NOTE
1–Organization
Invesco Actively Managed Exchange-Traded Commodity Fund Trust (the “Trust”) was organized as a
Delaware statutory trust on December 23, 2013 and is authorized to have multiple series of portfolios. The Trust is an open-end management investment company registered under the Investment Company Act of
1940, as amended (the “1940 Act”). This report includes Invesco Optimum Yield Diversified Commodity Strategy No K-1 ETF (PDBC) (the “Fund”).
The Fund represents a separate series of the Trust. The shares of the Fund are referred to herein as “Shares” or
“Fund’s Shares.” The Fund’s Shares are listed and traded on The Nasdaq Stock Market.
The market
price of a Share may differ to some degree from the Fund’s net asset value (“NAV”). Unlike conventional mutual funds, the Fund issues and redeems Shares on a continuous basis, at NAV, only in a large specified number of Shares, each
called a “Creation Unit.” Creation Units are issued and redeemed principally in exchange for the deposit or delivery of cash. Except when aggregated in Creation Units by Authorized Participants, the Shares are not individually redeemable
securities of the Fund.
The Fund’s investment objective is to seek long-term capital appreciation. The Fund seeks
to achieve its investment objective by investing in financial instruments that provide economic exposure to the commodities markets primarily through investment in Invesco DB Optimum Yield Diversified Commodity Strategy Cayman Ltd. (the
“Subsidiary”), a wholly-owned subsidiary of the Fund organized under the laws of the Cayman Islands. The Fund may invest up to 25% of its total assets in the Subsidiary.
NOTE 2–Significant Accounting Policies
The following is a summary of the significant accounting policies followed by the Fund in preparation of its consolidated financial statements.
The Fund is an investment company and accordingly follows the investment company accounting and reporting guidance in accordance
with Financial Accounting Standards Board Accounting Standards Codification Topic 946, Financial Services–Investment Companies.
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A.
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Security Valuation - Securities, including restricted securities, are valued according to
the following policies:
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A security listed or traded on an exchange (except
convertible securities) is generally valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded or, lacking any sales or official closing price
on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter (“OTC”) market are valued based
on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange
on which they are principally traded. Listed options are valued at the mean between the last bid and asked prices from the exchange on which they are principally traded, or at the final settlement price set by such exchange. Swaps and options not
listed on an exchange are valued by an independent source. For purposes of determining NAV per Share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange
(“NYSE”).
Investment companies are valued using such company’s NAV per share, unless the
shares are exchange-traded, in which case they are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded.
Debt obligations (including convertible securities) and unlisted equities are fair valued using an evaluated quote
provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments related to specific securities, dividend rate (for unlisted equities), yield (for debt obligations), quality, type of issue, coupon rate
(for debt obligations), maturity (for debt obligations), individual trading characteristics and other market data. Securities with a demand feature exercisable within one to seven days are valued at par. Pricing services generally value debt
obligations assuming orderly transactions of institutional round lot size, but the Fund may hold or transact in the same securities in smaller, odd lot sizes. Odd lots often trade at lower prices than institutional round lots. Debt obligations are
subject to interest rate and credit risks. In addition, all debt obligations involve some risk of default with respect to interest and/or principal payments.
Foreign securities’ (including foreign exchange contracts’) prices are converted into U.S. dollar amounts
using the applicable exchange rates as of the close of the London world markets. If market quotations are available and reliable for foreign exchange-traded equity securities, the securities will be valued at the market quotations. Because trading
hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events
occur that Invesco Capital Management LLC (the “Adviser”) determines are significant and make the closing price unreliable, the Fund may fair
value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices
to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the
current value as of the close of the NYSE. Foreign securities’ prices meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing
service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index
futures. Foreign securities may have additional risks including exchange rate changes, the potential for sharply devalued currencies and high inflation, political and economic upheaval, the relative lack of issuer information, relatively low market
liquidity and the potential lack of strict financial and accounting controls and standards.
Total
return swap agreements are valued on a daily basis in accordance with the agreements, using observable inputs, such as valuation indications provided by index providers, whenever available. Centrally cleared swap agreements are valued at the daily
settlement price determined by the relevant exchange or clearinghouse.
Securities for which market
prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value exchange-traded equity securities. The mean between the last bid and asked prices may be
used to value debt obligations, including corporate loans, and unlisted equity securities.
Securities
for which market quotations are not readily available or became unreliable are valued at fair value as determined in good faith following procedures approved by the Board of Trustees. Issuer-specific events, market trends, bid/asked quotes of
brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value.
The Fund may invest in securities that are subject to interest rate risk, meaning the risk that the prices will
generally fall as interest rates rise and, conversely, the prices will generally rise as interest rates fall. Specific securities differ in their sensitivity to changes in interest rates depending on their individual characteristics. Changes in
interest rates may result in increased market volatility, which may affect the value and/or liquidity of certain Fund investments.
Valuations change in response to many factors, including the historical and prospective earnings of the issuer, the
value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the consolidated financial statements may
materially differ from the value received upon actual sale of those investments.
Active Trading Risk. Active trading of portfolio securities may result in added expenses, a lower return and
increased tax liability.
Authorized Participant Concentration Risk. Only Authorized Participants
(“APs”) may engage in creation or redemption transactions directly with the Fund. The Fund has a limited number of institutions that may act as APs, and such APs have no obligation to submit creation or redemption orders. Consequently,
there is no assurance that those APs will establish or maintain an active trading market for the Shares. This risk may be heightened to the extent that securities underlying the Fund is traded outside a collateralized settlement system. In that
case, APs may be required to post collateral on certain trades on an agency basis (i.e., on behalf of other market participants), which only a limited number of APs may be able to do. In addition, to the extent that APs exit the business or are
unable to proceed with creation and/or redemption orders with respect to the Fund and no other AP is able to step forward to create or redeem Creation Units, this may result in a significantly diminished trading market for Fund Shares, which may be
more likely to trade at a premium or discount to the Fund’s NAV and possibly face trading halts and/or delisting.
Cash Transaction Risk. Most exchange-traded funds (“ETFs”) generally make in-kind redemptions to avoid being taxed on gains on the distributed portfolio securities at the fund
level. However, the Fund currently intends to effect creations and redemptions principally for cash, rather than principally in-kind, due to the nature of the Fund’s investments. As such, the Fund may be
required to sell portfolio securities to obtain the cash needed to distribute redemption proceeds. Therefore, the Fund may recognize a capital gain on these sales that might not have been incurred if the Fund had made a redemption in-kind. This may decrease the tax efficiency of the Fund compared to ETFs that utilize an in-kind redemption process and there may be a substantial difference in the after-tax rate of the return between the Fund and conventional ETFs.
Commodity-Linked Derivative Risk. Investments linked to the prices of commodities may be considered
speculative. The Fund’s significant investment exposure to commodities may subject the Fund to greater volatility than investments in traditional securities. Therefore, the value of such instruments may be volatile and fluctuate widely based on
a variety of macroeconomic factors or commodity-specific factors. At times, price fluctuations may be quick and significant and may not correlate to price movements in other asset classes, such as stocks, bonds and cash.
Commodity Pool Risk. The Fund may invest in futures contracts, which cause it to be deemed to be a commodity
pool, thereby subjecting the Fund to regulation under the Commodity Exchange Act and rules of the Commodity Futures Trading Commission (“CFTC”). The Adviser is registered as a Commodity Pool Operator (“CPO”) and as a commodity
trading advisor (“CTA”), and the Fund will be operated in accordance with CFTC rules. Registration as a CPO or CTA subjects the Adviser to
additional laws, regulations and enforcement policies, all of which could increase compliance costs and may affect the operations and financial performance of the Fund. Registration as a commodity pool may have negative effects on
the ability of the Fund to engage in its planned investment program.
Derivatives Risk.
Derivatives involve risks different from, or possibly greater than, risks associated with other types of investments. Derivatives may be harder to value and may also be less tax efficient. To the extent that the Fund uses derivatives for hedging or
to gain or limit exposure to a particular market or market segment, there may be imperfect correlation between the value of the derivative instrument and the value of the instrument being hedged or the relevant market or market segment, in which
case the Fund may not realize the intended benefits. There is also the risk that during adverse market conditions, an instrument which would usually operate as a hedge provides no hedging benefits at all. The Fund’s use of derivatives may be
limited by the requirements for taxation of the Fund as a regulated investment company as well as regulatory changes.
Futures Contract Risk. Risks of futures contracts include: (i) an imperfect correlation between the value of the futures contract and the underlying commodity or commodity index; (ii) possible lack of a liquid
secondary market; (iii) the inability to close a futures contract when desired; (iv) losses caused by unanticipated market movements, which may be unlimited; (v) an obligation for the Fund to make daily cash payments to maintain its
required margin, particularly at times when the Fund may have insufficient cash or must sell securities to meet those margin requirements; (vi) the possibility that a failure to close a position may result in the Fund receiving an illiquid
commodity; and (vii) unfavorable execution prices from rapid selling.
Leverage Risk. The
Subsidiary may invest in portfolio investments that can give rise to a form of economic leverage. Because derivatives may have a component of economic leverage, adverse changes in the value or level of the underlying asset can result in the
magnification of gains or losses on the investment held by the Fund, and may potentially result in a loss greater than the amount invested in the derivative itself. The use of leverage may cause the Fund to liquidate portfolio positions to satisfy
its obligations or to meet any required asset segregation requirements when it may not be advantageous for the Fund to do so.
Liquidity Risk. For the Fund, liquidity risk exists when a particular investment is difficult to purchase or
sell. If the Fund invests in illiquid securities or current portfolio securities become illiquid, it may reduce the returns of the Fund because the Fund may be unable to sell the illiquid securities at an advantageous time or price.
Management Risk. The Fund is subject to management risk because it is an actively managed portfolio. In
managing the Fund’s portfolio securities, the Adviser or a sub-adviser (as applicable and as set forth below), applies investment techniques and risk analyses in making investment decisions, but there can
be no guarantee that these will produce the desired results.
Pooled Investment Vehicle Risk. The
Fund faces the risk that a pooled investment vehicle will not achieve its investment objective. The Fund also is subject to the risks of the underlying commodities in which the pooled vehicles invest. As a shareholder in such a vehicle, the Fund
will incur duplicative expenses, bearing its share of that vehicle’s expenses while also paying its own advisory and administrative fees. In addition, the Fund will incur brokerage costs when purchasing and selling shares of pooled investment
vehicles.
Subsidiary Investment Risk. By investing in the Subsidiary, the Fund is indirectly
exposed to the risks associated with the Subsidiary’s investments. The Subsidiary is not registered under the 1940 Act; therefore the Fund will not receive all protections offered to investors in registered investment companies. In addition,
changes in the laws of the United States and/or the Cayman Islands, under which the Fund and the Subsidiary are organized, respectively, could result in the inability of the Fund and/or the Subsidiary to operate as intended and could negatively
affect the Fund and its shareholders.
Tax Risk. To qualify as a regulated investment company
(“RIC”), the Fund must meet certain requirements concerning the source of its income. The Fund’s investment in the Subsidiary is intended to provide exposure to commodities in a manner consistent with the “qualifying income”
requirement applicable to RICs. The Internal Revenue Service (“IRS”) has ceased issuing private revenue rulings regarding whether the use of subsidiaries by investment companies to invest in commodity-linked instruments constitutes
qualifying income. If the IRS determines that this source of income is not “qualifying income,” the Fund may cease to qualify as a RIC. Failure to qualify as a RIC could subject the Fund to adverse tax consequences, including a federal
income tax on its net income at regular corporate rates, as well as a tax to shareholders on such income when distributed as an ordinary dividend.
Valuation Risk. Financial information related to securities of
non-U.S. issuers may be less reliable than information related to securities of U.S. issuers, which may make it difficult to obtain a current price for a non-U.S.
security held by the Fund. In certain circumstances, market quotations may not be readily available for some Fund securities, and those securities may be fair valued. The value established for a security through fair valuation may be different from
what would be produced if the security had been valued using market quotations. Fund securities that are valued using techniques other than market quotations, including “fair valued” securities, may be subject to greater fluctuation in
their value from one day to the next than would be the case if market quotations were used. In addition, there is no assurance that the Fund could sell a portfolio security for the value established for it at any time, and it is possible that the
Fund would incur a loss because a security is sold at a discount to its established value.
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C.
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Investment Transactions and Investment Income - Investment transactions are accounted
for on a trade date basis. Realized gains and losses from the sale or disposition of securities are computed on the specific identified cost basis. Interest income is recorded on the accrual basis from settlement date. Bond premiums and discounts
are amortized and/or accreted
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over the lives of the respective securities. Pay-in-kind interest income and non-cash dividend income received
in the form of securities in-lieu of cash are recorded at the fair value of the securities received. Dividend income (net of withholding tax, if any) is recorded on the
ex-dividend date. Realized gains, dividends and interest received by the Fund may give rise to withholding and other taxes imposed by foreign countries. Tax conventions between certain countries and the United
States may reduce or eliminate such taxes.
The Fund may periodically participate in litigation related
to the Fund’s investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Consolidated Statement of Operations as realized gain (loss) for investments no longer held and as
unrealized gain (loss) for investments still held.
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D.
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Country Determination - For the purposes of presentation in the Consolidated Schedule of
Investments, the Adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors may include the laws of the country under which the issuer is organized, where the issuer maintains
a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for
making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or
credit risk exposure has been determined to be the United States of America, unless otherwise noted.
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E.
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Dividends and Distributions to Shareholders - The Fund declares and pays dividends from net
investment income, if any, to its shareholders annually and records such dividends on ex-dividend date. Generally, the Fund distributes net realized taxable capital gains, if any, annually in cash and records
them on exdividend date. Such distributions on a tax basis are determined in conformity with federal income tax regulations which may differ from accounting principles generally accepted in the United States of America (“GAAP”).
Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund’s consolidated financial statements as a tax return of capital at fiscal year-end.
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F.
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Federal Income Taxes - The Fund intends to comply with the provisions of the Internal
Revenue Code of 1986, as amended (the “Internal Revenue Code”), applicable to regulated investment companies and to distribute substantially all of the Fund’s taxable earnings to its shareholders. As such, the Fund will not be subject
to federal income taxes on otherwise taxable income (including net realized gains) that is distributed to the shareholders. Therefore, no provision for federal income taxes is recorded in the consolidated financial statements.
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The Fund recognizes the tax benefits of uncertain tax positions only when the
position is more likely than not to be sustained. Management has analyzed the Fund’s uncertain tax positions and concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions. Management is not
aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next 12 months.
The Subsidiary is classified as a controlled foreign corporation under Subchapter N of the Internal Revenue Code.
Therefore, the Fund is required to increase its taxable income by its share of the Subsidiary’s income. Net investment losses of the Subsidiary cannot be deducted by the Fund in the current period nor carried forward to offset taxable income in
future periods.
Income and capital gain distributions are determined in accordance with federal income
tax regulations, which may differ from GAAP. These differences are primarily due to differing book and tax treatments for in-kind transactions, losses deferred due to wash sales, and passive foreign investment
company adjustments, if any.
The Fund files U.S. federal tax returns and tax returns in certain other
jurisdictions. Generally, the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period.
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G.
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Expenses - The Fund has agreed to pay an annual unitary management fee to the Adviser. Out
of the unitary management fee, the Adviser has agreed to pay for substantially all expenses of the Fund, including the cost of transfer agency, custody, fund administration, legal, audit and other services, except for advisory fees, distribution
fees, if any, brokerage expenses, taxes, interest, acquired fund fees and expenses, if any, litigation expenses and other extraordinary expenses.
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To the extent the Fund invests in other investment companies, the expenses shown in the accompanying consolidated
financial statements reflect the expenses of the Fund and do not include any expenses of the investment companies in which it invests. The effects of such investment companies’ expenses are included in the realized and unrealized gain or loss
on the investments in the investment companies.
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H.
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Accounting Estimates - The preparation of the consolidated financial statements in
accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts and disclosures in the consolidated financial statements, including estimates and assumptions related to taxation. Actual results could
differ from these estimates. All inter-company accounts and transactions have been eliminated in consolidation. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the consolidated financial statements are released to print.
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I.
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Indemnifications - Under the Trust’s organizational documents, its Officers and
Trustees are indemnified against certain liabilities arising out of the performance of their duties to the Trust. Also, under the Subsidiary’s organizational documents, the directors and officers of the Subsidiary are indemnified against
certain liabilities that may arise out of the performance of their duties to the Fund and/or the Subsidiary, respectively. Each Board member who is not an “interested person” (as defined in the 1940 Act) of the Trust (each, an
“Independent Trustee”) is also indemnified against certain liabilities arising out of the
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performance of his duties to the Trust pursuant to an Indemnification Agreement between such trustee and the Trust. Additionally, in the normal course of business, the Trust enters into contracts with service providers that contain
general indemnification clauses. The Trust’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Trust that have not yet occurred. However, based on experience, the Trust
believes the risk of loss to be remote.
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J.
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Futures Contracts - The Subsidiary invests in commodity-linked futures contracts that
generally are representative of the components of the DBIQ Optimum Yield Diversified Commodity Index Excess Return (the “Benchmark Index”), an index composed of future contracts on 14 of the most heavily traded commodities across the
energy, precious metals, industrial metals and agriculture sectors: aluminum, Brent crude oil, copper, corn, gold, New York Harbor Ultra Low Sulphur Diesel (previously referred to as heating oil), WTI crude oil, natural gas, “RBOB”
gasoline, silver, soybeans, sugar, wheat and zinc.
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A futures contract is an
agreement between two parties (“Counterparties”) to purchase or sell a specified underlying commodity or financial instrument for a specified price at a future date. Initial margin deposits required upon entering into futures contracts are
satisfied by the segregation of specific securities or cash as collateral at the futures commission merchant broker. During the period the futures contracts are open, changes in the value of the contracts are recognized as unrealized gains or losses
by recalculating the value of the contracts on a daily basis. Subsequent or variation margin payments are received or made on commodity futures contracts that do not trade on the London Metals Exchange (the “LME”), depending upon whether
unrealized gains or losses are incurred. These amounts are reflected as a receivable or payable on the Consolidated Statement of Assets and Liabilities. For LME contracts, subsequent or variation margin payments are not made and the value of the
contracts is presented as net unrealized appreciation (depreciation) on the Consolidated Statement of Assets and Liabilities. When the contracts are closed or expire, the Fund recognizes a realized gain or loss equal to the difference between the
proceeds from, or cost of, the closing transaction and the Fund’s basis in the contract. The net realized gain (loss) and the change in unrealized gain (loss) on futures contracts held during the period is included on the Consolidated Statement
of Operations.
For settlement of LME commodity futures contracts, cash is not transferred until the
settled futures contracts expire. Net realized gains or losses on LME contracts which have been closed out but for which the contract has not yet expired are reflected as a receivable or payable on the Consolidated Statement of Assets and
Liabilities.
The primary risks associated with futures contracts are market risk, leverage risk and the
absence of a liquid secondary market. If the Fund were unable to liquidate a futures contract and/or enter into an offsetting closing transaction, the Fund would continue to be subject to market risk with respect to the value of the contracts and
may be required to continue to maintain the margin deposits on the futures contracts until the position expired or matured. As futures contracts approach expiration, they may be replaced by similar contracts that have a later expiration. This
process is referred to as “rolling”. If the market for these contracts is in “contango,” meaning that the prices of futures contracts in the nearer months are lower than the price of contracts in the distant months, the sale of
the near-term month contract would be at a lower price than the longer-term contract, resulting in a cost to “roll” the futures contract. The actual realization of a potential roll cost will depend on the difference in price of the near
and distant contracts. In addition, the Fund may not “roll” futures contracts on a predefined schedule as they approach expiration; instead the Adviser may determine to roll to another futures contract (chosen from a list of tradable
futures with expirations beyond those contained in the Benchmark Index) in an attempt to generate maximum yield. There can be no guarantee that such a strategy will produce the desired results.
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K.
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Swap Agreements - The Fund may enter into various swap transactions, including interest
rate, total return, index, currency exchange rate and credit default swap contracts (“CDS”) for investment purposes or to manage interest rate, currency or credit risk. Such transactions are agreements between Counterparties. These
agreements may contain, among other conditions, events of default and termination events, and various covenants and representations such as provisions that require the Fund to maintain a pre-determined level
of net assets, and/or provide limits regarding the decline of the Fund’s NAV over specific periods of time. If the Fund were to trigger such provisions and have open derivative positions at that time, the Counterparty may be able to terminate
such agreement and request immediate payment in an amount equal to the net liability positions, if any.
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Interest rate, total return, index and currency exchange rate swap agreements are
two-party contracts entered into primarily to exchange the returns (or differentials in rates of returns) earned or realized on particular predetermined investments or instruments. The gross returns to be
exchanged or “swapped” between the parties are calculated with respect to a notional amount, i.e., the return on or increase in value of a particular dollar amount invested at a particular interest rate or return of an underlying asset, in
a particular foreign currency, or in a “basket” of securities representing a particular index.
Changes in the value of swap agreements are recognized as unrealized gains (losses) in the Consolidated Statement
of Operations by “marking to market” on a daily basis to reflect the value of the swap agreement at the end of each trading day. Payments received or paid at the beginning of the agreement are reflected as such on the Consolidated
Statement of Assets and Liabilities and may be referred to as upfront payments. The Fund accrues for the fixed payment stream and amortizes upfront payments, if any, on swap agreements on a daily basis with the net amount, recorded as a component of
realized gain (loss) on the Consolidated Statement of Operations. A liquidation payment received or made at the termination of a swap agreement is recorded as realized gain (loss) on the Consolidated Statement of Operations. The Fund segregates cash
or liquid securities having a value at least equal to the amount of the potential obligation of the Fund under any swap transaction. Cash
held as collateral is recorded as deposits with brokers on the Consolidated Statement of Assets and Liabilities. Entering into these agreements involves, to varying degrees, lack of liquidity and elements of credit, market, and
counterparty risk in excess of amounts recognized on the Consolidated Statement of Assets and Liabilities. Such risks involve the possibility that a swap is difficult to sell or liquidate, the Counterparty does not honor its obligations under the
agreement and unfavorable interest rates and market fluctuations. It is possible that developments in the swaps market, including potential government regulation, could adversely affect the Fund’s ability to terminate existing swap agreements
or to realize amounts to be received under such agreements.
NOTE 3–Investment Advisory Agreement and Other Agreements
The Trust has entered into an Investment Advisory Agreement with the Adviser on behalf of the Fund, pursuant to which the Adviser
has overall responsibility for the selection and ongoing monitoring of the Fund’s investments, managing the Fund’s business affairs and providing certain clerical, bookkeeping and other administrative services.
Pursuant to the Investment Advisory Agreement, the Fund accrues daily and pays monthly to the Adviser an annual unitary management
fee of 0.59% of the Fund’s average daily net assets. Out of the unitary management fee, the Adviser has agreed to pay for substantially all expenses of the Fund, including the costs of transfer agency, custody, fund administration, legal, audit
and other services, except for advisory fees, distribution fees, if any, brokerage expenses, taxes, interest, acquired fund fees and expenses, if any, litigation expenses and other extraordinary expenses.
The Adviser has contractually agreed, through at least August 31, 2021, to waive a portion of the Fund’s management fee
in an amount equal to 100% of the net advisory fees an affiliate of the Adviser receives that are attributable to certain of the Fund’s investments in money market funds managed by that affiliate (excluding investments of cash collateral from
securities lending). The Adviser cannot discontinue this waiver prior to its expiration.
For the fiscal year ended
October 31, 2019, the Adviser waived fees of $433,390.
The Trust has entered into a Distribution Agreement with
Invesco Distributors, Inc. (the “Distributor”), which serves as the distributor of Creation Units for the Fund. The Distributor does not maintain a secondary market in the Shares. The Fund is not charged any fees pursuant to the
Distribution Agreement. The Distributor is an affiliate of the Adviser.
The Trust has entered into service agreements
whereby The Bank of New York Mellon, a wholly-owned subsidiary of The Bank of New York Mellon Corporation, serves as the administrator, custodian, fund accountant and transfer agent for the Fund.
NOTE 4–Additional Valuation Information
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP
establishes a hierarchy that prioritizes the inputs to valuation methods, giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant
unobservable inputs (Level 3), generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result
in transfers in or out of an investment’s assigned level:
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Level 1 –
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Prices are determined using quoted prices in an active market for identical assets.
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Level 2 –
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Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar
securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others.
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Level 3 –
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Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at
the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the
best available information.
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The following is a summary of the tiered valuation input levels, as of October 31, 2019. The
level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent
uncertainties of valuation, the values reflected in the consolidated financial statements may materially differ from the value received upon actual sale of those investments.
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Level 1
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Level 2
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Level 3
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Total
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Investments in Securities
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U.S. Treasury Securities
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$
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-
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$
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1,418,882,962
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$-
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$
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1,418,882,962
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Money Market Funds
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191,973,641
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-
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|
-
|
|
|
191,973,641
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investments in Securities
|
|
|
191,973,641
|
|
|
|
1,418,882,962
|
|
|
-
|
|
|
1,610,856,603
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Investments - Assets(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Futures Contracts
|
|
|
7,312,880
|
|
|
|
-
|
|
|
-
|
|
|
7,312,880
|
|
|
Swap Agreements
|
|
|
-
|
|
|
|
30,036,883
|
|
|
-
|
|
|
30,036,883
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,312,880
|
|
|
|
30,036,883
|
|
|
-
|
|
|
37,349,763
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Investments - Liabilities(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Futures Contracts
|
|
|
(6,489,808
|
)
|
|
|
-
|
|
|
-
|
|
|
(6,489,808
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other Investments
|
|
|
823,072
|
|
|
|
30,036,883
|
|
|
-
|
|
|
30,859,955
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investments
|
|
$
|
192,796,713
|
|
|
$
|
1,448,919,845
|
|
|
$-
|
|
$
|
1,641,716,558
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Unrealized appreciation (depreciation).
|
NOTE 5–Derivative Investments
The Fund may enter into an International Swaps and Derivatives Association Master Agreement (“ISDA Master Agreement”) under which a Fund may trade OTC derivatives. An OTC transaction entered into under an ISDA Master
Agreement typically involves a collateral posting arrangement, payment netting provisions and close-out netting provisions. These netting provisions allow for reduction of credit risk through netting of
contractual obligations. The enforceability of the netting provisions of the ISDA Master Agreement depends on the governing law of the ISDA Master Agreement, among other factors.
For financial reporting purposes, the Fund does not offset OTC derivative assets or liabilities that are subject to ISDA
Master Agreements in the Consolidated Statement of Assets and Liabilities.
Value of Derivative Investments at Period-End
The table below summarizes the value of the Fund’s derivative investments,
detailed by primary risk exposure, held as of October 31, 2019:
|
|
|
|
|
|
|
|
|
Value
|
|
|
Derivative Assets
|
|
Commodity
Risk
|
|
|
|
|
|
Unrealized appreciation on futures contracts–Exchange-Traded(a)
|
|
$
|
7,312,880
|
|
|
|
|
|
Unrealized appreciation on swap agreements–OTC
|
|
|
30,036,883
|
|
|
|
|
|
|
|
|
|
|
|
Total Derivative Assets
|
|
|
37,349,763
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not subject to master netting agreements
|
|
|
(7,312,880
|
)
|
|
|
|
|
|
|
|
|
|
|
Total Derivative Assets subject to master netting agreements
|
|
$
|
30,036,883
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value
|
|
|
Derivative Liabilities
|
|
Commodity
Risk
|
|
|
Unrealized depreciation on futures contracts–Exchange-Traded(a)
|
|
$
|
(6,489,808
|
)
|
|
Derivatives not subject to master netting agreements
|
|
|
6,489,808
|
|
|
|
|
|
|
|
|
Total Derivative Liabilities subject to master netting agreements
|
|
$
|
-
|
|
|
|
|
|
|
|
|
(a)
|
Includes cumulative appreciation (depreciation) on futures contracts. Only current day’s
variation margin receivable (payable) is reported within the Consolidated Statement of Assets and Liabilities for non-LME futures contracts.
|
Offsetting Assets and Liabilities
The table below reflects the Fund’s exposure to Counterparties subject
to either an ISDA Master Agreement or other agreement for OTC derivative transactions as of October 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Derivative
Assets
|
|
|
Financial Derivative
Liabilities
|
|
|
|
|
Collateral
(Received)/Pledged
|
|
|
|
|
Counterparty
|
|
Swap Agreements
|
|
|
Swap Agreements
|
|
Net Value of
Derivatives
|
|
|
Non-Cash
|
|
Cash
|
|
Net Amount
|
|
|
Citibank, N.A.
|
|
|
|
|
|
$
|
3,418,766
|
|
|
|
|
|
|
|
|
$–
|
|
|
|
$
|
3,418,766
|
|
|
$-
|
|
$-
|
|
$
|
3,418,766
|
|
|
Goldman Sachs International
|
|
|
|
|
|
|
5,735,642
|
|
|
|
|
|
|
|
|
–
|
|
|
|
|
5,735,642
|
|
|
-
|
|
-
|
|
|
5,735,642
|
|
|
Macquarie Bank Ltd.
|
|
|
|
|
|
|
5,751,523
|
|
|
|
|
|
|
|
|
–
|
|
|
|
|
5,751,523
|
|
|
-
|
|
-
|
|
|
5,751,523
|
|
|
Morgan Stanley Capital Services LLC
|
|
|
|
|
|
|
5,466,194
|
|
|
|
|
|
|
|
|
–
|
|
|
|
|
5,466,194
|
|
|
-
|
|
-
|
|
|
5,466,194
|
|
|
Royal Bank of Canada
|
|
|
|
|
|
|
6,932,553
|
|
|
|
|
|
|
|
|
–
|
|
|
|
|
6,932,553
|
|
|
-
|
|
-
|
|
|
6,932,553
|
|
|
UBS AG
|
|
|
|
|
|
|
2,732,205
|
|
|
|
|
|
|
|
|
–
|
|
|
|
|
2,732,205
|
|
|
-
|
|
-
|
|
|
2,732,205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
30,036,883
|
|
|
|
|
|
|
|
|
$–
|
|
|
|
$
|
30,036,883
|
|
|
$-
|
|
$-
|
|
$
|
30,036,883
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|