G.C.C. INDEX FUND
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON November 3, 2006
REGISTRATION NO. 333-
REGISTRATION NO. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
GREENHAVEN CONTINUOUS COMMODITY INDEX FUND
GREENHAVEN CONTINUOUS COMMODITY INDEX MASTER FUND
(Rule 140 Co-Registrant)
(Exact Name of Registrant as Specified in its Charter)
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Delaware
(State of Organization)
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6779
(Primary Standard Industrial
Classification Code Number)
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00000000
(I.R.S. Employer
Identification Number) |
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c/o GreenHaven Commodity Services
3340 Peachtree Road, Suite 1910
Atlanta, Georgia 30326
(404) 239-7938
(Address and telephone number of registrants
principal executive offices)
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c/o GreenHaven Commodity Services
3340 Peachtree Road, Suite 1910
Atlanta, Georgia 30326
(404) 239-7938
(Name, address and telephone
number of agent for service) |
Copies to:
Michael G. Tannenbaum, Esq.
James Rieger, Esq.
Tannenbaum Helpern Syracuse & Hirschtritt LLP
900 Third Avenue
New York, New York 10022
(212) 508-6700
Approximate date of commencement of proposed sale to the public: As soon as practicable
after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a delayed or continuous
basis pursuant to Rule 415 under the Securities Act of 1933, as amended, check the following box.
þ
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.o
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. o
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act,
check the following box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. o
If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the
following box. o
CALCULATION OF REGISTRATION FEE
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Proposed Maximum Aggregate Offering |
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Amount of Registration |
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Title of Securities to be Registered |
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Price* |
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Fee** |
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Common Units of Beneficial Interest |
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$120,000,000 |
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$12,840 |
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The proposed maximum aggregate offering has been calculated assuming that all Shares are
sold during the initial offering period at a price of $30.00 per Share.
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The amount of the registration fee of the Shares is calculated in reliance upon Rule
457(o) under the Securities Act and using the proposed maximum aggregate offering as described
above. |
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE
NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH
SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN
ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OR UNTIL THIS REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY
DETERMINE.
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 we are not soliciting
offers to buy these Securities in any jurisdiction where the offer or sale is not permitted.
SUBJECT TO COMPLETION DATED ____________, 2006
GREENHAVEN CONTINUOUS COMMODITY INDEX FUND
4,000,000 Common Units of Beneficial Interest
GREENHAVEN Continuous Commodity Index Fund, or the Fund, is organized as a Delaware
statutory trust. The Fund will issue common units of beneficial interest, or Shares, which
represent units of fractional undivided beneficial interest in and ownership of the Fund.
Shares may be purchased from the Fund only in one or more blocks of 50,000 Shares, called a
Basket. The Fund will accept subscriptions for Shares in Baskets from certain authorized
participants, or Authorized Participants, at $30.00 per Share ($1.5 million per Basket)
during an initial offering period ending [ ], 2007, unless (i) the subscription
minimum is reached before that date and GreenHaven Commodity Services LLC, the Funds
Managing Owner, determines to end the initial offering period early or (ii) that date is
extended by the Managing Owner for up to an additional ninety (90) days. After the initial
offering period has closed and trading has commenced, the Fund will issue Shares in Baskets
to Authorized Participants continuously as of noon, New York time, on the business day
immediately following the date on which a valid order to create a Basket is accepted by the
Fund, at the net asset value of [ ] Shares as of the closing time of the American
Stock Exchange, or Amex, or the last to close of the exchanges on which the Funds assets
are traded, whichever is later, on the date that a valid order to create a Basket is
accepted by the Fund. The Managing Owner may terminate the continuous offering at any time.
Redemptions will not be permitted during the initial offering period.
Authorized Participants may sell the Shares comprising the Baskets they purchase from
the Fund to other investors at prices that are expected to reflect, among other factors, the
trading price of the Shares on the Amex and the supply of and demand for Shares at the time
of sale and are expected to fall between net asset value and the trading price of the Shares
on the Amex at the time of sale.
Proposed Amex trading symbol [ ].
The Fund will invest the proceeds of its offering of Shares in GreenHaven Continuous
Commodity Index Master Fund, or the Master Fund. The Master Fund is organized as a Delaware
statutory trust.
The Master Fund will actively invest in exchange-traded futures on the commodities
comprising the Continuous Commodity Excess Return Index (CCI-ER), or the Index, licensed to
the Managing Owner by Reuters America LLC, or the Index, with a view to tracking the
performance of the Index over time. The Master Funds portfolio also will include United
States Treasury securities for deposit with commodities brokers as margin and other high
credit quality short-term fixed income securities.
The Index is intended to reflect the performance of certain commodities. The Index
Commodities are currently Corn, Wheat, Soybeans, Live Cattle, Lean Hogs, Gold, Silver,
Copper, Cocoa, Coffee, Sugar #11, Cotton, Orange Juice, Platinum, Crude Oil, Heating Oil,
and Natural Gas. The sponsor of the Index is the Managing Owner which has
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an exclusive license with Reuters America LLC which developed, owns and operates the CCI-ER. The
Continuous Commodity Index is a trademark of Reuters America LLC.
Except when aggregated in Baskets, the Shares are not redeemable securities.
These are speculative securities. Before you decide whether to invest in the Fund, read this
entire Prospectus carefully.
The Shares are speculative securities and their purchase involves a high degree of risk. YOU
SHOULD CONSIDER ALL RISK FACTORS BEFORE INVESTING IN THE FUND. PLEASE REFER TO THE RISKS YOU
FACE BEGINNING ON PAGE 1 OF THIS PROSPECTUS.
Futures trading is volatile and even a small movement in market prices could cause large
losses.
Investors will pay fees in connection with their investment in Shares including asset-based
fees of up to % per annum. Additional charges include brokerage fees and operating expenses
expected to be approximately % per annum in the aggregate. Additionally, during the initial
offering period investors will pay an upfront selling commission of % and during the
continuous offering period investors are expected to be charged a customary commission by their
brokers in connection with purchases of Shares that will vary from investor to investor.
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Minimum |
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Number of |
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Units to be Sold |
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Maximum |
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during the |
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Number of |
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Price to the |
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Initial Offering |
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Units to be |
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Public Per |
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Upfront Selling |
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Proceeds to the |
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Fund |
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Period* |
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Offered |
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Unit** |
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Commissions*** |
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Trust**** |
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Initial Offering
Period |
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Continuous Offering
Period |
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n/a |
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n/a |
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net asset value |
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n/a |
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n/a |
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If the minimum number of Shares to be sold during the initial offering period is not reached
or this offering is terminated by the Managing Owner prior to the end of the initial offering
period, the subscription proceeds will be returned, with interest, to each Authorized
Participant as promptly as practicable (but in no event more than ten (10) days) after the end
of the initial offering period or such earlier date of termination. No fees or other amounts
will be deducted from the amounts returned to Authorized Participants. Authorized Participants
who are affiliates of the Managing Owner and the Trustee may subscribe for Shares during the
initial offering period and any such Shares will be counted to determine whether the Fund has
reached its subscription minimum. |
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Authorized Participants may subscribe for and agree to purchase Shares from the Fund in
Baskets during the initial offering period at a price of $30.00 per Share or $1,500,000 per
Basket. After the initial offering period, Shares may be purchased from the Fund by Authorized
Participants in Baskets at the net asset value of [___] Shares as of the closing time
of the Amex or the last to close of the exchanges of which the Index Commodities are traded,
whichever is later, on the date that a valid order to create a Basket is accepted by the Fund.
Investors who acquire Shares from Authorized Participants may pay a price that is higher than
net asset value per Share in respect of the continuous offering period depending upon, among
other factors, the trading price of the Shares on the Amex and the supply of and demand for
Shares at the time of acquisition, but is not expected to exceed the trading price of the
Shares on the Amex. |
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An upfront offering selling commission will be charged during the initial offering period
only. During the continuous offering period investors are expected to be charged a customary
commission by their brokers in connection with purchases of Shares that will vary from
investor to investor. Investors are encouraged to review the terms of their brokerage accounts
for details on applicable charges. Also, the excess, if any, of the price at which an
Authorized Participant sells a Share over the price paid by such Authorized Participant in
connection with the creation of such Share in a Basket may be deemed to be underwriting
compensation. |
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To be held in escrow at [ ] during the initial offering period until the
subscription minimum is subscribed for and the Managing Owner determines to end the initial
offering period early, the initial offering period expires or |
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the offering is terminated by the Managing Owner prior to the end of the initial offering period.
If the subscription minimum is reached and the Managing Owner determines to end the initial
offering period or the initial offering period expires, such proceeds will be turned over to the
Fund for investment in the Master Fund. |
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS
APPROVED OR DISAPPROVED THESE SECURITIES, 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 date of this Prospectus is _____ __, 2006
(Not for use after _______, 2007)
iv
COMMODITY FUTURES TRADING COMMISSION
RISK DISCLOSURE STATEMENT
YOU SHOULD CAREFULLY CONSIDER WHETHER YOUR FINANCIAL CONDITION PERMITS YOU TO PARTICIPATE IN A
COMMODITY POOL. IN SO DOING, YOU SHOULD BE AWARE THAT FUTURES TRADING CAN QUICKLY LEAD TO LARGE
LOSSES AS WELL AS GAINS. SUCH TRADING LOSSES CAN SHARPLY REDUCE THE NET ASSET VALUE OF THE POOL AND
CONSEQUENTLY THE VALUE OF YOUR INTEREST IN THE POOL. IN ADDITION, RESTRICTIONS ON REDEMPTIONS MAY
AFFECT YOUR ABILITY TO WITHDRAW YOUR PARTICIPATION IN THE POOL.
FURTHER, COMMODITY POOLS MAY BE SUBJECT TO SUBSTANTIAL CHARGES FOR MANAGEMENT, AND ADVISORY
AND BROKERAGE FEES. IT MAY BE NECESSARY FOR THOSE POOLS THAT ARE SUBJECT TO THESE CHARGES TO MAKE
SUBSTANTIAL TRADING PROFITS TO AVOID DEPLETION OR EXHAUSTION OF THEIR ASSETS. THIS DISCLOSURE
DOCUMENT CONTAINS A COMPLETE DESCRIPTION OF EACH EXPENSE TO BE CHARGED TO THIS POOL AT PAGE 10 AND
A STATEMENT OF THE PERCENTAGE RETURN NECESSARY TO BREAK EVEN, THAT IS, TO RECOVER THE AMOUNT OF
YOUR INITIAL INVESTMENT, AT PAGE 10.
THIS BRIEF STATEMENT CANNOT DISCLOSE ALL THE RISKS AND OTHER FACTORS NECESSARY TO EVALUATE
YOUR PARTICIPATION IN THIS COMMODITY POOL. THEREFORE, BEFORE YOU DECIDE TO PARTICIPATE IN THIS
COMMODITY POOL, YOU SHOULD CAREFULLY STUDY THIS DISCLOSURE DOCUMENT, INCLUDING A DESCRIPTION OF THE
PRINCIPAL RISK FACTORS OF THIS INVESTMENT, AT PAGES 1 THROUGH 9.
YOU SHOULD ALSO BE AWARE THAT THIS COMMODITY POOL MAY TRADE FOREIGN FUTURES CONTRACTS.
TRANSACTIONS ON MARKETS LOCATED OUTSIDE THE UNITED STATES, INCLUDING MARKETS FORMALLY LINKED TO A
UNITED STATES MARKET, MAY BE SUBJECT TO REGULATIONS WHICH OFFER DIFFERENT OR DIMINISHED PROTECTION
TO THE POOL AND ITS PARTICIPANTS. FURTHER, UNITED STATES REGULATORY AUTHORITIES MAY BE UNABLE TO
COMPEL THE ENFORCEMENT OF THE RULES OF REGULATORY AUTHORITIES OR MARKETS IN NON-UNITED STATES
JURISDICTIONS WHERE TRANSACTIONS FOR THE POOL MAY BE EFFECTED.
THIS POOL HAS NOT COMMENCED TRADING AND DOES NOT HAVE ANY PERFORMANCE HISTORY.
NEITHER THIS POOL OPERATOR NOR ANY OF ITS TRADING PRINCIPALS HAS PREVIOUSLY OPERATED ANY OTHER
POOLS OR TRADED ANY OTHER ACCOUNTS.
THIS PROSPECTUS DOES NOT INCLUDE ALL OF THE INFORMATION OR EXHIBITS IN THE REGISTRATION
STATEMENT OF THE FUND AND THE MASTER FUND. YOU CAN READ AND COPY THE ENTIRE REGISTRATION STATEMENT
AT THE PUBLIC REFERENCE FACILITIES MAINTAINED BY THE SEC IN WASHINGTON, D.C.
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THE FUND AND THE MASTER FUND FILE QUARTERLY AND ANNUAL REPORTS WITH THE SEC. YOU CAN READ AND
COPY THESE REPORTS AT THE SEC PUBLIC REFERENCE FACILITIES IN WASHINGTON, D.C. PLEASE CALL THE SEC
AT 1-800-SEC-0330 FOR FURTHER INFORMATION.
THE FILINGS OF THE FUND AND THE MASTER FUND ARE POSTED AT THE SEC WEBSITE AT
http://www.sec.gov.
vi
REGULATORY NOTICES
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO
MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH OTHER
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND, THE
MASTER FUND, THE MANAGING OWNER, THE AUTHORIZED PARTICIPANTS OR ANY OTHER PERSON.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE
SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION MAY NOT LAWFULLY BE MADE.
THE BOOKS AND RECORDS OF THE FUND AND THE MASTER FUND WILL BE MAINTAINED AS FOLLOWS: ALL
MARKETING MATERIALS AND BASKET CREATION AND REDEMPTION BOOKS AND RECORDS WILL BE MAINTAINED AT THE
OFFICES OF GREENHAVEN COMMODITY SERVICES; TELEPHONE NUMBER (404) 239-7938; ACCOUNTING AND CERTAIN
OTHER FINANCIAL BOOKS AND RECORDS (INCLUDING FUND ACCOUNTING RECORDS, LEDGERS WITH RESPECT TO
ASSETS, LIABILITIES, CAPITAL, INCOME AND EXPENSES, THE REGISTRAR, TRANSFER JOURNALS AND RELATED
DETAILS) AND TRADING AND RELATED DOCUMENTS RECEIVED FROM FUTURES COMMISSION MERCHANTS WILL BE
MAINTAINED BY GREENHAVEN COMMODITY SERVICES, TELEPHONE NUMBER (404) 239-7938. ALL OTHER BOOKS AND
RECORDS OF THE FUND AND THE MASTER FUND (INCLUDING MINUTE BOOKS AND OTHER GENERAL CORPORATE
RECORDS, TRADING RECORDS AND RELATED REPORTS AND OTHER ITEMS RECEIVED FROM THE MASTER FUNDS
COMMODITY BROKERS) WILL BE MAINTAINED AT THE FUNDS PRINCIPAL OFFICE, C/O GREENHAVEN COMMODITY
SERVICES LLC, 3340 PEACHTREE ROAD, SUITE 1900, ATLANTA, GEORGIA 30326; TELEPHONE NUMBER (404)
239-7938. SHAREHOLDERS WILL HAVE THE RIGHT, DURING NORMAL BUSINESS HOURS, TO HAVE ACCESS TO AND
COPY (UPON PAYMENT OF REASONABLE REPRODUCTION COSTS) SUCH BOOKS AND RECORDS IN PERSON OR BY THEIR
AUTHORIZED ATTORNEY OR AGENT. THERE WILL SIMILARLY BE DISTRIBUTED TO SHAREHOLDERS, NOT MORE THAN 90
DAYS AFTER THE CLOSE OF EACH OF THE FUNDS FISCAL YEARS, CERTIFIED AUDITED FINANCIAL STATEMENTS AND
(IN NO EVENT LATER THAN MARCH 15 OF THE IMMEDIATELY FOLLOWING YEAR) THE TAX INFORMATION RELATING TO
SHARES OF THE FUND NECESSARY FOR THE PREPARATION OF SHAREHOLDERS ANNUAL FEDERAL INCOME TAX
RETURNS.
THE DIVISION OF INVESTMENT MANAGEMENT OF THE SECURITIES AND EXCHANGE COMMISSION REQUIRES THAT
THE FOLLOWING STATEMENT BE PROMINENTLY SET FORTH HEREIN: NEITHER GREENHAVEN CONTINUOUS COMMODITY
INDEX FUND NOR GREENHAVEN CONTINUOUS COMMODITY INDEX MASTER FUND IS A MUTUAL FUND OR ANY OTHER TYPE
OF INVESTMENT COMPANY WITHIN THE MEANING OF THE INVESTMENT COMPANY ACT OF 1940, AS AMENDED, AND IS
NOT SUBJECT TO REGULATION THEREUNDER.
AUTHORIZED PARTICIPANTS MAY BE REQUIRED TO DELIVER A PROSPECTUS WHEN TRANSACTING IN SHARES.
SEE PLAN OF DISTRIBUTION.
vii
GREENHAVEN CONTINUOUS COMMODITY INDEX FUND
TABLE OF CONTENTS
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viii
SUMMARY
This summary of all material information provided in this Prospectus is intended for quick
reference only. The remainder of this Prospectus contains more detailed information; you should
read the entire Prospectus, including all exhibits to the Prospectus, before deciding to invest in
any Shares. This Prospectus is intended to be used beginning [ ], 2006.
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The Fund; The Master Fund
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The GreenHaven Continuous Commodity Index Fund, or the Fund, was formed
as a Delaware statutory trust on October 27, 2006. The Fund will issue common units of
beneficial interest, or Shares, which represent units of fractional undivided beneficial
interest in and ownership of the Fund. The term of the Fund is perpetual (unless terminated
earlier in certain circumstances). The principal offices of the Fund are located at c/o
GreenHaven Commodity Services LLC, 3340 Peachtree Road, Suite 1910, Atlanta, Georgia 30326,
and its telephone number is (404) 239-7938. |
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The GreenHaven Continuous Commodity Index Tracking Master
Fund, or the Master Fund, was formed as a Delaware statutory
trust on October 27, 2006. The Master Fund will issue common
units of beneficial interest, or Master Fund Units, which
represent units of fractional undivided beneficial interest
in and ownership of the Master Fund. The term of the Master
Fund is perpetual (unless terminated earlier in certain
circumstances). The principal offices of the Master Fund are
located at c/o GreenHaven Commodity Services LLC, 3340
Peachtree Road, Suite 1910, Atlanta, Georgia 30326, and its
telephone number is (404) 239-7938. |
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The Fund will invest substantially all of its assets in the
Master Fund in a master-feeder structure. The Fund will hold
no investment assets other than Master Fund Units. The
Master Fund will be wholly-owned by the Fund and the
Managing Owner. Each Share issued by the Fund will correlate
with a Master Fund Unit issued by the Master Fund and held
by the Fund. |
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Under the Trust Declaration of the Fund and the Master Fund,
CSC Trust Company of Delaware, the Trustee of the Fund and
the Master Fund, has delegated to the Managing Owner the
exclusive management and control of all aspects of the
business of the Fund and the Master Fund. The Trustee will
have no duty or liability to supervise or monitor the
performance of the Managing Owner, nor will the Trustee have
any liability for the acts or omissions of the Managing
Owner. |
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Shares Listed on the Amex
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Application has been made for the Shares of
the Fund to be listed on the Amex under the
symbol [ ]. Secondary market
purchases and sales of Shares will be
subject to ordinary brokerage commissions
and charges.
The Funds CUSIP number is . |
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Purchases and Sales in the
Secondary Market, on the Amex
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The Shares of the Fund will trade on the
Amex like any other equity security. The
Shares are intended to provide investment
results that generally correspond to the
performance of the Index. |
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Baskets of Shares may be created or redeemed only by
Authorized Participants. It is expected that Baskets will be
created when there is sufficient demand for Shares that the
market price per Share is at a premium to the net asset
value per Share. Authorized Participants will then sell such
Shares, which will be listed on the Amex, to the public at
prices that are expected to reflect, among other factors,
the trading price of the Shares on the Amex and the supply
of and demand for Shares at the time of sale and are
expected to fall between net asset value and the trading
price of the Shares on the Amex at the time of sale.
Similarly, it is expected that Baskets will be redeemed when
the market price per Share is at a discount to the net asset
value per Share. Retail investors seeking to purchase or
sell Shares on any day are expected to effect such
transactions in the secondary market, on the Amex, at the
market price per Share, rather than in connection with the
creation or redemption of Baskets. |
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The market price of the Shares may not be identical to the
net asset value per Share, but these valuations are expected
to be very close. Investors will be able to use the
indicative intra-day value of the Fund to determine if they
want to purchase on the secondary market via the Amex. |
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Purchases or sales of Shares may be subject to customary
brokerage commissions. Investors are encouraged to review
the terms of their brokerage accounts for details on
applicable charges. |
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The Index
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Reuters America LLC is the owner, publisher, and custodian of the Continuous Commodity
Excess Return Index (CCI-ER) which represents the ninth revision (as of 1995) of the original
Commodity Research Bureau (CRB) Index, developed in 1957. Over the past half century, the
CRB Index has been one of the most often cited indicators of overall commodity prices. The
Index of 17 commodity futures prices offers investors a broad and reliable benchmark for the
performance of the commodity sector. The Index, intended to provide a dynamic representation |
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of broad trends in overall commodity prices, was originally
calculated to produce a ratio of the current price to the
base year average price. |
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The CCI-ER takes into account the economics of rolling
listed commodity futures forward to avoid delivery and
maintain exposure in liquid contracts. |
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The Index is
generally viewed as a broad measure of overall
commodity price trends due to the diverse nature of its
constituent commodities. The current commodities that
comprise the Index are: Corn, Wheat, Soybeans, Live
Cattle, Lean Hogs, Gold, Silver, Copper, Cocoa, Coffee,
Sugar #11, Cotton, Orange Juice, Platinum, Crude Oil,
Heating Oil and Natural Gas. |
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The Index is weighted evenly among the 17 constituent
commodities. Each weighting is used for both averaging of
individual commodity months and for averaging of the 17
commodity averages. Thus, equal weighting should reduce the
impact a single contract month or a single commodity may
have on the Index. |
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The Index generally averages all futures prices six months
forward, up to a maximum of five delivery months per
commodity. A minimum of two delivery months, however, must
be used to calculate the current price if the second
contract is outside the six-month window. Contracts in the
delivery period are excluded from the calculation. Although
each of the 17 commodities is equally weighted, the Index
uses an average of the prices of the 17 commodities and an
average of those commodities across time within each
commodity. Each commodity is averaged across time (six
month period) and then these 17 component figures are
averaged together. The continuous rebalancing provided by
this methodology means the Index constantly decreases
exposure to commodity markets gaining in value and increases
exposure to those markets declining in value. |
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Investment Objective
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The investment objective of the Fund and the Master Fund is to reflect
the performance of the Index, over time, less the expenses of the operations of the Fund
and the Master Fund. |
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The Fund will pursue its investment objective by investing
substantially all of its assets in the Master Fund. The
Master Fund will pursue its investment objective by
investing in a portfolio of exchange-traded futures on the
commodities comprising the Index, or the Index Commodities. |
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The Master Fund will hold a portfolio of futures contracts
on the Index Commodities as well as cash and United States
Treasury |
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securities for deposit with the Master Funds Commodity
Broker as margin and other high credit quality short-term
fixed income securities. The Master Funds portfolio is
traded with a view to reflecting the performance of the
Index over time, whether the Index is rising, falling or
flat over any particular period. The Master Fund is not
managed by traditional methods, which typically involve
effecting changes in the composition of the Master Funds
portfolio on the basis of judgments relating to economic,
financial and market considerations with a view to obtaining
positive results under all market conditions. To maintain
the correspondence between the composition and weightings of
the Index Commodities comprising the Index and the Managing
Owner adjusts the Portfolio on a daily basis to conform to
periodic changes in the identity and/or relative weighting
of the Index Commodities. The Managing Owner aggregates
certain of the adjustments and makes changes to the
portfolio at least monthly or more frequently in the case of
significant changes to the Index. |
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There can be no assurance that the Fund or the Master Fund
will achieve its investment objective or avoid substantial
losses. The Master Fund has not commenced trading and does
not have any performance history. The value of the Shares is
expected to fluctuate generally in relation to changes in
the value of the Master Fund Units. |
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Investment Risks
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AN INVESTMENT IN SHARES IS SPECULATIVE AND INVOLVES A HIGH DEGREE OF RISK.
YOU SHOULD BE AWARE THAT: |
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You could lose a substantial portion or all of your
investment. |
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Commodity trading is speculative and the Index, on
which the Master Funds trading will be based, is
likely to be volatile and could suffer from periods of
prolonged decline in value. |
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The Fund, the Master Fund and the Managing Owner
have no operating history. |
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The Fund, Master Fund and the Managing Owner are
subject to numerous conflicts of interest, including
those arising from the fact that the Managing Owner may
also serve as the managing owner and commodity pool
operator for other commodity pools and investment
funds, and may sponsor others. |
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The Fund and the Master Fund are subject to the fees
and expenses described herein and will be successful
only if significant losses are avoided. To break-even
in one year on Shares purchased during the initial
offering period, the Fund must generate, on an annual
basis, profits in excess of [___]%. To break even in
one year on Shares |
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purchased during the continuous offering period, the
Fund must not generate, on an annual basis, losses in
excess of [___]%. |
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Past performance of the Index is not necessarily
indicative of future results; all or substantially all
of an investment in the Fund could be lost. |
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The trading of the Master Fund takes place in very
volatile markets. |
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CFTC and commodity exchange rules impose speculative
position limits on market participants trading in
certain commodities included in the Index. If position
limits are applied to the Master Fund, the Funds
ability to issue new Baskets, or the Master Funds
ability to reinvest income in these additional futures
contracts may be limited to the extent these activities
would cause the Master Fund to exceed applicable
position limits. Limiting the size of the Fund may
affect the correlation between the price of the Shares,
as traded on the Amex, and the net asset value of the
Fund. That is, the inability to create additional
Baskets could result in Shares trading at a premium or
discount to net asset value of the Fund. |
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Performance may not track the Index during
particular periods or over the long term. Such tracking
error may cause the Fund to outperform or underperform
the Index. |
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See THE RISKS YOU FACE beginning on page 1 for additional
risks you should consider. |
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The Trustee
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CSC Trust Company of Delaware, or the Trustee, is the sole trustee of the
Fund and the Master Fund. The Trustee delegated to the Managing Owner certain of the
power and authority to manage the business and affairs of the Fund and the Master Fund
and has duties and liabilities to the Fund and the Master Fund. |
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The Managing Owner
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GreenHaven Commodity Services LLC, a Delaware limited liability
company, will serve as Managing Owner of the Fund and the Master Fund. The Managing
Owner was formed on October 18, 2006. The Managing Owner will serve as the commodity
pool operator and commodity trading advisor of the Fund and the Master Fund. Neither the
Managing Owner nor any of its trading principals has ever before operated a commodity
pool. The Managing Owner has filed an application for registration as a commodity pool
operator and commodity trading advisor with the Commodity Futures Trading Commission, or
the CFTC, and with the National Futures Association, or the NFA. As a registered
commodity pool operator and commodity trading advisor, with respect to both the Fund and
the Master Fund, the Managing Owner would be required to comply with various regulatory
requirements under the Commodity Exchange Act and the rules and regulations of |
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the CFTC and the NFA, including investor protection
requirements, antifraud prohibitions, disclosure
requirements, and reporting and recordkeeping requirements.
The Managing Owner would also be subject to periodic
inspections and audits by the CFTC and NFA. |
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The Shares are not deposits or other obligations of the
Managing Owner, the Trustee or any of their respective
subsidiaries or affiliates or any other bank, are not
guaranteed by the Managing Owner, the Trustee or any of
their respective subsidiaries or affiliates or any other
bank and are not insured by the Federal Deposit Insurance
Corporation or any other governmental agency. An investment
in the Shares is speculative and involves a high degree of
risk. |
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The principal office of the Managing Owner is located at
3340 Peachtree Road, Suite 1910, Atlanta, Georgia 30326. The
telephone number of the Managing Owner is (404) 239-7938. |
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The Commodity Broker
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A variety of executing brokers will execute futures transactions
on behalf of the Master Fund. Such executing brokers will give-up all such transactions
to [ ], a corporation, which will serve as the Master Funds clearing
broker, or Commodity Broker. In its capacity as clearing broker, the Commodity Broker
will execute and clear each of the Master Funds futures transactions and will perform
certain administrative services for the Master Fund. [ ] is registered with
the Commodity Futures Trading Commission as a futures commission merchant and is a
member of the National Futures Association in such capacity. |
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The Master Fund will pay to the Commodity Broker all
brokerage commissions, including applicable exchange fees,
NFA fees, give-up fees, pit brokerage fees and other
transaction related fees and expenses charged in connection
with trading activities. On average, total charges paid to
the Commodity Broker are expected to be less than $[ ]
per round-turn trade, although the Commodity Brokers
brokerage commissions and trading fees will be determined on
a contract-by-contract basis. The Managing Owner does not
expect brokerage commissions and fees to exceed [ ]%
of the net asset value of the Master Fund in any year,
although the actual amount of brokerage commissions and fees
in any year may be greater. |
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The Administrator
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The Managing Owner, on behalf of the Fund and the Master Fund, has
appointed [ ] as the administrator of the Fund and the Master Fund and has
entered into an Administration Agreement in connection therewith. [ ] will
serve as custodian, or Custodian, of the Fund and has entered into a Global Custody
Agreement, or |
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Custody Agreement, in connection therewith.
[ ] will serve as the transfer agent, or
Transfer Agent, of the Fund and has entered into a Transfer
Agency and Service Agreement in connection therewith. |
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[ ], a banking corporation organized under the
laws of the State of with trust powers, has an
office at [ ]. [ ] is subject to
supervision by the State Banking Department and
the Board of Governors of the Federal Reserve System.
Information regarding the net asset value of the Fund,
creation and redemption transaction fees and the names of
the parties that have executed a Participant Agreement may
be obtained from [ ] by calling the following
number: (___) ___-___. A copy of the Administration
Agreement is available for inspection at [ ]s
trust office identified above. |
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Pursuant to the Administration Agreement, the Administrator
will perform or supervise the performance of services
necessary for the operation and administration of the Fund
and the Master Fund (other than making investment
decisions), including net asset value calculations,
accounting and other fund administrative services. The
Administrator will retain certain financial books and
records, including: fund accounting records, ledgers with
respect to assets, liabilities, capital, income and
expenses, the registrar, transfer journals and related
details and trading and related documents received from
futures commission merchants. |
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The Administration Agreement will continue in effect from
the commencement of trading operations unless terminated on
at least 90 days prior written notice by either party to
the other party. Notwithstanding the foregoing, the
Administrator may terminate the Administration Agreement
upon 30 days prior written notice if the Fund and/or Master
Fund has materially failed to perform its obligations under
the Administration Agreement. |
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The Administration Agreement provides for the exculpation
and indemnification of the Administrator from and against
any costs, expenses, damages, liabilities or claims (other
than those resulting from the Administrators own bad faith,
negligence or willful misconduct) which may be imposed on,
incurred by or asserted against the Administrator in
performing its obligations or duties under the
Administration Agreement. Key terms of the Administration
Agreement are summarized under the heading Material
Contracts. |
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The Administrators monthly fees of [___] per annum are
paid by the Fund and the Master Fund. |
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The Administrator and any of its affiliates may from
time-to-time purchase or sell Shares for their own account,
as agent for their customers and for accounts over which
they exercise investment discretion. |
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The Administrator also will receive a transaction processing
fee in connection with orders from Authorized Participants
to create or redeem Baskets in the amount of $[___] per
order. These transaction processing fees are paid indirectly
by the Authorized Participants and not by the Fund or the
Master Fund. |
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The Fund is expected to retain the services of one or more
additional service providers to assist with certain tax
reporting requirements of the Fund and its Shareholders. |
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The Distributor
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The Managing Owner, on behalf of the Fund and the Master Fund, has
appointed [ ], or the Distributor, to assist the Managing Owner and the
Administrator with certain functions and duties relating to the creation and redemption
of Baskets, including receiving and processing orders from Authorized Participants to
create and redeem Baskets, coordinating the processing of such orders and related
functions and duties. The Distributor will retain all marketing materials and Basket
creation and redemption books and records at c/o [ ]; Telephone
number (___) ___-___. Investors may contact the Distributor toll-free in the U.S. at
(___) ___-___. The Fund has entered into a Distribution Services Agreement with the
Distributor. |
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The Fund and the Master Fund will pay the Distributor
approximately $[ ] per annum, plus any fees or
disbursements incurred by the Distributor in connection with
the performance by the Distributor of its duties on behalf
of the Fund and the Master Fund and may pay the Distributor
additional compensation in consideration of the performance
by the Distributor of additional marketing, distribution and
ongoing support services. Such additional services may
include, among other services, the development and
implementation of a marketing plan and the utilization of
the Distributors resources, which include an extensive
broker database and a network of internal and external
wholesalers. |
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Authorized Participants
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Baskets may be created or redeemed only by Authorized Participants.
Each Authorized Participant must (1) be a registered broker-dealer or other securities
market participant such as a bank or other financial institution which is not required
to register as a broker-dealer to engage in securities transactions, (2) be a
participant in DTC, and (3) have entered into an agreement with the Fund and the
Managing Owner (a Participant Agreement). The Participant Agreement sets forth the
procedures for the creation and redemption of Baskets of |
xvi
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Shares and for the delivery of cash required for such
creations or redemptions. A list of the current Authorized
Participants can be obtained from the Administrator. A
similar agreement between the Fund and the Master Fund sets
forth the procedures for the creation and redemption of
Master Unit Baskets by the Fund. See Creation and
Redemption of Shares for more details. |
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Creation and Redemption
of Shares
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The Fund will create and redeem Shares from time-to-time, but only in one
or more Baskets. A Basket is a block of 50,000 Shares. Baskets may be created or
redeemed only by Authorized Participants. Except when aggregated in Baskets, the Shares
are not redeemable securities. Authorized Participants pay a transaction fee of $[___]
to the Fund in connection with each order to create or redeem a Basket of Shares.
Authorized Participants may sell the Shares included in the Baskets they purchase from
the Fund to other investors. |
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The Master Fund will create and redeem Master Fund Units
from time-to-time, but only in one or more Master Unit
Baskets. A Master Unit Basket is a block of 50,000 Master
Fund Units. Master Unit Baskets may be created or redeemed
only by the Fund. The Fund pays a transaction fee of $[___]
to the Master Fund in connection with each order to create
or redeem a Master Unit Basket of Master Fund Units. The
Master Fund will be wholly-owned by the Fund and the
Managing Owner. Each Share issued by the Fund will correlate
with a Master Fund Unit issued by the Master Fund and held
by the Fund. See Creation and Redemption of Shares for
more details. |
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The Shares are evidenced by global certificates that the
Fund issues to DTC. The Shares are available only in
book-entry form. Shareholders may hold their Shares through
DTC, if they are participants in DTC, or indirectly through
entities that are participants in DTC. The Master Fund Units
are uncertificated and held by the Fund in book-entry form. |
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Initial Offering Period
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The Fund will accept subscriptions for Shares in Baskets from
Authorized Participants at $30.00 per Share ($1.5 million per Basket) during an initial
offering period ending ___, 2007, unless (i) the subscription minimum is reached
before that date and the Managing Owner determines to end the initial offering period
early or (ii) that date is extended by the Managing Owner for up to an additional ninety
(90) days. |
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Redemptions will not be permitted during the initial
offering period. |
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Subscription Minimum
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The minimum number of Shares that must be subscribed for by Authorized
Participants prior to the commencement of trading is 1,000,000, or the Subscription
Minimum. |
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Affiliates of the Managing Owner or the Trustee who are
Authorized Participants may subscribe for Shares during the
initial offering period and any such Shares subscribed for
by such persons will be counted to determine whether the
Subscription Minimum has been reached. |
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If the Managing Owner determines to terminate the offering
of Shares prior to the expiration of the initial offering
period, all subscription monies will be returned with
interest and without deduction for expenses to the
subscribing Authorized Participants as promptly as
practicable (but in no event more than seven (7) days) after
the date of such termination. |
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Escrow of Funds
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Subscription funds received during the initial offering period will be
deposited in an escrow account at , and held there until the funds are either
released for investment in the Master Fund for trading purposes or returned to the
payors of such funds. An Authorized Participants escrowed subscription funds will earn
interest, which will be retained by the Fund for the benefit of all investors unless
such subscription is rejected or the offering of Shares is terminated prior to the end
of the initial offering period, in which case the interest attributable to such
subscription amount will be paid to such Authorized Participant upon the return of the
subscription amount. No fees or other amounts will be deducted from an Authorized
Participants subscription, which will be returned to such Authorized Participant as
promptly as practicable (but in no event more than seven business days) after such
rejection. |
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Continuous Offering Period
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After the initial offering period has closed and trading has
commenced, the Fund will issue Shares in Baskets to Authorized Participants continuously
as of noon (12:00pm), New York time, on the business day immediately following the date
on which a valid order to create a Basket is accepted by the Fund, at the net asset
value of [ ] Shares as of the closing time of the Amex or the last to close of the
exchanges of which the Index Commodities are traded, whichever is later, on the date
that a valid order to create a Basket is accepted by the Fund. The Managing Owner may
terminate the continuous offering at any time. |
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After the initial offering period has closed and trading has
commenced, the Master Fund will issue Master Fund Units in
Master Unit Baskets to the Fund continuously as of noon, New
York time, on the business day immediately following the
date on which a valid order to create a Master Unit Basket
is accepted by the Master Fund, at the net asset value of
[ ] Master Fund Units as of the closing time of the
Amex or the last to close of the exchanges on which the
Index Commodities are traded, whichever is later, on the
date that a |
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valid order to create a Master Unit Basket is accepted by
the Master Fund. Each Share issued by the Fund will
correlate with a Master Fund Unit issued by the Master Fund
and held by the Fund. |
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Net Asset Value
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Net asset value means the total assets of the Master Fund including,
but not limited to, all cash and cash equivalents or other debt securities less total
liabilities of the Master Fund, each determined on the basis of generally accepted
accounting principles in the United States, consistently applied under the accrual
method of accounting. |
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Net asset value per Master Fund Unit is the net asset value
of the Master Fund divided by the number of outstanding
Master Fund Units. Because there will be a one-to-one
correlation between Shares and Master Fund Units and the
Master Fund has assumed all liabilities of the Fund, the net
asset value per Share and the net asset value per Master
Fund Unit will be equal. See Certain Material Terms of the
Trust DeclarationNet Asset Value for more details. |
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Segregated Accounts/Interest
Income
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The proceeds of the offering will be deposited in cash in a segregated
account in the name of the Master Fund at the Commodity Broker (or another eligible
financial institution, as applicable) in accordance with CFTC investor protection and
segregation requirements. The Master Fund will be credited with one hundred percent
(100%) of the interest earned on its average net assets on deposit with the Commodity
Broker or such other financial institution each week. In an attempt to increase
interest income earned, the Managing Owner expects to invest the Master Funds
non-margin assets in United States government securities (which include any security
issued or guaranteed as to principal or interest by the United States), or any
certificate of deposit for any of the foregoing, including United States Treasury bonds,
United States Treasury bills and issues of agencies of the United States government, and
certain cash items such as money market funds, certificates of deposit (under nine
months) and time deposits or other instruments permitted by applicable rules and
regulations. Currently, the rate of interest expected to be earned is estimated to be
[___]% per annum, based upon the current yield on the three (3) month U.S. Treasury
bill. This interest income will be used to pay or offset the expenses of the Fund and
the Master Fund. See Fees and Expenses for more details. |
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Fees and Expenses
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Upfront Selling Commission. The Fund will rebate to each Authorized
Participant who submits an order to purchase one or more Baskets during the initial
offering period an upfront selling commission in an amount equal to [___]% of the
aggregate amount of all orders to purchase Baskets received from such |
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Authorized Participants during the initial offering period
to compensate such Authorized Participants for their selling
efforts in respect of the Shares during the initial offering
period. During the continuous offering period, no such
rebate will occur, although investors are expected to be
charged a customary commission by their brokers in
connection with purchases of Shares that will vary from
investor to investor. Investors are encouraged to review
the terms of their brokerage accounts for details on
applicable charges. Also, the excess, if any, of the price
at which an Authorized Participant sells a Share over the
price paid by such Authorized Participant in connection with
the creation of such Share in a Basket may be deemed to be
underwriting compensation. |
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Management Fee. The Master Fund will pay the Managing Owner
a Management Fee, monthly in arrears, in an amount equal to
[___]% per annum of the net asset value of the Master Fund.
No separate management fee will be paid by the Fund. |
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Organization and Offering Expenses. Expenses incurred in
connection with organizing the Fund and the Master Fund and
the initial offering of the Shares will be paid by the
Managing Owner, subject to reimbursement by the Master Fund,
without interest, in seventy-two (72) monthly payments
during each of the first seventy-two (72) months after the
commencement of the Master Funds trading operations.
Expenses incurred in connection with the continuous offering
of Shares after the commencement of the Master Funds
trading operations also will be paid by the Managing Owner,
subject to reimbursement by the Master Fund, without
interest, in seventy-two (72) monthly payments during each
of the seventy-two (72) months following the month in which
such expenses were paid by the Managing Owner. If the Fund
and the Master Fund terminate before the Managing Owner has
been fully reimbursed for any of the foregoing expenses, the
Managing Owner will not be entitled to receive any
unreimbursed portion of such expenses outstanding as of the
termination date. In no event will the aggregate amount of
payments by the Master Fund to the Managing Owner in respect
of reimbursement of organizational or offering expenses
exceed [___]% per annum of the net asset value of the Master
Fund. The Managing Owner currently estimates that the
aggregate amount of the organization and offering expenses
will be approximately $1 million. |
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Brokerage Commissions and Fees. The Master Fund will pay to
the Commodity Broker all brokerage commissions, including
applicable exchange fees, NFA fees, give-up fees, pit
brokerage fees and other transaction related fees and
expenses charged in connection with trading activities. On
average, total charges paid to the Commodity Broker are
expected to be less than $[___] per round-turn trade,
although the Commodity Brokers brokerage |
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commissions and trading fees will be determined on a
contract-by-contract basis. The Managing Owner does not
expect brokerage commissions and fees to exceed [___]% of
the net asset value of the Master Fund in any year, although
the actual amount of brokerage commissions and fees in any
year may be greater. |
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Routine Operational Administrative and Other Ordinary
Expenses. The Master Fund will pay all of the routine
operational, administrative and other ordinary expenses of
the Fund and the Master Fund, including, but not limited to,
the fees and expenses of the Trustee, legal and accounting
fees and expenses, tax preparation expenses, filing fees,
and printing, mailing and duplication costs. Such routine
expenses are not expected to exceed [___]% of the net asset
value of the Master Fund in any year, although the actual
amounts of the routine operational, administrative and other
ordinary expenses may be greater. |
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Extraordinary Fees and Expenses. The Master Fund will pay
all the extraordinary fees and expenses, if any, of the Fund
and the Master Fund. Such extraordinary fees and expenses,
by their nature, are unpredictable in terms of timing and
amount. |
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Management Fee and Expenses to be Paid first out of Interest
Income. The Management Fee and the organizational, offering
and ordinary ongoing expenses of the Fund and the Master
Fund will be paid first out of interest income from the
Master Funds holdings of U.S. Treasury bills and other high
credit quality short-term fixed income securities on deposit
with the Commodity Broker as margin or otherwise. It is
expected that such interest income may be sufficient to
cover a significant portion of the fees and expenses of the
Fund and the Master Fund. |
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Distributions
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The Master Fund will make distributions at the discretion of the Managing
Owner. Because the Managing Owner does not presently intend to make ongoing
distributions (but may do so from time-to-time in its sole discretion), your income tax
liability for your pro rata share of the Funds income and gain on the Master Fund Units
held will, in all likelihood, exceed any distributions you receive. |
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Limitation of Liabilities
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You cannot lose more than your investment in the Shares.
Shareholders will be entitled to limitation on liability equivalent to the limitation on
liability enjoyed by stockholders of a Delaware business corporation for profit. |
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Fiscal Year
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The Funds fiscal year ends on December 31 on each year. |
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Financial Information
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The Fund and the Master Fund have only recently been organized and have
no financial history. |
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U.S. Federal Income Tax
Considerations
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Subject to the discussion below in Material U.S. Federal Income Tax
Considerations, the Fund will not be classified as an association taxable as a
corporation. Instead, the Fund expects that it will be classified as a grantor trust
for United States federal income tax purposes, and, as a result, you generally will be
treated as the beneficial owner of a pro rata portion of the interests in Master Fund
held by the Fund. Subject to the discussion below in Material U.S. Federal Income Tax
Considerations, the Master Fund will be classified as a partnership for United States
federal income tax purposes. Accordingly, neither the Master Fund nor the Fund will
incur United States federal income tax liability; rather, each beneficial owner of the
Funds Shares will be required to take into account its allocable share of Master Funds
income, gain, loss, deduction and other items for the Master Funds taxable year ending
with or within its taxable year. |
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Additionally, please refer to the Material U.S. Federal
Income Tax Considerations section below for information on
the potential United States federal income tax consequences
of the purchase, ownership and disposition of Shares. |
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Breakeven Amounts
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The estimated amount of all fees and expenses which are anticipated to be
incurred by a new investor in Shares of the Fund during the first twelve months of
investment is either (i) [ ]% per annum of the net asset value in respect of Shares
purchased during the initial offering period or (ii) [ ]% per annum of the net asset
value in respect of Shares purchased during the continuous offering period plus the
amount of any commissions charged by the investors broker. Interest income is expected
to be approximately [ ]% per annum, based upon the current yield on the three month
U.S. Treasury bill. Consequently, the Fund is expected to break-even in twelve (12)
months provided that it (i) generates profits of at least [ ]% per annum in respect
of Shares purchased during the initial offering period or (ii) does not lose more than
[ ]% per annum in respect of Shares purchased during the continuous offering period
plus the amount of any commissions charged by the investors broker. The brokerage
commission rates an investor may pay to the investors broker in connection with a
purchase of Shares during the continuous offering period will vary from investor to
investor. |
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Reports to Shareholders
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The Managing Owner will furnish you with annual reports as required
by the rules and regulations of the SEC as well as with those reports required by the
CFTC and the NFA, including, but not limited to, an annual audited financial statement
certified by |
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independent public accountants and any other reports
required by any other governmental authority that has
jurisdiction over the activities of the Fund and the Master
Fund. You also will be provided with appropriate information
to permit you (on a timely basis) to file your United States
federal and state income tax returns with respect to your
Shares. |
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Cautionary Note Regarding
Forward-Looking Statements
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This Prospectus includes forward-looking statements that reflect
the Managing Owners current expectations about the future results, performance,
prospects and opportunities of the Fund and the Master Fund. The Managing Owner has
tried to identify these forward-looking statements by using words such as may, will,
expect, anticipate, believe, intend, should, estimate or the negative of
those terms or similar expressions. These forward-looking statements are based on
information currently available to the Managing Owner and are subject to a number of
risks, uncertainties and other factors, both known, such as those described in Risk
Factors and elsewhere in this Prospectus, and unknown, that could cause the actual
results, performance, prospects or opportunities of the Fund and the Master Fund to
differ materially from those expressed in, or implied by, these forward-looking
statements. |
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You should not place undue reliance on any forward-looking
statements. Except as expressly required by the federal
securities laws, the Managing Owner undertakes no obligation
to publicly update or revise any forward-looking statements
or the risks, uncertainties or other factors described in
this Prospectus, as a result of new information, future
events or changed circumstances or for any other reason
after the date of this Prospectus. |
THE SHARES ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK.
xxiii
THE RISKS YOU FACE
You could lose money investing in Shares. You should consider carefully the risks described
below before making an investment decision. You should also refer to the other information included
in this prospectus.
The Value of the Shares Relates Directly to the Value of the Commodity Futures and Other
Assets Held by the Master Fund and Fluctuations in the Price of These Assets Could Materially
Adversely Affect an Investment in the Shares.
The Shares are designed to reflect as closely as possible the performance of the Index through
the Master Funds portfolio of exchange-traded futures on the Index Commodities. The value of the
Shares relates directly to the value of the portfolio, less the liabilities (including estimated
accrued but unpaid expenses) of the Fund and the Master Fund. The price of the Index Commodities
may fluctuate widely. Some of those factors are:
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changing supply and demand relationships; |
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general economic activities and conditions; |
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weather and other environmental conditions; |
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acts of God; |
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agricultural, fiscal, monetary and exchange control programs and policies of
governments; |
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national and international political and economic events and policies; or |
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changes in rates of inflation; and the general emotions and psychology of the
marketplace, which at times can be volatile and unrelated to other more tangible
factors. |
None of these factors can be controlled by the Managing Owner. Even if current and correct
information as to substantially all factors is known or thought to be known, prices still will not
always react as predicted. The profitability of the Fund and the Master Fund will depend on whether
the Master Funds commodities portfolio increase in value over time. If the value increases, the
Fund will be profitable if such increases exceed the fees and expenses of such Fund. If these
values do not increase, the Fund will not be profitable and will incur losses.
Net Asset Value May Not Always Correspond to Market Price and, as a Result, Baskets may be
Created or Redeemed at a Value that Differs from the Market Price of the Shares.
The net asset value per share of the Shares will change as fluctuations occur in the market
value of the Master Funds portfolio. Investors should be aware that the public trading price of a
Basket of Shares may be different from the net asset value of a Basket of Shares (i.e., Shares may
trade at a premium over, or a discount to, the net asset value of a Basket of Shares) and similarly
the public trading market price per Share may be different from the net asset value per Share.
Consequently, an Authorized Participant may be able to create or redeem a Basket of Shares at a
discount or a premium to net asset value. This price difference may be due, in large part, to the
fact that supply and demand forces at work in the secondary trading market for Shares is closely
related to, but not identical to, the same forces influencing the prices of the Index Commodities
trading individually or in the aggregate at any point in time. Investors also should note that the
size of the Fund in terms of total assets held may change substantially over time and from
time-to-time as Baskets are created and redeemed.
1
Authorized Participants or their clients or customers may have an opportunity to realize a
riskless profit if they can purchase a Creation Basket at a discount to the public trading price of
the Shares or can redeem a Redemption Basket at a premium over the public trading price of the
Shares. The Managing Owner expects that the exploitation of such arbitrage opportunities by
Authorized Participants and their clients and customers will tend to cause the public trading price
to track net asset value per Share closely over time.
You could lose your investment in the event that Reuters America LLC decides to terminate the
license agreement between itself and the Managing Owner or you may lose value in the investment if
Reuters America LLC grants another entity a license over the Index.
Reuters America LLC entered into a License Agreement with the Managing Owner whereby the
Managing Owner was granted an exclusive license to use the CCI for an exchange traded fund to be
traded on a US equity exchange. The license granted to the Managing Owner may be terminated under
certain circumstances which could cause your investment to decline significantly in value. In
addition, your investment could lose value in the event that Reuters America LLC grants a license
to the Index to another third party that also creates a product that directly competes with the
Fund and the Master Fund.
Regulatory and Exchange Position Limits and Other Rules May Restrict the Creation of Baskets
and the Operation of the Master Fund.
CFTC and commodity exchange rules impose speculative position limits on market participants,
including the Master Fund, trading in certain agricultural commodities. These position limits
prohibit any person from holding a position of more than a specific number of such futures
contracts.
The Master Fund may apply to the CFTC for relief from certain position limits. If the Master
Fund applies and is unable to obtain such relief, the Funds ability to issue new Baskets, or the
Master Funds ability to reinvest income in these additional futures contracts, may be limited to
the extent these activities would cause the Master Fund to exceed applicable position limits.
Limiting the size of the Fund may affect the correlation between the price of the Shares, as traded
on the Amex, and the net asset value of the Fund. That is, the inability to create additional
Baskets could result in Shares trading at a premium or discount to net asset value of the Fund.
The Fund May Not Always Be Able Exactly to Replicate the Performance of the Index.
It is possible that the Fund may not fully replicate the performance of the Index due to
disruptions in the markets for the Index Commodities or due to other extraordinary circumstances.
In addition, the Fund is not able to replicate exactly the performance of the Index because the
total return generated by the Master Fund is reduced by expenses and transaction costs, including
those incurred in connection with the Master Funds trading activities, and increased by interest
income from the Master Funds holdings of short-term high quality fixed income securities. Tracking
the Index requires rebalancing of the Master Funds portfolio and is dependent upon the skills of
the Managing Owner and its trading principals, among other factors.
Also, the Fund may not replicate the Index immediately following the commencement of
operations, until positions in the Master Funds portfolio are fully established.
2
The Master Fund Is Not Actively Managed and Will Track the Index During Periods in which the
Index Is Flat or Declining as well as when the Index Is Rising.
The Master Fund is not actively managed by traditional methods. Therefore, if positions in any
one or more of the Index Commodities are declining in value, the Master Fund will not close out
such positions, except in connection with a change in the composition or weighting of the Index.
The Managing Owner will seek to cause the net asset value to track the Index during periods in
which the Index is flat or declining as well as when the Index is rising.
The Exchange May Halt Trading in the Shares Which Would Adversely Impact Your Ability to Sell
Shares.
Application has been made for the Shares to be listed for trading on the Amex under the market
symbol [ ]. Trading in Shares may be halted due to market conditions or, in light of Amex
rules and procedures, for reasons that, in the view of the Amex, make trading in Shares
inadvisable. In addition, trading is subject to trading halts caused by extraordinary market
volatility pursuant to circuit breaker rules that require trading to be halted for a specified
period based on a specified market decline in the equity markets. There can be no assurance that
the requirements necessary to maintain the listing of the Shares will continue to be met or will
remain unchanged. The Fund and the Master Fund will be terminated if the Shares are delisted.
The Lack Of An Active Trading Market for the Shares May Result in Losses on Your Investment at
the Time of Disposition of Your Shares.
Although we anticipate that the Shares will be listed and traded on the Amex, there can be no
guarantee that an active trading market for the Shares will develop or be maintained. If you need
to sell your Shares at a time when no active market for them exists, the price you receive for your
Shares, assuming that you are able to sell them, likely will be lower than that you would receive
if an active market did exist.
The Shares Are a New Securities Product and their Value Could Decrease if Unanticipated
Operational or Trading Problems Arise.
The mechanisms and procedures governing the creation, redemption and offering of the Shares
have been developed specifically for this securities product. Consequently, there may be
unanticipated problems or issues with respect to the mechanics of the operations of the Fund and
the Master Fund and the trading of the Shares that could have a material adverse effect on an
investment in the Shares. In addition, although the Master Fund is not actively managed by
traditional methods, to the extent that unanticipated operational or trading problems or issues
arise, the Managing Owners past experience and qualifications may not be suitable for solving
these problems or issues.
As the Managing Owner and its Principals have no History of Operating an Investment Vehicle
like the Fund or the Master Fund, their Experience may be Inadequate or Unsuitable to Manage the
Fund or the Master Fund.
The Managing Owner was formed expressly to be the managing owner of the Fund and the Master
Fund and has no history of past performance. The past performances of the Managing Owners
management in other positions are no indication of their ability to manage an investment vehicle
such as the Fund or the Master Fund. If the experience of the Managing Owner and its principals is
not adequate or suitable to manage an investment vehicle such as the Fund and the Master Fund, the
operations of the Fund and the Master Fund may be adversely affected.
3
You Should Not Rely on Past Performance in Deciding Whether to Buy Shares.
Neither the Fund or the Master Fund has commenced trading and neither has any performance
history upon which to evaluate your investment in the Fund and the Master Fund. Although past
performance is not necessarily indicative of future results, if the Fund and the Master Fund had a
performance history, such performance history might provide you with more information on which to
evaluate an investment in the Fund and the Master Fund. The past performance of the Index also is
not necessarily indicative of the future performance of the Index, or of the Fund or the Master
Fund. As neither the Fund nor the Master Fund has commenced trading and has no such performance
history, you will have to make your decision to invest in the Fund without such information.
Price Volatility May Possibly Cause the Total Loss of Your Investment.
Futures contracts have a high degree of price variability and are subject to occasional rapid
and substantial changes. Consequently, you could lose all or substantially all of your investment
in the Fund.
Fees and Commissions are Charged Regardless of Profitability and May Result in Depletion of
Assets.
The Fund indirectly is subject to the fees and expenses described herein which are payable
irrespective of profitability. Such fees and expenses include asset-based fees of up to [___]% per
annum. Additional charges include brokerage fees and operating expenses expected to be
approximately [___]% per annum in the aggregate and selling commissions. The Fund is expected to
earn interest income at an annual rate of [___]% per annum, based upon the current yield on a three
month U.S. Treasury bill. Consequently, it is expected that interest income will exceed fees (other
than selling commissions), however, if interest rates fall below [___]%, the fund will need to have
positive performance in order to break-even net of fees and expenses (other than selling
commissions). Assuming selling commissions of [___]%, the Fund will have to generate profits of
[___]% per annum in order for an investor to break even in the first year of investment.
Consequently, the expenses of the Master Fund could, over time, result in significant losses to
your investment therein. You may never achieve profits, significant or otherwise.
Possible Illiquid Markets May Exacerbate Losses.
Futures positions cannot always be liquidated at the desired price. It is difficult to execute
a trade at a specific price when there is a relatively small volume of buy and sell orders in a
market. A market disruption, such as when foreign governments may take or be subject to political
actions which disrupt the markets in their currency or major exports, can also make it difficult to
liquidate a position. Such periods of illiquidity and the events that trigger them are difficult to
predict and there can be no assurance that the Managing Owner will be able to do so.
There can be no assurance that market illiquidity will not cause losses for the Fund. The
large size of the positions which the Master Fund may acquire on behalf of the Fund increases the
risk of illiquidity by both making its positions more difficult to liquidate and increasing the
losses incurred while trying to do so.
4
You May Be Adversely Affected by Redemption Orders that Are Subject To Postponement,
Suspension Or Rejection Under Certain Circumstances.
The Distributor may, in its discretion, and will when directed by the Managing Owner, suspend
the right of redemption or postpone the redemption settlement date, (1) for any period during which
an emergency exists as a result of which the redemption distribution is not reasonably practicable,
or (2) for such other period as the Managing Owner determines to be necessary for the protection of
the Shareholders. In addition, the Distributor will reject a redemption order if the order is not
in proper form as described in the Participant Agreement or if the fulfillment of the order, in the
opinion of its counsel, might be unlawful. Any such postponement, suspension or rejection could
adversely affect a redeeming Authorized Participant. For example, the resulting delay may adversely
affect the value of the Authorized Participants redemption proceeds if the net asset value of the
Fund declines during the period of the delay. Under the Distribution Services Agreement, the
Managing Owner and the Distributor may disclaim any liability for any loss or damage that may
result from any such suspension or postponement.
Because the Master Fund will not Acquire Any Asset with Intrinsic Value, the Positive
Performance of Your Investment Is Wholly Dependent Upon an Equal and Offsetting Loss.
Futures trading is a risk transfer economic activity. For every gain there is an equal and
offsetting loss rather than an opportunity to participate over time in general economic growth.
Unlike most alternative investments, an investment in Shares does not involve acquiring any asset
with intrinsic value. Overall stock and bond prices could rise significantly and the economy as a
whole prosper while Shares trade unprofitably.
Shareholders Will Not Have the Protections Associated With Ownership of Shares in an
Investment Company Registered Under the Investment Company Act of 1940.
Neither the Fund nor the Master Fund is registered as an investment company under the
Investment Company Act of 1940 and is not required to register under such act. Consequently,
Shareholders will not have the regulatory protections provided to investors in investment
companies.
Trading on Commodity Exchanges Outside the United States is Not Subject to U.S. Regulation.
Currently, none of the Master Funds trading is expected to be conducted on commodity
exchanges outside the United States. However, the Master Fund retains the right to conduct trading
on commodity exchanges located outside of the United States. In that event, trading on such
exchanges is not regulated by any United States governmental agency and may involve certain risks
not applicable to trading on United States exchanges, including different or diminished investor
protections. In trading contracts denominated in currencies other than U.S. dollars, Shares will be
subject to the risk of adverse exchange-rate movements between the dollar and the functional
currencies of such contracts. Investors could incur substantial losses from trading on foreign
exchanges which such Investors would not have otherwise been subject had the Master Funds trading
been limited to U.S. markets.
Various Actual and Potential Conflicts of Interest May Be Detrimental to Shareholders.
The Fund and the Master Fund are subject to actual and potential conflicts of interests
involving the Managing Owner, various commodity futures brokers and Authorized Participants. The
Managing Owner and its principals, all of which are engaged in other investment activities, are not
required to devote substantially all of their time to the business of the Fund and the Master Fund,
which also presents the potential for numerous conflicts of interest with the Fund and the Master
Fund. As a result of these and other relationships, parties involved with the Fund and the Master
Fund have a financial incentive to act in a manner other than in the best interests of the Fund and
the Master Fund and the Shareholders. The Managing Owner has not established any formal procedure
to resolve conflicts of interest. Consequently,
5
investors will be dependent on the good faith of the respective parties subject to such
conflicts to resolve them equitably. Although the Managing Owner attempts to monitor these
conflicts, it is extremely difficult, if not impossible, for the Managing Owner to ensure that
these conflicts do not, in fact, result in adverse consequences to the Shareholders.
In addition, the Fund may be subject to certain conflicts with respect to its Commodity
Broker, including, but not limited to, conflicts that result from receiving greater amounts of
compensation from other clients, and purchasing opposite or competing positions on behalf of third
party accounts traded through the Commodity Broker.
Shareholders Will Be Subject to Taxation on Their Share of the Master Funds Taxable Income,
Whether or Not They Receive Cash Distributions.
Shareholders will be subject to United States federal income taxation and, in some cases,
state, local, or foreign income taxation on their share of the Master Funds taxable income,
whether or not they receive cash distributions from the Fund. Shareholders may not receive cash
distributions equal to their share of the Master Funds taxable income or even the tax liability
that results from such income.
Items of Income, Gain, Deduction, Loss and Credit with respect to Fund Shares could be
Reallocated if the IRS does not Accept the Assumptions or Conventions Used by the Master Fund in
Allocating Master Fund Tax Items.
U.S. federal income tax rules applicable to partnerships are complex and often difficult to
apply to publicly traded partnerships. The Master Fund will apply certain assumptions and
conventions in an attempt to comply with applicable rules and to report income, gain, deduction,
loss and credit to Fund Shareholders in a manner that reflects Shareholders beneficial shares of
partnership items, but these assumptions and conventions may not be in compliance with all aspects
of applicable tax requirements. It is possible that the IRS will successfully assert that the
conventions and assumptions used by Master Fund do not satisfy the technical requirements of the
Code and/or Treasury regulations and could require that items of income, gain, deduction, loss or
credit be adjusted or reallocated in a manner that adversely affects you.
The Current Treatment of Long-Term Capital Gains Under Current U.S. Federal Income Tax Law May
Be Adversely Affected, Changed or Repealed in the Future.
Under current law, long-term capital gains are taxed to non-corporate investors at a maximum
United States federal income tax rate of fifteen percent (15%). This tax treatment may be adversely
affected, changed or repealed by future changes in tax laws at any time and is currently scheduled
to expire for tax years beginning after December 31, 2008.
PROSPECTIVE INVESTORS ARE STRONGLY URGED TO CONSULT THEIR OWN TAX ADVISERS AND COUNSEL WITH
RESPECT TO THE POSSIBLE TAX CONSEQUENCES TO THEM OF AN INVESTMENT IN ANY SHARES; SUCH TAX
CONSEQUENCES MAY DIFFER IN RESPECT OF DIFFERENT INVESTORS.
Failure or Lack of Segregation of Assets May Increase Losses.
The Commodity Exchange Act requires a clearing broker to segregate all funds received from
customers from such brokers proprietary assets. If the Commodity Broker fails to do so, the assets
of the Master Fund might not be fully protected in the event of the Commodity Brokers bankruptcy.
Furthermore, in the event of the Commodity Brokers bankruptcy, any Master Fund Units could be
limited to recovering only a pro rata share of all available funds segregated on behalf of the
Commodity Brokers
6
combined customer accounts, even though certain property specifically traceable to the Master
Fund was held by the Commodity Broker. The Commodity Broker may, from time-to-time, have been the
subject of certain regulatory and private causes of action. Such material actions are described
under The Commodity Broker.
In the event of a bankruptcy or insolvency of any exchange or a clearing house, the Master
Fund could experience a loss of the funds deposited through its Commodity Broker as margin with the
exchange or clearing house, a loss of any profits on its open positions on the exchange, and the
loss of unrealized profits on its closed positions on the exchange.
Regulatory Changes or Actions May Alter the Nature of an Investment in the Fund.
Considerable regulatory attention has been focused on non-traditional investment pools which
are publicly distributed in the United States. There is a possibility of future regulatory changes
altering, perhaps to a material extent, the nature of an investment in the Fund or the ability of
the Fund to continue to implement its investment strategy.
The futures markets are subject to comprehensive statutes, regulations, and margin
requirements. In addition, the CFTC and the exchanges are authorized to take extraordinary actions
in the event of a market emergency, including, for example, the retroactive implementation of
speculative position limits or higher margin requirements, the establishment of daily price limits
and the suspension of trading. The regulation of futures transactions in the United States is a
rapidly changing area of law and is subject to modification by government and judicial action. The
effect of any future regulatory change on the Fund is impossible to predict, but could be
substantial and adverse.
Lack of Independent Experts Representing Investors.
The Managing Owner has consulted with counsel, accountants and other experts regarding the
formation and operation of the Fund and the Master Fund. No counsel has been appointed to represent
you in connection with the offering of the Shares. Accordingly, you should consult your own legal,
tax and financial advisers regarding the desirability of an investment in Shares.
Possibility of Termination of the Fund May Adversely Affect Your Portfolio.
The Managing Owner may withdraw from the Fund upon one hundred and twenty (120) days notice,
which would cause the Fund and the Master Fund to terminate unless a substitute managing owner were
obtained. You cannot be assured that the Managing Owner will be willing or able to continue to
service the Fund for any length of time. If the Managing Owner discontinues its activities on
behalf of the Fund, the Fund may be adversely affected. In addition, owners of seventy-five
percent (75%) of the Shares have the power to terminate the Trust. If it is so exercised, investors
who wished to continue to invest in 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. See Description of the Shares and the Master Fund Units; Certain Material Terms of the
Trust Declarations Termination Events for a summary of termination events. Such detrimental
developments could cause you to liquidate your investments and upset the overall maturity and
timing of your investment portfolio. If the registrations with the CFTC or memberships in the NFA
of the Managing Owner or the Commodity Broker were revoked or suspended, such entity would no
longer be able to provide services to the Fund and the Master Fund.
7
Affiliates of the Managing Owner and the Trustee may Purchase Shares to Satisfy the
Subscription Minimum.
Affiliates of the Managing Owner and the Trustee who are Authorized Participants may subscribe
for Shares during the initial offering period and any such Shares subscribed for by such persons
will be counted to determine whether the Subscription Minimum has been reached. Any such
subscriptions by such affiliated Authorized Participants will be on the same terms as subscriptions
by unaffiliated Authorized Participants.
Shareholders Do Not Have the Rights Enjoyed by Investors in Certain Other Vehicles.
As interests in an investment trust, the Shares have none of the statutory rights normally
associated with the ownership of Shares of a corporation (including, for example, the right to
bring oppression or derivative actions). In addition, the Shares have limited voting and
distribution rights (for example, Shareholders do not have the right to elect directors and the
Fund is not required to pay regular dividends, although the Fund may pay dividends in the
discretion of the Managing Owner).
An Investment in the Shares May Be Adversely Affected by Competition From Other Methods of
Investing in Commodities.
The Fund and the Master Fund constitute a new, and thus untested, type of investment vehicle.
They compete with other financial vehicles, including other commodity pools, hedge funds,
traditional debt and equity securities issued by companies in the commodities industry, other
securities backed by or linked to such commodities, and direct investments in the underlying
commodities or commodity futures contracts. Market and financial conditions, and other conditions
beyond the Managing Owners control, may make it more attractive to invest in other financial
vehicles or to invest in such commodities directly, which could limit the market for the Shares and
reduce the liquidity of the Shares.
Competing Claims Over Ownership of Intellectual Property Rights Related to the Fund Could
Adversely Affect the Fund and an Investment in the Shares.
While the Managing Owner believes that all intellectual property rights needed to operate the
Fund are either owned by or licensed to the Managing Owner or have been obtained, third parties may
allege or assert ownership of intellectual property rights which may be related to the design,
structure and operations of the Fund. To the extent any claims of such ownership are brought or any
proceedings are instituted to assert such claims, the negotiation, litigation or settlement of such
claims, or the ultimate disposition of such claims in a court of law if a suit is brought, may
adversely affect the Fund and an investment in the Shares, for example, resulting in expenses or
damages or the termination of the Fund.
8
An Absence of Backwardation in the Prices of Certain Commodities, or the presence of
Contango in the Prices of Certain Commodities, May Decrease the Price of Your Shares.
As the futures contracts that underlie the Index near expiration, they are replaced by
contracts that have a later expiration. Thus, for example, a contract purchased and held in
November 2006 may specify a January 2007 expiration. As that contract nears expiration, it may be
replaced by selling the January 2007 contract and purchasing the contract expiring in March 2007.
This process is referred to as rolling. Historically, the prices of Crude Oil and Heating Oil
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 January 2007 contract would take place at a price that is higher
than the price at which the March 2007 contract is purchased, thereby creating a gain in connection
with rolling. While Crude Oil and Heating Oil have historically exhibited consistent periods of
backwardation, backwardation will likely not exist in these markets at all times. The absence of
backwardation in Crude Oil and Heating Oil could adversely affect the value of the Index and,
accordingly, decrease the value of your Shares.
Conversely, Gold, Corn, Soybeans and Wheat historically exhibit contango markets rather than
backwardation. Contango markets are those in which the prices of contracts are higher in the
distant delivery months than in the nearer delivery months due to the costs of long-term storage of
a physical commodity prior to delivery or other factors. Although Gold, Corn, Soybeans and Wheat
have historically exhibited consistent periods of contango, contango will likely not exist in these
markets at all times. The persistence of contango in Gold, Corn, Soybeans and Wheat could adversely
affect the value of the Index and, accordingly, decrease the value of your Shares.
The Value of the Shares Will be Adversely Affected if the Fund or the Master Fund is Required
to Indemnify the Trustee or the Managing Owner.
Under the Trust Declarations, the Trustee and the Managing Owner have the right to be
indemnified for any liability or expense it incurs without negligence or misconduct. That means the
Managing Owner may require the assets of the Master Fund to be sold in order to cover losses or
liability suffered by it or by the Trustee. Any sale of that kind would reduce the net asset value
of the Master Fund and the value of the Shares.
The Net Asset Value Calculation of the Master Fund May Be Overstated or Understated Due to the
Valuation Method Employed When a Settlement Price is not Available on the Date of Net Asset Value
Calculation.
Calculating the net asset value of the Master Fund (and, in turn, the Fund) includes, in part,
any unrealized profits or losses on open commodity futures contracts. Under normal circumstances,
the net asset value of the Master Fund reflects the settlement price of open commodity futures
contracts on the date when the net asset value is being calculated. However, if a commodity futures
contract traded on an exchange (both U.S. and non-U.S. exchanges) could not be liquidated on such
day (due to the operation of daily limits or other rules of the exchange upon which that position
is traded or otherwise), the settlement price on the most recent day on which the position could
have been liquidated shall be the basis for determining the market value of such position for such
day. In such a situation, there is a risk that the calculation of the net asset value of the Master
Fund on such day will not accurately reflect the realizable market value of such commodity futures
contract. For example, daily limits are generally triggered in the event of a significant change in
market price of a commodity futures contract. Therefore, as a result of the daily limit, the
current settlement price is unavailable. Because the settlement price on the most recent day on
which the position could have been liquidated would be used in lieu of the actual settlement price
on the
9
date of determination, there is a risk that the resulting calculation of the net asset value
of the Master Fund (and, in turn, the Fund) could be under or overstated, perhaps to a significant
degree.
10
BREAK-EVEN ANALYSIS
The Breakeven Table below shows the estimated amount of all fees and expenses which are
anticipated to be incurred by a new investor in the Shares during the first twelve months. The
total estimated cost and expense load of the Shares is expressed as a percentage of $___, the
amount of a minimum investment in the Fund. Although the Managing Owner has used actual numbers
and good faith estimates in preparing this table, the actual expenses associated with an investment
in the Shares may differ.
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Amount - $ |
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Amount - % |
Initial Selling Price(1) |
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$ |
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100% |
Subscription Fee |
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Organization and Offering Expenses |
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Management Fee |
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Brokerage Commissions and Fees |
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Routine Operational Administrative and |
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Other Ordinary Expenses |
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|
|
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Interest Income |
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|
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|
|
|
|
|
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Amount of trading income required for the
Funds Net Asset Value per Unit
(Redemption Value) at the end of one year
to equal the Selling Price per Unit |
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|
|
|
|
|
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(1) |
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The initial selling price per Share is $___. The amount
reflected in the table represents the amount of minimum
investment in the Trust because the total cost and expenses as
set forth in the break-even analysis are the costs and expenses
associated with a minimum investment of $___. |
The Breakeven Table, as presented, is an approximation only. The capitalization of the
Fund does not directly affect the level of its charges as a percentage of its net asset value,
other than (i) administrative expenses (which are assumed for purposes of the Breakeven Table to
equal the maximum estimated percentage of the average beginning of month net asset value) (ii)
organizational and offering expenses (which are assumed for purposes of the Breakeven Table to
equal the maximum permissible percentage of the average beginning of month net asset value) and
(iii) brokerage commissions.
11
THE FUND AND MASTER FUND
The GreenHaven Continuous Commodity Index Fund, or the Fund, was formed as a Delaware
statutory trust on October 27, 2006. The Fund will issue common units of beneficial interest, or
Shares, which represent units of fractional undivided beneficial interest in and ownership of the
Fund. The term of the Fund is perpetual (unless terminated earlier in certain circumstances). The
principal offices of the Fund are located at c/o GreenHaven Commodity Services LLC, 3340 Peachtree
Road, Suite 1910, Atlanta, Georgia 30326, and its telephone number is (404) 239-7938.
The GreenHaven Continuous Commodity Index Tracking Master Fund, or the Master Fund, was formed
as a Delaware statutory trust on October 27, 2006. The Master Fund will issue common units of
beneficial interest, or Master Fund Units, which represent units of fractional undivided beneficial
interest in and ownership of the Master Fund. The term of the Master Fund is perpetual (unless
terminated earlier in certain circumstances). The principal offices of the Master Fund are located
at c/o GreenHaven Commodity Services LLC, 3340 Peachtree Road, Suite 1910, Atlanta, Georgia 30326,
and its telephone number is (404) 239-7938.
The Fund will invest substantially all of its assets in the Master Fund in a master-feeder
structure. The Fund will hold no investment assets other than Master Fund Units. The Master Fund
will be wholly-owned by the Fund and the Managing Owner. Each Share issued by the Fund will
correlate with a Master Fund Unit issued by the Master Fund and held by the Fund.
THE INDEX
Reuters America LLC is the owner, publisher, and custodian of the Continuous Commodity
Excess Return Index (CCI-ER) which represents the ninth revision (as of 1995) of the original
Commodity Research Bureau (CRB) Index, developed in 1957. Over the past half century, the CRB
Index has been one of the most often cited indicators of overall commodity prices. The Index of 17
commodity futures prices offers investors a broad and reliable benchmark for the performance of the
commodity sector. The Index, intended to provide a dynamic representation of broad trends in
overall commodity prices, was originally calculated to produce a ratio of the current price to the
base year average price.
The CCI-ER takes into account the economics of rolling listed commodity futures forward to
avoid delivery and maintain exposure to commodity contracts with the liquidity characteristics of
being exchange traded.
The Index, was first calculated by Commodity Research Bureau, Inc. in 1957 and was published
in the 1958 CRB commodity Year Book. The Index, intended to provide a dynamic representation of
broad trends in overall commodity prices, was originally calculated to produce a ratio of the
current price to the base year average price.
The Index is generally viewed as a broad measure of overall commodity price trends due to the
diverse nature of its constituent commodities. The table below indicates the constituent
commodities and the allowed contracts.
12
|
|
|
Commodity |
|
Allowed Contracts |
Crude Oil
|
|
All 12 calendar months |
Heating Oil
|
|
All 12 calendar months |
Natural Gas
|
|
All 12 calendar months |
Corn
|
|
March, May, July, September, December |
Wheat
|
|
March, May, July, September, December |
Soybeans
|
|
January, March, May, July, August, November |
Live Cattle
|
|
February, April, June, August, October, December |
Lean Hogs
|
|
February, April, June, July, August, October, December |
Sugar #11
|
|
March, May, July, October |
Cotton
|
|
March, May, July, December |
Coffee
|
|
March, May, July September, December |
Cocoa
|
|
March, May, July September, December |
Orange Juice
|
|
January, March, May, July, September, November |
Gold
|
|
February, April, June, August, December |
Silver
|
|
March, May, July September, December |
Platinum
|
|
January, April, July, October |
Copper
|
|
March, May, July September, December |
The Index is weighted evenly among the 17 constituent commodities. Each weighting is
used for both averaging of individual commodity months and for averaging of the 17 commodity
averages. Thus, equal weighting should reduce the impact a single contract month or a single
commodity may have on the Index making it harder to manipulate the Index.
The table below indicates the constituent commodities, their index weighting and the sector
weighting within the Index.
|
|
|
|
|
|
|
Commodity |
|
Index Weight |
|
Sector Weight |
WTI Crude Oil
|
|
|
5.88 |
% |
|
Energy 17.64% |
Heating Oil
|
|
|
5.88 |
% |
|
|
Natural Gas
|
|
|
5.88 |
% |
|
|
Corn
|
|
|
5.88 |
% |
|
Grains 17.64% |
Wheat
|
|
|
5.88 |
% |
|
|
Soybeans
|
|
|
5.88 |
% |
|
|
Live Cattle
|
|
|
5.88 |
% |
|
Livestock 11.76% |
Lean Hogs
|
|
|
5.88 |
% |
|
|
Sugar
|
|
|
5.88 |
% |
|
Softs 29.40% |
Cotton
|
|
|
5.88 |
% |
|
|
Coffee
|
|
|
5.88 |
% |
|
|
Cocoa
|
|
|
5.88 |
% |
|
|
Orange Juice
|
|
|
5.88 |
% |
|
|
Gold
|
|
|
5.88 |
% |
|
Metals 23.52% |
Silver
|
|
|
5.88 |
% |
|
|
Platinum
|
|
|
5.88 |
% |
|
|
Copper
|
|
|
5.88 |
% |
|
|
The Index generally averages all futures prices six months forward, up to a maximum of
five delivery months per commodity. A minimum of two delivery months, however, must be used to
calculate the current price if the second contract is outside the six-month window. Contracts in
the delivery period are excluded from the calculation. Although each of the 17 commodities is
equally weighted, the Index uses an average of the prices of the 17 commodities and an average of
those commodities across time within each commodity. Each commodity is averaged across time (six
month period) and then these 17 component figures are averaged together. The continuous
rebalancing provided by this methodology means
13
the Index constantly decreases exposure to commodity markets gaining in value and increases
exposure to those markets declining in value.
Values of the underlying Index are computed by Bridge Information Systems, Inc., and
disseminated by the New York Futures Exchange every 15 seconds during the trading day. Only
settlement and last-sale prices are used in the Indexs calculation, bids and offers are not
recognized including limit-bid and limit-offer price quotes. Where no last-sale price exists,
typically in the more deferred contract months, the previous days settlement price is used. This
means that the underlying Index may lag its theoretical value. This tendency to lag is evident at
the end of the day when the Index value is based on the settlement prices of the component
commodities, and explains why the underlying Index often closes at or near the high or low for the
day.
INVESTMENT OBJECTIVE
Investment Objective
The investment objective of the Fund and the Master Fund is to reflect the performance of the
Index, over time, less the expenses of the operations of the Fund and the Master Fund.
The Fund will pursue its investment objective by investing substantially all of its assets in
the Master Fund. The Master Fund will pursue its investment objective by investing in a portfolio
of exchange-traded futures on the commodities comprising the Index, or the Index Commodities.
The Master Fund will hold a portfolio of futures contracts on the Index Commodities as well as
cash and United States Treasury securities for deposit with the Master Funds Commodity Broker as
margin and other high credit quality short-term fixed income securities. The Master Funds
portfolio is traded with a view to reflecting the performance of the Index over time, whether the
Index is rising, falling or flat over any particular period. The Master Fund is not managed by
traditional methods, which typically involve effecting changes in the composition of the Master
Funds portfolio on the basis of judgments relating to economic, financial and market
considerations with a view to obtaining positive results under all market conditions. To maintain
the correspondence between the composition and weightings of the Index Commodities comprising the
Index, the Managing Owner may adjust the Portfolio on a daily basis to conform to periodic changes
in the identity and/or relative weighting of the Index Commodities. The Managing Owner aggregates
certain of the adjustments and makes changes to the portfolio in the case of significant changes to
the Index.
There can be no assurance that the Fund or the Master Fund will achieve its investment
objective or avoid substantial losses. The Master Fund has not commenced trading and does not have
any performance history. The value of the Shares is expected to fluctuate generally in relation to
changes in the value of the Master Fund Units.
Role of Managing Owner
The Managing Owner will serve as the commodity pool operator and commodity trading advisor of
the Fund and the Master Fund.
Specifically, with respect to the Fund and the Master Fund, the Managing Owner:
|
(i) |
|
selects the Trustee, administrator, distributor and auditor; |
|
|
(ii) |
|
negotiates various agreements and fees; and |
14
|
(iii) |
|
performs such other services as the Managing Owner believes that
the Fund and the Master Fund may from time-to-time require. |
Specifically, with respect to the Master Fund, the Managing Owner:
|
(i) |
|
selects the Commodity Broker; and |
|
|
(ii) |
|
monitors the performance results of the Master Funds portfolio
and reallocates assets within the portfolio with a view to causing the
performance of the Master Funds portfolio to track that of the Index over time. |
Neither the Managing Owner nor any of its trading principals has ever before operated a
commodity pool or managed a commodity trading account. The Managing Owner has filed an application
for registration as a commodity pool operator and commodity trading advisor with the Commodity
Futures Trading Commission and is a member of the National Futures Association.
The principal office of the Managing Owner is located at 3340 Peachtree Road, Suite 1910,
Atlanta, Georgia 30326. The telephone number of the Managing Owner is (404) 239-7938.
WHO MAY SUBSCRIBE
Baskets may be created or redeemed only by Authorized Participants. Each Authorized
Participant must (1) be a registered broker-dealer or other securities market participant such as a
bank or other financial institution which is not required to register as a broker-dealer to engage
in securities transactions, (2) be a participant in DTC, and (3) have entered into an agreement
with the Fund and the Managing Owner (a Participant Agreement). The Participant Agreement sets
forth the procedures for the creation and redemption of Baskets of Shares and for the delivery of
cash required for such creations or redemptions. A list of the current Authorized Participants can
be obtained from the Administrator. A similar agreement between the Fund and the Master Fund sets
forth the procedures for the creation and redemption of Master Unit Baskets by the Fund. See
Creation and Redemption of Shares for more details.
CREATION AND REDEMPTION OF SHARES
The Fund will create and redeem Shares from time-to-time, but only in one or more Baskets. A
Basket is a block of 50,000 Shares. Baskets may be created or redeemed only by Authorized
Participants. Authorized Participants pay a transaction fee of $[___] in connection with each order
to create or redeem a Basket of Shares. Authorized Participants may sell the Shares included in the
Baskets they purchase from the Fund to other investors.
The Master Fund will create and redeem Master Fund Units from time-to-time, but only in one or
more Master Unit Baskets. A Master Unit Basket is a block of 50,000 Master Fund Units. Master Unit
Baskets may be created or redeemed only by the Fund. Each Share issued by the Fund will correlate
with a Master Fund Unit issued by the Master Fund and held by the Fund.
Authorized Participants are the only persons that may place orders to create and redeem
Baskets. Authorized Participants must be (1) registered broker-dealers or other securities market
participants, such as banks and other financial institutions, which are not required to register as
broker-dealers to engage in securities transactions, and (2) participants in DTC. To become an
Authorized Participant, a person must enter into a Participant Agreement with the Fund and the
Managing Owner. The Participant Agreement sets forth the procedures for the creation and redemption
of Baskets and for the payment of cash required for
15
such creations and redemptions. The Participant Agreement and the related procedures attached
thereto may be amended by the Managing Owner and the Distributor without the consent of any
Shareholder or Authorized Participant. To compensate the Administrator for services in processing
the creation and redemption of Baskets, an Authorized Participant is required to pay a transaction
fee to the Fund of $[________] per order to create or redeem Baskets. In turn, the Fund pays this
transaction fee to the Master Fund, which then pays such fee to the Administrator. After the
initial offering period, Authorized Participants who purchase Baskets receive no fees, commissions
or other form of compensation or inducement of any kind from either the Managing Owner or the Fund,
and no such person has any obligation or responsibility to the Managing Owner or the Fund to effect
any sale or resale of Shares. During the initial offering period, the Fund will rebate to each
Authorized Participant who submits an order to purchase one or more Baskets an upfront selling
commission in an amount equal to [________]% of the aggregate amount of all orders to purchase Baskets
received from such Authorized Participants to compensate such Authorized Participants for their
selling efforts in respect of the Shares.
Authorized Participants are cautioned that some of their activities will result in their being
deemed participants in a distribution in a manner which would render them statutory underwriters
and subject them to the prospectus-delivery and liability provisions of the Securities Act, as
described in Plan of Distribution.
Each Authorized Participant will be registered as a broker-dealer under the Securities
Exchange Act of 1934 (the Exchange Act) and regulated by the NASD, or will be exempt from being or
otherwise will not be required to be so regulated or registered, and will be qualified to act as a
broker or dealer in the states or other jurisdictions where the nature of its business so requires.
Certain Authorized Participants may be regulated under federal and state banking laws and
regulations. Each Authorized Participant will have its own set of rules and procedures, internal
controls and information barriers as it determines is appropriate in light of its own regulatory
regime.
Authorized Participants may act for their own accounts or as agents for broker-dealers,
custodians and other securities market participants that wish to create or redeem Baskets.
Persons interested in purchasing Baskets should contact the Managing Owner or the
Administrator to obtain the contact information for the Authorized Participants. Shareholders who
are not Authorized Participants will only be able to redeem their Shares through an Authorized
Participant.
Under the Participant Agreements, the Managing Owner has agreed to indemnify the Authorized
Participants against certain liabilities, including liabilities under the Securities Act, and to
contribute to the payments the Authorized Participants may be required to make in respect of those
liabilities. The Administrator has agreed to reimburse the Authorized Participants, solely from and
to the extent of the Master Funds assets, for indemnification and contribution amounts due from
the Managing Owner in respect of such liabilities to the extent the Managing Owner has not paid
such amounts when due.
The following description of the procedures for the creation and redemption of Baskets is only
a summary and an investor should refer to the relevant provisions of the Funds Trust Declaration
and the form of Participant Agreement for more detail. The Funds Trust Declaration and the form of
Participant Agreement are filed as exhibits to the registration statement of which this prospectus
is a part.
Creation Procedures
On any business day, an Authorized Participant may place an order with the Distributor to
create one or more Baskets. For purposes of processing both purchase and redemption orders, a
business day means any day other than a day when banks in New York City are required or permitted
to be closed.
16
Purchase orders must be placed by 10:00 a.m., New York time. The day on which the Distributor
receives a valid purchase order is the purchase order date. Purchase orders are irrevocable. By
placing a purchase order, and prior to delivery of such Baskets, an Authorized Participants DTC
account will be charged the non-refundable transaction fee due for the purchase order.
Determination of required payment
The total payment required to create each Basket during the initial offering period is $1.5
million and during the continuous offering period is the Net Asset Value of 50,000 Shares as of the
closing time of the Amex or the last to close of the exchanges on which the Index Commodities are
traded, whichever is later, on the purchase order date. Baskets will be issued as of 12:00pm, New
York time, on the Business Day immediately following the purchase order date at either $30.00 per
Share during the initial offering period or at net asset value per Share as of the closing time of
the Amex or the last to close of the exchanges on which the Index Commodities are traded, whichever
is later, on the purchase order date during the continuous offering period, but only if the
required payment has been timely received.
Because orders to purchase Baskets must be placed by 10:00 a.m., New York time, but the total
payment required to create a Basket during the continuous offering period will not be determined
until 4:00 p.m., New York time, on the date the purchase order is received, Authorized Participants
will not know the total amount of the payment required to create a Basket at the time they submit
an irrevocable purchase order for the Basket. The Funds net asset value and the total amount of
the payment required to create a Basket could rise or fall substantially between the time an
irrevocable purchase order is submitted and the time the amount of the purchase price in respect
thereof is determined.
Rejection of purchase orders
The Administrator may reject a purchase order if:
|
(i) |
|
It determines that the purchase order is not in proper form; |
|
|
(ii) |
|
The Managing Owner believes that the purchase order would have
adverse tax consequences to the Fund or its Shareholders; or |
|
|
(iii) |
|
Circumstances outside the control of the Managing Owner or the
Distributor make it, for all practical purposes, not feasible to process
creations of Baskets. |
The Distributor and the Managing Owner will not be liable for the rejection of any purchase
order.
Redemption Procedures
The procedures by which an Authorized Participant can redeem one or more Baskets mirror the
procedures for the creation of Baskets. On any business day, an Authorized Participant may place an
order with the Distributor to redeem one or more Baskets. Redemption orders must be placed by 10:00
a.m., New York time. The day on which the Distributor receives a valid redemption order is the
redemption order date. Redemption orders are irrevocable. Individual Shareholders may not redeem
directly from the Fund. Instead, individual Shareholders may only redeem Shares in numbers equal to
at least one Basket and only through an Authorized Participant.
By placing a redemption order, an Authorized Participant agrees to deliver the Baskets to be
redeemed through DTCs book-entry system to the Fund not later than 12:00pm, New York time, on the
17
business day immediately following the redemption order date. By placing a redemption order,
and prior to receipt of the redemption proceeds, an Authorized Participants DTC account will be
charged the non-refundable transaction fee due for the redemption order.
Redemptions will not be permitted during the initial offering period.
Determination of redemption proceeds
The redemption proceeds from the Fund consist of the cash redemption amount equal to the net
asset value of the number of Basket(s) requested in the Authorized Participants redemption order
as of the closing time of the Amex or the last to close of the exchanges on which the Index
Commodities are traded, whichever is later, on the redemption order date. The Managing Owner will
distribute the cash redemption amount at 12:00pm, New York time, on the business day immediately
following the redemption order date through DTC to the account of the Authorized Participant as
recorded on DTCs book entry system.
Delivery of redemption proceeds
The redemption proceeds due from the Fund is delivered to the Authorized Participant at
12:00pm, New York time, on the business day immediately following the redemption order date if, by
such time, the Funds DTC account has been credited with the Baskets to be redeemed. If the Funds
DTC account has not been credited with all of the Baskets to be redeemed by such time, the
redemption distribution is delivered to the extent of whole Baskets received. Any remainder of the
redemption distribution is delivered on the next business day to the extent of remaining whole
Baskets received if the Distributor receives the fee applicable to the extension of the redemption
distribution date which the Distributor may, from time-to-time, determine and the remaining Baskets
to be redeemed are credited to the Funds DTC account by 12:00pm, New York time, on such next
business day. Any further outstanding amount of the redemption order shall be cancelled. The
Distributor is also authorized to deliver the redemption distribution notwithstanding that the
Baskets to be redeemed are not credited to the Funds DTC account by 12:00pm, New York time, on the
business day immediately following the redemption order date if the Authorized Participant has
collateralized its obligation to deliver the Baskets through DTCs book entry system on such terms
as the Distributor and the Managing Owner may from time-to-time agree upon.
Suspension or rejection of redemption orders
The Distributor may, in its discretion, and will when directed by the Managing Owner, suspend
the right of redemption, or postpone the redemption settlement date, (1) for any period during
which an emergency exists as a result of which the redemption distribution is not reasonably
practicable, or (2) for such other period as the Managing Owner determines to be necessary for the
protection of the Shareholders. Neither the Distributor nor the Managing Owner will be liable to
any person or in any way for any loss or damages that may result from any such suspension or
postponement.
The Distributor will reject a redemption order if the order is not in proper form as described
in the Participant Agreement or if the fulfillment of the order, in the opinion of its counsel,
might be unlawful.
Creation And Redemption Transaction Fee
To compensate the Administrator for services in processing the creation and redemption of
Baskets, an Authorized Participant is required to pay a transaction fee to the Fund of $[___] per
order to create or redeem Baskets. In turn, the Fund pays this transaction fee to the Master Fund,
which then pays such fee to the Administrator. An order may include multiple Baskets. The
transaction fee may be reduced, increased or otherwise changed by the Administrator with consent
from the Managing Owner. The
18
Administrator shall notify DTC of any agreement to change the transaction fee and will not
implement any increase in the fee for the redemption of Baskets until thirty days after the date of
the notice.
THE COMMODITY BROKER
A variety of executing brokers will execute futures transactions on behalf of the Master Fund.
Such executing brokers will give-up all such transactions to [ ], a corporation,
which will serve as the Master Funds clearing broker, or Commodity Broker. In its capacity as
clearing broker, the Commodity Broker will execute and clear each of the Master Funds futures
transactions and will perform certain administrative services for the Master Fund. [ ] is
also registered with the Commodity Futures Trading Commission as a futures commission merchant and
is a member of the National Futures Association in such capacity.
There is no litigation pending regarding [ ] that would materially adversely affect
its ability to carry on its commodity futures and options brokerage business.
Additional or replacement Commodity Brokers may be appointed in respect of the Fund in the
future.
DESCRIPTION OF THE SHARES AND THE MASTER FUND UNITS;
CERTAIN MATERIAL TERMS OF THE TRUST DECLARATIONS
The following summary describes in brief the Shares and the Master Fund Units and certain
aspects of the operation of the Fund and the Master Fund and the respective responsibilities of the
Trustee and the Managing Owner concerning the Fund and Master Fund and the material terms of the
Declarations of Trust, each of which are substantially identical except as set forth below.
Prospective investors should carefully review the Forms of Declarations of Trust filed as exhibits
to the registration statement of which this prospectus is a part and consult with their own
advisers concerning the implications to such prospective subscribers of investing in a Delaware
statutory trust. Capitalized terms used in this section and not otherwise defined shall have such
meanings assigned to them under the applicable Trust Declaration.
Description of the Shares and the Master Fund Units
The Fund will issue common units of beneficial interest, or Shares, which represent units of
fractional undivided beneficial interest in and ownership of the Fund. Application has been made
to list the Shares on the Amex under the symbol [___].
After the initial offering period, the Shares may be purchased from the Fund or redeemed on a
continuous basis, but only by Authorized Participants and only in blocks of 50,000 Shares, or
Baskets. Individual Shares may not be purchased from the Fund or redeemed. Shareholders that are
not Authorized Participants may not purchase from the Fund or redeem Shares or Baskets.
The Fund will invest the proceeds of its offering of Shares in the Master Fund. The Master
Fund will issue common units of beneficial interest, or Master Fund Units, which represent units of
fractional undivided beneficial interest in and ownership of the Master Fund. Master Fund Units may
be purchased or redeemed on a continuous basis, but only by the Fund and only in blocks of 50,000
Master Fund Units, or
19
Master Unit Baskets. The Master Fund will be wholly-owned by the Fund and the Managing Owner.
Each Share issued by the Fund will correlate with a Master Fund Unit issued by the Master Fund and
held by the Fund.
Principal Office; Location of Records
Each of the Fund and the Master Fund is organized as a statutory trust under the Delaware
Statutory Trust Act. The Fund and Master Fund are managed by the Managing Owner, whose office is
located 3340 Peachtree Road, Suite 1910, Atlanta, Georgia 30326, telephone:
(404) 239-7938.
The books and records of the Fund and the Master Fund will be maintained as follows: all
marketing materials and Basket creation and redemption books and records will be maintained at the
offices of [ ]; Telephone number [ ]; certain financial books and records
(including fund accounting records, ledgers with respect to assets, liabilities, capital, income
and expenses, the registrar, transfer journals and related details) and trading and related
document received from futures commission merchants will be maintained by GreenHaven Commodity
Services. All other books and records of the Fund and the Master Fund (including minute books and
other general corporate records, trading records and related reports and other items received from
the Master Funds Commodity Brokers) will be maintained at its principal office, c/o GreenHaven
Commodity Services LLC, 3340 Peachtree Road, Suite 1910, Atlanta, Georgia 30326, telephone:
(404)
239-7938.
The books and records of the Fund and the Master Fund are located at the foregoing addresses,
and available for inspection and copying (upon payment of reasonable reproduction costs) by
Shareholders or their representatives for any purposes reasonably related to a Shareholders
interest as a beneficial owner of such Shares during regular business hours as provided in the
Declarations of Trust. The Managing Owner will maintain and preserve the books and records of the
Fund and the Master Fund for a period of not less than six years.
The Trustee
CSC Trust Company of Delaware, a Delaware corporation, is the sole Trustee of the Fund and
Master Fund. The Trustees principal offices are located , 2711 Centerville Road, Suite 210,
Wilmington, DE 19808. The Trustee is unaffiliated with the Managing Owner. The Trustees duties and
liabilities with respect to the offering of the Shares and the management of the Fund and Master
Fund are limited to its express obligations under the Trust Declarations.
The rights and duties of the Trustee, the Managing Owner and the Shareholders are governed by
the provisions of the Delaware Statutory Trust Act and by the applicable Trust Declaration.
The Trustee serves as the sole trustee of the Fund and the Master Fund in the State of
Delaware. The Trustee will accept service of legal process on the Fund and the Master Fund in the
State of Delaware and will make certain filings under the Delaware Statutory Trust Act. The Trustee
does not owe any other duties to the Fund or the Master Fund, the Managing Owner or the
Shareholders. The Trustee is permitted to resign upon at least sixty (60) days notice to the Fund
and the Master Fund, provided, that any such resignation will not be effective until a successor
Trustee is appointed by the Managing Owner. Each of the Trust Declarations provides that the
Trustee is compensated by the Fund or Master Fund, as appropriate, and is indemnified by the Fund
or Master Fund, as appropriate, against any expenses it incurs relating to or arising out of the
formation, operation or termination of the Fund or Master Fund, as appropriate, or the performance
of its duties pursuant to the Trust Declarations, except to the extent that such expenses result
from the gross negligence or willful misconduct of the Trustee. The Managing Owner has the
discretion to replace the Trustee.
20
Only the Managing Owner has signed the Registration Statement of which this Prospectus is a
part, and only the assets of the Fund, the Master Fund and the Managing Owner are subject to issuer
liability under the federal securities laws for the information contained in this Prospectus and
under federal laws with respect to the issuance and sale of the Shares. Under such laws, neither
the Trustee, either in its capacity as Trustee or in its individual capacity, nor any director,
officer or controlling person of the Trustee is, or has any liability as, the issuer or a director,
officer or controlling person of the issuer of the Shares. The Trustees liability in connection
with the issuance and sale of the Shares is limited solely to the express obligations of the
Trustee set forth in each Trust Declaration.
Under each Trust Declaration, the Trustee has delegated to the Managing Owner the exclusive
management and control of all aspects of the business of the Fund and Master Fund. The Trustee will
have no duty or liability to supervise or monitor the performance of the Managing Owner, nor will
the Trustee have any liability for the acts or omissions of the Managing Owner. The Shareholders
have no voice in the day-to-day management of the business and operations of the Fund or the Master
Fund, other than certain limited voting rights as set forth in each Trust Declaration. In the
course of its management of the business and affairs of the Fund and the Master Fund, the Managing
Owner may, in its sole and absolute discretion, appoint an affiliate or affiliates of the Managing
Owner as additional managing owners (except where the Managing Owner has been notified by the
Shareholders that it is to be replaced as the managing owner) and retain such persons, including
affiliates of the Managing Owner, as it deems necessary for the efficient operation of the Fund or
Master Fund, as appropriate.
Because the Trustee has delegated substantially all of its authority over the operation of the
Fund and the Master Fund to the Managing Owner, the Trustee itself is not registered in any
capacity with the CFTC.
The Managing Owner
Background and Principal. GreenHaven Commodity Services LLC, a Delaware limited liability
company, is the Managing Owner of the Fund and the Master Fund. The Managing Owner serves as both
commodity pool operator and commodity trading advisor of the Fund and Master Fund. The Managing
Owner has filed an application for registration with the CFTC as a commodity pool operator and
commodity trading advisor. Its principal place of business is 3340 Peachtree Road, Suite 1910,
Atlanta, Georgia 30326, telephone: (404) 239-7938. The pending registration of the Managing
Owner with the CFTC and its membership in the NFA must not be taken as an indication that either
the CFTC or the NFA has recommended or approved the Managing Owner, the Fund or the Master Fund.
In its capacity as a commodity pool operator, the Managing Owner is an organization which
operates or solicits funds for a commodity pool; that is, an enterprise in which funds contributed
by a number of persons are combined for the purpose of trading futures contracts. In its capacity
as a commodity trading advisor, the Managing Owner is an organization which, for compensation or
profit, advises others as to the value of or the advisability of buying or selling futures
contracts.
Principals and Key Employees. Ashmead Pringle, Thomas Fernandes and Scott Glasing serve as
the chief decision makers of the Managing Owner.
Ashmead Pringle, President
Mr. Pringle is the President and owner of the Managing Owner. Mr. Pringle founded the
Managing Owner in 2006. In 1984, Mr. Pringle founded Grain Service Corporation (GSC), a commodity
research , advisory and trading company. GSC annually transacts over $2 billion of grain and
energy
21
derivatives for clients ranging from multinational corporations to commercial commodity
consumers, producers and merchants. Mr. Pringle has conducted hundreds of seminars on hedging,
risk management, and basis trading in energy and agriculture, and is a recognized expert in
commodity risk management. Mr. Pringle has conducted numerous seminars on hedging, risk
management, and basis trading in petroleum, natural gas, and grains, and is a recognized expert in
the field. Mr. Pringle has authored several articles on the use of risk management tools and the
proper accounting for derivatives under Financial Accounting Standards Board Summary of Statement
No. 133 Accounting for Derivative Instruments and Hedging Activities (FASB 133). Mr. Pringle
holds a B.S. in Mechanical Engineering from Duke University and an M.B.A. from Harvard Business
School.
Thomas Fernandes, Treasurer and Manager of Operations
Mr. Fernandes is responsible for fund operations. He has 10 years of institutional trading
experience working on both buy and sell side desks with such firms as Spear, Leeds & Kellogg, West
Broadway Partners and GSC Energy. Mr. Fernandes specializes in cash and derivative arbitrage,
quantitative/fundamental analysis and the trading of various asset classes. Mr. Fernandes
established his knowledge of portfolio management while working at West Broadway Partners where he
was a member of a team responsible for a $200 million dollar multi-strategy portfolio. Mr.
Fernandes attended the State University of New York at Geneseo and has an M.B.A. in Finance from
Fordham University.
Scott Glasing, Trader
Mr. Glassing has over 19 years of industry experience concentrated in risk management
operations and derivatives trading. Mr. Glaser studied finance and economics at the University of
Illinois at Chicago and studied hedging at the Board of Trade. Mr. Glasing has managed the grain
derivative desk at GSC for approximately 8 years. Mr. Glasing is also experienced in dealing with
the annual audits by FCMs and the NFA.
Fiduciary Obligations of the Managing Owner. As managing owner of the Fund and the Master
Fund, the Managing Owner effectively is subject to the duties and restrictions imposed on
fiduciaries under both statutory and common law. The Managing Owner has a fiduciary
responsibility to the Shareholders to exercise good faith, fairness and loyalty in all dealings
affecting the Fund and the Master Fund, consistent with the terms of the Trust Declarations. A form
of each of the Trust Declarations is filed as an exhibit to the registration statement of which
this prospectus is a part. The general fiduciary duties which would otherwise be imposed on the
Managing Owner (which would make the operation of the Fund and the Master Fund as described herein
impracticable due to the strict prohibition imposed by such duties on, for example, conflicts of
interest on behalf of a fiduciary in its dealings with its beneficiaries), are defined and limited
in scope by the disclosure of the business terms of the Fund and the Master Fund, as set forth
herein and in the Trust Declarations (to which terms all Shareholders, by subscribing to the
Shares, are deemed to consent).
The Trust Declarations provide that the Managing Owner and its affiliates shall have no
liability to the Fund or the Master Fund or to any Shareholder for any loss suffered by the Fund or
the Master Fund arising out of any action or inaction of the Managing Owner or its affiliates or
their respective directors, officers, shareholders, partners, members, managers or employees (the
Managing Owner Related Parties) if the Managing Owner Related Parties, in good faith, determined
that such course of conduct was in the best interests of the Fund or the Master Fund, as
applicable, and such course of conduct did not constitute gross negligence or misconduct by the
Managing Owner Related Parties. The Fund and the Master Fund have agreed to indemnify the Managing
Owner Related Parties against claims, losses or liabilities based on their conduct relating to the
Fund and the Master Fund, provided that the conduct resulting in the claims, losses or liabilities
for which indemnity is sought did not constitute gross negligence or misconduct and was
22
done in good faith and in a manner reasonably believed to be in the best interests of the Fund
or the Master Fund, as applicable.
Fiduciary and Regulatory Duties of the Managing Owner
An investor should be aware that the Managing Owner has a fiduciary responsibility to the
Shareholders to exercise good faith and fairness in all dealings affecting the Fund and the Master
Fund.
Under Delaware law, a beneficial owner of a business trust (such as a Shareholder of the Fund)
may, under certain circumstances, institute legal action on behalf of himself and all other
similarly situated beneficial owners (a class action) to recover damages from a managing owner of
such business trust for violations of fiduciary duties, or on behalf of a business trust (a
derivative action) to recover damages from a third party where a managing owner has failed or
refused to institute proceedings to recover such damages. In addition, beneficial owners may have
the right, subject to certain legal requirements, to bring class actions in federal court to
enforce their rights under the federal securities laws and the rules and regulations promulgated
thereunder by the Securities and Exchange Commission (SEC). Beneficial owners who have suffered
losses in connection with the purchase or sale of their beneficial interests may be able to recover
such losses from a managing owner where the losses result from a violation by the managing owner of
the anti-fraud provisions of the federal securities laws.
Under certain circumstances, Shareholders also have the right to institute a reparations
proceeding before the CFTC against the Managing Owner (a registered commodity pool operator and
commodity trading advisor), the Commodity Broker (registered futures commission merchant), as well
as those of their respective employees who are required to be registered under the Commodity
Exchange Act, as amended, and the rules and regulations promulgated thereunder. Private rights of
action are conferred by the Commodity Exchange Act, as amended. Investors in commodities and in
commodity pools may, therefore, invoke the protections provided thereunder.
There are substantial and inherent conflicts of interest in the structure of the Fund and the
Master Fund which are, on their face, inconsistent with the Managing Owners fiduciary duties. One
of the purposes underlying the disclosures set forth in this Prospectus is to disclose to all
prospective Shareholders these conflicts of interest so that the Managing Owner may have the
opportunity to obtain investors informed consent to such conflicts. Prospective investors who are
not willing to consent to the various conflicts of interest described under Conflicts of Interest
and elsewhere should not invest in the Fund. The Managing Owner currently intends to raise such
disclosures and consent as a defense in any proceeding brought seeking relief based on the
existence of such conflicts of interest.
The foregoing summary describing in general terms the remedies available to Shareholders under
federal law is based on statutes, rules and decisions as of the date of this Prospectus. This is a
rapidly developing and changing area of the law. Therefore, Shareholders who believe that they may
have a legal cause of action against any of the foregoing parties should consult their own counsel
as to their evaluation of the status of the applicable law at such time.
Management; Voting by Shareholders
The Shareholders take no part in the management or control, and have no voice in the
operations or the business of the Fund or the Master Fund. Shareholders, may, however, remove and
replace the Managing Owner as the managing owner of the Fund, and may amend the Trust Declaration
of the Fund, except in certain limited respects, by the affirmative vote of a majority of the
outstanding Shares then owned by Shareholders (as opposed to by the Managing Owner and its
affiliates). The owners of a majority of the outstanding Shares then owned by Shareholders may also
compel dissolution of the Fund. The
23
owners of ten percent (10%) of the outstanding Shares then owned by Shareholders have the
right to bring a matter before a vote of the Shareholders. The Managing Owner has no power under
the Trust Declaration to restrict any of the Shareholders voting rights. Any Shares purchased by
the Managing Owner or its affiliates, as well as the Managing Owners general liability interest in
the Fund or Master Fund, are non-voting.
The Managing Owner has the right unilaterally to amend the Trust Declaration provided that any
such amendment is for the benefit of and not adverse to the Shareholders or the Trustee and also in
certain unusual circumstances for example, if doing so is necessary to comply with certain
regulatory requirements.
Recognition of the Fund and the Master Fund in Certain States
A number of states do not have business trust statutes such as that under which the Fund and
the Master Fund have been formed in the State of Delaware. It is possible, although unlikely, that
a court in such a state could hold that, due to the absence of any statutory provision to the
contrary in such jurisdiction, the Shareholders, although entitled under Delaware law to the same
limitation on personal liability as stockholders in a private corporation for profit organized
under the laws of the State of Delaware, are not so entitled in such state. To protect Shareholders
against any loss of limited liability, the Trust Declarations provide that no written obligation
may be undertaken by the Fund or Master Fund unless such obligation is explicitly limited so as not
to be enforceable against any Shareholder personally. Furthermore, each of the Fund and Master Fund
itself indemnifies all its Shareholders against any liability that such Shareholders might incur in
addition to that of a beneficial owner. The Managing Owner is itself generally liable for all
obligations of the Fund and the Master Fund and will use its assets to satisfy any such liability
before such liability would be enforced against any Shareholder individually.
Possible Repayment of Distributions Received by Shareholders; Indemnification by Shareholders
The Shares are limited liability investments; investors may not lose more than the amount that
they invest plus any profits recognized on their investment. However, Shareholders could be
required, as a matter of bankruptcy law, to return to the estate of the Fund any distribution they
received at a time when the Fund was in fact insolvent or in violation of its Trust Declaration. In
addition, although the Managing Owner is not aware of this provision ever having been invoked in
the case of any public futures fund, Shareholders agree in the Trust Declaration that they will
indemnify the Fund for any harm suffered by it as a result of (i) Shareholders actions unrelated
to the business of the Fund, or (ii) taxes imposed on the Shares by the states or municipalities in
which such investors reside.
The foregoing repayment of distributions and indemnity provisions (other than the provision
for Shareholders indemnifying the Fund for taxes imposed upon it by the state or municipality in
which particular Shareholders reside, which is included only as a formality due to the fact that
many states do not have business trust statutes so that the tax status of the Fund in such states
might, theoretically, be challengedalthough the Managing Owner is unaware of any instance in which
this has actually occurred) are commonplace in statutory trusts and limited partnerships.
Shares Freely Transferable
The Shares are expected to trade on the Amex and provide institutional and retail investors
with direct access to the Fund. The Fund will hold no investment assets other than Master Fund
Units. The Master Fund trades with a view to tracking the Index over time, less expenses. The
Funds Shares may be bought and sold on the Amex like any other exchange-listed security.
24
Book-Entry Form
Individual certificates will not be issued for the Shares. Instead, global certificates are
deposited by the Trustee with DTC and registered in the name of Cede & Co., as nominee for DTC. The
global certificates evidence all of the Shares outstanding at any time. Under the Funds Trust
Declaration, Shareholders are limited to (1) participants in DTC such as banks, brokers, dealers
and trust companies (DTC Participants), (2) those who maintain, either directly or indirectly, a
custodial relationship with a DTC Participant (Indirect Participants), and (3) those banks,
brokers, dealers, trust companies and others who hold interests in the Shares through DTC
Participants or Indirect Participants. The Shares are only transferable through the book-entry
system of DTC. Shareholders who are not DTC Participants may transfer their Shares through DTC by
instructing the DTC Participant holding their Shares (or by instructing the Indirect Participant or
other entity through which their Shares are held) to transfer the Shares. Transfers are made in
accordance with standard securities industry practice.
Reports to Shareholders
The Managing Owner will furnish you with annual reports as required by the rules and
regulations of the SEC as well as with those reports required by the CFTC and the National Futures
Association, or the NFA, including, but not limited to, an annual audited financial statement
certified by independent public accountants and any other reports required by any other
governmental authority that has jurisdiction over the activities of the Fund and the Master Fund.
You also will be provided with appropriate information to permit you (on a timely basis) to file
your United States federal and state income tax returns with respect to your Shares.
The Managing Owner will notify Shareholders of any change in the fees paid by the Fund and the
Master Fund or of any material changes to the Fund or the Master Fund. Any such notification shall
include a description of Shareholders voting rights.
Net Asset Value
Net asset value means the total assets of the Master Fund including, but not limited to, all
cash and cash equivalents or other debt securities less total liabilities of the Master Fund, each
determined on the basis of generally accepted accounting principles in the United States,
consistently applied under the accrual method of accounting. In particular, net asset value
includes any unrealized profit or loss on open commodity futures contracts, and any other credit or
debit accruing to the Master Fund but unpaid or not received by the Master Fund. All open commodity
futures contracts traded on a United States exchange will be calculated at their then current
market value, which will be based upon the settlement price for that particular commodity futures
contract traded on the applicable United States exchange on the date with respect to which net
asset value is being determined; provided, that if a commodity futures contract traded on a United
States exchange could not be liquidated on such day, due to the operation of daily limits or other
rules of the exchange upon which that position is traded or otherwise, the settlement price on the
most recent day on which the position could have been liquidated shall be the basis for determining
the market value of such position for such day.
The current market value of all open commodity futures contracts traded on a non-United States
exchange shall be based upon the settlement price for that particular commodity futures contract
traded on the applicable non-United States exchange on the date with respect to which net asset
value is being determined; provided further, that if a commodity futures contract traded on a
non-United States exchange could not be liquidated on such day, due to the operation of daily
limits (if applicable) or other rules of the exchange upon which that position is traded or
otherwise, the settlement price on the most recent day on
25
which the position could have been liquidated shall be the basis for determining the market
value of such position for such day.
The Managing Owner may in its discretion (and under extraordinary circumstances, including,
but not limited to, periods during which a settlement price of a futures contract is not available
due to exchange limit orders or force majeure type events such as systems failure, natural or
man-made disaster, act of God, armed conflict, act of terrorism, riot or labor disruption or any
similar intervening circumstance) value any asset of the Master Fund pursuant to such other
principles as the Managing Owner deems fair and equitable so long as such principles are consistent
with normal industry standards. Interest earned on the Master Funds commodity brokerage account
will be accrued at least monthly. The amount of any distribution will be a liability of the Master
Fund from the day when the distribution is declared until it is paid.
Net asset value per Master Fund Unit is the net asset value of the Master Fund divided by the
number of outstanding Master Fund Units. Because there will be a one-to-one correlation between
Shares and Master Fund Units, the net asset value per Share and the net asset value per Master Fund
Unit will be equal.
Termination Events
The Fund will dissolve at any time upon the happening of any of the following events:
|
(i) |
|
The filing of a certificate of dissolution or revocation of the
Managing Owners charter (and the expiration of ninety (90) days after the date
of notice to the Managing Owner of revocation without a reinstatement of its
charter) or upon the withdrawal, removal, adjudication or admission of
bankruptcy or insolvency of the Managing Owner, or an event of withdrawal
unless (i) at the time there is at least one remaining Managing Owner and that
remaining Managing Owner carries on the business of the Fund or (ii) within
ninety (90) days of such event of withdrawal all the remaining Shareholders
agree in writing to continue the business of the Fund and to select, effective
as of the date of such event, one or more successor Managing Owners. If the
Fund is terminated as the result of an event of withdrawal and a failure of all
remaining Shareholders to continue the business of the Fund and to appoint a
successor Managing Owner as provided above within one hundred and twenty (120)
days of such event of withdrawal, Shareholders holding Shares representing at
least seventy-five percent (75%) of the net asset value (not including Shares
held by the Managing Owner and its affiliates) may elect to continue the
business of the Fund by forming a new statutory trust, or reconstituted trust,
on the same terms and provisions as set forth in the Trust Declaration. Any
such election must also provide for the election of a Managing Owner to the
reconstituted trust. If such an election is made, all Shareholders of the Fund
shall be bound thereby and continue as Shareholders of the reconstituted trust. |
|
|
(ii) |
|
The occurrence of any event which would make unlawful the
continued existence of the Fund. |
|
|
(iii) |
|
In the event of the suspension, revocation or termination of
the Managing Owners registration as a commodity pool operator, or membership
as a commodity pool operator with the NFA (if, in either case, such
registration is required at such time unless at the time there is at least one
remaining Managing Owner whose registration or membership has not been
suspended, revoked or terminated). |
|
|
(iv) |
|
The Fund becomes insolvent or bankrupt. |
26
|
(v) |
|
The Shareholders holding Shares representing at least
seventy-five percent (75%) of the net asset value (which excludes the Shares of
the Managing Owner) vote to dissolve the Fund, notice of which is sent to the
Managing Owner not less than ninety (90) Business Days prior to the effective
date of termination. |
|
|
(vi) |
|
The determination of the Managing Owner that the aggregate net
assets of the Fund in relation to the operating expenses of the Fund make it
unreasonable or imprudent to continue the business of the Fund. |
|
|
(vii) |
|
The Fund becoming required to be registered as an investment
company under the Investment Company Act of 1940. |
|
|
(viii) |
|
DTC is unable or unwilling to continue to perform its functions, and a
comparable replacement is unavailable. |
THE ADMINISTRATOR
The Managing Owner, on behalf of the Fund and the Master Fund, has appointed [ ] as
the administrator of the Fund and the Master Fund and has entered into an Administration Agreement
in connection therewith.
[ ], a banking corporation organized under the laws of the State of with
trust powers, has an office at [ ]. [ ] is subject to
supervision by the State Banking Department and the Board of Governors of the
Federal Reserve System. Information regarding the net asset value of the Fund, creation and
redemption transaction fees and the names of the parties that have executed a Participant Agreement
may be obtained from the Administrator by calling the following number: (___) ___-___. A copy of
the Administration Agreement is available for inspection at the Administrators office identified
above.
The Administrator will retain certain financial books and records, including: fund accounting
records, ledgers with respect to assets, liabilities, capital, income and expenses, the registrar,
transfer journals and related details and trading and related documents received from futures
commission merchants.
A summary of the material terms of the Administration Agreement is disclosed in the Material
Contracts section.
The Administrators monthly fees of [___]% per annum are paid by the Master Fund and the Fund.
The Administrator and any of its affiliates may from time-to-time purchase or sell Shares for
their own account, as agent for their customers and for accounts over which they exercise
investment discretion.
The Administrator and any successor administrator must be a participant in DTC or such other
securities depository as shall then be acting.
The Administrator also will receive a transaction processing fee in connection with orders
from Authorized Participants to create or redeem Baskets in the amount of $[___] per order. These
transaction processing fees are paid indirectly by the Authorized Participants and not by the Fund
or the Master Fund.
The Fund is expected to retain the services of one or more additional service providers to
assist with certain tax reporting requirements of the Fund and its Shareholders.
27
THE DISTRIBUTOR
The Managing Owner, on behalf of the Fund and the Master Fund, has appointed [ ] or the
Distributor, to assist the Managing Owner and the Administrator with certain functions and duties
relating to the creation and redemption of Baskets. Such services will include the following:
review of distribution-related legal documents and contracts; coordination of processing of Basket
creations and redemptions; coordination and assistance with maintenance of creation and redemption
records; consultation with the marketing staff of the Managing Owner and its affiliates with
respect to NASD compliance in connection with marketing efforts; review and filing of marketing
materials with the NASD; and consultation with the Managing Owner and its affiliates in connection
with marketing and sales strategies. Investors may contact the Distributor toll-free in the U.S. at
(___) ___-___.
The Distributor will retain all marketing materials and Basket creation and redemption books
and records at the offices of [ ]; Telephone number (___) ___-___.
The Managing Owner, out of the Management Fee will pay the Distributor approximately $[___]
per annum, plus any fees or disbursements incurred by the Distributor in connection with the
performance by the Distributor of its duties on behalf of the Fund and the Master Fund and may pay
the Distributor additional compensation in consideration of the performance by the Distributor of
additional marketing, distribution and ongoing support services. Such additional services may
include, among other services, the development and implementation of a marketing plan and the
utilization of the Distributors resources, which include an extensive broker database and a
network of internal and external wholesalers.
AUTHORIZED PARTICIPANTS
As of the date of this prospectus, [ ] has executed a Participant Agreement.
CONFLICTS OF INTEREST
General
The Managing Owner has not established formal procedures to resolve all potential conflicts of
interest. Consequently, investors may be dependent on the good faith of the respective parties
subject to such conflicts to resolve them equitably. Although the Managing Owner attempts to
monitor these conflicts, it is extremely difficult, if not impossible, for the Managing Owner to
ensure that these conflicts do not, in fact, result in adverse consequences to the Fund.
Prospective investors should be aware that the Managing Owner presently intends to assert that
Shareholders have, by subscribing for Shares of the Fund, consented to the following conflicts of
interest in the event of any proceeding alleging that such conflicts violated any duty owed by the
Managing Owner to investors.
The Managing Owner
The Managing Owner has a conflict of interest in allocating its own limited resources among
different clients and potential future business ventures, to each of which it owes fiduciary
duties.
28
Additionally, the professional staff of the Managing Owner also service other affiliates of
the Managing Owner and their respective clients. Although the Managing Owner and its professional
staff cannot and will not devote all of its or their respective time or resources to the management
of the business and affairs of the Fund and the Master Fund, the Managing Owner intends to devote,
and to cause its professional staff to devote, sufficient time and resources properly to manage the
business and affairs of the Fund and the Master Fund consistent with its or their respective
fiduciary duties to the Fund and the Master Fund and others.
The Commodity Broker
The Commodity Broker may act from time-to-time as a commodity broker for other accounts with
which it is affiliated or in which it or one of its affiliates has a financial interest. The
compensation received by the Commodity Broker from such accounts may be more or less than the
compensation received for brokerage services provided to the Master Fund. In addition, various
accounts traded through the Commodity Broker (and over which their personnel may have discretionary
trading authority) may take positions in the futures markets opposite to those of the Master Fund
or may compete with the Master Fund for the same positions. The Commodity Broker may have a
conflict of interest in its execution of trades for the Master Fund and for other customers. The
Managing Owner will, however, not retain any commodity broker for the Master Fund which the
Managing Owner has reason to believe would knowingly or deliberately favor any other customer over
the Master Fund with respect to the execution of commodity trades.
The Commodity Broker will benefit from executing orders for other clients, whereas the Master
Fund may be harmed to the extent that the Commodity Broker has fewer resources to allocate to the
Master Funds accounts due to the existence of such other clients.
Certain officers or employees of the Commodity Broker may be members of United States
commodities exchanges and/or serve on the governing bodies and standing committees of such
exchanges, their clearing houses and/or various other industry organizations. In such capacities,
these officers or employees may have a fiduciary duty to the exchanges, their clearing houses
and/or such various other industry organizations which could compel such employees to act in the
best interests of these entities, perhaps to the detriment of the Master Fund.
Proprietary Trading/Other Clients
The Managing Owner, the Commodity Broker and their respective principals and affiliates may
trade in the commodity markets for their own accounts and for the accounts of their clients, and in
doing so may take positions opposite to those held by the Master Fund or may compete with the
Master Fund for positions in the marketplace. Such trading may create conflicts of interest on
behalf of one or more such persons in respect of their obligations to the Master Fund. Records of
proprietary trading and trading on behalf of other clients will not be available for inspection by
Shareholders.
Because the Managing Owner, the Commodity Broker and their respective principals and
affiliates may trade for their own accounts at the same time that they are managing the account of
the Master Fund, prospective investors should be aware thatas a result of a neutral allocation
system, testing a new trading system, trading their proprietary accounts more aggressively or other
activities not constituting a breach of fiduciary duty such persons may from time-to-time take
positions in their proprietary accounts which are opposite, or ahead of, the positions taken for
the Master Fund.
29
No Distributions
The Managing Owner has discretionary authority over all distributions made by the Fund. In
view of the Funds objective of seeking significant capital appreciation, the Managing Owner
currently does not intend to make any distributions, but, has the sole discretion to do so from
time-to-time. Greater management fees will be generated to the benefit of the Managing Owner if the
Funds assets are not reduced by distributions to the Shareholders.
USE OF PROCEEDS
A substantial amount of proceeds of the offering of the Shares are used by the Fund, through
the Master Fund, to engage in the trading of exchange-traded futures on the Index Commodities with
a view to reflecting the performance of the Index over time, less the expenses of the operations of
the Fund and the Master Fund. The Master Funds portfolio also will include United States Treasury
securities for deposit with the Master Funds Commodity Broker as margin and other high credit
quality short-term fixed income securities.
To the extent that the Master Fund trades in futures contracts on United States exchanges, the
assets deposited by the Master Fund with its Commodity Broker as margin must be segregated pursuant
to the regulations of the CFTC. Such segregated funds may be invested only in a limited range of
instrumentsprincipally U.S. government obligations.
To the extent that the Master Fund trades in futures on markets other than regulated United
States futures exchanges, funds deposited to margin positions held on such exchanges are invested
in bank deposits or in instruments of a credit standing generally comparable to those authorized by
the CFTC for investment of customer segregated funds, although applicable CFTC rules prohibit
funds employed in trading on foreign exchanges from being deposited in customer segregated fund
accounts.
Although the percentages set forth below may vary substantially over time, as of the date of
this Prospectus, the Master Fund estimates:
(i) up to approximately 10% of the net asset value of the Master Fund will be placed in
segregated accounts in the name of the Master Fund with the Commodity Broker (or another eligible
financial institution, as applicable) in the form of cash or United States Treasury bills to margin
commodity positions. Such funds will be segregated pursuant to CFTC rules;
(ii) approximately 90% of the net asset value of the Master Fund will be maintained in
segregated accounts in the name of the Master Fund in bank deposits or United States Treasury and
United States Government Agencies issues.
During the initial offering period, the Funds assets will be deposited with and held in
escrow by [ ]. During the continuous offering period the Managing Owner, a registered
commodity pool operator and commodity trading advisor, will be responsible for the cash management
activities of the Master Fund, including investing in United States Treasury and United States
Government Agencies issues.
In addition, assets of the Master Fund not required to margin positions may be maintained in
United States bank accounts opened in the name of the Master Fund and may be held in United States
Treasury bills (or other securities approved by the CFTC for investment of customer funds).
30
The Master Fund receives 100% of the interest income earned on its fixed income assets.
FEES AND CHARGES
Summary of Fees and Charges
[Add Table]
Upfront Selling Commissions
The Fund will rebate to each Authorized Participant who submits an order to purchase one or
more Baskets during the initial offering period an upfront selling commission in an amount equal to
[___]% of the aggregate amount of all orders to purchase Baskets received from such Authorized
Participants to compensate such Authorized Participants for their selling efforts in respect of
such Shares. During the continuous offering period, no such rebate will occur, although investors
are expected to be charged a customary commission by their brokers in connection with purchases of
Shares that will vary from investor to investor. Investors are encouraged to review the terms of
their brokerage accounts for details on applicable charges. Also, the excess, if any, of the price
at which an Authorized Participant sells a Share over the price paid by such Authorized Participant
in connection with the creation of such Share in a Basket may be deemed to be underwriting
compensation.
Management Fee
The Master Fund will pay the Managing Owner a Management Fee, monthly in arrears, in an amount
equal to [___]% per annum of the net asset value of the Master Fund. No separate fee will be paid
by the Fund.
Organization and Offering Expenses
Expenses incurred in connection with organizing the Fund and the Master Fund and the initial
offering of the Shares will be paid by the Managing Owner, subject to reimbursement by the Master
Fund, without interest, in thirty-six monthly payments during each of the first thirty-six months
after the commencement of the Master Funds trading operations, subject to a cap in the amount of
[___]% of the aggregate amount of all subscriptions for Shares during the initial offering period
and during the first thirty-six months of the Master Funds trading operations. Expenses incurred
in connection with the continuous offering of Shares after the commencement of the Master Funds
trading operations also will be paid by the Managing Owner, subject to reimbursement by the Master
Fund, without interest, in thirty-six monthly payments during each of the thirty-six months
following the month in which such expenses were paid by the Managing Owner. If the Fund and the
Master Fund terminate before the Managing Owner has been fully reimbursed for any of the foregoing
expenses, the Managing Owner will not be entitled to receive any unreimbursed portion of such
expenses outstanding as of the termination date. In no event will the aggregate amount of payments
by the Master Fund to the Managing Owner in respect of reimbursement of organizational or offering
expenses exceed [___]% per annum of the net asset value of the Master Fund.
Organization and offering expenses relating to both the Master Fund and the Fund, as
applicable, means those expenses incurred in connection with their formation, the qualification and
registration of the Shares and in offering, distributing and processing the Shares under applicable
federal law, and any other expenses actually incurred and, directly or indirectly, related to the
organization of the Fund and Master Fund or the initial and continuous offering of the Shares,
including, but not limited to, expenses such as:
31
|
(i) |
|
initial and ongoing registration fees, filing
fees, escrow fees and taxes; |
|
|
(ii) |
|
costs of preparing, printing (including
typesetting), amending, supplementing, mailing and distributing the
Registration Statement, the exhibits thereto and the Prospectus during
the initial offering period and the continuous offering period; |
|
|
(iii) |
|
the costs of qualifying, printing, (including
typesetting), amending, supplementing, mailing and distributing sales
materials used in connection with the offering and issuance of the
Shares during the initial offering period and the continuous offering
period; |
|
|
(iv) |
|
travel, telegraph, telephone and other expenses
in connection with the offering and issuance of the Shares during the
initial offering period and the continuous offering period; |
|
|
(v) |
|
any extraordinary expenses (including, but not
limited to, legal claims and liabilities and litigation costs and any
permitted indemnification associated therewith) related thereto. |
The Managing Owner will not allocate to the Fund or the Master Fund the indirect expenses of
the Managing Owner.
The Managing Owner currently estimates that the aggregate amount of the organization and
offering expenses will be approximately $[ ].
Brokerage Commissions and Fees
The Master Fund will pay to the Commodity Broker all brokerage commissions, including
applicable exchange fees, NFA fees, give-up fees, pit brokerage fees and other transaction related
fees and expenses charged in connection with trading activities. On average, total charges paid to
the Commodity Broker are expected to be less than $[___] per round-turn trade, although the
Commodity Brokers brokerage commissions and trading fees will be determined on a
contract-by-contract basis. The Managing Owner does not expect brokerage commissions and fees to
exceed [___]% of the net asset value of the Master Fund in any year, although the actual amount of
brokerage commissions and fees in any year may be greater. These estimates are based on a net
asset value of $50 million.
Routine Operational, Administrative and Other Ordinary Expenses
The Master Fund will pay all of the routine operational, administrative and other ordinary
expenses of the Fund and the Master Fund generally, as determined by the Managing Owner including,
but not limited to, computer services, the fees and expenses of the Trustee, legal and accounting
fees and expenses, tax preparation expenses, filing fees, and printing, mailing and duplication
costs. Such routine expenses are not expected to exceed [___]% of the net asset value of the Master
Fund in any year, although the actual amounts of the routine operational, administrative and other
ordinary expenses may be greater. Routine operational, administrative and other ordinary expenses
not paid by the Managing Owner out of the Management Fee include annual legal and audit expenses
and other expenses that are fixed in amount and not changed as a percentage of the Trusts net
asset value. Consequently, the percentage of the Trusts net asset value represented by these
expenses will decrease as net asset value increases and vice-versa. These estimates are based on a
net asset value of $50 million.
Extraordinary Fees and Expenses
The Master Fund will pay all its extraordinary fees and expenses, if any, of the Fund and
Master Fund generally, if any, as determined by the Managing Owner. Extraordinary fees and expenses
are fees
32
and expenses which are non-recurring and unusual in nature, such as legal claims and
liabilities and litigation costs and any permitted indemnification payments related thereto.
Extraordinary fees and expenses shall also include material expenses which are not currently
anticipated obligations of the Fund or Master Fund or of managed futures funds in general. Routine
operational, administrative and other ordinary expenses will not be deemed extraordinary expenses.
Management Fee and Expenses to be Paid First out of Interest Income
The Management Fee and the organizational, offering and ordinary ongoing expenses of the Fund
and the Master Fund will be paid first out of interest income from the Master Funds holdings of
U.S. Treasury bills and other high credit quality short-term fixed income securities on deposit
with the Commodity Broker as margin or otherwise. It is expected that such interest income may be
sufficient to cover a significant portion of the fees and expenses of the Fund and the Master Fund.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Fund and the Master Fund are newly formed and do not have any operating results.
Critical Accounting Policies
Preparation of the financial statements and related disclosures in compliance with accounting
principles generally accepted in the United States of America requires the application of
appropriate accounting rules and guidance, as well as the use of estimates. Both the Funds and the
Master Funds application of these policies involves judgments and actual results may differ from
the estimates used.
Liquidity and Capital Resources
As of the date of this prospectus, the Master Fund has not begun trading activities. Once the
Master Fund begins trading activities, it is anticipated that all of its total net assets will be
allocated to replicating, to the extent possible, the performance of the CCI-ER by investing in
commodity futures. A significant portion of the net asset value is likely to be held in U.S.
Treasury bills and cash, which will be used as margin for the Master Funds trading in commodities.
The percentage that U.S. Treasury bills will bear to the total net assets will vary from period to
period as the market values of commodity interests change. The balance of the net assets will be
held in the Master Funds commodity trading account. Interest earned on the Master Funds
interest-bearing funds will be paid to the Master Fund.
The Master Funds commodity contracts will be subject to periods of illiquidity because of
market conditions, regulatory considerations and other reasons. For example, commodity exchanges
limit fluctuations in certain commodity futures contract prices during a single day by regulations
referred to as daily limits. During a single day, no trades may be executed at prices beyond the
daily limit. Once the price of a futures contract for a particular commodity has increased or
decreased by an amount equal to the daily limit, positions in the commodity can neither be taken
nor liquidated unless the traders are willing to effect trades at or within the limit. Commodity
futures prices have occasionally moved to the daily limit for several consecutive days with little
or no resultant trading. Such market conditions could prevent the Master Fund from promptly
liquidating its commodity futures positions.
Since the Master Fund will trade futures contracts, its capital will be at risk due to changes
in the value of these contracts (market risk) or the inability of counterparties to perform under
the terms of the contracts (credit risk).
33
Market risk
Trading in futures contracts will involve the Master Fund entering into contractual
commitments to purchase or sell a particular commodity at a specified date and price. The market
risk to be associated with the Master Funds commitments to purchase commodities will be limited to
the gross or face amount of the contracts held. The Master Fund does not intend on selling short
commodity futures as the CCI-ER is comprised of long only futures positions. However, should the
Master Fund enter into a contractual commitment to sell short commodities in error, it could be
required to make delivery of the underlying commodity at the contract price and then repurchase the
contract at prevailing market prices or settle in cash. Since the repurchase price to which a
commodity can rise is unlimited, entering into commitments to sell commodities will expose the
Master Fund to theoretically unlimited risk.
The Master Funds exposure to market risk will be influenced by a number of factors including
the volatility of interest rates and foreign currency exchange rates, the liquidity of the markets
in which the contracts are traded and the relationships among the contracts held. The inherent
uncertainty of the Master Funds rebalancing and the processing of creation and redemption orders
as well as the development of drastic market occurrences could ultimately lead to a loss of all or
substantially all of Shareholders capital.
Credit risk
When the Master Fund enters into futures contracts, the Master Fund will be exposed to credit
risk that the counterparty to the contract will not meet its obligations. The counterparty for
futures contracts traded on United States and on most foreign futures exchanges is the clearing
house associated with the particular exchange. In general, clearing houses are backed by their
corporate members who may be required to share in the financial burden resulting from the
nonperformance by one of their members and, as such, should significantly reduce this credit risk.
In cases where the clearing house is not backed by the clearing members (i.e., some foreign
exchanges), it may be backed by a consortium of banks or other financial institutions. There can be
no assurance that any counterparty, clearing member or clearing house will meet its obligations to
the Master Fund.
The Managing Owner will attempt to minimize these market and credit risks by requiring the
Master Fund to abide by various trading limitations and policies. The Managing Owner will
implement procedures which will include, but will not be limited to:
|
(i) |
|
executing and clearing trades with creditworthy counterparties; |
|
|
(ii) |
|
limiting the amount of margin or premium required for any one
commodity or all commodities combined; and |
|
|
(iii) |
|
generally limiting transactions to contracts which will be
traded in sufficient volume to permit the taking and liquidating of positions. |
The Commodity Broker, when acting as the Master Funds futures commission merchant in
accepting orders for the purchase or sale of domestic futures contracts, will be required by CFTC
regulations to separately account for and segregate as belonging to the Master Fund, all assets of
the Master Fund relating to domestic futures trading and the Commodity Broker will not be allowed
to commingle such assets with other assets of the Commodity Broker.
34
OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS
As of the date of this prospectus, the Fund and the Master Fund have not utilized, nor do they
expect to utilize in the future, special purpose entities to facilitate off-balance sheet financing
arrangements and have no loan guarantee arrangements or off-balance sheet arrangements of any kind
other than agreements entered into in the normal course of business, which may include
indemnification provisions related to certain risks service providers undertake in performing
services which are in the best interests of the Fund and the Master Fund. While the Funds and the
Master Funds exposure under such indemnification provisions cannot be estimated, these general
business indemnifications are not expected to have a material impact on either the Funds or the
Master Funds financial position.
Management Fee payments made by the Master Fund to the Managing Owner are calculated as a
fixed percentage of the Master Funds Net Asset Value. Commission payments to the commodity broker
are on a contract-by-contract, or round-turn, basis. As such, the Managing Owner cannot anticipate
the amount of payments that will be required under these arrangements for future periods as net
asset values are not known until a future date. These agreements are effective for one year terms,
renewable automatically for additional one year terms unless terminated. Additionally, these
agreements may be terminated by either party for various reasons.
THE SECURITIES DEPOSITORY; BOOK-ENTRY-ONLY SYSTEM; GLOBAL SECURITY
DTC acts as securities depository for the Shares. DTC is a limited-purpose trust company
organized under the laws of the State of New York, a member of the Federal Reserve System, a
clearing corporation within the meaning of the New York Uniform Commercial Code, and a clearing
agency registered pursuant to the provisions of section 17A of the Exchange Act. DTC was created
to hold securities of DTC Participants and to facilitate the clearance and settlement of
transactions in such securities among the DTC Participants through electronic book-entry changes.
This eliminates the need for physical movement of securities certificates. DTC Participants include
securities brokers and dealers, banks, trust companies, clearing corporations, and certain other
organizations, some of whom (and/or their representatives) own DTC. Access to the DTC system is
also available to others such as banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a DTC Participant, either directly or indirectly. DTC has
agreed to administer its book-entry system in accordance with its rules and by-laws and the
requirements of law.
Individual certificates will not be issued for the Shares. Instead, global certificates are
signed by the Trustee and the Managing Owner on behalf of the Fund, registered in the name of Cede
& Co., as nominee for DTC, and deposited with the Trustee on behalf of DTC. The global certificates
evidence all of the Shares outstanding at any time. The representations, undertakings and
agreements made on the part of the Fund in the global certificates are made and intended for the
purpose of binding only the Fund and not the Trustee or the Managing Owner individually.
Upon the settlement date of any creation, transfer or redemption of Shares, DTC credits or
debits, on its book-entry registration and transfer system, the amount of the Shares so created,
transferred or redeemed to the accounts of the appropriate DTC Participants. The Managing Owner and
the Authorized Participants designate the accounts to be credited and charged in the case of
creation or redemption of Shares.
Beneficial ownership of the Shares is limited to DTC Participants, Indirect Participants and
persons holding interests through DTC Participants and Indirect Participants. Owners of beneficial
interests in the Shares is shown on, and the transfer of ownership is effected only through,
records
35
maintained by DTC (with respect to DTC Participants), the records of DTC Participants (with
respect to Indirect Participants), and the records of Indirect Participants (with respect to
Shareholders that are not DTC Participants or Indirect Participants). Shareholders are expected to
receive a written confirmation relating to such purchase from or through the DTC Participant
maintaining the account through which the Shareholder has purchased their Shares.
Shareholders that are not DTC Participants may transfer the Shares through DTC by instructing
the DTC Participant or Indirect Participant through which the Shareholders hold their Shares to
transfer the Shares. Shareholders that are DTC Participants may transfer the Shares by instructing
DTC in accordance with the rules of DTC. Transfers are made in accordance with standard securities
industry practice.
DTC may decide to discontinue providing its service with respect to Baskets and/or the Shares
by giving notice to the Trustee and the Managing Owner. Under such circumstances, the Trustee and
the Managing Owner will either find a replacement for DTC to perform its functions at a comparable
cost or, if a replacement is unavailable, terminate the Fund.
The rights of the Shareholders generally must be exercised by DTC Participants acting on their
behalf in accordance with the rules and procedures of DTC. Because the Shares can only be held in
book-entry form through DTC and DTC Participants, investors must rely on DTC, DTC Participants and
any other financial intermediary through which they hold the Shares to receive the benefits and
exercise the rights described in this section. Investors should consult with their broker or
financial institution to find out about procedures and requirements for securities held in
book-entry form through DTC.
SHARE SPLITS
If the Managing Owner believes that the per Share price in the secondary market for Shares has
fallen outside a desirable trading price range, the Managing Owner may direct the Trustee to
declare a split or reverse split in the number of Shares outstanding and to make a corresponding
change in the number of Shares constituting a Basket.
MATERIAL CONTRACTS
License Agreement
Reuters America, LLC entered into a License Agreement with the Managing Owner granting
the Managing Owner an exclusive, non-transferable right to use the CCI for an exchange traded fund
to be traded on a US equity exchange.
The term of the License Agreement will end on the earlier of (i) two years from the date of
the signing of the License Agreement (Initial Term), (ii) upon one hundred and eighty days prior
written notice, or (iii) in the event of a material breach of the License Agreement which such
breach is not cured within thirty (30) days following the Managing Owners receipt of written
notice from the Licensor of such breach.
Brokerage Agreement
The Commodity Broker and the Master Fund entered into a brokerage agreement, or Brokerage
Agreement. As a result the Commodity Broker:
|
(i) |
|
acts as the clearing broker; |
36
|
(ii) |
|
acts as custodian of the Master Funds assets; and |
|
|
(iii) |
|
performs such other services for the Master Fund as the
Managing Owner may from time-to-time request. |
As clearing broker for the Master Fund, the Commodity Broker receives orders for trades from
the Managing Owner.
Confirmations of all executed trades are given to the Master Fund by the Commodity Broker. The
Brokerage Agreement incorporates the Commodity Brokers standard customer agreements and related
documents, which generally include provisions that:
|
(i) |
|
all funds, commodities and open or cash positions carried for
the Master Fund will be held as security for the Master Funds obligations to
the Commodity Broker; |
|
|
(ii) |
|
the margins required to initiate or maintain open positions
will be as from time-to-time established by the Commodity Broker and may exceed
exchange minimum levels; and |
|
|
(iii) |
|
the Commodity Broker may close out positions, purchase
commodities or cancel orders at any time it deems necessary for its protection,
without the consent of the Master Fund. |
As custodian of the Master Funds assets, the Commodity Broker is responsible, among other
things, for providing periodic accountings of all dealings and actions taken by the Master Fund
during the reporting period, together with an accounting of all securities, cash or other
indebtedness or obligations held by it or its nominees for or on behalf of the Master Fund.
Administrative functions provided by the Commodity Broker to the Master Fund include, but are
not limited to, preparing and transmitting daily confirmations of transactions and monthly
statements of account, calculating equity balances and margin requirements.
As long as the Brokerage Agreement between the Commodity Broker and the Master Fund is in
effect, the Commodity Broker will not charge the Master Fund a fee for any of the services it has
agreed to perform, except for the agreed-upon brokerage fee.
The Brokerage Agreement is not exclusive and runs for successive one-year terms to be renewed
automatically each year unless terminated. The Brokerage Agreement is terminable by the Master Fund
or the Commodity Broker without penalty upon thirty (30) days prior written notice (unless where
certain events of default occur or there is a material adverse change the Master Funds financial
position, in which case only prior written notice is required to terminate the Brokerage
Agreement).
The Brokerage Agreement provides that neither the Commodity Broker nor any of its managing
directors, officers, employees or affiliates shall be liable for any costs, losses, penalties,
fines, taxes and damages sustained or incurred by the Master Fund other than as a result of the
Commodity Brokers gross negligence or reckless or intentional misconduct or breach of such
agreement.
Administration Agreement
Pursuant to the Administration Agreement among the Fund, the Master Fund and the
Administrator, the Administrator will perform or supervise the performance of services necessary
for the operation and administration of the Fund and the Master Fund (other than making investment
decisions), including net asset value calculations, accounting and other fund administrative
services.
37
The Administration Agreement will continue in effect from the commencement of trading
operations unless terminated on at least ninety (90) days prior written notice by either party to
the other party. Notwithstanding the foregoing, the Administrator may terminate the Administration
Agreement upon thirty (30) days prior written notice if the Fund and/or Master Fund has materially
failed to perform its obligations under the Administration Agreement or upon termination of the
Global Custody Agreement.
The Administrator is both exculpated and indemnified under the Administration Agreement.
Except as otherwise provided in the Administration Agreement, the Administrator shall not be
liable for any costs, expenses, damages, liabilities or claims (including attorneys and
accountants fees) incurred by either the Fund or Master Fund, except those costs, expenses,
damages, liabilities or claims arising out of the Administrators own gross negligence or willful
misconduct. In no event shall the Administrator be liable to either the Fund, Master Fund or any
third party for special, indirect or consequential damages, or lost profits or loss of business,
arising under or in connection with the Administration Agreement, even if previously informed of
the possibility of such damages and regardless of the form of action. The Administrator shall not
be liable for any loss, damage or expense, including counsel fees and other costs and expenses of a
defense against any claim or liability, resulting from, arising out of, or in connection with its
performance under the Administration Agreement, including its actions or omissions, the
incompleteness or inaccuracy of any Proper Instructions (as defined therein), or for delays caused
by circumstances beyond the Administrators control, unless such loss, damage or expense arises out
of the gross negligence or willful misconduct of the Administrator.
Both the Fund and Master Fund shall indemnify and hold harmless the Administrator from and
against any and all costs, expenses, damages, liabilities and claims (including claims asserted by
either the Fund or Master Fund), and reasonable attorneys and accountants fees relating thereto,
which are sustained or incurred or which may be asserted against the Administrator by reason of or
as a result of any action taken or omitted to be taken by the Administrator in good faith under the
Administration Agreement or in reliance upon (i) any law, act, regulation or interpretation of the
same even though the same may thereafter have been altered, changed, amended or repealed, (ii) the
Registration Statement or Prospectus, (iii) any Proper Instructions, or (iv) any opinion of legal
counsel for the Fund or Master Fund, or arising out of transactions or other activities of the Fund
or Master Fund which occurred prior to the commencement of the Administration Agreement; provided,
that neither the Fund nor Master Fund shall indemnify the Administrator for costs, expenses,
damages, liabilities or claims for which the Administrator is liable under the preceding paragraph.
This indemnity shall be a continuing obligation of both the Fund and Master Fund, their successors
and assigns, notwithstanding the termination of the Administration Agreement. Without limiting the
generality of the foregoing, each of the Fund or Master Fund shall indemnify the Administrator
against and save the Administrator harmless from any loss, damage or expense, including counsel
fees and other costs and expenses of a defense against any claim or liability, arising from any one
or more of the following: (i) errors in records or instructions, explanations, information,
specifications or documentation of any kind, as the case may be, supplied to the Administrator by
any third party described above or by or on behalf of the Fund or Master Fund; (ii) action or
inaction taken or omitted to be taken by the Administrator pursuant to Proper Instructions of the
Fund or Master Fund or otherwise without gross negligence or willful misconduct; (iii) any action
taken or omitted to be taken by the Administrator in good faith in accordance with the advice or
opinion of counsel for the Fund or Master Fund or its own counsel; (iv) any improper use by the
Fund or Master Fund or their agents, distributor or investment advisor of any valuations or
computations supplied by the Administrator pursuant to the Administration Agreement; (v) the method
of valuation and the method of computing net asset value; or (vi) any valuations or net asset value
provided by the Fund or Master Fund.
Actions taken or omitted in reliance on Proper Instructions, or upon any information, order,
indenture, stock certificate, power of attorney, assignment, affidavit or other instrument believed
by the
38
Administrator to be genuine or bearing the signature of a person or persons believed to be
authorized to sign, countersign or execute the same, or upon the opinion of legal counsel for the
Fund or Master Fund or its own counsel, shall be conclusively presumed to have been taken or
omitted in good faith.
Notwithstanding any other provision contained in the Administration Agreement, the
Administrator shall have no duty or obligation with respect to, including, without limitation, any
duty or obligation to determine, or advise or notify the Fund or Master Fund of: (a) the taxable
nature of any distribution or amount received or deemed received by, or payable to the Fund or
Master Fund; (b) the taxable nature or effect on the Fund or Master Fund or their shareholders of
any corporate actions, class actions, tax reclaims, tax refunds, or similar events; (c) the taxable
nature or taxable amount of any distribution or dividend paid, payable or deemed paid by the Fund
or Master Fund to their shareholders; or (d) the effect under any federal, state, or foreign income
tax laws of the Fund or Master Fund making or not making any distribution or dividend payment, or
any election with respect thereto.
Global Custody Agreement
[ ]
will serve as the Funds custodian, or Custodian. Pursuant to the Global
Custody Agreement between the Fund and the Custodian, or Custody Agreement, the Custodian serves as
custodian of all the Funds securities and cash at any time delivered to Custodian during the term
of the Custody Agreement and the Fund has authorized the Custodian to hold its securities in
registered form in its name or the name of its nominees. The Custodian has established and will
maintain one or more securities accounts and cash accounts pursuant to the Custody Agreement. The
Custodian shall maintain books and records segregating the assets.
Either party may terminate the Custody Agreement by giving to the other party a notice in
writing specifying the date of such termination, which shall be not less than ninety (90) days
after the date of such notice. Upon termination thereof, the Fund shall pay to the Custodian such
compensation as may be due to the Custodian, and shall likewise reimburse the Custodian for other
amounts payable or reimbursable to the Custodian thereunder. The Custodian shall follow such
reasonable oral or written instructions concerning the transfer of custody of records, securities
and other items as the Fund shall give; provided, that (a) the Custodian shall have no liability
for shipping and insurance costs associated therewith, and (b) full payment shall have been made to
Custodian of its compensation, costs, expenses and other amounts to which it is entitled hereunder.
If any securities or cash remain in any account, Custodian may deliver to the Fund such securities
and cash. Except as otherwise provided herein, all obligations of the parties to each other
hereunder shall cease upon termination of the Custody Agreement.
The Custodian is both exculpated and indemnified under the Custody Agreement.
Except as otherwise expressly provided in the Custody Agreement, the Custodian shall not be
liable for any costs, expenses, damages, liabilities or claims, including attorneys and
accountants fees, or losses, incurred by or asserted against Fund, except those losses arising out
of the gross negligence or willful misconduct of the Custodian. The Custodian shall have no
liability whatsoever for the action or inaction of any depository. Subject to the Custodians
delegation of its duties to its affiliates, the Custodians responsibility with respect to any
securities or cash held by a subcustodian is limited to the failure on the part of the Custodian to
exercise reasonable care in the selection or retention of such subcustodian in light of prevailing
settlement and securities handling practices, procedures and controls in the relevant market. With
respect to any losses incurred by Fund as a result of the acts or the failure to act by any
subcustodian (other than an affiliate of the Custodian), the Custodian shall take appropriate
action to recover such losses from such subcustodian; and the Custodians sole responsibility and
liability to Fund shall be limited to amounts so received from such subcustodian (exclusive of
costs and expenses incurred by the Custodian). In no event shall the Custodian be liable to Fund or
any third party for special, indirect
39
or consequential damages, or lost profits or loss of business, arising in connection with the
Custody Agreement.
The Fund shall indemnify the Custodian and each subcustodian for the amount of any tax that
the Custodian, any such subcustodian or any other withholding agent is required under applicable
laws (whether by assessment or otherwise) to pay on behalf of, or in respect of income earned by or
payments or distributions made to or for the account of Fund (including any payment of tax required
by reason of an earlier failure to withhold). The Custodian shall, or shall instruct the applicable
subcustodian or other withholding agent to, withhold the amount of any tax which is required to be
withheld under applicable law upon collection of any dividend, interest or other distribution made
with respect to any security and any proceeds or income from the sale, loan or other transfer of
any security. In the event that the Custodian or any subcustodian is required under applicable law
to pay any tax on behalf of Fund, the Custodian is hereby authorized to withdraw cash from any cash
account in the amount required to pay such tax and to use such cash, or to remit such cash to the
appropriate subcustodian, for the timely payment of such tax in the manner required by applicable
law.
The Fund will indemnify the Custodian and hold the Custodian harmless from and against any and
all losses sustained or incurred by or asserted against the Custodian by reason of or as a result
of any action or inaction, or arising out of the Custodians performance under the Custody
Agreement, including reasonable fees and expenses of counsel incurred by the Custodian in a
successful defense of claims by Fund; provided however, that Fund shall not indemnify the Custodian
for those losses arising out of the Custodians gross negligence or willful misconduct. This
indemnity shall be a continuing obligation of Fund, its successors and assigns, notwithstanding the
termination of the Custody Agreement.
Transfer Agency and Service Agreement
[ ] will serve as the Funds transfer agent, or Transfer Agent. Pursuant to
the Transfer Agency and Service Agreement between the Fund and the Transfer Agent, the Transfer
Agent will serve as the Funds transfer agent, dividend disbursing agent, and agent in connection
with certain other activities as provided under the Transfer Agency and Service Agreement.
The term of the Transfer Agency and Service Agreement is one year from the effective date and
shall automatically renew for additional one year terms unless either party provides written notice
of termination at least ninety (90) days prior to the end of any one year term or, unless earlier
terminated as provided below:
|
(i) |
|
Either party terminates prior to the expiration of the initial
term in the event the other party breaches any material provision of the
Transfer Agency and Service Agreement, including, without limitation in the
case of the Fund, its obligations to compensate the Transfer Agent, provided
that the non-breaching party gives written notice of such breach to the
breaching party and the breaching party does not cure such violation within
ninety (90) days of receipt of such notice. |
|
|
(ii) |
|
The Fund may terminate the Transfer Agency and Service
Agreement prior to the expiration of the initial term upon ninety (90) days
prior written notice in the event that the Managing Owner determines to
liquidate the Fund and terminate its registration with the Securities and
Exchange Commission other than in connection with a merger or acquisition of
the Fund. |
The Transfer Agent shall have no responsibility and shall not be liable for any loss or damage
unless such loss or damage is caused by its own gross negligence or willful misconduct or that of
its employees, or its breach of any of its representations. In no event shall the Transfer Agent be
liable for
40
special, indirect or consequential damages regardless of the form of action and even if the
same were foreseeable.
Pursuant to the Transfer Agency and Service Agreement, the Transfer Agent shall not be
responsible for, and the Fund shall indemnify and hold the Transfer Agent harmless from and
against, any and all losses, damages, costs, charges, counsel fees, payments, expenses and
liability, or Losses, arising out of or attributable to:
|
(i) |
|
All actions of the Transfer Agent or its agents or
subcontractors required to be taken pursuant to this Agreement, provided that
such actions are taken without gross negligence, or willful misconduct. |
|
|
(ii) |
|
The Funds gross negligence or willful misconduct. |
|
|
(iii) |
|
The breach of any representation or warranty of the Fund
thereunder. |
|
|
(iv) |
|
The conclusive reliance on or use by the Transfer Agent or its
agents or subcontractors of information, records, documents or services which
(i) are received by the Transfer Agent or its agents or subcontractors, and
(ii) have been prepared, maintained or performed by the Fund or any other
person or firm on behalf of the Fund including but not limited to any previous
transfer agent or registrar. |
|
|
(v) |
|
The conclusive reliance on, or the carrying out by the Transfer
Agent or its agents or subcontractors of any instructions or requests of the
Fund on behalf of the Fund. |
|
|
(vi) |
|
The offer or sale of Shares in violation of any requirement
under the federal securities laws or regulations or the securities laws or |
|
|
(vii) |
|
Regulations of any state that such Shares be registered in
such state or in violation of any stop order or other determination or ruling
by any federal agency or any state with respect to the offer or sale of such
Shares in such state. |
Distribution Services Agreement
[___] will provide certain distribution services to the Fund. Pursuant to the Distribution
Services Agreement between the Fund and the Distributor, the Distributor will assist the Managing
Owner and the Administrator with certain functions and duties relating to the creation and
redemption of Baskets.
The date of the Distribution Services Agreement shall be the effective date and such Agreement
shall continue until two years from such date and thereafter shall continue automatically for
successive annual periods, provided that such continuance is specifically approved at least
annually by the Funds Managing Owner or otherwise as provided under the Distribution Services
Agreement. The Distribution Services Agreement is terminable without penalty on sixty (60) days
written notice by the Funds Managing Owner or by the Distributor. The Distribution Services
Agreement shall automatically terminate in the event of its assignment.
Pursuant to the Distribution Services Agreement, the Fund indemnifies and holds harmless the
Distributor and each of its directors and officers and each person, if any, who controls the
Distributor within the meaning of Section 15 of the 1933 Act, against any loss, liability, claim,
damages or expenses (including the reasonable cost of investigating or defending any alleged loss,
liability, claim, damages or expense and reasonable counsel fees incurred in connection therewith)
arising by reason of any person acquiring any Shares, based upon the ground that the registration
statement, prospectus, statement of additional information, shareholder reports or other
information filed or made public by the Fund (as from time-to-time amended) included an untrue
statement of a material fact or omitted to state a material fact required to be stated or necessary
in order to make the statements not misleading under the 1933 Act or any
41
other statute or the common law. However, the Fund does not indemnify the Distributor or hold
it harmless to the extent that the statement or omission was made in reliance upon, and in
conformity with, information furnished to the Fund by or on behalf of the Distributor. In no case
(i) is the indemnity of the Fund in favor of the Distributor or any person indemnified to be deemed
to protect the Distributor or any person against any liability to the Fund or its security holders
to which the Distributor or such person would otherwise be subject by reason of willful
misfeasance, bad faith or negligence in the performance of its duties or by reason of its reckless
disregard of its obligations and duties under this Agreement, or (ii) is the Fund to be liable
under its indemnity agreement contained in this paragraph with respect to any claim made against
the Distributor or any person indemnified unless the Distributor or person, as the case may be,
shall have notified the Fund in writing of the claim promptly after the summons or other first
written notification giving information of the nature of the claims shall have been served upon the
Distributor or any such person (or after the Distributor or such person shall have received notice
of service on any designated agent).
However, failure to notify the Fund of any claim shall not relieve the Fund from any liability
which it may have to any person against whom such action is brought otherwise than on account of
its indemnity agreement contained in this paragraph. The Fund shall be entitled to participate at
its own expense in the defense, or, if it so elects, to assume the defense of any suit brought to
enforce any claims, and if the Fund elects to assume the defense, the defense shall be conducted by
counsel chosen by the Fund. In the event the Fund elects to assume the defense of any suit and
retain counsel, the Distributor, officers or directors or controlling person(s), defendant(s) in
the suit, shall bear the fees and expenses of any additional counsel retained by them. If the Fund
does not elect to assume the defense of any suit, it will reimburse the Distributor, officers or
directors or controlling person(s) or defendant(s) in the suit for the reasonable fees and expenses
of any counsel retained by them. The Fund has agreed to notify the Distributor promptly of the
commencement of any litigation or proceeding against it or any of its officers in connection with
the issuance or sale of any of the Shares.
MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following discussion describes the material United States federal (and certain state
and local) income tax considerations associated with the purchase, ownership and disposition of
Shares as of the date hereof by United States Shareholders (as defined below) and non-United States
Shareholders (as defined below). This discussion is applicable to a Shareholder of Shares who
purchases Shares in the offering to which this Prospectus relates, including a Shareholder who
purchases Shares from an Authorized Purchaser. Except where noted otherwise, it deals only with
Shares held as capital assets and does not deal with special situations, such as those of dealers
in securities or currencies, financial institutions, tax-exempt entities, insurance companies,
persons holding Shares as a part of a position in a straddle or as part of a hedging,
conversion or other integrated transaction for federal income tax purposes, traders in securities
or commodities that elect to use a mark-to -market method of accounting, or holders of Shares whose
functional currency is not the U.S. dollar.
Furthermore, the discussion below is based upon the provisions of the Internal Revenue Code of
1986, as amended, or the Code, the Treasury regulations promulgated thereunder, or the Regulations,
and administrative and judicial interpretations thereof, all as of the date hereof, and such
authorities may be repealed, revoked, modified or subject to differing interpretations, possibly on
a retroactive basis, so as to result in United States federal income tax consequences different
from those described below.
A U.S. Shareholder of Shares means a beneficial owner of Shares that is for United States
federal income tax purposes: (i) an individual citizen or resident of the United States; (ii) a
corporation (or
42
other entity taxable as a corporation) created or organized in or under the laws of the United
States or any state thereof or the District of Columbia; (iii) an estate the income of which is
subject to United States federal income taxation regardless of its source; or (iv) a trust if it
(1) is subject to the primary supervision of a court within the United States and one or more U.S.
persons have the authority to control all substantial decisions of such trust or (2) has a valid
election in effect under applicable Regulations to be treated as a U.S. person.
A non-U.S. Shareholder of Shares means a beneficial owner of Shares that is not a U.S.
Shareholder.
If a partnership or other entity or arrangement treated as a partnership for United States
federal income tax purposes holds Shares, the tax treatment of a partner will generally depend upon
the status of the partner and the activities of the partnership. If you are a partner of a
partnership holding Shares, we urge you to consult your own tax adviser.
The Fund has received the opinion of Tannenbaum Helpern Syracuse & Hirschtritt LLP, counsel to
the Fund, that the material U.S. federal income tax consequences to the Fund and to U.S.
Shareholders and Non-U.S. Shareholders will be as described below. In rendering its opinion,
Tannenbaum Helpern Syracuse & Hirschtritt LLP has relied on the facts described in this
Prospectus as well as certain representations made by the Fund and the Trustee. The opinion of
Tannenbaum Helpern Syracuse & Hirschtritt LLP is not binding on the United States Internal Revenue
Service, or the IRS, and, as a result, the IRS may not agree with the tax positions taken by the
Fund. If challenged by the IRS, the Funds tax positions might not be sustained by the courts. No
ruling has been requested from the IRS with respect to any matter affecting the Fund or prospective
investors.
If you are considering the purchase of Shares, we urge you to consult your own tax adviser
concerning the particular United States federal income tax consequences to you of the purchase,
ownership and disposition of Shares, as well as any consequences to you arising under the laws of
any other taxing jurisdiction.
Status of the Fund
Under current law and assuming full compliance with the terms of the Trust Declaration (and
other relevant documents), in the opinion of Tannenbaum Helpern Syracuse & Hirschtritt LLP, the
Fund will not be classified as an association taxable as a corporation. As a result, for tax
purposes, you will be treated as the beneficial owner of a pro rata portion of the interests in the
Master Fund held by the Fund. The Fund intends to take the position that it is a grantor trust for
Federal income tax purposes, although it is possible that the IRS might disagree and choose to
treat it as a partnership or disregarded entity. While such recharacterization would impact the
manner in which the Funds annual tax information is reported to Shareholders, it should not
materially impact the timing of income or loss recognition or character of income realized by
Shareholders. The Fund will not under any characterization be subject to entity-level income tax.
If the Fund were to be treated as a disregarded entity, Shareholders would be treated as directly
owning a proportionate share of the Funds partnership interest in Master Fund and would take into
account their allocable share of Master Fund tax items, a result identical to that described above
for treatment of the Fund as a grantor trust. If the Fund were classified as a partnership, Fund
Shareholders would be treated as owning interests in a partnership whose only investment is an
equity interest in the Master Fund. Because ownership of the Fund and Master Fund will be identical
(except for the small equity interest of the Managing Owner in the Master Fund), the tax years of
the two partnerships would always be the same and Shareholders in the Fund would look through to
the assets and tax items of the Master Fund when determining their federal income tax liability for
any particular tax year. This tax treatment is, likewise, the same as if the Fund were
characterized as a grantor trust. The only impact a
43
reclassification of the Fund would have on Shareholders is the manner in which their annual
share of tax items related to the underlying Master Fund assets is reported to them. If the
Managing Owner determines, based on a challenge to the Funds tax status or otherwise, that the
existence of the Fund results or is reasonably likely to result in a material tax detriment to
Shareholders, then the Managing Owner may, among other things, agree to dissolve the Fund and
transfer the Master Fund interests to Shareholders in exchange for their Shares.
Status of the Master Fund
A partnership is not a taxable entity and incurs no United States federal income tax
liability. Section 7704 of the Code provides that publicly traded partnerships will, as a general
rule, be taxed as corporations. However, an exception exists with respect to publicly traded
partnerships of which 90% or more of the gross income during each taxable year consists of
qualifying income within the meaning of Section 7704(d) of the Code (qualifying income
exception). Qualifying income includes dividends, interest, capital gains from the sale or other
disposition of stocks and debt instruments and, in the case of a partnership (such as the Master
Fund) a principal activity of which is the buying and selling of commodities or futures contracts
with respect to commodities, income and gains derived from commodities or futures contracts with
respect to commodities. The Master Fund anticipates that at least 90% of its gross income for each
taxable year will constitute qualifying income within the meaning of Section 7704(d) of the Code.
Under current law and assuming full compliance with the terms of the Trust Declaration (and
other relevant documents) and based upon factual representations made by the Master Fund, in the
opinion of Tannenbaum Helpern Syracuse & Hirschtritt LLP, the Master Fund will be classified as a
partnership for United States federal income tax purposes. The factual representations upon which
Tannenbaum Helpern Syracuse & Hirschtritt LLP has relied are: (a) the Master Fund has not elected
and will not elect to be treated as a corporation for United States federal income tax purposes;
and (b) for each taxable year, more than 90% of the Master Funds gross income will be qualifying
income.
There can be no assurance that the IRS will not assert that the Master Fund should be treated
as a publicly traded partnership taxable as a corporation. No ruling has been or will be sought
from the IRS, and the IRS has made no determination as to the status of the Master Fund for United
States federal income tax purposes or whether the Master Funds operations generate qualifying
income under Section 7704(d) of the Code. Whether the Master Fund will continue to meet the
qualifying income exception is a matter that will be determined by the Master Funds operations and
the facts existing at the time of future determinations. However, the Master Funds Managing Owner
will use its best efforts to cause the operation of the Master Fund in such manner as is necessary
for the Master Fund to continue to meet the qualifying income exception.
If the Master Fund failed to satisfy the qualifying income exception in any year, other than a
failure that is determined by the IRS to be inadvertent and that is cured within a reasonable time
after discovery, the Master Fund would be taxable as a corporation for federal income tax purposes
and would pay federal income tax on its income at regular corporate rates. In that event,
Shareholders would not report their share of the Master Funds income or loss on their returns. In
addition, distributions to Shareholders would be treated as dividends to the extent of the Master
Funds current or accumulated earnings and profits. To the extent a distribution exceeded the
Master Funds earnings and profits, the distribution would be treated as a return of capital to the
extent of a Shareholders basis in its Shares, and thereafter as gain from the sale of Shares.
Accordingly, if the Master Fund were to be taxable as a corporation, it would likely have a
material adverse effect on the economic return from an investment in the Master Fund and on the
value of the Shares.
44
The discussion below is based on Tannenbaum Helpern Syracuse & Hirschtritt LLPs opinion that
the Master Fund will be classified as a partnership that is not subject to corporate income tax for
United States federal income tax purposes.
U.S. Shareholders
Treatment of the Master Fund Income
A partnership does not incur United States federal income tax liability. Instead, each partner
of a partnership is required to take into account its share of items of income, gain, loss,
deduction and other items of the partnership. Accordingly, each Shareholder will be required to
include in income its allocable share of the Master Funds income, gain, loss, deduction and other
items for the Master Funds taxable year ending with or within its taxable year. In computing a
partners United States federal income tax liability, such items must be included, regardless of
whether cash distributions are made by the partnership. Thus, Shareholders may be required to
include income without a corresponding current receipt of cash if the Master Fund generates taxable
income but does not make cash distributions. Because the Trustee currently does not intend to make
distributions, it is likely that in any year the Master Fund realizes net income and/or gain a U.S.
Shareholder will be required to pay taxes on its allocable share of such income or gain from
sources other than Fund distributions. The Master Funds taxable year will end on December 31
unless otherwise required by law. The Master Fund will use the accrual method of accounting.
Fund Shareholders will take into account their share of ordinary income realized by the Master
Fund from accruals of interest on Treasury Bills (T-Bills) held in the Master Fund portfolio. The
Master Fund may hold T-Bills with original issue discount, in which case Fund Shareholders would
be required to include accrued amounts in taxable income on a current basis even though receipt by
the Master Fund of those amounts may occur in a subsequent year. The Master Fund may also acquire
T-Bills with market discount. Upon disposition of such obligations, gain would generally be
required to be treated as interest income to the extent of the market discount and Fund
Shareholders would be required to include as ordinary income their share of such market discount
that accrued during the period the obligations were held by the Master Fund.
The Code generally applies a mark-to-market system of taxing unrealized gains and losses on,
and otherwise provides for special rules of taxation with respect to, Section 1256 Contracts. A
Section 1256 Contract includes certain regulated futures contracts. It is expected that the futures
on the Index held by the Master Fund will constitute Section 1256 Contracts. Section 1256 Contracts
held by the Master Fund at the end of a taxable year of the Master Fund will be treated for United
States federal income tax purposes as if they were sold by the Master Fund at their fair market
value on the last business day of the taxable year. The net gain or loss, if any, resulting from
these deemed sales (known as marking-to-market), together with any gain or loss resulting from
any actual sales of Section 1256 Contracts (or other termination of the Master Funds obligations
under such contracts), must be taken into account by the Master Fund in computing its taxable
income for the year. If a Section 1256 Contract held by the Master Fund at the end of a taxable
year is sold in the following year, the amount of any gain or loss realized on the sale will be
adjusted to reflect the gain or loss previously taken into account under the mark- to-market rules.
Capital gains and losses from Section 1256 Contracts generally are characterized as short-term
capital gains or losses to the extent of 40% of the gains or losses and as long-term capital gains
or losses to the extent of 60% of the gains or losses. Thus, Shareholders of Fund will generally
take into account their pro rata share of the long-term capital gains and losses and short-term
capital gains and losses from Section 1256 Contracts held by the Master Fund. If a noncorporate
taxpayer incurs a net capital loss for a
45
year, the portion of the loss, if any, which consists of a net loss on Section 1256 Contracts
may, at the election of the taxpayer, be carried back three years. A loss carried back to a year by
a noncorporate taxpayer may be deducted only to the extent (1) the loss does not exceed the net
gain on Section 1256 Contracts for the year and (2) the allowance of the carry-back does not
increase or produce a net operating loss for the year.
Allocation of the Master Funds Profits and Losses
For United States federal income tax purposes, a Shareholders distributive share of the
Master Funds income, gain, loss, deduction and other items will be determined by the Master Funds
Trust Declaration, unless an allocation under the agreement does not have substantial economic
effect, in which case the allocations will be determined in accordance with the partners
interests in the partnership. Subject to the discussion below under Monthly Allocation and
Revaluation Conventions and Section 754 Election, the allocations pursuant to the Master Funds
Trust Declaration should be considered to have substantial economic effect or deemed to be made in
accordance with the partners interests in the partnership.
If the allocations provided by the Master Funds Trust Declaration were successfully
challenged by the IRS, the amount of income or loss allocated to Shareholders for United States
federal income tax purposes under the agreement could be increased or reduced or the character of
the income or loss could be modified.
As described in more detail below, the U.S tax rules that apply to partnerships are complex
and their application is not always clear. Additionally, the rules generally were not written for,
and in some respects are difficult to apply to, publicly traded partnerships. The Master Fund will
apply certain assumptions and conventions intended to comply with the intent of the rules and to
report income, gain, deduction, loss and credit to Shareholders in a manner that reflects the
economic gains and losses, but these assumptions and conventions may not comply with all aspects of
the applicable Treasury regulations. It is possible therefore that the IRS will successfully assert
that assumptions made and/or conventions used do not satisfy the technical requirements of the Code
or the Treasury regulations and will require that tax items be adjusted or reallocated in a manner
that could adversely impact the Shareholders.
Monthly Allocation and Revaluation Conventions
In general, the Master Funds taxable income and losses will be determined monthly and will be
apportioned among the holders of Fund Shares in proportion to the number of Shares treated as owned
by each of them as of the close of the last trading day of the preceding month. By investing in
Fund Shares, a U.S. Holder agrees that, in the absence of an administrative determination or
judicial ruling to the contrary, it will report income and loss under the monthly allocation and
revaluation conventions described below.
Under the monthly allocation convention, whomever is treated for U.S. federal income tax
purposes as holding Shares as of the close of the last trading day of the preceding month will be
treated as continuing to hold the Shares until immediately before close of the last trading day of
the following month. As a result, a holder who has disposed of shares prior to the close of the
last trading day of a month may be allocated income, gain, loss and deduction realized after the
date of transfer.
The Code generally requires that items of partnership income and deductions be allocated
between transferors and transferees of partnership interests on a daily basis. It is possible that
transfers of Shares could be considered to occur for U.S. federal income tax purposes when the
transfer is completed without regard to the Master Funds monthly convention for allocating income
and deductions. If this were to occur, the Master Funds allocation method might be deemed to
violate that requirement.
46
In addition, for any month in which a creation or redemption of Shares takes place, the Master
Fund generally will credit or debit, respectively, the book capital accounts of the holders of
existing Shares with any unrealized gain or loss in the Master Funds assets. This will result in
the allocation of items of the Master Funds income, gain, loss, deduction and credit to existing
holders of Shares to account for the difference between the tax basis and fair market value of
property owned by the Master Fund at the time new Shares are issued or old Shares are redeemed
(reverse section 704(c) allocations). The intended effect of these allocations is to allocate any
built-in gain or loss in the Master Funds assets at the time of a creation or redemption of Shares
to the investors that economically have earned such gain or loss.
As with the other allocations described above, the Master Fund generally will use a monthly
convention for purposes of the reverse section 704(c) allocations. More specifically, the Master
Fund generally will credit or debit, respectively, the book capital accounts of the holders of
existing Shares with any unrealized gain or loss in the Master Funds assets based on a calculation
utilizing [the lowest trading price of the Master Funds assets during the month in which the
creation or redemption transaction takes place, rather than the fair market value of its assets at
the time of such creation or redemption (the revaluation convention)]. As a result, it is
possible that, for U.S. federal income tax purposes, (i) a purchaser of newly issued Shares will be
allocated some or all of the unrealized gain in the Master Funds assets at the time it acquires
the Shares or (ii) an existing holder of Shares will not be allocated its entire share in the
unrealized loss in the Master Funds assets at the time of such acquisition. Furthermore, the
applicable Treasury regulations generally require that the book capital accounts will be adjusted
based on the fair market value of partnership property on the date of adjustment and do not
explicitly allow the adoption of a monthly revaluation convention.
The Code and applicable Treasury regulations generally require that items of partnership
income and deductions be allocated between transferors and transferees of partnership interests on
a daily basis, and that adjustments to book capital accounts be made based on the fair market
value of partnership property on the date of adjustment. The Code and regulations do not
contemplate monthly allocation or revaluation conventions. If the IRS does not accept the Master
Funds monthly allocation or revaluation convention, the IRS may contend that taxable income or
losses of the Master Fund must be reallocated among the holders of Shares. If such a contention
were sustained, the holders respective tax liabilities would be adjusted to the possible detriment
of certain holders. The Manager is authorized to revise the Master Funds allocation and
revaluation methods in order to comply with applicable law or to allocate items of partnership
income and deductions in a manner that reflects more accurately the Shareholders interests in the
Master Fund.
Section 754 Election
The Master Fund intends to make the election permitted by Section 754 of the Code. Such an
election, once made, is irrevocable without the consent of the IRS. The making of such election by
the Master Fund will generally have the effect of requiring a purchaser of Shares to adjust its
proportionate share of the basis in the Master Funds assets, or the inside basis, pursuant to
Section 743(b) of the Code to fair market value (as reflected in the purchase price for the
purchasers Shares), as if it had acquired a direct interest in the Master Funds assets. The
Section 743(b) adjustment is attributed solely to a purchaser of Shares and is not added to the
bases of the Master Funds assets associated with all of the other Shareholders. Depending on the
relationship between a holders purchase price for Shares and its unadjusted share of the Master
Funds 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.
47
The calculations under Section 754 of the Code are complex, and there is little legal
authority concerning the mechanics of the calculations, particularly in the context of publicly
traded partnerships. Therefore, if the Master Fund makes the election under Code Section 754, it is
expected that the Master Fund will apply certain conventions in determining and allocating the
Section 743 basis adjustments to help reduce the complexity of those calculations and the resulting
administrative costs to the Master Fund. It is possible that the IRS will successfully assert that
some or all of such conventions utilized by the Master Fund do not satisfy the technical
requirements of the Code or the Regulations and, thus, will require different basis adjustments to
be made.
In order to make the basis adjustments permitted by Section 754, the Master Fund will be
required to obtain information regarding each holders secondary market transactions in Shares as
well as creations and redemptions of Shares. The Master Fund will seek such information from the
record holders of Shares, and, by purchasing Shares, each beneficial owner of Shares will be deemed
to have consented to the provision of such information by the record owner of such beneficial
owners Shares. Notwithstanding the foregoing, however, there can be no guarantee that the Master
Fund will be able to obtain such information from record owners or other sources, or that the basis
adjustments that the Master Fund makes based on the information it is able to obtain will be
effective in eliminating disparity between a holders outside basis in its share of the Master Fund
Interests and its share of inside basis.
Constructive Termination
The Master Fund will be considered to have terminated for tax purposes if there is a sale or
exchange of 50 percent or more of the total Shares within a 12-month period. A constructive
termination results in the closing of the Master Funds taxable year for all holders of Shares. In
the case of a holder of Shares reporting on a taxable year other than a fiscal year ending December
31, the early closing of the Master Funds taxable year may result in more than 12 months of its
taxable income or loss being includable in such holders taxable income for the year of
termination. The Master Fund would be required to make new tax elections after a termination,
including a new election under Section 754. A termination could also result in penalties if the
Master Fund were unable to determine that the termination had occurred.
Treatment of Distributions
Non-liquidating distributions of cash by a partnership are generally not taxable to the
distributee to the extent the amount of cash does not exceed the distributees tax basis in its
partnership interest. Thus, any cash distributions made by the Master Fund will be taxable to a
Shareholder only to the extent such distributions exceed the Shareholders tax basis in the
partnership interests it is treated as owning (see Tax Basis in Partnership Interests below).
Any cash distributions in excess of a Shareholders tax basis generally will be considered to be
gain from the sale or exchange of the Shares (see Disposition of Shares below).
Creation and Redemption of Share Baskets
Shareholders, other than Authorized Participants (or holders for which an Authorized
Participant is acting), generally will not recognize gain or loss as a result of an Authorized
Participants creation or redemption of a Basket of Shares. If the Master Fund disposes of assets
in connection with the redemption of a Basket of Shares, however, the disposition may give rise to
gain or loss that will be allocated in part to the Shareholders. An Authorized Participants
creation or redemption of a Basket of Shares also may affect a Shareholders share of the Master
Funds tax basis in its assets, which could affect the amount of gain or loss allocated to the
Shareholder on the a sale or disposition of portfolio assets by the Master Fund.
48
Tax Basis of Shares
A Shareholders tax basis in its Shares is important in determining (1) the amount of taxable
gain it will realize on the sale or other disposition of its Shares, (2) the amount of non-taxable
distributions that it may receive from the Master Fund and (3) its ability to utilize its
distributive share of any losses of the Master Fund on its tax return. A Shareholders initial tax
basis of its Shares will equal its cost for the Shares plus its share of the Master Funds
liabilities (if any) at the time of purchase. In general, a Shareholders share of those
liabilities will equal the sum of (i) the entire amount of any otherwise nonrecourse liability of
the Master Fund as to which the Shareholder or an affiliate is the creditor (a partner nonrecourse
liability) and (ii) a pro rata share of any nonrecourse liabilities of the Master Fund that are
not partner nonrecourse liabilities as to any Shareholder.
A Shareholders tax basis in its Shares generally will be (1) increased by (a) its allocable
share of the Master Funds taxable income and gain, (b) its share of the Master Funds income, if
any, that is exempt from tax, (c) any increase in its share of the Master Funds liabilities, and
(d) any additional contributions by the Shareholder to the Fund and (2) decreased (but not below
zero) by (a) its allocable share of the Master Funds tax deductions and losses, (b) its allocable
share of the Master Funds expenditures that are neither deductible nor properly chargeable to its
capital account, (b) any distributions by the Fund to the Shareholder, and (d) any decrease in its
share of the Master Funds liabilities. Pursuant to certain IRS rulings, a Shareholder will be
required to maintain a single, unified basis in all Shares that it owns. As a result, when a
Shareholder that acquired its Shares at different prices sells less than all of its Shares, such
Shareholder will not be entitled to specify particular Shares (e.g., those with a higher basis) as
having been sold. Rather, it must determine its gain or loss on the sale by using an equitable
apportionment method to allocate a portion of its unified basis in its Shares to the Shares sold.
Disposition of Shares
If a U.S. Shareholder transfers Shares, it will be treated for United States federal income
tax purposes as transferring its pro rata share of the partnership interests held by the Fund. If
such transfer is a sale or other taxable disposition, the U.S. Shareholder will generally be
required to recognize gain or loss measured by the difference between the amount realized on the
sale and the U.S. Shareholders adjusted tax basis in the partnership interests deemed sold. The
amount realized will include the U.S. Shareholders share of the Master Funds liabilities, as well
as any proceeds from the sale. The gain or loss recognized will generally be taxable as capital
gain or loss. Capital gain of non-corporate U.S. Shareholders is eligible to be taxed at reduced
rates where the Master Fund Units deemed sold are considered held for more than one year. Capital
gain of corporate U.S. Shareholders is taxed at the same rate as ordinary income. Any capital loss
recognized by a U.S. Shareholder on a sale of Shares will generally be deductible only against
capital gains, except that a non-corporate U.S. Shareholder may also offset up to $3,000 per year
of ordinary income.
A Shareholder whose Shares are loaned to a short seller to cover a short sale of Shares may
be considered as having disposed of those Shares. If so, such Shareholder would no longer be a
beneficial owner of a pro rata portion of the partnership interests with respect to those Shares
during the period of the loan and may recognize gain or loss from the disposition. As a result,
during the period of the loan, (1) any of Master Funds income, gain, loss, deduction or other
items with respect to those Shares would not be reported by the Shareholder, and (2) any cash
distributions received by the Shareholder as to those Shares could be fully taxable, likely as
ordinary income. Accordingly, Shareholders who desire to avoid the risk of income recognition from
a loan of their Shares to a short seller are urged to modify any applicable brokerage account
agreements to prohibit their brokers from borrowing their Shares.
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Limitations on Deductibility of Losses and Certain Expenses
A number of different provisions of the Code may defer or disallow the deduction of losses or
expenses allocated to a Shareholder by the Master Fund, including but not limited to those
described below.
A Shareholders deduction of its allocable share of any loss of the Master Fund will be
limited to the lesser of (1) the tax basis in its Shares or (2) in the case of a Shareholder that
is an individual or a closely held corporation, the amount which the Shareholder is considered to
have at risk with respect to the Master Funds activities. In general, the amount at risk will be
a Shareholders invested capital plus such Shareholders share of any recourse debt of the Master
Fund for which it is liable. Losses in excess of the amount at risk must be deferred until years in
which the Master Fund generates additional taxable income against which to offset such carryover
losses or until additional capital is placed at risk.
Noncorporate taxpayers are permitted to deduct capital losses only to the extent of their
capital gains for the taxable year plus $3,000 of other income. Unused capital losses can be
carried forward and used to offset capital gains in future years. In addition, a noncorporate
taxpayer may elect to carry back net losses on section 1256 contracts to each of the three
preceding years and use them to offset section 1256 contract losses in those years, subject to
certain limitations. Corporate taxpayers generally may deduct capital losses only to the extent of
capital gains, subject to special carryback and carryforward rules.
Otherwise deductible expenses incurred by noncorporate taxpayers constituting miscellaneous
itemized deductions, generally including investment-related expenses (other than interest and
certain other specified expenses), are deductible only to the extent they exceed 2 percent of the
taxpayers adjusted gross income for the year. The Code imposes additional limitations (which are
scheduled to be phased out between 2006 and 2010) on the amount of certain itemized deductions
allowable to individuals, by reducing the otherwise allowable portion of such deductions by an
amount equal to the lesser of: (a) 3% of the individuals adjusted gross income in excess of
certain threshold amounts; or (b) 80% of the amount of certain itemized deductions otherwise
allowable for the taxable year. In addition, these expenses are also not deductible in determining
the alternative minimum tax liability of a U.S. Shareholder. The Master Fund will report such
expenses on a pro rata basis to the Shareholders, and each U.S. Shareholder will determine
separately to what extent they are deductible on such U.S. Shareholders tax return. A U.S.
Shareholders inability to deduct all or a portion of such expenses could result in an amount of
taxable income to such U.S. Shareholder with respect to the Master Fund that exceeds the amount of
cash actually distributed to such U.S. Shareholder for the year. It is anticipated that the
management fees and other expenses the Master Fund will incur will constitute investment-related
expenses subject to the miscellaneous itemized deduction limitation, rather than expenses incurred
in connection with a trade or business.
Noncorporate Shareholders generally may deduct investment interest expense only to the
extent of their net investment income. Investment interest expense of a Shareholder will
generally include any interest accrued by the Master Fund and any interest paid or accrued on
direct borrowings by a Shareholder to purchase or carry its Shares, such as interest with respect
to a margin account. Net investment income generally includes gross income from property held for
investment (including portfolio income under the passive loss rules but not, absent an election,
long-term capital gains or certain qualifying dividend income) less deductible expenses other than
interest directly connected with the production of investment income.
Under Section 709(b) of the Code, amounts paid or incurred to organize a partnership may, at
the election of the partnership, be treated as deferred expenses, which are allowed as a deduction
ratably over a period of not less than 180 months. The Master Fund has not yet determined whether
it will make such an election. A U.S. Shareholders distributive share of such organizational
expenses would constitute miscellaneous itemized deductions. Expenditures in connection with the
issuance and marketing of Shares (so called syndication fees) are not eligible for the 180-month
amortization provision and are not deductible.
50
To the extent that a Shareholder is allocated losses or expenses of the Master Fund that must
be deferred or disallowed as a result of these or other limitations in the Code, a Shareholder may
be taxed on income in excess of its economic income or distributions (if any) on its Shares. As one
example, a Shareholder could be allocated and required to pay tax on its share of interest income
accrued by the Master Fund for a particular taxable year, and in the same year allocated a share of
a capital loss that it cannot deduct currently because it has insufficient capital gains against
which to offset the loss. As another example, a Shareholder could be allocated and required to pay
tax on its share of interest income and capital gain for a year, but be unable to deduct some or
all of its share of management fees and/or margin account interest incurred by it with respect to
its Shares. Shareholders are urged to consult their own professional tax advisors regarding the
effect of limitations under the Code on their ability to deduct their allocable share of the Master
Funds losses and expenses.
Passive Activity Income and Loss
Individuals are subject to certain passive activity loss rules under Section 469 of the
Code. Under these rules, losses from a passive activity generally may not be used to offset income
derived from any source other than passive activities. Losses that cannot be currently used under
this rule may generally be carried forward. Upon an individuals disposition of an interest in the
passive activity, the individuals unused passive losses may generally be used to offset other
(i.e., non passive) income. Under temporary Regulations, income or loss from the Master Funds
investments generally will not constitute income or losses from a passive activity. Therefore,
income or loss from the Master Funds investments will not be available to offset a U.S.
Shareholders passive losses or passive income from other sources.
Transferor/Transferee Allocations
In general, the Master Funds taxable income and losses will be determined monthly and will be
apportioned among the Funds Shareholders in proportion to the number of Master Fund Units treated
as owned by each of them as of the close of the last trading day of the preceding month. With
respect to any Master Fund Unit that was not treated as outstanding as of the close of the last
trading day of the preceding month, the first person that is treated as holding such Master Fund
Unit (other than an underwriter or other person holding in a similar capacity) for United States
federal income tax purposes will be treated as holding such Master Fund Unit for this purpose as of
the close of the last trading day of the preceding month. As a result, a Shareholder transferring
its Shares may be allocated income, gain, loss and deduction realized after the date of transfer.
Section 706 of the Code generally requires that items of partnership income and deductions be
allocated between transferors and transferees of partnership interests on a daily basis. It is
possible that transfers of Shares could be considered to occur for United States federal income tax
purposes when the transfer is completed without regard to the Master Funds convention for
allocating income and deductions. In that event, the Master Funds allocation method might be
considered a monthly convention that does not literally comply with that requirement.
If the IRS treats transfers of Shares as occurring throughout each month and a monthly
convention is not allowed by the Regulations (or only applies to transfers of less than all of a
Shareholders Shares) or if the IRS otherwise does not accept the Master Funds convention, the IRS
may contend that taxable income or losses of the Master Fund must be reallocated among the
Shareholders. If such a contention were sustained, the Shareholders respective tax liabilities
would be adjusted to the possible detriment of certain Shareholders. The Master Funds Managing
Owner is authorized to revise the Master Funds methods of allocation between transferors and
transferees (as well as among Shareholders whose interests otherwise vary during a taxable period).
51
Tax Reporting by the Fund and the Master Fund
Information returns will be filed with the IRS, as required, with respect to income, gain,
loss, deduction and other items derived from the Funds Shares. The Master Fund will file a
partnership return with the IRS and intends to issue a Schedule K-1 to the trustee on behalf of the
Shareholders. The trustee of the Fund intends to report to you all necessary items on a tax
information statement or some other form as required by law. If you hold your Shares through a
nominee (such as a broker), we anticipate that the nominee will provide you with an IRS Form 1099
or substantially similar form, which will be supplemented by additional tax information that we
will make available directly to you at a later date, but in time for you to prepare your federal
income tax return. Each holder of Shares hereby agrees to allow brokers and nominees to report to
the Master Fund its name and address and such other information as may be reasonably requested by
the Master Fund for purposes of complying with its tax reporting obligations. We note that, given
the lack of authority addressing structures similar to that of Fund and the Master Fund, it is not
certain that the IRS will agree with the manner in which tax reporting by Fund and the Master Fund
will be undertaken. Furthermore, Shareholders should be aware that Regulations have been proposed
which, if finalized, could alter the manner in which tax reporting by Fund and any nominee will be
undertaken.
Audits and Adjustments to Tax Liability
Any challenge by the IRS to the tax treatment by a partnership of any item must be conducted
at the partnership, rather than at the partner, level. The Code provides for one partner to be
designated as the tax matters partner as the person to represent the partnership in the conduct
of such a challenge or audit by the IRS. Pursuant to the Master Funds Trust Declaration, the
Managing Owner will be appointed the tax matters partner of the Master Fund.
A United States federal income tax audit of the Master Funds information return may result in
an audit of the returns of the U.S. Shareholders, which, in turn, could result in adjustments of
items of a Shareholder that are unrelated to the Master Fund as well as to the Master Fund related
items. In particular, there can be no assurance that the IRS, upon an audit of an information
return of the Fund or the Master Fund or of an income tax return of a U.S. Shareholder, might not
take a position that differs from the treatment thereof by the Master Fund. A U.S. Shareholder
would be liable for interest on any deficiencies that resulted from any adjustments. Potential U.S.
Shareholders should also recognize that they might be forced to incur substantial legal and
accounting costs in resisting any challenge by the IRS to items in their individual returns, even
if the challenge by the IRS should prove unsuccessful.
Foreign Tax Credits
Subject to generally applicable limitations, U.S. Shareholders will be able to claim foreign
tax credits with respect to certain foreign income taxes paid or incurred by the Master Fund,
withheld on payments made to the Master Fund or paid by the Master Fund on behalf of Fund
Shareholders. If a Shareholder elects to claim foreign tax credit, it must include in its gross
income, for United States federal income tax purposes, both its share of the Master Funds items of
income and gain and also its share of the amount which is deemed to be the Shareholders portion of
foreign income taxes paid with respect to, or withheld from, dividends, interest or other income
derived by the Master Fund. U.S. Shareholders may then subtract from their United States federal
income tax the amount of such taxes withheld, or else treat such foreign taxes as deductions from
gross income; however, as in the case of investors receiving income directly from foreign sources,
the above described tax credit or deduction is subject to certain limitations. Even if the
Shareholder is unable to claim a credit, he or she must include all amounts described above in
52
income. U.S. Shareholders are urged to consult their tax advisers regarding this election and
its consequences to them.
Tax Shelter Disclosure Rules
In certain circumstances the Code and Regulations require that the IRS be notified of taxable
transactions through a disclosure statement attached to a taxpayers United States federal income
tax return. In addition, certain material advisers must maintain a list of persons participating
in such transactions and furnish the list to the IRS upon written request. These disclosure rules
may apply to transactions irrespective of whether they are structured to achieve particular tax
benefits. They could require disclosure by the Master Fund or Shareholders (1) if a Shareholder
incurs a loss in excess a specified threshold from a sale or redemption of its Shares, (2) if the
Master Fund engages in transactions producing differences between its taxable income and its income
for financial reporting purposes, or (3) possibly in other circumstances. While these rules
generally do not require disclosure of a loss recognized on the disposition of an asset in which
the taxpayer has a qualifying basis (generally a basis equal to the amount of cash paid by the
taxpayer for such asset), they apply to a loss recognized with respect to interests in a pass
through entity, such as the Shares, even if the taxpayers basis in such interests is equal to the
amount of cash it paid. In addition, under recently enacted legislation, significant penalties may
be imposed in connection with a failure to comply with these reporting requirements. U.S.
Shareholders are urged to consult their tax advisers regarding the tax shelter disclosure rules and
their possible application to them.
Non-U.S. Shareholders
A non-U.S. Shareholder will not be subject to United States federal income tax on such
Shareholders distributive share of the Master Funds income, provided that such income is not
considered to be income of the Shareholder that is effectively connected with the conduct of a
trade or business within the United States. In the case of an individual non-U.S. Shareholder, such
Shareholder will be subject to United States federal income tax on gains on the sale of Shares in
the Master Funds or such Shareholders distributive share of gains if such shareholder is present
in the United States for 183 days or more during a taxable year and certain other conditions are
met.
If the income from the Master Fund is effectively connected with a U.S. trade or business
carried on by a non-U.S. Shareholder (and, if certain income tax treaties apply, is attributable to
a U.S. permanent establishment), then such Shareholders share of any income and any gains realized
upon the sale or exchange of Shares will be subject to United States federal income tax at the
graduated rates applicable to United States citizens and residents and domestic corporations.
Non-U.S. Shareholders that are corporations may also be subject to a 30% U.S. branch profits tax
(or lower treaty rate, if applicable) on their effectively connected earnings and profits that are
not timely reinvested in a U.S. trade or business.
Non-U.S. Shareholders that are individuals will be subject to United States federal estate tax
on the value of United States situs property owned at the time of their death (unless a statutory
exemption or tax treaty exemption applies). It is unclear whether partnership interests (such as
the interests of the Master Fund) will be considered United States situs property. Accordingly,
non-U.S. Shareholders may be subject to U.S. federal estate tax on all or part of the value of the
Shares owned at the time of their death.
Non-U.S. Shareholders are advised to consult their own tax advisers with respect to the
particular tax consequences to them of an investment in the Shares.
53
Regulated Investment Companies
Changes made to the Code by the American Jobs Creation Act of 2004 allow RICs to invest up to
25% of their assets in qualified publicly traded partnerships, or qualified PTPs, and to treat
net income derived from such investments as qualifying income under the income source test
applicable to entities seeking to qualify for the special tax treatment available to RICs under the
Code. In addition, under these new rules, interests in a qualified PTP are treated as issued by
such PTP and a RIC is not required to look through to the underlying partnership assets when
testing compliance with the asset diversification tests applicable to RICs under the Code. Based on
prior performance of the Index, the Master Fund anticipates that it is likely to be a qualified PTP
for most tax years. Consequently, RIC investors generally should be able to treat their respective
shares of the Master Funds net income as qualifying income and to apply the asset diversification
test to their Master Fund interests held through the Trust for purposes of these rules. However,
qualification of the Master Fund as a qualified PTP depends on performance of the Master Fund for
the particular tax year and there is no assurance that it will qualify in a given year or that
future performance of the Index will conform to prior experience. Additionally, there is, to date,
no regulatory guidance on the application of these rules, and it is possible that future guidance
may adversely affect qualification of the Master Fund as a qualified PTP. In a revenue ruling
released on December 16, 2005, the IRS has clarified that derivative contracts owned by a RIC that
provide for a total- return exposure on a commodity index will not produce qualifying income for
purposes of the RIC qualification rules. The IRS, in a subsequent ruling, stated that the ruling
will apply prospectively, beginning October 1, 2006, to allow RICs an opportunity to adapt to the
new position. The IRS interpretation set forth in such ruling, however, does not adversely affect
the Master Funds ability to be treated as a qualified PTP for purposes of applying the RIC
qualification rules. RIC investors are urged to monitor their investment in the Trust and Master
Fund and consult with a tax advisor concerning the impact of such an investment on their compliance
with the income source and asset diversification requirements applicable to RICs.
Tax-Exempt Organizations
Subject to numerous exceptions, qualified retirement plans and individual retirement accounts,
charitable organizations and certain other organizations that otherwise are exempt from federal
income tax (collectively exempt organizations) nonetheless are subject to the tax on its
unrelated business taxable income, or UBTI, to the extent that its UBTI from all sources exceeds
$1,000 in any taxable year. Except as noted below with respect to certain categories of exempt
income, UBTI generally includes income or gain derived (either directly or through a partnership)
from a trade or business, the conduct of which is substantially unrelated to the exercise or
performance of the exempt organizations exempt purpose or function.
UBTI generally does not include passive investment income, such as dividends, interest and
capital gains, whether realized by the exempt organization directly or indirectly through a
partnership (such as the Master Fund) in which it is a partner. This type of income is exempt,
subject to the discussion of unrelated debt-financed income below, even if it is realized from
securities trading activity that constitutes a trade or business.
UBTI includes not only trade or business income or gain as described above, but also
unrelated debt-financed income. This latter type of income generally consists of (1) income
derived by an exempt organization (directly or through a partnership) from income producing
property with respect to which there is acquisition indebtedness at any time during the taxable
year and (2) gains derived by an exempt organization (directly or through a partnership) from the
disposition of property with respect to which there is acquisition indebtedness at any time during
the twelve-month period ending with the date of the disposition.
54
To the extent the Master Fund recognizes gain from property with respect to which there is
acquisition indebtedness, the portion of the gain that will be treated as UBTI will be equal to
the amount of the gain times a fraction, the numerator of which is the highest amount of the
acquisition indebtedness with respect to the property during the twelve month period ending with
the date of their disposition, and the denominator of which is the average amount of the adjusted
basis of the property during the period such property is held by the Master Fund during the
taxable year. In determining the unrelated debt-financed income of the Master Fund, an allocable
portion of deductions directly connected with the Master Funds debt financed property will be
taken into account. In making such a determination, for instance, a portion of losses from debt
financed securities (determined in the manner described above for evaluating the portion of any
gain that would be treated as UBTI) would offset gains treated as UBTI. A charitable remainder
trust will not be exempt from United States federal income tax under the Code for any year in which
it has UBTI; in view of the potential for UBTI, the Shares are not a suitable investment for a
charitable remainder trust.
The federal tax rate applicable to an exempt organization Shareholder on its UBTI generally
will be either the corporate or trust tax rate, depending upon the Shareholders form of
organization. The Master Fund may report to each such Shareholder information as to the portion,
if any, of the Shareholders income and gains from the Master Fund for any year that will be
treated as UBTI; the calculation of that amount is complex, and there can be no assurance that the
Master Funds calculation of UBTI will be accepted by the IRS. An exempt organization Shareholder
will be required to make payments of estimated federal income tax with respect to its UBTI.
Backup Withholding
The Fund is required in certain circumstances to backup withhold on certain payments paid to
noncorporate Shareholders of Fund Shares who do not furnish the Fund with their correct taxpayer
identification number (in the case of individuals, their social security number) and certain
certifications, or who are otherwise subject to backup withholding. Backup withholding is not an
additional tax. Any amounts withheld from payments made to you may be refunded or credited against
your United States federal income tax liability, if any, provided that the required information is
furnished to the IRS.
Other Tax Considerations
In addition to federal income taxes, Shareholders may be subject to other taxes, such as state
and local income taxes, unincorporated business taxes, business franchise taxes, and estate,
inheritance or intangible taxes that may be imposed by the various jurisdictions in which the
Master Fund does business or owns property or where the Shareholders reside. Although an analysis
of those various taxes is not presented here, each prospective Shareholder should consider their
potential impact on its investment in the Master Fund. It is each Shareholders responsibility to
file the appropriate U.S. federal, state, local, and foreign tax returns. Tannenbaum Helpern
Syracuse & Hirschtritt LLP has not provided an opinion concerning any aspects of state, local or
foreign tax or U.S. federal tax other than those U.S. federal income tax issues discussed herein.
Shareholders should be aware that certain aspects of the United States federal, state and
local income tax treatment regarding the purchase, ownership and disposition of Shares are not
clear under existing law. Thus, Shareholders are urged to consult their own tax advisers to
determine the tax consequences of ownership of the Shares in their particular circumstances,
including the application of United States federal, state, local and foreign tax laws.
Prospective investors are urged to consult their tax advisers before deciding whether to
invest in the Shares.
55
PURCHASES BY EMPLOYEE BENEFIT PLANS
The United States Employee Retirement Income Security Act of 1974, as amended (ERISA),
imposes certain requirements on employee benefit plans (as defined in Section 3(3) of ERISA)
subject to ERISA, including entities such as collective investment funds and separate accounts
whose underlying assets include the assets of such plans (collectively, ERISA Plans) and on those
persons who are fiduciaries with respect to ERISA Plans. Investments by ERISA Plans are subject to
ERISAs general fiduciary requirements, including the requirement of investment prudence and
diversification and the requirement that an ERISA Plans investments be made in accordance with the
documents governing the plan. The prudence of a particular investment must be determined by the
responsible fiduciary of an ERISA Plan by taking into account the ERISA Plans particular
circumstances, including the ERISA Plans existing investment portfolio, and all of the facts and
circumstances of the investment including, but not limited to, the matters discussed above under
Investment Considerations and Risk Factors.
Section 406 of ERISA and Section 4975 of the Code prohibit certain transactions involving the
assets of an ERISA Plan (as well as those plans that are not subject to ERISA but which are subject
to Section 4975 of the Code, such as individual retirement accounts (together with ERISA Plans,
Plans)) and certain persons (referred to as parties in interest for purposes of ERISA and
disqualified persons for purposes of the Code) having certain relationships to such Plans, unless
a statutory or administrative exemption is applicable to the transaction. A party in interest or
disqualified person who engages in a nonexempt prohibited transaction may be subject to excise
taxes and other penalties and liabilities under ERISA and the Code, and the transaction might have
to be rescinded.
The U.S. Department of Labor has promulgated a regulation, 29 C.F.R. Section 2510.3-101 (as
modified by Section 3(42) of ERISA) (the Plan Asset Regulation), describing what constitutes the
assets of a Plan with respect to the Plans investment in an entity for purposes of certain
provisions of ERISA, including the fiduciary responsibility and prohibited transaction provisions
of Title I of ERISA and the related prohibited transaction provisions under Section 4975 of the
Code. Under the Plan Asset Regulation, if a Plan invests in an equity interest of an entity that
is neither a publicly offered security nor a security issued by an investment company registered
under the Investment Company Act, the Plans assets include both the equity interest and an
undivided interest in each of the entitys underlying assets, unless it is established that the
entity is an operating company, which includes for purposes of the Plan Asset Regulation a
venture capital operating company, or that equity participation in the entity by Benefit Plan
Investors (as defined below) is not significant.
The publicly offered security exception applies if an equity interest is a security that is
(a) freely transferable; (b) part of a class of securities that is widely held; and (3) either
(i) part of a class of securities registered under Section 12(b) or 12(g) of the Securities
Exchange Act of 1934 (the 1934 Act), or (ii) sold to a Plan as part of a public offering pursuant
to an effective registration statement under the Securities Act of 1933 and the class of which such
security is a part is registered under the 1934 Act within 120 days (or such later time as may be
allowed by the SEC) after the end of the fiscal year of the issue in which the offering of such
security occurred.
Under the Plan Asset Regulation, equity participation in an entity by Benefit Plan Investors
(as defined below) is significant on any date if, immediately after the most recent acquisition
of any equity interest in the entity, 25% or more of the value of any class of equity interests in
the entity is held by Benefit Plan Investors. The term Benefit Plan Investor is defined in the
Plan Asset Regulation as: (a) any employee benefit plan (as defined in Section 3(3) of ERISA),
which is subject to part 4 of subtitle B of Title I of ERISA; (b) any plan subject to Code Section
4975; and (c) any entity whose underlying assets
56
include plan assets by reason of the investment in the entity by such employee benefit plan
and/or plan. For purposes of this determination, (i) the value of equity interests held by a
person (other than a Benefit Plan Investor) that has discretionary authority or control with
respect to the assets of the entity or that provides investment advice for a fee (direct or
indirect) with respect to such assets (or any affiliate of any such person) is disregarded, and
(ii) only that portion of the equity interests of an entity described in clause (c) of the
preceding sentence investing in another entity that is investing in employee benefit plans or other
plans described in clauses (a) or (b) of the preceding sentence is included in the testing of such
other entity.
The Shares should be considered to be equity interests in the Fund for purposes of the Plan
Asset Regulation and the Units should be considered to be equity interests in the Master Fund for
purposes of the Plan Asset Regulation. The Shares should constitute publicly offered securities
of the Fund for purposes of the Plan Asset Regulation. In addition, investment in the Master Fund
by Benefit Plan Investors should not be significant for purposes of the Plan Asset Regulation.
Therefore, the assets of both the Fund and the Master Fund should not be deemed to constitute the
assets of any Plan.
If the assets of the Fund were deemed to constitute the assets of a Plan, the fiduciary making
an investment in the Fund on behalf of an ERISA Plan could be deemed to have improperly delegated
its asset management responsibility, the assets of the Fund and the Master Fund could be subject to
ERISAs reporting and disclosure requirements, and transactions involving the assets of the Fund
and the Master Fund would be subject to the fiduciary responsibility and prohibited transaction
provisions of ERISA and the prohibited transaction rules of Section 4975 of the Code.
Each Plan fiduciary who is responsible for making the investment decisions whether to invest
in the Shares should determine whether, under the general fiduciary standards of investment
prudence and diversification and under the documents and instruments governing the Plan, an
investment in the Shares is appropriate for the Plan, taking into account the overall investment
policy of the Plan and the composition of the Plans investment portfolio. Any Plan proposing to
invest in Shares should consult with its counsel to confirm that such investment will not result in
a prohibited transaction and will satisfy the other requirements of ERISA and the Code.
The sale of any Shares to a Benefit Plan Investor is in no respect a representation by the
Trustee, the Managing Owner or any of their affiliates 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.
Regardless of whether the assets of the Partnership are deemed to be plan assets, the
acquisition of Shares by a Plan could, depending upon the facts and circumstances of such
acquisition, be a prohibited transaction, for example, if Managing Owner or any of its affiliates
were a party in interest or disqualified person with respect to the Plan. However, such a
prohibited transaction may be treated as exempt under ERISA and the Code if the Shares were
acquired pursuant to and in accordance with one or more class exemptions issued by the U.S.
Department of Labor, such as Prohibited Transaction Class Exemption (PTCE) 84-14 (a class
exemption for certain transactions determined by an independent qualified professional asset
manager), PTCE 90-1 (a class exemption for certain transactions involving an insurance company
pooled separate account), PTCE 91-38 (a class exemption for certain transactions involving a bank
collective investment fund), PTCE 95-60 (a class exemption for certain transactions involving an
insurance company general account), and PTCE 96-23 (a class exemption for certain transactions
determined by an in-house asset manager).
Any insurance company proposing to invest assets of its general account in the Shares should
also consider the extent to which such investment would be subject to the requirements of ERISA in
light of the U.S. Supreme Courts decision in John Hancock Mutual Life Insurance Co. v. Harris
Trust and Savings
57
Bank and under any subsequent legislation or other guidance that has or may become available
relating to that decision, including Section 401(c) of ERISA and the regulations thereunder
published by the U.S. Department of Labor in January, 2000.
The Fund will require a fiduciary of an ERISA Plan that proposes to acquire Shares to
represent that it has been informed of and understands the Funds and the Master Funds investment
objectives, policies, strategies and limitations, that the decision to acquire the Shares was made
in accordance with its fiduciary responsibilities under ERISA and that neither the Trustee, the
Managing Owner nor any of their affiliates has provided investment advice with respect to such
decision. The Fund will also require any investor that is, or is acting on behalf of, a Plan to
represent and warrant that its acquisition and holding of Shares will not result in a nonexempt
prohibited transaction under ERISA and/or Section 4975 of the Code.
Governmental plans and certain church plans, while not subject to the fiduciary responsibility
provisions of ERISA or the provisions of Section 4975 of the Code, may nevertheless be subject to
state or other federal laws that are substantially similar to the foregoing provisions of ERISA and
the Code. The Fund will require similar representations and warranties with respect to the
purchase of Shares by any such plan. Fiduciaries of such plans should consult with their counsel
before purchasing Shares.
The discussion of ERISA and Section 4975 of the Code contained in this Prospectus is, of
necessity, general and does not purport to be complete. Moreover, the provisions of ERISA and
Section 4975 of the Code are subject to extensive and continuing administrative and judicial
interpretation and review. Therefore, the matters discussed above may be affected by future
regulations, rulings and court decisions, some of which may have retroactive application and
effect.
ANY POTENTIAL INVESTOR CONSIDERING AN INVESTMENT IN SHARES THAT IS, OR IS ACTING ON BEHALF OF,
A PLAN (OR A GOVERNMENTAL PLAN SUBJECT TO LAWS SIMILAR TO ERISA AND/OR SECTION 4975 OF THE CODE) IS
STRONGLY URGED TO CONSULT ITS OWN LEGAL, TAX AND ERISA ADVISORS REGARDING THE CONSEQUENCES OF SUCH
AN INVESTMENT AND THE ABILITY TO MAKE THE REPRESENTATIONS DESCRIBED ABOVE.
PLAN OF DISTRIBUTION
Initial Offering
During the initial offering period, the Shares will be offered for sale only to the Authorized
Participants in Baskets at $30.00 per Share ($1.5 million per Basket). Initially, the Shares will
be offered for a period of up to ninety (90) days after the date of this Prospectus (unless
extended for up to an additional ninety (90) days in the sole discretion of the Managing Owner).
This period may be shorter if the Subscription Minimum is reached before that date and the Managing
Owner determines to end the initial offering period early or the offering is terminated by the
Managing Owner prior to the end of the initial offering period.
The minimum number of Shares that must be subscribed for by Authorized Participants prior to
the commencement of trading, or the Subscription Minimum, is 1,000,000.
Affiliates of the Managing Owner or the Trustee who are Authorized Participants may subscribe
for Shares during the initial offering period and any such Shares subscribed for by such persons
will be counted for purposes of determining whether the Subscription Minimum has been reached.
58
If the offering is terminated by the Managing Owner prior to the end of the initial offering
period, all subscription monies will be returned with interest and without deduction for expenses
to the subscribing Authorized Participants as promptly as practicable (but in no event more than
seven days) after the end of the initial offering period or such earlier date of termination.
The Shares are being sold initially at $30.00 per share.
Escrow of Funds
During the initial offering period, funds in the full amount of a purchase order must be
received by wire transfer and deposited in an escrow account in the Funds name at the Escrow
Agent, where such funds will be held during the initial offering period until the funds are turned
over to the Master Fund for trading purposes or until the offering is terminated, in which event
the subscription amounts will be refunded directly to investors via wire transfer, with interest
and without deduction for expenses. The Managing Owner will direct the Escrow Agent to invest the
funds held in escrow only in U.S. Treasury obligations or any other investment specified by the
Managing Owner that is consistent with the provisions of federal securities laws.
If the offering is cancelled, then as promptly as practicable, the purchase price paid by a
subscriber will be promptly returned to the payor of such funds (but in no event more than seven
days after the close of the initial offering period).
Continuous Offering Period
After the initial offering period has closed and trading has commenced, the Fund will issue
Shares in Baskets to Authorized Participants continuously as of 12:00pm (noon) New York time on the
business day immediately following the date on which a valid order to create a Basket is accepted
by the Fund, at the net asset value of [ ] Shares as of the closing time of the Amex or the
last to close of the exchanges of which the Index Commodities are traded, whichever is later, on
the date that a valid order to create a Basket is accepted by the Fund. The Managing Owner may
terminate the continuous offering at any time.
After the initial offering period has closed and trading has commenced, the Master Fund will
issue Master Fund Units in Master Unit Baskets to the Fund continuously as of 12:00pm (noon) New
York time on the business day immediately following the date on which a valid order to create a
Master Unit Basket is accepted by the Master Fund, at the net asset value of [ ] Master Fund
Units as of the closing time of the Amex or the last to close of the exchanges of which the Index
Commodities are traded, whichever is later, on the date that a valid order to create a Master Unit
Basket is accepted by the Master Fund. The Master Fund will be wholly-owned by the Fund and the
Managing Owner. Each Share issued by the Fund will correlate with a Master Fund Unit issued by the
Master Fund and held by the Fund.
Authorized Participants are expected to offer to the public the Shares they create at a
per-Share offering price that will vary depending upon, among other factors, net asset value, the
trading price of the Shares on the Amex and the supply of and demand for Shares at the time of the
offer. Shares initially comprising the same Basket but offered by Authorized Participants to the
public at different times may have different offering prices. The excess, if any, of the price at
which an Authorized Person sells a Share over the price paid by such Authorized Participant in
connection with the creation of such Share in a Basket may be deemed to be underwriting
compensation. During the continuous offering period, no selling commission will be paid by the Fund
to any Authorized Participant in connection with creations of Baskets, although investors are
expected to be charged a customary commission by their brokers in connection with purchases of
Shares that will vary from investor to investor. Investors are encouraged to review the terms of
their brokerage accounts for details on applicable charges.
59
Likelihood of Becoming a Statutory Underwriter
The Fund issues Shares in Baskets to Authorized Participants from time-to-time in exchange for
cash. Because new Shares can be created and issued on an ongoing basis at any point during the life
of the Fund, a distribution, as such term is used in the Securities Act, will be occurring. An
Authorized Participant, other broker-dealer firm or its client will be deemed a statutory
underwriter, and thus will be subject to the prospectus-delivery and liability provisions of the
Securities Act, if it purchases a Basket from the Fund, breaks the Basket down into the constituent
Shares and sells the Shares to its customers; or if it chooses to couple the creation of a supply
of new Shares with an active selling effort involving solicitation of secondary market demand for
the Shares. A determination of whether one is an underwriter must take into account all the facts
and circumstances pertaining to the activities of the broker-dealer or its client in the particular
case, and the examples mentioned above should not be considered a complete description of all the
activities that would lead to categorization as an underwriter. Authorized Participants, other
broker-dealers and other persons are cautioned that some of their activities will result in their
being deemed participants in a distribution in a manner which would render them statutory
underwriters and subject them to the prospectus-delivery and liability provisions of the Securities
Act. It is expected that Authorized Participants will avail themselves of any relief that becomes
available with respect to being deemed as a statutory underwriter.
Dealers who are neither Authorized Participants nor underwriters but are participating in a
distribution (as contrasted to ordinary secondary trading transactions), and thus dealing with
Shares that are part of an unsold allotment within the meaning of section 4(3)(C) of the
Securities Act, would be unable to take advantage of the prospectus delivery exemption provided by
section 4(3) of the Securities Act.
GENERAL
The Managing Owner intends to qualify the Shares in certain states and through broker-dealers
who are members of the NASD. Investors intending to create or redeem Baskets through Authorized
Participants in transactions not involving a broker-dealer registered in such investors state of
domicile or residence should consult their legal advisor regarding applicable broker-dealer or
securities regulatory requirements under the state securities laws prior to such creation or
redemption.
The Managing Owner has agreed to indemnify certain parties against certain liabilities,
including liabilities under the Securities Act, and to contribute to payments that such parties may
be required to make in respect of those liabilities. The Trustee has agreed to reimburse such
parties, solely from and to the extent of the Funds assets, for indemnification and contribution
amounts due from the Managing Owner in respect of such liabilities to the extent the Managing Owner
has not paid such amounts when due.
The offering of Baskets is being made in compliance with Conduct Rule 2810 of the NASD.
Accordingly, Authorized Participants will not make any sales to any account over which they have
discretionary authority without the prior written approval of a purchaser of Shares. The maximum
amount of items of value to be paid to NASD Members in connection with the offering of the Shares
by the Fund will not exceed 10% plus 0.5% for bona fide due diligence.
60
LEGAL MATTERS
Tannenbaum Helpern Syracuse & Hirschtritt LLP has advised the Managing Owner in connection
with the Shares being offered hereby. Tannenbaum Helpern Syracuse & Hirschtritt LLP also advises
the Managing Owner with respect to its responsibilities as managing owner of, and with respect to
matters relating to, the Fund and the Master Fund. Tannenbaum Helpern Syracuse & Hirschtritt LLP
has prepared the section Federal Income Tax Consequences and Purchases By Employee Benefit
Plans with respect to ERISA. Tannenbaum Helpern Syracuse & Hirschtritt LLP has not represented,
nor will it represent, the Fund or the Shareholders in matters relating to the Fund.
EXPERTS
The financial statements of the Fund, the Master Fund and the Managing Owner as of [___,
2006] included in this prospectus have been reviewed by [___] an independent certified public
accountants, as set forth in their report of such financial statements, and are included in this
prospectus in reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
ADDITIONAL INFORMATION
This Prospectus constitutes part of the Registration Statement filed by the Fund and the
Master Fund with the SEC in Washington, D.C. This Prospectus does not contain all of the
information set forth in such Registration Statement, certain portions of which have been omitted
pursuant to the rules and regulations of the SEC, including, without limitation, certain exhibits
thereto (for example, the forms of the Participant Agreement and the Customer Agreement). The
descriptions contained herein of agreements included as exhibits to the Registration Statement are
necessarily summaries; the exhibits themselves may be inspected without charge at the public
reference facilities maintained by the SEC in Washington, D.C., and copies of all or part thereof
may be obtained from the Commission upon payment of the prescribed fees. The SEC maintains a
Website that contains reports, proxy and information statements and other information regarding
registrants that file electronically with the SEC. The address of such site is http://www.sec.gov.
61
EXHIBIT A-1
GREENHAVEN CONTINUOUS COMMODITY INDEX MASTER FUND
DECLARATION OF TRUST
AND TRUST AGREEMENT
THIS DECLARATION OF TRUST AND TRUST AGREEMENT (the Trust Agreement) of GreenHaven
Continuous Commodity Index Master Fund (the Trust) is made and entered into as of the
day of
, 2006, by and among GreenHaven Commodity Services, LLC, a Delaware
limited liability company (the Managing Owner), CSC Trust Company of Delaware, a Delaware
Corporation (the Trustee), and GreenHaven Continuous Commodity Index Fund, a Delaware
statutory trust (the Limited Owner).
RECITALS
WHEREAS,
the Trust was formed on October 27, 2006, pursuant to the execution and filing by the
Trustee of the Certificate of Trust; and
WHEREAS, the Trustee, the Managing Owner and the Limited Owner desire to set forth guidelines
regarding the operations of the Trust and certain other matters.
NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained,
and other good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Trustee, the Managing Owner and the Limited Owner hereby agree as follows:
ARTICLE I
DEFINITIONS; THE MASTER FUND
1.1 Definitions. As used in this Trust Agreement, the following terms shall have the
following meanings unless the context otherwise requires:
Administrator means any person from time-to-time performing administrative services for the
Master Fund pursuant to authority delegated by the Managing Owner.
Adjusted Capital Account means, as of the last day of a taxable period, a Shareholders
Capital Account as maintained pursuant to Section 6.1, (a) increased by any amounts which such
Shareholder is obligated to restore pursuant to any provision of this Agreement or is deemed to be
obligated to restore pursuant to Treasury Regulation Section 1.704-2 and decreased by the amount of
all losses and deductions that, as of the end of the taxable period, are reasonably expected to be
allocated to such Shareholder in subsequent years under Sections 704(e)(2) and 706(d) of the Code
and the amount of all distributions that, as of the end of such taxable period, are reasonably
expected to be made to such Shareholder in subsequent years in accordance with the terms of this
Agreement or otherwise to the extent they exceed offsetting increases to such Capital Account that
are reasonably expected to occur during or prior to the year in
1
which such distributions are reasonably expected to be made. The foregoing definition of
Adjusted Capital Account is intended to comply with the provisions of Treasury Regulation Section
1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.
Adjusted Property means any property the adjusted basis of which has been adjusted pursuant
to Sections 6.1(a) and (b).
Affiliate An Affiliate of a Person means (i) any Person directly or indirectly owning,
controlling or holding with power to vote ten percent (10%) or more of the outstanding voting
securities of such Person, (ii) any Person ten percent (10%) or more of whose outstanding voting
securities are directly or indirectly owned, controlled or held with power to vote by such Person,
(iii) any Person, directly or indirectly, controlling, controlled by or under common control of
such Person, (iv) any employee, officer, director, member, manager or partner of such Person, or
(v) if such Person is an employee, officer, director, member, manager or partner, any Person for
which such Person acts in any such capacity.
Basket means a Creation Basket or a Redemption Basket, as the context may require.
Book-Tax Disparity means with respect to any item of Adjusted Property, as of the date of
any determination, the difference between the adjusted value of such property and the adjusted
basis thereof for federal income tax purposes as of such date. A Shareholders portion of the
Master Funds Book-Tax Disparities in all of its Adjusted Property will be reflected by the
difference between such Shareholders Capital Account balance as maintained pursuant to Section 6.1
and the hypothetical balance of such Shareholders Capital Account computed as if it had been
maintained strictly in accordance with federal income tax accounting principles.
Business Day means a day other than Saturday, Sunday or other day when banks and/or
securities exchanges in the City of New York or the City of Wilmington are authorized or obligated
by law or executive order to close.
Capital Account means the capital account maintained for a Shareholder or Transferee
pursuant to 6.1.
Capital Contributions means the amounts of cash contributed to the Master Fund by a
Shareholder in accordance with Article III hereof.
CE Act means the Commodity Exchange Act, as amended.
Certificate of Trust means the Certificate of Trust of the Master Fund in the form attached
hereto as Exhibit A, filed with the Secretary of State of the State of Delaware pursuant
to Section 3810 of the Delaware Trust Statute.
CFTC means the Commodity Futures Trading Commission.
Code means the Internal Revenue Code of 1986, as amended.
Commodities means positions in Commodity Contracts, forward contracts, foreign exchange
positions and traded physical commodities, as well as cash commodities resulting from any of the
foregoing positions.
Commodity Broker means any person who engages in the business of effecting transactions in
Commodity Contracts for the account of others or for his, her or its own account.
2
Commodity Contract means any futures contract or option thereon providing for the delivery
or receipt at a future date of a specified amount and grade of a traded commodity at a specified
price and delivery point, or any other futures contract or option thereon approved for trading for
U.S. persons.
Continuous Offering Period means the period following the conclusion of the Initial Offering
Period, during which additional Shares may be sold in Baskets pursuant to this Trust Agreement.
Corporate Trust Office means the principal office at which at any particular time the
corporate trust business of the Trustee is administered, which office at the date hereof is located
at 2711 Centerville Road, Wilmington, Delaware 19808, Attention: Corporate Trust.
Covered Person means the Trustee, the Managing Owner and their respective Affiliates.
Creation Basket means the minimum number of Limited Shares that may be created at any one
time, which shall be 50,000 or such greater or lesser number as the Managing Owner may determine
from time-to-time.
Creation Basket Capital Contribution means a Capital Contribution made by the Limited Owner
in connection with a Purchase Order Subscription Agreement and the creation of a Creation Basket in
an amount equal to the product obtained by multiplying (i) the number of Creation Baskets set forth
in the relevant Purchase Order Subscription Agreement by (ii) the Net Asset Value per Basket as of
closing time of the Exchange or the last to close of the exchanges on which any one of the Index
Commodities is traded, whichever is later, on the Purchase Order Subscription Date.
Delaware Trust Statute means the Delaware Statutory Trust Act, Chapter 38 of Title 12 of the
Delaware Code, 12 Del. C. § 3801 et seq., as the same may be amended from time-to-time.
ERISA means the Employee Retirement Income Security Act of 1974, as amended.
Event of Withdrawal shall have the meaning assigned thereto in Section 13.1(a).
Exchange means the American Stock Exchange or, if the common units of fractional undivided
beneficial interest with limited liability in the profits, losses, distributions, capital and
assets of, and ownership of, the Limited Owner shall cease to be listed on the American Stock
Exchange and are listed on one or more other exchanges, the exchange on which such common units of
the Limited Owner are principally traded, as determined by the Managing Owner.
Expenses shall have the meaning assigned thereto in Section 2.4.
Fiscal Quarter shall mean each period ending on the last day of each March, June, September
and December of each Fiscal Year, or, if the Fund is required by law to have Fiscal Year other than
a calendar year, such other applicable quarterly period.
Fiscal Year shall have the meaning assigned thereto in Article X.
Indemnified Parties shall have the meaning assigned thereto in Section 2.4.
Index means the Continuous Commodity Excess Return Index (CCI-ER) more fully described in
the Trusts registration statement on Form S-1, as it may be amended from time-to-time.
3
Index Commodities means the underlying Commodities which comprise the Index from
time-to-time.
Initial Offering Period means the period commencing with the initial effective date of the
Prospectus and terminating no later than the sixtieth (60th) day following such date unless
extended for up to an additional ninety (90) days at the sole discretion of the Managing Owner.
Internal Revenue Service or IRS means the Internal Revenue Service or any successor
thereto.
Limited Owner means GreenHaven Continuous Commodity Index Fund, a Delaware statutory trust.
Limited Shares means Shares that are owned by the Limited Owner.
Liquidating Trustee shall have the meaning assigned thereto in Section 13.2
Losses means, in respect of each Fiscal Year of the Master Fund, losses of the Master Fund
as determined for U.S. federal income tax purposes, and each item of income, gain, loss or
deduction entering into the computation thereof.
Managing Owner means GreenHaven Commodity Services, LLC, or any substitute therefor as
provided herein, or any successor thereto by merger or operation of law.
Management Fee means the management fee set forth in Section 4.9.
Margin Call means a demand for additional funds after the initial good faith deposit
required to maintain a customers account in compliance with the requirements of a particular
commodity exchange or of a Commodity Broker.
Master Fund means GreenHaven Continuous Commodity Index Master Fund, the Delaware statutory
trust formed pursuant to the Certificate of Trust, the business and affairs of which are governed
by this Trust Agreement.
Net Asset Value means the total assets of the Trust Estate of the Master Fund including, but
not limited to, all cash and cash equivalents or other securities less total liabilities of the
Master Fund, each determined on the basis of generally accepted accounting principles in the United
States (GAAP), consistently applied under the accrual method of accounting, including,
but not limited to, the extent specifically set forth below:
(a) Net Asset Value shall include any unrealized profit or loss on open Commodities
positions and any other credit or debit accruing to the Master Fund but unpaid or not received
by the Master Fund.
(b) All open commodity futures contracts and options traded on a United States exchange are
calculated at their then current market value, which shall be based upon the settlement price
for that particular commodity futures contract and options traded on the applicable United
States exchange on the date with respect to which Net Asset Value is being determined; provided,
that if a commodity futures contract or option traded on a United States exchange could not be
liquidated on such day, due to the operation of daily limits or other rules of the exchange upon
which that position is traded or otherwise, the settlement price on the most recent day on which
the position could be liquidated shall be the basis for determining the market value of such
position for such day. The current market value of all open commodity futures contracts and
options traded on a non-United States exchange shall be based upon the settlement price for that
particular commodity futures contract or option traded on the
4
applicable non-United States exchange on the date with respect to which Net Asset Value is
being determined; provided, that if a commodity futures contract or option traded on a
non-United States exchange could not be liquidated on such day, due to the operation of daily
limits (if applicable) or other rules of the exchange upon which that position is traded or
otherwise, the settlement price on the most recent day on which the position could be liquidated
shall be the basis for determining the market value of such position for such day. The current
market value of all open forward contracts entered into by the Master Fund shall be the mean
between the last bid and last asked prices quoted by the bank or financial institution which is
a party to the contract on the date with respect to which Net Asset Value is being determined;
provided, that if such quotations are not available on such date, the mean between the last bid
and asked prices on the first subsequent day on which such quotations are available shall be the
basis for determining the market value of such forward contract for such day. The Managing Owner
may in its discretion value any of the Trust Estate pursuant to such other principles as it may
deem fair and equitable so long as such principles are consistent with normal industry
standards.
(c) Interest earned on the Master Funds commodity brokerage account shall be accrued at
least monthly.
(d) The amount of any distribution made pursuant to Article VI hereof shall be a liability
of the Master Fund from the day when the distribution is declared until it is paid.
Net Asset Value Per Share means the Net Asset Value divided by the number of Shares
outstanding on the date of calculation.
Net Asset Value Per Basket means the product obtained by multiplying the Net Asset Value Per
Share by the number of Limited Shares comprising a Basket at such time.
NFA means the National Futures Association.
Order Cut-Off Time means 11:00 a.m. New York time, on a Business Day.
Organization and Offering Expenses shall have the meaning assigned thereto in Section
4.8(a)(iv).
Percentage Interest shall be a fraction, the numerator of which is the number of any
Shareholders Shares and the denominator of which is the total number of Shares outstanding as of
the date of determination.
Person means any natural person, partnership, limited liability company, statutory trust,
corporation, association, or other legal entity.
Pit Brokerage Fee shall include floor brokerage, clearing fees, NFA fees and Exchange fees.
Profits means, for each Fiscal Year of the Master Fund, profits of the Master Fund as
determined for U.S. federal income tax purposes, and each item of income, gain, loss or deduction
entering into the computation thereof.
Prospectus means the final prospectus and disclosure document of the Trust, constituting a
part of a Registration Statement, as filed with the SEC and declared effective thereby, as the same
may at any time and from time to time be amended or supplemented.
Purchase Order Subscription Agreement shall have the meaning assigned thereto in Section
3.2(a)(i).
5
Purchase Order Subscription Date shall have the meaning assigned thereto in Section
3.2(a)(i).
Pyramiding means the use of unrealized profits on existing Commodities positions to provide
margin for additional Commodities positions of the same or a related Commodity.
Reconstituted Master Fund shall have the meaning assigned to such term thereto in Section
13.1(a).
Redemption Basket means the minimum number of Limited Shares that may be redeemed pursuant
to Section 7.1, which shall be the number of Limited Shares constituting a Creation Basket on the
relevant Redemption Order Date.
Redemption Distribution means the cash delivered in satisfaction of a redemption of a
Redemption Basket in accordance with
Section 7.1(c).
Redemption Order shall have the meaning assigned thereto in Section 7.1(a).
Redemption Order Date shall have the meaning assigned thereto in Section 7.1(b).
Redemption Settlement Time shall have the meaning assigned thereto in Section 7.1(d).
Registration Statement means a registration statement on Form S-1, as it may be amended from
time to time, filed with the SEC, as the same may at any time and from time to time be further
amended or supplemented.
Shareholders generally means the Managing Owner and the Limited Owner, as holders of Shares,
where no distinction between them is required by the context in which the term is used. However, if
the Master Fund is notified in a manner satisfactory to the Managing Owner as to the identity of a
beneficial owner of applicable Shares, such beneficial owner will be treated as a Shareholder
owning a direct interest in the Master Fund for purposes of Article VI of this Agreement.
Shares means the common units of fractional undivided beneficial interest in the profits,
losses, distributions, capital and assets of, and ownership of, the Master Fund. The Managing
Owners Capital Contributions shall be represented by General Shares and the Limited Owners
Capital Contributions shall be represented by Limited Shares. Shares need not be represented by
certificates.
Suspended Redemption Order shall have the meaning assigned thereto in Section 7.1(d).
Trust Agreement means this Declaration of Trust and Trust Agreement, as it may at any time
or from time-to-time be amended.
Trustee means CSC Trust Company of Delaware or any substitute therefor as provided herein,
acting not in its individual capacity but solely as trustee of the Master Fund.
Trust Estate means any cash, commodity futures, forward and option contracts, all funds on
deposit in the Master Funds accounts, and any other property held by the Master Fund, and all
proceeds therefrom, including any rights of the Master Fund pursuant to any other agreements to
which the Master Fund is a party.
6
Unrealized Gain attributable to Master Fund property means, as of any date of determination,
the excess, if any, of the fair market value of such property as of such date over the propertys
adjusted basis for federal income tax purposes as of the date of determination.
Unrealized Loss attributable to Master Fund property means, as of any date of determination,
the excess, if any, of the propertys adjusted basis for federal income tax purposes as of the date
of determination over the fair market value of such property as of such date of determination.
1.2 Name.
(a) The name of the Master Fund is GreenHaven Continuous Commodity Index Master Fund in
which name the Trustee and the Managing Owner may engage in the business of the Master Fund, make
and execute contracts and other instruments in the name and on behalf of the Master Fund and sue
and be sued in the name and on behalf of the Master Fund.
1.3 Delaware Trustee; Business Offices.
(a) The sole Trustee of the Master Fund is CSC Trust Company of Delaware, which is located
at the Corporate Trust Office or at such other address in the State of Delaware as the Trustee
may designate in writing to the Shareholders. The Trustee shall receive service of process on
the Master Fund in the State of Delaware at the foregoing address. In the event CSC Trust
Company of Delaware resigns or is removed as the Trustee, the Trustee of the Master Fund in the
State of Delaware shall be the successor Trustee.
(b) The principal office of the Master Fund, and such additional offices as the Managing
Owner may establish, shall be located at such place or places inside or outside the State of
Delaware as the Managing Owner may designate from time to time in writing to the Trustee and
the Limited Owner. Initially, the principal office of the Master Fund shall be at 3340
Peachtree Road, Suite 1910, Atlanta, Georgia 30326.
1.4 Declaration of Trust. The Trustee hereby acknowledges that the Master Fund has
received the sum of $1,000 in a bank account in the name of the Master Fund controlled by the
Managing Owner from the Managing Owner as grantor of the Trust, and hereby declares that it shall
hold such sum in trust, upon and subject to the conditions set forth herein for the use and benefit
of the Shareholders. It is the intention of the parties hereto that the Master Fund shall be a
statutory trust under the Delaware Trust Statute and that this Trust Agreement shall constitute the
governing instrument of the Master Fund. It is not the intention of the parties hereto to create a
general partnership, limited partnership, limited liability company, joint stock association,
corporation, bailment or any form of legal relationship other than a Delaware statutory trust
except to the extent that the Master Fund is deemed to constitute a partnership under the Code and
applicable state and local tax laws. Nothing in this Trust Agreement shall be construed to make the
Shareholders partners or members of a joint stock association except to the extent such
Shareholders are deemed to be partners under the Code and applicable state and local tax laws.
Notwithstanding the foregoing, it is the intention of the parties thereto to create a partnership
among the Shareholders for purposes of taxation under the Code and applicable state and local tax
laws. Effective as of the date hereof, the Trustee and the Managing Owner shall have all of the
rights, powers and duties set forth herein and in the Delaware Trust Statute with respect to
accomplishing the purposes of the Master Fund. The Trustee has filed the certificate of trust
required by Section 3810 of the Delaware Trust Statute in connection with the formation of the
Master Fund under the Delaware Trust Statute.
1.5. Purpose of the Fund. The purpose of the Master Fund shall be: (a) directly or
indirectly to trade, buy, sell, spread or otherwise acquire, hold or dispose of Commodities,
including, but not limited to,
7
exchange-traded futures on the Index Commodities with a view to tracking the performance of
the Index over time; (b) to enter into forward contracts referencing the Index or one or more of
the Index Commodities with a view to tracking the performance of the Index over time; (c) to enter
into any lawful transaction and engage in any lawful activities in furtherance of or incidental to
the foregoing purposes; and (d) as determined from time to time by the Managing Owner, to engage in
any other lawful business or activity for which a statutory trust may be organized under the
Delaware Trust Statute. The Master Fund shall have all of the powers specified in Section 15.1
hereof, including, without limitation, all of the powers which may be exercised by a Managing Owner
on behalf of the Master Fund under this Trust Agreement.
1.6 Tax Treatment.
(a) Each of the parties hereto, by entering into this Trust Agreement directly, or
indirectly as a purchaser of units in GREENHAVEN CONTINUOUS COMMODITY INDEX MASTER FUND, (i)
expresses its intention that the Shares will qualify under applicable tax law as interests in a
partnership which holds the Trust Estate for their benefit, (ii) agrees that it will file its
own U.S. federal, state and local income, franchise and other tax returns in a manner that is
consistent with the treatment of the Master Fund as a partnership in which each of the
Shareholders thereof is a partner, either directly or indirectly, by virtue of holding units in
GREENHAVEN CONTINUOUS COMMODITY INDEX MASTER FUND, and (iii) agrees to use reasonable efforts
to notify the Managing Owner promptly upon a receipt of any notice from any taxing authority
having jurisdiction over such holders of Shares with respect to the treatment of the Shares as
anything other than interests in a partnership.
(b) The Tax Matters Partner (as defined in Section 6231 of the Code and any corresponding
state and local tax law) initially shall be the Managing Owner. The Tax Matters Partner, at the
expense of the Master Fund, shall prepare or cause to be prepared and filed tax returns as a
partnership for U.S. federal, state and local tax purposes and (ii) shall be authorized to
perform all duties imposed by Section 6221 et seq. of the Code, including, without limitation:
(i) the power to conduct all audits and other administrative proceedings with respect to tax
items; (ii) the power to extend the statute of limitations for all Shareholders with respect to
tax items; (iii) the power to file a petition with an appropriate U.S. federal court for review
of a final administrative adjustment; and (iv) the power to enter into a settlement with the
IRS on behalf of, and binding upon, the Limited Owner. The designation made by each Shareholder
in this Section 1.6(b), either directly or indirectly as a holder of units in GREENHAVEN
CONTINUOUS COMMODITY INDEX MASTER FUND, is hereby approved by each Shareholder as an express
condition to becoming a Shareholder. Each Shareholder agrees to take any further action as may
be required by regulation or otherwise to effectuate such designation. Subject to Section 4.7,
the Master Fund hereby indemnifies, to the full extent permitted by law, the Managing Owner
from and against any damages or losses (including attorneys fees) arising out of or incurred
in connection with any action taken or omitted to be taken by it in carrying out its
responsibilities as Tax Matters Partner, provided such action taken or omitted to be taken does
not constitute fraud, gross negligence or willful misconduct.
(c) Each Shareholder shall furnish the Managing Owner and the Trustee with information
necessary to enable the Managing Owner to comply with U.S. federal income tax information
reporting requirements in respect of such Shareholders Shares.
1.7 General Liability of the Managing Owner.
(a) The Managing Owner shall be liable for the acts, omissions, obligations and expenses
of the Master Fund, to the extent not paid out of the assets of the Master Fund, to the same
extent the Managing Owner would be so liable as if the Master Fund was a partnership under the
Delaware
8
Revised Uniform Limited Partnership Act and the Managing Owner were a general partner of
such partnership. The foregoing provision shall not, however, limit the ability of the Managing
Owner to limit its liability by contract. The obligations of the Managing Owner under this
Section 1.7 shall be evidenced by its ownership of the General Shares which, solely for
purposes of the Delaware Trust Statute, will be deemed to be a separate class of Shares.
Without limiting or affecting the liability of the Managing Owner as set forth in this Section
1.7, notwithstanding anything in this Trust Agreement to the contrary, Persons having any claim
against the Master Fund by reason of the transactions contemplated by this Trust Agreement and
any other agreement, instrument, obligation or other undertaking to which the Master Fund is a
party, shall look only to the Trust Estate for payment or satisfaction thereof.
(b) Subject to Sections 8.1 and 8.3 hereof, no Shareholder, other than the Managing Owner,
to the extent set forth above, shall have any personal liability for any liability or
obligation of the Master Fund thereof.
1.8 Legal Title. Legal title to the Trust Estate shall be vested in the Master Fund as
a separate legal entity; provided, however, that where applicable law in any jurisdiction requires
any part of the Trust Estate to be vested otherwise, the Managing Owner may cause legal title to
the Trust Estate or any portion thereof to be held by or in the name of the Managing Owner or any
other Person (other than a Shareholder) as nominee.
ARTICLE II
THE TRUSTEE
2.1 Term; Resignation.
(a) CSC Trust Company of Delaware has been appointed and hereby agrees to serve as the
Trustee of the Master Fund. The Master Fund shall have only one Trustee unless otherwise
determined by the Managing Owner. The Trustee shall serve until such time as the Managing Owner
removes the Trustee or the Trustee resigns and a successor Trustee is appointed by the Managing
Owner in accordance with the terms of Section 2.5 hereof.
The trustee is appointed to serve as the trustee of the Trust in the State of Delaware for
the purpose of satisfying the requirement of Section 3807(a) of the Delaware Statutory Trust
Act that the Trust have at least one trustee with a principal place of business in Delaware.
It is understood and agreed by the parties hereto that the Trustee shall have none of the
duties or liabilities of the Managing Owner. The duties of the Trustee shall be limited to (i)
accepting legal process served on the Trust in the State of Delaware, (ii) the execution of any
certificates required to be filed with the Secretary of State of the State of Delaware which
the Trustee is required to execute under Section 3811 of the Delaware Statutory Trust Act, and
(iii) any other duties specifically allocated to the Trustee in the Trust Agreement. To the
extent that, at law or in equity, the Trustee has duties (including fiduciary duties) and
liabilities relating thereto to the Trust or the Beneficial Owners, it is hereby understood and
agreed by the other parties hereto that such duties and liabilities are replaced by the duties
and liabilities of the Trustee expressly set forth in this Agreement.
(b) The Trustee may resign at any time upon the giving of at least sixty (60) days
advance written notice to the Master Fund; provided, that such resignation shall not become
effective unless and until a successor Trustee shall have been appointed by the Managing Owner
in accordance with Section 2.5 hereof. If the Managing Owner does not act within such sixty
(60) day period, then the
9
Trustee may apply, at the expense of the Trust, to the Court of Chancery of the State of
Delaware for the appointment of a successor Trustee.
2.2 Powers. Except to the extent expressly set forth in Section 1.3 and this Article
II, the duty and authority of the Trustee to manage the business and affairs of the Master Fund is
hereby delegated to the Managing Owner, which duty and authority the Managing Owner may further
delegate as provided herein, all pursuant to Section 3806(b)(7) of the Delaware Trust Statute. The
Trustee shall have only the rights, obligations and liabilities specifically provided for herein
and shall have no implied rights, duties, obligations and liabilities with respect to the business
and affairs of the Master Fund. The Trustee shall have the power and authority to execute and file
certificates as required by the Delaware Trust Statute and to accept service of process on the
Master Fund in the State of Delaware. The Trustee shall provide prompt notice to the Managing Owner
of its performance of any of the foregoing. The Managing Owner shall reasonably keep the Trustee
informed of any actions taken by the Managing Owner with respect to the Master Fund that would
reasonably be expected to affect the rights, obligations or liabilities of the Trustee hereunder or
under the Delaware Trust Statute.
2.3 Compensation and Expenses of the Trustee. The Trustee shall be entitled to receive
from the Managing Owner or an Affiliate of the Managing Owner (including the Master Fund)
reasonable compensation for the Trustees services hereunder as set forth in a separate fee
agreement and shall be entitled to be reimbursed by the Managing Owner or an Affiliate of the
Managing Owner (including the Master Fund) for reasonable out-of-pocket expenses incurred by it in
the performance of the Trustees duties hereunder, including without limitation, the reasonable
compensation, out-of-pocket expenses and disbursements of counsel and such other agents as the
Trustee may employ in connection with the exercise and performance of its rights and duties
hereunder.
2.4 Indemnification. The Managing Owner agrees (and any additional Managing Owner
admitted pursuant to Section 4.2(g) will be deemed to agree), whether or not any of the
transactions contemplated hereby shall be consummated, to assume liability for, and does hereby
indemnify, protect, save and keep harmless CSC Trust Company of Delaware (in its capacity as
Trustee and individually) and its successors, assigns, legal representatives, officers, directors,
managers, employees, agents and servants (the Indemnified Parties) from and against any
and all liabilities, obligations, losses, damages, penalties, taxes (excluding any taxes payable by
the Trustee on or measured by any compensation received by the Trustee for its services hereunder
or any indemnity payments received by the Trustee pursuant to this Section 2.4), claims, actions,
suits, costs, expenses or disbursements (including legal fees and expenses) of any kind and nature
whatsoever (collectively, Expenses), which may be imposed on, incurred by or asserted
against the Indemnified Parties in any way relating to or arising out of the formation, operation
or termination of the Master Fund, the execution, delivery and performance of any other agreements
to which the Master Fund is a party or the action or inaction of the Trustee hereunder or
thereunder, except for Expenses resulting from the gross negligence, willful misconduct or
recklessness of the Indemnified Parties. The indemnities contained in this Section 2.4 shall
survive the termination of this Trust Agreement or the removal or resignation of the Trustee.
2.5 Successor Trustee. Upon the resignation or removal of the Trustee, the Managing
Owner shall appoint a successor Trustee by delivering a written instrument to the outgoing Trustee.
Any successor Trustee must satisfy the requirements of Section 3807 of the Delaware Trust Statute.
Any resignation or removal of the Trustee and appointment of a successor Trustee shall not become
effective until a written acceptance of appointment is delivered by the successor Trustee to the
outgoing Trustee and the Managing Owner and any fees and expenses due to the outgoing Trustee are
paid. Following compliance with the preceding sentence, the successor Trustee shall become fully
vested with all of the rights, powers, duties and obligations of the outgoing Trustee under this
Trust Agreement, with like effect as if originally named
10
as Trustee, and the outgoing Trustee shall be discharged of its duties and obligations under
this Trust Agreement.
2.6 Liability of Trustee. Except as otherwise provided in this Article II, in
accepting the trust created hereby, CSC Trust Company of Delaware acts solely as Trustee hereunder
and not in its individual capacity, and all Persons having any claim against CSC Trust Company of
Delaware by reason of the transactions contemplated by this Trust Agreement and any other agreement
to which the Master Fund is a party shall look only to the Trust Estate for payment or satisfaction
thereof; provided, however, that in no event is the foregoing intended to affect or limit the
liability of the Managing Owner as set forth in Section 1.7 hereof. The Trustee shall not be liable
or accountable hereunder to the Trust or to any other Person or under any other agreement to which
the Master Fund is a party, except for the Trustees own gross negligence, willful misconduct or
recklessness. In particular, but not by way of limitation:
(a) The Trustee shall have no liability or responsibility for the validity or sufficiency
of this Trust Agreement or for the form, character, genuineness, sufficiency, value or validity
of the Trust Estate;
(b) The Trustee shall not be liable for any actions taken or omitted to be taken by it in
accordance with the instructions of the Managing Owner or the Liquidating Trustee;
(c) The Trustee shall not have any liability for the acts or omissions of the Managing
Owner or its delegatees;
(d) The Trustee shall not be liable for its failure to supervise the performance of any
obligations of the Managing Owner or its delegatees or any Commodity Broker;
(e) No provision of this Trust Agreement shall require the Trustee to act or expend or
risk its own funds or otherwise incur any financial liability in the performance of any of its
rights or powers hereunder if the Trustee shall have reasonable grounds for believing that such
action, repayment of such funds or adequate indemnity against such risk or liability is not
reasonably assured or provided to it;
(f) Under no circumstances shall the Trustee be liable for indebtedness evidenced by or
other obligations of the Master Fund arising under this Trust Agreement or any other agreements
to which the Master Fund is a party;
(g) The Trustee shall be under no obligation to exercise any of the rights or powers
vested in it by this Trust Agreement, or to institute, conduct or defend any litigation under
this Trust Agreement or any other agreements to which the Master Fund is a party, at the
request, order or direction of the Managing Owner unless the Managing Owner has offered to CSC
Trust Company of Delaware (in its capacity as Trustee and individually) security or indemnity
satisfactory to it against the costs, expenses and liabilities that may be incurred by CSC
Trust Company of Delaware (including, without limitation, the reasonable fees and expenses of
its counsel) therein or thereby;
(h) Notwithstanding anything contained herein to the contrary, the Trustee shall not be
required to take any action in any jurisdiction other than in the State of Delaware if the
taking of such action will require the consent or approval or authorization or order of or the
giving of notice to, or the registration with or taking of any action in respect of, any state
or other governmental authority or agency of any jurisdiction other than the State of Delaware,
(ii) result in any fee, tax or other governmental charge under the laws of any jurisdiction or
any political subdivision thereof in existence as of the date hereof other than the State of
Delaware becoming payable by the Trustee or
11
(iii) subject the Trustee to personal jurisdiction, other than in the State of Delaware,
for causes of action arising from personal acts unrelated to the consummation of the
transactions by the Trustee, as the case may be, contemplated hereby; and
(i) To the extent that, at law or in equity, the Trustee has duties (including fiduciary
duties) and liabilities relating thereto to the Master Fund, the Shareholders or to any other
Person, the Trustee acting under this Trust Agreement shall not be liable to the Master Fund,
the Shareholders or to any other Person for its good faith reliance on the provisions of this
Trust Agreement. The provisions of this Trust Agreement, to the extent that they restrict the
duties and liabilities of the Trustee otherwise existing at law or in equity are agreed by the
parties hereto to replace such other duties and liabilities of the Trustee.
2.7 Reliance; Advice of Counsel.
(a) In the absence of bad faith, the Trustee may conclusively rely upon certificates or
opinions furnished to the Trustee and conforming to the requirements of this Trust Agreement in
determining the truth of the statements and the correctness of the opinions contained therein,
and shall incur no liability to anyone in acting on any signature, instrument, notice,
resolutions, request, consent, order, certificate, report, opinion, bond or other document or
paper believed by it to be genuine and believed by it to be signed by the proper party or
parties and need not investigate any fact or matter pertaining to or in any such document;
provided, however, that the Trustee shall have examined any certificates or opinions so as to
reasonably determine compliance of the same with the requirements of this Trust Agreement. The
Trustee may accept a certified copy of a resolution of the board of directors or other
governing body of any corporate party as conclusive evidence that such resolution has been duly
adopted by such body and that the same is in full force and effect. As to any fact or matter
the method of the determination of which is not specifically prescribed herein, the Trustee may
for all purposes hereof rely on a certificate, signed by the president or any vice president or
by the treasurer or other authorized officers of the relevant party, as to such fact or matter,
and such certificate shall constitute full protection to the Trustee for any action taken or
omitted to be taken by it in good faith in reliance thereon.
(b) In the exercise or administration of the Master Fund hereunder and in the performance
of its duties and obligations under this Trust Agreement, the Trustee, at the expense of the
Managing Owner or an Affiliate of the Managing Owner (including the Master Fund) may act
directly or through its agents, attorneys, custodians or nominees pursuant to agreements
entered into with any of them, and the Trustee shall not be liable for the conduct or
misconduct of such agents, attorneys, custodians or nominees if such agents, attorneys,
custodians or nominees shall have been selected by the Trustee with reasonable care and (ii)
may consult with counsel, accountants and other skilled professionals to be selected with
reasonable care by it. The Trustee shall not be liable for anything done, suffered or omitted
in good faith by it in accordance with the opinion or advice of any such counsel, accountant or
other such Persons.
2.8 Payments to the Trustee. Any amounts paid to the Trustee pursuant to this Article
shall be deemed not to be a part of the Trust Estate immediately after such payment. Any amounts
owing to the Trustee under this Trust Agreement shall constitute a claim against the Trust Estate.
ARTICLE III
CREATIONS AND ISSUANCE OF CREATION BASKETS
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3.1 General. The Managing Owner shall have the power and authority, without Limited
Owner approval, to issue Shares from time to time as it deems necessary or desirable. The number of
Shares authorized shall be unlimited, and the Units so authorized may be represented in part by
fractional Shares, calculated to four decimal places. From time-to-time, the Managing Owner may
divide or combine the Shares into a greater or lesser number without thereby changing the
proportionate beneficial interests. The Managing Owner may issue Shares for such consideration and
on such terms as it may determine (or for no consideration if pursuant to a Share dividend or
split-up), all without action or approval of the Limited Owner. All Shares when so issued on the
terms determined by the Managing Owner shall be fully paid and non-assessable. The Shares initially
shall be divided into two classes: General Shares and Limited Shares. Every Shareholder, by virtue
of having purchased or otherwise an acquired Share, shall be deemed to have expressly consented and
agreed to be bound by the terms of this Trust Agreement.
3.2 Offer of Limited Shares; Procedures for Creation and Issuance of Creation Baskets.
(a) General. The following procedures, as supplemented by the more detailed
procedures agreed from time to time between the Managing Owner and the Limited Owner, will
govern the Trust with respect to the creation and issuance of Creation Baskets. Subject to the
limitations upon and requirements for issuance of Creation Baskets stated herein and in such
procedures, the number of Creation Baskets which may be issued by the Master Fund is unlimited.
(i) On any Business Day, the Limited Owner may submit to the Managing Owner a
purchase order and subscription agreement to subscribe for and agree to purchase one or
more Creation Baskets (such request by the Limited Owner, a Purchase Order
Subscription Agreement). Purchase Order Subscription Agreements must be received
by the Managing Owner from the Limited Owner no later than the Order Cut-Off Time on a
Business Day (the Purchase Order Subscription Date). The Managing Owner will
process Purchase Order Subscription Agreements only from the Limited Owner.
(ii) Any Purchase Order is subject to rejection by the Managing Owner pursuant to
Section 3.2(c).
(iii) After accepting a Purchase Order Subscription Agreement from the Limited Owner,
the Managing Owner will issue and deliver Creation Baskets to fill the Limited Owners
Purchase Order Subscription Agreement as of noon New York time on the Business Day
immediately following the Purchase Order Subscription Date, but only if by such time the
Managing Owner has received (A) for its own account, the Transaction Fee, and (B) for the
account of the Master Fund the Creation Basket Capital Contribution due from the Limited
Owner in respect of such Purchase Order Subscription Agreement.
(b) Issuance of Creation Basket. Upon issuing a Creation Basket pursuant to a
Purchase Order Subscription Agreement, the Managing Owner will issue the Creation Basket to
the Limited Owner.
(c) Rejection. The Managing Owner shall have the absolute right, but shall have
no obligation, to reject any Purchase Order Subscription Agreement or Creation Basket
Capital Contribution: (i) determined by the Managing Owner not to be in proper form; (ii)
that the Managing Owner has determined would have adverse tax consequences to the Master
Fund or to the Limited Owner; (iii) the acceptance or receipt of which would, in the opinion
of counsel to the Managing Owner, be unlawful; or (iv) if circumstances outside the control
of the Managing Owner make it for all practical purposes not feasible to process creations
of Creation Baskets. The Managing Owner
13
shall not be liable to any person by reason of the rejection of any Purchase Order
Subscription Agreement or Creation Basket Capital Contribution.
(d) Baskets may not be created during the Initial Offering Period.
3.3 Assets of the Master Fund. All consideration received by the Master Fund for the
issue or sale of Creation Baskets together with all of the Trust Estate in which such consideration
is invested or reinvested, all income, earnings, profits, and proceeds thereof, including any
proceeds derived from the sale, exchange or liquidation of such assets, and any funds or payments
derived from any reinvestment of such proceeds in whatever form the same may be, shall irrevocably
belong to the Master Fund for all purposes, subject only to the rights of creditors of the Master
Fund and except as may otherwise be required by applicable tax laws, and shall be so recorded upon
the books of account of the Master Fund.
3.4 Liabilities. The Trust Estate shall be charged with the liabilities of the Master
Fund, and all expenses, costs, charges and reserves attributable to the Master Fund. The Managing
Owner shall have full discretion, to the extent not inconsistent with applicable law, to determine
which items shall be treated as income and which items as capital, and each such determination and
allocation shall be conclusive and binding upon the Shareholders.
3.5 Distributions. Distributions on Shares may be paid with such frequency as the
Managing Owner may determine, which may be daily or otherwise, to the Shareholders from such of the
income and capital gains, accrued or realized, as the Managing Owner may determine, after providing
for actual and accrued liabilities of the Master Fund. All distributions on Shares shall be
distributed pro rata to the Shareholders in proportion to the total outstanding Shares held by such
Shareholders at the date and time of record established for the payment of such distribution.
3.6 Voting Rights. Notwithstanding any other provision hereof, on each matter
submitted to a vote of the Shareholders, each Shareholder shall be entitled to a proportionate vote
based upon the product of the Net Asset Value per Share multiplied by the number of Shares, or
fraction thereof, standing in its name on the books of the Master Fund.
3.7 Equality. Except as provided herein, all Shares shall represent an equal
proportionate beneficial interest in the assets of the Master Fund subject to the liabilities of
the Master Fund, and each Share shall be equal to each other Share. The Managing Owner may from
time to time divide or combine the Shares into a greater or lesser number of Shares without thereby
changing the proportionate beneficial interest in the assets of the Master Fund or in any way
affecting the rights of Shareholders.
ARTICLE IV
THE MANAGING OWNER
4.1 Management of the Master Fund. Pursuant to Section 3806(b)(7) of the Delaware
Trust Statute, the Master Fund shall be managed by the Managing Owner and the conduct of the Master
Funds business shall be controlled and conducted solely by the Managing Owner in accordance with
this Trust Agreement.
4.2 Authority of Managing Owner. In addition to and not in limitation of any rights
and powers conferred by law or other provisions of this Trust Agreement, and except as limited,
restricted or prohibited by the express provisions of this Trust Agreement or the Delaware Trust
Statute, the Managing Owner shall have and may exercise on behalf of the Master Fund all powers and
rights necessary, proper,
14
convenient or advisable to effectuate and carry out the purposes, business and objectives of
the Master Fund, which shall include, without limitation, the following:
(a) To enter into, execute, deliver and maintain, and to cause the Master Fund to perform
its obligations under, contracts, agreements and any or all other documents and instruments,
and to do and perform all such things as may be in furtherance of Master Fund purposes or
necessary or appropriate for the offer and sale of the Shares and the conduct of Master Fund
activities, including, but not limited to, contracts with third parties for commodity brokerage
services and/or administrative services, provided, however, that such services may be performed
by an Affiliate or Affiliates of the Managing Owner so long as the Managing Owner has made a
good faith determination that: (i) the Affiliate which it proposes to engage to perform such
services is qualified to do so (considering the prior experience of the Affiliate or the
individuals employed thereby); (ii) the terms and conditions of the agreement pursuant to which
such Affiliate is to perform services for the Master Fund are no less favorable to the Master
Fund than could be obtained from equally-qualified unaffiliated third parties; and (iii) the
maximum period covered by the agreement pursuant to which such affiliate is to perform services
for the Master Fund shall not exceed one year, and such agreement shall be terminable without
penalty upon sixty (60) days prior written notice by the Master Fund;
(b) To establish, maintain, deposit into, sign checks and/or otherwise draw upon accounts
on behalf of the Master Fund with appropriate banking and savings institutions, and execute
and/or accept any instrument or agreement incidental to the Master Funds business and in
furtherance of its purposes, any such instrument or agreement so executed or accepted by the
Managing Owner in the Managing Owners name shall be deemed executed and accepted on behalf of
the Master Fund by the Managing Owner;
(c) To deposit, withdraw, pay, retain and distribute the Trust Estate or any portion
thereof in any manner consistent with the provisions of this Trust Agreement;
(d) To supervise the preparation and filing of the Registration Statement and supplements
and amendments thereto, and the Prospectus;
(e) To pay or authorize the payment of distributions to the Shareholders and expenses of
the Master Fund;
(f) To make any elections on behalf of the Master Fund under the Code, or any other
applicable U.S. federal or state tax law as the Managing Owner shall determine to be in the
best interests of the Master Fund; and
(g) In the sole discretion of the Managing Owner, to admit an Affiliate or Affiliates of
the Managing Owner as additional Managing Owners. Notwithstanding the foregoing, the Managing
Owner may not admit Affiliate(s) of the Managing Owner as an additional Managing Owner if it
has received notice of its removal as a Managing Owner, pursuant to Section 8.2(d) hereof, or
if the concurrence of at least a majority in interest (over 50%) of the outstanding Shares (not
including Shares owned by the Managing Owner) is not obtained.
4.3 Obligations of the Managing Owner. In addition to the obligations expressly
provided by the Delaware Trust Statute or this Trust Agreement, the Managing Owner shall:
(a) Devote such of its time to the business and affairs of the Master Fund as it shall, in
its discretion exercised in good faith, determine to be necessary to conduct the business and
affairs of the Master Fund for the benefit of the Master Fund and the Limited Owner;
15
(b) Execute, file, record and/or publish all certificates, statements and other documents
and do any and all other things as may be appropriate for the formation, qualification and
operation of the Master Fund and for the conduct of its business in all appropriate
jurisdictions;
(c) Retain independent public accountants to audit the accounts of the Master Fund;
(d) Employ attorneys to represent the Master Fund;
(e) Select the Master Funds Trustee, Administrator, and Commodity Brokers;
(f) Use its best efforts to maintain the status of the Master Fund as a statutory
trust for state law purposes, and as a partnership for U.S. federal income tax purposes;
(g) Monitor the brokerage fees charged to the Master Fund, and the services rendered by
futures commission merchants to the Master Fund, to determine whether the fees paid by, and
the services rendered to the Master Fund for futures brokerage are at competitive rates and
are the best price and services available under the circumstances, and if necessary,
renegotiate the brokerage fee structure to obtain such rates and services for the Master
Fund. No material change related to brokerage fees shall be made except upon sixty (60)
Business Days prior notice to the Limited Owner, which notice shall include a description
of the Limited Owners voting rights as set forth in Section 8.2 hereof and a description of
the Limited Owners redemption rights as set forth in Section 7.1 hereof.
(h) Have fiduciary responsibility for the safekeeping and use of the Trust Estate,
whether or not in the Managing Owners immediate possession or control, and the Managing
Owner will not employ or permit others to employ such funds or assets (including any
interest earned thereon as provided for in the Prospectus) in any manner except for the
benefit of the Master Fund, including, among other things, the utilization of any portion of
the Trust Estate as compensating balances for the exclusive benefit of the Managing Owner.
The Managing Owner shall at all times act with integrity and good faith and exercise due
diligence in all activities relating to the conduct of the business of the Master Fund and
in resolving conflicts of interest.
(i) Refuse to recognize any attempted transfer or assignment of a Share that is not
made in accordance with the provisions of Article V; and
(j) Perform such other services as the Managing Owner believes that the Master Fund may
from time to time require.
4.4 General Prohibitions. The Master Fund shall not:
(a) Borrow money from or loan money to any Shareholder (including the Managing Owner) or
other Person, except that the foregoing is not intended to prohibit (i) the deposit on margin
with respect to the initiation and maintenance of Commodities positions or (ii) obtaining lines
of credit for the trading of forward contracts; provided, however, that the Master Fund is
prohibited from incurring any indebtedness on a non-recourse basis;
(b) Create, incur, assume or suffer to exist any lien, mortgage, pledge, conditional sales
or other title retention agreement, charge, security interest or encumbrance, except: (i) the
right and/or obligation of a Commodity Broker to close out sufficient Commodities positions of
the Master Fund so as to restore the Master Funds account to proper margin status in the event
that the Master Fund
16
fails to meet a Margin Call; (ii) liens for taxes not delinquent or being contested in
good faith and by appropriate proceedings and for which appropriate reserves have been
established; (iii) deposits or pledges to secure obligations under workmens compensation,
social security or similar laws or under unemployment insurance; (iv) deposits or pledges to
secure contracts (other than contracts for the payment of money), leases, statutory
obligations, surety and appeal bonds and other obligations of like nature arising in the
ordinary course of business; or (v) mechanics, warehousemens, carriers, workmens,
materialmens or other like liens arising in the ordinary course of business with respect to
obligations which are not due or which are being contested in good faith, and for which
appropriate reserves have been established if required by GAAP, and liens arising under ERISA;
(c) Commingle its assets with those of any other Person, except to the extent permitted
under the CE Act and the regulations promulgated thereunder;
(d) Engage in Pyramiding of its Commodities positions; provided, however, that the
Managing Owner may take into account open trade equity positions in determining generally
whether to require additional Commodities positions;
(e) Permit rebates to be received by the Managing Owner or any Affiliate of the Managing
Owner, or permit the Managing Owner or any Affiliate of the Managing Owner to engage in any
reciprocal business arrangements which would circumvent the foregoing prohibition;
(f) Permit the Managing Owner to share in any portion of brokerage fees related to
commodity brokerage services paid with respect to commodity trading activities;
(g) Enter into any contract with the Managing Owner or an Affiliate of the Managing Owner
(except for selling agreements for the sale of Shares) which has a term of more than one (1)
year and which does not provide that it may be canceled by the Master Fund without penalty on
sixty (60) days prior written notice or for the provision of goods and services, except at
rates and terms at least as favorable as those which may be obtained from third parties in
arms-length negotiations;
(h) Permit churning of its Commodity trading account(s) for the purpose of generating
excess brokerage commissions;
(i) Enter into any exclusive brokerage contract; and
(j) Cause the Master Fund to elect to be treated as an association taxable as a corporation
for U.S. federal income tax purposes.
4.5 Liability of Covered Persons. A Covered Person shall have no liability to the
Master Fund or to any Shareholder or other Covered Person for any loss suffered by the Master Fund
which arises out of any action or inaction of such Covered Person if such Covered Person, in good
faith, determined that such course of conduct was in the best interest of the Master Fund and such
course of conduct did not constitute gross negligence or willful misconduct of such Covered Person.
Subject to the foregoing, neither the Managing Owner nor any other Covered Person shall be
personally liable for the return or repayment of all or any portion of the capital or profits of
the Limited Owner or assignee thereof, it being expressly agreed that any such return of capital or
profits made pursuant to this Trust Agreement shall be made solely from the assets of the Master
Fund without any rights of contribution from the Managing Owner or any other Covered Person.
4.6 Fiduciary Duty.
17
(a) To the extent that, at law or in equity, the Managing Owner has duties (including
fiduciary duties) and liabilities relating thereto to the Master Fund, the Shareholders or to
any other Person, the Managing Owner acting under this Trust Agreement shall not be liable to
the Master Fund, the Shareholders or to any other Person for its good faith reliance on the
provisions of this Trust Agreement subject to the standard of care in Section 4.5 herein. The
provisions of this Trust Agreement, to the extent that they restrict the duties and liabilities
of the Managing Owner otherwise existing at law or in equity are agreed by the parties hereto
to replace such other duties and liabilities of the Managing Owner. Any material changes in the
Master Funds basic investment policies or structure shall occur only upon the written approval
or affirmative vote of Limited Shares equal to at least a majority (over 50%) of the Net Asset
Value of the Master Fund (excluding Shares held by the Managing Owner and its Affiliates) of
the Master Fund pursuant to Section 11.1(a) below.
(b) Unless otherwise expressly provided herein:
(i) whenever a conflict of interest exists or arises between the Managing Owner or
any of its Affiliates, on the one hand, and the Master Fund or any Shareholder or any
other Person, on the other hand; or
(ii) whenever this Trust Agreement or any other agreement contemplated herein or
therein provides that the Managing Owner shall act in a manner that is, or provides terms
that are, fair and reasonable to the Master Fund, any Shareholder or any other Person,
the Managing Owner shall resolve such conflict of interest, take such action or provide
such terms, considering in each case the relative interest of each party (including its own
interest) to such conflict, agreement, transaction or situation and the benefits and burdens
relating to such interests, any customary or accepted industry practices, and any applicable
generally accepted accounting practices or principles. In the absence of bad faith by the
Managing Owner, the resolution, action or terms so made, taken or provided by the Managing
Owner shall not constitute a breach of this Trust Agreement or any other agreement
contemplated herein or of any duty or obligation of the Managing Owner at law or in equity
or otherwise.
(c) The Managing Owner and any Affiliate of the Managing Owner may engage in or possess an
interest in other profit-seeking or business ventures of any nature or description,
independently or with others, whether or not such ventures are competitive with the Master Fund
and the doctrine of corporate opportunity, or any analogous doctrine, shall not apply to the
Managing Owner. If the Managing Owner acquires knowledge of a potential transaction, agreement,
arrangement or other matter that may be an opportunity for the Master Fund, it shall have no
duty to communicate or offer such opportunity to the Master Fund, and the Managing Owner shall
not be liable to the Master Fund or to the Shareholders for breach of any fiduciary or other
duty by reason of the fact that the Managing Owner pursues or acquires for, or directs such
opportunity to another Person or does not communicate such opportunity or information to the
Master Fund. Neither the Master Fund nor any Shareholder shall have any rights or obligations
by virtue of this Trust Agreement or the Master Fund relationship created hereby in or to such
independent ventures or the income or profits or losses derived therefrom, and the pursuit of
such ventures, even if competitive with the activities of the Master Fund, shall not be deemed
wrongful or improper. Except to the extent expressly provided herein, the Managing Owner may
engage or be interested in any financial or other transaction with the Master Fund, the
Shareholders or any Affiliate of the Master Fund or the Shareholders.
4.7 Indemnification of the Managing Owner.
18
(a) The Managing Owner shall be indemnified by the Master Fund against any losses,
judgments, liabilities, expenses and amounts paid in settlement of any claims sustained by it
in connection with its activities for the Master Fund, provided that (i) the Managing Owner was
acting on behalf of or performing services for the Master Fund and has determined, in good
faith, that such course of conduct was in the best interests of the Master Fund and such
liability or loss was not the result of gross negligence, willful misconduct, or a breach of
this Trust Agreement on the part of the Managing Owner and (ii) any such indemnification will
only be recoverable from the Trust Estate. All rights to indemnification permitted herein and
payment of associated expenses shall not be affected by the dissolution or other cessation to
exist of the Managing Owner, or the withdrawal, adjudication of bankruptcy or insolvency of the
Managing Owner, or the filing of a voluntary or involuntary petition in bankruptcy under Title
11 of the U.S. Code by or against the Managing Owner. The source of payments made in respect of
indemnification under this Trust Agreement shall be from assets of the Master Fund.
(b) Notwithstanding the provisions of Section 4.6(a) above, the Managing Owner and any
Person acting as broker-dealer for the Master Fund shall not be indemnified for any losses,
liabilities or expenses arising from or out of an alleged violation of U.S. federal or state
securities laws unless (i) there has been a successful adjudication on the merits of each count
involving alleged securities law violations as to the particular indemnitee and the court
approves the indemnification of such expenses (including, without limitation, litigation
costs), (ii) such claims have been dismissed with prejudice on the merits by a court of
competent jurisdiction as to the particular indemnitee and the court approves the
indemnification of such expenses (including, without limitation, litigation costs), or (iii) a
court of competent jurisdiction approves a settlement of the claims against a particular
indemnitee and finds that indemnification of the settlement and related costs should be made.
(c) The Master Fund shall not incur the cost of that portion of any insurance which
insures any party against any liability, the indemnification of which is herein prohibited.
(d) Expenses incurred in defending a threatened or pending civil, administrative or
criminal action, suit or proceeding against the Managing Owner shall be paid by the Master Fund
in advance of the final disposition of such action, suit or proceeding: if (i) the legal action
relates to the performance of duties or services by the Managing Owner on behalf of the Master
Fund; (ii) the legal action is initiated by a third party who is not the Limited Owner or the
legal action is initiated by the Limited Owner and a court of competent jurisdiction
specifically approves such advance; and (iii) the Managing Owner undertakes to repay the
advanced funds with interest to the Master Fund in cases in which it is not entitled to
indemnification under this Section 4.7.
(e) The term Managing Owner as used only in this Section 4.7 shall include, in addition
to the Managing Owner, any other Covered Person performing services on behalf of the Master
Fund and acting within the scope of the Managing Owners authority as set forth in this Trust
Agreement.
(f) In the event the Master Fund is made a party to any claim, dispute, demand or
litigation or otherwise incurs any loss, liability, damage, cost or expense as a result of or
in connection with the Limited Owners (or assignees) obligations or liabilities unrelated to
Master Fund business, the Limited Owner (or assignees cumulatively) shall indemnify, defend,
hold harmless, and reimburse the Master Fund for all such loss, liability, damage, cost and
expense incurred, including attorneys and accountants fees.
4.8 Expenses and Limitations Thereon. (a) Organizational and Operating
Expenses.
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(i) The Managing Owner or an Affiliate of the Managing Owner shall be responsible for the
payment of all Organization and Offering Expenses incurred in connection with the creation of
the Master Fund and sale of Shares during or prior to the Initial Offering Period; provided,
however, that the amount of such Organization and Offering Expenses paid by the Managing Owner
shall be subject to reimbursement by the Master Fund to the Managing Owner, without interest,
in up to 72 monthly payments during each of the first 72 months of the Continuous Offering
Period. In the event that the amount of the Organization and Offering Expenses incurred in
connection with the creation of the Master Fund and sale of Shares during the Initial Offering
Period and paid by the Managing Owner is not fully reimbursed by the end of the 72nd
month of the Continuous Offering Period, the Managing Owner shall not be entitled to receive,
and the Master Fund shall not be required to pay, any unreimbursed portion of such expenses
outstanding as of such date. In the event the Master Fund terminates prior to the completion of
any reimbursement contemplated by this Section 4.8(a)(i), the Managing Owner shall not be
entitled to receive, and the Master Fund shall not be required to pay, any unreimbursed portion
of such expenses outstanding as of the date of such termination.
(ii) The Managing Owner or an Affiliate of the Managing Owner also shall be
responsible for the payment of all Organization and Offering Expenses incurred after the
Initial Offering Period; provided, however, that the amount of such Organization and
Offering Expenses paid by the Managing Owner shall be subject to reimbursement by the
Master Fund to the Managing Owner, without interest, in up to 72 monthly payments during
each of the first 72 months following the month in which such expenses were paid by the
Managing Owner. In the event that the amount of the Organization and Offering Expenses
incurred in connection with the sale of Shares during the Continuous Offering Period and
paid by the Managing Owner is not fully reimbursed by the end of the 72nd month
following the month in which such expenses were paid by the Managing Owner, the Managing
Owner shall not be entitled to receive, and the Master Fund shall not be required to pay,
any unreimbursed portion of such expenses outstanding as of such date. In the event the
Master Fund terminates prior to the completion of any reimbursement contemplated by this
Section 4.8(a)(ii), the Managing Owner shall not be entitled to receive, and the Master
Fund shall not be required to pay, any unreimbursed portion of such expenses outstanding
as of the date of such termination.
(iii) In no event shall the Managing Owner be entitled to reimbursement under Section
4.8(a)(i) in an aggregate amount in excess of [___%] of the aggregate amount of all
subscriptions accepted during the Initial Offering Period and the first 72 months of the
Continuous Offering Period. In no event shall the aggregate amount of the reimbursement
payments from the Master Fund to the Managing Owner under Sections 4.8(a)(i) and (ii) in
any month exceed [___%] per annum of the Net Asset Value of the Master Fund.
Notwithstanding anything else contained herein, in the event the Managing Owner is removed
pursuant to Section 8.2(d)(ii) hereof, all Organization and Offering Expenses shall be
immediately repaid to the Managing Owner or arrangements for such payment shall be made to
the satisfaction of the Managing Owner in its sole discretion.
(iv) Organization and Offering Expenses shall mean those expenses incurred in
connection with the formation, qualification and registration of the Master Fund and the
Shares and in offering, distributing and processing the Shares under applicable U.S.
federal law, and any other expenses actually incurred and, directly or indirectly, related
to the organization of the Master Fund or the initial and continuous offering of the
Shares, including, but not limited to, expenses such as: (i) initial and ongoing
registration fees, filing fees, escrow fees and taxes; (ii) costs of preparing, printing
(including typesetting), amending, supplementing, mailing and distributing the
Registration Statement, the Exhibits thereto and the Prospectus during the Initial
Offering Period and the Continuous Offering Period; (iii) the costs of qualifying,
printing, (including
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typesetting), amending, supplementing, mailing and distributing sales materials used
in connection with the offering and issuance of the Shares during the Initial Offering
Period and the Continuous Offering Period; (iv) travel, telegraph, telephone and other
expenses in connection with the offering and issuance of the Shares during the Initial
Offering Period and the Continuous Offering Period; (v) accounting, licensing fees,
auditing and legal fees (including disbursements related thereto) incurred in connection
therewith; and (vi) any extraordinary expenses (including, but not limited to, legal
claims and liabilities and litigation costs and any permitted indemnification associated
therewith) related thereto.
(b) Routine Operational, Administrative and Other Ordinary and Extraordinary
Expenses. All ongoing charges, costs and expenses of the Master Funds operation,
including, but not limited to, the routine expenses associated with: (i) all brokerage
commissions, including applicable exchange fees, NFA fees, give-up fees, pit brokerage fees and
other transaction related fees and expenses charged in connection with trading activities; (ii)
preparation of monthly, quarterly, annual and other reports required by applicable U.S. federal
and state regulatory authorities; (iii) Master Fund meetings and preparing, printing and
mailing of proxy statements and reports to Shareholders; (iv) the payment of any distributions
related to redemption of Baskets; (v) routine services of the Trustee, legal counsel and
independent accountants; (vi) routine accounting and bookkeeping services, whether performed by
an outside service provider or by Affiliates of the Managing Owner; (vii) postage and
insurance; (viii) client relations and services; (ix) computer equipment and system
maintenance; (x) the Management Fee and licensing fees; (xi) required payments to any other
service providers of the Master Fund pursuant to any applicable contract; and (xii)
extraordinary expenses (including, but not limited to, legal claims and liabilities and
litigation costs and any indemnification related thereto) shall be billed to and/or paid by the
Master Fund.
(c) The Managing Owner or any Affiliate of the Managing Owner may only be reimbursed for
the actual cost to the Managing Owner or such Affiliate of any expenses which it advances on
behalf of the Master Fund for which payment the Master Fund is responsible. In addition,
payment to the Managing Owner or such Affiliate for indirect expenses incurred in performing
services for the Master Fund in its capacity as the managing owner of the Master Fund, such as
salaries and fringe benefits of officers and directors, rent or depreciation, utilities and
other administrative items generally falling within the category of the Managing Owners
overhead, is prohibited.
(d) The Master Fund hereby assumes all of the Limited Owners expenses and costs of each
and every type whatsoever, which shall be deemed to be and treated for all purposes of this
Trust Agreement as expenses and costs of the Master Fund.
4.9. Compensation of the Managing Owner. The Master Fund shall pay to the Managing
Owner, monthly in arrears, a management fee in an amount equal to 0.0625% (0.75% per annum) (the
Management Fee) of the Master Funds Net Asset Value as of the end of each month. The
Managing Owner shall, in its capacity as a Shareholder, be entitled to receive allocations and
distributions pursuant to the provisions of this Trust Agreement.
4.10 Other Business of Shareholders. Except as otherwise specifically provided herein,
any of the Shareholders and any shareholder, officer, director, employee or other person holding a
legal or beneficial interest in an entity which is a Shareholder, may engage in or possess an
interest in other business ventures of every nature and description, independently or with others,
and the pursuit of such ventures, even if competitive with the business of the Master Fund, shall
not be deemed wrongful or improper.
4.11 Voluntary Withdrawal of the Managing Owner. The Managing Owner may withdraw
voluntarily as the Managing Owner of the Master Fund only upon one hundred and twenty (120) days
prior written
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notice to the Limited Owner and the Trustee. If the withdrawing Managing Owner is the last
remaining Managing Owner, the Limited Owner may appoint, effective as of a date on or prior to the
withdrawal, a successor Managing Owner who shall carry on the business of the Master Fund. In the
event of its removal or withdrawal, the Managing Owner shall be entitled to a redemption of its
General Shares at the Net Asset Value thereof on the next Redemption Date following the date of
removal or withdrawal. If the Managing Owner withdraws and a successor Managing Owner is named, the
withdrawing Managing Owner shall pay all expenses as a result of its withdrawal.
4.12 Authorization of Registration Statement. The Limited Owner hereby agrees that the
Master Fund, the Managing Owner and the Trustee are authorized to execute, deliver and perform the
agreements, acts, transactions and matters contemplated hereby or described in or contemplated by
the Registration Statement and the Prospectus included therein on behalf of the Master Fund without
any further act, approval or vote of the Limited Owner, notwithstanding any other provision of this
Trust Agreement, the Delaware Trust Statute or any applicable law, rule or regulation.
4.13 Litigation. The Managing Owner is hereby authorized to prosecute, defend,
settle or compromise actions or claims at law or in equity as may be necessary or proper to enforce
or protect the Master Funds interests. The Managing Owner shall satisfy any judgment, decree or
decision of any court, board or authority having jurisdiction or any settlement of any suit or
claim prior to judgment or final decision thereon, first, out of any insurance proceeds available
therefor, next, out of the Master Funds assets and, thereafter, out of the assets (to the extent
that it is permitted to do so under the various other provisions of this Trust Agreement) of the
Managing Owner.
ARTICLE V
TRANSFERS OF SHARES
5.1 Transfer of Managing Owners General Shares.
(a) Upon an Event of Withdrawal (as defined in Section 13.1), the Managing Owners Shares
shall be purchased by the Master Fund for a purchase price in cash equal to the Net Asset Value
thereof. The Managing Owner will not cease to be a Managing Owner of the Master Fund merely
upon the occurrence of its making an assignment for the benefit of creditors, filing a
voluntary petition in bankruptcy, filing a petition or answer seeking for itself any
reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar
relief under any statute, law or regulation, filing an answer or other pleading admitting or
failing to contest material allegations of a petition filed against it in any proceeding of
this nature or seeking, consenting to or acquiescing in the appointment of a Trustee, receiver
or liquidator for itself or of all or any substantial part of its properties.
(b) To the full extent permitted by law, and on sixty (60) days prior written notice to
the Limited Owner of its right to vote thereon, if the transaction is other than with an
Affiliated entity, nothing in this Trust Agreement shall be deemed to prevent the merger of the
Managing Owner with another corporation or other entity, the reorganization of the Managing
Owner into or with any other corporation or other entity, the transfer of all the capital stock
of the Managing Owner or the assumption of the Shares, rights, duties and liabilities of the
Managing Owner by, in the case of a merger, reorganization or consolidation, the surviving
corporation or other entity by operation of law or the transfer of the Managing Owners Shares
to an Affiliate of the Managing Owner. Without limiting the foregoing, none of the transactions
referenced in the preceding sentence shall be deemed to
22
be a voluntary withdrawal for purposes of Section 4.11 or an Event of Withdrawal or
assignment of Shares for purposes of Sections 5.2(a) or 5.2(c).
(c) Upon assignment of all of its Shares, the Managing Owner shall not cease to be a
Managing Owner of the Master Fund, or to have the power to exercise any rights or powers as a
Managing Owner, or to have liability for the obligations of the Master Fund under Section 1.7
hereof, until an additional Managing Owner, who shall carry on the business of the Master Fund,
has been admitted to the Master Fund.
5.2 Transfer of Limited Shares.
(a) The Managing Owner reserves the right to permit or deny, in its sole discretion, any
written requests from the Limited Owner with respect to transferring Limited Shares. Permitted
assignees of the Limited Owner shall be admitted as a substitute Limited Owner pursuant to this
Article V only upon the Managing Owners prior written consent.
(i) A substituted Limited Owner is a permitted assignee that has been admitted as a
Limited Owner with all the rights and powers of a Limited Owner hereunder. If all of the
conditions provided in Section 5.2(b) below are satisfied, then the Managing Owner shall
admit permitted assignees into the Master Fund as a Limited Owner by making an entry on
the books and records of the Master Fund reflecting that such permitted assignees have
been admitted as a Limited Owner, and such permitted assignees will be deemed a Limited
Owner at such time as such admission is reflected on the books and records of the Master
Fund.
(ii) A permitted assignee is a Person to whom a Limited Owner has assigned its
Limited Shares with the consent of the Managing Owner, as provided below in Section 5.2(d)
but who has not become a substituted Limited Owner. A permitted assignee shall have no
right to vote, to obtain any information on or account of the Master Funds transactions
or to inspect the Master Funds books, but shall only be entitled to receive the share of
the profits, or the return of the Capital Contribution, to which its assignor would
otherwise be entitled as set forth in Section 5.2(d) below to the extent of the Limited
Shares assigned. The Limited Owner agrees that any permitted assignee may become a
substituted Limited Owner without the further act or consent of the Limited Owner,
regardless of whether its permitted assignee becomes a substituted Limited Owner.
(iii) A Limited Owner shall bear all extraordinary costs (including attorneys and
accountants fees), if any, related to any transfer, assignment, pledge or encumbrance of
its Limited Shares.
(b) No permitted assignee of the whole or any portion of a Limited Owners Limited Shares
shall have the right to become a substituted Limited Owner in place of its assignor unless all
of the following conditions are satisfied:
(i) The written consent of the Managing Owner to such substitution shall be obtained,
the granting or denial of which shall be within the sole and absolute discretion of the
Managing Owner, subject to the provisions of Section 5.2(d)(i).
(ii) A duly executed and acknowledged written instrument of assignment has been filed
with the Master Fund setting forth the intention of the assignor that the permitted
assignee become a substituted Limited Owner in its place;
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(iii) The assignor and permitted assignee execute and acknowledge and/or deliver such
other instruments as the Managing Owner may deem necessary or desirable to effect such
admission, including the execution, acknowledgment and delivery to the Managing Owner, as
a counterpart to this Trust Agreement, of a Power of Attorney in the form set forth in the
Subscription Agreement; and
(iv) Upon the request of the Managing Owner, an opinion of the Master Funds
independent legal counsel is obtained to the effect that (A) the assignment will not
jeopardize the Master Funds tax classification as a partnership and (B) the assignment
does not violate this Trust Agreement or the Delaware Trust Statute.
(c) Any Person admitted as a Shareholder shall be subject to all of the provisions of this
Trust Agreement as if an original signatory hereto.
(d) Subject to the provisions of Section 5.2(e) below and to the provisions of this
Section generally, a Limited Owner, subject to the Managing Owners consent, may have the right
to assign all or any of its Limited Shares to any assignee by a written assignment (on a form
acceptable to the Managing Owner) the terms of which are not in contravention of any of the
provisions of this Trust Agreement, which assignment has been executed by the assignor and
received by the Master Fund and recorded on the books thereof. An assignee of a Limited Share
(or any interest therein) will not be recognized as a permitted assignee without the consent of
the Managing Owner, which consent the Managing Owner may withhold in its sole discretion. The
Managing Owner shall incur no liability to any investor or prospective investor for any action
or inaction by the Managing Owner in connection with the foregoing, provided it acted in good
faith.
(i) Except as specifically provided in this Trust Agreement, a permitted assignee of
a Share shall be entitled to receive distributions attributable to the Share acquired by
reason of such assignment from and after the effective date of the assignment of such
Share to the assignee. The effective date of an assignment of a Limited Share shall be
determined by the Managing Owner in its sole discretion.
(ii) Anything herein to the contrary notwithstanding, the Master Fund and the
Managing Owner shall be entitled to treat the permitted assignor of such Share as the
absolute owner thereof in all respects, and shall incur no liability for distributions
made in good faith to the assignor, until such time as the written assignment has been
received by, and recorded on the books of, the Master Fund.
(iii) No assignment or transfer of a Share may be made which would result in the
Limited Owner and permitted assignees of the Limited Owner owning, directly or indirectly,
individually or in the aggregate, five percent (5%) or more of the stock of the Managing
Owner or any related person as defined in Sections 267(b) and 707(b)(1) of the Code. If
any such assignment or transfer would otherwise be made by bequest, inheritance of
operation of law, the Share transferred shall be deemed sold by the transferor to the
Master Fund immediately prior to such transfer.
(e) The Managing Owner, in its sole discretion, may cause the Master Fund to make, refrain
from making, or once having made, to revoke, the election referred to in Section 754 of the
Code, and any similar election provided by state or local law, or any similar provision enacted
in lieu thereof.
(f) The Managing Owner, in its sole discretion, may cause the Master Fund to make, refrain
from making, or once having made, to revoke the election by a qualified fund under Code Section
24
988(c)(1)(E)(iii)(V), and any similar election provided by state or local law, or any
similar provision enacted in lieu thereof.
(g) The Limited Owner hereby agrees to indemnify and hold harmless the Master Fund and
each Shareholder against any and all losses, damages, liabilities or expense (including,
without limitation, tax liabilities or loss of tax benefits) arising, directly or indirectly,
as a result of any transfer or purported transfer by the Limited Owner in violation of any
provision contained in this Section 5.2.
(h) A transferee of a Master Fund interest shall succeed to a pro rata portion of the
Capital Account of the transferor relating to the Master Fund interest so transferred;
provided, however, that if the transfer is found to cause a termination of the partnership
under Section 708(b)(1)(B) of the Code, the Master Funds properties shall be deemed to have
been distributed in liquidation of the Master Fund to the Shareholders (including any
transferee) pursuant to Article VIII (after adjusting the balance of the Capital Accounts of
Shareholders as provided in Section 6.1) and recontributed by such Shareholders in
reconstitution of the Master Fund. Any such deemed distribution shall be treated as an actual
distribution for purposes of this Agreement.
ARTICLE VI
DISTRIBUTIONS AND ALLOCATIONS
6.1 Capital Accounts. The Master Fund shall maintain for each Shareholder (which
includes beneficial owners of Master Fund interests where information regarding the identity of
such owner has been furnished to the Master Fund in accordance with Section 6031(c) or the Code or
any other method acceptable to the Managing Owner in its sole discretion) owning a Master Fund
interest a separate Capital Account with respect to such Master Fund interest in accordance with
the rules of Treasury Regulation Section 1.704-1(b)(2)(iv). The initial balance of each
Shareholders book capital account shall be the amount of its initial Capital Contribution. Such
Capital Account shall be (i) increased by the amount of all Capital Contributions made with respect
to the Master Fund interest and all items of Master Fund income and gain computed and allocated to
the Master Fund Shares in accordance with this Agreement and (ii) decreased by the amount of cash
distributions made with respect to such Master Fund interest and all items of Master Fund deduction
and loss computed and allocated in accordance with this Agreement.
(a) Consistent with the provisions of Treasury Regulation Section 1.704-1(b)(2)(iv)(f),
upon an issuance of additional Shares for cash, the Capital Accounts of all Shareholders shall,
immediately prior to such issuances, be adjusted (consistent with the provisions hereof)
upwards or downwards to reflect any Unrealized Gain or Unrealized Loss attributable to each
Master Fund property, as if such Unrealized Gain or Loss had been recognized upon an actual
sale of each such property, immediately prior to such issuance, and had been allocated to the
Shareholders at such time pursuant to Section 6.3.
(b) In accordance with Treasury Regulation Section 1.704-1(b)(2)(iv)(f), immediately prior
to the distribution of cash in redemption of all or a portion of a Shareholders Shares, the
Capital Accounts of all Shareholders shall, immediately prior to any such distribution, be
adjusted (consistent with the provisions hereof) upward or downward to reflect any Unrealized
Gain or Unrealized Loss attributable to each Master Fund property, as if such Unrealized Gain
or Unrealized Loss had been recognized upon an actual sale of each property, immediately prior
to such distribution, and had been allocated to the Shareholders at such time pursuant to
Section 6.3.
25
6.2 Monthly Closing of Books. Within 45 days after the end of each calendar month or
such shorter period as required for the final closing of the books for the taxable year, the Master
Fund shall conduct an interim closing of the books as of the end of the last day of that calendar
month. On the basis of the closing of the books for each calendar month, the Master Fund shall
determine the amount of Profit and Loss attributable to that calendar month. Profits and Losses
shall be determined in accordance with the accounting methods followed by the Master Fund for
federal income tax purposes.
6.3 Monthly Allocations. All allocations to Shareholders of items included within the
Master Funds Profits and Losses attributable to each calendar month shall be allocated solely
among the Shareholders recognized as shareholders as of the close of the last trading day of the
preceding month, as follows:
(a) For purposes of maintaining the Capital Accounts and in determining the rights of the
Shareholders among themselves, except as otherwise provided in this Article VI, each item of
income, gain, loss and deduction shall be allocated among Shareholders in accordance with their
respective Percentage Interests.
(b) Any item of loss or deduction otherwise allocated to the Managing Owner pursuant to
Section 6.3(a) which is in excess of such Managing Owners positive Adjusted Capital Account
balance (following adjustment to reflect the allocation of all other items for such period)
shall instead be allocated to the other Shareholders in accordance with their respective
Percentage Interests to the extent such item of loss or deduction exceeds such Managing Owners
Adjusted Capital Account balance; provided that the allocation of any such item to such other
Shareholders shall only be made hereunder to the extent the allocation would not result in or
increase a negative balance in the Adjusted Capital Account of such other Shareholder. If such
an allocation occurs, items of income or gain that would otherwise be allocated to the Managing
Owner equal to the amount of such allocated loss or deduction will be allocated to the other
Shareholders in accordance with their Percentage Interests as quickly as possible.
(c) If any Shareholder unexpectedly receives any adjustments, allocations or distributions
described in Treasury Regulation Sections 1.704-1(b)(ii)(d)(4), (5) or (6), items of Master
Fund income and gain shall be specially allocated to such Shareholder in an amount and manner
sufficient to eliminate a deficit in its Adjusted Capital Account created by such adjustments,
allocations or distributions as quickly as possible. This Section 6.3(c) is intended to
constitute a qualified income offset within the meaning of Treasury Regulation Section
1.704-1(b)(2)(ii)(d).
(d) Notwithstanding any other provision of this Agreement, upon or prior to the issuance
of additional Shares, the Managing Owner shall have the sole and complete discretion, without
the approval of any other Shareholder, to amend any provision of this Article VI in any manner
as is necessary, appropriate or advisable to comply with any current or future provisions of
the Code or the Treasury Regulations or to implement the terms and conditions of any Shares.
6.4 Code Section 754 Adjustments. To the extent an adjustment to the tax basis of any
Master Fund asset pursuant to Section 743(b) or 743(c) of the Code is required, pursuant to
Treasury Regulation Section 1.704-1(b)(2)(iv)(m), to be taken into account in determining Capital
Accounts, the amount of such adjustment to the Capital Accounts shall be treated as an item of gain
(if the adjustment increases the basis of the asset) or loss (if the adjustment decreases such
basis) and such item of gain or loss shall be specially allocated to the Shareholders in a manner
consistent with the manner in which their Capital Accounts are required to be adjusted pursuant to
such regulation. For purposes of computing the adjustments under Section 743(b) of the Code, the
Master Fund is authorized (but not required) to adopt a convention whereby the price paid by a
transferee of Shares will be deemed to be the lowest quoted closing price of the
26
Shares on the Exchange during the calendar month in which such transfer is deemed to occur
pursuant to Section 5.2 without regard to the actual price paid by the transferee.
6.5 Allocation of Profit and Loss for U.S. Federal Income Tax Purposes.
(a) Except as otherwise provided, each item of income, gain, loss, deduction and credit of
the Master Fund shall be allocated among the Shareholders in accordance with their respective
Percentage Interests.
(b) In an attempt to eliminate Book-Tax Disparities attributable to Adjusted Property,
items of income, gain, and loss will be allocated for federal income tax purposes among the
Shareholders as follows:
(i) Items attributable to an Adjusted Property will be allocated among the
Shareholders in a manner consistent with the principles of Section 704(c) of the Code to
take into account the Unrealized Gain or Loss attributable to the Adjusted Property and
the allocations thereof pursuant to Section 6.3(a) and (b).
(ii) Any items of income, gain, loss or deduction otherwise allocable under this
Section 6.5 shall be subject to allocation by the Managing Owner in a manner designed to
eliminate, to the maximum extent possible, Book-Tax Disparities in an Adjusted Property
otherwise resulting from the application of the ceiling limitation under Section 704(c)
principles to the allocations provided under this Section.
(iii) Subject to this Section 6.5(b), any items of income, gain, loss or deduction
otherwise allocable to the Managing Owner pursuant to Section 6.3(a) that constitutes the
tax corollary of an item of book income, gain, loss or deduction that has been allocated
to the other Shareholders pursuant to Section 6.3(b) shall be allocated to the other
Shareholders in the same manner and to the same extent provided in this Section 6.5(b).
(iv) If any Shareholder unexpectedly receives any adjustments, allocations or
distributions described in Treasury Regulation Section 1.704-1(b)(2)(ii)(d), items of
income and gain shall be specially allocated to such Shareholder in an amount and manner
consistent with the allocations of income and gain pursuant to Section 6.3(c).
(c) The tax allocations prescribed by this Section 6.5 shall be made to each holder of a
Share whether or not the holder is a substituted Limited Owner. For purposes of this Section
6.5, tax allocations shall be made to the Managing Owners Shares on a Share-equivalent basis.
(d) The allocation of income and loss (and items thereof) for U.S. federal income tax
purposes set forth in this Section 6.5 is intended to allocate taxable income and loss among
Shareholders generally in the ratio and to the extent that net profit and net loss shall be
allocated to such Shareholders under Section 6.3 so as to eliminate, to the extent possible,
any disparity between a Shareholders book capital account and its tax capital account,
consistent with the principles set forth in Sections 704(b) and (c)(2) of the Code.
(e) Notwithstanding this Section 6.5, if after taking into account any distributions to be
made with respect to such Share for the relevant period pursuant to Section 6.7 herein, any
allocation would produce a deficit in the book capital account of a Share, the portion of such
allocation that would create such a deficit shall instead be allocated pro rata to the book
capital accounts of all the remaining Shareholders (subject to the same limitation).
27
6.6 Effect of Section 754 Election. All items of income, gain, loss, deduction and
credit recognized by the Master Fund for federal income tax purposes and allocated to Shareholders
in accordance with the provisions of this Agreement shall be determined without regard to any
election under section 754 of the Code which may be made by the Master Fund; provided, however,
that such allocations, once made, shall be adjusted as necessary or appropriate to take into
account those adjustments permitted or required by Sections 734 or 743 of the Code.
6.7 Allocation of Distributions. Initially, distributions shall be made by the
Managing Owner, and the Managing Owner shall have sole discretion in determining the amount and
frequency of distributions, other than redemptions, with respect to the Shares; provided, however,
that no distribution shall be made that violates the Delaware Trust Statute. The aggregate
distributions made in a Fiscal Year (other than distributions on termination, which shall be
allocated in the manner described in Article XIII) shall be allocated among the holders of record
of Shares in the ratio in which the number of Shares held of record by each of them bears to the
number of Shares held of record by all of the Shareholders as of the record date of such
distribution; provided, further, however, that any distribution made in respect of a Share shall
not exceed the book capital account for such Share.
6.8 Admissions of Shareholders; Transfers. For purposes of this Article VI, items of
the Master Funds income, gain, loss, deduction and credit attributable to a transferred Share
shall, for federal income tax purposes, be determined on an annual basis and prorated on a monthly
basis (or other basis, as required or permitted by Section 706 of the Code) and shall be allocated
to the Shareholders who own the Shares as of the close of the Exchange on the last day of the month
in which the transfer is recognized by the Master Fund; provided that, gain or loss on the sale or
other disposition of all or a substantial portion of the assets of the Master Fund shall be
allocated to the Shareholders who own Shares as of the close of the Exchange on the last day of the
month in which such gain or loss is recognized for federal income tax purposes. The Managing Owner
may revise, alter or otherwise modify such methods of determination and allocation as it determine
necessary, to the extent permitted by Section 706 of the Code and the regulations or rulings
promulgated thereunder.
6.9 Liability for State and Local and Other Taxes. In the event that the Master Fund
shall be separately subject to taxation by any state or local or by any foreign taxing authority,
the Master Fund shall be obligated to pay such taxes to such jurisdiction. In the event that the
Master Fund shall be required to make payments to any U.S. federal, state or local or any foreign
taxing authority in respect of any Shareholders allocable share of income, the amount of such
taxes shall be considered a loan by the Master Fund to such Shareholder, and such Shareholder shall
be liable for, and shall pay to the Master Fund, any taxes so required to be withheld and paid over
by the Master Fund within ten (10) days after the Managing Owners request therefor. Such
Shareholder shall also be liable for (and the Managing Owner shall be entitled to redeem additional
Shares of the foreign Shareholder as necessary to satisfy) interest on the amount of taxes paid
over by the Master Fund to the IRS or other taxing authority, from the date of the Managing Owners
request for payment to the date of payment or the redemption, as the case may be, at the rate of
two percent (2%) over the prime rate charged from time to time by Citibank, N.A. The amount, if
any, payable by the Master Fund to the Shareholder in respect of its Shares so redeemed, or in
respect of any other actual distribution by the Master Fund to such Shareholder, shall be reduced
by any obligations owed to the Master Fund by the Shareholder, including, without limitation, the
amount of any taxes required to be paid over by the Master Fund to the IRS or other taxing
authority and interest thereon as aforesaid. Amounts, if any, deducted by the Master Fund from any
actual distribution or redemption payment to such Shareholder shall be treated as an actual
distribution to such Shareholder for all purposes of this Trust Agreement.
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6.10 Consent to Methods. The methods set forth in this Article VI by which
Distributions are made and items of Profit and Loss are allocated are hereby expressly consented to
by each Shareholder as an express condition to becoming a Shareholder.
ARTICLE VII
REDEMPTIONS
7.1 Redemption of Redemption Baskets. The following procedures, as supplemented by the
more detailed procedures agreed from time-to-time between the Managing Owner and the Limited Owner,
will govern the Trust with respect to the redemption of Redemption Baskets.
(a) On any Business Day, a Shareholder may redeem one or more Redemption Baskets by
delivering a request for redemption to the Managing Owner (such request a Redemption
Order) in accordance with such procedures as the Managing Owner shall from
time-to-time determine.
(b) To be effective, a Redemption Order must be submitted on a Business Day by the Order
Cut-Off Time in form satisfactory to the Managing Owner (the Business Day on which the
Redemption Order is so submitted, the Redemption Order Date). The Managing Owner
shall reject any Redemption Order the fulfillment of which its counsel advises may be illegal
under applicable laws and regulations, and the Managing Owner shall have no liability to any
person for rejecting a Redemption Order in such circumstances.
(c) Subject to deduction of any tax or other governmental charges due thereon, if any, the
redemption distribution (Redemption Distribution) shall consist of cash in an amount
equal to the product obtained by multiplying (i) the number of Redemption Baskets set forth in
the relevant Redemption Order by (ii) the Net Asset Value Per Basket as of the closing time of
the Exchange or the last to close of the exchanges on which any of the Index Commodities is
traded, whichever is later, on the Redemption Order Date.
(d) By noon New York time on the Business Day immediately following the Redemption Order
Date (the Redemption Settlement Time), if the Managing Owners account at the
Depository has by noon, New York time, on such day been credited with the Redemption Baskets
being tendered for redemption and the Managing Owner has by such time received the Transaction
Fee, the Managing Owner shall deliver the Redemption Distribution by means of such procedures
as the Managing Owner shall determine from time-to-time. If by such Redemption Settlement Time,
the Managing Owner has not received from a redeeming Shareholder all Redemption Baskets
comprising the Redemption Order, the Managing Owner will (i) settle the Redemption Order to the
extent of whole Redemption Baskets received from the Shareholder and (ii) keep the
Shareholders Redemption Order open until noon, New York time, on the first Business Day
following the Redemption Settlement Date as to the balance of the Redemption Order (such
balance, the Suspended Redemption Order). If the Redemption Basket(s) comprising the
Suspended Redemption Order are credited to Managing Owners account by noon, New York time, on
such following Business Day, the Redemption Distribution with respect to the Suspended
Redemption Order shall be paid in the manner provided in the second preceding sentence. If by
such Redemption Settlement Time, the Managing Owner has not received from the redeeming
Shareholder all Redemption Baskets comprising the Suspended Redemption Order, the Managing
Owner will settle the Suspended Redemption Order to the extent of whole Redemption Baskets then
received and any balance of the Suspended Redemption will be cancelled. Notwithstanding the
foregoing, when and under such conditions as the Managing Owner may from time to time
determine, the Managing Owner shall be authorized to deliver the Redemption
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Distribution notwithstanding that a Redemption Basket has not been credited to the Trusts
account if the Shareholder has collateralized its obligation to deliver the Redemption Basket
on such terms as the Managing Owner may, in its sole discretion, from time to time agree.
(e) The Managing Owner may, in its discretion, suspend the right of redemption, or
postpone the Redemption Settlement Date: (i) for any period during which the Exchange is closed
other than customary weekend and holiday closings, or trading is suspended or restricted; (ii)
for any period during which an emergency exists as a result of which delivery, disposal or
evaluation of the Master Funds assets is not reasonably practicable, or (iii) for such other
period as the Managing Owner determines to be necessary for the protection of the Limited
Owner. The Managing Owner will not be liable to any person or in any way for any loss or
damages that may result from any such suspension or postponement.
(f) Redemption Baskets effectively redeemed pursuant to the provisions of this Section 7.1
shall be cancelled.
(g) Baskets may not be redeemed during the Initial Offering Period.
7.2 Other Redemption Procedures. The Managing Owner from time to time may, but shall
have no obligation to, establish procedures with respect to redemption of Limited Shares in lot
sizes smaller than the Redemption Basket and permitting the Redemption Distribution to be in a
form, and delivered in a manner, other than that specified in Section 7.1.
ARTICLE VIII
THE LIMITED OWNER
8.1 No Management or Control; Limited Liability. The Limited Owner shall not
participate in the management or control of the Master Funds business nor shall it transact any
business for the Master Fund or have the power to sign for or bind the Master Fund, said power
being vested solely and exclusively in the Managing Owner. Except as provided in Section 8.3
hereof, the Limited Owner shall not be bound by, or be personally liable for, the expenses,
liabilities or obligations of the Master Fund in excess of its Capital Contribution plus its share
of any Trust Estate in which the Limited Owner owns a share and profits remaining, if any. Except
as provided in Section 8.3 hereof, each Limited Share owned by the Limited Owner shall be fully
paid and no assessment shall be made against the Limited Owner. No salary shall be paid to the
Limited Owner in its capacity as the Limited Owner, nor shall the Limited Owner have a drawing
account or earn interest on its contribution.
8.2 Rights and Duties. The Limited Owner shall have the following rights, powers,
privileges, duties and liabilities:
(a) The Limited Owner shall have the right to obtain from the Managing Owner information
of all things affecting the Master Fund, provided that such is for a purpose reasonably related
to the Limited Owners interest as a beneficial owner of the Master Fund, including, without
limitation, such reports as are set forth in Article IX. The foregoing rights are in addition
to, and do not limit, other remedies available to the Limited Owner under U.S. federal or state
law.
(b) The Limited Owner shall receive the share of the distributions provided for in this
Trust Agreement in the manner and at the times provided for in this Trust Agreement.
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(c) Except for the Limited Owners redemption rights set forth in Article VII hereof, the
Limited Owner shall have the right to demand the return of its Capital Account only upon the
dissolution and winding up of the Master Fund and only to the extent of funds available
therefor. In no event shall the Limited Owner be entitled to demand or receive property other
than cash. The Limited Owner shall not have any right to bring an action for partition against
the Master Fund.
(d) The Limited Owner may (i) continue the Master Fund as provided in Section 13.1(a),
(ii) remove the Managing Owner on reasonable prior written notice to the Managing Owner, (iii)
elect and appoint one or more additional Managing Owners, or consent to such matters, (iv)
approve a material change in investment policies, as set forth in the Prospectus, (v) approve
the termination of any agreement entered into between the Master Fund and the Managing Owner or
any Affiliate of the Managing Owner for any reason, without penalty, (vi) approve amendments to
this Trust Agreement as set forth in Section 11.1 hereof, and (vii) terminate the Trust as
provided in Section 13.1(e), and in the case of (iii), (iv) and (v), in each instance on sixty
(60) days prior written notice.
Except as set forth above, the Limited Owner shall have no voting or other rights with respect
to the Master Fund.
8.3 Limitation on Liability.
(a) Except as provided in Sections 4.7(f), 5.2(g) and 6.9 hereof, and as otherwise
provided under Delaware law, the Limited Owner shall be entitled to the same limitation of
personal liability extended to stockholders of private corporations for profit organized under
the general corporation law of Delaware and no Limited Owner shall be liable for claims
against, or debts of the Master Fund in excess of his Capital Contribution and its share of the
applicable Trust Estate and undistributed profits, except in the event that the liability is
founded upon misstatements or omissions contained in such Limited Owners participant agreement
delivered in connection with its purchase of Shares. In addition, and subject to the
exceptions set forth in the immediately preceding sentence, the Master Fund shall not make a
claim against a Limited Owner with respect to amounts distributed to such Limited Owner or
amounts received by such Limited Owner upon redemption unless, under Delaware law, such Limited
Owner is liable to repay such amount.
(b) The Master Fund shall indemnify to the full extent permitted by law and the other
provisions of this Trust Agreement, and to the extent of the applicable Trust Estate, each
Limited Owner (excluding the Managing Owner to the extent of its ownership of any Limited
Shares) against any claims of liability asserted against such Limited Owner solely because it
is a beneficial owner of Shares as a Limited Owner (other than for taxes for which such Limited
Owner is liable under Section 6.9 hereof).
(c) Every written note, bond, contract, instrument, certificate or undertaking made or
issued by the Managing Owner shall give notice to the effect that the same was executed or made
by or on behalf of the Master Fund and that the obligations of such instrument are not binding
upon the Limited Owner individually but are binding only upon the assets and property of the
Master Fund, and no resort shall be had to the Limited Owners personal property for
satisfaction of any obligation or claim thereunder, and appropriate references may be made to
this Trust Agreement and may contain any further recital which the Managing Owner deems
appropriate, but the omission thereof shall not operate to bind the Limited Owner individually
or otherwise invalidate any such note, bond, contract, instrument, certificate or undertaking.
Nothing contained in this Section 8.3 shall diminish the limitation on the liability of the
Master Fund to the extent set forth in Section 3.3 and 3.4 hereof.
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ARTICLE IX
BOOKS OF ACCOUNT AND REPORTS
9.1 Books of Account. Proper books of account for the Master Fund shall be kept and
shall be audited annually by an independent certified public accounting firm selected by the
Managing Owner in its sole discretion, and there shall be entered therein all transactions, matters
and things relating to the Master Funds business as are required by the CE Act and regulations
promulgated thereunder, and all other applicable rules and regulations, and as are usually entered
into books of account kept by Persons engaged in a business of like character. The books of account
shall be kept at the principal office of the Master Fund and each Limited Owner (or any duly
constituted designee of a Limited Owner) shall have, at all times during normal business hours,
access to and the right to inspect and copy the same for any purpose reasonably related to the
Limited Owners interest as a beneficial owner of the Master Fund, including such access as is
required under CFTC rules and regulations. Such books of account shall be kept, and the Master Fund
shall report its Profits and Losses on, the accrual method of accounting for financial accounting
purposes on a Fiscal Year basis as described in Article X.
9.2 Annual Reports and Monthly Statements. Each Limited Owner shall be furnished as of
the end of each month and as of the end of each Fiscal Year with (a) such reports (in such detail)
as are required to be given to the Limited Owner by the CFTC and the NFA, (b) any other reports (in
such detail) required to be given to the Limited Owner by any other governmental authority which
has jurisdiction over the activities of the Master Fund and (c) any other reports or information
which the Managing Owner, in its discretion, determines to be necessary or appropriate.
9.3 Tax Information. Appropriate tax information (adequate to enable the Limited Owner
to complete and file its U.S. federal tax return) shall be delivered to the Limited Owner as soon
as practicable following the end of each Fiscal Year but generally no later than March 30.
9.4 Calculation of Net Asset Value. Net Asset Value shall be calculated at such times
as the Managing Owner shall determine from time-to-time.
9.5 Maintenance of Records. The Managing Owner shall maintain: (a) for a period of at
least six (6) Fiscal Years all books of account required by Section 9.1 hereof; a list of the names
and last known address of, and number of Shares owned by, all Shareholders, a copy of the
Certificate of Trust and all certificates of amendment thereto, together with executed copies of
any powers of attorney pursuant to which any certificate has been executed; and copies of the
Master Funds U.S. federal, state and local income tax returns and reports, if any; and (b) for a
period of at least six (6) Fiscal Years copies of any effective written Trust Agreements,
participant agreements and any financial statements of the Master Fund. The Managing Owner may keep
and maintain the books and records of the Master Fund in paper, magnetic, electronic or other
format at the Managing Owner may determine in its sole discretion, provided the Managing Owner uses
reasonable care to prevent the loss or destruction of such records.
9.6 Certificate of Trust. Except as otherwise provided in the Delaware Trust Statute
or this Trust Agreement, the Managing Owner shall not be required to mail a copy of any Certificate
of Trust filed with the Secretary of State of the State of Delaware to the Limited Owner; however,
such certificates shall be maintained at the principal office of the Master Fund and shall be
available for inspection and copying by the Limited Owner in accordance with this Trust Agreement.
The Certificate of Trust shall not be amended in any respect if the effect of such amendment is to
diminish the limitation on interseries liability under Section 3804 of the Delaware Trust Statute.
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9.7 Registration of Shares. The Managing Owner shall keep, at the Master Funds
principal place of business, a Share register in which, subject to such reasonable regulations as
it may provide, it shall provide for the registration of Shares and of transfers of Shares. Subject
to the provisions of Article V, the Managing Owner may treat the Person in whose name any Share
shall be registered in the Share register as the Shareholder of such Share for the purpose of
receiving distributions pursuant to Article VI and for all other purposes whatsoever.
ARTICLE X
FISCAL YEAR
10.1 Fiscal Year. The Master Fund initially will adopt the calendar year as its
taxable year (Fiscal Year). The first Fiscal Year of the Master Fund shall commence on
the date of filing of the Certificate of Trust. If, after commencement of operations, applicable
tax rules require the Master Fund to adopt a taxable year other than the calendar year, then Fiscal
Year shall mean such other taxable year as required by Code Section 706 or an alternative taxable
year chosen by the Managing Owner which has been approved by the Internal Revenue Service. The
Fiscal Year in which the Master Fund shall terminate shall end on the date of termination.
ARTICLE XI
AMENDMENT OF TRUST AGREEMENT; MEETINGS
11.1 Amendments to the Trust Agreement.
(a) Amendments to this Trust Agreement may be proposed by the Managing Owner or by any
Limited Owner holding Shares equal to at least ten percent (10%) of the Net Asset Value of the
Master Fund. Following such proposal, the Managing Owner shall submit to the Limited Owners a
verbatim statement of any proposed amendment, and statements concerning the legality of such
amendment and the effect of such amendment on the limited liability of the Limited Owners. The
Managing Owner shall include in any such submission its recommendations as to the proposed
amendment. The amendment shall become effective only upon the written approval or affirmative
vote of the Limited Owners and upon receipt of an opinion of independent legal counsel to the
effect that the amendment is legal, valid and binding and will not adversely affect the
limitations on liability of the Limited Owner as described in Section 8.3 of this Trust
Agreement. Notwithstanding the foregoing, where any action taken or authorized pursuant to any
provision of this Trust Agreement requires the approval or affirmative vote of the Limited
Owners, and/or the approval or affirmative vote of the Managing Owners, an amendment to such
provision(s) shall be effective only upon the written approval or affirmative vote of the
Shareholders required to take or authorize such action, or as may otherwise be required by
applicable law, and upon receipt of an opinion of independent legal counsel as set forth above
in this Section 11.1. In addition, except as otherwise provided below, reduction of the Capital
Account of any assignee or modification of the percentage of Profits, Losses or distributions
to which an assignee is entitled hereunder shall not be affected by amendment to this Trust
Agreement without such assignees approval.
(b) Notwithstanding any provision to the contrary contained in Section 11.1(a) hereof, the
Managing Owner may, without the approval of the Limited Owner, make such amendments to this
Trust Agreement which: (i) are necessary to add to the representations, duties or obligations
of the
33
Managing Owner or surrender any right or power granted to the Managing Owner herein, for
the benefit of the Limited Owner; (ii) are necessary to cure any ambiguity, to correct or
supplement any provision herein which may be inconsistent with any other provision herein or in
the Prospectus, or to make any other provisions with respect to matters or questions arising
under this Trust Agreement or the Prospectus which will not be inconsistent with the provisions
of the Trust Agreement or the Prospectus; or (iii) the Managing Owner deems advisable,
provided, however, that no amendment shall be adopted pursuant to this clause (iii) unless the
adoption thereof: (A) is not adverse to the interests of the Limited Owner; (B) is consistent
with Section 4.1 hereof; (C) except as otherwise provided in Section 11.1(c) below, does not
affect the allocation of Profits and Losses among the Limited Owner or between the Limited
Owner and the Managing Owner; and (D) does not adversely affect the limitations on liability of
the Limited Owner, as described in Article VIII hereof or the status of the Master Fund as a
partnership for U.S. federal income tax purposes. Furthermore, (i) amendments to this Trust
Agreement which adversely affect the rights of Limited Owner, (ii) the appointment of a new
Managing Owner pursuant to Section 4.2(g) above, (iii) the dissolution of the Master Fund
pursuant to Section 13.1(f) below and (iv) any material changes in the Master Funds basic
investment policies or structure, shall occur in each case only upon the written approval or
affirmative vote of the Limited Owner holding Shares equal to at least a majority (over 50%) of
the Net Asset Value of the Master Fund (excluding Shares held by the Managing Owner and its
Affiliates) pursuant to Section 11.1(a) above.
(c) Notwithstanding any provision to the contrary contained in Sections 11.1(a) and (b)
hereof, the Managing Owner may, without the approval of the Limited Owner, amend the provisions
of Article VI of this Trust Agreement relating to the allocations of Profits, Losses,
Unrealized Gain, Unrealized Loss and distributions among the Shareholders if the Master Fund is
advised at any time by the Master Funds accountants or legal counsel that the allocations
provided in Article VI of this Trust Agreement are unlikely to be respected for U.S. federal
income tax purposes, either because of the promulgation of new or revised Treasury Regulations
under Section 704 of the Code or other developments in the law. The Managing Owner is empowered
to amend such provisions to the minimum extent necessary in accordance with the advice of the
accountants and counsel to effect the allocations and distributions provided in this Trust
Agreement. New allocations made by the Managing Owner in reliance upon the advice of the
accountants or counsel described above shall be deemed to be made pursuant to the obligation of
the Managing Owner to the Master Fund and the Limited Owner, and no such new allocation shall
give rise to any claim or cause of action by the Limited Owner.
(d) Upon amendment of this Trust Agreement, the Certificate of Trust shall also be
amended, if required by the Delaware Trust Statute, to reflect such change.
(e) No amendment shall be made to this Trust Agreement without the consent of the Trustee
if it reasonably believes that such amendment adversely affects any of the rights, duties or
liabilities of the Trustee; provided, however, that the Trustee may not withhold its consent
for any action which the Limited Owner is permitted to take under Section 8.2(d) above. At the
expense of the Managing Owner, the Trustee shall execute and file any amendment to the
Certificate of Trust if so directed by the Managing Owner or if such amendment is required in
the opinion of the Trustee.
(f) The Trustee shall be under no obligation to execute any amendment to the Trust
Agreement or to any agreement to which the Master Fund is a party until the Trustee has
received an instruction letter from the Managing Owner, in form and substance reasonably
satisfactory to the Trustee (i) directing the Trustee to execute such amendment, (ii)
representing and warranting to the Trustee that such execution is authorized and permitted by
the terms of the Trust Agreement and (if applicable) such other agreement to which the Master
Fund is a party and does not conflict with or
34
violate any other agreement to which the Master Fund is a party and (iii) confirming that
such execution and acts related thereto are covered by the indemnity provisions of the Trust
Agreement in favor of the Trustee.
(g) No provision of this Trust Agreement may be amended, waived or otherwise modified
orally but only by a written instrument adopted in accordance with this Section.
11.2 Meetings of the Master Fund. Meetings of the Shareholders of the Master Fund may
be called by the Managing Owner and will be called by it upon the written request of the Limited
Owner. Such call for a meeting shall be deemed to have been made upon the receipt by the Managing
Owner of a written request from the requisite percentage of Limited Owners. The Managing Owner
shall deposit in the United States mails, within fifteen (15) days after receipt of said request,
written notice to all Shareholders of the Master Fund of the meeting and the purpose of the
meeting, which shall be held on a date, not less than thirty (30) nor more than sixty (60) days
after the date of mailing of said notice, at a reasonable time and place. Any notice of meeting
shall be accompanied by a description of the action to be taken at the meeting and an opinion of
independent counsel as to the effect of such proposed action on the liability of Limited Owner for
the debts of the Master Fund. Shareholders may vote in person or by proxy at any such meeting.
11.3 Action without a Meeting. Any action required or permitted to be taken by
Shareholders by vote may be taken without a meeting by written consent setting forth the actions so
taken. Such written consents shall be treated for all purposes as votes at a meeting. If the vote
or consent of any Shareholder to any action of the Master Fund or any Shareholder, as contemplated
by this Trust Agreement, is solicited by the Managing Owner, then the solicitation shall be
effected by notice to each Shareholder given in the manner provided in Section 15.4. The vote or
consent of each Shareholder so solicited shall be deemed conclusively to have been cast or granted
as requested in the notice of solicitation, whether or not the notice of solicitation is actually
received by that Shareholder, unless the Shareholder expresses written objection to the vote or
consent by notice given in the manner provided in Section 15.4 below and actually received by the
Master Fund within twenty (20) days after the notice of solicitation is effected. The Managing
Owner and all persons dealing with the Master Fund shall be entitled to act in reliance on any vote
or consent which is deemed cast or granted pursuant to this Section and shall be fully indemnified
by the Master Fund in so doing. Any action taken or omitted in reliance on any such deemed vote or
consent of one or more Shareholders shall not be void or voidable by reason of timely communication
made by or on behalf of all or any of such Shareholders in any manner other than as expressly
provided in Section 15.4.
ARTICLE XII
TERM
12.1 Term. The term for which the Master Fund is to exist shall commence on the date
of the filing of the Certificate of Trust and shall terminate pursuant to the provisions of Article
XIII hereof or as otherwise provided by law.
ARTICLE XIII
TERMINATION
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13.1 Events Requiring Dissolution of the Master Fund. The Master Fund shall dissolve
at any time upon the happening of any of the following events:
(a) The filing of a certificate of dissolution or revocation of the Managing Owners
charter (and the expiration of 90 days after the date of notice to the Managing Owner of
revocation without a reinstatement of its charter) or upon the withdrawal, removal,
adjudication or admission of bankruptcy or insolvency of the Managing Owner (each of the
foregoing events an Event of Withdrawal), unless (i) at the time there is at least
one remaining Managing Owner and that remaining Managing Owner carries on the business of the
Master Fund or (ii) within 90 days of such Event of Withdrawal all the remaining Shareholders
agree in writing to continue the business of the Master Fund and to select, effective as of the
date of such event, one or more successor Managing Owners. If the Master Fund is terminated as
the result of an Event of Withdrawal and a failure of all remaining Shareholders to continue
the business of the Master Fund and to appoint a successor Managing Owner as provided in clause
(a)(ii) above, within 120 days of such Event of Withdrawal, the Limited Owner may elect to
continue the business of the Master Fund by forming a new statutory trust (the
Reconstituted Master Fund) on the same terms and provisions as set forth in this
Trust Agreement (whereupon the parties hereto shall execute and deliver any documents or
instruments as may be necessary to reform the Master Fund). Any such election must also provide
for the election of a Managing Owner to the Reconstituted Master Fund. If such an election is
made, the Limited Owner of the Master Fund shall be bound thereby and continue as the Limited
Owner of the Reconstituted Master Fund.
(b) The occurrence of any event which would make unlawful the continued existence of the
Master Fund.
(c) In the event of the suspension, revocation or termination of the Managing Owners
registration as a commodity pool operator or commodity trading advisor under the CE Act, or
membership as a commodity pool operator or commodity trading advisor with the NFA, unless at
the time there is at least one remaining Managing Owner whose registration or membership has
not been suspended, revoked or terminated.
(d) The Master Fund becomes insolvent or bankrupt.
(e) The Limited Owner determines to dissolve the Master Fund, notice of which is sent to
the Managing Owner not less than ninety (90) Business Days prior to the effective date of
termination.
(f) The determination of the Managing Owner that the aggregate net assets of the Master
Fund in relation to the operating expenses of the Master Fund make it unreasonable or imprudent
to continue the business of the Master Fund, or, in the exercise of its reasonable discretion,
the determination by the Managing Owner to dissolve the Master Fund because the aggregate Net
Asset Value of the Master Fund as of the close of business on any Business Day declines below
$5 million.
(g) The Master Fund is required to be registered as an investment company under the
Investment Company Act of 1940, as amended.
13.2 Distributions on Dissolution. Upon the dissolution of the Master Fund, the
Managing Owner (or in the event there is no Managing Owner, such person (the Liquidating
Trustee) as the Limited Owner may propose and approve) shall take full charge of the Trust
Estate. Any Liquidating Trustee so appointed shall have and may exercise, without further
authorization or approval of any of the parties hereto, all of the powers conferred upon the
Managing Owner under the terms of this Trust Agreement, subject to all of
36
the applicable limitations, contractual and otherwise, upon the exercise of such powers, and
provided that the Liquidating Trustee shall not have general liability for the acts, omissions,
obligations and expenses of the Master Fund. Thereafter, in accordance with Section 3808(e) of the
Delaware Trust Statute, the business and affairs of the Master Fund shall be wound up and all
assets shall be liquidated as promptly as is consistent with obtaining the fair value thereof, and
the proceeds therefrom shall be applied and distributed in the following order of priority: (a) to
the expenses of liquidation and termination and to creditors, including Shareholders who are
creditors, to the extent otherwise permitted by law, in satisfaction of liabilities of the Master
Fund (whether by payment or the making of reasonable provision for payment thereof) other than
liabilities for distributions to Shareholders; and (b) to the Managing Owner and the Limited Owner
pro rata in accordance with each of its positive book Capital Account balance, less any amount
owing by such Shareholder to the Master Fund, after giving effect to all adjustments made pursuant
to Article VI and all distributions theretofore made to the Shareholders pursuant to Article VI.
After the distribution of all remaining assets of the Master Fund, the Managing Owner will
contribute to the Master Fund an amount equal to the lesser of (i) the deficit balance, if any, in
its book Capital Account, and (ii) the total Capital Contributions of the Limited Owner. Any
Capital Contributions made by the Managing Owner pursuant to this Section shall be applied first to
satisfy any amounts then owed by the Master Fund to its creditors, and the balance, if any, shall
be distributed to those Shareholders whose book Capital Account balances (immediately following the
distribution of any liquidation proceeds) were positive, in proportion to their respective positive
book Capital Account balances.
13.3 Termination; Certificate of Cancellation. Following the dissolution and
distribution of the assets of the Master Fund, the Master Fund shall terminate and the Managing
Owner or the Liquidating Trustee, as the case may be, shall instruct the Trustee to execute and
cause such certificate of cancellation of the Certificate of Trust to be filed in accordance with
the Delaware Trust Statute. Notwithstanding anything to the contrary contained in this Trust
Agreement, the existence of the Master Fund as a separate legal entity shall continue until the
filing of such certificate of cancellation.
ARTICLE XIV
POWER OF ATTORNEY
14.1 Power of Attorney Executed Concurrently. Concurrently with the written acceptance
and adoption of the provisions of this Trust Agreement, the Limited Owner shall execute and deliver
to the Managing Owner a Power of Attorney as part of the participant agreement, or in such other
form as may be prescribed by the Managing Owner. The Limited Owner, by its execution and delivery
hereof, irrevocably constitutes and appoints the Managing Owner and its officers and directors,
with full power of substitution, as the true and lawful attorney-in-fact and agent for the Limited
Owner with full power and authority to act in its name and on its behalf in the execution,
acknowledgment, filing and publishing of Master Fund documents, including, but not limited to, the
following:
(a) Any certificates and other instruments, including but not limited to, any applications
for authority to do business and amendments thereto, which the Managing Owner deems appropriate
to qualify or continue the Master Fund as a business Master Fund in the jurisdictions in which
the Master Fund may conduct business, so long as such qualifications and continuations are in
accordance with the terms of this Trust Agreement or any amendment hereto, or which may be
required to be filed by the Master Fund or the Shareholders under the laws of any jurisdiction;
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(b) Any instrument which may be required to be filed by the Master Fund under the laws of
any state or by any governmental agency, or which the Managing Owner deems advisable to file;
and
(c) This Trust Agreement and any documents which may be required to effect an amendment to
this Trust Agreement approved under the terms of the Trust Agreement, and the continuation of
the Master Fund, the admission of the signer of the Power of Attorney as a Limited Owner or of
others as additional or substituted Limited Owners, or the termination of the Master Fund,
provided such continuation, admission or termination is in accordance with the terms of this
Trust Agreement.
14.2 Effect of Power of Attorney. The Power of Attorney concurrently granted by the
Limited Owner to the Managing Owner:
(a) Is a special, irrevocable Power of Attorney coupled with an interest, and shall
survive and not be affected by the dissolution, liquidation or termination of the Limited
Owner;
(b) May be exercised by the Managing Owner for the Limited Owner by a facsimile signature
of one of its officers or by a single signature of one of its officers acting as
attorney-in-fact for all of them; and
(c) Shall survive the delivery of an assignment by the Limited Owner of the whole or any
portion of its Limited Shares; except that where the assignee thereof has been approved by the
Managing Owner for admission to the Master Fund as a substituted Limited Owner, the Power of
Attorney of the assignor shall survive the delivery of such assignment for the sole purpose of
enabling the Managing Owner to execute, acknowledge and file any instrument necessary to effect
such substitution.
The Limited Owner agrees to be bound by any representations made by the Managing Owner and by
any successor thereto, determined to be acting in good faith pursuant to such Power of Attorney and
not constituting negligence or misconduct.
14.3 Limitation on Power of Attorney. The Power of Attorney concurrently granted by
the Limited Owner to the Managing Owner shall not authorize the Managing Owner to act on behalf of
the Limited Owner in any situation in which this Trust Agreement requires the approval of the
Limited Owner unless such approval has been obtained as required by this Trust Agreement. In the
event of any conflict between this Trust Agreement and any instruments filed by the Managing Owner
or any new Managing Owner pursuant to this Power of Attorney, this Trust Agreement shall control.
ARTICLE XV
MISCELLANEOUS
15.1 Governing Law. The validity and construction of this Trust Agreement and all
amendments hereto shall be governed by the laws of the State of Delaware, and the rights of all
parties hereto and the effect of every provision hereof shall be subject to and construed according
to the laws of the State of Delaware without regard to the conflict of laws provisions thereof;
provided, however, that causes of action for violations of U.S. federal or state securities laws
shall not be governed by this Section, and provided, further, that the parties hereto intend that
the provisions hereof shall control over any contrary or limiting statutory or common law of the
State of Delaware (other than the Delaware Trust Statute) and that, to the maximum extent permitted
by applicable law, there shall not be applicable to the Master Fund, the Trustee, the Managing
Owner, the Shareholders or this Trust Agreement any provision of the laws
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(statutory or common) of the State of Delaware (other than the Delaware Trust Statute)
pertaining to Master Funds which relate to or regulate in a manner inconsistent with the terms
hereof: (a) the filing with any court or governmental body or agency of Trustee accounts or
schedules of Trustee fees and charges; (b) affirmative requirements to post bonds for Trustees,
officers, agents, or employees of a Master Fund; (c) the necessity for obtaining court or other
governmental approval concerning the acquisition, holding or disposition of real or personal
property; (d) fees or other sums payable to Trustees, officers, agents or employees of a Master
Fund; (e) the allocation of receipts and expenditures to income or principal; (f) restrictions or
limitations on the permissible nature, amount or concentration of Master Fund investments or
requirements relating to the titling, storage or other manner of holding of Master Fund assets; or
(g) the establishment of fiduciary or other standards or responsibilities or limitations on the
acts or powers of Trustees or managers that are inconsistent with the limitations on liability or
authorities and powers of the Trustee or the Managing Owner set forth or referenced in this Trust
Agreement. Section 3540 of Title 12 of the Delaware Code shall not apply to the Master Fund. The
Master Fund shall be of the type commonly called a statutory trust, and without limiting the
provisions hereof, the Master Fund may exercise all powers that are ordinarily exercised by such a
Master Fund under Delaware law. The Master Fund specifically reserves the right to exercise any of
the powers or privileges afforded to statutory trusts and the absence of a specific reference
herein to any such power, privilege or action shall not imply that the Master Fund may not exercise
such power or privilege or take such actions.
15.2 Provisions In Conflict With Law or Regulations.
(a) The provisions of this Trust Agreement are severable, and if the Managing Owner shall
determine, with the advice of counsel, that any one or more of such provisions (the
Conflicting Provisions) are in conflict with the Code, the Delaware Trust Statute or
other applicable U.S. federal or state laws, the Conflicting Provisions shall be deemed never
to have constituted a part of this Trust Agreement, even without any amendment of this Trust
Agreement pursuant to this Trust Agreement; provided, however, that such determination by the
Managing Owner shall not affect or impair any of the remaining provisions of this Trust
Agreement or render invalid or improper any action taken or omitted prior to such
determination. No Managing Owner or Trustee shall be liable for making or failing to make such
a determination.
(b) If any provision of this Trust Agreement shall be held invalid or unenforceable in any
jurisdiction, such holding shall not in any manner affect or render invalid or unenforceable
such provision in any other jurisdiction or any other provision of this Trust Agreement in any
jurisdiction.
15.3 Construction. In this Trust Agreement, unless the context otherwise requires,
words used in the singular or in the plural include both the plural and singular and words denoting
any gender include all genders. The title and headings of different parts are inserted for
convenience and shall not affect the meaning, construction or effect of this Trust Agreement.
15.4 Notices. All notices or communications under this Trust Agreement (other than
requests for redemption of Shares, notices of assignment, transfer, pledge or encumbrance of
Shares, and reports and notices by the Managing Owner to the Limited Owner) shall be in writing and
shall be effective upon personal delivery, or if sent by mail, postage prepaid, or if sent
electronically, by facsimile or by overnight courier; and addressed, in each such case, to the
address set forth in the books and records of the Master Fund or such other address as may be
specified in writing, of the party to whom such notice is to be given, upon the deposit of such
notice in the United States mail, upon transmission and electronic confirmation thereof or upon
deposit with a representative of an overnight courier, as the case may be. Requests for redemption,
notices of assignment, transfer, pledge or encumbrance of Shares shall be effective upon timely
receipt by the Managing Owner in writing.
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15.5 Counterparts. This Trust Agreement may be executed in several counterparts, and
all so executed shall constitute one agreement, binding on all of the parties hereto,
notwithstanding that all the parties are not signatory to the original or the same counterpart.
15.6 Binding Nature of Trust Agreement. The terms and provisions of this Trust
Agreement shall be binding upon and inure to the benefit of the heirs, custodians, executors,
estates, administrators, personal representatives, successors and permitted assigns of the
respective Shareholders. For purposes of determining the rights of any Shareholder or assignee
hereunder, the Master Fund and the Managing Owner may rely upon the Master Fund records as to who
are Shareholders and permitted assignees, and all Shareholders and assignees agree that the Master
Fund and the Managing Owner, in determining such rights, shall rely on such records and that
Limited Owner and assignees shall be bound by such determination.
15.7 No Legal Title to Trust Estate. Subject to the provisions of Section 1.8 in the
case of the Managing Owner, the Shareholders shall not have legal title to any part of the Trust
Estate.
15.8 Creditors. No creditors of any Shareholders shall have any right to obtain
possession of, or otherwise exercise legal or equitable remedies with respect to, the Master Fund
Estate.
15.9 Integration. This Trust Agreement constitutes the entire agreement among the
parties hereto pertaining to the subject matter hereof and supersedes all prior agreements and
understandings pertaining thereto.
15.10 Goodwill; Use of Name. No value shall be placed on the name or goodwill of the
Trust, which shall belong exclusively to GreenHaven Commodity Services, LLC.
IN WITNESS WHEREOF, the undersigned have duly executed this Declaration of Trust and Trust
Agreement as of the day and year first above written.
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CSC TRUST COMPANY OF
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GREENHAVEN COMMODITY
SERVICES, LLC, as Managing Owner |
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GREENHAVEN CONTINUOUS COMMODITY
INDEX FUND, as Limited Owner |
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By: GreenHaven
Commodity Services, LLC, its sole Managing Owner |
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EXHIBIT A
CERTIFICATE OF TRUST
OF
GREENHAVEN CONTINUOUS COMMODITY INDEX MASTER FUND
This Certificate of Trust of GreenHaven Continuous Commodity Index Master Fund (the Trust)
is being duly executed and filed on behalf of the Trust by the undersigned, as trustee, to form a
statutory trust under the Delaware Statutory Trust Act (12 Del. C. § 3801 et seq.) (the Act).
1. Name. The name of the statutory trust formed by this Certificate of Trust is GreenHaven
Continuous Commodity Index Master Fund.
2. Delaware Trustee. The name and business address of the trustee of the Trust in the State of
Delaware are CSC Trust Company of Delaware, 2711 Centerville Road, Suite 210, Wilmington, DE 19808.
3. Effective Date. This Certificate of Trust shall be effective upon filing.
IN WITNESS WHEREOF, the undersigned has duly executed this Certificate of Trust in accordance
with Section 3811(a)(1) of the Act.
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CSC TRUST COMPANY
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not in its individual
capacity but solely as
Owner Trustee of the
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EXHIBIT A-2
GREENHAVEN CONTINUOUS COMMODITY INDEX FUND
DECLARATION OF TRUST
AND TRUST AGREEMENT
THIS DECLARATION OF TRUST AND TRUST AGREEMENT (the Trust Agreement) of GreenHaven
Continuous Commodity Index Fund (the Trust) is made and entered into as of the day of , 2006, by and among GreenHaven Commodity Services, LLC, a Delaware limited
liability company (the Managing Owner), CSC Trust Company of Delaware, a Delaware
corporation (the Trustee), and the unitholders from time to time hereunder (the
Unitholders).
RECITALS
WHEREAS,
the Trust was formed on October 27, 2006, pursuant to the execution and filing by the
Trustee of the Certificate of Trust; and
WHEREAS, the Trustee and the Managing Owner desire to set forth guidelines regarding the
operations of the Trust and certain other matters.
NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained,
and other good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Trustee and the Managing Owner hereby agree as follows:
ARTICLE I
DEFINITIONS; THE TRUST
1.1. Definitions. As used in this Trust Agreement, the following terms shall have the
following meanings unless the context otherwise requires:
Administrator means any Person from time to time engaged to provide administrative services
to the Trust pursuant to authority delegated by the Managing Owner.
Affiliate An Affiliate of a Person means (i) any Person directly or indirectly owning,
controlling or holding with power to vote 10% or more of the outstanding voting securities of such
Person, (ii) any Person 10% or more of whose outstanding voting securities are directly or
indirectly owned, controlled or held with power to vote by such Person, (iii) any Person, directly
or indirectly, controlling, controlled by or under common control of such Person, (iv) any
employee, officer, director, member, manager or partner of such Person, or (v) if such Person is an
employee, officer, director, member, manager or partner, any Person for which such Person acts in
any such capacity.
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Basket means a Creation Basket or a Redemption Basket, as the context may require.
Beneficial Owners shall have the meaning assigned to such term in Section 3.4(d).
Business Day means a day other than Saturday, Sunday or other day when banks and/or
securities exchanges in the City of New York or the City of Wilmington are authorized or obligated
by law or executive order to close.
Capital Contributions means the amounts of cash contributed and agreed to be contributed to
the Trust by any Participant or by the Managing Owner, as applicable, in accordance with Article
III hereof.
CE Act means the Commodity Exchange Act, as amended.
Certificate of Trust means the Certificate of Trust of the Trust in the form attached hereto
as Exhibit A, filed with the Secretary of State of the State of Delaware pursuant to Section 3810
of the Delaware Trust Statute.
CFTC means the Commodity Futures Trading Commission.
Code means the Internal Revenue Code of 1986, as amended.
Commodities means positions in Commodity Contracts, forward contracts, foreign exchange
positions and traded physical commodities, as well as cash commodities resulting from any of the
foregoing positions.
Commodity Contract means any futures contract or option thereon providing for the delivery
or receipt at a future date of a specified amount and grade of a traded commodity at a specified
price and delivery point, or any other futures contract or option thereon approved for trading for
U.S. persons.
Conflicting Provisions shall have the meaning assigned to such term in Section 15.2(a).
Continuous Offering Period means the period following the conclusion of the Initial Offering
Period, during which additional Limited Units may be sold in Baskets pursuant to this Trust
Agreement.
Corporate Trust Office means the principal office at which at any particular time the
corporate trust business of the Trustee is administered, which office at the date hereof is located
at, 2711 Centerville Road, Wilmington, Delaware 19808, Attention: Corporate Trust.
Covered Person means the Trustee, the Managing Owner and their respective Affiliates.
Creation Basket means the minimum number of Limited Units that may be created at any one
time, which shall be 50,000 or such greater or lesser number as the Managing Owner may determine
from time to time.
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Creation Basket Capital Contribution means a Capital Contribution made by a Participant in
connection with a Purchase Order Subscription Agreement and the creation of a Creation Basket in an
amount equal to the product obtained by multiplying (i) the number of Creation Baskets set forth in
the relevant Purchase Order Subscription Agreement by (ii) the Net Asset Value per Basket as of
closing time of the Exchange or the last to close of the exchanges on which any one of the Index
Commodities is traded, whichever is later, on the Purchase Order Subscription Date.
Delaware Trust Statute means the Delaware Statutory Trust Act, Chapter 38 of Title 12 of the
Delaware Code, 12 Del. C. § 3801 et seq., as the same may be amended from time to time.
Depository means The Depository Trust Company, New York, New York, or such other depository
of Limited Units as may be selected by the Managing Owner as specified herein.
Depository Agreement means the Letter of Representations from the Managing Owner to the
Depository, dated as of , as the same may be amended or supplemented
from time to time.
Distributor means any Person from time to time engaged to provide distribution services or
related services to the Trust pursuant to authority delegated by the Managing Owner.
DTC shall have the meaning assigned to such term in Section 3.4(b).
DTC Participants shall have the meaning assigned to such term in Section 3.4(c).
Exchange means the American Stock Exchange or, if the Limited Units shall cease to be listed
on the American Stock Exchange and are listed on one or more other exchanges, the exchange on which
the Units are principally traded, as determined by the Managing Owner.
Expenses shall have the meaning assigned to such term in Section 2.4.
Fiscal Quarter shall mean each period ending on the last day of each March, June, September
and December of each Fiscal Year.
Fiscal Year shall have the meaning set forth in Article X hereof.
Global Security means the global certificate or certificates issued to the Depository as
provided in the Depository Agreement, each of which shall be in substantially the form attached
hereto as Exhibit B.
Indemnified Parties shall have the meaning assigned to such term in Section 2.4.
Index Commodities means the underlying Commodities which comprise the Continuous Commodity
Excess Return Index (CCI-ER), as described in the Prospectus.
Indirect Participants shall have the meaning assigned to such term in Section 3.4(c).
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Initial Offering Period means the period commencing with the initial effective date of the
Prospectus and terminating no later than the ninetieth (90) day following such date unless extended
for up to an additional ninety (90) days at the sole discretion of the Managing Owner.
Internal Revenue Service or IRS means the U.S. Internal Revenue Service or any successor
thereto.
Limited Owner means any person or entity that is or becomes a Beneficial Owner of Limited
Units.
Liquidating Trustee shall have the meaning assigned to such term in Section 13.2.
Managing Owner means GreenHaven Commodity Services, LLC, or any substitute therefore as
provided herein, or any successor thereto by merger or operation of law.
Master Fund Shares means the common units of fractional undivided beneficial interest with
limited liability in the profits, losses, distributions, capital and assets of, and ownership of,
GreenHaven Continuous Commodity Index Master Fund, a Delaware statutory trust.
Net Asset Value at any time means the total assets in the Trust Estate, determined on the
basis of generally accepted accounting principles in the United States (GAAP), consistently
applied under the accrual method of accounting. The amount of any distribution made pursuant to
Article VI hereof shall be a liability of the Trust from the day when the distribution is declared
until it is paid.
Net Asset Value Per Basket means the product obtained by multiplying the Net Asset Value Per
Unit by the number of Limited Units comprising a Basket at such time.
Net Asset Value Per Unit means the Net Asset Value divided by the number of Units
outstanding on the date of calculation.
NFA means the National Futures Association.
Order Cut-Off Time means 10:00 am, New York time, on a Business Day.
Organization and Offering Expenses shall have the meaning assigned thereto in Section
4.8(a)(iv).
Participant means a Person that is a DTC Participant and has entered into a Participant
Agreement which, at the relevant time, is in full force and effect.
Participant Agreement means an agreement among the Trust, the Managing Owner and a
Participant, substantially in the form of Exhibit C hereto, as it may be amended or supplemented
from time to time in accordance with its terms.
Person means any natural person, partnership, limited liability company, statutory trust,
corporation, association, or other legal entity.
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Profits and Losses means the profits and losses of the Trust, each as determined in
accordance with U.S. generally accepted accounting principles, consistently applied.
Prospectus means the final prospectus and disclosure document of the Trust, constituting a
part of a Registration Statement, as filed with the SEC and declared effective thereby, as the same
may at any time and from time to time be amended or supplemented.
Purchase Order Subscription Agreement shall have the meaning assigned thereto in Section
3.3(a)(i).
Purchase Order Subscription Date shall have the meaning assigned thereto in Section
3.3(a)(i).
Reconstituted Trust shall have the meaning assigned to such term in Section 13.1(a).
Redemption Basket means the minimum number of Limited Units that may be redeemed pursuant to
Section 7.1, which shall be the number of Limited Units constituting a Creation Basket on the
relevant Redemption Order Date.
Redemption Distribution means the cash delivered in satisfaction of redemption of a
Redemption Basket as specified in Section 7.1(c).
Redemption Order shall have the meaning assigned thereto in Section 7.1(a).
Redemption Order Date shall have the meaning assigned thereto in Section 7.1(b).
Redemption Settlement Time shall have the meaning assigned thereto in Section 7.1(d).
Registration Statement means a registration statement on Form S-1, as it may be amended from
time to time, filed with the SEC pursuant to which the Trust registered the Limited Units, as the
same may at any time and from time to time be further amended or supplemented.
SEC means the Securities and Exchange Commission.
Sponsor means any person directly or indirectly instrumental in organizing the Trust or any
person who will manage or participate in the management of the Trust, including the Managing Owner
or an Affiliate of the Managing Owner, who pays any portion of the Organizational and Offering
Expenses of the Trust and any other person who regularly performs or selects the persons who
perform services for the Trust. Sponsor does not include wholly independent third parties such as
attorneys, accountants and underwriters whose only compensation is for professional services
rendered in connection with the offering of the Units. The term Sponsor shall be deemed to
include its Affiliates.
Subscribing Participant means a Participant who has submitted a Purchase Order Subscription
Agreement to create one or more Units that has not yet been filled or accepted by the Trust.
Suspended Redemption Order shall have the meaning assigned thereto in Section 7.1(d).
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Transaction Fee shall have the meaning assigned thereto in Section 3.3(d).
Treasury Regulations means regulations, including proposed or temporary regulations,
promulgated under the Code. References herein to specific provisions of proposed or temporary
regulations shall include analogous provisions of final Treasury Regulations or other successor
Treasury Regulations.
Trust means GreenHaven Continuous Commodity Index Fund, the Delaware statutory trust formed
pursuant to the Certificate of Trust, the business and affairs of which are governed by this Trust
Agreement.
Trust Agreement means this Declaration of Trust and Trust Agreement as the same may at any
time or from time to time be amended.
Trustee means CSC Trust Company of Delaware or any substitute therefore as provided herein,
acting not in its individual capacity but solely as trustee of the Trust.
Trust Estate means all property and cash held by the Trust, and all proceeds therefrom.
Unitholders means the Managing Owner and all Limited Owners, as holders of Units, where no
distinction is required by the context in which the term is used.
Units means the common units of fractional undivided beneficial interest in the profits,
losses, distributions, capital and assets of, and ownership of, the Trust. The Managing Owners
Capital Contributions shall be represented by General Units and a Limited Owners Capital
Contributions shall be represented by Limited Units.
1.2. Name. The name of the Trust is GreenHaven Continuous Commodity Index Fund, in
which name the Trustee and the Managing Owner may engage in the business of the Trust, make and
execute contracts and other instruments on behalf of the Trust and sue and be sued on behalf of the
Trust.
1.3. Delaware Trustee; Business Offices.
(a) The sole Trustee of the Trust is CSC Trust Company of Delaware, which is located at
the Corporate Trust Office or at such other address in the State of Delaware as the Trustee may
designate in writing to the Unitholders. The Trustee shall receive service of process on the
Trust in the State of Delaware at the foregoing address. In the event CSC Trust Company of
Delaware resigns or is removed as the Trustee, the Trustee of the Trust in the State of
Delaware shall be the successor Trustee.
(b) The principal office of the Trust, and such additional offices as the Managing Owner
may establish, shall be located at such place or places inside or outside the State of Delaware
as the Managing Owner may designate from time to time in writing to the Trustee and the
Unitholders. Initially, the principal office of the Trust shall be at 3340 Peachtree Road,
Suite 1910, Atlanta, Georgia 30326.
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1.4. Declaration of Trust. The Trustee hereby acknowledges that the Trust has received
the sum of $1,000 in bank accounts in the name of the Trust controlled by the Managing Owner from
the Managing Owner as grantor of the Trust, and hereby declares that it shall hold such sum in
trust, upon and subject to the conditions set forth herein for the use and benefit of the
Unitholders. It is the intention of the parties hereto that the Trust shall be a statutory trust
under the Delaware Trust Statute and that this Trust Agreement shall constitute the governing
instrument of the Trust. It is not the intention of the parties hereto to create a general
partnership, limited partnership, limited liability company, joint stock association, corporation,
bailment or any form of legal relationship other than a Delaware statutory trust except to the
extent that the Trust is deemed to constitute a grantor trust under the Code and applicable state
and local tax laws. Nothing in this Trust Agreement shall be construed to make the Unitholders
partners or members of a joint stock association. The Managing Owner shall not be liable to any
person for the failure of the Trust to qualify as a grantor trust under the Code or any comparable
provision of the laws of any State or other jurisdiction where such treatment is sought. Effective
as of the date hereof, the Trustee and the Managing Owner shall have all of the rights, powers and
duties set forth herein and in the Delaware Trust Statute with respect to accomplishing the
purposes of the Trust. The Trustee has filed the certificate of trust required by Section 3810 of
the Delaware Trust Statute in connection with the formation of the Trust under the Delaware Trust
Statute.
1.5. Purposes and Powers. The purposes of the Trust shall be to acquire, hold and
redeem Master Fund Shares and to enter into any lawful transaction and engage in any lawful
activities in furtherance of or incidental to the foregoing purposes. The Trust shall not engage in
any other business or activity and shall not acquire or own any other assets or take any of the
actions set forth in Section 4.4. The Trust shall have all of the powers specified in Section 15.1
hereof, including, without limitation, all of the powers which may be exercised by a Managing Owner
on behalf of the Trust under this Trust Agreement. Nothing in this Agreement shall be construed to
give the Trustee or the Managing Owner the power to vary the investment of the Beneficial Owners
within the meaning of Treasury Regulation Section 301.7701-4(c) or similar or successor provisions
of United States Treasury Regulations under the Code, nor shall the Managing Owner take any action
that would vary the investment of the Beneficial Owners.
1.6. Tax Treatment.
(a) Each of the parties hereto, by entering into this Trust Agreement, (i) expresses its
intention that the Units will qualify under applicable tax law as interests in a grantor trust
which holds the Trust Estate for their benefit, (ii) agrees that it will file its own Federal,
state and local income, franchise and other tax returns in a manner that is consistent with the
treatment of the Trust as a grantor trust in which each of the Unitholders thereof is a
beneficiary and (iii) agrees to use reasonable efforts to notify the Managing Owner promptly
upon a receipt of any notice from any taxing authority having jurisdiction over such holders of
Units with respect to the treatment of the Units as anything other than interests in a grantor
trust.
(b) The Managing Owner shall prepare or cause to be prepared and filed the Trusts tax
returns as a grantor trust for Federal, state and local tax purposes. Subject to Section 4.7,
the Trust hereby indemnifies, to the full extent permitted by law, the Managing Owner from and
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against any damages or losses (including attorneys fees) arising out of or incurred in
connection with any action taken or omitted to be taken by it in carrying out its
responsibilities under this Section 1.6(b), provided such action taken or omitted to be taken
does not constitute fraud, gross negligence or willful misconduct.
(c) Each Unitholder shall furnish the Managing Owner and the Trustee with information
necessary to enable the Managing Owner to comply with U.S. federal income tax information
reporting requirements in respect of such Unitholders Units.
1.7. General Liability of the Managing Owner.
(a) The Managing Owner shall be liable for the acts, omissions, obligations and expenses
of the Trust, to the extent not paid out of the assets of the Trust, to the same extent the
Managing Owner would be so liable if the Trust were a partnership under the Delaware Revised
Uniform Limited Partnership Act and the Managing Owner were a general partner of such
partnership. The foregoing provision shall not, however, limit the ability of the Managing
Owner to limit its liability by contract. The obligations of the Managing Owner under this
Section 1.7 shall be evidenced by its ownership of the General Units which, solely for purposes
of the Delaware Trust Statute, will be deemed to be a separate class of Units. Without limiting
or affecting the liability of the Managing Owner as set forth in this Section 1.7,
notwithstanding anything in this Trust Agreement to the contrary, Persons having any claim
against the Trust by reason of the transactions contemplated by this Trust Agreement and any
other agreement, instrument, obligation or other undertaking to which the Trust is a party,
shall look only to the Trust Estate for payment or satisfaction thereof.
(b) Subject to Sections 8.1 and 8.3 hereof, no Unitholder, other than the Managing Owner,
to the extent set forth above, shall have any personal liability for any liability or
obligation of the Trust.
1.8. Legal Title. Legal title to all of the Trust Estate shall be vested in the Trust
as a separate legal entity; provided, however, that where applicable law in any jurisdiction
requires any part of the Trust Estate to be vested otherwise, the Managing Owner may cause legal
title to the Trust Estate or any portion thereof to be held by or in the name of the Managing Owner
or any other Person (other than a Unitholder) as nominee.
ARTICLE II
THE TRUSTEE
2.1. Term; Resignation.
(a) CSC Trust Company of Delaware has been appointed and hereby agrees to serve as the
Trustee of the Trust. The Trust shall have only one trustee unless otherwise determined by the
Managing Owner. The Trustee shall serve until such time as the Managing Owner removes the
Trustee or the Trustee resigns and a successor Trustee is appointed by the Managing Owner in
accordance with the terms of Section 2.5 hereof.
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The trustee is appointed to serve as the trustee of the Trust in the State of Delaware for
the purpose of satisfying the requirement of Section 3807(a) of the Delaware Statutory Trust
Act that the Trust have at least one trustee with a principal place of business in Delaware.
It is understood and agreed by the parties hereto that the Trustee shall have none of the
duties or liabilities of the Managing Owner. The duties of the Trustee shall be limited to (i)
accepting legal process served on the Trust in the State of Delaware, (ii) the execution of any
certificates required to be filed with the Secretary of State of the State of Delaware which
the Trustee is required to execute under Section 3811 of the Delaware Statutory Trust Act, and
(iii) any other duties specifically allocated to the Trustee in the Trust Agreement. To the
extent that, at law or in equity, the Trustee has duties (including fiduciary duties) and
liabilities relating thereto to the Trust or the Beneficial Owners, it is hereby understood and
agreed by the other parties hereto that such duties and liabilities are replaced by the duties
and liabilities of the Trustee expressly set forth in this Agreement.
(b) The Trustee may resign at any time upon the giving of at least sixty (60) days
advance written notice to the Trust; provided, that such resignation shall not become effective
unless and until a successor Trustee shall have been appointed by the Managing Owner in
accordance with Section 2.5 hereof. If the Managing Owner does not act within such sixty (60)
day period, the Trustee may apply, at the expense of the Trust, to the Court of Chancery of the
State of Delaware for the appointment of a successor Trustee.
2.2. Powers. Except to the extent expressly set forth in Section 1.3(a) and this
Article II, the duty and authority of the Trustee to manage the business and affairs of the Trust
is hereby delegated to the Managing Owner, which duty and authority the Managing Owner may further
delegate as provided herein, all pursuant to Section 3806(b)(7) of the Delaware Trust Statute. The
Trustee shall have only the rights, obligations and liabilities specifically provided for herein
and shall have no implied rights, duties, obligations and liabilities with respect to the business
and affairs of the Trust. The Trustee shall have the power and authority to execute and file
certificates as required by the Delaware Trust Statute and to accept service of process on the
Trust in the State of Delaware. The Trustee shall provide prompt notice to the Managing Owner of
its performance of any of the foregoing. The Managing Owner shall reasonably keep the Trustee
informed of any actions taken by the Managing Owner with respect to the Trust that would reasonably
be expected to affect the rights, obligations or liabilities of the Trustee hereunder or under the
Delaware Trust Statute.
2.3. Compensation and Expenses of the Trustee. The Trustee shall be entitled to
receive from the Managing Owner or an Affiliate of the Managing Owner (including the Trust)
reasonable compensation for its services hereunder as set forth in a separate fee agreement and
shall be entitled to be reimbursed by the Managing Owner or an Affiliate of the Managing Owner
(including the Trust) for reasonable out-of-pocket expenses incurred by it in the performance of
its duties hereunder, including without limitation, the reasonable compensation, out-of-pocket
expenses and disbursements of counsel and such other agents as the Trustee may employ in connection
with the exercise and performance of its rights and duties hereunder.
2.4. Indemnification. The Managing Owner agrees (and any additional Managing Owner
admitted pursuant to Section 4.2(g) will be deemed to agree), whether or not any of the
transactions contemplated hereby shall be consummated, to assume liability for, and does hereby
indemnify, protect, save and keep harmless CSC Trust Company of Delaware (in its capacity as
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Trustee and individually) and its successors, assigns, legal representatives, officers,
directors, employees, agents and servants (the Indemnified Parties) from and against any
and all liabilities, obligations, losses, damages, penalties, taxes (excluding any taxes payable by
the Trustee on or measured by any compensation received by the Trustee for its services hereunder
or any indemnity payments received by the Trustee pursuant to this Section 2.4), claims, actions,
suits, costs, expenses or disbursements (including legal fees and expenses) of any kind and nature
whatsoever (collectively, Expenses), which may be imposed on, incurred by or asserted
against the Indemnified Parties in any way relating to or arising out of the formation, operation
or termination of the Trust, the execution, delivery and performance of any other agreements to
which the Trust is a party or the action or inaction of the Trustee hereunder or thereunder, except
for Expenses resulting from the gross negligence, willful misconduct or recklessness of the
Indemnified Parties. The indemnities contained in this Section 2.4 shall survive the termination of
this Trust Agreement or the removal or resignation of the Trustee. The source of payments made in
respect of indemnification under this Trust Agreement shall be the assets of the Trust.
2.5. Successor Trustee. Upon the resignation or removal of the Trustee, the Managing
Owner shall appoint a successor Trustee by delivering a written instrument to the outgoing Trustee.
Any successor Trustee must satisfy the requirements of Section 3807 of the Delaware Trust Statute.
Any resignation or removal of the Trustee and appointment of a successor Trustee shall not become
effective until a written acceptance of appointment is delivered by the successor Trustee to the
outgoing Trustee and the Managing Owner and any fees and expenses due to the outgoing Trustee are
paid. Following compliance with the preceding sentence, the successor Trustee shall become fully
vested with all of the rights, powers, duties and obligations of the outgoing Trustee under this
Trust Agreement, with like effect as if originally named as Trustee, and the outgoing Trustee shall
be discharged of its duties and obligations under this Trust Agreement.
2.6. Liability of Trustee. Except as otherwise provided in this Article II, in
accepting the trust created hereby, CSC Trust Company of Delaware acts solely as Trustee hereunder
and not in its individual capacity, and all Persons having any claim against CSC Trust Company of
Delaware by reason of the transactions contemplated by this Trust Agreement and any other agreement
to which the Trust is a party shall look only to the Trust Estate for payment or satisfaction
thereof; provided, however, that in no event is the foregoing intended to affect or limit the
liability of the Managing Owner as set forth in Section 1.7 hereof. The Trustee shall not be liable
or accountable hereunder to the Trust or to any other Person or under any other agreement to which
the Trust is a party, except for the Trustees own gross negligence, willful misconduct or
recklessness. In particular, but not by way of limitation:
(a) The Trustee shall have no liability or responsibility for the validity or sufficiency
of this Trust Agreement or for the form, character, genuineness, sufficiency, value or validity
of any Trust Estate;
(b) The Trustee shall not be liable for any actions taken or omitted to be taken by it in
accordance with the instructions of the Managing Owner or the Liquidating Trustee;
(c) The Trustee shall not have any liability for the acts or omissions of the Managing
Owner or its delegatees;
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(d) The Trustee shall not be liable for its failure to supervise the performance of any
obligations of the Managing Owner or its delegatees or any Participant;
(e) No provision of this Trust Agreement shall require the Trustee to act or expend or
risk its own funds or otherwise incur any financial liability in the performance of any of its
rights or powers hereunder if the Trustee shall have reasonable grounds for believing that such
action, repayment of such funds or adequate indemnity against such risk or liability is not
reasonably assured or provided to it;
(f) Under no circumstances shall the Trustee be liable for indebtedness evidenced by or
other obligations of the Trust arising under this Trust Agreement or any other agreements to
which the Trust is a party; and
(g) The Trustee shall be under no obligation to exercise any of the rights or powers
vested in it by this Trust Agreement, or to institute, conduct or defend any litigation under
this Trust Agreement or any other agreements to which the Trust is a party, at the request,
order or direction of the Managing Owner unless the Managing Owner has offered to CSC Trust
Company of Delaware (in its capacity as Trustee and individually) security or indemnity
satisfactory to it against the costs, expenses and liabilities that may be incurred by CSC
Trust Company of Delaware (including, without limitation, the reasonable fees and expenses of
its counsel) therein or thereby;
(i) Notwithstanding anything contained herein to the contrary, the Trustee shall not
be required to take any action in any jurisdiction other than in the State of Delaware if
the taking of such action will require the consent or approval or authorization or order
of or the giving of notice to, or the registration with or taking of any action in respect
of, any state or other governmental authority or agency of any jurisdiction other than the
State of Delaware, (ii) result in any fee, tax or other governmental charge under the laws
of any jurisdiction or any political subdivision thereof in existence as of the date
hereof other than the State of Delaware becoming payable by the Trustee or (iii) subject
the Trustee to personal jurisdiction, other than in the State of Delaware, for causes of
action arising from personal acts unrelated to the consummation of the transactions by the
Trustee, as the case may be, contemplated hereby; and
(ii) To the extent that, at law or in equity, the Trustee has duties (including
fiduciary duties) and liabilities relating thereto to the Trust, the Unitholders or to any
other Person, the Trustee acting under this Agreement shall not be liable to the Trust,
the Unitholders or to any other Person for its good faith reliance on the provisions of
this Agreement. The provisions of this Agreement, to the extent that they restrict the
duties and liabilities of the Trustee otherwise existing at law or in equity are agreed by
the parties hereto to replace such other duties and liabilities of the Trustee.
2.7. Reliance; Advice of Counsel.
(a) In the absence of bad faith, the Trustee may conclusively rely upon certificates or
opinions furnished to the Trustee and conforming to the requirements of this Trust
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Agreement in determining the truth of the statements and the correctness of the opinions
contained therein, and shall incur no liability to anyone in acting on any signature,
instrument, notice, resolutions, request, consent, order, certificate, report, opinion, bond or
other document or paper believed by it to be genuine and believed by it to be signed by the
proper party or parties and need not investigate any fact or matter pertaining to or in any
such document; provided, however, that the Trustee shall have examined any certificates or
opinions so as to reasonably determine compliance of the same with the requirements of this
Trust Agreement. The Trustee may accept a certified copy of a resolution of the board of
directors or other governing body of any corporate party as conclusive evidence that such
resolution has been duly adopted by such body and that the same is in full force and effect. As
to any fact or matter the method of the determination of which is not specifically prescribed
herein, the Trustee may for all purposes hereof rely on a certificate, signed by the president
or any vice president or by the treasurer or other authorized officers of the relevant party,
as to such fact or matter, and such certificate shall constitute full protection to the Trustee
for any action taken or omitted to be taken by it in good faith in reliance thereon.
(b) In the exercise or administration of the Trust hereunder and in the performance of its
duties and obligations under this Trust Agreement, the Trustee, at the expense of the Managing
Owner or an Affiliate of the Managing Owner (including the Trust) (i) may act directly or
through its agents, attorneys, custodians or nominees pursuant to agreements entered into with
any of them, and the Trustee shall not be liable for the conduct or misconduct of such agents,
attorneys, custodians or nominees if such agents, attorneys, custodians or nominees shall have
been selected by the Trustee with reasonable care and (ii) may consult with counsel,
accountants and other skilled professionals to be selected with reasonable care by it. The
Trustee shall not be liable for anything done, suffered or omitted in good faith by it in
accordance with the opinion or advice of any such counsel, accountant or other such Persons.
2.8. Payments to the Trustee. Any amounts paid to the Trustee pursuant to this Article
shall be deemed not to be a part of the Trust Estate immediately after such payment. Any amounts
owing to the Trustee under this Trust Agreement shall constitute a claim against the Trust Estate.
ARTICLE III
UNITS; CAPITAL CONTRIBUTIONS
3.1. General. The Managing Owner shall have the power and authority, without Limited
Owner approval, to issue Units from time to time as it deems necessary or desirable. The number of
Units authorized shall be unlimited, and the Units so authorized may be represented in part by
fractional Units, calculated to four decimal places. From time to time, the Managing Owner may
divide or combine the Units into a greater or lesser number without thereby changing the
proportionate beneficial interests. The Managing Owner may issue Units for such consideration and
on such terms as it may determine (or for no consideration if pursuant to a Unit dividend or
split-up), all without action or approval of the Limited Owners. All Units when so issued on the
terms determined by the Managing Owner shall be fully paid and non-assessable. The Units initially
shall be divided into two classes: General Units and Limited Units. Every Unitholder, by
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virtue of having purchased or otherwise acquired a Unit, shall be deemed to have expressly
consented and agreed to be bound by the terms of this Trust Agreement.
3.2. Offer of Limited Units.
(a) Initial Offering Period. During the Initial Offering Period, the Trust shall
offer Limited Units to Participants in Creation Baskets pursuant to Rule 415 promulgated under
the Securities Act of 1933, as amended, at an offering price of $30 per Limited Unit ($1.5
million per Creation Basket), up to a maximum of 10 million Limited Units ($300 million). The
offering shall be made pursuant to and on the terms and conditions set forth in the Prospectus.
The Managing Owner shall make such arrangements for the sale of the Limited Units as it deems
appropriate.
(b) Effect of the Sale of at least 1,000,000 Limited Units. In the event that at
least 1,000,000 Limited Units (4 Creation Baskets) are sold during the Initial Offering Period,
the Managing Owner will admit all accepted Subscribing Participants pursuant to the Prospectus
into the Trust as Limited Owners, by causing such Limited Owners to execute this Trust
Agreement, pursuant to the Power of Attorney set forth in the Subscription Agreement, and
otherwise in accordance with Sections 3.3 and 3.4 of this Trust Agreement with the Participant
Agreements.
(c) Effect of the Sale of Less than 1,000,000 Limited Units. In the event that at
least 1,000,000 Limited Units (4 Creation Baskets) are not sold during the Initial Offering
Period, all proceeds of the sale of Limited Units, together with any interest earned thereon,
will be returned to the Subscribing Participants on a pro rata basis (taking into account the
amount and time of deposit), as promptly as practicable but in no even more than seven (7) days
after the conclusion of the Initial Offering Period for the Units. Such action will terminate
the Trust.
(d) Offer of Limited Units After Initial Offering Period. In the event that
1,000,000 or more of the Limited Units are sold during the Initial Offering Period for the
Units, the Trust may continue to offer Limited Units to Participants in Creation Baskets and
admit additional Limited Owners and/or accept additional contributions from existing Limited
Owners pursuant to the Prospectus, Sections 3.3 and 3.4 of this Trust Agreement and the
Participant Agreements.
3.3. Procedures for Creation and Issuance of Creation Baskets.
(a) General. The following procedures, as supplemented by the more detailed
procedures specified in the attachment to the Participant Agreement, which may be amended from
time to time in accordance with the provisions of the Participant Agreement (and any such
amendment will not constitute an amendment of this Trust Agreement), will govern the Trust with
respect to the creation and issuance of additional Creation Baskets. Subject to the limitations
upon and requirements for issuance of Creation Baskets stated herein and in such procedures,
the number of Creation Baskets which may be issued by the Trust is unlimited.
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(i) On any Business Day, a Participant may submit to the Managing Owner a purchase
order and subscription agreement to subscribe for and agree to purchase one or more
Creation Baskets (such request by a Participant, a Purchase Order Subscription
Agreement) in the manner provided in the Participant Agreement. Purchase Order
Subscription Agreements must be received by the Order Cut-Off Time on a Business Day (the
Purchase Order Subscription Date). The Managing Owner will process Purchase
Order Subscription Agreements only from Participants with respect to which the Participant
Agreement is in full force and effect. The Managing Owner will maintain and make available
at the Trusts principal offices during normal business hours a current list of the
Participants with respect to which the Participant Agreement is in full force and effect.
The Managing Owner will deliver (or cause to be delivered) a copy of the Prospectus to
each Participant prior to its execution and delivery of the Participant Agreement and
prior to accepting any Purchase Order Subscription Agreement.
(ii) Any Purchase Order Subscription Agreement is subject to rejection by the
Managing Owner pursuant to Section 3.3(c).
(iii) After accepting a Participants Purchase Order Subscription Agreement, the
Managing Owner will issue and deliver Creation Baskets to fill a Participants Purchase
Order Subscription Agreement as of noon New York time on the Business Day immediately
following the Purchase Order Subscription Date, but only if by such time the Managing
Owner has received (A) for its own account, the Transaction Fee, and (B) for the account
of the Trust the Creation Basket Capital Contribution due from the Participant submitting
the Purchase Order Subscription Agreement.
(b) Deposit with the Depository. Upon issuing a Creation Basket pursuant to a
Purchase Order Subscription Agreement, the Managing Owner will cause the Trust to deposit the
Creation Basket with the Depository in accordance with the Depositorys customary procedures,
for credit to the account of the Participant that submitted the Purchase Order Subscription
Agreement.
(c) Rejection. The Managing Owner shall have the absolute right, but shall have no
obligation, to reject any Purchase Order Subscription Agreement or Creation Basket Capital
Contribution: (i) determined by the Managing Owner not to be in proper form; (ii) that the
Managing Owner has determined would have adverse tax consequences to the Trust or to Limited
Owners; (iii) the acceptance or receipt of which would, in the opinion of counsel to the
Managing Owner, be unlawful; or (iv) if circumstances outside the control of the Managing Owner
make it for all practical purposes not feasible to process creations of Creation Baskets. The
Managing Owner shall not be liable to any person by reason of the rejection of any Purchase
Order Subscription Agreement or Creation Basket Capital Contribution.
(d) Transaction Fee. A non-refundable transaction fee will be payable by a
Participant to the Managing Owner for its own account in connection with each Purchase Order
Subscription Agreement pursuant to this Section and in connection with each Redemption Order of
such Participant pursuant to Section 7.1 (each a Transaction Fee). The
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Transaction Fee charged in connection with each such creation and redemption shall be
initially [ ], but may be changed as provided below. Even though a single Purchase Order
Subscription Agreement or Redemption Order may relate to multiple Creation Baskets, only a
single Transaction Fee will be due for each Purchase Order or Redemption Order. The Transaction
Fee may subsequently be waived, modified, reduced, increased or otherwise changed by the
Managing Owner, but will not in any event exceed [ ] of the Net Asset Value Per Basket at
the time of creation of a Creation Basket or redemption of a Redemption Basket, as the case may
be. The Managing Owner shall notify the Depository of any agreement to change the Transaction
Fee and shall not implement any increase for redemptions of outstanding Units until thirty (30)
days after the date of that notice. The amount of the Transaction Fee in effect at any given
time shall be made available by the Trustee upon request.
(e) Global Certificate Only. Certificates for Creation Baskets will not be issued,
other than the Global Security issued to the Depository. So long as the Depository Agreement is
in effect, Creation Baskets will be issued and redeemed and Limited Units will be transferable
solely through the book-entry systems of the Depository and the DTC Participants and their
Indirect Participants as more fully described in Section 3.4. The Depository may determine to
discontinue providing its service with respect to Creation Baskets and Limited Units by giving
notice to the Managing Owner pursuant to and in conformity with the provisions of the
Depository Agreement and discharging its responsibilities with respect thereto under applicable
law. Under such circumstances, the Managing Owner shall take action either to find a
replacement for the Depository to perform its functions at a comparable cost and on terms
acceptable to the Managing Owner or, if such a replacement is unavailable, to terminate the
Trust.
3.4. Book-Entry-Only System, Global Security.
(a) Global Security. The Trust and the Managing Owner will enter into the
Depository Agreement pursuant to which the Depository will act as securities depository for
Limited Units. Limited Units will be represented by the Global Security (which may consist of
one or more certificates as required by the Depository), which will be registered, as the
Depository shall direct, in the name of Cede & Co., as nominee for the Depository and deposited
with, or on behalf of, the Depository. No other certificates evidencing Limited Units will be
issued. The Global Security shall be in the form attached hereto as Exhibit B and shall
represent such Limited Units as shall be specified therein, and may provide that it shall
represent the aggregate amount of outstanding Limited Units from time to time endorsed thereon
and that the aggregate amount of outstanding Limited Units represented thereby may from time to
time be increased or decreased to reflect creations or redemptions of Baskets. Any endorsement
of a Global Security to reflect the amount, or any increase or decrease in the amount, of
outstanding Limited Units represented thereby shall be made in such manner and upon
instructions given by the Managing Owner on behalf of the Trust as specified in the Depository
Agreement.
(b) Legend. Any Global Security issued to The Depository Trust Company or its
nominee shall bear a legend substantially to the following effect: Unless this certificate is
presented by an authorized representative of The Depository Trust Company, a New York
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corporation (DTC), to the Trust or its agent for registration of transfer,
exchange, or payment, and any certificate issued is registered in the name of Cede & Co. or in
such other name as is requested by an authorized representative of DTC (and any payment is made
to Cede & Co. or to such other entity as is required by an authorized representative of DTC),
ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS
WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest herein.
(c) The Depository. The Depository has advised the Trust and the Managing Owner as
follows: The Depository is a limited-purpose trust company organized under the laws of the
State of New York, a member of the U.S. federal Reserve System, a clearing corporation within
the meaning of the New York Uniform Commercial Code, and a clearing agency registered
pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934, as amended.
The Depository was created to hold securities of its participants (the DTC Participants) and
to facilitate the clearance and settlement of securities transactions among the DTC
Participants in such securities through electronic book-entry changes in accounts of the DTC
Participants, thereby eliminating the need for physical movement of securities certificates.
DTC Participants include securities brokers and dealers, banks, trust companies, clearing
corporations, and certain other organizations, some of whom (and/or their representatives) own
the Depository. Access to the Depositorys system is also available to others such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial relationship
with a DTC Participant, either directly or indirectly (Indirect Participants).
(d) Beneficial Owners. As provided in the Depository Agreement, upon the
settlement date of any creation, transfer or redemption of Limited Units, the Depository will
credit or debit, on its book-entry registration and transfer system, the number of Limited
Units so created, transferred or redeemed to the accounts of the appropriate DTC Participants.
The accounts to be credited and charged shall be designated by the Managing Owner on behalf of
the Trust and each Participant, in the case of a creation or redemption of Baskets. Ownership
of beneficial interest in Limited Units will be limited to DTC Participants, Indirect
Participants and persons holding interests through DTC Participants and Indirect Participants.
Owners of beneficial interests in Limited Units (Beneficial Owners) will be shown on,
and the transfer of beneficial ownership by Beneficial Owners will be effected only through, in
the case of DTC Participants, records maintained by the Depository and, in the case of Indirect
Participants and Beneficial Owners holding through a DTC Participant or an Indirect
Participant, through those records or the records of the relevant DTC Participants. Beneficial
Owners are expected to receive from or through the broker or bank that maintains the account
through which the Beneficial Owner has purchased Limited Units a written confirmation relating
to their purchase of Limited Units.
(e) Reliance on Procedures. So long as Cede & Co., as nominee of the Depository,
is the registered owner of Limited Units, references herein to the registered or record owners
of Limited Units shall mean Cede & Co. and shall not mean the Beneficial Owners of Limited
Units. Beneficial Owners of Limited Units will not be entitled to have Limited Units registered
in their names, will not receive or be entitled to receive physical delivery of certificates in
definitive form and will not be considered the record or registered holder of Limited Units
under this Agreement. Accordingly, to exercise any rights of a holder of
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Limited Units under the Agreement, a Beneficial Owner must rely on the procedures of the
Depository and, if such Beneficial Owner is not a DTC Participant, on the procedures of each
DTC Participant or Indirect Participant through which such Beneficial Owner holds its
interests. The Trust and the Managing Owner understand that under existing industry practice,
if the Trust requests any action of a Beneficial Owner, or a Beneficial Owner desires to take
any action that the Depository, as the record owner of all outstanding Limited Units, is
entitled to take, in the case of a Trustee request, the Depository will notify the DTC
Participants regarding such request, such DTC Participants will in turn notify each Indirect
Participant holding Limited Units through it, with each successive Indirect Participant
continuing to notify each person holding Limited Units through it until the request has reached
the Beneficial Owner, and in the case of a request or authorization to act being sought or
given by a Beneficial Owner, such request or authorization is given by the Beneficial Owner and
relayed back to the Trust through each Indirect Participant and DTC Participant through which
the Beneficial Owners interest in the Limited Units is held.
(f) Communication between the Trust and the Beneficial Owners. As described
above, the Trust will recognize the Depository or its nominee as the owner of all Limited Units
for all purposes except as expressly set forth in this Agreement. Conveyance of all notices,
statements and other communications to Beneficial Owners will be affected as follows. Pursuant
to the Depository Agreement, the Depository is required to make available to the Trust upon
request and for a fee to be charged to the Trust a listing of the Limited Unit holdings of each
DTC Participant. The Trust shall inquire of each such DTC Participant as to the number of
Beneficial Owners holding Limited Units, directly or indirectly, through such DTC Participant.
The Trust shall provide each such DTC Participant with sufficient copies of such notice,
statement or other communication, in such form, number and at such place as such DTC
Participant may reasonably request, in order that such notice, statement or communication may
be transmitted by such DTC Participant, directly or indirectly, to such Beneficial Owners. In
addition, the Trust shall pay to each such DTC Participant an amount as reimbursement for the
expenses attendant to such transmittal, all subject to applicable statutory and regulatory
requirements.
(g) Distributions. Distributions on Limited Units pursuant to Section 3.9 shall be
made to the Depository or its nominee, Cede & Co., as the registered owner of all Limited
Units. The Trust and the Managing Owner expect that the Depository or its nominee, upon receipt
of any payment of distributions in respect of Limited Units, shall credit immediately DTC
Participants accounts with payments in amounts proportionate to their respective beneficial
interests in Limited Units as shown on the records of the Depository or its nominee. The Trust
and the Managing Owner also expect that payments by DTC Participants to Indirect Participants
and Beneficial Owners held through such DTC Participants and Indirect Participants will be
governed by standing instructions and customary practices, as is now the case with securities
held for the accounts of customers in bearer form or registered in a street name, and will be
the responsibility of such DTC Participants and Indirect Participants. None of the Trust, the
Trustee or the Managing Owner will have any responsibility or liability for any aspects of the
records relating to or notices to Beneficial Owners, or payments made on account of beneficial
ownership interests in Limited Units, or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interests or for any other aspect of the relationship
between the Depository and the DTC
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Participants or the relationship between such DTC Participants and the Indirect
Participants and Beneficial Owners owning through such DTC Participants or Indirect
Participants or between or among the Depository, any Beneficial Owner and any person by or
through which such Beneficial Owner is considered to own Limited Units.
(h) Limitation of Liability. The Global Security to be issued hereunder is
executed and delivered solely on behalf of the Trust by the Managing Owner, as Managing Owner,
in the exercise of the powers and authority conferred and vested in it by this Trust Agreement.
The representations, undertakings and agreements made on the part of the Trust in the Global
Security are made and intended not as personal representations, undertakings and agreements by
the Managing Owner or the Trustee, but are made and intended for the purpose of binding only
the Trust. Nothing in the Global Security shall be construed as creating any liability on the
Managing Owner or the Trustee, individually or personally, to fulfill any representation,
undertaking or agreement other than as expressly provided in this Agreement.
(i) Successor Depository. If a successor to The Depository Trust Company shall be
employed as Depository hereunder, the Trust and the Managing Owner shall establish procedures
acceptable to such successor with respect to the matters addressed in this Section 3.4.
3.5. Escrow Agreement. All proceeds from the sale of Limited Units offered pursuant to
the Prospectus shall be deposited in an interest bearing escrow account with an escrow agent to be
selected by the Managing Owner until the conclusion of the Initial Offering Period. In the event
subscriptions for at least 1,000,000 Units are received and accepted during the Initial Offering
Period, all interest earned on the proceeds of subscriptions from accepted Subscribing Participants
for Limited Units during its Initial Offering Period will be contributed to the Trust, for which
the Limited Owners will receive additional Units on a pro rata basis (taking into account time and
amount of deposit).
3.6. Termination of the Trust. If the minimum number of Units being offered are not
sold during the Initial Offering Period, then the Trust shall be terminated in accordance with
Section 3808(e) of the Delaware Trust Statute, and the Trustee, at the expense and direction of the
Managing Owner, shall cause the certificate of cancellation required by Section 3810 of the
Delaware Trust Statute to be filed.
3.7. Assets. All consideration received by the Trust for the issue or sale of Units
together with all of the Trust Estate in which such consideration is invested, all income,
earnings, profits, and proceeds thereof, including any proceeds derived from the sale, exchange or
liquidation of such assets, shall belong to the Trust for all purposes, subject only to the rights
of creditors of the Trust and except as may otherwise be required by applicable tax laws, and shall
be so recorded upon the books of account of the Trust.
3.8. Liabilities. The Trust Estate shall be charged with the liabilities of the Trust;
and all expenses, costs, charges and reserves attributable to the Trust. The Managing Owner shall
have full discretion, to the extent not inconsistent with applicable law, to determine which items
shall be treated as income and which items as capital, and each such determination and allocation
shall be conclusive and binding upon the Unitholders.
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3.9. Distributions.
(a) Distributions on Units may be paid with such frequency as the Managing Owner may
determine, which may be daily or otherwise, to the Unitholders, from such of the income and
capital gains, accrued or realized, from the Trust Estate, after providing for actual and
accrued liabilities. All distributions on Units thereof shall be distributed pro rata to the
Unitholders in proportion to the total outstanding Units held by such Unitholders at the date
and time of record established for the payment of such distribution and in accordance with
Section 3.4(g). Such distributions may be made in cash or Units as determined by the Managing
Owner or pursuant to any program that the Managing Owner may have in effect at the time for the
election by each Unitholder of the mode of the making of such distribution to that Unitholder.
(b) The Units shall represent units of beneficial interest in the Trust Estate. Each
Unitholder shall be entitled to receive its pro rata share of distributions of income and
capital gains in accordance with Section 3.9(a).
3.10. Voting Rights. Notwithstanding any other provision hereof, on each matter
submitted to a vote of the Unitholders, each Unitholder shall be entitled to a proportionate vote
based upon the product of the Net Asset Value per Unit multiplied by the number of Units, or
fraction thereof, standing in its name on the books of the Trust in accordance with Section 3.4(g).
3.11. Equality. Except as provided herein, all Units shall represent an equal
proportionate beneficial interest in the assets of the Trust subject to the liabilities of the
Trust, and each Unit shall be equal to each other Unit. The Managing Owner may from time to time
divide or combine the Units into a greater or lesser number of Units without thereby changing the
proportionate beneficial interest in the assets of the Trust or in any way affecting the rights of
Unitholders.
ARTICLE IV
THE MANAGING OWNER
4.1. Management of the Trust. Pursuant to Section 3806(b)(7) of the Delaware Trust
Statute, the Trust shall be managed by the Managing Owner and the conduct of the Trusts business
shall be controlled and conducted solely by the Managing Owner in accordance with this Trust
Agreement.
4.2. Authority of Managing Owner. In addition to and not in limitation of any rights
and powers conferred by law or other provisions of this Trust Agreement, and except as limited,
restricted or prohibited by the express provisions of this Trust Agreement or the Delaware Trust
Statute, the Managing Owner shall have and may exercise on behalf of the Trust, all powers and
rights necessary, proper, convenient or advisable to effectuate and carry out the purposes,
business and objectives of the Trust, which shall include, without limitation, the following:
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(a) To enter into, execute, deliver and maintain, and to cause the Trust to perform its
obligations under, contracts, agreements and any or all other documents and instruments, and to
do and perform all such things as may be in furtherance of Trust purposes or necessary or
appropriate for the offer and sale of the Units and the conduct of Trust activities;
(b) To establish, maintain, deposit into, sign checks and/or otherwise draw upon accounts
on behalf of the Trust with appropriate banking and savings institutions, and execute and/or
accept any instrument or agreement incidental to the Trusts business and in furtherance of its
purposes, any such instrument or agreement so executed or accepted by the Managing Owner in the
Managing Owners name shall be deemed executed and accepted on behalf of the Trust by the
Managing Owner;
(c) To deposit, withdraw, pay, retain and distribute the Trust Estate or any portion
thereof in any manner consistent with the provisions of this Trust Agreement;
(d) To supervise the preparation and filing of the Registration Statement and supplements
and amendments thereto, and the Prospectus;
(e) To pay or authorize the payment of distributions to the Unitholders and expenses of
the Trust;
(f) To make any elections on behalf of the Trust under the Code, or any other applicable
U.S. federal or state tax law as the Managing Owner shall determine to be in the best interests
of the Trust; and
(g) In the sole discretion of the Managing Owner, to admit an Affiliate or Affiliates of
the Managing Owner as additional Managing Owners; provided, that notwithstanding the foregoing,
the Managing Owner may not admit Affiliate(s) of the Managing Owner as an additional Managing
Owner if it has received notice of its removal as a Managing Owner, pursuant to Section 8.2(d)
hereof, or if the concurrence of at least a majority in interest (over 50%) of the outstanding
Units (not including Units owned by the Managing Owner) is not obtained.
4.3. Obligations of the Managing Owner. In addition to the obligations expressly
provided by the Delaware Trust Statute or this Trust Agreement, the Managing Owner shall:
(a) Devote such of its time to the business and affairs of the Trust as it shall, in its
discretion exercised in good faith, determine to be necessary to conduct the business and
affairs of the Trust for the benefit of the Trust and the Limited Owners;
(b) Execute, file, record and/or publish all certificates, statements and other documents
and do any and all other things as may be appropriate for the formation, qualification and
operation of the Trust and for the conduct of its business in all appropriate jurisdictions;
(c) Retain independent public accountants to audit the accounts of the Trust;
(d) Employ attorneys to represent the Trust;
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(e) Use its best efforts to maintain the status of the Trust as a statutory trust for
state law purposes, and as a grantor trust for U.S. federal income tax purposes;
(f) Have fiduciary responsibility for the safekeeping and use of the Trust Estate, whether
or not in the Managing Owners immediate possession or control;
(g) enter into a Participant Agreement with each Participant and discharge the duties and
responsibilities of the Trust and the Managing Owner thereunder;
(h) receive from Participants and process properly submitted Purchase Order Subscription
Agreements, as described in Section 3.3(a)(i);
(i) in connection with Purchase Order Subscription Agreements, receive Creation Basket
Capital Contributions from Participants;
(j) in connection with Purchase Order Subscription Agreements, deliver or cause the
delivery of Creation Baskets to the Depository for the account of the Participant submitting a
Purchase Order Subscription Agreement for which the Managing Owner has received the requisite
Transaction Fee and the Trust has received the requisite Purchase Order Capital Contribution,
as described in Section 3.3(c);
(k) receive from Participants and process properly submitted Redemption Orders, as
described in Section 7.1(a), or as may from time to time be permitted by Section 7.2;
(l) in connection with Redemption Orders, receive from the redeeming Participant through
the Depository, and thereupon cancel or cause to be cancelled, Limited Units corresponding to
the Redemption Baskets to be redeemed as described in Section 7.1, or as may from time to time
be permitted by Section 7.2;
(m) interact with the Depository as required; and
(n) delegate those of its duties hereunder as it shall determine from time to time to one
or more Administrators or commodity trading advisors.
4.4. General Prohibitions. The Trust shall not:
(a) Invest proceeds received on the issuance or sale of Units in anything other than
Master Fund Shares;
(b) Reinvest distributions received in respect of Master Fund Shares;
(c) Redeem Master Fund Shares other than to fund a redemption request by a Participant;
(d) Borrow money from or loan money to any Unitholder (including the Managing Owner) or
other Person;
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(e) Create, incur, assume or suffer to exist any lien, mortgage, pledge conditional sales
or other title retention agreement, charge, security interest or encumbrance, except (i) liens
for taxes not delinquent or being contested in good faith and by appropriate proceedings and
for which appropriate reserves have been established, (ii) deposits or pledges to secure
obligations under workmens compensation, social security or similar laws or under unemployment
insurance, (iii) deposits or pledges to secure contracts (other than contracts for the payment
of money), leases, statutory obligations, surety and appeal bonds and other obligations of like
nature arising in the ordinary course of business, or (iv) mechanics, warehousemens,
carriers, workmens, materialmens or other like liens arising in the ordinary course of
business with respect to obligations which are not due or which are being contested in good
faith, and for which appropriate reserves have been established if required by generally
accepted accounting principles, and liens arising under ERISA; or
(f) Cause the Trust to elect to be treated as an association taxable as a corporation for
U.S. federal income tax purposes.
4.5. Liability of Covered Persons. A Covered Person shall have no liability to the
Trust or to any Unitholder or other Covered Person for any loss suffered by the Trust which arises
out of any action or inaction of such Covered Person if such Covered Person, in good faith,
determined that such course of conduct was in the best interest of the Trust and such course of
conduct did not constitute gross negligence or willful misconduct of such Covered Person. Subject
to the foregoing, neither the Managing Owner nor any other Covered Person shall be personally
liable for the return or repayment of all or any portion of the capital or profits of any Limited
Owner or assignee thereof, it being expressly agreed that any such return of capital or profits
made pursuant to this Trust Agreement shall be made solely from the assets of the Trust without any
rights of contribution from the Managing Owner or any other Covered Person. A Covered Person shall
not be liable for the conduct or misconduct of any Administrator or other delegatee selected by the
Managing Owner with reasonable care.
4.6. Fiduciary Duty.
(a) To the extent that, at law or in equity, the Managing Owner has duties (including
fiduciary duties) and liabilities relating thereto to the Trust, the Unitholders or to any
other Person, the Managing Owner acting under this Agreement shall not be liable to the Trust,
the Unitholders or to any other Person for its good faith reliance on the provisions of this
Agreement subject to the standard of care in Section 4.5 herein. The provisions of this
Agreement, to the extent that they restrict the duties and liabilities of the Managing Owner
otherwise existing at law or in equity are agreed by the parties hereto to replace such other
duties and liabilities of the Managing Owner. Any material changes in the Trusts basic
investment policies or structure shall occur only upon the written approval or affirmative vote
of Limited Owners holding Units equal to at least a majority (over 50%) of the Net Asset Value
(excluding Units held by the Managing Owner and its Affiliates) of the Trust pursuant to
Section 11.1(a) below.
(b) Unless otherwise expressly provided herein:
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(i) whenever a conflict of interest exists or arises between the Managing Owner or
any of its Affiliates, on the one hand, and the Trust or any Unitholder or any other
Person, on the other hand; or
(ii) whenever this Agreement or any other agreement contemplated herein or therein
provides that the Managing Owner shall act in a manner that is, or provides terms that
are, fair and reasonable to the Trust, any Unitholder or any other Person,
the Managing Owner shall resolve such conflict of interest, take such action or provide such terms,
considering in each case the relative interest of each party (including its own interest) to such
conflict, agreement, transaction or situation and the benefits and burdens relating to such
interests, any customary or accepted industry practices, and any applicable generally accepted
accounting practices or principles. In the absence of bad faith by the Managing Owner, the
resolution, action or terms so made, taken or provided by the Managing Owner shall not constitute a
breach of this Agreement or any other agreement contemplated herein or of any duty or obligation of
the Managing Owner at law or in equity or otherwise.
(c) The Managing Owner and any Affiliate of the Managing Owner may engage in or possess an
interest in other profit-seeking or business ventures of any nature or description,
independently or with others, whether or not such ventures are competitive with the Trust and
the doctrine of corporate opportunity, or any analogous doctrine, shall not apply to the
Managing Owner. If the Managing Owner acquires knowledge of a potential transaction, agreement,
arrangement or other matter that may be an opportunity for the Trust, it shall have no duty to
communicate or offer such opportunity to the Trust, and the Managing Owner shall not be liable
to the Trust or to the Unitholders for breach of any fiduciary or other duty by reason of the
fact that the Managing Owner pursues or acquires for, or directs such opportunity to another
Person or does not communicate such opportunity or information to the Trust. Neither the Trust
nor any Unitholder shall have any rights or obligations by virtue of this Agreement or the
trust relationship created hereby in or to such independent ventures or the income or profits
or losses derived therefrom, and the pursuit of such ventures, even if competitive with the
activities of the Trust, shall not be deemed wrongful or improper. Except to the extent
expressly provided herein, the Managing Owner may engage or be interested in any financial or
other transaction with the Trust, the Unitholders or any Affiliate of the Trust or the
Unitholders.
4.7. Indemnification of the Managing Owner.
(a) The Managing Owner shall be indemnified by the Trust against any losses, judgments,
liabilities, expenses and amounts paid in settlement of any claims sustained by the Managing
Owner in connection with its activities for the Trust, provided that (i) the Managing Owner was
acting on behalf of or performing services for the Trust and has determined, in good faith,
that such course of conduct was in the best interests of the Trust and such liability or loss
was not the result of gross negligence, willful misconduct, or a breach of this Trust Agreement
on the part of the Managing Owner and (ii) any such indemnification will only be recoverable
from the Trust Estate. All rights to indemnification permitted herein and payment of associated
expenses shall not be affected by the dissolution or other cessation to exist of the Managing
Owner, or the withdrawal, adjudication of
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bankruptcy or insolvency of the Managing Owner, or the filing of a voluntary or
involuntary petition in bankruptcy under Title 11 of the Code by or against the Managing Owner.
The source of payments made in respect of indemnification under this Trust Agreement shall be
the assets of the Trust.
(b) Notwithstanding the provisions of Section 4.7(a) above, the Managing Owner and any
Person acting as broker-dealer for the Trust shall not be indemnified for any losses,
liabilities or expenses arising from or out of an alleged violation of U.S. federal or state
securities laws unless (i) there has been a successful adjudication on the merits of each count
involving alleged securities law violations as to the particular indemnitee and the court
approves the indemnification of such expenses (including, without limitation, litigation
costs), (ii) such claims have been dismissed with prejudice on the merits by a court of
competent jurisdiction as to the particular indemnitee and the court approves the
indemnification of such expenses (including, without limitation, litigation costs) or (iii) a
court of competent jurisdiction approves a settlement of the claims against a particular
indemnitee and finds that indemnification of the settlement and related costs should be made.
(c) The Trust shall not incur the cost of that portion of any insurance which insures any
party against any liability, the indemnification of which is herein prohibited.
(d) Expenses incurred in defending a threatened or pending civil, administrative or
criminal action, suit or proceeding against the Managing Owner shall be paid by the Trust in
advance of the final disposition of such action, suit or proceeding, if: (i) the legal action
relates to the performance of duties or services by the Managing Owner on behalf of the Trust;
(ii) the legal action is initiated by a third party who is not a Limited Owner or the legal
action is initiated by a Limited Owner and a court of competent jurisdiction specifically
approves such advance; and (iii) the Managing Owner undertakes to repay the advanced funds with
interest to the Trust in cases in which it is not entitled to indemnification under this
Section 4.7.
(e) The term Managing Owner as used only in this Section 4.7 shall include, in addition
to the Managing Owner, any other Covered Person performing services on behalf of the Trust and
acting within the scope of the Managing Owners authority as set forth in this Trust Agreement.
(f) In the event the Trust is made a party to any claim, dispute, demand or litigation or
otherwise incurs any loss, liability, damage, cost or expense as a result of or in connection
with any Limited Owners (or assignees) obligations or liabilities unrelated to Trust
business, such Limited Owner (or assignees cumulatively) shall indemnify, defend, hold
harmless, and reimburse the Trust for all such loss, liability, damage, cost and expense
incurred, including attorneys and accountants fees.
4.8. Expenses and Limitations Thereon.
(a) (i) The Managing Owner or an Affiliate of the Managing Owner shall be responsible for
the payment of all Organization and Offering Expenses incurred in connection with the creation
of the Trust and sale of Units during or prior to the Initial Offering Period; provided,
however, that the amount of such Organization and Offering Expenses paid by the Managing
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Owner shall be subject to reimbursement by the Trust to the Managing Owner, without
interest, in up to 72 monthly payments during each of the first 72 months of the Continuous
Offering Period. In the event that the amount of the Organization and Offering Expenses
incurred in connection with the creation of the Trust and sale of Units during the Initial
Offering Period and paid by the Managing Owner is not fully reimbursed by the end of the
72nd month of the Continuous Offering Period, the Managing Owner shall not be
entitled to receive, and the Trust shall not be required to pay, any unreimbursed portion of
such expenses outstanding as of such date. In the event the Trust terminates prior to the
completion of any reimbursement contemplated by this Section 4.8(a)(i), the Managing Owner
shall not be entitled to receive, and the Trust shall not be required to pay, any unreimbursed
portion of such expenses outstanding as of the date of such termination.
(ii) The Managing Owner or an Affiliate of the Managing Owner also shall be
responsible for the payment of all Organization and Offering Expenses incurred after the
Initial Offering Period; provided, however, that the amount of such Organization and
Offering Expenses paid by the Managing Owner shall be subject to reimbursement by the
Trust to the Managing Owner, without interest, in up to 72 monthly payments during each of
the first 72 months following the month in which such expenses were paid by the Managing
Owner. In the event that the amount of the Organization and Offering Expenses incurred in
connection with the sale of Units during the Continuous Offering Period and paid by the
Managing Owner is not fully reimbursed by the end of the 72nd month following
the month in which such expenses were paid by the Managing Owner, the Managing Owner shall
not be entitled to receive, and the Trust shall not be required to pay, any unreimbursed
portion of such expenses outstanding as of such date. In the event the Trust terminates
prior to the completion of any reimbursement contemplated by this Section 4.8(a)(ii), the
Managing Owner shall not be entitled to receive, and the Trust shall not be required to
pay, any unreimbursed portion of such expenses outstanding as of the date of such
termination.
(iii) In no event shall the Managing Owner be entitled to reimbursement under Section
4.8(a)(i) in an aggregate amount in excess of [___%] of the aggregate amount of all
subscriptions accepted during the Initial Offering Period and the first 72 months of the
Continuous Offering Period. In no event shall the aggregate amount of the reimbursement
payments from the Trust to the Managing Owner under Sections 4.8(a)(i) and (ii) in any
month exceed [___%] per annum of the Net Asset Value of the Trust as of the beginning of
such month. Notwithstanding anything else contained herein, in the event the Managing
Owner is removed pursuant to Section 8.2(d)(ii) hereof, all Organization and Offering
Expenses shall be immediately repaid to the Managing Owner or arrangements for such
payment shall be made to the satisfaction of the Managing Owner in its sole discretion.
(iv) Organization and Offering Expenses shall mean those expenses incurred in
connection with the formation, qualification and registration of the Trust and the Units
and in offering, distributing and processing the Units under applicable U.S. federal and
state law, and any other expenses actually incurred and, directly or indirectly, related
to the organization of the Trust or the initial and continuous offering of the Units,
including, but not limited to, expenses such as: (i) initial and ongoing registration
fees,
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pre-paid licensing fees, filing fees, escrow fees and taxes, (ii) costs of preparing,
printing (including typesetting), amending, supplementing, mailing and distributing the
Registration Statement, the Exhibits thereto and the Prospectus during the Initial
Offering Period and the Continuous Offering Period, (iii) the costs of qualifying,
printing, (including typesetting), amending, supplementing, mailing and distributing sales
materials used in connection with the offering and issuance of the Units during the
Initial Offering Period and the Continuous Offering Period, (iv) travel, telegraph,
telephone and other expenses in connection with the offering and issuance of the Units
during the Initial Offering Period and the Continuous Offering Period, (v) accounting,
auditing and legal fees (including disbursements related thereto) incurred in connection
therewith, (vi) and (vi) any extraordinary expenses (including, but not limited to, legal
claims and liabilities and litigation costs and any permitted indemnification associated
therewith) related thereto.
(b) All ongoing charges, costs and expenses of the Trusts operation, including, but not
limited to, the routine expenses associated with: (i) preparation of monthly, quarterly, annual
and other reports required by applicable U.S. federal and state regulatory authorities; (ii)
Trust meetings and preparing, printing and mailing of proxy statements and reports to
Unitholders; (iii) the payment of any distributions related to redemption of Units; (iv)
routine services of the Trustee, legal counsel and independent accountants; (v) routine
accounting and bookkeeping services, whether performed by an outside service provider or by
Affiliates of the Managing Owner; (vi) postage and insurance; (vii) client relations and
services; (viii) computer equipment and system maintenance; (ix) the Managing Owners
management fee described in Section 4.8(c) below and any ongoing licensing fees; and (x)
extraordinary expenses (including, but not limited to, legal claims and liabilities and
litigation costs and any indemnification related thereto) shall be billed to and/or paid by the
Trust.
(c) The Managing Owner or any Affiliate of the Managing Owner may only be reimbursed for
the actual cost to the Managing Owner or such Affiliate of any expenses which it advances on
behalf of the Trust for which payment the Trust is responsible. In addition, payment to the
Managing Owner or such Affiliate for indirect expenses incurred in performing services for the
Trust in its capacity as the managing owner of the Trust, such as salaries and fringe benefits
of officers and directors, rent or depreciation, utilities and other administrative items
generally falling within the category of the Managing Owners overhead, is prohibited.
4.9. Compensation to the Managing Owner. The Managing Owner shall be entitled to
compensation for its services as managing owner of the Trust as set forth in the Prospectus.
4.10. Other Business of Unitholders. Except as otherwise specifically provided herein,
any of the Unitholders and any shareholder, officer, director, member, manager, employee or other
person holding a legal or beneficial interest in an entity which is a Unitholder, may engage in or
possess an interest in other business ventures of every nature and description, independently or
with others, and the pursuit of such ventures, even if competitive with the business of the Trust,
shall not be deemed wrongful or improper.
4.11. Voluntary Withdrawal of the Managing Owner. The Managing Owner may withdraw
voluntarily as the Managing Owner of the Trust only upon one hundred and twenty (120) days
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prior written notice to all Limited Owners and the Trustee. If the withdrawing Managing Owner
is the last remaining Managing Owner, Limited Owners holding Units equal to at least a majority
(over 50%) of the Net Asset Value (not including Units held by the Managing Owner) may vote to
elect and appoint, effective as of a date on or prior to the withdrawal, a successor Managing Owner
who shall carry on the business of the Trust. In the event of its removal or withdrawal, the
Managing Owner shall be entitled to redemption of its Units at the Net Asset Value. If the Managing
Owner withdraws and a successor Managing Owner is named, the withdrawing Managing Owner shall pay
all expenses as a result of its withdrawal.
4.12. Authorization of Registration Statement. Each Limited Owner (or any permitted
assignee thereof) hereby agrees that the Trust, the Managing Owner and the Trustee are authorized
to execute, deliver and perform the agreements, acts, transactions and matters contemplated hereby
or described in or contemplated by the Registration Statement on behalf of the Trust without any
further act, approval or vote of the Limited Owners of the Trust, notwithstanding any other
provision of this Trust Agreement, the Delaware Trust Statute or any applicable law, rule or
regulation.
4.13. Litigation. The Managing Owner is hereby authorized to prosecute, defend, settle
or compromise actions or claims at law or in equity as may be necessary or proper to enforce or
protect the Trusts interests. The Managing Owner shall satisfy any judgment, decree or decision of
any court, board or authority having jurisdiction or any settlement of any suit or claim prior to
judgment or final decision thereon, first, out of any insurance proceeds available therefore, next,
out of the Trusts assets and, thereafter, out of the assets (to the extent that it is permitted to
do so under the various other provisions of this Agreement) of the Managing Owner.
ARTICLE V
TRANSFERS OF UNITS
5.1. General Prohibition. A Limited Owner may not sell, assign, transfer or otherwise
dispose of, or pledge, hypothecate or in any manner encumber any or all of its Units or any part of
its right, title and interest in the capital or profits in the Trust except as permitted in this
Article V and any act in violation of this Article V shall not be binding upon or recognized by the
Trust (regardless of whether the Managing Owner shall have knowledge thereof), unless approved in
writing by the Managing Owner.
5.2. Transfer of Managing Owners General Units.
(a) Upon an Event of Withdrawal (as defined in Section 13.1), the Managing Owners General
Units shall be purchased by the Trust for a purchase price in cash equal to the Net Asset Value
thereof. The Managing Owner will not cease to be a Managing Owner of the Trust merely upon the
occurrence of its making an assignment for the benefit of creditors, filing a voluntary
petition in bankruptcy, filing a petition or answer seeking for itself any reorganization,
arrangement, composition, readjustment, liquidation, dissolution or similar relief under any
statute, law or regulation, filing an answer or other pleading admitting or failing to contest
material allegations of a petition filed against it in any proceeding of this
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nature or seeking, consenting to or acquiescing in the appointment of a trustee, receiver
or liquidator for itself or of all or any substantial part of its properties.
(b) To the full extent permitted by law, and on sixty (60) days prior written notice to
the Limited Owners, of their right to vote thereon, if the transaction is other than with an
Affiliated entity, nothing in this Trust Agreement shall be deemed to prevent the merger of the
Managing Owner with another corporation or other entity, the reorganization of the Managing
Owner into or with any other corporation or other entity, the transfer of all the capital stock
of the Managing Owner or the assumption of the rights, duties and liabilities of the Managing
Owner by, in the case of a merger, reorganization or consolidation, the surviving corporation
or other entity by operation of law or the transfer of the Managing Owners Units to an
Affiliate of the Managing Owner. Without limiting the foregoing, none of the transactions
referenced in the preceding sentence shall be deemed to be a voluntary withdrawal for purposes
of Section 4.11 or an Event of Withdrawal or assignment of Units for purposes of Sections
5.2(a) or 5.2(c).
(c) Upon assignment of all of its Units, the Managing Owner shall not cease to be a
Managing Owner of the Trust, or to have the power to exercise any rights or powers as a
Managing Owner, or to have liability for the obligations of the Trust under Section 1.7 hereof,
until an additional Managing Owner, who shall carry on the business of the Trust, has been
admitted to the Trust.
5.3. Transfer of Limited Units. Beneficial Owners that are not DTC Participants may
transfer Limited Units by instructing the DTC Participant or Indirect Participant holding the
Limited Units for such Beneficial Owner in accordance with standard securities industry practice.
Beneficial Owners that are DTC Participants may transfer Limited Units by instructing the
Depository in accordance with the rules of the Depository and standard securities industry
practice.
ARTICLE VI
DISTRIBUTIONS
6.1. Distributions of Cash Received from the Master Fund Other than Redemption
Proceeds. In the event the Trust receives any distributions of cash from the Master Fund other
than from the Trusts redemption of interests in the Master Fund, the Managing Owner shall cause
the Trust to distribute such amounts to the Unitholders in accordance with their interests therein
as promptly as practicable. Any such distributions shall be made in a manner that is in compliance
with the Federal income tax rules applicable to grantor trusts and Treasury Regulation Section
301.7701-4(c). Any temporary investment of such cash receipts prior to their distribution shall be
made in short-term debt instruments in compliance with the requirements of Treasury Regulation
Section 301.7701-4(c) as interpreted by the IRS so as to ensure that the Trust maintains its status
as a fixed investment trust within the meaning of such Regulation.
6.2. Liability for State and Local and Other Taxes. In the event that the Trust shall
be separately subject to taxation by any state or local or by any foreign taxing authority, the
Trust shall be obligated to pay such taxes to such jurisdiction. In the event that the Trust shall
be required to make payments to any Federal, state or local or any foreign taxing authority in
respect
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of any Unitholders allocable share of income, the amount of such taxes shall be considered a
loan by the Trust to such Unitholder, and such Unitholder shall be liable for, and shall pay to the
Trust, any taxes so required to be withheld and paid over by the Trust within ten (10) days after
the Managing Owners request therefore. Such Unitholder shall also be liable for (and the Managing
Owner shall be entitled to redeem additional Units of the foreign Unitholder as necessary to
satisfy) interest on the amount of taxes paid over by the Trust to the IRS or other taxing
authority, from the date of the Managing Owners request for payment to the date of payment or the
redemption, as the case may be, at the rate of two percent (2%) over the prime rate charged from
time to time by Citibank, N.A. The amount, if any, payable by the Trust to the Unitholder in
respect of its Units so redeemed, or in respect of any other actual distribution by the Trust to
such Unitholder, shall be reduced by any obligations owed to the Trust by the Unitholder,
including, without limitation, the amount of any taxes required to be paid over by the Trust to the
IRS or other taxing authority and interest thereon as aforesaid. Amounts, if any, deducted by the
Trust from any actual distribution or redemption payment to such Unitholder shall be treated as an
actual distribution to such Unitholder for all purposes of this Trust Agreement.
ARTICLE VII
REDEMPTIONS
7.1. Redemption of Redemption Baskets. The following procedures, as supplemented by
the more detailed procedures specified in the attachment to the Participant Agreement, which may be
amended from time to time in accordance with the provisions of the Participant Agreement (and any
such amendment will not constitute an amendment of this Trust Agreement), will govern the Trust
with respect to the redemption of Redemption Baskets.
(a) On any Business Day, a Participant with respect to which a Participant Agreement is in
full force and effect (as reflected on the list maintained by the Managing Owner pursuant to
Section 3.3(a)(i)) may redeem one or more Redemption Baskets standing to the credit of the
Participant on the records of the Depository by delivering a request for redemption to the
Managing Owner (such request, a Redemption Order) in the manner specified in the
procedures specified in the attachment to the Participant Agreement.
(b) To be effective, a Redemption Order must be submitted on a Business Day by the Order
Cut-Off Time in form satisfactory to the Managing Owner (the Business Day on which the
Redemption Order is so submitted, the Redemption Order Date). The Managing Owner
shall reject any Redemption Order the fulfillment of which its counsel advises may be illegal
under applicable laws and regulations, and the Managing Owner shall have no liability to any
person for rejecting a Redemption Order in such circumstances.
(c) Subject to deduction of any tax or other governmental charges due thereon, the
redemption distribution (Redemption Distribution) shall consist of cash in an amount
equal to the product obtained by multiplying (i) the number of Redemption Baskets set forth in
the relevant Redemption Order by (ii) the Net Asset Value Per Basket as of the closing time of
the Exchange or the last to close of the exchanges on which any of the Index Commodities is
traded, whichever is later, on the Redemption Order Date.
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(d) By noon, New York time, on the Business Day immediately following the Redemption Order
Date (the Redemption Settlement Time), if the Managing Owners account at the
Depository has by noon, New York time, on such day been credited with the Redemption Baskets
being tendered for redemption and the Managing Owner has by such time received the Transaction
Fee, then the Managing Owner shall deliver the Redemption Distribution through the Depository
to the account of the Participant as recorded on the book entry system of the Depository. If by
such Redemption Settlement Time the Managing Owner has not received from a redeeming
Participant all Redemption Baskets comprising the Redemption Order, the Managing Owner will (i)
settle the Redemption Order to the extent of whole Redemption Baskets received from the
Participant and (ii) keep the redeeming Participants Redemption Order open until noon, New
York time, on the first Business Day following the Redemption Settlement Date as to the balance
of the Redemption Order (such balance, the Suspended Redemption Order). If
the Redemption Basket(s) comprising the Suspended Redemption Order are credited to the Managing
Owners account at the Depository by noon, New York time, on such following Business Day, the
Redemption Distribution with respect to the Suspended Redemption Order shall be paid in the
manner provided in the second preceding sentence. If by such Redemption Settlement Time the
Managing Owner has not received from the redeeming Participant all Redemption Baskets
comprising the Suspended Redemption Order, the Managing Owner will settle the Suspended
Redemption Order to the extent of whole Redemption Baskets then received and any balance of the
Suspended Redemption will be cancelled. Notwithstanding the foregoing, when and under such
conditions as the Managing Owner may from time to time determine, the Managing Owner shall be
authorized to deliver the Redemption Distribution notwithstanding that a Redemption Basket has
not been credited to the Trusts account at the Depository if the Participant has
collateralized its obligation to deliver the Redemption Basket on such terms as the Managing
Owner may, in its sole discretion, from time to time agree.
(e) The Managing Owner may, in its discretion, suspend the right of redemption, or
postpone the Redemption Settlement Date: (i) for any period during which the Exchange is closed
other than customary weekend or holiday closings, or trading is suspended or restricted; (ii)
for any period during which an emergency exists as a result of which delivery, disposal or
evaluation of the Trusts assets is not reasonably practicable; or (iii) for such other period
as the Managing Owner determines to be necessary for the protection of Beneficial Owners. The
Managing Owner is not liable to any Person or in any way for any loss or damages that may
result from any such suspension or postponement.
(f) Redemption Baskets effectively redeemed pursuant to the provisions of this Section 7.1
shall be cancelled by the Trust in accordance with the Depositorys procedures.
(g) Baskets may not be redeemed during the Initial Offering Period.
7.2. Other Redemption Procedures. The Managing Owner from time to time may, but shall
have no obligation to, establish procedures with respect to redemption of Limited Units in lot
sizes smaller than the Redemption Basket and permitting the Redemption Distribution to be in a
form, and delivered in a manner, other than that specified in Section 7.1.
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ARTICLE VIII
THE LIMITED OWNERS
8.1. No Management or Control; Limited Liability; Exercise of Rights through
DTC. The Limited Owners shall not participate in the management or control of the Trusts
business nor shall they transact any business for the Trust or have the power to sign for or bind
the Trust, said power being vested solely and exclusively in the Managing Owner. Except as provided
in Section 8.3 hereof, no Limited Owner shall be bound by, or be personally liable for, the
expenses, liabilities or obligations of the Trust in excess of its Capital Contribution plus its
share of any Trust Estate in which such Limited Owner owns a Unit and the Trusts remaining
profits, if any. Except as provided in Section 8.3 hereof, each Limited Unit owned by a Limited
Owner shall be fully paid and no assessment shall be made against any Limited Owner. No salary
shall be paid to any Limited Owner in its capacity as a Limited Owner, nor shall any Limited Owner
have a drawing account or earn interest on its capital. By the purchase and acceptance or other
lawful delivery and acceptance of Limited Units, each Beneficial Owner shall be deemed to be a
Limited Owner and beneficiary of the Trust and vested with beneficial undivided interest in the
Trust to the extent of the Limited Units owned beneficially by such Beneficial Owner, subject to
the terms and conditions of this Trust Agreement. The rights of Beneficial Owners under this Trust
Agreement must be exercised by DTC Participants acting on their behalf in accordance with the rules
and procedures of the Depository, as provided in Section 3.4.
8.2. Rights and Duties. The Limited Owners shall have the following rights, powers,
privileges, duties and liabilities:
(a) The Limited Owners shall have the right to obtain from the Managing Owner information
regarding all things affecting the Trust, provided that such is for a purpose reasonably
related to the Limited Owners interest as a beneficial owner of the Trust, including, without
limitation, such reports as are set forth in Article IX and the list of Participants
contemplated by Section 3.3(a)(i). In the event that the Managing Owner neglects or refuses to
produce or mail to a Limited Owner a copy of the list of Participants contemplated by Section
3.3(a)(i), the Managing Owner shall be liable to such Limited Owner for the costs, including
reasonable attorneys fees, incurred by such Limited Owner to compel the production of such
information, and for any actual damages suffered by such Limited Owner as a result of such
refusal or neglect; provided, however, it shall be a defense of the Managing Owner that the
actual purpose of the Limited Owners request for such information was not reasonably related
to the Limited Owners interest as a beneficial owner in the Trust (e.g., to secure such
information in order to sell it, or to use the same for a commercial purpose unrelated to the
participation of such Limited Owner in the Trust). The foregoing rights are in addition to, and
do not limit other remedies available to Limited Owners under U.S. federal or state law.
(b) The Limited Owners shall receive the share of the distributions provided for in this
Trust Agreement in the manner and at the times provided for in this Trust Agreement.
(c) Except for the Limited Owners redemption rights set forth in Article VII hereof,
Limited Owners shall have the right to demand the return of their capital account only upon
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the dissolution and winding up of the Trust and only to the extent of funds available
therefore. In no event shall a Limited Owner be entitled to demand or receive property other
than cash. No Limited Owner shall have priority over any other Limited Owner either as to the
return of capital or as to profits, losses or distributions. No Limited Owner shall have the
right to bring an action for partition against the Trust.
(d) Limited Owners holding Units representing at least a majority (over 50%) (except in
the case of (ii) and (vii) below, in which case the Units must equal or exceed 75%) in Net
Asset Value (not including Units held by the Managing Owner and its Affiliates) may vote to (i)
continue the Trust as provided in Section 13.1(a), (ii) remove the Managing Owner on reasonable
prior written notice to the Managing Owner, (iii) elect and appoint one or more additional
Managing Owners, or consent to such matters as are set forth in Section 5.2(b), (iv) approve a
material change in the trading policies, as set forth in the Prospectus, which change shall not
be effective without the prior written approval of such majority, (v) approve the termination
of any agreement entered into between the Trust and the Managing Owner or any Affiliate of the
Managing Owner for any reason, without penalty, (vi) approve amendments to this Trust Agreement
as set forth in Section 11.1 hereof, and (vii) terminate the Trust as provided in Section
13.1(e), and in the case of (iii), (iv) and (v) in each instance on sixty (60) days prior
written notice.
Except as set forth above, the Limited Owners shall have no voting or other rights with
respect to the Trust.
8.3. Limitation on Liability.
(a) Except as provided in Sections 4.7(f), and 6.2 hereof, and as otherwise provided under
Delaware law, the Limited Owners shall be entitled to the same limitation of personal liability
extended to stockholders of private corporations for profit organized under the general
corporation law of Delaware and no Limited Owner shall be liable for claims against, or debts
of the Trust in excess of his Capital Contribution and his share of the applicable Trust Estate
and undistributed profits. In addition, and subject to the exceptions set forth in the
immediately preceding sentence, the Trust shall not make a claim against a Limited Owner with
respect to amounts distributed to such Limited Owner or amounts received by such Limited Owner
upon redemption unless, under Delaware law, such Limited Owner is liable to repay such amount.
(b) The Trust shall indemnify to the full extent permitted by law and the other provisions
of this Agreement, and to the extent of the applicable Trust Estate, each Limited Owner
(excluding the Managing Owner to the extent of its ownership of any Limited Units) against any
claims of liability asserted against such Limited Owner solely because it is a beneficial owner
of one or more Units as a Limited Owner (other than for taxes for which such Limited Owner is
liable under Section 6.2 hereof).
(c) Every written note, bond, contract, instrument, certificate or undertaking made or
issued by the Managing Owner shall give notice to the effect that the same was executed or made
by or on behalf of the Trust and that the obligations of such instrument are not binding upon
the Limited Owners individually but are binding only upon the assets and property of
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the Trust, and no resort shall be had to the Limited Owners personal property for
satisfaction of any obligation or claim thereunder, and appropriate references may be made to
this Trust Agreement and may contain any further recital which the Managing Owner deems
appropriate, but the omission thereof shall not operate to bind the Limited Owners individually
or otherwise invalidate any such note, bond, contract, instrument, certificate or undertaking.
Nothing contained in this Section 8.3 shall diminish the limitation on the liability of the
Trust to the extent set forth in Section 3.7 and 3.8 hereof.
ARTICLE IX
BOOKS OF ACCOUNT AND REPORTS
9.1. Books of Account. Proper books of account for the Trust shall be kept and shall
be audited annually by an independent certified public accounting firm selected by the Managing
Owner in its sole discretion, and there shall be entered therein all transactions, matters and
things relating to the Trusts business as are required by the CE Act and regulations promulgated
thereunder, and all other applicable rules and regulations, and as are usually entered into books
of account kept by Persons engaged in a business of like character. The books of account shall be
kept at the principal office of the Trust and each Limited Owner (or any duly constituted designee
of a Limited Owner) shall have, at all times during normal business hours upon reasonable advance
written notice, access to and the right to inspect and copy the same (at such Limited Owners own
cost) for any purpose reasonably related to the Limited Owners interest as a beneficial owner of
the Trust, including such access as is required under CFTC rules and regulations. Such books of
account shall be kept, and the Trust shall report its Profits and Losses on, the accrual method of
accounting for financial accounting purposes on a Fiscal Year basis as described in Article X.
9.2. Annual Reports and Monthly Statements. Each Limited Owner shall be furnished as
of the end of each month and as of the end of each Fiscal Year with (a) such reports (in such
detail) as are required to be given to Limited Owners by the CFTC and the NFA, (b) any other
reports (in such detail) required to be given to Limited Owners by any other governmental authority
which has jurisdiction over the activities of the Trust and (c) any other reports or information
which the Managing Owner, in its discretion, determines to be necessary or appropriate.
9.3. Tax Information. Appropriate tax information (adequate to enable each Limited
Owner to complete and file its U.S. federal tax return) shall be delivered to each Limited Owner as
soon as practicable following the end of each Fiscal Year but generally no later than March 30.
9.4. Calculation of Net Asset Value. Net Asset Value shall be calculated at such times
as the Managing Owner shall determine from time to time.
9.5. Maintenance of Records. The Managing Owner shall maintain: (a) for a period of at
least six (6) Fiscal Years all books of account required by Section 9.1 hereof; a list of the names
and last known address of, and number of Units owned by, all Unitholders, a copy of the Certificate
of Trust and all certificates of amendment thereto, together with executed copies of any powers of
attorney pursuant to which any certificate has been executed; copies of the Trusts Federal, state
and local income tax returns and reports, if any; and a record of the information obtained to
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indicate that a Limited Owner meets the investor suitability standards set forth in the
Prospectus; and (b) for a period of at least six (6) Fiscal Years copies of any effective written
trust agreements, subscription agreements and any financial statements of the Trust. The Managing
Owner may keep and maintain the books and records of the Trust in paper, magnetic, electronic or
other format at the Managing Owner may determine in its sole discretion, provided the Managing
Owner uses reasonable care to prevent the loss or destruction of such records.
9.6. Certificate of Trust. Except as otherwise provided in the Delaware Trust Statute
or this Trust Agreement, the Managing Owner shall not be required to mail a copy of any Certificate
of Trust filed with the Secretary of State of the State of Delaware to each Limited Owner; however,
such certificates shall be maintained at the principal office of the Trust and shall be available
for inspection and copying by the Limited Owners in accordance with this Trust Agreement.
ARTICLE X
FISCAL YEAR
10.1. Fiscal Year. The Fiscal Year shall begin on the 1st day of January and end on
the 31st day of December of each year. The first Fiscal Year of the Trust shall commence
on the date of filing of the Certificate of Trust and end on the 31st day of December
2006. The Fiscal Year in which the Trust shall terminate shall end on the date of termination.
ARTICLE XI
AMENDMENT OF TRUST AGREEMENT; MEETINGS
11.1. Amendments to the Trust Agreement.
(a) Amendments to this Trust Agreement may be proposed by the Managing Owner or by Limited
Owners holding Units equal to at least ten percent (10%) of the Net Asset Value of the Trust.
Following such proposal, the Managing Owner shall submit to the Limited Owners a verbatim
statement of any proposed amendment, and statements concerning the legality of such amendment
and the effect of such amendment on the limited liability of the Limited Owners. The Managing
Owner shall include in any such submission its recommendations as to the proposed amendment.
The amendment shall become effective only upon the written approval or affirmative vote of
Limited Owners holding Units (excluding Units held by the Managing Owner and its Affiliates)
equal to at least a majority (over 50%) of the Net Asset Value (excluding Units held by the
Managing Owner and its Affiliates) of the Trust or such higher percentage as may be required by
applicable law, and upon receipt of an opinion of independent legal counsel to the effect that
the amendment is legal, valid and binding and will not adversely affect the limitations on
liability of the Limited Owners as described in Section 8.3 of this Trust Agreement.
Notwithstanding the foregoing, where any action taken or authorized pursuant to any provision
of this Trust Agreement requires the approval or affirmative vote of Limited Owners holding a
greater interest in Limited Units than is required to amend this Trust Agreement under this
Section 11.1, and/or
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the approval or affirmative vote of the Managing Owner, an amendment to such provision(s)
shall be effective only upon the written approval or affirmative vote of the minimum number of
Unitholders which would be required to take or authorize such action, or as may otherwise be
required by applicable law, and upon receipt of an opinion of independent legal counsel as set
forth above in this Section 11.1.
(b) Notwithstanding any provision to the contrary contained in Section 11.1(a) hereof, the
Managing Owner may, without the approval of the Limited Owners, make such amendments to this
Trust Agreement which: (i) are necessary to add to the representations, duties or obligations
of the Managing Owner or surrender any right or power granted to the Managing Owner herein, for
the benefit of the Limited Owners; (ii) are necessary to cure any ambiguity, to correct or
supplement any provision herein which may be inconsistent with any other provision herein or in
the Prospectus, or to make any other provisions with respect to matters or questions arising
under this Trust Agreement or the Prospectus which will not be inconsistent with the provisions
of the Trust Agreement or the Prospectus; or (iii) the Managing Owner deems advisable;
provided, however, that no amendment shall be adopted pursuant to this clause (iii) unless the
adoption thereof: (A) is not adverse to the interests of the Limited Owners; (B) is consistent
with Section 4.1 hereof; (C) except as otherwise provided in Section 11.1(c) below, does not
affect the allocation of Profits and Losses among the Limited Owners or between the Limited
Owners and the Managing Owner; and (D) does not adversely affect the limitations on liability
of the Limited Owners, as described in Article VIII hereof or the status of the Trust as a
grantor trust for U.S. federal income tax purposes. Amendments to this Trust Agreement which
adversely affect (i) the rights of Limited Owners, (ii) the appointment of a new Managing Owner
pursuant to Section 4.2(g) above, (iii) the dissolution of the Trust pursuant to Section
13.1(f) below and (iv) any material changes in the Trusts basic investment policies or
structure shall occur only upon the written approval or affirmative vote of Limited Owners
holding Units equal to at least a majority (over 50%) of the Net Asset Value (excluding Units
held by the Managing Owner and its Affiliates) pursuant to Section 11.1(a) above.
(c) Notwithstanding any provision to the contrary contained in Sections 11.1(a) and (b)
hereof, the Managing Owner may, without the approval of the Limited Owners, amend the
provisions of this Trust Agreement if the Trust is advised at any time by the Trusts
accountants or legal counsel that the amendments made are necessary to ensure that the Trusts
status as a grantor trust will be respected for U.S. federal income tax purposes.
(d) Upon amendment of this Trust Agreement, the Certificate of Trust shall also be
amended, if required by the Delaware Trust Statute, to reflect such change.
(e) No amendment shall be made to this Trust Agreement without the consent of the Trustee
if it reasonably believes that such amendment adversely affects any of the rights, duties or
liabilities of the Trustee; provided, however, that the Trustee may not withhold its consent
for any action which the Limited Owners are permitted to take under Section 8.2(d) above. At
the expense of the Managing Owner, the Trustee shall execute and file any amendment to the
Certificate of Trust if so directed by the Managing Owner or if such amendment is required in
the opinion of the Trustee.
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(f) The Trustee shall be under no obligation to execute any amendment to the Trust
Agreement or to any agreement to which the Trust is a party until it has received an
instruction letter from the Managing Owner, in form and substance reasonably satisfactory to
the Trustee (i) directing the Trustee to execute such amendment, (ii) representing and
warranting to the Trustee that such execution is authorized and permitted by the terms of the
Trust Agreement and (if applicable) such other agreement to which the Trust is a party and does
not conflict with or violate any other agreement to which the Trust is a party and (iii)
confirming that such execution and acts related thereto are covered by the indemnity provisions
of the Trust Agreement in favor of the Trustee.
(g) No provision of this Agreement may be amended, waived or otherwise modified orally but
only by a written instrument adopted in accordance with this Section.
11.2. Meetings of the Trust. Meetings of the Unitholders may be called by the
Managing Owner and will be called by it upon the written request of Limited Owners holding Units
equal to at least ten percent (10%) of the Net Asset Value of the Trust. Such call for a meeting
shall be deemed to have been made upon the receipt by the Managing Owner of a written request from
the requisite percentage of Limited Owners. The Managing Owner shall deposit in the United States
mails, within fifteen (15) days after receipt of said request, written notice to all Unitholders
thereof of the meeting and the purpose of the meeting, which shall be held on a date, not less than
thirty (30) nor more than sixty (60) days after the date of mailing of said notice, at a reasonable
time and place. Any notice of meeting shall be accompanied by a description of the action to be
taken at the meeting and an opinion of independent counsel as to the effect of such proposed action
on the liability of Limited Owners for the debts of the Trust. Unitholders may vote in person or by
proxy at any such meeting.
11.3. Action without a Meeting. Any action required or permitted to be taken by
Unitholders by vote may be taken without a meeting by written consent setting forth the actions so
taken. Such written consents shall be treated for all purposes as votes at a meeting. If the vote
or consent of any Unitholder to any action of the Trust or any Unitholder, as contemplated by this
Agreement, is solicited by the Managing Owner, then the solicitation shall be effected by notice to
each Unitholder given in the manner provided in Section 15.4. The vote or consent of each
Unitholder so solicited shall be deemed conclusively to have been cast or granted as requested in
the notice of solicitation, whether or not the notice of solicitation is actually received by that
Unitholder, unless the Unitholder expresses written objection to the vote or consent by notice
given in the manner provided in Section 15.4 below and actually received by the Trust within twenty
(20) days after the notice of solicitation is effected. The Managing Owner and all persons dealing
with the Trust shall be entitled to act in reliance upon any vote or consent which is deemed cast
or granted pursuant to this Section and shall be fully indemnified by the Trust in so doing. Any
action taken or omitted in reliance on any such deemed vote or consent of one or more Unitholders
shall not be void or voidable by reason of timely communication made by or on behalf of all or any
of such Unitholders in any manner other than as expressly provided in Section 15.4.
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ARTICLE XII
TERM
12.1. Term. The term for which the Trust is to exist commenced on the date of the
filing of the Certificate of Trust, and shall terminate pursuant to the provisions of Article XIII
hereof or as otherwise provided by law.
ARTICLE XIII
TERMINATION
13.1. Events Requiring Dissolution of the Trust. The Trust shall dissolve at any time
upon the happening of any of the following events:
(a) The filing of a certificate of dissolution or revocation of the Managing Owners
charter (and the expiration of 90 days after the date of notice to the Managing Owner of
revocation without a reinstatement of its charter) or upon the withdrawal, removal,
adjudication or admission of bankruptcy or insolvency of the Managing Owner (each of the
foregoing events an Event of Withdrawal) unless at the time there is at least one remaining
Managing Owner and that remaining Managing Owner carries on the business of the Trust or (ii)
within ninety (90) days of such Event of Withdrawal all the remaining Unitholders agree in
writing to continue the business of the Trust and to select, effective as of the date of such
event, one or more successor Managing Owners. If the Trust is terminated as the result of an
Event of Withdrawal and a failure of all remaining Unitholders to continue the business of the
Trust and to appoint a successor Managing Owner as provided in clause (a)(ii) above, within 120
days of such Event of Withdrawal, Limited Owners holding Units representing at least a majority
(over 50%) of the Net Asset Value (not including Units held by the Managing Owner and its
Affiliates) may elect to continue the business of the Trust by forming a new statutory trust
(the Reconstituted Trust) on the same terms and provisions as set forth in this Trust
Agreement (whereupon the parties hereto shall execute and deliver any documents or instruments
as may be necessary to reform the Trust). Any such election must also provide for the election
of a Managing Owner to the Reconstituted Trust. If such an election is made, all Limited Owners
of the Trust shall be bound thereby and continue as Limited Owners of the Reconstituted Trust.
(b) The occurrence of any event which would make unlawful the continued existence of the
Trust.
(c) In the event of the suspension, revocation or termination of the Managing Owners
registration as a commodity pool operator under the CE Act, or membership as a commodity pool
operator with the NFA (if, in either case, such registration is required under the CE Act or
the rules promulgated thereunder) unless at the time there is at least one remaining Managing
Owner whose registration or membership has not been suspended, revoked or terminated.
(d) The Trust becomes insolvent or bankrupt.
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(e) The Limited Owners holding Units representing at least a majority (over 75%) of the
Net Asset Value (which excludes the Units of the Managing Owner) vote to dissolve the Trust,
notice of which is sent to the Managing Owner not less than ninety (90) Business Days prior to
the effective date of termination.
(f) The determination of the Managing Owner that the aggregate net assets of the Trust in
relation to the operating expenses of the Trust make it unreasonable or imprudent to continue
the business of the Trust, or, in the exercise of its reasonable discretion, the determination
by the Managing Owner to dissolve the Trust because the aggregate Net Asset Value of the Trust
as of the close of business on any Business Day declines below $5 million.
(g) The Trust is required to be registered as an investment company under the Investment
Company Act of 1940, as amended.
(h) DTC is unable or unwilling to continue to perform its functions, and a comparable
replacement is unavailable.
The death, legal disability, bankruptcy, insolvency, dissolution, or withdrawal of any Limited
Owner (as long as such Limited Owner is not the sole Limited Owner of the Trust) shall not result
in the termination of the Trust, and such Limited Owner, his estate, custodian or personal
representative shall have no right to withdraw or value such Limited Owners Units. Each Limited
Owner (and any assignee thereof) expressly agrees that in the event of his death, he waives on
behalf of himself and his estate, and he directs the legal representative of his estate and any
person interested therein to waive the furnishing of any inventory, accounting or appraisal of the
assets of the Trust and any right to an audit or examination of the books of the Trust, except for
such rights as are set forth in Article IX hereof relating to the books of account and reports of
the Trust.
13.2. Distributions on Dissolution. Upon the dissolution of the Trust, the Managing
Owner (or in the event there is no Managing Owner, such person (the Liquidating Trustee)
as the majority in interest of the Limited Owners may propose and approve) shall take full charge
of the Trust Estate. Any Liquidating Trustee so appointed shall have and may exercise, without
further authorization or approval of any of the parties hereto, all of the powers conferred upon
the Managing Owner under the terms of this Trust Agreement, subject to all of the applicable
limitations, contractual and otherwise, upon the exercise of such powers, and provided that the
Liquidating Trustee shall not have general liability for the acts, omissions, obligations and
expenses of the Trust. Thereafter, in accordance with Section 3808(e) of the Delaware Trust
Statute, the business and affairs of the Trust shall be wound up and all assets shall be liquidated
as promptly as is consistent with obtaining the fair value thereof, and the proceeds therefrom
shall be applied and distributed in the following order of priority: (a) to the expenses of
liquidation and termination and to creditors, including Unitholders who are creditors, to the
extent otherwise permitted by law, in satisfaction of liabilities of the Trust (whether by payment
or the making of reasonable provision for payment thereof) other than liabilities for distributions
to Unitholders; and (b) to the Managing Owner and each Limited Owner pro rata in accordance with
its positive book capital account balance, less any amount owing by such Unitholder, after giving
effect to any adjustments and any distributions theretofore made to the Unitholders.
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13.3. Termination; Certificate of Cancellation. Following the dissolution and
distribution of the assets of the Trust, the Trust shall terminate and the Managing Owner or the
Liquidating Trustee, as the case may be, shall instruct the Trustee to execute and cause such
certificate of cancellation of the Certificate of Trust to be filed in accordance with the Delaware
Trust Statute. Notwithstanding anything to the contrary contained in this Trust Agreement, the
existence of the Trust as a separate legal entity shall continue until the filing of such
certificate of cancellation.
ARTICLE XIV
POWER OF ATTORNEY
14.1. Power of Attorney Executed Concurrently. Concurrently with the written
acceptance and adoption of the provisions of this Trust Agreement, each Limited Owner shall execute
and deliver to the Managing Owner a Power of Attorney as part of the Subscription Agreement, or in
such other form as may be prescribed by the Managing Owner. Each Limited Owner, by its execution
and delivery hereof, irrevocably constitutes and appoints the Managing Owner and its officers,
directors and managers, with full power of substitution, as the true and lawful attorney-in-fact
and agent for such Limited Owner with full power and authority to act in his name and on his behalf
in the execution, acknowledgment, filing and publishing of Trust documents, including, but not
limited to, the following:
(a) Any certificates and other instruments, including but not limited to, any applications
for authority to do business and amendments thereto, which the Managing Owner deems appropriate
to qualify or continue the Trust as a business or statutory trust in the jurisdictions in which
the Trust may conduct business, so long as such qualifications and continuations are in
accordance with the terms of this Trust Agreement or any amendment hereto, or which may be
required to be filed by the Trust or the Unitholders under the laws of any jurisdiction;
(b) Any instrument which may be required to be filed by the Trust under the laws of any
state or by any governmental agency, or which the Managing Owner deems advisable to file; and
(c) This Trust Agreement and any documents which may be required to effect an amendment to
this Trust Agreement approved under the terms of the Trust Agreement, and the continuation of
the Trust, the admission of the signer of the Power of Attorney as a Limited Owner or of others
as additional or substituted Limited Owners, or the termination of the Trust, provided such
continuation, admission or termination is in accordance with the terms of this Trust Agreement.
14.2. Effect of Power of Attorney. The Power of Attorney concurrently granted by each
Limited Owner to the Managing Owner:
(a) Is a special, irrevocable Power of Attorney coupled with an interest, and shall
survive and not be affected by the death, disability, dissolution, liquidation, termination or
incapacity of the Limited Owner;
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(b) May be exercised by the Managing Owner for each Limited Owner by a facsimile signature
of one of its officers or by a single signature of one of its officers acting as
attorney-in-fact for all of them; and
(c) Shall survive the delivery of an assignment by a Limited Owner of the whole or any
portion of his Limited Units; except that where the assignee thereof has been approved by the
Managing Owner for admission to the Trust as a substituted Limited Owner, the Power of Attorney
of the assignor shall survive the delivery of such assignment for the sole purpose of enabling
the Managing Owner to execute, acknowledge and file any instrument necessary to effect such
substitution.
Each Limited Owner agrees to be bound by any representations made by the Managing Owner and by
any successor thereto, determined to be acting in good faith pursuant to such Power of Attorney and
not constituting negligence or misconduct.
14.3. Limitation on Power of Attorney. The Power of Attorney concurrently granted by
each Limited Owner to the Managing Owner shall not authorize the Managing Owner to act on behalf of
Limited Owners in any situation in which this Trust Agreement requires the approval of Limited
Owners unless such approval has been obtained as required by this Trust Agreement. In the event of
any conflict between this Trust Agreement and any instruments filed by the Managing Owner or any
new Managing Owner pursuant to this Power of Attorney, this Trust Agreement shall control.
ARTICLE XV
MISCELLANEOUS
15.1. Governing Law. The validity and construction of this Trust Agreement and all
amendments hereto shall be governed by the laws of the State of Delaware, and the rights of all
parties hereto and the effect of every provision hereof shall be subject to and construed according
to the laws of the State of Delaware without regard to the conflict of laws provisions thereof;
provided, however, that causes of action for violations of U.S. federal or state securities laws
shall not be governed by this Section 15.1, and provided, further, that the parties hereto intend
that the provisions hereof shall control over any contrary or limiting statutory or common law of
the State of Delaware (other than the Delaware Trust Statute) and that, to the maximum extent
permitted by applicable law, there shall not be applicable to the Trust, the Trustee, the Managing
Owner, the Unitholders or this Trust Agreement any provision of the laws (statutory or common) of
the State of Delaware (other than the Delaware Trust Statute) pertaining to trusts which relate to
or regulate in a manner inconsistent with the terms hereof: (a) the filing with any court or
governmental body or agency of trustee accounts or schedules of trustee fees and charges; (b)
affirmative requirements to post bonds for trustees, officers, agents, or employees of a trust; (c)
the necessity for obtaining court or other governmental approval concerning the acquisition,
holding or disposition of real or personal property; (d) fees or other sums payable to trustees,
officers, agents or employees of a trust; (e) the allocation of receipts and expenditures to income
or principal; (f) restrictions or limitations on the permissible nature, amount or concentration of
trust investments or requirements relating to the titling, storage or other manner of holding of
trust assets; or (g) the establishment of fiduciary or other standards or responsibilities or
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limitations on the acts or powers of trustees or managers that are inconsistent with the
limitations on liability or authorities and powers of the Trustee or the Managing Owner set forth
or referenced in this Trust Agreement. Section 3540 of Title 12 of the Delaware Code shall not
apply to the Trust. The Trust shall be of the type commonly called a statutory trust, and without
limiting the provisions hereof, the Trust may exercise all powers that are ordinarily exercised by
such a trust under Delaware law. The Trust specifically reserves the right to exercise any of the
powers or privileges afforded to statutory trusts and the absence of a specific reference herein to
any such power, privilege or action shall not imply that the Trust may not exercise such power or
privilege or take such actions.
15.2. Provisions In Conflict With Law or Regulations.
(a) The provisions of this Trust Agreement are severable, and if the Managing Owner shall
determine, with the advice of counsel, that any one or more of such provisions (the
Conflicting Provisions) are in conflict with the Code, the Delaware Trust Statute or
other applicable U.S. federal or state laws, the Conflicting Provisions shall be deemed never
to have constituted a part of this Trust Agreement, even without any amendment of this Trust
Agreement pursuant hereto; provided, however, that such determination by the Managing Owner
shall not affect or impair any of the remaining provisions of this Trust Agreement or render
invalid or improper any action taken or omitted prior to such determination. No Managing Owner
or Trustee shall be liable for making or failing to make such a determination.
(b) If any provision of this Trust Agreement shall be held invalid or unenforceable in any
jurisdiction, such holding shall not in any manner affect or render invalid or unenforceable
such provision in any other jurisdiction or any other provision of this Trust Agreement in any
jurisdiction.
15.3. Construction. In this Trust Agreement, unless the context otherwise requires,
words used in the singular or in the plural include both the plural and singular and words denoting
any gender include all genders. The title and headings of different parts are inserted for
convenience and shall not affect the meaning, construction or effect of this Trust Agreement.
15.4. Notices. All notices or communications under this Trust Agreement (other than
requests for redemption of Units, notices of assignment, transfer, pledge or encumbrance of Units,
and reports and notices by the Managing Owner to the Limited Owners) shall be in writing and shall
be effective upon personal delivery, or if sent by mail, postage prepaid, or if sent
electronically, by facsimile or by overnight courier; and addressed, in each such case, to the
address set forth in the books and records of the Trust or such other address as may be specified
in writing, of the party to whom such notice is to be given, upon the deposit of such notice in the
United States mail, upon transmission and electronic confirmation thereof or upon deposit with a
representative of an overnight courier, as the case may be. Requests for redemption, notices of
assignment, transfer, pledge or encumbrance of Units shall be effective upon timely receipt by the
Managing Owner in writing.
15.5. Counterparts. This Trust Agreement may be executed in several counterparts, and
all so executed shall constitute one agreement, binding upon all of the parties hereto,
notwithstanding that all the parties are not signatories to the original or the same counterpart.
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15.6. Binding Nature of Trust Agreement. The terms and provisions of this Trust
Agreement shall be binding upon and inure to the benefit of the heirs, custodians, executors,
estates, administrators, personal representatives, successors and permitted assigns of the
respective Unitholders. For purposes of determining the rights of any Unitholder or assignee
hereunder, the Trust and the Managing Owner may rely upon the Trust records as to who are
Unitholders and permitted assignees, and all Unitholders and assignees agree that the Trust and the
Managing Owner, in determining such rights, shall rely on such records and that Limited Owners and
assignees shall be bound by such determination.
15.7. No Legal Title to Trust Estate. Subject to the provisions of Section 1.8 in the
case of the Managing Owner, the Unitholders shall not have legal title to any part of the Trust
Estate.
15.8. Creditors. No creditors of any Unitholders shall have any right to obtain
possession of, or otherwise exercise legal or equitable remedies with respect to the Trust Estate.
15.9. Integration. This Trust Agreement constitutes the entire agreement among the
parties hereto pertaining to the subject matter hereof and supersedes all prior agreements and
understandings pertaining thereto.
15.10. Goodwill; Use of Name. No value shall be placed on the name or goodwill of the
Trust, which shall belong exclusively to GreenHaven Commodity Services, LLC.
IN WITNESS WHEREOF, the undersigned have duly executed this Declaration of Trust and Trust
Agreement as of the day and year first above written.
CSC
TRUST COMPANY OF DELAWARE, as Trustee
GREENHAVEN COMMODITY SERVICES, LLC,
as Managing Owner
All Limited Owners now and hereafter admitted as Limited Owners of the Trust
and reflected in the records maintained by the Depository, the DTC Participants
or the Indirect Participants, as the case may be, as Limited Owners from time
to time, pursuant to powers of attorney now and hereafter executed in favor of,
and granted and delivered to, the Managing Owner by each of the Limited Owners
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EXHIBIT A
CERTIFICATE OF TRUST
OF
GREENHAVEN CONTINUOUS COMMODITY INDEX FUND
This Certificate of Trust of GreenHaven Continuous Commodity Index Fund (the Trust) is
being duly executed and filed on behalf of the Trust by the undersigned, as trustee, to form a
statutory trust under the Delaware Statutory Trust Act (12 Del. C. § 3801 et seq.)(the Act).
1. Name. The name of the statutory trust formed by this Certificate of Trust is
GreenHaven Continuous Commodity Index Fund.
2. Delaware Trustee. The name and business address of the trustee of the Trust in the
State of Delaware are CSC Trust Company of Delaware, 2711 Centerville Road, Suite 210, Wilmington,
DE 19808.
3. Effective Date. This Certificate of Trust shall be effective upon filing.
IN WITNESS WHEREOF, the undersigned has duly executed this Certificate of Trust in accordance
with Section 3811(a)(1) of the Act.
CSC TRUST COMPANY OF
DELAWARE, not in its
individual capacity but
solely as Owner Trustee
of the Trust
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EXHIBIT B
[FORM OF GLOBAL CERTIFICATE]
CERTIFICATE OF BENEFICIAL INTEREST
-Evidencing-
All Limited Units
-In-
GREENHAVEN CONTINUOUS COMMODITY INDEX FUND
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY, A NEW YORK CORPORATION (DTC), TO THE TRUST OR ITS AGENT FOR REGISTRATION OF TRANSFER,
EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH
OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE
& CO. OR TO SUCH OTHER ENTITY AS IS REQUIRED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER,
PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE
REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
This is to certify that CEDE & CO. is the owner and registered holder of this Certificate
evidencing the ownership of all issued and outstanding Limited Units (Units), each of which
represents a fractional undivided unit of beneficial interest in GreenHaven Continuous Commodity
Index Fund (the Trust), a Delaware statutory trust formed under the Delaware Statutory Trust Act
(12 Del. C. § 3801 et seq.) pursuant to a Certificate of Trust, dated as of and filed in the
offices of the Secretary of State of the State of Delaware on October___, 2006, and a Declaration of
Trust and Trust Agreement, dated as of October ___, 2006, by and among GreenHaven Commodity
Services, LLC, a Delaware limited liability company, as managing owner, CSC Trust Company of
Delaware, a Delaware corporation, as trustee, and the unitholders from time to time thereunder
(hereinafter called the Trust Agreement), copies of which are available at the principal offices
of the Trust.
At any given time this Certificate shall represent all limited units of beneficial interest in
the Trust, which shall be the total number of Units that are outstanding at such time. The Trust
Agreement provides for the deposit of cash with the Trust from time to time and the issuance by the
Trust of additional Creation Baskets representing the undivided units of beneficial interest in the
assets of the Trust. At the request of the registered holder this Certificate may be exchanged for
one or more Certificates issued to the registered holder in such denominations as the registered
holder may request, provided, however, that, in the aggregate, the Certificates issued to the
registered holder hereof shall represent all Units outstanding at any given time.
Each Authorized Participant hereby grants and conveys all of its rights, title and interest in
and to the Trust to the extent of the undivided interest represented hereby to the registered
holder of this Certificate subject to and in pursuance of the Trust Agreement, all the terms,
conditions and covenants of which are incorporated herein as if fully set forth at length.
86
The registered holder of this Certificate is entitled at any time upon tender of this
Certificate to the Trust, endorsed in blank or accompanied by all necessary instruments of
assignment and transfer in proper form, at its principal office in the State of New York and, upon
payment of any tax or other governmental charges, to receive at the time and in the manner provided
in the Trust Agreement, such holders ratable portion of the assets of the Trust for each
Redemption Basket tendered and evidenced by this Certificate.
The holder of this Certificate, by virtue of the purchase and acceptance hereof, assents to
and shall be bound by the terms of the Trust Agreement, copies of which are on file and available
for inspection at reasonable times during business hours at the principal office of the Trust, to
which reference is made for all the terms, conditions and covenants thereof.
The Trust may deem and treat the person in whose name this Certificate is registered upon the
books of the Trust as the owner hereof for all purposes and the Trust shall not be affected by any
notice to the contrary.
The Trust Agreement permits, with certain exceptions as therein provided, the amendment
thereof, by the Managing Owner with the consent of the Beneficial Owners holding Units (excluding
Units held by the Managing Owner and its Affiliates) equal to at least a majority (over 50%) of the
net asset value of the Trust or such higher percentage as may be required by applicable law, and
upon receipt of an opinion of independent legal counsel to the effect that the amendment is legal,
valid and binding and will not adversely affect the limitations on liability of the Beneficial
Owners; provided, however that the Managing Owner may, without the approval of the Beneficial
Owners, make such amendments to the Trust Agreement which: (i) are necessary to add to the
representations, duties or obligations of the Managing Owner or surrender any right or power
granted to the Managing Owner in the Trust Agreement, for the benefit of the Beneficial Owners;
(ii) are necessary to cure any ambiguity, to correct or supplement any provision in the Trust
Agreement which may be inconsistent with any other provision in the Trust Agreement or in the
Prospectus, or to make any other provisions with respect to matters or questions arising under the
Trust Agreement or the Prospectus which will not be inconsistent with the provisions of the Trust
Agreement or the Prospectus; or (iii) the Managing Owner deems advisable; provided, however, that
no amendment shall be adopted pursuant to clause (iii) unless the adoption thereof: (A) is not
adverse to the interests of the Beneficial Owners; (B) is consistent with Managing Owners control
of and power to conduct the business of the Trust; (C) with certain exceptions, does not affect the
allocation of Profits and Losses among the Beneficial Owners or between the Beneficial Owners and
the Managing Owner; and (D) does not adversely affect the limitations on liability of the
Beneficial Owners or the status of the Trust as a grantor trust for U.S. federal income tax
purposes. Any such consent or waiver by the holder of Units shall be conclusive and binding upon
such holder of Units and upon all future holders of Units, and shall be binding upon any Units,
whether evidenced by a Certificate or held in uncertificated form, issued upon the registration or
transfer hereof whether or not notation of such consent or waiver is made upon this Certificate and
whether or not the Units evidenced hereby are at such time in uncertificated form. The Agreement
also permits the amendment thereof, in certain limited circumstances, without the consent of any
holders of Units.
The Trust Agreement, and this Certificate, is executed and delivered by GreenHaven Commodity
Services, LLC, as managing owner, in the exercise of the powers and authority
87
conferred and vested in it by the Trust Agreement. The representations, undertakings and
agreements made on the part of the Trust in the Trust Agreement or this Certificate are made and
intended not as personal representations, undertakings and agreements by GreenHaven Commodity
Services, LLC but are made and intended for the purpose of binding only the Trust. Nothing in the
Agreement or this Certificate shall be construed as creating any liability on GreenHaven Commodity
Services, LLC, individually or personally, to fulfill any representation, undertaking or agreement
other than as provided in the Trust Agreement or this Certificate.
This Certificate shall not become valid or binding for any purpose until properly executed by
the Managing Owner pursuant to the Trust Agreement.
Terms not defined herein have the same meaning as in the Trust Agreement.
IN WITNESS WHEREOF, GreenHaven Commodity Services, LLC, as Managing Owner, has caused this
Certificate to be executed in its name by the manual or facsimile signature of one of its
Authorized Officers.
GreenHaven
Commodity Services LLC, as managing owner
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,2006 |
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EXHIBIT C
[FORM OF PARTICIPANT AGREEMENT]
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EXHIBIT B
PRIVACY NOTICE
At GreenHaven Continuous Commodity Index Fund (the Fund), we recognize the importance of
protecting the privacy of our Members. The Fund and the Managing Owner have policies in place that
help to maintain the confidentiality and security of our Members nonpublic personal information.
Categories Of Information We May Collect
In the normal course of business, we may collect the following types of nonpublic personal
information from Members who are natural persons:
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Information you provide in the subscription documents and
supplemental forms (including name, address, income and other
financial-related information) |
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Data about your transactions with us (such as your account status) |
How We Use Your Information That We Collect
Any and all nonpublic personal information received by the Fund or the Managing Owner with
respect to the Members who are natural persons, including any information provided by such Members
in any supplemental forms, will not be shared with nonaffiliated third parties which are not
service providers to the Fund or the Managing Owner without providing prior notice to such Members.
In the normal course of business, we may disclose the kinds of nonpublic personal information
listed above to nonaffiliated third party service providers involved in servicing and administering
products and services on our behalf. Such service providers may include, but are not limited to,
the Funds trustee, administrator, custodian, futures commission merchant, auditor and the legal
advisors of the Fund. Those third parties also understand the need to treat all data shared with
them in the strictest of confidence and will not discuss or disseminate your nonpublic personal
information to anyone. Additionally, the Fund and/or the Managing Owner may disclose such
nonpublic personal information as required by law, including without limitation, the disclosure
that may be required by the Uniting and Strengthening America Act by Providing Appropriate Tools
Required to Intercept and Obstruct Terrorism (USA PATRIOT) Act of 2001 and the rules and
regulations promulgated thereunder. In addition, if the Fund chooses to dispose of any Members
nonpublic personal information that the Fund is not legally bound to maintain, then the Fund will
do so in a manner that reasonably protects such information from unauthorized access.
The same privacy policy will also apply to all former customers who are natural persons.
CONFIDENTIALITY AND SECURITY
Under our Privacy Policy, we restrict access to your nonpublic personal information to those
employees and agents who need to know that information in order to provide products or services to
you. We maintain physical, electronic and procedural safeguards to protect your nonpublic personal
information. In addition, if the Fund chooses to dispose of any of a Members nonpublic personal
information that the Fund is not legally bound to maintain, then the Fund will do so in a manner
that reasonably protects such information from unauthorized access. For questions about our
privacy policy, please contact the Managing Owner.
1
PART TWO
STATEMENT OF ADDITIONAL INFORMATION
GREENHAVEN CONTINUOUS COMMODITY INDEX FUND
Shares of Beneficial Interest
This is a speculative investment which involves the risk of loss. Past performance is not
necessarily indicative of future results. See The Risks You Face beginning at page 17 in
Part One.
THIS PROSPECTUS IS IN TWO PARTS: A DISCLOSURE DOCUMENT AND A STATEMENT OF ADDITIONAL
INFORMATION. THESE PARTS ARE BOUND TOGETHER, AND BOTH CONTAIN IMPORTANT INFORMATION
November __, 2006
GreenHaven Commodity Services LLC
Managing Owner
1
THE FUTURES MARKETS
Futures Contracts
Futures contracts are standardized contracts made on United States or foreign exchanges that
call for the future delivery of specified quantities of various agricultural and tropical
commodities, industrial commodities, currencies, financial instruments or metals at a specified
time and place. The contractual obligations, depending upon whether one is a buyer or a seller, may
be satisfied either by taking or making, as the case may be, physical delivery of an approved grade
of commodity or by making an offsetting sale or purchase of an equivalent but opposite futures
contract on the same, or mutually off-setting, exchange prior to the designated date of delivery.
As an example of an offsetting transaction where the physical commodity is not delivered, the
contractual obligation arising from the sale of one contract of December 2007 wheat on a commodity
exchange may be fulfilled at any time before delivery of the commodity is required by the purchase
of one contract of December 2007 wheat on the same exchange. The difference between the price at
which the futures contract is sold or purchased and the price paid for the offsetting purchase or
sale, after allowance for brokerage commissions, constitutes the profit or loss to the trader.
Certain futures contracts, such as those for stock or other financial or economic indices approved
by the CFTC or Eurodollar contracts, settle in cash (irrespective of whether any attempt is made to
offset such contracts) rather than delivery of any physical commodity.
Hedgers and Speculators
The two broad classes of persons who trade futures interest contracts are hedgers and
speculators. Commercial interests, including farmers, that market or process commodities, and
financial institutions that market or deal in commodities, including interest rate sensitive
instruments, foreign currencies and stocks, and which are exposed to currency, interest rate and
stock market risks, may use the futures markets for hedging. Hedging is a protective procedure
designed to minimize losses that may occur because of price fluctuations occurring, for example,
between the time a processor makes a contract to buy or sell a raw or processed commodity at a
certain price and the time he must perform the contract. The futures markets enable the hedger to
shift the risk of price fluctuations to the speculator. The speculator risks his capital with the
hope of making profits from price fluctuations in futures interests contracts. Speculators rarely
take delivery of commodities, but rather close out their positions by entering into offsetting
purchases or sales of futures interests contracts. Since the speculator may take either a long or
short position in the futures markets, it is possible for him to make profits or incur losses
regardless of whether prices go up or down.
Futures Exchanges
Futures exchanges provide centralized market facilities for trading futures contracts and
options (but not forward contracts). Members of, and trades executed on, a particular exchange are
subject to the rules of that exchange. Among the principal exchanges in the United States are the
Chicago Board of Trade, the Chicago Mercantile Exchange, the New York Mercantile Exchange, and the
New York Board of Trade.
Each futures exchange in the United States has an associated clearing house. Once trades
between members of an exchange have been confirmed, the clearing house becomes substituted for each
buyer and each seller of contracts traded on the exchange and, in effect, becomes the other party
to each traders open position in the market. Thereafter, each party to a trade looks only to the
clearing house for
2
performance. The clearing house generally establishes some sort of security or guarantee fund
to which all clearing members of the exchange must contribute; this fund acts as an emergency
buffer that enables the clearing house, at least to a large degree, to meet its obligations with
regard to the other side of an insolvent clearing members contracts. Furthermore, clearing
houses require margin deposits and continuously mark positions to market to provide some assurance
that their members will be able to fulfill their contractual obligations. Thus, a central function
of the clearing houses is to ensure the integrity of trades, and members effecting futures
transactions on an organized exchange need not worry about the solvency of the party on the
opposite side of the trade; their only remaining concerns are the respective solvencies of their
commodity broker and the clearing house. The clearing house guarantee of performance on open
positions does not run to customers. If a member firm goes bankrupt, customers could lose money.
Foreign futures exchanges differ in certain respects from their U.S. counterparts. In contrast
to U.S. exchanges, certain foreign exchanges are principals markets, where trades remain the
liability of the traders involved, and the exchange clearing house does not become substituted for
any party. See The Risk You May FaceTrading on Commodity Exchanges Outside the United States is
Not Subject to U.S. Regulation.
Speculative Position Limits
The CFTC and U.S. futures exchanges have established limits, referred to as speculative
position limits or position limits, on the maximum net long or net short speculative position
that any person or group of persons (other than a hedger) may hold, own or control in certain
futures interests contracts. Among the purposes of speculative position limits is the desire to
prevent a corner on a market or undue influence on prices by any single trader or group of
traders. The CFTC has jurisdiction to establish position limits with respect to all commodities and
has established position limits for all agricultural commodities. In addition, the CFTC requires
each United States exchange to submit position limits for all commodities traded on such exchange
for approval by the CFTC. Position limits do not apply to forward contract trading or generally to
trading on foreign exchanges.
Daily Limits
Most U.S. futures exchanges (but generally not foreign exchanges or banks or dealers in the
case of forward contracts) limit the amount of fluctuation in futures interests contract prices
during a single trading day by regulation. These regulations specify what are referred to as daily
price fluctuation limits or more commonly daily limits. The daily limits establish the maximum
amount that the price of a futures interests contract may vary either up or down from the previous
days settlement price. Once the daily limit has been reached in a particular futures interest, no
trades may be made at a price beyond the limit. See The Risks You May FacePossible Illiquid
Markets May Exacerbate Losses.
Regulations
Futures exchanges in the United States are subject to regulation under the Commodity Exchange
Act, or CEAct, by the CFTC, the governmental agency having responsibility for regulation of futures
exchanges and trading on those exchanges. (Investors should be aware that no governmental U.S.
agency regulates the OTC foreign exchange markets.)
The CEAct and the CFTC also regulate the activities of commodity trading advisors and
commodity pool operators and the CFTC has adopted regulations with respect to certain of such
persons activities. Pursuant to its authority, the CFTC requires a commodity pool operator (such
as the Managing Owner) to keep accurate, current and orderly records with respect to each pool it
operates. The CFTC may
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suspend the registration of a commodity pool operator if the CFTC finds that the operator has
violated the CEAct or regulations thereunder and in certain other circumstances. Suspension,
restriction or termination of the Managing Owners registration as a commodity pool operator would
prevent it, until such time (if any) as such registration were to be reinstated, from managing, and
might result in the termination of, the Fund and the Master Fund. The CEAct gives the CFTC similar
authority with respect to the activities of commodity trading advisors, such as the Managing Owner.
If the registration of a Managing Owner as a commodity trading advisor were to be terminated,
restricted or suspended, the Managing Owner would be unable, until such time (if any) as such
registration were to be reinstated, to render trading advice to the Fund and the Master Fund. The
Fund and the Master Fund themselves are not registered with the CFTC in any capacity.
The CEAct requires all futures commission merchants, such as the Commodity Broker, to meet
and maintain specified fitness and financial requirements, segregate customer funds from
proprietary funds and account separately for all customers funds and positions, and to maintain
specified book and records open to inspection by the staff of the CFTC.
The CEAct also gives the states certain powers to enforce its provisions and the regulations
of the CFTC.
Shareholders are afforded certain rights for reparations under the CEAct. Shareholders may
also be able to maintain a private right of action for certain violations of the CEAct. The CFTC
has adopted rules implementing the reparation provisions of the CEAct which provide that any person
may file a complaint for a reparations award with the CFTC for violation of the CEAct against a
floor broker, futures commission merchant, introducing broker, commodity trading advisor, commodity
pool operator, and their respective associated persons.
Pursuant to authority in the CEAct, the NFA has been formed and registered with the CFTC as a
registered futures association. At the present time, the NFA is the only non-exchange
self-regulatory organization for commodities professionals. NFA members are subject to NFA
standards relating to fair trade practices, financial condition, and consumer protection. As the
self-regulatory body of the commodities industry, the NFA promulgates rules governing the conduct
of commodity professionals and disciplines those professionals who do not comply with such
standards. The CFTC has delegated to the NFA responsibility for the registration of commodity
trading advisors, commodity pool operators, futures commission merchants, introducing brokers and
their respective associated persons and floor brokers. The Commodity Broker and the Managing Owner
are members of the NFA (the Fund and the Master Fund themselves are not required to become members
of the NFA).
The CFTC has no authority to regulate trading on foreign commodity exchanges and markets.
Margin
Initial or original margin is the minimum amount of funds that must be deposited by a
futures trader with his commodity broker in order to initiate futures trading or to maintain an
open position in futures contracts. Maintenance margin is the amount (generally less than initial
margin) to which a traders account may decline before he must deliver additional margin. A margin
deposit is like a cash performance bond. It helps assure the futures traders performance of the
futures interests which contracts he purchases or sells. Futures interests are customarily bought
and sold on margins that represent a very small percentage (ranging upward from less than 2%) of
the purchase price of the underlying commodity being traded. Because of such low margins, price
fluctuations occurring in the futures markets may create profits and losses that are greater, in
relation to the amount invested, than are customary in other forms of investment or speculation.
The minimum amount of margin required in connection with a particular futures
4
interests contract is set from time-to-time by the exchange on which such contract is traded,
and may be modified from time-to-time by the exchange during the term of the contract.
Brokerage firms carrying accounts for traders in futures interests contracts may not accept
lower, and generally require higher, amounts of margin as a matter of policy in order to afford
further protection for themselves.
Margin requirements are computed each day by a commodity broker. When the market value of a
particular open futures interests contract position changes to a point where the margin on deposit
does not satisfy maintenance margin requirements, a margin call is made by the commodity broker. If
the margin call is not met within a reasonable time, the broker may close out the Master Funds
position. With respect to the Managing Owners trading, only the Managing Owner, and not the Fund
or its Shareholders personally, will be subject to margin calls.
PART II
Information Not Required in Prospectus
Item 13. Other Expenses of Issuance and Distribution.
The following expenses reflect the estimated amounts required to prepare and file this
Registration Statement.
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Securities and Exchange Commission Registration Fee |
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12,840 |
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National Association of Securities Dealers, Inc. Filing Fee |
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Printing Expenses |
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Fees of Certified Public Accountants |
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Fees of Counsel |
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Miscellaneous Offering Costs |
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Total |
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Item 14. Indemnification of Directors and Officers.
Section 4.7 of the Declaration of Trust and Trust Agreement of each of the Fund and the Master
Fund filed as exhibits to this Registration Statement and, as amended from time-to-time, provides
for the indemnification of the Managing Owner. The Managing Owner (including Covered Persons as
provided under each Declaration of Trust and Trust Agreement) shall be indemnified by the Fund or
the Master Fund, as the case may be, against any losses, judgments, liabilities, expenses and
amounts paid in settlement of any claims sustained by it in connection with its activities for the
Fund or the Master Fund, as the case may be, provided that (i) the Managing Owner was acting on
behalf of or performing services for the Fund or the Master Fund, as the case may be, and has
determined, in good faith, that such course of conduct was in the best interests of the Fund or the
Master Fund, as the case may be, and such liability or loss was not the result of negligence,
misconduct, or a breach of the Declaration of Trust and Trust Agreement on the part of the Managing
Owner and (ii) any such indemnification will only be recoverable from the Trust Estate (as such
term is defined in the Declaration of Trust and Trust Agreement). All rights to indemnification
permitted therein and payment of associated expenses shall not be affected by the dissolution or
other cessation to exist of the Managing Owner, or the withdrawal, adjudication of bankruptcy or
insolvency of the Managing Owner, or the filing of a voluntary or involuntary petition in
bankruptcy under Title 11 of the U.S. Code by or against the Managing Owner. The source of payments
made in respect of indemnification under either Declaration of Trust and Trust Agreement shall be
from assets of the Fund or the Master Fund, as the case may be.
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Item 15. Recent Sales of Unregistered Securities.
(a) Securities Sold.
Upon inception of the GreenHaven Continuous Commodity Index Fund (the Fund) and the
GreenHaven Continuous Commodity Index Master Fund (the Master Fund), 100 General Units of each of
the Fund and the Master Fund were issued to GreenHaven Commodity Services LLC in exchange for a
capital contribution of $1,000 to the Fund and $1,000 to the Master Fund.
Item 16. Exhibits and Financial Statement Schedules.
The following documents (unless otherwise indicated) are filed herewith and made a part of
this Registration Statement:
(a) Exhibits. The following exhibits are filed herewith:
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Exhibit No. |
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Description of Document |
3.1
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Declaration of Trust Agreement of the Registrant (as attached to the
Prospectus as Exhibit A-1). |
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3.2
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Declaration of Trust Agreement of
the Co-Registrant (as attached to the
Prospectus as Exhibit A-2). |
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Form of Participation Agreement* |
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Form of Privacy Notice (as attached to the Prospectus as Exhibit B) |
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Opinion of Tannenbaum Helpern Syracuse & Hirschtritt LLP as to legality* |
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Opinion of Tannenbaum Helpern Syracuse & Hirschtritt LLP as to income
tax matters* |
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Form of Administration Agreement* |
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Form of Global Custody Agreement* |
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Form of Transfer Agency and Service Agreement* |
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Form of Distribution Services Agreement* |
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Consent of Tannenbaum Helpern Syracuse & Hirschtritt LLP * |
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Consent of Tannenbaum Helpern Syracuse & Hirschtritt LLP as tax counsel* |
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* |
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To be filed by Amendment. |
(b) At this time, no financial statements are included in the Prospectus. In a
subsequent filing, we will file the appropriate financial statements.
Item 17. Undertakings.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a post-effective
amendment to this registration statement;
(i) To include any prospectus required by section 10(a)(3) of the Securities Act of 1933, as
amended;
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(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) (§230.424(b) of this
chapter) if, in the aggregate, the changes in volume and price represent no more than a 20% change
in the maximum aggregate offering price set forth in the Calculation of Registration Fee table in
the effective registration statement;
(iii) To include any material information with respect to the plan of distribution not
previously disclosed in the registration statement or any material change to such information in
the registration statement.
(A) Paragraphs (a)(1)(i) and (a)(1)(ii) of this section do not apply if the registration
statement is on Form S-8 (§ 239.16b of this chapter), 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 (15 U.S.C. 78m or 78o(d)) 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-3 (§ 239.13 of this chapter) or Form F-3 (§ 239.33 of this
chapter) and the information required to be included in a post-effective amendment by those
paragraphs is contained in reports filed with or furnished to the Commission by the registrant
pursuant to section 13 or section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the registration statement, or is contained in a form of prospectus
filed pursuant to Rule 424(b) (§ 230.424(b) of this chapter) that is part of the registration
statement.
(2) That, for the purpose of determining any liability under the Securities Act of 1933, each
such post-effective amendment shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time shall be deemed to be
the bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of the securities
being registered which remain unsold at the termination of the offering.
(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 (§ 230.430B of this chapter):
(A) Each prospectus filed by the registrant pursuant to Rule 424(b)(3) (§ 230.424(b)(3) of
this chapter) 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) (§
230.424(b)(2), (b)(5), or (b)(7) of this chapter) 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) (§
230.415(a)(1)(i), (vii), or (x) of this chapter) 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
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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 (§ 230.430C of this chapter), 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 (§ 230.430A of this chapter), 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 (§ 230.424 of this chapter);
(ii) Any free writing prospectus relating to the offering prepared by or on behalf of the
undersigned registrant or used or referred to by the undersigned registrant;
(iii) The portion of any other free writing prospectus relating to the offering containing
material information about the undersigned registrant or its securities provided by or on behalf of
the undersigned registrant; and
(iv) Any other communication that is an offer in the offering made by the undersigned
registrant to the purchaser.
(b) Insofar as indemnification for liabilities under the Securities Act of 1933 may be
permitted to officers, directors or controlling persons of the registrant pursuant to the
provisions described in Item 14 above, or otherwise, the registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the registrant of expenses
incurred or paid by an officer, director, or controlling person of the registrant in the successful
defense of any such action, suit or proceeding) is asserted by such officer, director or
controlling person in connection with the securities being registered, the registrant will, unless
in
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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.
9
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Managing Owner of the
Registrant and Co-Registrant have duly caused this Registration Statement on Form S-1 to be
signed on their behalf by the undersigned, thereunto duly authorized, in the city of
Atlanta, State of Georgia, on the 3rd day of November, 2006.
GREENHAVEN CONTINUOUS COMMODITY INDEX FUND
By GreenHaven Commodity Services LLC, its Managing Owner
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By: |
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/s/ Ashmead Pringle |
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Name: Ashmead Pringle |
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Title: Chief Executive Officer |
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GREENHAVEN CONTINUOUS COMMODITY INDEX MASTER FUND
By GreenHaven Commodity Services LLC, its Managing Owner
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By: |
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/s/ Ashmead Pringle |
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Name: Ashmead Pringle |
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Title: Chief Executive Officer |
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Pursuant to the requirements of the Securities Act of 1933, this Registration Statement on
Form S-1 has been signed by the following persons on behalf of the Managing Owner of the Registrant
and Co-Registrant in the capacities and on the date indicated.
GreenHaven Commodity Services LLC
Managing Owner of Registrant and Co-Registrant
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By: |
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/s/ Ashmead Pringle |
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Name:
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Ashmead Pringle |
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Title:
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Chief Excecutive Officer |
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Date:
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November 3, 2006 |
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