[Federal Register Volume 71, Number 226 (Friday, November 24, 2006)]
[Notices]
[Pages 67935-67946]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-19847]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-54770; File No. SR-Amex-2006-76]
Self-Regulatory Organizations; American Stock Exchange LLC;
Notice of Filing of a Proposed Rule Change and Amendments No. 1 and 2
Thereto Relating to the Listing and Trading of the DB Multi-Sector
Commodity Trust
November 16, 2006.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on August 16, 2006, the American Stock Exchange LLC (``Amex'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by Amex. The Amex filed
Amendment No. 1 to the proposal on October 12, 2006.\3\ The Amex filed
Amendment No. 2 to the proposal on November 3, 2006.\4\ The Commission
is publishing this notice to solicit comments on the proposed rule
change from interested persons.
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\1\ 15 U.S.C. 78s(b)(l).
\2\ 17 CFR 240.19b-4.
\3\ Amendment No. 1 (``Amendment No. 1'') supersedes and
replaces the original filing in its entirety.
\4\ In Amendment No. 2 (``Amendment No. 2''), Amex made
clarifying changes to, including among others, details regarding the
dissemination of the indicative value, and net asset value of the
Investment Shares.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange pursuant to Commentary .07 to Amex Rule 1202 proposes
to list and trade shares of: (1) The PowerShares DB Energy Fund (the
``Energy Fund''); (2) the PowerShares DB Oil Fund (the ``Oil Fund'');
(3) the PowerShares DB Precious Metals Fund (the ``Precious Metals
Fund''); (4) the PowerShares DB Gold Fund (the ``Gold Fund''); (5) the
PowerShares DB Silver Fund (the ``Silver Fund''); (6) the PowerShares
DB Base Metals Fund (the ``Base Metals Fund''); and (7) the PowerShares
DB Agriculture Fund (the ``Agriculture Fund'') (collectively the
``Funds'').
The text of the proposed rule change is available on the Amex's Web
site at http://www.amex.com, at the principal office of the Amex, and
at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Amex included statements
concerning the purpose of, and basis for, the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Amex has prepared summaries, set forth in Sections
A, B, and C below, of the most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
Pursuant to Commentary .07 to Amex Rule 1202, the Exchange may
approve for listing and trading Trust Issued Receipts (``TIRs'')
investing in shares or securities (the ``Investment Shares'') that hold
investments in any combination of securities, futures contracts,
options on futures contracts, swaps, forward contracts, commodities, or
portfolios of investments. The Amex proposes to list for trading the
shares of: (1) The Energy Fund (the ``Energy Fund Shares''); (2) the
Oil Fund (the ``Oil Fund Shares''); (3) the Precious Metals Fund (the
``Precious Metals Fund Shares''); (4) the Gold Fund (the ``Gold Fund
Shares''); (5) the Silver Fund (the ``Silver Fund Shares''); (6) the
Base Metals Fund (the ``Base Metals Fund Shares''); and (7) the
Agriculture Fund (the ``Agriculture Fund Shares'') (collectively, the
``Shares''), which represent beneficial ownership interests in the
corresponding Master Fund's net assets, consisting solely of the common
units of beneficial interests of the DB Energy Master Fund, the DB Oil
Master Fund, the DB Precious Metals Master Fund, the DB Gold Master
Fund, the DB Silver Master Fund, the DB Base Metals Master Fund, and
the DB Agriculture Master Fund, respectively (collectively, the
``Master Funds'').
The DB Multi-Sector Commodity Trust (the ``Trust'') is organized as
a Delaware statutory trust with each of the Funds representing a series
of the Trust. DB Multi-Sector Commodity Master Trust (the ``Master
Trust'') is also organized as a Delaware statutory trust with each of
the Master Funds representing a series of the Master Trust.
[[Page 67936]]
The Master Funds will hold primarily \5\ futures contracts \6\ on
the commodities comprising the: (1) Deutsche Bank Liquid Commodity
Index--Optimum Yield Energy Excess Return\TM\ (``Energy Index''); (2)
Deutsche Bank Liquid Commodity Index--Optimum Yield Crude Oil Excess
Return\TM\ (``Oil Index''); (3) Deutsche Bank Liquid Commodity Index--
Optimum Yield Precious Metals Excess Return\TM\ (``Precious Metals
Index''); (4) Deutsche Bank Liquid Commodity Index--Optimum Yield Gold
Excess Return\TM\ (``Gold Index''); (5) Deutsche Bank Liquid Commodity
Index--Optimum Yield Silver Excess Return\TM\ (``Silver Index''); (6)
Deutsche Bank Liquid Commodity Index--Optimum Yield Industrial Metals
Excess Return\TM\ (``Base Metals Index''); and (7) Deutsche Bank Liquid
Commodity Index--Optimum Yield Agriculture Excess ReturnTM
(``Agriculture Index'') (collectively, the ``Indexes''), as the case
may be. Each of the Funds and each of the Master Funds are commodity
pools operated by DB Commodity Services LLC (the ``Managing Owner'').
The Managing Owner is registered as a commodity pool operator (``CPO'')
\7\ and commodity trading advisor (``CTA'') \8\ with the Commodity
Futures Trading Commission (``CFTC'') and a member of the National
Futures Association (``NFA'').
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\5\ Other holdings of the Master Fund will include cash and U.S.
Treasury securities for deposit with futures commission merchants as
margin and other high credit quality short-term fixed income
securities.
\6\ Following is a list of futures contracts in which the
respective Master Fund may invest and the exchanges on which they
trade: Energy Index--sweet light crude (New York Mercantile Exchange
(``NYMEX'')); heating oil (NYMEX), brent crude oil
(IntercontinentalExchange, Inc. (``ICE Futures'')), RBOB gasoline
(NYMEX), natural gas (NYMEX); Oil Index--sweet light crude (NYMEX);
Precious Metals Index--gold (New York Commodities Exchange
(``COMEX''), a division of NYMEX), silver (COMEX); Gold Index--gold
(COMEX); Silver Index--silver (COMEX); Base Metals Index--aluminum
(London Metals Exchange (``LME'')), zinc (LME), copper-grade A
(LME); Agriculture Index--corn (Chicago Board of Trade (``CBOT'')),
wheat (CBOT), soybeans (CBOT), sugar (Board of Trade of the City of
New York (``NYBOT'')).
\7\ The Exchange states that a CPO means any person engaged in a
business that is of the nature of an investment trust, syndicate, or
similar form of enterprise, and who, in connection therewith,
solicits, accepts, or receives from others, funds, securities, or
property, either directly or through capital contributions, the sale
of stock or other forms of securities, or otherwise, for the purpose
of trading in any commodity for future delivery on or subject to the
rules of any contract market or derivatives transaction execution
facility, except that the term does not include such persons not
within the intent of the definition of the term as the Commodity
Futures Trading Commission may specify by rule, regulation, or
order.
\8\ Subject to certain exclusions set forth in Section 1a(6) of
the Commodity Exchange Act, the Exchange states that the term CTA
means any person who: (1) For compensation or profit, engages in the
business of advising others, either directly or through
publications, writings, or electronic media, as to the value of or
the advisability of trading in (a) any contract of sale of a
commodity for future delivery made or to be made on or subject to
the rules of a contract market or derivatives transaction execution
facility; (b) any commodity option authorized under Section 4c; or
(c) any leverage transaction authorized under Section 19; or (2) for
compensation or profit, and as part of a regular business, issues or
promulgates analyses or reports concerning any of the activities
referred to in clause (1).
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The Managing Owner will serve as the CPO and CTA of each of the
Funds and each of the Master Funds. The Managing Owner of the Master
Funds will manage the futures contracts in order to track the
performance of the respective Index. The Master Funds will include U.S.
Treasury securities for margin purposes and other high credit quality
short-term fixed income securities. The Master Funds are not ``actively
managed,'' which typically involves effecting changes in the
composition of a portfolio on the basis of judgment relating to
economic, financial and market considerations with a view to obtaining
positive results under all market conditions, but instead, seeks to
track the performance of their respective Indexes.
The Exchange submits that Commentary .07 to Amex Rule 1202
accommodates the listing and trading of the Shares.
Introduction
The Exchange recently received approval to list and trade shares of
the DB Commodity Index Tracking Fund \9\ and the PowerShares DB G10
Harvest Fund (formerly the DB Currency Index Value Fund) \10\ pursuant
to this Commentary .07 to Amex Rule 1202. In the instant proposal, the
Exchange proposes to list and trade the Shares pursuant to such Rules.
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\9\ See Securities Exchange Act Release No. 53105 (January 11,
2006), 71 FR 3129 (January 19, 2006) (SR-Amex-2005-059).
\10\ See Securities Exchange Act Release No. 54450 (September
14, 2006), 71 FR 55230 (September 21, 2006) (SR-Amex-2006-44).
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Under Commentary .07(c) to Amex Rule 1202, the Exchange may list
and trade TIRs investing in Investment Shares such as the Shares. The
Shares will conform to the initial and continued listing criteria under
Commentary .07(d) to Amex Rule 1202. Each of the Funds will be formed
as a separate series of a Delaware statutory trust pursuant to a
Certificate of Trust and a Declaration of Trust and Trust Agreement
among Wilmington Trust Company, as trustee, the Managing Owner and the
holders of the Shares.\11\
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\11\ The Trust and the Funds will not be subject to registration
and regulation under the Investment Company Act of 1940 (the ``1940
Act'').
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Description of Indexes
The Energy Index is intended to reflect the performance of the
energy sector and is comprised of sweet light crude oil, heating oil,
brent crude oil, RBOB gasoline, and natural gas. The Oil Index is
intended to reflect the performance of crude oil and is comprised of
sweet light crude oil.\12\ The Precious Metals Index is intended to
reflect the performance of the precious metals sector and is comprised
of gold and silver. The Gold Index is intended to reflect the
performance of gold and is comprised of gold. The Silver Index is
intended to reflect the performance of silver and is comprised of
silver. The Base Metals Index is intended to reflect the performance of
the base metals sector and is comprised of aluminum, zinc, and copper-
grade A. The Agriculture Index is intended to reflect the performance
of the agriculture sector and is comprised of corn, wheat, soybeans,
and sugar.
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\12\ The Exchange notes that the commodities industry utilizes
single-component indices because the purpose of a commodities index
is generally to reflect the current market price of the index
components by including the front-month futures contract with
respect to each component, necessitating a continuous monthly roll-
over to a new front-month contract. As the underlying commodity is
not static but rather is represented by constantly changing
contracts, a single commodity index actually contains a changing
series of components and is regarded by commodities industry
professionals as a valuable tool in tracking the change in the value
of the underlying commodity over time.
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The sponsor of the Indexes is Deutsche Bank AG London (the ``Index
Sponsor'').\13\
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\13\ The Index Sponsor has in place procedures to prevent the
improper sharing of information between different affiliates and
departments. Specifically, an information barrier exists between the
personnel within DB London that calculate and reconstitute the
Indexes and other personnel of the Index Sponsor, including but not
limited to the Managing Owner, sales and trading, external or
internal fund managers, and bank personnel who are involved in
hedging the bank's exposure to instruments linked to the Indexes, in
order to prevent the improper sharing of information relating to the
composition of the Indexes.
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The Indexes are calculated by the Index Sponsor during the trading
day on the basis of the most recently reported trade price for the
relevant futures contract relating to the respective Index commodities
and then applying such prices to the relevant notional amount. The
market value of each Index commodity during the trading day will be
equal to the number of futures contracts of each Index commodity
represented in an Index multiplied by
[[Page 67937]]
the real-time futures contract price. As described below in the section
``Dissemination of the Index and Underlying Futures Contract
Information,'' the Indexes will be calculated and disseminated at least
every 15 seconds from 9:21 a.m. to 4:15 p.m Eastern Time (``ET'')
during the time the Shares trade on Amex.\14\ The closing level of each
Index is calculated by Deutsche Bank AG London on the basis of closing
prices for the applicable futures contracts relating to the respective
Index commodities and applying such prices to the relevant notional
amount. The futures contract of each applicable Index commodity that is
closest to expiration is used in the calculation of the respective
Indexes. While the Index is calculated and disseminated by the Index
Sponsor a number of independent sources may verify both the intraday
and closing Index values and the Index Sponsor uses independent feeds
from Reuters to verify all pricing information used to calculate the
Index.
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\14\ See Telephone Conference between Jeffrey Burns, Associate
General Counsel, Amex; Sudhir Bhattacharyya, Assistant General
Counsel, Amex; and Florence Harmon, Senior Special Counsel, Division
of Market Regulation, Commission, on November 15, 2006 (``Telephone
Conference'').
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The Indexes include provisions for the replacement of expiring
futures contracts. This replacement takes place over a period of time
in order to lessen the impact on the market for the respective Index
commodity. The replacement of a particular existing futures contract at
any point in time is based on whether the existing contract is within a
predetermined number of months of its expiration and the historical
liquidity of the particular commodity as it approaches expiration. The
new futures contract will be the contract with the maximum implied roll
yield over the next 13 months. The maximum implied roll yield is
determined by inputting the prices of the contracts expiring in future
months and the price of the existing contract into a formula that
compares the prices and accounts for the time value associated with
those prices based on the time-to-expiration of each contract. If two
(2) contracts for a particular commodity have the same maximum implied
roll yield, the contract with the maximum yield and minimum time to
expiration will be selected. Once the contract is selected, the monthly
index roll will unwind the old futures contract and enter a position in
the new contract. This will occur between the 2nd and 6th business days
of the month. Rebalancing occurs annually in November during the first
week in the case of futures contracts relating to all Index
commodities.
The Exchange states that the Indexes, other than the Oil Index, the
Gold Index and the Silver Index, are adjusted annually in November to
rebalance their composition in order to ensure that for each Index, the
respective Index Commodities are weighted in the same proportion (the
``Base Weight'') that such Index Commodities were weighted on the
applicable base date (the ``Base Date''). The Indexes have been
calculated back to their respective Base Dates. On the Base Date, the
respective closing level for each Index was 100.
The following table reflects the index base weights and Base Date
of each Index:
------------------------------------------------------------------------
Base
Index commodity by index weight Base date
(%)
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Energy Index........................ ......... June 4, 1990.
Sweet Light Crude Oil............... 22.5 .......................
Heating Oil......................... 22.5 .......................
Brent Crude Oil..................... 22.5 .......................
RBOB Gasoline....................... 22.5 .......................
Natural Gas......................... 10.0 .......................
Energy Index Closing Level.......... ......... 100.
Oil Index........................... ......... December 2, 1988.
Sweet Light Crude Oil............... 100 .......................
Oil Index Closing Level............. ......... 100.
Precious Metals Index............... ......... December 2, 1988.
Gold................................ 80.0 .......................
Silver.............................. 20.0 .......................
Precious Metals Index Closing Level. ......... 100.
Gold Index.......................... ......... December 2, 1988.
Gold................................ 100 .......................
Gold Index Closing Level............ ......... 100.
Silver Index........................ ......... December 2, 1988.
Silver.............................. 100 .......................
Silver Index Closing Level.......... ......... 100.
Base Metals Index................... ......... September 3, 1997.
Aluminum............................ 33.3 .......................
Zinc................................ 33.3 .......................
Copper-Grade A...................... 33.3 .......................
Base Metals Index Closing Level..... ......... 100.
Agriculture Index................... ......... December 2, 1988.
Corn................................ 25.0 .......................
Wheat............................... 25.0 .......................
Soybeans............................ 25.0 .......................
Sugar............................... 25.0 .......................
Agriculture Index Closing Level..... ......... 100.
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The composition of any Index may be adjusted in the event that the
Index Sponsor is not able to obtain information necessary from the
relevant futures exchanges \15\ to calculate the daily and/or closing
price for the Index
[[Page 67938]]
commodity or commodities in such Index. In connection with adjustments
to the Indexes, if futures prices are not available, the Index Sponsor
will typically use the prior day's futures prices. In exceptional cases
(such as when a daily price limit is reached on a futures exchange),
the Index Sponsor may employ a ``fair value'' price (i.e., the price
for unwinding the futures position by OTC dealers).\16\ This is similar
to the case for index options when prices are unavailable or
unreliable.\17\
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\15\ See section ``Dissemination of the Index and Underlying
Futures Contracts Information,'' infra.
\16\ The Exchange submits that for a temporary disruption of
said futures contracts, the Index Sponsor will typically use the
prior day's price for any Index commodity or commodities. However,
the Exchange represents that if the use of a prior day's price or
``fair value'' pricing for an Index commodity or commodities is more
than of a temporary nature, the Exchange will submit a proposed rule
change pursuant to Rule 19b-4 under the Act seeking Commission
approval to continue to trade the Shares of a Fund. Unless approved
for continued trading, the Exchange would commence delisting
procedures.
\17\ The Options Clearing Corporation (``OCC''), pursuant to
Article XVII, Section 4 of its By-Laws, is permitted to use the
prior day's closing price to fix an index options exercise
settlement value. In addition, OCC may also use the next day's
opening price, a price or value at such other time as determined by
OCC or an average of prices or values as determined by OCC.
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The Managing Owner represents that it will seek to arrange to have
the Indexes calculated and disseminated through a third party if the
Index Sponsor ceases to calculate and disseminate the Indexes. If,
however, the Managing Owner is unable to arrange the calculation and
dissemination of any Index (or a Successor Index to such Index), the
Exchange will undertake to delist the Shares related to said Index.\18\
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\18\ If an Index is discontinued or suspended, the Managing
Owner, in its sole discretion, may substitute an index substantially
similar to the discontinued or suspended Index (the ``Successor
Index''). The Successor Index may be calculated and/or published by
any other third party. The Exchange represents that it would file
and obtain approval of a proposed rule change pursuant to Rule 19b-4
under the Act if a successor Index is used by the Managing Owner.
The filing would address, among other things, the listing and
trading characteristics of the Successor Index and the Exchange's
surveillance procedures applicable to the Successor Index. In
addition, the Exchange would file a proposed rule change pursuant to
Rule 19b-4 under the Act when a new component to an Index is added
using pricing information from a market with which the Exchange does
not have a previously existing information sharing agreement or
switches to using pricing information from such market with respect
to an existing component when such component constitutes more than
10% of the weight of the Index. Unless approved for continued
trading, the Exchange would commence delisting proceedings.
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Commodity Futures Contracts and Related Options
Sweet Light Crude Oil. The price of sweet light crude oil is
volatile with fluctuations expected to affect the value of the Energy
Fund Shares and the Oil Fund Shares. Sweet light crude oil is the
world's most actively traded commodity. The Sweet Light Crude Oil
futures contract traded on the NYMEX is the world's most liquid forum
for crude oil trading, as well as the world's most liquid futures
contract on a physical commodity. Due to the excellent liquidity and
price transparency of the futures contract, it is used as a principal
international pricing benchmark.
Sweet light crude oil is preferred by refiners because of the
relatively low sulfur content and high yields of high-value products
such as gasoline, diesel fuel, heating oil and jet fuel. The futures
contract trades in units of 1,000 barrels with a delivery point of
Cushing, Oklahoma. The contract provides for delivery of several grades
of domestic and internationally traded foreign crudes, and serves the
diverse needs of the physical market.
Heating Oil. The price of crude oil is volatile with fluctuations
expected to affect the value of the Energy Fund Shares. Heating oil,
also known as No. 2 fuel oil, accounts for about 25% of the yield of a
barrel of crude oil, the second largest ``cut'' from oil after
gasoline. The heating oil futures contract, listed and traded at the
NYMEX, trades in units of 42,000 gallons (1,000 barrels) and is based
on delivery in New York harbor, the principal cash market center. The
heating oil futures contract is also used to hedge diesel fuel and jet
fuel, both of which trade in the cash market at an often stable premium
to the heating oil futures contract.
Brent Crude Oil. The price of Brent crude oil is volatile with
fluctuations expected to affect the value of the Energy Fund Shares.
The Brent crude oil futures contract is listed and traded at the ICE
Futures, an electronic marketplace for energy trading and price
discovery. In Europe, Brent crude oil is the standard for futures
contracts traded on the ICE Futures. Brent crude oil is the price
reference for two-thirds of the world's traded oil.
RBOB Gasoline. The price of RBOB (reformulated gasoline blendstock
for oxygen blending) Gasoline is volatile with fluctuations expected to
affect the value of the Energy Fund Shares. The RBOB Gasoline futures
contract is listed and traded at the NYMEX. Gasoline is the largest
single volume refined product sold in the United States and accounts
for almost half of national oil consumption. It is a highly diverse
market, with hundreds of wholesale distributors and thousands of retail
outlets, making it subject to intense competition and price volatility.
The NYMEX Division New York harbor RBOB futures contract trades in
units of 42,000 gallons (1,000 barrels). It is based on delivery at
petroleum products terminals in the harbor, the major East Coast
trading center for imports and domestic shipments from refineries in
the New York harbor area, or from the Gulf Coast refining centers.
Natural Gas. The price of Natural Gas is volatile with fluctuations
expected to affect the value of the Energy Fund Shares. The Natural Gas
futures contract is listed and traded at the NYMEX. Natural gas
accounts for almost a quarter of U.S. energy consumption. The NYMEX
natural gas futures contracts trade in units of 10,000 million British
Thermal Units and are based on delivery at the Henry Hub in Louisiana,
the nexus of 16 intra- and inter-state natural gas pipeline systems
that draw supplies from the region's prolific gas deposits. The
pipelines serve markets throughout the U.S. East Coast, the Gulf Coast,
the Midwest, and up to the Canadian border.
Gold. The price of gold is volatile with fluctuations expected to
affect the value of the Gold Fund Shares and the Precious Metals Fund
Shares. The price movement of gold may be influenced by a variety of
factors, including announcements from central banks regarding reserve
gold holdings, agreements among central banks, political uncertainties,
and economic concerns. NYMEX is the world's largest physical commodity
futures exchange and the dominant market for the trading of energy and
precious metals. The COMEX Division of the NYMEX commenced the trading
of gold futures contracts on December 31, 1974.
The trading unit of COMEX gold futures contracts is 100 troy
ounces. Gold bars tendered for delivery can be cast in the form of
either one bar or three one-kilogram bars. In either form, the gross
weight of the bar or bars tendered for each contract must be within a
five percent tolerance of the 100 oz. contract, and the bars must assay
at not less than 995 fineness, i.e., 99.5% pure gold.
Silver. The price of silver is volatile with fluctuations expected
to affect the value of the Silver Fund Shares and the Precious Metals
Fund Shares. The largest industrial users of silver are the
photographic, jewelry, and electronic industries and developments in
these industries among other factors may influence the price of silver.
The trading unit of COMEX silver futures contracts is 5,000 troy
ounces. Silver bars tendered for delivery can be cast in the form of
either 1,000 or 1,100
[[Page 67939]]
troy ounce cast bars. In either form, the gross weight of the bar or
bars tendered for each contract must be within a six percent tolerance
of the 5,000 troy ounce contract, and the bars must assay at not less
than .999 fineness, i.e., 99.9% pure silver.
Aluminum. Changes in the price of aluminum are expected to affect
the value of the Base Metals Fund Shares. The price movement of
aluminum may be influenced by a variety of factors, including industry
demands, production, political uncertainties, and economic concerns.
Aluminum is the most heavily produced and consumed non-ferrous metal in
the world. Its low density and malleability has been recognized and
championed by the industrial world. Aluminum has many diverse
applications ranging from beverage cans to cars. In 2001, world primary
refined production totaled over 24 million tonnes. The total turnover
for LME primary aluminum futures and options in 2001 was over 25
million lots or 625 million tonnes. The LME has the most liquid
aluminum contracts in the world.
Despite being the most prolific metal on earth, aluminum only began
to be used extensively once an inexpensive method for distilling it by
means of electrolytic reduction was discovered in the mid-19th century.
It is extremely light, pliable, has high conductivity and is resistant
to rust. As a result, it has become the most extensively used metal in
the world and more recently, the largest contract traded on the LME.
LME introduced the aluminum futures contract in 1978.
World production of aluminum is as follows: (1) Europe--33%; (2)
United States--29%; (3) Asia--24%; (4) Oceania--9%; and (5) Africa--5%.
Industry consumption of aluminum is as follows: (1) Transportation--
26%; (2) packaging--22%; (3) construction--22%; (4) machinery--8%; (5)
electrical--8%; (6) consumer durables--7%; and (7) others--7%.
Zinc. Zinc is commonly mined as a co-product with standard lead,
and both metals have growing core markets for their consumption. For
zinc, the main market is galvanizing, which accounts for almost half
its modern-day demand. Zinc's electropositive nature enables metals to
be readily galvanized, which gives added protection against corrosion
to building structures, vehicles, machinery, and household equipment.
Changes in the price of zinc are expected to affect the value of
the Base Metals Fund Shares. The closing price of zinc is determined by
reference to the official U.S. dollar cash settlement price per ton of
the zinc futures contract traded on the LME. The price of zinc is
primarily affected by the global demand for and supply of zinc. Demand
for zinc is significantly influenced by the level of global industrial
economic activity. The galvanized steel industrial sector is
particularly important given that the use of zinc in the manufacture of
galvanized steel accounts for approximately 50% of world-wide zinc
demand. The galvanized steel sector is in turn heavily dependent on the
automobile and construction sectors. A relatively widespread increase
in the demand for zinc by the galvanized steel sector, particularly in
China and the United States, has been the primary cause of the recent
rise in zinc prices. An additional, but highly volatile, component of
demand is adjustments to inventory in response to changes in economic
activity and/or pricing levels. The supply of zinc concentrate (the raw
material) is dominated by China, Australia, North America, and Latin
America. The supply of zinc is also affected by current and previous
price levels, which will influence investment decisions in new mines
and smelters. It is not possible to predict the aggregate effect of all
or any combination of these factors.
Copper (Grade A). Copper was the first mineral that man extracted
from the earth and along with tin gave rise to the Bronze Age. As the
ages and technology progressed, the uses for copper increased. With the
increased demand, exploration for the metal was extended throughout the
world laying down the foundations for the industry as we know it today.
Copper is an excellent conductor of electricity, as such one of its
main industrial usage is for the production of cable, wire and
electrical products for both the electrical and building industries.
The construction industry also accounts for copper's second largest
usage in such areas as pipes for plumbing, heating and ventilating, as
well as building wire and sheet metal facings.
The price of copper is volatile with fluctuations expected to
affect the value of the Base Metals Fund Shares. The closing price of
copper is determined by reference to the official U.S. dollar cash
settlement price per ton of the copper futures contract traded on the
LME. The price of copper is primarily affected by the global demand for
and supply of copper.
Demand for copper is significantly influenced by the level of
global industrial economic activity. Industrial sectors that are
particularly important include the electrical and construction sectors.
In recent years, demand has been supported by strong consumption from
newly industrializing countries, which continue to be in a copper-
intensive period of economic growth as they develop their
infrastructure (such as China). An additional, but highly volatile,
component of demand is adjustments to inventory in response to changes
in economic activity and/or pricing levels. Apart from the United
States, Canada, and Australia, the majority of copper concentrate
supply (the raw material) comes from outside the Organization for
Economic Cooperation and Development countries. Chile is the largest
producer of copper concentrate. In previous years, copper supply has
been affected by strikes, financial problems, and terrorist activity.
Output has fallen particularly sharply in the ``African Copperbelt''
and in Bougainville, Papua, New Guinea.
Corn. The price of corn is expected to fluctuate over time
affecting the value of the Agriculture Fund Shares. The price movement
of corn may be influenced by a variety of factors, including demand,
crop production, political uncertainties, and economic concerns. Corn
futures are traded on the CBOT with a unit of trading of 5,000 bushels.
Wheat. The price of wheat is expected to fluctuate over time
affecting the value of the Agriculture Fund Shares. The price movement
of wheat may be influenced by a variety of factors, including demand,
crop production, political uncertainties, and economic concerns. Wheat
futures are traded on the CBOT with a unit of trading of 5,000 bushels.
Soybeans. The price of soybeans is expected to fluctuate over time
affecting the value of the Agriculture Fund Shares. The price movement
of soybeans may be influenced by a variety of factors, including
demand, crop production, political uncertainties, and economic
concerns. Soybean futures are traded on the CBOT with a unit of trading
of 5,000 bushels.
Sugar. The price of sugar is expected to fluctuate over time
affecting the value of the Agriculture Fund Shares. The price movement
of sugar may be influenced by a variety of factors, including demand,
crop production, political uncertainties, and economic concerns. Sugar
futures are traded on the NYBOT with a unit of trading of 112,000 lbs.
Futures Regulation
The Commodity Exchange Act (the ``CEA'') governs the regulation of
commodity interest transactions, markets and intermediaries. The
Exchange states that the CFTC administers the CEA, which requires
commodity futures exchanges to have
[[Page 67940]]
rules and procedures to prevent market manipulation, abusive trade
practices, and fraud. The Exchange states that the CFTC conducts
regular review and inspection of the futures exchanges' enforcement
programs.
The Exchange states that the CEA provides for varying degrees of
regulation of commodity interest transactions depending upon the
variables of the transaction. In general, these variables include: (1)
The type of instrument being traded (e.g., contracts for future
delivery, options, swaps, or spot contracts); (2) the type of commodity
underlying the instrument (distinctions are made between instruments
based on agricultural commodities, energy and metals commodities, and
financial commodities); (3) the nature of the parties to the
transaction (retail, eligible contract participant, or eligible
commercial entity); (4) whether the transaction is entered into on a
principal-to-principal or intermediated basis; (5) the type of market
on which the transaction occurs; and (6) whether the transaction is
subject to clearing through a clearing organization.
The Exchange notes that non-U.S. futures exchanges differ in
certain respects from their U.S. counterparts. Importantly, non-U.S.
futures exchanges are not subject to regulation by the CFTC, but rather
are regulated by their home country regulator. In contrast to U.S.
designated contract markets, some non-U.S. exchanges are principals'
markets, where trades remain the liability of the traders involved, and
the exchange or an affiliated clearing organization, if any, does not
become substituted for any party. Due to the absence of a clearing
system, the Exchange states that such exchanges are significantly more
susceptible to disruptions. Further, participants in such markets must
often satisfy themselves as to the individual creditworthiness of each
entity with which they enter into a trade. Trading on non-U.S.
exchanges is often in the currency of the exchange's home jurisdiction.
Consequently, each of the Funds may be subject to the additional risk
of fluctuations in the exchange rate between such currencies and U.S.
dollars and the possibility that exchange controls could be imposed in
the future. Trading on non-U.S. exchanges may differ from trading on
U.S. exchanges in a variety of ways and, accordingly, may subject the
Funds to additional risks.
The Exchange states that CFTC and U.S. designated contract markets
have established limits or position accountability rules (i.e.,
speculative position limits or position limits) on the maximum net long
or net short speculative position that any person or group of persons
under common trading control (other than a hedger) may hold, own or
control in commodity interests. Among the purposes of speculative
position limits is to prevent a corner or squeeze on a market or undue
influence on prices by any single trader or group of traders.
The Exchange also states that most U.S. futures exchanges limit the
amount of fluctuation in some futures contracts or options on futures
contract prices during a single trading session. These regulations
specify what are referred to as daily price fluctuation limits (i.e.,
daily limits). The daily limits establish the maximum amount that the
price of a futures contract or options on futures contract may vary
either up or down from the previous day's settlement price. Once the
daily limit has been reached in a particular futures contract or
options on futures contract, no trades may be made at a price beyond
the limit.
Structure of the Funds
Funds. Each of the Funds is a separate series of a statutory trust
formed pursuant to the Delaware Statutory Trust Act and will issue
units of beneficial interest or shares that represent units of
fractional undivided beneficial interest in and ownership of the
respective Fund. Unless terminated earlier, each of the Funds is of a
perpetual duration. The investment objective of each of the Funds is to
reflect the performance of its corresponding Index, less the expenses
of the operations of such Fund and the related Master Fund. Each of the
Funds will pursue its investment objective by investing substantially
all of its assets in the respective Master Funds. Each of the Shares
will correlate with a corresponding Master Fund unit issued by the
relevant Master Fund and held by the respective Funds.
Master Funds. Each of the Master Funds is a separate series of a
statutory trust formed pursuant to the Delaware Statutory Trust Act and
will issue units of beneficial interest or shares that represent units
of fractional undivided beneficial interest in and ownership of the
respective Master Fund. Unless terminated earlier, each of the Master
Funds is of a perpetual duration. The investment objective of each of
the Master Funds is to reflect the performance of its respective Index,
less the expenses of the operations of the relevant Fund and such
Master Fund. Each of the Master Funds will pursue its investment
objective by investing primarily in a portfolio of futures contracts on
the commodities comprising its respective Index. In addition, the
Master Funds will also hold cash and U.S. Treasury securities for
deposit with futures commission merchants (``FCM'') as margin and other
high credit quality short-term fixed income securities.
Trustee. Wilmington Trust Company is the trustee (the ``Trustee'')
of the Trust and the DB Multi-Sector Commodity Master Trust (the
``Master Trust''). The Trustee has delegated to the Managing Owner the
power and authority to manage and operate the day-to-day affairs of
each of the Funds and the Master Funds.
Managing Owner. The Managing Owner is a Delaware limited liability
company that is registered with the CFTC as a CPO and CTA and is an
affiliate of Deutsche Bank AG, the sponsor of the Funds and Master
Funds. The Managing Owner will serve as the CPO and CTA of each Fund
and each Master Fund and will manage and control all aspects of the
business of the Funds. As a registered CPO and CTA, the Managing Owner
is required to comply with various regulatory requirements under the
CEA and the rules and regulations of the CFTC and the NFA, including
investor protection requirements, anti-fraud prohibitions, disclosure
requirements, reporting and recordkeeping requirements and is subject
to periodic inspections and audits by the CFTC and NFA.
Commodity Broker or Clearing Broker. Deutsche Bank Securities Inc.
(the ``Commodity Broker'' or the ``Clearing Broker'') is an affiliate
of the Managing Owner and is registered with the CFTC as a FCM. The
Clearing Broker will execute and clear each Master Fund's futures
contract transactions and will perform certain administrative services
for each Master Fund.
Administrator. The Bank of New York is the administrator for all of
the Funds and the Master Funds (the ``Administrator''). The
Administrator will perform or supervise the performance of services
necessary for the operation and administration of each Fund and each
Master Fund. These services include, but are not limited to,
accounting, net asset value (``NAV'') \19\
[[Page 67941]]
calculations and other fund administrative services.
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\19\ NAV is the total assets of each Master Fund less total
liabilities of such Master Fund, determined on the basis of
generally accepted accounting principles. NAV per Master Fund share
is the NAV of the relevant Master Fund divided by the number of
outstanding Master Fund units. This will be the same for the Shares
because of the one-to-one correlation between the Shares and the
units of the corresponding Master Fund.
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Distributor. ALPS Distributors, Inc. is the distributor and will
assist the Managing Owner and the Administrator with certain functions
and duties relating to distribution and marketing, including reviewing
and approving marketing materials.
Product Description
A. Creation and Redemption of Shares. Issuances of the Shares will
be made only in baskets of 200,000 shares or multiples thereof (the
``Basket Aggregation'' or ``Basket''). Each of the Funds will issue and
redeem its Shares on a continuous basis, by or through participants
that have entered into participant agreements (each, an ``Authorized
Participant'') \20\ with the Managing Owner at the corresponding NAV
per share next determined after an order to purchase the relevant
Shares in a Basket Aggregation is received in proper form. Following
issuance, all of the Shares will be traded on the Exchange similar to
other equity securities. Shares will be registered in book entry form
through DTC.
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\20\ An ``Authorized Participant'' is a person, who at the time
of submitting to the trustee an order to create or redeem one or
more Baskets: (i) is a registered broker-dealer; (ii) is a
Depository Trust Company (``DTC'') Participant or an Indirect
Participant; and (iii) has in effect a valid Participant Agreement.
---------------------------------------------------------------------------
Basket Aggregations will be issued in exchange for a cash amount
equal to the corresponding NAV (described below) per share times
200,000 Shares (the ``Basket Amount''). The Basket Amounts for each of
the Funds will be determined on each business day by the Administrator.
Authorized Participants that wish to purchase a Basket must transfer
the corresponding Basket Amount to the Administrator (the ``Cash
Deposit Amount''). Authorized Participants that wish to redeem a Basket
will receive cash in exchange for each Basket surrendered in an amount
equal to the NAV per Basket (the ``Cash Redemption Amount''). The
Commodity Broker will be the custodian for all of the Master Funds and
responsible for safekeeping each of the Master Funds' assets.
All purchase orders received by the Administrator prior to 10:00
a.m. ET will be settled by depositing with the Clearing Broker, the
corresponding Cash Deposit Amount disseminated by the Administrator
shortly after 10 a.m. on the next business day. Thus, the Administrator
will disseminate shortly after 4 p.m. ET the amount of cash to be
deposited for each Basket (200,000 Shares) order properly submitted by
Authorized Participants prior to 4 p.m. ET that business day.
The Shares will not be individually redeemable but will only be
redeemable in Basket Aggregations. To redeem, an Authorized Participant
will be required to accumulate enough Shares to constitute a Basket
Aggregation (i.e., 200,000 Shares). An Authorized Participant redeeming
a Basket Aggregation will receive the Cash Redemption Amount. Upon the
surrender of the Shares and payment of applicable redemption
transaction fee, taxes or charges, the Administrator will deliver to
the redeeming Authorized Participant the Cash Redemption Amount.
Redemption orders must be placed by 10 a.m., ET. 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 a Fund. Instead, individual
Shareholders may only redeem Shares in integral multiples of 200,000
and only through an Authorized Participant.
The Basket Amount necessary for the creation of a Basket will
change from day to day. On each day that the Amex is open for regular
trading, the Administrator will adjust each Cash Deposit Amount as
appropriate to reflect the prior day's NAV (discussed below) and
accrued expenses for each Fund. The Administrator will determine the
Cash Deposit Amounts for a given business day by multiplying the NAV
for each Share by the number of Shares in each Basket (200,000).
On each business day, the Administrator will make available
immediately prior to the opening of trading on the Amex, through the
facilities of the Consolidated Tape Association (``CTA''), the
estimated Basket Amount for the creation of a Basket. The Amex will
disseminate at least every 15 seconds throughout the trading day, via
the facilities of the CTA, amounts representing on a per share basis,
the current values of the Basket Amounts for each of the Funds
(Indicative Fund Value as described below). It is anticipated that the
deposit of the Cash Deposit Amount in exchange for a Basket will be
made primarily by institutional investors, arbitrageurs, and the
Exchange specialist. Baskets are then separable upon issuance into
identical shares that will be listed and traded on the Amex.\21\ The
Shares are expected to be traded on the Exchange by professionals, as
well as institutional and retail investors. Shares may be acquired in
two (2) ways: (1) Through a deposit of the Cash Deposit Amount
corresponding with the Shares to be acquired with the Administrator
during normal business hours by Authorized Participants; or (2) through
a purchase on the Exchange by investors.
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\21\ The Shares are separate and distinct from the shares of the
Master Funds consisting primarily of futures contracts on
commodities tracking the DBLCI-OY. The Exchange expects that the
number of outstanding Shares will increase and decrease as a result
of creations and redemptions of Baskets.
---------------------------------------------------------------------------
B. Net Asset Value (NAV). Shortly after 4 p.m. ET each business
day, the Administrator will determine the NAV for each of the Funds,
utilizing the current settlement value of the particular commodity
futures contracts. In calculating the NAV, the Administrator will value
all futures contracts based on that day's settlement price. However, if
a futures contract on a trading day cannot be liquidated due to the
operation of daily limits or other rules of an exchange upon which such
futures contract is traded, the settlement price on the most recent
trading day on which futures contract could have been liquidated will
be used in determining each Master Fund's NAV. Accordingly, for both
U.S. and non-U.S. futures contracts, the Administrator will typically
use that day's futures settlement price for determining NAV.\22\ Also,
at or about 4 p.m. ET each business day, the Administrator will
determine the Basket Amounts for orders placed by Authorized
Participants received before 4 p.m. ET that day. Thus, although
Authorized Participants place orders to purchase Shares throughout the
trading day, the actual Basket Amounts are determined at 4 p.m. ET or
shortly thereafter.
---------------------------------------------------------------------------
\22\ In the event the NAV is no longer calculated or
disseminated to all market participants at the same time, the
Exchange would immediately contact the Commission to discuss
measures that may be appropriate under the circumstances.
---------------------------------------------------------------------------
Shortly after 4 p.m. ET each business day, the Administrator, Amex,
and Managing Owner will disseminate the NAVs for the Shares and the
Basket Amounts (for orders placed during the day). The Basket Amounts
and the NAVs are communicated by the Administrator to all Authorized
Participants via facsimile or electronic mail message and the NAV will
be available on the Fund's Web site at http://dbfunds.db.com.\23\ The
Amex
[[Page 67942]]
will also disclose the NAVs and Basket Amounts on its Web site.
---------------------------------------------------------------------------
\23\ Telephone Conference (clarifying the Fund's Web site
address). If the NAV is not disseminated to all market participants
at the same time, the Exchange will halt trading in the Shares of a
Fund. However, if a Fund temporarily does not disseminate the NAV to
all market participants at the same time, the Exchange will
immediately contact the Commission staff to discuss measures that
may be appropriate under the circumstances.
---------------------------------------------------------------------------
When calculating NAV for each of the Funds and each of the Master
Funds, the Administrator will value U.S. futures contracts held by such
Master Fund on the basis of their then current market value. All non-
U.S. futures contracts will be calculated based upon the liquidation
value.
The NAV for the Funds are total assets of the corresponding Master
Fund less total liabilities of such Master Fund. The NAV is calculated
by including any unrealized profit or loss on futures contracts and any
other credit or debit accruing to such Master Fund but unpaid or not
received by the Master Fund. The NAV is then used to compute all fees
(including the management and administrative fees) that are calculated
from the value of such Master Fund's assets. The Administrator will
calculate the NAV per share by dividing the NAV by the corresponding
number of Shares outstanding.
The Exchange believes that none of the Shares will trade at a
material discount or premium to the Shares of the corresponding Master
Fund held by the corresponding Fund based on potential arbitrage
opportunities. Due to the fact that the Shares can be created and
redeemed only in Basket Aggregations at NAV, the Exchange submits that
arbitrage opportunities should provide a mechanism to mitigate the
effect of any premiums or discounts that may exist from time to time.
Dissemination of the Index and Underlying Futures Contracts Information
The Index Sponsor will publish the value of each of the Indexes at
least every fifteen (15) seconds through Bloomberg, Reuters, and on the
Fund's Web site at http://dbfunds.db.com. The Index Sponsor will
similarly provide the related closing levels. In addition, the Index
Sponsor and the Exchange on their respective Web sites will also
provide any adjustments or changes to any of the Indexes.\24\
---------------------------------------------------------------------------
\24\ See supra footnote 6.
---------------------------------------------------------------------------
The daily settlement prices for the futures contracts held by each
of the Master Funds are publicly available on the Web sites of the
futures exchanges trading the particular contracts. The particular
futures exchange for each futures contact with Web site information is
set forth as follows: (i) Aluminum, zinc and copper--grade A--LME at
www.lme.com; (ii) corn, wheat and soybeans--CBOT at www.cbot.com; (iii)
crude oil, heating oil, RBOB gasoline, natural gas, gold, and silver--
NYMEX at www.nymex.com; (iv) brent crude oil--ICE Futures at
www.theice.com; and (v) sugar--NYBOT at www.nybot.com. In addition,
various data vendors and news publications publish futures prices and
data. The Exchange represents that futures quotes and last sale
information for the commodities underlying each of the Indexes are
widely disseminated through a variety of major market data vendors
worldwide, including Bloomberg and Reuters. In addition, the Exchange
further represents that complete real-time data for such futures is
available by subscription from Reuters and Bloomberg. The CBOT, LME,
NYMEX, ICE Futures, and NYBOT also provide delayed futures information
on current and past trading sessions and market news free of charge on
their respective Web sites. The specific contract specifications for
the futures contracts are also available from the futures exchanges on
their Web sites, as well as other financial informational sources.
Availability of Information Regarding the Shares
The Web site for each of the Funds (http://dbfunds.db.com) and/or
the Exchange, which are publicly accessible at no charge, will contain
the following information: (a) The current NAV per share daily and the
prior business day's NAV and the reported closing price; (b) the mid-
point of the bid-ask price \25\ in relation to the NAV as of the time
the NAV is calculated (the ``Bid-Ask Price''); (c) calculation of the
premium or discount of such price against such NAV; (e) data in chart
form displaying the frequency distribution of discounts and premiums of
the Bid-Ask Price against the NAV, within appropriate ranges for each
of the four (4) previous calendar quarters; (f) the Prospectus; and (g)
other applicable quantitative information.
---------------------------------------------------------------------------
\25\ The bid-ask price of Shares is determined using the highest
bid and lowest offer as of the time of calculation of the NAV.
---------------------------------------------------------------------------
As described above, the respective NAVs for the Funds will be
calculated and disseminated daily to all market participants at the
same time. The Amex also intends to disseminate for each of the Funds
on a daily basis by means of CTA/CQ High Speed Lines information with
respect to the corresponding Indicative Fund Value (as discussed
below), recent NAV, and shares outstanding. The Exchange will also make
available on its Web site daily trading volume of each of the Shares,
closing prices of such Shares, and the corresponding NAV. The closing
price and settlement prices of the futures contracts comprising the
Indexes and held by the corresponding Master Funds are also readily
available from the relevant futures exchanges, automated quotation
systems, published or other public sources, or on-line information
services such as Bloomberg or Reuters. In addition, the Exchange will
provide a hyperlink on its Web site at http://www.amex.com to the
Fund's Web site at http://dbfunds.db.com, which will display all
intraday and closing index levels, the intraday Indicative Fund Value
(see below), and NAV.\26\
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\26\ Telephone Conference.
---------------------------------------------------------------------------
Dissemination of Indicative Fund Value
As noted above, the Administrator calculates the NAV of each of the
Funds once each trading day. In addition, the Administrator causes to
be made available on a daily basis the corresponding Cash Deposit
Amounts to be deposited in connection with the issuance of the
respective Shares in Basket Aggregations. In addition, investors can
request such information directly from the Administrator.
In order to provide updated information relating to each of the
Funds for use by investors, professionals, and persons wishing to
create or redeem the Shares, the Exchange will disseminate through the
facilities of CTA and the Fund's Web site (http://dbfunds.db.com)
updated Indicative Fund Values (the ``Indicative Fund Value'') for each
of the Funds. The respective Indicative Fund Values will be
disseminated on a per Share basis every 15 seconds during regular Amex
trading hours of 9:30 a.m. to 4:15 p.m. ET. The Indicative Fund Values
will be calculated based on the cash required for creations and
redemptions (i.e., NAV x 200,000) for the respective Funds adjusted to
reflect the price changes of the corresponding Index commodities
through investments held by the related Master Funds, i.e., futures
contracts.\27\
---------------------------------------------------------------------------
\27\ Id. (deleting the reference to options on futures).
---------------------------------------------------------------------------
The Indicative Fund Values will not reflect price changes to the
price of an underlying commodity between the close of trading of the
futures contract at the relevant futures exchange and the close of
trading on the Amex at 4:15 p.m. ET. The value of a Share may
accordingly be influenced by non-concurrent trading hours between the
Amex and the various futures exchanges on which the futures contracts
based on the Index commodities are traded.
[[Page 67943]]
While the Shares will trade on the Amex from 9 a.m. to 4:15 p.m. ET,
the table below lists the trading hours for each of the Index
commodities underlying the futures contracts.
----------------------------------------------------------------------------------------------------------------
Index Commodity Futures Exchange Trading Hours (ET)
----------------------------------------------------------------------------------------------------------------
Aluminum, Zinc, Copper-Grade A......... LME....................... 6:55 a.m.-noon.
Gold, Silver........................... NYMEX..................... 8:20 a.m.-1:30 p.m.
Crude Oil, Heating Oil, RBOB........... NYMEX..................... 10 a.m.-2:30 p.m.
Gasoline, Natural Gas. ...........................................
Brent Crude Oil........................ ICE Futures............... 8 p.m.-5 p.m. (next day).
Corn, Wheat, Soybeans.................. CBOT...................... 10:30 a.m.-2:15 p.m.
Sugar.................................. NYBOT..................... 9 a.m.-noon.
----------------------------------------------------------------------------------------------------------------
While the market for futures trading for each of the Index
commodities is open, the respective Indicative Fund Values can be
expected to closely approximate the value per share of the
corresponding Basket Amount. However, during Amex trading hours when
the futures contracts have ceased trading, spreads and resulting
premiums or discounts may widen, and therefore, increase the difference
between the price of the Shares and the NAV of such Shares. Any
Indicative Fund Value on a per Share basis disseminated during Amex
trading hours should not be viewed as a real time update of its
corresponding NAV, which is calculated only once a day.\28\
---------------------------------------------------------------------------
\28\ All of the relevant futures contracts trade in U.S.
dollars.
---------------------------------------------------------------------------
The Exchange believes that dissemination of the Indicative Fund
Values based on the cash amount required for its corresponding Basket
Aggregation provides additional information regarding the Funds that is
not otherwise available to the public and is useful to professionals
and investors in connection with the related Shares trading on the
Exchange or the creation or redemption of such Shares.
Termination Events
The Trust, or, as the case may be, any Fund will dissolve if any of
the following circumstances occur: (1) The filing of a certificate of
dissolution or revocation of the Managing Owner's charter (subject to
90-day notice period) or upon the withdrawal, removal, adjudication or
admission of bankruptcy or insolvency of the Managing Owner, or an
event of withdrawal, subject to exceptions; (2) the occurrence of any
event which would make unlawful the continued existence of the Trust or
any Fund, as the case may be; (3) the event of the suspension,
revocation or termination of the Managing Owner's registration as a
CPO, or membership as a CPO with the NFA, subject to certain
conditions; (4) the Trust or any Fund, as the case may be, becomes
insolvent or bankrupt; (5) shareholders holding Shares representing at
least 50% of the NAV (excluding the Shares of the Managing Owner)
notify the Managing Owner that they wish to dissolve the Trust; (6) the
determination of the Managing Owner that the aggregate net assets of a
Fund in relation to the operating expenses of such Fund make it
unreasonable or imprudent to continue the business of such Fund, or, in
the exercise of its reasonable discretion, the determination by the
Managing Owner to dissolve the Trust because the aggregate NAV of the
Trust as of the close of business on any business day declines below
$10 million; (7) the Trust or any Fund becoming required to register as
an investment company under the Investment Company Act of 1940; or (8)
DTC is unable or unwilling to continue to perform its functions, and a
compatible replacement is unavailable.
If not terminated earlier, the Funds will endure perpetually.
Criteria for Initial and Continued Listing
Each of the Funds will be subject to the criteria in Commentary
.07(d) of Amex Rule 1202 for initial and continued listing of their
respective Shares. The continued listing criteria provides for the
delisting or removal from listing of the Shares under any of the
following circumstances:
Following the initial twelve month period from the date of
commencement of trading of the Shares: (i) If the Fund has more than 60
days remaining until termination and there are fewer than 50 record
and/or beneficial holders of the related Shares for 30 or more
consecutive trading days; (ii) if the Fund has fewer than 50,000 Shares
issued and outstanding; or (iii) if the market value of all Shares
issued and outstanding is less than $1,000,000;
If the value of the underlying index or portfolio is no
longer calculated or available on at least a 15-second delayed basis
through one or more major market data vendors during the time the
Shares trade on the Exchange; \29\
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\29\ If an Index Value is not being disseminated by one or more
major market data vendors, the Exchange may halt trading during the
day in which the interruption to the dissemination of such Index
Value occurs. If the interruption to the dissemination of an Index
Value persists past the trading day in which it occurred, the
Exchange will halt trading no later than the beginning of the
trading day following the interruption.
---------------------------------------------------------------------------
The Indicative Fund Value is no longer made available on
at least a 15-second delayed basis during the time the Shares trade on
the Exchange; \30\ or
---------------------------------------------------------------------------
\30\ If an Indicative Fund Value is not being disseminated by
one or more major market data vendors, the Exchange may halt trading
during the day in which the interruption to the dissemination of
such Indicative Fund Value occurs. If the interruption to the
dissemination of an Indicative Fund Value persists past the trading
day in which it occurred, the Exchange will halt trading no later
than the beginning of the trading day following the interruption.
---------------------------------------------------------------------------
If such other event shall occur or condition exists which
in the opinion of the Exchange makes further dealings on the Exchange
inadvisable.
Additionally, the Exchange will file a proposed rule change
pursuant to Rule 19b-4 under the Act seeking approval to continue
trading the Shares of a Fund and, unless approved, the Exchange will
commence delisting the Shares of such Fund if:
The Index Sponsor substantially changes either the Index
component selection methodology or the weighting methodology;
A successor or substitute index is used in connection with
the Shares; \31\
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\31\ If the Managing Owner uses a successor or substitute index,
the Exchange's filing will address, among other things, the listing
and trading characteristics of the successor or substitute index and
the Exchange's surveillance procedures applicable thereto.
---------------------------------------------------------------------------
More than a temporary disruption exists in connection with
the pricing of the futures contracts comprising an Index or the
calculation of the NAV or the dissemination of the NAV to all market
participants at the same time is more than temporarily disrupted.
Deutsche Bank Securities Inc., as the initial purchaser (the
``Initial Purchaser''), will initially purchase and
[[Page 67944]]
take delivery of 200,000 Shares of each Fund, which comprises the
initial Basket of each Fund, at a purchase price of $25.00 per Share
($5,000,000 per Basket) pursuant to an Initial Purchaser Agreement. The
Initial Purchaser proposes to offer to the public these Shares at a
per-share offering price that will vary depending on, among other
factors, the respective trading price of the Shares on the Amex, the
NAV per Share and the supply of and demand for the Shares at the time
of the offer. Shares offered by the Initial Purchaser at different
times may have different offering prices. The Initial Purchaser will
not receive from any Fund, the Managing Owner or any of their
affiliates, any fee or other compensation in connection with the sale
of these Shares to the public. The Initial Purchaser may charge a
customary brokerage commission.
The Managing Owner has agreed to indemnify certain parties against
certain liabilities, including liabilities under the Securities Act of
1933, and to contribute to payments that such parties may be required
to make in respect thereof.
The Exchange believes that the anticipated minimum number of Shares
of each of the Funds outstanding at the start of trading is sufficient
to provide adequate market liquidity and to further the objectives of
the respective Funds.
The Exchange represents that, for the initial and continued
listing, the Shares must be in compliance with section 803 of the Amex
Company Guide and rule 10A-3 under the Act.
Original and Annual Listing Fees
The Amex original listing fee applicable to the listing of the
Funds is $5,000 per Fund. In addition, the annual listing fee
applicable under section 141 of the Amex Company Guide will be based
upon the year-end aggregate number of shares in all the Funds
outstanding at the end of each calendar year.
Disclosure
The Exchange, in an Information Circular (described below)
distributed to Exchange members and member organizations, will inform
members and member organizations, prior to commencement of trading, of
the prospectus delivery requirements applicable to the Funds. The
Exchange notes that investors purchasing Shares directly from the
respective Funds (by delivery of the corresponding Cash Deposit
Amounts) will receive a prospectus. Amex members purchasing Shares from
the corresponding Funds for resale to investors will deliver a
prospectus to such investors.
Purchase and Redemptions in Basket Aggregations
In the Information Circular (described below), members and member
organizations will be informed that procedures for purchases and
redemptions of Shares in Basket Aggregations are described in the
Prospectus and that Shares are not individually redeemable but are
redeemable only in Basket Aggregations or multiples thereof.
Trading Rules
The Shares are equity securities subject to Amex Rules governing
the trading of equity securities, including, among others, rules
governing priority, parity and precedence of orders, specialist
responsibilities \32\ and account opening and customer suitability
(Amex Rule 411). Initial equity margin requirements of 50% will apply
to transactions in the Shares. Shares will trade on the Amex until 4:15
p.m. ET each business day and will trade in a minimum price variation
of $0.01 pursuant to Amex Rule 127. Trading rules pertaining to odd-lot
trading in Amex equities (Amex Rule 205) will also apply.
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\32\ For example, Commentary .07(e) to Amex Rule 1202 prohibits
the specialist in the Shares from being affiliated with a market
maker in the Index commodities, related futures or options on
futures, or any other related derivatives, unless information
barriers are in place that satisfy the requirements of Amex Rule
193. Commentary .07(g)(3) to Amex Rule 1202 also prohibits the
specialist in the Shares from using any material nonpublic
information received from any person associated with a member,
member organization or employee of such person regarding trading by
such person or employee in the Index commodities, related futures or
options on futures, or any other related derivatives.
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Amex Rule 154, Commentary .04(c) provides that stop and stop limit
orders to buy or sell a security (other than an option, which is
covered by Amex Rule 950(f) and Commentary thereto) the price of which
is derivatively priced based upon another security or index of
securities, may with the prior approval of a Floor Official, be elected
by a quotation, as set forth in Commentary .04(c) (i-v). The Exchange
has designated the Shares as eligible for this treatment.\33\
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\33\ See Securities Exchange Act Release No. 29063 (April 10,
1991), 56 FR 15652 (April 17, 1991), at note 9, regarding the
Exchange's designation of equity derivative securities as eligible
for such treatment under Amex Rule 154, Commentary .04(c).
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The Shares will be deemed ``Eligible Securities,'' as defined in
Amex Rule 230, for purposes of the Intermarket Trading System Plan and
therefore will be subject to the trade through provisions of Amex Rule
236 which require that Amex members avoid initiating trade-throughs for
ITS securities.
Specialist transactions of the Shares made in connection with the
creation and redemption of Shares will not be subject to the
prohibitions of Amex Rule 190.\34\ The Shares will not be subject to
the short sale rule pursuant to no-action relief granted in petition to
Rule 10a-1 under the Act.\35\ The Shares will generally be subject to
the Exchange's stabilization rule, Amex Rule 170, except that
specialists may buy on ``plus ticks'' and sell on ``minus ticks,'' in
order to bring the Shares into parity with the underlying commodity or
commodities and/or futures contract price. Commentary .07(f) to Amex
Rule 1202 sets forth this limited exception to Amex Rule 170.
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\34\ See Commentary .05 to Amex Rule 190.
\35\ See letter to George T. Simon, Esq., Foley & Lardner LLP,
from Racquel L. Russell, Branch Chief, Office of Trading Practices
and Processing, Division of Market Regulation, (``Division''),
Commission, dated July 21, 2006.
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The trading of the Shares will be subject to certain conflict of
interest provisions set forth in Commentary .07(e) to Amex Rule 1202.
Specifically, Commentary .07(e) provides that the prohibitions in Amex
Rule 175(c) apply to a specialist in the Shares so that the specialist
or affiliated person may not act or function as a market maker in an
underlying asset, related futures contract or option or any other
related derivative. An affiliated person of the specialist consistent
with Amex Rule 193 may be afforded an exemption to act in a market-
making capacity, other than as a specialist in the Shares on another
market center, in the underlying asset, related futures or options or
any other related derivative. Commentary .07(e) further provides that
an approved person of an equity specialist that has established and
obtained Exchange approval for procedures restricting the flow of
material, non-public market information between itself and the
specialist member organization, and any member, officer, or employee
associated therewith, may act in a market-making capacity, other than
as a specialist in the Shares on another market center, in the
underlying asset or commodity, related futures or options on futures,
or any other related derivatives.
Commentary .07(g)(1) and (g)(2) to Amex Rule 1202 also ensures that
specialists handling the Shares provide the Exchange with all the
necessary information relating to their trading in physical assets or
commodities, related futures contracts and options thereon or any other
derivative.
[[Page 67945]]
As a general matter, the Exchange has regulatory jurisdiction over
its members, member organizations and approved persons of a member
organization. The Exchange also has regulatory jurisdiction over any
person or entity controlling a member organization as well as a
subsidiary or affiliate of a member organization that is in the
securities business. A subsidiary or affiliate of a member organization
that does business only in commodities or futures contracts would not
be subject to Exchange jurisdiction, but the Exchange could obtain
information regarding the activities of such subsidiary or affiliate
through surveillance sharing agreements with regulatory organizations
of which such subsidiary or affiliate is a member.
Trading Halts
Prior to the commencement of trading, the Exchange will issue an
Information Circular (described below) to members informing them of,
among other things, Exchange policies regarding trading halts in the
Shares. First, the circular will advise that trading will be halted in
the event the market volatility trading halt parameters set forth in
Amex Rule 117 have been reached. Second, the circular will advise that,
in addition to the parameters set forth in Amex Rule 117, the Exchange
will halt trading in any of the Shares if trading in the underlying
related futures contract(s) is halted or suspended. Third, with respect
to a halt in trading that is not specified above, the Exchange may also
consider other relevant factors and the existence of unusual conditions
or circumstances that may be detrimental to the maintenance of a fair
and orderly market. If an Index Value, or an Indicative Fund Value, is
not being disseminated, as required, by one or more major market data
vendors, the Exchange may halt trading during the day in which the
interruption to the dissemination of such Index Value or Indicative
Fund Value occurs.\36\ If the interruption to the dissemination of an
Index Value or Indicative Fund Value persists past the trading day in
which it occurred, the Exchange will halt trading no later than the
beginning of the trading day following the interruption.\37\
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\36\ Telephone Conference.
\37\ Id.
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Suitability
The Information Circular (described below) will inform members and
member organizations of the characteristics of the Funds and of
applicable Exchange rules, as well as of the requirements of Amex Rule
411 (Duty to Know and Approve Customers).
The Exchange notes that pursuant to Amex Rule 411, members and
member organizations are required in connection with recommending
transactions in the Shares to have a reasonable basis to believe that a
customer is suitable for the particular investment given reasonable
inquiry concerning the customer's investment objectives, financial
situation, needs, and any other information known by such member.
Information Circular
The Amex will distribute an Information Circular to its members in
connection with the trading of the Shares. The Circular will discuss
the special characteristics and risks of trading this type of security,
such as currency fluctuation risk. Specifically, the Circular, among
other things, will discuss what the Shares are, how a Basket is created
and redeemed, the requirement that members and member firms deliver a
prospectus to investors purchasing newly issued Shares, applicable Amex
rules, dissemination information, trading information, and applicable
suitability rules.\38\ The Circular will also explain that the Funds
are subject to various fees and expenses described in the Registration
Statement. The Circular will also reference the fact that the CFTC has
regulatory jurisdiction over the trading of futures contracts. The
Circular will also reference that there is no regulated source of last
sale information regarding physical commodities and that the Commission
has no jurisdiction over the trading of physical commodities or related
futures contracts on which the value of the Shares is based.\39\
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\38\ Id.
\39\ Id.
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The Circular will also notify members and member organizations
about the procedures for purchases and redemptions of Shares in
Baskets, and that Shares are not individually redeemable but are
redeemable only in one or more Baskets. The Circular will advise
members of their suitability obligations with respect to recommended
transactions to customers in the Shares. The Circular will also discuss
any relief, if granted, by the Commission or the staff from any rules
under the Act.
The Circular will disclose that the trading hours of the Shares of
the Funds will be from 9:30 a.m. to 4:15 p.m. ET and that the NAV for
the Shares of the Funds will be calculated shortly after 4 p.m. ET each
trading day. Information about the Shares of each Fund and the
corresponding Indexes will be publicly available on the Amex Web site
and each Fund's Web site.
Surveillance
The Exchange represents that its surveillance procedures are
adequate to properly monitor the trading of the Shares and to deter and
detect violations of Exchange rules. The Exchange's surveillance
procedures for the Shares will be similar to those used for other TIRs
(such as the Currency Trust Shares and the DB Commodity Index Tracking
Fund) and exchange-traded funds and will incorporate and rely upon
existing Amex surveillance procedures governing options and equities.
Specifically, the Exchange will rely on its existing surveillance
procedures applicable to TIRs, Portfolio Depository Receipts and Index
Fund Shares.\40\ The Exchange currently has in place a Comprehensive
Surveillance Sharing Agreement with the ICE Futures, LME, and NYMEX,
for the purpose of providing information in connection with trading in
or related to futures contracts traded on their respective exchanges
comprising the Indexes.\41\ The Exchange also notes that the CBOT and
NYBOT are members of the Intermarket Surveillance Group (``ISG''). As a
result, the Exchange asserts that market surveillance information is
available from ICE Futures, LME, NYBOT, and NYMEX, if necessary, due to
regulatory concerns that may arise in connection with the futures
contracts.
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\40\ Id.
\41\ Id.
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2. Statutory Basis
The Exchange believes that the proposed rule change, as amended, is
consistent with section 6(b) of the Act,\42\ in general, and furthers
the objectives of section 6(b)(5) \43\ in particular, in that it is
designed to prevent fraudulent and manipulative acts and practices, to
promote just and equitable principles of trade, to foster cooperation
and coordination with persons engaged in facilitating transactions in
securities, and to remove impediments to and perfect the mechanism of a
free and open market and a national market system.
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\42\ 15 U.S.C. 78f(b).
\43\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition.
[[Page 67946]]
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
The Exchange did not receive any written comments on the proposed
rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 35 days of the date of publication of this notice in the
Federal Register or within such longer period: (i) As the Commission
may designate up to 90 days of such date if it finds such longer period
to be appropriate and publishes its reasons for so finding; or (ii) as
to which the Exchange consents, the Commission will:
(A) By order approve such proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
The Commission is considering granting accelerated approval of the
proposed rule change, as amended, at the end of a 15-day comment
period.\44\
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\44\ Amex has requested accelerated approval of this proposed
rule change, as amended, prior to the 30th day after the date of
publication of the notice of the filing thereof, following the
conclusion of a 15-day comment period. Telephone Conference.
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form at http://www.sec.gov/rules/sro.shtml or
Send an e-mail to [email protected]. Please include
File No. SR-Amex-2006-76 on the subject line.
Paper Comments
Send paper comments in triplicate to Nancy M. Morris,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File No. SR-Amex-2006-76. This file
number should be included on the subject line if e-mail is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site at http://www.sec.gov/rules/sro.shtml. Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for inspection and
copying in the Commission's Public Reference Room. Copies of such
filing also will be available for inspection and copying at the
principal office of the Amex. All comments received will be posted
without change; the Commission does not edit personal identifying
information from submissions. You should submit only information that
you wish to make available publicly. All submissions should refer to
File No. SR-Amex-2006-76 and should be submitted on or before December
11, 2006.
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\45\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\45\
Nancy M. Morris,
Secretary.
[FR Doc. E6-19847 Filed 11-22-06; 8:45 am]
BILLING CODE 8011-01-P