parties.
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6.
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Standard of Care; Indemnification
.
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(a) Except as
otherwise provided herein, BNY shall not be liable for any costs, expenses, damages, liabilities or claims (including attorneys’ and accountants’ fees) incurred by a Fund, except those costs, expenses, damages, liabilities or claims
arising out of BNY’s own gross negligence or willful misconduct. In no event shall BNY be liable to any Fund or any third party for special, indirect or consequential damages, or lost profits or loss of business, arising under or in connection
with this Agreement, even if previously informed of the possibility of such damages and regardless of the form of action. BNY shall 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 hereunder, including its actions or omissions, the incompleteness or inaccuracy of any Proper Instructions, or for delays caused by circumstances
beyond BNY’s control, unless such loss, damage or expense arises out of the gross negligence or willful misconduct of BNY.
(b) Each
Fund shall indemnify and hold harmless BNY from and against any and all costs, expenses, damages, liabilities and claims (including claims asserted by a Fund), and reasonable attorneys’ and accountants’ fees relating thereto, which are
sustained or incurred or which may be asserted against BNY, by reason of or as a result of any action taken or omitted to
be taken by BNY in good faith hereunder 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) such Fund’s Registration Statement or Prospectus, (iii) any Proper Instructions, or (iv) any opinion of legal counsel for such Fund, or arising out of transactions
or other activities of such Fund which occurred prior to the commencement of this Agreement;
provided
, that no Fund shall indemnify BNY for costs, expenses, damages, liabilities or claims for which BNY is liable under preceding 6(a). This
indemnity shall be a continuing obligation of each Fund, its successors and assigns, notwithstanding the termination of this Agreement. Without limiting the generality of the foregoing, each Fund shall indemnify BNY against and save BNY 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, information, specifications or documentation of any kind, as the case may be, supplied to BNY by any
third party described above or by or on behalf of a Fund;
(ii) Action or inaction taken or omitted to be taken by BNY pursuant to Proper
Instructions of the Fund or otherwise without gross negligence or willful misconduct;
(iii) Any action taken or omitted to be taken by
BNY in good faith in accordance with the advice or opinion of counsel for a Fund or its own counsel;
(iv) Any improper use by a Fund or
its agents, distributor or investment advisor of any valuations or computations supplied by BNY pursuant to this Agreement;
(v) The
method of valuation and the method of computing net asset value; or
(vi) Any valuations or net asset value provided by a Fund.
(c) 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 BNY 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 a Fund or
its own counsel, shall be conclusively presumed to have been taken or omitted in good faith.
For the services provided hereunder,
each Fund agrees to pay BNY such compensation as is mutually agreed from time to time and such out-of-pocket expenses (
e.g.
, telecommunication charges, postage and delivery charges, record retention costs, reproduction charges and
transportation and lodging costs) as are incurred by BNY in performing its duties hereunder. Except as hereinafter set forth, compensation shall be calculated and accrued daily and paid monthly. Each Fund authorizes BNY to debit such Fund’s
custody account for all amounts due and payable hereunder. BNY shall deliver to each Fund invoices for services rendered after debiting such Fund’s custody account with an indication that payment has been made. Upon termination of this
Agreement before the end of any month, the compensation for such part of a month shall be prorated according to the proportion which such period bears to the full monthly period and shall be payable upon the effective date of termination of this
Agreement. For the purpose of determining compensation payable to BNY, each Fund’s net asset value shall be computed at the times and in the manner specified in the Fund’s Prospectus.
(a) This Agreement shall
continue until terminated by either BNY giving to a Fund, or a Fund giving to BNY, a notice in writing specifying the date of such termination, which date shall be not less than 90 days after the date of the giving of such notice. Upon termination
hereof, the affected Fund(s) shall pay to BNY such compensation as may be due as of the date of such termination, and shall reimburse BNY for any disbursements and expenses made or incurred by BNY and payable or reimbursable hereunder.
(b) Notwithstanding the foregoing, BNY may terminate this Agreement upon 30 days prior written notice to a Fund if such Fund shall terminate its
custody agreement with The Bank of New York, or fail to perform its obligations hereunder in a material respect.
Attached hereto as Exhibit B
is a list of persons duly authorized to execute this Agreement and give any written or oral instructions, or written or oral specifications, by or on behalf of such Fund. From time to time each Fund may deliver a new Exhibit B to add or delete any
person and BNY shall be entitled to rely on the last Exhibit B actually received by BNY. Any instructions or specifications from any such persons are referred to as “Proper Instructions.”
This Agreement may not be amended or
modified in any manner except by a written agreement executed by BNY and the Fund to be bound thereby.
This Agreement shall extend to and
shall be binding upon the parties hereto, and their respective successors and assigns; provided, however, that this Agreement shall not be assignable by any Fund without the written consent of BNY, or by BNY without the written consent of the
affected Fund.
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12.
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Governing Law; Consent to Jurisdiction
.
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This
Agreement shall be construed in accordance with the laws of the State of New York, without regard to conflict of laws principles thereof. Each Fund hereby consents to the jurisdiction of a state or federal court situated in New York City, New York
in connection with any dispute arising hereunder, and waives to the fullest extent permitted by law its right to a trial by jury. To the extent that in any jurisdiction any Fund may now or hereafter be entitled to claim, for itself or its assets,
immunity from suit, execution, attachment (before or after judgment) or other legal process, such Fund irrevocably agrees not to claim, and it hereby waives, such immunity.
In case any provision in or
obligation under this Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations shall not in any way be affected or impaired thereby, and if any
provision is inapplicable to any person or circumstances, it shall nevertheless remain applicable to all other persons and circumstances.
Each and every right granted to BNY
hereunder or under any other document delivered hereunder or in connection herewith, or allowed it by law or equity, shall be cumulative and may be exercised from time to time. No failure on the part of BNY to exercise, and no delay in exercising,
any right will operate as a waiver thereof, nor will any single or partial exercise by BNY of any right preclude any other or future exercise thereof or the exercise of any other right.
All notices, requests, consents and other
communications pursuant to this Agreement in writing shall be sent as follows:
if to a Fund, at
c/o DB Commodity Services LLC
60 Wall Street
New York, New York 10005
Attention: Kevin Rich
if to BNY, at
The Bank of New York
2 Hanson Place, 12
th
Floor
Brooklyn, New York 11217
Attention: Stephen Manners
Title: Vice
President
or at such other place as may from time to time be designated in writing. Notices hereunder shall be effective upon receipt.
This Agreement may be executed in
any number of counterparts, each of which shall be deemed to be an original; but such counterparts together shall constitute only one instrument.
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17.
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Several Obligations
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The parties acknowledge that
the obligations of the Funds hereunder are several and not joint, that no Fund shall be liable for any amount owing by another Fund and that the Funds have executed one instrument for convenience only.
IN WITNESS WHEREOF, the parties hereto have caused the foregoing instrument to be executed by their duly
authorized officers as of the day and year first above written.
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DB COMMODITY SERVICES LLC, as managing owner of each of the Funds
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By:
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Name:
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Title:
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By:
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Name:
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Title:
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THE BANK OF NEW
YORK
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By:
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Title:
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EXHIBIT A
Name of Fund
DB Currency Index Value Fund
DB Currency Index Value Master Fund
EXHIBIT B
I, Kevin Rich, of DB Commodity Services LLC, a Delaware limited liability company and the sole managing owner of each of DB Currency Index Value Fund and DB Currency Index Value Master Fund (the “Funds”), in
my capacity as an officer of DB Commodity Services LLC and not in my individual capacity, do hereby certify that:
The following
individuals are authorized to give written or oral instructions or written or oral specifications by or on behalf of each of the Funds to The Bank of New York and the signatures set forth opposite their respective names are their true and correct
signatures.
IN WITNESS WHEREOF, I have hereunto set my hand as of the date set forth below:
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By:
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Kevin Rich
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Dated:
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,
2006
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SCHEDULE I
ADMINISTRATIVE SERVICES
SCHEDULE II
VALUATION AND COMPUTATION SERVICES
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I.
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BNY shall maintain the following records on a daily basis for each Fund.
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1.
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Report of priced portfolio assets
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2.
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Statement of net asset value per share
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II.
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BNY shall maintain the following records on a monthly basis for each Fund:
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4.
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Cash Disbursements Journal
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7.
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Accounts Receivable Reports
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8.
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Accounts Payable Reports
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9.
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Open Subscriptions/Redemption Reports
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11.
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Broker Net Trades Reports
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III. BNY shall prepare a
Holdings Ledger on a quarterly basis, and a Buy-Sell Ledger (Broker’s Ledger) on a semiannual basis for each Fund. Schedule D shall be produced on an annual basis for each Fund.
The above reports may be printed according to any other required frequency to meet the requirements of
the Internal Revenue Service, The Securities and Exchange Commission and the Fund’s Auditors.
IV. For internal control purposes, BNY
uses the Account Journals produced by The Bank of New York Custody System to record daily settlements of the following for each Fund:
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5.
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Capital stock redeemed
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6.
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Other income and expenses
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All portfolio purchases for
the Fund are recorded to reflect expected maturity value and total cost including any prepaid interest.
Exhibit 10.3
FORM OF
GLOBAL CUSTODY AGREEMENT
AGREEMENT, dated as of
, 2006 between DB Currency Index Value Fund (“Customer”) and The Bank of New York (“Custodian”).
ARTICLE I
DEFINITIONS
Whenever used in this Agreement, the following words shall have the meanings set forth below:
1. “Authorized Person”
shall be any person, whether or not an officer or employee of Customer, duly authorized by Customer to give Oral
and/or Written Instructions with respect to one or more Accounts, such persons to be designated in a Certificate of Authorized Persons which contains a specimen signature of such person.
2. “BNY Affiliate”
shall mean any office, branch or subsidiary of The Bank of New York Company, Inc.
3. “Book-Entry System”
shall mean the Federal Reserve/Treasury book-entry system for receiving and delivering securities, its successors
and nominees.
4. “Business Day”
shall mean any day on which Custodian, Book-Entry System and relevant Depositories are
open for business.
5. “Depository”
shall include the Book-Entry System, the Depository Trust Company, Euroclear,
Clearstream Banking S.A. and any other securities depository, book-entry system or clearing agency (and their respective successors and nominees) authorized to act as a securities depository, book-entry system or clearing agency pursuant to
applicable law and identified to Customer from time to time.
6. “Oral Instructions”
shall mean instructions received
verbally by Custodian.
7. “Securities”
shall include, without limitation, any common stock and other equity securities,
bonds, debentures and other debt securities, notes, mortgages or other obligations, and any instruments representing rights to receive, purchase, or subscribe for the same, or representing any other rights or interests therein (whether represented
by a certificate or held in a Depository or a Subcustodian).
8. “Subcustodian”
shall mean a bank or other financial
institution (other than a Depository) which is utilized by Custodian in connection with the purchase, sale or custody of Securities hereunder and identified to Customer from time to time.
9. “Written Instructions”
shall mean written communications actually received by Custodian by S.W.I.F.T., tested telex, letter,
facsimile transmission, or other method or system specified by Custodian as available for use in connection with the services hereunder.
ARTICLE II
APPOINTMENT OF CUSTODIAN; ACCOUNTS;
REPRESENTATIONS AND WARRANTIES
1. Customer hereby appoints Custodian as custodian of all Securities and cash at any time delivered to Custodian during the term of this Agreement, and
authorizes Custodian to hold Securities in registered form in its name or the name of its nominees. Custodian hereby accepts such appointment and agrees to establish and maintain one or more securities accounts and cash accounts in which Custodian
will hold Securities and cash as provided herein. Such accounts (each, an “Account”; collectively, the “Accounts”) shall be in the name of Customer.
2. Customer hereby represents and warrants, which representations and warranties shall be continuing and shall be deemed to be reaffirmed upon each Oral or Written Instruction given by Customer, that:
(a) Customer is duly organized and existing under the laws of the jurisdiction of its organization, with full power to carry on its business as now
conducted, to enter into this Agreement and to perform its obligations hereunder;
(b) This Agreement has been duly authorized, executed
and delivered by Customer, constitutes a valid and legally binding obligation of Customer, enforceable in accordance with its terms, and no statute, regulation, rule, order, judgment or contract binding on Customer prohibits Customer’s
execution or performance of this Agreement; and
(c) Either Customer owns the Securities in the Accounts free and clear of all liens,
claims, security interests and encumbrances (except those granted herein) or, if the Securities in an Account are owned beneficially by others, Customer has the right to pledge such Securities to the extent necessary to secure Customer’s
obligations hereunder, free of any right of redemption or prior claim by the beneficial owner. Custodian’s security interest pursuant to Article V hereof shall be a first lien and security interest subject to no setoffs, counterclaims or other
liens prior to or on a parity with it in favor of any other party (other than specific liens granted preferred status by statute), and Customer shall take any and all additional steps which are required to assure Custodian of such priority and
status, including notifying third parties or obtaining their consent to, Custodian’s security interest.
ARTICLE III
CUSTODY AND RELATED SERVICES
1.
(a) Subject to the terms hereof, Customer hereby authorizes Custodian to hold any Securities received by it from time to time for Customer’s account. Custodian shall be entitled to utilize Depositories and Subcustodians to the extent
possible in connection with its performance hereunder. Securities and cash deposited by Custodian in a Depository will be held subject to the rules, terms and conditions of such Depository. Securities and cash held through Subcustodians shall be
held subject to the terms and conditions of Custodian’s agreements with such Subcustodians. Subcustodians may be authorized to hold Securities in central securities depositories or clearing agencies in which such Subcustodians participate.
Unless otherwise required by local law or practice or a particular subcustodian agreement, Securities deposited with Subcustodians will be held in a commingled account in the name of Custodian as custodian or trustee for its customers. Custodian
shall identify on its books and records the Securities and cash belonging to Customer, whether held directly or indirectly through Depositories or Subcustodians.
(b) Unless applicable law otherwise requires, Custodian shall hold Securities indirectly through a Subcustodian only if (i) the Securities are not subject to any right, charge, security interest, lien or claim of
any kind in favor of such Subcustodian or its creditors, including a receiver or trustee in bankruptcy or similar authority, except for a claim of payment for the safe custody or administration of Securities or for funds advanced on behalf of
Customer by such Subcustodian, and (ii) beneficial ownership of the Securities is freely transferable without the payment of money or value other than for safe custody or administration.
2. Custodian shall furnish Customer with an advice of daily transactions and a monthly summary of all transfers to or from the Accounts. Customer may
elect to receive advices, confirmations, reports or statements electronically through the Internet to an email address specified by it for such purpose. By electing to use the Internet for this purpose, Customer acknowledges that such transmissions
are not encrypted and therefore are insecure. Customer further acknowledges that there are other risks inherent in communicating through the Internet such as the possibility of virus contamination and disruptions in service, and agrees that
Custodian shall not be responsible for any loss, damage or expense suffered or incurred by Customer or any person claiming by or through Customer as a result of the use of such methods.
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3. With respect to all Securities held hereunder, Custodian shall, unless otherwise instructed to the
contrary:
(a) Receive all income and other payments and advise Customer as promptly as practicable of any such amounts due but not paid;
(b) Present for payment and receive the amount paid upon all Securities which may mature and advise Customer as promptly as practicable of
any such amounts due but not paid;
(c) Forward to Customer copies of all information or documents that it may receive from an issuer of
Securities which, in the opinion of Custodian, are intended for the beneficial owner of Securities;
(d) Execute, as custodian, any
certificates of ownership, affidavits, declarations or other certificates under any tax laws now or hereafter in effect in connection with the collection of bond and note coupons;
(e) Hold directly or through a Depository or Subcustodian all rights and similar Securities issued with respect to any Securities credited to an Account
hereunder; and
(f) Endorse for collection checks, drafts or other negotiable instruments.
4. (a) Custodian shall notify Customer of such rights or discretionary actions or of the date or dates by when such rights must be exercised or such
action must be taken provided that Custodian has received, from the issuer or the relevant Depository (with respect to Securities issued in the United States) or from the relevant Subcustodian, Depository or a nationally or internationally
recognized bond or corporate action service to which Custodian subscribes, timely notice of such rights or discretionary corporate action or of the date or dates such rights must be exercised or such action must be taken. Absent actual receipt of
such notice, Custodian shall have no liability for failing to so notify Customer.
(b) Whenever Securities (including, but not limited to,
warrants, options, tenders, options to tender or non-mandatory puts or calls) confer optional rights on Customer or provide for discretionary action or alternative courses of action by Customer, Customer shall be responsible for making any decisions
relating thereto and for directing Custodian to act. In order for Custodian to act, it must receive Customer’s Written Instructions at Custodian’s offices, addressed as Custodian may from time to time request, not later than noon at least
two (2) Business Days prior to the last scheduled date to act with respect to such Securities (or such earlier date or time as Custodian may notify Customer). Absent Custodian’s timely receipt of such Written Instructions, Custodian shall
not be liable for failure to take any action relating to or to exercise any rights conferred by such Securities.
5. All voting rights with
respect to Securities, however registered, shall be exercised by Customer or its designee. For Securities issued in the United States, Custodian’s only duty shall be to mail to Customer any documents (including proxy statements, annual reports
and signed proxies) received by Custodian relating to the exercise of such voting rights. With respect to Securities issued outside of the United States, Custodian’s only duty shall be to provide Customer with access to a provider of global
proxy services at Customer’s request. Customer shall be responsible for all costs associated with its use of such services.
6.
Custodian shall promptly advise Customer upon its notification of the partial redemption, partial payment or other action affecting less than all Securities of the relevant class. If Custodian, any Subcustodian or Depository holds any such
Securities in which Customer has an interest as part of a fungible mass, Custodian, such Subcustodian or Depository may select the Securities to participate in such partial redemption, partial payment or other action in any non-discriminatory manner
that it customarily uses to make such selection.
7. Custodian shall not under any circumstances accept bearer interest coupons which have
been stripped from United States federal, state or local government or agency securities unless explicitly agreed to by Custodian in writing.
8. Customer shall be liable for all taxes, assessments, duties and other governmental charges, including any interest or penalty with respect thereto (“Taxes”), with respect to any cash or Securities held on behalf of Customer or
any transaction related thereto. Customer shall indemnify Custodian and each Subcustodian for the amount of any Tax that 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 Customer (including any payment of Tax required by reason of an earlier failure to withhold). Custodian shall, or shall
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 Custodian or any Subcustodian is required under applicable law to pay any Tax on behalf of Customer, 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
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applicable law. If the aggregate amount of cash in all cash accounts is not sufficient to pay such Tax, Custodian shall promptly notify Customer of the
additional amount of cash (in the appropriate currency) required, and Customer shall directly deposit such additional amount in the appropriate cash account promptly after receipt of such notice, for use by Custodian as specified herein. In the
event that Custodian reasonably believes that Customer is eligible, pursuant to applicable law or to the provisions of any tax treaty, for a reduced rate of, or exemption from, any Tax which is otherwise required to be withheld or paid on behalf of
Customer under any applicable law, Custodian shall, or shall instruct the applicable Subcustodian or withholding agent to, either withhold or pay such Tax at such reduced rate or refrain from withholding or paying such Tax, as appropriate;
provided
that Custodian shall have received from Customer all documentary evidence of residence or other qualification for such reduced rate or exemption required to be received under such applicable law or treaty. In the event that Custodian
reasonably believes that a reduced rate of, or exemption from, any Tax is obtainable only by means of an application for refund, Custodian and the applicable Subcustodian shall have no responsibility for the accuracy or validity of any forms or
documentation provided by Customer to Custodian hereunder. Customer hereby agrees to indemnify and hold harmless Custodian and each Subcustodian in respect of any liability arising from any underwithholding or underpayment of any Tax which results
from the inaccuracy or invalidity of any such forms or other documentation, and such obligation to indemnify shall be a continuing obligation of Customer, its successors and assigns, notwithstanding the termination of this Agreement.
9. (a) For the purpose of settling Securities and foreign exchange transactions, Customer shall provide Custodian with sufficient immediately
available funds for all transactions by such time and date as conditions in the relevant market dictate. As used herein, “sufficient immediately available funds” shall mean either (i) sufficient cash denominated in the currency of
Customer’s home jurisdiction to purchase the necessary foreign currency, or (ii) sufficient applicable foreign currency to settle the transaction. Custodian shall provide Customer with immediately available funds each day which result from
the actual settlement of all sale transactions, based upon advices received by Custodian from its Subcustodians and Depositories. Such funds shall be in the currency of Customer’s home jurisdiction or such other currency as Customer may specify
to Custodian.
(b) Any foreign exchange transaction effected by Custodian in connection with this Agreement may be entered with Custodian
or a BNY Affiliate acting as principal or otherwise through customary banking channels. Customer may issue standing Written Instructions with respect to foreign exchange transactions but Custodian may establish rules or limitations concerning any
foreign exchange facility made available to Customer. Customer shall bear all risks of investing in Securities or holding cash denominated in a foreign currency. Without limiting the foregoing, Customer shall bear the risks that rules or procedures
imposed by Depositories, exchange controls, asset freezes or other laws, rules, regulations or orders shall prohibit or impose burdens or costs on the transfer to, by or for the account of Customer of Securities or cash held outside Customer’s
jurisdiction or denominated in a currency other than its home jurisdiction or the conversion of cash from one currency into another currency. Custodian shall not be obligated to substitute another currency for a currency whose transferability,
convertibility or availability has been affected by such law, regulation, rule or procedure. Neither Custodian nor any Subcustodian shall be liable to Customer for any loss resulting from any of the foregoing events.
10. To the extent that Custodian has agreed to provide pricing or other information services in connection with this Agreement, Custodian is authorized
to utilize any vendor (including brokers and dealers of Securities) reasonably believed by Custodian to be reliable to provide such information. Customer understands that certain pricing information with respect to complex financial instruments
(
e.g.
, derivatives) may be based on calculated amounts rather than actual market transactions and may not reflect actual market values, and that the variance between such calculated amounts and actual market values may or may not be material.
Where vendors do not provide information for particular Securities or other property, an Authorized Person may advise Custodian regarding the fair market value of, or provide other information with respect to, such Securities or property as
determined by it in good faith. Custodian shall not be liable for any loss, damage or expense incurred as a result of errors or omissions with respect to any pricing or other information utilized by Custodian hereunder.
11. As an accommodation to Customer, Custodian may provide consolidated recordkeeping services pursuant to which Custodian reflects on Account statements
Securities positions for which Custodian has no safekeeping or other responsibility under this Agreement (“Non-Custody Securities”). Non-Custody Securities shall be designated on Custodian’s books as “shares not held” or by
other similar characterization. Customer acknowledges and agrees that Custodian shall rely, without independent verification, on information provided by Customer regarding Non-Custody Securities (including but not limited to Account positions and
market valuations) and shall have no responsibility whatsoever with respect to Non-Custody Securities or the accuracy of any information maintained on Custodian’s books or set forth on account statements concerning Non-Custody Securities.
12. From time to time Custodian may make available to Customer or its agent(s) certain investment and analytic tools (“Tools”)
which may be used to evaluate Securities in the Account and compliance with Customer’s investment guidelines and investment criteria. Such Tools, whether or not modified to meet specific needs of Customer, are provided “AS IS” and
CUSTODIAN DISCLAIMS ANY AND ALL WARRANTIES, EXPRESS OR IMPLIED, WITH RESPECT TO THE TOOLS,
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INCLUDING BUT NOT LIMITED TO WARRANTIES OF MERCHANTABILITY, TITLE, NON-INFRINGEMENT AND FITNESS FOR A PARTICULAR PURPOSE. ANYTHING IN THIS AGREEMENT TO THE
CONTRARY NOTWITHSTANDING, CUSTODIAN SHALL NOT BE LIABLE FOR ANY LOSS, EXPENSE, DAMAGE, LIABILITY OR CLAIM SUFFERED OR INCURRED BY CUSTOMER OR ANY OTHER PERSON AS A RESULT OF USE OF, OR RELIANCE UPON, ANY TOOLS BY CUSTOMER OR ANY OTHER PERSON.
ARTICLE IV
PURCHASE
AND SALE OF SECURITIES;
CREDITS TO ACCOUNT
1. Promptly after each purchase or sale of Securities by Customer, an Authorized Person shall deliver to Custodian Written Instructions specifying all information necessary for Custodian to settle such purchase or
sale. Custodian shall account for all purchases and sales of Securities on the actual settlement date unless otherwise agreed by Custodian.
2. Customer understands that when Custodian is instructed to deliver Securities against payment, delivery of such Securities and receipt of payment therefor may not be completed simultaneously. Customer assumes full responsibility for all
credit risks involved in connection with Custodian’s delivery of Securities pursuant to instructions of Customer.
3. Custodian may,
as a matter of bookkeeping convenience or by separate agreement with Customer, credit the Account with the proceeds from the sale, redemption or other disposition of Securities or interest, dividends or other distributions payable on Securities
prior to its actual receipt of final payment therefor. All such credits shall be conditional until Custodian’s actual receipt of final payment and may be reversed by Custodian to the extent that final payment is not received. Payment with
respect to a transaction will not be “final” until Custodian shall have received immediately available funds which under applicable local law, rule and/or practice are irreversible and not subject to any security interest, levy or other
encumbrance, and which are specifically applicable to such transaction.
ARTICLE V
OVERDRAFTS OR INDEBTEDNESS
1. If
Custodian in its sole discretion advances funds in any currency hereunder or there shall arise for whatever reason an overdraft in an Account (including, without limitation, overdrafts incurred in connection with the settlement of securities
transactions, funds transfers or foreign exchange transactions) or if Customer is for any other reason indebted to Custodian, Customer agrees to repay Custodian on demand the amount of the advance, overdraft or indebtedness plus accrued interest at
a rate ordinarily charged by Custodian to its institutional custody customers in the relevant currency.
2. In order to secure repayment of
Customer’s obligations to Custodian hereunder, Customer hereby pledges and grants to Custodian a continuing lien and security interest in, and right of set-off against, all of Customer’s right, title and interest in and to the Accounts and
the Securities, money and other property now or hereafter held in the Accounts (including proceeds thereof), and any other property at any time held by it for the account of Customer. In this regard, Custodian shall be entitled to all the rights and
remedies of a pledgee and secured creditor under applicable laws, rules or regulations as then in effect.
ARTICLE VI
CONCERNING CUSTODIAN
1.
(a) Except as otherwise expressly provided herein, Custodian shall not be liable for any costs, expenses, damages, liabilities or claims, including attorneys’ and accountants’ fees (collectively, “Losses”), incurred by or
asserted against Customer, except those Losses arising out of the negligence or willful misconduct of Custodian. Custodian shall have no liability whatsoever for the action or inaction of any Depository. Subject to Section 1(b) below,
Custodian’s responsibility with respect to any Securities or cash held by a Subcustodian is limited to the failure on the part of 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 Customer as a result of the acts or the failure to act by any Subcustodian (other than a BNY Affiliate), Custodian
shall take appropriate action to recover such Losses from such Subcustodian; and Custodian’s sole responsibility and liability to Customer shall be limited to amounts so received from such Subcustodian (exclusive of costs and expenses incurred
by Custodian). In no event shall Custodian be liable to Customer or any third party for special, indirect or consequential damages, or lost profits or loss of business, arising in connection with this Agreement.
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(b) Custodian may enter into subcontracts, agreements and understandings with any BNY Affiliate, whenever
and on such terms and conditions as it deems necessary or appropriate to perform its services hereunder. No such subcontract, agreement or understanding shall discharge Custodian from its obligations hereunder.
(c) Customer agrees to indemnify Custodian and hold Custodian harmless from and against any and all Losses sustained or incurred by or asserted against
Custodian by reason of or as a result of any action or inaction, or arising out of Custodian’s performance hereunder, including reasonable fees and expenses of counsel incurred by Custodian in a successful defense of claims by Customer;
provided however, that Customer shall not indemnify Custodian for those Losses arising out of Custodian’s negligence or willful misconduct. This indemnity shall be a continuing obligation of Customer, its successors and assigns, notwithstanding
the termination of this Agreement.
2. Without limiting the generality of the foregoing, Custodian shall be under no obligation to inquire
into, and shall not be liable for, any losses incurred by Customer or any other person as a result of the receipt or acceptance of fraudulent, forged or invalid Securities, or Securities which are otherwise not freely transferable or deliverable
without encumbrance in any relevant market.
3. Custodian may, with respect to questions of law specifically regarding an Account, obtain
the advice of counsel and shall be fully protected with respect to anything done or omitted by it in good faith in conformity with such advice.
4. Custodian shall be under no obligation to take action to collect any amount payable on Securities in default, or if payment is refused after due demand and presentment.
5. Custodian shall have no duty or responsibility to inquire into, make recommendations, supervise, or determine the suitability of any transactions
affecting any Account.
6. Customer shall pay to Custodian the fees and charges as may be specifically agreed upon from time to time and
such other fees and charges at Custodian’s standard rates for such services as may be applicable. Customer shall reimburse Custodian for all costs associated with the conversion of Customer’s Securities hereunder and the transfer of
Securities and records kept in connection with this Agreement. Customer shall also reimburse Custodian for out-of-pocket expenses which are a normal incident of the services provided hereunder.
7. Custodian has the right to debit any cash account for any amount payable by Customer in connection with any and all obligations of Customer to
Custodian, whether or not relating to or arising under this Agreement. In addition to the rights of Custodian under applicable law and other agreements, at any time when Customer shall not have honored any and all of its obligations to Custodian,
Custodian shall have the right without notice to Customer to retain or set-off, against such obligations of Customer, any Securities or cash Custodian or a BNY Affiliate may directly or indirectly hold for the account of Customer, and any
obligations (whether matured or unmatured) that Custodian or a BNY Affiliate may have to Customer in any currency. Any such asset of, or obligation to, Customer may be transferred to Custodian and any BNY Affiliate in order to effect the above
rights.
8. (a) Subject to the terms below, Custodian shall be entitled to rely upon any Written or Oral Instructions actually
received by Custodian and reasonably believed by Custodian to be duly authorized and delivered. Customer agrees that an Authorized Person shall forward to Custodian Written Instructions confirming Oral Instructions by the close of business of the
same day that such Oral Instructions are given to Custodian. Customer agrees that the fact that such confirming Written Instructions are not received or that contrary Written Instructions are received by Custodian shall in no way affect the validity
or enforceability of transactions authorized by such Oral Instructions and effected by Custodian.
(b) If Custodian receives Written
Instructions which appear on their face to have been transmitted by an Authorized Person via (i) computer facsimile, email, the Internet or other insecure electronic method, or (ii) secure electronic transmission containing applicable
authorization codes, passwords and/or authentication keys, Customer understands and agrees that Custodian cannot determine the identity of the actual sender of such Written Instructions and that Custodian shall conclusively presume that such Written
Instructions have been sent by an Authorized Person. Customer shall be responsible for ensuring that only Authorized Persons transmit such Written Instructions to Custodian and that all Authorized Persons treat applicable user and authorization
codes, passwords and/or authentication keys with extreme care.
(c) Customer acknowledges and agrees that it is fully informed of the
protections and risks associated with the various methods of transmitting Written Instructions to Custodian and that there may be more secure methods of transmitting Written Instructions than the method(s) selected by Customer. Customer agrees that
the security procedures (if any) to be followed in connection with its transmission of Written Instructions provide to it a commercially reasonable degree of protection in light of its particular needs and circumstances.
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(d) If Customer elects to transmit Written Instructions through an on-line communication system offered
by Custodian, Customer’s use thereof shall be subject to the Terms and Conditions attached hereto as Appendix I. If Customer elects (with Custodian’s prior consent) to transmit Written Instructions through an on-line communications service
owned or operated by a third party, Customer agrees that Custodian shall not be responsible or liable for the reliability or availability of any such service.
9. Upon reasonable request and provided Custodian shall suffer no significant disruption of its normal activities, Customer shall have access to Custodian’s books and records relating to the Accounts during
Custodian’s normal business hours. Upon reasonable request, copies of any such books and records shall be provided to Customer at Customer’s expense.
10. It is understood that Custodian is authorized to supply any information regarding the Accounts which is required by any law, regulation or rule now or hereafter in effect.
11. Custodian shall not be responsible or liable for any failure or delay in the performance of its obligations under this Agreement arising out of or
caused, directly or indirectly, by circumstances beyond its reasonable control, including without limitation, acts of God; earthquakes; fires; floods; wars; civil or military disturbances; sabotage; epidemics; riots; interruptions, loss or
malfunctions of utilities, computer (hardware or software) or communications service; accidents; labor disputes; acts of civil or military authority or governmental actions; it being understood that Custodian shall use its best efforts to resume
performance as soon as practicable under the circumstances.
12. Custodian shall have no duties or responsibilities whatsoever except such
duties and responsibilities as are specifically set forth in this Agreement, and no covenant or obligation shall be implied against Custodian in connection with this Agreement.
ARTICLE VII
TERMINATION
Either party may terminate this Agreement by giving to the other party a notice in writing specifying the date of such termination, which shall be not
less than ninety (90) days after the date of such notice. Upon termination hereof, Customer shall pay to Custodian such compensation as may be due to Custodian, and shall likewise reimburse Custodian for other amounts payable or reimbursable to
Custodian hereunder. Custodian shall follow such reasonable Oral or Written Instructions concerning the transfer of custody of records, Securities and other items as Customer shall give; provided, that (a) Custodian shall have no liability for
shipping and insurance costs associated therewith, and (b) full payment shall have been made to Custodian of its compensation, costs, expenses and other amounts to which it is entitled hereunder. If any Securities or cash remain in any Account,
Custodian may deliver to Customer such Securities and cash. Except as otherwise provided herein, all obligations of the parties to each other hereunder shall cease upon termination of this Agreement.
ARTICLE VIII
MISCELLANEOUS
1. Customer agrees to furnish to Custodian a new Certificate of Authorized Persons in the event of any change in the then present
Authorized Persons. Until such new Certificate is received, Custodian shall be fully protected in acting upon Oral Instructions and Written Instructions of such present Authorized Persons.
2. Any notice or other instrument in writing, authorized or required by this Agreement to be given to Custodian, shall be sufficiently given if addressed
to Custodian and received by it at its offices at One Wall Street, New York, New York 10286, or at such other place as Custodian may from time to time designate in writing.
3. Any notice or other instrument in writing, authorized or required by this Agreement to be given to Customer shall be sufficiently given if addressed
to Customer and received by it at its offices at 60 Wall Street, New York, New York 10005, or at such other place as Customer may from time to time designate in writing.
4. Each and every right granted to either party hereunder or under any other document delivered hereunder or in connection herewith, or allowed it by law or equity, shall be cumulative and may be exercised from time
to time. No failure on the part of either party to exercise, and no delay in exercising, any right will operate as a waiver thereof, nor will any single or partial exercise by either party of any right preclude any other or future exercise thereof
or the exercise of any other right.
- 7 -
5. In case any provision in or obligation under this Agreement shall be invalid, illegal or unenforceable
in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations shall not in any way be affected thereby. This Agreement may not be amended or modified in any manner except by a written agreement executed by
both parties. This Agreement shall extend to and shall be binding upon the parties hereto, and their respective successors and assigns; provided however, that this Agreement shall not be assignable by either party without the written consent of the
other.
6. (a) This Agreement shall be construed in accordance with the substantive laws of the State of New York, without regard to
conflicts of laws principles thereof. Customer and Custodian hereby consent to the jurisdiction of a state or federal court situated in New York City, New York in connection with any dispute arising hereunder. Customer hereby irrevocably waives, to
the fullest extent permitted by applicable law, any objection which it may now or hereafter have to the laying of venue of any such proceeding brought in such a court and any claim that such proceeding brought in such a court has been brought in an
inconvenient forum. Customer and Custodian each hereby irrevocably waives any and all rights to trial by jury in any legal proceeding arising out of or relating to this Agreement.
(b) The parties hereto agree that the establishment and maintenance of the Account, and all interests, duties and obligations with respect thereto, shall
be governed by the laws of the State of New York.
(c)
For Governmental Entities
: To the extent that in any jurisdiction Customer
may now or hereafter be entitled to claim, for itself or its assets, immunity from suit, execution, attachment (before or after judgment) or other legal process, Customer irrevocably agrees not to claim, and it hereby waives, such immunity.
7. The parties hereto agree that in performing hereunder, Custodian is acting solely on behalf of Customer and no contractual or service
relationship shall be deemed to be established hereby between Custodian and any other person.
8. Customer hereby acknowledges that
Custodian is subject to federal laws, including the Customer Identification Program (CIP) requirements under the USA PATRIOT Act and its implementing regulations, pursuant to which Custodian must obtain, verify and record information that allows
Custodian to identify Customer. Accordingly, prior to opening an Account hereunder Custodian will ask Customer to provide certain information including, but not limited to, customer’s name, physical address, tax identification number and other
information that will help Custodian to identify and verify Customer’s identity such as organizational documents, certificate of good standing, license to do business or other pertinent identifying information. Customer agrees that Custodian
cannot open an Account hereunder unless and until Custodian verifies Customer’s identity in accordance with its CIP.
9. This
Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but such counterparts shall, together, constitute only one instrument.
- 8 -
IN WITNESS WHEREOF
, Customer and Custodian have caused this Agreement to be executed by their
respective officers, thereunto duly authorized, as of the day and year first above written.
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DB CURRENCY INDEX VALUE FUND
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By:
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DB Commodity Services LLC,
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its managing owner
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Name:
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Tax Identification No:
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THE BANK OF NEW YORK
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APPENDIX I
ON-LINE BANKING AND COMMUNICATIONS SYSTEMS (THE “SYSTEMS”)
TERMS AND CONDITIONS
1.
License; Use
. (a) This Appendix I shall govern Customer’s use of online communications, information delivery, and
electronic banking systems, that Custodian may provide to Customer, such as The Bank of New York Inform ™ and The Bank of New York CA$H-Register Plus
®
, and any computer software and documentation provided by Custodian to Customer in connection therewith (collectively, the
“Systems”
). In the event of any conflict between the terms of this Appendix I and the main body of this Agreement with respect to Customer’s use of the Systems, the terms of this Appendix I shall control.
(b) Upon delivery to Customer of System access codes, Custodian grants to Customer a personal, nontransferable and nonexclusive license to use the
Software and the System solely for the purpose of transmitting Written Instructions, receiving reports, making inquiries or otherwise communicating with Custodian in connection with the Account(s). Customer shall use the Systems solely for its own
internal and proper business purposes and not in the operation of a service bureau. Except as set forth herein, no license or right of any kind is granted to Customer with respect to the Systems. Customer acknowledges that Custodian and its
suppliers retain and have title and exclusive proprietary rights to the Systems, including any trade secrets or other ideas, concepts, know-how, methodologies, information incorporated therein and the exclusive rights to any copyrights, trade dress,
look and feel, trademarks and patents (including registrations and applications for registration of either), other statutory or legal protections available in respect thereof. Customer further acknowledges that all or a part of the Systems may be
copyrighted or trademarked (or a registration or claim made therefor) by Custodian or its suppliers. Customer shall not take any action with respect to the Systems inconsistent with the foregoing acknowledgments, nor shall Customer attempt to
decompile, reverse engineer or modify the System. Customer may not copy, sell, lease or provide, directly or indirectly, the Systems or any portion thereof to any other person or entity without Custodian’s prior written consent. Customer may
not remove any statutory copyright notice or other notice included in the System or on any media containing the Systems or any portion thereof. Customer shall reproduce any such notice on any reproduction of a System and shall add any statutory
copyright notice or other notice to the Systems or media upon Custodian’s request.
(c) If Customer subscribes to any database service
provided by Custodian in connection with its use of the Systems, delivery of such database to Customer shall constitute the granting by Custodian to Customer of a non-exclusive, non-transferable license to use such database for so long as this
Appendix I is in effect. It is understood and agreed that any database supplied by Custodian is derived from sources which Custodian believes to be reliable but Custodian does not, and cannot for the fees charged, guarantee or warrant that the data
is correct, complete or current. All such databases are provided as an accommodation by Custodian to its customers and are compiled without any independent investigation by Custodian. However, Custodian will revise each database on a periodic basis
as Custodian, in its discretion, deems necessary and appropriate. Customer also agrees that Customer will promptly install all updates and revisions to each database which Custodian provides and that Custodian cannot bear any responsibility
whatsoever for Customer’s failure to do so. CUSTODIAN IS NOT RESPONSIBLE FOR ANY RESULTS OBTAINED BY CUSTOMER FROM USE OF DATABASE SERVICES PROVIDED BY CUSTODIAN.
2.
Equipment
. Customer shall obtain and maintain at its own cost and expense all equipment and services, including but not limited to communications services, necessary for it to utilize and obtain access to
the Systems, and Custodian shall not be responsible for the reliability or availability of any such equipment or services.
3.
Proprietary Information
. The Systems, any data base and any proprietary data, processes, information and documentation made available to Customer (other than which are or become part of the public domain or are legally required to be made
available to the public) (collectively, the ““Information”“), are the exclusive and confidential property of Custodian or its suppliers. However, for the avoidance of doubt, reports generated by Customer containing information
relating to the Account(s) are not deemed to be within the meaning of the term “Information.”. Customer shall keep the Information confidential by using the same care and discretion that Customer uses with respect to its own confidential
property and trade secrets, but not less than reasonable care. Upon termination of the Agreement or the licenses granted herein for any reason, Customer shall return to Custodian any and all copies of the Information which are in its possession or
under its control. The provisions of this Section 3 shall not affect the copyright status of any of the Information which may be copyrighted and shall apply to all information whether or not copyrighted.
4.
Modifications
. Custodian reserves the right to modify the System from time to time and Customer shall implement new releases of the Systems as
Custodian may direct. Customer agrees not to modify or attempt to modify the System without Custodian’s prior written consent. Customer acknowledges that any modifications to the Software, whether by Customer or Custodian and whether with or
without ‘Custodian’s consent, shall become the property of Custodian.
5.
NO REPRESENTATIONS OR WARRANTIES
: CUSTODIAN AND ITS MANUFACTURERS AND SUPPLIERS MAKE NO
WARRANTIES OR REPRESENTATIONS WITH RESPECT TO THE SYSTEMS, ANY SERVICES OR ANY DATABASE, EXPRESS OR IMPLIED, IN FACT OR IN LAW, INCLUDING BUT NOT LIMITED TO WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. CUSTOMER ACKNOWLEDGES
THAT THE SOFTWARE, THE SYSTEMS, ANY SERVICES AND ANY DATABASE ARE PROVIDED “AS IS.” TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, IN NO EVENT SHALL CUSTODIAN OR ANY SUPPLIER BE LIABLE FOR ANY DAMAGES, WHETHER DIRECT, INDIRECT SPECIAL,
OR CONSEQUENTIAL, WHICH CUSTOMER MAY INCUR IN CONNECTION WITH THE SYSTEMS, SERVICES OR ANY DATABASE, EVEN IF CUSTODIAN OR SUCH SUPPLIER HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. IN NO EVENT SHALL CUSTODIAN OR ANY SUPPLIER BE LIABLE FOR
ACTS OF GOD, MACHINE OR COMPUTER BREAKDOWN OR MALFUNCTION, INTERRUPTION OR MALFUNCTION OF COMMUNICATION FACILITIES, LABOR DIFFICULTIES OR ANY OTHER SIMILAR OR DISSIMILAR CAUSE BEYOND THEIR REASONABLE CONTROL.
6.
Security; Reliance; Unauthorized Use
. Custodian will establish security procedures to be followed in connection with the Systems. Customer
understands and agrees that the security procedures are intended to determine whether instructions received by Custodian through the Systems are authorized but are not (unless otherwise specified in writing) intended to detect any errors contained
in such instructions. Customer will cause all persons utilizing the Software and the Systems to treat all applicable user and authorization codes, passwords and authentication keys with the highest degree of care and confidentiality. Custodian is
hereby irrevocably authorized to comply with and rely upon on Written Instructions, whether or not authorized, received by it through the Systems in accordance with the security procedures. Customer acknowledges that it is its sole responsibility to
assure that only Authorized Persons use the Systems and that to the fullest extent permitted by applicable law Custodian shall not be responsible nor liable for any unauthorized use thereof or for any losses sustained by Customer arising from or in
connection with the use of the Systems or Custodian’s reliance upon and compliance with Written Instructions received through the System.
7.
System Acknowledgments
. Custodian shall acknowledge through the Systems its receipt of each transmission communicated through the Systems, and in the absence of such acknowledgment Custodian shall not be liable for any failure to
act in accordance with such transmission and Customer may not claim that such transmission was received by Custodian.
8.
Viruses
.
Customer agrees to use reasonable efforts to prevent the transmission to the Systems of any software or file which contains any viruses, worms, harmful component or corrupted data and agrees not to use any device, software, or routine to interfere
or attempt to interfere with the proper working of the Systems.
9.
Encryption
. Customer acknowledges and agrees that encryption may
not be available for every communication through the Systems, or for all data. Customer agrees that Custodian may deactivate any encryption features at any time, without notice or liability to Customer, for the purpose of maintaining, repairing or
troubleshooting the System or the Software.
10.
On-Line Inquiry and Modification of Records
. In connection with Customer’s use
of the Systems, Custodian may, at Customer’s request, permit Customer to enter data directly into a Custodian database for the purpose of modifying certain information maintained by Custodian’s systems, including, but not limited to,
change of address information. To the extent that Customer is granted such access, Customer agrees to indemnify and hold Custodian harmless from all loss, liability, cost, damage and expense (including attorney’s fees and expenses) to which
Custodian may be subjected or which may be incurred in connection with any claim which may arise out of or as a result of changes to Custodian database records initiated by Customer.
11.
Agents.
Customer may, on advance written notice to the Custodian, permit its agents and contractors (“Agents”) to access and use the
Systems on Customer’s behalf, except that the Custodian reserves the right to prohibit Customer’s use of any particular Agent for any reason. Customer shall require its Agent(s) to agree in writing to be bound by the terms of the
Agreement, and Customer shall be liable and responsible for any act or omission of such Agent in the same manner, and to the same extent, as though such act or omission were that of Customer. Each submission of a Written Instruction, request for
information or other communication by the Agent through a System shall constitute a representation and warranty by the Customer that the Agent continues to be duly authorized by the Customer to so act on its behalf and the Custodian may rely on the
representations and warranties made herein in complying with such Written Instruction, request or communication. Any Written Instruction, information request or other communication through the System by an Agent shall be deemed that of Customer, and
Customer shall be bound thereby whether or not authorized. Customer may, subject to the terms of this Agreement and upon advance written notice to the Bank, provide a copy of the system user manuals to its Agent if the Agent requires such copies to
use the Systems on Customer’s behalf. Upon cessation of any such Agent’s services, Customer shall promptly terminate such Agent’s access to the, Systems and retrieve from the Agent any copies of the manuals and destroy them.
CERTIFICATE OF AUTHORIZED PERSONS
(Customer - Oral and Written Instructions)
The undersigned hereby certifies
that he/she is the duly elected and acting
of DB Currency Index Value Fund (“Customer”), and further certifies
that the following officers or employees of the Customer have been duly authorized in conformity with the Customer’s Amended and Restated Declaration of Trust and Trust Agreement to deliver Oral and Written Instructions to The Bank of New York
(“BNY”) pursuant to the Global Custody Agreement between the Customer and BNY dated
, 2006, and that the
signatures appearing opposite their names are true and correct:
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This certificate supersedes any certificate of authorized individuals you may currently have on
file.
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[corporate seal]
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DB CURRENCY INDEX VALUE FUND
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By:
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DB Commodity Services LLC,
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its managing owner
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By:
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CUSTODY ACCOUNT AGENCY AUTHORIZATION
Reference is made to the Global Custody Agreement (the “Custody Agreement”) dated as of
, 2006 between DB Currecncy Index Value Fund (“Customer”) and The Bank of New York (“BNY”).
This is to advise BNY that for the account(s) identified below Customer has duly authorized the following investment managers (each, an
“Investment Manager”) to act as Customer’s agent for the purpose of (a) delivering Oral and Written Instructions to BNY (as defined in the Custody Agreement), and/or (b) buying and selling foreign currency (on a spot and
forward basis) and options to buy and sell foreign currency, as such purposes are designated below, and to confirm to BNY that all actions taken by BNY in reliance upon such authorization (whether in its capacity as custodian or counterparty) shall
be binding on Customer.
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Investment Manager
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Inst.
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F/X
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[corporate seal]
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DB CURRENCY INDEX VALUE FUND
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By:
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DB Commodity Services LLC,
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its managing owner
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By:
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Name:
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CERTIFICATE OF AUTHORIZED PERSONS
(Investment Manager - Oral and Written Instructions)
The undersigned hereby certifies that
he/she is the duly elected and acting
of DB Commodity Services LLC (the “Investment Manager”), and
further certifies that the following officers or employees of the Investment Manager have been duly authorized in conformity with the Investment Manager’s organizational documents to deliver oral and written instructions to The Bank of New York
(“BNY”) with respect to the above-referenced Account, and that the signatures appearing opposite their names are true and correct:
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This certificate supersedes any certificate of authorized individuals you may currently have on file.
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[corporate seal]
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DB CURRENCY INDEX VALUE FUND
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CERTIFICATE OF AUTHORIZED PERSONS
(Customer - Foreign Exchange)
The undersigned hereby certifies that he/she is
the duly elected and acting
of
(the “Corporation”), and further certifies that the following officers or employees of the Corporation have been duly authorized in
conformity with the Corporation’s Articles of Incorporation and By-Laws to enter into contracts with The Bank of New York (“BNY”) to buy and sell foreign currency (on a spot and forward basis) and options to buy and sell foreign
currency on behalf of the Corporation or any Account (“F/X Transactions”), and that the signatures appearing opposite their names are true and correct:
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and further certifies that the following officers or employees of the Corporation have been duly authorized in
conformity with the Corporation’s Articles of Incorporation and By-Laws to confirm, orally and in writing, the terms of F/X Transactions entered with BNY, and that the signatures appearing opposite their names are true and correct:
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This certificate supersedes any certificate of authorized individuals you may currently have on
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[corporate seal]
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DB CURRENCY INDEX VALUE FUND
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By:
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DB Commodity Services LLC,
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its managing owner
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By:
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By:
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CERTIFICATE OF AUTHORIZED PERSONS
(Investment Manager - Foreign Exchange)
The undersigned hereby certifies that
he/she is the duly elected and acting
of
(the “Investment Manager”), and further certifies that the following officers or employees of the Investment Manager have been duly
authorized in conformity with the Investment Manager’s organizational documents to enter into contracts with The Bank of New York (“BNY”) to buy and sell foreign currency (on a spot and forward basis) and options to buy and sell
foreign currency on behalf of the above-referenced Account (“F/X Transactions”), and that the signatures appearing opposite their names are true and correct:
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and further certifies that the following officers or employees of the Investment Manager have been duly authorized
in conformity with the Investment Manager’s organizational documents to confirm, orally and in writing, the terms of F/X Transactions entered by the Investment Manager with BNY, and that the signatures appearing opposite their names are true
and correct:
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[corporate seal]
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DB CURRENCY INDEX VALUE FUND
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By:
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DB Commodity Services LLC,
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its managing owner
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Exhibit 10.4
FORM OF
TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT made as of the
day of
, 2006, by and between DB CURRENCY INDEX VALUE FUND, a Delaware statutory trust, having its principal office and place of
business at 60 Wall Street, New York, NY 10005 (the “Trust”) and THE BANK OF NEW YORK, a New York banking company having its principal office and place of business at One Wall Street, New York, New York 10286 (the “Bank”).
WHEREAS, the Trust and designated agents will issue for purchase and redeem shares of the Trust only in aggregations of shares known as
“Creation Units” (currently 200,000 shares) (each a “Creation Unit”);
WHEREAS, The Depository Trust Company, a limited
purpose trust company organized under the laws of the State of New York (“DTC”), or its nominee (Cede & Co.), will be the initial record or registered owner (the “Shareholder”) of all shares;
WHEREAS, the Trust desires to appoint the Bank as its transfer agent, dividend disbursing agent, and agent in connection with certain other activities,
and the Bank desires to accept such appointment;
NOW, THEREFORE, in consideration of the mutual covenants herein contained, the parties
hereto agree as follows:
1. Terms of Appointment; Duties of the Bank
1.1 Subject to the terms and conditions set forth in this Agreement, the Trust, hereby employs and appoints the Bank to act as, and the Bank agrees to act as its transfer agent for the authorized and issued shares of
beneficial interest, no par value per share of the Trust (“Shares”), and as the Trust’s dividend disbursing agent.
1.2 The
Bank agrees that it will perform the following services:
(a) In accordance with the terms and conditions of the form of Participant
Agreement, attached hereto as Exhibit A, the Bank shall:
(i) Perform and facilitate the performance of purchases and redemption of
Creation Units;
(ii) Prepare and transmit by means of DTC’s book-entry system payments for dividends and distributions declared by
the Trust;
(iii) Maintain the record of the name and address of the Shareholder and the number of Shares issued by the Trust and held by
the Shareholder;
(iv) Record the issuance of Shares of the Trust and maintain a record of the total number of Shares of the Trust, and,
which are authorized, based upon data provided to it by
the Trust. The Bank shall have no obligation, when recording the issuance of Shares, to monitor the issuance of such Shares or to take cognizance of any laws
relating to the issue or sale of such Shares, which functions shall be the sole responsibility of the Trust.
(v) Prepare and
transmit to the Trust and to any applicable securities exchange (as specified to the Bank by the Trust) information with respect to purchases and redemptions of Shares;
(vi) On days that the Trust may accept orders for purchases or redemptions, calculate and transmit to the Bank and the Trust the number of outstanding Shares;
(vii) On days that the Trust may accept orders for purchases or redemptions (pursuant to the Participant Agreement), transmit to the Bank, the Trust and
DTC the amount of Shares purchased on such day;
(viii) Confirm to DTC the number of Shares issued to the Shareholder, as DTC may
reasonably request;
(ix) Extend the voting rights to the Shareholder and/or beneficial owners of Shares in accordance with the policies
and procedures of DTC for book-entry only securities;
(x) Maintain those books and records of the Trust specified by the Trust in
Schedule A attached hereto; and
(xi) Prepare a monthly report of all purchases and redemptions during such month on a gross transaction
basis. The monthly report shall show the counterpart and amount of each purchase on a daily basis net number of Shares either redeemed or created for such Business Day.
(b) In addition to and neither in lieu nor in contravention of the services set forth in the above paragraph (a), the Bank shall: perform the customary
services of a transfer agent and dividend disbursing agent including but not limited to: maintaining the account of the Shareholder, obtaining a list of DTC participants holding interests in the Global Certificate at the request of the Trust,
mailing proxy materials, shareholder reports and prospectuses to the Shareholder or DTC participants or beneficial owners of Shares at the request of the Trust and those services set forth on Schedule A attached hereto.
(c) The following shall be delivered to DTC for delivery to beneficial owners in accordance with the procedures for book-entry only securities of DTC:
(i) Annual and semi-annual reports of the Trust;
(ii) Proxies, proxy statements and other proxy soliciting materials;
(iii) Prospectus and amendments and
supplements to the Prospectus, including stickers; and
(iv) Other communications as may be required by law or reasonably requested by the
Trust.
-2-
(d) If the Shares are represented by individual Certificates, the Bank shall perform the services agreed
to in writing by the Bank and the Trust.
(e) The Bank shall provide additional services (if any) on behalf of the Trust
(i.e., escheatment services) which may be agreed upon in writing between the Trust and the Bank.
2. Fees and
Expenses
2.1 The Bank shall receive from the Trust such compensation for the Transfer Agent’s services provided pursuant to this
Agreement as may be agreed to from time to time in a written fee schedule approved by the parties. The fees are accrued daily and billed monthly and shall be due and payable upon receipt of the invoice. Upon the termination of this Agreement before
the end of any month, the fee for the part of the month before such termination shall be prorated according to the proportion which such part bears to the full monthly period and shall be payable upon the date of termination of this Agreement.
2.2 In addition to the fee paid under Section 2.1 above, the Trust agrees to reimburse the Bank for out-of-pocket expenses, including
but not limited to confirmation production, postage, forms, telephone, microfilm, microfiche, tabulating proxies, records storage, or advances incurred by the Bank for the items set out in the fee schedule attached hereto or relating to dividend
distributions and reports (whereas all expenses related to creations and redemptions of Fund securities shall be borne by the relevant authorized participant in such creations and redemptions). In addition, any other expenses incurred by the Bank at
the request or with the consent of the Trust, will be reimbursed by the Trust.
2.3 The Trust agrees to pay all fees and reimbursable
expenses within ten business days following the receipt of the respective billing notice accompanied by supporting documentation, as appropriate. Postage for mailing of dividends, proxies, Trust reports and other mailings to all shareholder accounts
shall be advanced to the Bank by the Trust at least seven (7) days prior to the mailing date of such materials.
3. Representations and Warranties of
the Bank
3.1 The Bank represents and warrants to the Trust that:
It is a banking company duly organized and existing and in good standing under the laws of the State of New York.
It is duly qualified to carry on its business in the State of New York.
It is empowered under applicable laws and by its Charter and By-Laws to act as transfer agent and dividend disbursing agent and to enter into and perform this Agreement.
All requisite corporate proceedings have been taken to authorize it to enter into and perform this Agreement.
-3-
It has and will continue to have access to the necessary facilities, equipment and personnel to perform
its duties and obligations under this Agreement.
4. Representations and Warranties of the Trust
4.1 The Trust represents and warrants to the Bank that:
It is a statutory trust duly organized and existing and in good standing under the laws of Delaware.
It
is empowered under applicable laws and by its Amended and Restated Declaration of Trust and Trust Agreement to enter into and perform this Agreement.
All corporate proceedings required by said Amended and Restated Declaration of Trust and Trust Agreement have been taken to authorize it to enter into and perform this Agreement.
A registration statement under the Securities Act of 1933, as amended, on behalf of the Trust is currently effective and will remain effective, and
appropriate state securities law filings have been made and will continue to be made, with respect to all Shares of the Trust being offered for sale.
5.
[Section Reserved]
6. Indemnification
6.1
The Bank shall not be responsible for, and the Trust shall indemnify and hold the Bank harmless from and against, any and all losses, damages, costs, charges, counsel fees, payments, expenses and liability (“Losses”) arising out of or
attributable to:
(a) All actions of the Bank or its agents or subcontractors required to be taken pursuant to this Agreement, provided that
such actions are taken without gross negligence, or willful misconduct.
(b) The Trust’s negligence or willful misconduct.
(c) The breach of any representation or warranty of the Trust hereunder.
(d) The conclusive reliance on or use by the Bank or its agents or subcontractors of information, records, documents or services which (i) are
received by the Bank or its agents or subcontractors, and (ii) have been prepared, maintained or performed by the Trust or any other person or firm on behalf of the Trust including but not limited to any previous transfer agent
or registrar.
(e) The conclusive reliance on, or the carrying out by the Bank or its agents or subcontractors of any instructions or
requests of the Trust on behalf of the Trust.
(f) 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
-4-
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.
6.2 At any time the Bank may apply to any officer of the Trust for instructions, and may consult with
legal counsel of their choosing with respect to any matter arising in connection with the services to be performed by the Bank under this Agreement, and the Bank and its agents or subcontractors shall not be liable and shall be indemnified by the
Trust for any action taken or omitted by it in reliance upon such instructions or upon the advice or opinion of such counsel and shall promptly advise the Trust of such advice or opinion (except for actions or omissions by Bank taken with negligence
or willful misconduct). The Bank, its agents and subcontractors shall be protected and indemnified in acting upon any paper or document, reasonably believed to be genuine and to have been signed by the proper person or persons, or upon any
instruction, information, data, records or documents provided the Bank or its agents or subcontractors by machine readable input, telex, CRT data entry or other similar means authorized by the Trust, and shall not be held to have notice of any
change of authority of any person, until receipt of written notice thereof from the Trust.
6.3 The Trust shall not be responsible for, and
the Bank shall liable for direct money damages arising out of or attributable to:
(a) The Bank’s own gross negligence or willful
misconduct.
(b) The breach of any representation or warranty of the Bank hereunder.
7. Standard of Care
The Bank shall have no responsibility
and shall not be liable for any loss or damage unless such loss or damage is caused by its own negligence or willful misconduct or that of its employees, or its breach of any of its representations. In no event shall the Bank be liable for special,
indirect or consequential damages regardless of the form of action and even if the same were foreseeable.
8. Concerning the Bank
8.1 Bank may enter into subcontracts, agreements and understandings with any BNY affiliate, whenever and on such terms and conditions as it deems
necessary or appropriate to perform its services hereunder. No such subcontract, agreement or understanding shall discharge Bank from its obligations hereunder.
8.2 Bank shall be entitled to conclusively rely upon any written or oral instruction actually received by Bank and reasonably believed by Bank to be duly authorized and delivered. Trust agrees to forward to Bank
written instructions confirming oral instructions by the close of business of the same day that such oral instructions are given to Bank. Trust agrees that the fact that such confirming written instructions are not received or that contrary written
instructions are received by Bank shall in no way affect the validity or enforceability of transactions authorized by such oral instructions and effected by Bank. If Trust elects to transmit written instructions through an on-line communication
system offered by Bank, Trust’s use thereof shall be subject to the terms and conditions attached hereto as Appendix A.
-5-
8.3 Bank shall establish and maintain a disaster recovery plan and back-up system at all times satisfying
the requirements of all applicable law, rules, and regulations and which is reasonable under the circumstances (the “Disaster Recovery Plan and Back-Up System”). Bank shall not be responsible or liable for any failure or delay in the
performance of its obligations under this Agreement arising out of or caused, directly or indirectly, by circumstances beyond its control which are not a result of its negligence, including without limitation, acts of God; earthquakes; fires;
floods; wars; civil or military disturbances; sabotage; epidemics; riots; interruptions, loss or malfunctions of utilities, transportation, computer (hardware or software) or communications service; accidents; labor disputes; acts of civil or
military authority; governmental actions; or inability to obtain labor, material, equipment or transportation, provided that the Bank has established and is maintaining the Disaster Recovery Plan and Back-Up System, or if not, that such delay or
failure would have occurred even if Bank had established and was maintaining the Disaster Recovery Plan and Back-Up System. Upon the occurrence of any such delay or failure Bank shall use commercially reasonable best efforts to resume performance as
soon as practicable under the circumstances.
8.4 Bank shall have no duties or responsibilities whatsoever except such duties and
responsibilities as are specifically set forth in this Agreement, and no covenant or obligation shall be implied against Bank in connection with this Agreement.
8.5 At any time the Bank may apply to an officer of the Trust written instructions with respect to any matter arising in connection with the Bank’s duties and obligations under this Agreement, and the Bank shall
not be liable for any action taken or omitted to be taken by the Bank in good faith in accordance with such instructions. Such application by the Bank for instructions from an officer of the Trust may, at the option of the Bank, set forth in writing
any action proposed to be taken or omitted to be taken by the Bank with respect to its duties or obligations under this Agreement and the date on and/or after which such action shall be taken, and the Bank shall not be liable for any action taken or
omitted to be taken in accordance with a proposal included in any such application on or after the date specified therein unless, prior to taking or omitting to take any such action, the Bank has received written instructions in response to such
application specifying the action to be taken or omitted. The Bank may consult counsel to the Trust or its own counsel, at the expense of the Trust, and shall be fully protected with respect to anything done or omitted by it in good faith in
accordance with the advice or opinion of such counsel.
8.6 Notwithstanding any provisions of this Agreement to the contrary, the Bank
shall be under no duty or obligation to inquire into, and shall not be liable for:
(a) The legality of the issue, sale or transfer of any
Shares, the sufficiency of the amount to be received in connection therewith, or the authority of the Trust to request such issuance, sale or transfer;
(b) The legality of the purchase of any Shares, the sufficiency of the amount to be paid in connection therewith, or the authority of the Trust to request such purchase;
(c) The legality of the declaration of any dividend by the Trust, or the legality of the issue of any Shares in payment of any stock dividend; or
-6-
(d) The legality of any recapitalization or readjustment of the Shares.
9. Covenants of the Trust and the Bank
9.1 The Trust shall promptly furnish to the Bank the following:
(a) A copy of the Amended and Restated
Declaration of Trust and Trust Agreement of the Trust and all amendments thereto.
(b) Shares will be transferred upon presentation to the
Bank of Shares to its electronic account at DTC, accompanied by such documents as the Bank deems necessary to evidence the authority of the person making such transfer, and bearing satisfactory evidence of the payment of applicable stock transfer
taxes, if any. In the case of small estates where no administration is contemplated, the Bank may, when furnished with an appropriate surety bond, and without further approval of the Trust, transfer Shares registered in the name of the decedent
where the current market value of the Shares being transferred does not exceed such amount as may from time to time be prescribed by the various states. The Bank reserves the right to refuse to transfer Shares until it is satisfied that the
endorsements on documents submitted to it are valid and genuine, and for that purpose it may require, unless otherwise instructed by an Officer of the Trust, a guaranty of signature by an “eligible guarantor institution” meeting the
requirements of the Bank, which requirements include membership or participation in STAMP or such other “signature guarantee program” as may be determined by the Bank in addition to, or in substitution for, STAMP, all in accordance with
the Securities Exchange Act of 1934, as amended. The Bank also reserves the right to refuse to transfer Shares until it is satisfied that the requested transfer is legally authorized, and it shall incur no liability for the refusal in good faith to
make transfers which the Bank, in its judgment, deems improper or unauthorized, or until it is satisfied that there is no basis to any claims adverse to such transfer. The Bank may, in effecting transfers of Shares, rely upon those provisions of the
Uniform Act for the Simplification of Fiduciary Security Transfers or the Uniform Commercial Code, as the same may be amended from time to time, applicable to the transfer of securities, and the Trust shall indemnify the Bank for any act done or
omitted by it in good faith in reliance upon such laws.
(c) The Bank assumes no responsibility with respect to the transfer of restricted
securities where counsel for the Trust advises that such transfer may be properly effected.
9.2 [Section Reserved]
9.3 Prior to the issuance of any additional Shares pursuant to stock dividends, stock splits or otherwise, and prior to any reduction in the number of
Shares outstanding, the Trust shall deliver the following documents to the Bank:
(a) A certified copy of the resolutions adopted by the
managing owner of the Trust authorizing such issuance of additional Shares of the Trust or such reduction, as the case may be;
(b) A
certified copy of the order or consent of each governmental or regulatory authority required by law as a prerequisite to the issuance or reduction of such Shares, as the case may be, and an opinion of counsel for the Trust that no other order or
consent is required; and
-7-
(c) An opinion of counsel for the Trust, in a form satisfactory to the Bank, with respect to (i) the
validity of the Shares, the obtaining of all necessary governmental consents, whether such Shares are fully paid and non-assessable and the status of such Shares under the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, and any other applicable federal law or regulations (
i.e.
, if subject to registration, that they have been registered and that the Registration Statement has become effective or, if exempt, the specific grounds therefore),
(ii) the status of the Trust with regard to the Investment Company Act of 1940, as amended, and (iii) the due and proper listing of the Shares on all applicable securities exchanges; and
9.4 The Bank agrees that all records prepared or maintained by the Bank relating to the services to be performed by the Bank hereunder are the property
of the Trust and will be preserved, maintained and made available upon reasonable request, and will be surrendered promptly to the Trust on and in accordance with its request.
9.5 The Bank and the Trust agree that all books, records, information and data pertaining to the business of the other party which are exchanged or
received pursuant to the negotiation or the carrying out of this Agreement shall remain confidential, and shall not be voluntarily disclosed to any other person, except as may be, or may become required by law, by administrative or judicial order or
by rule.
9.6 In case of any requests or demands for the inspection of the Shareholder records of the Trust, the Bank will endeavor to
notify the Trust and to secure instructions from an authorized officer of the Trust as to such inspection. The Bank reserves the right, however, to exhibit the Shareholder records to any person whenever it is advised by its counsel that it may be
held liable for the failure to exhibit the Shareholder records to such person.
9.7 The Fund shall, or shall cause a third party to,
prepare and file such appropriate information returns concerning the payment and composition of dividends and capital gain distributions and tax withholding with the proper Federal, State and local authorities as are required by law to be filed by
the Trust and shall withhold such sums as are required to be withheld by applicable law.
10. Termination of Agreement
10.1 The term of this Agreement shall be one year commencing upon the date hereof (the “Initial Term”) and shall automatically renew for
additional one year terms unless either party provides written notice of termination at least ninety (90) days prior to the end of any one year term or, unless earlier terminated as provided below:
(a) Either party hereto may terminate this Agreement prior to the expiration of the Initial Term in the event the other party breaches any material
provision of this Agreement, including, without limitation in the case of the Trust, its obligations under Section 2.1, 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.
(b) The Fund may terminate this 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 and terminate its registration with the Securities and exchange Commission other than in connection with
a merger or acquisition of the Trust.
-8-
10.2 Should the Trust exercise its right to terminate, all out-of-pocket expenses associated with the
movement of records and material will be borne by the Trust. Additionally, the Bank reserves the right to charge for any other reasonable expenses associated with such termination.
10.3 The terms of Article 2 and Article 6 shall survive the termination of this Agreement.
11. [Section Reserved]
12. Assignment
12.1 Neither this Agreement nor any rights or obligations hereunder may be assigned by either party without the written consent of the other party.
12.2 This Agreement shall inure to the benefit of and be binding upon the parties and their respective permitted successors and assigns.
13. Severability and Beneficiaries
13.1 In
case any provision in or obligation under this Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions shall not in any way be affected thereby. This Agreement
shall extend to and shall be binding upon the parties hereto, and their respective successors and assigns; provided, however, that this Agreement shall not be assignable by either party without the written consent of the other.
14. Amendment
14.1 This Agreement may be amended or
modified by a written agreement executed by both parties.
15. New York Law to Apply
15.1 This Agreement shall be construed in accordance with the substantive laws of the State of New York, without regard to conflicts of laws principles
thereof. Trust and Bank hereby consent to the jurisdiction of a state or federal court situated in New York City, New York in connection with any dispute arising hereunder. Trust hereby irrevocably waives, to the fullest extent permitted by
applicable law, any objection which it may now or hereafter have to the laying of venue of any such proceeding brought in such a court and any claim that such proceeding brought in such a court has been brought in an inconvenient forum. Trust and
Bank each hereby irrevocably waives any and all rights to trial by jury in any legal proceeding arising out of or relating to this Agreement.
-9-
16. Merger of Agreement
16.1 This Agreement constitutes the entire agreement between the parties hereto and supersedes any prior agreement with respect to the subject matter hereof whether oral or written.
17. Limitations of Liability of the Trustee and Shareholders
17.1 It is expressly acknowledged and agreed that the obligations of the Trust hereunder shall not be binding upon any shareholder, Trustee, officer, employee or agent of the Trust, personally, but shall bind only the trust property of the
Trust, as provided in its Amended and Restated Declaration of Trust and Trust Agreement. This Agreement has been duly authorized, executed and delivered by the Trust and neither such authorization nor such execution and delivery shall be deemed to
have been made by any of them individually or to impose any liability on any of them personally, but shall bind only the trust property of the Trust as provided in its Amended and Restated Declaration of Trust and Trust Agreement.
18. Counterparts
18.1 This Agreement may be executed by the
parties hereto on any number of counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed in their names and on their behalf by and through their duly authorized officers, as of the day and year first above written.
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DB CURRENCY INDEX VALUE FUND
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By:
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DB Commodity Services LLC,
its managing owner
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By:
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Name:
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Director
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THE BANK OF NEW YORK
(the “Bank”)
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By:
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Name:
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Title:
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-10-
SCHEDULE A
BOOKS AND RECORDS TO BE MAINTAINED BY BANK
Source Documents requesting Creations and Redemptions
Correspondence/AP Inquiries
Reconciliations, bank statements, copies of
canceled checks, cash proofs
Daily/Monthly reconciliation of outstanding units between the Trust and DTC
Net Asset Computation Documentation
Dividend Records
Year-end Statements and Tax Forms
-11-
Exhibit A
Form of Participant Agreement
-12-
Fee Schedule
-13-
FORM OF
DISTRIBUTION SERVICES AGREEMENT
DISTRIBUTION SERVICES AGREEMENT
dated as of
, 2006 (this “Agreement”) among DB Currency Index Value Fund, a Delaware statutory trust (the “Fund”),
ALPS Distributors, Inc., a Colorado corporation and a registered broker-dealer under the Securities Exchange Act of 1934 (the “Distributor”), and DB Commodity Services LLC, a Delaware limited liability company (the “Managing
Owner”). Capitalized terms used but not defined in this Agreement shall have the meaning ascribed thereto in the Fund’s Prospectus included its Registration Statement on Form S-1 (Registration
No. 333-
), as may be amended from time-to-time.
WHEREAS, the Managing Owner serves as the sole managing owner of the Fund; and
WHEREAS, the Fund wishes to employ Distributor in
connection with the performance of the services listed in
Schedule A
and additional services as may be agreed.
NOW, THEREFORE, in
consideration of the mutual promises and undertakings herein contained, the parties agree as follows:
1. Documents — The Fund has furnished or will
furnish, upon request, the Distributor with copies of the Fund’s Amended and Restated Declaration of Trust, advisory agreement, custodian agreement, transfer agency agreement, administration agreement, current prospectus, and statement of
additional information, and all forms relating to any plan, program or service offered by the Fund. The Fund shall furnish, within a reasonable time period, to the Distributor a copy of any amendment or supplement to any of the above-mentioned
documents. Upon request, the Fund shall furnish promptly to the Distributor any additional documents necessary or advisable to perform its functions hereunder. As used in this Agreement the terms “registration statement,”
“prospectus” and “statement of additional information” shall mean any registration statement, prospectus and statement of additional information filed by the Fund with the Securities and Exchange Commission (“SEC”) and
any amendments and supplements thereto that are filed with the SEC.
2. Authorized Representations — The Distributor is not authorized by the Fund to
give any information or to make any representations other than those contained in the registration statement or prospectus and statement of additional information, or contained in shareholder reports or other material that may be prepared by or on
behalf of the Fund for the Distributor’s use. Consistent with the foregoing, the Distributor may prepare and distribute sales literature or other material as it may deem appropriate in consultation with the Fund, provided such sales literature
complies with applicable law and regulations.
3. Registration of Shares — The Fund agrees that it will take all action necessary to register the
Shares under the 1933 Act (subject to the necessary approval of its shareholders). The Fund shall make available to the Distributor, at the Distributor’s expense, such number of copies of its prospectus and statement of additional information
as the Distributor may reasonably request. The Fund shall furnish to the Distributor copies of all information, financial statements and other papers, which the Distributor may reasonably request for use in connection with the distribution of Shares
of the Fund.
4. Fees and Fund Expenses — (a) In consideration of the services to be performed by the Distributor hereunder as set forth on
Schedule A
attached hereto and as it may be amended from time-to-time, the Managing Owner will pay the Distributor a fee in an amount to be agreed upon in writing by the parties hereto from time-to-time, subject to any limitation imposed by
any law, rule or regulation applicable to any of the parties hereto. It is understood and agreed among the parties hereto that certain of the services to be performed by the Distributor hereunder will be performed using registered representatives of
the Distributor who are affiliates or employees of PowerShares Capital Management LLC.
(b) The Managing Owner shall reimburse the Distributor for any reasonable fees or disbursements incurred
by the Distributor in connection with the performance by the Distributor of its duties under and pursuant to this Agreement with the prior written consent of the Managing Owner. Further, unless otherwise agreed to by the parties hereto in writing,
the Distributor shall not be responsible for fees and expenses in connection with (a) filing of any registration statement, printing and the distribution of any prospectus and statement of additional information under the 1933 Act and
amendments prepared for use in connection with the offering of Shares for sale to the public, preparing, setting in type, printing and mailing the prospectus, statement of additional information and any supplements thereto sent to existing
shareholders, (b) preparing, setting in type, printing and mailing any report (including annual and semi-annual reports) or other communication to shareholders of the Fund, and (c) the Blue Sky registration and qualification of Shares for
sale in the various states in which the officers of the Fund shall determine it advisable to qualify such Shares for sale (including registering the Fund as a broker or dealer or any officer of the Fund as agent or salesman in any state).
5. Use of the Distributor’s Name — The Fund shall not use the name of the Distributor, or any of its affiliates, in any prospectus or statement
of additional information, sales literature, and other material relating to the Fund in any manner without the prior written consent of the Distributor (which shall not be unreasonably withheld); provided, however, that the Distributor hereby
approves all lawful uses of the names of the Distributor and its affiliates in the prospectus and statement of additional information of the Fund and in all other materials which merely refer to accurate terms to their appointment hereunder or which
are required by the SEC, NASD, OCC or any state securities authority.
6. Use of the Fund’s Name — Neither the Distributor nor any of its
affiliates shall use the name of the Fund in any publicly disseminated materials, including sales literature in any manner without the prior consent of the Fund (which shall not be unreasonably withheld); provided, however, that the Fund hereby
approves all lawful uses of its name in any required regulatory filings of the Distributor which merely refer in accurate terms to the appointment of the Distributor hereunder, or which are required by the SEC, NASD, OCC or any state securities
authority.
7. Indemnification — The Fund agrees to indemnify and hold harmless the Distributor and each of its directors and officers and each
person, if any, who controls the Distributor within the meaning of Section 15 of the 1933 Act, against any loss, liability, claim, damages or expenses (including the reasonable cost of investigating or defending any alleged loss, liability,
claim, damages or expense and reasonable counsel 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 1933 Act or any other statute or the common law. However, the Fund does not agree to indemnify the Distributor 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 the Distributor. In no case (i) is the indemnity of the Fund in favor of the Distributor or any person indemnified to be deemed to protect the Distributor or any person
against any liability to the Fund or its security holders to which the Distributor 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 this Agreement, or (ii) is the Fund to be liable under its indemnity agreement contained in this paragraph with respect to any claim made against the Distributor or any person indemnified unless the
Distributor or person, as the case may be, shall 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 shall have been served upon the Distributor
or any such person (or after the Distributor or such person shall have received notice of service on any designated agent). However, failure to notify the Fund of any claim shall 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 contained in
this paragraph. The Fund shall 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 shall be
conducted by counsel chosen by the Fund. In the event the Fund elects to assume the defense of any suit and retain counsel, the Distributor, officers or directors or controlling person(s), defendant(s) in the suit, shall 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 the Distributor, 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 the Distributor 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.
The Distributor also covenants and agrees that it will indemnify and hold harmless the Fund, the Managing Owner, and each of their respective officers,
representatives or agents and person, if any, who controls the Fund or the Managing Owner within the meaning of Section 15 of the 1933 Act (each, an “Indemnified Party”), against any loss, liability, damages, claims or expense
(including the reasonable cost of investigating or defending any alleged loss, liability, damages, claim or expense and reasonable counsel fees incurred in connection therewith) arising by reason of any person acquiring any Shares, based upon the
1933 Act or any other statute or common law, alleging (a) any wrongful act of the Distributor or any of its employees or (b) that any sales literature, advertisements, information, statements or representations used or made by the
Distributor or any of its affiliates or employees or that the registration statement, prospectus, statement of additional information, (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, insofar as the statement or omission was made in reliance upon, and in conformity with, information furnished to the Fund or Managing Owner by or on behalf of the
Distributor. In no case (i) is the indemnity of the Distributor in favor of and Indemnified Party to be deemed to protect any such party against any liability to which the Indemnified Party 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 this Agreement, or (ii) is the Distributor to be liable under its indemnity agreement contained in
this paragraph with respect to any claim made against any Indemnified Party unless such Indemnified Party shall have notified the Distributor in writing of the claim promptly after the summons or other first written notification giving information
of the nature of the claim shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of service on any designated agent). However, failure to notify the Distributor of any claim shall not relieve
the Distributor from any liability which it may have to the Indemnified Party against whom the action is brought otherwise than on account of its indemnity agreement contained in this paragraph. In the case of any notice to the Distributor it shall
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 the claim, and if the Distributor elects to assume the defense, the defense shall be conducted by counsel chosen
by it and satisfactory to the Indemnified Party, to its officers and to any controlling person(s) or defendant(s) in the suit. In the event that the Distributor elects to assume the defense of any suit and retain counsel, the Indemnified Party or
controlling person(s), defendant(s) in the suit, shall bear the fees and expense of any additional counsel retained by them. If the Distributor does not elect to assume the defense of any suit, it will reimburse the Indemnified Party, officers or
controlling person(s), defendant(s) in the suit, for the reasonable fees and expenses of any counsel retained by them. The Distributor agrees to notify the Indemnified Party promptly of the commencement of any litigation or proceedings against it in
connection with the Indemnified Party and sale of any of the Shares.
8. Supplemental Information — The Distributor and the Fund shall regularly
consult with each other regarding the Distributor’s performance of its obligations under this Agreement. In connection therewith, the Fund shall submit to the Distributor at a reasonable time in advance of filing with the SEC reasonably final
copies of any amended or supplemented registration statement (including exhibits) under the 1933
Act; provided, however, that nothing contained in this Agreement shall in any way limit the Fund’s right to file at any time such amendments to any
registration statement and/or supplements to any prospectus or statement of additional information, of whatever character, as the Fund may deem advisable, such right being in all respects absolute and unconditional.
The Distributor acknowledges that the only information provided to it by the Fund is that contained in the registration statement, the prospectus, the statement of
additional information and reports and financial information referred to herein. Neither the Distributor nor any other person is authorized by the Fund to give any information or to make any representations, other than those contained in such
documents and any sales literature or advertisements specifically approved by appropriate representatives of the Fund.
9. Term — This Agreement shall
become effective as of March
, 2006, and shall continue until two years from such date and thereafter shall continue automatically for successive annual periods, provided that such continuance is specifically approved
at least annually by the Managing Owner. This Agreement is terminable without penalty on sixty (60) days’ written notice by the Managing Owner or by the Distributor. This Agreement shall automatically terminate in the event of its
assignment.
Upon the termination of this Agreement, the Distributor, at the Fund’s expense and direction, shall transfer to such successor as the
Fund shall specify all relevant books, records and other data established or maintained by the Distributor under this Agreement.
10. Notice — Any
notice required or permitted to be given by either party to the other shall be deemed sufficient if sent by (i) telecopier (fax) or (ii) registered or certified mail, postage prepaid, addressed by the party giving notice to the other party
at the last address furnished by the other party to the party giving notice:
if to the Fund at:
DB Commodity Services LLC
60 Wall Street
New York, New York 10005
Attn: Kevin Rich
if to the Distributor at:
1625 Broadway, Suite 2200,
Denver, Colorado, 80202
Attn: General Counsel
or such other telecopier (fax) number
or address as may be furnished by one party to the other.
11. Confidential Information — The Distributor, its officers, directors, employees and
agents will treat confidentially and as proprietary information of the Fund all records and other information relative to the Fund and to prior or present shareholders or to those persons or entities who respond to the Distributor’s inquiries
concerning investment in the Fund, and will not use such records and information for any purposes other than performance of its responsibilities and duties hereunder. If the Distributor is requested or required by, but not limited to, depositions,
interrogatories, requests for information or documents, subpoena, civil investigation, demand or other action, proceeding or process or as otherwise required by law, statute, regulation, writ, decree or the like to disclose such information, the
Distributor will provide the Fund with prompt written notice of any such request or requirement so that the Fund may seek an appropriate protective order or other appropriate remedy and/or waive compliance with this provision. If such order or other
remedy is not sought, or obtained, or waiver not received within a
reasonable period following such notice, then the Distributor may without liability hereunder, disclose to the person, entity or agency requesting or
requiring the information, that portion of the information that is legally required in the reasonable opinion of the Distributor’s counsel.
12.
Limitation of Liability — The Distributor agrees that the obligations assumed by the Fund under this contract shall be limited in all cases to the Fund and its assets except as expressly set forth herein. The Distributor agrees that it shall
not seek satisfaction of any such obligation from the shareholders, any individual shareholder, officer, representative or agent of the Fund, nor shall the Distributor seek satisfaction of any such obligation from the Managing Owner, its members,
managers, directors or officers.
Any obligations of the Fund entered into in the name or on behalf thereof by the Managing Owner, members managers,
officers, representatives or agents are made not individually, but in such capacities, and are not binding upon any of the Managing Owner, members, managers, or officers, representatives or agents personally, but bind only the Fund property, and all
persons dealing with the Fund must look solely to the Fund property for the enforcement of any claims against the Fund.
13. Miscellaneous — Each
party agrees to perform such further acts and execute such further documents as are necessary to effectuate the purposes hereof. This Agreement shall be construed, interpreted, and enforced in accordance with and governed by the laws of the State of
Colorado. The captions in this Agreement are included for convenience of reference only and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect. This Agreement may not be changed, waived,
discharged or amended except by written instrument that shall make specific reference to this Agreement and which shall be signed by the party against which enforcement of such change, waiver, discharge or amendment is sought. This Agreement may be
executed simultaneously in two or more counterparts, each of which taken together shall constitute one and the same instrument.
All activities by the
Distributor and its agents and employees as distributor of the Shares shall comply with all applicable laws, rules and regulations including, without limitation, all rules and regulations made or adopted by the SEC or any securities association
registered under the Exchange Act.
The Distributor will promptly transmit any orders received by it for purchase, redemption or exchange of the Shares to
the Fund’s transfer agent.
Remainder of page intentionally left blank. Signature page follows.
IN WITNESS WHEREOF
, the Fund has executed this instrument in its name and behalf, and the
Distributor has executed this instrument in its name and behalf, as of the date and year first above written.
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DB CURRENCY INDEX VALUE FUND
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By
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DB COMMODITY SERVICES LLC,
as Managing Owner
of
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DB Currency Index Value Fund
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By:
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Name:
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Title:
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By:
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Name:
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Title:
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ALPS DISTRIBUTORS, INC.
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By:
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Name:
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Title:
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DB COMMODITY SERVICES LLC
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By:
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Name:
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Title:
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By:
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Name:
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Title:
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Schedule A
List of Services
Dated as of
, 2006
EXHIBIT 23.4
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the use in the Prospectus constituting part
of this Registration Statement on Form S-1 of our report dated October 21, 2005 on the statement of financial condition of DB Commodity Services LLC as of September 15, 2005, and the related statements of changes in member’s capital
and cash flows for the period from May 23, 2005 (inception) through September 15, 2005, all of which appear in such Prospectus. We also consent to the statements with respect to us as appearing under the heading “Experts” in the
Prospectus.
/S/ KPMG LLP
New York, New York
March 15, 2006