open positions of the Fund in whole or in part, and to cancel any
or all pending transactions with the Fund. Futures Account
Agreements typically
provide that a Fund will remain liable for paying to the relevant
FCM, on demand, the amount of any deficiency in such Fund’s
account with
that FCM.
The Futures Account Agreement between a Fund and an FCM generally
requires the Fund to indemnify and hold harmless the FCM,
its directors,
officers, employees, agents and affiliates (collectively,
“indemnified persons”) from and against all claims, damages, losses
and costs (including
reasonable attorneys’ fees) incurred by the indemnified persons, in
connection with: (1) any failure by the Fund to perform its
obligations
under the Futures Account Agreement and the FCM’s exercise of its
rights and remedies thereunder; (2) any failure by a Fund to
comply
with applicable law; (3) any action reasonably taken by the
indemnified persons pursuant to the Futures Account Agreement to
comply with
applicable law; and (4) any actions taken by the FCM in reliance on
instructions, notices and other communications that the FCM and
its relevant
personnel, as applicable, reasonably believes to originate from a
person authorized to act on behalf of the Fund.
To the extent that the Funds trade in futures contracts on U.S.
exchanges, the assets deposited by the Funds with the FCMs 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.
Each Fund currently uses BofA Securities, Inc. (“BofAS”), RBC
Capital Markets, LLC (“RBC”), ED&F Man Capital Markets
(“Man”), Deutsche
Bank Securities Inc. (“DBSI”), SG Americas Securities, LLC (“SGAS”)
Barclays Capital Inc. (“BCI”), Credit Suisse Securities
USA LLC
(“CSS”), and Goldman Sachs & Co., LLC (“GS”) as an FCM. The
FCMs used by a Fund may change from time to time. The above
discussion
relating to BofAS, RBC, Man, DBSI, SGAS, BCI, CSS and GS also would
apply to other firms that serve as an FCM to the Funds in
the
future. Each of BofAS, RBC, Man, DBSI, SGAS, BCI, CSS and GS in its
capacity as a registered FCM, serves as a clearing broker to
the Trust
and the Funds and certain other funds of the Trust and as such
arranges for the execution and clearing of the Funds’ futures
transactions. All of
BofAS, RBC, Man, DBSI, SGAS, BCI, CSS and GS acts as clearing
broker for many other funds and individuals. A variety of
executing brokers
may execute futures transactions on behalf of the Funds. The
executing brokers will give-up all such transactions to BofAS, RBC,
Man, DBSI,
SGAS, BCI, CSS or GS as applicable. Each of BofAS, RBC, Man, DBSI,
SGAS, BCI, CSS and GS is registered as an FCM with the
CFTC and
is a member of the NFA. BofAS, RBC, Man, DBSI, SGAS, BCI, CSS and
GS are clearing members of the CBOT, CME, NYMEX,
and all other major U.S. futures exchanges. None of BofAS, RBC,
Man, DBSI, SGAS, BCI, CSS or GS is affiliated with or acts as a
supervisor of the
Trust, the Funds, the Sponsor, the Trustee or BNYM. (the
Administrator, Transfer Agent and the Custodian). None of BofAS,
RBC, Man, DBSI,
SGAS, BCI, CSS or GS in its capacity as FCM, is acting as an
underwriter or sponsor of the offering of the Shares, or has passed
upon the
merits of participating in this offering. None of BofAS, RBC, Man,
DBSI, SGAS, BCI, CSS or GS has passed upon the adequacy of
this Prospectus
or on the accuracy of the information contained herein. None of
BofAS, RBC, Man, DBSI, SGAS, BCI, CSS or GS provides any
commodity
trading advice regarding the Funds’ trading activities. Investors
should not rely upon BofAS, RBC, Man, DBSI, SGAS, BCI, CSS
or GS in
deciding whether to invest in the Funds or retain their interests
in the Funds. Prospective investors should also note that the
Sponsor may select
additional clearing brokers or replace BofAS, RBC, Man, DBSI, SGAS,
BCI, CSS and/or GS as the Funds’ clearing broker.
To the extent, if any, that a Fund enters into trades in futures on
markets other than regulated U.S. 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” for trading on domestic exchanges. Instead, funds
employed in trading
on foreign exchanges are deposited in “customer secured amount
accounts”.
Forward Contracts
A forward contract is a contractual obligation to purchase or sell
a specified quantity of a particular underlying asset at or before
a specified
date in the future at a specified price and, therefore, is
economically similar to a futures contract. Unlike futures
contracts, however, forward
contracts are typically traded in the OTC markets and are not
standardized contracts. Forward contracts for a given commodity
or currency
are generally available for various amounts and maturities and are
subject to individual negotiation between the parties
involved. Moreover,
there is generally no direct means of offsetting or closing out a
forward contract by taking an offsetting position as one would
a futures
contract on a U.S. exchange. If a trader desires to close out a
forward contract position, he generally will establish an opposite
position in the
contract but will settle and recognize the profit or loss on both
positions simultaneously on the delivery date. Thus, unlike in the
futures contract
market where a trader who has offsetting positions will recognize
profit or loss immediately, in the forward market a trader with
a position
that has been offset at a profit will generally not receive such
profit until the delivery date, and likewise a trader with a
position that has been
offset at a loss will generally not have to pay money until the
delivery date. In recent years, however, the terms of forward
contracts have become
more standardized, and in some instances such contracts now provide
a right of offset or cash settlement as an alternative to making
or taking
delivery of the underlying commodity or currency. The primary risks
associated with the use of forward contracts arise from the
inability of the
counterparty to perform.
Each Fund that invests in forward contracts generally
collateralizes forward contracts that are not cleared on an
exchange with cash and/or certain
securities. Such collateral is generally held for the benefit of
the counterparty in a segregated tri-party account at the Custodian
to protect the
counterparty against non-payment by the Fund. The counterparty also
may collateralize such forward contracts with cash and/or
certain securities,
which collateral is typically held for the benefit of the Fund in a
segregated tri-party account at a third-party custodian. In the
event of a
default by the counterparty, and the Fund is owed money in the
forward transaction, such Fund will seek withdrawal of this
collateral from the