| Summary of Significant Accounting Policies | (5)
Summary of Significant Accounting Policies
(a)
Basis of Presentation
The financial
statements of the Fund have been prepared using U.S. generally
accepted accounting principles (“U.S.
GAAP”).
The Fund has
determined that it meets the definition of an investment company
and has prepared the audited financial statements in conformity
with U.S. GAAP for investment companies in conformity with
accounting and reporting guidance of the Financial Accounting
Standards Board (“FASB”) Accounting Standards
Codification Topic 946 — Investment Companies.
In August
2014, the FASB issued a new standard, Accounting Standards Update
No. 2014-15 Disclosure of Uncertainties about an
Entity’s Ability to Continue as a Going Concern, which will
explicitly require management to assess an entity’s ability
to continue as a going concern and to provide related footnote
disclosure in certain circumstances. This new guidance is effective
for all entities in the first annual reporting period ending after
December 15, 2016. The Fund is currently evaluating this
guidance and its impact on the Fund’s financial statement
disclosures.
(b) Use
of Estimates
The
preparation of the financial statements in conformity with U.S.
GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, revenues and
expenses and related disclosure of contingent assets and
liabilities during the reporting period of the financial statements
and accompanying notes. Actual results could differ from those
estimates. There were no significant estimates used in the
preparation of these financial statements.
(c)
Financial Instruments and Fair Value
United States
Treasury Obligations and commodity futures contracts are recorded
in the Statements of Financial Condition on a trade date basis at
fair value with changes in fair value recognized in earnings in
each period. U.S. 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.
U.S. 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 or market conditions may
result in transfers in or out of an investment’s assigned
level:
Level 1: Prices are determined
using quoted prices in an active market for identical
assets.
Level 2: 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.
Level 3: 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.
United States
Treasury Obligations 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 developments related to specific securities, yield, quality,
type of issue, coupon rate, maturity, individual trading
characteristics and other market data. All debt obligations involve
some risk of default with respect to interest and/or principal
payments.
The levels
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 financial statements may materially differ
from the value received upon actual sale of those
investments.
The following
is a summary of the tiered valuation input levels as of
December 31, 2015:
Level
1 Level
2 Level 3 Total
United States Treasury
Obligations $ — $ 133,489,271 $ — $ 133,489,271
Commodity Futures
Contracts (a) $ (5,416,324 ) $ — $ — $ (5,416,324 )
(a)
Unrealized appreciation (depreciation).
The
Fund’s policy is to recognize transfers in and out of the
valuation levels as of the end of the reporting period. Effective
on the Closing Date, the Managing Owner evaluated the
classification of the Fund’s investments, and elected to
reflect United States Treasury Obligations as Level 2. As a result,
United States Treasury Obligations were transferred from Level 1 to
Level 2.
The following
is a summary of the tiered valuation input levels as of
December 31, 2014:
Level
1 Level 2 Level 3 Total
United States Treasury
Obligations $ 149,996,759 $ — $ — $ 149,996,759
Commodity Futures
Contracts (a) $ (8,526,360 ) $ — $ — $ (8,526,360 )
(a)
Unrealized appreciation (depreciation).
(d)
Deposits with Commodity Broker
The Fund
deposits cash and United States Treasury Obligations with its
Commodity Broker subject to CFTC regulations and various exchange
and broker requirements. The combination of the Fund’s
deposits with its Commodity Broker of cash and United States
Treasury Obligations and the unrealized profit or loss on open
commodity futures contracts (variation margin) represents the
Fund’s overall equity in its broker trading account. To meet
the Fund’s initial margin requirements, the Fund holds United
States Treasury Obligations. The Fund transfers cash to the
Commodity Broker to satisfy variation margin requirements. The Fund
earns interest on any excess cash deposited with the Commodity
Broker and incurs interest expense on any deficit balance with the
Commodity Broker.
(e)
United States Treasury Obligations
The Fund
records purchases and sales of United States Treasury Obligations
on trade date. These holdings are marked to market based on
evaluated mean prices provided by an independent pricing service. A
portion of the Fund’s United States Treasury Obligations are
held for deposit with the Commodity Broker to meet margin
requirements. Interest income is recognized on an accrual basis
when earned. Realized gains or losses on sales are computed on the
basis of specific identification of the securities sold. Premiums
and discounts are amortized or accreted in interest income over the
life of the United States Treasury Obligations. As of
December 31, 2015, there were no payables or receivables
outstanding for securities purchased or sold. The Fund purchased
$19,000,000 face amount of United States Treasury Obligations
valued at $18,998,337 which was recorded as payable for securities
purchased as of December 31, 2014. The Fund sold $8,000,000
face amount of United States Treasury Obligations valued at
$7,999,987 which was recorded as receivable for securities sold as
of December 31, 2014.
(f)
Cash Held by Commodity Broker
The
Fund’s arrangement with the Commodity Broker requires the
Fund to meet its variation margin requirement related to the price
movements on futures contracts held by the Fund by keeping cash on
deposit with the Commodity Broker. The Fund assesses its variation
margin requirements on a daily basis by recalculating the change in
value of the futures contracts based on price movements. Subsequent
cash payments are made or received by the Fund each business day
depending upon whether unrealized gains or losses are incurred on
the futures contracts. Effective February 24, 2015, only the
current day’s variation margin receivable or payable is
disclosed as an asset or liability on the Statement of Financial
Condition.
The Fund
defines cash and cash equivalents to be highly liquid investments,
with original maturities of three months or less when purchased.
There were no cash equivalents held by the Fund at
December 31, 2015 and 2014.
(g)
Income Taxes
The Fund is
classified as a partnership for U.S. federal income tax purposes.
Accordingly, the Fund will generally not incur U.S. federal income
taxes. No provision for federal, state, and local income taxes has
been made in the accompanying financial statements, as investors
are individually liable for income taxes, if any, on their
allocable share of the Fund’s income, gain, loss, deductions
and other items.
The Managing
Owner has reviewed all of the Fund’s open tax years and major
jurisdictions and concluded that there is no tax liability
resulting from unrecognized tax benefits relating to uncertain tax
positions taken or expected to be taken in future tax returns. The
Fund is also not aware of any tax positions for which it is
reasonably possible that the total amounts of unrecognized tax
benefits will significantly change in the next twelve months. On an
ongoing basis, the Managing Owner will monitor the Fund’s tax
positions taken under the interpretation (and consult with its tax
counsel from time to time when appropriate) to determine if
adjustments to conclusions are necessary based on factors
including, but not limited to, on-going analysis of tax law,
regulation, and interpretations thereof. The major tax jurisdiction
for the Fund and the earliest tax year subject to examination:
United States, 2012.
(h)
Commodity Futures Contracts
All commodity
futures contracts are held and used for trading purposes. Commodity
futures contracts are recorded on trade date. Open contracts are
recorded in the Statements of Financial Condition at fair value on
trade date and on each successive date as well as on the last
business day of each of the periods presented. Futures contracts
are valued at the final settlement price set by an exchange on
which they are principally traded. Realized gains (losses) and
changes in unrealized appreciation (depreciation) on open positions
are determined on a specific identification basis and recognized in
the Statements of Income and Expenses in the period in which the
contract is closed or the changes occur, respectively.
The Fair
Value of Derivative Instruments is as follows:
December 31,
2015 (a) 2014 (b)
Risk
Exposure/Derivative Type Assets Liabilities Assets Liabilities
Commodity risk
Commodity Futures
Contracts $ — $ (5,416,324 ) $ — $ (8,526,360 )
(a)
Includes cumulative appreciation (depreciation) of commodity
futures contracts. Only current day’s variation margin
receivable (payable) is reported in the December 31, 2015
Statement of Financial Condition.
(b)
Values are disclosed on the December 31, 2014 Statement of
Financial Condition under Net unrealized appreciation
(depreciation) on Commodity Futures Contracts
The Effect of
Derivative Instruments on the Statements of Income and Expenses is
as follows:
Risk
Exposure/Derivative Type Location of Gain or (Loss) on Derivatives Recognized
in Income 2015 2014 2013
Commodity risk
Commodity Futures
Contracts Net Realized Gain (Loss) $ (22,881,309 ) $ (923,660 ) $ (87,392,590 )
Net Change in Unrealized 3,110,036 (3,236,720 ) 3,746,010
Total $ (19,771,273 ) $ (4,160,380 ) $ (83,646,580 )
The table
below summarizes the average monthly notional value of commodity
futures contracts outstanding during the period:
Years Ended
December 31,
2015 2014 2013
Average Notional
Value $ 149,893,148 $ 152,367,148 $ 252,127,805
The Fund
utilizes derivative instruments to achieve its investment
objective. The brokerage agreement with the Commodity Broker
provides for the net settlement of all financial instruments
covered by the agreement in the event of default or termination of
any one contract. The Managing Owner will utilize any excess cash
held at the Commodity Broker to offset any realized losses incurred
in the commodity futures contracts, if available. To the extent
that any excess cash held at the Commodity Broker is not adequate
to cover any realized losses, a portion of the United States
Treasury Obligations on deposit with the Commodity Broker will be
sold to make additional cash available. For financial reporting
purposes, the Fund offsets financial assets and financial
liabilities that are subject to netting arrangements. In order for
an arrangement to be eligible for netting, the Fund must have a
basis to conclude that such netting arrangements are legally
enforceable. The following table presents derivative instruments
that are either subject to an enforceable netting agreement or
offset by collateral arrangements as of December 31, 2015, net
by contract:
Gross Amounts Not
Offset in the Statement of Financial Condition
Gross
Amounts (a) Gross
Amounts Offset in the Statement of Financial Condition Net Amounts Presented
in the
Statement of Financial Condition Financial Instruments (b) Cash Collateral Pledged (b) Net Amount
Assets
Commodity Futures
Contracts $ 5,442,464 (5,416,324 ) $ 26,140 — — 26,140
Liabilities
Commodity Futures
Contracts $ (5,416,324 ) $ 5,416,324 $ — $ — $ — $ —
The following
table presents derivative instruments that are either subject to an
enforceable netting agreement or offset by collateral arrangements
as of December 31, 2014, net by contract:
Gross Amounts Not
Offset in the Statement of Financial Condition
Gross Amounts Recognized (a) Gross
Amounts Offset in the Statement of Financial Condition Net Amounts Presented
in the Statement of Financial Condition Financial Instruments (b) Cash Collateral Pledged (b) Net Amount
Liabilities
Commodity Futures
Contracts $ (8,526,360 ) $ — $ (8,526,360 ) $ — $ 8,526,360 $ —
(a)
Includes cumulative appreciation (depreciation) of futures
contracts.
(b)
As of December 31, 2015 and 2014, a portion of the
Fund’s cash and US Treasury Obligations were required to be
deposited as margin in support of the Fund’s futures
positions as described in Note 3.
(j)
Brokerage Commissions and Fees
The Fund
incurs all brokerage commissions, including applicable exchange
fees, National Futures Association (“NFA”) fees,
give-up fees, pit brokerage fees and other transaction related fees
and expenses charged in connection with trading activities by the
Commodity Broker. These costs are recorded as Brokerage Commissions
and Fees in the Statements of Income and Expenses. The Commodity
Broker’s brokerage commissions and trading fees are
determined on a contract-by-contract basis. On average, total
charges paid to the Commodity Broker and the Predecessor Commodity
Broker, as applicable were less than $6.00, $10.00 and $10.00 per
round-turn trade during the Years Ended December 31, 2015,
2014 and 2013, respectively.
(k)
Routine Operational, Administrative and Other Ordinary
Expenses
After the
Closing Date, the Managing Owner assumed all routine operational,
administrative and other ordinary expenses of the Fund, 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.
Prior to the Closing Date, the Predecessor Managing Owner assumed
all routine operational, administrative and other ordinary expenses
of the Fund. Accordingly, such expenses are not reflected in the
Statements of Income and Expenses of the Fund.
(l)
Organizational and Offering Costs
All
organizational and offering expenses (including continuous offering
expenses for the offering of Shares) incurred by the Fund were
assumed by either the Predecessor Managing Owner or the Managing
Owner. The Fund is not responsible to either the Predecessor
Managing Owner or the Managing Owner for the reimbursement of
organizational and offering costs (including continuous offering
expenses for the offering of Shares).
(m)
Non-Recurring Fees and Expenses
The Fund pays
all non-recurring and unusual fees and expenses (referred to as
extraordinary fees and expenses in the Trust Agreement), if any, of
itself, as determined by the Managing Owner. Non-recurring and
unusual fees and expenses are fees and expenses which are
non-recurring and unusual in nature, such as legal claims and
liabilities, litigation costs or indemnification or other
unanticipated expenses. Such non-recurring and unusual fees and
expenses, by their nature, are unpredictable in terms of timing and
amount. For the Years Ended December 31, 2015, 2014 and 2013,
the Fund did not incur such expenses. |
