Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form 10-Q

 

 

(Mark One)

 

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2014

Or

 

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from               to             

Commission File Number 001-35710

 

 

Nuveen Long/Short Commodity Total Return Fund

(Exact name of registrant as specified in its charter)

 

Delaware		45-2470177
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
333 West Wacker Drive Chicago Illinois		60606
(Address of principal executive offices)		(Zip Code)

(877) 827-5920

(Registrant’s telephone number, including area code)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated file, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer		¨		Accelerated filer		x
Non-accelerated filer		¨  (Do not check if smaller reporting company)		Smaller reporting company		¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

As of November 5, 2014, the registrant had 16,740,840 shares outstanding.

 

 

 

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Table of Contents

NUVEEN LONG/SHORT COMMODITY TOTAL RETURN FUND

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

TABLE OF CONTENTS

 

				Page No.
PART I. FINANCIAL INFORMATION
Item 1.		Financial Statements:			3
		Schedule of Investments at September 30, 2014 (Unaudited)			3
		Statements of Financial Condition at September 30, 2014 (Unaudited) and December 31, 2013			8
		Statements of Operations (Unaudited) for the three months ended September 30, 2014 and September  30, 2013 and for the nine months ended September 30, 2014 and September 30, 2013			9
		Statements of Changes in Shareholders’ Capital for the nine months ended September 30, 2014 (Unaudited) and the year ended December 31, 2013			10
		Statements of Cash Flows (Unaudited) for the nine months ended September 30, 2014 and September 30, 2013			11
		Notes to Financial Statements (Unaudited)			12
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			26
Item 3.		Quantitative and Qualitative Disclosures About Market Risk			41
Item 4.		Controls and Procedures			44
PART II. OTHER INFORMATION
Item 1.		Legal Proceedings			45
Item 1A.		Risk Factors			45
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds			45
Item 3.		Defaults Upon Senior Securities			45
Item 4.		Mine Safety Disclosures			45
Item 5.		Other Information			45
Item 6.		Exhibits			46
Signatures					47

 

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PART I. FINANCIAL INFORMATION

 

Item 1.

Financial Statements

NUVEEN LONG/SHORT COMMODITY TOTAL RETURN FUND

SCHEDULE OF INVESTMENTS (Unaudited)

September 30, 2014

Investments

 

Principal Amount (000)		Description		Coupon				Maturity				Ratings(1)				Value
		Short-Term Investments
		U.S. Government and Agency Obligations
$    15,000		U.S. Treasury Bills			0.000	%			10/16/14				Aaa			$	14,999,940
17,250		U.S. Treasury Bills			0.000	%			11/13/14				Aaa				17,249,689
15,000		U.S. Treasury Bills			0.000	%			12/11/14				Aaa				14,999,550
15,000		U.S. Treasury Bills			0.000	%			1/08/15				Aaa				14,999,280
15,000		U.S. Treasury Bills			0.000	%			2/05/15				Aaa				14,998,815
15,000		U.S. Treasury Bills			0.000	%			3/05/15				Aaa				14,998,065
33,000		U.S. Treasury Bills			0.000	%			4/02/15				Aaa				32,992,872
32,000		U.S. Treasury Bills			0.000	%			4/30/15				Aaa				31,992,960
51,500		U.S. Treasury Bills			0.000	%			5/28/15				Aaa				51,487,177
5,000		U.S. Treasury Bills			0.000	%			6/25/15				Aaa				4,998,240
14,500		U.S. Treasury Bills			0.000	%			7/23/15				Aaa				14,493,461
35,000		U.S. Treasury Bills			0.000	%			9/17/15				Aaa				34,966,715
$  263,250		Total U.S. Government and Agency Obligations (cost $263,107,149)														$	263,176,764
		Repurchase Agreements
$      3,662		Repurchase Agreement with State Street Bank, dated 9/30/14, repurchase price $3,662,059, collateralized by $2,680,000 U.S. Treasury Bonds, 8.125%, due 8/15/21, value $3,736,507			0.000	%			10/01/14				N/A			$	3,662,059
		Total Repurchase Agreements (cost $3,662,059)															3,662,059
		Total Short-Term Investments (cost $266,769,208)														$	266,838,823

 

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NUVEEN LONG/SHORT COMMODITY TOTAL RETURN FUND

SCHEDULE OF INVESTMENTS (Continued) (Unaudited)

September 30, 2014

 

Investments in Derivatives

Futures Contracts outstanding:

 

Commodity Group		Contract		Contract Position				Contract Expiration		Number of Contracts(2)				Notional Amount at  Value(3)				Unrealized Appreciation (Depreciation)
Agriculture		Soybean
		CBOT Soybean Futures Contract			Short			November 2014			(574	)		$	(26,210,275	)		$	4,449,577
		Corn
		CBOT Corn Futures Contract			Short			December 2014			(1,321	)			(21,185,538	)			3,000,249
		Sugar
		ICE Sugar Futures Contract			Short			March 2015			(691	)			(12,730,984	)			427,949
		Wheat
		CBOT Wheat Futures Contract			Short			December 2014			(387	)			(9,244,463	)			1,178,950
		Soybean Meal
		CBOT Soybean Meal Futures Contract			Short			December 2014			(211	)			(6,306,790	)			592,587
		Soybean Oil
		CBOT Soybean Oil Futures Contract			Short			December 2014			(351	)			(6,817,122	)			1,303,089
		Cotton
		ICE Cotton Futures Contract			Short			December 2014			(157	)			(4,817,545	)			1,048,249
		Coffee
		ICE Coffee C Futures Contract			Long			December 2014			42				3,045,263				193,181
		Total Agriculture																	12,193,831
Metals		Gold
		CEC Gold Futures Contract			Short			December 2014			(219	)			(26,534,040	)			1,398,041
		Silver
		CEC Silver Futures Contract			Short			December 2014			(114	)			(9,722,490	)			1,207,460
		Copper
		CEC Copper Futures Contract			Short			December 2014			(112	)			(8,421,000	)			426,636
		Total Metals																	3,032,137
Livestock		Live Cattle
		CME Live Cattle Futures Contract			Long			October 2014			24				1,540,320				27,520
		CME Live Cattle Futures Contract			Long			December 2014			175				11,443,250				847,219
		CME Live Cattle Futures Contract			Long			February 2015			4				262,360				5,760
		Total Live Cattle																	880,499
		Lean Hogs
		CME Lean Hogs Futures Contract			Long			October 2014			31				1,338,890				159,804
		CME Lean Hogs Futures Contract			Long			December 2014			163				6,163,030				58,418
		Total Lean Hogs																	218,222
		Total Livestock																	1,098,721
		Total Futures Contracts outstanding												$	(108,197,134	)		$	16,324,689

 

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NUVEEN LONG/SHORT COMMODITY TOTAL RETURN FUND

SCHEDULE OF INVESTMENTS (Continued) (Unaudited)

September 30, 2014

Investments in Derivatives (Continued)

Call Options Written outstanding:

 

Commodity Group		Contract		Contract Expiration				Number of Contracts				Strike Price				Value
Energy		Crude Oil
		NYMEX Crude Oil Futures Options			October 2014				(47	)		$	95.00			$	(13,630	)
		Total Energy															(13,630	)
Agriculture		Soybean
		CBOT Soybean Futures Options			October 2014				(84	)			1,110.00				(525	)
		Soybean Meal
		CBOT Soybean Meal Futures Options			November 2014				(32	)			330.00				(6,720	)
		Coffee
		ICE Coffee C Futures Options			November 2014				(6	)			160.00				(77,782	)
		Total Agriculture															(85,027	)
Metals		Gold
		CEC Gold Futures Options			November 2014				(33	)			1,300.00				(13,200	)
		Total Metals															(13,200	)
Livestock		Live Cattle
		CME Live Cattle Futures Options			October 2014				(24	)			134.00				(253,920	)
		CME Live Cattle Futures Options			December 2014				(7	)			143.00				(57,960	)
		Total Live Cattle															(311,880	)
		Lean Hogs
		CME Lean Hogs Futures Options			October 2014				(29	)			94.00				(162,690	)
		Total Livestock															(474,570	)
		Total Call Options Written outstanding (premiums received $1,105,545)							(262	)						$	(586,427	)

 

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NUVEEN LONG/SHORT COMMODITY TOTAL RETURN FUND

SCHEDULE OF INVESTMENTS (Continued) (Unaudited)

September 30, 2014

Investments in Derivatives (Continued)

Put Options Written outstanding:

 

Commodity Group		Contract		Contract Expiration				Number of Contracts				Strike Price				Value
Agriculture		Soybean
		CBOT Soybean Futures Options			October 2014				(84	)		$	1,110.00			$	(826,875	)
		Corn
		CBOT Corn Futures Options			November 2014				(194	)			460.00				(1,351,938	)
		Sugar
		ICE Sugar Futures Options			February 2015				(102	)			19.75				(395,270	)
		Wheat
		CBOT Wheat Futures Options			November 2014				(57	)			670.00				(548,269	)
		Soybean Meal
		CBOT Soybean Meal Futures Options			November 2014				(32	)			330.00				(106,240	)
		Soybean Oil
		CBOT Soybean Oil Futures Options			November 2014				(52	)			415.00				(285,480	)
		Cotton
		ICE Cotton Futures Options			November 2014				(23	)			79.00				(203,320	)
		Total Agriculture															(3,717,392	)
Metals		Gold
		CEC Gold Futures Options			November 2014				(33	)			1,300.00				(304,920	)
		Silver
		CEC Silver Futures Options			November 2014				(17	)			2,050.00				(297,075	)
		Total Metals															(601,995	)
Livestock		Lean Hogs
		CME Lean Hogs Futures Options			October 2014				(29	)			94.00				(580	)
		Total Livestock															(580	)
		Total Put Options Written outstanding (premiums received $2,592,330)							(623	)						$	(4,319,967	)
		Total Options Written outstanding (premiums received $3,697,875)							(885	)						$	(4,906,394	)

 

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NUVEEN LONG/SHORT COMMODITY TOTAL RETURN FUND

SCHEDULE OF INVESTMENTS (Continued) (Unaudited)

September 30, 2014

 

 

 

 

 

 

 

(1)		Ratings: Using the highest of Standard & Poor’s Group, Moody’s Investors Service, Inc. or Fitch, Inc. rating.
(2)		The aggregate number of long and short futures contracts outstanding is 439 and (4,137), respectively.
(3)		The aggregate notional amount at value for long and short futures contracts outstanding is $23,793,113 and $(131,990,247), respectively.
N/A		Not applicable.
CBOT		Chicago Board of Trade
CEC		Commodities Exchange Center
CME		Chicago Mercantile Exchange
ICE		Intercontinental Exchange
NYMEX		New York Mercantile Exchange

See accompanying notes to financial statements.

 

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NUVEEN LONG/SHORT COMMODITY TOTAL RETURN FUND

STATEMENTS OF FINANCIAL CONDITION

At September 30, 2014 (Unaudited) and December 31, 2013

 

		September 30, 2014				December 31, 2013
ASSETS
Short-term investments, at value (cost $266,769,208 and $307,721,002, respectively)		$	266,838,823			$	307,762,075
Deposits with brokers			45,734,732				58,067,010
Unrealized appreciation on futures contracts			16,324,689				7,162,590
Other assets			3,779				—
Total assets		$	328,902,023			$	372,991,675
LIABILITIES
Options written, at value (premiums received $3,697,875 and $4,635,134, respectively)			4,906,394				5,032,482
Unrealized depreciation on futures contracts			—				2,268,126
Payable for:
Distributions			2,317,253				—
Shares redeemed			656,593				425,400
Accrued expenses:
Management fees			328,681				391,421
Independent Committee fees			27,599				28,564
Other			461,679				464,935
Total liabilities			8,698,199				8,610,928
SHAREHOLDERS’ CAPITAL
Paid-in capital, unlimited number of shares authorized, 17,120,840 shares issued and outstanding at September 30, 2014 and 17,755,840 shares issued and outstanding at December 31, 2013			420,742,951				430,403,037
Accumulated undistributed earnings (deficit)			(100,539,127	)			(66,022,290	)
Total shareholders’ capital (Net assets)			320,203,824				364,380,747
Total liabilities and shareholders’ capital		$	328,902,023			$	372,991,675
Net assets		$	320,203,824			$	364,380,747
Shares outstanding			17,120,840				17,755,840
Net asset value per share outstanding (net assets divided by shares outstanding)		$	18.70			$	20.52
Market value per share outstanding		$	14.76			$	17.22

See accompanying notes to financial statements.

 

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NUVEEN LONG/SHORT COMMODITY TOTAL RETURN FUND

STATEMENTS OF OPERATIONS (Unaudited)

For the Three Months ended September 30, 2014 and September 30, 2013 and

For the Nine Months ended September 30, 2014 and September 30, 2013

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2014				2013				2014				2013
Investment Income:
Interest		$	64,461			$	105,432			$	215,662			$	359,359
Total Investment Income			64,461				105,432				215,662				359,359
Expenses:
Management fees			1,021,872				1,241,107				3,182,890				3,767,102
Brokerage commissions			72,857				76,848				355,999				399,380
Custodian fees and expenses			38,800				50,618				107,975				125,110
Independent Committee fees and expenses			31,291				28,982				86,698				87,392
Professional fees			117,096				152,269				355,455				391,573
Shareholder reporting expenses			32,364				61,966				105,322				146,573
Licensing fees			81,649				98,103				254,412				310,402
Other expenses			4,565				4,372				17,637				17,363
Total expenses			1,400,494				1,714,265				4,466,388				5,244,895
Net investment income (loss)			(1,336,033	)			(1,608,833	)			(4,250,726	)			(4,885,536	)
Net realized gain (loss) from:
Short-term investments			103				1,729				132				6,485
Futures contracts			(17,997,985	)			3,281,234				(38,011,111	)			(36,509,336	)
Options written			4,035,253				8,155,319				19,945,682				24,030,840
Change in net unrealized appreciation (depreciation) of:
Short-term investments			21,261				64,740				28,542				43,432
Futures contracts			16,412,637				(14,172,136	)			11,430,225				2,450,294
Options written			(1,400,587	)			855,281				(811,171	)			(1,372,458	)
Net realized gain (loss) and change in net unrealized appreciation (depreciation)			1,070,682				(1,813,833	)			(7,417,701	)			(11,350,743	)
Net income (loss)		$	(265,351	)		$	(3,422,666	)		$	(11,668,427	)		$	(16,236,279	)
Net income (loss) per weighted-average share		$	(.02	)		$	(.18	)		$	(.66	)		$	(.86	)
Weighted-average shares outstanding			17,501,025				18,766,120				17,663,321				18,786,546

See accompanying notes to financial statements.

 

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NUVEEN LONG/SHORT COMMODITY TOTAL RETURN FUND

STATEMENTS OF CHANGES IN SHAREHOLDERS’ CAPITAL

For the Nine Months ended September 30, 2014 (Unaudited) and the Year Ended December 31, 2013

 

		Nine Months Ended September 30, 2014				Year Ended December 31, 2013
Shareholders’ capital—beginning of period		$	364,380,747			$	427,111,563
Repurchase of shares			(9,660,086	)			(17,527,018	)
Net increase (decrease) in shareholders’ capital resulting from operations:
Net investment income (loss)			(4,250,726	)			(6,388,304	)
Net realized gain (loss) from:
Short-term investments			132				9,391
Futures contracts			(38,011,111	)			(41,169,967	)
Options written			19,945,682				30,502,794
Change in net unrealized appreciation (depreciation) of:
Short-term investments			28,542				(29,754	)
Futures contracts			11,430,225				8,150,119
Options written			(811,171	)			(1,679,643	)
Net income (loss)			(11,668,427	)			(10,605,364	)
Distributions to shareholders			(22,848,410	)			(34,598,434	)
Shareholders’ capital—end of period		$	320,203,824			$	364,380,747
Shares—beginning of period			17,755,840				18,800,840
Repurchase of shares			(635,000	)			(1,045,000	)
Shares—end of period			17,120,840				17,755,840

See accompanying notes to financial statements.

 

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NUVEEN LONG/SHORT COMMODITY TOTAL RETURN FUND

STATEMENTS OF CASH FLOWS (Unaudited)

For the Nine Months Ended September 30, 2014 and September 30, 2013

 

		Nine Months Ended September 30,
		2014				2013
Cash flows from operating activities:
Net income (loss)		$	(11,668,427	)		$	(16,236,279	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Purchases of U.S. government and agency obligations			(273,004,043	)			(293,449,244	)
Proceeds from sales and maturities of U.S. government and agency obligations			316,249,960				336,990,803
Proceeds from (Purchases of) repurchase agreements, net			(2,078,328	)			(3,072,680	)
Premiums received for options written			20,924,794				28,263,262
Cash paid for options written			(1,916,371	)			(3,583,977	)
Amortization (Accretion)			(215,663	)			(359,200	)
(Increase) Decrease in:
Deposits with brokers			12,332,278				2,526,674
Other assets			(3,779	)			—
Increase (Decrease) in:
Accrued management fees			(62,740	)			(59,443	)
Accrued Independent Committee fees			(965	)			3,182
Accrued other expenses			(3,256	)			208,153
Net realized (gain) loss from:
Short-term investments			(132	)			(6,485	)
Options written			(19,945,682	)			(24,030,840	)
Change in net unrealized (appreciation) depreciation of:
Short-term investments			(28,542	)			(43,432	)
Futures contracts			(11,430,225	)			(2,450,294	)
Options written			811,171				1,372,458
Net cash provided by (used in) operating activities			29,960,050				26,072,658
Cash flows from financing activities:
Increase (Decrease) in cash overdraft			—				(928,991	)
Cash paid for shares repurchased			(9,428,893	)			(1,841,844	)
Cash distributions paid to shareholders			(20,531,157	)			(23,301,823	)
Net cash provided by (used in) financing activities			(29,960,050	)			(26,072,658	)
Net increase (decrease) in cash			—				—
Cash—beginning of period			—				—
Cash—end of period		$	—			$	—

See accompanying notes to financial statements.

 

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NUVEEN LONG/SHORT COMMODITY TOTAL RETURN FUND

NOTES TO FINANCIAL STATEMENTS (Unaudited)

September 30, 2014

1. Organization

The Nuveen Long/Short Commodity Total Return Fund (the “Fund”) was organized as a Delaware statutory trust on May 25, 2011, to operate as a commodity pool. Nuveen Commodities Asset Management, LLC, the Fund’s manager (“NCAM” or the “Manager”), a wholly-owned subsidiary of Nuveen Investments, Inc. (“Nuveen Investments”), is a Delaware limited liability company registered as a commodity pool operator with the Commodity Futures Trading Commission (the “CFTC”) and is a member of the National Futures Association (the “NFA”). The Fund commenced operations on October 25, 2012, with its initial public offering of 18,800,000 shares. The Fund operates pursuant to an Amended and Restated Trust Agreement dated September 14, 2012 (the “Trust Agreement”). The Fund’s shares represent units of fractional undivided beneficial interest in, and ownership of, the Fund. The Fund’s shares trade on the NYSE MKT under the ticker symbol “CTF.” The Fund is not a mutual fund, a closed-end 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.

The Manager has selected its affiliate, Gresham Investment Management LLC (“Gresham LLC”), acting through its Near Term Active division (in that capacity, “Gresham” or the “Commodity Sub-adviser”), to manage the Fund’s commodity investment strategy and its options strategy. Gresham LLC is a Delaware limited liability company, the successor to Gresham Investment Management, Inc., formed in July 1992. Gresham LLC is registered with the CFTC as a commodity trading adviser and commodity pool operator, is a member of the NFA and is registered with the Securities and Exchange Commission (the “SEC”) as an investment adviser.

The Manager has selected its affiliate, Nuveen Asset Management, LLC (“Nuveen Asset Management” or the “Collateral Sub-adviser”), to manage the Fund’s collateral invested in cash equivalents, U.S. government securities and other short-term, high grade debt securities. Nuveen Asset Management is a Delaware limited liability company and is registered with the SEC as an investment adviser.

Investment Objectives and Principal Investment Strategies

The Fund’s investment objective is to generate attractive total returns. The Fund is actively managed and seeks to outperform its benchmark, the Morningstar^® Long/Short Commodity Index^SM (the “Index”). In pursuing its investment objective, the Fund will invest directly in a diverse portfolio of exchange-traded commodity futures contracts that represent the main commodity sectors and are among the most actively traded futures contracts in the global commodity markets. Generally, individual commodity futures positions may be either long, short, or flat, depending upon market conditions. The Fund’s Commodity Sub-adviser uses a rules based approach to determine the commodity futures contracts in which the Fund will invest, their respective weightings, and whether the futures positions in each commodity are held long, short or flat. The Fund’s commodity investments will, at all times, be fully collateralized. The Fund is not leveraged, and the notional amount of its combined long, short and flat futures positions will not exceed 100% of the Fund’s net assets. The Fund will also employ a commodity option writing strategy that seeks to produce option premiums for the purpose of enhancing the Fund’s risk-adjusted total return over time. The Fund’s investment strategy will utilize the Commodity Sub-adviser’s proprietary long/short commodity investment program, which has three principal elements:

 

•

An actively managed long/short portfolio of exchange-traded commodity futures contracts;

 

•

A portfolio of exchange-traded commodity option contracts; and

 

•

A collateral portfolio of cash equivalents, U.S. government securities and other short-term, high grade debt securities.

 

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September 30, 2014

 

2. Summary of Significant Accounting Policies

The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”).

The accompanying unaudited financial statements were prepared in accordance with U.S. GAAP for interim financial information and with the instructions for Form 10-Q and the rules and regulations of the SEC. In the opinion of management, all material adjustments, consisting only of normal recurring adjustments, considered necessary for a fair statement of the interim period financial statements have been made. Interim period results are not necessarily indicative of results for a full-year period. These financial statements and the notes thereto should be read in conjunction with the Fund’s financial statements included in the Fund’s Annual Report on Form 10-K for the year ended December 31, 2013.

Basis of Accounting

The accompanying financial statements have been prepared in conformity with U.S. GAAP. The preparation of financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates.

Futures Contracts

The Fund invests in commodity futures contracts. Upon execution of a futures contract, the Fund is obligated to deposit cash or eligible securities, also known as “initial margin,” into an account at its clearing broker. Generally investments in futures contracts also obligate the investor and the clearing broker to settle monies on a daily basis representing changes in the prior days “mark-to-market” of the open contracts. If the Fund has unrealized appreciation the clearing broker would credit the Fund’s account with an amount equal to appreciation and conversely if the Fund has unrealized depreciation the clearing broker would debit the Fund’s account with an amount equal to depreciation. These daily cash settlements are also known as “variation margin.” In lieu of posting variation margin daily, the Fund has deposited cash with the clearing broker, generally representing approximately twice the required initial margin to cover the initial margin and the daily changes in the market value of its futures investments. Cash held by the clearing broker to cover both margin requirements on open futures contracts is recognized as “Deposits with brokers” on the Statements of Financial Condition.

During the period the futures contract is open, changes in the value of the contract are recognized as an unrealized gain or loss by “marking-to-market” on a daily basis to reflect the changes in market value of the contract, which are recognized as a component of “Unrealized appreciation or depreciation on futures contracts” on the Statements of Financial Condition and “Change in net unrealized appreciation (depreciation) of futures contracts” on the Statements of Operations. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value of the contract on the closing date and the value of the contract when originally entered into, which is recognized as a component of “Net realized gain (loss) from futures contracts” on the Statements of Operations.

Risks of investments in commodity futures contracts include possible adverse movement in the price of the commodities underlying the contracts, the possibility that there may not be a liquid secondary market for the contracts and the possibility that a change in the value of the contract may not correlate with a change in the value of the underlying commodities.

 

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September 30, 2014

2. Summary of Significant Accounting Policies (Continued)

 

The average number of long and short futures contracts outstanding during the nine months ended September 30, 2014 and the fiscal year ended December 31, 2013 was as follows:

 

		Nine Months Ended September 30, 2014				Year Ended December 31, 2013
Average number of long and short futures contracts outstanding*			5,230				5,621

 

*	The average number of contracts is calculated based on the absolute aggregate number of contracts outstanding at the beginning of the fiscal year and at the end of each quarter within the current fiscal year.

Refer to Note 3—Derivative Instruments and Hedging Activities within these Notes to Financial Statements for further details on futures contracts activity.

Options Contracts

The Fund may write (sell) and purchase options on commodity futures contracts to enhance the Fund’s risk-adjusted total return. When the Fund writes an option, an amount equal to the premium received is recognized as a component of “Options written, at value” on the Statements of Financial Condition and is subsequently adjusted to reflect the current value of the written option until the option expires or the Fund enters into a closing purchase transaction. The changes in value of the options written during the reporting period are recognized as a component of “Change in net unrealized appreciation (depreciation) of options written” on the Statements of Operations. When an option is exercised or expires, or the Fund enters into a closing purchase transaction, the difference between the net premium received and any amount paid at expiration or on executing a closing purchase transaction is recognized as a component of “Net realized gain (loss) from options written” on the Statements of Operations. The Fund, as writer of an option, has no control over whether the underlying instrument may be sold (called) and as a result bears the risk of an unfavorable change in the market value of the instrument underlying the written option. There is also the risk the Fund may not be able to enter into a closing transaction because of an illiquid market. During the nine months ended September 30, 2014 and the fiscal year ended December 31, 2013, the Fund wrote call and put options on futures contracts.

The Fund did not purchase options on futures contracts during the nine months ended September 30, 2014 and the fiscal year ended December 31, 2013. The purchase of options involves the risk of loss of all or part of the cash paid for the options (the premium). The market risk associated with purchasing options is limited to the premium paid. The counterparty credit risk of purchasing options, however, needs to take into account the current value of the option, as this is the performance expected from the counterparty.

 

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September 30, 2014

2. Summary of Significant Accounting Policies (Continued)

 

Transactions in both call and put options written during the nine months ended September 30, 2014 and the fiscal year ended December 31, 2013, were as follows:

 

		Nine Months Ended September 30, 2014								Year Ended December 31, 2013
		Number of Contracts				Premiums Received				Number of Contracts				Premiums Received
Outstanding, beginning of period			1,029			$	4,635,134				1,024			$	4,747,719
Options written			5,373				20,924,794				7,116				34,938,175
Options terminated in closing purchase transactions			(545	)			(2,315,262	)			(1,027	)			(5,262,491	)
Options expired			(1,282	)			(3,345,372	)			(1,525	)			(6,022,932	)
Options exercised			(3,690	)			(16,201,419	)			(4,559	)			(23,765,337	)
Outstanding, end of the period			885			$	3,697,875				1,029			$	4,635,134

The average number of both call and put options written outstanding during the nine months ended September 30, 2014 and the fiscal year ended December 31, 2013 was as follows:

 

		Nine Months Ended September 30, 2014				Year Ended December 31, 2013
Average number of options written outstanding*			965				938

 

*	The average number of contracts is calculated based on the outstanding number of contracts at the beginning of the fiscal year and at the end of each quarter within the current fiscal year.

Refer to Note 3—Derivative Instruments and Hedging Activities within these Notes to Financial Statements for further details on options activity.

Netting Agreements

In the ordinary course of business, the Fund has entered into transactions subject to enforceable master repurchase agreements or other similar arrangements (“netting agreements”). Generally, the right to offset in netting agreements allows the Fund to offset any exposure to a specific counterparty with any collateral received or delivered to that counterparty based on the terms of the agreements. The Fund manages its cash collateral and securities collateral on a counterparty basis. As of September 30, 2014 and December 31, 2013, the Fund was not invested in any portfolio securities or derivatives, other than the repurchase agreements further described below, that are subject to netting agreements.

Repurchase Agreements

In connection with transactions in repurchase agreements, it is the Fund’s policy that its custodian take possession of the underlying collateral securities, the fair value of which exceeds the principal amount of the repurchase transaction, including accrued interest, at all times. If the counterparty defaults, and the fair value of the collateral declines, realization of the collateral may be delayed or limited.

The following tables present the repurchase agreements for the Fund, presented on the Statements of Financial Condition as of September 30, 2014 and December 31, 2013, and recognized as a component of

 

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September 30, 2014

2. Summary of Significant Accounting Policies (Continued)

 

“Short-term investments, at value,” that are subject to netting agreements as of the end of the reporting period, and the collateral delivered related to those repurchase agreements.

 

		September 30, 2014
		Counterparty				Short-Term Investments, at Value				Collateral Pledged (From) Counterparty*				Net Exposure
Repurchase Agreements			State Street Bank			$	3,662,059			$	(3,662,059	)		$	—

 

		December 31, 2013
		Counterparty				Short-Term Investments, at Value				Collateral Pledged (From) Counterparty*				Net Exposure
Repurchase Agreements			State Street Bank			$	1,583,731			$	(1,583,731	)		$	—

 

*	As of September 30, 2014 and December 31, 2013, the value of the collateral pledged from the counterparty exceeded the value of the repurchase agreements. Refer to the Schedule of Investments for details on the repurchase agreements.

Collateral Investments

Currently, approximately 15% of the Fund’s net assets are committed to secure the Fund’s futures contract positions. These assets are placed in a commodity futures account maintained by the Fund’s clearing broker, and are held in high-quality instruments permitted under CFTC regulations.

The Fund’s remaining assets are held in a separate collateral investment account managed by the Collateral Sub-adviser. The Fund’s assets held in the separate collateral account are invested in cash equivalents, U.S. government securities and other high-quality short-term debt securities with final terms not exceeding one year at the time of investment. The collateral portfolio’s debt securities (other than U.S. government securities) are rated at the highest applicable rating as determined by at least one nationally recognized statistical rating organization, or if unrated, judged by the Collateral Sub-adviser to be of comparable quality.

Investment Valuation

Commodity futures contracts and options on commodity futures contracts traded on an exchange will be valued at the final settlement price or official closing price as determined by the principal exchange on which the instruments are traded as supplied by independent pricing services. These investments are generally classified as Level 1 for fair value measurement purposes. Over-the-counter commodity futures contracts and options on commodity futures contracts not traded on an exchange will be valued, in order of hierarchy, by independent pricing services, price quotations obtained from counterparty broker-dealers, or through fair valuation methodologies as determined by the Manager. These investments are generally classified as Level 2. Additionally, events may occur after the close of the market, but prior to the determination of the Fund’s net asset value, that may affect the values of the Fund’s investments. In such circumstances, the Manager will determine a fair valuation for such investments that in its opinion is reflective of fair market value. These investments are generally classified as Level 2 or Level 3 depending on the priority of the significant inputs.

 

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September 30, 2014

2. Summary of Significant Accounting Policies (Continued)

 

Prices of fixed-income securities, including, but not limited to, highly-rated agency discount notes and U.S. Treasury bills, are provided by a pricing service approved by the Fund’s Manager. These securities are generally classified as Level 2. The pricing service establishes a security’s fair value using methods that may include consideration of the following: yields or prices of investments of comparable quality, type of issue, coupon, maturity and rating, market quotes or indications of value from security dealers, general market conditions and other information and analysis, including the obligor’s credit characteristics considered relevant. These securities are generally classified as Level 2 or Level 3 depending on the priority of the significant inputs.

Repurchase agreements are valued at contract amount plus accrued interest, which approximates market value. These securities are generally classified as Level 2.

Fair Value Measurements

Fair value is defined as the price that the Fund would receive upon selling an investment or transferring a liability in an orderly transaction to an independent buyer in the principal or most advantageous market for the investment. A three-tier hierarchy is used to maximize the use of observable market data and minimize the use of unobservable inputs and to establish classification of fair value measurements for disclosure purposes. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability. Observable inputs are based on market data obtained from sources independent of the reporting entity. Unobservable inputs reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability. Unobservable inputs are based on the best information available in the circumstances. The following is a summary of the three-tier hierarchy of valuation inputs.

Level 1—Inputs are unadjusted and prices are determined by quoted prices in active markets for identical securities.

Level 2—Prices are determined using other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).

Level 3—Prices are determined using significant unobservable inputs (including management’s assumptions in determining the fair value of investments).

The inputs or methodologies used for valuing securities are not an indication of the risks associated with investing in those securities. The following is a summary of the Fund’s fair value measurements as of September 30, 2014 and December 31, 2013:

 

		September 30, 2014
		Level 1				Level 2				Level 3				Total
Short-Term Investments:
U.S. Government and Agency Obligations		$	—			$	263,176,764			$	—			$	263,176,764
Repurchase Agreements			—				3,662,059				—				3,662,059
Investments in Derivatives:
Futures Contracts*			16,324,689				—				—				16,324,689
Options Written			(4,906,394	)			—				—				(4,906,394	)
Total		$	11,418,295			$	266,838,823			$	—			$	278,257,118

 

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September 30, 2014

2. Summary of Significant Accounting Policies (Continued)

 

		December 31, 2013
		Level 1				Level 2				Level 3				Total
Short-Term Investments:
U.S. Government and Agency Obligations		$	—			$	306,178,344			$	—			$	306,178,344
Repurchase Agreements			—				1,583,731				—				1,583,731
Investments in Derivatives:
Futures Contracts			4,894,464				—				—				4,894,464
Options Written			(5,032,482	)			—				—				(5,032,482	)
Total		$	(138,018	)		$	307,762,075			$	—			$	307,624,057

 

*	Represents net unrealized appreciation (depreciation) as reported in the Schedule of Investments.

The Manager is responsible for the Fund’s valuation process and has delegated daily oversight of the process to the Manager’s Valuation Committee. The Valuation Committee, pursuant to its valuation policies and procedures, is responsible for making fair value determinations, evaluating the effectiveness of the Fund’s pricing policies, and reporting to the Manager’s senior management. The Valuation Committee is aided in its efforts by the Manager’s Securities Valuation Team, which is responsible for administering the daily valuation process and applying fair value methodologies as approved by the Valuation Committee. When determining the reliability of independent pricing services for investments owned by the Fund, the Valuation Committee, among other things, conducts due diligence reviews of the pricing services and monitors the quality of security prices received through various testing reports conducted by the Securities Valuation Team.

For each portfolio instrument that has been fair valued pursuant to the Valuation Committee’s policies, the fair value price is compared against the last available and next available market quotations. The Valuation Committee reviews the results of such testing and fair valuation occurrences are reported to the Manager’s senior management.

Investment Transactions

Investment transactions are recorded on a trade date basis. Realized gains and losses from investment transactions are determined on the specific identification method, which is the same for federal income tax purposes.

Investment Income

Interest income, which reflects the amortization of premiums and includes accretion of discounts for financial reporting purposes, is recorded on an accrual basis.

Brokerage Commissions and Fees

The Fund pays brokerage commissions, including applicable clearing costs, exchange fees, NFA fees, give-up fees, pit brokerage fees and other transaction-related fees and expenses, incurred in connection with its commodity trading activities.

Income Taxes

No provision for federal, state, and local income taxes has been made in the accompanying financial statements because the Fund has elected to be classified as a partnership for U.S. federal income tax purposes.

 

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September 30, 2014

2. Summary of Significant Accounting Policies (Continued)

 

Each owner of the Fund’s shares will be required to take into account its allocable share of the Fund’s income, gains, losses, deductions and other items for the Fund’s taxable year.

For all open tax years and all major taxing jurisdictions, the Manager of the Fund has concluded that there are no significant uncertain tax positions that would require recognition in the financial statements. Open tax years are those that are open for examination by taxing authorities (i.e., generally the last four tax year ends and the interim tax period since then). Furthermore, the Manager of 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.

Expense Recognition

All expenses of the Fund are recognized on an accrual basis. The Fund pays all routine and extraordinary costs and expenses of its operations, brokerage expenses, custody fees, transfer agent expenses, professional fees, expenses of preparing, printing and distributing reports, notices, information statements, proxy statements, reports to governmental agencies, and taxes, if any.

Organizational Expenses and Offering Costs

In connection with the Fund’s initial public offering on October 25, 2012, Nuveen (i) reimbursed all organizational expenses of the Fund and (ii) paid all offering costs (other than sales load and underwriting commissions) that exceeded $.05 per share. The Fund’s share of offering costs ($940,000) was recorded as a reduction of the proceeds from the sale of the shares.

Calculation of Net Asset Value

The net asset value per share of the Fund on any given day is computed by dividing the value of all assets of the Fund (including any accrued interest), less all liabilities (including accrued expenses and distributions declared but unpaid), by the total number of shares outstanding.

Distributions

The Fund intends to make regular monthly distributions to its shareholders stated in terms of a fixed cents per share distribution rate. Among other factors, the Manager seeks to establish a distribution rate that roughly corresponds to its projections of the total return that could reasonably be expected to be generated by the Fund over an extended period of time. In the event that the amount of income earned or capital gains realized by the Fund is not sufficient to cover the Fund’s distributions, the Fund may be required to liquidate investments to fund distributions at times or on terms that are disadvantageous to the Fund and its shareholders. As market conditions and portfolio performance may change, the rate of distribution on the shares and the Fund’s distribution policy could change. The Manager reserves the right to change the Fund’s distribution policy and the basis for establishing the rate of the Fund’s monthly distributions, or may temporarily suspend or reduce distributions without a change in policy, at any time and may do so without prior notice to shareholders.

Distributions to shareholders are recorded on the ex-dividend date.

 

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September 30, 2014

2. Summary of Significant Accounting Policies (Continued)

 

Commitments and Contingencies

Under the Fund’s organizational documents, the Manager, Wilmington Trust Company (the Fund’s Delaware trustee) and the Manager’s Independent Committee members are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund enters into contracts that provide general indemnifications to other parties. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. However, the Fund has not had prior claims or losses pursuant to these contracts and believes the risk of loss to be remote.

Financial Instrument Risk

The Fund utilizes commodity futures and options, whose values are based upon an underlying asset and generally represent future commitments that have a reasonable possibility of being settled in cash or through physical delivery. As of September 30, 2014 and December 31, 2013, the financial instruments held by the Fund were traded on an exchange and are standardized contracts.

Market risk is the potential for changes in the value of the financial instruments traded by the Fund due to market changes, including fluctuations in commodity prices. Investing in commodity futures contracts involves the Fund entering into contractual commitments to purchase or sell a particular commodity at a specified date and price. The market risk associated with the Fund’s commitments to purchase commodities will be limited to the gross or face amount of the contracts held. The Fund’s exposure to market risk may be influenced by a number of factors, including changes in international balances of payments and trade, currency devaluations and revaluations, changes in interest and foreign currency exchange rates, price volatility of commodity futures contracts and market liquidity, weather, geopolitical events and other factors. These factors also affect the Fund’s investments in options on commodity futures contracts. The inherent uncertainty of the Fund’s investments as well as the development of drastic market occurrences could ultimately lead to a loss of all, or substantially all, of investors’ capital.

Credit risk is the possibility that a loss may occur due to failure of a counterparty performing according to the terms of the futures and option contracts. The Fund may be exposed to credit risk from its investments in commodity futures contracts and options on commodity futures contracts resulting from the clearing house associated with a particular exchange failing to meet its obligations to the Fund. In general, clearing houses are backed by their corporate members who may be required to share in the financial burden resulting from the nonperformance of one of their members, which should significantly reduce this credit risk. In cases where the clearing house is not backed by the clearing members (i.e., as in 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 Fund.

The Fund is subject to short exposure when it sells short a futures contract or writes a put option. Short sales are transactions in which the Fund initiates a position by selling a futures contract short. A short futures position allows the short seller to profit from declines in the price of the underlying commodity to the extent such declines exceed the transaction costs. In a short sale transaction, the Fund must deliver the underlying commodity at the contract price to a buyer of the contract who stands for delivery under the rules of the exchange that lists the contract or must offset the contract by entering into an opposite and offsetting transaction in the market. Likewise, the writer of a call option is required to deliver the underlying futures contract at the strike price or

 

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September 30, 2014

2. Summary of Significant Accounting Policies (Continued)

 

offset the option by entering into an opposite and offsetting transaction in the market. The price at such time may be higher or lower than the price at which the futures contract was sold short or the strike price of the call option when the option was written. If the underlying price of the futures contract goes down between the time that the Fund sells the contract short and offsets the contract, the Fund will realize a gain on the transaction. If the price of the underlying futures contract drops below the strike price of the call option written, the option will expire worthless and the Fund also will realize a gain to the extent of the option premium received. Conversely, if the price of the underlying short futures contract goes up during the period, the Fund will realize a loss on the transaction. If the price of the underlying futures contract is higher than the strike price of a call option written, the option will become in-the-money and the Fund may realize a loss less any premium received for writing the option. A short sale creates the risk of an unlimited loss since the price of the underlying commodity in a futures contract or the underlying futures contract in a call option written could theoretically increase without limit, thus increasing the cost of covering the short positions. In circumstances where a market has reached its maximum price limits imposed by the exchange, the short seller may be unable to offset its short position until the next trading day, when prices could increase again in rapid trading.

The commodity markets have volatility risk. The commodity markets have experienced periods of extreme volatility. General market uncertainty and consequent repricing risk have led to market imbalances of sellers and buyers, which in turn have resulted in significant reductions in values of a variety of commodities. Similar future market conditions may result in rapid and substantial valuation increases or decreases in the Fund’s holdings. In addition, volatility in the commodity and securities markets may directly and adversely affect the setting of distribution rates on the Fund’s shares.

 

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September 30, 2014

 

3. Derivative Instruments and Hedging Activities

The Fund records derivative instruments at fair value, with changes in fair value recognized on the Statements of Operations.

The following tables present the fair value of all derivative instruments held by the Fund as of September 30, 2014 and December 31, 2013, the location of these instruments on the Statements of Financial Condition and the primary underlying risk exposure.

 

				September 30, 2014
				Location on the Statements of Financial Condition
Underlying Risk Exposure		Derivative Instrument		Asset Derivatives						Liability Derivatives
				Location		Value				Location		Value
Commodity		Futures Contracts		Unrealized appreciation on futures contracts			$16,324,689			—		$	—
Commodity		Call Options		—			—			Options written, at value			586,427
Commodity		Put Options		—			—			Options written, at value			4,319,967
Total						$	16,324,689					$	4,906,394

 

				December 31, 2013
				Location on the Statements of Financial Condition
Underlying Risk Exposure		Derivative Instrument		Asset Derivatives						Liability Derivatives
				Location		Value				Location		Value
Commodity		Futures Contracts		Unrealized appreciation on futures contracts		$	7,162,590			Unrealized depreciation on futures contracts		$	2,268,126
Commodity		Call Options		—			—			Options written, at value			1,716,835
Commodity		Put Options		—			—			Options written, at value			3,315,647
Total						$	7,162,590					$	7,300,608

The following table presents the amount of net realized gain (loss) and change in net unrealized appreciation (depreciation) recognized on derivative instruments during the nine months ended September 30, 2014 and September 30, 2013, the location of these instruments on the Statements of Operations and the primary underlying risk exposure.

 

Commodity Risk Exposure		Nine Months Ended September 30, 2014				Nine Months Ended September 30, 2013
Net realized gain (loss) from:
Futures contracts		$	(38,011,111	)		$	(36,509,336	)
Options written (call options)			14,449,638				13,518,540
Options written (put options)			5,496,044				10,512,300
Change in net unrealized appreciation (depreciation) of:
Futures contracts		$	11,430,225			$	2,450,294
Options written (call options)			441,934				(956,876	)
Options written (put options)			(1,253,105	)			(415,582	)

 

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September 30, 2014

 

4. Related Parties

The Manager, the Commodity Sub-adviser and the Collateral Sub-adviser are considered to be related parties to the Fund.

For the services and facilities provided by the Manager, the Fund pays the Manager an annual management fee, payable monthly, based on the Fund’s average daily net assets, according to the following schedule:

 

Average Daily Net Assets		Management Fee
For the first $500 million			1.250	%
For the next $500 million			1.225
For the next $500 million			1.200
For the next $500 million			1.175
For net assets over $2 billion			1.150

“Average daily net assets” represents the total assets of the Fund, minus the sum of its total liabilities.

The Manager and the Fund have entered into sub-advisory agreements with the Commodity Sub-adviser and the Collateral Sub-adviser. Both the Commodity Sub-adviser and the Collateral Sub-adviser are compensated for their services to the Fund from the management fees paid to the Manager, and the Fund does not reimburse the Manager for those fees.

5. Share Repurchase Program

On March 14, 2013, the Fund adopted an open-market share repurchase program, pursuant to which it was authorized to repurchase up to 10% of its outstanding common shares (approximately 1,800,000 shares) in open-market transactions at the Manager’s discretion.

On March 6, 2014, the Fund reauthorized its share repurchase program, pursuant to which it may repurchase up to 10% of its outstanding common shares as of the reauthorization date (approximately 1,775,000 shares) in open-market transactions at the Manager’s discretion.

Transactions in share repurchases during the nine months ended September 30, 2014 and the fiscal year ended December 31, 2013 were as follows:

 

		Nine Months Ended September 30, 2014				Year Ended December 31, 2013
Shares repurchased			635,000				1,045,000
Weighted average price per share repurchased		$	15.19			$	16.75
Weighted average discount per share repurchased			17.91	%			18.32	%

 

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September 30, 2014

 

6. Financial Highlights

The following financial highlights relate to investment performance and operations for a Fund share outstanding during the three months and nine months ended September 30, 2014 and September 30, 2013. The Net Asset Value presentation is calculated using average daily shares outstanding. The Ratios to Average Net Assets are calculated using average daily net assets and are annualized for periods less than a full fiscal year. The Total Returns at Net Asset Value and Market Value are based on the change in net asset value and market value, respectively, for a share during the period. An investor’s return and ratios will vary based on the timing of purchasing and selling Fund shares.

 

		Three Months Ended								Nine Months Ended
		September 30, 2014				September 30, 2013				September 30, 2014				September 30, 2013
Net Asset Value:
Net asset value per share—beginning of period		$	19.00			$	21.11			$	20.52			$	22.72
Net investment income (loss)			(.08	)			(.09	)			(.24	)			(.26	)
Net realized and unrealized gain (loss)			.08				(.08	)			(.40	)			(.60	)
Distributions			(.40	)			(.47	)			(1.30	)			(1.39	)
Discount from shares repurchased			.10				.01				.12				.01
Net asset value per share—end of period		$	18.70			$	20.48			$	18.70			$	20.48
Market Value:
Market value per share—beginning of period		$	16.16			$	19.87			$	17.22			$	21.22
Market value per share—end of period		$	14.76			$	17.23			$	14.76			$	17.23
Ratios to Average Net Assets(a):
Net investment income (loss)			(1.63	)%			(1.62	)%			(1.67	)%			(1.62	)%
Expenses			1.71	%			1.73	%			1.75	%			1.74	%
Total Returns:(b)
Based on Net Asset Value			.60	%			(.80	)%			(2.51	)%			(3.77	)%
Based on Market Value			(6.18	)%			(10.99	)%			(7.12	)%			(12.80	)%

 

(a)	Annualized.

(b)

Total Return Based on Net Asset Value is the combination of changes in net asset value per share and the assumed reinvestment of distributions, if any, at net asset value per share on the distribution payment date. The last distribution declared in the period, which is typically paid on the first business day of the following month, is assumed to be reinvested at the net asset value per share at the end of the period. Total returns are not annualized.

Total Return Based on Market Value is the combination of changes in the market price per share and the assumed reinvestment of distributions, if any, at the ending market price per share on the distribution payment date. The last distribution declared in the period, which is typically paid on the first business day of the following month, is assumed to be reinvested at the ending market price per share at the end of the period. Total returns are not annualized.

 

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NUVEEN LONG/SHORT COMMODITY TOTAL RETURN FUND

NOTES TO FINANCIAL STATEMENTS (Continued) (Unaudited)

September 30, 2014

 

7. New Accounting Pronouncement

Financial Accounting Standards Board (“FASB”) Financial Services—Investment Companies (Topic 946): Amendments to the Scope, Measurement, and Disclosure Requirements

In June 2013, the FASB issued Accounting Standards Update (“ASU”) 2013-08, “Financial Services—Investment Companies (Topic 946): Amendments to the Scope, Measurement, and Disclosure Requirements,” which amends the criteria that define an investment company and clarifies the measurement guidance and requires new disclosures for investment companies. ASU 2013-08 is effective for fiscal years beginning on or after December 15, 2013. The Fund has adopted ASU 2013-08 for its fiscal year end December 31, 2014 as it follows the investment company reporting requirements under U.S. GAAP and therefore follows the accounting and reporting guidance under Topic 946. The adoption of ASU 2013-08 did not have an impact on the Fund’s financial statements or footnote disclosures.

8. Subsequent Events

Purchase and Sale Agreement

On October 1, 2014, TIAA-CREF, a national financial services organization, completed its previously announced acquisition of Nuveen, the parent company of the Manager, the Commodity Sub-adviser and the Collateral Sub-adviser. The transaction has not resulted in any change in the portfolio management of the Fund or in the Fund’s investment objectives or policies.

 

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Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

This information should be read in conjunction with the financial statements and notes to financial statements included in Item 1 of Part I of this Quarterly Report (the “Report”). The discussion and analysis includes forward-looking statements that generally relate to future events or future performance. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential” or the negative of these terms or other comparable terminology. These forward-looking statements are based on information currently available to Nuveen Commodities Asset Management, LLC (“NCAM” or the “Manager”), Gresham Investment Management LLC and its Near Term Active division (such division referred to herein as “Gresham” or the “Commodity Sub-adviser”) and Nuveen Asset Management, LLC (“Nuveen Asset Management” or the “Collateral Sub-adviser”) and are subject to a number of risks, uncertainties and other factors, both known and unknown, that could cause the actual results, performance, prospects or opportunities of the Nuveen Long/Short Commodity Total Return Fund (the “Fund”) to differ materially from those expressed in, or implied by, these forward-looking statements.

You should not place undue reliance on any forward-looking statements. Except as expressly required by the federal securities laws or otherwise, the Fund and the Manager undertake no obligation to publicly update or revise any forward-looking statements or the risks, uncertainties or other factors described in this Report, as a result of new information, future events or changed circumstances or for any other reason after the date of this Report.

Introduction

The Fund is a commodity pool which was organized as a Delaware statutory trust on May 25, 2011 and commenced operations on October 25, 2012, with its initial public offering. The shares of the Fund trade on the NYSE MKT under the ticker symbol “CTF”. Prior to the initial public offering, the Fund was inactive except for matters relating to its organization and registration. The Fund’s investment objective is to generate attractive total returns. The Fund is actively managed and seeks to outperform its benchmark, the Morningstar^® Long/Short Commodity Index^SM (the “Index”). The Index tracks the historical total return performance of a diverse portfolio of commodity futures, which may be invested long, short or flat. The Index uses a momentum rule to determine if each commodity futures position is long, short or flat. In pursuing its investment objective, the Fund invests directly in a diverse portfolio of exchange-traded commodity futures contracts that represent the main commodity sectors and are among the most actively traded futures contracts in the global commodity markets, and also invests in commodity options contracts (the futures and options are sometimes referred to as the “commodity portfolio”). Individual commodity futures positions may be either long, short, or flat, depending upon market conditions. The Fund’s options strategy seeks to produce option premiums for the purpose of enhancing the Fund’s risk-adjusted total return over time. The Fund is unleveraged, and the Fund’s commodity contract positions are fully collateralized with cash equivalents, and short-term, high grade debt securities.

Results of Operations

The Quarter Ended September 30, 2014 – Fund Share Price

The Fund’s shares traded on the NYSE MKT at a price of $14.76 on the close of business on September 30, 2014. This represents a decrease of 8.66% in share price (not including an assumed reinvestment of distributions) from the $16.16 price at which the shares of the Fund traded on the close of business on June 30, 2014. The high and low intra-day share prices for the quarter were $16.38 (July 18, 2014) and $14.63 (August 14, 2014 and August 15, 2014), respectively. During the quarter, the Fund declared distributions totaling $0.405 per share to shareholders, of which $0.135 was paid on October 1, 2014. The remainder was paid during the quarter. The Fund’s cumulative total return on market value for the quarter, which assumes reinvestment of such distributions, was -6.18%. At September 30, 2014, shares of the Fund traded at a 21.07% discount to the Fund’s net asset value of $18.70 per share. During the quarter the Fund repurchased 580,000 shares, refer to “Part II—Item 2. Unregistered Sales of Equity Securities and Use of Proceeds” in this Report for further details on the repurchase activity.

 

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The Quarter Ended September 30, 2013 – Fund Share Price

The Fund’s shares traded on the NYSE MKT at a price of $17.23 on the close of business on September 30, 2013. This represents a decrease of 13.29% in share price (not including an assumed reinvestment of distributions) from the $19.87 price at which the shares of the Fund traded on the close of business on June 28, 2013 (the last trading day of the previous quarter). The high and low intra-day share prices for the quarter were $19.98 (July 1, 2013) and $17.11 (September 30, 2013), respectively. During the quarter, the Fund declared distributions totaling $0.465 per share to shareholders, of which $0.155 was paid on October 1, 2013. The remainder was paid during the quarter. The Fund’s cumulative total return on market value for the quarter, which assumes reinvestment of such distributions, was -10.99%. At September 30, 2013, shares of the Fund traded at a 15.87% discount to the Fund’s net asset value of $20.48 per share. During the quarter the Fund repurchased 108,000 shares.

The Quarter Ended September 30, 2014 – Net Assets of the Fund

The Fund’s net assets decreased from $336.3 million at June 30, 2014, to $320.2 million at September 30, 2014, a decrease of $16.1 million. The decrease in the Fund’s net assets was due to $8.8 million of share repurchases, $7.0 million of distributions to shareholders, and a net loss of $0.3 million.

The Fund generated a net loss of $0.3 million for the quarter ended September 30, 2014, resulting from interest income of $0.1 million and net unrealized appreciation of $15 million, offset by total expenses of $1.4 million, and net realized losses of $14.0 million.

During the quarter ended September 30, 2014, the Fund’s collateral investments generated interest income of $64,461, which represents 0.02% of average net assets for the quarter ended September 30, 2014.

The net asset value per share on September 30, 2014, was $18.70. This represents a decrease of 1.58% in net asset value (not including an assumed reinvestment of distributions) from the $19.00 net asset value as of June 30, 2014. The Fund declared distributions totaling $0.405 per share to shareholders during the quarter. When an assumed reinvestment of these distributions is taken into account, the cumulative total return for the Fund on net asset value was 0.60% for the quarter ended September 30, 2014.

The Quarter Ended September 30, 2013 – Net Assets of the Fund

The Fund’s net assets decreased from $396.6 million at June 30, 2013, to $382.6 million at September 30, 2013, a decrease of $14.0 million. The decrease in the Fund’s net assets was due to $11.4 million in net realized gains and $13.2 million in net unrealized depreciation on the Fund’s portfolio during the quarter, a net investment loss of $1.6 million, $8.7 million of distributions to shareholders, and $1.9 million of share repurchases.

During the quarter ended September 30, 2013, the Fund’s collateral investments generated interest income of $105,432, which represents 0.03% of average net assets for the quarter ended September 30, 2013.

The net asset value per share on September 30, 2013, was $20.48. This represents a decrease of 2.98% in net asset value (not including an assumed reinvestment of distributions) from the $21.11 net asset value as of June 30, 2013. The Fund declared distributions totaling $0.465 per share to shareholders during the quarter. When an assumed reinvestment of these distributions is taken into account, the cumulative total return for the Fund on net asset value was -0.80% for the quarter ended September 30, 2013.

The Fund generated a net loss of $3.4 million for the quarter ended September 30, 2013, resulting from interest income of $0.1 million, net expenses of $1.7 million, net realized gains of $11.4 million, and net unrealized depreciation of $13.2 million.

 

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The Quarter Ended September 30, 2014 – Overall Commodity Market Commentary

The broad commodity market, as measured by the Bloomberg Commodity Index (“BCOM,” formerly the Dow Jones-UBS Commodity Index), declined 11.8% during the quarter, as a strengthening U.S. dollar and unfavorable supply-demand dynamics led to widespread losses in commodity contracts during the third quarter of 2014. Anticipation of the U.S. Federal Reserve’s first rate hike prompted a rally in the dollar. Because most commodities are priced in dollars, a stronger dollar makes commodities more expensive, which softens demand and puts downward pressure on commodity prices. At the same time, China announced some disappointing economic data and another stimulus measure, prompting concerns about weakening global demand for raw materials. Additionally, energy and grain commodities began to report oversupply, which weighed on prices.

While the long-only BCOM fell 11.8% in this environment, the Index (Morningstar^® Long/Short Commodity Index^SM and the Fund’s benchmark index), was down 1.2% for the quarter. Within the Index, the agriculture group led performance, with a double-digit gain. Livestock and metals were modestly down, and energy was the weakest performer during the quarter.

Energy commodities, representing 49.9% of the Index at the end of the quarter, declined 8.5%. In the broad market, prices fell for all energy commodities. Crude oil suffered a double-digit loss, as measured by the BCOM, as the dollar gained, demand from Europe and China slowed, and the Organization of the Petroleum Exporting Countries (OPEC) increased production amid booming North American shale oil production. Natural gas prices were dampened by ample storage injections, less cooling demand this summer, and moderate fall weather forecasts.

Agricultural commodities, which made up 29.4% of the Index at the end of the quarter, gained 15.8%. In the broad market, all agriculture commodities finished the quarter lower, except coffee. Corn prices dropped to a five-year low on expectations of a record U.S. crop yield with a high percentage of crops rated good or excellent. Abundant supply and favorable crop ratings dragged soybean prices to a four-year low. Coffee prices rallied, however. Arabica coffee supply continued to shrink as crops were damaged by heat and drought in Brazil, the world’s leading Arabica producer, and by a coffee-plant fungus in Central America.

The Index includes three metals: gold, silver and copper, which made up 14.4% of the Index at the end of the quarter. The Index’s metals group dropped 1.6% during the quarter. Gold and silver prices declined in the broad market, as a strengthening dollar sapped demand for these commodities as a hedge against dollar weakness. In fact, holdings in gold-backed exchange-traded products fell to the lowest level in five years. In the broad market copper prices also tumbled, hurt by concerns about languishing demand from China.

Livestock, down 1.6% during the quarter, comprised 6.4% of the Index at the end of the quarter. Live cattle prices advanced in the broad market on concerns about smaller herd sizes and underweight cows. In contrast, lean hogs prices were choppy, ending the quarter lower. Producers were able to offset shortages by bulking up hogs, as lower grain prices this year have reduced the cost of feed. As a result, lean hog supply was larger than expected, causing prices to fall.

The Quarter Ended September 30, 2013 – Overall Commodity Market Commentary

Commodity markets were influenced by two major themes during the third quarter of 2013, the anticipation of an earlier-than-expected reduction in the pace of the U.S. Federal Reserve’s asset purchases (known as quantitative easing or QE) and the escalation of geopolitical tension in the Middle East. The broad commodity market rose 2.1% for the quarter, as measured by the BCOM. The Index (the Morningstar^® Long/Short Commodity Index^SM, which is the Fund’s benchmark) was up 0.5% for the quarter. Within the Index, losses in metals and livestock were slightly offset by gains in energy and agriculture.

 

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Energy commodities represented 47.8% of the Index at the end of the quarter, and were its most significant commodity group by weight. Energy prices rose within the broad market, driven by a rally in crude oil prices as geopolitical turmoil in the Middle East threatened supplies, which helped the energy group appreciate by approximately 4%.

Agricultural commodities made up 28.8% of the Index at the end of the quarter. Corn prices continued to be pressured by expectations for a supply glut as the harvest peaked in the third quarter. Soybean oil also saw declining prices because of high supply and low demand. In contrast, soybean prices were lifted by concerns about poor crop conditions and tight 2012 supply. However, while agriculture commodity prices in the broad market generally declined, the Index’s agriculture positions rose approximately 2.7% in the quarter, aided by short positions in corn and soybean oil.

The Index includes three metals: gold, silver and copper, which made up a combined 18.9% of the Index at the end of the quarter. In long-only terms, gold and silver prices were bolstered by renewed demand for physical precious metals. Large inflows into silver-oriented exchange traded funds also supported silver prices. Copper prices rallied on the expectation of rising demand for raw materials from China, as well as the continuation of QE in the United States. However, the Index’s metals group fell approximately 9.3% because of its short positions in all three metals.

Livestock is the smallest group, comprising 4.6% of the Index at the end of the quarter. Market prices for lean hogs and live cattle rose in the quarter. Demand during the summer grilling season and concerns about supply shortages buoyed lean hog prices. Live cattle prices rallied on concerns that declining cattle weights, after the use of a weight-gaining feed supplement had been discontinued, could potentially hurt beef supplies. The Index experienced a loss of approximately 0.7% for the group attributable to a short position in live cattle.

The Quarter Ended September 30, 2014 – Fund Commodity Portfolio Commentary

The Fund’s commodity portfolio returned 0.4% for the three-month period (before considering the expenses of the Fund or the performance of the collateral portfolio). The Fund outperformed the BCOM, which lost 11.8%, and the Index, which declined 1.2%. The Fund’s total return on net asset value for the quarter, which includes the effect of the Fund’s expenses and the performance of the collateral portfolio, and assumes the reinvestment of the Fund’s distribution, was 0.60%.

The Fund may write – that is, sell – put and call options on up to 25% of the value of each of the Fund’s commodity futures contracts. During the period, Gresham generally wrote options on approximately 15% of each commodity futures contract seeking to limit return volatility and to provide cash flow to support the Fund’s distributions. The Fund receives cash premiums in return for writing options. If the Fund holds a long position in a specific commodity, it will sell covered calls on those contracts; if a short position is held, it will sell covered puts on contracts in that commodity. Typically, the options sold are at or in the money, and the Fund receives cash for the related premiums. Though the majority of the Fund’s option positions expire in the money, which can limit the Fund’s full participation in gains related to that commodity position, they are an important tool for reducing the Fund’s return volatility. For the period, the Fund had lower volatility than the Index, as measured by standard deviation of NAV return.

The Fund has the flexibility to sell both puts and calls on a single commodity, should such commodity “flip” positions (i.e., go from a long position to a short position) during the life of a particular option. In this case, the Fund can collect additional premiums.

It is important to remember that a key driver of the Index’s long (and short) positions is the upward (or downward) momentum in the prices of its constituents relative to the moving averages of commodity prices. The Fund’s commodity portfolio long and short/flat positions share the same drivers as the Index, but are established more actively and with greater frequency (intra-month versus the Index’s once per month methodology). This dependence on momentum puts the Index and the Fund’s commodity portfolio at risk to price patterns that seem

 

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to demonstrate upward momentum (causing a shift from short/flat to long) but then shift to an equally compelling semblance of downward momentum (causing a shift from long to short/flat). This phenomenon is customarily described as a “whipsaw,” and the Fund’s greater potential for trading activity exposes it to greater whipsaw risk than the more passive Index in certain periods.

In terms of commodity groups, the Fund led the Index in energy and metals, but lagged in livestock and agriculture.

Relative outperformance was driven by the Fund’s more advantageous timing in changing its positions from long to flat across all of the energy commodities and from long to short in gold and silver, as prices fell for all of these contracts. Selling puts on both gold and silver during the quarter also earned additional premiums for the Fund.

Conversely, choppy trading environments for lean hogs and soybeans contracts caused excess trading activity in the Fund, which was unfavorable to relative performance. Excess trading occurs when the Fund changes from long to short (or flat in the case of energy) or vice versa, as signal prices are crossed multiple times. As the Fund seeks to outperform and get ahead of the Index, excess switching activity can adversely affect returns relative to the Index, which changes direction only once per month. Offsetting some of the relative weakness was the Fund’s position in soybean meal, which benefited from switching from long to short earlier than the Index. The Fund also sold put options on both soybeans and soybean meal, collecting additional premiums.

The Quarter Ended September 30, 2013 – Fund Commodity Portfolio Commentary

The Fund’s commodity portfolio, which includes the futures and options exposure, was down 0.5% for the third quarter (before considering the expenses of the Fund or the performance of the collateral portfolio), underperforming its Index, which returned 0.5%. The Fund’s total return on net asset value for the quarter, which includes the effect of the Fund’s expenses, the performance of the collateral portfolio, and assumes the reinvestment of the Fund’s distributions, was a loss of 0.80%. Relative to the Index, the Fund’s commodity portfolio underperformed most significantly in energy, experienced flat performance in agriculture, and had modestly positive contributions from metals and livestock.

The Fund writes – that is, sells – covered options on its portfolio’s commodity futures, seeking to limit return volatility, and to provide cash flow for the Fund’s distributions. Gresham utilizes a strategy that sells exchange-traded commodity put and/or call options on up to approximately 25% of the value of each of the Fund’s commodity futures contracts, when those contracts are deemed to have sufficient trading volume and liquidity. During the quarter, the Fund sold options on approximately 15% of the value of each commodity position. If the Fund holds a long position in a specific commodity, it will sell covered calls on those contracts; if a short position is held, it will sell covered puts on contracts in that commodity. Typically, the options sold are at or in the money, and the Fund receives cash for the related premiums. Though the majority of the Fund’s option positions are exercised, which can limit the Fund’s full participation in gains related to that commodity position, they are an important tool for reducing the Fund’s return volatility. For the quarter ended September 30, 2013, the Fund’s option program helped to contribute to the commodity portfolio’s lower volatility when compared to its Index, as measured by the standard deviation of return.

The Fund has the flexibility to sell both puts and calls on a single commodity, should such commodity “flip” positions (i.e. go from a long position to a short position) during the life of a particular option. In this case, the Fund can collect additional premiums. During the quarter, the Fund was able to sell both puts and calls on soybeans and soybean meal, which contributed positively to the Fund’s performance.

The Fund’s energy positions underperformed the Index during the quarter, declining approximately 0.1% versus an increase of approximately 4.0% for the Index. While the Fund’s long Brent and WTI crude oil positions in a rising market were a positive contributor to absolute performance, gains were offset by gyrations in the market that caused the Fund to switch from long positions to flat positions, and vice versa, in gasoline (RBOB), gas oil, and heating oil. This switching activity was disadvantageous to relative performance during the quarter.

 

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Agricultural commodities gained approximately 1.9% for the Fund. A rally in soybean meal prices hurt the Fund’s short position but bolstered the Index’s long position. However, the Fund’s short corn position contributed favorably to performance, as did the large premiums generated from the sale of both puts and calls on soybean meal and soybeans.

The Fund’s metals holdings declined approximately 6.7%, as strengthening gold, silver and copper prices were unfavorable for the Fund’s short positions. While the Fund experienced a negative return, it outperformed the Index for the group due to its options positions.

The Fund was up approximately 0.6% in livestock, while the Index was down approximately 0.7%. A rally in live cattle prices was disadvantageous for the Fund’s short position. However, demand during the summer grilling season and concerns about supply shortages buoyed lean hog prices helping the Fund’s long position.

The Nine Months Ended September 30, 2014 – Fund Share Price

The Fund’s shares traded on the NYSE MKT at a price of $14.76 on the close of business on September 30, 2014. This represents a decrease of 14.29% in share price (not including an assumed reinvestment of distributions) from the $17.22 price at which the shares of the Fund traded on the close of business on December 31, 2013. The high and low intra-day share prices for the nine month period were $17.60 (January 22, 2014) and $14.63 (August 14, 2014 and August 15, 2014), respectively. During the nine month period, the Fund declared distributions totaling $1.295 per share to shareholders, of which $0.135 was paid on October 1, 2014. The remainder was paid during the period. The Fund’s cumulative total return on market value for the nine month period, which assumes reinvestment of such distributions, was -7.12%. At September 30, 2014, shares of the Fund traded at a 21.07% discount to the Fund’s net assets value of $18.70 per share. During the nine month period the Fund repurchased 635,000 shares, refer to “Part II—Item 2. Unregistered Sales of Equity Securities and Use of Proceeds” in this Report for further details on the repurchase activity.

The Nine Months Ended September 30, 2013 – Fund Share Price

The Fund’s shares traded on the NYSE MKT at a price of $17.23 on the close of business on September 30, 2013. This represents a decrease of 18.80% in share price (not including an assumed reinvestment of distributions) from the $21.22 price at which the shares of the Fund traded on the close of business on December 31, 2012. The high and low intra-day share prices for the nine month period were $23.93 (January 28, 2013) and $17.11 (September 30, 2013), respectively. During the nine month period, the Fund declared distributions totaling $1.395 per share to shareholders, of which $0.155 was paid on October 1, 2013. The remainder was paid during the period. The Fund’s cumulative total return on market value for the nine month period, which assumes reinvestment of such distributions, was -12.80%. At September 30, 2013, shares of the Fund traded at a 15.87% discount to the Fund’s net asset value of $20.48 per share. During the nine month period the fund repurchased 117,500 shares.

The Nine Months Ended September 30, 2014 – Net Assets of the Fund

The Fund’s net assets decreased from $364.4 million at December 31, 2013, to $320.2 million at September 30, 2014, a decrease of $44.2 million. The decrease in the Fund’s net assets was due to $22.8 million of distributions to shareholders, a net loss of $11.7 million, and $9.7 million in share repurchases.

The Fund generated a net loss of $11.7 million for the nine month period ended September 30, 2014, resulting from interest income of $0.2 million, and net unrealized appreciation of $10.6 million, offset by net realized losses of $18.1 million, and total expenses of $4.4 million.

During the nine month period ended September 30, 2014, the Fund’s collateral investments generated interest income of $215,662, which represents 0.06% of average net assets for the nine month period ended September 30, 2014.

 

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The net asset value per share on September 30, 2014, was $18.70. This represents a decrease of 8.87% in net asset value (not including an assumed reinvestment of distributions) from the $20.52 net asset value as of December 31, 2013. The Fund declared distributions totaling $1.295 per share to shareholders during the nine month period. When an assumed reinvestment of these distributions is taken into account, the cumulative total return for the Fund on net asset value was -2.51% for the nine month period ended September 30, 2014.

The Nine Months Ended September 30, 2013 – Net Assets of the Fund

The Fund’s net assets decreased from $427.1 million at December 31, 2012, to $382.6 million at September 30, 2013, a decrease of $44.5 million. The decrease in the Fund’s net assets was due to $12.5 million in net realized losses and $1.1 million in net unrealized appreciation on the Fund’s portfolio during the period, a net investment loss of $4.8 million, $26.2 million of distributions to shareholders, and $2.1 million in share repurchases.

During the nine month period ended September 30, 2013, the Fund’s collateral investments generated interest income of $359,359, which represents 0.09% of average net assets for the nine month period ended September 30, 2013.

The net asset value per share on September 30, 2013, was $20.48. This represents a decrease of 9.86% in net asset value (not including an assumed reinvestment of distributions) from the $22.72 net asset value as of December 31, 2012. The Fund declared distributions totaling $1.395 per share to shareholders during the nine month period. When an assumed reinvestment of these distributions is taken into account, the cumulative total return for the Fund on net asset value was -3.77% for the nine month period ended September 30, 2013.

The Fund generated a net loss of $16.2 million for the nine month period ended September 30, 2013, resulting from interest income of $0.4 million, net expenses of $5.2 million, net realized losses of $12.5 million, and net unrealized appreciation of $1.1 million.

The Nine Months Ended September 30, 2014 – Overall Commodity Market Commentary

After rising in the first half of 2014, the broad commodity market gave back all of its gains during a turbulent third quarter. For the nine months ended September 30, 2014, the broad commodity market was down 5.6%, as measured by the BCOM, and the Index lost 3.3%. The Index’s metals and energy groups traded lower over the period, while the livestock and agriculture groups appreciated.

The metals group sustained the largest decline during the period, down 11.7% in the Index. Gold prices rallied in the broad market throughout the first half of the year on speculation of higher inflation in the U.S. But, in the third quarter, a rising U.S. dollar and deflation fears weighed on prices.

The Index’s energy group slid 8.9%, as all energy commodities finished the period lower. Natural gas was the weakest performer in the group. Strong demand during the polar vortex helped natural gas prices rally in the broad market early in 2014. But demand weakened during a milder-than-usual summer, and with no major cold snaps in the fall forecast, prices retreated from earlier highs.

In contrast, the livestock group rose strongly over the period, up 23.8% in the Index. Prices for both live cattle and lean hogs increased in the broad market during the period, and the Index’s long positions in these contracts benefited. Lean hog prices reached all-time highs early in 2014 as a highly infectious pig virus was expected to decrease supply. Live cattle prices rallied on supply concerns as well, with the harsh winter weather early in 2014 hindering breeding, weight gain, and slaughter.

The Index’s agriculture group gained 10.1% during the period, led by strong results in soybeans and soybean oil. Although prices for soybeans and soybean oil contracts declined in the broad market over the period as a whole, the Index benefited from long positions during rallies and short positions during downturns.

 

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The Nine Months Ended September 30, 2013 – Overall Commodity Market Commentary

The year began on a positive note for the broad commodity market, but prices turned volatile amid global economic uncertainty, geopolitical tensions in the Middle East and North Africa, and speculation about the timing of the U.S. Federal Reserve QE tapering. In the broad commodities market, as measured by the BCOM, declines in the first and second quarters (-1.2% and -9.5%, respectively) overwhelmed a slight gain (2.1%) in the third quarter, for an overall loss of 8.6% for the nine month period ended September 30, 2013. In contrast, the Index (the Fund’s benchmark) returned 3.2%, as the ability to take short positions was advantageous in declining markets. Among the commodity groups represented in the Index, metals posted the largest gain by far, followed by modestly positive performance in livestock and agriculture. The energy group, however, fell during the nine month period.

Energy commodities represented 47.8% of the Index at the end of the nine month period, and were its most significant commodity group by weight. Within the Index, the energy group lost approximately 1.8% due to switching between flat and long positions, driven by price volatility during the period.

Agricultural commodities made up 28.8% of the Index at the end of the nine month period. Soybean and soybean meal rose during the period, but corn, wheat, and soybean oil had much larger declines. The Index advanced approximately 2.8%, bolstered by a short position in corn, whose prices subsequently dropped on fears of oversupply.

The Index includes three metals: gold, silver and copper, which made up a combined 18.9% of the Index at the end of the nine month period. In the broad markets, as measured by BCOM, all three metals sustained double-digit declines: gold plunged 21.2%, silver fell 28.8%, and copper declined 10.5%. However, the Index’s metals group was its best-performing group, rising approximately 23.3%, as short positions initiated during the first quarter across the board were favorable in a period of falling prices.

Livestock is the smallest group, comprising 4.6% of the Index at the end of the nine month period. Expanding supply early in the year depressed prices for lean hogs and live cattle, but prices rallied later in the year on stronger summer demand and concerns about tightening supply. Against this backdrop, livestock appreciated approximately 3.4% in the Index. At the end of the third quarter the Index was short live cattle, which ended the period lower, and long lean hogs, which finished the period higher.

The Nine Months Ended September 30, 2014 – Fund Commodity Portfolio Commentary

The Fund’s commodity portfolio returned -2.1% for the nine-month period (before considering the expenses of the Fund or the performance of the collateral portfolio). The Fund outperformed the BCOM, which returned -5.6%, and the Index, which returned -3.3%. The Fund’s total return on net asset value for the period, which includes the effect of the Fund’s expenses and the performance of the collateral portfolio, and assumes the reinvestment of the Fund’s distribution, was -2.51%.

The Fund may write – that is, sell – put and call options on up to 25% of the value of each of the Fund’s commodity futures contracts. During the period, Gresham generally wrote options on approximately 15% of each commodity futures contract seeking to limit return volatility and to provide cash flow to support the Fund’s distributions. The Fund receives cash premiums in return for writing options. If the Fund holds a long position in a specific commodity, it will sell covered calls on those contracts; if a short position is held, it will sell covered puts on contracts in that commodity. Typically, the options sold are at or in the money, and the Fund receives cash for the related premiums. Though the majority of the Fund’s option positions expire in the money, which can limit the Fund’s full participation in gains related to that commodity position, they are an important tool for reducing the Fund’s return volatility. For the period, the Fund had lower volatility than the Index, as measured by standard deviation of NAV return.

 

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The Fund has the flexibility to sell both puts and calls on a single commodity, should such commodity “flip” positions (i.e., go from a long position to a short position) during the life of a particular option. In this case, the Fund can collect additional premiums. During the period, the Fund was able to sell calls on coffee; puts on soybeans, and soybean meal; and both puts and calls on sugar, corn, wheat, cotton, and gold, which contributed positively to Fund performance.

It is important to remember that a key driver of the Index’s long (and short) positions is the upward (or downward) momentum in the prices of its constituents relative to the moving averages of commodity prices. The Fund’s commodity portfolio long and short/flat positions share the same drivers as the Index, but are established more actively and with greater frequency (intra-month versus the Index’s once per month methodology). This dependence on momentum puts the Index and the Fund’s commodity portfolio at risk to price patterns that seem to demonstrate upward momentum (causing a shift from short/flat to long) but then shift to an equally compelling semblance of downward momentum (causing a shift from long to short/flat). This phenomenon is customarily described as a “whipsaw,” and the Fund’s greater potential for trading activity exposes it to greater whipsaw risk than the more passive Index in certain periods.

In terms of commodity groups, the Fund outperformed the Index in energy and metals, but underperformed in agriculture and livestock.

The Fund’s relative outperformance was bolstered by favorable long/short positioning in natural gas and gold. In natural gas, a switch to long in the first quarter’s price rally and a move from long to flat in the third quarter as prices fell added to relative performance. The Fund’s gold position switched to long during a March rally then flipped to short as prices came down a week later, whereas the Index went long as prices began to fall. In the third quarter, the Fund advantageously flipped to short ahead of the Index when gold prices declined.

In the Fund’s agriculture position, relative losses resulted from excess trading activity – resulting from switching from long to short (or flat in the case of energy) or vice versa, as signal prices are crossed multiple times – in the Fund’s sugar position during the first half of 2014. As the Fund seeks to outperform and get ahead of the Index, excess switching activity can adversely affect returns relative to the Index, which changes direction only once per month.

The Fund’s lean hogs position was the primary detractor from relative returns in the livestock group. Unfavorable contract positioning and roll timing in the second quarter and flipping activity in the third quarter were especially detrimental.

The Nine Months Ended September 30, 2013 – Fund Commodity Portfolio Commentary

In the environment of mostly declining commodity prices over the first nine months of 2013, the Fund’s commodity portfolio lost 2.9% (before considering the expenses of the Fund or the performance of the collateral portfolio), which outperformed the long-only DJ-UBSCI, due to the Fund’s ability to take short positions and write options contracts. However, the Fund underperformed the Index, which returned 3.2%, a difference of about 6.1%. The Fund’s total return on net asset value for the nine month period, which includes the effect of the Fund’s expenses, the performance of the collateral portfolio, and assumes the reinvestment of the Fund’s distributions, was a loss of 3.77%. Relative to the Index, the Fund’s strategic weighting decisions had a negative impact on its energy, metals, and agricultural holdings, and a positive impact on its livestock holdings.

A key driver of the underperformance in the period was a phenomenon known as “whipsaw.” This was most evident earlier in the period as many commodity prices trended sideways and the Fund’s switching between long and short (or flat in the case of energy) positions more often than the Index, which switches only once per month, had a negative impact on returns. The Fund has taken steps to limit the frequency of its position shifts thereby mitigating whipsaw risk. In terms of commodity groups, the Fund experienced absolute losses in energy, and absolute gains in metals, livestock and agriculture. Relative to the Index, the Fund underperformed most notably

 

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in energy and metals and slightly underperformed in agriculture. Outperformance in livestock had a marginal impact given the relatively small weight of the livestock group in the Fund and the Index (4.6% for both as measured at the end of the period).

The Fund’s relative underperformance in the energy group was a significant driver of underperformance over the period, accounting for just over half of the shortfall versus the Index, as estimated by Gresham. The Fund’s energy positions moved between flat and long positions more often than the Index across many energy commodities including crude oil, gas oil heating oil, gasoline (RBOB), and natural gas. This contributed to underperformance for the group, largely attributable to the whipsaw effect.

Metals represented the next largest negative relative impact as the Fund’s metals positions rose approximately 7.2%, underperforming the Index’s surge of approximately 23.3%. Primarily in gold, but also in silver, the Fund’s holdings switched often between long and short from the start of the period through early February, again as a result of the whipsaw impact.

Moderate underperformance in agricultural commodities and slight outperformance in livestock had a relatively small impact over the period versus the Index.

The Fund writes – that is, sells – covered options on its portfolio’s commodity futures, seeking to limit return volatility, and to provide cash flow for the Fund’s distributions. Gresham utilizes a strategy that sells exchange-traded commodity put and/or call options on approximately 25% of the value of each of the Fund’s commodity futures contracts, when those contracts are deemed to have sufficient trading volume and liquidity. During the nine month period, the Fund sold options on approximately 15% of the value of each commodity position. If the Fund holds a long position in a specific commodity, it will sell covered calls on those contracts; if a short position is held, it will sell covered puts on contracts in that commodity. Typically, the options sold are at or in the money, and the Fund receives cash for the related premiums. Though the majority of the Fund’s option positions are exercised, which can limit the Fund’s full participation in gains related to that commodity position, they are an important tool for reducing the Fund’s return volatility. For the nine month period, the Fund’s option program helped to contribute to the commodity portfolio’s lower volatility when compared to its Index as measured by standard deviation of return.

The Fund has the flexibility to sell both puts and calls on a single commodity, should such commodity “flip” positions (i.e. go from a long position to a short position) during the life of a particular option. In this case, the Fund can collect additional premiums. During the period, the Fund was able to sell both puts and calls on several commodities, including corn, soybean meal, soybeans, cotton, wheat, gold, and lean hogs, which contributed positively to Fund performance.

It is important to remember that a key driver of the Index’s long (and short) positions is the upward (or downward) momentum in the prices of its constituents relative to the moving averages of commodity prices. The Fund’s commodity portfolio long and short/flat positions share the same drivers as the Index, but are established more actively and with greater frequency (intra-month versus the Index’s once per month methodology). This dependence on momentum puts the Index and the Fund’s commodity portfolio at risk to price patterns that seem to demonstrate upward momentum (causing a shift from short/flat to long) but then shift to an equally compelling semblance of downward momentum (causing a shift from long to short/flat). This phenomenon is customarily described as a “whipsaw,” and the Fund’s greater potential for trading activity exposes it to greater whipsaw risk than the more passive Index in certain periods.

Fund Total Returns

The following table presents selected total returns for the Fund as of September 30, 2014. Total returns based on market value and net asset value are based on the change in market value and net asset value, respectively, for a share during the period presented. The total returns presented assume the reinvestment of distributions at

 

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market value on the distribution payment date for returns based on market value, and at net asset value on the distribution payment date for returns based on net asset value. The last distribution declared in the period, which is typically paid on the first business day of the following month, is assumed to be reinvested at the market price per share at the end of the period for total returns based on market value, and at the ending net asset value per share at the end of the period for total returns based on net asset value.

 

		Total Returns as of September 30, 2014
		Cumulative								Average Annual
		3 Months				Year to Date				1 Year				Since Inception
Market Value			-6.18	%			-7.12	%			-4.57	%			-16.14	%
Net Asset Value			0.60	%			-2.51	%			-0.08	%			-4.15	%

“Since inception” returns present performance for the period since the Fund’s commencement of operations on October 25, 2012.

Returns represent past performance, which is no guarantee of future performance.

Distributions

The Fund makes regular monthly distributions to its shareholders stated in terms of a fixed cents per share distribution rate. The Manager seeks to establish a distribution rate that, among other factors, roughly corresponds to its projections of the total return that could reasonably be expected to be generated by the Fund over an extended period of time. The Fund’s projected or actual distribution rate is not a prediction of what the Fund’s actual total returns will be over any specific future period.

The Fund’s ability to make distributions will depend on a number of factors, including, most importantly, the long-term total returns generated by the Fund’s commodity investments and the gains generated through the Fund’s options strategy. The Fund’s actual financial performance will likely vary significantly from month-to-month and from year-to-year, and there may be periods, perhaps of extended durations of up to several years, when the distribution rate exceeds the Fund’s actual total returns. In the event that the amount of income earned or capital gains realized by the Fund is not sufficient to cover the Fund’s distributions, the Fund may be required to liquidate investments to fund distributions at times or on terms that could be disadvantageous to the Fund and its shareholders.

Because the Fund’s investment performance since its inception has been negative, the Fund has effectively been drawing upon its assets to meet payments prescribed by its distribution policy. The Fund also has paid fees and expenses that have also been drawn from the Fund’s assets.

As market conditions and portfolio performance may change, the rate of distributions on the shares and the Fund’s distribution policy could change. The Manager reserves the right to change the Fund’s distribution policy and the basis for establishing the rate of its monthly distributions, or may temporarily suspend or reduce distributions without a change in policy, at any time and may do so without prior notice to shareholders. The reduction or elimination of the Fund’s distributions could have the effect of increasing the Manager’s management fees. Effective with the distribution paid on June 2, 2014, the Fund’s distribution rate was reduced from $0.155 per share to $0.135 per share.

 

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Commodity Weightings

The table below presents the composition of the Fund’s commodity portfolio and the Index as of September 30, 2014. The September 30, 2014 composition serves as a guide to how the composition of the Fund’s commodity portfolio compared to that of the Index.

 

				Fund						Index
Commodity Group		Commodity		Exposure (1)		Composition				Exposure (1)		Composition
Energy		Crude Oil		Flat			19.38	%		Flat			19.60	%
		Heating Oil		Flat			16.10	%		Flat			16.21	%
		Natural Gas		Flat			7.94	%		Flat			7.99	%
		Unleaded Gas		Flat			6.32	%		Flat			6.09	%
							49.74	%					49.89	%
Agriculture		Soybean		Short			8.94	%		Short			8.93	%
		Corn		Short			7.05	%		Short			7.03	%
		Sugar		Short			3.67	%		Short			3.65	%
		Wheat		Short			2.83	%		Short			2.84	%
		Soybean Meal		Short			2.19	%		Short			2.16	%
		Soybean Oil		Short			2.16	%		Short			2.15	%
		Cotton		Short			1.64	%		Short			1.65	%
		Coffee		Long			0.94	%		Long			0.94	%
							29.42	%					29.35	%
Metals		Gold		Short			8.30	%		Short			8.32	%
		Silver		Short			3.34	%		Short			3.30	%
		Copper		Short			2.77	%		Short			2.78	%
							14.41	%					14.40	%
Livestock		Live Cattle		Long			4.11	%		Long			4.04	%
		Lean Hogs		Long			2.32	%		Long			2.32	%
							6.43	%					6.36	%
Total							100.00	%					100.00	%

 

(1)

The Fund and the Index may take long and short positions on commodity futures contracts. The Fund and the Index will not short energy futures contracts due to prices of energy futures contracts generally being more sensitive to geopolitical events than to economic factors. References to a flat position, if any, mean that instead of shorting energy futures contracts when market signals dictate, the Fund will not have a futures contract position for that energy commodity, and will instead move that position to cash. The Fund may also have flat positions in other commodity groups for short periods of time in the course of implementing its investment strategy.

Liquidity and Capital Resources

The Fund implements its investment strategy by taking long and/or short positions in commodity futures contracts with a portion of the Fund’s assets, writing put and call options pursuant to the long/short commodity investment program, and by investing the remaining assets of the Fund as collateral in cash equivalents, U.S. government securities and other short-term, high grade debt securities. The Fund’s investment activity in futures contracts and writing commodity options does not require a significant outlay of capital. The Fund currently expects to post approximately 10% to 25% of its net assets in a margin account with Barclay’s Capital Inc., the Fund’s clearing broker, to cover its futures contracts; the remaining assets are held by the Fund in a separate collateral pool managed by the Collateral Sub-adviser. The Fund believes the higher allocation to initial margin

 

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will provide a significant buffer to accommodate variations in the required margin posting that may result from market volatility, potential gains and losses on the contracts, and changes in margin rules, and will minimize the frequency of cash transfers from the Fund’s other collateral pool to meet variation margin requirements. The Fund does not intend to utilize leverage and its commodity contract positions are fully collateralized. Ordinary expenses and distributions are met by cash on hand, although distributions may at times consist of return of capital and may require that the Fund liquidate investments. The Fund earns interest on its continuing investments in cash equivalents, U.S. government securities and other short-term, high grade debt securities. The Fund also generates cash from the premiums it receives when writing options on the Fund’s futures contracts.

The Fund’s investments in commodity futures contracts and options on commodity futures contracts may 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 futures contract 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 the daily limit for several consecutive days with little or no trading. Such market conditions could prevent the Fund from promptly liquidating its commodity futures positions.

The Fund’s shares trade on the NYSE MKT, and shares are not redeemed by the Fund in the normal course of business (although the Manager may decide to do so at its discretion), thereby alleviating the need for the Fund to have liquidity available for possible shareholder redemptions. On March 14, 2013, the Fund announced the adoption of an open-market share repurchase program pursuant to which it is authorized to repurchase an aggregate of up to 10% of its outstanding common shares. On March 6, 2014 the Fund reauthorized its share repurchase program, pursuant to which it may repurchase up to 10% of its outstanding common shares as of the reauthorization date (approximately 1,775,000 shares) in open-market transactions, at the Manager’s discretion. Refer to “Part II—Item 2. Unregistered Sales of Equity Securities and Use of Proceeds” in this Report for details of repurchase activity during the nine months ended September 30, 2014.

The Fund is unaware of any other trends, demands, conditions or events that are reasonably likely to result in material changes to the Fund’s liquidity needs.

Because the Fund invests in commodity futures contracts, its capital is at risk from changes in the value of these contracts (market risk) or the potential inability of clearing brokers or counterparties to perform under the terms of the contracts (credit risk).

Market Risk

Investing in commodity futures contracts involves the Fund entering into contractual commitments to purchase or sell a particular commodity at a specified date and price. The market risk associated with the Fund’s commitments to purchase commodities will be limited to the gross or face amount of the contracts held.

The Fund’s exposure to market risk may be influenced by a number of factors, including changes in international balances of payments and trade, currency devaluations and revaluations, changes in interest and foreign currency exchange rates, price volatility of commodity futures contracts and market liquidity, weather, geopolitical events and other factors. These factors also affect the Fund’s investments in options on commodity futures contracts. The inherent uncertainty of the Fund’s investments as well as the development of drastic market occurrences could ultimately lead to a loss of all, or substantially all, of investors’ capital.

 

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Credit Risk

The Fund may be exposed to credit risk from its investments in commodity futures contracts and options on commodity futures contracts resulting from the clearing house associated with a particular exchange failing to meet its obligations to the Fund. In general, clearing houses are backed by their corporate members who may be required to share in the financial burden resulting from the nonperformance of one of their members, which should significantly reduce this credit risk. In cases where the clearing house is not backed by the clearing members (i.e., as in 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 Fund.

The Fund attempts to minimize market risks, and the Commodity Sub-adviser attempts to minimize credit risks, by abiding by various investment limitations and policies, which include limiting margin accounts, investing only in liquid markets and permitting the use of stop-loss orders. The Commodity Sub-adviser implements procedures which include, but are not limited to:

 

•

Employing the options strategy to limit directional risk (although there is no guarantee that the Fund’s options strategy will be successful);

 

•

Executing and clearing trades only with counterparties the Commodity Sub-adviser believes are creditworthy;

 

•

Limiting the amount of margin or premium required for any one commodity contract or all commodity contracts combined; and

 

•

Generally limiting transactions to contracts which are traded in sufficient volume to permit the efficient taking and liquidating of positions.

A commodity broker, when acting as the Fund’s futures commission merchant, is required by the Commodity Futures Trading Commission (“CFTC”) regulations to separately account for and segregate all assets of the Fund relating to domestic futures investments. A commodity broker is not allowed to commingle such assets with other assets of the commodity broker. In addition, CFTC regulations also require a commodity broker, when acting as the Fund’s futures commission merchant, to hold in a “secured” account the assets of the Fund related to foreign futures investments and not commingle such assets with assets of the commodity broker.

As it relates to the Fund’s assets held as collateral for its investments in commodity futures contracts, there is credit risk present in the securities used to invest the Fund’s cash. While these consist of cash equivalents, U.S. government securities and other short-term, high-grade debt securities, like any investment, these too would be affected by any credit difficulties that might be experienced by their issuers.

Off-Balance Sheet Arrangements

As of September 30, 2014, the Fund has not utilized, nor does it expect to utilize in the future, special purpose entities to facilitate off-balance sheet financing arrangements and has 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. While the Fund’s exposure under such indemnification provisions cannot be estimated, these general business indemnifications are not expected to have a material impact on the Fund’s financial position.

Contractual Obligations

The Fund’s contractual obligations are with the Manager, the Commodity Sub-adviser, the Collateral Sub-adviser, the custodian, the transfer agent and the commodity broker. Management fee payments made to the

 

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Manager are calculated as a percentage of the Fund’s assets. The custodian fee is primarily based on the Fund’s assets and trading activity. The transfer agent fee is calculated based on the Fund’s total number of registered accounts. Commission payments to the commodity broker are on a contract-by-contract or round-turn basis. The Manager cannot anticipate the amount of payments that will be required under these arrangements for future periods, as these payments are based on figures which are not known until a future date. Additionally, these agreements may be terminated by either party for various reasons.

Critical Accounting Policies

The Fund’s critical accounting policies are as follows:

 

•

Preparation of the financial statements and related disclosures in conformity with accounting principles generally accepted in the United States requires the application of appropriate accounting rules and guidance, as well as the use of estimates and assumptions. The Fund’s application of these policies involves judgments and actual results may differ from the estimates used.

 

•

The Fund holds a significant portion of its assets in futures contracts, options contracts, and short-term, high grade debt instruments, all of which are recorded on a trade date basis and recognized at fair value in the financial statements, with changes in fair value reported on the Statements of Operations as changes in net unrealized appreciation (depreciation).

 

•

The use of fair value to measure financial instruments, with related unrealized appreciation (depreciation) recognized in earnings in each period, is fundamental to the Fund’s financial statements.

 

•

The fair value of a financial instrument is the amount 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.

 

•

Generally, commodity futures contracts and options on commodity futures contracts traded on an exchange will be valued at the final settlement price or official closing price as determined by the principal exchange on which the instruments are traded as supplied by independent pricing services. Over-the-counter (“OTC”) commodity futures contracts and options on commodity futures contracts not traded on an exchange will be valued, in order of hierarchy, by independent pricing services, price quotations obtained from counterparty broker-dealers, or through fair valuation methodologies as determined by the Manager.

 

•

Market quotations for exchange-traded commodity futures contracts and options on commodity futures contracts may not be readily available as a result of significant events, which can include, but are not limited to: trading halts or suspensions, market disruptions, or the absence of market makers willing to make a market in such instruments. In addition, events may occur after the close of the market, but prior to the determination of the Fund’s net asset value, which may affect the values of the Fund’s investments. In such circumstances, the Manager will determine a fair valuation for such investments that in its opinion is reflective of fair market value.

 

•

Realized gains (losses) on closed positions and changes in unrealized appreciation (depreciation) on open positions are determined on a specific identification basis and recognized in the Statements of Operations during the period in which the contract is closed or the changes occur, respectively.

 

•

Interest income, which reflects the amortization of premiums and includes accretion of discounts for financial reporting purposes, is recorded on an accrual basis.

Refer to note 2 of the Fund’s Notes to Financial Statements in “Part 1—Item 1. Financial Statements” of this Report for the summary of significant accounting policies of the Fund.

 

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Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Quantitative Disclosure

The Fund is exposed to commodity price risk through the futures contracts and the options on futures contracts that the Fund invests in as part of its investment strategy. These instruments have been entered into for trading purposes. The following table provides information about the Fund’s futures contracts and options on futures contracts, which are sensitive to changes in commodity prices, as of September 30, 2014.

Long Futures Contracts

 

Commodity Group		Contract		Contract Position				Contract Expiration				Number of Contracts				Valuation Price				Contract Multiplier				Notional Amount at Value
Agriculture		Coffee
		ICE Coffee C Futures Contract			Long				December 2014				42			$	1.9335				37,500			$	3,045,263
Livestock		Live Cattle
		CME Live Cattle Futures Contract			Long				October 2014				24				1.6045				40,000				1,540,320
		CME Live Cattle Futures Contract			Long				December 2014				175				1.6348				40,000				11,443,250
		CME Live Cattle Futures Contract			Long				February 2015				4				1.6398				40,000				262,360
		Lean Hogs
		CME Lean Hogs Futures Contract			Long				October 2014				31				1.0798				40,000				1,338,890
		CME Lean Hogs Futures Contract			Long				December 2014				163				0.9453				40,000				6,163,030

Short Futures Contracts

 

Commodity Group		Contract		Contract Position				Contract Expiration				Number of Contracts				Valuation Price				Contract Multiplier				Notional Amount at Value
Agriculture		Soybean
		CBOT Soybean Futures Contract			Short				November 2014				(574	)		$	9.1325				5,000			$	(26,210,275	)
		Corn
		CBOT Corn Futures Contract			Short				December 2014				(1,321	)			3.2075				5,000				(21,185,538	)
		Sugar
		ICE Sugar Futures Contract			Short				March 2015				(691	)			0.1645				112,000				(12,730,984	)
		Wheat
		CBOT Wheat Futures Contract			Short				December 2014				(387	)			4.7775				5,000				(9,244,463	)
		Soybean Meal
		CBOT Soybean Meal Futures Contract			Short				December 2014				(211	)			298.9000				100				(6,306,790	)
		Soybean Oil
		CBOT Soybean Oil Futures Contract			Short				December 2014				(351	)			0.3237				60,000				(6,817,122	)
		Cotton
		ICE Cotton Futures Contract			Short				December 2014				(157	)			0.6137				50,000				(4,817,545	)
Metals		Gold
		CEC Gold Futures Contract			Short				December 2014				(219	)			1,211.6000				100				(26,534,040	)
		Silver
		CEC Silver Futures Contract			Short				December 2014				(114	)			17.0570				5,000				(9,722,490	)
		Copper
		CEC Copper Futures Contract			Short				December 2014				(112	)			3.0075				25,000				(8,421,000	)

 

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Commodity Call Options Written

 

Commodity Group		Contract		Contract Expiration				Number of Contracts				Strike Price				Value
Energy		Crude Oil
		NYMEX Crude Oil Futures Options			October 2014				(47	)		$	95.00			$	(13,630	)
Agriculture		Soybean
		CBOT Soybean Futures Options			October 2014				(84	)			1,110.00				(525	)
		Soybean Meal
		CBOT Soybean Meal Futures Options			November 2014				(32	)			330.00				(6,720	)
		Coffee
		ICE Coffee C Futures Options			November 2014				(6	)			160.00				(77,782	)
Metals		Gold
		CEC Gold Futures Options			November 2014				(33	)			1,300.00				(13,200	)
Livestock		Live Cattle
		CME Live Cattle Futures Options			October 2014				(24	)			134.00				(253,920	)
		CME Live Cattle Futures Options			December 2014				(7	)			143.00				(57,960	)
		Lean Hogs
		CME Lean Hogs Futures Options			October 2014				(29	)			94.00				(162,690	)

Commodity Put Options Written

 

Commodity Group		Contract		Contract Expiration				Number of Contracts				Strike Price				Value
Agriculture		Soybean
		CBOT Soybean Futures Options			October 2014				(84	)		$	1,110.00			$	(826,875	)
		Corn
		CBOT Corn Futures Options			November 2014				(194	)			460.00				(1,351,938	)
		Sugar
		ICE Sugar Futures Options			February 2015				(102	)			19.75				(395,270	)
		Wheat
		CBOT Wheat Futures Options			November 2014				(57	)			670.00				(548,269	)
		Soybean Meal
		CBOT Soybean Meal Futures Options			November 2014				(32	)			330.00				(106,240	)
		Soybean Oil
		CBOT Soybean Oil Futures Options			November 2014				(52	)			415.00				(285,480	)
		Cotton
		ICE Cotton Futures Options			November 2014				(23	)			79.00				(203,320	)
Metals		Gold
		CEC Gold Futures Options			November 2014				(33	)			1,300.00				(304,920	)
		Silver
		CEC Silver Futures Options			November 2014				(17	)			2,050.00				(297,075	)
Livestock		Lean Hogs
		CME Lean Hogs Futures Options			October 2014				(29	)			94.00				(580	)

 

CBOT		Chicago Board of Trade
CEC		Commodities Exchange Center
CME		Chicago Mercantile Exchange
ICE		Intercontinental Exchange
NYMEX		New York Mercantile Exchange

 

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The Fund also invests the assets held as collateral for its investments in commodity futures contracts in short-term, high grade debt securities, which exposes the Fund to interest rate risk. These instruments are deemed to be entered into for non-trading purposes, with an emphasis on current income, liquidity and preservation of capital. As of September 30, 2014, the Fund held U.S. Treasury bills worth $263,176,764 with a par value of $263,250,000, and a repurchase agreement worth $3,662,059.

Qualitative Disclosure

The Fund’s primary trading risk exposure is commodity price risk, which affects the futures contracts and options on futures contracts in which the Fund invests. There are numerous uncertainties, contingencies and risks associated with these investments (as discussed in Part I—Item 1A. Risk Factors in the Fund’s annual report on Form 10-K for the year ended December 31, 2013, and Part II—Item 1A. Risk Factors in the Fund’s subsequent quarterly reports on Form 10-Q, filed with the Securities and Exchange Commission (“SEC”)) which include, but are not limited to, government interventions, defaults and expropriations, adverse weather conditions, commodity supply factors, illiquid markets, the emergence of dominant fundamental factors, political upheavals, changes in historical price relationships, an influx of new market participants, and increased regulation. Investors may lose all or substantially all of their investment in the Fund.

The Fund invests in a diversified portfolio of commodity futures contracts to obtain broad exposure to all principal groups in the global commodity markets, thereby limiting its exposure to the commodity price risk of any one futures contract or any specific commodity group. To further help manage commodity price risk, the Fund uses its options strategy in an attempt to enhance the Fund’s risk-adjusted total returns. The impact of the options strategy on the Fund’s total returns in varying market environments is described below.

If the Commodity Sub-adviser determines the Fund should have long exposure to an individual commodity futures contract, it will invest long in the commodity futures contract and sell a call option on the same underlying commodity futures contract with the same strike price and expiration date. In up markets where commodity prices increase, the portion of the Fund on which call options have been sold will forego potential appreciation in the value of the underlying contracts to the extent the price of those contracts exceeds the exercise price of call options sold plus the premium collected by selling the options. In flat or sideways markets, the portion of the Fund on which call options have been sold will generate current gains from the call option premiums collected by selling the options. In down markets where commodity prices decrease, the call options sold by the Fund will expire worthless. Regardless of the price performance of the long commodity futures position, the Fund will retain the net call option premiums received by the Fund.

If the Commodity Sub-adviser determines the Fund should have short exposure to an individual commodity futures contract, it will short the commodity futures contract and sell a put option on the same underlying commodity futures contract with the same strike price and expiration date. In down markets where commodity prices decrease, the portion of the Fund on which put options have been sold will forego potential appreciation in the value of the underlying futures contracts to the extent that the price of those contracts exceeds the exercise price of put options sold plus the premium collected by selling the options. In flat or sideways markets, the portion of the Fund on which put options have been sold will generate current gains from the put option premiums collected by selling the options. In up markets where commodity prices increase, the put options sold by the Fund will expire worthless. Regardless of the price performance of the short commodity futures position, the Fund will retain the net put option premiums received by the Fund.

There can be no assurance that the Fund’s options strategy will be successful. The Fund’s risk-adjusted returns over any particular period may be positive or negative.

The Fund’s primary non-trading risk exposures are interest rate risk and credit risk related to the collateral portfolio. Interest rate risk is mitigated by the short-term nature of the collateral portfolio’s debt securities. Credit risk is mitigated by the fact that the collateral portfolio’s debt securities (other than U.S. government securities)

 

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are rated at the highest applicable rating as determined by at least one nationally recognized statistical rating organization or, if unrated, judged by the Collateral Sub-adviser to be of comparable quality.

 

Item 4.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of the principal executive officer and principal financial officer of the Manager of the Fund, the Manager has evaluated the effectiveness of the Fund’s disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”). Based upon that evaluation, the principal executive officer and principal financial officer concluded that the Fund’s disclosure controls and procedures were effective as of the end of the period covered by this Report to provide reasonable assurance that information required to be disclosed in the reports that the Fund files or submits to the SEC under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the applicable rules and forms, and that it is accumulated and communicated to the management of the Manager as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There were no changes in the Fund’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during the reporting period covered by this Report that have materially affected, or are reasonably likely to materially affect, the Fund’s internal control over financial reporting.

 

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PART II. OTHER INFORMATION

 

Item 1.

Legal Proceedings

None.

 

Item 1A.

Risk Factors

There have been no changes to the Risk Factors since last reported on Part I, Item 1A of the Fund’s annual report on Form 10-K dated December 31, 2013, filed with the SEC.

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

a) None.

b) The Fund did not issue new shares within the nine month period ended on September 30, 2014.

c) On March 14, 2013, the Fund adopted an open-market share repurchase program, pursuant to which it was authorized to repurchase up to 10% of its outstanding common shares (approximately 1,800,000 shares) in open-market transactions at the Manager’s discretion. On March 6, 2014, the Fund reauthorized its share repurchase program, pursuant to which it may repurchase up to 10% of its outstanding common shares as of the reauthorization date (approximately 1,775,000 shares). Share repurchases during the fiscal year to date period ended September 30, 2014 were as set forth in the following table:

 

Period		Total Number of Shares Repurchased				Weighted Average Price per Share Repurchased				Maximum Number of Shares that May Yet Be Repurchased
1/1/14 to 1/31/14			—			$	—			Approximately 1,775,000
2/1/14 to 2/28/14			—			$	—			Approximately 1,775,000
3/1/14 to 3/31/14			—			$	—			Approximately 1,775,000
4/1/14 to 4/30/14			18,600			$	16.40			Approximately 1,756,400
5/1/14 to 5/31/14			—			$	—			Approximately 1,756,400
6/1/14 to 6/30/14			36,400			$	16.28			Approximately 1,720,000
7/1/14 to 7/31/14			42,500			$	15.66			Approximately 1,677,500
8/1/14 to 8/31/14			272,500			$	15.03			Approximately 1,405,000
9/1/14 to 9/30/14			265,000			$	15.05			Approximately 1,140,000

A cumulative total of 1,680,000 shares have been repurchased through the repurchase program described above. No shares have been repurchased outside of the program described.

 

Item 3.

Defaults Upon Senior Securities

None.

 

Item 4.

Mine Safety Disclosures

Not applicable.

 

Item 5.

Other Information

None.

 

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Item 6.

Exhibits

 

4.1		Amended and Restated Trust Agreement of the Fund. (1)
31.1		Certification of Principal Executive Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of Principal Financial Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS		XBRL Instance Document.
101.SCH		XBRL Taxonomy Extension Schema Document.
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document.
101.LAB		XBRL Taxonomy Extension Label Linkbase Document.
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document.
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document.

 

(1)	Filed on September 20, 2012 with Amendment No. 6 to Registrant’s Registration Statement on Form S-1 (File No. 333-174764) and incorporated by reference herein.

 

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Chicago, State of Illinois, on November 7, 2014.

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

 

Nuveen Commodities Asset Management, LLC Manager of Registrant

/s/ William Adams IV

President (Principal Executive Officer)

November 7, 2014

/s/ Stephen D. Foy

Chief Financial Officer (Principal Financial and Accounting Officer)   November 7, 2014

 

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