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EX-23.3 - EXHIBIT 23.3 - iSHARES COMMODITY OPTIMIZED TRUSTex23-3.htm
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EX-5.1 - EXHIBIT 5.1 - iSHARES COMMODITY OPTIMIZED TRUSTex5-1.htm

 

Table of Contents

As filed with the Securities and Exchange Commission on July 24, 2017

Registration No. 333-

 



UNITED STATES

 SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


 

Form S-1
REGISTRATION STATEMENT

UNDER
THE SECURITIES ACT OF 1933

  


iSHARES® COMMODITY OPTIMIZED TRUST

(Exact name of registrant as specified in its charter)


 

Delaware

(State of Organization)

6799
(Primary Standard Industrial Classification No.)

46-2428725
(I.R.S. Employer Identification Number)

 

c/o iShares® Delaware Trust Sponsor LLC

400 Howard Street

San Francisco, CA 94105

Attn: Product Management Team

iShares® Research & Development

(415) 670-2000

(Address, including zip code, and telephone number including

area code, of registrant’s principal executive offices)


 

iShares® Delaware Trust Sponsor LLC

400 Howard Street

San Francisco, CA 94105

Attn: Product Management Team

iShares® Research & Development

(415) 670-2000 


 

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

Copies to:

Andrew M. Faulkner, Esq.

Deepa Damre, Esq.

Skadden, Arps, Slate, Meagher & Flom LLP

BlackRock Fund Advisors

Four Times Square 

 400 Howard Street

New York, NY 10036  

San Francisco, CA 94105


 

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effectiveness of this registration statement, on a continuous basis and for a period in excess of 30 days from the initial date of effectiveness.

 

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:  

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please 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 to a registration statement filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act 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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

  

  

  

Non-accelerated filer

(Do not check if a smaller reporting company)

  

   

Smaller reporting company

     
   

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accountingstandards provided pursuant to Section 7(a)(2)(B) of the Securities Act .    

 

CALCULATION OF REGISTRATION FEE

Title of Securities to be Registered

Amount

to be Registered

Proposed Maximum

Offering Price

Per Share

Proposed Maximum

Aggregate Offering

Price

Amount of

Registration Fee

iShares

18,550,000

$50.00

$927,500,000

$126,511.00(1)

iShares

11,150,000

$32.424

$361,528,135

$36,405.88(1)

iShares

250,000

$35.59

$8,897,500

$1,031.22(1)

iShares

3,000,000

$35.12(2)

$105,360,000(2)

$12,211.22

Total

32,950,000

   

$176,159.32


Previously paid. This registration statement is filed pursuant to Rule 415(a)(6) under the Securities Act, and the securities being registered hereunder include 29,950,000 unsold securities previously registered under registration statement no. 333-217221. In accordance with Rule 415(a)(6), the registration fee previously paid with respect to such unsold securities will continue to apply to such unsold securities. Registration statement no. 333-217221 will be deemed terminated as of the date of effectiveness of this registration statement.

Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(d) under the Securities Act, based upon a net asset value per share of $35.12 as of July 11, 2017.

 


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 an amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

 

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is prohibited. 

SUBJECT TO COMPLETION, DATED JULY 24, 2017

PROSPECTUS 

32,950,000 Shares

iShares® Commodity Optimized Trust

The iShares Commodity Optimized Trust (formerly known as the iShares Dow Jones-UBS Roll Select Commodity Index Trust), or the “Trust,” is a Delaware statutory trust that issues units of beneficial interest, called “Shares,” representing fractional undivided beneficial interests in its net assets. The Trust’s assets consist of long positions in exchange-traded index futures contracts of various expirations, called “Index Futures,” on the Bloomberg Roll Select Commodity Index, or the “Bloomberg Roll Select CI,” together with “Collateral Assets” consisting of cash, U.S. Treasury securities or other short-term securities and similar securities that are eligible as margin deposits for those Index Futures positions. The Trust seeks to track the results of a fully collateralized investment in futures contracts on an index composed of a diversified group of commodities futures which attempts to minimize contango and maximize backwardation. The Trust seeks to track the investment returns of this index, the Bloomberg Roll Select Commodity Total Return Index, or the “Index,” before payment of the Trust’s expenses and liabilities. The Index is intended to reflect the performance of a diversified group of commodities, while also seeking to minimize the effect of contango and maximize the effect of backwardation in connection with periodically switching or “rolling” into new futures contracts.

The Shares are listed on NYSE Arca, Inc., or “NYSE Arca,” under the symbol “CMDT.” BlackRock Institutional Trust Company, N.A. (formerly known as Barclays Global Investors, N.A.), is the Trustee of the Trust. The Trust is a commodity pool, as defined in the Commodity Exchange Act and the applicable regulations of the Commodity Futures Trading Commission, or “CFTC,” and is operated by its “Sponsor,” iShares® Delaware Trust Sponsor LLC, a commodity pool operator registered with the CFTC. BlackRock Fund Advisors, or “BFA,” is an indirect subsidiary of BlackRock, Inc. that serves as the commodity trading advisor, or the “Advisor,” of the Trust and is registered with the CFTC. The Trust is not an investment company registered under the Investment Company Act of 1940, as amended.

The Trust is an “emerging growth company” subject to reduced public company reporting requirements under U.S. federal securities laws.

 

Investing in the Shares involves significant risks. See “Risk Factors” starting on page 15. You could lose all or substantially all of your investment in the Shares.

  

 

The Trust has a limited operating history.

 

There may be conflicts of interest between you, on

 

The market price for the Shares could differ from the

 

 

the one hand, and the Sponsor and its affiliates, the

 

 

“NAV,” or net asset value per Share.

 

 

index providers and their affiliates, the Trust’s

 

Past performance of the Index is limited, and not

 

 

clearing futures commission merchant and any

 

 

necessarily indicative of its future results or the

 

 

other parties that transact in the Index Futures or its

 

 

performance of the Shares.

 

 

underlying futures contracts and commodities, on

 

The price of the Shares is expected to fluctuate

 

 

the other hand.

 

 

based on the value of the Index and the prices of

 

The classes of assets in which the Trust invests,

 

 

the futures contracts and commodities underlying

 

 

and accordingly, the nature of an investment in the

 

 

the Index; commodities markets have historically

 

 

Shares, may change from time to time.

    been volatile.   There are income tax risks associated with the
  The return on the Shares will not correlate precisely     offering.
    with the performance of the Index.   Investors in the Shares will annually receive an IRS
  The Trust is subject to fees and expenses that are     Schedule K-1, which reports their allocable share of
    payable regardless of profitability.     the Trust’s items of income, gain, loss and
          deduction. Tax information reporting on Schedule K-1
          may be somewhat more complex than
          comparable reporting on IRS Form 1099.

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the securities offered in this prospectus, or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

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 not deposits or other obligations of BlackRock Institutional Trust Company, N.A. or any of its subsidiaries or affiliates or any other bank, are not guaranteed by BlackRock Institutional Trust Company, N.A. or any of its subsidiaries or affiliates or any other bank and are not insured by the Federal Deposit Insurance Corporation or any other governmental agency. An investment in the Shares is speculative and involves a high degree of risk.


The Trust intends to offer Shares on a continuous basis. The Trust issues and redeems Shares only in one or more blocks of 50,000 Shares called Baskets. Only registered broker-dealers that enter into an authorized participant agreement with the Trust to become Authorized Participants may purchase or redeem Baskets, in exchange for Index Futures and Collateral Assets with an aggregate value equal to the NAV of the Shares being purchased or redeemed. Shareholders who are not Authorized Participants have no right to redeem their Shares. In order to liquidate their investment in the Shares, Shareholders who are not Authorized Participants must generally sell their Shares in the secondary market, assuming that demand for their Shares exists. The price obtained by the Shareholders for the Shares may be less than the NAV of those Shares.

Authorized Participants may offer to the public, from time to time, Shares from any Baskets they purchase from the Trust. Shares offered to the public by the Authorized Participants are offered at a per-Share offering price that varies depending on, among other factors, the trading price of the Shares on NYSE Arca, the NAV and the supply of and demand for the Shares at the time of the offer. Shares initially comprising the same Basket but offered by Authorized Participants to the public at different times may have different offering prices. Authorized Participants do not receive from the Trust, the Sponsor or any of their affiliates, any fee or other compensation in connection with their sale of Shares to the public. Any Authorized Participant may receive commissions or fees from investors who purchase Shares through their commission- or fee-based brokerage accounts.


The date of this prospectus is July [__], 2017.

 

 

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 THIS POOL AT PAGES 14, 50-51 AND 55 AND A STATEMENT OF THE PERCENTAGE RETURN NECESSARY TO BREAK EVEN, THAT IS, TO RECOVER THE AMOUNT OF YOUR INITIAL INVESTMENT, AT PAGE 14.

 

THIS BRIEF STATEMENT CANNOT DISCLOSE ALL THE RISKS AND OTHER FACTORS NECESSARY TO EVALUATE YOUR PARTICIPATION IN THIS COMMODITY POOL. THEREFORE, BEFORE YOU DECIDE TO PARTICIPATE IN THIS COMMODITY POOL, YOU SHOULD CAREFULLY STUDY THIS DISCLOSURE DOCUMENT, INCLUDING A DESCRIPTION OF THE PRINCIPAL RISK FACTORS OF THIS INVESTMENT, BEGINNING AT PAGE 15.

 

CERTAIN NOTICES

 

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 SEC IN WASHINGTON, D.C.

 

AUTHORIZED PARTICIPANTS MAY BE REQUIRED TO DELIVER A PROSPECTUS WHEN SELLING TO THE PUBLIC SHARES PURCHASED FROM THE TRUST. SEE “PLAN OF DISTRIBUTION.”

 

THE TRUST WILL FILE QUARTERLY AND ANNUAL REPORTS WITH THE SEC. YOU CAN READ AND COPY THESE REPORTS AT THE SEC PUBLIC REFERENCE FACILITIES IN WASHINGTON, D.C. PLEASE CALL THE SEC AT 1-800-SEC-0330 FOR FURTHER INFORMATION.

 

THE FILINGS OF THE TRUST ARE POSTED AT THE SEC’S WEBSITE AT http://www.sec.gov.

 

FOR RESIDENTS OF THE UNITED KINGDOM:

 

SHARES IN THE TRUST ARE NOT BEING ACTIVELY MARKETED IN THE UNITED KINGDOM FOR THE PURPOSES OF THE UNITED KINGDOM’S IMPLEMENTATION OF THE ALTERNATIVE INVESTMENT FUND MANAGERS DIRECTIVE (2011/61/EU). THE TRUST MAY CONSTITUTE A COLLECTIVE INVESTMENT SCHEME AS DEFINED IN THE FINANCIAL SERVICES AND MARKETS ACT 2000 (THE “FSMA”). THE TRUST IS NOT AUTHORIZED OR OTHERWISE RECOGNIZED IN THE UNITED KINGDOM AND THEREFORE WOULD BE CHARACTERIZED AS AN UNREGULATED COLLECTIVE INVESTMENT SCHEME FOR THE PURPOSES OF THE FSMA. AS SUCH, THE ISSUE AND DISTRIBUTION OF THIS PROSPECTUS IN THE UNITED KINGDOM IS RESTRICTED BY LAW. IN ADDITION, THIS PROSPECTUS HAS NOT BEEN APPROVED BY A PERSON AUTHORIZED BY THE FINANCIAL CONDUCT AUTHORITY IN THE UNITED KINGDOM (AN “AUTHORIZED PERSON”) FOR THE PURPOSES OF SECTION 21(2)(B) OF THE FSMA. ACCORDINGLY, THIS PROSPECTUS CAN ONLY BE ISSUED OR DISTRIBUTED IN THE UNITED KINGDOM: (1) BY AN AUTHORIZED PERSON (I) TO PERSONS WHO ARE INVESTMENT PROFESSIONALS HAVING PROFESSIONAL EXPERIENCE IN PARTICIPATING IN UNREGULATED SCHEMES (ONLY AS DEFINED IN ARTICLE 14(5) OF THE FSMA (PROMOTION OF COLLECTIVE INVESTMENT SCHEMES) (EXEMPTIONS) ORDER 2001 (AS AMENDED) (THE “CIS ORDER”)), (II) TO PERSONS WHO ARE WITHIN ANY OF THE CATEGORIES OF PERSONS DESCRIBED IN ARTICLE 22 OF THE CIS ORDER (HIGH NET WORTH ENTITIES) OR (III) PERSONS WHO FALL WITHIN CATEGORIES OF INVESTORS SPECIFIED IN THE FINANCIAL CONDUCT AUTHORITY’S RULES AS TO WHOM THE TRUST MAY LAWFULLY BE PROMOTED; OR (2) IF SUCH PROMOTION IS NOT CARRIED OUT THROUGH AN AUTHORIZED PERSON, (I) TO PERSONS WHO ARE INVESTMENT PROFESSIONALS (AS DEFINED IN ARTICLE 19(5) OF THE FINANCIAL SERVICES AND MARKETS ACT 2000

 

 

 

(FINANCIAL PROMOTION) ORDER 2005, AS AMENDED (THE “FINANCIAL PROMOTION ORDER”), OR (II) TO PERSONS WHO ARE WITHIN ANY OF THE CATEGORIES OF PERSONS DESCRIBED IN ARTICLE 49(2)(A) TO (D) OF THE FINANCIAL PROMOTION ORDER (HIGH NET WORTH ENTITIES). ANY OTHER DISTRIBUTION OF THIS PROSPECTUS IN OR INTO THE UNITED KINGDOM IS UNAUTHORIZED. ANY PERSON ISSUING OR DISTRIBUTING THIS PROSPECTUS OR ANY PART OF IT MAY BE ACTING IN BREACH OF APPLICABLE LAW OR REGULATIONS AND ANY PERSONS RECEIVING THIS PROSPECTUS IN OR FROM THE UNITED KINGDOM IN CIRCUMSTANCES NOT FALLING WITHIN (1) OR (2) ABOVE MAY NOT RELY ON ITS CONTENTS. NO PART OF THIS PROSPECTUS SHOULD THEREFORE BE PUBLISHED, DISTRIBUTED OR OTHERWISE MADE AVAILABLE WITH UNRESTRICTED ACCESS IN ANY FORM IN THE UNITED KINGDOM.

  


 

Other Information

 

“iShares” is a registered trademark of BlackRock Fund Advisors or its affiliates.

 

The Bloomberg Commodity IndexesSM are a joint product of Bloomberg Finance L.P. (referred to collectively with its affiliates as “Bloomberg”), UBS Securities LLC (referred to collectively with its affiliates as “UBS Securities”) and have been licensed for use by the Trust. Bloomberg® is a trademark of Bloomberg and has been licensed for use for certain purposes by the Trust. Although the performance of the Shares is intended to correspond generally, but not necessarily be identical, to the performance of the Bloomberg Roll Select Commodity Total Return Index, before payment of the Trust’s expenses and liabilities, the Shares are not sponsored, endorsed, sold or promoted by Bloomberg, UBS Securities or any of their respective subsidiaries or affiliates, and none of Bloomberg, UBS Securities or any of their respective affiliates, makes any representation regarding the advisability of investing in the Shares.

 

 

 
ii 

Table of Contents
 

 

TABLE OF CONTENTS

 

 

Page

PROSPECTUS SUMMARY

1

RISK FACTORS

15

FORWARD-LOOKING STATEMENTS

33

USE OF PROCEEDS

33

FUTURES CONTRACTS ON THE BLOOMBERG ROLL SELECT CI

34

THE INDEX, THE BLOOMBERG CI AND THE BLOOMBERG ROLL SELECT CI

36

BUSINESS OF THE TRUST

47

DESCRIPTION OF THE SHARES AND THE TRUST AGREEMENT

52

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

57

THE SPONSOR

59

THE TRUSTEE

62

The Trust Administrator

62

THE DELAWARE TRUSTEE

63

THE ADVISOR

63

THE CLEARING FCM

65

CONFLICTS OF INTEREST

68

CERTAIN PERFORMANCE DATA

71

UNITED STATES FEDERAL INCOME TAX CONSEQUENCES

72

ERISA AND RELATED CONSIDERATIONS

81

PLAN OF DISTRIBUTION

83

LEGAL MATTERS

84

EXPERTS

84

WHERE YOU CAN FIND MORE INFORMATION; Incorporation of Certain Information by Reference

84

  


 

You should rely only on the information contained in this prospectus or incorporated by reference herein. None of the Sponsor, the Trustee, the Delaware Trustee, the Trust or the Advisor has authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. None of the Sponsor, the Trustee, the Delaware Trustee, the Trust or the Advisor is making an offer to sell the Shares in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus is accurate only as of the date on the front cover of this prospectus, and refer to the annual, quarterly and current reports and other information filed with the Securities and Exchange Commission (available at www.sec.gov) for additional information, including possible updates to the information contained herein. See “Where You Can Find More Information; Incorporation of Certain Information by Reference” on page 85.

 

Certain defined terms used in this prospectus are set forth in the “Glossary” in the Statement of Additional Information attached hereto.

 

  

PROSPECTUS SUMMARY

 

This summary highlights some of the information contained in this prospectus. This summary does not contain all of the information you should consider before investing in the Shares. You should carefully read this entire prospectus, including “Risk Factors” starting on page 15, and “Where You Can Find More Information; Incorporation of Certain Information by Reference” on page 85 before making a decision to invest in the Shares. This prospectus is intended to be used beginning July [__], 2017.

 

Structure of the Trust

 

The iShares® Commodity Optimized Trust, or the “Trust,” was formed as a Delaware statutory trust on December 7, 2011. The Trust is governed by an Amended and Restated Trust Agreement, or the “Trust Agreement,” dated as of July 1, 2014, among iShares® Delaware Trust Sponsor LLC, as “Sponsor,” BlackRock Institutional Trust Company, N.A., as “Trustee,” and Wilmington Trust, National Association, as “Delaware Trustee.” The Trust intends to continuously offer units of beneficial interest in the Trust, or “Shares,” to the public but may suspend issuances of Shares at any time. The Sponsor maintains a limited equity interest in the Trust in connection with its role as Tax Matters Partner of the Trust.

 

Each Share represents a unit of fractional undivided beneficial interest in the net assets of the Trust. The Trust’s assets consist of long positions in exchange-traded index futures contracts of various expirations, called “Index Futures,” on the Bloomberg Roll Select CI, together with “Collateral Assets” consisting of cash, U.S. Treasury securities or other short-term securities and similar securities that are eligible as margin deposits for those Index Futures positions. The Trust seeks to track the results of a fully collateralized investment in futures contracts on an index composed of a diversified group of commodities futures which attempts to minimize contango and maximize backwardation. The Trust seeks to track the investment returns of the Index, before payment of the Trust’s expenses and liabilities.

 

As of the date of this prospectus, the Index Futures held by the Trust are subject to the rules of the Board of Trade of the City of Chicago, Inc., or “CBOT,” which is owned and operated by the CME Group, Inc., or the “CME Group.” These Index Futures have serial month expirations for the four closest months. Subsequent Index Futures held by the Trust may have longer or shorter expirations, different terms, and may be listed on other futures exchanges, referred to as “Exchanges.” In order to collateralize its Index Futures positions and to reflect the U.S. Treasury component of the Index, the Trust also holds Collateral Assets, from which it posts margin to its clearing futures commission merchant, or its “Clearing FCM,” in an amount equal to the margin required by the Chicago Mercantile Exchange, Inc., the clearing house for the Index Futures, and transfer to its Clearing FCM any additional amounts that may be separately required by the Clearing FCM. As of the date of this prospectus, the Trust’s sole Clearing FCM is UBS Securities LLC, or “UBS Securities.” Any Collateral Assets not required to be posted as margin with the Clearing FCM are held in the Trust’s accounts established at its “Trust Administrator,” which as of the date of this prospectus is State Street Bank and Trust Company.

 

The term of the Trust is perpetual, unless it is earlier dissolved under the circumstances described under “Description of the Shares and the Trust Agreement—Amendment and Dissolution.” The principal offices of the Trust are located at 400 Howard Street, San Francisco, CA 94105, and the Trust’s telephone number is (415) 670-2000.

 

The Trust is a commodity pool as defined in the Commodity Exchange Act, as amended, or the “CEA,” and the regulations of the Commodity Futures Trading Commission, or the “CFTC.” The Trust is operated by the Sponsor, which is a commodity pool operator registered with the CFTC and is an indirect subsidiary of BlackRock, Inc. BlackRock Institutional Trust Company, N.A., an affiliate of the Sponsor, is the Trustee of the Trust. BlackRock Fund Advisors, or “BFA,” an indirect subsidiary of BlackRock, Inc., serves as the commodity trading advisor, or the “Advisor,” of the Trust and is registered with the CFTC. The Trust is not an investment company registered under the Investment Company Act of 1940, as amended, or the “Investment Company Act,” and is not required to register under the Investment Company Act.

 

 

The Trust is an “emerging growth company” subject to reduced public company reporting requirements under U.S. federal securities laws. The Trust has not elected to make use of the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the Jumpstart Our Business Startups Act of 2012, as amended, or the “JOBS Act.” This election is irrevocable. However, under the JOBS Act, emerging growth companies like the Trust are subject to reduced public company reporting requirements, as more fully described in “Risk Factors—Risk Factors Relating to the Trust—The Trust is an emerging growth company subject to reduced public company reporting requirements.” The Trust expects to remain an emerging growth company until the earliest of (i) the last day of the fiscal year on which the fifth anniversary of its initial public offering of Shares occurs, (ii) the last day of the fiscal year on which the Trust has annual gross revenues of $1.07 billion or more or (iii) the Trust becoming a “large accelerated filer” within the meaning of the United States Securities Exchange Act of 1934, as amended, or the “Exchange Act.” Other conditions that may trigger a loss of “emerging growth company” status, such as certain issuances of nonconvertible debt, are not expected to apply to the Trust due to the limited nature of its operations.

 

The material terms of the agreements governing the Trust are discussed in greater detail under “Description of the Shares and the Trust Agreement.”

 

Creations and Redemptions

 

The Trust issues Shares only in one or more blocks of 50,000 Shares, called “Baskets,” in exchange for Index Futures and cash (or, in the discretion of the Sponsor, other Collateral Assets) in the “Basket Amount.” The “Basket Amount” is the amount of Index Futures and cash (or, in the discretion of the Sponsor, other Collateral Assets), that an Authorized Participant must deliver in exchange for one Basket, or that an Authorized Participant is entitled to receive in exchange for each Basket surrendered for redemption. The Trust redeems Shares only in Baskets in exchange for Index Futures and cash (or, in the discretion of the Sponsor, other Collateral Assets) in the Basket Amount. The Trust does not redeem individual Shares. The specific assets constituting the Basket Amount must have a value equal to the aggregate “NAV,” or net asset value per Share, of the Shares constituting a Basket, and such assets are determined by the Sponsor on each Business Day in accordance with the terms of the Trust Agreement.

 

The value of the assets to be included in the Basket Amounts for creations and redemptions is determined at the end of each Business Day based on the daily settlement value of the Index Futures and the value of the Collateral Assets, as calculated for purposes of determining NAV. The value of such assets must equal the NAV of the Shares constituting a Basket as determined for such Business Day, but any changes to NAV that may result from creation and redemption activity are not reflected in the NAV calculations for the Business Day on which they occur. Creation and redemption orders received prior to the order cut-off time (currently 2:40 p.m. (New York time)) are deemed to have been received on such Business Day, while orders received after the order cut-off time are deemed to have been received on the next Business Day. Subject to the approval of the Trustee, Baskets may be created for cash equal to the NAV of the Shares constituting a Basket as determined on the date the related creation order was received, plus the costs incurred by the Trust in establishing the corresponding Index Futures positions and acquiring the related Collateral Assets. Creation orders for Baskets paid for solely in cash that are received after 10:00 a.m. (New York time) will be deemed received as of the following Business Day. In each case, subject to the Trustee’s right to suspend or reject orders, creations and redemptions are deemed to occur on the Business Day on which they are received and are expected to settle the following Business Day by 11:00 a.m. (New York time). Information relating to the Basket Amounts and the assets constituting such Basket Amount is published by the Trustee on each Business Day after it has calculated the net asset value of the Trust for such Business Day at 4:00 p.m. (New York time).

 

Breakeven Point Per Unit of Initial Investment

 

The estimated amount of all fees and expenses which are anticipated to be incurred by a new investor during the first twelve months is 0.75% of the per Share price of $34.91 as of June 30, 2017 (or expressed as a dollar amount, $0.26 of the price of $34.91 per Share). Based on certain interest rate, expense and other assumptions, the estimated twelve-month breakeven point is 0.22% of the per Share price of $34.91 as of June 30, 2017 (or expressed as a dollar amount, $0.08 of the price of $34.91 per Share). See “Breakeven Analysis” on page 14.

 

 

 

The Sponsor

 

The Sponsor of the Trust is iShares® Delaware Trust Sponsor LLC, a Delaware limited liability company. The sole member and manager of the Sponsor is BlackRock Asset Management International Inc., a Delaware corporation and an indirect subsidiary of BlackRock, Inc. The Sponsor’s primary business function in connection with the Trust is to direct the actions of the Trustee in the management of the Trust and to act as commodity pool operator of the Trust.

 

The Sponsor has been registered under the CEA as a commodity pool operator and has been a member of the National Futures Association, or the “NFA,” since June 2009. The Sponsor may also act, currently or in the future, as the sponsor for certain other investment vehicles.

 

The Sponsor arranged for the creation of the Trust, the registration of the Shares for their public offering and the listing of the Shares on NYSE Arca. The Sponsor has agreed under the Trust Agreement to pay the following administrative, operational and marketing expenses: (1) the fees of the Trustee, the Delaware Trustee, the Advisor and their respective agents, (2) NYSE Arca listing fees, (3) printing and mailing costs, (4) audit fees, (5) fees for registration of the Shares with the SEC, (6) tax reporting costs, (7) license fees and (8) legal expenses relating to the Trust of up to $100,000 annually.

 

In recognition of its paying these expenses, the Sponsor is entitled to an allocation that accrues daily at an annualized rate of up to 0.75% of the “Adjusted Net Asset Value” of the Trust, or its net asset value as calculated before deducting fees and expenses based on the value of the Trust’s assets, and is payable by the Trust monthly in arrears. That allocation to the Sponsor is referred to in this prospectus as the “Sponsor’s Fee,” and is subject to adjustment from time to time, except that the Sponsor’s Fee may not be adjusted to above 0.75% of the Adjusted Net Asset Value absent an amendment to the Trust Agreement and thirty days’ prior notice to registered holders of the Shares. For a description of how the net asset value of the Trust is calculated, see “Business of the Trust—Valuation of Index Futures; Computation of the Trust’s Net Asset Value.”

 

The Sponsor is responsible for oversight and overall management of the Trust but has delegated day-to-day administration of the Trust to the Trustee under the Trust Agreement. The Sponsor may remove the Trustee and appoint a successor Trustee, if the Trustee ceases to meet certain objective requirements or if, having received written notice of a material breach of its obligations under the Trust Agreement, the Trustee has not cured the breach within thirty days. The Sponsor may also replace the Trustee during the 90 days following any merger, consolidation or conversion in which the Trustee is not the surviving entity or, in its discretion, at any time following the first anniversary of the creation of the Trust.

 

The principal office of the Sponsor is located at 400 Howard Street, San Francisco, CA 94105, and its telephone number is (415) 670-2000.

 

The Advisor

 

The Advisor is BlackRock Fund Advisors, a California corporation. The Advisor is the commodity trading advisor for the Trust and has discretionary authority to make all determinations with respect to the Trust’s assets, subject to specified limitations. The Advisor does not engage in any activities designed to obtain a profit from, or to ameliorate losses caused by, changes in the level of the Index or the Bloomberg Roll Select CI or the value of the Collateral Assets. The Advisor has been registered as a commodity trading advisor under the CEA since April 5, 1993 and has been a member of the NFA since 1993. The Advisor may also act, currently or in the future, as the advisor for certain other investment vehicles.

 

The Advisor and the Trust may each terminate the Advisory Agreement at any time upon thirty days’ prior written notice. The Sponsor may terminate the Advisory Agreement in its discretion.

 

The Trustee

 

The Trustee is BlackRock Institutional Trust Company, N.A., a national banking association affiliated with the Sponsor. Subject to the Sponsor’s oversight, the Trustee is generally responsible for the day-to-day administration of the Trust. Day-to-day administration includes (1) processing orders for the creation and redemption of Baskets, (2) coordinating with the Sponsor with respect to the receipt and delivery of consideration transferred to, or by, the Trust in connection with each issuance and redemption of Baskets, and (3) calculating the net asset value of the Trust on each Business Day. Under the Trust Agreement, the Trustee may delegate all or a portion of its duties to any agent, and has delegated the bulk of the day-to-day responsibilities to the Trust Administrator, certain tax-related services to PricewaterhouseCoopers LLP, as “Tax Administrator,” and certain other administrative and record-keeping functions to its affiliates and other agents. The Tax Administrator and the Trust Administrator are not affiliated with the Sponsor or the Trustee.

 

 

   

The Shares are not deposits or other obligations of BlackRock Institutional Trust Company, N.A. or any of its subsidiaries or affiliates or any other bank, are not guaranteed by BlackRock Institutional Trust Company, N.A. or any of its subsidiaries or affiliates or any other bank and are not insured by the Federal Deposit Insurance Corporation or any other governmental agency. An investment in the Shares is speculative and involves a high degree of risk. For a more detailed description of the role and responsibilities of the Trustee and the Trust Administrator, see “Description of the Shares and the Trust Agreement” and “The Trustee.”

 

The Trust Administrator

 

State Street Bank and Trust Company serves as the Trust Administrator, and has been delegated certain day-to-day administrative functions of the Trustee, including calculating the value of certain of the Trust’s assets, maintaining custody of Collateral Assets not posted as margin, transferring Collateral Assets in satisfaction of applicable margin requirements, and maintaining certain records and accounts. The Trust Administrator’s services are governed under a “Master Services Agreement,” dated as of April 21, 2011, as supplemented by related service modules, each between the Trust Administrator and the Trust. The Trust Administrator is exculpated and indemnified by the Trust under the terms of the Trust Agreement and the Master Services Agreement.

 

Under the applicable service modules, the Trust Administrator has agreed to provide its services for a term ending on May 15, 2018. In addition, the Trust Administrator may terminate its services for certain material breaches of the Master Services Agreement or for failure to pay fees within a specified grace period. The Trust may terminate the Master Services Agreement for cause, certain enduring force majeure events, terminations as may be required or occasioned by law, and for certain corporate events affecting the Trust Administrator.

 

The Clearing FCM

 

UBS Securities is the Clearing FCM through which the Trust will transact in Index Futures. The Trust’s Index Futures positions, together with related margin, are held at its accounts established at the Clearing FCM. The Trust’s relationship with its Clearing FCM is governed by an Institutional Futures Customer Agreement, or “FCM Agreement,” dated as of August 1, 2013, between the Trust and the Clearing FCM. The Clearing FCM is exculpated and indemnified by the Trust under the terms of the FCM Agreement.

 

The Delaware Trustee

 

Wilmington Trust, National Association,, a national banking association, serves as the Delaware Trustee of the Trust. The Delaware Trustee is not entitled to exercise any of the powers, or have any of the duties or responsibilities, of the Trustee. The Delaware Trustee is a trustee of the Trust for the sole and limited purpose of fulfilling the requirements of the Delaware Statutory Trust Act.

 

Investment Objective

 

The Trust seeks to track the results of a fully collateralized investment in futures contracts on an index composed of a diversified group of commodity futures which attempts to minimize contango and maximize backwardation. The Trust seeks to track the investment results of the Index before fees and expenses of the Trust. The Trust holds long positions in Index Futures whose settlement value at expiration is determined based on the value of the Bloomberg Roll Select CI at that time. The Trust also earns interest on its non-cash Collateral Assets.

 

 

 

The Bloomberg Roll Select CI incorporates the economic effect of “rolling” the contracts included in the applicable index. “Rolling” a futures contract means closing out a position in an expiring futures contract and establishing an equivalent position in a replacement futures contract on the same commodity. Markets for futures contracts can be in “backwardation,” which means that futures contracts with distant delivery months are priced lower than those with nearer delivery months, or can exhibit “contango,” which means that futures contracts with distant delivery months are priced higher than those with nearer delivery months. The Bloomberg Roll Select CI employs a “rolling” methodology that seeks to minimize the effect of contango and maximize the effect of backwardation by selecting replacement futures contracts that exhibit the most backwardation or least contango, relative to its preceding contract, among those eligible futures contracts with delivery months of up to 273 calendar days until expiration.

 

The Index, in turn, reflects the return of the Bloomberg Roll Select CI, together with the return on specified U.S. Treasury securities that are deemed to have been held to collateralize a hypothetical long position in the futures contracts comprising the Bloomberg Roll Select CI.

 

The Index and the Bloomberg Roll Select CI are calculated based on the same commodities, though not always the same futures contracts, that are included in the Bloomberg Commodity Index, or the “Bloomberg CI,” which is a liquidity- and production-weighted index of the prices of a diversified group of futures contracts on physical commodities. The Bloomberg CI, the Bloomberg Roll Select CI and the Index are administered, calculated and published by Bloomberg, who is also referred to in this prospectus as the “Index Administrator” of the Bloomberg CI, the Bloomberg Roll Select CI and the Index. Certain intellectual property and other rights relating to the Bloomberg CI and related indices are owned by UBS Securities including the right to remove Bloomberg as Index Administrator, and Bloomberg and UBS Securities are collectively referred to as the “Index Providers.”

 

If the Index Providers cease to maintain the Index, the Bloomberg CI or the Bloomberg Roll Select CI, the Trust may seek investment results that correspond generally, but are not necessarily identical, to the performance of a fully collateralized investment in a successor index or any other index that, in the opinion of the Sponsor, is reasonably similar to the Index.

 

When establishing positions in Index Futures, the Advisor estimates as of the date of this prospectus that the Trust will be required to deposit initial margin with a value of approximately 3% to 10% of the value of each Index Futures position at the time it is established. These margin requirements are subject to change from time to time by the Exchange or the Clearing FCM. Margin requirements established by the Clearing FCM may exceed minimum levels established by the Exchange. On a daily basis, the Trust will be obligated to pay, or entitled to receive, variation margin in an amount equal to the change in the daily settlement level of its Index Futures positions. If the daily settlement level causes the value of the Trust’s Index Futures positions to decrease, the Trust is required to post variation margin with the Clearing FCM. Conversely, if the daily settlement level causes the value of the Trust’s Index Futures positions to increase, the Trust’s account with the Clearing FCM receives variation margin in an amount equal to the increase.

 

Whenever Index Futures of different types or expirations are available for investment, the Sponsor determines, pursuant to the terms of the Trust Agreement, which Index Futures are to be transferred in connection with either the creation or redemption of Baskets. The Trust does not engage in any activities designed to obtain a profit from, or to ameliorate losses caused by, changes in the level of the Index or the Bloomberg Roll Select CI or the value of the Collateral Assets.

 

The profit or loss on the Trust’s Index Futures positions should correlate with increases and decreases in the value of the Bloomberg Roll Select CI, although this correlation is not expected to be exact. The return on the Index Futures, together with interest on the non-cash Collateral Assets, is expected to result in a total return that corresponds generally, but is not identical, to the Index. Differences between the returns on the Shares and the performance of the Index may be based on, among other factors, differences between the return on the Collateral Assets and the U.S. Treasury rate used to calculate the U.S. Treasury return component of the Index, timing differences, differences between the portion of the Trust’s assets invested in Index Futures versus the portion of the return of the Index contributed by the Bloomberg Roll Select CI, differences between the settlement price of Index Futures and the closing level of the Bloomberg Roll Select CI and the payment of expenses and liabilities by the Trust.

 

 

  

The Advisor acts as the commodity trading advisor for the Trust. The Advisor, on behalf of the Trust, is authorized to invest all of the Trust’s assets in long positions in Index Futures and in Collateral Assets in order to satisfy applicable margin requirements on those Index Futures positions. Any cash that the Trust accepts in connection with the creation of Shares is used to purchase additional Index Futures or Collateral Assets in an amount that the Advisor determines will enable the Trust to achieve investment results that correspond with the Index before the payment of the Trust’s expenses and liabilities. The Advisor does not engage in any activities designed to obtain a profit from, or to ameliorate losses caused by, changes in the level of the Index or the Bloomberg Roll Select CI or the value of the Collateral Assets.

 

The Shares are intended to constitute an alternative means for investors to achieve investment exposure to the performance of the Index. Although the Shares are not the exact equivalent of an investment in the underlying futures contracts and Treasury securities represented by the Index, the Shares are intended to provide investors with an alternative method of participating in the commodities market.

 

In addition, retail investors can gain exposure to the commodities underlying the Bloomberg Roll Select CI by purchasing individual or small lots of Shares through traditional brokerage accounts, without being subject to the significantly higher minimum contract sizes required for directly establishing a position in the underlying commodities or futures contracts. The Shares are eligible for margin accounts.

 

Risk Factors

 

An investment in the Shares is speculative and includes, among others, the following risks. See “Risk Factors” starting on page 15 of this Prospectus:

 

 

The Trust has a limited operating history.

     
 

The market price for the Shares could differ from the NAV.

     
 

Past performance history of the Index is limited, and not necessarily indicative of its future results or the performance of the Shares.

     
 

The price of the Shares is expected to fluctuate based on the value of the Index and the prices of the futures contracts and commodities underlying the Index; commodities markets have historically been volatile.

     
 

The return on the Shares will not correlate precisely with the performance of the Index.

     
 

The Trust is subject to fees and expenses that are payable regardless of profitability.

     
 

There may be conflicts of interest between you, on the one hand, and the Sponsor and its affiliates, the Index Providers and their affiliates, the Clearing FCM and any other parties that transact in the Index Futures or its underlying futures contracts and commodities, on the other hand. See “Conflicts of Interest” below and starting on page 68, and “Risk Factors—Risk Factors Relating to Conflicts of Interest” starting on page 29.

     
 

The classes of assets in which the Trust invests, and accordingly, the nature of an investment in the Shares, may change from time to time.

     
 

There are income tax risks associated with the offering. See “Risk Factors—Risk Factors Relating to Taxes” starting on page 30 and “United States Federal Income Tax Consequences” starting on page 72.

     
 

Investors in the Shares will annually receive an IRS Schedule K-1, which reports their allocable share of the Trust’s items of income, gain, loss and deduction. Tax information reporting on Schedule K-1 may be somewhat more complex than comparable reporting on IRS Form 1099.

  

 

 

Conflicts of Interest

 

There may be conflicts of interest between the Shareholders and the Sponsor and its affiliates. These conflicts may arise because the Sponsor is affiliated with the Trustee and the Advisor. Because of these affiliations, the Sponsor has an incentive not to remove the Trustee or the Advisor. Conflicts may also result from the Sponsor’s substantial control over the business and activities of the Trust, such as the Sponsor’s authority to determine whether to make distributions to Shareholders, its oversight over NAV calculations and its rights relating to amending the Trust Agreement or dissolving the Trust. In addition, conflicts may arise in connection with trading activities relating to the Index Futures, index components or related instruments for the Sponsor’s or its affiliates’ proprietary accounts, customer accounts or other accounts under management, as well as in connection with research reports published by the Sponsor or its affiliates with respect to commodities markets. Additional conflicts of interest may exist between Shareholders, on the one hand, and the Clearing FCM and the Index Providers, on the other. For more information regarding these potential conflicts of interest, see “Conflicts of Interest” starting on page 68, and “Risk Factors—Risk Factors Relating to Conflicts of Interest” starting on page 29.

 

Certain U.S. Tax Consequences

 

The Trust is not treated as an association taxable as a corporation for U.S. federal income tax purposes. Accordingly, the Trust is not a taxable entity for U.S. federal income tax purposes and does not incur U.S. federal income tax liability. Instead, you will be taxed as a partner in a partnership, which means that you generally will be required to take into account your allocable share of the Trust’s items of income, gain, loss, deduction, expense and credit in computing your U.S. federal income tax liability, without regard to the amount of cash, if any, distributed to you. This may result in your recognizing “phantom income” (i.e., taxable income without corresponding cash from the Trust to satisfy your tax liability).

 

   

The Offering

 

Offering

 

The Shares represent units of fractional undivided beneficial interests in the net assets of the Trust.

     

Shares Registered Under Registration Statement

 

32,950,000 Shares.

     

Use of Proceeds

 

Proceeds received by the Trust from the issuance and sale of Baskets consist of Index Futures and cash (or, in the discretion of the Sponsor, other Collateral Assets). These proceeds are held by the Trust and are retained, invested in Collateral Assets or liquidated in order to rebalance or establish new positions in Index Futures or Collateral Assets until (1) withdrawn in connection with redemptions of Baskets or (2) liquidated to pay expenses and liabilities of the Trust (including applicable fees and margin payments) not assumed by the Sponsor.

 

Collateral Assets with a value equal to approximately 3% to 10% of the value of each Index Futures position are deposited with the Clearing FCM as initial margin at the time such Index Futures position is established. The remainder (and any variation margin received) are retained in the Trust’s accounts until transferred in connection with making variation margin payments, a Basket redemption or the liquidation of an Index Futures position.

 

Any remaining assets of the Trust that are not required to meet current margin requirements may be (1) held in cash in non-interest-bearing bank accounts to remain available to pay the expenses of the Trust and to serve as reserves, in the amounts deemed necessary by the Advisor, or (2) deposited with the Trust Administrator and invested in U.S. Treasury securities and other Collateral Assets. All interest income earned on the Trust’s investments will be retained for the benefit of the Trust. The Advisor expects that all entities that will hold or trade the Trust’s assets will be based in the U.S. and subject to U.S. regulations.

     

NYSE Arca Symbol

 

CMDT

     

CUSIP

 

45032K102

     

Creation and Redemption

 

The Trust intends to issue and redeem Baskets on a continuous basis but is not required to do so. See “Suspension of Issuance, Transfers and Redemptions” below. Baskets are issued and redeemed only in block transactions of 50,000 Shares, in exchange for long positions in Index Futures and cash (or, in the discretion of the Sponsor, other Collateral Assets) in the Basket Amount. Baskets may be created and redeemed only by Authorized Participants, who pay the Trustee a transaction fee. The Trust may include Index Futures of different types and expirations in the creation and redemption of Baskets. The value of the assets to be included in the Basket Amounts for creations and redemptions is determined at the end of each Business Day based on the daily settlement value of the Index Futures and the value of the Collateral Assets, as calculated for purposes of determining NAV. The value of such assets must equal the NAV of the Shares constituting a Basket as determined for such Business Day, but any changes to NAV that may result from creation and redemption activity are not reflected in the NAV calculations for the Business Day on which they occur.

 

Creation and redemption orders received after 2:40 p.m. (New York time) are not deemed to be received and the related creation or redemption is not deemed to occur until the following Business Day.

  

 

 

   

   

Subject to the approval of the Trustee, Baskets may be created or redeemed solely for cash, but the related creation or redemption orders will be deemed received as of the following Business Day unless received by 10:00 a.m. (New York time). Orders are expected to settle by 11:00 a.m. (New York time) on the Business Day following the Business Day on which such orders are deemed to be received, through block or “exchange for related positions,” or “EFRP,” transactions that are not executed through the Exchange’s central order book.

 

The Advisor expects that the transaction fee for Index Futures will average to approximately 0.06% of the Basket Amount in any given year, although the actual amount of the transaction fee may be more or less. The transaction fee is subject to change from time to time. With the approval of the Trustee, Baskets may be created and redeemed solely for cash, in which case the Authorized Participant is required to pay any additional issuance or redemption costs, including the costs incurred by the Trust in establishing or liquidating the corresponding Index Futures position and acquiring or disposing of the related Collateral Assets. See “Description of the Shares and the Trust Agreement” starting on page 52.

     

Authorized Participants

 

Baskets may be created and redeemed only by Authorized Participants. Each Authorized Participant must (1) be a registered broker-dealer and, if required in connection with its activities, a registered futures commission merchant, (2) be a Depository Trust Company or “DTC” Participant, (3) have entered into an Authorized Participant Agreement with the Trust, and (4) be in a position to transfer Index Futures and the required cash or other Collateral Assets to, and take delivery of these assets from, the Trustee through one or more accounts.

     

Suspension of Issuance, Transfers and Redemptions

 

The Trustee may suspend the delivery of Shares, registration of transfers of Shares and surrenders of Shares for the purpose of withdrawing Trust property generally, or may refuse a particular deposit, transfer or withdrawal at any time, if the Trustee or the Sponsor determines that it is advisable to do so for any reason. See “Description of the Shares and the Trust Agreement—Requirements for Trustee Actions.”

     

The Index

 

The Bloomberg Roll Select Commodity Total Return Index. The Index reflects the value of the Bloomberg Roll Select CI together with the return on specified U.S. Treasury securities that are deemed to have been held to collateralize a hypothetical long position in the futures contracts comprising the Bloomberg Roll Select CI. See “The Index, the Bloomberg CI and the Bloomberg Roll Select CI.”

     

The Bloomberg Roll Select CI

 

The Bloomberg Roll Select Commodity Index. The Bloomberg Roll Select CI is a version of the Bloomberg CI designed to mitigate the effects of contango associated with rolling futures contracts. For more information regarding the Bloomberg Roll Select CI, see “The Index, the Bloomberg CI and the Bloomberg Roll Select CI.”

     

The Bloomberg CI

 

The Bloomberg Commodity Index. The Bloomberg CI is designed to reflect the positive or negative return over time resulting from an uncollateralized long position in the futures contracts comprising the Bloomberg CI. The Bloomberg CI is comprised of futures contracts on physical commodities, with each commodity having a weighting determined by reference to both the trading volume of specified futures contracts on such commodity as well as by reference to world production statistics for such commodity. For more information regarding the Bloomberg CI, see “The Index, the Bloomberg CI and the Bloomberg Roll Select CI.”

 

 

    

Index Futures

 

The Trust seeks to achieve the portion of the return on the Shares corresponding to the Bloomberg Roll Select CI through investments in Index Futures, which are exchange-traded futures contracts on the Bloomberg Roll Select CI.

 

Index Futures are exchange-traded index futures contracts that provide for payment at their expiration based on the settlement value of the Bloomberg Roll Select CI at that time. The Trust transacts in Index Futures through the Clearing FCM, currently UBS Securities, who executes the Trust’s Index Futures transactions on an Exchange.

 

When establishing positions in Index Futures, the Advisor estimates as of the date of this prospectus that the Trust will be required to deposit initial margin with a value of approximately 3% to 10% of the value of each Index Futures position at the time it is established. These margin requirements are subject to change from time to time by the Exchange or the Clearing FCM. Margin requirements established by the Clearing FCM may exceed minimum levels established by the Exchange. On a daily basis, the Trust is obligated to pay, or entitled to receive, variation margin in an amount equal to the change in the daily settlement level of its Index Futures positions. If the daily settlement level causes the value of the Trust’s Index Futures positions to decrease, the Trust is required to post variation margin with the Clearing FCM. Conversely, if the daily settlement level causes the value of the Trust’s Index Futures positions to increase, the Trust’s account with the Clearing FCM receives variation margin in an amount equal to the increase. The Trust’s obligation to make margin payments is satisfied from the cash or other Collateral Assets obtained by the Trust in connection with creations of Baskets.

 

For more information regarding the Index Futures, see “Futures Contracts on the Bloomberg Roll Select CI.”

     

Collateral Assets

 

The Trust seeks to achieve the portion of the return on the Shares corresponding to the U.S. Treasury return of the Index through investments in Collateral Assets.

 

In connection with the creation of Shares, the Trust receives cash (or, in the discretion of the Sponsor, other Collateral Assets).

 
Cash proceeds are invested in Collateral Assets, generally U.S. Treasury securities, and used to satisfy margin requirements applicable to the Trust’s Index Futures positions. Any Collateral Assets not held at the Clearing FCM to satisfy margin requirements are held by the Trust Administrator. The interest paid on these non-cash Collateral Assets, together with the performance of the Index Futures, is expected to produce a total return for the Shares that corresponds generally, but is not necessarily identical, to the performance of the Index, before the payment of expenses and liabilities of the Trust. Differences between the returns on the Shares and the performance of the Index may be based on, among other factors, differences between the return on the Collateral Assets and the U.S. Treasury rate used to calculate the U.S. Treasury return component of the Index, timing differences, differences between the portion of the Trust’s assets invested in Index Futures versus the portion of the return of the Index contributed by the Bloomberg Roll Select CI, differences between the settlement price of Index Futures and the closing level of the Bloomberg Roll Select CI and the payment of expenses and liabilities by the Trust. See “Futures Contracts on the Bloomberg Roll Select CI.”

 

 

  

Net Asset Value

 

The Sponsor has the exclusive authority to determine the net asset value of the Trust and the NAV, which it has delegated to the Trustee under the Trust Agreement. The Trustee determines the net asset value of the Trust and the NAV as of 4:00 p.m. (New York time), on each Business Day on which NYSE Arca is open for regular trading. The Trustee makes the required calculations as soon as practicable after the close of trading on NYSE Arca.

 

The Trustee determines the NAV by dividing the net asset value of the Trust on a given day by the number of Shares outstanding at the time the calculation is made (taking into account orders for the creation or redemption of Shares received prior to the cut-off time on that day).

 

The net asset value of the Trust on any given day is obtained by subtracting the Trust’s accrued expenses and other liabilities on that day from the value of (1) the Trust’s Index Futures positions and Collateral Assets, (2) the interest earned on those assets by the Trust and (3) any other assets of the Trust, in each case as of the close of trading on that day.

 

The Trustee values the Trust’s assets as of any given day on the basis of that day’s settlement prices for each Index Futures contract as announced by the applicable Exchange, and the then-current market value of any other assets held by the Trust. If there is no announced settlement price for a particular Index Futures contract on a Business Day, the Trustee uses the most recently announced settlement price unless the Trustee, in consultation with the Sponsor, determines that such price is inappropriate as a basis for valuation. The value of the Trust’s positions in any particular Index Futures contract equals the product of (1) the number of such Index Futures contracts owned by the Trust, (2) the settlement price of such Index Futures contract on the date of calculation and (3) the multiplier of such Index Futures contract. The Trustee has employed the Trust Administrator to make those determinations on its behalf.

 

The NAV for each Business Day on which NYSE Arca is open for regular trading is expected to be distributed through major market data vendors and is published online at http://www.ishares.com, or any successor thereto. The Trust updates the NAV as soon as practicable after each subsequent NAV is calculated. See “Business of the Trust—Valuation of Index Futures; Computation of the Trust’s Net Asset Value.”

     

Voting Rights

 

The Shares do not have voting rights. Shareholders only have the limited rights described in “Description of the Shares and the Trust Agreement—Voting Rights.”

     

Distributions

 

Interest and distributions received by the Trust on its assets may be used to acquire additional Index Futures or Collateral Assets or, in the discretion of the Sponsor, distributed to Shareholders. The Trust is under no obligation to make periodic distributions to Shareholders.

     

Limitation of Liabilities

 

You cannot lose more than the value of your investment in the Shares.

  

 

  

   

Under Delaware law, Shareholders’ liability is limited to the same extent as the liability of stockholders of a for-profit Delaware business corporation.

     

Amendments

 

The Sponsor and the Trustee may amend the Trust Agreement without the consent of any Shareholder, including to expand, limit or change the categories of assets by means of which the Trust seeks to achieve its investment objective, so long as the Sponsor provides thirty days’ notice to registered owners of Shares before the effectiveness of any amendment that imposes or increases fees or charges (other than the Sponsor’s Fee, to the extent it does not exceed 0.75% of the Adjusted Net Asset Value, and other than taxes and other governmental charges) or prejudices a substantial existing right of the Shareholders or similarly materially adversely affects any Shareholder.

     

Dissolution Events

 

The Trustee will dissolve the Trust if:

     
   

the Trustee is notified that the Shares are delisted from NYSE Arca and are not approved for listing on another national securities exchange within five Business Days of their delisting;

       
   

registered holders of at least 75% of the outstanding Shares notify the Trustee that they have elected to dissolve the Trust;

       
   

60 days have elapsed since the Trustee notified the Sponsor of the Trustee’s election to resign, and a successor trustee has not been appointed and accepted its appointment;

       
   

the SEC (or its staff) or a court of competent jurisdiction determines that the Trust is an investment company under the Investment Company Act, and the Trustee has actual knowledge of that determination;

       
   

the Sponsor determines to liquidate the Trust in accordance with the terms of the Trust Agreement, which provides that the Sponsor may liquidate the Trust at any time the Sponsor determines that liquidating the Trust is advisable. The Sponsor may, for example (but will not be obligated to), liquidate the Trust if, among other reasons, (1) legal, regulatory or market changes occur that would result, in the opinion of the Sponsor, in a decrease of investment opportunities available to meet the Trust’s investment objective, (2) the Index Providers cease to maintain the Index and, in the opinion of the Sponsor, no successor or reasonably similar index is available, or (3) the value of the Trust is at a level at which continued operation of the Trust is not cost-efficient;

       
   

the Trust is treated as an association taxable as a corporation for U.S. federal income tax purposes, and the Trustee receives notice from the Sponsor that the Sponsor has determined that the dissolution of the Trust is advisable; or

       
   

DTC is unable or unwilling to continue to perform its functions, and a comparable replacement is unavailable.

       
   

After dissolution of the Trust, the Trustee will deliver Trust property, or the proceeds thereof, upon surrender and cancellation of the Shares and, ninety days after dissolution, may dispose of any remaining Trust property in a private or public sale, and hold the proceeds, uninvested and in a non-interest-bearing account, for the pro rata benefit of the Shareholders who have not surrendered their Shares for cancellation. See “Description of the Shares and the Trust Agreement—Amendment and Dissolution.”

 

 

  

Clearance and Settlement

 

The Shares are issued only in book-entry form. Transactions in Shares clear through the facilities of DTC. Investors may hold their Shares through DTC, if they are DTC Participants, or indirectly through entities that are DTC Participants. See “The Securities Depository; Book-Entry-Only System; Global Security.”

 

 

    

Breakeven Analysis

 

The following table indicates the approximate percentage and dollar returns required for the value of an initial $34.91 investment in a Share to equal the amount originally invested twelve months after issuance.

 

The table, as presented, is only an approximation. The capitalization of the Trust may directly affect the amounts of one or more of these charges. The Sponsor's Fee is calculated as a percentage of the Adjusted Net Asset Value of the Trust. Interest income and brokerage commissions and fees are expected to scale with the Trust's holdings. As a result, these amounts may increase or decrease as the Trust's net asset value increases or decreases. The table does not reflect the additional transaction fees and costs required for the creation and redemption of Baskets.

 

Expense(1)

 

Amount

   

Percent

 

Sponsor’s Fee(2)

  $ 0.26       0.75 %

Trust Operating Expenses(3)

  $ 0.00       0.00 %

Brokerage Commissions and Fees(4)

  $ 0.02       0.06 %

Interest Income(5)

  $ (0.36 )     (1.03 )%

12-Month Break Even(6)

  $ (0.08 )     (0.22 )%

  


(1) 

The foregoing breakeven analysis assumes that the Shares have a constant month-end net asset value. Calculations are based on $34.91 as the NAV, which was the net asset value per Share as of the close of business on June 30, 2017. Dollar amounts are rounded to the nearest cent and percentages are rounded to two decimal places.

(2)

The Trust pays the Sponsor the Sponsor’s Fee, which accrues daily at an annualized rate of up to 0.75% of the Adjusted Net Asset Value of the Trust, payable by the Trust monthly in arrears. The Sponsor’s Fee is paid in consideration of the services provided by the Sponsor, including procuring the services of the Trust’s other service providers and its payment of certain related fees and expenses that would otherwise have been payable by the Trust.

(3) 

The Sponsor is responsible for paying Trust Operating Expenses, which consist of the following administrative, operational and marketing expenses: (1) the fees of the Trustee, the Delaware Trustee, the Advisor and their respective agents, (2) NYSE Arca listing fees, (3) printing and mailing costs, (4) audit fees, (5) fees for registration of the Shares with the SEC, (6) tax reporting costs, (7) license fees and (8) legal expenses relating to the Trust of up to $100,000 annually. The Trust does not separately bear the costs of Trust Operating Expenses, although these costs are taken into consideration when calculating the Sponsor’s Fee. Additional information relating to Trust Operating Expenses may be found under “The Business of the Trust—Trust Expenses.”

(4)

The Trust is responsible for paying any applicable brokerage commissions and similar transaction fees out of its assets in connection with the roll of Index Futures held by the Trust. As of June 30, 2017, the Sponsor estimates that these brokerage commissions and transaction fees will equal approximately 0.06% of the net asset value of the Trust per year.

(5)

Interest income is currently estimated to be earned at an annual rate of 1.03%, which is based on the 13 week (3 month) U.S. Treasury discount rate as of June 30, 2017.

(6)

You may pay customary brokerage commissions in connection with purchases of Shares. Because such brokerage commission rates will vary from investor to investor, such brokerage commissions have not been included in the breakeven table. Investors are encouraged to review the terms of their brokerage accounts for details on applicable charges. This breakeven analysis does not include fees charged in connection with the creation/redemption process, currently totaling $2.00 per Index Futures position multiplied by the number of Index Futures included in the Basket Amount for EFRP transactions, and $3.00 per Index Futures position multiplied by the number of Index Futures in the Basket Amount for cash orders, as such fees are only payable by Authorized Participants in creation and redemption transactions.

  

Summary Financial Condition

 

As of the close of business on June 30, 2017, the net asset value of the Trust was $22,691,040 and the NAV was $34.91.

 

 

 

RISK FACTORS

 

The Shares are speculative and involve a high degree of risk. You could lose all or a substantial portion of your investment in the Shares. Before making an investment decision, you should carefully consider the risks described below, as well as the other information included in this prospectus.

 

Risk Factors Relating to Commodities Markets

 

The value of the Shares depends on the value of Index Futures, which fluctuates based on the prices of commodity futures contracts reflected in the Bloomberg Roll Select CI. These prices may be volatile, thereby creating the potential for losses regardless of the length of time you intend to hold your Shares.

 

Because the price of the Shares depends on the value of the Index Futures held by the Trust, the value of the Shares fluctuates based on the prices of commodity futures contracts reflected in the Bloomberg Roll Select CI. Commodity prices may be volatile. Commodity prices are generally affected by, among other factors, the cost of producing, transporting and storing commodities, changes in consumer or commercial demand for commodities, the hedging and trading strategies of producers and consumers of commodities, speculative trading in commodities by commodity pools and other market participants, disruptions in commodity supply, weather, political and other global events, global economic factors and government intervention in or regulation of the commodity or commodity futures markets. These factors cannot be controlled by the Trust. Accordingly, the price of the Shares could change substantially and in a rapid and unpredictable manner. This exposes you to a potential loss on your investment in the Shares, regardless of the length of time you intend to hold your Shares.

 

The following events, among others, would generally result in a decline in the price of the Shares:

 

 

A significant increase in hedging activity by producers of the underlying commodities. Should producers of the commodities underlying the Bloomberg Roll Select CI increase their hedging of their future production through forward sales or other short positions, this increased selling pressure could depress the price of one or more of the underlying commodities, which could adversely affect the price of the Shares.

     
 

A significant change in the attitude of speculators and investors toward the futures contracts or commodities underlying the Bloomberg Roll Select CI. Should the speculative community take a negative view towards one or more of the underlying futures contracts or commodities, it could cause a decline in the price of the Index Futures, which may reduce the price of the Shares.

     
 

Significant reductions in the size of positions permitted to be owned by the Trust or others in Index Futures or in the futures contracts and/or commodities comprising the Bloomberg Roll Select CI, for example, as a result of more restrictive position limits or position limit exemptions or more expansive position aggregation requirements, could reduce liquidity and depress the price of the Bloomberg Roll Select CI and/or the underlying futures contracts or commodities, adversely affecting the value of your Shares.

 

Conversely, several factors could trigger a temporary increase in the price of the futures contracts or commodities underlying the Bloomberg Roll Select CI and, consequently, the Index Futures. In that case, you could buy Shares at prices affected by the temporarily high commodity prices, and you could subsequently incur losses when the causes for the temporary increase disappear.

 

Historical performance of the Index, the Bloomberg Roll Select CI and the Bloomberg CI is no guide to their future performance or to the performance of the Shares.

 

Past performance of the Index, the Bloomberg Roll Select CI and the Bloomberg CI is not necessarily indicative of their future performance or of the performance of the Shares. There can be no guarantee that the level of the Index, the Bloomberg Roll Select CI or the Bloomberg CI will increase. The Bloomberg Roll Select CI and the Index have limited performance histories. See “Risk Factors Relating to Index Futures and the Bloomberg Roll Select CI—The Index and the Bloomberg Roll Select CI have limited histories and may perform in unexpected ways.” Although the Bloomberg CI, which is based on the same underlying commodities as the Bloomberg Roll Select CI and the Index, has a longer performance history, there are differences in the way that the Bloomberg CI and the Bloomberg Roll Select CI address the rolling of contracts that could cause the Bloomberg CI to perform differently from the Bloomberg Roll Select CI and the Index. See “The Index, the Bloomberg CI and the Bloomberg Roll Select CI” and “Risk Factors Relating to Index Futures and the Bloomberg Roll Select CI—The roll selection methodology of the Bloomberg Roll Select CI may not provide any benefits relative to the roll selection methodologies used by other commodities indices, including the Bloomberg CI, and the Bloomberg Roll Select CI may not outperform, or may underperform, the Bloomberg CI.” You may lose some or all of your investment in the Shares.

 

 

 

Commodity futures trading may be illiquid. In addition, suspensions or disruptions of market trading in the commodities markets and related futures markets may adversely affect the value of your Shares.

 

The commodity futures markets are subject to temporary distortions or other disruptions due to various factors, including the lack of liquidity, congestion, disorderly markets, manipulation, limitations on deliverable supplies, the participation of speculators, government regulation and intervention, technical and operational or system failures, nuclear accidents, terrorism, riots and acts of God. 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 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 contract, it is possible that no trades may be made at a different price. It is not certain how long any such price limits would remain in effect. Limit prices may have the effect of precluding trading in a particular contract or forcing the liquidation of contracts at disadvantageous times or prices, consequently affecting the value of the Bloomberg Roll Select CI. Further, the Clearing FCM or its account holders may represent, directly or indirectly, a substantial portion of the short-side interest in the Index Futures market. The existence of such a limited number of market participants could cause or exacerbate temporary distortions, especially those distortions resulting from illiquidity.

 

Any of these circumstances could adversely affect the value of the Index Futures held by the Trust and, therefore, the value of your Shares. In addition, these circumstances could also limit trading in the Index Futures, which could affect the calculation of the NAV and the trading price of the Shares. Accordingly, these limits may result in a NAV that differs, and may differ significantly, from the NAV that would prevail in the absence of such limits. If Baskets are created or redeemed at a time when these price limits are in effect, the creation or redemption price will reflect the price limits as well.

 

In addition, the method in which the Bloomberg Roll Select CI is calculated or determined may also be affected by certain market disruptions, such as (1) the termination or suspension of, or material limitation or disruption in, the trading of an underlying futures contract, (2) the settlement price of an underlying futures contract reflecting the maximum permitted price change from the previous day’s settlement price for such contract, such as in the case of a “limit event” as determined by the applicable futures exchange, (3) the failure of an exchange to publish the official settlement price for an underlying futures contract or (4) for contracts trading on the London Metals Exchange, any day on which the London Metals Exchange is not open for business. For example, if Bloomberg determines that a market disruption exists with respect to any underlying futures contract in connection with that contract’s roll period, including in connection with an annual rebalancing, this would delay the effective rolling of that contract for purposes of determining the Bloomberg Roll Select CI, and in the case of a roll period other than in connection with an annual rebalancing, would also increase the rate at which that contract effectively rolls when such market disruption has ended. In addition, the relative weights of the futures contracts underlying the Bloomberg Roll Select CI may be affected by “limit events” occurring with respect to such contracts or due to the failure of an exchange to publish the official settlement price for a futures contract.

 

 

 

During a period when commodity prices are fairly stationary, an absence of “backwardation” in the prices of the commodities included in the Bloomberg Roll Select CI may cause the price of your Shares to decrease.

 

The futures contracts that underlie the Bloomberg Roll Select CI are replaced from time to time with new futures contracts on the same commodities. This process is referred to as “rolling.” Although the rolling methodology employed by the Bloomberg Roll Select CI, which selects for replacement contracts exhibiting the least contango or the greatest backwardation relative to its preceding contracts, may on occasion cause futures contracts to be replaced by new futures contracts with earlier, rather than later, delivery months, it is expected that the Bloomberg Roll Select CI will still tend to roll into futures contracts with later delivery months than the contracts being replaced.

 

Historically, the prices of some futures contracts (generally those relating to commodities that are typically consumed immediately rather than stored) 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 earlier contract would take place at a price that is higher than the price at which the later contract is purchased, thereby allowing the contract holder to purchase a greater quantity of the later contract. While some of the contracts included in the Bloomberg Roll Select CI have historically exhibited periods of backwardation, backwardation will likely not exist at all times. Moreover, some of the commodities reflected in the Bloomberg Roll Select CI have historically exhibited characteristics typical of “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. The forward price of a commodity futures contract may also fluctuate between backwardation and contango.

 

Although the Bloomberg Roll Select CI attempts to mitigate some of the losses that may arise from the absence of backwardation or the existence of contango through its rolling process, the absence of backwardation or the existence of contango in the commodity markets could nevertheless result in losses, which could adversely affect the value of the Bloomberg Roll Select CI and, accordingly, decrease the value of your Shares. Moreover, because the Trust must pay certain ongoing fees and expenses, the value of the Shares may decrease even in periods where commodity prices are otherwise stationary.

 

Regulatory developments with respect to the futures and over-the-counter derivatives markets, and in particular, with respect to speculative trading in futures contracts and over-the-counter derivatives involving commodities and commodity indices, could adversely affect the value of your Shares.

 

Many bills have been introduced in the U.S. Congress targeting excessive speculation in commodities and commodity indices, including by institutional “index funds,” on regulated futures markets and in the over-the-counter or “OTC” derivatives markets. Many of these legislative proposals have not been enacted but could be in the future.

 

In 2010, Congress adopted some anti-speculative proposals in the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the “Dodd-Frank Act.” These provisions of the Dodd-Frank Act have been interpreted by the CFTC to require the CFTC to expand its existing speculative position limits regime that is applicable to certain agricultural commodity futures (and options thereon), as appropriate, to a wider range of listed futures and options on physical commodities (including certain energy, metals and agricultural products) as well as to economically equivalent swaps while significantly narrowing the bona fide hedging exemptions to a narrower category of commercial market participants and physical hedging strategies.

 

Pursuant to the provisions of the Dodd-Frank Act described above, the CFTC proposed regulations in December 2016 (modifying an original November 2013 proposal), referred to in this prospectus as the “Proposed Position Limits Rules,” that would impose new federal position limits on futures and options on certain energy, metal, and agricultural commodities and economically equivalent swaps (collectively, “referenced contracts”). Also in December 2016, the CFTC adopted final position aggregation requirements.

 

The Proposed Position Limits Rules would include as referenced contracts a number of the futures contracts included in the Bloomberg Roll Select CI, and as of the date of this prospectus such contracts represent a substantial portion of the weight of the Bloomberg Roll Select CI. Consequently, if the Proposed Position Limits Rules are adopted as proposed, the maximum positions that market participants can hold in the referenced contracts that underlie the Bloomberg Roll Select CI may be limited, which could reduce the liquidity of such referenced contracts and adversely affect the performance of the Bloomberg Roll Select CI and the value of your Shares. Moreover, because the relative weights of the commodities in the Bloomberg Roll Select CI are largely determined based on the trading volume of the futures contracts designated for such commodities, a reduction in the trading volume of such futures contracts could significantly alter the weights of the futures contracts underlying the Bloomberg Roll Select CI, which could have further adverse effects on the level of the Bloomberg Roll Select CI and the value of your Shares. The risks presented by the Proposed Position Limits Rules also arise with respect to existing federal limits on certain agricultural-commodity futures contracts, which include futures contracts underlying the Bloomberg Roll Select CI.

 

 

  

The Proposed Position Limits Rules would also narrow the existing bona fide hedge exemption for referenced contracts. If adopted as proposed, this narrow definition may affect the hedging and investing activities of participants in the markets for the Index Futures and the futures contracts and commodities underlying the Bloomberg Roll Select CI, which in turn could reduce the liquidity and adversely affect the pricing of the Index Futures and such futures contracts and commodities. Any of these effects could increase volatility in and otherwise adversely affect the price of the Shares. The public comment period on the Proposed Position Limits Rules closed on February 28, 2017. The CFTC had specifically solicited, among other things, comments on issues affecting position limits for physical commodity derivatives that could directly affect the value of the Trust’s position in Index Futures going forward.

 

With respect to the position aggregation rules adopted by the CFTC in December 2016, those final rules, which became effective on February 14, 2017, expand the circumstances requiring persons to aggregate referenced contracts that are owned or controlled by such persons. Specifically, the final aggregation rules require a person holding positions in multiple commodity pools with substantially identical trading strategies to aggregate the pools’ positions in referenced contracts, on a pro-rata basis, with other positions in referenced contracts held or controlled by such person. Although Index Futures are not among the referenced contracts identified in the Proposed Position Limits Rules, if federal position limits are extended to Index Futures or if the Exchange adopts similar aggregation rules, some participants in the market for Index Futures may be encumbered in trying to hedge their exposure, which could reduce liquidity in such Index Futures and the futures contracts and commodities underlying the Bloomberg Roll Select CI and adversely affect the value of the Shares.

 

In addition to, or in lieu of, the Proposed Position Limits Rules, the CFTC could propose other rules that may lower the applicable position limits, apply position limits to a broader range of contracts (including commodity index contracts such as the Index Futures) or further restrict position limit exemptions. If any of these actions is taken, such measures could further reduce the size of positions that the Trust and other investors could hold directly in Index Futures and the underlying futures contracts and commodities, with potential reductions in liquidity and adverse effects on the pricing of Index Futures. See also “—The value of the Shares depends on the value of Index Futures, which fluctuates based on the prices of commodity futures contracts reflected in the Bloomberg Roll Select CI. These prices may be volatile, thereby creating the potential for losses regardless of the length of time you intend to hold your Shares.”

 

Certain other rules proposed pursuant to the Dodd-Frank Act also may have an impact on the Trust and the value and continued availability of the Shares. On December 22, 2010, the CFTC proposed rules, referred to in this prospectus as the “DCM Rules,” that would require that at least 85% of the total volume of any contract listed on a “designated contract market,” or “DCM,” including the Index Futures, be executed through the central order book, rather than as a block transaction or other non-competitively executed transaction. Contracts that do not meet the 85% threshold would be required to be delisted by the DCM and, if a swap, transferred to a swap execution facility or also be liquidated. Generally, the Trust’s transactions in Index Futures are expected to be executed through block or “exchange for related positions” or “EFRP” transactions that are not executed through the applicable Exchange’s central order book. When the CFTC finalized the DCM Rules in June 2012, the CFTC noted that it needed additional time to consider the proposed requirements regarding the 85% threshold, particularly in light of substantial comments received. If ultimately adopted as proposed, those proposed requirements could significantly and adversely affect the availability, liquidity and price of Index Futures, as well as futures contracts currently included or which may in the future be included in the Bloomberg Roll Select CI, and could inhibit the Trust’s ability to redeem and offer Shares, which in turn could adversely affect the value and continued availability of the Shares.

 

The CFTC has adopted rules regarding the risk management practices of clearing members, referred to in this prospectus as the “FCM Rules,” most of which became effective on June 1, 2013. The FCM Rules require the Trust’s Clearing FCM to establish, and periodically reevaluate, risk-based limits on position and order size, amongst other measures. The FCM Rules may lead the Trust’s Clearing FCM to reduce its internal limits on the size of the Index Futures positions it will execute or clear for the Trust, reducing the Trust’s and other market participants’ ability to transact in Index Futures, and potentially adversely affecting the price of Shares. In the event that the Clearing FCM does reduce its internal limits on the size of Index Futures positions, the Trust may deem it feasible to use additional clearing FCMs. If this happens, it could substantially increase the costs of clearing for the Trust.

 

 

 

Other regulatory measures under the Dodd-Frank Act could increase the costs of the Trust, result in significant direct limitations on the maximum permitted size of the Trust’s futures positions, or affect liquidity in the market for the Index Futures or the underlying futures contracts, as well as the correlation between the price of the Shares and the net asset value of the Trust. Any such measures could adversely affect the value of your Shares.

 

Risk Factors Relating to Index Futures and the Bloomberg Roll Select CI

 

The trading of various Index Futures presents risks unrelated to the Bloomberg Roll Select CI that could adversely affect the value of your Shares.

 

Although Index Futures are based on the Bloomberg Roll Select CI, the value of the Index Futures could be affected by factors that do not directly affect the Bloomberg Roll Select CI and accordingly, the value of the Index Futures and the level of the Bloomberg Roll Select CI may vary from each other. The activities of market participants in trading Index Futures, or in trading other instruments related to the Bloomberg Roll Select CI, could affect the value of the Index Futures independent of any change in the Bloomberg Roll Select CI and adversely affect the correlation between the value of the Index Futures and the level of the Bloomberg Roll Select CI.

 

The prices of the various Index Futures are expected to reflect supply and demand in the market for such Index Futures, which in turn may reflect market expectations at any given time about prospective changes in the level of the Bloomberg Roll Select CI and other market conditions. In this way, trading in the market for an Index Futures contract might cause a divergence between the price of such Index Futures contract and the level of the Bloomberg Roll Select CI. Similarly, actions by the applicable Exchange with respect to Index Futures position, such as the imposition of trading or price limits, could adversely affect this correlation. In these circumstances, it is possible that changes in the NAV, which is calculated based on the value of the Index Futures, will not adequately reflect changes in the level of the Bloomberg Roll Select CI. In the event of market disruptions with respect to the Index Futures, such as a suspension of trading by the related Exchange as a result of market activity, systems or communications failures or other causes, the value of the Index Futures and the level of the Bloomberg Roll Select CI could diverge, which could adversely affect the value of the Shares.

 

Although arbitrage activity by market participants is expected to have the effect of reducing or mitigating divergence between the value of the Index Futures and the level of the Bloomberg Roll Select CI, such arbitrage activity may not fully offset any divergence at all times during which the Shares are outstanding. During any period the Trust is trading Index Futures of more than one type, differences in the settlement values of such Index Futures, to the extent not offset by arbitrage activity between such Index Futures may limit the expected benefits of, or otherwise adversely affect, arbitrage activity between the Shares and the Index Futures. In the event that any such divergence between the value of the Index Futures and the level of the Bloomberg Roll Select CI exists from time to time, changes in the NAV, which is calculated based on the value of the Index Futures, may not adequately reflect changes in the level of the Bloomberg Roll Select CI, which could adversely affect the value of the Shares. The impact of certain of these considerations may be heightened in cases where the Trust’s positions are concentrated in a particular Index Futures contract or in cases where the Trust represents a substantial portion of the open interest in a particular Index Futures contract.

 

In addition, other actions taken by an Exchange, including rule changes relating to clearing fees, margin requirements, or the minimum price fluctuations applicable to an Index Futures contract, may result in economic, tax or other consequences to market participants that trade or hold Index Futures. Such actions may result in consequences that adversely affect Shareholders without necessarily affecting the correlation between the settlement price of the Index Futures and the level of the Bloomberg Roll Select CI.

 

The Index and the Bloomberg Roll Select CI have limited histories and may perform in unexpected ways.

 

The Index and the Bloomberg Roll Select CI began publishing on July 18, 2011, and therefore have limited histories. Historical performance data is provided under “The Index, the Bloomberg CI and the Bloomberg Roll Select CI,” including hypothetical performance data intended to illustrate how each of the Index and the Bloomberg Roll Select CI may have performed had it been created in the past, but those calculations are subject to many limitations. Unlike actual historical performance, such calculations do not reflect actual trading, liquidity constraints, fees and other costs. In addition, the models used to calculate these hypothetical returns are based on certain data, assumptions and estimates. Different models or models using different data assumptions and estimates might result in materially different hypothetical performance.

 

 

 

The roll selection methodology of the Bloomberg Roll Select CI may not provide any benefits relative to the roll selection methodologies used by other commodities indices, including the Bloomberg CI, and the Bloomberg Roll Select CI may not outperform, or may underperform, the Bloomberg CI.

 

As described further under “The Index, the Bloomberg CI and the Bloomberg Roll Select CI,” the process through which the Bloomberg Roll Select CI rolls contracts of one delivery month into contracts of a new delivery month differs from the process used by the Bloomberg CI. Unlike the Bloomberg CI, which rolls into contracts of a predetermined delivery month, the Bloomberg Roll Select CI rolls into contracts that demonstrate the least contango or, if applicable, the most backwardation, in each case relative to the contracts of the immediately preceding delivery month. This determination is made on the “contract selection date,” which is generally the fourth business day of every month.

 

The price at which a futures contract of a specified delivery date is trading on a contract selection date is expected to reflect the market’s outlook with respect to the performance of a contract with the specified delivery date. In certain circumstances, the market outlook with respect to the underlying commodities may cause futures contracts of a particular delivery date to trade at higher or lower prices relative to futures contracts for the same underlying commodity with a different delivery date based upon expectations regarding the price on such delivery date. These expectations may be based on factors that do not affect futures contracts of different delivery dates in the same way, such as seasonal fluctuations based on supply and demand. Accordingly, the price at which a futures contract trades relative to a futures contract with an immediately preceding delivery date may not necessarily be reflective of the effect of backwardation or contango that will be realized from rolling such futures contract. It is possible that, for a given time period, the futures contracts selected for inclusion in the Bloomberg Roll Select CI may not outperform, and may underperform, the futures contracts selected for inclusion in the Bloomberg CI.

 

The Bloomberg Roll Select CI may in the future include contracts that are not traded on regulated futures exchanges and that offer different or diminished protections to investors.

 

Currently, the Bloomberg Roll Select CI is comprised exclusively of futures contracts traded on DCMs, or regulated futures exchanges. The Bloomberg Roll Select CI 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 CEA or other applicable statutes and related regulations that govern trading on regulated futures exchanges. In addition, many 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 inclusion of such contracts in the Bloomberg Roll Select CI 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.

 

Changes in the composition and valuation of the Bloomberg Roll Select CI may adversely affect your Shares.

 

The composition of the Bloomberg Roll Select CI may change over time as additional commodities satisfy the eligibility criteria or commodities currently included in the Bloomberg Roll Select CI fail to satisfy those criteria. The weighting factors applied to each commodity included in the Bloomberg Roll Select CI change annually, based on changes in commodity production statistics and changes in the trading volume of the related futures contracts. In addition, Bloomberg, as Index Administrator, or the Index Committees may modify the method for determining the composition and weighting of the Bloomberg Roll Select CI and for calculating its value. The methodology for determining the contracts to be included in the Bloomberg Roll Select CI may be modified from time to time. Such changes could adversely affect the value of your Shares or otherwise affect the risks associated with owning the Shares, such as by increasing relative concentrations in particular commodities and causing the value of the Shares to become more sensitive to fluctuations in the prices of those commodities. For more information about the methodology for determining the composition and weighting of the Bloomberg Roll Select CI, see “The Index, the Bloomberg CI and the Bloomberg Roll Select CI.”

 

A cessation of publication of the Bloomberg Roll Select CI could materially and adversely affect the activities of the Trust.

 

The Bloomberg Roll Select CI is administered, calculated and published by the Index Administrator, who may cease publication of the Bloomberg Roll Select CI at any time, including as a result of its removal by UBS Securities. If the Bloomberg Roll Select CI ceases being published, the Sponsor may determine that no suitable replacement index exists, and the Trust may be liquidated.

 

 

 

Futures contracts (including the Index Futures) are not assets with intrinsic value.

 

Trading in futures transfers the risk of future price movements from one market participant to another. This means that for every gain, there is an equal and offsetting loss. Futures contracts themselves (including Index Futures) are not assets with intrinsic value, and simply reflect, in the case of cash-settled contracts, certain rights to payment or obligations to make payments to the other party to the contract, and in the case of physically-settled contracts, such as the futures contracts underlying the Index, an agreement to make or take delivery of a particular asset at a specified price. Accordingly, market participants taking the opposite side of the Trust’s Index Futures trades may believe that the price of such Index Futures will move against the Trust, and the Trust may be at an informational or other disadvantage relative to such market participants.

 

The Trust’s trading activity in Index Futures could expose it to additional risks.

 

In order for the Trust to achieve its investment objective on an ongoing basis, it is anticipated that existing positions in Index Futures will need to be closed out and new positions in Index Futures will need to be established from time to time. The Trust may further close out of existing positions and establish new positions in Index Futures from time to time, including new positions in earlier expiring Index Futures, which may allow it to reduce its concentration in any particular Index Futures contract or to benefit from more liquid markets or otherwise beneficial market activity in Index Futures listed with different expirations or on different Exchanges. This activity is expected to cause the Trust to incur transaction costs, such as brokerage fees and commissions, and may cause the Shares to under-perform the Index. In particular, the prices obtained in connection with rolling Index Futures positions may be adversely affected by market conditions (including the possibility of market disruptions) and by the trading activities of other market participants, which may reflect market awareness of the Trust’s position in its Index Futures. For example, if other market participants are able to anticipate the timing of the Trust’s transactions, they may be able to execute transactions in advance of the Trust, which would allow these market participants to benefit from the transactions executed by the Trust but adversely affect the prices obtained by the Trust. In addition, if the Trust’s Index Futures positions represent a significant part of the open long interest in such Index Futures, other market participants may take this into account, with a potential adverse impact on the prices at which the Trust is able to execute such transactions. There can be no assurance that the Trust will be able to effect its transactions in a manner that will allow it to avoid these risks. Exchanges may cease to list other Index Futures that the Trust will be able to roll its positions into, and any Index Futures listed by an Exchange in the future may have terms that differ from those currently held by the Trust.

 

The liquidation of Index Futures could expose the Trust to the effects of temporary aberrations or distortions in the market, which could adversely affect the prices at which the Trust’s Index Futures positions are liquidated.

 

If the Trust liquidates positions in Index Futures in order to satisfy redemption requests or to pay expenses and liabilities, it does so by entering sell orders with its Clearing FCM for execution on the Exchange. The resulting sales serve to offset a portion of the Trust’s long positions in Index Futures. However, in entering sell orders, the Trust is subject to the risk that temporary aberrations or distortions will occur in the market at the time these sales are effected and that the prices received by the Trust on its sales could be adversely affected, thereby adversely affecting the value of the Shares. Such aberrations or distortions could occur as a result of trading activities by other market participants or actions taken by the Clearing FCM, an Exchange, other self-regulatory organizations or regulatory authorities, including the liquidation of the Trust’s Index Futures to satisfy applicable margin requirements. If the Trust’s Index Futures are liquidated at inopportune times or in a manner that causes a temporary market distortion, this may adversely affect the NAV and the value of your Shares.

 

The Trust's Clearing FCM or an Exchange’s clearing house could fail.

 

In the event of the bankruptcy of the Clearing FCM or an Exchange’s clearing house, the Trust could be exposed to a risk of loss with respect to its assets that are posted as margin. If such a bankruptcy were to occur, the Trust would be afforded the protections granted to customers of a futures commission merchant, or “FCM,” and participants to transactions cleared through a clearing house, under the United States Bankruptcy Code and applicable CFTC regulations. Such provisions generally provide for a pro rata distribution to customers of customer property held by the bankrupt FCM or an Exchange’s clearing house if the customer property held by the FCM or the Exchange’s clearing house is insufficient to satisfy all customer claims. In any case, there can be no assurance that these protections will be effective in allowing the Trust to recover all, or even any, of the amounts it has deposited as margin.

 

Bankruptcy of the Clearing FCM can be caused by, among other things, the default of one of the Clearing FCM’s customers. In this event, the Exchange’s clearing house is permitted to use the entire amount of margin posted by the Trust (as well as margin posted by other customers of the Clearing FCM) to cover the amounts owed by the bankrupt Clearing FCM. Consequently, the Trust could be unable to recover amounts due to it on its Index Futures positions, including assets posted as margin, and could sustain substantial losses, even if the level of the Bloomberg Roll Select CI increases.

 

 

 

On January 13, 2014, new regulations became effective relating to enhanced customer protections, risk management programs, internal monitoring and controls, capital and liquidity standards, customer disclosures and auditing and examination programs for FCMs. There can be no assurance that the implementation of these regulations will prevent losses to, or not materially adversely affect, the Trust or the Shareholders.

 

Recourse to the Index Providers may be limited.

 

The Bloomberg Commodity IndexesSM are a joint product of the Index Providers and have been licensed for use for certain purposes by the Trust. The Index Providers and their affiliates are not affiliated with the Trust, and Bloomberg® is a trademark of Bloomberg and has been licensed for use for certain purposes by the Trust.

 

The Shares are not sponsored, endorsed, sold or promoted by the Index Providers in their capacities as such. None of the Index Providers, in their capacities as such, makes any representation or warranty, express or implied, to the owners of or counterparts to the Shares or any member of the public regarding the advisability of investing in securities or commodities generally or in the Shares particularly. The only relationship of the Index Providers, in their capacities as such, to the Trust is the licensing of certain trademarks, trade names and service marks and of the Index and the Bloomberg Roll Select CI, which is determined, composed and calculated by Bloomberg without regard to the Trust or the Shares. Bloomberg and the Index Committees may not take the needs of the Trust or the Shareholders into consideration in determining, composing or calculating the Index or the Bloomberg Roll Select CI. None of the Index Providers is directly responsible for or has participated in the determination of the timing of, prices at, or quantities of the Shares to be issued or in the determination or calculation of the equation by which the Shares are to be converted into cash, surrendered or redeemed, as the case may be. The Index Providers, in their capacities as such, are not responsible for the administration, marketing or trading of the Shares. Notwithstanding the foregoing, UBS Securities, and their respective subsidiaries and affiliates may independently issue and/or sponsor financial products unrelated to the Shares currently being issued by the Trust, but which may be similar to and competitive with the Shares. In addition, UBS Securities, and their subsidiaries and affiliates actively trade commodities, commodity indexes and commodity futures (including the Index and the Bloomberg Roll Select CI), as well as swaps, options and derivatives which are linked to the performance of such commodities, commodity indexes and commodity futures. It is possible that this trading activity will affect the value of the Index, the Bloomberg Roll Select CI and the Shares.

 

Risk Factors Relating to the Trust

 

The Trust has a limited operating history, and, as a result, it may be more difficult for investors to analyze the Trust’s performance history in evaluating an investment in the Trust.

 

The Trust has limited performance history upon which to evaluate an investor’s investment in the Trust. Although the Trust invests in collateralized Index Futures positions on the Bloomberg Roll Select CI, such that it is expected that its performance will generally correlate with the Index, the Trust’s limited past performance history may make it difficult for investors to evaluate how well the Trust’s performance correlates with that of the Index, or whether the Trust has outperformed or underperformed the Index in the past. Although past performance is not necessarily indicative of future results, more performance history could provide investors with more information with which to evaluate an investment in the Trust. Likewise, certain benchmarks, such as the Bloomberg Roll Select CI and the Index themselves have a limited history. A longer history for such benchmarks could provide investors with more information on which to evaluate an investment in the Trust. See “Risk Factors Relating to Index Futures and the Bloomberg Roll Select CI—The Index and the Bloomberg Roll Select CI have Limited Histories and May Perform in Unexpected Ways.”

 

The Trust is an emerging growth company subject to reduced public company reporting requirements.

 

The Trust is an “emerging growth company” as defined in the JOBS Act. The Trust has not elected to make use of the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act, which election is irrevocable. However, for so long as the Trust remains an emerging growth company, it will be subject to reduced public company reporting requirements. Among other things, emerging growth companies are exempt from the auditor attestation requirements under Section 404(b) of the Sarbanes-Oxley Act, are exempt from certain “say on pay” provisions of the Dodd-Frank Act, and are subject to reduced disclosure requirements relating to executive compensation and audited financial statements. Although the Trust will remain subject to the disclosure requirements applicable to publicly traded commodity pools, and the Sponsor intends to have the Trust’s financial statements and disclosures prepared in a manner comparable to that of other iShares® exchange-traded funds, the Trust may take advantage of the exemptions and scaled requirements applicable to emerging growth companies.

 

 

 

The returns on the Shares will not precisely correlate with the performance of the Index.

 

The value of and returns on the Shares are expected to reflect the value of and returns on the Trust’s underlying investments in Index Futures and the cash or other Collateral Assets used to collateralize the Index Futures positions. The returns on the Shares will not precisely correlate with the performance of the Index due to, among other factors, differences between the return on the Collateral Assets and the U.S. Treasury rate used to calculate the U.S. Treasury return component of the Index, timing differences, differences between the portion of the Trust’s assets invested in Index Futures versus the portion of the return of the Index contributed by the Bloomberg Roll Select CI, differences between the settlement price of Index Futures and the closing level of the Bloomberg Roll Select CI and the payment of expenses and liabilities by the Trust.

 

The Trust is a passive investment vehicle, and the value of the Shares may be adversely affected by losses that, if it had been actively managed, might have been possible to avoid.

 

The Advisor manages the Trust’s assets in a manner that seeks to obtain returns that correspond generally, but are not necessarily identical, to the performance of the Index, before the payment of expenses and liabilities of the Trust. This means that the net asset value of the Trust and, consequently, the NAV are intended to generally track the Index when it is flat or declining, as well as when it is rising, and therefore, it is highly likely that the value of the Shares will be adversely affected by a decline in commodity futures prices reflected in the Index. The Advisor does not engage in any activities designed to obtain a profit from, or to ameliorate losses caused by, changes in the level of the Index or the Bloomberg Roll Select CI or the value of the Collateral Assets, including making use of any of the hedging techniques available to professional commodity futures traders to attempt to reduce the risks of losses resulting from commodity price decreases.

 

Fees and expenses payable by the Trust are charged regardless of profitability and may result in a depletion of its assets.

 

The Trust is subject to the fees and expenses described in this prospectus, which are payable irrespective of profitability. These fees and expenses include an allocation to the Sponsor that accrues daily at an annualized rate of up to 0.75% of the Adjusted Net Asset Value of the Trust and is payable by the Trust monthly in arrears. The Sponsor’s Fee may be adjusted by the Sponsor in its discretion from time to time to any amount up to 0.75% of the Adjusted Net Asset Value of the Trust. The Sponsor’s Fee may not be adjusted to above 0.75% of the Adjusted Net Asset Value of the Trust absent an amendment to the Trust Agreement in accordance with its terms, and such an adjustment may only become effective thirty days after the Trustee has notified the registered holders of the amendment.

 

Interest earned on the assets posted as collateral is paid to the Trust and is used to pay the fixed fee to the Sponsor. A prolonged decline in interest rates could materially affect the amount of interest paid to the Trust. In the case of either an extraordinary expense and/or insufficient interest income to cover ordinary expenses, the Trust could be forced to liquidate its Index Futures positions to pay such expenses.

 

The Trust’s ability to operate is dependent on the Sponsor, the Trustee, the Advisor and certain other key service providers and other parties.

 

The Trust’s ability to operate and to achieve its investment objective is dependent on a number of parties, including:

 

 

the Sponsor, who exercises general oversight and authority over the Trust;

     
 

the Trustee, who is responsible for the day-to-day administration of the Trust;

     
 

the Trust Administrator, who provides certain administrative and custodial services to the Trust;

     
 

the Advisor, who exercises general oversight over the Trust’s investment activities;

     
 

the Clearing FCM, through which the Trust transacts in Index Futures and maintains its Index Futures positions;

     
 

the Exchange, through which the Trust’s Index Futures transactions clear and settle;

 

 

 

 

the Index Providers, who own the rights to the Index on which the Trust’s investment objective is based;

     
 

the Index Administrator, who administers, calculates and publishes the Index;

     
 

the Authorized Participants, whose creation and redemption activities allow Index Futures and Collateral Assets to be converted to Shares and vice versa, to help maintain the relationship between the Index and the Shares; and

     
 

the Tax Administrator, who provides tax reporting and tax administrative services.

 

Disruptions in the business of any of the foregoing parties or the termination of the Trust’s relationship with any of the foregoing parties could adversely affect the Trust’s operations. Shared ownership of a number of the foregoing parties may heighten this risk. The Sponsor, the Advisor and the Trustee are commonly controlled subsidiaries of BlackRock, Inc. UBS Securities, an Index Provider, acts as the Trust’s Clearing FCM and as an Authorized Participant and was the initial purchaser of the Shares. A number of the foregoing parties are publicly traded companies or subsidiaries of publicly traded companies, and a portion of their shares may be owned by one or more of the other foregoing parties.

 

The Trust is exposed to various operational risks.

 

The Trust is exposed to various operational risks, including human error, information technology failures and failure to comply with formal procedures intended to mitigate these risks, and is particularly dependent on electronic means of communicating, record-keeping and otherwise conducting business. In addition, the Trust generally exculpates, and in some cases indemnifies, its service providers and agents with respect to losses arising from unforeseen circumstances and events, which may include the interruption, suspension or restriction of trading on or the closure of NYSE Arca, an Exchange, or an exchange on which the futures contracts underlying the Index trade, power or other mechanical or technological failures or interruptions, computer viruses, communications disruptions, work stoppages, natural disasters, fire, war, terrorism, riots, rebellions or other circumstances beyond the control of the Trust or its service providers and agents. Accordingly, the Trust generally bears the risk of loss with respect to these unforeseen circumstances and events to the extent relating to the Trust or the Shares, which may limit or prevent the Trust from generating returns corresponding to those of the Index or otherwise expose it to loss.

 

Although it is generally expected that the Trust’s direct service providers and agents will have disaster recovery or similar programs or safeguards in place to mitigate the effect of such unforeseen circumstances and events, there can be no assurance that these safeguards are in place for all parties whose activities may affect the performance of the Trust, or that these safeguards, even if implemented, will be successful in preventing losses associated with such unforeseen circumstances and events. Nor can there be any assurance that the systems and applications on which the Trust relies will continue to operate as intended. In addition to potentially causing performance failures at, or direct losses to, the Trust, any such unforeseen circumstances and events or operational failures may further distract the service providers, agents or personnel on which the Trust relies, reducing their ability to conduct the activities on which the Trust is dependent. These risks cannot be fully mitigated or prevented, and further efforts or expenditures to do so may not be cost-effective, whether due to reduced benefits from implementing additional or redundant safeguards or due to increases in associated maintenance requirements and other expenses that may make it more costly for the Trust to operate in more typical circumstances.

 

The price you receive upon the sale of your Shares may be less than their NAV.

 

Shares may trade at, above or below their NAV. The NAV fluctuates with changes in the market value of the Trust’s assets. The trading price of Shares fluctuates in accordance with changes in the NAV, intraday changes in the value of the Index Futures and market supply and demand. The amount of the discount or premium in the trading price of the Shares relative to their NAV may be influenced by non-concurrent trading hours between NYSE Arca, the exchange on which the Shares trade, the Exchanges on which Index Futures trade, and the principal commodities markets on which the futures contracts in the Bloomberg Roll Select CI trade. While the Shares are expected to trade on NYSE Arca until 4:00 p.m. (New York time), liquidity in the markets for the Index Futures and the futures contracts underlying the Bloomberg Roll Select CI is expected to be reduced whenever the principal markets for those contracts are closed. As a result, trading spreads, and the resulting premium or discount on Shares, may widen during these gaps in market trading hours.

 

 

 

The Trust is not obligated to pay periodic distributions or dividends to Shareholders.

 

Interest or other income received with respect to the Trust’s assets may be used to acquire additional Index Futures or Collateral Assets or, in the discretion of the Sponsor, distributed to the Shareholders. The Trust is not obligated, however, to make any distributions to Shareholders at any time prior to the dissolution of the Trust and will not make any distributions to Shareholders upon dissolution of the Trust unless there are assets remaining following dissolution.

 

The Trust could be liquidated at a time when the disposition of its interests will result in losses to investors in Shares.

 

If, at any time, any of the events described under “Description of the Shares and the Trust Agreement—Amendment and Dissolution” occurs, the Sponsor, the Trustee or, if applicable, the Shareholders may prompt the Trust’s dissolution. Upon dissolution of the Trust, the Trust will in most circumstances sell the Index Futures and securities held by it in the amount necessary to cover all expenses of liquidation and to pay any outstanding liabilities of the Trust. The remaining assets will be distributed among investors surrendering Shares. In the event the Trustee cannot distribute such assets proportionately among the Shareholders entitled thereto or if the Trustee determines that such distribution is not lawful or feasible, the Trustee may use any other method of distribution that it deems to be lawful, equitable and feasible, including the public or private sale of Trust assets and the distribution of the proceeds thereof. Any property remaining in the possession of the Trustee after ninety days may be sold by the Trustee, and the proceeds of the sale will be held by the Trustee until claimed by any remaining Shareholders.

 

In connection with any such liquidation, Trust property may be sold for prices that are less than the portion of the NAV attributable to such Trust property. Accordingly, the liquidation of Trust property may result in losses, or adversely affect your gains, on your investment in Shares.

 

The Sponsor has broad discretion to liquidate the Trust at any time.

 

The Trust Agreement provides the Sponsor with broad discretion to liquidate the Trust at any time the Sponsor determines that liquidation of the Trust is advisable. It cannot be predicted when or under what circumstances, if any, the Sponsor would use this discretion to liquidate the Trust. Any such liquidation may occur at a time when you are suffering a loss on your investment in the Shares and may upset the overall maturity and timing of your investment portfolio.

 

Shareholders with large holdings may choose to dissolve the Trust and thereby adversely affect your investment in the Shares.

 

Owners of 75% or more of the Shares have the power to dissolve the Trust. This power may be exercised by a relatively small number of holders. If it is so exercised, investors who wished to continue to invest in the performance of the Index through the vehicle of the Trust will have to find another vehicle, and may not be able to find another vehicle that offers the same features as the Trust. Moreover, such a dissolution may occur at a time when you are suffering a loss on your investment in the Shares and may upset the overall maturity and timing of your investment portfolio.

 

The Shares may not provide anticipated benefits of diversification from other asset classes.

 

Historically, the performance of physical commodity futures prices generally has not been correlated to the performance of financial asset classes, such as stocks and bonds. Non-correlation means that there is no statistically significant relationship, positive or negative, between the past performance of futures contracts on physical commodities, on the one hand, and stocks or bonds, on the other hand. Despite this lack of correlation, Shares cannot be expected to be automatically profitable during unfavorable periods for the stock or bond markets, or automatically unprofitable during favorable periods for the stock or bond markets. The commodity futures markets are fundamentally different from the securities markets in that for every gain in commodity futures trading, there is an equal and offsetting loss. The performance of the Shares may reflect positive or negative correlation to one or more financial asset classes, in which case any investment strategy relying on the absence of any such correlation may not be successful.

 

The liquidity of the Shares may be affected by the withdrawal from participation of Authorized Participants or by the suspension of issuance, transfers or redemptions of Shares by the Trustee.

 

If one or more Authorized Participants withdraw from participation, it may become more difficult to create or redeem Baskets, which may reduce the liquidity of the Shares. If it becomes more difficult to create or redeem Baskets, the correlation between the price of the Shares and the NAV may be affected, which may affect the trading market for the Shares. Having fewer participants in the market for the Shares could also adversely affect the ability to arbitrage any price difference between the Index Futures and the Shares, which may affect the trading market and liquidity of the Shares.

 

 

 

In addition, the Trustee has the power to suspend the delivery of Shares, registration of transfers of Shares and surrenders of Shares for the purpose of withdrawing Trust property generally, or to refuse a particular deposit, transfer or withdrawal at any time, if the Trustee or the Sponsor determines that it is advisable to do so for any reason. The liquidity of the Shares and the correlation between the value of the Shares and the level of the Index may be adversely affected in the event of any such suspension of issuance, transfer or redemption.

 

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 the Shares are listed on NYSE Arca, there can be no guarantee that an active trading market for the Shares will develop or be maintained. If you need to sell your Shares at a time when no active market for them exists, the price you receive for your Shares, assuming that you are able to sell them, will likely be lower than that you would receive if an active market did exist.

 

You may be adversely affected by redemption orders that are subject to postponement, suspension or rejection under certain circumstances.

 

The Trustee may suspend the right of redemption or postpone the redemption settlement date for such periods as it or the Sponsor deems to be necessary for any reason. In addition, the Trustee has the right to reject any redemption order for any reason, including, among others, (1) the related order not being in proper form as described in the Authorized Participant Agreement, (2) market conditions or other circumstances that make transactions in or delivery of the Shares or the Index Futures impossible or impractical, (3) a determination by the Trustee that the acceptance of the related order would have adverse tax or other consequences to the Trust or the Shareholders, or (4) circumstances that would cause the acceptance of the related order to result in a violation of law in the opinion of counsel to the Trustee, the Sponsor or the Trust Administrator. 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 redemption proceeds if the NAV declines during the period of the delay. Under the Authorized Participant Agreement, the Trustee disclaims any liability that may result from any such suspension, postponement or rejection.

 

Competition from other commodities-related investments could limit the market for, and reduce the liquidity of, the Shares.

 

Demand for the Shares is expected to be affected by the attractiveness of an investment in the Shares relative to other investment 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 commodities, and direct investments in commodities or commodity futures contracts. Market, financial and other conditions or factors may make it more attractive to invest in other investment vehicles or to invest in such commodities directly, which could limit the market for, and reduce the liquidity of, the Shares.

 

The price of the Shares could decrease if unanticipated operational or trading problems arise.

 

If the processes of creation and redemption of Shares encounter any unanticipated difficulties, potential market participants who would otherwise be willing to purchase or redeem Baskets to take advantage of any arbitrage opportunity arising from discrepancies between the price of the Shares and the price of the underlying Index Futures may choose not to do so. If this is the case, the price of the Shares may vary from the price of an equivalent position in Index Futures and may trade at a discount to their NAV. In addition, in some circumstances, such as the failure of the registration statement covering the Shares to be effective, the Trust may be unable to create or redeem Shares, which may have similar consequences.

 

Exchange position limits and other rules may restrict the creation of Baskets and the operation of the Trust.

 

CBOT imposes speculative position limits on market participants trading in Index Futures, including the Trust, that typically prohibit any person from holding a position of more than 52,000 contracts. The Trust may from time to time seek to obtain exemptions from those position limits from CBOT, but these exemptions may be limited, including with respect to the additional number of contracts permitted to be held under such exemption and the time period for which the exemption applies. Position limits may also apply to other Index Futures traded by the Trust.  The availability of obtaining any exemption from any such position limits is expected to be subject to the ability or willingness of the applicable Exchange to grant such exemption, as well as applicable law.

 

 

 

The Trust’s ability to issue new Baskets or reinvest income in additional Index Futures may be limited to the extent these activities would cause the Trust to exceed the position limits then applicable to those Index Futures. The Trust may also be required to liquidate any existing contracts in excess of the then-applicable position limits, including as a result of changes to applicable position limits or as a result of the loss of an exemption, or be required to take other actions with potentially adverse effects on the liquidity or value of the Shares.

 

Additionally, legislative or regulatory action, actions by a DCM or actions by the Clearing FCM may impose limitations on the size of positions that the Trust may take in Index Futures and/or impose limitations on the size of positions that may be carried by other market participants, adversely affecting the liquidity and price of Index Futures and the underlying futures. Such events could force the Trust or other market participants to sell Index Futures, or encourage market participants to sell or redeem their Shares. The CFTC has proposed that any risk management exemptions granted by DCMs, such as any exemption that may be applicable to the Trust’s positions in Index Futures, can only be granted pursuant to rules which have been reviewed by the CFTC. As a result, if the Proposed Position Limits Rules are adopted as proposed, the current maximum position in Index Futures permitted to be held by the Trust could be reduced relative to the maximum position otherwise permitted, which could in turn require the Trust to liquidate some or all of its positions in Index Futures. Any such reduction could affect the liquidity of Index Futures and adversely impact the price of the Shares as well as the correlation between the price of the Shares and the net asset value of the Trust.

 

DCMs may also take steps, such as requiring liquidation of open positions, in the case of disorderly markets, market congestion and other market disruptions. These actions could require the Trust to liquidate all or part of its Index Futures positions or require holders of positions in the futures contracts underlying the Bloomberg Roll Select CI to liquidate their positions. This could affect the level of the Index and the NAV. See also “Risk Factors Relating to Commodities Markets—Regulatory developments with respect to the futures and over-the-counter derivatives markets, and in particular, with respect to speculative trading in futures contracts and over-the-counter derivatives involving commodities and commodity indices, could adversely affect the value of your Shares.”

 

Shareholders do not have the rights normally associated with ownership of common shares; the Sponsor and the Trustee exercise substantial control over the Trust.

 

Shareholders are not entitled to the same rights as owners of shares issued by a corporation. By acquiring Shares, you are not acquiring the right to elect directors, to receive dividends, to vote on certain matters regarding the Trust or to take other actions normally associated with the ownership of common shares.

 

Additionally, as described under “Business of the Trust” and “Description of the Shares and the Trust Agreement,” the Sponsor and the Trustee exercise substantial control over the Trust’s activities. Among other things, the Trust Agreement authorizes the Sponsor to determine whether to make distributions to Shareholders, gives the Sponsor oversight over NAV calculations and the creation and redemption process and permits the Sponsor to dissolve the Trust if it deems such dissolution advisable. The Trustee also retains the right to reject any order for the creation or redemption of Baskets. The Sponsor and the Trustee may amend the provisions of the Trust Agreement, including in a manner adverse to Shareholders, without Shareholder consent, including to change the assets through which the Trust seeks to achieve its investment objective, which may alter the nature of an investment in, and the performance of, the Shares.

 

The Trust Agreement provides that in the case of a conflict of interest between the Trustee, the Sponsor and their affiliates, on the one hand, and the holders of Shares, on the other, the Trustee and the Sponsor will resolve such conflict considering the relevant interests of each party (including their own interests) and related benefits and burdens, any customary or accepted industry practices, and any applicable generally accepted accounting practices or principles. The Trust Agreement further provides that in the absence of bad faith by the Trustee or the Sponsor, such a resolution will not constitute a breach of the Trust Agreement or any duty or obligation of the Trustee or the Sponsor.

 

Shareholders do not have the protections normally associated with the ownership of shares in an investment company registered under the Investment Company Act.

 

The Trust is not registered as an investment company for purposes of United States federal securities laws, and is not subject to regulation by the SEC as an investment company. Consequently, Shareholders do not have the regulatory protections provided to investors in investment companies registered under the Investment Company Act. For example, the provisions of the Investment Company Act that limit transactions with affiliates, prohibit the suspension of redemptions (except under limited circumstances) and limit sales loads do not apply to the Trust. iShares® Delaware Trust Sponsor LLC, as the Sponsor, is registered with the CFTC as a commodity pool operator, and BlackRock Fund Advisors, as the Advisor, is registered with the CFTC as a commodity trading advisor. The CFTC therefore has jurisdiction over these entities and regulatory authority over certain activities of the Trust. The nature and degree of this regulation differs from the regulatory scheme imposed under the Investment Company Act.

 

 

 

Competing claims over ownership of relevant intellectual property rights could adversely affect the Trust or an investment in the Shares.

 

While the Sponsor believes that it has all of the intellectual property rights needed to operate the Trust in the manner described in this prospectus, third parties may allege or assert ownership of intellectual property rights that may be related to the design, structure and operation of the Trust or the Index. 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, the issuance of any restraining orders or injunctions, or the ultimate disposition of such claims in a court of law, may adversely affect the Trust and the value of the Shares. For example, such actions could result in expenses or damages payable by the Trust or the suspension of activities or dissolution of the Trust.

 

The value of the Shares will be adversely affected if the Trust is required to indemnify the Sponsor, the Advisor or the Trustee or their respective agents.

 

Under the Trust Agreement, the Sponsor, the Trustee and their respective agents have the right to be indemnified by the Trust for any liability or expense they incur without negligence, bad faith, willful misconduct or reckless disregard of their duties on their part. That means the Sponsor and the Trustee may require the assets of the Trust to be sold in order to cover losses or liabilities suffered by it, which would reduce the net asset value of the Trust and the value of the Shares.

 

Likewise, under the Advisory Agreement, the Advisor and its agents have the right to be indemnified by the Trust for any liability or expense they incur without negligence, bad faith, willful misconduct or reckless disregard of their duties on their part. That means the Advisor may require the assets of the Trust to be sold in order to cover losses or liabilities suffered by it, which would reduce the net asset value of the Trust and the value of the Shares.

 

Regulatory changes or actions may affect the Shares.

 

The futures markets are subject to comprehensive regulation. In addition, the CFTC and the exchanges are authorized to take extraordinary actions in the event of a market emergency, including, for example, implementing speculative position limits (including retroactively) or higher margin requirements, establishing daily price limits and suspending trading. The regulation of futures transactions in the United States is subject to modification by government, exchange and judicial action. The effect of any future regulatory change on the Trust could be substantial and adverse. See also “—Exchange position limits and other rules may restrict the creation of Baskets and the operation of the Trust” above and “Risk Factors Relating to Commodities Markets— Regulatory developments with respect to the futures and over-the-counter derivatives markets, and in particular, with respect to speculative trading in futures contracts and over-the-counter derivatives involving commodities and commodity indices, could adversely affect the value of your Shares.”

 

NYSE Arca may halt trading in the Shares, which would adversely impact your ability to sell your Shares.

 

The Shares are listed for trading on NYSE Arca under the symbol “CMDT.” Trading in the Shares may be halted due to market conditions or, in light of NYSE Arca rules and procedures, for reasons that, in the view of NYSE Arca, make trading in the Shares inadvisable, or in the event certain information about the Index, the value of the Shares and the NAV is not made available as required by such rules and procedures. In addition, trading generally on NYSE Arca 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 Trust will be dissolved if the Shares are delisted from NYSE Arca and are not approved for listing on another national securities exchange within five business days of their delisting.

 

 

 

Risk Factors Relating to Conflicts of Interest

 

The Sponsor’s relationship with the Trustee and the Advisor and the proprietary and managed trading activities of the Sponsor and its affiliates could conflict with your interests as a Shareholder.

 

The Sponsor is an affiliate of the Trustee and therefore may have a conflict of interest with respect to its oversight of the Trustee. In particular, the Sponsor, which has authority to remove the Trustee in its discretion, has an incentive not to exercise this authority, even when it is in the best interests of the Shareholders to do so, because of the affiliation between the entities. The Trustee is authorized to appoint an unaffiliated Trust Administrator or other agent to carry out all or some of its duties under the Trust Agreement, but is not required to delegate any of its duties to an unaffiliated third party.

 

The Sponsor is an affiliate of the Advisor and therefore may have a similar conflict of interest with respect to its oversight of the Advisor. For example, although the Sponsor has the authority to terminate the Trust’s Advisory Agreement with the Advisor, it has an incentive not to exercise this authority, even when it is in the best interests of the Shareholders to do so, because of the affiliation between the entities.

 

As described elsewhere in this prospectus, in return for paying certain amounts that would otherwise be considered ordinary operating expenses of the Trust, the Sponsor receives an allocation from the Trust that accrues daily at an annualized rate of up to 0.75% of the Adjusted Net Asset Value of the Trust, is payable monthly in arrears, and is subject to adjustment from time to time, except that the Sponsor’s Fee may not be adjusted to above 0.75% of the Adjusted Net Asset Value absent an amendment to the Trust Agreement and thirty days’ prior notice to registered holders of the Shares. The allocation received by the Sponsor from the Trust may be higher than the amount the Trust would negotiate with an unaffiliated third party manager on an arms-length basis.

 

In addition, the Sponsor and its affiliates (including the Trustee and the Advisor) collectively exercise substantial control over the Trust. To the extent the interests of the Sponsor and its affiliates conflict with those of the Trust and the Shareholders, the risks associated with such conflicts may be greater than they would otherwise be for a party that cannot exercise such control over the Trust. The Trust Agreement provides that in the case of a conflict of interest between the Trustee, the Sponsor and their affiliates, on the one hand, and the holders of Shares, on the other, the Trustee and the Sponsor will resolve such conflict considering the relevant interests of each party (including their own interests) and related benefits and burdens, any customary or accepted industry practices, and any applicable generally accepted accounting practices or principles. The Trust Agreement further provides that in the absence of bad faith by the Trustee or the Sponsor, such a resolution will not constitute a breach of the Trust Agreement or any duty or obligation of the Trustee or the Sponsor.

 

The Sponsor and its affiliates may also engage in trading activities relating to the Index Futures, the components of the Index or the Bloomberg Roll Select CI or other derivative instruments related to those indices that are not for the account of, or on behalf of, the Trust or the Shareholders and that may compete with trading activity in the Shares. These activities may present a conflict between the Shareholders’ interest in the Shares and the interest of the Sponsor and its affiliates in their proprietary accounts, in facilitating transactions, including derivatives transactions, for their customers’ accounts and in accounts under their management. These trading activities could be adverse to the interests of the Shareholders. Moreover, the Sponsor and its affiliates have published and in the future expect to publish research reports with respect to commodities markets. This research may express opinions or provide recommendations that are inconsistent with purchasing or holding Shares. The research should not be viewed as a recommendation or endorsement of the Shares in any way, and investors must make their own independent investigation of the merits of this investment. Any of these activities by the Sponsor and its affiliates may affect the level of the Bloomberg Roll Select CI or its components and, therefore, the value of the Index Futures and the price of the Shares.

 

Proprietary trading and other activities by UBS Securities and its affiliates could conflict with your interests as a Shareholder.

 

Activities conducted by UBS Securities and its affiliates may conflict with your interests as a Shareholder. For example, the Advisor may execute a substantial amount, and potentially all, of the purchases and sales of Index Futures through UBS Securities, as the Trust’s Clearing FCM. In addition, it is expected that UBS Securities or its accountholders will represent, directly or indirectly, a substantial portion of the short-side market for the Index Futures. Further, UBS Securities and its affiliates actively trade futures contracts and options on futures contracts on the commodities that underlie the Index, over-the-counter contracts on these commodities, the underlying commodities included in the Index and other instruments and derivative products based on the Index, the Bloomberg Roll Select CI and the Bloomberg CI. Any of these activities of UBS Securities or its affiliates could adversely affect the level of the Index or the Index Futures, directly or indirectly, by affecting the price of the underlying commodities and, therefore, the value of the Index, the Index Futures and the price of the Shares.

 

 

 

In addition, UBS Securities is one of the Index Providers, and although Bloomberg calculates the Index on behalf of UBS Securities, UBS Securities retains ownership of the Index, the Bloomberg CI and the Bloomberg Roll Select CI and retains the right to dismiss the Index Administrator from its duties relating to such indices, and may influence the Index Administrator with respect to the performance of its duties relating to such indices. To the extent UBS Securities’ interests conflict with those of the Trust and the Shareholders, the risks associated with such conflicts may be greater than they would otherwise be for a party that cannot exercise control over the Index, the Bloomberg CI and the Bloomberg Roll Select CI. According to UBS Securities, UBS Securities has implemented a firewall with respect to its personnel regarding access to information concerning the composition and/or changes to the Index. See “—Proprietary trading and other activities by the Index Providers and their respective affiliates could conflict with your interests as a Shareholder.”

 

UBS Securities and its affiliates may also issue or underwrite other securities or financial or derivative instruments with returns indexed to the Index, the Bloomberg CI or the Bloomberg Roll Select CI, which would compete with the Shares. By introducing competing products into the marketplace, UBS Securities and its affiliates could adversely affect the price of the Shares. To the extent that UBS Securities or its affiliates serve as issuer, agent or underwriter of those securities or other similar instruments, their interests with respect to those products may be adverse to your interests as a Shareholder. In addition, UBS Securities is an Authorized Participant and was the initial purchaser of the Shares, while as noted above, it is expected to represent, directly or indirectly, a substantial portion of the short-side market for the Index Futures and could therefore benefit from the adverse performance of the Index Futures which would be adverse to the price of the Shares.

 

Proprietary trading and other activities by the Index Providers and their respective affiliates could conflict with your interests as a Shareholder.

 

Activities conducted by the Index Providers and their respective affiliates may conflict with your interests as a Shareholder. For example, one or more of the Index Providers or their respective affiliates may also engage in trading in the Index, the Bloomberg CI, the Bloomberg Roll Select CI, related indices and sub-indices, and other investments relating to such indices or their underlying components on a regular basis as part of its general business, for proprietary accounts, for other accounts under management, to facilitate transactions for customers or to hedge obligations under products linked to such indices. One or more of the Index Providers or their respective affiliates may also issue or underwrite securities or financial or derivative instruments with returns linked or related to changes in the performance of any of the foregoing. Any of these activities could adversely affect the market price of the commodities or futures contracts underlying such indices or the value of the indices themselves, which may adversely affect the value of the Shares. According to UBS Securities, UBS Securities has implemented a firewall with respect to its personnel regarding access to information concerning the composition and/or changes to the Index. It is possible that one or more of the Index Providers or their respective affiliates could receive substantial returns from these hedging activities while the market value of the underlying commodities or futures contracts, the value of the indices, or the price or the NAV of the Shares decline. Some or all of these risks may be further exacerbated as a result of various other roles of the Index Providers or their affiliates relating to the Trust, the Shares or the Index Futures.

 

Risk Factors Relating to Taxes

 

Please refer to “United States Federal Income Tax Consequences” for information on the potential U.S. federal income tax consequences of the purchase, ownership and disposition of the Shares.

 

Your tax liability could exceed cash distributions on your Shares.

 

You will be required to pay U.S. federal income taxes on your allocable share of the Trust’s income, without regard to the receipt of cash distributions on the Shares. There is no obligation to make distributions on the Shares. Accordingly, it is anticipated that you will not receive cash distributions sufficient to cover your allocable share of such taxable income or even the tax liability resulting from that income.

 

 

 

The IRS could adjust or reallocate items of income, gain, deduction, loss and credit with respect to the Shares if the IRS does not accept the assumptions or conventions utilized by the Trust.

 

The U.S. tax rules that apply to partnerships are complex and their application is not always clear. Moreover, the rules generally were not written for, and in some respects are difficult to apply to, publicly traded interests in partnerships. In addition, the Trust will report tax information to you on Internal Revenue Service, or “IRS,” Schedule K-1 with respect to the Shares. The Trustee shall deliver or cause to be delivered to each Shareholder an IRS Schedule K-1 as soon as practicable following each fiscal year but generally not later than March 15. Reporting on IRS Schedule K-1 may be somewhat more complex than comparable reporting on IRS Form 1099. Each Shareholder, by its acquisition of Shares, will be deemed to agree to allow brokers and nominees to provide to the Trust its name and address and the other information and forms as may be reasonably requested by the Trust for purposes of complying with their tax reporting and withholding obligations (and to waive any confidentiality rights with respect to the information and forms for this purpose) and to provide information or forms upon request.

 

Investors in the Shares should consult their tax advisors in determining how to use the information reported on IRS Schedule K-1 to complete their income tax returns. The Trust will apply certain assumptions and conventions intended to comply with the intent of the rules and to report income, gain, deduction, loss and credit to investors in a manner that reflects the investors’ economic gains and losses, but these assumptions and conventions may not comply with all aspects of the applicable Treasury regulations. It is possible therefore that the IRS will successfully assert that these assumptions or conventions do not satisfy the technical requirements of the United States Internal Revenue Code of 1986, as amended, or the “Code,” or the Treasury regulations and will require that items of income, gain, deduction, loss and credit be adjusted or reallocated in a manner that could be adverse to you.

 

If the Trust were to fail to qualify as a partnership for U.S. federal income tax purposes, the Trust’s income and items of deduction would not pass through to the Shareholders, the Trust would be required to pay tax at corporate rates on any portion of the Trust’s net income that does not constitute tax-exempt income, and distributions by the Trust to the Trust’s Shareholders would be taxable dividends to the extent of the Trust’s earnings and profits.

 

It is expected that the Trust will operate and be classified as a partnership for U.S. federal income tax purposes. So long as the Trust qualifies as a partnership, it will be able to pass through its income, including the Trust’s federally tax-exempt income, if any, and deductions to the Shareholders. The Trust’s qualification as a partnership for U.S. federal income tax purposes involves the application of numerous technical provisions under which there is a lack of direct authority. In general, if a partnership is “publicly traded,” as defined in the Code, it will be treated as a corporation for U.S. federal income tax purposes. It is expected that the Trust will be treated as a publicly traded partnership. A publicly traded partnership will, however, be taxed as a partnership, and not as a corporation for U.S. federal income tax purposes, so long as 90% or more of its gross income for each taxable year constitutes “qualifying income” within the meaning of Section 7704(d) of the Code and the partnership is not required to register under the Investment Company Act. This exception is referred to as the “qualifying income exception.” Qualifying income generally includes interest (other than certain contingent interest and interest derived in the conduct of a financial or insurance business), dividends, real property rents, and income from certain commodities transactions.

 

If less than 90% of the Trust’s gross income for any tax year constitutes qualifying income, for any reason, other than a failure that is determined to be inadvertent and that is cured within a reasonable time after discovery, or if the Trust is required to register under the Investment Company Act, the Trust’s items of income and deduction would not pass through to the Trust’s Shareholders and the Trust’s Shareholders would be treated for U.S. federal income tax purposes as stockholders in a corporation. The Trust would be required to pay income tax at corporate rates on its net taxable income. Distributions by the Trust to its Shareholders would constitute dividend income taxable to such holders to the extent of the Trust’s earnings and profits and the payment of these distributions would not be deductible by the Trust. These consequences could have a material adverse effect on the Trust, its Shareholders and the value of the Shares.

 

 

  

If the IRS makes audit adjustments to the Trust's income tax returns for tax years beginning after 2017, it may collect any resulting taxes (including any applicable penalties and interest) directly from the Trust, in which case the cash available for the distribution to the Trust's Shareholders might be substantially reduced.

 

Pursuant to the Bipartisan Budget Act of 2015, significant changes are being made to the rules applicable to U.S. federal income tax audits of partnerships. Under the new rules (which are generally effective for the Trust’s taxable years beginning after December 31, 2017), if the IRS makes audit adjustments to the Trust's U.S. federal income tax returns, it may collect any resulting taxes (including any applicable penalties and interest) directly from the Trust. The Trust may have the ability to shift any such tax liability to the Sponsor and the Trust's Shareholders in accordance with their interests in the Trust during the year under audit, but there can be no assurance that it will be able to do so, in which case the current Shareholders would economically bear the burden of the tax even if they were not Shareholders during the year under audit (or if they had a different percentage interest in the Trust in that year). If the Trust is required to make payments of taxes, penalties and interest resulting from audit adjustments, the cash available for distribution to the Trust's Shareholders might be substantially reduced. The changes created by the new partnership audit rules are sweeping and in many respects dependent on the promulgation of future regulations or other guidance by the IRS or the U.S. Treasury Department. Investors in the Shares are urged to consult their tax advisors regarding these changes and their potential impact.

 

New tax legislation or changes to the existing U.S. and foreign tax laws, treaties and regulations may negatively affect the Trust.

 

The Trust may be directly or indirectly affected by new tax legislation and regulations, or the modification of existing tax laws by U.S. or non-U.S. authorities. In particular, a number of proposals for broad reform of the business tax system in the United States are under evaluation by various legislative and administrative bodies, but it is not possible to determine accurately the overall impact of such proposals at this time. The Trust’s specific tax status and tax positions could be adversely impacted by changes in tax law or policy.

 

 

 

FORWARD-LOOKING STATEMENTS

 

This prospectus includes statements that relate to future events or future performance. In some cases, you can identify these forward-looking statements by words such as “may,” “should,” “could,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential” or the negative of these terms or other comparable phrases. All statements, other than statements of historical fact, included in this prospectus that address activities, events or developments that may occur in the future, including matters such as changes in commodity prices and market conditions (for the Trust’s assets and the Shares), the Trust’s operations, the Sponsor’s plans and references to the Trust’s future success and other similar matters, are forward-looking statements. These statements are only predictions. Actual events or results may differ materially. These statements are based upon assumptions and analyses made by the Sponsor on the basis of its perception of historical trends, current conditions and expected future developments, as well as other factors it believes are appropriate in the circumstances. Whether actual results and developments will conform to the Sponsor’s expectations and predictions, however, is subject to a number of risks and uncertainties, including the special considerations discussed in this prospectus, including under “Risk Factors,” general economic, market and business conditions, changes in laws or regulations, including those concerning taxes, made by governmental authorities or regulatory bodies and other world economic and political developments. Consequently, the forward-looking statements made in this prospectus are qualified by these cautionary statements, and there can be no assurance that the actual results or developments the Sponsor anticipates will be realized or, even if substantially realized, will result in the expected consequences to, or have the expected effects on, the Trust’s operations or the value of the Shares. Moreover, none of the Sponsor, the Trustee, the Delaware Trustee, the Advisor or their respective affiliates assumes responsibility for the accuracy or completeness of any forward-looking statements. Except as required under Item 512 of Regulation S-K or other applicable disclosure laws, none of the Trust, the Sponsor, the Trustee, the Delaware Trustee, the Advisor or their respective affiliates is under any duty to update any forward-looking statements to conform the statements to actual results or to a change in the expectations or predictions of these persons.

 

USE OF PROCEEDS

 

Proceeds received by the Trust from the issuance and sale of Baskets consist of Index Futures and cash (or, in the discretion of the Sponsor, other Collateral Assets). These proceeds are held by the Trust and are retained, invested in Collateral Assets or liquidated in order to rebalance or establish new positions in Index Futures or Collateral Assets until (1) withdrawn in connection with redemptions of Baskets or (2) liquidated to pay expenses and liabilities of the Trust (including applicable fees and margin payments) not assumed by the Sponsor. See “Business of the Trust—Trust Expenses” starting on page 50.

 

Collateral Assets with a value equal to approximately 3% to 10% of the value of each Index Futures position are deposited with the Clearing FCM as initial margin at the time such Index Futures position is established. These margin deposits are expected to be maintained in accordance with CFTC rules, which require the segregation of customer funds from those of the Clearing FCM. The remainder (and any variation margin received) are retained in the Trust’s accounts until transferred in connection with making variation margin payments, a Basket redemption or the liquidation of an Index Futures position.

 

Any remaining assets of the Trust that are not required to meet current margin requirements may be (1) held in cash in non-interest-bearing bank accounts to remain available to pay the expenses of the Trust and to serve as reserves, in the amounts deemed necessary by the Advisor or (2) deposited with the Trust Administrator and invested in U.S. Treasury securities and other Collateral Assets. All interest income earned on the Trust’s investments will be retained for the benefit of the Trust. The Advisor expects that all entities that will hold or trade the Trust’s assets will be based in the U.S. and subject to U.S. regulations.

 

 

 

FUTURES CONTRACTS ON THE BLOOMBERG ROLL SELECT CI

 

The assets of the Trust consist of Index Futures and cash or other Collateral Assets used to satisfy applicable margin requirements for those Index Futures positions. Index Futures are exchange-traded index futures contracts on the Bloomberg Roll Select CI, and may include contracts of different terms and expirations. The Trust is expected to roll out of existing positions in Index Futures and establish new positions in Index Futures on an ongoing basis. Index Futures subsequently acquired by the Trust may have terms that differ from those of the Index Futures it currently holds, including transaction fees associated with the purchase and sale of these Index Futures.

 

Creation and redemption of interests in the Trust are generally effected through EFRPs. EFRPs involve contemporaneous transactions in futures contracts and the underlying cash commodity or a closely related commodity. In a typical EFRP, the participant taking the long position on the futures contract transfers the underlying commodity or other related position to the participant taking the short position on the futures contract. The Exchange on which Index Futures trade permits the execution of EFRPs consisting of simultaneous transfers of Index Futures and Shares. This mechanism generally is expected to be used by the Trust in connection with the creation and redemption of Baskets.

 

Specifically, it is anticipated that an Authorized Participant requesting the creation of additional Baskets typically will transfer Index Futures and cash (or, in the discretion of the Sponsor, other Collateral Assets) to the Trust in return for Shares. If an EFRP is executed in connection with the redemption of one or more Baskets, an Authorized Participant transfers to the Trust the Shares being redeemed and the Trust transfers to the Authorized Participant Index Futures and cash or other Collateral Assets. The Trust may include Index Futures with different terms and expirations in the creation and redemption of Baskets, and the Index Futures included in creation Baskets may differ from those included in redemption Baskets.

 

With the approval of the Sponsor, Baskets may also be created or redeemed for cash, in which case the Authorized Participant will be responsible for the costs incurred by the Trust in establishing or liquidating the corresponding Index Futures position and acquiring or disposing of the related Collateral Assets.

 

Due to the limited trading history of the Index Futures on the Bloomberg Roll Select CI as of the date of this prospectus, there is insufficient data available to determine whether the market for such Index Futures have themselves generally exhibited contango or backwardation. However, the term structure of the futures contracts for individual commodities that comprise the Bloomberg Roll Select CI and Bloomberg CI, along with their estimated annualized roll yields based on the front month and second month futures contracts, as provided by the Index Providers, are set forth below.

 

 

 

Commodity

 

Current Index
Weight (as of June

30, 2017)

   

Historical
Annualized
Roll Yield
(as of June 30, 2016)

   

Historical
Annualized
Roll Yield
(as of June 30, 2017)

   

Current Curve
Shape

Aluminum

    5.19 %     -1.78 %     -2.56 %  

Contango

Coffee

    2.11 %     -6.23 %     -7.83 %  

Contango

Copper

    8.20 %     -0.26 %     -2.62 %  

Contango

Corn

    8.18 %     -11.08 %     -16.68 %  

Contango

Cotton

    1.35 %     -11.37 %     25.52 %  

Contango

WTI Crude Oil

    6.29 %     -15.56 %     -6.01 %  

Contango

Brent Crude Oil

    6.94 %     -0.76 %     -20.88 %  

Contango

Gold

    11.92 %     -1.59 %     -1.84 %  

Contango

ULS Diesel

    3.45 %     -3.39 %     -6.06 %  

Contango

Live Cattle

    4.06 %     25.39 %     13.84 %  

Backwardation

Lean Hogs

    2.32 %     -6.69 %     98.89 %  

Contango

Natural Gas

    7.99 %     2.27 %     1.46 %  

Contango

Nickel

    2.35 %     -2.22 %     -2.30 %  

Contango

Silver

    4.20 %     -1.28 %     -2.10 %  

Contango

Soybeans

    5.65 %     0.80 %     -5.94 %  

Contango

Soybean Meal

    2.93 %     -1.55 %     -6.96 %  

Contango

Soybean Oil

    2.70 %     -6.02 %     -3.93 %  

Contango

Sugar

    2.28 %     -3.54 %     -3.81 %  

Backwardation

RBOB Gasoline

    3.18 %     0.08 %     1.17 %  

Contango

CBOT Wheat

    4.31 %     -19.45 %     -17.28 %  

Contango

KCBT Wheat

    1.53 %     -26.58 %     -21.02 %  

Contango

Zinc

    2.86 %     -1.55 %     -0.35 %  

Backwardation

  


 

 

 

THE INDEX, THE BLOOMBERG CI AND THE BLOOMBERG ROLL SELECT CI

 

This section contains a description of the Index, the Bloomberg CI, and the Bloomberg Roll Select CI. All information regarding the Index, the Bloomberg CI and the Bloomberg Roll Select CI contained in this prospectus, including their respective compositions, methods of calculation, changes in their constituent components and historical performance, has been derived from information published or provided by the Index Providers, but has not been independently verified.

 

The Bloomberg Commodity IndexesSM are a joint product of Bloomberg and UBS Securities and have been licensed for use for certain purposes by the Trust. Bloomberg® is a trademark of Bloomberg and has been licensed for use for certain purposes by the Trust.

 

The Index Providers

 

The Shares are not sponsored, endorsed, sold or promoted by the Index Providers in their capacities as such. None of the Index Providers, in their capacities as such, makes any representation or warranty, express or implied, to the owners of or counterparts to the Shares or any member of the public regarding the advisability of investing in securities or commodities generally or in the Shares particularly. The only relationship of the Index Providers, in their capacities as such, to the Trust is the licensing of certain trademarks, trade names and service marks and of the Index and the Bloomberg Roll Select CI, which is determined, composed and calculated by Bloomberg without regard to the Trust or the Shares. Bloomberg and the Index Committees may not take the needs of the Trust or the Shareholders into consideration in determining, composing or calculating the Index or the Bloomberg Roll Select CI. None of the Index Providers is directly responsible for or has participated in the determination of the timing of, prices at, or quantities of the Shares to be issued or in the determination or calculation of the equation by which the Shares are to be converted into cash, surrendered or redeemed, as the case may be. The Index Providers, in their capacities as such, are not responsible for the administration, marketing or trading of the Shares. Notwithstanding the foregoing, UBS Securities and its respective subsidiaries and affiliates may independently issue and/or sponsor financial products unrelated to the Shares currently being issued by the Trust, but which may be similar to and competitive with the Shares. In addition, UBS Securities and its subsidiaries and affiliates actively trade commodities, commodity indexes and commodity futures (including the Index and the Bloomberg Roll Select CI), as well as swaps, options and derivatives which are linked to the performance of such commodities, commodity indexes and commodity futures. It is possible that this trading activity will affect the value of the Index, the Bloomberg Roll Select CI and Shares.

 

Purchasers of the Shares should not conclude that the inclusion of a futures contract in the Index is any form of investment recommendation of the futures contract or the underlying exchange-traded physical commodity by any Index Provider or any of their subsidiaries or affiliates. None of the Index Providers or any of their subsidiaries or affiliates has made any due diligence inquiries with respect to the futures contracts or physical commodities underlying the Index in connection with the Shares being offered hereby. None of the Index Providers or any of their subsidiaries or affiliates makes any representation that any information relating to the futures contracts or commodities underlying the Index contained in this prospectus or any other publicly available information relating to such futures contracts or commodities, including, without limitation, a description of the factors that affect the prices of such futures contracts or commodities, are accurate or complete.

 

None of the Index Providers or any of their subsidiaries or affiliates guarantees the accuracy and/or completeness of the Index or any data related thereto and none of the index providers or any of their subsidiaries or affiliates shall have any liability for any errors, omissions or interruptions therein. None of the Index Providers or any of their subsidiaries or affiliates makes any warranty, express or implied, as to results to be obtained by the Trust, owners of Shares or any other person or entity from the use of the Index or any data related thereto. None of the Index Providers or any of their subsidiaries or affiliates makes any express or implied warranties and expressly disclaims all warranties of merchantability or fitness for a particular purpose or use with respect to the Index or any data related thereto. Without limiting any of the foregoing, in no event shall any Index Provider or any of their subsidiaries or affiliates have any liability for any lost profits or indirect, punitive, special or consequential damages or losses, even if notified of the possibility thereof.

 

The following summary with respect to the Index, the Bloomberg CI and the Bloomberg Roll Select CI has been prepared based on the Index Methodology and fact sheets, methodologies and other materials available publicly or otherwise provided by the Index Providers, and is subject to change. The Index Providers together own the rights to the Index, the Bloomberg CI and the Bloomberg Roll Select CI. The Index Providers have no obligation to consider the interests of holders of Shares in the Trust and have no obligation to continue to publish, and may discontinue the publication of, the Index, the Bloomberg CI or the Bloomberg Roll Select CI. The consequences of any discontinuation of the Bloomberg Roll Select CI are described under “Risk Factors—Risk Factors Relating to Index Futures and the Bloomberg Roll Select CI—A cessation of publication of the Bloomberg Roll Select CI could materially and adversely affect the activities of the Trust.”

 

 

 

Current information regarding the market values of the Index, the Bloomberg CI and the Bloomberg Roll Select CI is currently distributed by major market data vendors, and is available from numerous sources, including at www.bloombergindexes.com. None of the Sponsor, the Advisor, the Trustee or the Trust makes any representation that such information about the Index, the Bloomberg CI or the Bloomberg Roll Select CI is accurate or complete. In addition, none of the Sponsor, the Advisor, the Trustee or the Trust accepts any responsibility for the calculation, maintenance or publication of, or for any error, omission or disruption in, the Index, the Bloomberg CI or the Bloomberg Roll Select CI.

 

Overview

 

The Index is the total return version of the Bloomberg Roll Select CI, and reflects the returns of the Bloomberg Roll Select CI together with the returns from specified U.S. Treasury securities intended to reflect the returns of assets held to fully collateralize the futures contracts reflected in the Bloomberg Roll Select CI. The Bloomberg Roll Select CI itself is a version of the Bloomberg CI that incorporates the economic effect of an alternative rolling methodology, as described in more detail below. The Bloomberg CI itself forms the base commodities index from which the Bloomberg Roll Select CI and the Index are derived. Set forth below is a description of the how the Bloomberg CI is determined and calculated, a description of how the Bloomberg Roll Select CI is derived from the Bloomberg CI, and finally, a description of how the Index is derived from the Bloomberg Roll Select CI.

 

The Bloomberg CI

 

The Bloomberg CI, from which the Bloomberg Roll Select CI is based, was created by AIG International Inc. in 1998 and acquired by UBS Securities in May 2009, at which time UBS Securities and Dow Jones Trademark Holdings, LLC entered into a joint marketing agreement to market the Dow Jones-UBS Commodity Index and related indexes. Dow Jones Trademark Holdings, LLC subsequently assigned its interest in the joint marketing agreement to DJI Opco, LLC. In 2014 the joint marketing agreement was terminated and UBS entered into a Commodity Index License Agreement with Bloomberg. Under the Commodity Index License Agreement, Bloomberg, on behalf of UBS Securities, calculates the Bloomberg CI and related indices and sub-indices, including the Index and the Bloomberg Roll Select CI.

 

The Bloomberg CI is a benchmark index composed of futures contracts on physical commodities, the selection and weighting of which are generally determined based on a lagging five-year average of the trading volume, adjusted by the historic U.S. dollar value of the futures contract being considered for inclusion in the index, and a lagging five-year average of production figures, adjusted by the historic U.S. dollar value of the related futures contracts, for the underlying commodities. The 24 commodities currently eligible for inclusion in the Bloomberg CI are:

 

Aluminum

ULS Diesel

Soybeans

Cocoa

Lead

Soybean Meal

Coffee

Lean Hogs

Soybean Oil

Copper

Live Cattle

Sugar

Corn

Natural Gas

Tin

Cotton

Nickel

RBOB Gasoline

Crude Oil

Platinum

Wheat

Gold

Silver

Zinc

 

There are 20 commodities currently represented in the Bloomberg CI. Cocoa, lead, platinum and tin are the four eligible commodities which are not currently represented in the Bloomberg CI. For each of the 20 included commodities, specified futures contracts with specified delivery dates are designated for inclusion in the Bloomberg CI. The Bloomberg CI is reweighted and rebalanced annually, on a price-percentage basis, to reflect changes in trading volume and production figures. The selection and weighting of the Bloomberg CI’s constituents and its index methodology is intended to reflect the following four main principles:

 

 

 

Economic Significance. In order to achieve a fair representation of the relative importance of a diversified group of commodities to the world economy, the Bloomberg CI uses both liquidity data and U.S. dollar-weighted production data in determining the relative quantities of included commodities that are reflected in the calculation of the Bloomberg CI. Liquidity data reflects the amount of trading volume in the futures contracts on a commodity as a measure of the economic significance of that commodity, which is particularly relevant for storable commodities such as gold, the production figures for which do not reflect their economic importance relative to relatively non-storable commodities such as live cattle.

 

Diversification. In order to avoid disproportionate weighting of any particular commodity or sector, the Bloomberg CI tries to provide diversified exposure to commodities as an asset class by applying both minimum and maximum weights to component commodities and sectors, as described under “—Determination of Bloomberg CI Index Constituents.”

 

Continuity. In order to be responsive to the changing nature of commodity markets without completely reshaping the character of the Bloomberg CI from year to year, the Bloomberg CI seeks a balanced approach to provide a stable benchmark over time, through a combination of annual re-balancing, five-year averaging of liquidity and production data, diversification rules for constituent commodities and other index features.

 

Liquidity. In order to provide a more liquid index, the Bloomberg CI explicitly includes the liquidity of the underlying commodity futures contracts as a weighting factor.

 

For additional detail regarding the Bloomberg CI’s current method of selecting constituents and calculation of the Bloomberg CI itself, see “—Determination of Bloomberg CI Index Constituents” and “—Calculation of the Bloomberg CI.”

 

The Bloomberg CI reflects the increased or decreased return associated with “rolling” futures contracts. Because futures contracts have scheduled expirations, or delivery months, and as one contract nears expiration it becomes necessary to close out the position in that delivery month and establish a position in a later available delivery month. This process is referred to as “rolling” the position forward. “Rolls” are traditionally accomplished by selling the position in the closest delivery month and purchasing a position of equivalent value in a later applicable delivery month. Markets for futures contracts can be in “backwardation,” which means that futures contracts with distant delivery months are priced lower than those with nearer delivery months, or can exhibit “contango,” which means that futures contracts with distant delivery months are priced higher than those with nearer delivery months.

 

As part of this roll process the weights applied to expiring futures contracts are reduced while correspondingly, the weights applied to the futures contracts that are replacing expiring futures contracts are increased. This roll simulation is generally conducted at the beginning of each month over the course of five business days, lasting from the sixth business day until the tenth business day of each month. The Bloomberg CI conducts its roll simulations each month by rolling out of the designated futures contracts expiring in that month and rolling into those designated futures contracts with the next closest designated delivery month. Currently, the designated contracts and related designated delivery months for each of the eligible constituent commodities of the Bloomberg CI or its sub-indices are as follows:

 

 

Commodity

 

Designated Contract

 

Exchange

 

Designated Delivery Months

Aluminum

 

High Grade Primary Aluminum

 

LME

 

January, March, May, July, September, November

Cocoa(1)

 

Cocoa

 

NYBOT

 

March, May, July, September, December

Coffee

 

Coffee “C”

 

ICE

 

March, May, July, September, December

Copper

 

Copper

 

COMEX

 

March, May, July, September, December

Corn

 

Corn

 

CBOT

 

March, May, July, September, December

Cotton

 

Cotton

 

ICE

 

March, May, July, December

Crude Oil

 

WTI Crude Oil

 

NYMEX

 

January, March, May, July, September, November

Crude Oil

 

Brent Crude Oil

 

ICE

 

January, March, May, July, September, November

Feeder Cattle(2)

 

Feeder Cattle

 

CME

 

January, March, May, August, October

Gas Oil(2)

 

Gas Oil

 

ICE

 

January, March, May, July, September, November

Gold

 

Gold

 

COMEX

 

February, April, June, August, December

ULS Diesel

 

ULS Diesel

 

NYMEX

 

January, March, May, July, September, November

Lead(1)

 

Refined Standard Lead

 

LME

 

January, March, May, July, September, November

Live Cattle

 

Live Cattle

 

CME

 

February, April, June, August, October, December

Lean Hogs

 

Lean Hogs

 

CME

 

February, April, June, July, August, October, December

Natural Gas

 

Henry Hub Natural Gas

 

NYMEX

 

January, March, May, July, September, November

Nickel

 

Primary Nickel

 

LME

 

January, March, May, July, September, November

Orange Juice(2)

 

Frozen Concentrated OJ

 

NYBOT

 

January, March, May, July, September, November

Platinum(1)

 

Platinum

 

NYMEX

 

January, April, July, October

Silver

 

Silver

 

COMEX

 

March, May, July, September, December

Soybeans

 

Soybeans

 

CBOT

 

January, March, May, July, November

Soybean Meal

 

Soybean Meal

 

CBOT

 

January, March, May, July, December

Soybean Oil

 

Soybean Oil

 

CBOT

 

January, March, May, July, December

Sugar

 

World Sugar No. 11

 

ICE

 

March, May, July, October

Tin(1)

 

Refined Tin

 

LME

 

January, March, May, July, September, November

RBOB
Gasoline

 

Reformulated Blendstock
for Oxygen Blending

 

NYMEX 

 

January, March, May, July, September, November

Wheat

 

CBOT Wheat

 

CBOT

 

March, May, July, September, December

Wheat

 

KCBT Wheat

 

KCBT

 

March, May, July, September, December

Zinc

 

Special High Grade Zinc

 

LME

 

January, March, May, July, September, November

 


1)

These commodities are not currently components of the Bloomberg CI.

2)

These commodities are currently not eligible to be components of the Bloomberg CI, but are used in various sub-indices.

 

The Bloomberg Roll Select CI

 

The Index Futures in which the Trust is investing are based on the Bloomberg Roll Select CI. The Bloomberg Roll Select CI is a version of the Bloomberg CI that tries to mitigate the effects of contango arising from the rolling process. Rather than incorporating the economic effect of rolling into the front-month futures contracts, the Bloomberg Roll Select CI incorporates the economic effect of rolling into applicable futures contracts that exhibit the least contango or, if applicable, the most backwardation, in each case relative to the contracts of the immediately preceding delivery month.

 

The Bloomberg Roll Select CI implements its rolling methodology by selecting from the eligible contracts for each commodity on its applicable contract selection date, the contract that exhibits the greatest amount of backwardation or least amount of contango, on an annualized basis, relative to the contract with the immediately preceding delivery date on the same commodity. This is accomplished by first dividing the price of each eligible contract from the price of the contract immediately preceding such eligible contract, to determine the percentage difference between the two prices. Because this price difference may be affected by the relative time between the eligible contract and its immediately preceding contract, this price difference is multiplied by 365 and divided by the number of actual days between the delivery dates of the two contracts, to arrive at a measure of the relative annualized contango/backwardation, referred to as the “annualized spread,” exhibited between the eligible contract and the contract immediately preceding it. Based on a comparison of these annualized spreads, the eligible contract that has the highest annualized spread relative to its immediately preceding contract is the one selected as the contract for the Bloomberg Roll Select CI to establish new positions in. This roll selection process generally occurs every month on the fourth business day of the month.

 

 

 

Some historical examples of the rolling process employed by the Bloomberg Roll Select CI, provided by the Index Providers, are set forth below:

 

Example 1. An example of selecting the roll futures contract for WTI Crude Oil by calculating its annualized spread as of October 4, 2012, and selecting the eligible futures contract that exhibit the most backwardation (highlighted):

 

WTI Crude Oil

 

Contract
Symbol

 

Eligible Roll
Contract
Code

 

Eligible Roll
Contract
Expiration

 

Eligible Roll
Contract
Price

 

Preceding
Contract
Code

 

Preceding
Contract
Expiration

 

Preceding
Contract
Price

 

Annualized
Spread

CL

 

F3

 

12/19/12

 

92.48

 

Z2

 

11/16/12

 

92.07

 

4.904%

CL

 

H3

 

2/20/13

 

93.25

 

G3

 

1/22/13

 

92.90

 

4.724%

CL

 

K3

 

4/22/13

 

93.62

 

J3

 

3/20/13

 

93.48

 

1.654%

CL

 

N3

 

6/20/13

 

93.58

 

M3

 

5/21/13

 

93.64

 

-0.780%

 

Example 2. An example of selecting the roll futures contract for Coffee “C” by calculating its annualized spread as of October 4, 2012, and selecting the eligible futures contract that exhibit the least contango (highlighted):

  

Coffee “C”

 

Contract
Symbol

 

Eligible Roll
Contract
Code

 

Eligible Roll
Contract
Expiration

 

Eligible Roll
Contract
Price

 

Preceding
Contract
Code

 

Preceding
Contract
Expiration

 

Preceding
Contract
Price

 

Annualized
Spread

KC

 

H3

 

3/18/13

 

179.05

 

Z2

 

12/18/12

 

175.05

 

9.060%

KC

 

K3

 

5/20/13

 

181.65

 

H3

 

3/18/13

 

179.05

 

8.293%

 

The Bloomberg Roll Select CI utilizes a different designated contract selection process than the Bloomberg CI, and as a result the futures contracts comprising the Bloomberg Roll Select CI at any particular time may have different delivery months than those comprising the Bloomberg CI, and the levels of the Bloomberg Roll Select CI and the Bloomberg CI may correspondingly differ. In addition, as a result of this difference in rolling processes, both the performance of the Bloomberg Roll Select CI and the Bloomberg CI and the dollar-value weights of their respective underlying futures contracts are expected to differ over time.

 

Although the Bloomberg Roll Select CI’s roll process is designed to mitigate the effects of contango and to take advantage of the effects of backwardation, there can be no assurance that the futures contracts selected for inclusion in the Bloomberg Roll Select CI will outperform the futures contracts selected for inclusion in the Bloomberg CI. For example, it is possible that the contracts included in the Bloomberg Roll Select CI could experience less appreciation or greater depreciation than the contracts included in the Bloomberg CI, particularly when the price of a contract included in either index is influenced by changing expectations of future supply and demand for the related commodity for such contract’s specific delivery month. Since the Bloomberg Roll Select CI tends to roll into futures contracts that demonstrate less contango or more backwardation relative to the futures contracts with delivery dates immediately preceding such futures contracts, the Bloomberg Roll Select CI may exhibit a tendency to roll into contracts exhibiting relatively lower pricing due to seasonal dips in the delivery month of the selected contract, seasonal upswings in the delivery month of the immediately preceding contract or short-term supply or demand shocks affecting either delivery month, without regard to whether the selected contract would be expected to appreciate relative to the contract expiring immediately before it. Additionally, the frequency with which the Bloomberg Roll Select CI rolls its futures contracts is expected to differ from that of Bloomberg CI. Due to these differences in the roll methodology, the Bloomberg Roll Select CI and the Index may not have the same individual component weights as the Bloomberg CI. For further discussion of the risks associated with the Bloomberg Roll Select CI, see “Risk Factors—Risk Factors Relating to Index Futures and the Bloomberg Roll Select CI.”

 

The Index

 

The Index is designed to reflect the returns on a fully collateralized investment in the Bloomberg Roll Select CI, by combining the returns of the Bloomberg Roll Select CI with the returns on cash collateral invested in three-month U.S. Treasury bills.

 

 

 

Bloomberg CI Index Composition and Methodology

 

The methodology for determining the composition and weighting of the Bloomberg CI and for calculating its value is subject to modification by Bloomberg or the Index Committees, as described in “—The Index Committees” below. Bloomberg makes the official calculations of the value of the Bloomberg CI. At present, this calculation is performed every fifteen seconds.

 

The Index Committees

 

Bloomberg has established a Benchmark Oversight Committee (the “BOC”), which is the uppermost governance body with respect to the Bloomberg CI and consists of senior representatives from various Bloomberg business units. Voting members of the BOC do not directly participate in the index business. 

 

The BOC meets on a quarterly basis to review matters such as material risks, conflicts of interest, industry developments, client complaints and material index errors and restatements. To assist in its oversight, the BOC has established the Index Operating Subcommittee (the “IOS,” and together with the BOC, the “Index Committees”). 

 

The IOS is composed of senior benchmark and strategy index managers designated by the BOC. Members include Bloomberg personnel with significant index experience. The IOS meets at least monthly to address matters such as new index approvals, periodic review of existing indices, index pricing, management of errors and restatements, identification and management of actual and potential conflicts of interest, approvals of changes to indices and approvals of cessation of indices.

 

The IOS reports to the BOC at least quarterly on all matters delegated to it. 

 

Index Advisory Councils are composed of key market participants and other influential individuals to assist Bloomberg in setting index priorities, to discuss potential rules changes and to provide ideas for new products. Index Advisory Councils are generally constituted on an annual basis. While potential benchmark changes are discussed through this process, all feedback received is non-binding and all final decisions on benchmark index rules are made by the IOS (subject to BOC review) after the review period has ended. Members of Index Advisory Councils may include individuals with past or present relationships with the Sponsor, the Clearing FCM, an Authorized Participant, other entities involved with the operation of the Trust or their respective affiliates, such as past or present directors or officers of the foregoing entities.

 

Bloomberg is also in constant and ongoing engagement with its users through various channels, including via help desks, sales personnel and direct communication with product personnel. To help ensure the Bloomberg CI and related indices remain an accurate representation of the commodity markets, it endeavors to meaningfully incorporate these engagements into improvements in processes and service. Prior to any material change that might meaningfully impact users, Bloomberg consults more broadly with stakeholders, where appropriate, before a recommendation is presented to the BOC for approval. This concept of shared ownership enables Bloomberg to produce the most relevant indices and helps ensure responsiveness to user needs.

 

Index administration is subject to Bloomberg’s internal compliance function which periodically reviews various aspects of Bloomberg’s businesses in order to determine whether such businesses are adhering to applicable firm-wide policies and procedures, and assess whether applicable internal controls are functioning properly.

 

In addition to the compliance function, Bloomberg may from time to time appoint an independent external auditor with appropriate experience and capability to periodically review and report on its adherence to the International Organization of Securities Commissions Principles for Financial Benchmarks. The frequency of such review will depend on the size and complexity of the operations and the breadth and depth of the index use by market participants.

 

Determination of Bloomberg CI Index Constituents

 

The composition of the Bloomberg CI is rebalanced by Bloomberg each year pursuant to the procedures set forth in the Index Methodology by index managers operating under the supervision of the Index Committees. Any material deviations or changes from established procedures are subject to review by the Index Committees. In addition, to the extent practicable, Bloomberg may solicit stakeholder feedback, including by means of the Index Advisory Council. Once approved, the new composition of the Bloomberg CI is publicly announced and takes effect in the month of January immediately following the announcement.

 

 

 

The relative weight of a commodity eligible for inclusion in the Bloomberg CI, called its “CIP,” or its commodity index percentage, is initially determined based on (i) the relative production percentages of the commodities eligible for inclusion in the Bloomberg CI and (ii) the relative liquidity of the futures contracts that Bloomberg has designated as the eligible reference contracts for those commodities. This initial CIP calculation is then adjusted to give effect to caps and floors on such CIPs and to adjust the weights for gold and silver, the relative production numbers of which are assumed to understate their economic significance.

 

The initial commodity production percentage of a commodity (“CPP”) is determined for each commodity by taking the five-year average of production figures for the related commodity, adjusted by the historic U.S. dollar value of the related designated contract, and dividing the result by the sum of such products for all eligible commodities. For natural gas, only North American production is used, to reflect the regional nature of this commodity. In cases where there is more than one designated contract for a particular commodity, this measurement is initially allocated to only one designated contract. There will typically be some time lag with respect to the production numbers that are reflected in the Bloomberg CI, because production data can often only be obtained on a delayed basis for many commodities.

 

This initial CPP calculation is then allocated to the designated contract or contracts corresponding to each commodity. In order to avoid double-counting commodities in the same commodity sector (e.g., a primary commodity and the commodity or commodities that are derived from such primary commodity), and to avoid double-counting in any commodity with more than one designated contract, the final CPPs of designated contracts within the same commodity sector are calculated by allocating among such designated contracts the initial CPP calculated for the primary commodity in such sector, based on the commodity liquidity percentages (as calculated below) for each designated contract for the commodities within that sector. As of the date of the Index Methodology, there were two commodity sectors represented in the Bloomberg CI – the first consisting of Crude Oil (WTI and Brent) as the primary commodity, with ULS Diesel and RBOB Gasoline as its derivatives, and the second consisting of Soybeans as the primary commodity, with Soybean Oil and Soybean Meal as its derivatives. In addition, two commodities were represented by more than one designated contract as of the date of the Index Methodology, with crude oil represented by the contract for Light, Sweet Crude Oil (WTI) traded on NYMEX and the contract for Brent Crude Oil traded on ICE, and wheat represented by the contract for Soft Wheat (Chicago) traded on CBOT and Hard Red Winter Wheat (Kansas) traded on KCBT.

 

The commodity liquidity percentage, or “CLP,” for each designated contract is determined by taking a five-year average of the product of annual trading volume (adjusting for the number of applicable units of the commodity, e.g., barrels or metric tons, per contract) of such designated contract and the related historic U.S. dollar value for such contract, and dividing the result by the sum of such products for all designated contracts. The CLP for each designated contract for the Bloomberg CI is an average computed on the basis of historical annual volume data for the five years up to and including the year prior to the applicable calculation period, typically the third or fourth calendar quarter of the year preceding such year of calculation. In some cases, such as copper, the related CLP may be calculated using the trading volume for a contract other than the designated contract, and certain adjustments are made to LME contracts to reflect differences in their trading hours and the time periods during which they may be traded. In addition, as in the case of crude oil and wheat, more than one reference contract may be designated for a particular commodity.

 

The initial CIP for each designated contract is equal to 1/3×CPP +2/3×CLP for that designated contract. In order to calculate the final CIPs, the following further adjustments are made:

 

 

First, any designated contract with a CIP of less than 0.4% (which threshold is subject to adjustment by Bloomberg up to a maximum of 3%) is reduced to zero;

     
 

Second, if any commodity sector (as described above) consists of designated contracts with CIPs totaling more than 25%, the CIPs of such designated contracts are reduced such that they equal 25%;

     
 

Third, if the CIP (or combined CIPs, in the case of a commodity with more than one designated contract) of the designated contract(s) for any particular commodity is greater than 15%, such CIP (or the total of the combined CIPs) is reduced to 15%;

     
 

Fourth, if any commodity group (as described below) consists of designated contracts with CIPs totaling more than 33%, the CIPs of such designated contracts are reduced such that they equal 33%;

     
 

Fifth, the CIPs for the designated contracts for each of gold and silver are set to equal the lesser of its CLP and 15%;

  

 

 

 

Sixth, any designated contract with a CIP of less than 2% is increased to 2%; and

     
 

Seventh, if any designated contract has a ratio of CIP (after giving effect to the first six steps above) to CLP greater than 3.5, its CIP is reduced so that it equals the CIP that would cause the CIP to CLP ratio to equal 3.5, which may reduce the CIP of a designated contract to below 2%.

 

For each of the first six steps above, in order to keep the sum of the CIPs for each of the commodities equal to 100% after each step is completed, the aggregate adjustment to the CIPs of affected designated contracts at each such step accompanied by a corresponding increase or reduction, as applicable, that is allocated equally to the CIPs of the other commodity sectors (then, if applicable, further allocated equally to the designated contracts within such commodity sector), other than those eliminated under step one or capped under steps two through four. For the seventh and final step, the aggregate reduction in CIP resulting from this step is accompanied by a corresponding increase, allocated equally to the CIPs of the designated contracts still in the Bloomberg CI with CIP to CLP ratios below 2.0, other than those capped under steps two through four.

 

Any CIP reduction to a commodity with more than one designated contract is allocated equally among such commodity’s designated contracts. Any aggregate reduction to a commodity sector or commodity group under steps two or four is allocated to the designated contracts within such commodity sector or commodity group to preserve the relative weights of the CIPs of the designated contracts within such commodity sector or commodity group, as calculated immediately prior to making any adjustments under such step. For the purposes of step four, the current commodity groups for commodities eligible for inclusion in the Bloomberg CI are as follows:

 

Commodity Group:

 

Commodities:

Energy

 

Crude Oil (WTI and Brent)
Natural Gas
ULS Diesel
Unleaded Gasoline

     

Precious Metals

 

Gold
Platinum
Silver

     

Industrial Metals

 

Aluminum
Copper
Lead
Nickel
Tin
Zinc

     

Livestock

 

Live Cattle
Lean Hogs

     

Grains

 

Corn
Soybeans
Soybean Oil
Soybean Meal
Wheat (Chicago and Kansas)

     

Softs

 

Cocoa
Coffee
Cotton
Sugar

 

 

 

The commodities and related designated contracts currently included in the Bloomberg CI, and their respective CIPs as of January 31, 2017 are as follows:

 

Commodity

 

Designated Contract

 

Exchange

 

Units

 

Price Quote

 

CIP(1)

Aluminum

 

High Grade Primary Aluminum

 

LME

 

25 metric tons

 

USD/metric ton

 

4.57%

Coffee

 

Coffee “C”

 

ICE

 

37,500 lbs

 

U.S. cents/pound

 

2.38%

Copper

 

Copper

 

COMEX

 

25,000 lbs

 

U.S. cents/pound

 

7.59%

Corn

 

Corn

 

CBOT

 

5,000 bushels

 

U.S. cents/bushel

 

7.41%

Cotton

 

Cotton

 

ICE

 

50,000 lbs

 

U.S. cents/pound

 

1.45%

Crude Oil

 

Brent Crude Oil

 

ICE

 

1,000 barrels

 

USD/barrel

 

7.82%

Crude Oil

 

WTI Crude Oil

 

NYMEX

 

1,000 barrels

 

USD/barrel

 

7.18%

Gold

 

Gold

 

COMEX

 

100 troy oz.

 

USD/troy oz.

 

11.17%

Lean Hogs

 

Lean Hogs

 

CME

 

40,000 lbs

 

U.S. cents/pound

 

2.09%

Live Cattle

 

Live Cattle

 

CME

 

40,000 lbs

 

U.S. cents/pound

 

3.98%

Natural Gas

 

Henry Hub Natural Gas

 

NYMEX

 

10,000 mmbtu

 

USD/mmbtu

 

7.98%

Nickel

 

Primary Nickel

 

LME

 

6 metric tons

 

USD/metric ton

 

2.54%

Silver

 

Silver

 

COMEX

 

5,000 troy oz.

 

USD/troy oz.

 

4.12%

Soybeans

 

Soybeans

 

CBOT

 

5,000 bushels

 

U.S. cents/bushel

 

5.84%

Soybean Meal

 

Soybean Meal

 

CBOT

 

100 short tons

 

USD/short ton

 

2.90%

Soybean Oil

 

Soybean Oil

 

CBOT

 

60,000 lbs

 

U.S. cents/pound

 

2.81%

Sugar

 

World Sugar No. 11

 

ICE

 

112,000 lbs

 

U.S. cents/pound

 

3.40%

ULS Diesel

 

ULS Diesel

 

NYMEX

 

42,000 gallons

 

U.S. cents/gallon

 

3.83%

Unleaded
Gasoline

 

Reformulated Blendstock
for Oxygen Blending

 

NYMEX

 

42,000 gallons

 

U.S. cents/gallon

 

3.76%

Wheat

 

CBOT Wheat

 

CBOT

 

5,000 bushels

 

U.S. cents/bushel

 

3.32%

Wheat

 

KCBT Wheat

 

KCBT

 

5,000 bushels

 

U.S. cents/bushel

 

1.18%

Zinc

 

Special High Grade Zinc

 

LME

 

25 metric tons

 

USD/metric ton

 

2.69%

 


(1)

Rounded to the nearest thousandth of a percentage. May not total 100% due to rounding.

 

Calculation of the Bloomberg CI

 

The level of the Bloomberg CI was set to be equal to 100 as of December 31, 1990. Subsequent levels of the Bloomberg CI are determined by multiplying the level of the Bloomberg CI as of the previous day by a fraction equal to (i) the weighted average value (“WAV”) of the Bloomberg CI as of the current day divided by (ii) the WAV of the Bloomberg CI as of the previous day, subject to adjustment for roll periods as described below. The WAV of the Bloomberg CI on any given day is calculated by summing the products of the settlement prices of the designated contracts for each commodity multiplied by the commodity index multiplier (“CIM”) of such designated contract.

 

The CIMs of the designated contracts in the Bloomberg CI are determined annually, generally on the fourth business day of each year (the date of such determination, the “CIM Determination Date”). On the CIM Determination Date, initial CIMs (“ICIMs”) are calculated for each designated contract by multiplying such contract’s CIP by 1,000, then dividing such product by the contract’s settlement price as of the CIM Determination Date. To determine the final CIM for each designated contract for the new year, each ICIM is multiplied by an adjustment factor, which is a fraction equal to (i) the WAV of the Bloomberg CI as of the CIM Determination Date, as calculated using the CIMs from the prior year, divided by (ii) 1,000. This adjustment factor is intended to preserve WAV continuity from one year to the next.

 

During roll periods, which generally occur during the sixth through tenth business days of each month, the level of the Bloomberg CI is calculated using a blended WAV formula that reflects the fact that the Bloomberg CI is rolling out of expiring contracts and into replacement contracts. The WAV associated with the existing index components (“Old WAV”) begins weighted at 100% as of the business day preceding the roll period and decreases by 20% on each subsequent business day until reduced to zero; it has no further effect on the level of the Bloomberg CI by the fifth business day of such roll period. The WAV associated with the new index components (“New WAV”) begins weighted at 0% as of the business day preceding the roll period and increases by 20% on each subsequent business day such that by the fifth business day of such roll period, the level of the Bloomberg CI is determined based entirely on the New WAV.

 

Accordingly, during a roll period, the level of the Bloomberg CI on any given day can be calculated as the product of the level of the Bloomberg CI as of the previous day, multiplied by a fraction equal to: (i) Old WAV× (1-0.2n) + New WAV × (0.2n), using the Old WAV and New WAV values as of such day, divided by (ii) Old WAV × (1-0.2n) + New WAV × (0.2n), using the Old WAV and New WAV values as of the previous day. The variable “n” in this equation represents the number of business days that have elapsed for such roll period through and including the relevant date of determination.

 

 

 

An example of calculating the level of the Bloomberg CI during a roll period from January 1997, provided by the Index Co-Sponsors, is set forth below:

 

A:

 

B:

 

C:

 

D:

 

E:

 

F:

 

G:

 

H:

       

Date

 

Business
Day

 

Old
WAV

 

Roll
Weight
for Old
WAV

 

New
WAV

 

Roll
Weight
for
New
WAV

 

(C x D) +
(E x F)
(Current)
(1)

 

(C x D) +
(E x F)
(Previous)
(2)

 

(G / H)
WAV
Fraction

 

Bloomberg
CI
Level
(3)

1/2/1997

 

1

 

1196.764

 

1

 

1195.469

 

0

             

122.574

1/3/1997

 

2

 

1196.121

 

1

 

1195.107

 

0

 

1196.121

 

1196.764

 

0.999

 

122.508

1/6/1997

 

3

 

1214.668

 

1

 

1213.927

 

0

 

1214.668

 

1196.121

 

1.016

 

124.408

1/7/1997

 

4

 

1214.314

 

1

 

1214.285

 

0

 

1214.314

 

1214.668

 

1.000

 

124.371

1/8/1997

 

5

 

1220.453

 

1

 

1220.608

 

0

 

1220.453

 

1214.314

 

1.005

 

125.000

1/9/1997

 

6

 

1218.382

 

0.8

 

1219.878

 

0.2

 

1218.681

 

1220.484

 

0.999

 

124.816

1/10/1997

 

7

 

1216.373

 

0.6

 

1220.351

 

0.4

 

1217.964

 

1218.980

 

0.999

 

124.712

1/13/1997

 

8

 

1207.510

 

0.4

 

1214.110

 

0.6

 

1211.470

 

1218.760

 

0.994

 

123.966

1/14/1997

 

9

 

1209.179

 

0.2

 

1214.664

 

0.8

 

1213.567

 

1212.790

 

1.001

 

124.045

1/15/1997

 

10

 

1226.924

 

0

 

1230.740

 

1

 

1230.740

 

1214.664

 

1.013

 

125.687

1/16/1997

 

11

 

1212.804

 

0

 

1218.939

 

1

 

1218.939

 

1230.740

 

0.990

 

124.482

1/17/1997

 

12

 

1206.098

 

0

 

1213.536

 

1

 

1213.536

 

1218.939

 

0.996

 

123.930

1/21/1997

 

13

 

1194.815

 

0

 

1203.879

 

1

 

1203.879

 

1213.536

 

0.992

 

122.944

1/22/1997

 

14

 

1197.584

 

0

 

1206.081

 

1

 

1206.081

 

1203.879

 

1.002

 

123.169

1/23/1997

 

15

 

1197.393

 

0

 

1206.424

 

1

 

1206.424

 

1206.081

 

1.000

 

123.204

 


(1)

Using Old WAV and New WAV values for current day.

(2)

Using Old WAV and New WAV values for previous day.

(3)

Previous day Bloomberg CI level multiplied by the WAV fraction.

 

Calculation of the Bloomberg Roll Select CI

 

The Bloomberg Roll Select CI will be calculated using the same general methodology as the Bloomberg CI and using the same CIPs and CIMs used in connection with calculating the Bloomberg CI. However, because the roll process for the Bloomberg Roll Select CI is different from that of the Bloomberg CI, its constituent futures contracts may differ from those included in the Bloomberg CI. This difference is expected to cause the dollar-value weights and the weighted average value of the futures contracts included in each index to differ over time, and, as a result, cause the performance of the two indices to diverge.

 

Calculation of the Index

 

The Index combines the returns of the Bloomberg Roll Select CI with assumed returns on U.S. Treasury securities calculated based on the most recent weekly auction high rate for 13 week (3 Month) U.S. Treasury bills, as reported on the website http://www.treasurydirect.gov published by the Bureau of the Public Debt of the U.S. Treasury, or any successor source. The level of the Index, which was set at a hypothetical level of 100 as of December 31, 1990, can be calculated on any given day as the product of the level of the Index as of the previous day, multiplied by the sum of (i) 1.00 plus (ii) the positive or negative percentage return on the Bloomberg Roll Select CI on such day plus (iii) the daily return based on the auction high rate for 13 week (3 month) U.S. Treasury bills described above.

 

Historical Performance of the Index

 

A table showing total return information for the Index and the Bloomberg Commodity Index Total Return for the same time periods is included below. The information reflected in the table below has been provided by the Index Providers.

 

 

 

The historical data provided below should not be taken as any indication of future performance.

 

Annualized Total Return Information

 

Time Period

 

Bloomberg Commodity
Index Total Return

   

Bloomberg Roll Select
Commodity Total Return Index

 

July 18, 2011 to Dec. 30, 2011

    (12.52 )%     (11.46 )%

Dec. 30, 2011 to Dec. 31, 2012

    (1.051 )%     (0.370 )%

Dec. 31, 2012 to Dec. 31, 2013

    (9.523 )%     (9.076 )%

Dec. 31, 2013 to Dec. 31, 2014

    (17.01 )%     (15.17 )%

Dec. 31, 2014 to Dec. 31, 2015

    (23.40 )%     (23.45 )%

Dec. 31, 2015 to Dec. 31, 2016

    11.77 %     14.56 %

Dec. 31, 2016 to Jun. 30, 2017

    (5.26 )%     (3.37 )%

 

 

 

BUSINESS OF THE TRUST

 

The activities of the Trust are generally limited to (1) issuing Baskets in exchange for Index Futures and cash (or, in the discretion of the Sponsor, other Collateral Assets), (2) consistent with its investment objective, establishing, maintaining and closing out positions in Index Futures and acquiring, holding and disposing of corresponding Collateral Assets, (3) paying out of its assets any expenses and liabilities of the Trust not assumed by the Sponsor, and (4) delivering proceeds consisting of Index Futures, cash and other Collateral Assets in exchange for Baskets surrendered for redemption.

 

The Trust is a passive investor in Index Futures and the Collateral Assets held to satisfy applicable margin requirements on those Index Futures positions. The Advisor acts as the commodity trading advisor for the Trust, and is authorized to transact in Index Futures and acquire and dispose of the related Collateral Assets on the Trust’s behalf. The Trust does not engage in any activities designed to obtain a profit from, or to ameliorate losses caused by, changes in the level of the Index or the Bloomberg Roll Select CI or the value of the Collateral Assets. To the extent that the Trust accepts cash proceeds in connection with the creation of Shares, the Trust will use that cash to purchase additional Index Futures and Collateral Assets, in an amount that the Advisor determines will enable the Trust to achieve investment results that correspond with the Index. At any time when Index Futures of more than one expiration are listed on the Exchange, the Sponsor will determine, pursuant to the terms of the Trust Agreement, which Index Futures will be transferred in connection with either the creation or redemption of Baskets.

 

The Trust establishes long positions in Index Futures either by receiving transfers of such positions from Authorized Participants in connection with the creation of Shares or by placing orders for purchases of Index Futures with its Clearing FCM. The Trust’s Index Futures transactions are executed through GLOBEX, the CME Group’s electronic trading system, through the competitive execution market maintained by the CME Group and subject to the rules of CBOT. All Index Futures positions held by the Trust, regardless of whether they are transferred to the Trust by Authorized Participants in connection with the creation of Shares or established through purchases of Index Futures by the Trust on the related Exchange, are maintained in the Trust’s account with its Clearing FCM. In order to satisfy redemption requests, the Trust either transfers Index Futures to the relevant Authorized Participants or liquidates Index Futures to generate cash to be transferred to such Authorized Participants. Liquidation of Index Futures positions is effected by entering orders with an FCM, for execution on the related Exchange, to sell Index Futures, which serves to offset the Trust’s existing long positions.

 

The Trust is required to deposit initial margin with a value of approximately 3% to 10% of the value of each Index Futures position at the time it is established. These margin requirements are subject to change from time to time by the Exchange or the Clearing FCM. Margin requirements established by the Clearing FCM may exceed minimum levels established by the Exchange. These requirements apply to Index Futures transferred by Authorized Participants or established through transactions executed on behalf of the Trust by the Clearing FCM. The Trust also pays or receives variation margin on its Index Futures positions. The Trust satisfies these margin requirements by transferring to or receiving from its account with the Clearing FCM Collateral Assets in the required amount when it establishes its Index Futures positions and, with respect to variation margin, after the daily settlement of such positions in accordance with the rules of the applicable Exchange. See “Futures Contracts on the Bloomberg Roll Select CI.”

 

Any Collateral Assets held in the Trust’s account with the Clearing FCM are pledged to the Clearing FCM as security for the Trust’s obligations to the Clearing FCM.

 

The Index Futures listed and made available for trading by Exchanges from time to time may have terms that differ from the Index Futures currently held by the Trust, including transaction fees associated with the purchase and sale of those Index Futures. As an Index Futures position nears expiration, it is anticipated, but there can be no assurance that an Index Futures position with a later expiration date but similar terms will be listed by an Exchange. It will be necessary for the Trust, in order to maintain a long position in Index Futures, to “roll” its position from an Index Futures position that is about to expire into an Index Futures position with a later expiration date. The Trust may further close out of existing positions and establish new positions in Index Futures from time to time, including new positions in earlier expiring Index Futures, which may allow it to reduce its concentration in any particular Index Futures contract or to benefit from more liquid markets or otherwise beneficial market activity in Index Futures listed with different expirations or on different Exchanges. Each “roll” will be effected in a manner that, in the judgment of the Advisor, based on the circumstances prevailing at that time, is most beneficial to the Trust and will reduce the risks to which the Trust is exposed as a result of the roll. A roll could be effected by liquidating all or a portion of the Trust’s existing Index Futures positions and establishing new Index Futures positions. A roll could also be effected over a period of time by the creation and redemption of Baskets in the ordinary course, with different Index Futures included in the applicable Basket Amounts.

 

 

 

The rolling of the Trust’s positions in Index Futures will necessarily affect the relationship between the value of the Shares and the number of Index Futures represented by each Share. When the new Index Futures to be acquired by the Trust are cheaper than the Index Futures they are replacing, the roll will result in the Trust owning a larger number of contracts in the new Index Futures than it owned in the Index Futures that were just replaced. Conversely, if the new Index Futures are more expensive than the ones being replaced, the roll will result in the Trust owning fewer contracts in the new Index Futures relative to those that were replaced. The differential in the number of Index Futures will result in the Trust participating to a greater or lesser extent in subsequent changes in the price of the Index Futures. Whether any price differential exists between the Index Futures involved in a roll, however, will depend on the prices of these Index Futures at the time the roll occurs. The likelihood and extent of discounts or premiums resulting from the rolling process or of how the Shares will be affected as a result thereof may vary and cannot readily be determined.

 

The Trust’s ability to operate and achieve its investment objective is dependent on a number of parties, including:

 

 

the Sponsor, who exercises general oversight and authority over the Trust;

     
 

the Trustee, who is responsible for the day-to-day administration of the Trust;

     
 

the Trust Administrator, who provides certain administrative and custodial services to the Trust;

     
 

the Advisor, who exercises general oversight over the Trust’s investment activities;

     
 

the Clearing FCM, through which the Trust transacts in Index Futures and maintains its Index Futures positions;

     
 

the Exchange, through which the Trust’s Index Futures transactions clear and settle;

     
 

the Index Providers, who own the rights to the Index on which the Trust’s investment objective is based;

     
 

the Index Administrator, who administers, calculates and publishes the Index;

     
 

the Authorized Participants, whose creation and redemption activities allow Index Futures and Collateral Assets to be converted to Shares and vice versa, to help maintain the relationship between the Index and the Shares; and

     
 

the Tax Administrator, who provides tax reporting and tax administrative services.

 

Of the foregoing parties, the Sponsor, the Advisor and the Trustee are commonly controlled subsidiaries of BlackRock, Inc. UBS Securities, one of the Index Providers, acts as the Trust’s Clearing FCM and as an Authorized Participant and was the initial purchaser of the Shares. A number of the foregoing parties are publicly traded companies or subsidiaries of publicly traded companies, and a portion of their shares may be owned by one or more of the other foregoing parties.

 

Investment Objective of the Trust

 

The Trust seeks to track the results of a fully collateralized investment in futures contracts on an index composed of a diversified group of commodities futures which attempts to minimize contango and maximize backwardation. The Trust seeks to track the investment results of the Index before fees and expenses of the Trust. The Index that the Trust seeks to track reflects the value of the Bloomberg Roll Select CI together with the return on specified U.S. Treasury securities that are deemed to have been held to collateralize a hypothetical long position in the futures contracts comprising the Bloomberg Roll Select CI. The Bloomberg Roll Select CI is a version of the Bloomberg CI, a liquidity- and production-weighted index of the prices of a diversified group of futures contracts on physical commodities, that seeks to minimize the effect of contango and maximize the effect of backwardation by selecting replacement futures contracts that exhibit the most backwardation or least contango among those eligible futures contracts with delivery months of up to 273 calendar days until expiration.

 

The Trust seeks to achieve its investment objective by holding long positions in Index Futures that have settlement values at expiration based on the level of the Bloomberg Roll Select CI at that time, and earning interest on the non-cash Collateral Assets used to satisfy applicable margin requirements on those Index Futures positions.

 

When establishing positions in Index Futures, the Advisor estimates as of the date of this prospectus that the Trust will be required to deposit initial margin with a value of approximately 3% to 10% of the value of each Index Futures position at the time it is established. These margin requirements are subject to change from time to time by the Exchange or the Clearing FCM. Margin requirements established by the Clearing FCM may exceed minimum levels established by the Exchange. On a daily basis, the Trust is obligated to pay, or entitled to receive, variation margin in an amount equal to the change in the daily settlement level of its Index Futures positions. If the daily settlement level causes the value of the Trust’s Index Futures positions to decrease, the Trust is required to post variation margin with the Clearing FCM. Conversely, if the daily settlement level causes the value of the Trust’s Index Futures positions to increase, the Trust’s account with the Clearing FCM receives variation margin in an amount equal to the increase.

 

 

 

Whenever Index Futures of different types or expirations are available for investment, the Sponsor determines, pursuant to the terms of the Trust Agreement, which Index Futures are to be transferred in connection with either the creation or redemption of Baskets. On any given Business Day, the Index Futures to be delivered in connection with the creation of a Basket may differ from the Index Futures to be delivered in connection with the redemption of a Basket. For example, expiring Index Futures may be delivered in connection with the redemption of a Basket while more recently listed Index Futures may be delivered in connection with the creation of a Basket. The Trust does not engage in any activities designed to obtain a profit from, or to ameliorate losses caused by, changes in the level of the Index or the Bloomberg Roll Select CI or the value of the Collateral Assets.

 

The profit or loss on the Trust’s Index Futures positions should correlate with increases and decreases in the value of the Bloomberg Roll Select CI, although this correlation is not expected to be exact. The return on the Index Futures, together with interest on the non-cash Collateral Assets, is expected to result in a total return that corresponds generally, but is not identical, to the Index. Differences between the returns on the Shares and the performance of the Index may be based on, among other factors, differences between the return on the Collateral Assets and the U.S. Treasury rate used to calculate the U.S. Treasury return component of the Index, timing differences, differences between the portion of the Trust’s assets invested in Index Futures versus the portion of the return of the Index contributed by the Bloomberg Roll Select CI, differences between the settlement price of Index Futures and the closing level of the Bloomberg Roll Select CI and the payment of expenses and liabilities by the Trust.

 

The Advisor acts as the commodity trading advisor for the Trust. The Advisor, on behalf of the Trust, is authorized to invest all of the Trust’s assets in long positions in Index Futures and in Collateral Assets in order to satisfy applicable margin requirements on those Index Futures positions. Any cash that the Trust accepts in connection with the creation of Shares is used to purchase additional Index Futures and Collateral Assets, in an amount that the Advisor determines will enable the Trust to achieve investment results that correspond with the Index before the payment of the Trust’s expenses and liabilities. The Advisor does not engage in any activities designed to obtain a profit from, or to ameliorate losses caused by, changes in the level of the Index or the Bloomberg Roll Select CI or the value of the Collateral Assets.

 

Due to creation or redemption activity or expenses incurred in the Trust, the notional value of Index Futures held may, at times, exceed the aggregate value of the Trust's assets. In such instances the Advisor may elect, in such a manner as the Advisor determines will enable the Trust to achieve investment results that correspond to the Index before the payment of the Trust's expenses and liabilities, to dispose of Index Futures to reduce the Trust's notional exposure to Index Futures or continue to hold Index Futures in a notional amount that exceeds the aggregate value of the Trust's assets until additional creation or redemption activity or trading aligns the notional value of the Index Futures with the corresponding collateral holdings.

 

The Shares are intended to constitute an alternative means for investors to achieve investment exposure to the performance of the Index. Although the Shares are not the exact equivalent of an investment in the underlying futures contracts and U.S. Treasury securities represented by the Index, the Shares are intended to provide investors with an alternative method of participating in the commodities market.

 

In addition, retail investors can gain exposure to the commodities underlying the Bloomberg Roll Select CI by purchasing individual or small lots of Shares through traditional brokerage accounts, without being subject to the significantly higher minimum contract sizes required for directly establishing a position in the underlying commodities or futures contracts. The Shares are eligible for margin accounts.

 

Secondary Market Trading

 

While the Trust anticipates that the price of the Shares will fluctuate in a manner that reflects changes in the Trust’s net asset value over time, at any given time the Shares may trade at, above or below the NAV. The NAV fluctuates primarily with changes in the market value of Index Futures. The NAV may also be affected as a result of fluctuations in the value of Collateral Assets, but this fluctuation is not expected to be significant because the Collateral Assets are expected to consist of cash and U.S. Treasury securities. The trading price of the Shares fluctuates in accordance with changes in the NAV, intraday changes in the value of the Index Futures and market supply and demand. The amount of the discount or premium in the trading price relative to the NAV may be influenced by non-concurrent trading hours between NYSE Arca, the exchange on which the Shares trade, the Exchanges on which Index Futures trade, and the principal commodities markets on which the futures contracts in the Bloomberg Roll Select CI trade. While the Shares are expected to trade on NYSE Arca until 4:00 p.m. (New York time), liquidity in the markets for the Index Futures and the futures contracts underlying the Bloomberg Roll Select CI is expected to be reduced whenever the principal markets for these contracts are closed. As a result, trading spreads, and the resulting premium or discount on the Shares, may widen during these gaps in market trading hours.

 

 

 

Valuation of Index Futures; Computation of the Trust’s Net Asset Value

 

The Sponsor has the exclusive authority to determine the net asset value of the Trust and the NAV, which it has delegated to the Trustee under the Trust Agreement. The Trustee determines the net asset value of the Trust and the NAV as of 4:00 p.m. (New York time), on each Business Day on which NYSE Arca is open for regular trading, as soon as practicable after that time. A “Business Day” is a day (1) on which none of the following occurs: (a) NYSE Arca is closed for regular trading, (b) an Exchange is closed for regular trading or (c) the Federal Reserve wire transfer system is closed for cash wire transfers, or (2) that the Trustee determines that it is able to conduct business.

 

The Trustee values the Trust’s long positions in Index Futures on the basis of that day’s settlement prices for the Index Futures held by the Trust, as announced by the applicable Exchange. The value of the Trust’s positions in any particular Index Futures contract equals the product of (1) the number of such Index Futures contracts owned by the Trust, (2) the settlement price of such Index Futures contract on the date of calculation and (3) the multiplier of such Index Futures contract. If there is no announced settlement price for a particular Index Futures contract on a Business Day, the Trustee uses the most recently announced settlement price unless the Trustee, in consultation with the Sponsor, determines that such price is inappropriate as a basis for valuation. The daily settlement price for each Index Futures contract currently held by the Trust is established on each trading day by CME Group staff, generally at 2:40 p.m. (New York time).

 

The Trustee values all other holdings of the Trust at (a) its current market value, if quotations for such property are readily available, or (b) its fair value, as reasonably determined by the Trustee, if the current market value cannot be determined.

 

Once the value of the Index Futures and interest earned on the Trust’s non-cash Collateral Assets has been determined, the Trustee subtracts all accrued expenses and liabilities of the Trust as of the time of calculation in order to calculate the net asset value of the Trust.

 

Once the net asset value of the Trust has been calculated, the Trustee determines the NAV by dividing the net asset value of the Trust by the number of Shares outstanding at the time the calculation is made. Any changes to the NAV that may result from creation and redemption activity occurring on any Business Day is not reflected in the NAV until the following Business Day.

 

The NAV for each Business Day on which NYSE Arca is open for regular trading is expected to be distributed through major market data vendors and published online at http://www.ishares.com, or any successor thereto. The Trust updates the NAV as soon as practicable after each subsequent NAV is calculated.

 

Trust Expenses

 

The Sponsor has agreed under the Trust Agreement to pay the following administrative, operational and marketing expenses: (1) the fees of the Trustee, the Delaware Trustee, the Advisor and their respective agents, (2) NYSE Arca listing fees, (3) printing and mailing costs, (4) audit fees, (5) fees for registration of the Shares with the SEC, (6) tax reporting costs, (7) license fees and (8) legal expenses relating to the Trust of up to $100,000 annually. As of the date of this prospectus, the Sponsor estimates that these annual administrative, operational and marketing expenses will be approximately 2.26% of the net asset value of the Trust per year, although the actual amount of these expenses may be more or less. The Trust is not expected to have other ordinary recurring administrative, operational or marketing expenses other than brokerage commissions and similar transaction fees, as described below.

 

 

 

In return for paying the expenses described above, the Sponsor receives the Sponsor’s Fee, which accrues daily at an annualized rate of up to 0.75% of the Adjusted Net Asset Value of the Trust, is payable by the Trust monthly in arrears, and is subject to adjustment from time to time, except that the Sponsor’s Fee may not be adjusted to above 0.75% of the Adjusted Net Asset Value absent an amendment to the Trust Agreement with thirty days’ prior notice to registered holders of the Shares. For a description of how the net asset value of the Trust is calculated, see “—Valuation of Index Futures; Computation of the Trust’s Net Asset Value” above.

 

The Sponsor and the Trustee may amend or terminate the Sponsor’s obligation to pay certain expenses of the Trust in compliance with the requirements described under “Description of the Shares and the Trust Agreement—Amendment and Dissolution.”

 

The Trust is responsible for paying any applicable brokerage commissions and similar transaction fees out of its assets. As of the date of this prospectus, the Sponsor estimates that these brokerage commissions and transaction fees will equal approximately 0.06% of the net asset value of the Trust per year.

 

The following expenses are paid out of the assets of the Trust:

 

 

any expenses of the Trust (including the Sponsor’s Fee) that are not assumed by the Sponsor;

     
 

any taxes and other governmental charges that may fall on the Trust or its property;

     
 

any expenses of any extraordinary services performed by the Sponsor or the Trustee on behalf of the Trust or expense of any action taken by the Sponsor or the Trustee to protect the Trust and the rights and interests of holders of the Shares; and

     
 

any indemnification of the Sponsor, the Advisor or other agents, service providers or counterparties of the Trust.

 

The Trustee is also entitled to charge the Trust for all expenses and disbursements incurred by the Trustee in connection with the actions described in the second and third bullet points above, including fees and disbursements of its legal counsel; provided that the Trustee is not entitled to charge the Trust for (1) expenses and disbursements that were incurred by it before the Shares were publicly traded and (2) fees of agents for performing services that the Trustee is required under the Trust Agreement to perform.

 

The Trustee, at the direction of the Sponsor, may liquidate the Trust’s property from time to time as necessary to permit payment of the fees and expenses that the Trust is required to pay. The Trustee is not responsible for any depreciation or loss incurred by reason of the liquidation of Trust property made in compliance with the Trust Agreement.

 

Tax Administrator

 

The Trustee has retained PricewaterhouseCoopers LLP as Tax Administrator to provide tax reporting and tax administrative services. The Trustee may terminate the Tax Administrator at any time.

 

 

 

DESCRIPTION OF THE SHARES AND THE TRUST AGREEMENT

 

The Trust is a statutory trust organized under the laws of the State of Delaware on December 7, 2011. The Trust intends to continuously offer Shares to the public, but is not required to do so. The required consideration for the Trust’s issuance of Shares consists of Index Futures and cash (or, in the discretion of the Sponsor, other Collateral Assets). The Trust is governed by the Amended and Restated Trust Agreement dated as of July 1, 2014, among the Sponsor, the Trustee and the Delaware Trustee. The Trust Agreement sets out the rights of the registered holders of the Shares and the rights and obligations of the Sponsor, the Trustee and the Delaware Trustee. Delaware law governs the Trust Agreement, the Trust and the Shares. In connection with the establishment of the Trust and the preparation of the Trust’s initial financial statements, the Sponsor made initial contributions in the aggregate amount of $50. This initial contribution was redeemed and distributed to the Sponsor in connection with the issuance and sale of the Initial Shares to UBS Securities as initial purchaser.

 

Each Share represents a unit of fractional undivided beneficial interest in the net assets of the Trust. The assets of the Trust consist of its positions in Index Futures and Collateral Assets held to satisfy applicable margin requirements on those Index Futures positions. The Trust may also hold a limited amount of cash necessary to cover any expenses of the Trust not assumed by the Sponsor. In addition, there may be other situations where the Trust may hold cash. For example, a claim may arise against an Authorized Participant, or any other third party, which is settled in cash. Any cash held by the Trust is held in a non-interest-bearing account. The Trust is not an investment company registered under the Investment Company Act and is not required to register under that Act.

 

The following summary is qualified by reference to the entire Trust Agreement and the form of Authorized Participant Agreement, which are filed as exhibits to the registration statement of which this prospectus is a part.

 

Creations of Baskets

 

The Trust intends to offer Shares on a continuous basis on each Business Day, but issuances of new Shares may be suspended at any time. Shares may be offered only in Baskets of 50,000 Shares. Baskets are typically issued only in exchange for an amount of Index Futures and cash (or, in the discretion of the Sponsor, other Collateral Assets) equal to the Basket Amount for the Business Day on which the creation order was received by the Trustee. The Basket Amount for a Business Day has a per Share value equal to the NAV as of such day, and the assets included in the Basket Amount are valued in the same manner and on the same basis as the Trust’s NAV calculations for its assets generally, as more fully described in “Business of the Trust—Valuation of Index Futures; Computation of the Trust’s Net Asset Value.” Creation orders received after 2:40 p.m. (New York time) are not deemed to be received until the following Business Day. In limited circumstances and subject to the approval of the Trustee, Baskets may be created for cash equal to the NAV of the Shares constituting a Basket as determined on the date the related creation order was received, plus the costs incurred by the Trust in establishing the corresponding Index Futures positions and acquiring the related Collateral Assets. Creation orders for Baskets paid for solely in cash that are received after 10:00 a.m. (New York time) will be deemed received as of the following Business Day. The Trustee notifies the Authorized Participants of the Basket Amount on each Business Day.

 

Before the Trust issues any Baskets to an Authorized Participant, that Authorized Participant must deliver to the Trustee a creation order indicating the number of Baskets it intends to purchase and providing other details with respect to the procedures by which the Baskets are to be transferred. The Trustee expects to acknowledge the creation order unless it or the Sponsor decides to refuse the order as described below under “—Requirements for Trustee Actions.”

 

Upon the transfer of (1) the required consideration of Index Futures in the amounts and of the type specified by the Trustee, and cash (or, in the discretion of the Sponsor, other Collateral Assets) in the amounts specified by the Trustee, in each case to the accounts specified by the Trustee, and (2) all transaction fees associated with creations (including but not limited to fees charged by the Exchange and the Clearing FCM) per Basket, the Trustee delivers the appropriate number of Baskets to the DTC account of the Authorized Participant. The total transaction fees charged per Basket created may change from time to time. See “—Fees for Creations and Redemptions.”

 

Only Authorized Participants can transfer the required consideration and receive Baskets in exchange. 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. An Authorized Participant is under no obligation to the Trust to create or redeem Baskets for itself or on behalf of other persons. An order for one or more Baskets may be placed by an Authorized Participant on behalf of multiple clients. The Sponsor and the Trustee maintain a current list of Authorized Participants.

 

 

 

No Shares are issued unless and until the Trustee receives confirmation that the required consideration has been received in the account or accounts specified by the Trustee. It is expected that delivery of the Shares will be made against transfer of consideration on the next Business Day following the Business Day on which the creation order is received by the Trustee, which is referred to as a T+1 settlement cycle. If the Trustee has not received the required consideration for the Shares to be delivered on the delivery date, by 11:00 a.m. (New York time), the Trustee may cancel the creation order.

 

The Trustee has the right to reject any creation order for any reason. The reasons for the rejection may include, among others, (1) the related order not being in proper form as described in the Authorized Participant Agreement, (2) market conditions or other circumstances that make transactions in or delivery of the Shares or the Index Futures impossible or impractical, (3) a determination by the Trustee that the acceptance of the related order would have adverse tax or other consequences to the Trust or the Shareholders, or (4) circumstances that would cause the acceptance of the related order to result in a violation of law in the opinion of counsel to the Trustee, the Sponsor or the Trust Administrator. Each Authorized Participant Agreement provides that neither the Trustee nor any agents acting on its behalf will be liable to any person for rejecting a creation order.

 

Redemptions of Baskets

 

Authorized Participants may typically surrender Baskets in exchange only for an amount of Index Futures and cash (or, in the discretion of the Sponsor, other Collateral Assets) equal to the value of the Basket Amount on the Business Day the redemption request is received by the Trustee. Redemption orders received after 2:40 p.m. (New York time) are not deemed to be received until the following Business Day. Holders of Baskets who are not Authorized Participants are not able to redeem their Baskets except through an Authorized Participant. It is expected that Authorized Participants may redeem Baskets for their own accounts or on behalf of Shareholders who are not Authorized Participants, but no Authorized Participant is under any obligation to the Trust to do so.

 

Before surrendering Baskets for redemption, an Authorized Participant must deliver to the Trustee a request indicating the number of Baskets it intends to redeem and providing other details with respect to the procedures by which the assets representing the required Basket Amount are to be transferred. The Trustee expects to acknowledge the redemption order unless it or the Sponsor decides to refuse the redemption order as described below under “—Requirements for Trustee Actions.”

 

After the delivery by the Authorized Participant to the Trust’s DTC account of the total number of Shares to be redeemed by an Authorized Participant, the Trustee delivers to the order of the redeeming Authorized Participant redemption proceeds consisting of Index Futures and cash (or, in the discretion of the Sponsor, other Collateral Assets). The assets included in the redemption proceeds are valued in the same manner and on the same basis as the Trust’s NAV calculations for its assets generally, as more fully described in “Business of the Trust—Valuation of Index Futures; Computation of the Trust’s Net Asset Value.” In connection with a redemption order, the redeeming Authorized Participant authorizes the Trustee to deduct from the proceeds of redemption any and all transaction fees associated with redemptions. See “—Fees for Creations and Redemptions.” Shares can be surrendered for redemption only in Baskets.

 

It is expected that delivery of the Index Futures and cash or other Collateral Assets to the redeeming Shareholder will be made against transfer of the Baskets on the next Business Day following the Business Day on which the redemption request is received by the Trustee, which is referred to as a T+1 settlement cycle. If the Trustee’s DTC account has not been credited with the total number of Shares to be redeemed pursuant to the redemption order by 11:00 a.m. (New York time), on the delivery date, the Trustee may cancel the redemption order.

 

The Trustee has the right to reject any redemption order for any reason. The reasons for the rejection may include, among others, (1) the related order not being in proper form as described in the Authorized Participant Agreement, (2) market conditions or other circumstances that make transactions in or delivery of the Shares or the Index Futures impossible or impractical, (3) a determination by the Trustee that the acceptance of the related order would have adverse tax or other consequences to the Trust or the Shareholders, or (4) circumstances that would cause the acceptance of the related order to result in a violation of law in the opinion of counsel to the Trustee, the Sponsor or the Trust Administrator. Each Authorized Participant Agreement provides that neither the Trustee nor any agents acting on its behalf will be liable to any person for rejecting a redemption order.

 

 

 

Certificates Evidencing the Shares

 

The Shares are evidenced by certificates executed and delivered by the Trustee on behalf of the Trust. The Shares settle through DTC’s book-entry settlement system. So long as the Shares are eligible for DTC settlement, there is expected to be only one certificate evidencing Shares, registered in the name of a nominee of DTC. Investors are expected to be able to own Shares only in the form of book-entry security entitlements with DTC or direct or indirect participants in DTC. Investors generally are not entitled to receive separate certificates evidencing Shares. Because Shares can be held only in the form of book entries through DTC and its participants, investors must rely on DTC, a DTC participant and any other financial intermediary through which they hold Shares to receive the benefits and exercise the rights described in this section. Investors should consult with their broker or financial institution to find out about the procedures and requirements for securities held in DTC book- entry form. See also “The Securities Depository; Book-Entry-Only System; Global Security.”

 

Limitation of Liabilities

 

You cannot lose more than the value of your investment in the Shares. Under Delaware law, Shareholders’ liability is limited to the same extent as the liability of stockholders of a for profit Delaware business corporation. Under the Trust Agreement, registered holders of Shares may be liable for applicable transfer taxes and other governmental charges payable by the Trustee in connection with the transfer or redemption of Shares.

 

Cash and Other Distributions

 

The Trust has no obligation to make periodic distributions to Shareholders. The Sponsor has the exclusive authority to determine when a cash distribution should be made, which it in turn has delegated to the Trustee. If the Sponsor determines that there is excess cash being held in the Trust beyond what is expected to be needed to achieve its investment objective and pay the Trust’s anticipated expenses, the Sponsor may cause the excess cash to be distributed to the registered holders of the shares or cause it to be invested in additional Index Futures or Collateral Assets.

 

If the Trust receives any non-cash proceeds in respect of Trust property (other than proceeds subject to creation and redemption orders), the Trustee, at the direction of the Sponsor, will distribute the non-cash proceeds to the Shareholders by any means lawful, equitable and feasible. If the Trustee cannot distribute the non-cash proceeds proportionately among the Shareholders, the Trustee, at the direction of the Sponsor, will adopt any other method that it deems to be lawful, equitable and feasible, including public or private sale.

 

Registered holders of Shares will receive these distributions in proportion to the number of Shares owned. Before making a distribution, the Trustee will deduct any applicable withholding taxes and any fees and expenses of the Trust that have not been paid. It will distribute only whole United States dollars and cents and will round fractional cents down to the nearest whole cent. The Trust Agreement provides that the Trust shall not be required to make any distributions in violation of applicable law.

 

Share Splits

 

If requested by the Sponsor, the Trustee will declare a split or a reverse split in the number of Shares outstanding and make a corresponding change in the number of Shares constituting a Basket. The Trustee is not required to distribute any fraction of a Share in connection with a split or reverse split of the Shares. The Trustee may sell the aggregated fractions of Shares that would otherwise be distributed in a split or reverse split of the Shares or the amount of Trust property that would be represented by those Shares and distribute the net proceeds of those Shares or that Trust property to the Shareholders entitled to them.

 

 

 

Voting Rights

 

Shares do not have any voting rights. However, registered holders of at least 25% of the Shares have the right to require the Trustee to cure any material breach by it of the Trust Agreement, and registered holders of at least 75% of the Shares have the right to require the Trustee to terminate the Trust as described under “— Amendment and Dissolution.”

 

Fees for Creations and Redemptions

 

Each order for the creation of Baskets must be accompanied by a payment to the Trustee of a transaction fee per Basket. In connection with a redemption order, the redeeming Authorized Participant authorizes the Trustee to deduct from the proceeds of redemption a transaction fee per Basket. The Trustee expects that the transaction fee for Index Futures in creations and redemptions will average to approximately 0.06% of the Basket Amount in any given year, although the actual amount of the transaction fee may be more or less. The transaction fees associated with the creation and redemption of Baskets is subject to change from time to time. Under the terms of the Trust Agreement, Authorized Participants creating or redeeming Baskets are obligated to pay any taxes, governmental charges or stock transfer or similar fees in connection with such creation or redemption. With the approval of the Trustee, Baskets may be created or redeemed for cash, in which case the Authorized Participant is required to pay any additional costs relating to such a creation or redemption, including the costs incurred by the Trust in establishing or liquidating the corresponding Index Futures position and acquiring or disposing of the related Collateral Assets.

 

Trust Expenses

 

The following expenses are paid out of the assets of the Trust:

 

 

any expenses of the Trust (including the Sponsor’s Fee) that are not assumed by the Sponsor;

     
 

any taxes and other governmental charges that may fall on the Trust or its property;

     
 

any expenses of any extraordinary services performed by the Trustee or the Sponsor on behalf of the Trust or expenses of any action taken by the Trustee or the Sponsor to protect the Trust and the rights and interests of holders of the Shares; and

     
 

any indemnification of the Sponsor, the Advisor or other agents, service providers or counterparties of the Trust.

 

The Trustee is also entitled to charge the Trust for all expenses and disbursements incurred by the Trustee in connection with the actions described in the second and third bullet points above, including fees and disbursements of its legal counsel; provided that the Trustee is not entitled to charge the Trust for (1) expenses and disbursements that were incurred by it before the Shares were publicly traded and (2) fees of agents for performing services that the Trustee is required under the Trust Agreement to perform.

 

The Trustee, at the direction of the Sponsor, may liquidate the Trust’s property from time to time as necessary to permit payment of the fees and expenses that the Trust is required to pay. If it is necessary for the Trust to liquidate Trust property or apply income from its investments to meet extraordinary expenses, the NAV is expected to decrease.

 

The Trustee is not responsible for any depreciation or loss incurred by reason of the liquidation of the Trust’s property made in compliance with the Trust Agreement.

 

Payment of Taxes

 

The Trustee may deduct the amount of any taxes owed from any distributions it makes. It may also sell the Trust’s assets, by public or private sale, to pay any taxes owed. Registered holders of Shares remain liable if the proceeds of the sale are not enough to pay the taxes.

 

Valuation of the Trust Assets

 

See “Business of the Trust—Valuation of Index Futures; Computation of the Trust’s Net Asset Value.”

 

 

 

Limitations on Obligations and Liability

 

The Trust Agreement expressly limits the obligations and liabilities of the Sponsor and the Trustee. The Sponsor and the Trustee:

 

 

are obligated to take only the actions specifically set forth in the Trust Agreement without negligence or bad faith;

     
 

are not liable if either of them is prevented or delayed by law or circumstances beyond their control from performing their respective obligations under the Trust Agreement;

     
 

are not liable if they exercise or fail to exercise discretion permitted under the Trust Agreement;

     
 

have no obligation to prosecute a lawsuit or other proceeding related to the Shares or the Trust’s property on behalf of any holders of Shares or on behalf of any other person; and

     
 

may rely upon any advice or information from other persons they believe in good faith to be competent to provide such advice or information.

 

In addition, under the Trust Agreement, the Trust is obligated to indemnify the Sponsor and its shareholders, directors, officers, employees, affiliates and subsidiaries for any liability or expense incurred by any such person that arises out of or in connection with the performance of obligations under the Trust Agreement or any actions taken in accordance with the provisions of the Trust Agreement, absent such person’s negligence, bad faith, willful misconduct or reckless disregard of such person’s duties and obligations.

 

Amendment and Dissolution

 

The Sponsor and the Trustee may agree to amend the Trust Agreement without the consent of the Shareholders. If an amendment imposes or increases fees or charges (other than the Sponsor’s Fee, to the extent it does not exceed 0.75% of the Adjusted Net Asset Value, and other than taxes and other governmental charges) or prejudices a substantial existing right of the Shareholders or similarly materially adversely affects any Shareholder, it will not become effective until 30 days after the Trustee notifies the registered holders of the amendment. No adjustment of the Sponsor’s Fee to above 0.75% of the Adjusted Net Asset Value will be effective until the passage of the foregoing 30-day period.

 

An amendment to the Trust Agreement may substantially alter the nature of an investment in the Shares, including, for example, amendments that change the assets through which the Trust seeks to achieve its investment objective or that cause the Trust to seek investment returns corresponding to the performance of another index. At the time an amendment becomes effective, by continuing to hold Shares, investors are deemed to agree to the amendment and to be bound by the Trust Agreement as amended. In no event may any amendment impair the right of a Shareholder to surrender Baskets and receive therefor the amount of Trust property represented thereby, except in order to comply with mandatory provisions of applicable law. In addition, no amendment to the Trust Agreement may be made if, as a result of such amendment, it would cause the Trust to be taxable as an association taxable as a corporation for United States federal income tax purposes.

 

The Trustee will dissolve the Trust if:

 

 

the Trustee is notified that the Shares are delisted from NYSE Arca and are not approved for listing on another national securities exchange within five Business Days of their delisting;

     
 

registered holders of at least 75% of the outstanding Shares notify the Trustee that they have elected to dissolve the Trust;

     
 

sixty days have elapsed since the Trustee notified the Sponsor of the Trustee’s election to resign, and a successor trustee has not been appointed and accepted its appointment;

     
 

the SEC (or its staff) or a court of competent jurisdiction determines that the Trust is an investment company under the Investment Company Act, and the Trustee has actual knowledge of that determination;

     
 

the Sponsor determines to liquidate the Trust in accordance with the terms of the Trust Agreement, which provides that the Sponsor may liquidate the Trust at any time the Sponsor determines that liquidating the Trust is advisable. The Sponsor may, for example (but will not be obligated to), liquidate the Trust if, among other reasons, (1) legal, regulatory or market changes occur that would result, in the opinion of the Sponsor, in a decrease of investment opportunities available to meet the Trust’s investment objective, (2) the Index Providers cease to maintain the Index and, in the opinion of the Sponsor, no successor or reasonably similar index is available, or (3) the value of the Trust is at a level at which continued operation of the Trust is not cost-efficient;

 

 

 

 

the Trust is treated as an association taxable as a corporation for United States federal income tax purposes, and the Trustee receives notice from the Sponsor that the Sponsor has determined that the dissolution of the Trust is advisable; or

     
 

DTC is unable or unwilling to continue to perform its functions, and a comparable replacement is unavailable.

 

The Trustee will notify DTC at least 30 days before the date for dissolution of the Trust. After termination, the Trustee and its agents will do the following under the Trust Agreement but nothing else: (1) collect distributions pertaining to Trust property, (2) pay the Trust’s expenses and sell assets as necessary to meet those expenses and (3) deliver Trust property upon surrender and cancellation of Shares. Ninety days or more after dissolution, the Trustee may sell any remaining Trust property in a public or private sale. After that, the Trustee will hold the money it received on the sale and any other cash it is holding under the Trust Agreement for the pro rata benefit of the registered holders that have not surrendered their Shares. The Trustee will not invest the money and will have no liability for interest. The Trustee’s only obligations will be to account for the money and other cash, after deduction of applicable fees, trust expenses and taxes and governmental charges.

 

Requirements for Trustee Actions

 

Before the Trustee delivers or registers a transfer of Shares, makes a distribution on Shares, or permits the withdrawal of Trust property, the Trustee may require:

 

 

payment of stock transfer or other taxes or other governmental charges and transfer or registration fees charged by third parties for the transfer of any Shares or property of the Trust;

     
 

satisfactory proof of the identity and genuineness of any signature or other information it deems necessary; and

     
 

compliance with regulations it may establish, from time to time, consistent with the Trust Agreement, including the presentation of transfer documents.

 

The Trustee may suspend the delivery of Shares, registrations of transfer of Shares and surrenders of Shares for the purpose of withdrawing property of the Trust generally, or may refuse particular deposit, transfer or withdrawal requests at any time when the books of the Trustee are closed or at any time if the Trustee or the Sponsor determines that it is necessary or advisable to do so for any reason.

 

Delegation by the Trustee to the Trust Administrator, Tax Administrator or Other Agent

 

The Trustee may delegate all or some of its duties under the Trust Agreement to an agent, including the Trust Administrator and the Tax Administrator, without the consent of the Sponsor, any Authorized Participant or any Shareholders. The Trustee is not required to appoint a new Trust Administrator, Tax Administrator or other agent upon any termination of any of these delegations.

 

Custody of the Trust Assets

 

The Trust’s Index Futures and the Collateral Assets posted as margin for these Index Futures positions are held in the Trust’s account, established at its Clearing FCM. The Clearing FCM further transfers some or all of the Collateral Assets posted as margin for the Trust’s Index Futures positions to the Exchange.

 

Substantially all of the Trust’s remaining assets consist of Collateral Assets held in the Trust’s accounts at the Trust Administrator.

 

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

 

DTC acts as securities depository for the Shares. DTC is a limited-purpose trust company organized under the laws of the State of New York, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Exchange Act. DTC was created to hold securities of its participants and to facilitate the clearance and settlement of transactions in those securities among DTC Participants through electronic book-entry changes. This eliminates the need for physical movement of securities certificates. DTC Participants include securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations, some of whom (and/or their representatives) own DTC. Access to the DTC system is also available to others such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a DTC Participant, either directly or indirectly. DTC agrees with and represents to its participants that it will administer its book-entry system in accordance with its rules and by-laws and requirements of law.

 

 

 

Individual certificates will not be issued for the Shares. Instead, a global certificate will be signed by the Trustee on behalf of the Trust, registered in the name of Cede & Co., as nominee for DTC, and deposited with the Trustee on behalf of DTC. The global certificate will represent all of the Shares outstanding at any time.

 

Upon the settlement date of any creation, transfer or redemption of Shares, DTC will credit or debit, on its book-entry registration and transfer system, the number of Shares so created, transferred or redeemed to the accounts of the appropriate DTC Participants. The Trustee and the DTC Participants will designate the accounts to be credited and charged in the case of creation or redemption of Shares.

 

Beneficial ownership of the Shares will be limited to DTC Participants, Indirect Participants and persons holding interests through DTC Participants and Indirect Participants. Owners of beneficial interests in the Shares will be shown on, and the transfer of ownership will be effected only through, records maintained by DTC, with respect to DTC Participants; the records of DTC Participants, with respect to Indirect Participants; and the records of Indirect Participants, with respect to beneficial owners that are not DTC Participants or Indirect Participants. Beneficial owners are expected to receive from or through a DTC Participant a written confirmation relating to their purchase of the Shares.

 

Investors may transfer Shares through DTC by instructing the DTC Participant or Indirect Participant through which they hold their Shares to transfer the Shares. Transfers will be made in accordance with standard securities industry practice.

 

DTC may decide to discontinue providing its service for the Shares by giving notice to the Trustee and the Sponsor. Under these circumstances, the Trustee and the Sponsor will either find a replacement for DTC to perform its functions at a comparable cost or, if a replacement is unavailable, the Trust will be dissolved.

 

The rights of the Shareholders generally must be exercised by DTC Participants acting on their behalf in accordance with the rules and procedures of DTC.

 

The Trust Agreement provides that, as long as the Shares are represented by a global certificate registered in the name of DTC or its nominee, the Trustee will be entitled to treat DTC as the holder of the Shares.

 

 

 

THE SPONSOR

 

The Sponsor

 

The Sponsor is iShares® Delaware Trust Sponsor LLC, a Delaware limited liability company and an indirect subsidiary of BlackRock, Inc. The Sponsor operates as the commodity pool operator for the Trust.

 

The Sponsor has been registered with the CFTC as a commodity pool operator and has been a member of the NFA since June 22, 2009. Since November 2012, the Sponsor has also served as sponsor of the iShares® Gold Trust and the iShares® Silver Trust, each of which is a trust that publicly offers shares registered with the SEC. Neither the iShares® Gold Trust nor the iShares® Silver Trust is a commodity pool regulated by the CFTC or the NFA. Since January 2014, the Sponsor has also served as sponsor of the iShares® S&P GSCI™ Commodity-Indexed Trust, a CFTC-regulated publicly traded commodity pool that offers shares registered with the SEC.

 

The Sponsor’s principal office is located at 400 Howard Street, San Francisco, CA 94105.

 

The Sponsor was formed as a Delaware limited liability company on June 16, 2009. The sole member and manager of the Sponsor is BlackRock Asset Management International Inc., a Delaware corporation, and an indirect subsidiary of BlackRock, Inc.

 

BlackRock Asset Management International Inc., the sole member and manager of the Sponsor, was organized as a Delaware corporation on March 22, 1990. Since January 2004, BlackRock Asset Management International Inc. has held an equity interest in a securities lending platform. From January 2005 to November 2012, BlackRock Asset Management International Inc. served as sponsor of the iShares® Gold Trust. From April 2006 to November 2012, BlackRock Asset Management International Inc. served as sponsor of the iShares® Silver Trust. From July 2006 to December 2013, BlackRock Asset Management International Inc. served as sponsor and commodity pool operator of the iShares® S&P GSCI™ Commodity-Indexed Trust and as manager and commodity pool operator of the iShares® S&P GSCI™ Commodity-Indexed Investing Pool LLC. Since October 2007, BlackRock Asset Management International Inc. has served as sponsor of the iShares® Mexico Trust, a trust that issues Mexican exchange-traded equity funds. Since December 2008, BlackRock Asset Management International Inc. has served as sponsor of the following Brazilian exchange-traded equity funds: iShares® Ibovespa Fundo de Indice, iShares® BM&FBovespa Small Cap Fundo de Indice, and iShares® BM&FBovespa MidLarge Cap Fundo de Indice. BlackRock Asset Management International Inc. was registered under the CEA as a commodity pool operator from October 13, 2005, and was a member of the NFA, until it withdrew its commodity pool operator registration and NFA membership on February 13, 2014.

 

Certain performance data regarding the Sponsor and BlackRock Asset Management International Inc., its sole member and manager, may be found starting on page 71.

 

The Sponsor arranged for the creation of the Trust, the registration of the Shares for their public offering and the listing of the Shares on NYSE Arca. The Sponsor has agreed under the Trust Agreement to pay the following administrative, operational and marketing expenses: (1) the fees of the Trustee, the Delaware Trustee, the Advisor and their respective agents, (2) NYSE Arca listing fees, (3) printing and mailing costs, (4) audit fees, (5) fees for registration of the Shares with the SEC, (6) tax reporting costs, (7) license fees and (8) legal expenses relating to the Trust of up to $100,000 annually. In recognition of its paying these expenses, the Sponsor is entitled to receive the Sponsor’s Fee, which accrues daily at an annualized rate of up to 0.75% of the Adjusted Net Asset Value of the Trust, is payable by the Trust monthly in arrears, and is subject to adjustment from time to time, except that the Sponsor’s Fee may not be adjusted to above 0.75% of the Adjusted Net Asset Value absent an amendment to the Trust Agreement and 30 days’ prior notice to registered holders of the Shares. For a description of how the net asset value of the Trust is calculated, see “Business of the Trust—Valuation of Index Futures; Computation of the Trust’s Net Asset Value.”

 

The Sponsor has the authority under the Trust Agreement to direct the Trustee in the operation of the Trust, although the Sponsor does not expect to exercise day-to-day oversight over the Trustee. The Sponsor may remove the Trustee and appoint a successor Trustee if the Trustee ceases to meet certain objective requirements, or if, having received written notice of a material breach of its obligations under the Trust Agreement, the Trustee has not cured the breach within 30 days. The Sponsor may also replace the Trustee during the 90 days following any merger, consolidation or conversion in which the Trustee is not the surviving entity or, in its discretion, at any time following the first anniversary of the creation of the Trust.

 

 

 

Other than the Sponsor’s limited investment in Shares in connection with its role as Tax Matters Partner of the Trust, neither the Sponsor nor any of its principals are expected to hold any beneficial interest in the Trust. The Sponsor and its principals are only permitted to trade commodity interests for their own accounts in accordance with the Sponsor’s code of ethics. The Sponsor does not intend to permit Shareholders to review its records with respect to any such trading or any written policies related to such trading.

 

Principals and Key Personnel of the Sponsor

 

Paul Lohrey is the President and Chief Executive Officer of the Sponsor, and Jack Gee is the Chief Financial Officer of the Sponsor.

 

The Sponsor is managed by a Board of Trustees composed of Philip Jensen, Peter F. Landini, Kimun Lee, Jack Gee and Paul Lohrey.

 

Paul Lohrey, CFA, 55, became a principal of the Sponsor in April 2014 and has served as its President and Chief Executive Officer since November 2015. Since May 2016, Mr. Lohrey has served as an officer of BlackRock Asset Management International Inc., a former commodity pool operator that withdrew its commodity pool operator registration in February 2014. Mr. Lohrey joined BlackRock, Inc., a global asset management firm, as a Managing Director, performing supervisory and managerial functions, in June 2010. Prior to joining BlackRock, Inc., Mr. Lohrey served as Chief Investment Officer, Europe, performing supervisory and managerial functions, for The Vanguard Group, an asset management firm, from October 2008 to May 2010. He also held various positions in equity and fixed income portfolio management while at Vanguard from August 1994. Mr. Lohrey earned a Bachelor of Arts in economics from Duke University in 1984 and an MBA in finance from the University of Chicago in 1986.

 

Jack Gee, 57, became a principal of the Sponsor in September 2011 and serves as its Chief Financial Officer. Since December 2011, Mr. Gee was a principal of BlackRock Asset Management International Inc., a former commodity pool operator that withdrew its commodity pool operator registration in February 2014, and serves as its Chief Financial Officer, Chief Operating Officer and Director. Mr. Gee served as Director of US Fund Administration of BlackRock Institutional Trust Company N.A., a national banking association, a commodity pool operator and a commodity trading advisor registered with the CFTC, from September 2004 to January 2010. Since January 2010, Mr. Gee has served as Managing Director, performing supervisory and managerial functions, of BlackRock, Inc. Prior to joining BlackRock, Inc., Mr. Gee served as Chief Financial Officer of Parnassus Investments, an investment adviser registered with the SEC, from March 2004 to September 2004; Chief Financial Officer of Cazenave Partners, an investment adviser registered with the SEC, from October 2003 to March 2004; Controller of Paul Capital Partners, an investment firm focusing on the secondary private equity and healthcare market, from October 2002 to October 2003; Chief Financial Officer of Fremont Investment Advisors, Inc., an investment adviser formerly registered with the SEC, from October 1997 to September 2002. Mr. Gee earned a Bachelor of Science in accounting from the California State University in 1982.

 

Philip Jensen, 58, became a principal of the Sponsor in September 2009 and is Chairman of the Sponsor’s audit committee. Since June 2001, Mr. Jensen has served as Partner and Chief Financial Officer of Paul Capital Partners, an investment firm focusing on the secondary private equity and healthcare markets. Mr. Jensen received his Bachelor of Science from San Francisco State University and is a certified public accountant.

 

Peter F. Landini, 66, became a principal of the Sponsor in September 2009 and is a member of the Sponsor’s audit committee. In January 2003, Mr. Landini joined RBP Investment Advisors, Inc., a financial planning consultancy firm, for which he presently serves as Partner and Wealth Manager. Mr. Landini received his Bachelor of Science in accounting from Santa Clara University and an MBA in finance from Golden Gate University. Mr. Landini is a certified financial planner and is a member of the Financial Planning Association.

 

Kimun Lee, 71, became a principal of the Sponsor in September 2009 and is a member of the Sponsor’s audit committee. Mr. Lee is a California-registered investment adviser and has conducted his consulting business under the name Resources Consolidated since January 1980. Since September 2010, Mr. Lee has served as a member of the board of directors of Firsthand Technology Value Fund, Inc., a mutual fund company. Since April 2013, Mr. Lee has served as a member of the board of directors of Firsthand Funds, a mutual fund company. Since April 2014, Mr. Lee has served as a member of the board of trustees of FundX Investment Trust, a mutual fund company. Until January 2005, Mr. Lee also served as a member of the board of directors of Fremont Mutual Funds, Inc., a mutual fund company. Mr. Lee received his Bachelor of Arts from the University of the Pacific and an MBA from University of Nevada, Reno. He also completed the executive education program on corporate governance at Stanford Graduate School of Business.

 

 

 

Charles Park, 49, became a principal of the Advisor in December 2012 and has served as Chief Compliance Officer for the Advisor since August 2006. Mr. Park became a principal of BlackRock Advisors, LLC, a commodity pool operator and commodity trading advisor registered with the CFTC, in June 2014 and has served as its Chief Compliance Officer since June 2014. Mr. Park became a principal of BlackRock Financial Management, Inc., an investment management company, in September 2016 and has served as Chief Compliance Officer of BlackRock Financial Management, Inc. since September 2016 and performs supervisory and managerial functions. He became a principal of BlackRock Investment Management, LLC, an investment management company, in September 2016 and has served as Chief Compliance Officer of BlackRock Investment Management, LLC since September 2016 and performs supervisory and managerial functions. Mr. Park was a principal of BlackRock Asset Management International Inc., a former commodity pool operator that withdrew its commodity pool operator registration in February 2014, from December 2012 to February 2014, performing supervisory and managerial functions. Mr. Park joined BlackRock Institutional Trust Company, N.A., a commodity pool operator and commodity trading advisor registered with the CFTC, in August 2006, and performs supervisory and managerial functions. Mr. Park has also served as the Chief Compliance Officer of the iShares business since August 2006 and of BlackRock SEC-registered funds since June 2014. Mr. Park was a principal of the Sponsor from December 2012 to April 2015 and since August 4, 2016, performing supervisory and managerial functions. Prior to joining BlackRock Institutional Trust Company, N.A., in August 2006, Mr. Park served as Chief Compliance Officer of American Century Investment Management, Inc., an exempt commodity pool operator and an exempt commodity trading advisor, from October 1995 to July 2006. Mr. Park earned a Bachelor of Arts in economics from the University of Michigan in 1989 and a Juris Doctor from the University of Michigan in 1992.

 

Greg Savage, 45, became a principal and associated person of the Sponsor in July 2012 and performs supervisory and managerial functions. Since March 2009, Mr. Savage was a principal and associated person, performing supervisory and managerial functions, of BlackRock Asset Management International Inc., a former commodity pool operator that withdrew its commodity pool operator registration in February 2014. Mr. Savage has served as a Senior Portfolio Manager and Team Leader for BlackRock Fund Advisors, an investment advisor registered with the SEC and a commodity trading advisor registered with the CFTC, since September 2007 and became a principal and associated person of that entity in March 2009. Mr. Savage also served as a Portfolio Manager for BFA from March 2001 to September 2007. Mr. Savage served as a Transition Services Manager for BlackRock Institutional Trust Company, N.A., a national banking association and commodity trading advisor registered with the CFTC, from June 1999 to March 2001 and became an associated person of that entity in June 2007. Mr. Savage received his Bachelor of Science in accounting from the University of Colorado at Boulder and is a CFA charterholder. He has the FINRA Series 7, 63 and 3 licenses.

 

BlackRock Asset Management International Inc. became a principal of the Sponsor in June 2009.

 

 

 

THE TRUSTEE

 

The Trustee is BlackRock Institutional Trust Company, N.A., a national banking association and an indirect subsidiary of BlackRock, Inc. The Trustee’s principal office is located at 400 Howard Street, San Francisco, CA 94105. The Trustee has authority to delegate some of its responsibilities under the Trust Agreement to the Trust Administrator, the Tax Administrator or other agents. The Trustee also maintains certain books and records of the Sponsor relating to communications with Shareholders at the offices of the Trustee.

 

State Street Bank and Trust Company, a trust company organized under the laws of Massachusetts, currently serves as the Trust Administrator. State Street Bank and Trust Company’s principal office is located at One Lincoln Street, Boston, MA 02111. State Street Bank and Trust Company is subject to supervision by the Massachusetts Commissioner of Banks and the Board of Governors of the Federal Reserve System. Information regarding creation and redemption of Shares, the net asset value of the Trust and transaction fees may be obtained from State Street Bank and Trust Company. Basket composition and the names of the parties that have executed an Authorized Participant Agreement may be obtained from iShares by calling the following number: 1-800-474-2737. A copy of the Trust Agreement is available for inspection at the Trust Administrator’s office identified above. Books and records of the Sponsor with respect to the Trust are maintained at this office of State Street Bank and Trust Company (other than records maintained by the Trustee or the Tax Administrator as described herein).

 

The Trustee is responsible for the day-to-day administration of the Trust. Day-to-day administration includes (1) processing orders for the creation and redemption of Baskets, (2) coordinating with the Sponsor and the Advisor with respect to the receipt and delivery of consideration transferred to, or by, the Trust in connection with each creation and redemption of Baskets, (3) calculating the net asset value of the Trust on each Business Day, (4) calculating net income and realized capital gains or losses, and (5) paying the Trust’s expenses. The Trustee has delegated certain tax-related services to the Tax Administrator, and the remainder of the day-to-day responsibilities to the Trust Administrator.

 

The Trustee’s fees are paid by the Sponsor.

 

The Trustee 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 Trust Administrator

 

State Street Bank and Trust Company serves as the Trust Administrator. The Trust Administrator has been engaged to provide certain administrative services, including calculating the value of certain of the Trust’s assets, maintaining custody of Collateral Assets not posted as margin, transferring Collateral Assets in satisfaction of applicable margin requirements, and maintaining certain records and accounts. The Trust Administrator has established and maintains one or more securities accounts and one or more cash accounts on behalf of the Trust in which the Collateral Assets are deposited and held. In general, the Sponsor exercises control over these accounts. The Sponsor has delegated the authority to supervise and direct the investments of the assets in the Trust’s accounts to the Advisor, and has delegated the authority to make and receive applicable margin payments relating to the Trust’s Index Futures positions to the Trust Administrator.

 

The Trust Administrator’s services are governed under the Master Services Agreement between the Trust Administrator and the Trust. The Master Services Agreement consists of a master services agreement supplemented by related service modules and other documentation specifying the service levels provided by, and related fees payable to, the Trust Administrator in connection with its services. The fees of the Trust Administrator are paid by the Sponsor on behalf of the Trust. The Trust Administrator is exculpated and indemnified by the Trust under the terms of the Master Services Agreement.

 

Under the applicable service modules, the Trust Administrator has agreed to provide its services for a term ending on May 15, 2018. In addition, the Trust Administrator may terminate its services for certain material breaches of the Master Services Agreement or for failure to pay fees within a specified grace period. The Trust may terminate the Master Services Agreement for cause, certain enduring force majeure events, terminations as may be required or occasioned by law, and for certain corporate events affecting the Trust Administrator.

 

 

 

THE DELAWARE TRUSTEE

 

Wilmington Trust, National Association, serves as the Delaware Trustee of the Trust. The Delaware Trustee is not entitled to exercise any of the powers, or have any of the duties or responsibilities, of the Trustee. The Delaware Trustee is a trustee of the Trust for the sole and limited purpose of fulfilling the requirements of the Delaware Statutory Trust Act.

 

THE ADVISOR

 

The Advisor is BFA, a California corporation and an indirect subsidiary of BlackRock, Inc. The Advisor serves as the commodity trading advisor for the Trust. The Advisor has been registered as a commodity trading advisor with the CFTC, and as a member of the NFA, since April 5, 1993. The Advisor has been registered as a commodity pool operator with the CFTC since October 14, 2014. The Trust has entered into a commodity trading advisor agreement with the Advisor, which provides the Advisor with discretionary authority to make all determinations with respect to the Trust’s assets, subject to specified limitations.

 

Except as described below, neither the Advisor nor any of its principals are expected to hold any beneficial interest in the Trust. The Advisor and its principals are only permitted to trade commodity interests for their own accounts in accordance with the Advisor’s code of ethics. The Advisor does not intend to permit Shareholders to review its records with respect to any such trading or any written policies related to such trading.

 

Principals and Key Personnel of the Advisor

 

Laurence Fink is the Chief Executive Officer, Gary Shedlin is the Chief Financial Officer, Robert Goldstein is the Chief Operating Officer and Charles Park is the Chief Compliance Officer of the Advisor. Robert Kapito is the President of the Advisor. Greg Savage, a principal and registered associated person of the Advisor, is principally responsible for the trading decisions with respect to the Trust’s account.

 

The Advisor is managed by a Board of Directors, which is composed of Gary Shedlin, Robert Goldstein and Daniel Waltcher.

 

Certain performance data with respect to the Advisor can be found starting on page 71.

 

Laurence Fink, 64, became a principal of the Advisor in December 2009. Mr. Fink has served as Chairman and Chief Executive Officer of the Advisor since December 2009. Mr. Fink was a Director of the Advisor from December 2009 to June 2015. Mr. Fink has served as Chairman, Chief Executive Officer and Director of BlackRock, Inc., a global asset management firm, since January 1998; Chief Executive Officer since September 1994 of BlackRock Advisors, LLC, an investment management company registered with the CFTC as a commodity trading advisor, commodity pool operator and swap firm, and a principal of that entity since November 2012; Chairman, Chief Executive Officer and Director of BlackRock Financial Management, Inc., an investment management company and a commodity trading advisor registered with the CFTC, since April 1988 and became a principal of that entity in May 1997; Chief Executive Officer of BlackRock Capital Management, Inc., an investment management company, since November 1999; Chief Executive Officer of BlackRock Institutional Management Corporation, an investment management company, since February 1998; Chief Executive Officer of BlackRock Investment Management, LLC, an investment management company, since September 2006 and became a principal of that entity in August 2008; Chairman, Chief Executive Officer and Director of State Street Research & Management Company, an investment management company, since February 2005; a principal of Enso Capital Management LLC, an investment management company, from May 2002 until his withdrawal as principal of that entity effective June 15, 2012 and a principal of Enso Capital Management II LLC from July 2002 to November 2009. Mr. Fink received his MBA from the University of California Los Angeles in 1976 and his Bachelor of Science in political science from California State University Northridge in 1974.

 

Robert Kapito, 60, became a principal of the Advisor in December 2009 and has served as its President since December 2009. Mr. Kapito served as a Director of the Advisor from December 2009 to June 2015. Mr. Kapito served as Director and Vice Chairman of BlackRock, Inc., a global asset management firm, from January 1998 to September 2007 and has served as President of that entity since September 2007. From February 1998 to September 2007, Mr. Kapito served as Director and Vice Chairman of BlackRock Advisors, LLC, an investment management company registered with the CFTC as a commodity trading advisor, commodity pool operator and swap firm, and has served as President of that entity since September 2007 and principal of that entity since November 2012. Mr. Kapito also served as Director and Vice Chairman of BlackRock Capital Management, Inc., an investment management company and a commodity trading advisor registered with the CFTC, from November 1999 to September 2007 and has served as President of that entity since September 2007. Mr. Kapito served as Director and Vice Chairman of BlackRock Financial Management, Inc., an investment management company, from April 1988 to September 2007, became an associated person in October 1997, a principal in May 1997, and has served as President of that entity since September 2007. Mr. Kapito served as Director and Vice Chairman of BlackRock Institutional Management Corporation, an investment management company, from February 1998 to September 2007, and has served as President of that entity since September 2007. Mr. Kapito served as Director and Vice Chairman of BlackRock Investment Management, LLC, an investment management company, from September 2006 to September 2007, and has served as President of that entity since September 2007. Mr. Kapito became a principal of BlackRock Investment Management, LLC in November 2008. Mr. Kapito served as Director and Vice Chairman of State Street Research & Management Company, an investment management company, from February 2005 to September 2007, and has served as President of that entity since September 2007. Mr. Kapito received his Bachelor of Science in economics from the Wharton School of the University of Pennsylvania in 1979 and his MBA from the Harvard Graduate School of Business in 1983.

 

 

 

Gary Shedlin, 53, became a principal of the Advisor in May 2015 and has served as Chief Financial Officer of the Advisor since April 2015. Mr. Shedlin became a Director of the Advisor in June 2015. Mr. Shedlin became a principal of BlackRock Advisors, LLC in November 2013 and has served as Chief Financial Officer of BlackRock Advisors, LLC since May 2013 and performs supervisory and managerial functions. BlackRock Advisors, LLC is an investment management company registered with the CFTC as a commodity trading advisor, commodity pool operator and swap firm. Mr. Shedlin became a principal of BlackRock Financial Management, Inc. in November 2013 and has served as Chief Financial Officer of BlackRock Financial Management, Inc. since May 2013 and performs supervisory and managerial functions. BlackRock Financial Management, Inc. is an investment management company registered with the CFTC as a commodity trading advisor, commodity pool operator and swap firm. Mr. Shedlin became a principal of BlackRock Investment Management, LLC in November 2013 and has served as Chief Financial Officer of BlackRock Investment Management, LLC since May 2013 and performs supervisory and managerial functions. BlackRock Investment Management, LLC is an investment management company registered with the CFTC as a commodity trading advisor, commodity pool operator and swap firm. Mr. Shedlin became Chief Financial Officer of BlackRock, Inc., a global asset management firm, in March 2013. Mr. Shedlin was a Vice Chairman, Investment Banking and a Managing Director in the Financial Institutions Group at Morgan Stanley from June 2010 to February 2013. Prior to joining Morgan Stanley, Mr. Shedlin was Chairman of Citigroup’s Financial Institutions Group from October 2004 to June 2010. Mr. Shedlin received his Bachelor of Arts from Colgate University in 1985 and MBA from Harvard Business School in 1990.

 

Robert Goldstein, 43, became a principal of the Advisor in July 2014 and has served as Chief Operating Officer of the Advisor since June 2014. Mr. Goldstein became a Director of the Advisor in June 2015. Mr. Goldstein became a principal of BlackRock Advisors, LLC in July 2014 and has served as Chief Operating Officer of BlackRock Advisors, LLC since June 2014 and performs supervisory and managerial functions. BlackRock Advisors, LLC is an investment management company registered with the CFTC as a commodity trading advisor, commodity pool operator and swap firm. Mr. Goldstein became a principal of BlackRock Financial Management, Inc. in July 2014 and has served as Chief Operating Officer of BlackRock Financial Management, Inc. since June 2014 and performs supervisory and managerial functions. BlackRock Financial Management, Inc. is an investment management company registered with the CFTC as a commodity trading advisor, commodity pool operator and swap firm. Mr. Goldstein became a principal of BlackRock Investment Management, LLC in July 2014 and has served as Chief Operating Officer of BlackRock Investment Management, LLC since June 2014 and performs supervisory and managerial functions. BlackRock Investment Management, LLC is an investment management company registered with the CFTC as a commodity trading advisor, commodity pool operator and swap firm. Mr. Goldstein became Chief Operating Officer of BlackRock, Inc., a global asset management firm, in June 2014 and has led BlackRock Solutions®, an investment and risk management technology platform, since January 2009. Mr. Goldstein had been the head of Institutional Client Business at BlackRock, Inc. from November 2012 to May 2014. Mr. Goldstein received his Bachelor of Science from Binghamton University in 1994.

 

Charles Park, 49, became a principal of the Advisor in December 2012 and has served as Chief Compliance Officer for the Advisor since August 2006. Mr. Park became a principal of BlackRock Advisors, LLC, a commodity pool operator and commodity trading advisor registered with the CFTC, in June 2014 and has served as its Chief Compliance Officer since June 2014. Mr. Park became a principal of BlackRock Financial Management, Inc., an investment management company, in September 2016 and has served as Chief Compliance Officer of BlackRock Financial Management, Inc. since September 2016 and performs supervisory and managerial functions. He became a principal of BlackRock Investment Management, LLC, an investment management company, in September 2016 and has served as Chief Compliance Officer of BlackRock Investment Management, LLC since September 2016 and performs supervisory and managerial functions. Mr. Park was a principal of BlackRock Asset Management International Inc., a former commodity pool operator that withdrew its commodity pool operator registration in February 2014, from December 2012 to February 2014, performing supervisory and managerial functions. Mr. Park joined BlackRock Institutional Trust Company, N.A., a commodity pool operator and commodity trading advisor registered with the CFTC, in August 2006, and performs supervisory and managerial functions. Mr. Park has also served as the Chief Compliance Officer of the iShares business since August 2006 and of BlackRock SEC-registered funds since June 2014. Mr. Park was a principal of the Sponsor from December 2012 to April 2015 and since August 4, 2016, performing supervisory and managerial functions. Prior to joining BlackRock Institutional Trust Company, N.A., in August 2006, Mr. Park served as Chief Compliance Officer of American Century Investment Management, Inc., an exempt commodity pool operator and an exempt commodity trading advisor, from October 1995 to July 2006. Mr. Park earned a Bachelor of Arts in economics from the University of Michigan in 1989 and a Juris Doctor from the University of Michigan in 1992.

 

 

 

Daniel Waltcher, 53, joined the Advisor in December 2009 as a Director and has been its principal, performing supervisory and managerial functions, since January 2010 and its Assistant Secretary since February 2012. Since November 2012, Mr. Waltcher has been a principal, performing supervisory and managerial functions, of BlackRock Advisors, LLC, an investment management company registered with the CFTC as a commodity trading advisor, commodity pool operator and swap firm. Mr. Waltcher has served as Deputy General Counsel and Managing Director of BlackRock, Inc., a global asset management firm, since January 2005. From October 1998 to December 2001, Mr. Waltcher served as Director and Senior Counsel at BlackRock, Inc. and from January 2002 to December 2004, he served as Managing Director and Senior Counsel at that entity. Mr. Waltcher became a principal and serves as Managing Director, performing supervisory and managerial functions, of BlackRock Asset Management International Inc., a former commodity pool operator that withdrew its commodity pool operator registration in February 2014, BlackRock Financial Management, Inc, an investment management company and a commodity trading advisor registered with the CFTC. He was a principal of BlackRock Investment Management, LLC, an investment management company from February 2012 to October 2016. Mr. Waltcher was a principal and served as Secretary and Managing Director, performing supervisory and managerial functions, of the Sponsor from February 2012 to March 2015. Mr. Waltcher was a principal and served as Managing Director, performing supervisory and managerial functions, of BlackRock Institutional Trust Company, N.A., a national banking association and a commodity trading advisor registered with the CFTC, from February 2012 to February 2015. Previously, Mr. Waltcher was Senior Counsel of Chancellor Capital Management, Inc., a money management firm, from July 1995 to September 1998 and an associate at Simpson Thacher & Bartlett, a law firm, from October 1989 to June 1995. Mr. Waltcher received his Bachelor of Arts from Cornell University in 1984 and his JD from Cornell Law School in 1989.

 

Greg Savage, 45, became a principal and associated person of the Sponsor in July 2012 and performs supervisory and managerial functions. Since March 2009, Mr. Savage was a principal and associated person, performing supervisory and managerial functions, of BlackRock Asset Management International Inc., a former commodity pool operator that withdrew its commodity pool operator registration in February 2014. Mr. Savage has served as a Senior Portfolio Manager and Team Leader for the Advisor, an investment advisor registered with the SEC and a commodity trading advisor registered with the CFTC, since September 2007 and became a principal and associated person of that entity in March 2009. Mr. Savage also served as a Portfolio Manager for BFA from March 2001 to September 2007. Mr. Savage served as a Transition Services Manager for BlackRock Institutional Trust Company, N.A., a national banking association and commodity trading advisor registered with the CFTC, from June 1999 to March 2001 and became an associated person of that entity in June 2007. Mr. Savage received his Bachelor of Science in accounting from the University of Colorado at Boulder and is a CFA charterholder. He has the FINRA Series 7, 63 and 3 licenses.

 

BlackRock Delaware Holdings, Inc., a Delaware Corporation and an indirect subsidiary of BlackRock, Inc., became a principal of the Advisor in July 2012. BlackRock Delaware Holdings, Inc. owns 100% of the equity of the Advisor.

 

THE CLEARING FCM

 

The Trust has entered into a FCM agreement with the Clearing FCM that provides for the execution and clearing of transactions in futures, payment of commissions, custody of assets and other standard provisions. UBS Securities LLC (“UBS Securities”) is the current Clearing FCM of the Trust. The Trust may employ other futures commission merchants or foreign brokers for the execution of futures transactions.

 

The Clearing FCM is a registered securities broker-dealer and futures commission merchant. The information below concerning judicial, regulatory and arbitration proceedings involving the Clearing FCM is being provided in accordance with the disclosure requirements of CFTC Rule 4.24 and the National Futures Association. The information below concerning the Clearing FCM has been provided by the Clearing FCM. None of the Trust, the Sponsor, the Advisor, the Trustee or the Delaware Trustee take any responsibility for the accuracy or completeness of any information herein concerning the Clearing FCM.

 

 

 

UBS Securities principal business address is 1285 Avenue of the Americas, New York, NY 10019. UBS Securities is a futures clearing broker for the Trust. UBS Securities is registered in the U.S. with FINRA as a Broker- Dealer and with the NFA as a Futures Commission Merchant. UBS Securities is a member of various U.S. futures and securities exchanges.

 

UBS Securities is and has been a defendant in numerous legal proceedings, including actions brought by regulatory organizations and government agencies, relating to its securities and commodities business that allege various violations of federal and state securities laws. UBS AG, the ultimate parent company to UBS Securities, files annual reports and quarterly reports to the SEC in which it discloses material information about UBS matters, including information about any material litigation or regulatory investigations (https://www.ubs.com/global/en/about_ubs/investor_relations/quarterly_reporting/2016.html). Actions with respect to UBS Securities’ futures commission merchant business are publicly available on the website of the NFA (http://www.nfa.futures.org/) and with respect to UBS Securities' brokerage business are publicly available on the website of FINRA (http://www.finra.org/).

 

UBS AG, including UBS Securities, has responded to a number of governmental inquiries and investigations and is involved in a number of litigations, arbitrations and disputes related to the financial crisis and, in particular, mortgage-related securities and other structured transactions and derivatives. In August 2013, UBS Securities entered into a settlement with the SEC related to UBS Securities structuring and underwriting of a collateralized debt obligations (“CDO”), ACA 2007-2, in 2007. Pursuant to that settlement, in which the SEC alleged violations of the U.S. securities laws arising out of UBS Securities’ retention of approximately $23.6 million in upfront premium payments, UBS Securities agreed to make a payment to the U.S. Treasury of approximately $49.8 million.

 

In July 2011, the Federal Housing Finance Authority (“FHFA”), as conservator for the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation (collectively, the “GSEs”) filed suit against UBS Securities and certain affiliates in connection with the GSEs’ investments in $4.5 billion in original face amount of UBS-sponsored RMBS and $1.8 billion in original face amount of third party U.S. residential mortgage-backed securities (“RMBS”). The suit asserted claims for damages and rescission under federal and state securities laws and state common law and alleges losses of approximately $1.2 billion plus interest. The court denied UBS Securities’ motion to dismiss in 2012. In April 2013, the court’s decision with respect to two legal issues that were the subject of UBS Securities’ motion to dismiss was affirmed on appeal by the U.S. Court of Appeals for the Second Circuit. The FHFA also filed suits in 2011 against UBS Securities and other financial institutions relating to their role as underwriter of third-party RMBS purchased by the GSEs asserting claims under various legal theories, including violations of the federal and state securities laws and state common law. In July 2013, UBS Securities entered into a settlement with the FHFA under which UBS Securities paid $885 million to resolve these lawsuits and certain other unasserted claims. More specifically, the FHFA agreed to dismiss the pending lawsuits and release potential claims it could assert against UBS Securities on behalf of the GSEs related to UBS-sponsored RMBS and third-party RMBS underwritten by UBS Securities. The FHFA and the GSEs also agreed that they will not take steps to cause third parties to assert loan repurchase demands or commence loan repurchase litigation in connection with UBS-sponsored RMBS.

 

In July 2013 the European Commission issued a Statement of Objections against multiple CDS dealers including UBS AG and UBS Securities, as well as data service provider Markit and the International Swaps and Derivatives Association (“ISDA”). The Statement of Objections broadly alleges that the dealers infringed European Union (“EU”) antitrust rules by colluding to prevent exchanges from entering the credit derivatives market between 2006 and 2009. UBS AG and UBS Securities have submitted their response to the Statement of Objections in January 2014 and presented their position in an oral hearing in May 2014. Since mid-2009, the Antitrust Division of the DOJ has also been investigating whether multiple dealers, including UBS AG and UBS Securities, conspired with each other and with Markit to restrain competition in the markets for CDS trading, clearing and other services. Between May 2013 and November 2013, several putative class action complaints were filed against multiple dealers, including UBS AG and UBS Securities, as well as Markit and ISDA, alleging violations of the U.S. Sherman Antitrust Act (“Sherman Act”) and common law. In January 2014 and April 2014, after the cases were consolidated for pretrial purposes in U.S. federal court in New York, plaintiffs filed a consolidated amended complaint. Plaintiffs allege that the defendants unlawfully conspired to restrain competition in and/or monopolize the market for CDS trading in the U.S. in order to protect the dealers' profits from trading CDS in the over-the-counter market. Plaintiffs assert claims on behalf of all purchasers and sellers of CDS that transacted directly with any of the dealer defendants since January 1, 2008, and seek unspecified trebled compensatory damages and other relief.

 

 

 

UBS Securities is responding to inquiries concerning the operation of UBS’s alternative trading system (ATS) (also referred to as a dark pool) and its securities order routing and execution practices from various authorities, including the SEC, the NYAG and the Financial Industry Regulatory Authority, who reportedly are pursuing similar investigations industry-wide. In January 2015, the SEC announced the resolution of its investigation concerning the operation of UBS’s ATS between 2008 and 2012, which focused on certain order types and disclosure practices that were discontinued two years ago. Under the SEC settlement order, which charges UBS with, among other things, violations of Section 17(a)(2) of the Securities Act of 1933 and Rule 612 of Regulation NMS (known as the sub-penny rule), UBS has paid a total of USD 14.5 million, which includes a fine of USD 12 million and disgorgement of USD 2.4 million. UBS is cooperating in the ongoing regulatory matters, including by the SEC.

 

In the opinion of management, after consultation with legal counsel, the ultimate resolution of such aforementioned litigation will not have a materially adverse effect on UBS Securities’ financial position.

 

UBS Securities will act only as clearing broker for the Trust and as such will be paid commissions for executing and clearing trades on behalf of the Trust. UBS Securities has not passed upon the adequacy or accuracy of this prospectus. UBS Securities neither will act in any supervisory capacity with respect to the Advisor nor participate in the management of the Advisor or the Trust.

 

 

 

CONFLICTS OF INTEREST

 

General

 

Prospective investors should be aware that the Sponsor, the Advisor and the Trustee intend to assert that Shareholders have, by purchasing Shares, consented to the following conflicts of interest in the event of any proceeding alleging that such conflicts violated any duty owed by the Sponsor, the Advisor or the Trustee to the Shareholders.

 

The Sponsor, the Advisor and the Trustee want you to know that there are certain entities with which the Sponsor, the Advisor or the Trustee may have relationships that may give rise to conflicts of interest, or the appearance of conflicts of interest. These entities include the following: affiliates of the Sponsor, the Advisor and the Trustee (including BlackRock, Inc., and The PNC Financial Services Group, Inc., and each of their affiliates, directors, partners, trustees, managing members, officers and employees, collectively, the “Affiliates”).

 

The activities of the Sponsor, the Advisor, the Trustee and the Affiliates in the management of, or their interest in, their own accounts and other accounts they manage, may present conflicts of interest that could disadvantage the Trust and its Shareholders. One or more of the Sponsor, the Advisor, the Trustee or the Affiliates provide investment management services to other funds and discretionary managed accounts that may follow an investment program similar to that of the Trust. The Sponsor, the Advisor, the Trustee and the Affiliates collectively are involved worldwide with a broad spectrum of financial services and asset management activities and may engage in the ordinary course of business in activities in which their interests or the interests of their clients may conflict with those of the Trust and its Shareholders. One or more of the Sponsor, the Advisor, the Trustee or the Affiliates act or may act as an investor, investment banker, research provider, investment manager, financier, underwriter, advisor, market maker, trader, prime broker, lender, agent and principal, and have other direct and indirect interests, in assets in which the Trust directly and indirectly invest.

 

Thus, it is likely that the Trust will have multiple business relationships with and will engage in transactions with or obtain services from entities for which the Sponsor, the Advisor, the Trustee or an Affiliate performs or seeks to perform investment banking or other services.

 

One or more of the Sponsor, the Advisor, the Trustee or an Affiliate are currently involved in transactions with, and would stand to benefit from the positive performance by, entities that are or may be direct competitors of the Trust, including in capacities such as the sponsor, commodity pool operator, commodity trading advisor, trustee or administrator of competing or potentially competing funds. One or more of the Sponsor, the Advisor, the Trustee, and one or more Affiliates may additionally engage in proprietary trading and advise accounts and funds that have investment objectives similar to those of the Trust and/or that engage in and compete for transactions in the same types of assets as the Trust. Those trading activities are carried out without reference to positions held directly or indirectly by the Trust and may result in one or more of the Sponsor, the Advisor, the Trustee, an Affiliate or such accounts having positions that are adverse to those of the Trust, or entering into transactions preferentially ahead of, opposite to, or in a manner otherwise adverse to the interests of the Trust.

 

No Affiliate is under any obligation to share any investment opportunity, idea or strategy with the Trust. As a result, an Affiliate may compete with the Trust for appropriate investment opportunities. As a result of this and several other factors, the results of the Trust’s investment activities may differ from those of an Affiliate and of other accounts managed by an Affiliate and it is possible that the Trust and Shareholders could sustain losses during periods in which one or more Affiliates and other accounts achieve profits on their trading for proprietary or other accounts. The opposite result is also possible.

 

The Trust may, from time to time, enter into transactions in which other clients of the Sponsor, the Advisor, the Trustee or an Affiliate have an adverse interest. Furthermore, transactions undertaken by Affiliate-advised clients may adversely impact the Trust. Transactions by one or more Affiliate-advised clients or the Sponsor, the Advisor, the Trustee or an Affiliate may have the effect of diluting or otherwise disadvantaging the values, prices or investment strategies of the Trust.

 

An Affiliate may maintain securities indices as part of its product offerings. Index-based funds seek to track the performance of securities indices and may use the name of the index in the fund name. Index providers, including the Affiliates, may be paid licensing fees for use of their indices or index names. Affiliates will not be obligated to license their indices to BlackRock, Inc., and BlackRock, Inc. cannot be assured that the terms of any index licensing agreement with the Affiliates will be as favorable as those terms offered to other index licensees.

 

 

 

The Trust’s activities may be limited because of regulatory restrictions applicable to one or more Affiliates, and/or their internal policies designed to comply with such restrictions. An Affiliate may have business relationships with and purchase or distribute or sell services or products from or to distributors, consultants or others who recommend the Trust or who engage in transactions with or for the Trust and may receive compensation for such services. The Trust may also make brokerage and other payments to Affiliates in connection with the Trust’s transactions.

 

The activities of the Sponsor, the Advisor, the Trustee or the Affiliates may give rise to other conflicts of interest that could disadvantage the Trust and its shareholders. The Sponsor, the Advisor and the Trustee have adopted policies and procedures designed to address these potential conflicts of interest.

 

The Sponsor

 

The Sponsor is an affiliate of the Advisor and the Trustee and therefore may have a conflict of interest with respect to its oversight of the Advisor or the Trustee, as the case may be. In particular, the Sponsor, which has authority to remove the Trustee or terminate the Advisory Agreement in its discretion, has an incentive not to exercise this authority, even when it is in the best interests of the Shareholders to do so, because of its affiliation with the Trustee or the Advisor, as the case may be. The Trustee is authorized to appoint an unaffiliated Trust Administrator, Tax Administrator or other agent to carry out all or some of its duties under the Trust Agreement, but it is not required to delegate any of its duties to an unaffiliated third party.

 

In addition, the Sponsor and its affiliates may engage in trading activities relating to the Index Futures, the components of the Index or the Bloomberg Roll Select CI or other derivative instruments related to those indices that are not for the account of, or on behalf of, the Trust or the Shareholders. These activities may present a conflict between the Shareholders’ interest in the Shares and the interest of the Sponsor and its affiliates in their proprietary accounts, in facilitating transactions, including derivatives transactions, for their customers’ accounts and in accounts under their management. These trading activities, if they influence the value of the Index Futures, could be adverse to the interests of the Shareholders. Moreover, the Sponsor and its affiliates have published and in the future expect to publish research reports with respect to commodities markets. This research may express opinions or provide recommendations that are inconsistent with purchasing or holding Shares. The research should not be viewed as a recommendation or endorsement of the Shares in any way, and investors must make their own independent investigation of the merits of this investment. Any of these activities by the Sponsor and its affiliates may affect the level of the Bloomberg Roll Select CI or its components, the value of the Index Futures and the price of the Shares.

 

No Distributions

 

The Sponsor has discretionary authority over all distributions made by the Trust. If the Sponsor determines that there is excess cash being held in the Trust beyond what is reasonably expected to be needed to achieve its investment objective and pay the Trust’s near-term expenses, the Sponsor at its discretion can either distribute the extra cash to the Shareholders or cause it to be invested in additional Index Futures or Collateral Assets. The Trust has no obligation to make periodic distributions to Shareholders. The Sponsor will receive the Sponsor’s Fee in recognition for paying certain amounts that would otherwise be considered ordinary operating expenses of the Trust, which accrues daily at an annualized rate equal of up to 0.75% of the Adjusted Net Asset Value of the Trust, is payable monthly in arrears, and is subject to adjustment from time to time, except that the Sponsor’s Fee may not be adjusted to above 0.75% of the Adjusted Net Asset Value absent an amendment to the Trust Agreement and 30 days’ prior notice to registered holders of the Shares. The amount of the Sponsor’s Fee increases as the Trust’s net assets increase.

 

Resolution of Certain Conflicts

 

The Trust Agreement provides that in the case of a conflict of interest between the Trustee, the Sponsor and their affiliates, on the one hand, and the holders of Shares, on the other, the Trustee and the Sponsor will resolve such conflict considering the relevant interests of each party (including their own interests) and related benefits and burdens, any customary or accepted industry practices, and any applicable generally accepted accounting practices or principles. The Trust Agreement provides that in the absence of bad faith by the Sponsor or Trustee, such a resolution will not constitute a breach of the Trust Agreement or any duty or obligation of the Sponsor or Trustee.

 

 

 

Conflicts Relating to UBS Securities, the Index Providers and its Affiliates

 

Activities conducted by UBS Securities and its affiliates may conflict with your interests as a Shareholder. For example, the Advisor may execute a substantial amount, and potentially all, of the purchases and sales of Index Futures through UBS Securities, as the Trust’s Clearing FCM. In addition, it is expected that UBS Securities or its accountholders will represent, directly or indirectly, a substantial portion of the short-side market for the Index Futures. Further, UBS Securities and its affiliates actively trade futures contracts and options on futures contracts on the commodities that underlie the Index, over-the-counter contracts on these commodities, the underlying commodities included in the Index and other instruments and derivative products based on the Index, Bloomberg Roll Select CI and the Bloomberg CI. Any of these activities of UBS Securities or its affiliates could adversely affect the level of the Index or Index Futures, directly or indirectly, by affecting the price of the underlying commodities and, therefore, the value of the Index, the Index Futures and the price of the Shares.

 

In addition, UBS Securities is one of the Index Providers, and although Bloomberg calculates the Index on behalf of UBS Securities, UBS Securities retains ownership of the Index, the Bloomberg CI and the Bloomberg Roll Select CI and retains the right to dismiss the Index Administrator from its duties relating to such indices, and may influence the Index Administration with respect to the performance of its duties relating to such indices. To the extent UBS Securities’ interests conflict with those of the Trust and the Shareholders, the risks associated with such conflicts may be greater than they would otherwise be for a party that cannot exercise control over the Index, the Bloomberg CI and the Bloomberg Roll Select CI. According to UBS Securities, UBS Securities has implemented a firewall with respect to its personnel regarding access to information concerning the composition and/or changes to the Index.

 

UBS Securities and its affiliates may also issue or underwrite other securities or financial or derivative instruments with returns indexed to the Index, the Bloomberg CI or the Bloomberg Roll Select CI, which would compete with the Shares. By introducing competing products into the marketplace, UBS Securities and its affiliates could adversely affect the price of the Shares. To the extent that UBS Securities or its affiliates serve as issuer, agent or underwriter of those securities or other similar instruments, their interests with respect to those products may be adverse to your interests as a Shareholder. In addition, UBS Securities will be an Authorized Participant and was the initial purchaser of the Shares, while as noted above, it is expected to represent, directly or indirectly, a substantial portion of the short-side market for the Index Futures and could therefore benefit from the adverse performance of the Index Futures which would be adverse to the price of the Shares.

 

The Index Providers

 

Activities conducted by the Index Providers and their respective affiliates may conflict with your interests as a Shareholder. For example, one or more of the Index Providers or their respective affiliates may also engage in trading in the Index, the Bloomberg CI, the Bloomberg Roll Select CI, related indices and sub-indices, and other investments relating to such indices or their underlying components on a regular basis as part of its general business, for proprietary accounts, for other accounts under management, to facilitate transactions for customers or to hedge obligations under products linked to such indices. One or more of the Index Providers or their respective affiliates may also issue or underwrite securities or financial or derivative instruments with returns linked or related to changes in the performance of any of the foregoing. Any of these activities could adversely affect the market price of the commodities or futures contracts underlying such indices or the value of the indices themselves, which may adversely affect the value of the Shares. According to UBS Securities, UBS Securities has implemented a firewall with respect to its personnel regarding access to information concerning the composition and/or changes to the Index. It is possible that one or more of the Index Providers or their respective affiliates could receive substantial returns from these hedging activities while the market value of the underlying commodities or futures contracts, the value of the indices, or the price or the NAV of the Shares decline. Some or all of these risks may be further exacerbated as a result of various other roles of the Index Providers or their affiliates relating to the Trust, the Shares or the Index Futures.

 

 

 

CERTAIN PERFORMANCE DATA

 

iShares® Commodity Optimized Trust

 

The following performance information is presented in accordance with CFTC regulations.

 

All summary performance information is as of June 30, 2017. Because the pool has been in existence for less than five years, performance information is set forth for the life of the pool in accordance with CFTC regulations. 

 

Name of Pool:

 

iShares® Commodity Optimized Trust

Type of Pool:

 

Public, Exchange-Listed Commodity Pool

Date of Inception of Trading:

 

August 8, 2013

Aggregate Gross Capital Subscriptions(1) as of June 30, 2017:

 

$59,402,571

Net Asset Value as of June 30, 2017:

 

$22,691,040

Net Asset Value per Share as of June 30, 2017(2):

 

$34.91

Worst Monthly Drawdown(3):

 

9.95% (July 2015)

Worst Peak-to-Valley Drawdown(4):

 

42.59% (April 2014-February 2016)

 


(1)

“Aggregate Gross Capital Subscriptions” is the aggregate of all amounts ever contributed to the pool, including those of investors who subsequently redeemed their investments.

(2)

“Net Asset Value per Share” is the net asset value of the pool divided by the total number of Shares outstanding as of June 30, 2017.

(3)

“Worst Monthly Drawdown” is the largest single month loss sustained since inception of trading, expressed as a percentage. “Drawdown” as used in this section of the prospectus means losses experienced by the relevant pool over the specified period and is calculated on a rate of return basis, i.e., dividing net performance by beginning equity. Drawdown is measured on the basis of monthly returns only, and does not reflect intra-month figures.

(4)

“Worst Peak-to-Valley Drawdown” represents the greatest cumulative percentage decline in month-end Net Asset Value per Share due to losses sustained by the pool during any period in which the initial month-end Net Asset Value per Share is not equaled or exceeded by a subsequent month-end Net Asset Value per Share.

 

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

 

Rate of Return:

 

Month

 

2017

   

2016

   

2015

   

2014

   

2013

 

January

    1.02 %     (1.37 )%     (3.17 )%     (0.32 )%     N/A  

February

    0.46 %     (0.95 )%     2.40 %     5.93 %     N/A  

March

    -2.55 %     3.67 %     (4.85 )%     0.21 %     N/A  

April

   

-1.17

%     7.75 %     4.67 %     2.51 %     N/A  

May

    -1.60 %     (0.31 )%     (3.14 )%     (2.71 )%     N/A  

June

    -0.11 %     4.47 %     1.71 %     0.83 %     N/A  

July

            (4.30 )%     (9.95 )%     (4.36 )%     N/A  

August

            (1.63 )%     (1.03 )%     (0.94 )%     3.84 %

September

            3.03 %     (3.17 )%     (6.10 )%     (2.06 )%

October

            (0.23 )%     (0.28 )%     (0.82 )%     (1.20 )%

November

            1.22 %     (6.50 )%     (3.53 )%     (0.64 )%

December

            1.68 %     (2.90 )%     (7.41 )%     0.92 %

Year

    -3.94 %     13.17 %     (24.00 )%     (16.14 )%     0.76 %
   

(January-
June
2017)

   

(January-
December
2016)

   

(January-
December
2015)

   

(January-
December
2014)

   

(August-
December
2013)

 

 

 

 

UNITED STATES FEDERAL INCOME TAX CONSEQUENCES

 

The following is a summary of U.S. federal income tax consequences material to the purchase, ownership and disposition of the Shares. Unless otherwise specifically indicated herein, this summary addresses the tax consequences only to a beneficial owner of Shares that is (i) an individual citizen or resident of the United States, (ii) a corporation organized in or under the laws of the United States or any state thereof or the District of Columbia or (iii) otherwise subject to U.S. federal income taxation on a net income basis in respect of the Shares (a “U.S. Holder”). This summary does not purport to be a comprehensive description of all of the tax considerations that may be relevant to a decision to purchase the Shares by any particular investor, including tax considerations that arise from rules of general application to all taxpayers or to certain classes of taxpayers or that are generally assumed to be known by investors. This summary also does not address the tax consequences to (1) persons that may be subject to special treatment under U.S. federal income tax law, such as banks, insurance companies, thrift institutions, regulated investment companies, real estate investment trusts, traders in securities that elect to mark to market and dealers in securities or currencies, (2) persons that will hold Shares as part of a position in a “straddle” or as part of a “hedging,” “conversion” or other integrated investment transaction for federal income tax purposes, (3) persons whose functional currency is not the U.S. dollar, or (4) persons that do not hold Shares as capital assets.

 

This summary is based on the Code, Treasury regulations, IRS rulings and judicial decisions in effect as of the date of this prospectus, all of which are subject to change at any time (possibly with retroactive effect) or different interpretations. As the law is technical and complex, the discussion below necessarily represents only a general summary. Moreover, the effect of any applicable state, local or foreign tax laws is not discussed.

 

There can be no assurance that the IRS will not challenge one or more of the tax consequences described herein. The Sponsor has not obtained, nor does it intend to obtain, a ruling from the IRS with respect to the U.S. federal tax consequences of acquiring, owning or disposing of the Shares. Prospective investors in the Shares should consult their tax advisors in determining the tax consequences of an investment in the Shares, including the application of state, local or other tax laws and the possible effects of changes in federal or other tax laws.

 

Classification of the Trust

 

Under current law and assuming full compliance with the terms, without modification, of the Trust Agreement and such other documents as are relevant, in the opinion of Skadden, Arps, Slate, Meagher & Flom LLP, the Trust will not be treated as an association taxable as a corporation for U.S. federal income tax purposes. Accordingly, the Trust will not be a taxable entity for U.S. federal income tax purposes and will not incur U.S. federal income tax liability.

 

The opinion of Skadden, Arps, Slate, Meagher & Flom LLP is based on various assumptions relating to the Trust’s organization, operation, assets and activities, including assumptions that the Trust will not invest in any assets except those specifically provided for currently in this prospectus, and that neither the Trust Agreement nor any other relevant document will be otherwise amended. The opinion of Skadden, Arps, Slate, Meagher & Flom LLP further assumes that all factual representations and statements set forth in all relevant documents, records and instruments are true and correct, all actions described in this prospectus are completed in a timely fashion and that the Trust will at all times operate in accordance with the method of operation described in the Trust Agreement and this prospectus, and is conditioned upon factual representations and covenants made by the Trust and the Sponsor regarding the Trust’s organization, operation, assets, activities and the conduct of the Trust’s operations, and assumes that such representations and covenants are accurate and complete.

 

The Trust files partnership tax returns. See “—Information Reporting with Respect to Shares.” Accordingly, you will be taxed as a beneficial owner of an interest in a partnership, which means that you generally will be required to take into account your allocable share of the Trust’s items of income, gain, loss, deduction, expense and credit in computing your U.S. federal income tax liability.

 

Classification of the Index Futures

 

The Sponsor expects that the Index Futures will constitute “Section 1256 contracts” within the meaning of Section 1256 of the Code (“Section 1256 Contracts”). The Code generally applies a “mark-to-market” system of taxing unrealized gains and losses to such contracts and otherwise provides for special rules of taxation. A Section 1256 Contract includes certain regulated futures contracts and foreign currency contracts. Under these rules, Section 1256 Contracts held by the Trust at the end of each taxable year of the Trust are treated for U.S. federal income tax purposes as if they were sold by the Trust for their fair market value on the last business day of such taxable year. The net gain or loss, if any, resulting from such deemed sales (known as “marking to market”), together with any gain or loss resulting from actual sales or other dispositions of Section 1256 Contracts, must be taken into account by the Trust in computing its taxable income for such year. If a Section 1256 Contract held by the Trust at the end of a taxable year is sold in the following year, the amount of any gain or loss realized on such sale will be adjusted to reflect the gain or loss previously taken into account under the “mark-to-market” rules.

 

 

 

With certain exceptions, capital gains and losses from such Section 1256 Contracts generally are characterized as short-term capital gains or losses to the extent of 40% thereof and as long-term capital gains or losses to the extent of 60% thereof. Under certain circumstances, long-term capital gains recognized by individuals may qualify for reduced rates of tax.

 

In General

 

The Trust will be treated, for U.S. federal income tax purposes, as owning the Index Futures and the Collateral Assets. It is expected that the Trust’s items of income or loss, as the case may be, will consist primarily of (1) capital gain or loss, as the case may be, in respect of the Index Futures, computed annually under the “mark-to-market” rules applicable to Section 1256 Contracts described above, (2) adjustments to such capital gain or loss, as the case may be, in respect of the Index Futures upon their expiration or upon disposition of an Index Futures position by the Trust and (3) interest income on non-cash Collateral Assets, and if applicable, gain or loss on the disposition of such Collateral Assets.

 

Gain or loss on Index Futures or on securities held as collateral generally will be equal to the difference between the amount realized on the sale or other disposition thereof and the adjusted tax basis of the Index Futures or securities, respectively. In the case of Index Futures, with certain exceptions, such gain or loss will be characterized as short-term capital gains or losses to the extent of 40% thereof and as long-term capital gains or losses to the extent of 60% thereof. Gain or loss on the securities held by the Trust to collateralize its Index Futures positions, which will generally consist of three-month U.S. Treasury securities, are expected to be characterized as short-term capital gains or losses, but gain or loss on any such securities that are held by the Trust for more than one year will be characterized as long-term capital gain or loss. Interest or dividends accrued or paid on the securities held by the Trust to collateralize its Index Futures positions will be taxable to you as ordinary income. If any of the securities are treated as issued with original issue discount, you generally will be required to include the original issue discount in income.

 

Under certain circumstances, loss deductions are disallowed where they result from wash sales of stock or securities. A wash sale occurs if stock or securities are sold at a loss and the seller acquires substantially identical stock or securities within a certain time period before or after the sale. The Trust should not be subject to the wash sale rules in connection with the sale or disposition of Index Futures because the Index Futures do not constitute securities for purposes of these rules.

 

Because you will be treated as a beneficial owner of an interest in a partnership, you will be required to include in income the Trust’s items of income, gain, loss, deduction, expense and credit that are allocated to you for the Trust’s taxable year ending with or within your taxable year, regardless of whether any distributions are made to you. Accordingly, you may be required to include amounts in income without a corresponding current receipt of cash if the Trust earns taxable income but does not make corresponding cash distributions. For example, you may incur income tax liabilities in excess of cash distributions on Shares as a result of the “mark-to-market” rules applicable to Section 1256 Contracts, as a result of adjustments to the capital gain or loss computed for a Section 1256 Contract when it is closed out (by offset or otherwise), expires or from the disposition of such Section 1256 Contract in connection with the redemption by an Authorized Participant of a Basket, and as a result of interest earned by the Trust on the securities it holds to collateralize its Index Futures positions or from amounts deposited with the Clearing FCM or the Trust Administrator.

 

Distributions on the Shares

 

Distributions on the Shares generally will not be taxable to you, except to the extent that the cash you receive exceeds your adjusted tax basis in the Shares. Cash distributions in excess of your adjusted tax basis in the Shares generally will be treated as gain from the sale or exchange of the Shares, taxable in accordance with the rules described under “—Sale, Exchange or Other Taxable Disposition of Shares.”

 

 

 

Upon a liquidating distribution of cash by the Trust (a distribution to you that terminates your interest in the Trust), you generally will recognize gain or loss from the sale or exchange of the Shares, taxable in accordance with the rules described under “—Sale, Exchange or Other Taxable Disposition of Shares.”

 

Sale, Exchange or Other Taxable Disposition of Shares

 

Upon the sale, exchange or other taxable disposition of Shares, you generally will recognize capital gain or loss equal to the difference between the amount realized upon the sale, exchange or other disposition and your adjusted tax basis in the Shares. Your adjusted tax basis in your Shares generally will be equal to the amount you paid for your Shares (1) increased by any income or gain of the Trust that is allocated to you and by the amount of any contributions you make to the capital of the Trust as part of the creation of a Basket and (2) decreased, but not below zero, by any loss or expense of the Trust that is allocated to you and by the amount of any cash and the tax basis of any property distributed (or deemed distributed) to you. For a description of the allocation of income, gain, loss and expense to you, see “—Partnership Allocations and Adjustments.”

 

Creation and Redemption of Baskets

 

If the Trust transfers or otherwise disposes of an Index Futures position in connection with the redemption of a Basket, the disposition will generally give rise to gain or loss that will be allocated in part to you. However, holders of Shares other than Authorized Participants (or holders for which an Authorized Participant is acting) generally are not expected to recognize gain or loss directly as a result of an Authorized Participant’s creation or redemption of a Basket. An Authorized Participant’s creation or redemption of a Basket also may affect the portion of the Trust’s tax basis in the Trust’s assets that is allocated to you, which could affect the amount of gain or loss allocated to you under the “mark-to-market” system applicable to Section 1256 Contracts, or on the closing out (whether by offset or otherwise), expiration or disposition of an Index Futures position by the Trust.

 

Distributions of Index Futures to Authorized Participants in connection with redemptions of Baskets may give rise to character and timing mismatches between gain or loss recognized by the Authorized Participant on the Index Futures and gain or loss recognized on any Shares retained by the Authorized Participant (or, if relevant, a holder of Shares for which an Authorized Participant is acting). In a nonliquidating distribution, the Authorized Participant generally will receive a carryover basis in the Index Futures distributed to it (assuming that such carryover basis does not exceed the holder’s outside basis in its Shares), and the holder will reduce its outside basis in the Shares it retains after the redemption by the sum of the basis it takes in the Index Futures and the amount of cash, if any, it receives. Thus, for example, an Authorized Participant that is a dealer in securities who receives a distribution of Index Futures generally will recognize capital gain or loss on such Index Futures in the year of the distribution under the special “mark-to-market” rules applicable to regulated futures contracts under Section 1256 of the Code but may recognize in the same year an offsetting amount of ordinary income or loss on any Shares it retains after the redemption under the regular “mark-to-market” rules that apply to dealers in securities. Similarly, an Authorized Participant (or other redeeming holder of Shares) that is not a dealer in securities who receives a distribution of Index Futures generally will recognize capital gain or loss on such Index Futures in the year of the distribution under the special “mark-to-market” rules applicable to regulated futures contracts but generally will not recognize gain or loss with respect to the Shares it retains after the redemption until it disposes of such Shares. Different rules would apply if a creation of Shares and a redemption of Shares were treated as a “disguised sale” under special rules applicable to certain contributions to and redemptions from a partnership. The Trust intends to take the position that the disguised sale rules generally do not apply. Authorized Participants (and other redeeming holders of Shares for which an Authorized Participant is acting) are urged to consult their own tax advisor with regard to the tax consequences to them of redemption of Shares, including whether the Authorized Participant (or other redeeming holder of Shares) is obligated to file a disguised sale disclosure statement with its tax return.

 

Limitations on Deductibility of Certain Losses and Expenses

 

The deductibility for U.S. federal income tax purposes of a U.S. Holder’s share of losses and expenses of the Trust is subject to certain limitations, including, but not limited to, rules providing that: (1) you may not deduct the Trust’s losses that are allocated to you in excess of your adjusted tax basis in your Shares; (2) individuals and personal holding companies may not deduct the losses allocable to a particular “activity” in excess of the amount that they are considered to have “at risk” with respect to the activity; and (3) a non-corporate U.S. Holder may deduct its share of expenses of the Trust only to the extent that such share, together with such non-corporate U.S. Holder’s other miscellaneous itemized deductions, exceeds 2% of such non-corporate U.S. Holder’s adjusted gross income. The annual allocation from the Trust will be reported to the Sponsor as an expense of the kind subject to the limitation on miscellaneous itemized deductions. To the extent that a loss or expense that you cannot deduct currently is allocated to you, you may be required to report taxable income in excess of your economic income or cash distributions to you on the Shares. You are urged to consult your own tax advisor with regard to these and other limitations on your ability to deduct losses or expenses with respect to the Trust.

 

 

 

Partnership Allocations and Adjustments

 

For U.S. federal income tax purposes, your share of the Trust’s income, gain, loss, deduction and other items will be determined by the Trust Agreement, unless an allocation under these agreements does not have “substantial economic effect,” in which case the allocations will be determined in accordance with the “partners’ interests in the partnership.” Subject to the discussion below under “—Monthly Allocation and Revaluation Conventions” and “—Section 754 Election,” the allocations pursuant to the Trust Agreement should be considered to have substantial economic effect.

 

If the allocations provided by the Trust Agreement were successfully challenged by the IRS, the amount of income or loss allocated to you for U.S. federal income tax purposes under the agreement could be increased or decreased, the timing of income or loss could be accelerated or deferred, or the character of the income or loss could be altered.

 

As described in more detail below, the U.S. tax rules that apply to partnerships are complex and their application is not always clear. Moreover, the rules generally were not written for, and in some respects are difficult to apply to, publicly traded interests in partnerships. The Trust will apply certain assumptions and conventions intended to comply with the intent of the rules and to report income, gain, deduction, loss and credit to investors in a manner that reflects the investors’ economic gains and losses, but these assumptions and conventions may not comply with all aspects of the applicable Treasury regulations. It is possible therefore that the IRS will successfully assert that these assumptions or conventions do not satisfy the technical requirements of the Code or the Treasury regulations and will require that items of income, gain, deduction, loss and credit be adjusted or reallocated in a manner that could be adverse to you. Holders with questions regarding partnership allocations and adjustments or other tax matters may obtain further information from the Sponsor at the following number: 1-800-iShares or 1-800-474-2737.

 

Monthly Allocation and Revaluation Conventions

 

In general, the Trust’s taxable income and losses will be determined monthly and will be apportioned among the holders of Shares in proportion to the number of Shares treated as owned by each of them as of the close of the last trading day of the preceding month. By investing in the Shares, a U.S. Holder agrees that, in the absence of an administrative determination or judicial ruling to the contrary, it will report income and loss under the monthly allocation and revaluation conventions described below.

 

Under the monthly allocation convention, the person that was treated for U.S. federal income tax purposes as holding a Share as of the close of the last trading day of the preceding month will be treated as continuing to hold that Share until immediately before the close of the last trading day of the following month. As a result, a holder that is transferring its Shares or whose Shares are redeemed prior to the close of the last trading day of a month may be allocated income, gain, loss and deduction realized after the date of transfer.

 

The Code generally requires that items of partnership income and deductions be allocated between transferors and transferees of partnership interests on a daily basis. It is possible that transfers of Shares could be considered to occur for these purposes when the transfer is completed without regard to the Trust’s monthly convention for allocating income and deductions. In that event, the Trust’s allocation method might be viewed as violating that requirement.

 

In addition, for any month in which a creation or redemption of Shares takes place, the Trust generally will credit or debit, respectively, the “book” capital accounts of the holders of existing Shares with any unrealized gain or loss in the Trust’s assets. This will result in the allocation of items of the Trust’s income, gain, loss, deduction and credit to existing holders of Shares to account for the difference between the tax basis and fair market value of property owned by the Trust at the time new Shares are issued or old Shares are redeemed (“reverse section 704(c) allocations”). The intended effect of these allocations is to allocate any built-in gain or loss in the Trust's assets at the time of a creation or redemption of Shares to the investors that economically have earned such gain or loss.

 

 

 

As with the other allocations described above, the Trust generally will use a monthly convention for purposes of the reverse section 704(c) allocations. More specifically, the Trust generally will credit or debit, respectively, the “book” capital accounts of holders of existing Shares with any unrealized gain or loss in the Trust’s assets based on the lowest fair market value of the assets and shares, respectively, during the month in which the creation or redemption transaction takes place, rather than the fair market value at the time of such creation or redemption (the “monthly revaluation convention”). As a result, it is possible that, for U.S. federal income tax purposes, (1) a purchaser of newly issued Shares will be allocated some or all of the unrealized gain in the Trust’s assets at the time it acquires the Shares or (2) an existing holder of Shares will not be allocated its entire share in the unrealized loss in the Trust’s assets at the time of such acquisition. Furthermore, the applicable Treasury regulations generally require that the “book” capital accounts will be adjusted based on the fair market value of partnership property on the date of adjustment and do not explicitly allow the adoption of a monthly revaluation convention.

 

The Code and applicable Treasury regulations generally require that items of partnership income and deductions be allocated between transferors and transferees of partnership interests on a daily basis, and that adjustments to “book” capital accounts be made based on the fair market value of partnership property on the date of adjustment. Final Treasury regulations generally permit publicly traded partnerships like the Trust to use monthly allocation conventions similar to those used by the Trust for taxable years beginning on or after August 3, 2015, but they do not specifically authorize the monthly reallocation convention or all aspects of the monthly allocation convention that the Trust has adopted. If the IRS does not accept the Trust’s monthly allocation or monthly revaluation conventions, the IRS may contend that taxable income or losses of the Trust must be reallocated among the holders of Shares. If such a contention were sustained, the holders’ respective tax liabilities would be adjusted to the possible detriment of certain holders. The Trustee is authorized to revise the Trust’s allocation and revaluation methods in order to comply with applicable law or to allocate items of partnership income and deductions in a manner that reflects more accurately the holders’ interest in the Trust.

 

Section 754 Election

 

The Trust intends to make the election permitted by Section 754 of the Code. Such an election is irrevocable without the consent of the IRS. These elections generally will require each purchaser of Shares to adjust its proportionate share of the tax basis in the Trust’s assets (“inside basis”) to fair market value, as reflected in the purchase price for the purchaser’s Shares, as if the purchaser had acquired a direct interest in the Trust's assets. These adjustments are attributed solely to a purchaser of Shares and are not added to the tax basis of the Trust's assets associated with other holders of Shares. Generally the Section 754 election is intended to eliminate the disparity between a purchaser’s outside basis in its Shares and the Trust’s corresponding inside basis in its assets such that the amount of gain or loss that will be allocated to the purchaser on the disposition by the Trust of its assets (for example, on the expiration or disposition of an Index Futures position) will correspond to the purchaser’s share in the appreciation or depreciation in the value of such assets since the purchaser acquired its Shares. Depending on the relationship between a holder’s purchase price for Shares and its interest in the unadjusted share of the Trust’s inside basis at the time of the purchase, the Section 754 election may be either advantageous or disadvantageous to the holder as compared to the amount of gain or loss a holder would be allocated absent the Section 754 election.

 

The calculations under Section 754 are complex, and there is little legal authority concerning the mechanics of the calculations, particularly in the context of publicly traded interests in partnerships. To help reduce the complexity of those calculations and the resulting administrative costs to the Trust, the Trust will apply certain assumptions and conventions in determining and allocating the basis adjustments. It is possible that the IRS will successfully assert that the assumptions and conventions utilized by the Trust do not satisfy the technical requirements of the Code or the Treasury regulations and will require different basis adjustments to be made. If such different adjustments were required, some holders could be adversely affected.

 

In order to make the basis adjustments permitted by Section 754, the Trust will be required to obtain information regarding each holder’s secondary market transactions in Shares, as well as creations and redemptions of Shares. The Trust will seek such information from the record holders of Shares, and, by purchasing Shares, each beneficial owner of Shares will be deemed to have consented to the provision of such information by the record owner of such beneficial owner’s Shares. Notwithstanding the foregoing, however, there can be no guarantee that the Trust will be able to obtain such information from record owners or other sources, or that the basis adjustments that the Trust makes based on the information they are able to obtain will be effective in eliminating disparity between a holder’s outside basis in its Shares and its interest in the inside basis in the Trust’s assets.

 

 

 

Constructive Termination

 

The Trust will experience a constructive termination for tax purposes if there is a sale or exchange of 50% or more of the total Shares within a 12-month period. Although the Trust would continue to exist as a Delaware statutory trust, a constructive termination would, among other things, result in the closing of the Trust’s taxable year for all holders of Shares. A constructive termination occurring on a date other than December 31 would result in the Trust filing two tax returns, and each holder of Shares could receive two Schedules K-1, for one calendar year. However, pursuant to an IRS relief procedure for publicly traded partnerships that have constructively terminated, the IRS may allow the Trust to provide a single Schedule K-1 to each holder of Shares for the tax year in which the termination occurs. In the case of a holder of Shares reporting on a taxable year other than a fiscal year ending December 31, the closing of the Trust’s taxable year may result in more than 12 months of its taxable income or loss being includable in its taxable income for the year of termination. The Trust would be required to make new tax elections after a termination, including a new election under Section 754. A termination could also result in penalties if the Trust were unable to determine that the termination had occurred.

 

Other Matters

 

Borrowing of Shares

 

If your Shares are borrowed (or rehypothecated) by your broker and sold to a third party, for example as part of a loan to a “short seller” to cover a short sale of Shares, you may be considered as having disposed of those Shares. If so, you would no longer be a beneficial owner of a pro rata portion of the Shares during the period of the loan and may recognize gain or loss from the disposition. In addition, during the period of the loan, (1) the Trust’s income, gain, loss, deduction or other items with respect to those Shares would not be reported by you, and (2) any cash distributions received by you with respect to those Shares could be fully taxable, likely as ordinary income. Accordingly, if you desire to avoid the risk of income recognition from a loan of your Shares, you should modify any applicable brokerage account agreements to prohibit your broker from borrowing your Shares.

 

These rules should not affect the amount or timing of items of income, gain, deduction or loss reported by a taxpayer that is a dealer in securities that marks the Shares to market for U.S. federal income tax purposes, or a trader in securities that has elected to use the mark-to-market method of tax accounting with respect to the Shares.

 

Information Reporting with Respect to Shares

 

As described above under “—Classification of the Trust,” as a result of statements by the IRS on the classification of trusts similar to the Trust, the Trust files a partnership return rather than a trust return.

 

Tax information will be reported to investors on an IRS Schedule K-1 for each calendar year as soon as practicable after the end of each such year but in no event later than March 15. Each Schedule K-1 provided to a holder of Shares will set forth the holder’s share of the Trust’s items of income, gain, deduction, loss and credit for such year in a manner sufficient for a U.S. Holder to complete its tax return with respect to its investment in the Shares.

 

Each holder, by its acquisition of Shares, will be deemed to agree to allow brokers and nominees to provide to the Trust its name and address and such other information and forms as may be reasonably requested by the Trust for purposes of complying with their tax reporting and withholding obligations (and to waive any confidentiality rights with respect to such information and forms for such purpose) and to provide such information or forms upon request.

 

As described above under “Partnership Allocations and Adjustments—Monthly Allocation and Revaluation Conventions,” the partnership tax rules generally require that items of partnership income and deductions be allocated between transferors and transferees of partnership interests on a daily basis, and that certain adjustments be made based on daily valuations. If the IRS does not accept the Trust’s monthly allocation conventions, the IRS may contend that taxable income or losses of the Trust must be reallocated among investors. If such a contention were sustained, investors’ respective tax liabilities would be adjusted to the possible detriment of certain investors. The Trustee is authorized to revise the Trust’s allocation methods to comply with applicable law.

 

Reportable Transactions

 

Treasury regulations require U.S. taxpayers to report certain types of transactions to the IRS (“Reportable Transactions”). Under these regulations, a U.S. Holder who disposes of Shares and recognizes a loss with respect to such disposition in excess of certain thresholds would be required to report the loss on Form 8886 (Reportable Transaction Statement). The loss threshold is $10 million in any single taxable year or $20 million in any combination of taxable years for corporations, and $2 million in any single taxable year or $4 million in any combination of taxable years for most partnerships, individuals, S corporations or trusts. You should consult with your tax advisor regarding any tax filing and reporting obligation that may apply in connection with acquiring, owning and disposing of Shares.

 

 

 

Tax Audits

 

Under the Code, adjustments in tax liability with respect to the Trust’s items generally will be made at the Trust level in a partnership proceeding rather than in separate proceedings with each Shareholder. The Sponsor will represent the Trust as its “Tax Matters Partner” during any audit and in any dispute with the IRS. Each Shareholder will be informed of the commencement of an audit of the Trust. In general, the Tax Matters Partner may enter into a settlement agreement with the IRS on behalf of, and that is binding upon, the Shareholders.

 

Adjustments resulting from an IRS audit may require each Shareholder to adjust a prior year’s liability, and possibly may result in an audit of such Shareholder's return. Any audit of a Shareholder’s return could result in adjustments not related to the Trust’s returns as well as those related to the Trust’s returns.

 

The Tax Matters Partner will make some elections on the Trust’s behalf and on behalf of the Trust’s Shareholders. In addition, the Tax Matters Partner can extend the statute of limitations for assessment of tax deficiencies against the Trust’s Shareholders for items in the Trust’s returns. The Tax Matters Partner may bind a Shareholder with less than a 1% profits interest in the Trust to a settlement with the IRS unless that Shareholder elects, by filing a statement with the IRS, not to give that authority to the Tax Matters Partner. The Tax Matters Partner may seek judicial review, by which all Shareholders are bound, of a final partnership administrative adjustment and, if the Tax Matters Partner fails to seek judicial review, judicial review may be sought by any Shareholder having at least a 1% interest in profits or by any group of Shareholders having in the aggregate at least a 5% interest in profits. However, only one action for judicial review will go forward, and each Shareholder with an interest in the outcome may participate.

 

Pursuant to the Bipartisan Budget Act of 2015, significant changes are being made to the rules applicable to U.S. federal income tax audits of partnerships. Under the new rules (which are generally effective for the Trust’s taxable years beginning after December 31, 2017), if the IRS makes audit adjustments to the Trust's U.S. federal income tax returns, it may collect any resulting taxes (including any applicable penalties and interest) directly from the Trust. The Trust may have the ability to shift any such tax liability to the Sponsor and the Trust's Shareholders in accordance with their interests in the Trust during the year under audit, but there can be no assurance that it will be able to do so, in which case the current Shareholders would economically bear the burden of the tax even if they were not Shareholders during the year under audit (or if they had a different percentage interest in the Trust in that year). If the Trust is required to make payments of taxes, penalties and interest resulting from audit adjustments, the cash available for distribution to the Trust's Shareholders might be substantially reduced. The changes created by the new partnership audit rules are sweeping and in many respects dependent on the promulgation of future regulations or other guidance by the IRS or the U.S. Treasury Department. Investors in the Shares are urged to consult their tax advisors regarding these changes and their potential impact.

 

Tax-Exempt Organizations

 

An organization that is otherwise exempt from U.S. federal income tax generally is nonetheless subject to taxation with respect to its “unrelated business taxable income” (“UBTI”). Except as noted below with respect to certain categories of exempt income, UBTI generally includes income or gain derived (either directly or through a partnership) from a trade or business, the conduct of which is substantially unrelated to the exercise or performance of the organization’s exempt purpose or function. UBTI generally does not include passive investment income, such as dividends, interest and capital gains, whether realized by the organization directly or indirectly through a partnership (such as the Trust) in which it is a partner. However, if a tax-exempt entity’s acquisition of a partnership interest is debt-financed, or the partnership incurs “acquisition indebtedness,” all or a portion of the income or gain attributable to the “debt-financed property” would also be included in UBTI regardless of whether such income would otherwise be excluded as dividends, interest or capital gains. The income of the Trust will be passive investment income generally excluded from UBTI and the Trust will not incur “acquisition indebtedness.” Thus, if you are a tax-exempt entity and your acquisition of the Shares is not debt-financed, income with respect to the Shares will not be UBTI.

 

 

 

Regulated Investment Companies

 

Regulated investment companies (“RICs”) such as mutual funds are subject to a 90% annual gross income test and must satisfy certain diversification requirements with respect to their assets (generally at the close of each quarter of the taxable year). Under the income test, at least 90% of a RIC’s gross income must be derived from dividends, interest, payments with respect to certain securities loans, gains from the sale or other disposition of stock or securities or foreign currencies or other income derived with respect to its business of investing in stock, securities or currencies (“RIC Qualifying Income”). In general, income and gains from investments in commodities and futures contracts do not qualify as RIC Qualifying Income. Very generally, under the diversification test, at the close of each quarter of a RIC’s taxable year, at least 50% of the value of its assets must be made up of cash, government securities and securities of other issuers and no more than 25% of the value of its assets may be invested in the securities of a single issuer.

 

Special rules apply to investments held by a RIC in a qualified publicly traded partnership (“QPTP”). A partnership that is publicly traded will qualify as a QPTP, unless 90% or more of its gross income consists of income that would, if realized by a RIC, count towards the 90% income requirement described above. If a RIC holds interests in a partnership that is a QPTP, qualifying income for purposes of the 90% gross income test includes net income derived from interests in the QPTP and the 25% asset limitation described above applies to the equity securities of the QPTP. If a RIC holds interests in a partnership that is not a QPTP, then the RIC is generally required to look through to its distributable share of the partnership’s gross income for purposes of applying the income test. The IRS has ruled in certain circumstances that a RIC also should look through to the assets of a partnership that is not a QPTP for purposes of the diversification test.

 

As described above under “Classification of the Trust,” the Trust files a partnership tax return and takes the position that it is treated as a partnership for tax purposes. Consequently, the Trust would generally be treated as a publicly traded partnership. As such, the Trust would qualify as a QPTP if less than 90% of the Trust’s annual gross income constitutes interest, gain from the disposition of securities or other RIC Qualifying Income. In that case, only the RIC’s share of the Trust’s net income would be included in applying the qualified income test and the RIC would be subject to the 25% asset limitation described above with respect to its investment in the Shares.

 

The Trust would not qualify as a QPTP if 90% or more of the Trust’s annual gross income constitutes interest, gains from the disposition of securities or other RIC Qualifying Income. In that case, the RIC would generally be required to look through to its distributable share of the Trust’s gross income for purposes of applying the income test. Holders that are RICs should consult their tax advisors regarding the application of the diversification test to their investment in the Shares.

 

Consequently, whether the Shares qualify as interests in a QPTP depends on the type of income recognized by the Trust. Because the Trust’s income depends on the type of investments the Trust makes and the frequency of the Trust’s dispositions of investments and may change over time, no determination can be provided whether the Shares constitute interests in a QPTP. However, the Sponsor will provide information on its website, at www.ishares.com, on a monthly basis on the composition of the Trust’s gross income and assets and will also provide an annual income and asset statement in order to enable a U.S. Holder that is a RIC to make an independent determination regarding the status of the Trust as a QPTP.

 

Taxation of Non-U.S. Holders of Shares

 

As used herein, the term “Non-U.S. Holder” means a beneficial owner of Shares that is not a U.S. Holder. The Trust will conduct its activities in such a manner that a Non-U.S. Holder of the Shares who is not otherwise carrying on a trade or business in the United States will not be considered to be engaged in a trade or business in the United States as a result of an investment in the Shares.

 

Thus, if you are a Non-U.S. Holder, interest income allocable to you generally will be considered short-term interest not subject to U.S. withholding or income tax, or “portfolio interest” not subject to 30% U.S. federal income or withholding tax provided that (i) with respect to “portfolio interest” (1) you do not actually or constructively own 10% or more of the total combined voting power of all classes of stock entitled to vote of the Clearing FCM, in the case of interest income on amounts deposited with the Clearing FCM or, to the extent Collateral Assets consist of other corporate securities, 10% or more of the total combined voting power of all classes of stock entitled to vote of the issuer of such securities; (2) you are not a controlled foreign corporation for U.S. federal income tax purposes that is related to the Clearing FCM or such issuer, as applicable, through stock ownership; and (3) you certify on IRS Form W-8BEN (or successor form), under penalties of perjury, that you are not a U.S. person and provide your name and address and otherwise satisfy applicable documentation requirements; or (ii) with respect to any interest paid after June 30, 2014 (other than, generally, interest on debt outstanding on July 1, 2014), you hold the Shares through a foreign financial institution or entity that has entered into an agreement with the U.S. government to collect and provide to the U.S. tax authorities information about its accountholders (including certain investors in such institution or entity) and, if required, you have provided the withholding agent with a certification identifying your direct and indirect U.S. owners.

 

 

 

Subject to the discussion below, you generally will not be subject to U.S. federal income tax on gains on the sale of the Shares or on your share of the Trust’s gains. However, in the case of an individual Non-U.S. Holder, such holder will be subject to U.S. federal income tax on gains on the sale of Shares or such holder’s share of the Trust’s gains if such Non-U.S. Holder is present in the United States for 183 days or more during a taxable year and certain other conditions are met. Even if you are eligible for a lower treaty rate, you will be subject to a 30% withholding tax (rather than the lower treaty rate) on dividend payments to you, unless you have provided the withholding agent with an IRS Form W-8BEN or other documentary evidence establishing your entitlement to the lower treaty rate with respect to such payments.

 

If you are subject to withholding in respect of interest, dividends or gross proceeds paid with respect to your Shares, you may be able to obtain a refund of or credit for any amounts withheld in excess of the applicable rate. Holders are encouraged to consult with their own tax advisors regarding the possible implications of these withholding requirements on their investment in the Shares.

 

Each holder, by its acquisition of Shares, will be deemed to agree to allow brokers and nominees to provide to the Trust its name and address and such other information and forms as may be reasonably requested by the Trust for purposes of complying with their tax reporting and withholding obligations (and to waive any confidentiality rights with respect to such information and forms for such purpose) and to provide such information or forms upon request.

 

Foreign Account Tax Compliance

 

The Foreign Account Tax Compliance provisions of the Hiring Incentives to Restore Employment Act (“HIRE”), enacted in 2010, generally impose a reporting regime and potentially a 30% withholding tax with respect to certain U.S. source income (including dividends and interest) and gross proceeds from the sale or other disposition of property that can produce U.S. source interest or dividends (“Withholdable Payments”). As a general matter, the rules are designed to require U.S. persons’ direct and indirect ownership of Non-U.S. accounts and Non-U.S. entities to be reported to the IRS. The 30% withholding tax regime applies if there is a failure to provide required information regarding U.S. ownership.

 

The rules subject a Non-U.S. Holder’s share of Withholdable Payments and a portion of other payments from Non-U.S. entities (who have entered into FFI Agreements (as defined below)) (“Passthru Payments”) to 30% withholding tax unless such holder provides information, representations and waivers of Non-U.S. law as may be required to comply with the provisions of the rules. A Non-U.S. Holder that is treated as a “foreign financial institution” is generally subject to withholding unless it enters into an agreement (a “FFI Agreement”) with the IRS with respect to the foregoing, including reporting certain information to the IRS regarding its U.S. accountholders and those of its affiliates. The withholding rules generally apply to U.S. source payments made after June 30, 2014, to gross proceeds from the sale or other disposition after December 31, 2018 of property that can produce U.S. source interest or dividends, and to other Passthru Payments made after the later of December 31, 2018 or the date that final regulations defining the term “foreign passthru payment” become effective.

 

The application of the withholding rules to a sale or other disposition of an interest in a partnership is unclear, but it is possible that the gross proceeds of the sale or other disposal of an interest in the Trust will be subject to tax under the withholding rules if such proceeds are treated as an indirect disposal of the Non-U.S. Holder’s interest in assets that can produce U.S. source interest or dividends, unless the selling Non-U.S. Holder provides appropriate reporting information. Holders should consult their own advisors regarding the requirements under HIRE with respect to their own situation.

 

Backup Withholding

 

The Trust is required in certain circumstances to backup withhold on certain payments paid to non-corporate holders of Shares who do not furnish to the Trust their correct taxpayer identification number (in the case of individuals, their social security number) and certain certifications, or who are otherwise subject to backup withholding. Backup withholding is not an additional tax. Any amounts withheld from payments made to you may be refunded or credited against your U.S. federal income tax liability, if any, provided that the required information is timely furnished to the IRS.

 

 

 

ERISA AND RELATED CONSIDERATIONS

 

ERISA and the Code impose certain restrictions on (a) employee benefit plans (as defined in Section 3(3) of ERISA) that are subject to the fiduciary responsibility provisions of ERISA, as set forth in Title I thereof, (b) plans described in Section 4975(e)(1) of the Code that are subject to Section 4975 of the Code, including individual retirement accounts and Keogh plans, (c) entities whose underlying assets include plan assets by reason of a plan’s investment in such entities (each of the foregoing, a “Plan”) and (d) persons who have certain specified relationships to such Plans (“Parties in Interest” under ERISA and “Disqualified Persons” under the Code). Moreover, based on the reasoning of the U.S. Supreme Court in John Hancock Life Insurance Co. v. Harris Trust & Savings Bank, 510 U.S. 86 (1993), an insurance company’s general account may be deemed to include assets of the Plans investing in the general account (e.g., through the purchase of an annuity contract), and the insurance company might be treated as a Party in Interest or Disqualified Person with respect to a Plan by virtue of such investment. ERISA also imposes certain duties on persons who are fiduciaries of Plans subject to ERISA, and Section 406 of ERISA and Section 4975 of the Code prohibit certain transactions between a Plan and Parties in Interest or Disqualified Persons with respect to such Plans.

 

Acquisition of Shares

 

The Sponsor, the Trustee, the Advisor and the Authorized Participants may be Parties in Interest or Disqualified Persons with respect to a number of Plans. Accordingly, the purchase of Shares by a Plan that has such a relationship could be deemed to constitute a transaction prohibited under Section 406 of ERISA or Section 4975 of the Code (e.g., the indirect transfer to or use by or for the benefit of a Party in Interest or Disqualified Person of assets of a Plan). Such transactions may be subject to one or more statutory or administrative exemptions, such as Section 408(b)(17) of ERISA and Section 4975(d)(20) of the Code, which exempt certain transactions with non-fiduciary service providers; Prohibited Transaction Class Exemption (“PTCE”) 90-1, which exempts certain transactions involving insurance company pooled separate accounts; PTCE 91-38, which exempts certain transactions involving bank collective investment funds; PTCE 84-14, which exempts certain transactions effected on behalf of a Plan by a “qualified professional asset manager;” PTCE 95-60, which exempts certain transactions involving insurance company general accounts; PTCE 96-23,which exempts certain transactions effected on behalf of a Plan by an “in-house asset manager.” Even if all of the conditions specified in one of the foregoing exemptions were satisfied, however, there can be no assurance that such exemption would apply to all of the prohibited transactions that could be deemed to arise in connection with a Plan’s purchase of Shares.

 

Because of the possibility that a prohibited transaction could occur as a result of the transfer of Index Futures between a Plan and an Authorized Participant, no such transfer shall occur unless such transfer will not constitute or result in a non-exempt prohibited transaction under Section 406 of ERISA or Section 4975 of the Code. Accordingly, each Plan and its fiduciary will be deemed to have represented, in connection with a transfer of Index Futures between the Plan and an Authorized Participant, that such transfer will not constitute or result in a non-exempt prohibited transaction by reason of one of the statutory or administrative exemptions described above or another applicable exemption.

 

Plan Asset Rules

 

Under Section 3(42) of ERISA and regulations issued by the U.S. Department of Labor (the “DOL”) at 29 C.F.R. Section 2510.3-101 (together with Section 3(42) of ERISA, the “Plan Asset Rules”), as a general rule, the underlying assets and properties of corporations, partnerships, trusts and certain other entities in which a Plan purchases an “equity interest” will be deemed for purposes of the fiduciary responsibility provisions of ERISA and Section 4975 of the Code to be assets of the investing Plan unless certain exceptions apply. The Plan Asset Rules define an “equity interest” as any interest in an entity other than an instrument that is treated as indebtedness under applicable local law and which has no substantial equity features. The Shares should be treated as “equity interests” for purposes of these rules.

 

One exception provides that an investing Plan’s assets will not include any of the underlying assets of an entity if the equity interest acquired by the Plan is a “publicly-offered security.” A publicly-offered security is defined in the Plan Asset Rules as a security that (a) is freely transferable, (b) is part of a class of securities that is owned by 100 or more investors independent of the issuer and of one another, and (c) either (i) part of a class of securities registered under Section 12(b) or Section 12(g) of the Exchange Act or (ii) sold to the Plan as part of an offering of securities to the public pursuant to an effective registration statement under the Securities Act and the class of securities of which such security is a part is registered under the Exchange Act within 120 days (or such later time as may be allowed by the SEC) after the end of the fiscal year of the issuer during which the public offering occurred.

 

 

 

It is anticipated that the Shares will constitute publicly-offered securities under the Plan Asset Rules. Accordingly, Shares purchased by a Plan, but not the assets held in the Trust, should be treated as assets of the Plan for purposes of applying the fiduciary responsibility provisions of ERISA and Section 4975 of the Code.

 

General Investment Considerations

 

Any Plan fiduciary that proposes to cause a Plan to purchase Shares should consult with its counsel with respect to the potential applicability of ERISA and the Code to such investment and determine on its own whether any exceptions to or exemptions from the prohibited transaction provisions of ERISA and the Code are applicable and whether all conditions of any such exceptions or exemptions have been satisfied. Moreover, each Plan fiduciary should consider the fiduciary standards under ERISA in the context of the Plan’s particular circumstances before authorizing an investment of a portion of such Plan’s assets in the Shares. Accordingly, such fiduciary should consider (i) whether the investment satisfies the diversification requirements of Section 404(a)(1)(C) of ERISA, (ii) whether the investment is in accordance with the documents and instruments governing the Plan as required by Section 404(a)(1)(D) of ERISA, and (iii) whether the investment is prudent under ERISA.

 

Certain employee benefit plans, including non-U.S. pension plans, governmental plans established or maintained in the United States (as defined in Section 3(32) of ERISA) and church plans (as defined in Section 3(33) of ERISA) for which no election has been made under Section 410(d) of the Code, are not subject to the fiduciary responsibility provisions of ERISA or Section 4975 of the Code. However, any such plan that is qualified and exempt from taxation under Sections 401(a) and 501(a) of the Code may nonetheless be subject to the prohibited transaction rules set forth in Section 503 of the Code. Also, some non-U.S. plans and governmental plans may be subject to non-U.S. laws, or U.S. federal, state or local laws, that are, to a material extent, similar to the fiduciary responsibility provisions of ERISA or Section 4975 of the Code. Each fiduciary of a plan subject to such a similar law should make its own determination as to whether an investment in the Shares complies with all applicable requirements under such law.

 

The sale of Shares to a Plan is in no respect a representation by the Trust, the Sponsor, an Authorized Participant or any other person that such an investment meets all relevant legal requirements with respect to investments by Plans generally or any particular Plan or that such an investment is appropriate for Plans generally or any particular Plan.

 

 

 

PLAN OF DISTRIBUTION

 

The Trust intends to issue Shares in Baskets to Authorized Participants in exchange for the requisite consideration on a continuous basis, although it may suspend issuances of Shares at any time. As of the date of this prospectus, the Authorized Participants are UBS Securities LLC, Credit Suisse Securities (USA) LLC, Goldman Sachs & Co. LLC, Goldman Sachs Execution & Clearing L.P. and J.P. Morgan Securities LLC. Because new Shares can be created and issued on an ongoing basis, at any point during the life of the Trust, a “distribution,” as such term is used in the Securities Act, will be occurring. Authorized Participants, other broker-dealers and other persons are cautioned that some of their activities will result in their being deemed participants in a distribution in a manner that will render them statutory underwriters and subject them to the prospectus-delivery and liability provisions of the Securities Act. An Authorized Participant, other broker-dealer firm or any of their respective clients will be deemed a statutory underwriter if it purchases a Basket from the Trust, breaks the Basket down into the constituent Shares and sells the Shares to its customers; or if it chooses to couple the creation of a supply of new Shares with an active selling effort involving solicitation of secondary market demand for the Shares. A determination of whether a particular market participant is an underwriter must take into account all the facts and circumstances pertaining to the activities of the broker-dealer or its client in the particular case, and the examples mentioned above should not be considered a complete description of all the activities that would lead to designation as an underwriter and subject them to the prospectus-delivery and liability provisions of the Securities Act.

 

By executing an Authorized Participant Agreement, an Authorized Participant becomes part of the group of parties eligible to purchase Baskets from, and put Baskets for redemption to, the Trust. An Authorized Participant is under no obligation to create or redeem Baskets, and an Authorized Participant is under no obligation to offer to the public Shares of any Baskets it does create.

 

Authorized Participants that do offer to the public Shares from the Baskets they create will do so at a per-Share offering price that will vary depending upon, among other factors, the trading price of the Shares on NYSE Arca, the NAV and the supply of and demand for the Shares at the time of the offer. Shares initially comprising the same Basket but offered by Authorized Participants to the public at different times may have different offering prices. The excess, if any, of the price at which an Authorized Participant sells a Share in respect of which it is acting as a statutory underwriter over the price paid by that Authorized Participant in connection with the creation of that Share in a Basket may be deemed to be underwriting compensation. However, such underwriting compensation, together with any other underwriting compensation received in connection with the offering (if any), will not exceed 10% of the gross proceeds in accordance with FINRA Conduct Rule 2310.

 

The Trust will not pay a selling commission or any other compensation to any Authorized Participant in connection with the creation of Baskets. Investors that purchase Shares through a commission/fee-based brokerage account may, however, pay commissions/fees charged by the brokerage account. It is recommended that investors review the terms of their brokerage accounts for details on applicable charges.

 

Dealers that are not “underwriters” (including Authorized Participants that are not acting as underwriters) but are participating in a distribution (as contrasted to ordinary secondary trading transactions), and thus dealing with Shares that are part of an “unsold allotment” within the meaning of Section 4(a)(3)(C) of the Securities Act, would be unable to take advantage of the prospectus-delivery exemption provided by Section 4(a)(3) of the Securities Act.

 

The Sponsor intends that sales be made through broker-dealers who are members of FINRA. Investors intending to create or redeem Baskets through Authorized Participants in transactions not involving a broker- dealer registered in such investor’s state of domicile or residence should consult their legal advisor regarding applicable broker-dealer or securities regulatory requirements under the state securities laws prior to such creation or redemption.

 

Any Authorized Participant may make a market in the Shares or the Index Futures. However, no Authorized Participant is obligated to do so, and any of them may stop doing so at any time without notice. No assurance can be given as to the liquidity of the trading market for the Shares or the Index Futures.

 

The Shares are listed on NYSE Arca under the symbol “CMDT.”

 

 

 

LEGAL MATTERS

 

The validity of the Shares has been passed upon for the Sponsor by Richards, Layton & Finger, P.A. Skadden, Arps, Slate, Meagher & Flom LLP, as special United States tax counsel to the Sponsor, has also provided an opinion regarding certain federal income tax matters relating to the Trust and the Shares.

 

EXPERTS

 

The financial statements incorporated in this prospectus by reference to the Trust’s Annual Report on Form 10-K for the year ended December 31, 2016 have been so incorporated in reliance on the report of PricewaterhouseCoopers LLP, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.

 

WHERE YOU CAN FIND MORE INFORMATION; Incorporation of Certain Information by Reference

 

This prospectus is a part of a registration statement on Form S-1 filed by the sponsor with the SEC under the Securities Act of 1933. As permitted by the rules and regulations of the SEC, this prospectus does not contain all of the information contained in the registration statement and the exhibits and schedules thereto. For further information about the Trust and about the Shares offered hereby, you should consult the registration statement and the exhibits and schedules thereto. You should be aware that statements contained in this prospectus concerning the provisions of any documents filed as an exhibit to the registration statement or otherwise filed with the SEC are not necessarily complete, and in each instance reference is made to the copy of such document as so filed.

 

The Trust files annual, quarterly and current reports and other information with the Securities and Exchange Commission (Commission File Number 001-36044). These filings contain important information which does not appear in this prospectus. For further information about the trust, you may read and copy these filings at the SEC’s Internet site (www.sec.gov) or at its public reference room at 100 F Street, N.W., Washington, D.C. 20549. You may obtain information on the operation of the public reference room by calling the SEC at 1-800-SEC-0330.

 

The SEC allows the “incorporation by reference” of information into this prospectus, which means that information may be disclosed to you by referring you to other documents filed with the SEC. The following documents filed by the Trust are so incorporated by reference:

 

 

Annual Report of the Trust on Form 10-K for the fiscal year ended December 31, 2016; and

     
 

Quarterly Report of the Trust on Form 10-Q for the fiscal quarter ended March 31, 2017.

     
  All documents subsequently filed by the Trust pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the termination of the offering.

  

Certain statements in and portions of this prospectus update and replace information in the above listed documents incorporated by reference.

 

The Sponsor will provide you without charge, upon your written or oral request; a copy of any or all of the information that has been incorporated by reference into this prospectus but not delivered with the prospectus. Please direct your written or telephone requests to iShares® Delaware Trust Sponsor LLC, 400 Howard Street, San Francisco, CA 94105, Attention: iShares Product Team (Tel: 415-670-2000). You may also obtain information about the Trust by visiting the iShares® website at www.iShares.com. Information contained in the iShares® website is not part of this prospectus.

 

The Trustee will furnish you with annual reports as required by the rules and regulations of the SEC, as well as with those reports required by the CFTC and the NFA, including, but not limited to, an annual audited financial statement certified by independent public accountants, and any other reports required by any other governmental authority that has jurisdiction over the activities of the Trust. The monthly Account Statements for the Trust that are required to be prepared under the CFTC’s rules will be published online at www.ishares.com. You also will be provided with appropriate information to permit you, on a timely basis, to file your United States federal and state income tax returns with respect to your Shares. Additional reports may be posted online at www.ishares.com in the discretion of the Sponsor or Trustee or as required by regulatory authorities.

 

 

 

 



 

 

 

 

iShares® Commodity Optimized Trust

 

32,950,000 Shares

 

 

 

 

 

 

 

 

 

 

PROSPECTUS

 

July [__], 2017

 

 

 

 

 

 

 

 

 

 



 

 

 

 

PART TWO

 

STATEMENT OF ADDITIONAL INFORMATION

 

 

 

 

 

 

 

 

iShares® Commodity Optimized Trust

 

 

 

 

 

 

 

 

 

 

 

 

THIS STATEMENT OF ADDITIONAL INFORMATION IS THE SECOND PART OF A TWO-PART DOCUMENT AND SHOULD BE READ IN CONJUNCTION WITH THE DISCLOSURE DOCUMENT DATED JULY [__], 2017. THE DISCLOSURE DOCUMENT AND THIS STATEMENT OF ADDITIONAL INFORMATION ARE BOUND TOGETHER, AND BOTH CONTAIN IMPORTANT INFORMATION.

 

 

 

 

 

 

 

 

 

JULY [__], 2017

 

 

 

TABLE OF CONTENTS

 

THE COMMODITY FUTURES MARKETS

2-1

GLOSSARY

2-2

 

 

 

THE COMMODITY FUTURES MARKETS

 

Futures contracts on physical commodities and commodity indices are traded on regulated futures exchanges, and physical commodities and other derivatives on physical commodities and commodity indices are traded in the over-the-counter market and on various types of physical and electronic trading facilities and markets. At present, all of the contracts included in the Index are exchange-traded futures contracts. An exchange-traded futures contract provides 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 on an index of commodities provides for the payment and receipt of cash based on the level of the index at settlement or liquidation of the contract. A futures contract provides for a specified settlement month in which the cash settlement is made or 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”).

 

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. This margin deposit provides collateral for the obligations of the parties to the futures contract.

 

By depositing margin, which may vary in form depending on the exchange, with the clearing house or broker involved, a market participant may be able to earn interest on its margin funds, thereby increasing the total return that it may realize from an investment in futures contracts. The market participant normally makes to, and receives from, the broker subsequent daily payments as the price of the futures contract fluctuates. These payments are called “variation margin” and are made as the existing positions in the futures contract become more or less valuable, a process known as “marking to the market.”

 

Futures contracts are traded on organized exchanges known as “contract markets” in the United States. 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 trader obtained the position. This operates to terminate the position and fix the trader’s profit or loss. Futures contracts are cleared through the facilities of a centralized clearing house and a brokerage firm, referred to as a “futures commission merchant,” which is a member of the clearing house. The clearing house guarantees the performance of each clearing member that is a party to a futures contract by, in effect, taking the opposite side of the transaction. Clearing houses do not guarantee the performance by clearing members of their obligations to their customers.

 

Unlike equity securities, futures contracts, by their terms, have stated expirations and, at a specified point in time prior to expiration, trading in a futures contract for the current delivery month will cease. As a result, a market participant wishing to maintain its exposure to a futures contract on a particular commodity with the nearest expiration must close out its position in the expiring contract and establish a new position in the contract for the next delivery month, a process referred to as “rolling.” For example, a market participant with a long position in November crude oil futures that wishes to maintain a position in the nearest delivery month will, as the November contract nears expiration, sell November futures, which serves to close out the existing long position, and buy December futures. This will “roll” the November position into a December position, and, when the November contract expires, the market participant will still have a long position in the nearest delivery month.

 

Futures exchanges and clearing houses in the United States are subject to regulation by the CFTC. The Exchange may adopt rules and take other actions that affect trading, including imposing speculative position limits, maximum price fluctuations and trading halts and suspensions and requiring liquidation of contracts in certain circumstances. See “Risk Factors—Risk Factors Relating to the Trust—Exchange position limits and other rules may restrict the creation of Baskets and the operation of the Trust.”

 

Futures markets outside the United States are generally subject to regulation by comparable regulatory authorities. The structure and nature of trading on non-U.S. exchanges, however, may differ from this description.

 

 

 

GLOSSARY

 

In this prospectus, each of the following terms has the meaning set forth below:

 

“2010 PD Amending Directive” — Directive 2010/73/EU.

 

“Adjusted Net Asset Value” — The net asset value of the Trust, as calculated before deducting fees and expenses based on the value of the Trust’s assets.

 

“Advisor” — BlackRock Fund Advisors, a California corporation and an indirect subsidiary of BlackRock, Inc., when acting in its capacity as commodity trading advisor of the Trust. BlackRock Fund Advisors is registered with the CFTC as a commodity trading advisor.

 

“Advisory Agreement” — The Investment Advisory Agreement between the Trust and the Advisor.

 

“Affiliates” — Affiliates of the Sponsor, the Advisor and the Trustee, and each of their affiliates, directors, partners, trustees, managing members, officers and employees.

 

“Authorized Participant” – A person who, at the time of submitting to the Trustee, or any Trust Administrator appointed by the Trustee, an order to create or redeem one or more Baskets (1) is a registered broker-dealer and, if required in connection with its activities, a registered futures commission merchant, (2) is a DTC Participant, (3) has in effect a valid Authorized Participant Agreement and (4) is in a position to transfer Index Futures and the required cash or other Collateral Assets to, or take delivery of these assets from, the Trustee through one or more accounts.

 

“Authorized Participant Agreement” — An agreement entered into by an Authorized Participant, the Sponsor and the Trustee that provides the procedures for the creation and redemption of Baskets.

 

“Authorized Person” — A person authorized by the Financial Conduct Authority in the United Kingdom.

 

“Basket” — A block of 50,000 Shares (as such number may be increased or decreased pursuant to the Trust Agreement).

 

“Basket Amount” — The amount of Index Futures and cash (or, in the discretion of the Sponsor, other Collateral Assets), that an Authorized Participant must deliver in exchange for one Basket, or that an Authorized Participant is entitled to receive in exchange for each Basket surrendered for redemption. The value of the Basket Amount will equal the product of the NAV and the number of Shares constituting a Basket, in each case as of the time of determination.

 

“BFA” — BlackRock Fund Advisors, a California corporation.

 

“Bloomberg” means Bloomberg Finance L.P. and its affiliates.

 

“Bloomberg CI” — The Bloomberg Commodity Index. For an explanation of how the Bloomberg CI is calculated, see “The Index, the Bloomberg CI and the Bloomberg Roll Select CI—Calculation of the Bloomberg CI.”

 

“Bloomberg Roll Select CI” — The Bloomberg Roll Select Commodity Index. For an explanation of how the Bloomberg Roll Select CI is calculated, see “The Index, the Bloomberg CI and the Bloomberg Roll Select CI—Calculation of the Bloomberg Roll Select CI.”

 

“Business Day” — Any day (1) on which none of the following occurs: (a) NYSE Arca is closed for regular trading, (b) an Exchange is closed for regular trading or (c) the Federal Reserve wire transfer system is closed for cash wire transfers, or (2) that the Trustee determines that it is able to conduct business.

 

“CFTC” — Commodity Futures Trading Commission, an independent agency with the mandate to regulate commodity futures and option markets in the United States, or any successor governmental agency in the United States.

 

“CIM” — The commodity index multiplier for a commodity in the Bloomberg CI or the Bloomberg Roll Select CI, as the case may be.

 

“CIM Determination Date” — The date on which the CIMs of the commodities in the Bloomberg CI and the Bloomberg Roll Select CI, as the case may be, are determined, which is generally on the fourth business day of each year.

 

“CIP” — The commodity index percentage of a commodity eligible for inclusion in the Bloomberg CI, which determines the relative weight of such commodity in the Index, the Bloomberg CI and the Bloomberg Roll Select CI.

 

 

 

“CIS Order” — Article 14(5) of the FSMA (Promotion of Collective Investment Schemes) (Exemptions) Order 2001, as amended.

 

“Clearing FCM” — UBS Securities, or any other futures commission merchant appointed by the Sponsor as clearing futures commission merchant for the Trust.

 

“CLP” — The commodity liquidity percentage of a commodity eligible for inclusion in the Bloomberg CI, based on five-year average trading volume data for the related designated contract, used in connection with determining such commodity’s CIP.

 

“CME” — The Chicago Mercantile Exchange Inc., or any successor DCM.

 

“CME Group” — CME Group Inc. and its designated contract markets, including the CME, CBOT, NYMEX, COMEX and KCBT.

 

“Code” — The United States Internal Revenue Code of 1986, as amended.

 

“Collateral Assets” — Cash, U.S. Treasury securities or other short-term securities and similar securities that are eligible as margin deposits for Index Futures under the rules of the related Exchange.

 

“Commodity Exchange Act” or “CEA” — The United States Commodity Exchange Act of 1936, as amended.

 

“CPP” — The commodity production percentage of a commodity eligible for inclusion in the Bloomberg CI, based on five-year average production measures, used in connection with determining such commodity’s CIP.

 

“DCM” — A designated contract market, as defined in the CEA.

 

“DCM Rules” — The CFTC rules that would require that at least 85% of the total volume of any contract listed on a DCM be executed through the central limit order book, rather than as a block transaction or other non-competitively executed transaction.

 

“Delaware Trustee” — Wilmington Trust, National Association, a national banking association.

 

“Dodd-Frank Act” — The Dodd-Frank Wall Street Reform and Consumer Protection Act, as amended.

 

“DOL” — The U.S. Department of Labor.

 

“DTC” — The Depository Trust Company, or its successor.

 

“DTC Participant” — An entity that has an account with DTC.

 

“EFRP” — An exchange for related positions that involves contemporaneous transactions in futures contracts and the underlying cash commodity or a closely related commodity or OTC instrument.

 

“ERISA” — The Employee Retirement Income Security Act of 1974, as amended.

 

“Exchange” — The CME, one of the CME Group Inc.’s DCMs, or any additional or successor DCM through which the Trust trades Index Futures.

 

“Exchange Act” — The United States Securities Exchange Act of 1934, as amended.

 

“FCM” — A futures commission merchant, as defined in the CEA.

 

“FCM Agreement” — The Institutional Futures Customer Agreement, dated as of August 1, 2013, between the Trust and the Clearing FCM, as amended.

 

“FCM Rules” — The CFTC rules regarding the risk management practices of clearing members, which require futures commission merchants to establish risk-based limits on position and order size, amongst other measures.

 

“FFI Agreement” — An agreement between the IRS and a Non-U.S. Holder that is treated as a “foreign financial institution” that meets the requirements of Section 1471(b)(1) of the Code.

 

“FINRA” — Financial Industry Regulatory Authority, Inc.

 

 

 

“FSMA” — The Financial Services and Markets Act 2000, as amended.

 

“HIRE” — The Hiring Incentives to Restore Employment Act of 2010, as amended.

 

“ICIM” — The initially calculated CIM for a commodity on a CIM Determination Date, which is used to calculated the final CIM for such commodity.

 

“Index” — The Bloomberg Roll Select Commodity Total Return Index. For an explanation of how the Index is calculated, see “The Index, the Bloomberg CI and the Bloomberg Roll Select CI—Calculation of the Index.”

 

“Index Administrator” — Bloomberg, as the party responsible for administering, calculating and publishing the the Index, the Bloomberg CI and the Bloomberg Roll Select CI.

 

“Index Advisory Council” — The council convened from time to time for the Bloomberg CI in order to provide Bloomberg with guidance and feedback from the investment community on the Bloomberg CI, related products and commodities markets generally.

 

“Index Futures” — Exchange-traded futures contracts on the Bloomberg Roll Select CI of various expirations.

 

“Index Methodology” — The Index Methodology for the Bloomberg Commodity Index Family, dated as of July 2017.

 

“Index Committees” — The committee, established for the purpose of providing oversight and accountability over all aspects of the Bloomberg CI determination process, consisting of senior representatives from various Bloomberg business units.

 

“Index Providers” — Bloomberg and UBS Securities, as the holders of certain rights relating to the Index, the Bloomberg CI and the Bloomberg Roll Select CI.

 

“Indirect Participant” — An entity that has access to the DTC clearing system by clearing securities through, or maintaining a custodial relationship with, a DTC Participant.

 

“Investment Company Act” — The Investment Company Act of 1940, as amended.

 

“IRS” — The Internal Revenue Service.

 

“Master Services Agreement” — The master services agreement, dated as of April 21, 2011, as supplemented by related service modules, each between the Trust and the Trust Administrator, as amended.

 

“Monthly revaluation convention” — The convention pursuant to which the Trust generally will credit or debit, respectively, the “book” capital accounts of holders of existing Shares with any unrealized gain or loss in the Trust’s assets based on the lowest fair market value of the assets and shares, respectively, during the month in which the creation or redemption transaction takes place, rather than the fair market value at the time of such creation or redemption.

 

“NAV” — The net asset value per Share.

 

“NFA”— National Futures Association.

 

“Non-U.S. Holder” — A beneficial owner of Shares that is not a U.S. Holder.

 

“NYSE Arca” — The NYSE Arca Marketplace operated by NYSE Arca Equities, Inc.

 

“OTC” — Over-the-counter.

 

“Passthru Payments” — “Passthru payments” within the meaning of Section 1471(d)(7) of the Code.

 

“Plan” — Any (a) employee benefit plan (as defined in Section 3(3) of ERISA) that is subject to the fiduciary responsibility provisions of ERISA, as set forth in Title I thereof, (b) plan described in Section 4975(e)(1) of the Code that is subject to Section 4975 of the Code, including individual retirement accounts and Keogh plans, (c) entity whose underlying assets include plan assets by reason of a plan’s investment in such entity.

 

“Plan Asset Rules” — Section 3(42) of ERISA and the regulations issued by DOL at 29 C.F.R. Section 2510.3-101.

 

 

 

“Proposed Position Limits Rules”  — The proposed CFTC regulations that impose new federal position limits on futures and on options certain energy, metal, and agricultural commodities and economically equivalent swaps.

 

“Prospectus Directive” — Directive 2003/71/EC (and amendments thereto, including the 2010 PD Amending Directive, to the extent implemented in the Relevant Member State), and includes any relevant implementing measure in the Relevant Member State.

 

“PTCE” — Prohibited Transaction Class Exemption.

 

“QPTP” — A “qualified publicly traded partnership” within the meaning of Section 851 of the Code.

 

“Referenced contracts” — Futures and options on certain energy, metal, and agricultural commodities, that would be subject to federal position limits under the Proposed Position Limits Rules.

 

“Relevant Member State” — Each member state of the European Economic Area that has implemented Directive 2003/71/EC.

 

“Reportable Transaction” — A “reportable transaction” within the meaning of Section 6707A(c)(1) of the Code.

 

“Reverse section 704(c) allocations” — Allocations of items of the Trust’s income, gain, loss, deduction and credit to existing holders of Shares to account for the difference between the tax basis and fair market value of property owned by the Trust at the time new Shares are issued or old Shares are redeemed.

 

“RIC” — A “regulated investment company” within the meaning of Section 851 of the Code.

 

“RIC Qualifying Income” — Income derived from dividends, interest, payments with respect to certain securities loans, gains from the sale or other disposition of stock or securities or foreign currencies or other income derived with respect to its business of investing in stock, securities or currencies.

 

“SEC” — The Securities and Exchange Commission of the United States, or any successor governmental agency in the United States.

 

“Section 1256 Contracts” — “Section 1256 contracts” within the meaning of Section 1256 of the Code.

 

“Securities Act” — The United States Securities Act of 1933, as amended.

 

“Shareholders” — Owners of beneficial interests in the Shares.

 

“Shares” — Units of fractional undivided beneficial interest in the net assets of the Trust which are issued by the Trust.

 

“Sponsor” — iShares® Delaware Trust Sponsor LLC, a Delaware limited liability company, when acting in its capacity as Sponsor of the Trust. The Sponsor is registered with the CFTC as a commodity pool operator.

 

“Sponsor’s Fee” — An allocation to be paid by the Trust to the Sponsor monthly in arrears, which will accrue daily at an annualized rate of up to 0.75% of the Adjusted Net Asset Value of the Trust, subject to adjustment in accordance with the terms of the Trust Agreement.

 

“Tax Administrator” — PricewaterhouseCoopers LLP, a limited liability partnership formed under the laws of the state of Delaware.

 

“Tax Matters Partner” — The Sponsor, in its capacity as “tax matters partner” of the Trust within the meaning of Section 6231(a)(7) of the Code.

 

“Trust” — The iShares® Commodity Optimized Trust, a Delaware statutory trust formed pursuant to the Trust Agreement.

 

“Trust Administrator” — An administrator appointed by the Trustee pursuant to the Trust Agreement. The Trustee has appointed as Trust Administrator State Street Bank and Trust Company, a trust company organized under the laws of Massachusetts.

 

“Trust Agreement” — The First Amended and Restated Trust Agreement of the Trust, among the Sponsor, the Trustee and the Delaware Trustee.

 

 

 

“Trustee” — BlackRock Institutional Trust Company, N.A., a national banking association and an indirect subsidiary of BlackRock, Inc., when acting in its capacity as Trustee of the Trust.

 

“UBS” — UBS AG, UBS Securities and their affiliates.

 

“UBS Securities” — UBS Securities LLC, a Delaware limited liability company.

 

“UBTI” — “Unrelated business taxable income” within the meaning of Section 512 of the Code.

 

“U.S. Holder” — A beneficial owner of Shares that is (i) an individual citizen or resident of the United States, (ii) a corporation organized in or under the laws of the United States or any state thereof or the District of Columbia or (iii) otherwise subject to U.S. federal income taxation on a net income basis in respect of the Shares.

 

“WAV” — The weighted average value of the Bloomberg CI or the Bloomberg Roll Select CI, as the case may be. During roll periods, the WAV associated with the existing index components is referred to as the “Old WAV,” and the WAV associated with the replacement index components is referred to as the “New WAV.”

 

“Withholdable Payments” — “Withholdable payments” within the meaning of Section 1473(1) of the Code.

 

 

IS-P-CMDT-0717

 

 

PART II—INFORMATION NOT REQUIRED IN PROSPECTUS

 

Item 13.

Other Expenses of Issuance and Distribution.

 

The trust will not bear any expenses incurred in connection with the issuance and distribution of the securities registered under this registration statement. These expenses will be paid by the sponsor of the trust. The expenses estimated to be incurred in connection with the issuance and distribution of the securities being registered, other than underwriting compensation, are as set forth below.

 

Registration fees for the iShares

  $ 12,211.22  

Printing and engraving costs

  $ 5,000  

Legal fees

  $ 50,000  

Total

  $ 67,211.22  

 

Item 14.

Indemnification of Directors and Officers.

 

Section 5.11(b) of the Trust Agreement provides that the Trustee shall indemnify the Sponsor, its directors, employees, delegees and agents against, and hold each of them harmless from, any loss, liability, claim cost, expense or judgment of any kind whatsoever (including the reasonable fees and expenses of counsel) (1) caused by the negligence or bad faith of the Trustee or (2) arising out of any information furnished in writing to the Sponsor by the Trustee expressly for use in the registration statement, or any amendment thereto or periodic report, filed with the SEC relating to the Shares that is not materially altered by the Sponsor.

 

Section 5.11(d) of the Trust Agreement provides that the Sponsor and its shareholders, directors, officers, employees, affiliates (as such term is defined under the Securities Act of 1933, as amended) and subsidiaries and agents shall be indemnified from the Trust and held harmless against any loss, liability, claim, cost, expense or judgment of any kind whatsoever (including the reasonable fees and expenses of counsel) arising out of or in connection with the performance of their obligations under the Trust Agreement or any actions taken in accordance with the provisions of the Trust Agreement and incurred without their (1) negligence, bad faith or willful misconduct or (2) reckless disregard of their obligations and duties under the Trust Agreement.

 

Section 12 of the Investment Advisory Agreement provides that the Advisor and its shareholders, directors, officers, employees, affiliates (as such term is defined in Rule 405 under the Securities Act of 1933, as amended) and subsidiaries shall be indemnified from the Trust and held harmless against any loss, liability, cost, expense or judgment (including the reasonable fees and expenses of counsel) arising out of or in connection with the performance of its obligations under the Investment Advisory Agreement or any actions taken in accordance with the provisions of the Investment Advisory Agreement and incurred without their (1) negligence, bad faith or willful misconduct or (2) reckless disregard of their obligations and duties under the Investment Advisory Agreement.

 

 

 

Item 16.

Exhibits and Financial Statement Schedules.

 

(a)

Exhibits

 

Exhibit
Number

 

Description

  

 

  

3.1

 

Restated Certificate of Trust is incorporated by reference to Exhibit 3.1 filed with Current Report on Form 8-K on July 7, 2014.

  

 

  

4.1

 

Amended and Restated Trust Agreement is incorporated by reference to Exhibit 4.1 filed with Current Report on Form 8-K on July 7, 2014.

  

 

  

4.2

 

Form of Authorized Participant Agreement is incorporated by reference to Exhibit 4.2 filed with Post-Effective Amendment No. 1 to Registration Statement No. 333-178376, filed on April 2, 2014.

  

 

  

5.1

 

Opinion of Richards, Layton & Finger, P.A. as to legality for the shares.

  

 

  

8.1

 

Opinion of Skadden, Arps, Slate, Meagher & Flom LLP as to tax matters.

  

 

  

10.1

 

Investment Advisory Agreement is incorporated by reference to Exhibit 10.1 filed with Pre-Effective Amendment No. 5 to Registration Statement No. 333-178376 on August 2, 2013

  

 

  

10.2

 

Institutional Futures Customer Agreement is incorporated by reference to Exhibit 10.2 filed with Pre-Effective Amendment No. 5 to Registration Statement No. 333-178376 on August 2, 2013

  

 

  

10.3

 

Form of Service Module for Custodial Services is incorporated by reference to Exhibit 10.3 filed with Pre-Effective Amendment No. 3 to Registration Statement No. 333-178376 on July 1, 2013

  

 

  

10.4

 

Form of Service Module for Fund Administration and Accounting Services is incorporated by reference to Exhibit 10.4 filed with Pre-Effective Amendment No. 3 to Registration Statement No. 333-178376 on July 1, 2013

  

 

  

10.5

 

Form of Master Services Agreement is incorporated by reference to Exhibit 10.5 filed with Pre-Effective Amendment No. 3 to Registration Statement No. 333-178376 on July 1, 2013

  

 

  

10.6

 

Form of Control Agreement is incorporated by reference to Exhibit 10.6 filed with Pre-Effective Amendment No. 3 to Registration Statement No. 333-178376 on July 1, 2013

  

 

  

23.1

 

Consent of Richards, Layton & Finger, P.A., included in Exhibit 5.1

  

 

  

23.2

 

Consent of Skadden, Arps, Slate, Meagher & Flom LLP, included in Exhibit 8.1

  

 

  

23.3

 

Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm.

  

 

  

24.1

 

Power of Attorney is included on signature page.

 

 

 

Item 17.

Undertakings.

 

(a)

The registrant hereby undertakes:

 

(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:

 

(i) To include any prospectus required by section 10(a)(3) of the Securities Act of 1933, as amended;

 

(ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20 per cent change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement;

 

(iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement;

 

Provided, however, that:

 

(A) Paragraphs (a)(1)(i) and (a)(1)(ii) of this section do not apply if the registration statement is on Form S–8, and the information required to be included in a post-effective amendment by those paragraphs is contained in reports filed with or furnished to the Commission by the registrant pursuant to section 13 or section 15(d) of the Securities Exchange Act of 1934, as amended, that are incorporated by reference in the registration statement; and

 

(B) Paragraphs (a)(1)(i), (a)(1)(ii) and (a)(1)(iii) of this section do not apply if the registration statement is on Form S-1, Form S-3, Form SF-3 or Form F-3 and the information required to be included in a post-effective amendment by those paragraphs is contained in reports filed with or furnished to the Commission by the registrant pursuant to section 13 or section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the registration statement, or, as to a registration statement on Form S-3, Form SF-3 or Form F-3, is contained in a form of prospectus filed pursuant to Rule 424(b) that is part of the registration statement.

 

(C) Provided, further, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the registration statement is for an offering of asset-backed securities on Form SF-1 or Form SF-3, and the information required to be included in a post-effective amendment is provided pursuant to Item 1100(c) of Regulation AB.

 

 

(2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

 

(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

 

(4) If the registrant is a foreign private issuer, to file a post-effective amendment to the registration statement to include any financial statements required by Item 8.A. of Form 20-F at the start of any delayed offering or throughout a continuous offering. Financial statements and information otherwise required by Section 10(a)(3) of the Act need not be furnished, provided, that the registrant includes in the prospectus, by means of a post-effective amendment, financial statements required pursuant to this paragraph (a)(4) and other information necessary to ensure that all other information in the prospectus is at least as current as the date of those financial statements. Notwithstanding the foregoing, with respect to registration statements on Form F-3, a post-effective amendment need not be filed to include financial statements and information required by Section 10(a)(3) of the Act or Rule 3-19 of this chapter if such financial statements and information are contained in periodic reports filed with or furnished to the Commission by the registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the Form F-3.

 

(5) That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser:

 

(i) If the registrant is relying on Rule 430B:

 

(A) Each prospectus filed by the registrant pursuant to Rule 424(b)(3) shall be deemed to be part of the registration statement as of the date the filed prospectus was deemed part of and included in the registration statement; and

 

(B) Each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as part of a registration statement in reliance on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (vii), or (x) for the purpose of providing the information required by section 10(a) of the Securities Act of 1933 shall be deemed to be part of and included in the registration statement as of the earlier of the date such form of prospectus is first used after effectiveness or the date of the first contract of sale of securities in the offering described in the prospectus. As provided in Rule 430B, for liability purposes of the issuer and any person that is at that date an underwriter such date shall be deemed to be a new effective date of the registration statement relating to the securities in the registration statement to which that prospectus relates, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such effective date, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such effective date; or

 

 

 

(ii) If the registrant is subject to Rule 430C, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.

 

(6) That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities:

 

The undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:

 

(i) Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424;

 

(ii) Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;

 

(iii) The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and

 

(iv) Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.

 

(b) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

 

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused the registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of San Francisco, California, on July 24, 2017.

 

 

 

iSHARES® COMMODITY OPTIMIZED TRUST

 

 

 

 

By:

iShares® Delaware Trust Sponsor LLC, its sponsor

 

 

 

 

By:

/s/ Paul Lohrey

 

Name:

Paul Lohrey

 

Title:

Chief Executive Officer, Principal

Executive Officer, President 

 

 

 

 

By:

/s/ Jack Gee

 

Name:

Jack Gee

 

Title: 

Chief Financial Officer, Principal

Accounting Officer

 

 

 

  

POWER OF ATTORNEY

 

Each person whose signature appears below hereby constitutes Paul Lohrey, Jack Gee, Philip Jensen, Peter F. Landini and Kimun Lee, and each of them singly, his true and lawful attorneys-in-fact with full power to sign on behalf of such person, in the capacities indicated below, any and all amendments to this registration statement and any subsequent related registration statement filed pursuant to Rule 462(b) under the Securities Act of 1933, and generally to do all such things in the name and on behalf of such person, in the capacities indicated below, to enable the Registrant to comply with the provisions of the Securities Act of 1933 and all requirements of the Securities and Exchange Commission thereunder, hereby ratifying and confirming the signature of such person as it may be signed by said attorneys-in-fact, or any of them, on any and all amendments to this registration statement or any such subsequent related registration statement. 

 

Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities* and on the dates indicated.

 

 

Signature

 

Capacity

 

Date

  

 

  

 

  

/s/ Paul Lohrey

 

Director, Chief Executive Officer, Principal Executive Officer, President

 

July 24, 2017

Paul Lohrey

 

 

 

 

 

 

 

 

 

/s/ Jack Gee

 

Director, Chief Financial Officer, Principal Accounting Officer

 

July 24, 2017

Jack Gee

 

 

 

 

 

 

 

 

 

/s/ Philip Jensen

 

Director

 

July 24, 2017

Philip Jensen

 

 

 

 

 

 

 

 

 

/s/ Peter F. Landini

 

Director

 

July 24, 2017

Peter F. Landini

 

 

 

 

 

 

 

 

 

/s/ Kimun Lee

 

Director

 

July 24, 2017

Kimun Lee

 

 

 

 

 

 


*

The Registrant is a trust and the persons are signing in their capacities as officers or directors of iShares® Delaware Trust Sponsor LLC, the sponsor of the Registrant.

 

 

  

EXHIBIT INDEX

 

Exhibit
Number

 

Description

  

 

  

3.1

 

Restated Certificate of Trust is incorporated by reference to Exhibit 3.1 filed with Current Report on Form 8-K on July 7, 2014.

  

 

  

4.1

 

Amended and Restated Trust Agreement is incorporated by reference to Exhibit 4.1 filed with Current Report on Form 8-K on July 7, 2014.

  

 

  

4.2

 

Form of Authorized Participant Agreement is incorporated by reference to Exhibit 4.2 filed with Post-Effective Amendment No. 1 to Registration Statement No. 333-178376, filed on April 2, 2014.

  

 

  

5.1

 

Opinion of Richards, Layton & Finger, P.A. as to legality for the shares.

  

 

  

8.1

 

Opinion of Skadden, Arps, Slate, Meagher & Flom LLP as to tax matters.

  

 

  

10.1

 

Investment Advisory Agreement is incorporated by reference to Exhibit 10.1 filed with Pre-Effective Amendment No. 5 to Registration Statement No. 333-178376 on August 2, 2013

  

 

  

10.2

 

Institutional Futures Customer Agreement is incorporated by reference to Exhibit 10.2 filed with Pre-Effective Amendment No. 5 to Registration Statement No. 333-178376 on August 2, 2013

  

 

  

10.3

 

Form of Service Module for Custodial Services is incorporated by reference to Exhibit 10.3 filed with Pre-Effective Amendment No. 3 to Registration Statement No. 333-178376 on July 1, 2013

  

 

  

10.4

 

Form of Service Module for Fund Administration and Accounting Services is incorporated by reference to Exhibit 10.4 filed with Pre-Effective Amendment No. 3 to Registration Statement No. 333-178376 on July 1, 2013

  

 

  

10.5

 

Form of Master Services Agreement is incorporated by reference to Exhibit 10.5 filed with Pre-Effective Amendment No. 3 to Registration Statement No. 333-178376 on July 1, 2013

  

 

  

10.6

 

Form of Control Agreement is incorporated by reference to Exhibit 10.6 filed with Pre-Effective Amendment No. 3 to Registration Statement No. 333-178376 on July 1, 2013

  

 

  

23.1

 

Consent of Richards, Layton & Finger, P.A., included in Exhibit 5.1

  

 

  

23.2

 

Consent of Skadden, Arps, Slate, Meagher & Flom LLP, included in Exhibit 8.1

  

 

  

23.3

 

Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm.

  

 

  

24.1

 

Power of Attorney is included on signature page.