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EX-4.1 - FORM OF THIRD AMENDMENT & RESTATED DECLARATION OF TRUST & TRUST AGREEMENT - STREAM Exchange Traded Trustd263753dex41.htm
EX-1.1 - FORM OF INITIAL PURCHASER AGREEMENT - STREAM Exchange Traded Trustd263753dex11.htm
EX-5.1 - FORM OF OPINION OF RICHARDS, LAYTON & FINGER - STREAM Exchange Traded Trustd263753dex51.htm
EX-23.5 - CONSENT OF DELOITTE & TOUCHE LLP - STREAM Exchange Traded Trustd263753dex235.htm
EX-23.4 - CONSENT OF PRICEWATERHOUSECOOPERS LLP - STREAM Exchange Traded Trustd263753dex234.htm
Table of Contents

As Filed with the Securities Exchange Commission on December 2, 2011

Registration Nos. 333-170314 and 333-170314-01

 

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

PRE-EFFECTIVE AMENDMENT NO. 3 TO

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

BNP PARIBAS EXCHANGE TRADED TRUST

(Exact name of registrant as specified in its charter)

 

Delaware   6799   27-6620981
(State of Organization)   (Primary Standard Industrial
Classification Number)
  (I.R.S. Employer
Identification Number)

BNP Paribas S&P Dynamic Roll Global
Commodities Fund

c/o BNP Paribas Exchange Traded Trust

787 Seventh Avenue

New York, New York 10019

(212) 841-2000

   

M. Andrews Yeo

BNP Paribas Quantitative Strategies, LLC

787 Seventh Avenue

New York, New York 10019

(212) 841-2000

(Address, including zip code, and telephone
number including area code, of registrant’s
principal executive offices)
    (Name, address, including zip code, and
telephone number, including area code, of agent
for service)

 

 

  Copies to:  
 

Michael J. Schmidtberger, Esq.

James C. Munsell, Esq.

Sidley Austin LLP

787 Seventh Avenue

New York, New York 10019

 

Andrew Alter, Esq.

BNP Paribas Quantitative Strategies, LLC

787 Seventh Avenue

New York, New York 10019

Approximate date of commencement of proposed sale to the public:

As promptly as practicable after the effective date of this Registration Statement.

If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  x

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b2 of the Exchange Act.

 

Large accelerated filer  ¨

    

Accelerated filer  ¨

Non-accelerated filer (Do not check if a smaller reporting company)  ¨

  

Smaller reporting company  x

 

CALCULATION OF REGISTRATION FEE

Title of Securities to be Registered

   Amount to be Registered    Proposed Maximum Aggregate
Offering Price Per Share
   Proposed Maximum
Aggregate Offering Price1
   Amount of  Registration
Fee2
BNP Paribas S&P Dynamic Roll Global Commodities Fund Common Units of Beneficial Interest3    25,000,000    $25.001    $625,000,000    $44,562.50

1 The proposed maximum aggregate offering has been calculated assuming that all Shares are sold at a price of $25 per Share.

2 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. 25,000,000 Shares were registered and the registration fee of $44,562.50 in respect thereof was paid on November 3, 2010.

3 Securities originally registered under the title of BNP Paribas L/S Commodities Trust Common Units of Beneficial Interest on November 3, 2010.

The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.


Table of Contents

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 December 2, 2011

BNP PARIBAS EXCHANGE TRADED TRUST

 

 

BNP PARIBAS S&P DYNAMIC ROLL GLOBAL COMMODITIES FUND

25,000,000 Common Units of Beneficial Interest

 

BNP Paribas Exchange Traded Trust, which we refer to as the Trust, is organized in series as a Delaware statutory trust. As of the date of this Prospectus, the Trust consists of two series, one of which is the BNP Paribas S&P Dynamic Roll Global Commodities Fund, or the Fund. The Fund will issue common units of beneficial interest, which we refer to as Shares, which represent units of fractional undivided beneficial interest in and ownership of the Fund. Shares may be purchased from the Fund only by certain qualified financial institutions called Authorized Participants, and only in one or more blocks of 40,000 Shares, called a Basket. Authorized Participants will purchase Shares from the Fund at the net asset value per Share as of the close of the NYSE Arca Core Trading Session or the last to close of the exchanges on which the Fund’s Designated Contracts or Substitute Contracts are traded, whichever is later, on the purchase order date. The Fund will offer Shares in Baskets to Authorized Participants continuously. The Form of Participant Agreement sets forth the terms and conditions on which Authorized Participants may create or redeem Baskets. The offering of Shares will terminate on the third anniversary of the registration statement of which this Prospectus is a part unless prior thereto a new registration statement is filed.

 

The Shares will trade on NYSE Arca, Inc., which we refer to as NYSE Arca, under the symbol “BNPC” (quoted in U.S. dollars).

The Fund seeks to achieve its investment objective by investing in exchange-traded futures on the index commodities comprising the S&P GSCI® Dynamic Roll Excess Return Index, which we refer to as the Index, with a view to tracking the Index over time.

The Index aims to reflect the return of an investment in a world production-weighted portfolio comprised of the principal physical commodities that are the subject of active, liquid futures markets. The Index employs a flexible and systematic futures contract rolling methodology which seeks to maximize yield from rolling long futures contracts in certain markets (backwardated markets) and minimize roll loss from rolling long futures contracts in certain markets (contangoed markets) as further described in the Prospectus.

The Fund does not intend to outperform the Index. BNP Paribas Quantitative Strategies, LLC, a Delaware limited liability company, or the Managing Owner, will seek to cause the net asset value of the Fund to track the Index during periods in which the Index is flat or declining as well as when the Index is rising.

Except when aggregated in Baskets, the Shares are not redeemable securities.

 

 

The Shares are speculative securities and their purchase involves a high degree of risk. Before you decide whether to invest in the Fund, read this entire

Prospectus carefully.

YOU SHOULD CONSIDER ALL RISK FACTORS BEFORE INVESTING IN THE FUND. PLEASE REFER TO THE SECTION “THE RISKS YOU FACE” BEGINNING ON PAGE 19 OF THIS PROSPECTUS.

 

   

Futures trading is volatile and even a small movement in market prices could cause large losses.

 

   

The Managing Owner and its trading principals have not managed any other commodity pools of this type, and therefore there is no indication of their ability to manage investment vehicles such as the Fund. If the experience of the Managing Owner and its trading principals is not adequate or suitable to manage investment vehicles such as the Fund, the operations and performance of the Fund may be adversely affected.

 

   

You could lose all or substantially all of your investment.

   

The Fund will be subject to actual and potential conflicts of interest involving the Managing Owner, the Commodity Brokers, the Authorized Participants, the Initial Purchaser and the Affiliated Liquidity Provider, which we refer to as the BNP Affiliated Entities.

 

   

Investors will pay fees in connection with their investment in Shares including asset-based fees of 0.95% per annum of the Net Asset Value of the Fund, continuous offering fees and expenses of approximately 0.01% per annum of the Net Asset Value of the Fund, and routine operational, administrative and other ordinary fees and expenses of up to 0.20% per annum of the Net Asset Value of the Fund. Additional charges include brokerage commissions and fees expected to be approximately 0.08% per annum of the Net Asset Value of the Fund. The actual amount of continuous offering fees and expenses and brokerage commissions and fees in any year or any part of any year may be greater.

 

   

Fees and commissions are charged, and expenses are incurred, regardless of profitability and may result in depletion of assets and, as a result, losses to your investment.

 

 

 

On [], 2012, BNP Paribas Securities Corp., as the Initial Purchaser, subject to certain conditions, agreed to purchase 600,000 Shares, which comprise the initial Baskets, at a purchase price of $25.00 per Share ($1,000,000 per Basket), as described in the section “Plan of Distribution.” This price was determined arbitrarily inasmuch as the Shares have no inherent value prior to the commencement of the Fund’s operations. The Initial Purchaser proposes to offer the Shares to the public at a per-Share offering price that will vary depending upon, among other factors, the market price of the Shares on NYSE Arca, the Net Asset Value per Share and the supply of and demand for the 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 its sale of Shares to the public.

Authorized Participants may, from time-to-time offer to the public 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 upon, among other factors, the market price of the Shares on NYSE Arca, the Net Asset Value per Share and the supply of and demand for the Shares at the time of offer. Shares initially comprising the same Basket but offered by Authorized Participants to the public at different times may have different offering prices. Authorized Participants will not receive from the Fund, the Managing Owner or any of their affiliates, any fee or other compensation in connection with their sale of Shares to the public. An Authorized Participant may receive commissions or fees from investors who purchase Shares through their commission or fee-based brokerage accounts with the Authorized Participant. For more information regarding items of compensation paid to FINRA members, please see the section “Plan of Distribution” on page 110.

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. BNP Paribas S&P Dynamic Roll Global Commodities Fund is not a mutual fund or any other type of Investment Company within the meaning of the Investment Company Act of 1940, as amended, and is not subject to regulation thereunder.

THE COMMODITY FUTURES TRADING COMMISSION HAS NOT PASSED UPON THE MERITS OF PARTICIPATING IN THIS POOL NOR HAS THE COMMISSION PASSED ON THE ADEQUACY OR ACCURACY OF THIS DISCLOSURE DOCUMENT.

The Shares are neither interests in nor obligations of any of the Managing Owner, the Trustee, the Initial Purchaser, any Authorized Participant or any of their respective affiliates. The Shares are not insured by the Federal Deposit Insurance Corporation or any other governmental agency.

[                             ], 2012


Table of Contents

COMMODITY FUTURES TRADING COMMISSION

RISK DISCLOSURE STATEMENT

YOU SHOULD CAREFULLY CONSIDER WHETHER YOUR FINANCIAL CONDITION PERMITS YOU TO PARTICIPATE IN A COMMODITY POOL. IN SO DOING, YOU SHOULD BE AWARE THAT COMMODITY INTEREST TRADING CAN QUICKLY LEAD TO LARGE LOSSES AS WELL AS GAINS. SUCH TRADING LOSSES CAN SHARPLY REDUCE THE NET ASSET VALUE OF THE POOL AND CONSEQUENTLY THE VALUE OF YOUR INTEREST IN THE POOL. IN ADDITION, RESTRICTIONS ON REDEMPTIONS MAY AFFECT YOUR ABILITY TO WITHDRAW YOUR PARTICIPATION IN THE POOL.

FURTHER, COMMODITY POOLS MAY BE SUBJECT TO SUBSTANTIAL CHARGES FOR MANAGEMENT, AND ADVISORY AND BROKERAGE FEES. IT MAY BE NECESSARY FOR THOSE POOLS THAT ARE SUBJECT TO THESE CHARGES TO MAKE SUBSTANTIAL TRADING PROFITS TO AVOID DEPLETION OR EXHAUSTION OF THEIR ASSETS. THIS DISCLOSURE DOCUMENT CONTAINS A COMPLETE DESCRIPTION OF EACH EXPENSE TO BE CHARGED TO THIS POOL AT PAGE 13 AND A STATEMENT OF THE PERCENTAGE RETURN NECESSARY TO BREAK EVEN, THAT IS, TO RECOVER THE AMOUNT OF YOUR INITIAL INVESTMENT, AT PAGES 15-16.

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 36.

YOU SHOULD ALSO BE AWARE THAT THIS COMMODITY POOL MAY TRADE FOREIGN FUTURES OR OPTIONS CONTRACTS. TRANSACTIONS ON MARKETS LOCATED OUTSIDE THE UNITED STATES, INCLUDING MARKETS FORMALLY LINKED TO A UNITED STATES MARKET, MAY BE SUBJECT TO REGULATIONS WHICH OFFER DIFFERENT OR DIMINISHED PROTECTION TO THE POOL AND ITS PARTICIPANTS. FURTHER, UNITED STATES REGULATORY AUTHORITIES MAY BE UNABLE TO COMPEL THE ENFORCEMENT OF THE RULES OF REGULATORY AUTHORITIES OR MARKETS IN NON-UNITED STATES JURISDICTIONS WHERE TRANSACTIONS FOR THE POOL MAY BE EFFECTED.

 

 

THIS POOL HAS NOT COMMENCED TRADING AND DOES NOT HAVE ANY PERFORMANCE HISTORY.

NEITHER THIS POOL OPERATOR NOR ANY OF ITS TRADING PRINCIPALS HAS PREVIOUSLY OPERATED ANY OTHER POOLS OR TRADED ANY OTHER ACCOUNTS.

 

 

THE BOOKS AND RECORDS OF THE FUND WILL BE MAINTAINED AS FOLLOWS: ALL MARKETING MATERIALS WILL BE MAINTAINED AT THE OFFICES OF ALPS DISTRIBUTORS, INC., 1290 BROADWAY, SUITE 1100, DENVER, COLORADO 80203; TELEPHONE NUMBER (303) 623-2577; BASKET CREATION AND REDEMPTION BOOKS AND RECORDS ACCOUNTING AND CERTAIN OTHER FINANCIAL BOOKS AND RECORDS (INCLUDING FUND ACCOUNTING RECORDS, LEDGERS WITH RESPECT TO ASSETS, LIABILITIES, CAPITAL, INCOME AND EXPENSES, THE REGISTRAR, TRANSFER JOURNALS AND RELATED DETAILS) AND TRADING AND RELATED DOCUMENTS RECEIVED FROM FUTURES COMMISSION MERCHANTS WILL BE MAINTAINED BY THE BANK OF NEW YORK MELLON, 2 HANSON PLACE, 12TH FLOOR, BROOKLYN, NEW YORK 11217, TELEPHONE NUMBER (718) 315-4850. ALL OTHER BOOKS AND RECORDS OF THE FUND (INCLUDING MINUTE BOOKS AND OTHER GENERAL CORPORATE RECORDS, TRADING RECORDS AND RELATED REPORTS AND

 

-iii-


Table of Contents

Notes to Cover Page (cont’d)

 

OTHER ITEMS RECEIVED FROM THE FUND’S COMMODITY BROKERS) WILL BE MAINTAINED AT THE FUND’S PRINCIPAL OFFICE, C/O BNP PARIBAS QUANTITATIVE STRATEGIES, LLC, 787 SEVENTH AVENUE, NEW YORK, NEW YORK 10019; TELEPHONE NUMBER (212) 841-2000. 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 MANAGING OWNER’S WEBSITE AT WWW.STREAM.BNPPARIBAS.COM. ADDITIONAL REPORTS MAY BE POSTED ON THE MANAGING OWNER’S WEBSITE IN THE DISCRETION OF THE MANAGING OWNER OR AS REQUIRED BY REGULATORY AUTHORITIES. THERE WILL SIMILARLY BE DISTRIBUTED TO SHAREHOLDERS, NOT MORE THAN 90 DAYS AFTER THE CLOSE OF THE FUND’S FISCAL YEAR, CERTIFIED AUDITED FINANCIAL STATEMENTS AND (IN NO EVENT LATER THAN MARCH 15 OF THE IMMEDIATELY FOLLOWING YEAR) THE TAX INFORMATION RELATING TO SHARES OF THE FUND NECESSARY FOR THE PREPARATION OF SHAREHOLDERS’ ANNUAL FEDERAL INCOME TAX RETURNS.

 

 

THIS PROSPECTUS DOES NOT INCLUDE ALL OF THE INFORMATION OR EXHIBITS IN THE REGISTRATION STATEMENT OF THE TRUST. YOU CAN READ AND COPY THE ENTIRE REGISTRATION STATEMENT AT THE PUBLIC REFERENCE FACILITIES MAINTAINED BY THE SECURITIES AND EXCHANGE COMMISSION (THE “SEC”) IN WASHINGTON, D.C.

 

 

THE FUND WILL FILE PERIODIC, 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 TRUST ARE POSTED AT THE SEC WEBSITE AT HTTP://WWW.SEC.GOV.

 

 

REGULATORY NOTICES

NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE TRUST, THE FUND, THE BNP AFFILIATED ENTITIES, AUTHORIZED PARTICIPANTS OR ANY OTHER PERSON.

THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION TO SELL OR A SOLICITATION OF AN OFFER TO BUY, NOR SHALL THERE BE ANY OFFER, SOLICITATION, OR SALE OF THE SHARES IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION, OR SALE IS NOT AUTHORIZED OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE ANY SUCH OFFER, SOLICITATION, OR SALE.

 

 

AUTHORIZED PARTICIPANTS MAY BE REQUIRED TO DELIVER A PROSPECTUS WHEN TRANSACTING IN SHARES. SEE THE SECTION “PLAN OF DISTRIBUTION.

 

 

 

-iv-


Table of Contents

Notes to Cover Page (cont’d)

 

“S&P” AND “STANDARD & POOR’S” ARE REGISTERED TRADEMARKS OF STANDARD & POOR’S FINANCIAL SERVICES LLC. “S&P GSCI®” IS A REGISTERED SERVICE MARK AND TRADEMARK OF S&P.

 

 

 

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[Page left blank intentionally]

 

 

 

 

 

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Table of Contents

BNP PARIBAS EXCHANGE TRADED TRUST

 

 

BNP PARIBAS S&P DYNAMIC ROLL GLOBAL COMMODITIES FUND

Table of Contents

 

Prospectus Section

   Page  

PART ONE

 
DISCLOSURE DOCUMENT   

SUMMARY

     1   

The Trust and the Fund

     1   

Shares Listed on NYSE Arca

     1   

Purchases and Sales in the Primary
Market for Authorized Participants
and in the Secondary Market on
NYSE Arca

     1   

Pricing Information Available on NYSE
Arca and Other Sources

     2   

CUSIP

     2   

Risk Factors

     2   

The Trustee

     4   

The Managing Owner

     4   

Investment Objective

     5   

The Index

     7   

The Market Price of the Shares Should
Track the Changes in the Level of
the Index

     9   

The Commodity Brokers

     9   

The Administrator, Custodian, and
Transfer Agent

     10   

The Marketing Agent

     10   

Toll Free Number for Investors

     11   

Limitation of Liabilities

     11   

The Offering

     11   

Authorized Participants

     11   

Creation and Redemption of Shares

     11   

Net Asset Value

     12   

Clearance and Settlement

     12   

Segregated Accounts/Interest Income

     12   

Fees and Expenses

     13   

Break-Even Amounts

     15   

Distributions

     15   

Fiscal Year

     15   

Financial Information

     15   

U.S. Federal Income Tax Considerations

     15   

Breakeven Table

     15   

Reports to Shareholders

     17   

ORGANIZATION CHART

     18   

THE RISKS YOU FACE

     19   

Prospectus Section

   Page  

(1)

   The Value Of The Shares Relates Directly To The Market Price Of The Designated Contracts And Other Assets Held By The Fund And Fluctuations In The Market Price Of These Assets Could Materially Adversely Affect An Investment In The Shares.     

19

  

(2)

   Numerous Factors May Affect The Price Of The Index Commodities, And In Turn, The Net Asset Value Of The Shares, And Ultimately The Market Price Of The Fund’s Shares.     

19

  

(3)

   Net Asset Value Per Share May Not Always Correspond To The Market Price Per Share And, As A Result, Baskets May Be Created Or Redeemed At A Net Asset Value Per Share That Differs From The Market Price Per Share.     

19

  

(4)

   Non-concurrent Trading Hours Between NYSE Arca And The Various Futures Exchanges On Which The Designated Contracts or Substitute Contracts Are Traded May Impact The Value Of Your Investment.     

20

  

(5)

   Certain Operations Of The Fund, Including The Creation Of Baskets, May Be Restricted By Regulatory And Exchange Position Limits And Other Position Limitation Rules And Could Result In Tracking Error Between Changes In The Net Asset Value Per Share And Changes In The Level Of The Index, Or Could Result In The Market Price Of The Shares Trading At A Premium Or Discount To The Net Asset Value Per Share.     

20

  

(6)

   The Fund’s Performance May Not Always Replicate The Changes In The Levels Of The Index. As A Result, There Will Be Times When The Fund’s Performance Will Not Meet The Investment Expectations Of The Shareholders.     

21

  
(7)    The Fund Is Not Actively Managed And Will Seek To Track The Index During Periods In Which The Index Is Flat Or Declining As Well As When The Index Is Rising. Therefore, Investors Will Not Be Protected Against Adverse Movements In The Level Of The Index, Which In Turn, May Have A Significantly Adverse Impact On The Shares.      22   
 

 

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Table of Contents

Prospectus Section

   Page

(8)

   NYSE Arca May Halt Trading In The Shares Which Would Adversely Impact Your Ability To Buy Or Sell Shares.   

22

(9)

   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.   

22

(10)

   The Affiliated Liquidity Provider May Act In A Manner That Ignores Or Disregards The Interests Of Shareholders.   

22

(11)

   The Liquidity Of The Shares Of The Fund May Also Be Affected By The Withdrawal From Participation Of One Or More Authorized Participants With Respect To The Fund, Which Could Adversely Affect The Value Of Your Shares.   

22

(12)

   Shareholders That Are Not Authorized Participants May Only Purchase Or Sell Their Shares In Secondary Trading Markets, And The Conditions Associated With Trading In Secondary Markets May Adversely Affect Investors’ Investment In The Shares.   

23

(13)

   The Shares Are A New Securities Product And Their Value Could Decrease If Unanticipated Operational Or Trading Problems Arise.   

23

(14)

   As The Managing Owner And Its Trading Principals Have No History Of Operating An Investment Vehicle Like The Trust Or The Fund, Their Experience May Be Inadequate Or Unsuitable To Manage The Fund.   

23

(15)

   The Fund Has No Past Performance And There Are Limited Index Results On Which To Rely On In Deciding Whether To Buy Shares. Therefore, You Will Have To Make Your Decision To Invest In The Fund On The Basis Of Limited Information.   

23

(16)

   Price Volatility May Possibly Cause The Total Loss Of Your Investment.   

23

(17)

   Fees And Commissions Are Charged Regardless Of Profitability And May Result In Depletion Of Assets.   

24

(18)

   The Fund May Terminate Because The Managing Owner May Be Unwilling Or Unable To Continue To Service The Fund Or Owners May Vote To Terminate The Fund, Each Of Which May Adversely Affect The Value Of Your Portfolio.   

24

(19)

   Potentially Illiquid Markets, Disruption Of Market Trading, And Daily Price Fluctuation Limits, Among Other Events, May Exacerbate Losses Of The Fund And, In Turn, The Value Of Your Shares.   

24

Prospectus Section

   Page

(20)

   The Net Asset Value Of Your Shares May Be Adversely Affected By Redemption Orders That Are Subject To Suspension, Postponement Or Rejection Under Certain Circumstances.   

25

(21)

   Because Futures Contracts And Other Derivatives Have No Intrinsic Value, The Positive Performance Of Your Investment Is Wholly Dependent Upon An Equal And Offsetting Loss. Therefore, Overall Stocks And Bond Prices Could Rise Significantly, And The Economy As A Whole Prosper, While Shares Trade Unprofitably.   

25

(22)

   Failure Of The Index To Exhibit Low To Negative Correlation To General Financial Markets Will Reduce Benefits Of Diversification And May Increase Losses To Your Portfolio.   

25

(23)

   Various Actual And Potential Conflicts Of Interest May Be Detrimental To Shareholders.   

25

(24)

   Failure Of PBI To Segregate Assets May Increase Losses; Despite Segregation Of Assets, The Fund Remains At Risk Of Significant Losses Because The Fund May Only Receive A Pro-Rata Share Of The Assets Or No Assets At All.   

26

(25)

   You Should Consult Your Own Legal, Tax And Financial Advisers Regarding The Desirability Of An Investment In The Shares Because No Independent Advisers Were Appointed To Represent You In Connection With The Formation And Operation Of The Trust And The Fund.   

26

(26)

   Failure Of The Clearinghouse To Meet Its Obligations With Respect To Cleared Swaps May Adversely Impact The Net Asset Value Of The Fund, And The Value Of Your Shares.   

26

(27)

   Shareholders Do Not Have Certain Rights And Protections Enjoyed By Investors In Certain Other Vehicles, Such As Corporations.   

26

(28)

   An Investment In The Shares May Be Adversely Affected By Competition From Other Methods Of Investing In Commodities.   

27

(29)

   Competing Claims Over Ownership Of Intellectual Property Rights Related To The Fund Could Adversely Affect The Fund And An Investment In The Shares.   

27

(30)

   “Backwardation” Or “Contango” In The Market Prices Of The Index Commodities Will Affect The Net Asset Value, And In Turn, The Market Price Of Your Shares.   

27

 

 

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Table of Contents

Prospectus Section

   Page

(31)

   The Value Of The Shares Will Be Adversely Affected If The Fund Is Required To Indemnify The Trustee Or The Managing Owner.   

27

(32)

   The Net Asset Value Calculation Of The Fund, And In Turn, The Net Asset Value Of Your Shares, 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.   

28

(33)

   The Intra-day Indicative Value Of The Shares And The Intra-day Indicative Value Of The Index May Be Overstated Or Understated Due To The Valuation Method Employed.   

28

(34)

   Changes In The Value Of The Index Commodities May Offset Each Other.   

29

(35)

   Shareholders Have No Rights Against The Index Sponsor For Decisions That May Negatively Affect The Existence Of The Index Or The Index Level.   

29

(36)

   Shareholders Have No Rights Against The Publishers Or Sponsors Of Designated Contracts Underlying The Index.   

29

(37)

   The Index Sponsor And Its Affiliates May Publish Research That Conflicts With Each Other And Which May Negatively Impact The Value Of The Fund And Your Shares.   

29

(38)

   Changes In The Composition And Valuation Of The Index May Adversely Affect Your Shares.   

30

(39)

   The Index May In The Future Include Contracts That Are Not Traded On Regulated Futures Exchanges And That Offer Different Or Diminished Protections To Investors.   

30

(40)

   Because The Index Commodities May Not Be Equally Weighted, The Index Commodities With Greater Weight Will Have A Larger Impact On The Aggregate Results Of The Index, And May Increase The Potential Losses To Your Shares.   

30

(41)

   Because The Index Is Concentrated In The Energy Sector, Any Adverse Developments In The Energy Sector May Also Adversely Affect The Value Of Your Shares.   

30

(42)

   Correlation Of Changes In The Closing Levels Among The Index Commodities May Reduce The Performance Of The Shares.   

31

(43)

   Certain Of The Designated Contracts, Substitute Contracts, Cleared Swaps And The Related Alternative Financial Instruments Will Be Subject To Pronounced Risks Of Pricing Volatility.   

32

Prospectus Section

   Page

(44)

   Because The Index Is Comprised Of Long-Only Designated Contracts, The Levels Of The Index Will Fall If The Market Price Of The Index Commodities Falls.    32

(45)

   Shareholders Will Not Have The Protections Associated With Ownership Of Shares In An Investment Company Registered Under The Investment Company Act Of 1940. Such Protections Are Intended To Decrease Certain Conflicts And Also Impose A Number Of Investment Restrictions And Diversification Requirements.    32

(46)

   Trading On Commodity Exchanges Outside The U.S., Such As The London Metal Exchange And ICE Europe, Is Not Subject To U.S.  Regulation. Shareholders Could Incur Substantial Losses From Trading On Commodity Exchanges Which Such Shareholders Would Not Have Otherwise Been Subject Had The Fund’s Trading Been Limited To U.S. Markets.    33

(47)

   Alternative Financial Instruments (If Any), Such As Forward Agreements And Over-The-Counter Swaps Are Not Regulated And Are Subject To The Risk Of Counterparty Non-Performance Resulting In The Fund Not Realizing A Trading Gain.    33

(48)

   The Effect Of Market Disruptions, Governmental Intervention And The Reform Act Are Unpredictable And May Have An Adverse Effect On The Value Of Your Shares.    34

(49)

   The Effects Of New Regulation Of The Over-The-Counter Derivatives Markets Is Unknown And May Have A Detrimental Effect On The Value Of Your Shares.    34

(50)

   Although The Shares Are Limited Liability Investments, Certain Circumstances Such As Bankruptcy Of The Fund Or Indemnification Of The Fund By The Shareholders Will Increase A Shareholder’s Liability.    35

(51)

   Shareholders Will Be Subject To Taxation On Their Allocable Shares Of The Fund’s Taxable Income, Whether Or Not They Receive Cash Distributions.    35

(52)

   Items Of Income, Gain, Loss And Deduction With Respect To Shares Could Be Reallocated If The IRS Does Not Accept The Assumptions Or Conventions Used By The Fund In Allocating Such Tax Items.    36

(53)

   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, And In Turn, May Adversely Affect The Value Of Your Shares    36
 

 

-ix-


Table of Contents

Prospectus Section

   Page  
CAUTIONARY NOTE REGARDING
FORWARD-LOOKING STATEMENTS
     37   

INVESTMENT OBJECTIVE

     37   

General

     37   
PRICING INFORMATION AVAILABLE
ON NYSE ARCA AND OTHER SOURCES
     40   

Role of Managing Owner

     42   
DESCRIPTION OF THE S&P GSCI®
DYNAMIC ROLL EXCESS RETURN INDEX
     42   

General

     43   

Index and Index Commodities

     44   

The Dynamic Roll Process

     47   

The Dynamic Roll Selection Process

     47   

Rank Order of Index Commodities and Optimized Set of Contracts

     48   

Monthly Dynamic Roll Schedule

     48   

Index Methodology

     49   

The Index Committee and Commodity Index Advisory Panel

     49   

Composition of the Index

     49   

Calculation of the Weight of each Designated Contract in the Index

     53   

Contract Expirations

     54   

Calculation of the Closing Value of the Index

     55   

Designated Contract Daily Return

     55   

Daily Calculation of the Index

     56   

Index Disclaimer

     56   

Note on Hypothetical Historical Calculations

     57   

Legal and regulatory regimes could affect the Index and the Fund

     57   

Publication of Closing Levels and Adjustments

     57   

Historical Closing Levels

     58   

Cautionary Statement – Statistical Information

     58   
MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
     69   
OFF-BALANCE SHEET
ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS
     72   

USE OF PROCEEDS

     73   

CHARGES

     74   

Prospectus Section

   Page  

Management Fee

     74   

Organization and Initial Offering Expenses; Continuous Offering Fees and Expenses

     74   

Brokerage Commissions and Fees

     74   

Routine Operational, Administrative and Other Ordinary Fees and Expenses

     75   

Extraordinary Fees and Expenses

     75   

Payment of Management Fee and Brokerage Commissions and Fees From Interest Income, if any

     75   

Selling Commission

     75   

WHO MAY SUBSCRIBE

     75   

CREATION AND REDEMPTION OF SHARES

     76   

Creation Procedures

     77   

Redemption Procedures

     78   

Creation and Redemption Transaction Fee

     79   

THE COMMODITY BROKERS

     79   
ALTERNATIVE FINANCIAL
INSTRUMENT COUNTERPARTIES
     79   

CONFLICTS OF INTEREST

     79   

General

     79   

The Managing Owner

     80   

Relationship of the Managing Owner to the Commodity Brokers

     80   

The Commodity Brokers

     80   

Proprietary Trading/Other Clients

     81   

Transactions by the BNP Affiliated Entities and their respective affiliates involving the Index

     81   

Issuing of Other Derivative Instruments in Respect of the Index

     81   

Liquidity Providers to the Fund

     81   

Affiliates of the Managing Owner may Serve as Counterparties to Cleared Swaps or Alternative Financial Instruments

     81   
DESCRIPTION OF THE SHARES; THE
TRUST; THE FUND; CERTAIN
MATERIAL TERMS OF THE
DECLARATION OF TRUST
     82   

Description of the Shares

     82   

The Trust; Principal Office; Location of Records

     82   

The Fund

     82   

The Trustee

     83   

The Managing Owner

     84   
 

 

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Table of Contents

Prospectus Section

   Page  

Ownership or Beneficial Interest in the Fund

     87   

Management; Voting by Shareholders

     87   

Recognition of the Trust and each Fund in Certain States

     88   

Possible Repayment of Distributions Received by Shareholders; Indemnification by Shareholders

     88   

Shares Freely Transferable

     88   

Book-Entry Form

     88   

Reports to Shareholders

     89   

Net Asset Value

     89   

Termination Events

     90   

DISTRIBUTIONS

     91   
THE ADMINISTRATOR, CUSTODIAN, AND TRANSFER AGENT      91   

THE MARKETING AGENT

     92   

Toll Free Number for Investors

     92   
THE SECURITIES DEPOSITORY; BOOK-ENTRY-ONLY SYSTEM; GLOBAL SECURITY      92   

SHARE SPLITS

     93   

MATERIAL CONTRACTS

     93   

Customer Agreement with PBI

     93   

Customer Agreement with CFL

     94   

Administration Agreement

     94   

Global Custody Agreement

     95   

Transfer Agency and Service Agreement

     96   

Marketing Agent Agreement

     97   

MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS

     98   

Status of the Fund

     99   

Special Rules for Publicly Traded Partnerships

     99   

U.S. Shareholders

     100   

PURCHASES BY EMPLOYEE BENEFIT PLANS

     108   

General

     109   

“Plan Assets”

     109   

Ineligible Purchasers

     110   

PLAN OF DISTRIBUTION

     110   

Initial Purchaser

     110   

Authorized Participants

     110   

Likelihood of Becoming a Statutory Underwriter

     111   

General

     112   

Prospectus Section

   Page  

LEGAL MATTERS

     113   

EXPERTS

     113   

UNAUDITED FINANCIAL INFORMATION

     113   

ADDITIONAL INFORMATION

     113   
RECENT FINANCIAL INFORMATION AND ANNUAL REPORTS      113   
PRIVACY POLICY OF THE MANAGING OWNER      114   

DEFINED TERMS

     115   

INDEX TO FINANCIAL STATEMENTS

     116   

BNP Paribas Exchange Traded Trust

  
BNP Paribas S&P Dynamic Roll Global
Commodities Fund
  

BNP Paribas Enhanced Volatility Fund

  
Report of Independent Registered Public Accounting Firm November 21, 2011      119   
Combined Statement of Financial Position of BNP Paribas Exchange Traded Trust October 31, 2011      120   
Statement of Financial Position of BNP Paribas S&P Dynamic Roll Global Commodities Fund October 31, 2011      121   
Statement of Financial Position of BNP Paribas Enhanced Volatility Fund October 31, 2011      122   
Notes to Financial Statements October 31, 2011      123   

BNP Paribas Quantitative Strategies, LLC

  
Financial Statements as of December 31, 2010 and for the period from April 30, 2010 (date of inception) to December 31, 2010   
Independent Auditors’ Report dated August 5, 2011      129   
Statement of Financial Position as of December 31, 2010      130   
Statement of Operations for the period from April 30, 2010 (date of inception) to December 31, 2010      131   
Statement of Changes in Member’s Capital for the period from April 30, 2010 (date of inception) to December 31, 2010      132   
Statement of Cash Flows for the period from April 30, 2010 (date of inception) to December 31, 2010      133   
Notes to Financial Statements for the period from April 30, 2010 (date of inception) to December 31, 2010      134   
 

 

-xi-


Table of Contents

Prospectus Section

   Page  
PART TWO   

STATEMENT OF ADDITIONAL

INFORMATION

  

General Information Relating to BNP Paribas

     150   

The Futures Markets

     150   

Futures Contracts

     150   

Hedgers and Speculators

     150   

Futures Exchanges

     150   

Speculative Position Limits

     151   

Daily Limits

     151   

Regulations

     151   

Margin

     152   

Exhibit A—Privacy Notice

     P–1   
 

 

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Table of Contents

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 Registration Statement, before deciding to invest in any Shares. This Prospectus is dated [                        ], 2012.

 

 

The Trust and the Fund

The Trust was formed as a Delaware statutory trust on April 30, 2010 and was amended to become a series trust. The Fund is a series of the Trust. The Fund will issue Shares. The term of the Trust and the Fund is perpetual (unless terminated in certain circumstances). The principal offices of the Trust and the Fund are located at c/o BNP Paribas Quantitative Strategies, LLC, 787 Seventh Avenue, New York, New York 10019, and its telephone number is (212) 841-2000.

The Trust was organized in separate series as a Delaware statutory trust rather than as separate statutory trusts in order to achieve certain administrative efficiencies. The interests of investors are not adversely affected by the choice of form of organization. As of the date of this Prospectus, the Trust consists of two series. This Prospectus is for the Fund, which is one of the Trust’s series. BNP Paribas Enhanced Volatility Fund, which is the second series of the Trust, is not being offered by this Prospectus.

Shares Listed on NYSE Arca

The Shares will be listed on NYSE Arca under the symbol “BNPC.” Secondary market purchases and sales of Shares will be subject to ordinary brokerage commissions and charges.

Purchases and Sales in the Primary Market for Authorized Participants and in the Secondary Market on NYSE Arca

Baskets of Shares may be created or redeemed only by Authorized Participants, except that the initial Baskets will be created by the Initial Purchaser. Investors who are not Authorized Participants who seek to purchase or sell Shares on

any day are expected to effect transactions in the secondary market, on NYSE Arca, at the market price per Share, rather than in connection with the creation or redemption of Baskets. It is expected that Baskets will be created when there is sufficient demand for Shares that the market price per Share exceeds the Net Asset Value per Share, and that this excess may create an arbitrage opportunity for market participants. Authorized Participants are expected to sell the Shares they create to the public at the market price of the Shares on NYSE Arca. NYSE Arca pricing is expected to reflect, among other factors, the supply of and demand for Shares at the time of sale. These prices are expected to fall between Net Asset Value per Share and the market price of the Shares on NYSE Arca at the time of sale. Similarly, it is expected that Baskets will be redeemed when the market price per Share is less than the Net Asset Value per Share. Except when aggregated in Baskets, the Shares are not redeemable.

Authorized Participants should review the section “Creation and Redemption of Shares” on page 76 for a complete description of the creation and redemption process.

The market price of the Shares may not be identical to the Net Asset Value per Share, but these valuations are expected to be close. Investors will be able to use the indicative intra-day value per Share to determine if they want to purchase or sell on the secondary market. The intra-day indicative value per Share is based on the prior day’s final Net Asset Value per Share, adjusted every 15 seconds during each NYSE Arca Core Trading Session to reflect the continuous price changes of the Fund’s Designated Contracts and other holdings to provide a continuously updated indicative intra-day value per Share.

Investors may purchase and sell Shares through traditional brokerage accounts. Purchases or sales of Shares may be subject to customary brokerage commissions. Investors are encouraged to review the terms of their brokerage accounts for applicable charges.

 

 

 

-1-


Table of Contents

SUMMARY (cont’d)

 

Pricing Information Available on NYSE Arca and Other Sources

The following table lists NYSE Arca symbols and their meanings with respect to the Shares and the Index:

 

Ticker    Description

BNPC

  

Market price per Share on NYSE Arca

BNPCIV

  

Indicative intra-day value per Share

BNPCNV

  

End of day Net Asset Value per Share

SPDYCIP

  

Intra-day and Index closing level as of close of business from the prior day

The intra-day data in the above table is published once every 15 seconds during each NYSE Arca Core Trading Session.

The current market price per Share (symbol: “BNPC”) (quoted in U.S. dollars) will be published continuously as trades occur during each NYSE Arca Core Trading Session on the consolidated tape by market data vendors and on the Managing Owner’s website (on a delayed basis) at http://www.stream.bnpparibas.com, or any successor thereto.

The intra-day indicative value per Share (symbol: “BNPCIV”) (quoted in U.S. dollars) will be published by NYSE Arca once every 15 seconds during each NYSE Arca Core Trading Session by market data vendors and on the Managing Owner’s website (on a delayed basis) at http://www.stream.bnpparibas.com, or any successor thereto.

The most recent end-of-day Net Asset Value per Share (symbol: “BNPCNV”) will be published by the Managing Owner as of the close of the NYSE Arca Core Trading Session or the last to close of the exchanges on which the Fund’s Designated Contracts or Substitute Contracts are traded, whichever is later, on the consolidated tape by market data vendors and on the Managing Owner’s website (on a delayed basis) at http://www. stream.bnpparibas.com, or any successor thereto and will be published by market data vendors on the consolidated tape.

The intra-day level and the most recent end-of-day closing level of the Index (symbol: “SPDYCIP”) will be published on Reuters page SPDYCIP and on Bloomberg page SPDYCIP<index> once every 15 seconds during each NYSE Arca Core Trading Session and as of the close of business on each Index Business Day, respectively, on Standard & Poor’s (which serves as the Index Sponsor) website at http://www.standardandpoors.com, or any successor thereto.

The number of outstanding Shares (symbol: “BNPCSO”) will be published as of the close of each NYSE Arca Core Trading Session on the consolidated tape by market data vendors and on the Managing Owner’s website at http://www.stream.bnpparibas.com, or any successor thereto.

Any adjustments made to the Index will be published on Standard & Poor’s (which serves as the Index Sponsor) website at http://www.standardandpoors.com, or any successor thereto.

The Trust and the Fund are not issued, sponsored, endorsed, sold or promoted by NYSE Arca, and NYSE Arca makes no representation regarding the advisability of investing in such product.

NYSE ARCA MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND HEREBY EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO THE S&P GSCI® DYNAMIC ROLL EXCESS RETURN INDEX OR ANY DATA INCLUDED THEREIN. IN NO EVENT SHALL NYSE ARCA HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.

CUSIP

The Fund’s CUSIP number is 05573R 106.

Risk Factors

An investment in Shares is speculative and involves a high degree of risk. The summary risk factors set forth below are intended merely to highlight certain risks of the Fund. The Fund has

 

 

 

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Table of Contents

SUMMARY (cont’d)

 

particular risks that are set forth elsewhere in this Prospectus.

 

   

The Fund has 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.

 

   

Past performance, when available, is not necessarily indicative of future results. All or substantially all of an investment in the Shares could be lost.

 

   

The trading activities of the Fund take place in very volatile markets that may be subject to sudden and rapid changes. Consequently, all or substantially all of your investment in the Shares could be lost.

 

   

The Fund is subject to the fees and expenses described herein (in addition to the amount of any commissions charged by the investor’s broker in connection with an investor’s purchase or sale of Shares) and will be successful only if a certain amount of positive performance is achieved.

 

   

The Managing Owner was formed to be the managing owner of investment vehicles such as the Trust and the Fund and has no history of past performance. The Managing Owner and its trading principals have not managed any other commodity pools of this type. Therefore there is no indication of their ability to manage investment vehicles such as the Trust or the Fund. If the experience of the Managing Owner and its trading principals is not adequate or suitable to manage investment vehicles such as the Trust or the Fund, the operations and performance of the Trust or the Fund may be adversely affected.

 

   

The Fund will be subject to fees and expenses in the aggregate amount of approximately 1.24% per annum as described herein. The Fund will be successful only if its annual returns from its trading, plus its annual interest income from its holdings of cash, U.S. Treasury bonds, U.S. Treasury bills, U.S. government securities and related securities (which are direct obligations of or obligations guaranteed as to principal or interest by the United States, or securities issued or guaranteed by corporations in which the United States has a direct or indirect interest which have been designated as exempted

   

securities pursuant to section 3(a)(12) of the Securities Exchange Act of 1934), exceed these fees and expenses. We refer to the Fund’s holdings of cash, U.S. Treasury bonds, U.S. Treasury bills, U.S. government securities and related securities (which are direct obligations of or obligations guaranteed as to principal or interest by the United States, or securities issued or guaranteed by corporations in which the United States has a direct or indirect interest which have been designated as exempted securities pursuant to section 3(a)(12) of the Securities Exchange Act of 1934) collectively as the Cash Instruments. The current holdings of Cash Instruments will earn an interest rate of 0.00% as of October 31, 2011. Therefore, the Fund will be required to earn approximately 1.24% per annum, or $0.31 per annum per Share at $25.00 as the Net Asset Value per Share, in order for an investor to break-even on an investment during the first twelve months of an investment.

 

   

As of the date of this Prospectus, the CFTC and commodity exchange rules impose speculative position limits and other position limitations, as applicable, on market participants trading in the Index Commodities. Because the Fund is subject to these position limits, the Fund’s ability to issue new Baskets or to reinvest income in additional Designated Contracts corresponding to the Index Commodities may be limited to the extent that these activities would cause the Fund to exceed the applicable position limits, unless the Fund trades Cleared Swaps (as defined below), Substitute Contracts (as defined below) and/or Alternative Financial Instruments (as defined below) in addition to and as a proxy for the Designated Contracts on the Index Commodities. These limitations and the use of Cleared Swaps, Substitute Contracts and/or Alternative Financial Instruments in addition to and as a proxy for the Designated Contracts on the Index Commodities may affect the correlation between changes in the Net Asset Value per Share and changes in the level of the Index, and the correlation between the market price per Share on NYSE Arca and the Net Asset Value per Share.

 

   

Fees and commissions are charged regardless of profitability. This may result in depletion of the Fund’s assets and losses to your investment.

 

 

 

-3-


Table of Contents

SUMMARY (cont’d)

 

   

There can be no assurance that an investment in the Shares will achieve profits or avoid losses, significant or otherwise.

 

   

Performance of the Fund may not track the Index during particular periods or over either the short or long term.

 

   

Certain potential conflicts of interest exist between the Managing Owner and its affiliates and the shareholders of the Fund, or the Shareholders. For example, because the Managing Owner and the Commodity Brokers (as defined below) are both subsidiaries of BNP Paribas, the Managing Owner has a disincentive to replace the Commodity Brokers. The Commodity Brokers may have a conflict of interest between their execution of trades for the Fund and for their other customers. More specifically, the Commodity Brokers will benefit from executing orders for other clients, whereas the Fund may be harmed to the extent that the Commodity Brokers have fewer resources to allocate to the Fund’s accounts due to the existence of such other clients. General order taking by the Commodity Brokers or proprietary trading by the principals and/or affiliates of the Managing Owner and the Commodity Brokers may create conflicts of interest from time-to-time. General order taking or proprietary trades, as applicable, may cause either the principals and/or affiliates of the Commodity Brokers or the Managing Owner to take a position that is opposite of that of the Fund or may compete with the Fund for certain positions within the marketplace. See the section “Conflicts of Interest” for a more complete disclosure of various conflicts. Although the Managing Owner has considered various conflicts and has established formal procedures designed to resolve these conflicts equitably, there may be additional conflicts that arise because 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 or the Net Asset Value of the Shares and ultimately the market price of the Shares.

The Trustee

Wilmington Trust Company, which we refer to as the Trustee, a Delaware trust company, is the sole trustee of the Trust. The Trustee has only nominal duties and liabilities to the Trust and the Fund.

Under the Declaration of Trust, the Managing Owner has the exclusive management and control of all aspects of the business of the Trust and the Fund. The Trustee will have no duty 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 Managing Owner

BNP Paribas Quantitative Strategies, LLC, a Delaware limited liability company, was formed on April 30, 2010 and serves as Managing Owner of the Trust and the Fund. The Managing Owner will also manage the Fund Portfolio. The Managing Owner is a subsidiary of Paribas North America, Inc., which is a subsidiary of BNP Paribas. The Managing Owner has been registered as a commodity pool operator with the CFTC and has been a member of the NFA since July 27, 2010. During the period from April-July, 2010, the Managing Owner was engaged in fund structuring activities in connection with futures-based exchange traded funds. As a registered commodity pool operator of the Trust and the Fund, the Managing Owner must comply with various regulatory requirements under the Commodity Exchange Act, which we refer to as the CEAct, 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.

NEITHER THIS POOL OPERATOR NOR ANY OF ITS TRADING PRINCIPALS HAS PREVIOUSLY OPERATED ANY OTHER POOLS OR TRADED ANY OTHER ACCOUNTS.

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. The Shares 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

 

 

 

-4-


Table of Contents

SUMMARY (cont’d)

 

or any other governmental agency. An investment in the Shares is speculative and involves a high degree of risk.

The Managing Owner was formed to be the managing owner of investment vehicles such as the Trust and the Fund and has no history of past performance. The Managing Owner and its trading principals have not managed any other commodity pools of this type. Therefore there is no indication of their ability to manage investment vehicles such as the Trust and the Fund. If the experience of the Managing Owner and its trading principals is not adequate or suitable to manage investment vehicles such as the Trust and the Fund, the operations and performance of the Trust and the Fund may be adversely affected.

The Fund pays the Managing Owner a Management Fee, monthly in arrears, in an amount equal to 0.95% per annum of the daily Net Asset Value of the Fund.

The principal office of the Managing Owner is located at 787 Seventh Avenue, New York, New York 10019. The telephone number of the Managing Owner is (212) 841-2000.

Investment Objective

The Fund will seek to track changes, whether positive or negative, in the level of the S&P GSCI® Dynamic Roll Excess Return Index, which we refer to as the Index, over time. The Shares are designed for investors who want a convenient way to gain an exposure to a diversified selection of commodities and an index strategy that seeks to serve as a benchmark for commodity market returns and to reflect general levels of price movements and inflation in the world economy.

Considerations relating to an investment in the Shares include:

 

   

Roll Optimization.    The Index is an excess return commodity index comprised of commodity futures contracts that are replaced periodically. The process of periodically replacing a futures contract prior to its expiration is known as “rolling” a contract or position. The Fund utilizes a more flexible monthly futures contract rolling strategy, to determine the new futures contract months, than the liquidity focused S&P GSCI® Index.

   

This is designed to maximize yield from rolling long futures contracts in backwardated markets and minimize roll loss from rolling long futures positions in contangoed markets.

 

   

Ease and Flexibility of Investment.    The Shares will trade on NYSE Arca and provide investors with indirect exposure to commodity futures. The Shares may be bought and sold throughout the business day at real-time market prices on NYSE Arca like other exchange-listed securities. Investors will be able to purchase and sell Shares through traditional brokerage accounts.

 

   

Diversification.    The Shares may help to diversify a portfolio because historically (based on the Index’s hypothetical closing levels from January 1995 – January 2011) the Index has tended to exhibit low to negative correlation with equities, conventional bonds and alternative investments.

 

   

More Direct Commodity Access.    The Shares provide a more direct exposure to commodities than mutual funds that invest in commodity-linked notes or non-exchange traded commodity instruments, which also have implicit imbedded costs and credit risk, potentially adversely impacting the net asset value of the mutual fund.

 

   

Margin. Shares will be eligible for margin accounts.

Investing in the Shares does not insulate Shareholders from certain risks, including price volatility.

The Fund seeks to achieve its investment objective by investing in exchange-traded futures, or Designated Contracts, on the commodities (as set forth in the Table 1 on page 52) comprising the Index, or the Index Commodities, with a view to tracking the Index over time. More specifically, the Fund seeks to achieve its investment objective by investing in Index Commodity Interests (as defined below) such that daily changes in the Fund’s NAV

 

 

 

-5-


Table of Contents

SUMMARY (cont’d)

 

per Share will be expected to track the changes in the level of the Index.

In certain limited circumstances as noted below, the Fund may also invest in:

 

   

swap agreements based on an Index Commodity that are cleared through the relevant exchanges or their affiliated provider of clearing services, or Cleared-Swaps; or in

 

   

futures contracts referencing particular commodities other than the Index Commodities, or Substitute Contracts (i.e., futures contracts traded on exchanges other than the exchanges indicated in Table 1 on page 52, including foreign exchanges); or in

 

   

Alternative Financial Instruments (as defined below) referencing the particular Index Commodity

in furtherance of the Fund’s investment objective if, in the commercially reasonable judgment of the Managing Owner, such instruments tend to exhibit trading prices or returns that generally correlate with the Index Commodities.

Alternative Financial Instruments will be forward agreements, exchange-traded cash settled options, swaps other than Cleared Swaps, and other over-the-counter transactions that will serve as proxies for one or more Index Commodities.

Specifically, once position limits in a Designated Contract are reached or, an exchange imposes limitations on the Fund’s ability to maintain or increase its positions in a Designated Contract after reaching accountability levels or a price limit is in effect on a Designated Contract during the last 30 minutes of its regular trading session, the Fund intends to invest:

 

   

first, in Cleared Swaps to the extent permitted under the position limits applicable to Cleared Swaps and appropriate in light of the liquidity in the Cleared Swaps market;

 

   

second, using its commercially reasonable judgment, in Substitute

   

Contracts or in Alternative Financial Instruments.

We refer to the Substitute Contracts and Alternative Financial Instruments collectively as the Other Commodity Interests. We refer to Other Commodity Interests, Designated Contracts and Cleared Swaps collectively as the Index Commodity Interests. Finally, we refer to the Fund’s aggregate holdings in Index Commodity Interests and Cash Instruments as its Fund Portfolio.

By utilizing certain or all of these investments, the Managing Owner will endeavor to cause the Fund’s performance to track the changes in closing levels of the Index.

Consistent with achieving the Fund’s investment objective of seeking to track the Index, the Managing Owner may, after reaching position limits in the Designated Contracts or, when an exchange has imposed limitations on the Fund’s ability to maintain or increase its positions in a Designated Contract after reaching accountability levels or a price limit is in effect on a Designated Contract during the last 30 minutes of its regular trading session, cause the Fund to first enter into or hold Cleared Swaps, then, if applicable, enter into or hold Other Commodity Interests. For example, certain Cleared Swaps have standardized terms similar to, and are priced by reference to, a corresponding Designated Contract. Additionally, Alternative Financial Instruments that do not have standardized terms and are not exchange-traded, or over-the-counter Alternative Financial Instruments, may generally be structured as the parties desire. Therefore, the Fund may first enter into multiple Cleared Swaps, then, if applicable, enter into over-the-counter Alternative Financial Instruments intended to replicate the performance of each of the Designated Contracts, or a single over-the-counter Alternative Financial Instrument designed to replicate the changes in the closing levels of the Index as a whole. Assuming that there is no default by a counterparty to an over-the-counter Alternative Financial Instrument, the performance of the over-the-counter Alternative Financial Instrument is expected to correlate with the changes in the closing levels of the Index or the applicable Designated Contract. After reaching position limits in the Designated Contracts or when an exchange has imposed limitations on the Fund’s ability to maintain or increase its positions in a Designated Contract after reaching accountability levels or a price limit is

 

 

 

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in effect on a Designated Contract during the last 30 minutes of its regular trading session, and after entering into or holding Cleared Swaps, the Fund may also enter into or hold over-the-counter Alternative Financial Instruments to facilitate effective trading, consistent with the Fund’s “roll” methodology. In addition, after reaching position limits in the Designated Contracts or when an exchange has imposed limitations on the Fund’s ability to maintain or increase its positions in a Designated Contract after reaching accountability levels or a price limit is in effect on a Designated Contract during the last 30 minutes of its regular trading session, and after entering into or holding Cleared Swaps, if applicable, the Fund may enter into or hold over-the-counter Alternative Financial Instruments that would be expected to alleviate overall deviation between the Fund’s performance and the changes in the closing levels of the Index that may result from certain market and trading inefficiencies or other reasons.

There can be no assurance that the Fund will achieve its investment objective or avoid substantial losses. THIS POOL HAS NOT COMMENCED TRADING AND DOES NOT HAVE ANY PERFORMANCE HISTORY. The market price of the Shares on the secondary market is expected to fluctuate generally in relation to changes in the Net Asset Value of the Fund.

The Index

The Index aims to reflect the return of an investment in a world production-weighted portfolio comprising the principal physical commodities that are the subject of active, liquid futures markets.

The Index Portfolio, denominated in USD, is made up of long positions in the Designated Contracts on the 24 underlying index commodities, or Index Commodities, as listed in Table 1 on page 52 in the section “Description of the S&P GSCI® Dynamic Roll Excess Return Index — Composition of the Index,” diversified across the commodity universe.

The holding of long positions involves establishing commodity futures, which means that the investor’s portfolio will benefit if the prices of such Index Commodities rise and will be negatively affected if the prices of such Index Commodities decline.

The Index Portfolio is a synthetic portfolio or basket of Index Commodities (and in turn, a

reflection of the change in market price of these Index Commodities) because there is no actual portfolio of assets to which any person is entitled or in which any person has any ownership interest.

The Index is an excess return commodity index comprised of Designated Contracts that are replaced periodically. The process of periodically replacing a futures contract prior to its expiration is known as “rolling” a contract or position.

The Dynamic Roll Index Methodology is designed to maximize yield from rolling long futures contracts in backwardated markets and minimize roll loss from rolling long futures positions in contangoed markets. A “backwardated” market means a market in which the prices of certain commodity futures contracts are higher for contracts with shorter-term expirations than for contracts with longer-term expirations. A “contangoed” market means a market in which the prices of certain commodity futures contracts are lower for contracts with shorter-term expirations than for contracts with longer-term expirations.

An index that is designed to reflect the return from rolling each contract included in the index as it nears expiration into the next nearby most active delivery month is said to follow a standard roll, or Standard Roll, methodology. This is accomplished by selling the position in the first delivery month and purchasing a position of equivalent value in the second delivery month.

An index that employs the Standard Roll schedule may sometimes diminish total returns due to periodic rolling expenses. Although the first nearby contracts are generally the most liquid, based on open interest, they may also become the most expensive (resulting in lower total returns) when the commodities market is in contango (when further out futures contracts trade at a premium). Conversely, when commodity markets are in backwardation (when further out futures contracts trade at a discount), indices that employ a Standard Roll strategy generally boast higher total returns.

The Index is a commodity index that utilizes the S&P GSCI® Dynamic Roll Index Methodology, a monthly futures contract rolling methodology that determines the new futures contract months for the underlying commodities. The S&P GSCI® Dynamic Roll Index Methodology is a more flexible methodology than the Standard Roll methodology, as more fully described under the section “Description of the S&P GSCI® Dynamic Roll Excess Return Index

 

 

 

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— The Dynamic Roll Selection Process.” At each Roll Determination Date, which is the third Index Business Day of each month, dynamic roll algorithms measure the current shape of the forward curves of the eligible futures contract prices for each Index Commodity. The contract rolling strategy is optimized based on implied roll yield and the Dynamic Roll Parity Principle as explained below. The Index optimizes rolling by using a systematic methodology to search for the optimal contract months along the curve to roll into, subject to using only the most liquid of all available contracts of a given commodity.

When the futures curve for a given commodity is in a general state of contango, the S&P GSCI Dynamic Roll methodology uses futures contracts months that are further out on the futures curve, with the intention of minimizing the effects of negative roll yields. When the futures curve for a given commodity is in a general state of backwardation, the S&P GSCI Dynamic Roll methodology generally uses nearby futures contracts. This process is described below under the section “Description of the S&P GSCI® Dynamic Roll Excess Return Index — The Dynamic Roll Process.”

The steps and calculations that govern the determination of the weighting for the Index Commodities and the subsequent rebalancings, and therefore, the results of the Index, were developed by the Index Sponsor. We refer to these steps and calculations as the “Index Methodology.” The Index Methodology is more fully described below under the section “Description of the S&P GSCI® Dynamic Roll Excess Return Index — The Index Methodology.”

Each futures contract included in the Index is a Designated Contract and must satisfy a number of eligibility criteria. This process is described below under the section “Description of the S&P GSCI® Dynamic Roll Excess Return Index — Composition of the Index.”

The Index Sponsor determines the quantity of each of the Designated Contracts included in the Index, the Contract Production Weights, on the basis of a five-year average, referred to as the “world production average,” of the production quantity of the underlying Index Commodities as published by a number of official sources as provided in the S&P GSCI® Index Methodology.

The five-year average is updated annually for each Index Commodity included in the Index based

on the most recent five-year period (ending approximately one and a half years prior to the date of calculation and moving backwards) for which complete data for all Index Commodities is available and the process is described below under the section “Description of the S&P GSCI® Dynamic Roll Excess Return Index — Calculation of the Weight of each Contract in the Index.” The Index is rebalanced annually in January.

Because the Index is comprised of actively traded contracts with scheduled expirations, it can be calculated only by reference to the prices of contracts for specified expiration, delivery or settlement periods, referred to as “Designated Contract Expirations”. The Designated Contract Expirations included in the Index during a given year are determined by the Index Sponsor at the time that the composition of the Index for the year is made, a process more fully described below under the section “Description of the S&P GSCI® Dynamic Roll Excess Return Index — Contract Expirations.”

The value, or the total dollar weight, of the Index on each Index Business Day is equal to the sum of the dollar weights of each of the Index Commodities. The dollar weight of each Index Commodity on any given day is equal to the product of the:

 

   

weight of such Index Commodity,

   

the daily contract reference price for the appropriate Designated Contracts, and

   

the applicable “roll weights” during a Roll Period.

This process is described below under the section “Description of the S&P GSCI® Dynamic Roll Excess Return Index — Calculation of the Closing Value of the Index.”

The Designated Contract daily return on any given day is equal to:

 

   

(A) the sum, for each of the Index Commodities included in the Index, of the applicable daily contract reference price on the relevant Designated Contract multiplied by the appropriate Designated Contract production weight and the appropriate “roll weight,” divided by (B) the total dollar weight of the Index on the preceding day, minus one.

 

 

 

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This process is described below under the section “Description of the S&P GSCI® Dynamic Roll Excess Return Index — Designated Contract Daily Return.

On any Index Business Day, the value of the Index is equal to the product of:

 

   

the value of the Index on the preceding Index Business Day and

   

one plus the Contract Daily Return on the Index Business Day on which the calculation is made.

The Contract Daily Return on any Index Business Day is equal to the ratio of the total dollar weight of the Index on that day and the total dollar weight of the Index on the preceding Index Business Day, minus one. The Contract Daily Return is represented as the percentage change in the total dollar weight of the Index. The value of the Index is indexed to a base value of 100 on January 16, 1995.

No assurance can be given that the Index Methodology will achieve its goals or that the Index results will surpass any alternative basket or strategy that might be constructed from the Index Commodities.

The Market Price of the Shares Should Track the Changes in the Level of the Index

The Shares are intended to provide investment results that generally correspond to the changes, positive or negative, in the level of the Index over time.

The market price of the Shares is expected to fluctuate in relation to changes in the value of the Fund 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 close.

The Fund Portfolio is traded with a view to tracking the Index over time, whether the Index is rising, falling or flat over any particular period. The Fund seeks to achieve its investment objective by investing in Index Commodity Interests such that daily changes in the Fund’s net asset value per Share will be expected to track the changes in the level of the Index. The Fund is not “managed” by traditional methods, which typically involve effecting changes in the composition of the Fund Portfolio on the basis of discretionary or systematic judgments relating to

economic, financial and market considerations with a view to obtaining positive results under various market conditions. To maintain the correspondence between the composition and weightings of the Index Commodities comprising the Index, the Managing Owner adjusts the Fund Portfolio regularly to conform to periodic changes in the identity and/or relative weighting of the Index Commodities.

The Commodity Brokers

A variety of executing brokers will execute futures transactions on behalf of the Fund. Such executing brokers will give-up all such transactions to BNP Paribas Prime Brokerage, Inc., a Delaware corporation, which will serve as the Fund’s executing and clearing broker, which we refer to as PBI. PBI is an affiliate of the Managing Owner and is a BNP Affiliated Entity. In its capacity as executing and clearing broker, PBI will execute and clear each of the Fund’s futures transactions and will perform certain administrative services for the Fund. PBI has been registered with the CFTC as a futures commission merchant since August 19, 2011 and has been a member of the NFA in such capacity since August 19, 2011.

BNP Paribas Commodity Futures Limited, a limited company registered in England and Wales will serve as the Fund’s executing and clearing broker, which we refer to as CFL, with respect to all transactions on the London Metal Exchange. CFL is an affiliate of the BNP Affiliated Entities and the Managing Owner. CFL is a member of the Financial Services Authority and as such is regulated by the Financial Services Authority in the conduct of its business in the United Kingdom.

We may refer to PBI and/or CFL as a Commodity Broker individually, or the Commodity Brokers collectively.

The Fund will pay to the Commodity Brokers 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 Brokers are expected to be approximately $10.00 per round-turn trade, although the Commodity Brokers’ brokerage commissions and trading fees will be determined on a contract-by-contract basis. The Managing Owner expects that the brokerage commissions and fees may equal to approximately 0.08% of the Net Asset Value of the Fund in any

 

 

 

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year, although the actual amount of brokerage commissions and fees in any year or any part of any year may be greater.

A round-turn trade is a completed transaction involving both a purchase and a liquidating sale, or a sale followed by a covering purchase.

The Administrator, Custodian, and Transfer Agent

The Managing Owner, on behalf of the Trust and the Fund, has appointed The Bank of New York Mellon as the administrator, which we refer to as the Administrator, of the Fund and has entered into a Fund Administration and Accounting Agreement, which we refer to as the Administration Agreement, in connection therewith. The Bank of New York Mellon will serve as custodian, which we refer to as the Custodian, of the Fund and has entered into a Global Custody Agreement, which we refer to as the Custody Agreement, in connection therewith. The Bank of New York Mellon will also serve as the transfer agent, which we refer to as the Transfer Agent, of the Fund and has entered into a Transfer Agency and Service Agreement in connection therewith.

The Bank of New York Mellon, a banking corporation organized under the laws of the State of New York with trust powers, has an office at 2 Hanson Place, 12th Floor, Brooklyn, N.Y. 11217. The Bank of New York Mellon is subject to supervision by the New York State Banking Department and the Board of Governors of the Federal Reserve System. Information regarding the Net Asset Value of the Fund, creation and redemption transaction fees and the names of the parties that have executed a Participant Agreement (as defined below) may be obtained from The Bank of New York Mellon by calling the following number: (718) 315-7500. A list of the names of the parties that have executed a Participant Agreement as of the date of this Prospectus may be found in the section “Plan of Distribution.” A copy of the Administration Agreement is available for inspection at The Bank of New York Mellon’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 (other than making

investment decisions), including receiving and processing orders from Authorized Participants to create and redeem Baskets, Net Asset Value calculations, accounting and other fund administrative services. The Administrator will retain certain financial books and records, including: Basket creation and redemption books and records, Fund accounting records, ledgers with respect to assets, liabilities, capital, income and expenses, the registrar, transfer journals and related details and trading and related documents received from futures commission merchants, c/o The Bank of New York Mellon, 2 Hanson Place, 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 section “Material Contracts.”

The Administrator’s monthly fees are paid on behalf of the Fund by the Managing Owner out of the Management Fee.

The Administrator and any of its affiliates may from time-to-time purchase or sell Shares for their own account, as agent for their customers and for accounts over which they exercise investment discretion.

The Administrator will also 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 by the Authorized Participants and not by the Fund.

The Managing Owner on behalf of 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 Marketing Agent

The Managing Owner, on behalf of the Trust and the Fund, has appointed ALPS Distributors, Inc., which we refer to as the Marketing Agent, to assist the Managing Owner and the Administrator with certain functions and duties relating to distribution and marketing, including reviewing and approving marketing materials. The Marketing Agent will retain all marketing materials at c/o ALPS Distributors, Inc., 1290 Broadway, Suite 1100, Denver, Colorado 80203; telephone number (303) 623-2577.

 

 

 

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The Marketing Agent will not open or maintain customer accounts or solicit, receive, execute, clear, settle or otherwise handle any orders to purchase or redeem Shares.

The Fund will enter into a Marketing Agent Agreement with the Marketing Agent.

A summary of the material terms of the Marketing Agreement is disclosed in the section “Material Contracts.”

The Managing Owner, out of the Management Fee, pays the Marketing Agent for performing its duties on behalf of the Fund.

Toll Free Number for Investors

Investors may contact the Marketing Agent toll-free in the U.S. at (855) 806-2588.

Limitation of Liabilities

Although the Shares of only one Fund are being offered by this Prospectus, it is expected that additional series of Funds will offer Shares in the future.

Your investment in a Fund is part of the assets of that Fund, and it will therefore be subject to the risks of that Fund’s trading only. You cannot lose more than your investment in a Fund, and you will not be subject to the losses or liabilities of a Fund in which you have not invested. We have received an opinion of counsel that each Fund is entitled to the benefits of the limitation on inter-series liability provided under the Delaware Statutory Trust Act. Each Share, when purchased in accordance with the Trust Declaration, will, except as otherwise provided by law, be fully-paid and non-assessable.

The debts, liabilities, obligations, claims and expenses of a particular Fund will be enforceable against the assets of that Fund only, and not against the assets of the Trust generally or the assets of any other fund, and, unless otherwise provided in the Trust Declaration, none of the debts, liabilities, obligations and expenses incurred, contracted for or otherwise existing with respect to the Trust generally or any other series thereof will be enforceable against the assets of such Fund.

The Offering

On [], 2012, the Initial Purchaser, subject to certain conditions, agreed to purchase 600,000 Shares, which comprise the initial Baskets, at a purchase price of $25.00 per Share ($1,000,000 per Basket), as described in the section “Plan of Distribution.” This price was determined arbitrarily inasmuch as the Shares have no inherent value prior to the commencement of the Fund’s operations.

Authorized Participants

Baskets may be created or redeemed only by Authorized Participants, except that the initial Baskets were created by the Initial Purchaser. 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 direct participant in the Depository Trust Company, a New York corporation, which we refer to as DTC, and (3) have entered into an agreement with the Fund and the Managing Owner, which we refer to as the 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. The list of current Authorized Participants may be obtained from the Administrator.

Creation and Redemption of Shares

The Fund will create and redeem Shares from time-to-time, but only in one or more Baskets. Baskets may be created or redeemed only by Authorized Participants, except that the initial Baskets will be created by the Initial Purchaser. Baskets are created and redeemed continuously as of noon, Eastern time, on the business day immediately following the date on which a valid order to create or redeem a Basket is accepted by the Fund. Baskets are created and redeemed at the Net Asset Value of 40,000 Shares as of the close of the NYSE Arca Core Trading Session or the last to close of the exchanges on which the Designated Contracts or Substitute Contracts are traded, whichever is later, on the date that a valid order to create or redeem a Basket is accepted by the Fund. The NYSE Arca Core Trading Session starts at 9:30 a.m. and ends at 4:00 p.m. Eastern time. For purposes of processing both purchase and redemption orders, a “business day” means any day other than a day when each of NYSE Arca and banks in both New

 

 

 

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York City and London are required or permitted to be closed. Except when aggregated in Baskets, the Shares are not redeemable securities. Authorized Participants pay a transaction fee of $500 in connection with each order to create or redeem a Basket. Authorized Participants may sell the Shares included in the Baskets they purchase from the Fund to other investors.

The Fund may suspend the creation of Baskets if the Fund has reached speculative position or other limits with respect to the Fund’s holdings of futures contracts on one or more Index Commodities and the Fund is unable to gain an exposure to the Index Commodities based upon Alternative Financial Instruments to the futures contracts on the Index Commodities.

See the section “Creation and Redemption of Shares” for more details.

Net Asset Value

Net asset value, which we refer to as Net Asset Value, means the total assets of the Fund including, but not limited to, all cash and cash equivalents or other debt securities less total liabilities of the Fund, each determined on the basis of generally accepted accounting principles.

See the section “Description of the Shares; The Trust; The Fund: Certain Material Terms of the Declaration of Trust — Net Asset Value” for more details.

Clearance and Settlement

The Shares are evidenced by a global certificate 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.

Segregated Accounts/Interest Income

The proceeds of the offering will be deposited in cash in a segregated account in the name of the Fund at PBI in accordance with CFTC investor protection and segregation requirements, at CFL pursuant to the applicable rules and regulations of the Financial Services Authority or with the Custodian.

On November 19, 2010, the CFTC issued a proposal on four alternative models of protection for

cleared swaps and associated collateral of PBI’s customers, and subsequently proposed adopting a model whereby a commodity broker would be allowed to keep cleared swaps collateral of all of its cleared swaps customers in a commingled account pre-bankruptcy. In the event of a default of both PBI and one or more of its cleared swaps customers, the relevant clearinghouse would have recourse against the collateral of the defaulting customers, but not against the collateral of non-defaulting customers. However, the CFTC is continuing to consider the costs and the benefits of other alternative segregation models and has not yet finalized its rulemaking in this regard.

The Fund will be credited with 100% of the interest earned on its average net assets on deposit with the Commodity Brokers or the Custodian. In an attempt to increase interest income earned, the Managing Owner expects to invest non-margin assets in Cash Instruments or other instruments permitted by applicable rules and regulations. The current holdings of Cash Instruments will earn an interest rate of 0.00% as of October 31, 2011. See the section “Fees and Expenses” for more details.

 

 

 

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Fees and Expenses

 

Management Fee

 

The Fund will pay the Managing Owner a Management Fee, monthly in arrears, in an amount equal to 0.95% per annum of the daily Net Asset Value of the Fund. The Management Fee will be paid in consideration of the Managing Owner’s advisory services.

 

Organization and Initial Offering Expenses; Continuous Offering Fees and Expenses  

Expenses incurred in connection with organizing the Trust and the Fund and up to the initial offering of the Fund’s Shares upon commencement of its trading operations will be paid by the Managing Owner. Organization and initial offering expenses relating to the Trust and the Fund that are paid by the Managing Owner means those expenses incurred in connection with its formation, the qualification, registration and the anticipated offering of the Fund’s Shares under applicable federal law, and any other expenses actually incurred and, directly or indirectly, related to the organization of the Trust and the Fund prior to commencing trading operations (which will occur contemporaneously with the commencement of the offering of the Shares).

 

Upon commencement of trading operations (which will occur contemporaneously with the commencement of the offering of the Shares) and thereafter, the Fund will bear the costs of its continuous offering of Shares and continuous offering expenses. Continuous offering fees and expenses include those legal and accounting fees and expenses, filing fees, printing, mailing and duplication costs associated with the continuous offering of the Shares.

 

The Managing Owner expects that the continuous offering fees and expenses of the Fund will be approximately 0.01% per annum of the Fund’s Net Asset Value, although the actual amount of continuous offering fees and expenses in any year or any part of any year may be greater.

 

Brokerage Commissions and Fees  

The Fund will pay to the Commodity Brokers all brokerage commissions, including applicable exchange fees, NFA fees, give-up fees, pit brokerage fees and other transaction related fees and expenses charged in connection with its trading activities. On average, total charges paid to the Commodity Brokers are expected to be approximately $10.00 per round-turn trade, although the Commodity Brokers’ brokerage commissions and trading fees will be determined on a contract-by-contract basis. The Managing Owner expects that the brokerage commissions and fees may equal to approximately 0.08% of the Net Asset Value of the Fund in any year, although the actual amount of brokerage commissions and fees in any year or any part of any year may be greater.

 

Routine Operational, Administrative and Other Ordinary Fees and Expenses  

The Fund will pay all of the routine operational, administrative and other ordinary fees and expenses of the Fund, including, but not limited to, computer services, Index licensing fee, legal and accounting fees and expenses, tax preparation expenses, filing fees and printing, mailing and duplication costs. The Managing Owner will pay the fees and expenses of the Trustee, Administrator’s fees, Custodian fees, Transfer Agent fees and Marketing Agent fees. The Managing Owner expects that all of the routine operational, administrative and other ordinary fees and expenses of the Fund will be approximately 0.40% per annum of the Fund’s Net Asset Value. The Managing Owner has agreed to reimburse the Fund, from its Management Fee, the amount of routine operational, administrative and other ordinary fees and expenses (excluding those legal and accounting fees and expenses, filing fees, printing, mailing and duplication costs associated with the continuous offering of the Shares as provided under the sub-section “Organization and Initial Offering Expenses; Continuous Offering Fees and Expenses”) in excess of 0.20% per annum of the Fund’s Net Asset Value. For the avoidance of doubt, the cap as described in the immediately preceding sentence excludes expenses incurred in connection with the continuous offering of Shares after the commencement of the Fund’s trading operations.

 

Extraordinary Fees and Expenses  

The Fund will pay all its extraordinary fees and expenses (as defined in the Declaration of Trust), if any, as determined by the Managing Owner. Extraordinary fees and expenses are

 

 

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fees and expenses which are non-recurring and unusual in nature, such as legal claims and liabilities, litigation costs or indemnification or other unanticipated expenses. Extraordinary fees and expenses will also include material expenses which are not currently anticipated obligations of the Fund or of managed futures funds in general. Routine operational, administrative and other ordinary fees and expenses will not be deemed extraordinary expenses.

 

Payment of Management Fee and Brokerage Commissions and Fees From Interest Income, if any  

Because it is expected that interest income, if any, will not be sufficient to cover the fees and expenses of the Fund, the excess of such fees and expenses over such interest income, if any, will be paid out of income from trading, if any, or from sales of a portion of the Fund Portfolio. However, if interest income exceeded the fees and expenses of the Fund, the Management Fee and the brokerage commissions and fees of the Fund would be paid first out of interest income from the Fund Portfolio.

 

Selling Commission  

Investors may purchase and sell Shares through traditional brokerage accounts. Investors are expected to be charged a customary commission by their brokers in connection with purchases of Shares that will vary from investor to investor. Investors are encouraged to review the terms of their brokerage accounts for applicable charges.

 

 

 

 

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Break-Even Amounts

The estimated amount of all fees and expenses which are anticipated to be incurred by a new investor in Shares during the first twelve months of investment is 1.24% per annum of the Net Asset Value of the Fund, plus the amount of any commissions charged by the investor’s broker.

The Fund will be successful only if its annual returns from the Fund Portfolio exceed such fees and expenses of approximately 1.24% per annum. The current holdings of Cash Instruments will earn an interest rate of 0.00% as of October 31, 2011. Therefore, the Fund will be required to earn approximately 1.24% per annum, or $0.31 per annum per Share at $25.00 as the Net Asset Value per Share, in order for an investor to break-even on an investment during the first twelve months of an investment.

Distributions

The Fund will make distributions at the discretion of the Managing Owner. In light of the currently low interest rate environment, the Managing Owner does not expect to make any distributions. To the extent that the actual and projected interest income from the Fund Portfolio exceeds the actual and projected fees and expenses of the Fund, the Managing Owner expects periodically to make distributions of the amount of such excess. The Fund currently does not expect to make distributions with respect to its capital gains. Depending on the Fund’s performance for the taxable year and your own tax situation for such year, your income tax liability for the taxable year for your allocable share of the Fund’s net ordinary income or loss and capital gain or loss may exceed any distributions you receive with respect to such year.

Fiscal Year

The Fund’s fiscal year ends on August 31 of each year.

Financial Information

The Fund has only recently been organized and has no financial history.

U.S. Federal Income Tax Considerations

Subject to the discussion below in the section “Material U.S. Federal Income Tax Considerations,”

the Fund will be classified as a partnership for U.S. federal income tax purposes, which is treated as a separate entity from any other series of the Trust for U.S. federal income tax purposes. Accordingly, the Fund will not incur U.S. federal income tax liability; rather, each beneficial owner of Shares will be required to take into account its allocable share of the Fund’s income, gain, loss, deduction and other items for the Fund’s taxable year ending with or within the owner’s taxable year.

Additionally, please refer to the section “Material U. S. Federal Income Tax Considerations” below for information on the potential U.S. federal income tax consequences of the purchase, ownership and disposition of Shares.

Breakeven Table

The Breakeven Table on the following page indicates the approximate percentage and dollar returns required for the value of an initial $25.00 investment in a Share to equal the amount originally invested twelve months after issuance.

The Breakeven Table, as presented, is an approximation only. The capitalization of the Fund does not directly affect the level of its charges as a percentage of its Net Asset Value, other than continuous offering expenses and brokerage commissions.

 

 

 

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Breakeven Table

 

     Per Share Dollar Amount and Percentage of Expenses of the Fund1
     

Expense

   $    %
     

Management Fee2

 

  

$0.238

 

  

0.950%

 

     

Organization and Initial Offering Expenses; Continuous Offering Fees and Expenses3

 

  

$0.0025

 

  

0.010%

 

     

Brokerage Commissions and Fees4

 

  

$0.020

 

  

0.080%

 

     

Routine Operational, Administrative and Other Ordinary Fees and Expenses5,6

 

  

$0.050

 

  

0.200%

 

     

Interest Income7

 

  

$0.000

 

  

0.000%

 

     

12-Month Breakeven8,9

 

  

$0.31

 

  

1.24%

 

 

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 the section “Charges” on page 76 for an explanation of the expenses included in the Breakeven Table.

 

2.

From the Management Fee, the Managing Owner is responsible for paying the fees and expenses of the Trustee, Administrator’s fees, Custodian fees, Transfer Agent fees, and Marketing Agent fees.

 

3.

Expenses incurred in connection with organizing the Trust and the Fund and up to the initial offering of the Fund’s Shares upon commencement of its trading operations will be paid by the Managing Owner. Organization and initial offering expenses relating to the Trust and the Fund that are paid by the Managing Owner means those expenses incurred in connection with its formation, the qualification, registration and the anticipated offering of the Fund’s Shares under applicable federal law, and any other expenses actually incurred and, directly or indirectly, related to the organization of the Trust and the Fund prior to commencing trading operations (which will occur contemporaneously with the commencement of the offering of the Shares).

 

    

Upon commencement of trading operations (which will occur contemporaneously with the commencement of the offering of the Shares) and thereafter, the Fund will bear the costs of its continuous offering of Shares and continuous offering expenses. Continuous offering fees and expenses include those legal and accounting fees and expenses, filing fees, printing, mailing and duplication costs associated with the continuous offering of the Shares.

 

    

The Managing Owner expects that the continuous offering fees and expenses of the Fund will be approximately 0.01% per annum of the Fund’s Net Asset Value, although the actual amount of continuous offering fees and expenses in any year or any part of any year may be greater.

 

4.

The actual amount of brokerage commissions and fees incurred will be affected by the trading frequency of the Fund and the specific instruments traded. Furthermore, the actual amount of brokerage commissions and fees incurred by the Fund may vary for a number of reasons, including, but not limited to, prevailing market conditions that may impact the composition of the Fund (i.e., the amount and the turnover of the Fund’s futures contracts linked to the Index Commodities may be traded more frequently to replicate changes in the levels of the Index) and may exceed the above estimate.

 

5.

The Fund will pay all of the routine operational, administrative and other ordinary fees and expenses of the Fund, including, but not limited to, computer services, Index licensing fee, legal and accounting fees and expenses, tax preparation expenses, filing fees and printing, mailing and duplication costs. The Managing Owner will pay the fees and expenses of the Trustee, Administrator’s fees, Custodian fees, Transfer Agent fees and Marketing Agent fees. The Managing Owner expects that all of the routine operational, administrative and other ordinary fees and expenses of the Fund will be approximately 0.40% per annum of the Fund’s Net Asset Value. The Managing Owner has agreed to reimburse the Fund, from its Management Fee, the amount of routine operational, administrative and other ordinary fees and expenses (excluding those legal and accounting fees and expenses, filing fees, printing, mailing and duplication costs associated with the continuous offering of the Shares as provided under the sub-section “Organization and Initial Offering Expenses; Continuous Offering Fees and Expenses”) in excess of 0.20% per annum of the Fund’s Net Asset Value. For the avoidance of doubt, the cap as described in the immediately preceding sentence excludes expenses incurred in connection with the continuous offering of Shares after the commencement of the Fund’s trading operations.

 

6.

In connection with orders to create and redeem Baskets, Authorized Participants pay a transaction fee in the amount of $500 per order. Because these transaction fees are de minimis in amount, are charged on a transaction-by-transaction basis (and not on a Basket-by-Basket basis), and are borne by the Authorized Participants, they have not been included in the Breakeven Table.

 

7.

The current holdings of Cash Instruments will earn an interest rate of 0.00% as of October 31, 2011.

 

8.

The Fund is subject to (i) a Management Fee of 0.95% per annum of the daily Net Asset Value of the Fund, (ii) estimated brokerage commissions and fees of 0.08% per annum of the Net Asset Value of the Fund, (iii) continuous offering fees and expenses of approximately 0.01% per annum of the Net Asset Value of the Fund, and (iv) routine operational, administrative and other ordinary fees and expenses of up to 0.20% per annum of the Net Asset Value of the Fund. The Fund is subject to fees and expenses in the aggregate amount of approximately 1.24% per annum. The Fund will be successful only if its annual returns from the Fund Portfolio exceed approximately 1.24% per annum. The current holdings of Cash Instruments will earn an interest rate of 0.00% as of October 31, 2011. As a result, the Fund will be required to earn approximately 1.24% per annum, or $0.31 per annum per Share at $25.00 as the Net Asset Value per Share, in order for an investor to break-even on an investment during the first twelve months of an investment.

 

9.

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 applicable charges.

 

 

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SUMMARY (cont’d)

 

Reports to Shareholders

The Managing Owner will furnish Shareholders with an annual report of the Fund within 90 calendar days after the end of the Fund’s fiscal year as required by the rules and regulations of the CFTC, including, but not limited to, annual audited financial statements certified by an independent registered public accounting firm and any other reports required by any other governmental authority that has jurisdiction over the activities of the Fund.

Shareholders also will be provided with appropriate information to permit Shareholders to file their U.S. federal and state income tax returns (on a timely basis) with respect to their Shares. Monthly account statements conforming to CFTC and NFA requirements will be posted on the Managing Owner’s website at http://www.stream.bnpparibas.com. The Fund will file periodic, quarterly and annual reports with the SEC. Shareholders can read and copy these reports at the SEC public reference facilities in Washington D.C. The filings will also be posted at the SEC website at http://www.sec.gov. Additional reports may be posted on the Managing Owner’s website in the discretion of the Managing Owner or as required by regulatory authorities.

THE SHARES ARE SPECULATIVE AND

INVOLVE A HIGH DEGREE OF RISK.

[Remainder of page left blank intentionally.]

 

 

 

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ORGANIZATION CHART

BNP PARIBAS EXCHANGE TRADED TRUST

BNP PARIBAS S&P DYNAMIC ROLL GLOBAL

COMMODITIES FUND

LOGO

 

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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.

Fund and Market Related Risks

 

  (1)

The Value Of The Shares Relates Directly To The Market Price Of The Designated Contracts And Other Assets Held By The Fund And Fluctuations In The Market Price Of These Assets Could Materially Adversely Affect An Investment In The Shares.

The Shares are designed to reflect the changes, positive or negative, in the level of the Index over time through the Fund’s Portfolio of Designated Contracts, Cleared Swaps (if any), Substitute Contracts (if any), Alternative Financial Instruments (if any) and Cash Instruments. The Net Asset Value of the Shares relates directly to the Net Asset Value of the Fund Portfolio.

 

  (2)

Numerous Factors May Affect The Price Of The Index Commodities, And In Turn, The Net Asset Value Of The Shares, And Ultimately The Market Price Of The Fund’s Shares.

The market price of the Index Commodities may fluctuate widely, and in turn, the value of the Index Commodity Interests may fluctuate accordingly. Several factors may affect the market prices of the Index Commodities, including, but not limited to:

 

   

Global supply and demand of each of the Index Commodities, which may be influenced by such factors as forward selling by the various commodities producers, purchases made by the commodities’ producers to unwind their hedge positions and production and cost levels in the major markets of each of the Index Commodities;

 

   

Domestic and foreign interest rates and investors’ expectations concerning interest rates;

   

Domestic and foreign inflation rates and investors’ expectations concerning inflation rates;

 

   

Investment and trading activities of mutual funds, hedge funds and commodity funds; and

 

   

Global or regional political, regulatory, legislative, economic or financial events and situations.

 

  (3)

Net Asset Value Per Share May Not Always Correspond To The Market Price Per Share And, As A Result, Baskets May Be Created Or Redeemed At A Net Asset Value Per Share That Differs From The Market Price Per Share.

The Net Asset Value per Share will change as fluctuations occur in the market value of the Fund Portfolio. Investors should be aware that the market 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 at a discount or a premium to the market 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 market for Shares is closely related, but not identical to, the same forces influencing the prices of the futures contracts underlying the Index Commodities trading individually or in the aggregate, at any point in time. Furthermore, any market forces that affect the prices of the Index Commodities may in turn also affect the value of the Index Commodity Interests accordingly. 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, and in turn, the difference between the Net Asset Value per Share and the public market price per Share may either increase or decrease.

Authorized Participants or their customers may have an opportunity to realize a profit if they can purchase a Basket at a discount to the public market price of the Shares or can redeem a Basket at a premium over the public market price of the Shares. The Managing Owner expects that the exploitation of these arbitrage opportunities by Authorized Participants and their customers will tend to cause the public market price per Share to track Net Asset Value per Share over time.

 

 

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  (4)

Non-concurrent Trading Hours Between NYSE Arca And The Various Futures Exchanges On Which The Designated Contracts or Substitute Contracts Are Traded May Impact The Value Of Your Investment.

The value of a Share may be influenced by non-concurrent trading hours between NYSE Arca and the various futures exchanges on which the Designated Contracts or Substitute Contracts are traded. While the Shares trade on NYSE Arca during the NYSE Arca Core Trading Session from 9:30 a.m. to 4:00 p.m. Eastern Standard Time, the trading hours for the futures exchanges on which each of the Designated Contracts or Substitute Contracts are traded may not necessarily coincide during all this time.

For example, while the Shares trade on NYSE Arca until 4:00 p.m. Eastern Standard Time, liquidity in the global aluminum market will be reduced after the close of the London Metal Exchange Limited at 12:00 p.m. Eastern Standard Time. As a result, during periods when NYSE Arca is open and the futures exchange on which aluminum is traded is closed, liquidity in the global aluminum market will be reduced or extremely limited, thus trading spreads and the resulting premium or discount on the Shares may widen, increasing the difference between the market price of the Shares and the Net Asset Value of the Shares.

 

  (5)

Certain Operations Of The Fund, Including The Creation Of Baskets, May Be Restricted By Regulatory And Exchange Position Limits And Other Position Limitation Rules And Could Result In Tracking Error Between Changes In The Net Asset Value Per Share And Changes In The Level Of The Index, Or Could Result In The Market Price Of The Shares Trading At A Premium Or Discount To The Net Asset Value Per Share.

The Index is currently composed of long positions in the Designated Contracts on the 24 Index Commodities, each of which are subject to speculative position limits and other position limitations, as applicable, which are imposed by either the CFTC or the rules of the futures exchanges on which the Designated Contracts are traded. These position limits prohibit any person from holding a position of more than a specific number of such

Designated Contracts (or Substitute Contracts, if applicable). The purposes of these limits are to diminish, eliminate or prevent sudden or unreasonable fluctuations or unwarranted changes in the prices of futures contracts.

Pursuant to the statutory mandate of the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Reform Act, which was signed into law on July 21, 2010, on October 18, 2011, the CFTC adopted regulations that impose new federal position limits on futures and options on a subset of energy, metal, and agricultural commodities, or Referenced Contracts, and economically equivalent swaps. The limits will apply to the Fund’s combined positions across these products. The Referenced Contracts subject to the new rules represent approximately 70% (i.e., 2011 production dollar weight) of the Index Commodities that comprise the Index.

For example, speculative position limits in the physical delivery markets are set at a stricter level during the month when the futures contract matures and becomes deliverable, known as the “spot month,” versus the limits set for all other months. If the Managing Owner determines that position limits in a Designated Contract are reached, or when an exchange has imposed limitations on the Fund’s ability to maintain or increase its positions in a Designated Contract after reaching accountability levels or a price limit is in effect on a Designated Contract during the last 30 minutes of its regular trading session, then the Fund intends to invest first in Cleared Swaps (to the extent permitted under the position limits applicable to Cleared Swaps and appropriate in light of the liquidity in the Cleared Swaps market); second, using its commercially reasonable judgment, in Substitute Contracts or in Alternative Financial Instruments.

Under current regulations, subject to any relevant exemptions, traders, such as the Fund, may not exceed speculative position limits, either individually, or in the aggregate with other persons with whom they are under common control or ownership. Under the new rules, the CFTC requires certain persons to aggregate exchange listed futures and economically equivalent swap positions owned or controlled by such persons.

Exchanges may also establish accountability levels applicable to futures contracts. An exchange may order a person who holds or controls aggregate positions in excess of specified position accountability levels not to further increase the

 

 

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positions, to comply with any prospective limit which exceeds the size of the position owned or controlled, or to reduce any open position which exceeds position accountability levels if the exchange determines that such action is necessary to maintain an orderly market.

Because the Fund is subject to speculative position limits, accountability levels and other position limitations, as applicable, the Fund’s ability to issue new Baskets or to reinvest income in additional Designated Contracts may be limited to the extent these activities would cause the Fund to exceed its applicable limits unless the Fund trades Cleared Swaps, Substitute Contracts or Alternative Financial Instruments (if any) in addition to and as a proxy for Designated Contracts. These limits and the use of Cleared Swaps, Substitute Contracts or Alternative Financial Instruments in addition to or as a proxy for Designated Contracts may affect the correlation between changes in the Net Asset Value per Share and changes in the level of the Index, and the correlation between the market price of the Shares, as traded on NYSE Arca and the Net Asset Value per Share.

Regulatory reform, by its nature, is unpredictable, and may be detrimental to the Fund and the Net Asset Value or the market price, as applicable, of your Shares. Under the Reform Act, the CFTC is required, among other things, to establish speculative position limits on exchange listed futures and options on physical commodities (including certain energy, metals and agricultural products) and economically equivalent over-the-counter derivatives. The Reform Act also requires the CFTC to establish aggregate position limits for contracts based on the same underlying commodity, including certain contracts traded on non-U.S. exchanges. Depending on the outcome of any future CFTC or futures exchanges rulemaking, as applicable, the rules concerning position limits or other position limitations, as applicable, may be amended in a manner that is either detrimental or favorable to the Fund. For example, if the amended rules are detrimental to the Fund, the Fund’s ability to issue new Baskets, or the Fund’s ability to reinvest income in additional Designated Contracts (or ultimately any Index Commodity Interest), may be limited to the extent these activities would cause the Fund to exceed the applicable position limits or other position limitations, as applicable. Limiting the size of the Fund may affect the correlation between the market price of the Shares of the Fund, as traded on NYSE Arca, and the Net Asset Value of the Fund. That is, the inability to create additional Baskets

could result in the market price of the Shares in the Fund trading at a premium or discount to the Net Asset Value of the Fund.

 

  (6)

The Fund’s Performance May Not Always Replicate The Changes In The Levels Of The Index. As A Result, There Will Be Times When The Fund’s Performance Will Not Meet The Investment Expectations Of The Shareholders.

It is possible that the Fund’s performance may not fully replicate the changes in levels of the Index due to disruptions in the markets for the relevant Index Commodities, the imposition of speculative position limits or any other related position limitations, as applicable (as discussed in the section “The Risks You Face - (5) Certain Operations Of The Fund, Including The Creation Of Baskets, May Be Restricted By Regulatory And Exchange Position Limits And Other Position Limitation Rules And Could Result In Tracking Error Between Changes In The Net Asset Value Per Share And Changes In The Level Of The Index, Or Could Result In The Market Price Of The Shares Trading At A Premium Or Discount To The Net Asset Value Per Share”), or due to other circumstances. If the Managing Owner determines that position limits in a Designated Contract are reached, or, when an exchange has imposed limitations on the Fund’s ability to maintain or increase its positions in a Designated Contract after reaching accountability levels or a price limit is in effect on a Designated Contract during the last 30 minutes of its regular trading session, then the Fund intends to invest first in Cleared Swaps (to the extent permitted under the position limits applicable to Cleared Swaps and appropriate in light of the liquidity in the Cleared Swaps market); second, using its commercially reasonable judgment, in Substitute Contracts or in Alternative Financial Instruments. By investing in proxies to the Designated Contracts such as Cleared Swaps, Substitute Contracts and Alternative Financial Instruments (if any), the Fund may experience additional tracking error due to a change in the character of the instruments owned by the Fund, or by potentially increasing the frequency of required trading, which may increase brokerage commissions and may result in additional tracking error. In addition, the Fund is not able to replicate exactly the changes in levels of the Index because the total return generated by the Fund is reduced by expenses and transaction costs, including those incurred in connection with the Fund’s trading activities, and increased by interest income, if any,

 

 

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from the Fund Portfolio. Tracking the Index requires trading of the Fund Portfolio with a view to tracking the Index over time and is dependent upon the skills of the Managing Owner and its trading principals, among other factors.

 

  (7)

The Fund Is Not Actively Managed And Will Seek To Track The Index During Periods In Which The Index Is Flat Or Declining As Well As When The Index Is Rising. Therefore, Investors Will Not Be Protected Against Adverse Movements In The Level Of The Index, Which In Turn, May Have A Significantly Adverse Impact On The Shares.

The Fund is not actively managed by traditional methods. For example, if the Designated Contracts, Cleared Swaps, Substitute Contracts or the Alternative Financial Instruments (if any) owned by the Fund are trending in an adverse direction, the Fund will not close out the Designated Contracts, Cleared Swaps, Substitute Contracts or terminate the Alternative Financial Instruments (if any), except in connection with a change in the composition or weighting of the Index. The Managing Owner will seek to cause the Net Asset Value of the Fund to track the Index during periods in which the Index is flat or declining as well as when the Index is rising.

 

  (8)

NYSE Arca May Halt Trading In The Shares Which Would Adversely Impact Your Ability To Buy Or Sell Shares.

The Shares will be listed for trading on NYSE Arca under the market symbol “BNPC.” Trading in Shares may be halted due to market conditions or, in light of NYSE Arca rules, circuit breakers and procedures, for reasons that, in the view of NYSE Arca, 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 will be terminated if the Shares are delisted.

 

  (9)

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 NYSE Arca, there is no certainty that an active trading market for the Shares will develop or be maintained. A number of factors may prevent the development of an active trading market, including, but not limited to, Authorized Participants who elect not to participate actively, which may impede the development of a liquid market. 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 the price that you would receive if an active market did exist.

 

  (10)

The Affiliated Liquidity Provider May Act In A Manner That Ignores Or Disregards The Interests Of Shareholders.

The Affiliated Liquidity Provider (as defined below) has no obligation to provide liquidity to the Fund. The Affiliated Liquidity Provider may decide to cease its activities intra-day, for periods longer than one day or permanently and may act in a manner that ignores or disregards the interests of Shareholders. For example, as the amount of liquidity decreases, the Affiliated Liquidity Provider, any other affiliated liquidity provider or any other affiliate of the Managing Owner, may benefit from the potential increase in spreads between the bid and offering price for the Shares while Shareholders experience losses in the market price of their Shares.

 

  (11)

The Liquidity Of The Shares Of The Fund May Also Be Affected By The Withdrawal From Participation Of One Or More Authorized Participants With Respect To The Fund, Which Could Adversely Affect The Value Of Your Shares.

If one or more Authorized Participants (including the Authorized Participant which is an affiliate of the BNP Affiliated Entities) which have substantial interests in the Shares of the Fund were to withdraw from participation, the liquidity of the affected Shares may decrease, which may adversely affect the market price of your Shares or lead to tracking error between the market price per Share and the Net Asset Value per Share.

 

 

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  (12)

Shareholders That Are Not Authorized Participants May Only Purchase Or Sell Their Shares In Secondary Trading Markets, And The Conditions Associated With Trading In Secondary Markets May Adversely Affect Investors’ Investment In The Shares.

Only Authorized Participants may create or redeem Baskets at a price equal to the net asset value of a Basket. In addition to creating or redeeming Baskets directly with the Fund, Authorized Participants may also buy or sell Shares through the secondary market at market prices. In contrast, ordinary investors who are not Authorized Participants are limited to secondary market transactions at market prices. Because ordinary investors who are not Authorized Participants may not create or redeem Baskets, these investors do not have identical arbitrage opportunities that are available to Authorized Participants, and therefore, ordinary investors who are not Authorized Participants are subject to the state of the secondary market at the time of a transaction. Ordinary investors who are not Authorized Participants may be required to conduct a transaction on the secondary market when conditions are adverse to an investor’s interests, such as when the market price for Shares is lower than the net asset value per Share and the ordinary investor seeks to sell Shares.

 

  (13)

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 trading of the Shares that could have a material adverse effect on an investment in the Shares. 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.

 

  (14)

As The Managing Owner And Its Trading Principals Have No History Of Operating An Investment Vehicle Like The Trust Or The Fund, Their

 

Experience May Be Inadequate Or Unsuitable To Manage The Fund.

The Managing Owner was formed to be the managing owner of investment vehicles such as the Trust and the Fund and has no history of past performance. The Managing Owner and its trading principals have not managed any other commodity pools of this type. Therefore there is no indication of their ability to manage investment vehicles such as the Trust or the Fund. If the experience of the Managing Owner and its trading principals is not adequate or suitable to manage investment vehicles such as the Trust or the Fund, the operations and performance of the Trust or the Fund may be adversely affected.

 

  (15)

The Fund Has No Past Performance And There Are Limited Index Results On Which To Rely On In Deciding Whether To Buy Shares. Therefore, You Will Have To Make Your Decision To Invest In The Fund On The Basis Of Limited Information.

The Fund has not commenced trading and does not have a performance history upon which to evaluate your investment in the Fund. Although past performance is not necessarily indicative of future results, if the Fund had a performance history, such performance history may (or may not) provide you with more information on which to evaluate an investment in the Fund. Likewise, the Index has a limited history which might (or might not) be indicative of the future Index results, or of the future performance of the Fund. Therefore, you will have to make your decision to invest in the Fund on the basis of limited information.

 

  (16)

Price Volatility May Possibly Cause The Total Loss Of Your Investment.

Designated Contracts, Cleared Swaps, Substitute Contracts and the Alternative Financial Instruments (if any) 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 Shares.

 

 

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  (17)

Fees And Commissions Are Charged Regardless Of Profitability And May Result In Depletion Of Assets.

Investors in the Fund will pay fees and expenses in the aggregate amount of approximately 1.24% per annum as described herein. Additionally, investors are expected to be charged a customary commission by their brokers in connection with purchases or sales, which will vary from investor to investor.

Consequently, depending upon the interest rate environment, the expenses of the Fund could, over time, result in losses to your investment. You may never achieve profits, significant or otherwise.

 

  (18)

The Fund May Terminate Because The Managing Owner May Be Unwilling Or Unable To Continue To Service The Fund Or Owners May Vote To Terminate The Fund, Each Of Which May Adversely Affect The Value Of Your Portfolio.

You cannot be assured that the Managing Owner will be willing or able to continue to service the Fund for any length of time. The Managing Owner may withdraw from the Fund (for any reason or no reason at all) upon 30 days’ notice, which would cause the Fund to terminate unless a substitute managing owner were obtained. If the Managing Owner discontinues its activities on behalf of the Fund and a substitute managing owner has not been appointed, the Fund will terminate and your investment in Shares will be terminated at a time that is not of your choosing, and may adversely affect the value of your portfolio.

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 gain an exposure to 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 the section “Description of the Shares; The Trust; The Fund; Certain Material Terms of the Declaration of Trust — Termination Events” for a summary of termination events. These 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 any other CFTC registered service provider were revoked or suspended, such

entity would no longer be able to provide services to the Fund.

 

  (19)

Potentially Illiquid Markets, Disruption Of Market Trading, And Daily Price Fluctuation Limits, Among Other Events, May Exacerbate Losses Of The Fund And, In Turn, The Value Of Your Shares.

The commodity markets are subject to temporary distortions or other disruptions due to various factors, including the lack of liquidity in the markets, regulatory certainty, the participation of speculators, government intervention and exchange regulation.

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. The large size of the positions which the Fund may acquire increases the risk of illiquidity by both making its positions more difficult to liquidate and increasing the losses incurred while trying to do so. A market disruption, such as when foreign governments may take or be subject to political actions which disrupt the markets in their currency or major exports, can also make it difficult to liquidate a position.

In addition, U.S. futures exchanges and some foreign exchanges have regulations that limit the amount of fluctuation in futures contract prices that may occur during a single business day. These limits are generally referred to as “daily price fluctuation limits” and the maximum or minimum price of a futures contract on any given day as a result of these limits is referred to as a “limit price.” Once the limit price has been reached in a particular futures contract, no trades may be made at a different price. Limit prices have the effect of precluding trading in a particular futures contract or forcing the liquidation of futures contracts at disadvantageous times or prices.

Furthermore, the above distortions and/or disruptions may cause the Fund to liquidate certain of its holdings of Cash Instruments in order to generate sufficient cash to meet margin requirements or close positions at inopportune times.

Market illiquidity and price limits may cause losses for the Fund, and in turn, adversely affect the market price of your Shares.

 

 

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  (20)

The Net Asset Value Of Your Shares May Be Adversely Affected By Redemption Orders That Are Subject To Suspension, Postponement 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 of the Fund. In addition, the Managing Owner, on behalf of 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 the Managing Owner’s counsel, might be unlawful. Any such postponement, suspension or rejection could adversely affect a redeeming Authorized Participant. For example, the resulting delay may adversely affect the value of the Authorized Participant’s redemption proceeds if the Net Asset Value of the Fund declines during the period of delay. The Fund and the Managing Owner disclaim any liability for any loss or damage that may result from any such suspension or postponement.

 

  (21)

Because Futures Contracts And Other Derivatives Have No Intrinsic Value, The Positive Performance Of Your Investment Is Wholly Dependent Upon An Equal And Offsetting Loss. Therefore, Overall Stocks And Bond Prices Could Rise Significantly, And The Economy As A Whole Prosper, While Shares Trade Unprofitably.

Futures and certain derivatives 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.

  (22)

Failure Of The Index To Exhibit Low To Negative Correlation To General Financial Markets Will Reduce Benefits Of Diversification And May Increase Losses To Your Portfolio.

Historically, (based on the Index’s hypothetical closing levels from January 1995 – January 2011), the Index’s returns have tended to exhibit low to negative correlation with the returns of other assets such as stocks and bonds. Although commodity futures trading can provide a diversification benefit to investor portfolios because of its low to negative correlation with other financial assets, the fact that the Index is not 100% negatively correlated with financial assets such as stocks and bonds means the Fund cannot be expected to be automatically profitable during unfavorable periods for the stock or bond market, or vice versa. If the levels of the Index change, and in turn, the Shares perform in a manner that correlates with the general financial markets or do not perform successfully, you will obtain no diversification benefits by investing in the Shares and the Shares may produce no gains to offset your losses from other investments.

 

  (23)

Various Actual And Potential Conflicts Of Interest May Be Detrimental To Shareholders.

The Fund will be subject to actual and potential conflicts of interest involving each of the BNP Affiliated Entities. The Managing Owner and its principals, officers and directors, all of whom are engaged in other investment activities, are not required to devote substantially all of their time to the business of the Fund, which also presents the potential for numerous conflicts of interest with the Fund. As a result of these and other relationships, parties involved with the Fund have a financial incentive to act in a manner other than in the best interests of the Fund and the Shareholders. The Managing Owner has not established formal procedures to resolve all potential 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 the Commodity Brokers, including,

 

 

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but not limited to, conflicts that result from receiving greater amounts of compensation from other clients, or purchasing opposite or competing positions on behalf of third party accounts traded through the Commodity Brokers.

 

  (24)

Failure Of PBI To Segregate Assets May Increase Losses; Despite Segregation Of Assets, The Fund Remains At Risk Of Significant Losses Because The Fund May Only Receive A Pro-Rata Share Of The Assets Or No Assets At All.

The CEAct requires PBI to segregate all funds received from customers from such broker’s proprietary assets. If PBI fails to do so, the assets of the Fund might not be fully protected in the event of PBI’s bankruptcy. Furthermore, in the event of PBI’s bankruptcy, the Fund could be limited to recovering either a pro rata share of all available funds segregated on behalf of PBI’s combined customer accounts or the Fund may not recover any assets at all, even though certain property specifically traceable to the Fund was held by PBI. PBI may, from time-to-time, have been the subject of certain regulatory and private causes of action. Such material actions, if any, are described under the section “The Commodity Brokers.”

In the event of a bankruptcy or insolvency of any exchange or a clearing house, the Fund could experience a loss of the funds deposited through PBI as margin with the exchange or clearing house, a loss of any unrealized profits on its open positions on the exchange, and the loss of profits on its closed positions on the exchange.

 

  (25)

You Should Consult Your Own Legal, Tax And Financial Advisers Regarding The Desirability Of An Investment In The Shares Because No Independent Advisers Were Appointed To Represent You In Connection With The Formation And Operation Of The Trust And The Fund.

The Managing Owner has consulted with counsel, accountants and other advisers regarding the formation and operation of the Trust and the Fund. No counsel has been appointed to represent you in connection with the offering of the Shares. Accordingly, you should consult your own legal, tax

and financial advisers regarding the desirability of an investment in the Shares.

 

  (26)

Failure Of The Clearinghouse To Meet Its Obligations With Respect To Cleared Swaps May Adversely Impact The Net Asset Value Of The Fund, And The Value Of Your Shares.

If the Fund enters into Cleared Swaps, the Fund will be exposed to the risk that the clearinghouse for the Cleared Swaps will not meet its obligations. Failure of the clearinghouse to meet its obligations may adversely impact the net asset value of the Fund, and in turn, the value of your Shares.

 

  (27)

Shareholders Do Not Have Certain Rights And Protections Enjoyed By Investors In Certain Other Vehicles, Such As Corporations.

As beneficial interests in separate series of a Delaware statutory trust, the Shares do not provide Shareholders with all of the statutory rights normally associated with the ownership of shares of a corporation. In addition, the Shares have limited voting and distribution rights (for example, Shareholders do not have the right to elect directors and the Fund is not required to pay regular distributions, although the Fund may pay distributions in the discretion of the Managing Owner). Therefore, an investment in Shares does not provide certain rights and protections offered by an investment in certain other investment vehicles, such as corporations.

 

 

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  (28)

An Investment In The Shares May Be Adversely Affected By Competition From Other Methods Of Investing In Commodities.

The Fund constitutes a relatively new, and thus initially untested, type of investment vehicle. It competes with other financial vehicles, including other commodity pools, hedge funds, traditional debt and equity securities issued by companies in the commodities industry, other securities backed by or linked to such commodities, and direct investments in the underlying commodities or commodity futures contracts. Market and financial conditions, and other conditions beyond the Managing Owner’s control, may make it more attractive to invest in other financial vehicles or to invest in such commodities directly, which could limit the market for the Shares and reduce the liquidity of the Shares.

 

  (29)

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.

 

  (30)

“Backwardation” Or “Contango” In The Market Prices Of The Index Commodities Will Affect The Net Asset Value, And In Turn, The Market Price Of Your Shares.

As the futures contracts that underlie the Index near expiration, they are replaced by contracts that have a later expiration. Thus, for example, a contract purchased and held in August 2011 may specify an October 2011 expiration. If the Fund is long on this futures contract and as this contract nears expiration,

it may be replaced by selling the October 2011 contract and purchasing the contract expiring in December 2011. This process is referred to as “rolling.” Historically, the prices of certain Index Commodities have frequently been higher for contracts with shorter-term expirations than for contracts with longer-term expirations, which is referred to as “backwardation.” In these circumstances, absent other factors, the sale of the October 2011 contract would take place at a price that is higher than the price at which the December 2011 contract is purchased, thereby creating a gain in connection with rolling. While certain Index Commodities have historically exhibited consistent periods of backwardation, backwardation will likely not exist in these markets at all times. The absence of backwardation in certain Index Commodities will cause the closing levels of the Index to be lower than the closing levels of the Index if backwardation existed. Because the performance of the Fund seeks to reflect the changes in the closing levels of the Index, the absence of backwardation in certain Index Commodities may ultimately decrease the net asset value of the Shares, and in turn, the market price of your Shares.

Conversely, certain Index Commodities historically exhibit “contango” markets rather than backwardation. Contango markets are those in which the prices of contracts are higher in the distant delivery months than in the nearer delivery months due to the costs of long-term storage of a physical commodity prior to delivery or other factors. Although certain Index Commodities have historically exhibited consistent periods of contango, contango will likely not exist in these markets at all times. The existence of contango in certain Index Commodities will cause the closing levels of the Index to be lower than the closing levels of the Index if contango was absent. Because the performance of the Fund seeks to reflect the changes in the closing levels of the Index, the existence of contango in certain Index Commodities may ultimately decrease the net asset value of the Shares, and in turn, the market price of your Shares.

 

  (31)

The Value Of The Shares Will Be Adversely Affected If The Fund Is Required To Indemnify The Trustee Or The Managing Owner.

Under the Third Amended and Restated Declaration of Trust, which we refer to as the Declaration of Trust, the Trustee has the right to be indemnified for any liability or expense it incurs

 

 

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without its gross negligence or willful misconduct and the Managing Owner has the right to be indemnified for any liability or expense it incurs without its fraud, gross negligence, bad faith, willful misconduct or without a material breach of the Declaration of Trust by the Managing Owner. That means the Managing Owner may require the assets of the Fund to be sold in order to cover losses or liability suffered by it or by the Trustee. Any sale of that kind would reduce the Net Asset Value of the Fund and the market price of the Shares.

 

  (32)

The Net Asset Value Calculation Of The Fund, And In Turn, The Net Asset Value Of Your Shares, May Be Overstated Or Understated Due To The Valuation Method Employed When A Settlement Price Is Not Available On The Date Of Net Asset Value Calculation.

Calculating the Net Asset Value of the Fund includes, in part, any unrealized profits or losses on open Index Commodity Interests. Under normal circumstances, the Net Asset Value of the Fund reflects the settlement price of open commodity futures contracts on the date when the Net Asset Value is being calculated. However, if a commodity futures contract traded on an exchange (both U.S. and non-U.S. exchanges) could not be traded 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 traded 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 Fund on such day will not accurately reflect the realizable market value of such commodity futures contract. For example, daily limits are generally triggered in the event of a significant change in market price of a commodity futures contract. Therefore, as a result of the daily limit, the current settlement price is unavailable. Because the settlement price on the most recent day on which the position could have been traded 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 Fund could be under or overstated, perhaps to a significant degree.

The Fund’s commodity futures contracts may be subject to periods of illiquidity because of market conditions, regulatory considerations and other

reasons. For example, commodity exchanges limit fluctuations in certain commodity futures contract prices during a single day by regulations referred to as “daily limits.”

 

  (33)

The Intra-day Indicative Value Of The Shares And The Intra-day Indicative Value Of The Index May Be Overstated Or Understated Due To The Valuation Method Employed.

The intra-day indicative value of the Shares is based on the prior day’s final Net Asset Value per Share, adjusted every 15 seconds during each NYSE Arca Core Trading Session to reflect the continuous price changes of the Fund’s Designated Contracts and other holdings to provide a continuously updated estimated intra-day indicative value per Share. Because this valuation method only provides an approximation of the intra-day indicative value of the Shares, the estimated intra-day indicative value of the Shares may be either higher or lower than the market price of the Shares on NYSE Arca. The calculation of the Fund’s intra-day indicative value does not reflect the intra-day changes that occur with respect to the futures contracts owned by the Fund.

The intra-day indicative value of the Index is based on the prior day’s closing level, adjusted every 15 seconds throughout the day to reflect the continuous changes in the closing levels of the Index to provide a continuously updated estimated closing level of the Index. The Index Sponsor will calculate the intra-day indicative value of the Index based on the last trading price of certain futures contracts and these trading prices may not be the most updated values. Because this valuation method only provides an approximation of the intra-day indicative value of the Index, the estimated intra-day indicative value of the Index as calculated by the Index Sponsor may be either higher or lower than if the intra-day indicative value of the Index were calculated using a valuation methodology that closer approximated the current value of the relevant futures contracts.

If either of these occur, certain investors may inadvertently decide to either buy or sell Shares on NYSE Arca at a time which would not have been optimal. Therefore, the timing of your transaction may have prevented you from maximizing your potential profit or minimizing your potential loss.

 

 

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  (34)

Changes In The Value Of The Index Commodities May Offset Each Other.

The performance of the Shares is linked to the aggregate changes in the closing levels of the Index Commodities. The commodities underlying the futures contracts included in the Index Commodities will be from one of the following Categories: energy, agriculture, industrial metals, precious metals and livestock. Price movements between the Index Commodities representing different commodity Categories may not correlate with each other. At a time when the value of an Index Commodity representing a particular commodity class increases, the value of other Index Commodities representing different commodity Categories may not increase as much or may decline. Therefore, in calculating the closing level of the Index, increases in the value of some of the Index Commodities may be moderated by lesser increases, or more than offset by declines in the closing levels of other Index Commodities.

 

  (35)

Shareholders Have No Rights Against The Index Sponsor For Decisions That May Negatively Affect The Existence Of The Index Or The Index Level.

You have no rights against the Index Sponsor or its successors.

The Shares are not sponsored, endorsed, sold or promoted by the Index Sponsor. The Index Sponsor makes no representation or warranty, express or implied, to the Shareholders or any member of the public regarding the advisability of investing in securities generally or in the Shares particularly or the ability of the Index, including, without limitation, all sub-indices, to track the appropriate market returns. The Index Sponsor’s only relationship to the Managing Owner and the Fund is the licensing of certain trademarks, trade names of the Index Sponsor, the S&P GSCI™ and other intellectual property. The S&P GSCI ™ and the Index are determined and composed by the Index Sponsor and calculated by the Index Sponsor or its agents without regard to the Managing Owner and the Fund. The Index Sponsor has no obligation to take the needs of the Managing Owner, the Fund or the Shareholders into consideration in determining, composing or calculating the S&P GSCI™, the S&P GSCI-ER or the Index. The Index Sponsor is not responsible for and has not participated in the determination of the prices and the number of Shares or the timing of the issuance of sale of Shares or in the determination or calculation of the net asset value of a Basket. The

Index Sponsor has no obligation or liability in connection with the administration, marketing or trading of the Shares.

The Index Sponsor does not guarantee the accuracy or the completeness of the S&P GSCI™, the S&P GSCI-ER or the Index or any data included therein, and the Index Sponsor disclaims any and all liability for any errors, omissions, or interruptions therein. The Index Sponsor makes no warranty, express or implied, as to the results to be obtained by the Fund, the Shareholders or any other person or entity from use of the Index or any data included therein. The Index Sponsor makes no express or implied warranties, and expressly disclaims all warranties of merchantability or fitness for a particular purpose or use with respect to the S&P GSCI™, the S&P GSCI-ER or the Index or any data included therein. Without limiting any of the foregoing, the Index Sponsor expressly disclaims any and all liability for any special, punitive, indirect, or consequential damages (including lost profits), even if notified of the possibility of such damages.

 

  (36)

Shareholders Have No Rights Against The Publishers Or Sponsors Of Designated Contracts Underlying The Index.

Although the market price of the Shares will be influenced by the values of the Index, investors will have no rights against any of the publishers or sponsors of the Designated Contracts underlying the Index. The publishers or sponsors of the Designated Contracts underlying the Index are not involved in the offering of the Shares in any way and have no obligation relating to this offering or to the Shareholders.

 

  (37)

The Index Sponsor And Its Affiliates May Publish Research That Conflicts With Each Other And Which May Negatively Impact The Value Of The Fund And Your Shares.

The Index Sponsor and its affiliates may publish research from time-to-time on commodity markets and other matters that may influence the market price of the Shares, or express opinions or provide recommendations that are inconsistent with purchasing or holding the Shares. The Index Sponsor and its affiliates may have published or may publish in the future research or other opinions that call into question the investment view implicit in an

 

 

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investment in the Shares. Any research, opinions or recommendations expressed by these entities may not be consistent with each other and may be modified from time-to-time without notice. Shareholders should make their own independent investigation of the merits of investing in the Shares.

 

  (38)

Changes In The Composition And Valuation Of The Index May Adversely Affect Your Shares.

The composition of the Index may change over time as additional commodities satisfy the eligibility criteria or commodities currently included in the Index fail to satisfy those criteria. The weighting factors applied to each commodity included in the Index change annually, based on changes in commodity production statistics. In addition, the Index Sponsor may modify the method for determining the composition and weighting of the Index and for calculating its value in order to ensure that the Index represents a measure of the returns over time of the markets for the underlying commodities. Such changes could adversely affect the value of your Shares.

 

  (39)

The Index May In The Future Include Contracts That Are Not Traded On Regulated Futures Exchanges And That Offer Different Or Diminished Protections To Investors.

The Index is comprised exclusively of futures contracts traded on regulated futures exchanges. Such exchanges in the United States are referred to as “designated contract markets.” However, the Index may in the future include contracts (such as swaps and forward contracts) traded in the over-the-counter market or on trading facilities that are subject to lesser degrees of regulation or, in some cases, no substantive regulation. As a result, trading in such contracts, and the manner in which prices and volumes are reported by the relevant trading facilities, may not be subject to the same provisions of, and the protections afforded by, the CEAct or other applicable statutes and related regulations that govern trading on regulated futures exchanges. In addition, a number of electronic trading facilities have only recently initiated trading and do not have significant trading histories. As a result, the trading of contracts on such facilities and the possible inclusion of such contracts in the Index may be subject to risks not presented by most exchange-

traded futures contracts, including risks related to the liquidity and price histories of the relevant contracts.

 

  (40)

Because The Index Commodities May Not Be Equally Weighted, The Index Commodities With Greater Weight Will Have A Larger Impact On The Aggregate Results Of The Index, And May Increase The Potential Losses To Your Shares.

The Index Commodities may have different weights at various times. One consequence of such an unequal weighting of the Index Commodities is that the same percentage change in two of the Index Commodities may have different effects on the Index level due to the unequal weightings. Therefore, as the weighting of an Index Commodity increases, a decrease in the value of such an Index Commodity would further decrease the level of the Index, and in turn, the market price of your Shares.

 

  (41)

Because The Index Is Concentrated In The Energy Sector, Any Adverse Developments In The Energy Sector May Also Adversely Affect The Value Of Your Shares.

A significant portion of the Index is comprised of futures contracts with respect to crude oil, heating oil, RBOB gasoline, brent crude oil, gasoil and natural gas, which we refer to as the Energy Category. As of 2011, approximately 70% of the Index is comprised of the Energy Category.

Through its investment in futures contracts underlying each component of the Energy Category, the Fund is subject to both the general economic risks associated with the Energy Category and the production risks and hazards related to the Energy Category.

The general economic risks and the drilling and production risks and hazards that are inherent in the Energy Category may cause the price of the Energy Category to fluctuate widely, and as a result of this volatility, may adversely affect the value of your Shares.

 

 

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The general economic risks and the drilling and production risks and hazards inherent in the Energy Category include, but are not limited to, the following:

        changes in interest rates;

         governmental, agricultural, trade, fiscal, monetary and exchange control programs and policies;

        changes in balances of payments and trade;

         currency risk, including devaluations and revaluations;

        U.S. and international rates of inflation;

        weather and climate conditions;

         U.S. and international political and economic events;

         changes in philosophies and emotions of market participants;

        no commercially productive reservoirs will be found;

         drilling and production activities may be shortened, delayed or canceled;

        the ability of a producer to develop, produce and market reserves may be limited by title problems, political conflicts, including war, weather conditions, compliance with governmental requirements, refinery capacity, and mechanical difficulties or shortages or delays in the delivery of drilling rigs and other equipment;

         decisions of the cartel of oil producing countries (e.g., OPEC, the Organization of the Petroleum Exporting Countries), to produce more or less oil;

         increases in production due to price rises may make it more

economical to extract from additional sources and may later temper further price increases; and

         economic activity and supply and demand conditions of users, as certain economies expand, energy consumption and prices increase (e.g., China, India), and as economies contract (in a recession or depression), energy demand and prices fall.

The energy industry experiences numerous operating risks. These operating risks include the risk of fire, explosions, blow-outs, pipe failure, abnormally pressured formations and environmental hazards. Environmental hazards include oil spills, natural gas leaks, ruptures and discharges of toxic gases.

Energy operations also are subject to various U.S. federal, state and local regulations that materially affect operations. Matters regulated include discharge permits for drilling operations, drilling and abandonment bonds, reports concerning operations, the spacing of wells and pooling of properties and taxation. At various times, regulatory agencies have imposed price controls and limitations on production. In order to conserve supplies of certain energy resources, these agencies have restricted the rates of flow below actual production capacity. Federal, state, and local laws regulate production, handling, storage, transportation and disposal of certain energy resources, including crude oil and natural gas, by-products from crude oil and natural gas and other substances and materials produced or used in connection with crude oil and natural gas operations.

Because the value of the Energy Category is subject to numerous general economic risks and production related risks and hazards, the price of the futures contracts underlying the Energy Category may fluctuate widely, and as a result of this volatility, may affect adversely the value of your Shares.

 

  (42)

Correlation Of Changes In The Closing Levels Among The Index

 

 

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Commodities May Reduce The Performance Of The Shares.

Changes in the closing levels amongst the Index Commodities may become highly correlated from time-to-time, including, but not limited to, a period during which there is a substantial decline in a particular Category represented by the Index Commodities. Furthermore, such Index Commodities may have a higher weighting in the Index relative to any of the other Categories. High correlation during periods of negative returns among heavily weighted Index Commodities representing any one Category may adversely impact the closing levels of the Index, and in turn, the market price of your Shares.

 

  (43)

Certain Of The Designated Contracts, Substitute Contracts, Cleared Swaps And The Related Alternative Financial Instruments Will Be Subject To Pronounced Risks Of Pricing Volatility.

Certain of the Designated Contracts (and Substitute Contracts, if any), most notably agricultural products, tend to have only a few contract months each year that trade with sufficient liquidity. Thus, the futures contracts corresponding to these commodities tend to expire infrequently, roll forward less frequently than monthly, and may have further pronounced pricing volatility during extended periods of low liquidity. In turn, the related Cleared Swaps and Alternative Financial Instruments (if any) may also reflect greater volatility accordingly.

Certain of the commodities, notably those in the energy and base metals sectors, have liquid futures contracts that expire every month. Therefore, these contracts may be rolled forward every month. In respect of the Designated Contracts (and Substitute Contracts, if any) that represent energy, it should be noted that, due to the significant level of its continuous and worldwide consumption, limited reserves, and oil cartel controls, energy commodities are subject to rapid price increases in the event of perceived or actual shortages. In turn, the related Cleared Swaps and Alternative Financial Instruments (if any) may also reflect greater volatility accordingly.

As a result of the additional volatility of the Index Commodities, the closing levels of the Index, and in turn the market price of your Shares, may also

become subject to a corresponding increase in volatility.

 

  (44)

Because The Index Is Comprised Of Long-Only Designated Contracts, The Levels Of The Index Will Fall If The Market Price Of The Index Commodities Falls.

A long position is a position that will increase in market price if the price of the Index Commodities, in the aggregate, are rising during the period when the position is open. A short position is a position that will increase in market price if the price of the Index Commodities, in the aggregate, are falling during the period when the position is open. Because the Index is comprised of long-only Designated Contracts, the levels of the Index will fall if the market price of the Index Commodities falls. Furthermore, because the Index is not comprised of any short futures contracts, the Index will not benefit from a decrease in the price of the Index Commodities.

Fund and Regulatory Related Risks

 

  (45)

Shareholders Will Not Have The Protections Associated With Ownership Of Shares In An Investment Company Registered Under The Investment Company Act Of 1940. Such Protections Are Intended To Decrease Certain Conflicts And Also Impose A Number Of Investment Restrictions And Diversification Requirements.

The Fund is not registered as an investment company under the Investment Company Act of 1940, and it is not required to register under such Act. Consequently, Shareholders will not have the regulatory protections provided to investors in registered and regulated investment companies, such as, for example, the requirement that investment companies must have a board of directors comprised of disinterested directors which oversees the registered fund’s activities with respect to entering into advisory contracts and other agreements and the requirement that investment companies must establish policies and procedures that address various conflicts of interest. Furthermore, the Investment Company Act of 1940 imposes a number of investment restrictions and diversification requirements, prohibitions against certain

 

 

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transactions with affiliates, and regulates a number of additional areas. Investors in Shares will not have the benefit of any of these protections.

 

  (46)

Trading On Commodity Exchanges Outside The U.S., Such As The London Metal Exchange And ICE Europe, Is Not Subject To U.S. Regulation. Shareholders Could Incur Substantial Losses From Trading On Commodity Exchanges Which Such Shareholders Would Not Have Otherwise Been Subject Had The Fund’s Trading Been Limited To U.S. Markets.

Some of the Fund’s trading is expected to be conducted on commodity exchanges outside the U.S. Specifically, the Fund’s trading of aluminum, copper, lead, nickel and zinc will be conducted on the London Metal Exchange, which we refer to as the LME. Additionally, the Fund’s trading of brent and gas oil will be conducted on ICE Futures Europe, which we refer to as ICE Europe. Trading on these exchanges is regulated by non-U.S. governmental authorities and may involve certain risks not applicable to trading on U.S. exchanges, including different or diminished investor protections. In trading contracts denominated in currencies other than U.S. dollars, Shares will be subject to the risk of adverse exchange-rate movements between the dollar and the functional currencies of such contracts. Shareholders could incur substantial losses from trading on foreign exchanges which such Shareholders would not have otherwise been subject had the Fund’s trading been limited to U.S. markets.

Based on the current Index weights (i.e., percentage dollar weights as of October 31, 2011) of the Index, the Managing Owner estimates that approximately 7.03% and 23.95% of the Fund’s trading is expected to be conducted on the LME and ICE Europe, respectively, which are commodity exchanges outside the U.S.

The above range is only an approximation. The actual percentage may be either lesser or greater than above-listed.

 

  (47)

Alternative Financial Instruments (If Any), Such As Forward Agreements And Over-The-Counter Swaps Are Not Regulated And Are Subject To The

 

Risk Of Counterparty Non-Performance Resulting In The Fund Not Realizing A Trading Gain.

The Managing Owner may determine that the Fund may enter into one or more Alternative Financial Instruments (if any) through a dealer market which is dominated by major money center banks and is substantially unregulated. Thus, you may not receive all of the same protection as provided to futures traders in U.S. markets by the CFTC, regulatory scheme or the statutory scheme of the CEAct. Although the Managing Owner does not expect the Fund to have a significant exposure to Alternative Financial Instruments, the Declaration of Trust does not limit the amount of funds that the Fund may invest in Alternative Financial Instruments. Therefore, as the amount of funds invested in Alternative Financial Instruments increases, the risks highlighted in this risk factor increase correspondingly.

Markets in which the Fund may effect a transaction in one or more Alternative Financial Instruments are in the “over-the-counter” unregulated private markets. The participants and dealers in such markets are typically not subject to the same level of credit evaluation and regulatory oversight as are members of the exchange-based markets. This exposes the Fund to the risk that a counterparty will not settle a transaction in accordance with its terms and conditions because of a credit or liquidity problem or a dispute over the terms of the contract (whether or not bona fide), thus causing the Fund to suffer a loss. Such counterparty risk is accentuated for contracts with longer maturities where events may intervene to prevent settlement, or in instances where the Fund has concentrated its transactions with a single or small group of counterparties. Recent events surrounding the bankruptcies or similar proceedings of various counterparties and dealers have demonstrated certain risks of the Fund engaging in these “over-the-counter” transactions in unregulated private markets. Therefore, the Fund faces the risk of non-performance by the counterparties to the Alternative Financial Instruments and such non-performance may cause some or all of the Fund’s gain, if any, on its Alternative Financial Instruments to be unrealized.

The Fund may experience significant delays in obtaining any recovery in a bankruptcy or other reorganization proceeding from a counterparty and the Fund may obtain only limited recovery or may obtain no recovery in such circumstances.

 

 

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Because certain Alternative Financial Instruments:

 

   

are not traded on an exchange,

 

   

do not have uniform terms and conditions,

 

   

are entered into based upon the creditworthiness of the parties and the availability of credit support, such as collateral, and

 

   

in general, are not transferable without the consent of the counterparty,

Alternative Financial Instruments are less marketable than Designated Contracts (and Substitute Contracts, if any).

 

  (48)

The Effect Of Market Disruptions, Governmental Intervention And The Reform Act Are Unpredictable And May Have An Adverse Effect On The Value Of Your Shares.

The global financial markets have in the past few years gone through pervasive and fundamental disruptions that have led to extensive and unprecedented governmental intervention. Such intervention has in certain cases been implemented on an “emergency” basis, suddenly and substantially eliminating market participants’ ability to continue to implement certain strategies or manage the risk of their outstanding positions. In addition — as one would expect given the complexities of the financial markets and the limited time frame within which governments have felt compelled to take action — these interventions have typically been unclear in scope and application, resulting in confusion and uncertainty which in itself has been materially detrimental to the efficient functioning of the markets as well as previously successful investment strategies.

The Fund may incur major losses in the event of disrupted markets and other extraordinary events in which historical pricing relationships become materially distorted. The risk of loss from pricing distortions is compounded by the fact that in disrupted markets many positions become illiquid, making it difficult or impossible to close out positions against which the markets are moving. The

financing available to market participants from their banks, dealers and other counterparties is typically reduced in disrupted markets. Such a reduction may result in substantial losses to the affected market participants. Market disruptions may from time to time cause dramatic losses, and such events can result in otherwise historically low-risk strategies performing with unprecedented volatility and risk.

In response to the recent financial crises, the Obama Administration and the U.S. Congress proposed sweeping reform of the U.S. financial regulatory system. After over a year of debate, the Reform Act became law in July 2010. The Reform Act seeks to regulate markets, market participants and financial instruments that previously have been unregulated and substantially alters the regulation of many other markets, market participants and financial instruments. Because many provisions of the Reform Act require rulemaking by the applicable regulators before becoming fully effective and the Reform Act mandates multiple agency reports and studies (which could result in additional legislative or regulatory action), it is difficult to predict the impact of the Reform Act on the Fund, the Managing Owner, and the markets in which the Fund trades and invests. The Reform Act could result in certain investment strategies in which the Fund engages or may have otherwise engaged becoming non-viable or non-economic to implement. The Reform Act and regulations adopted pursuant to the Reform Act could have a material adverse impact on the profit potential of the Fund. See also “The Risks You Face – (49) The Effects Of New Regulation Of The Over-The-Counter Derivatives Markets Is Unknown And May Have A Detrimental Effect On The Value Of Your Shares” below.

 

  (49)

The Effects Of New Regulation Of The Over-The-Counter Derivatives Markets Is Unknown And May Have A Detrimental Effect On The Value Of Your Shares.

The Reform Act was enacted in July 2010. The Reform Act includes provisions that comprehensively regulate the over-the-counter, or OTC, derivatives markets for the first time.

The Reform Act mandates that a substantial portion of OTC derivatives must be executed in regulated markets and submitted for clearing to regulated clearinghouses. OTC trades submitted for clearing will be subject to minimum initial and variation margin requirements set by the relevant

 

 

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clearinghouse, as well as possible SEC- or CFTC-mandated margin requirements. The regulators also have broad discretion to impose margin requirements on non-cleared OTC derivatives and new requirements will apply to the holding of customer collateral by OTC derivatives dealers. These requirements may increase the amount of collateral the Fund is required to provide and the costs associated with providing it with respect to its investments in Alternative Financial Instruments (if any). Although the Reform Act includes limited exemptions from the clearing and margin requirements for so-called “end-users,” the Fund will not qualify to rely on such exemptions. In addition, the OTC derivative dealers with which the Fund executes the majority of its Alternative Financial Instruments (if any) will not be able to rely on the end-user exemptions under the Reform Act and therefore such Alternative Financial Instruments may be subject to mandatory clearing and the dealers will be subject to margin requirements irrespective of whether the Fund is subject to such requirements. OTC derivative dealers also will be required to post margin to the clearinghouses through which they clear their customers’ trades instead of using such margin in their operations, as is currently permitted. This will increase the OTC derivative dealers’ costs, and these increased costs are expected to be passed through to other market participants in the form of higher upfront and mark-to-market margin, less favorable trade pricing, and the possible imposition of new or increased fees.

The SEC and/or CFTC, as applicable, may also require a substantial portion of derivative transactions that are currently executed on a bi-lateral basis in the OTC markets to be executed through a regulated securities, futures, or swap exchange or execution facility. Such requirements may make it more difficult and costly for investment funds, including the Fund, to enter into highly tailored or customized transactions. They may also render investment in Alternative Financial Instruments (if any) in which the Fund might otherwise engage impossible or so costly that they will no longer be economical to implement.

OTC derivative dealers and major OTC derivatives market participants will be required to register with the SEC and/or CFTC. The Fund or the Managing Owner may be required to register as major participants in the OTC derivatives markets. Dealers and major participants will be subject to minimum capital and margin requirements. These requirements may apply irrespective of whether the OTC derivatives in question are exchange-traded or

cleared. OTC derivatives dealers will also be subject to new business conduct standards, disclosure requirements, reporting and recordkeeping requirements, transparency requirements, position limits, limitations on conflicts of interest, and other regulatory burdens. These requirements may further increase the overall costs for OTC derivative dealers, which costs are also likely to be passed along to market participants. The overall impact of the Reform Act on the Fund is highly uncertain and it is unclear how the OTC derivatives markets will adapt to this new regulatory regime.

 

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Although The Shares Are Limited Liability Investments, Certain Circumstances Such As Bankruptcy Of The Fund Or Indemnification Of The Fund By The Shareholders Will Increase A Shareholder’s Liability.

The Shares are limited liability investments. Investors may not lose more than the amount that they invest plus any profits recognized on their investment. However, Shareholders could be required, as a matter of bankruptcy law, to return to the estate of the Fund any distribution they received at a time when the Fund was in fact insolvent or in violation of its Third Amended and Restated Declaration of Trust and Trust Agreement, which we refer to as the Declaration of Trust. In addition, although the Managing Owner is not aware of this provision ever having been invoked in the case of any public futures pool, Shareholders agree in the Declaration of Trust that they will indemnify the Fund for any harm suffered by it as a result of

 

   

Shareholders’ actions unrelated to the business of the Fund, or

 

   

taxes imposed on the Shares by any state, local or foreign taxing authority in which such shareholders reside.

Fund and Tax Related Risks

 

  (51)

Shareholders Will Be Subject To Taxation On Their Allocable Shares Of The Fund’s Taxable Income, Whether Or Not They Receive Cash Distributions.

Shareholders will be subject to U.S. federal income taxation and, in some cases, state, local, or

 

 

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foreign income taxation on their allocable shares of the Fund’s taxable income, whether or not they receive cash distributions from the Fund. Shareholders may not receive cash distributions equal to their shares of the Fund’s taxable income or even the tax liability that results from such income.

 

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Items Of Income, Gain, Loss And Deduction With Respect To Shares Could Be Reallocated If The IRS Does Not Accept The Assumptions Or Conventions Used By The Fund In Allocating Such Tax Items.

U.S. federal income tax rules applicable to partnerships are complex and often difficult to apply to publicly traded partnerships. The Fund will apply certain assumptions and conventions in an attempt to comply with applicable rules and to report items of income, gain, loss and deduction to Shareholders in a manner that reflects the Shareholders’ beneficial interests in such tax items, but these assumptions and conventions may not be considered to 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 Fund do not satisfy the technical requirements of the Code and/or Treasury Regulations and could require that items of income, gain, loss or deduction be adjusted or reallocated in a manner that adversely affects one or more Shareholders.

 

  (53)

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, And In Turn, May Adversely Affect The Value Of Your Shares.

Under current law, long-term capital gains are taxed to non-corporate investors at reduced U.S. federal income tax rates. This tax treatment may be adversely affected, changed or repealed by future changes in, or the expiration of, tax laws at any time.

PROSPECTIVE INVESTORS ARE STRONGLY URGED TO CONSULT THEIR OWN TAX ADVISERS AND COUNSEL WITH RESPECT TO THE POSSIBLE TAX CONSEQUENCES TO THEM OF AN INVESTMENT IN THE SHARES; SUCH TAX

CONSEQUENCES MAY DIFFER WITH RESPECT TO DIFFERENT INVESTORS.

 

 

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CAUTIONARY NOTE REGARDING

FORWARD-LOOKING STATEMENTS

This Prospectus includes forward-looking statements that reflect the Managing Owner’s current expectations about the future results, performance, prospects and opportunities of the Fund. The Managing Owner has tried to identify these forward-looking statements by using words such as “may,” “will,” “expect,” “anticipate,” “believe,” “intend,” “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 the Summary section, in the section “The Risks You Face” and elsewhere in this Prospectus, and unknown, that could cause the actual results, performance, prospects or opportunities of the Fund to differ materially from those expressed in, or implied by, these forward-looking statements.

You should not place undue reliance on any forward-looking statements. Except as expressly required by the federal securities laws, the Managing Owner undertakes no obligation to publicly update or revise any forward-looking statements or the risks, uncertainties or other factors described in this Prospectus, as a result of new information, future events or changed circumstances or for any other reason after the date of this Prospectus.

INVESTMENT OBJECTIVE

General

The Fund will seek to track changes, whether positive or negative, in the level of the S&P GSCI® Dynamic Roll Excess Return Index, which we refer to as the Index, over time. The Shares are designed for investors who want a convenient way to gain an exposure to a diversified selection of commodities and an index strategy that seeks to serve as a benchmark for commodity market returns and to reflect general levels of price movements and inflation in the world economy.

Considerations relating to an investment in the Shares include:

 

   

Roll Optimization.    The Index is an excess return commodity index comprised of commodity futures

   

contracts that are replaced periodically. The process of periodically replacing a futures contract prior to its expiration is known as “rolling” a contract or position. The Fund utilizes a more flexible monthly futures contract rolling strategy, to determine the new futures contract months, than the liquidity focused S&P GSCI® Index. This is designed to maximize yield from rolling long futures contracts in backwardated markets and minimize roll loss from rolling long futures positions in contangoed markets.

 

   

Ease and Flexibility of Investment.    The Shares will trade on NYSE Arca and provide investors with indirect exposure to commodity futures. The Shares may be bought and sold throughout the business day at real-time market prices on NYSE Arca like other exchange-listed securities. Investors will be able to purchase and sell Shares through traditional brokerage accounts.

 

   

Diversification.    The Shares may help to diversify a portfolio because historically (based on the Index’s hypothetical closing levels from January 1995 – January 2011) the Index has tended to exhibit low to negative correlation with equities, conventional bonds and alternative investments.

 

   

More Direct Commodity Access.    The Shares provide a more direct exposure to commodities than mutual funds that invest in commodity-linked notes or non-exchange traded commodity instruments, which also have implicit imbedded costs and credit risk, potentially adversely impacting the net asset value of the mutual fund.

 

   

Margin.    Shares will be eligible for margin accounts.

Investing in the Shares does not insulate Shareholders from certain risks, including price volatility.

 

 

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The Fund seeks to achieve its investment objective by investing in exchange-traded futures on the Index Commodities (as set forth in the Table 1 on page 52) comprising the Index, or the Designated Contracts, with a view to tracking the Index over time. More specifically, the Fund seeks to achieve its investment objective by investing in Index Commodity Interests (as defined below) such that daily changes in the Fund’s NAV per Share will be expected to track the changes in the level of the Index.

The Index aims to reflect the return of an investment in a world production-weighted portfolio comprising the principal physical commodities that are the subject of active, liquid futures markets.

The Index Portfolio, denominated in USD, is made up of long positions in the Designated Contracts on the 24 underlying index commodities, or Index Commodities, as listed in Table 1 on page 52 in the section “Description of the S&P GSCI® Dynamic Roll Excess Return Index — Composition of the Index,” diversified across the commodity universe.

The holding of long positions involves establishing commodity futures, which means that the investor’s portfolio will benefit if the prices of such commodities rise and will be negatively affected if the prices of such commodities decline.

The Index Portfolio is a synthetic portfolio or basket of Index Commodities (and in turn, a reflection of the change in market price of these Index Commodities) because there is no actual portfolio of assets to which any person is entitled or in which any person has any ownership interest.

The Index is an excess return commodity index comprised of Designated Contracts that are replaced periodically. The process of periodically replacing a futures contract prior to its expiration is known as “rolling” a contract or position. An index that includes an assumed return on a hypothetical portfolio of 3-month U.S. Treasury bills or any other risk free component is known as a “total return” index. An “excess return” index excludes returns on a hypothetical portfolio of 3-month U.S. Treasury bills or any other risk free component.

The Dynamic Roll Index Methodology is designed to maximize yield from rolling long futures contracts in backwardated markets and minimize roll loss from rolling long futures positions in contangoed markets. A “backwardated” market means a market

in which the prices of certain commodity futures contracts are higher for contracts with shorter-term expirations than for contracts with longer-term expirations. A “contangoed” market means a market in which the prices of certain commodity futures contracts are lower for contracts with shorter-term expirations than for contracts with longer-term expirations.

The BNP Affiliated Entities are affiliates of the Trust and the Fund.

Under the Declaration of Trust, the Managing Owner has the exclusive management and control of all aspects of the business of the Trust and the Fund. The Trustee will have no duty 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.

In certain limited circumstances as noted below, the Fund may also invest in:

 

   

swap agreements based on an Index Commodity that are cleared through the relevant exchanges or their affiliated provider of clearing services, or Cleared-Swaps; or in

 

   

futures contracts referencing particular commodities other than the Index Commodities, or Substitute Contracts (i.e., futures contracts traded on exchanges other than the exchanges indicated in Table 1 on page 52, including foreign exchanges); or in

 

   

Alternative Financial Instruments (as defined below) referencing the particular Index Commodity

in furtherance of the Fund’s investment objective if, in the commercially reasonable judgment of the Managing Owner, such instruments tend to exhibit trading prices or returns that generally correlate with the Index Commodities.

Alternative Financial Instruments will be forward agreements, exchange-traded cash settled options, swaps other than Cleared Swaps, and other over-the-counter transactions that will serve as proxies for one or more Index Commodities.

 

 

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Specifically, once position limits in a Designated Contract are reached or, an exchange imposes limitations on the Fund’s ability to maintain or increase its positions in a Designated Contract after reaching accountability levels or a price limit is in effect on a Designated Contract during the last 30 minutes of its regular trading session, the Fund intends to invest:

 

   

first, in Cleared Swaps to the extent permitted under the position limits applicable to Cleared Swaps and appropriate in light of the liquidity in the Cleared Swaps market;

 

   

second, using its commercially reasonable judgment, in Substitute Contracts or in Alternative Financial Instruments.

We refer to the Substitute Contracts and Alternative Financial Instruments collectively as the Other Commodity Interests. We refer to Other Commodity Interests, Designated Contracts and Cleared Swaps collectively as the Index Commodity Interests. Finally, we refer to the Fund’s aggregate holdings in Index Commodity Interests and Cash Instruments as its Fund Portfolio.

By utilizing certain or all of these investments, the Managing Owner will endeavor to cause the Fund’s performance to track the changes in closing levels of the Index.

Consistent with achieving the Fund’s investment objective of seeking to track the Index, the Managing Owner may, after reaching position limits in the Designated Contracts or, when an exchange has imposed limitations on the Fund’s ability to maintain or increase its positions in a Designated Contract after reaching accountability levels or a price limit is in effect on a Designated Contract during the last 30 minutes of its regular trading session, cause the Fund to first enter into or hold Cleared Swaps, then, if applicable, enter into or hold Other Commodity Interests. For example, and as described further below, certain Cleared Swaps have standardized terms similar to, and are priced by reference to, a corresponding Designated Contract. Additionally, Alternative Financial Instruments that do not have standardized terms and are not exchange-traded, or over-the-counter Alternative Financial Instruments, may generally be structured as the parties desire. Therefore, the Fund may first enter

into multiple Cleared Swaps, then, if applicable, enter into over-the-counter Alternative Financial Instruments intended to replicate the performance of each of the Designated Contracts, or a single over-the-counter Alternative Financial Instrument designed to replicate the changes in the closing levels of the Index as a whole. Assuming that there is no default by a counterparty to an over-the-counter Alternative Financial Instrument, the performance of the over-the-counter Alternative Financial Instrument is expected to correlate with the changes in the closing levels of the Index or the applicable Designated Contract. After reaching position limits in the Designated Contracts or when an exchange has imposed limitations on the Fund’s ability to maintain or increase its positions in a Designated Contract after reaching accountability levels or a price limit is in effect on a Designated Contract during the last 30 minutes of its regular trading session, and after entering into or holding Cleared Swaps, the Fund may also enter into or hold over-the-counter Alternative Financial Instruments to facilitate effective trading, consistent with the Fund’s “roll” methodology. In addition, after reaching position limits in the Designated Contracts or, when an exchange has imposed limitations on the Fund’s ability to maintain or increase its positions in a Designated Contract after reaching accountability levels or a price limit is in effect on a Designated Contract during the last 30 minutes of its regular trading session, and after entering into or holding Cleared Swaps, if applicable, the Fund may enter into or hold over-the-counter Alternative Financial Instruments that would be expected to alleviate overall deviation between the Fund’s performance and the changes in the closing levels of the Index that may result from certain market and trading inefficiencies or other reasons.

In order to enter into a cleared swap, the Fund would first negotiate with a swap dealer. After completing the negotiations, the swap would then be submitted to the applicable regulated clearinghouse for clearing and settlement services. Cleared swaps are swaps without the traditional counterparty default risks that are present in bilateral transactions. Because a centralized clearinghouse is inserted as the intermediary between the two counterparties of a swap, the customers of each counterparty are better protected against the effects of a default by the other counterparty. The clearinghouse clears the swap between the counterparties. If the counterparty becomes insolvent, clearinghouse procedures require that customers’ cleared swaps be transferred to a solvent member of the clearinghouse. In the event a clearinghouse becomes insolvent, it will be subject to

 

 

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special bankruptcy procedures and the Federal Deposit Insurance Corporation may oversee the orderly liquidation of a clearinghouse where failure would have serious adverse consequences to the financial stability to the United States.

Cleared swaps do not require the delivery of the underlying commodity upon settlement. Instead, the positions are netted for margining and mark-to-market purposes and are cash settled. Similar to futures contracts, cleared swaps are also subject to initial and maintenance margin and position accountability levels as determined by the applicable futures exchange.

Cleared swaps are marked to market on a daily basis and the value of the cleared swaps is based upon the applicable underlying commodity.

The Fund will invest in Index Commodity Interests to the fullest extent possible without being leveraged or unable to satisfy its expected current or potential margin or collateral obligations with respect to its investments in Index Commodity Interests. After fulfilling such margin and collateral requirements, the Fund will invest the remainder of its proceeds from the sale of Baskets in Cash Instruments. Therefore, the focus of the Managing Owner in managing the Fund is investing in Index Commodity Interests and Cash Instruments. The Fund will earn interest income from its Cash Instruments and on the cash it holds in interest bearing accounts through the Fund’s Custodian.

The Managing Owner does not intend to operate the Fund in a fashion such that its NAV per Share will equal, in dollar terms, to the aggregate of the spot prices of the Index Commodities or the price of any particular Designated Contract.

The Fund does not intend to limit the size of the offering and will attempt to expose substantially all of its proceeds to the Index Commodities by utilizing Index Commodity Interests. After reaching position limits in the Designated Contracts or when an exchange has imposed limitations on the Fund’s ability to maintain or increase its positions in a Designated Contract after reaching accountability levels or a price limit is in effect on a Designated Contract during the last 30 minutes of its regular trading session, and after, entering into or holding Cleared Swaps, the Fund may also, if permitted under applicable regulatory requirements, purchase Alternative Financial Instruments and/or Substitute Contracts listed on

other domestic or foreign exchanges. However, the Substitute Contracts available on such foreign exchanges may have different underlying sizes, deliveries, and prices. In addition, the Substitute Contracts available on these exchanges may be subject to their own position limits and accountability levels. Notwithstanding the potential availability of these Substitute Contracts in certain circumstances, position limits may force the Fund to limit the number of Creation Baskets that it creates.

PRICING INFORMATION AVAILABLE ON

NYSE ARCA AND OTHER SOURCES

The following table lists NYSE Arca symbols and their meanings with respect to the Shares and the Index:

 

Ticker    Description

BNPC

   Market price per Share on NYSE Arca

BNPCIV

   Indicative intra-day value per Share

BNPCNV

   End of day Net Asset Value per Share

SPDYCIP

  

Intra-day and Index closing level as of close of business from the prior day

The intra-day data in the above table is published once every 15 seconds during each NYSE Arca Core Trading Session.

The current market price per Share (symbol: “BNPC”) (quoted in U.S. dollars) will be published continuously as trades occur during each NYSE Arca Core Trading Session on the consolidated tape by market data vendors and on the Managing Owner’s website (on a delayed basis) at http://www.stream.bnpparibas.com, or any successor thereto.

The intra-day indicative value per Share (symbol: “BNPCIV”) (quoted in U.S. dollars) will be published by NYSE Arca once every 15 seconds during each NYSE Arca Core Trading Session by market data vendors and on the Managing Owner’s website (on a delayed basis) at http://www.stream.bnpparibas.com, or any successor thereto.

The most recent end-of-day Net Asset Value per Share (symbol: “BNPCNV”) will be published by the Managing Owner as of the close of the NYSE Arca Core Trading Session or the last to close of the exchanges on which the Fund’s Designated Contracts or Substitute Contracts are traded, whichever is later,

 

 

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on the consolidated tape by market data vendors on the Managing Owner’s website at http://www.stream.bnpparibas.com, or any successor thereto and will be published by market data vendors on the consolidated tape.

The intra-day level and the most recent end-of-day closing level of the Index (symbol: “SPDYCIP”) will be published on Reuters page SPDYCIP and on Bloomberg page SPDYCIP<index> once every 15 seconds during each NYSE Arca Core Trading Session and as of the close of business on each Index Business Day, respectively, on Standard & Poor’s (which serves as the Index Sponsor) website at http://www.standardandpoors.com, or any successor thereto.

The number of outstanding Shares (symbol: “BNPCSO”) will be published at the close of each NYSE Arca Core Trading Session on the consolidated tape by market data vendors and on the Managing Owner’s website at http://www.stream.bnpparibas.com, or any successor thereto.

Any adjustments made to the Index will be published on Standard & Poor’s (which serves as the Index Sponsor) website at http://www.standardandpoors.com, or any successor thereto.

The intra-day indicative value per Share of the Fund is based on the prior day’s final Net Asset Value, adjusted every 15 seconds throughout the day to reflect the continuous price changes of the Fund’s Designated Contracts and other holdings. The final Net Asset Value of the Fund and the final Net Asset Value per Share is calculated as of the close of the NYSE Arca Core Trading Session, or the last to close of the exchanges on which the Fund’s Designated Contracts or Substitute Contracts are traded, whichever is later, and posted in the same manner. Although a time gap may exist between the close of the NYSE Arca Core Trading Session and the close of the exchanges on which the Fund’s Designated Contracts or Substitute Contracts are traded, there is no effect on the Net Asset Value calculations as a result.

The Fund will provide website disclosure (at http://www.stream.bnpparibas.com) of the Fund Portfolio daily and will include, as applicable, the names, quantity, price and market value of Index Commodity Interests (i.e., Designated Contracts, Cleared Swaps, Substitute Contracts and Alternative Financial Instruments, if any), the characteristics of

such instruments and the amount of Cash Instruments. This website disclosure of the Fund Portfolio will occur at the same time as the disclosure by the Managing Owner of the Fund Portfolio to Authorized Participants so that all market participants are provided with the Fund Portfolio information at the same time. Therefore, the same Fund Portfolio information will be provided on the Fund’s public website (at http://www.stream.bnpparibas.com) as well as in electronic files provided to Authorized Participants. Accordingly, each investor will have access to the current Fund Portfolio through the Fund’s website. The prices of the Designated Contracts, Cleared Swaps, Substitute Contracts and exchange-traded cash settled options are available from the exchanges and market data vendors. The prices of forward agreements, swaps other than Cleared Swaps and other over-the-counter transactions are not available from the exchanges and market data vendors.

The Trust and the Fund are not issued, sponsored, endorsed, sold or promoted by NYSE Arca, and NYSE Arca makes no representation regarding the advisability of investing in such product.

NYSE ARCA MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND HEREBY EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO THE S&P GSCI® DYNAMIC ROLL EXCESS RETURN INDEX OR ANY DATA INCLUDED THEREIN. IN NO EVENT SHALL NYSE ARCA HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.

The Fund seeks to achieve its investment objective by investing in Index Commodity Interests such that the daily changes in the Fund’s net asset value per Share will be expected to track the Index over time. The market price of the Shares is expected to fluctuate in relation to changes in the value of the Fund 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 close. See the section “The Risks You Face — (3) Net Asset Value Per Share May Not Always Correspond To The Market Price Per Share And, As A Result, Baskets May Be Created Or Redeemed At A Net Asset Value Per Share That Differs From The Market Price Per Share.”

 

 

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There can be no assurance that the Fund will achieve its investment objective or avoid substantial losses. THIS POOL HAS NOT COMMENCED TRADING AND DOES NOT HAVE ANY PERFORMANCE HISTORY. The market price of the Shares on the secondary market is expected to fluctuate generally in relation to changes in the Net Asset Value of the Fund.

Role of Managing Owner

NEITHER THIS POOL OPERATOR NOR ANY OF ITS TRADING PRINCIPALS HAS PREVIOUSLY OPERATED ANY OTHER POOLS OR TRADED ANY OTHER ACCOUNTS.

The Managing Owner has been registered as a commodity pool operator with the CFTC and has been a member of the NFA since July 27, 2010.

The Managing Owner will serve as the commodity pool operator of the Trust and the Fund and will also manage the Fund Portfolio.

Specifically, the Managing Owner:

 

   

selects the Trustee, the commodity brokers, administrator, custodian, transfer agent, marketing agent, auditor and any other service providers of the Fund;

 

   

negotiates various agreements and fees;

 

   

performs such other services as the Managing Owner believes that the Fund may from time-to-time require; and

 

   

monitors the performance results of the Fund Portfolio and reallocates assets within the Fund Portfolio with a view to causing the performance of the Fund Portfolio to track the changes in the levels of the Index over time.

The principal office of the Managing Owner is located at 787 Seventh Avenue, New York, New York 10019. The telephone number of the Managing Owner is (212) 841-2000.

DESCRIPTION OF THE S&P GSCI® DYNAMIC

ROLL EXCESS RETURN INDEX

None of the BNP Affiliated Entities approves, endorses or recommends an investment in the Fund or an investment in pools operated by the Managing Owner.

“S&P®” and “Standard & Poor’s” are registered trademarks of Standard & Poor’s Financial Services LLC. “S&P GSCI®” is a registered service mark and trademark of S&P.

The Managing Owner has entered into an agreement with S&P, the Index Sponsor, that provides us and our affiliates with a non-transferable, limited, nonexclusive (except as provided below) and worldwide license, for a fee, with the right to use the S&P GSCI® Dynamic Roll Excess Return Index in connection with certain securities.

This section contains a description of the Index, and where applicable, the S&P GSCI Commodity Index, or the S&P GSCI. All information regarding the Index and the S&P GSCI contained in this Prospectus, including its composition, method of calculation, changes in its components and historical return, has been derived from publicly available information, including information published by S&P (which is the Index Sponsor) but has not been independently verified. You, as a prospective investor in the Shares, may wish to conduct your own investigation into the Index, the S&P GSCI and the Index Sponsor or consider other information in order to inform your decision with respect to an investment in the Fund.

THIS FUND IS NOT SPONSORED, ENDORSED, SOLD OR PROMOTED BY STANDARD & POOR’S AND ITS AFFILIATES (collectively, “S&P”). S&P MAKES NO REPRESENTATION, CONDITION OR WARRANTY, EXPRESS OR IMPLIED, TO THE OWNERS OF THE FUND OR ANY MEMBER OF THE PUBLIC REGARDING THE ADVISABILITY OF INVESTING IN SECURITIES GENERALLY OR IN THE FUND PARTICULARLY OR THE ABILITY OF THE S&P GSCI® DYNAMIC ROLL EXCESS RETURN INDEX TO TRACK MARKET PERFORMANCE AND/OR TO ACHIEVE ITS STATED OBJECTIVE AND/OR TO FORM THE BASIS OF A SUCCESSFUL INVESTMENT STRATEGY, AS APPLICABLE. S&P’S ONLY RELATIONSHIP TO BNP PARIBAS QUANTITATIVE STRATEGIES, LLC IS THE LICENSING OF CERTAIN TRADEMARKS AND TRADE NAMES AND OF THE S&P GSCI®

 

 

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DYNAMIC ROLL EXCESS RETURN INDEX WHICH IS DETERMINED, COMPOSED AND CALCULATED BY S&P WITHOUT REGARD TO BNP PARIBAS QUANTITATIVE STRATEGIES, LLC OR THE FUND. S&P HAS NO OBLIGATION TO TAKE THE NEEDS OF BNP PARIBAS QUANTITATIVE STRATEGIES, LLC INTO CONSIDERATION IN DETERMINING, COMPOSING OR CALCULATING THE S&P GSCI® DYNAMIC ROLL EXCESS RETURN INDEX. S&P IS NOT AN ADVISOR TO THE FUND AND IS NOT RESPONSIBLE FOR AND HAS NOT PARTICIPATED IN THE DETERMINATION OF THE PRICES AND AMOUNT OF THE FUND OR THE TIMING OF THE ISSUANCE OR SALE OF THE FUND OR IN THE DETERMINATION OR CALCULATION OF THE EQUATION BY WHICH THE FUND’S SHARES ARE TO BE CONVERTED INTO CASH. S&P HAS NO OBLIGATION OR LIABILITY IN CONNECTION WITH THE ADMINISTRATION, MARKETING, OR TRADING OF THE FUND.

S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P GSCI® DYNAMIC ROLL EXCESS RETURN INDEX OR ANY DATA INCLUDED THEREIN AND S&P SHALL HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. S&P MAKES NO WARRANTY, CONDITION OR REPRESENTATION, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY BNP PARIBAS QUANTITATIVE STRATEGIES, LLC, OWNERS OF THE FUND, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P GSCI® DYNAMIC ROLL EXCESS RETURN INDEX OR ANY DATA INCLUDED THEREIN. S&P MAKES NO EXPRESS OR IMPLIED WARRANTIES, REPRESENTATIONS OR CONDITIONS, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OR CONDITIONS OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE AND ANY OTHER EXPRESS OR IMPLIED WARRANTY OR CONDITION WITH RESPECT TO THE S&P GSCI® DYNAMIC ROLL EXCESS RETURN INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS) RESULTING FROM THE USE OF THE S&P GSCI® DYNAMIC ROLL EXCESS RETURN INDEX OR ANY DATA INCLUDED THEREIN, EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.

 

The following information with respect to the Index and the S&P GSCI reflects the policies of and is subject to change by the Index Sponsor. The Index Sponsor owns the copyright and other rights to the Index and the S&P GSCI. The Index Sponsor has no obligation to consider your interests as a Shareholder and has no obligation to continue to publish, and may discontinue the publication of, the Index or the S&P GSCI. The consequences of the Index Sponsor’s discontinuing the Index and the S&P GSCI are described under “The Risks You Face — Fund and Index Related Risks

Current information regarding the market values of the Index and the S&P GSCI is available from the Index Sponsor and numerous public sources. None of the Sponsor, the Trustee, the Trust, or the Fund makes any representation that publicly available information about the Index and the S&P GSCI is accurate or complete. In addition, none of the Index Sponsor, the Trustee, the Trust, or the Fund accepts any responsibility for the calculation, maintenance or publication of, or for any error, omission or disruption in, the Index or the S&P GSCI.

The Index and the S&P GSCI were established in January 2011 and May 1991, respectively. The Index reflects the returns that are potentially available through a rolling uncollateralized investment in the contracts comprising the S&P GSCI™. The S&P GSCI™ reflects the value of an investment in the Index together with a Treasury bill return.

General

The Index was developed by the Index Sponsor and is an index on a world production-weighted basket of principal physical commodities that satisfy specified criteria. The Index reflects the level of commodity prices at a given time and is designed to be a measure of the return over time of the markets for these commodities. The commodities represented in the Index, each an Index Commodity, are those physical commodities on which active and liquid contracts are traded on trading facilities in major industrialized countries. The Index Commodities are weighted, on a production basis, to reflect the relative significance (in the view of the Index Sponsor) of those Index Commodities to the world economy. The fluctuations in the level of the Index are intended generally to correlate with changes in the prices of those physical Index Commodities in global markets.

The methodology underlying the Index is based on the same methodology as the S&P GSCI, except with respect to rolling the Designated Contracts. (For

 

 

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the avoidance of doubt, the Index is calculated on an excess return basis and the S&P GSCI is calculated on a total return basis.) The Index, which is an expansion of the S&P GSCI, is comprised of the same Index Commodities as the S&P GSCI and uses the same world production weighting methodology. The Index includes Index Commodities from the following five sectors: energy, agriculture, industrial metals, precious metals, and livestock.

The Index, denominated in USD, is currently composed of long positions in the Designated Contracts on the 24 underlying Index Commodities (as set forth in Table 1 on page 52) diversified across the commodity universe. There is no limit on the number of Designated Contracts that may be included in the Index. Any contract satisfying the eligibility criteria will become a Designated Contract and will be included in the Index.

The holding of long positions involves establishing commodity futures contracts, which means that the investor’s portfolio will benefit if the prices of such Index Commodities rise and will be negatively affected if the prices of such Index Commodities decline. The Index is a synthetic portfolio or basket of Index Commodities (and in turn, a reflection of the change in market value of these Index Commodities) because there is no actual portfolio of assets to which any person is entitled or in which any person has any ownership interest.

No assurance can be given that the Index will achieve its goals or that the Index results will surpass any alternative basket or strategy that might be constructed from the Index Commodities.

The steps and calculations that govern the determination of the weighting for the Index Commodities and the selection of the Designated Contracts, and therefore, the results of the Index, were developed by the Index Sponsor. We refer to these steps and calculations as the “Index Methodology.” The Index Methodology is more fully described below under the section “The Index Methodology.”

The closing levels of the Index are published under the symbol “SPDYCIP.” The Index Sponsor provides the closing levels of the Index for each Index Business Day (as defined below) to market data vendors. The Index Sponsor began calculating the level of the Index on January 27, 2011, or the Launch Date. January 16, 1995 is the base date, or Base Date on which the initial level of the Index was 100. Values of the

Index Commodities are required prior to and after the Launch Date to determine the Index levels for the Index. For the period from and including January 16, 1995 to January 27, 2011, the Index Sponsor calculated the hypothetical closing levels of the Index by applying the Index Methodology to the actual levels of the Index Commodities.

The Index was developed by the Index Sponsor and the S&P GSCI® Dynamic Index Methodology is provided by the Index Sponsor on its website at http://www.standardandpoors.com (which website is not incorporated into this Prospectus and is not a part of this Prospectus) and the closing levels are published by market data vendors.

None of the Trust, the Fund, the BNP Affiliated Entities or any of their affiliates assumes any responsibility for the accuracy or completeness of information or has made any due diligence inquiry with respect to the Index Commodities underlying the Index. None of the Trust, the Fund, the BNP Affiliated Entities or any of their affiliates makes any representation that such publicly available or other information regarding the Index Commodities underlying the Index is accurate or complete, and the Trust, the Fund, the BNP Affiliated Entities and their affiliates are not responsible for public disclosure of information on the Index Commodities underlying the Index. Furthermore, the Trust, the Fund, the BNP Affiliated Entities and their affiliates are not affiliated with the Index Sponsor, and have no ability to control or predict the actions of the Index Sponsor, including any errors in or discontinuation of disclosure regarding the methods or policies relating to the calculation of the Index. Moreover, the Trust, the Fund, the BNP Affiliated Entities and their affiliates cannot give any assurance that all events occurring prior to the date of this Prospectus, including events that would affect the accuracy or completeness of the public information on the Index Commodities underlying the Index have been publicly disclosed. Subsequent disclosure of any such events or the disclosure of or failure to disclose material future events concerning the Index Commodities underlying the Index could affect the value of the Fund and ultimately, the value of your Shares.

Index and Index Commodities

The Index is comprised of Designated Contracts which are exchange-traded futures contracts on the Index Commodities. The Index Commodities are diversified across five different categories: energy, agriculture, industrial metals, precious metals and

 

 

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livestock. The Index reflects the return associated with the change in prices of the underlying Designated Contracts on the Index Commodities together with the “roll yield” (as discussed below) associated with these Designated Contracts (the price changes of the Designated Contracts and roll yield, taken together, constitute the “excess return” reflected by the Index).

Contracts on physical commodities are traded on regulated futures exchanges, in the over-the-counter market and on various types of physical and electronic trading facilities and markets. As of the date of this Prospectus, all of the Designated Contracts are exchange-traded futures contracts. An exchange-traded futures contract is a bilateral agreement providing for the purchase and sale of a specified type and quantity of a commodity or financial instrument during a stated delivery month for a fixed price. A futures contract provides for a specified settlement month in which the commodity or financial instrument is to be delivered by the seller (whose position is described as “short”) and acquired by the purchaser (whose position is described as “long”) or in which the cash settlement amount is to be made.

There is no purchase price paid or received on the purchase or sale of a futures contract. Instead, an amount of cash or cash equivalents must be deposited with the broker as “initial margin.” This amount varies based on the requirements imposed by the exchange clearing houses, but may be as low as 5% or less of the market price of the underlying futures contract. This margin deposit provides collateral for the obligations of the parties to the futures contract.

Futures contracts are traded on organized exchanges, known as “contract markets” in the U.S., through the facilities of a centralized clearinghouse and a brokerage firm which is a member of the clearinghouse. The clearinghouse guarantees the performance of each clearing member which is a party to the futures contract by, in effect, taking the opposite side of the transaction. At any time prior to the expiration of a futures contract, subject to the availability of a liquid secondary market, a trader may elect to close out its position by taking an opposite position on the exchange on which the trade obtained the position. This operates to terminate the position and fix the trader’s profit or loss.

U.S. futures contract markets, as well as brokers and market participants, are subject to regulation by the CFTC. Futures markets outside the U.S. are generally subject to regulation by comparable

regulatory authorities. However, the structure and nature of trading on non-U.S. exchanges may differ from the foregoing description.

Unlike equity securities, which typically entitle the holder to a continuing stake in a corporation, and unlike owning the physical commodity directly, a commodity futures contract specifies a certain date for delivery of the underlying commodity. A fundamental characteristic of the Index, like other commodity indices, is that as result of being comprised of futures contracts on the applicable Index Commodity, the Fund must be managed to ensure it does not take physical delivery of each respective Index Commodity. This is achieved through a process referred to as “rolling” under which a given futures contract during a month in which it approaches its settlement date is rolled forward to a new contract date (i.e., the futures contract is effectively “sold” to “buy” a longer-dated futures contract). All Designated Contracts will be deemed to be rolled before their respective maturities into futures contracts in the more-distant future.

Roll yield is generated during the roll process from the difference in price between the near-term and longer-dated futures contracts. The futures curve is a hypothetical curve created by plotting futures contract prices for a particular Index Commodity. When longer-dated contracts are priced lower than the nearer contract and spot prices, the market is in “backwardation” represented by a downward sloping futures curve, and positive roll yield is generated when higher-priced near-term futures contracts are “sold” to “buy” lower priced longer-dated contracts. When the opposite is true and longer-dated contracts are priced higher, the market, which is in “contango,” is represented by an upward sloping futures curve, and negative roll yields result from the “sale” of lower priced near-term futures contracts to “buy” higher priced longer-dated contracts. While many of the Index Commodities may have historically exhibited consistent periods of backwardation, backwardation will most likely not exist at all times. Moreover, certain of the Index Commodities may have historically traded in contango markets. See Chart 1 below for examples of downward and upward sloping futures curves.

 

 

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Chart 1: Examples of Downward and Upward Sloping Futures Curves

LOGO

 

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The Dynamic Roll Process

The Index was established in January 2011 and reflects the returns that are potentially available through rolling uncollateralized Designated Contracts on the Index Commodities comprising the Index. Because futures contracts have scheduled expirations, or delivery months, as one contract nears expiration it becomes necessary to close out the position in that delivery month and to establish a position in a futures contract with a future expiration date. This process is referred to as “rolling” the position forward. An index that is designed to reflect the return from rolling each contract included in the index as it nears expiration into the next nearby most active delivery month is said to follow a standard roll, or Standard Roll, methodology. This is accomplished by selling the position in the first delivery month and purchasing a position of equivalent value in the second delivery month. If the price of the second contract is lower than the price of the first contract, the “rolling” process results in a greater quantity of the second contract being acquired for the same value and the market is described as being “backwardated.” Conversely, if the price of the second contract is higher than the price of the first contract, the “rolling” process results in a smaller quantity of the second contract being acquired for the same value and the market is described as being in “contango.”

An index that employs the Standard Roll schedule may sometimes diminish total returns due to periodic rolling expenses. Although the first nearby contracts are generally the most liquid, based on open interest, they may also become the most expensive (resulting in lower total returns) when the commodities market is in contango (when further out futures contracts trade at a premium). Conversely, when commodity markets are in backwardation (when further out futures contracts trade at a discount), indices that employ a Standard Roll strategy generally boast higher total returns.

The Index is a commodity index that utilizes the S&P GSCI® Dynamic Roll Index Methodology, a monthly futures contract rolling methodology that determines the new futures contract months for the underlying commodities. The S&P GSCI® Dynamic Roll Index Methodology is a more flexible methodology than the Standard Roll methodology. At each Roll Determination Date, which is the third Index Business Day of each month, dynamic roll algorithms measure the current shape of the forward curves of the eligible futures contract prices for each Index Commodity. The contract rolling strategy is

optimized based on implied roll yield and the Dynamic Roll Parity Principle as explained below. The Index optimizes rolling by using a systematic methodology to search for the optimal contract months along the curve to roll into, subject to using only the most liquid of all available contracts of a given commodity.

When the futures curve for a given commodity is in a general state of contango, the S&P GSCI Dynamic Roll methodology uses futures contracts months that are further out on the futures curve, with the intention of minimizing the effects of negative roll yields. When the futures curve for a given commodity is in a general state of backwardation, the S&P GSCI Dynamic Roll methodology generally uses nearby futures contracts with the intention of maximizing the potential effects of positive roll yields from backwardation.

The Dynamic Roll Selection Process

Based on the closing values on the Roll Determination Date, dynamic roll algorithms are run for each of the Index Commodities. The Dynamic Roll selections of all the Index Commodities are assembled into the Monthly Dynamic Roll Schedule (see below), which is applied to the Index calculations at the beginning of the Index Roll Period.

A forward curve is created for each Index Commodity based the prices of its eligible futures contract months.

The implied roll yield of each consecutive pair of futures contracts on the forward curve is calculated.

The contract months are ranked based on their implied roll yields, with the best candidate for the new Rolled-in Contract Month, as defined three paragraphs below, being that having the highest implied roll yield, and the next best candidate being that having the second highest implied roll yield, and so on.

The optimum set of futures contract months, or Optimum Set, is created based on the Rank Order of each of the Index Commodities, which are given in the table below. For a Rank Order of 1, the optimum set of futures contracts consists of only the top one contract. For a Rank Order of 2, the optimum set of futures contracts consists of the top two contracts, and so on.

 

 

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Pursuant to the Dynamic Roll Parity Principle, for a given Index Commodity, if the Rolled-out Contact Month, as defined in the paragraph below, is included in the Optimum Set of futures contracts, continue to use the same contract month as the Rolled-in Contract Month for the current month; otherwise, choose the first ranked contract month in the Optimum Set of futures contracts to be the new Rolled-in Contract Month for the current month.

The Rolled-out Contract Month is the current active futures contract month in use for that commodity. For a given Index Commodity’s Roll Determination Date, the Rolled-in Contract Month is the contract month selected via the Dynamic Roll Selection Process for that commodity. At the end of the Index Roll Period it then becomes the Rolled-out Contract Month for the upcoming Roll Determination Date.

Rank Order of Index Commodities and Optimized Set of Contracts

 

Index Commodity       Code         Rank  
  Order  

Corn

  C   1

Cocoa

  CC   1

Crude Oil

  CL   3

Brent Crude Oil

  LCO   1

Cotton

  CT   1

Feeder Cattle

  FC   1

Gold

  GC   1

Heating Oil

  HO   1

Coffee

  KC   1

Kansas Wheat

  KW   2

Aluminum

  MAL   2

Live Cattle

  LC   1

Lean Hogs

  LH   1

Lead

  MPB   3

Nickel

  MNI   3

Copper

  MCU   3

Zinc

  MZN   3

Natural Gas

  NG   1

Gasoil

  LGO   4

Soybeans

  S   1

Sugar

  SB   1

Silver

  SI   2

Wheat

  W   2

Gasoline

  RB   2

Monthly Dynamic Roll Schedule

The Index Sponsor creates a Monthly Dynamic Roll Schedule of the Index by assembling all the new Rolled-in Contract Months for all the Index Commodities. This set of Contract Months is effective for the upcoming monthly Roll Period, from the fifth (5th) Index Business Day to the ninth (9th) Index Business Day.

For example, Corn has a Rank Order of 1. If the Rolled-out Contract for Corn is not the same as the top ranked contract, use the top-ranked contract in the Optimum Set of Contracts as the new Rolled-In Contract Month. Otherwise, if the Rolled-Out Contract Month is the same as the top ranked contract, then the same Rolled-out Contract Month will continue to be used as the new Rolled-in Contract Month.

In the case of Crude Oil, which has a Rank Order of 3, this means if the Rolled-out Contract is not one of the top three Contract Months in the Optimum Set of Contracts for Crude Oil, the top ranked Contract Month is selected as the new Rolled-in Contract Month. Otherwise, if the Rolled-out Contract is among the top three Contract Months in the Optimum Set of Contracts, then the same Rolled-Out Contract Month will continue to be used as the new Rolled-In Contract Month.

The Designated Contracts are rolled during the Roll Period, which occurs on the fifth through the ninth Index Business Days of each month. During the Roll Period, each applicable contract is shifted pursuant to the Dynamic Roll Index Methodology from the Rolled-out Contract Month to the Rolled-in Contract Month at a rate of 20% per Index Business Day for each of the five days of the Roll Period. Therefore, during the first four Index Business Days of a month, and just before the end of the fifth Index Business Day, the Index consists of the currently active futures contract month in use for each Index Commodity (i.e., Rolled-out Contract Month). The Index is calculated as though each contract roll occurs at the end of each day during the Roll Period, at the daily settlement prices. At the end of the fifth Index Business Day, the Index is adjusted so that 20% of the contracts underlying the Index held are in the Rolled-in Contract Month, with 80% remaining in the Rolled-out Contract Months. The roll process continues on the sixth, seventh, eighth and ninth Index Business Days, with the relative weights of the Rolled-out Contract Month to the Rolled-in Contract Months gradually shifting from a 60%/40%/20%/0%, weighting, to a 40%/60%/80%/100% weighting,

 

 

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respectively. At the end of the ninth Index Business Day, the last of the Rolled-out Contract Months are exchanged, completing the roll and leaving the Index composed entirely of Rolled-in Contract Months. See “—Contract Daily Return.”

Index Methodology

This section provides a summary of certain aspects of the Index Methodology as of the date of this Prospectus. For additional information regarding the Index, please see “S&P GSCI Dynamic Roll Index Methodology” and “S&P GSCI Index Methodology” and any other related research. Please note that the Index Sponsor may amend these publications and may post additional publications from time-to-time at www.standardandpoors.com.

The methodology for determining the composition and weighting of the Index and for calculating its value is subject to modification by S&P as described in the next sub-section. The Index Sponsor calculates and publishes the value of the Index continuously, with such values updated during business hours on each day on which the Index is calculated as determined by the NYSE Euronext Holiday & Hours Schedule or as revised by the S&P GSCI® Index Methodology, each of which is referred to as an “Index Business Day.” The Index Sponsor publishes an official daily settlement price for the Index at the end of each Index Business Day. In addition, a number of data vendors publish Index quotations.

The Index Committee and Commodity Index Advisory Panel

The Index Sponsor has established an Index Committee to oversee the daily management and operations of the Index, and is responsible for all analytical methods and calculation of the Index. The Index Committee is comprised of full-time professional members of the Index Sponsor’s staff. At each meeting, the Index Committee reviews any issues that may affect Index constituents, statistics comparing the composition of the Index to the market, commodities that are being considered as candidates for addition to the Index, and any significant market events. In addition, the Index Committee may revise Index policy covering rules for selecting commodities, or other matters.

The Index Sponsor considers information about changes to the Index and related matters to be potentially market moving and material. Therefore, all Index Committee discussions are confidential.

In addition, the Index Sponsor has established a “Commodity Index Advisory Panel” to assist it with the operation of the Index. The Commodity Index Advisory Panel meets on an annual basis and at other times at the request of the Index Committee. The principal purpose of the Commodity Index Advisory Panel is to advise the Index Committee with respect to, among other things, the calculation of the Index, the effectiveness of the Index as a measure of commodity futures market return, and the need for changes in the composition or the methodology of the Index. The Commodity Index Advisory Panel acts solely in an advisory and consultative capacity. The Index Committee makes all decisions with respect to the composition, calculation and operation of the Index. Certain of the members of the Commodity Index Advisory Panel may be affiliated with clients of the Index Sponsor. Also, certain of the members of the Commodity Index Advisory Panel may be affiliated with entities which, from time to time, may have investments linked to the Index, either through transactions in the contracts included in the Index, futures contracts on the Index or derivative products linked to the Index.

Composition of the Index

Each futures contract included in the Index is a Designated Contract. In order to be included in the Index, a futures contract must satisfy the following eligibility criteria:

 

  1.

The contract must:

 

  (i)

be on a physical commodity and may not be on a financial commodity;

 

  (ii)

have a specified expiration or term, or provide in some other manner for delivery or settlement at a specified time, or within a specified period, in the future;

 

  (iii)

be available, at any given point in time, for trading at least five months prior to its expiration or such other date or time period specified for delivery or settlement; and

 

  (iv)

be traded on a trading facility that allows market participants to execute spread transactions, through a single order entry, between the pairs of contract expirations included in the Index that at any given point in time will

 

 

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be involved in the rolls to be effected in the next three Roll Periods.

 

  2.

The commodity must be the subject of a contract that:

 

  (i)

is denominated in U.S. dollars and;

 

  (ii)

is traded on or through an exchange, facility or other platform, referred to as a “trading facility,” that has its principal place of business or operations in a country that is a member of the Organization for Economic Cooperation and Development and:

 

  a)

makes price quotations generally available to its members or participants (and, if the Index Sponsor is not such a member or participant, to the Index Sponsor) in a manner and with a frequency that is sufficient to provide reasonably reliable indications of the level of the relevant market at any given point in time;

 

  b)

makes reliable trading volume information available to the Index Sponsor with at least the frequency required by the Index Sponsor to make the monthly determinations;

 

  c)

accepts bids and offers from multiple participants or price providers; and

 

  d)

is accessible by a sufficiently broad range of participants.

 

  3.

The price of the relevant contract that is used as a reference or benchmark by market participants, referred to as the “daily contract reference price,” generally must have been available on a continuous basis for at least two years prior to the proposed date of inclusion in the Index. In appropriate circumstances, however, the Index Sponsor, in consultation with the Index Committee, may determine that a shorter time period is sufficient or that historical daily contract reference prices

 

for that contract may be derived from daily contract reference prices for a similar or related contract. The daily contract reference price may be (but is not required to be) the settlement price or other similar price published by the relevant trading facility for purposes of margining transactions or for other purposes;

 

  4.

At and after the time a contract is included in the Index (i.e., becomes a Designated Contract), the daily contract reference price for that Designated Contract must be published between 10:00 a.m. and 4:00 p.m., Eastern Time, on each business day relating to that Designated Contract by the trading facility on or through which it is traded and must generally be available to all members of, or participants in, that trading facility (and, if the Index Sponsor is not such a member or participant, to the Index Sponsor) on the same day from the trading facility or through a recognized third-party data vendor. Such publication must include, at all times, daily contract reference prices for at least one expiration or settlement date that is five months or more from the date the determination is made, as well as for all expiration or settlement dates during that five-month period.

 

  5.

Volume data with respect to the contract must be available for at least the three months immediately preceding the date on which the determination is made.

 

  6.

A contract that is not included in the Index at the time of determination and that is based on a commodity that is not represented in the Index at that time must, in order to be added to the Index at that time, have an annualized total dollar value traded over the relevant period of at least $15 billion. The “total dollar value traded” is the dollar value of the total quantity of the commodity underlying transactions in the relevant contract and any related contract over the period for which the calculation is made, based on the average of the daily contract reference prices on the last day of each month during the period.

 

  7.

A contract that is already included in the Index at the time of determination and that is the only contract on the relevant

 

 

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commodity included in the Index must, in order to continue to be included in the Index after that time, have an annualized total dollar value traded over the relevant period of at least $5 billion and at least $10 billion during at least one of the three most recent annual periods used in making the determination.

 

  8.

A contract that is not included in the Index at the time of determination and that is based on a commodity on which there are one or more contracts already included in the Index at that time must, in order to be added to the Index at that time, have an annualized total dollar value traded over the relevant period of at least $30 billion.

 

  9.

A contract that is already included in the Index at the time of determination and that is based on a commodity on which there are one or more contracts already included in the Index at that time must, in order to continue to be included in the Index after that time, have an annualized total dollar value traded over the relevant period of at least $10 billion and at least $20 billion during at least one of the three most recent annual periods used in making the determination.

 

  10.

A contract that is:

 

  (i)

already included in the Index at the time of determination must, in order to continue to be included after that time, have a reference percentage dollar weight of at least 0.10%. The “reference percentage dollar weight” of a contract represents the current value of the quantity of the underlying commodity that is included in the Index at a given time. This figure is determined by dividing (A) the product of the contract production weight of each contract, or CPW, and the average of its daily contract reference prices on the last day of each month during the relevant period, by (B) the sum of the products in (A) for all contracts included in the Index. The CPW of a contract is part of its weight in the Index,

 

  (ii)

not included in the Index at the time of determination must, in

 

order to be added to the Index at that time, have a reference percentage dollar weight of at least 1.00%.

 

11.

In the event that two or more contracts on the same commodity satisfy the eligibility criteria, then such contracts will be included in the Index in the order of their respective total quantity traded during the relevant period (determined as the total quantity of the commodity underlying transactions in the relevant contract), with the contract having the highest total quantity traded being included first, provided that no further contracts will be included if such inclusion would result in the portion of the Index attributable to that commodity exceeding a particular level.

 

12.

If additional contracts could be included with respect to several commodities at the same time, that procedure is first applied with respect to the commodity that has the smallest portion of the Index attributable to it at the time of determination. Subject to the other eligibility criteria described above, the contract with the highest total quantity traded on that commodity will be included. Before any additional contracts on the same commodity or on any other commodity are included, the portions of the Index attributable to all commodities are recalculated. The selection procedure described above is then repeated with respect to the contracts on the commodity that then has the smallest portion of the Index attributable to it.

 

 

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The Designated Contracts currently included in the Index, the futures exchanges on which they are traded, their trading symbols, trading times and their percentage dollar weights are as follows:

Table 1

 

 

Futures

Exchange1

  Index Commodity   Trading
Symbol2
  Trading Times
(EST)
  Dollar Weight
 October 31, 2011
3 

CBT

 

Chicago Wheat

  W   09:30-13:15   2.80%

KBT

 

Kansas City Wheat

  KW   09:30-13:15   0.74%

CBT

 

Corn

  C   09:30-13:15   4.48%

CBT

 

Soybeans

  S   09:30-13:15   2.30%

ICE-US

 

Coffee

  KC   03:30-14:00   0.93%

ICE-US

 

Sugar #11

  SB   03:30-14:00   2.15%

ICE-US

 

Cocoa

  CC   04:00-14:00   0.27%

ICE-US

 

Cotton #2

  CT   21:00-14:30   1.30%

CME

 

Lean Hogs

  LH   09:05-13:00   1.51%

CME

 

Live Cattle

  LC   09:05-13:00   2.66%

CME

 

Feeder Cattle

  FC   09:05-13:00   0.48%

NYM/ICE-UK

 

Crude Oil

  CL   09:00-14:30   32.72%

NYM

 

Heating Oil

  HO   09:00-14:30   5.44%

NYM

 

RBOB Gasoline

  RB   09:00-14:30   4.63%

ICE-UK

 

Brent Crude Oil

  LCO   19:00-17:00   16.72%

ICE-UK

 

Gasoil

  LGO   19:00-17:00   7.23%

NYM/ICE-UK

 

Natural Gas

  NG   09:00-14:30   2.78%

LME

 

Aluminum

  MAL   11:00-10:45   2.24%

LME

 

Copper

  MCU   11:00-10:45   3.26%

LME

 

Lead

  MPB   11:00-10:45   0.39%

LME

 

Nickel

  MNI   11:00-10:45   0.62%

LME

 

Zinc

  MZN   11:00-10:45   0.52%

CMX

 

Gold

  GC   08:20-13:30   3.31%

CMX

 

Silver

  SI   08:25-13:25   0.55%

 

  (1)

Legend:

“CBT” means the Chicago Board of Trade.

“KBT” means the Kansas City Board of Trade.

“ICE-US” means ICE Futures U.S.

“CME” means the Chicago Mercantile Exchange.

“NYM” means the New York Mercantile Exchange, Inc.

“ICE-UK” means ICE Futures Europe.

“LME” means the London Metal Exchange.

“CMX” means the COMEX Division of the New York Mercantile Exchange, Inc.

 

  (2)

Ticker are Reuters RIC Codes.

  (3)

The futures contracts included in the S&P GSCITM and their percentage dollar weights, among other matters, may change. Source: S&P. Used with permission.

 

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The quantity of each of the Designated Contracts included in the Index, referred to as either “Contract Production Weight” or “CPW,” is determined on the basis of a five-year average, referred to as the “world production average,” of the production quantity of the underlying commodity as published by a number of official sources as provided in the S&P GSCI® Index Methodology. However, if an Index Commodity is primarily a regional commodity, based on its production, use, pricing, transportation or other factors, the Index Sponsor, in consultation with the Index Committee, may calculate the weight of that Index Commodity based on regional, rather than world, production data. At present, natural gas is the only Index Commodity the weights of which are calculated on the basis of regional production data, with the relevant region defined as North America.

The five-year average is updated annually for each Index Commodity included in the Index, based on the most recent five-year period (ending approximately one and a half years prior to the date of calculation and moving backwards) for which complete data for all commodities is available. The calculation of the CPWs of each Designated Contract is derived from world or regional production averages, as applicable, of the relevant Index Commodities, and is based on the total quantity traded for the relevant Designated Contract and the world or regional production average, as applicable, of the underlying Index Commodity. However, if the volume of trading in the relevant Designated Contract, as a multiple of the production levels of the Index Commodity (which we refer to as either “Trading Volume Multiple” or “TVM”), is below a specified threshold, the Designated Contract is reduced until the threshold is satisfied. This is designed to ensure that trading in each Designated Contract is sufficiently liquid relative to the production of the Index Commodity.

The TVM with respect to any Designated Contract is the quotient of (i) the product of (a) the total annualized quantity traded of such Designated Contract during the relevant calculation period and (b) the sum of the products of (x) the Designated Contract production weight of each Designated Contract included in the S&P GSCI index and (y) the corresponding average month-end settlement price of the first nearby contract expiration of such Designated Contracts during the relevant period, and (ii) the product of (a) the targeted amount of investment in the S&P GSCI and related indices that needs to be supported by liquidity in the relevant Designated Contracts (currently $190 billion) and (b)

the Designated Contract production weight of such Designated Contract.

The TVMT is the TVM level, specified by S&P, which triggers a recalculation of the Designated Contract production weights for all Designated Contracts on an Index Commodity if the TVM of any such Designated Contract falls below such level.

In addition, the Index Sponsor performs this calculation on a monthly basis and, if the TVM of any Designated Contract is below the TVMT, the composition of the Index is reevaluated, based on the criteria and weighting procedure described above. This procedure is undertaken to allow the Index to shift from Designated Contracts that have lost substantial liquidity into more liquid contracts during the course of a given year. As a result, it is possible that the composition or weighting of the Index will change on one or more of these monthly evaluation dates. The likely circumstances under which the Index Sponsor would be expected to change the composition of the Index during a given year, however, are (1) a substantial shift of liquidity away from a Designated Contract included in the Index as described above, or (2) an emergency, such as a natural disaster or act of war or terrorism, that causes trading in a particular contract to cease permanently or for an extended period of time. In either event, the Index Sponsor will publish the nature of the changes, through websites, news media or other outlets, with as much prior notice to market participants as is reasonably practicable. Moreover, regardless of whether any changes have occurred during the year, the Index Sponsor reevaluates the composition of the Index at the conclusion of each year, based on the above criteria. Other commodities that satisfy that criteria, if any, will be added to the Index. Commodities included in the Index that no longer satisfy that criteria, if any, will be deleted.

The Index Sponsor also determines whether modifications in the selection criteria or the methodology for determining the composition and weights of and for calculating the Index are necessary or appropriate in order to assure that the Index represents a measure of commodity market return. The Index Sponsor has the discretion to make any such modifications.

Calculation of the Weight of each Designated Contract in the Index

The Index Sponsor determines the quantity of each of the Designated Contracts included in the Index, the Contract Production Weights, on the basis

 

 

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of a five-year average, referred to as the “world production average,” of the production quantity of the underlying commodity as published by a number of official sources as provided in the S&P GSCI® Index Methodology.

The five-year average is updated annually for each Index Commodity included in the Index based on the most recent five-year period (ending approximately one and a half years prior to the date of calculation and moving backwards) for which complete data for all commodities is available. The weights used in calculating the Index are derived from world or regional production averages, as applicable, of the relevant commodities, and are calculated based on the total quantity traded for the relevant contract and the world or regional production average, as applicable, of the underlying commodity. However, if the volume of trading in the relevant contract, as a multiple of the production levels of the commodity, is below specified thresholds, the weight of the contract is reduced until the threshold is satisfied. This is designed to ensure that trading in each Designated Contract is sufficiently liquid relative to the production of the commodity.

In addition, the Index Sponsor performs this calculation on a monthly basis and, if the multiple of any Designated Contract is below the prescribed threshold, the composition of the Index is reevaluated, based on the criteria and weighting procedure described above. This procedure is undertaken to allow the Index to shift from Designated Contracts that have lost substantial liquidity into more liquid contracts during the course of a given year. As a result, it is possible that the composition or weighting of the Index will change on one or more of these monthly evaluation dates. The likely circumstances under which the Index Sponsor would be expected to change the composition of the Index during a given year, however, are (1) a substantial shift of liquidity away from a Designated Contract included in the Index as described above, or (2) an emergency, such as a natural disaster or act of war or terrorism, that causes trading in a particular Designated Contract to cease permanently or for an extended period of time. In either event, the Index Sponsor will publish the nature of the changes, through websites, news media or other outlets, with as much prior notice to market participants as is reasonably practicable. Moreover, regardless of whether any changes have occurred during the year, the Index Sponsor reevaluates the composition of the Index at the conclusion of each year, based on the above criteria. Other commodities that satisfy that

criteria, if any, will be added to the Index. Index Commodities included in the Index that no longer satisfy that criteria, if any, will be deleted.

The Index Sponsor also determines whether modifications in the selection criteria or the methodology for determining the composition and weights of and for calculating the Index are necessary or appropriate in order to assure that the Index represents a measure of commodity market return. The Index Sponsor has the discretion to make any such modifications.

Contract Expirations

Because the Index is comprised of actively traded contracts with scheduled expirations, it can be calculated only by reference to the prices of contracts for specified expiration, delivery or settlement periods, referred to as “Designated Contract Expirations.” The Designated Contract Expirations included in the Index for each Index Commodity during a given year are designated by the Index Sponsor in consultation with the Index Committee provided that each Designated Contract must be an “active contract.” An “active contract” for this purpose is a liquid, actively-traded contract expiration, as defined or identified by the relevant trading facility or, if no such definition or identification is provided by the relevant trading facility, as defined by standard custom and practice in the industry.

If a trading facility deletes one or more Designated Contract Expirations, the Index will be calculated during the remainder of the year in which that deletion occurs on the basis of the remaining Designated Contract Expirations as designated by the Index Sponsor. If a trading facility ceases trading in all Designated Contract Expirations relating to a particular Designated Contract, the Index Sponsor may designate a replacement contract on the Index Commodity. The replacement contract must satisfy the eligibility criteria for inclusion in the Index. To the extent practicable, the replacement will be effected during the next monthly review of the composition of the Index. If that timing is not practicable, the Index Sponsor will determine the date of the replacement and will consider a number of factors, including the differences between the Designated Contract and the replacement contract with respect to contractual specifications and contract expirations.

If a trading facility eliminates one or more Designated Contract Expirations, but there are

 

 

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remaining Designated Contract Expirations of the same Designated Contract, the weighting of the Index Commodity underlying the relevant Designated Contract will not be affected. If the trading facility ceases trading in all Designated Contract Expirations relating to a particular Designated Contract, and the Index Sponsor designates a replacement contract on the same Index Commodity, the index weighting allocated to the terminated Designated Contract will be allocated to the replacement contract. Accordingly, unless a Designated Contract is eliminated entirely and no replacement contract is designated, a cessation of trading in certain Designated Contract Expirations or the elimination of a Designated Contract will not affect the weighting of Index Commodities in the Index. If a Designated Contract is eliminated and there is no replacement contract, the underlying Index Commodity will necessarily drop out of the Index and the weighting allocated to that Designated Contract will then be allocated pro rata to the remaining Designated Contracts in the Index. The designation of a replacement contract, or the elimination of an Index Commodity from the Index because of the absence of a replacement contract, could affect the value of the Index, either positively or negatively, depending on the price of the Designated Contract that is eliminated and the prices of the remaining contracts in the Index. It is impossible, however, to predict the effect of these changes, if they occur, on the value of the Index.

Calculation of the Closing Value of the Index

The value, or the total dollar weight, of the Index on each Index Business Day is equal to the sum of the dollar weights of each of the Index Commodities. The dollar weight of each Index Commodity on any given day is equal to the product of the (i) weight of such Index Commodity, (ii) the daily contract reference price for the appropriate Designated Contracts, and (iii) the applicable “roll weights” during a Roll Period.

The daily contract reference price used in calculating the dollar weight of each Index Commodity on any given day is the most recent daily contract reference price for the applicable Designated Contract made available by the relevant trading facility, except that the daily contract reference price for the most recent prior day will be used if the exchange is closed or otherwise fails to publish a daily contract reference price on that day. If the trading facility fails to make a daily contract reference price available or if the Index Sponsor

determines, in its reasonable judgment, that the published daily contract reference price reflects manifest error, the relevant calculation will be delayed until the price is made available or corrected. If the daily contract reference price is not made available or corrected by 4:00 p.m., Eastern Time, the Index Sponsor may determine, in its reasonable judgment, the appropriate daily contract reference price for the applicable Designated Contract in order to calculate the Index. A daily contract reference price will be used regardless of whether such price is a Limit Price, as defined in the next sub-section.

It is generally considered unlikely that a trading facility will fail to publish a daily contract reference price in the regular course of business, because the price is required to margin open positions in the relevant contracts. It is possible, however, that a trading facility may fail to publish a daily contract reference price under emergency or extraordinary conditions, such as in the event of a natural disaster, act of war or terrorist attack, that prevent trading or cause a termination of trading on a given day. A manifest error in a daily contract reference price is also unlikely to occur, but is nevertheless possible. This may arise, for example, in the event of a system malfunction that results in the published daily contract reference price being outside the range of trading for the relevant day. In that instance, it would be clear that the published price could not be correct and the Index Sponsor would likely disregard that price.

Designated Contract Daily Return

The Designated Contract daily return on any given day is equal to (1)(A) the sum, for each of the Index Commodities included in the Index, of the applicable daily contract reference price on the relevant Designated Contract multiplied by the appropriate Designated Contract production weight and the appropriate “roll weight,” divided by (B) the total dollar weight of the Index on the preceding day, minus (2) one.

The “roll weight” of each Index Commodity reflects the fact that the positions in the Designated Contracts must be liquidated or rolled forward into more distant contract expirations as they near expiration. If actual positions in the relevant markets were rolled forward, the roll would likely need to take place over a period of days. Because the Index is designed to replicate the return of actual investments in the underlying Designated Contracts, the rolling process incorporated in the Index also takes place over a period of days at the beginning of

 

 

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each month, referred to as the “Roll Period.” On each day of the Roll Period, the “roll weights” of the first nearby contract expirations on a particular Index Commodity and the more distant contract expiration into which it is rolled are adjusted, so that the hypothetical position in the Designated Contract on the Index Commodity that is included in the Index is gradually shifted from the first nearby contract expiration to the more distant contract expiration pursuant to the S&P GSCI® Dynamic Roll Index Methodology.

If on any day during a Roll Period any of the following conditions exists, the portion of the roll that would have taken place on that day is deferred until the next day on which these conditions do not exist:

 

 

no daily contract reference price is available for a given contract expiration;

 

 

any such price represents the maximum or minimum price for that contract month, based on exchange price limits, referred to as a “Limit Price”;

 

 

the daily contract reference price published by the relevant trading facility reflects manifest error, or that price is not published by 4:00 p.m., Eastern Time. In that event, the Index Sponsor may, but is not required to, determine a daily contract reference price and complete the relevant portion of the roll based on that price; provided, that, if the trading facility publishes a price before the open of trading on the next day, the Index Sponsor will revise the portion of the roll accordingly; or

 

 

trading in the relevant contract terminates prior to its scheduled closing time.

If any of these conditions exist throughout the roll period, the roll with respect to the affected contract will be effected in its entirety on the next day on which these conditions no longer exist.

Daily Calculation of the Index

On any Index Business Day, the value of the Index is equal to the product of

 

 

the value of the Index on the preceding Index Business Day and

 

 

one plus the Contract Daily Return on the Index Business Day on which the calculation is made.

The Contract Daily Return on any Index Business Day is equal to the ratio of the total dollar

weight of the Index on that day and the total dollar weight of the Index on the preceding Index Business Day, minus one. The Contract Daily Return is represented as the percentage change in the total dollar weight of the Index. The value of the Index is indexed to a base value of 100 on January  16, 1995.

Index Disclaimer

THIS FUND IS NOT SPONSORED, ENDORSED, SOLD OR PROMOTED BY STANDARD & POOR’S AND ITS AFFILIATES (collectively, “S&P”). S&P MAKES NO REPRESENTATION, CONDITION OR WARRANTY, EXPRESS OR IMPLIED, TO THE OWNERS OF THE FUND OR ANY MEMBER OF THE PUBLIC REGARDING THE ADVISABILITY OF INVESTING IN SECURITIES GENERALLY OR IN THE FUND PARTICULARLY OR THE ABILITY OF THE S&P GSCI® DYNAMIC ROLL EXCESS RETURN INDEX TO TRACK MARKET PERFORMANCE AND/OR TO ACHIEVE ITS STATED OBJECTIVE AND/OR TO FORM THE BASIS OF A SUCCESSFUL INVESTMENT STRATEGY, AS APPLICABLE. S&P’S ONLY RELATIONSHIP TO BNP PARIBAS QUANTITATIVE STRATEGIES, LLC IS THE LICENSING OF CERTAIN TRADEMARKS AND TRADE NAMES AND OF THE S&P GSCI® DYNAMIC ROLL EXCESS RETURN INDEX WHICH IS DETERMINED, COMPOSED AND CALCULATED BY S&P WITHOUT REGARD TO BNP PARIBAS QUANTITATIVE STRATEGIES, LLC OR THE FUND. S&P HAS NO OBLIGATION TO TAKE THE NEEDS OF BNP PARIBAS QUANTITATIVE STRATEGIES, LLC INTO CONSIDERATION IN DETERMINING, COMPOSING OR CALCULATING THE S&P GSCI® DYNAMIC ROLL EXCESS RETURN INDEX. S&P IS NOT AN ADVISOR TO THE FUND AND IS NOT RESPONSIBLE FOR AND HAS NOT PARTICIPATED IN THE DETERMINATION OF THE PRICES AND AMOUNT OF THE FUND OR THE TIMING OF THE ISSUANCE OR SALE OF THE FUND OR IN THE DETERMINATION OR CALCULATION OF THE EQUATION BY WHICH THE FUND’S SHARES ARE TO BE CONVERTED INTO CASH. S&P HAS NO OBLIGATION OR LIABILITY IN CONNECTION WITH THE ADMINISTRATION, MARKETING, OR TRADING OF THE FUND.

 

 

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S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P GSCI® DYNAMIC ROLL EXCESS RETURN INDEX OR ANY DATA INCLUDED THEREIN AND S&P SHALL HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. S&P MAKES NO WARRANTY, CONDITION OR REPRESENTATION, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY BNP PARIBAS QUANTITATIVE STRATEGIES, LLC, OWNERS OF THE FUND, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P GSCI® DYNAMIC ROLL EXCESS RETURN INDEX OR ANY DATA INCLUDED THEREIN. S&P MAKES NO EXPRESS OR IMPLIED WARRANTIES, REPRESENTATIONS OR CONDITIONS, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OR CONDITIONS OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE AND ANY OTHER EXPRESS OR IMPLIED WARRANTY OR CONDITION WITH RESPECT TO THE S&P GSCI® DYNAMIC ROLL EXCESS RETURN INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS) RESULTING FROM THE USE OF THE S&P GSCI® DYNAMIC ROLL EXCESS RETURN INDEX OR ANY DATA INCLUDED THEREIN, EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.

Note on Hypothetical Historical Calculations

The hypothetical historical values of the Index should not be taken as an indication of future results, and no assurance can be given as to the values of the Index on a future date. The hypothetical historical values of the Index were calculated on materially the same basis on which the Index is now calculated.

The Index Sponsor expressly disclaims any responsibility for (i) any errors or omissions in calculating the hypothetical information and (ii) any uses to which the hypothetical information may be put by any person.

Legal and regulatory regimes could affect the Index and the Fund

The Designated Contracts that underlie the Index are subject to legal and regulatory regimes in the U.S. and, in some cases, in other countries that may change in ways that could negatively affect the level of the Index. For example, please see “The Risks You Face — (47) The Effect Of Market Disruptions, Governmental Intervention And The Reform Act Are Unpredictable And May Have An Adverse Effect On The Value Of Your Shares” and “The Risks You Face — (48) The Effects Of New Regulation Of The Over-The-Counter Derivatives Markets Is Unknown And May Have A Detrimental Effect On The Value Of Your Shares.

Changes to the legal or regulatory regimes applicable to the Designated Contracts that underlie the Index could result in a modification of the Index rules, which may, in turn, have a negative effect on the level of the Index.

Publication of Closing Levels and Adjustments

The intra-day indicative value per Share of the Fund is based on the prior day’s final Net Asset Value per Share, adjusted every 15 seconds during each NYSE Arca Core Trading Session to reflect the continuous price changes of the Fund’s Designated Contracts and other holdings to provide a continuously updated intra-day indicative value per Share.

The Managing Owner will publish the Net Asset Value of the Fund and the Net Asset Value per Share daily. Additionally, NYSE Arca will publish the indicative value per Share once every 15 seconds during each NYSE Arca Core Trading Session.

The current market price per Share (symbol: “BNPC”) (quoted in U.S. dollars) will be published continuously as trades occur during each NYSE Arca Core Trading Session on the consolidated tape by market data vendors and on the Managing Owner’s website (on a delayed basis) at http://www.stream.bnpparibas.com, or any successor thereto.

The intra-day indicative value per Share (symbol: “BNPCIV”) (quoted in U.S. dollars) will be published by NYSE Arca once every 15 seconds during each NYSE Arca Core Trading Session by market data vendors and on the Managing Owner’s website (on a delayed basis) at

 

 

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http://www.stream.bnpparibas.com, or any successor thereto.

The most recent end-of-day Net Asset Value per Share (symbol: “BNPCNV”) will be published by the Managing Owner as of the close of the NYSE Arca Core Trading Session or the last to close of the exchanges on which the Fund’s Designated Contracts or Substitute Contracts are traded, whichever is later, on the consolidated tape by market data vendors and on the Managing Owner’s website at http://www.stream.bnpparibas.com, or any successor thereto and will be published by market data vendors on the consolidated tape.

The intra-day level and the most recent end-of-day closing level of the Index (symbol: “SPDYCIP”) will be published on Reuters page SPDYCIP and on Bloomberg page SPDYCIP<index> once every 15 seconds during each NYSE Arca Core Trading Session and as of the close of business on each Index Business Day, respectively, on Standard & Poor’s (which serves as the Index Sponsor) website at http://www.standardandpoors.com, or any successor thereto.

The number of outstanding Shares (symbol: “BNPCSO”) will be published as of the close of each NYSE Arca Core Trading Session on the consolidated tape by market data vendors and on the Managing Owner’s website at http://www.stream.bnpparibas.com, or any successor thereto.

Any adjustments made to the Index will be published on Standard & Poor’s (which serves as the Index Sponsor) website at http://www.standardandpoors.com, or any successor thereto.

The Trust and the Fund are not issued, sponsored, endorsed, sold or promoted by NYSE Arca, and NYSE Arca makes no representation regarding the advisability of investing in such product.

NYSE ARCA MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND HEREBY EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO THE S&P GSCI® DYNAMIC ROLL EXCESS RETURN INDEX OR ANY DATA INCLUDED THEREIN. IN NO EVENT SHALL NYSE ARCA HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL

DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.

Historical Closing Levels

The Closing Levels Table reflects how the returns of the Index based on the selection criteria and methodology described above since the Base Date of January 16, 1995. Some of the commodities currently comprising the Index, however, have not been continuously included in the Index, either because futures contracts on such commodities had not yet been introduced or because the futures contracts available for trading did not satisfy the selection criteria. Conversely, some commodities previously included in the Index no longer meet the selection criteria and have been deleted. The Launch Date of the Index was January 27, 2011. The Index’s closing levels from January 16, 1995 – January 27, 2011 are hypothetical.

Table 2 provides details of the futures contracts included in the Index and their percentage dollar weights on the Base Date and the value and date of the highest and lowest percentage dollar weight of each futures contract during the period from the Base Date to October 31, 2011.

The Various Statistical Measures Table discloses the Annualized Changes to Index Level, Average rolling 3 month daily volatility, Sharpe Ratio, % of months with positive change, Average monthly positive change, and Average monthly negative change with respect to the Index and the benchmark commodity indices as noted in the following paragraph.

The changes in the closing levels of the Index have been compared graphically to the following three commodities benchmark indices: the Goldman Sachs Commodity Index® (Excess Return), the Rogers International Commodity Index (Excess Return), and the Dow Jones – UBS Commodity IndexSM.

Cautionary Statement – Statistical Information

Various statistical information is presented on the following pages, relating to the closing levels of the Index, on an annual and cumulative basis, including certain comparisons of the Index to other commodities indices.

 

 

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In reviewing such information, prospective investors should consider that:

 

   

Changes in closing levels of the Index during any particular period or market cycle may be volatile. For example, the “worst peak-to-valley drawdown” of the Index, representing the greatest percentage decline from any month-end closing level, without such closing level being equaled or exceeded as of a subsequent month-end, is 54.66% and occurred during the period July 2008 through February 2009. The worst monthly drawdown of the Index during such period was 20.64%, and occurred in October 2008. See the section “The Risks You Face — (16) Price Volatility May Possibly Cause The Total Loss Of Your Investment.”

 

   

Neither the fees charged by the Fund nor the actual execution costs associated with establishing futures positions in the Index Commodities are incorporated into the closing levels of the Index.

 

   

The Index was established in January 2011. The Index calculation methodology and commodity futures contracts selection is the same before and after January 2011. Accordingly, the Index closing levels, the Index Methodology and the futures contracts underlying the Index Commodities, reflect an element of hindsight at the time the Index was established. See the section “The Risks You Face — (15) The Fund Has No Past Performance And There Are Limited Index Results On Which To Rely On In Deciding Whether To Buy Shares. Therefore, You Will Have To Make Your Decision To Invest In The Fund On The Basis Of Limited Information.

WHILE THE FUND’S OBJECTIVE IS NOT TO GENERATE PROFIT THROUGH ACTIVE PORTFOLIO MANAGEMENT, BUT IS TO TRACK THE INDEX, BECAUSE THE INDEX WAS ESTABLISHED IN JANUARY 2011, CERTAIN INFORMATION RELATING TO THE INDEX CLOSING LEVELS MAY BE CONSIDERED TO BE “HYPOTHETICAL.” HYPOTHETICAL INFORMATION MAY HAVE

CERTAIN INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW.

NO REPRESENTATION IS BEING MADE THAT THE INDEX WILL OR IS LIKELY TO ACHIEVE ANNUAL OR CUMULATIVE CLOSING LEVELS CONSISTENT WITH OR SIMILAR TO THOSE SET FORTH HEREIN. SIMILARLY, NO REPRESENTATION IS BEING MADE THAT THE FUND WILL GENERATE PROFITS OR LOSSES SIMILAR TO THE FUND’S PAST PERFORMANCE, WHEN AVAILABLE, OR THE HISTORICAL ANNUAL OR CUMULATIVE CHANGES IN INDEX CLOSING LEVELS. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY INVESTMENT METHODOLOGIES, WHETHER ACTIVE OR PASSIVE.

ONE OF THE LIMITATIONS OF HYPOTHETICAL INFORMATION IS THAT IT IS GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. TO THE EXTENT THAT INFORMATION PRESENTED HEREIN RELATES TO THE PERIOD JANUARY 1995 THROUGH JANUARY 2011, THE INDEX CLOSING LEVELS REFLECT THE APPLICATION OF THE INDEX METHODOLOGY, AND SELECTION OF INDEX COMMODITIES, IN HINDSIGHT.

NO HYPOTHETICAL RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THERE ARE NUMEROUS FACTORS, INCLUDING THOSE DESCRIBED UNDER THE SECTION “THE RISKS YOU FACE” HEREIN, RELATED TO THE COMMODITIES MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF THE FUND’S EFFORTS TO TRACK THE INDEX OVER TIME WHICH CANNOT BE, AND HAVE NOT BEEN, ACCOUNTED FOR IN THE PREPARATION OF THE INDEX INFORMATION SET FORTH ON THE FOLLOWING PAGES, ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL PERFORMANCE RESULTS FOR THE FUND. FURTHERMORE, THE INDEX INFORMATION DOES NOT INVOLVE FINANCIAL RISK.

THE MANAGING OWNER HAS HAD NO EXPERIENCE IN TRADING ACTUAL ACCOUNTS FOR ITSELF OR FOR CLIENTS. BECAUSE THERE ARE NO ACTUAL TRADING RESULTS TO COMPARE TO THE INDEX

 

 

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CLOSING LEVELS SET FORTH HEREIN, PROSPECTIVE INVESTORS SHOULD BE PARTICULARLY WARY OF PLACING UNDUE RELIANCE ON THE ANNUAL OR CUMULATIVE INDEX RESULTS.

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Table 2

 

          Percentage Dollar Weights
Commodity   Ticker1     January 16,  
1995
 

Highest

Weight

  Date  

Lowest

Weight

  Date

Chicago Wheat

  W   8.26%   11.00%   Apr 25, 1996   4.53%   Jul 2, 1999

Kansas City Wheat2

  KW   0.00%   2.52%   Jan 26, 1999   0.50%   Apr 5, 2010

Corn

  C   4.60%   8.24%   May 17, 1996   1.81%   Sep 28, 2005

Soybeans

  S   2.25%   4.01%   Jan 17, 1999   1.24%   Sep 28, 2005

Coffee

  KC   2.43%   3.94%   May 29, 1997   0.45%   Jul 11, 2008

Sugar #11

  SB   3.52%   3.73%   Jan 23, 1995   0.64%   Jun 6, 2008

Cocoa

  CC   0.32%   0.58%   Sep 2, 1998   0.14%   Nov 27, 2000

Cotton #2

  CT   3.67%   4.56%   Mar 10, 1995   0.61%   Jun 6, 2006

Lean Hogs

  LH   3.44%   4.66%   Apr 17, 1997   0.82%   Jul 3, 2008

Live Cattle

  LC   9.01%   10.63%   Mar 1, 1999   1.59%   Jul 3, 2008

Feeder Cattle2

  FC   0.00%   1.20%   Jan 30, 2002   0.29%   Jul 3, 2008

Heating Oil

  HO   9.46%   12.04%   Oct 7, 1996   3.88%   Mar 11, 2009

RBOB Gasoline

  RB   11.67%   13.67%   May 1, 1998   1.18%   Jan 22, 2007

Crude Oil

  CL   17.48%   30.08%   Aug 26, 2005   16.19%   Dec 21, 1995

Natural Gas

  HG   10.32%   23.45%   Oct 27, 1997   5.72%   Jan 28, 1998

Brent Crude Oil2

  LCO   0.00%   17.29%   Oct 20, 2011   6.91%   Feb 8, 1999

Gasoil2

  LGO   0.00%   7.47%   Oct 19, 2011   1.91%   Feb 9, 1999

Aluminum

  MAL   4.97%   5.15%   Jan 7, 1999   1.89%   Jun 2, 2009

Copper

  MCU   3.37%   4.83%   Sep 26, 2006   1.48%   Mar 7, 2003

Lead

  MPB   0.39%   0.83%   Oct 9, 2007   0.18%   Mar 7, 2003

Nickel

  MNI   0.84%   2.28%   May 7, 2007   0.39%   Oct 27, 1997

Zinc

  MZN   0.86%   1.65%   Nov 7, 2006   0.32%   Jul 3, 2008

Tin3

  MSN   0.15%   0.18   Aug 18, 1995   0.75%   Sep 14, 2001

Platinum3

  PL   0.40%   0.44%   Apr 5, 1995   0.12%   Jan 8, 1997

Gold

  GC   2.36%   4.26%   Feb 23, 2009   1.35%   Aug 30, 2005

Silver

  SI   0.24%   0.69%   Aug 22, 2011   0.15%   Aug 30, 2005

 

  (1)

Tickers are Reuters RIC Codes.

 

  (2)

Kansas City Wheat, Brent Crude Oil and Gasoil futures contracts were added to the Index on January 8, 1999. Feeder Cattle futures contracts were added to the Index on January 7, 2002

 

  (3)

Tin futures contracts were removed from the Index on January 7, 2002 and Platinum futures contracts were removed from the Index on January 7, 2003.

THE FUND WILL TRADE WITH A VIEW TO TRACKING THE

S&P GSCI® DYNAMIC ROLL EXCESS RETURN INDEX OVER TIME.

NEITHER THE PAST PERFORMANCE OF THE FUND NOR THE

PRIOR INDEX LEVELS AND CHANGES, POSITIVE OR NEGATIVE, SHOULD

BE TAKEN AS AN INDICATION OF THE FUND’S FUTURE PERFORMANCE.

Please refer to Notes and Legends that follow on page 66.

 

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CLOSING LEVELS TABLE

S&P GSCI® DYNAMIC ROLL EXCESS RETURN INDEX

 

Date   Closing Level   Annual Index
Changes1
  Index Changes
Since Inception2

January 16, 1995

  100.00        

December 31, 1995

  109.47   9.47%   9.47%

December 31, 1996

  143.24   30.85%   43.24%

December 31, 1997

  129.90   -9.31%   29.90%

December 31, 1998

  96.37   -25.81%   -3.63%

December 31, 1999

  121.30   25.87%   21.30%

December 31, 2000

  150.95   24.44%   50.95%

December 31, 2001

  123.22   -18.37%   23.22%

December 31, 2002

  156.35   26.89%   56.35%

December 31, 2003

  199.17   27.39%   99.17%

December 31, 2004

  270.34   35.73%   170.34%

December 31, 2005

  407.82   50.85%   307.82%

December 31, 2006

  422.74   3.66%   322.74%

December 31, 2007

  557.74   31.93%   457.74%

December 31, 2008

  406.17   -27.18%   306.17%

December 31, 2009

  476.47   17.31%   376.47%

December 31, 2010

  524.39   10.06%   424.39%

October 31, 2011

  528.92   0.86%   428.92%

THE FUND WILL TRADE WITH A VIEW TO TRACKING THE

S&P GSCI® DYNAMIC ROLL EXCESS RETURN INDEX OVER TIME.

NEITHER THE PAST PERFORMANCE OF THE FUND NOR THE

PRIOR INDEX LEVELS AND CHANGES, POSITIVE OR NEGATIVE, SHOULD

BE TAKEN AS AN INDICATION OF THE FUND’S FUTURE PERFORMANCE.

Please refer to Notes and Legends that follow on page 66.

 

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All Statistics from July 31, 1998* to October 31, 2011

 

VARIOUS STATISTICAL MEASURES       INDEX3     GSCI-ER4     RICI-ER5     DJUBS6  

Annualized Changes to Index Level7

       12.62%        3.16%        8.07%        3.87%   

Average rolling 3 month daily volatility8

       18.80%        23.77%        18.81%        16.83%   

Sharpe Ratio9

       0.64        0.13        0.41        0.22   

% of months with positive change10

       57.23%        56.60%        61.01%        57.23%   

Average monthly positive change11

       5.08%        5.44%        4.37%        3.87%   

Average monthly negative change12

       -4.09%        -5.90%        -4.74%        -4.07%   

ANNUALIZED INDEX LEVELS13    

          
         INDEX 3       GSCI-ER 4       RICI-ER 5       DJUBS 6  

1 year

       8.41%        9.99%        6.11%        1.50%   

3 year

       3.17%        -3.15%        6.23%        4.42%   

5 year

       5.22%        -4.05%        0.93%        -2.08%   

* July 31, 1998 represents the first date on which statistical data was available for each of the Index, GSCI-ER, RICI-ER and DJUBS.

NEITHER THE PAST PERFORMANCE OF THE FUND NOR THE PRIOR INDEX LEVELS AND CHANGES, POSITIVE AND NEGATIVE, SHOULD BE TAKEN AS AN INDICATION OF THE FUND’S FUTURE PERFORMANCE.

WHILE THE FUND’S OBJECTIVE IS NOT TO GENERATE PROFIT THROUGH ACTIVE PORTFOLIO MANAGEMENT, BUT IS TO TRACK THE INDEX, BECAUSE THE INDEX WAS ESTABLISHED IN JANUARY 2011, CERTAIN INFORMATION RELATING TO THE INDEX CLOSING LEVELS MAY BE CONSIDERED TO BE “HYPOTHETICAL.” HYPOTHETICAL INFORMATION MAY HAVE CERTAIN INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW.

NO REPRESENTATION IS BEING MADE THAT THE INDEX WILL OR IS LIKELY TO ACHIEVE ANNUAL OR CUMULATIVE CLOSING LEVELS CONSISTENT WITH OR SIMILAR TO THOSE SET FORTH HEREIN. SIMILARLY, NO REPRESENTATION IS BEING MADE THAT THE FUND WILL GENERATE PROFITS OR LOSSES SIMILAR TO THE FUND’S PAST PERFORMANCE, WHEN AVAILABLE, OR THE HISTORICAL ANNUAL OR CUMULATIVE CHANGES IN INDEX CLOSING LEVELS. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY INVESTMENT METHODOLOGIES, WHETHER ACTIVE OR PASSIVE.

ONE OF THE LIMITATIONS OF HYPOTHETICAL INFORMATION IS THAT IT IS GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. TO THE EXTENT THAT INFORMATION PRESENTED HEREIN RELATES TO THE PERIOD JULY 1998 THROUGH JANUARY 2011, THE INDEX CLOSING LEVELS REFLECT THE APPLICATION OF THE INDEX METHODOLOGY, AND SELECTION OF INDEX COMMODITIES, IN HINDSIGHT.

NO HYPOTHETICAL RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THERE ARE NUMEROUS FACTORS, INCLUDING THOSE DESCRIBED UNDER THE SECTION “THE RISKS YOU FACE” HEREIN, RELATED TO THE COMMODITIES MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF THE FUND’S EFFORTS TO TRACK THE INDEX OVER TIME WHICH CANNOT BE, AND HAVE NOT BEEN, ACCOUNTED FOR IN THE PREPARATION OF THE INDEX INFORMATION SET FORTH ON THE FOLLOWING PAGES, ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL PERFORMANCE RESULTS FOR THE FUND. FURTHERMORE, THE INDEX INFORMATION DOES NOT INVOLVE FINANCIAL RISK.

THE MANAGING OWNER HAS HAD NO EXPERIENCE IN TRADING ACTUAL ACCOUNTS FOR ITSELF OR FOR CLIENTS. BECAUSE THERE ARE NO ACTUAL TRADING RESULTS TO COMPARE TO THE INDEX CLOSING LEVELS SET FORTH HEREIN, PROSPECTIVE INVESTORS SHOULD BE PARTICULARLY WARY OF PLACING UNDUE RELIANCE ON THE ANNUAL OR CUMULATIVE INDEX RESULTS.

Please refer to Notes and Legends that follow on page 66.

 

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COMPARISON OF THE VARIOUS COMMODITIES INDICES

(JULY 31, 1998* – OCTOBER 31, 2011)

 

LOGO

THE FUND WILL TRADE WITH A VIEW TO TRACKING THE S&P GSCI® DYNAMIC ROLL EXCESS RETURN INDEX OVER TIME.

NEITHER THE PAST PERFORMANCE OF THE FUND NOR THE PRIOR INDEX LEVELS AND CHANGES, POSITIVE AND NEGATIVE,

SHOULD BE TAKEN AS AN INDICATION OF THE FUND’S FUTURE PERFORMANCE.

* July 31, 1998 represents the first date on which statistical data was available for each of the Index, GSCI-ER, RICI-ER and DJUBS.

Each of the Index, Index, GSCI-ER, RICI-ER and DJUBS is an index and does not reflect actual trading. The Index is calculated on an excess return basis and each of Index, GSCI-ER, RICI-ER and DJUBS is calculated on an excess return basis. None of the indices reflect any fees or expenses.

WHILE THE FUND’S OBJECTIVE IS NOT TO GENERATE PROFIT THROUGH ACTIVE PORTFOLIO MANAGEMENT, BUT IS TO TRACK THE INDEX, BECAUSE THE INDEX WAS ESTABLISHED IN JANUARY 2011, CERTAIN INFORMATION RELATING TO THE INDEX CLOSING LEVELS MAY BE CONSIDERED TO BE “HYPOTHETICAL.” HYPOTHETICAL INFORMATION MAY HAVE CERTAIN INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW.

NO REPRESENTATION IS BEING MADE THAT THE INDEX WILL OR IS LIKELY TO ACHIEVE ANNUAL OR CUMULATIVE CLOSING LEVELS CONSISTENT WITH OR SIMILAR TO THOSE SET FORTH HEREIN. SIMILARLY, NO REPRESENTATION IS BEING MADE THAT THE FUND WILL GENERATE PROFITS OR LOSSES SIMILAR TO THE FUND’S PAST PERFORMANCE, WHEN AVAILABLE, OR THE HISTORICAL ANNUAL OR CUMULATIVE CHANGES IN INDEX CLOSING LEVELS. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY INVESTMENT METHODOLOGIES, WHETHER ACTIVE OR PASSIVE.

ONE OF THE LIMITATIONS OF HYPOTHETICAL INFORMATION IS THAT IT IS GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. TO THE EXTENT THAT INFORMATION PRESENTED HEREIN RELATES TO THE PERIOD JULY 1998 THROUGH JANUARY 2011, THE INDEX CLOSING LEVELS REFLECT THE APPLICATION OF THE INDEX METHODOLOGY, AND SELECTION OF INDEX COMMODITIES, IN HINDSIGHT.

NO HYPOTHETICAL RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THERE ARE NUMEROUS FACTORS, INCLUDING THOSE DESCRIBED UNDER THE SECTION “THE RISKS YOU FACE” HEREIN, RELATED TO THE COMMODITIES MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF THE FUND’S EFFORTS TO TRACK THE INDEX OVER TIME WHICH CANNOT BE, AND HAVE NOT BEEN, ACCOUNTED FOR IN THE PREPARATION OF THE INDEX INFORMATION SET FORTH ON THE FOLLOWING PAGES, ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL PERFORMANCE RESULTS FOR THE FUND. FURTHERMORE, THE INDEX INFORMATION DOES NOT INVOLVE FINANCIAL RISK.

THE MANAGING OWNER HAS HAD NO EXPERIENCE IN TRADING ACTUAL ACCOUNTS FOR ITSELF OR FOR CLIENTS. BECAUSE THERE ARE NO ACTUAL TRADING RESULTS TO COMPARE TO THE INDEX CLOSING LEVELS SET FORTH HEREIN, PROSPECTIVE INVESTORS SHOULD BE PARTICULARLY WARY OF PLACING UNDUE RELIANCE ON THE ANNUAL OR CUMULATIVE INDEX RESULTS.

Please refer to Notes and Legends that follow on page 66.

 

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COMPARISON OF ANNUAL RETURNS OF THE VARIOUS COMMODITIES INDICES

(JULY 31, 1998* – OCTOBER 31, 2011)

LOGO

THE FUND WILL TRADE WITH A VIEW TO TRACKING THE S&P GSCI® DYNAMIC ROLL EXCESS RETURN INDEX OVER TIME.

NEITHER THE PAST PERFORMANCE OF THE FUND NOR THE PRIOR INDEX LEVELS AND CHANGES, POSITIVE AND NEGATIVE,

SHOULD BE TAKEN AS AN INDICATION OF THE FUND’S FUTURE PERFORMANCE.

 

*

July 31, 1998 represents the first date on which statistical data was available for each of the Index, GSCI-ER, RICI-ER and DJUBS.

Each of the Index, Index, GSCI-ER, RICI-ER and DJUBS is an index and does not reflect actual trading. The Index is calculated on an excess return basis and each of Index, GSCI-ER, RICI-ER and DJUBS is calculated on an excess return basis. None of the indices reflect any fees or expenses.

WHILE THE FUND’S OBJECTIVE IS NOT TO GENERATE PROFIT THROUGH ACTIVE PORTFOLIO MANAGEMENT, BUT IS TO TRACK THE INDEX, BECAUSE THE INDEX WAS ESTABLISHED IN JANUARY 2011, CERTAIN INFORMATION RELATING TO THE INDEX CLOSING LEVELS MAY BE CONSIDERED TO BE “HYPOTHETICAL.” HYPOTHETICAL INFORMATION MAY HAVE CERTAIN INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW.

NO REPRESENTATION IS BEING MADE THAT THE INDEX WILL OR IS LIKELY TO ACHIEVE ANNUAL OR CUMULATIVE CLOSING LEVELS CONSISTENT WITH OR SIMILAR TO THOSE SET FORTH HEREIN. SIMILARLY, NO REPRESENTATION IS BEING MADE THAT THE FUND WILL GENERATE PROFITS OR LOSSES SIMILAR TO THE FUND’S PAST PERFORMANCE, WHEN AVAILABLE, OR THE HISTORICAL ANNUAL OR CUMULATIVE CHANGES IN INDEX CLOSING LEVELS. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY INVESTMENT METHODOLOGIES, WHETHER ACTIVE OR PASSIVE.

ONE OF THE LIMITATIONS OF HYPOTHETICAL INFORMATION IS THAT IT IS GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. TO THE EXTENT THAT INFORMATION PRESENTED HEREIN RELATES TO THE PERIOD JULY 1998 THROUGH JANUARY 2011, THE INDEX CLOSING LEVELS REFLECT THE APPLICATION OF THE INDEX METHODOLOGY, AND SELECTION OF INDEX COMMODITIES, IN HINDSIGHT.

NO HYPOTHETICAL RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THERE ARE NUMEROUS FACTORS, INCLUDING THOSE DESCRIBED UNDER THE SECTION “THE RISKS YOU FACE” HEREIN, RELATED TO THE COMMODITIES MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF THE FUND’S EFFORTS TO TRACK THE INDEX OVER TIME WHICH CANNOT BE, AND HAVE NOT BEEN, ACCOUNTED FOR IN THE PREPARATION OF THE INDEX INFORMATION SET FORTH ON THE FOLLOWING PAGES, ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL PERFORMANCE RESULTS FOR THE FUND. FURTHERMORE, THE INDEX INFORMATION DOES NOT INVOLVE FINANCIAL RISK.

THE MANAGING OWNER HAS HAD NO EXPERIENCE IN TRADING ACTUAL ACCOUNTS FOR ITSELF OR FOR CLIENTS. BECAUSE THERE ARE NO ACTUAL TRADING RESULTS TO COMPARE TO THE INDEX CLOSING LEVELS SET FORTH HEREIN, PROSPECTIVE INVESTORS SHOULD BE PARTICULARLY WARY OF PLACING UNDUE RELIANCE ON THE ANNUAL OR CUMULATIVE INDEX RESULTS.

Please refer to Notes and Legends that follow on page 66.

 

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NOTES AND LEGENDS

 

1.

“Annual Index Changes” reflect the change to the Index level on an annual basis as of December 31 of each applicable year.

 

2.

“Index Changes Since Inception” reflect the change of the Index closing levels since inception on a compounded annual basis as of December 31 of each applicable year.

 

3.

“Index” is the S&P GSCI Dynamic Roll Excess Return Index calculated on an excess return basis. The GSCI is designed to provide investors with a reliable and publicly available benchmark for investment in the commodity market. The GSCI is a composite index of commodity sector returns, representing an unleveraged, long-only investment in commodity futures that is broadly diversified across the spectrum of commodities. In turn, the GSCI provides investors with a representative and realistic picture of realizable returns attainable in the commodities markets. The Index employs the S&P GSCI Dynamic Roll methodology.

 

4.

“GSCI–ER” is the S&P GSCI Commodity Index® calculated on an excess return basis. The GSCI is designed to provide investors with a reliable and publicly available benchmark for investment in the commodity market. The GSCI is a composite index of commodity sector returns, representing an unleveraged, long-only investment in commodity futures that is broadly diversified across the spectrum of commodities. In turn, the GSCI provides investors with a representative and realistic picture of realizable returns attainable in the commodities markets. The GSCI–ER employs a standard roll methodology.

 

5.

“RICI–ER” is the Rogers International Commodity Index calculated on an excess return basis. RICI represents the value of a basket of commodities employed in the global economy, ranging from agricultural products (such as wheat, corn and cotton) and energy products (including crude oil, gasoline and natural gas) to metals and minerals (including gold, silver, aluminum and lead). As of its launch in 1998 there were thirty-five different contracts represented in the RICI–ER Index. As of 2011, the RICI–ER Index represents thirty-five different contracts. The value of each component is based on monthly closing prices of the corresponding futures and/or forward contracts, each of which is valued as part of a fixed-weight portfolio. The RICI-ER Index was developed to be an effective measure of the price action of raw materials on a worldwide basis. The broad based representation of commodities contracts is intended to provide two important characteristics: The large number of contracts and underlying raw materials represents “diversification” and the global coverage of those contracts reflects the current state of international trade and commerce.

 

6

“DJUBS” is the Dow Jones—UBS Commodity IndexSM which is calculated on an excess return basis. The DJUBS is designed to be a highly liquid and diversified benchmark for the commodity futures market. The DJ-UBS is composed of futures contracts on 19 physical commodities. The DJ-UBS is composed of commodities traded on U.S. exchanges, with the exception of aluminum, nickel and zinc, which trade on the London Metal Exchange (LME). An Oversight Committee meets annually to determine the composition of the index in accordance with the rules established in the DJ-UBSCI Handbook. Committee members are drawn from the academic, financial and legal communities.

 

7.

“Annualized Changes to Index Level” from July 31, 1998 to October 31, 2011.

 

8.

“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.

 

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9.

“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.

 

10.

“% of months with positive change” during the period from July 31, 1998 to October 31, 2011.

 

11.

“Average monthly positive change” during the period from July 31, 1998 to October 31, 2011.

 

12.

“Average monthly negative change” during the period from July 31, 1998 to October 31, 2011.

 

13.

“Annualized Index Levels” reflect the annualized change to the level of the applicable index on October 31, 2011 over the applicable time period (i.e., 1 year, 3 or 5 years).

WHILE THE FUND’S OBJECTIVE IS NOT TO GENERATE PROFIT THROUGH ACTIVE PORTFOLIO MANAGEMENT, BUT IS TO TRACK THE INDEX, BECAUSE THE INDEX WAS ESTABLISHED IN JANUARY 2011, CERTAIN INFORMATION RELATING TO THE INDEX CLOSING LEVELS MAY BE CONSIDERED TO BE “HYPOTHETICAL.” HYPOTHETICAL INFORMATION MAY HAVE CERTAIN INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW.

NO REPRESENTATION IS BEING MADE THAT THE INDEX WILL OR IS LIKELY TO ACHIEVE ANNUAL OR CUMULATIVE CLOSING LEVELS CONSISTENT WITH OR SIMILAR TO THOSE SET FORTH HEREIN. SIMILARLY, NO REPRESENTATION IS BEING MADE THAT THE FUND WILL GENERATE PROFITS OR LOSSES SIMILAR TO THE FUND’S PAST PERFORMANCE, WHEN AVAILABLE, OR THE HISTORICAL ANNUAL OR CUMULATIVE CHANGES IN INDEX CLOSING LEVELS. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY INVESTMENT METHODOLOGIES, WHETHER ACTIVE OR PASSIVE.

ONE OF THE LIMITATIONS OF HYPOTHETICAL INFORMATION IS THAT IT IS GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. TO THE EXTENT THAT INFORMATION PRESENTED HEREIN RELATES TO THE PERIOD JANUARY 1995 THROUGH JANUARY 2011, THE INDEX CLOSING LEVELS REFLECT THE APPLICATION OF THE INDEX METHODOLOGY, AND SELECTION OF INDEX COMMODITIES, IN HINDSIGHT.

NO HYPOTHETICAL RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THERE ARE NUMEROUS FACTORS, INCLUDING THOSE DESCRIBED UNDER THE SECTION “THE RISKS YOU FACE” HEREIN, RELATED TO THE COMMODITIES MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF THE FUND’S EFFORTS TO TRACK THE INDEX OVER TIME WHICH CANNOT BE, AND HAVE NOT BEEN, ACCOUNTED FOR IN THE PREPARATION OF THE INDEX INFORMATION SET FORTH ON THE FOLLOWING PAGES, ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL PERFORMANCE RESULTS FOR THE FUND. FURTHERMORE, THE INDEX INFORMATION DOES NOT INVOLVE FINANCIAL RISK.

THE MANAGING OWNER HAS HAD NO EXPERIENCE IN TRADING ACTUAL ACCOUNTS FOR ITSELF OR FOR CLIENTS. BECAUSE THERE ARE NO ACTUAL TRADING RESULTS TO COMPARE TO THE INDEX CLOSING LEVELS SET FORTH HEREIN, PROSPECTIVE INVESTORS SHOULD BE PARTICULARLY WARY OF PLACING UNDUE RELIANCE ON THE ANNUAL OR CUMULATIVE INDEX RESULTS.

THIS FUND IS NOT SPONSORED, ENDORSED, SOLD OR PROMOTED BY STANDARD & POOR’S AND ITS AFFILIATES (COLLECTIVELY, “S&P”). S&P MAKES NO REPRESENTATION, CONDITION OR WARRANTY, EXPRESS OR IMPLIED, TO THE OWNERS OF THE FUND OR ANY MEMBER OF THE PUBLIC REGARDING THE ADVISABILITY OF INVESTING IN SECURITIES GENERALLY OR IN THE FUND PARTICULARLY OR THE ABILITY OF THE S&P GSCI® DYNAMIC ROLL EXCESS RETURN INDEX TO TRACK MARKET PERFORMANCE AND/OR TO ACHIEVE

 

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ITS STATED OBJECTIVE AND/OR TO FORM THE BASIS OF A SUCCESSFUL INVESTMENT STRATEGY, AS APPLICABLE. S&P’S ONLY RELATIONSHIP TO BNP PARIBAS QUANTITATIVE STRATEGIES, LLC IS THE LICENSING OF CERTAIN TRADEMARKS AND TRADE NAMES AND OF THE S&P GSCI® DYNAMIC ROLL EXCESS RETURN INDEX WHICH IS DETERMINED, COMPOSED AND CALCULATED BY S&P WITHOUT REGARD TO BNP PARIBAS QUANTITATIVE STRATEGIES, LLC OR THE FUND. S&P HAS NO OBLIGATION TO TAKE THE NEEDS OF BNP PARIBAS QUANTITATIVE STRATEGIES, LLC INTO CONSIDERATION IN DETERMINING, COMPOSING OR CALCULATING THE S&P GSCI® DYNAMIC ROLL EXCESS RETURN INDEX. S&P IS NOT AN ADVISOR TO THE FUND AND IS NOT RESPONSIBLE FOR AND HAS NOT PARTICIPATED IN THE DETERMINATION OF THE PRICES AND AMOUNT OF THE FUND OR THE TIMING OF THE ISSUANCE OR SALE OF THE FUND OR IN THE DETERMINATION OR CALCULATION OF THE EQUATION BY WHICH THE FUND’S SHARES ARE TO BE CONVERTED INTO CASH. S&P HAS NO OBLIGATION OR LIABILITY IN CONNECTION WITH THE ADMINISTRATION, MARKETING, OR TRADING OF THE FUND.

S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P GSCI® DYNAMIC ROLL EXCESS RETURN INDEX OR ANY DATA INCLUDED THEREIN AND S&P SHALL HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. S&P MAKES NO WARRANTY, CONDITION OR REPRESENTATION, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY BNP PARIBAS QUANTITATIVE STRATEGIES, LLC, OWNERS OF THE FUND, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P GSCI® DYNAMIC ROLL EXCESS RETURN INDEX OR ANY DATA INCLUDED THEREIN. S&P MAKES NO EXPRESS OR IMPLIED WARRANTIES, REPRESENTATIONS OR CONDITIONS, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OR CONDITIONS OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE AND ANY OTHER EXPRESS OR IMPLIED WARRANTY OR CONDITION WITH RESPECT TO THE S&P GSCI® DYNAMIC ROLL EXCESS RETURN INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS) RESULTING FROM THE USE OF THE S&P GSCI® DYNAMIC ROLL EXCESS RETURN INDEX OR ANY DATA INCLUDED THEREIN, EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.

 

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MANAGEMENT’S DISCUSSION AND

ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Critical Accounting Policies

Preparation of the financial statements and related disclosures in accordance with U.S. generally accepted accounting principles requires the application of appropriate accounting rules and guidance, as well as the use of estimates. The Fund’s application of these policies involves judgments and the use of estimates. Actual results may differ from the estimates used and such differences could be material. The Fund Portfolio will hold a significant portion of its assets in futures contracts and Cash Instruments, each of which, as applicable, will be held at fair value. The Fund may also invest in Cleared Swaps and/or Alternative Financial Instruments.

The Fund will calculate its Net Asset Value as described under the section “Description of the Shares; The Trust; The Fund; Certain Material Terms of the Declaration of Trust — Net Asset Value” for more details.

If the Fund invests in one or more Cleared Swaps, the value of the Cleared Swaps will be based on the value of the Designated Contract underlying the applicable Index Commodity in connection with such Cleared Swap, except that a fair value may be determined if the Managing Owner believes that the Fund is subject to significant credit risk relating to the counterparty to such Cleared Swap.

The Fund’s critical accounting policy with respect to Alternative Financial Instruments is as follows:

 

   

The Fund may invest in Alternative Financial Instruments. The Alternative Financial Instruments would be recorded on a trade date basis and at fair value in the financial statements, with changes in fair value reported in the Statements of Operations.

 

   

The use of fair value to measure Alternative Financial Instruments, with related unrealized gains or losses recognized in earnings in each period, is fundamental to the Fund’s financial statements. The fair value of an

 

Alternative Financial Instrument is the amount that would be received for the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (the exit price).

 

   

The Alternative Financial Instruments are generally valued using independent sources and/or agreements with counterparties or other procedures as determined by the Managing Owner. However, if the price of the Designated Contract underlying the Index Commodity becomes unavailable with respect to a specific Alternative Financial Instrument, the Managing Owner may, in its sole discretion, choose to determine a fair value price as the basis for determining the market value of such position in an Alternative Financial Instrument for such day. Such fair value prices would be generally determined based on available inputs about the current value of the Designated Contract underlying the Index Commodity and would be based on principles that the Managing Owner deems fair and equitable so long as such principles are consistent with normal industry standards.

 

   

Fair value pricing with respect to the Alternative Financial Instruments may require subjective determinations about the value of the Alternative Financial Instruments. While the Fund’s policy is intended to result in a calculation of the Fund’s Net Asset Value that fairly reflects investment values of the Alternative Financial Instruments as of the time of pricing, the Fund cannot ensure that fair values determined by the Managing Owner or persons acting at its direction would accurately reflect the price that the Fund could obtain for an investment if it were to dispose of that Alternative Financial Instrument as of the time of pricing (for instance, in a forced or distressed sale). The prices used by the Fund may differ from the value that would be realized if the Alternative Financial Instruments were sold and the differences could be

 

 

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 material to the applicable financial statements.

 

   

The Fund will disclose the fair value of its Alternative Financial Instruments (if any) in a hierarchy that prioritizes the inputs to valuation techniques used to measure fair value.

 

   

Realized gains (losses) and changes in unrealized gain (loss) on open positions are determined on a specific identification basis and recognized in the Statements of Operations in the period in which the contract is closed or the changes occur, respectively.

Liquidity and Capital Resources

As of the date of this Prospectus, the Fund has not begun trading activities.

Once the Fund begins trading activities, it is anticipated that all of its total net assets will be allocated to futures based commodities trading, unless the Fund commences an investment in one or more Cleared Swaps or Alternative Financial Instruments (if any).

If the Fund invests in Cleared Swaps and/or Alternative Financial Instruments, a portion of its proceeds of the offering may be used to collateralize the Cleared Swaps and/or Alternative Financial Instruments, as applicable, in accordance with normal market practices.

A significant portion of the Net Asset Value is likely to be held in Cash Instruments.

Although the following percentages may vary substantially over time, as of the date of this Prospectus, the Fund estimates that up to approximately 10% of its Net Asset Value will be placed in segregated accounts (pursuant to the rules of the CFTC) in the name of the Fund with PBI and CFL (or another eligible financial institution, as applicable) in the form of Cash Instruments to margin positions of all futures contracts combined. The Fund maintains approximately 90% of its Net Asset Value in Cash Instruments over and above that which is needed to post as collateral for trading. The percentage that the Fund’s Cash Instruments will bear to the total net assets will vary from period to period as the market values of commodity interests change. The balance of the net assets will be held in the

Fund’s segregated and custodial account with the Custodian or Commodity Broker. Interest earned on the Fund’s interest-bearing funds will be paid to the Fund.

“Initial” or “original” margin is the minimum amount of funds that must be deposited by a futures trader with his commodity broker in order to initiate futures trading or to maintain an open position in futures contracts. “Maintenance” margin is the amount (generally less than initial margin) to which a trader’s account may decline before he must deliver additional margin. 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. The Fund will meet a margin call by either liquidating an appropriate amount of Cash Instruments, as applicable, or satisfy the margin call with cash. If the Fund does not have a sufficient amount of Cash Instruments to satisfy the margin call, the Fund will be required to liquidate its holdings of futures contracts, Cleared Swaps or Alternative Financial Instruments (if any). If the margin call is not met within a reasonable time, the broker may close out the Fund’s position.

The amount of margin that is required to establish and maintain a Cleared Swap is determined by the exchange which clears the applicable Cleared Swap. Additionally, the requirements and the logistics related to margin with respect to Cleared Swaps is substantially similar futures contracts.

The current holdings of Cash Instruments will earn an interest rate of 0.00% as of October 31, 2011.

The Fund’s commodity futures contracts may be subject to periods of illiquidity because of market conditions, regulatory considerations and other reasons. For example, commodity exchanges limit fluctuations in certain commodity 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 for a particular commodity has increased or decreased by an amount equal to the daily limit, positions in the commodity futures contracts can neither be taken nor liquidated unless the traders are willing to effect trades at or within the limit. Commodity futures prices have occasionally moved the daily limit for several consecutive days with little or no trading. Such market conditions could prevent

 

 

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the Fund from promptly liquidating its commodity futures positions.

The Fund’s Cleared Swaps and Alternative Financial Instruments, if any, may also be subject to periods of illiquidity because of market conditions, regulatory considerations and other reasons. For example, the Alternative Financial Instruments are not traded on an exchange, do not have uniform terms and conditions, and in general are not transferable without the consent of the counterparty. Entry into Alternative Financial Instruments (if any) may further impact liquidity because these contractual agreements are executed “off-exchange” between private parties and, therefore, the time required to offset or “unwind” these positions may be greater than that for exchange-traded instruments. This potential delay could be exacerbated to the extent a counterparty is not a U.S. person.

Because the Fund will trade futures contracts, its capital would be at risk due to changes in the market price of these contracts (market risk) or the inability of counterparties to perform under the terms of the contracts (credit risk). The Fund’s capital would be at risk in connection with its cleared swaps due to changes in the value of these cleared swaps (market risk) or the inability of counterparties to perform under the terms of the contracts (credit risk). Additionally, if the Fund invested in Alternative Financial Instruments, its capital would be at risk due to changes in the value of these Alternative Financial Instruments (market risk) or the inability of counterparties to perform under the terms of the Alternative Financial Instruments (credit risk).

Market risk

Trading in futures contracts, Cleared Swaps and Alternative Financial Instruments (if any) will involve the Fund entering into contractual commitments to purchase or sell a particular commodity at a specified date and price. The market risk associated with the Fund’s commitments to purchase commodities will be limited to the gross or face amount of the futures contracts, the Cleared Swaps or the Alternative Financial Instruments (if any) held.

The 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 associated with the contracts and the relationships among the contracts held. The inherent uncertainty of the Fund’s 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 Fund enters into futures contracts, Cleared Swaps or Alternative Financial Instruments (if any), the 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 U.S. 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), it may be backed by a consortium of banks or other financial institutions.

When the Fund enters into Cleared Swaps, the Fund will be exposed to credit risk that the clearinghouse for the Cleared Swaps will not meet its obligations. However, the Fund will not be subject to individual dealer counterparty risk that exists in over the counter swaps that are not cleared through a clearinghouse.

Alternative Financial Instruments (if any) are contracted for directly with counterparties and the Fund will be subject to the risks as described under the section “The Risks You Face — (47) Alternative Financial Instruments (If Any), Such As Forward Agreements And Swaps Are Not Regulated And Are Subject To The Risk Of Counterparty Non-Performance Resulting In The Fund Not Realizing A Trading Gain,” “The Risks You Face — (48) The Effect Of Market Disruptions, Governmental Intervention And The Reform Act Are Unpredictable And May Have An Adverse Effect On The Value Of Your Shares” and “The Risks You Face — (49) The Effects Of New Regulation Of The Over-The-Counter Derivatives Markets Is Unknown And May Have A Detrimental Effect On The Value Of Your Shares.”

There can be no assurance that any counterparty, clearing member or clearing house will meet its obligations to the Fund.

Cleared Swaps may not generally involve the delivery of the underlying assets either at the outset of a transaction or upon settlement. Because Cleared

 

 

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Swaps are cleared by a clearinghouse, the Fund is not subject to the counterparty risks associated with a swap agreement as described in the next paragraph. However, the Fund is subject to the risk that the clearinghouse may fail to clear the Cleared Swap and therefore may suffer a full loss.

Swap agreements do not generally involve the delivery of the underlying assets either at the outset of a transaction or upon settlement. Accordingly, if the counterparty to a swap agreement defaults, the Fund’s risk of loss consists of the net amount of payments that the Fund is contractually entitled to receive, if any. Swap counterparty risk is generally limited to the amount of any unrealized gains, although in the event of a counterparty bankruptcy, there could be delays and costs associated with recovery of collateral posted in segregated tri-party accounts at the Fund’s custodian bank.

Forward agreements do not involve the delivery of the underlying assets at the onset of a transaction, but may be settled physically in the underlying asset if such contracts are held to expiration. Thus, prior to settlement, if the counterparty to a forward contract defaults, the Fund’s risk of loss consists of the net amount of payments that the Fund is contractually entitled to receive, if any. However, if physically settled forwards are held until expiration (presently, there is no plan to do this), at the time of settlement, the Fund may be at risk for the full notional value of the forward contracts depending on the type of settlement procedures used.

The Managing Owner will attempt to minimize these market and credit risks by requiring the Fund to abide by various trading limitations and policies, which will include limiting margin accounts and trading only in liquid markets. 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 futures contract or all futures contracts combined; and

 

   

generally limiting transactions to futures contracts which will be traded in sufficient volume to permit the taking and liquidating of positions.

The Fund will enter into Alternative Financial Instruments (if any) with counterparties selected by the Managing Owner. The Managing Owner will select Alternative Financial Instrument (if any) counterparties giving due consideration to such factors as it deems appropriate, including, without limitation, creditworthiness, familiarity with the Index, and price. Under no circumstances will the Fund enter into an Alternative Financial Instrument (if any) with any counterparty whose credit rating is lower than investment-grade at the time a contract is entered into.

PBI, when acting as the 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 Fund, all assets of the Fund held at PBI relating to domestic futures trading and PBI will not be allowed to commingle such assets with other assets of PBI. In addition, CFTC regulations will also require PBI to hold in a secure account assets of the Fund related to foreign futures trading.

CFL is subject to the rules and regulations of the Financial Services Authority.

OFF-BALANCE SHEET ARRANGEMENTS

AND CONTRACTUAL OBLIGATIONS

As of the date of this Prospectus, the Fund has not yet commenced trading and does not expect to utilize in the future, special purpose entities to facilitate off-balance sheet financing arrangements and does not expect to have any 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. While the Fund’s exposure under such indemnification provisions cannot be estimated, these general business indemnifications are not expected to have a material impact on the Fund’s financial position.

The 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 Fund’s Net Asset Value. Commission payments to the Commodity Brokers are on a contract-by-contract, or round-turn, basis. As such, the Managing Owner cannot anticipate the amount of payments that

 

 

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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. The duration, renewal and termination provisions of each of these agreements are specified in each individual agreement. 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 to engage in the trading of Designated Contracts on the Index Commodities with a view to tracking the changes, positive or negative, in the levels of the Index over time, less the expenses of the operations of the Fund. If and when necessary, the Fund may invest in one or more Cleared Swaps, Substitute Contracts and/or Alternative Financial Instruments. The Fund’s holdings may also include Cash Instruments.

To the extent, if any, that the Fund trades in futures contracts and/or Cleared Swaps on U.S. exchanges, the assets deposited by the Fund with PBI as margin must be segregated pursuant to the regulations of the CFTC.

To the extent, if any, that the Fund trades in Cleared Swaps on U.S. exchanges, the assets deposited by the Fund with the futures commission merchant as margin must be segregated pursuant to the regulations of the CFTC. Such segregated funds may be invested only in a limited range of instruments — principally U.S. government obligations.

To the extent, if any, that the Fund trades in futures on markets other than regulated United States futures exchanges, funds deposited with CFL 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.” Furthermore, CFL is a member of the Financial Services Authority and as such is regulated by the Financial Services Authority in the conduct of its business in the United Kingdom.

Although the percentages set forth below may vary substantially over time, as of the date of this Prospectus, the Fund estimates:

(i) up to approximately 10% of the Net Asset Value of the Fund will be placed in segregated accounts in the name of the Fund with PBI and CFL (or another eligible financial institution, as applicable) in the form of Cash Instruments to margin positions of all commodities combined. Such funds will be segregated pursuant to CFTC rules with respect to PBI and will be held pursuant to the rules of the Financial Services Authority with respect to CFL; and

(ii) approximately 90% of the Net Asset Value of the Fund will be maintained in segregated accounts in the name of the Fund in bank deposits and Cash Instruments.

The percentage that the Fund’s Cash Instruments will bear to the total net assets will vary from period to period as the market values of the futures contracts change.

Should the Fund invest in Cleared Swaps and/or Alternative Financial Instruments, the Fund will deposit collateral with the appropriate counterparties in order to initiate and maintain positions in Cleared Swaps and/or Alternative Financial Instruments, as applicable. Such collateral provided will be held in U.S. government securities or in cash, for which the Fund will receive interest credits at short-term rates. Certain counterparties may receive a benefit as a result of the deposit of such cash in the form of a reduction in their outstanding overnight borrowing, despite such cash belonging to the Fund, not the specific counterparty.

A futures commission merchant, counterparty, government agency or commodity exchange could increase margin or collateral requirements applicable to the Fund to hold trading positions at any time. Moreover, margin is merely a security deposit and has no bearing on the profit or loss potential for any positions held.

The Managing Owner is a registered commodity pool operator and will be responsible for the cash management activities of the Fund, including investing in Cash Instruments.

The Fund receives 100% of the interest income earned, if any, on its fixed income assets on deposit with the Commodity Brokers or the Custodian.

 

 

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CHARGES

See the section “Summary — Breakeven Amounts” and the section “Summary — ‘Breakeven Table’” for additional breakeven related information.

Management Fee

The Fund will pay the Managing Owner a Management Fee, monthly in arrears, in an amount equal to 0.95% per annum of the daily Net Asset Value of the Fund. The Management Fee will be paid in consideration of the Managing Owner’s advisory services.

Organization and Initial Offering Expenses; Continuous Offering Fees and Expenses

Expenses incurred in connection with organizing the Trust and the Fund and up to the initial offering of the Fund’s Shares upon commencement of its trading operations will be paid by the Managing Owner. Organization and initial offering expenses relating to the Trust and the Fund that are paid by the Managing Owner means those expenses incurred in connection with its formation, the qualification, registration and the anticipated offering of the Fund’s Shares under applicable federal law, and any other expenses actually incurred and, directly or indirectly, related to the organization of the Trust and the Fund prior to commencing trading operations (which will occur contemporaneously with the commencement of the offering of the Shares).

Upon commencement of trading operations (which will occur contemporaneously with the commencement of the offering of the Shares) and thereafter, the Fund will bear the costs of its continuous offering of Shares and continuous offering expenses. Continuous offering fees and expenses include those legal and accounting fees and expenses, filing fees, printing, mailing and duplication costs associated with the continuous offering of the Shares.

The Managing Owner expects that the continuous offering fees and expenses of the Fund will be approximately 0.01% per annum of the Fund’s Net Asset Value, although the actual amount of continuous offering fees and expenses in any year or any part of any year may be greater.

Offering expenses relating to the Fund in connection with the initial and continuous offering of

the Shares, include, but are not limited to, expenses such as:

 

   

initial and ongoing registration fees, filing fees, escrow fees and taxes;

 

   

costs of preparing, printing (including typesetting), amending, supplementing, mailing and distributing the Registration Statement, the exhibits thereto and this 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 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 $1.5 million.

Brokerage Commissions and Fees

The Fund will pay to the Commodity Brokers 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.

Give-up fees are the fees paid in connection with give-up transactions. A broker gives up a transaction when the broker executes a contract for the client of another broker and the client order is turned over to the second

 

 

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broker. The broker accepting the order from the customer collects a fee from the carrying broker for the use of the facilities. Give-ups are often used to consolidate many small orders or to disperse large ones.

Pit brokerage fees are the fees paid to the pit broker, the person with exchange trading privileges who, in any pit, ring, post, or other place provided by a futures exchange for the meeting of persons similarly engaged, executes for another person any orders for the purchase or sale of any commodity for future delivery.

On average, total charges paid to the Commodity Brokers are expected to be approximately $10.00 per round-turn trade, although the Commodity Brokers’ brokerage commissions and trading fees will be determined on a contract-by-contract basis. The Managing Owner expects that the brokerage commissions and fees may equal to approximately 0.08% of the Net Asset Value of the Fund in any year, although the actual amount of brokerage commissions and fees in any year or any part of any year may be greater.

A round-turn trade is a completed transaction involving both a purchase and a liquidating sale, or a sale followed by a covering purchase.

Routine Operational, Administrative and Other Ordinary Fees and Expenses

The Fund will pay all of the routine operational, administrative and other ordinary fees and expenses of the Fund, including, but not limited to, computer services, Index licensing fee, legal and accounting fees and expenses, tax preparation expenses, filing fees, and printing, mailing and duplication costs. The Managing Owner will pay the fees and expenses of the Trustee, Administrator’s fees, Custodian fees, Transfer Agent fees and the Marketing Agent fees. The Managing Owner expects that all of the routine operational, administrative and other ordinary fees and expenses of the Fund will be approximately 0.40% per annum of the Fund’s Net Asset Value. The Managing Owner has agreed to reimburse the Fund, from its Management Fee, the amount of routine operational, administrative and other ordinary fees and expenses (excluding those legal and accounting fees and expenses, filing fees, printing, mailing and duplication costs associated with the continuous offering of the Shares as provided under the sub-section “Organization and Initial Offering Expenses; Continuous Offering Fees and Expenses”)

in excess of 0.20% per annum of the Fund’s Net Asset Value. For the avoidance of doubt, the cap as described in the immediately preceding sentence excludes expenses incurred in connection with the continuous offering of Shares after the commencement of the Fund’s trading operations.

Extraordinary Fees and Expenses

The Fund will pay all its extraordinary fees and expenses (as defined in the Declaration of Trust), 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, litigation costs or indemnification or other unanticipated expenses. Extraordinary fees and expenses will also include material expenses which are not currently anticipated obligations of the Fund or of managed futures funds in general. Routine operational, administrative and other ordinary fees and expenses will not be deemed extraordinary expenses.

Payment of Management Fee and Brokerage Commissions and Fees From Interest Income, if any

Because it is expected that interest income, if any, will not be sufficient to cover the fees and expenses of the Fund, the excess of such fees and expenses over such interest income, if any, will be paid out of income from trading, if any, or from sales of a portion of the Fund Portfolio. However, if interest income exceeded the fees and expenses of the Fund, the Management Fee and the brokerage commissions and fees of the Fund would be paid first out of interest income from the Fund Portfolio.

Selling Commission

Investors may purchase and sell Shares through traditional brokerage accounts. Investors are expected to be charged a customary commission by their brokers in connection with purchases of Shares that will vary from investor to investor. Investors are encouraged to review the terms of their brokerage accounts for applicable charges.

WHO MAY SUBSCRIBE

Baskets may be created or redeemed only by Authorized Participants, except that the initial Baskets were created by the Initial Purchaser. Each Authorized Participant must (1) be a registered

 

 

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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 direct participant in DTC, and (3) have entered into a Participant Agreement.

Each Authorized Participant must be registered as a broker dealer under the Securities Exchange Act of 1934, which we refer to as the Exchange Act, and regulated by the Financial Industry Regulatory Authority, which we refer to as FINRA, or must be exempt from being, or otherwise not required to be so regulated or registered. 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.

 

 

CREATION AND REDEMPTION OF SHARES

The Fund will create and redeem Shares from time-to-time, but only in one or more Baskets. Baskets may be created or redeemed only by Authorized Participants, except that the initial Baskets were created by the Initial Purchaser. 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 Baskets. Authorized Participants may sell the Shares included in the Baskets they purchase from the Fund to other investors.

The Participant Agreement sets forth the procedures for the creation and redemption of Baskets and for the payment of cash required for such creations and redemptions. The Managing Owner may delegate its duties and obligations under the Participant Agreement to the Marketing Agent 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 from the Fund receive no fees, commissions or other form of compensation or

inducement of any kind from either the Managing Owner or the Fund, and no such person has any obligation or responsibility to the Managing Owner or the Fund to effect any sale or resale of Shares.

Authorized Participants are cautioned that some of their activities will result in their being deemed participants in a distribution in a manner which would render them statutory underwriters and subject them to the prospectus-delivery and liability provisions of the Securities Act of 1933, which we refer to as the Securities Act, as described in the section “Plan of Distribution.

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 who are not Authorized Participants should contact the Managing Owner or the Administrator to obtain the contact information for the Authorized Participants. Shareholders who are not Authorized Participants will only be able to redeem their Shares through an Authorized Participant.

Under the Participant Agreements, the Managing Owner has agreed to indemnify the Authorized Participants and certain parties related to the Authorized Participants against certain liabilities as a result of:

 

   

any breach by the Managing Owner of any provision of the Participant Agreement that relates to the Managing Owner;

 

   

any failure on the part of the Managing Owner to perform any obligation of the Managing Owner set forth in the Participant Agreement;

 

   

any failure by the Managing Owner to comply with applicable laws; or

 

   

any untrue statement or alleged untrue statement of a material fact contained in the applicable Registration Statement as originally declared effective by the SEC or in any amendment, or in any Prospectus, or in any subsequent amendment or supplement, or arising out of or based upon the omission or alleged omission

 

 

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to state a material fact required to be stated or necessary to make the statements in the applicable Registration Statement or Prospectus not misleading, except those statements in the applicable Registration Statement or the Prospectus based on information furnished in writing by or on behalf of the Authorized Participant expressly for use in such Registration Statement or such Prospectus.

The following description of the procedures for the creation and redemption of Baskets is only a summary and an investor should refer to the relevant provisions of the Fund’s Declaration of Trust and the form of Participant Agreement for more detail. The Fund’s Declaration of Trust 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 each of NYSE Arca and banks in both New York City and London are required or permitted to be closed. Purchase orders must be placed by 10:00 a.m., Eastern 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 40,000 Shares as of the close of the NYSE Arca Core Trading Session or the last to close of the exchanges on which the Fund’s Designated Contracts or Substitute Contracts are traded, whichever is later, on the purchase order date. Baskets will be issued as of noon, Eastern time, on the business day immediately following the purchase order date at Net Asset Value per Share as of the close of the NYSE Arca Core Trading Session or the last to close of the exchanges on which the Fund’s Designated Contracts or Substitute Contracts

are traded, whichever is later, on the purchase order date during the continuous offering, but only if the required payment has been timely received. Authorized Participants will purchase Shares of each Basket at the net asset value per Share as of the close of the NYSE Arca Core Trading Session or the last to close of the exchanges on which the Fund’s Designated Contracts or Substitute Contracts are traded, whichever is later, on the purchase order date.

Because orders to purchase Baskets must be placed by 10:00 a.m., Eastern time, but the total payment required to create a Basket during the continuous offering will not be determined until the close of the NYSE Arca Core Trading Session or the last to close of the exchanges on which the Fund’s Designated Contracts or Substitute Contracts are traded, whichever is later, 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:

 

   

It determines that the purchase order is not in proper form;

 

   

The Managing Owner believes that the purchase order would have adverse tax consequences to the Fund or its Shareholders; or

 

   

Circumstances outside the control of the Managing Owner make it, for all practical purposes, not feasible to process creations of Baskets.

The Managing Owner will reject a purchase order if the acceptance or receipt of the order, in the opinion of its counsel, might be unlawful.

The Managing Owner will not be liable for the rejection of any purchase order.

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limits with respect to the Fund’s holdings of Designated Contracts and the Fund is unable to gain an exposure to the Index Commodities based upon investments in Cleared Swaps and/or Other Commodity Interests.

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 10:00 a.m., Eastern 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 40,000 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, Eastern 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 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 close of the NYSE Arca Core Trading Session or the last to close of the exchanges on which the Fund’s Designated Contracts or Substitute Contracts are traded, whichever is later, on the redemption order date. The Managing Owner will distribute the cash redemption amount at noon, Eastern 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, Eastern 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, Eastern time, on such next business day. Any further outstanding amount of the redemption order will be cancelled. The Managing Owner is also authorized to deliver the redemption distribution notwithstanding that the Baskets to be redeemed are not credited to the Fund’s DTC account by noon, Eastern 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, Postponement or Rejection of Redemption Orders

The Managing Owner may, in its discretion, suspend the right of redemption, or postpone the redemption settlement date, for (1) any period during which an emergency exists as a result of which the redemption distribution is not reasonably practicable, or (2) such other period as the Managing Owner determines to be necessary for the protection of the Shareholders. The Managing Owner will not be liable to any person or in any way for any loss or damages that may result from any such suspension or postponement.

The Managing Owner may reject a redemption order if the order is not in proper form as described in the Participant Agreement. The Managing Owner will reject a redemption order if the acceptance or receipt of the order, in the opinion of its counsel, might be unlawful.

 

 

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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 will notify DTC of any agreement to change the transaction fee and will not implement any increase in the fee for the redemption of Baskets until 30 days after the date of the notice.

 

 

THE COMMODITY BROKERS

A variety of executing brokers will execute futures transactions on behalf of the Fund. Such executing brokers will give-up all such transactions to PBI. PBI is an affiliate of the BNP Affiliated Entities. In its capacity as executing and clearing broker, PBI will execute and clear each of the Fund’s futures transactions and will perform certain administrative services for the Fund. PBI is registered with the CFTC as a futures commission merchant since August 19, 2011 and has been a member of the NFA in such capacity since August 19, 2011.

CFL will serve as the Fund’s executing and clearing broker with respect to all transactions on the London Metal Exchange. CFL is an affiliate of the BNP Affiliated Entities. CFL is a member of the Financial Services Authority and as such is regulated by the Financial Services Authority in the conduct of its business in the United Kingdom.

We may refer to PBI and/or CFL as a Commodity Broker individually, or the Commodity Brokers collectively.

The Fund will pay to the Commodity Brokers 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 Brokers are expected to be approximately $10.00 per round-turn trade, although the Commodity Brokers’ brokerage commissions and trading fees will be determined on a contract-by-contract basis. The Managing Owner expects that the brokerage commissions and fees may equal to approximately

0.08% of the Net Asset Value of the Fund in any year, although the actual amount of brokerage commissions and fees in any year or any part of any year may be greater.

A round-turn trade is a completed transaction involving both a purchase and a liquidating sale, or a sale followed by a covering purchase.

To the best of the Managing Owner’s knowledge, there is no litigation pending regarding BNP Paribas Prime Brokerage, Inc. or BNP Paribas Commodity Futures Limited that would materially adversely affect their ability to carry on their commodity futures and options brokerage business.

 

 

Additional or replacement commodity brokers may be appointed in respect of the Fund in the future.

ALTERNATIVE FINANCIAL INSTRUMENT

COUNTERPARTIES

The Fund may enter into Alternative Financial Instruments from time-to-time with counterparties selected by the Managing Owner. The Managing Owner may select Alternative Financial Instrument counterparties giving due consideration to such factors as it deems appropriate, including, without limitation, creditworthiness, familiarity with the Index, and price. Under no circumstances will the Fund enter into Alternative Financial Instruments with any counterparty whose credit rating is lower than investment-grade as determined by a nationally recognized statistical rating organization (e.g., BBB- and above as determined by Standard & Poor’s, Baa3 and above as determined by Moody’s) at the time the Alternative Financial Instrument is entered into. The Fund anticipates that the counterparties to these Alternative Financial Instruments are likely to be banks, broker dealers and other financial institutions. The Fund expects that these Alternative Financial Instruments (if any) may be on terms that are standard in the market for such Alternative Financial Instruments.

CONFLICTS OF INTEREST

General

Although the Managing Owner has considered various conflicts and has established formal

 

 

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procedures designed to resolve these conflicts equitably, there may be additional conflicts that arise because the Managing Owner has not established formal procedures to resolve all potential conflicts of interest. Consequently, investors may be dependent on the good faith of the respective parties subject to such conflicts to resolve them equitably. Although the Managing Owner attempts to monitor these conflicts, it is extremely difficult, if not impossible, for the Managing Owner to ensure that these conflicts will not, in fact, result in adverse consequences to the Fund, the Net Asset Value of the Shares and ultimately the market price of the Shares.

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 may have 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 personnel 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, the Managing Owner intends to devote, and to cause its professional staff to devote, sufficient time and resources to manage properly the business and affairs of the Fund consistent with its or their respective fiduciary duties to the Fund and others.

Relationship of the Managing Owner to the Commodity Brokers

The Managing Owner and the Commodity Brokers are affiliated subsidiaries of BNP Paribas. The Commodity Brokers receive a brokerage commission for futures interests transactions effected for the Fund. Customers of the Commodity Brokers who maintain commodity trading accounts may pay commissions at negotiated rates which are greater or less than the rate paid by the Fund.

The Managing Owner has a disincentive to replace the Commodity Brokers as the Fund’s brokers because they are affiliates of the Managing Owner. In connection with this conflict of interest,

Shareholders should understand that the Commodity Brokers receive a round-turn brokerage fee from the Fund for serving as the Fund’s commodity brokers. A round-turn trade is a completed transaction involving both a purchase and a liquidating sale, or a sale followed by a covering purchase.

The Managing Owner and the Commodity Brokers may, from time-to-time, have conflicting demands in respect of their obligations to the Fund, in the future, to other commodity pools and accounts. It is possible that future pools that the Managing Owner may become 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 all of the terms of this offering with respect to the Managing Owner and the Commodity Brokers, and there has been no independent due diligence conducted with respect to this offering between the Managing Owner and the Commodity Brokers.

The Commodity Brokers

The Commodity Brokers may act from time-to-time as commodity brokers for other accounts with which they are affiliated or in which they or one of their affiliates have a financial interest. The compensation received by the Commodity Brokers from such accounts may be more or less than the compensation received for brokerage services provided to the Fund. In addition, various accounts traded through the Commodity Brokers (and over which their personnel may have discretionary trading authority) may take positions in the futures markets opposite to those of the Fund or may compete with the Fund for the same positions. The Commodity Brokers may have a conflict of interest in their execution of trades for the Fund and for other customers. The Managing Owner will, however, not retain any commodity broker for the Fund which the Managing Owner has reason to believe would knowingly or deliberately favor any other customer over the Fund with respect to the execution of commodity trades.

The Commodity Brokers will benefit from executing orders for other clients, whereas the Fund may be harmed to the extent that the Commodity Brokers have fewer resources to allocate to the Fund’s accounts due to the existence of such other clients.

 

 

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Certain officers or employees of PBI may be members of U.S. 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 Fund.

Proprietary Trading/Other Clients

The BNP Affiliated Entities, as applicable, and their respective affiliates may trade in the commodity and foreign exchange markets for their own accounts and for the accounts of their clients, and in doing so may take positions opposite to those held by the Fund or may compete with the Fund for positions in the marketplace. Such trading may create conflicts of interest on behalf of one or more such persons in respect of their obligations to the Fund. Records of proprietary trading and trading on behalf of other clients will not be available for inspection by Shareholders.

Because the BNP Affiliated Entities, as applicable, and their respective principals and affiliates may trade for their own accounts at the same time that they are managing the account of the 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 Fund.

Transactions by the BNP Affiliated Entities and their respective affiliates involving the Index

The BNP Affiliated Entities and their respective affiliates may from time-to-time engage in transactions involving the Index (and/or sub-components thereof) for their proprietary accounts and for accounts under their management. Such transactions may have a positive or negative effect on the value or level of the Index (and/or sub-components thereof) and consequently upon the Index levels, and in engaging in such transactions, none of the BNP Affiliated Entities nor any of their affiliates will be under any obligation to act in the

interests of users of the Index and/or parties exposed to products referencing the Index.

Issuing of Other Derivative Instruments in Respect of the Index

The BNP Affiliated Entities and their affiliates may issue derivative instruments in respect of the Index (and/or sub-components thereof) and the introduction of such products into the marketplace may affect the Index levels.

Liquidity Providers to the Fund

BNP Paribas Securities Corp., which also serves as the Initial Purchaser, is an affiliate of the Managing Owner and the BNP Affiliated Entities, and may be a liquidity provider to the Fund, which we refer to as the Affiliated Liquidity Provider. The Affiliated Liquidity Provider may increase liquidity in the Shares by submitting bids and offers on the Shares on NYSE Arca. The Affiliated Liquidity Provider is a registered broker dealer in the U.S. The Affiliated Liquidity Provider has no obligation to provide liquidity. The Affiliated Liquidity Provider may decide to cease its activities intra-day, for periods longer than one day or permanently. The Affiliated Liquidity Provider may act in a manner that ignores or disregards the interests of Shareholders.

In turn, as the amount of liquidity decreases, the Affiliated Liquidity Provider, any other affiliated liquidity provider or any other affiliate of the Managing Owner, may benefit from the potential increase in spreads between the bid and offering price for the Shares.

Affiliates of the Managing Owner may Serve as Counterparties to Cleared Swaps or Alternative Financial Instruments

From time-to-time, the Fund may invest in one or more Cleared Swaps or Alternative Financial Instruments by selecting an affiliate of the Managing Owner to serve as the counterparty. The Managing Owner has an incentive to select an affiliate to serve as a counterparty to a Cleared Swap or an Alternative Financial Instrument. The affiliated counterparty to a Cleared Swap or an Alternative Financial Instrument will attempt to earn a mark-up, spread or other profit by serving as the counterparty.

No independent party will participate in the selection of any affiliate who serves as a counterparty. As a result, the Fund will become

 

 

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subject to the creditworthiness of the affiliate who serves as a counterparty to a Cleared Swap (prior to submission of the Cleared Swap to the applicable regulated clearinghouse) an Alternative Financial Instrument.

DESCRIPTION OF THE SHARES; THE

TRUST; THE FUND; CERTAIN MATERIAL

TERMS OF THE DECLARATION OF TRUST

The following summary describes in brief the Shares and certain aspects of the operation of the Trust and the Fund and the respective responsibilities of the Trustee and the Managing Owner concerning the Trust and the Fund and the material terms of the Declaration of Trust. Prospective investors should carefully review the Form of Declaration of Trust filed as an exhibit to the registration statement of which this Prospectus is a part and consult with their own advisers concerning the implications to such prospective subscribers of investing in a series of a Delaware statutory trust. Capitalized terms used in this section and not otherwise defined will have such meanings assigned to them under the Declaration of Trust.

Description of the Shares

The Fund will issue Shares which represent units of fractional undivided beneficial interest in and ownership of the Trust. The Shares will be listed on NYSE Arca under the symbol “BNPC.”

The Shares may be purchased from the Fund or redeemed on a continuous basis, but only by Authorized Participants and only in 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 Trust; Principal Office; Location of Records

The Trust is organized in separate series as a statutory trust under the Delaware Statutory Trust Act. As of the date of this Prospectus, the Trust consists of two series. This Prospectus is for the Fund, which is one of the Trust’s Series. BNP Paribas Enhanced Volatility Fund, which is the second series of the Trust, is not being offered by this Prospectus. The Trust and the Fund are managed by the Managing Owner, whose office is located at 787 Seventh Avenue, New York, New York 10019, telephone: (212) 841-2000.

The books and records of the Fund will be maintained as follows: all marketing materials will be maintained at the offices of the Marketing Agent, c/o ALPS Distributors, Inc., 1290 Broadway, Suite 1100, Denver, Colorado 80203; telephone number (303) 623-2577; Basket creation and redemption books and records, certain financial books and records (including Fund accounting records, ledgers with respect to assets, liabilities, capital, income and expenses, the registrar, transfer journals and related details) and trading and related documents received from futures commission merchants will be maintained by The Bank of New York Mellon, 2 Hanson Place, 12th Floor, Brooklyn, New York 11217, Telephone number (718) 315-4850. All other books and records of the Fund (including minute books and other general corporate records, trading records and related reports and other items received from the Fund’s Commodity Brokers) will be maintained at the Fund’s principal office, c/o BNP Paribas Quantitative Strategies, LLC, 787 Seventh Avenue, New York, New York 10019; telephone number (212) 841-2000.

The books and records of the Fund are located at the foregoing addresses, and available for inspection and copying (upon payment of reasonable reproduction costs) by Shareholders or their representatives for any purposes reasonably related to a Shareholder’s interest as a beneficial owner of such Shares during regular business hours as provided in the Declaration of Trust. The Managing Owner will maintain and preserve the books and records of the Fund for a period of not less than six fiscal years.

The Fund

For the avoidance of doubt, the Fund is one separate series of the Trust as of the date of this Prospectus. However, the Trust may add additional series of funds from time to time and the below disclosure addresses a multi-series Trust.

The Trust is formed and is operated in a manner such that each Fund is liable only for obligations attributable to such Fund and Shareholders of a Fund are not subject to the losses or liabilities of any other Fund. If any creditor or Shareholder in a Fund asserted against a Fund a valid claim with respect to its indebtedness or Shares, the creditor or Shareholder would only be able to recover money from that particular Fund and its assets. Accordingly, the debts, liabilities, obligations and expenses, or collectively, Claims, incurred, contracted for or otherwise existing solely with respect to a particular Fund are enforceable only against the assets of that

 

 

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Fund, and not against any other Fund or the Trust generally or any of their respective assets. The assets of each Fund include only those funds and other assets that are paid to, held by or distributed to the Fund, including, without limitation, funds delivered to the Trust for the purchase of Shares in a Fund. This limitation on liability is referred to as the “Inter-Series Limitation on Liability.” The Inter-Series Limitation on Liability is expressly provided for under the Delaware Statutory Trust Act, which provides that if certain conditions (as set forth in Section 3804(a)) are met, then the Claims of any particular series are enforceable only against the assets of such series and not against the assets of any other Fund or the Trust generally.

In furtherance of the Inter-Series Limitation on Liability, every party providing services to the Trust, a Fund or the Managing Owner on behalf of the Trust or a Fund, has acknowledged and consented in writing to:

 

   

the Inter-Series Limitation on Liability with respect to such party’s Claims;

 

   

voluntarily reduce the priority of its Claims against the Funds or their respective assets, such that its Claims are junior in right of repayment to all other parties’ Claims against the Funds or their respective assets, except that Claims against the Trust where recourse for the payment of such Claims was, by agreement, limited to the assets of a particular Fund, will not be junior in right of repayment, but will receive repayment from the assets of such particular Fund (but not from the assets of any other Fund or the Trust generally) equal to the treatment received by all other creditors and Shareholders that dealt with such Fund; and

 

   

a waiver of certain rights that such party may have under the United States Bankruptcy Code, if such party held collateral for its Claims, in the event that the Trust is a debtor in a chapter 11 case under the United States Bankruptcy Code, to have any deficiency Claim (i.e., the difference, if any, between the amount of the Claim and the value of the collateral) treated as an unsecured Claim against the Trust generally or any Fund.

No special custody arrangements are applicable to a Fund, and the existence of a trustee should not be

taken as an indication of any additional level of management or supervision over a Fund.

The Trustee

Wilmington Trust Company, a Delaware trust company, is the sole Trustee of the Trust. The Trustee’s principal offices are located at Rodney Square North, 1100 North Market Street, Wilmington, Delaware 19890-0001. The Trustee is unaffiliated with the Managing Owner. The Trustee’s duties and liabilities with respect to the offering of the Shares and the management of the Trust and the Fund are limited to its express obligations under the Declaration of Trust.

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 Declaration of Trust.

The Trustee serves as the sole trustee of the Trust and the Fund in the State of Delaware. The Trustee will accept service of legal process on the Trust and the Fund in the State of Delaware and will make certain filings under the Delaware Statutory Trust Act. The Trustee does not owe any other express duties to the Trust, the Managing Owner or the Shareholders of the Fund. The Trustee is permitted to resign upon at least sixty (60) days’ advance written notice to the Trust, provided, that any such resignation will not be effective until a successor Trustee is appointed by the Managing Owner. The Declaration of Trust provides that the Trustee is compensated by the Managing Owner and is indemnified by the Fund against any expenses it incurs relating to or arising out of the formation, operation or termination of the Trust or the Fund or the performance of its duties pursuant to the Declaration of Trust, except to the extent that such expenses result from the gross negligence or willful misconduct of the Trustee. The Managing Owner has the discretion to replace the Trustee.

Only the Managing Owner has signed the registration statement of which this Prospectus is a part, and only the assets of the Trust and the Managing Owner are subject to issuer liability under the federal securities laws for the information contained in this Prospectus and under federal securities laws with respect to the issuance and sale of the Shares. Under such laws, neither the Trustee, either in its capacity as Trustee or in its individual capacity, nor any director, officer or controlling person of the Trustee is, or has any liability as, the issuer or a director, officer or controlling person of

 

 

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the issuer of the Shares. The Trustee’s liability in connection with the issuance and sale of the Shares is limited solely to the express obligations of the Trustee set forth in the Declaration of Trust.

Under the Declaration of Trust, the Managing Owner has the exclusive management, authority and control of all aspects of the business of the Fund and the Trust. The Trustee will have no duty 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 and the Trust, other than certain limited voting rights as set forth in the Declaration of Trust. In the course of its management of the business and affairs of the Fund and the Trust, the Managing Owner may, in its sole and absolute discretion, appoint an affiliate or affiliates of the Managing Owner as additional managing owners (except where the Managing Owner has been notified by the Shareholders that it is to be replaced as the managing owner) and retain such persons, including affiliates of the Managing Owner, as it deems necessary for the efficient operation of the Fund and the Trust, as appropriate.

Because the Trustee has no authority over the operation of the Fund and the Trust, the Trustee itself is not registered in any capacity with the CFTC.

The existence of a trustee should not be taken as an indication of any additional level of management or supervision over the Fund or the Trust. The Trustee’s only duties are to satisfy the requirements of the Delaware Statutory Trust Act that a Delaware statutory trust have at least one trustee with its principal place of business in Delaware. The Declaration of Trust provides that the management authority with respect to the Trust and the Fund is vested directly in the Managing Owner.

The Managing Owner

Background and Principals

BNP Paribas Quantitative Strategies, LLC, a Delaware limited liability company, was formed on April 30, 2010 and serves as Managing Owner of the Trust and the Fund. The Managing Owner will also manage the Fund Portfolio. The Managing Owner will serve as the commodity pool operator of the Trust and the Fund. NEITHER THIS POOL OPERATOR NOR ANY OF ITS TRADING PRINCIPALS HAS PREVIOUSLY OPERATED ANY OTHER POOLS OR TRADED ANY

OTHER ACCOUNTS. The Managing Owner has been registered as a commodity pool operator with the CFTC and has been a member of the NFA since July 27, 2010. During the period from April-July, 2010, the Managing Owner was engaged in fund structuring activities in connection with futures-based exchange traded funds. The Managing Owner’s principal place of business is 787 Seventh Avenue, New York, New York 10019, telephone number (212) 841-2000. The Managing Owner is a subsidiary of Paribas North America, Inc., which is a subsidiary of BNP Paribas. Paribas North America, Inc. has been a principal of the Managing Owner since July 21, 2010. The registration of the Managing Owner with the CFTC and its membership in the NFA must not be taken as an indication that either the CFTC or the NFA has recommended or approved the Managing Owner, the Trust or the Fund.

In its capacity as a commodity pool operator, the Managing Owner is an organization which operates or solicits funds for 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.

The Managing Owner was formed to be the managing owner of investment vehicles such as the Trust and the Fund and has no history of past performance. The Managing Owner and its trading principals have not managed any other commodity pools of this type. Therefore there is no indication of their ability to manage investment vehicles such as the Trust or the Fund. If the experience of the Managing Owner and its trading principals is not adequate or suitable to manage investment vehicles such as the Trust or the Fund, the operations and performance of the Trust or the Fund may be adversely affected.

Principals

M. Andrews Yeo, George L. Parry and Paul Drumm serve as the Chief Executive Officer, the Principal Financial Officer, and the Chief Operating Officer, respectively, of the Managing Owner.

The Board of Directors, which manages the Managing Owner, is comprised of Mr. M. Andrews Yeo, Mr. Lionel Crassier and Mr. Bruno d’Illiers.

Messrs. Crassier, d’Illiers, Drumm, Parry and Yeo also serve as principals of the Managing Owner. Paribas North America, Inc. is also a principal of the Managing Owner.

 

 

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Mr. Crassier will serve as the trading principal of the Managing Owner.

The Board of Directors has concluded that, based on each Director’s experience, qualifications, attributes or skills, on an individual basis and in combination with those of the other Director, each Director should serve as a Director of the Managing Owner. Among the attributes common to all Directors are their ability to exercise sound business judgment in the performance of their duties as Directors, to review critically, evaluate, question and discuss information provided to them regarding the commodity pools operated by the Managing Owner, including the Trust and the Fund, and their business and operations, and to interact effectively with the officers and other professional staff of the Managing Owner, including the traders responsible for executing the Fund’s investment strategy, as well as the Trust’s counsel, independent registered public accounting firm, and other service providers. A Director’s ability to perform his duties effectively may have been attained through the Director’s educational background or professional training; business, consulting, public service or academic positions; experience from service as a board member of other investment funds and their operators or advisors, other public companies, or not-for-profit entities or other organizations; and/or other life experiences. Set forth below is a brief discussion of the specific experience, qualifications, attributes or skills of each Director.

M. Andrews Yeo was appointed Chief Operating Officer of Global Equities and Commodity Derivatives (GECD) Americas Business at BNP Paribas in August 2010. Mr. Yeo is responsible for the management of the day-to-day operational aspects of the Equities and Commodity Derivatives Americas platform establishing strategy and business objectives and the development of policies and procedures. Additionally, Mr. Yeo currently serves on the GECD Global Executive Committee. Mr. Yeo serves as the Chief Executive Officer of the Managing Owner since May 24, 2011 and has been a principal of the Managing Owner since June 30, 2011. Mr. Yeo was as a Director for GECD, Business Management from June 2008 until August 2010 where he was responsible for business development and day-to-day coordination with business support partners. Mr. Yeo has been a principal of BNP Paribas Prime Brokerage, Inc., a registered U.S. broker/dealer with the Securities and Exchange Commission and FINRA, primarily engaged in prime brokerage activities, since August 3, 2011. Prior to that Mr. Yeo served as a Director of

BNP Paribas Securities Corp. from February, 2005 to June, 2008, where he was responsible for clearing and custody for all US and International cash markets for the US Broker Dealer. Mr. Yeo received his bachelor’s degree in Accounting from Pennsylvania State University in 1992.

George L. Parry is a Managing Director in Finance at BNP Paribas, a global bank and financial services firm, with responsibility for finance related to global equities and commodity derivatives within the North American territory since October 2008. In addition, Mr. Parry has held the position of Financial and Operations Principal and Chief Financial Officer for BNP Paribas Prime Brokerage, Inc., a registered U.S. broker/dealer and wholly owned subsidiary of BNP Paribas, with responsibility for all financial and operational aspects since December 2008. Mr. Parry was U.S. Director of Finance for ICAP Services North America, LLC, from August 2007 to October 2008, accounting and finance of activities in five ICAP affiliated U.S. broker/dealers, a futures commission merchant and numerous other unregulated ICAP affiliated entities in North America. Mr. Parry serves as the Principal Financial Officer of the Managing Owner since June 30, 2011 and is a principal of the Managing Owner since June 30, 2011. Previously, he was Executive Director and Chief Financial Officer of Mizuho Securities USA, Inc. (“MSUSA”), a primary U.S. government bond broker/dealer and futures commission merchant, from February 2005 to July 2007 with responsibility for all financial and operational aspects. Mr. Parry has been a principal of BNP Paribas Prime Brokerage, Inc., a registered U.S. broker/dealer with the Securities and Exchange Commission and FINRA, primarily engaged in prime brokerage activities, since August 3, 2011. Mr. Parry is a CPA and a member of the American Institute of Certified Public Accountants, New York State Society of Certified Public Accountants and is a licensed CPA in the State of New York. He received his Bachelor of Science in Accounting from St. Joseph’s College in December 1992.

Paul Drumm is a Managing Director and Head of Fund Derivatives for the Americas at BNP Paribas, a global bank and financial services firm, since December 2009. Prior to that, Mr. Drumm has been in the Global Equities and Commodity Derivatives Americas business at BNP Paribas where he has been Global Head of Client Services for the BNP Paribas’ Fund Derivatives business from March 2008 to December 2009. Prior to this, Mr. Drumm was Head of Client Services for Fund Derivatives business in Europe and Asia from November 2006 to March

 

 

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2008 with responsibilities for overseeing the client services function and was Head of Fund Derivative Operations at BNP Paribas in Dublin from July 2003 to November 2006 with responsibilities for day to day operational issues. Mr. Drumm serves as the Chief Operating Officer of the Managing Owner since September 16, 2010, and has been a principal and associated person of the Managing Owner since September 16, 2010 and September 22, 2010, respectively. Mr. Drumm has been an associated person of BNP Paribas Securities Corp., a futures commission merchant, since August 4, 2010. Mr. Drumm received his BA in Economics from University College Dublin.

Lionel Crassier is the Head of the Global Equities and Commodity Derivatives (GECD) Americas Business at BNP Paribas, a global bank and financial services firm. Mr. Crassier serves on the BNP Paribas Territory Management Committee for the Americas and on the GECD Global Executive Committee. Prior to being named to this position in February 2009, Mr. Crassier was Head of Trading and Structuring for Equities and Derivatives in the Americas from August 2007 to February 2009 with responsibilities for overseeing the equities trading team. From April 2006 to August 2007, Mr. Crassier was Deputy Global Head of Trading & Structuring and Global Head of the Structuring Group with responsibilities for overseeing the trading and structuring teams, and from July 2005 to April 2006 he was Global Head of Exotic Trading as well as the Global Chief Operating Officer of the Trading & Structuring team at BNP Paribas with responsibilities for overseeing the trading and structuring teams. Mr. Crassier serves as a Director of the Managing Owner, and has been a principal of the Managing Owner since June 24, 2010. Mr. Crassier has been a principal of BNP Paribas Securities Corp., a futures commission merchant, since April 1, 2009. Mr. Crassier has been a principal of BNP Paribas Prime Brokerage, Inc., a registered U.S. broker/dealer with the Securities and Exchange Commission and FINRA, primarily engaged in prime brokerage activities, since June 15, 2011. Mr. Crassier is a Public Works (ESTP) Engineer and holds a Master of Finance from ESCP (Ecole Supérieur de Commerce de Paris).

Bruno d’Illiers is the Chief Operating Officer (COO) for BNP Paribas North America Inc., which provides corporate, investment banking, and securities brokerage activities and is an affiliate of BNP Paribas, a global financial services firm, since April 2011, and is responsible for overseeing the following departments: Finance & Tax, Information

Technology & Operations, Governance & Control, and Branch Management. Mr. d’Illiers serves as a Director of the Managing Owner, and has been a principal of the Managing Owner since July 5, 2011. Mr. d’Illiers has been a principal of BNP Paribas Prime Brokerage, Inc., a registered U.S. broker/dealer with the Securities and Exchange Commission and FINRA, primarily engaged in prime brokerage activities, since August 3, 2011. Mr. d’Illiers has been a principal of BNP Paribas Commodity Futures Inc., a Commodity Broker for the Fund, since June 30, 2011. Since April 2011, Mr. d’Illiers has been a member of the BNP Paribas North American Territory Management Committee, chairs the BNP Paribas North American Territory Operating Committee, and is an officer and board member of all major non-banking subsidiaries with responsibilities for operational issues. Prior to being named to this position in April 2011, Mr. d’Illiers was the COO for the Asia Pacific region of BNP Paribas from September 2009 to April 2011 with responsibilities for day to day operational issues. From September 2006 to August 2009, Mr. d’Illiers was Head of Organization and Controls for BNP Paribas in Paris, France with responsibilities for operational issues. Mr. d’Illiers holds a Masters from Ecole Supérieur de Commerce de Reims.

Paribas North America, Inc., a principal of the Managing Owner since July 21, 2010, is a subsidiary of BNP Paribas, a global bank and financial services firm.

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.

As managing owner of the Trust and each 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 Trust and each Fund, consistent with the terms of the Declaration of Trust. The form of Declaration of Trust is filed as an exhibit to the registration statement of which this Prospectus is a part. The general fiduciary duties which would otherwise be imposed on the Managing Owner (which would make the operation of the Trust and each Fund as described herein impracticable due to the strict prohibition imposed by such duties on,

 

 

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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 terms of the Trust and each Fund, as set forth herein and in the Declaration of Trust (to which terms all Shareholders, by subscribing to the Shares, are deemed to consent).

The Declaration of Trust provides that the Managing Owner and its affiliates, or Covered Person, will have no liability to the Trust and each Fund or to any Shareholder for any loss suffered by the Trust and each Fund arising out of any action or inaction of the Covered Person if the Covered Person, in good faith, determined that such course of conduct was in the best interests of the Trust or the applicable Fund and such course of conduct did not constitute fraud, gross negligence, bad faith, or willful misconduct by the Covered Person. The Trust and each Fund have agreed to indemnify the Covered Person against any losses, judgments, liabilities, expenses and amounts paid in settlement of any claims sustained by it in connection with the Covered Person’s activities for the Trust and each Fund, provided that the Covered Person was acting on behalf of or performing services for the Trust and each Fund and has determined, in good faith, that such course of conduct was in the best interests of the applicable Fund and such liability or loss was not the result of fraud, gross negligence, bad faith, willful misconduct, or a material breach of the Declaration of Trust on the part of the Managing Owner and any such indemnification will only be recoverable from the applicable Fund estate.

Under Delaware law, a beneficial owner of a statutory 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, or a class action, to recover damages from a fiduciary of such statutory trust for violations of fiduciary duties, or on behalf of a statutory trust, or a derivative action, to recover damages from a third party where a fiduciary 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 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 the 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), PBI (a registered futures commission merchant), as well as those of their respective employees who are required to be registered under the CEAct, as amended, and the rules and regulations promulgated thereunder. Private rights of action are conferred by the CEAct, as amended. Investors in commodities and in commodity pools may, therefore, invoke the protections provided thereunder.

There are substantial and inherent conflicts of interest in the structure of the Trust and each 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 the section “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 and Delaware 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.