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EX-32.2 - EX-32.2 - INVESCO DB SILVER FUNDdbs-ex322_9.htm
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EX-31.2 - EX-31.2 - INVESCO DB SILVER FUNDdbs-ex312_8.htm
EX-31.1 - EX-31.1 - INVESCO DB SILVER FUNDdbs-ex311_7.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended March 31, 2017

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:                    001-33234

 

POWERSHARES DB SILVER FUND

(A Series of PowerShares DB Multi-Sector Commodity Trust)

(Exact name of Registrant as specified in its charter)

 

 

Delaware

87-0778072

(State or Other Jurisdiction of
Incorporation or Organization)

(I.R.S. Employer
Identification No.)

 

 

c/o Invesco PowerShares Capital Management LLC
3500 Lacey Road, Suite 700
Downers Grove, Illinois

60515

(Address of Principal Executive Offices)

(Zip Code)

Registrant’s telephone number, including area code: (800) 983-0903

 

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      No  

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, an Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 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      No  

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

 

Large Accelerated Filer

Accelerated Filer

 

 

 

 

Non-Accelerated Filer

 (Do not check if a smaller reporting company)

Smaller reporting company

 

 

 

 

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.              ☐

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

Indicate the number of outstanding Shares as of March 31, 2017: 1,000,000 Shares.

 

 


 

POWERSHARES DB SILVER FUND

(A SERIES OF POWERSHARES DB MULTI-SECTOR COMMODITY TRUST)

QUARTER ENDED MARCH 31, 2017

TABLE OF CONTENTS

 

 

 

 

 

 

Page

PART I.

 

FINANCIAL INFORMATION

 

1

 

 

 

 

 

ITEM 1.

 

FINANCIAL STATEMENTS

 

1

 

 

Notes to Unaudited Financial Statements

 

8

ITEM 2.

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

18

ITEM 3.

 

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

31

ITEM 4.

 

CONTROLS AND PROCEDURES

 

33

 

 

 

 

 

PART II.

 

OTHER INFORMATION

 

33

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

33

Item 1A.

 

Risk Factors

 

33

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

34

Item 3.

 

Defaults Upon Senior Securities

 

34

Item 4.

 

Mine Safety Disclosures

 

34

Item 5.

 

Other Information

 

34

Item 6.

 

Exhibits

 

35

 

 

 

 

 

SIGNATURES

 

36

 

i


PART I. FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS.

PowerShares DB Silver Fund

Statements of Financial Condition

March 31, 2017 and December 31, 2016

(Unaudited)

 

 

 

March 31,

 

 

December 31,

 

 

 

2017

 

 

2016

 

Assets

 

 

 

 

 

 

 

 

United States Treasury Obligations, at value (cost $25,882,105 and

      $23,852,335, respectively)

 

$

25,879,322

 

 

$

23,853,157

 

Affiliated Investments, at value (cost $2,442,499 and $0, respectively)

 

 

2,442,499

 

 

 

 

Total Invesments, at value (cost $28,324,604 and $23,852,335, respectively)

 

$

28,321,821

 

 

$

23,853,157

 

Receivable for:

 

 

 

 

 

 

 

 

Dividends from affiliates

 

 

529

 

 

 

252

 

Brokerage commissions and fees

 

 

 

 

 

174

 

Variation margin

 

 

76,750

 

 

 

 

Investments sold

 

 

 

 

 

3,991,493

 

Total assets

 

$

28,399,100

 

 

$

27,845,076

 

Liabilities

 

 

 

 

 

 

 

 

Payable for:

 

 

 

 

 

 

 

 

Variation margin

 

$

 

 

$

357,240

 

Due to custodian

 

 

 

 

 

2,522,916

 

Management fee

 

 

17,227

 

 

 

19,399

 

Total liabilities

 

 

17,227

 

 

 

2,899,555

 

Commitments and Contingencies (Note 9)

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

 

 

Shareholder's equity—General Shares

 

 

1,135

 

 

 

998

 

Shareholders' equity—Shares

 

 

28,380,738

 

 

 

24,944,523

 

Total shareholders' equity

 

 

28,381,873

 

 

 

24,945,521

 

Total liabilities and equity

 

$

28,399,100

 

 

$

27,845,076

 

General Shares outstanding

 

 

40

 

 

 

40

 

Shares outstanding

 

 

1,000,000

 

 

 

1,000,000

 

 

 

 

 

 

 

 

 

 

Net asset value per share

 

$

28.38

 

 

$

24.94

 

 

 

 

 

 

 

 

 

 

Market value per share

 

$

28.32

 

 

$

24.89

 

 

See accompanying Notes to Unaudited Financial Statements which are an integral part of the financial statements.

 

 

1


PowerShares DB Silver Fund

Schedule of Investments

March 31, 2017

(Unaudited)

 

Description

 

Percentage  of

Shareholders'

Equity

 

 

Value

 

 

Principal Value

 

United States Treasury Obligations (a)

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury Bills, 0.745% due April 27, 2017

 

 

14.09

%

 

$

3,998,068

 

 

$

4,000,000

 

U.S. Treasury Bills, 0.530% due May 11, 2017(b)

 

28.16

 

 

 

7,993,968

 

 

 

8,000,000

 

U.S. Treasury Bills, 0.720% due May 18, 2017

 

45.41

 

 

 

12,888,429

 

 

 

12,900,000

 

U.S. Treasury Bills, 0.515% due June 1, 2017

 

3.52

 

 

 

998,857

 

 

 

1,000,000

 

Total United States Treasury Obligations (cost $25,882,105)

 

 

91.18

%

 

$

25,879,322

 

 

 

 

 

Affiliated Investments

 

 

 

 

 

 

 

 

 

 

 

 

Money Market Mutual Fund

 

 

 

 

 

 

 

 

 

Shares

 

Premier U.S. Government Money Portfolio - Institutional Class, 0.60% (cost $2,442,499)(c)

 

8.61

 

 

$

2,442,499

 

 

 

2,442,499

 

Total Investments (cost $28,324,604)

 

 

99.79

%

 

$

28,321,821

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a)

Security may be traded on a discount basis. The interest rate shown represents the discount rate at the most recent auction date of the security prior to period end.

(b)

United States Treasury Obligations of $7,993,968 are on deposit with the Commodity Broker and held as maintenance margin for open futures contracts.

(c)

The security and the Fund are advised by wholly-owned subsidiaries of Invesco Ltd. and are therefore considered to be affiliated. The rate shown is the 7-day SEC standardized yield as of March 31, 2017.

 

Description

 

Unrealized

Appreciation/

(Depreciation) as

a Percentage of

Shareholders'

Equity

 

 

Unrealized

Appreciation/

(Depreciation)(d)

 

 

Notional

Value

 

Commodity Futures Contracts

 

 

 

 

 

 

 

 

 

 

 

 

COMEX Silver (307 contracts, settlement

   date December 27, 2017)

 

 

3.23

%

 

$

915,859

 

 

$

28,395,965

 

Total Commodity Futures Contracts

 

 

3.23

%

 

$

915,859

 

 

$

28,395,965

 

 

(d)

Unrealized appreciation/(depreciation) is presented above, net by contract.

See accompanying Notes to Unaudited Financial Statements which are an integral part of the financial statements.

 

2

 


PowerShares DB Silver Fund

Schedule of Investments

December 31, 2016

(Unaudited)

 

Description

 

Percentage  of

Shareholders'

Equity

 

 

Value

 

 

Principal Value

 

United States Treasury Obligations (a)

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury Bills, 0.475% due February 2, 2017

 

 

12.02

%

 

$

2,998,959

 

 

$

3,000,000

 

U.S. Treasury Bills, 0.535% due May 11, 2017

 

 

32.00

 

 

 

7,983,184

 

 

 

8,000,000

 

U.S. Treasury Bills, 0.625% due May 18, 2017

 

 

51.60

 

 

 

12,871,014

 

 

 

12,900,000

 

Total United States Treasury Obligations (cost $23,852,335)

 

 

95.62

%

 

$

23,853,157

 

 

 

 

 

 

(a)

Security may be traded on a discount basis. The interest rate shown represents the discount rate at the most recent auction date of the security prior to year end.

(b)

United States Treasury Obligations of $7,983,184 are on deposit with the Commodity Broker and held as maintenance margin for open futures contracts.

 

Description

 

Unrealized

Appreciation/

(Depreciation) as

a Percentage of

Shareholders'

Equity

 

 

Unrealized

Appreciation/

(Depreciation) (c)

 

 

Notional

Value

 

Commodity Futures Contracts

 

 

 

 

 

 

 

 

 

 

 

 

COMEX Silver (312 contracts, settlement date March 29, 2017)

 

 

(6.41

)%

 

$

(1,599,451

)

 

$

24,942,840

 

Total Commodity Futures Contracts

 

 

(6.41

)%

 

$

(1,599,451

)

 

$

24,942,840

 

 

(c)

Unrealized appreciation/(depreciation) is presented above, net by contract.

See accompanying Notes to Unaudited Financial Statements which are an integral part of the financial statements.

 

 

3

 


PowerShares DB Silver Fund

Statements of Income and Expenses

For the Three Months Ended March 31, 2017 and 2016

(Unaudited)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2017

 

 

2016

 

Income

 

 

 

 

 

 

 

 

Interest Income

 

$

36,536

 

 

$

9,404

 

Dividends from Affiliates

 

 

1,939

 

 

 

 

Total Income

 

 

38,475

 

 

 

9,404

 

Expenses

 

 

 

 

 

 

 

 

Management Fee

 

 

50,340

 

 

 

35,171

 

Brokerage Commissions and Fees

 

 

1,945

 

 

 

 

Interest Expense

 

 

143

 

 

 

157

 

Total Expenses

 

 

52,428

 

 

 

35,328

 

Less: Waivers

 

 

(734

)

 

 

 

Net Expenses

 

 

51,694

 

 

 

35,328

 

Net Investment Income (Loss)

 

 

(13,219

)

 

 

(25,924

)

Net Realized and Net Change in Unrealized Gain (Loss) on United States Treasury

   Obligations, Affiliated Investments and Commodity Futures Contracts

 

 

 

 

 

 

 

 

Net Realized Gain (Loss) on

 

 

 

 

 

 

 

 

United States Treasury Obligations

 

 

(180

)

 

 

 

Commodity Futures Contracts

 

 

938,046

 

 

 

769,972

 

Net Realized Gain (Loss)

 

 

937,866

 

 

 

769,972

 

Net Change in Unrealized Gain (Loss) on

 

 

 

 

 

 

 

 

United States Treasury Obligations

 

 

(3,605

)

 

 

2,135

 

Commodity Futures Contracts

 

 

2,515,310

 

 

 

1,339,957

 

Net Change in Unrealized Gain (Loss)

 

 

2,511,705

 

 

 

1,342,092

 

Net Realized and Net Change in Unrealized Gain (Loss) on United States Treasury

   Obligations, Affiliated Investments and Commodity Futures Contracts

 

 

3,449,571

 

 

 

2,112,064

 

Net Income (Loss)

 

$

3,436,352

 

 

$

2,086,140

 

 

  

See accompanying Notes to Unaudited Financial Statements which are an integral part of the financial statements.

 

 

 

 

 

 

 

 

 

 

 


4

 


PowerShares DB Silver Fund

Statement of Changes in Shareholders’ Equity

For the Three Months Ended March 31, 2017

(Unaudited)

 

 

 

General Shares

 

 

Shares

 

 

Total

 

 

 

Shares

 

 

Total

Equity

 

 

Shares

 

 

Total

Equity

 

 

Shareholders'

Equity

 

Balance at January 1, 2017

 

 

40

 

 

$

998

 

 

 

1,000,000

 

 

$

24,944,523

 

 

$

24,945,521

 

Purchases of Shares

 

 

 

 

 

 

 

 

 

 

-

 

 

 

-

 

 

 

-

 

Redemption of Shares

 

 

 

 

 

 

 

 

 

 

-

 

 

 

-

 

 

 

-

 

Net Increase (Decrease) due to Share Transactions

 

 

 

 

 

 

 

 

 

 

-

 

 

 

-

 

 

 

-

 

Net Income (Loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Investment Income (Loss)

 

 

 

 

 

 

(1

)

 

 

 

 

 

 

(13,218

)

 

 

(13,219

)

Net Realized Gain (Loss) on United States Treasury

   Obligations, Affiliated Investments and Commodity Futures Contracts

 

 

 

 

 

 

38

 

 

 

 

 

 

 

937,828

 

 

 

937,866

 

Net Change in Unrealized Gain (Loss) on United States

   Treasury Obligations, Affiliated Investments and Commodity Futures

   Contracts

 

 

 

 

 

 

100

 

 

 

 

 

 

 

2,511,605

 

 

 

2,511,705

 

Net Income (Loss)

 

 

 

 

 

 

137

 

 

 

 

 

 

 

3,436,215

 

 

 

3,436,352

 

Net Change in Shareholders' Equity

 

 

 

 

 

137

 

 

 

-

 

 

 

3,436,215

 

 

 

3,436,352

 

Balance at March 31, 2017

 

 

40

 

 

$

1,135

 

 

 

1,000,000

 

 

$

28,380,738

 

 

$

28,381,873

 

 

See accompanying Notes to Unaudited Financial Statements which are an integral part of the financial statements.

 

5

 


PowerShares DB Silver Fund

Statement of Changes in Shareholders’ Equity

For the Three Months Ended March 31, 2016

(Unaudited)

 

 

 

General Shares

 

 

Shares

 

 

Total

 

 

 

Shares

 

 

Total

Equity

 

 

Shares

 

 

Total

Equity

 

 

Shareholders'

Equity

 

Balance at January 1, 2016

 

 

40

 

 

$

876

 

 

 

800,000

 

 

$

17,518,115

 

 

$

17,518,991

 

Purchases of Shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Redemption of Shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Increase (Decrease) due to Share Transactions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income (Loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Investment Income (Loss)

 

 

 

 

 

 

(1

)

 

 

 

 

 

 

(25,923

)

 

 

(25,924

)

Net Realized Gain (Loss) on United States Treasury

   Obligations and Commodity Futures Contracts

 

 

 

 

 

 

38

 

 

 

 

 

 

 

769,934

 

 

 

769,972

 

Net Change in Unrealized Gain (Loss) on United States

   Treasury Obligations and Commodity Futures

   Contracts

 

 

 

 

 

 

67

 

 

 

 

 

 

 

1,342,025

 

 

 

1,342,092

 

Net Income (Loss)

 

 

 

 

 

 

104

 

 

 

 

 

 

 

2,086,036

 

 

 

2,086,140

 

Net Change in Shareholders' Equity

 

 

 

 

 

104

 

 

 

 

 

 

2,086,036

 

 

 

2,086,140

 

Balance at March 31, 2016

 

 

40

 

 

$

980

 

 

 

800,000

 

 

$

19,604,151

 

 

$

19,605,131

 

 

See accompanying Notes to Unaudited Financial Statements which are an integral part of the financial statements.


6

 


PowerShares DB Silver Fund

Statements of Cash Flows

For the Three Months Ended March 31, 2017 and 2016

(Unaudited)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2017

 

 

2016

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net Income (Loss)

 

$

3,436,352

 

 

$

2,086,140

 

Adjustments to reconcile net income (loss) to net cash provided by (used for) operating

   activities:

 

 

 

 

 

 

 

 

Cost of securities purchased

 

 

(5,992,584

)

 

 

(18,985,439

)

Proceeds from securities sold and matured

 

 

7,990,663

 

 

 

17,300,000

 

Cost of affiliated investments purchased

 

 

(8,135,407

)

 

 

 

Proceeds from affiliated investments sold

 

 

5,692,908

 

 

 

 

Net accretion of discount on United States Treasury Obligations

 

 

(36,536

)

 

 

(9,404

)

Net realized (gain) loss on United States Treasury Obligations and Affiliated Investments

 

 

180

 

 

 

 

Net change in unrealized (gain) loss on United States Treasury Obligations, Affiliated Investments and Commodity Futures Contracts

 

 

3,605

 

 

 

(2,135

)

Change in operating receivables and liabilities:

 

 

 

 

 

 

 

 

Dividends from affiliates

 

 

(277

)

 

 

 

Variation margin

 

 

(433,990

)

 

 

(363,743

)

Management fee

 

 

(2,172

)

 

 

1,032

 

Brokerage commissions and fees

 

 

174

 

 

 

(1,425

)

Net cash provided by (used for) operating activities

 

 

2,522,916

 

 

 

25,026

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Decrease in payable for amount due to custodian, net

 

 

(2,522,916

)

 

 

 

Net cash provided by (used for) financing activities

 

 

(2,522,916

)

 

 

 

Net change in cash

 

 

 

 

 

 

Cash at beginning of period

 

 

 

 

285,679

 

Cash at end of period

 

 

 

 

$

310,705

 

Supplemental disclosure of cash flow information

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

143

 

 

$

157

 

 

See accompanying Notes to Unaudited Financial Statements which are an integral part of the financial statements.

 

 

 

7

 


 

PowerShares DB Silver Fund

Notes to Unaudited Financial Statements

March 31, 2017

 

 

(1) Background

On October 24, 2014, DB Commodity Services LLC, a Delaware limited liability company (“DBCS”), DB U.S. Financial Markets Holding Corporation (“DBUSH”) and Invesco PowerShares Capital Management LLC (“Invesco”) entered into an Asset Purchase Agreement (the “Agreement”). DBCS is a wholly-owned subsidiary of DBUSH. DBCS agreed to transfer and sell to Invesco all of DBCS’ interest in the PowerShares DB Silver Fund (the “Fund”), a separate series of PowerShares DB Multi-Sector Commodity Trust (the “Trust”), a Delaware statutory trust organized in seven separate series, including the sole and exclusive power to direct the business and affairs of the Trust and the Fund, as well as certain other assets pertaining to the management of the Trust and the Fund, pursuant to the terms and conditions of the Agreement (the “Transaction”).

The Transaction was consummated on February 23, 2015 (the “Closing Date”). Invesco now serves as the managing owner (the “Managing Owner”), commodity pool operator and commodity trading advisor of the Trust and the Fund, in replacement of DBCS (the “Predecessor Managing Owner”).

 

 

 

(2) Organization

The Fund is a separate series of the Trust. The Trust is a Delaware statutory trust organized in seven separate series and was formed on August 3, 2006. The Predecessor Managing Owner seeded the Fund with a capital contribution of $1,000 in exchange for 40 General Shares of the Fund. The General Shares were sold to the Managing Owner by the Predecessor Managing Owner pursuant to the terms of the Agreement. The fiscal year end of the Fund is December 31st. The term of the Fund is perpetual (unless terminated earlier in certain circumstances) as provided for in the Fifth Amended and Restated Declaration of Trust, and Trust Agreement of the Trust, as amended (the “Trust Agreement”). The Fund has an unlimited number of shares authorized for issuance.

The Fund offers common units of beneficial interest (the “Shares”) only to certain eligible financial institutions (the “Authorized Participants”) in one or more blocks of 200,000 Shares, called a Basket. The Fund commenced investment operations on January 3, 2007. The Fund commenced trading on the American Stock Exchange (which became the NYSE Alternext US LLC (the “NYSE Alternext”)) on January 5, 2007 and, since November 25, 2008, has been listed on the NYSE Arca, Inc. (the “NYSE Arca”).

This Quarterly Report (the “Report”) covers the three months ended March 31, 2017 and 2016 (hereinafter referred to as the “Three Months Ended March 31, 2017” and the “Three Months Ended March 31, 2016”, respectively).  The Fund’s performance information from inception up to and excluding the Closing Date is a reflection of the performance associated with the Predecessor Managing Owner. The Managing Owner has served as managing owner of the Fund since the Closing Date, and the Fund’s performance information since the Closing Date is a reflection of the performance associated with the Managing Owner. Past performance of the Fund is not necessarily indicative of future performance.

The accompanying unaudited financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions for Form 10-Q and the rules and regulations of the U.S. Securities and Exchange Commission (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 its Annual Report on Form 10-K for the year ended December 31, 2016 as filed with the SEC on March 1, 2017.

 

 

 

8

 


 

(3) Fund Investment Overview

The Fund seeks to track changes, whether positive or negative, in the level of the DBIQ Optimum Yield Silver Index Excess Return™ (“DBIQ-OY SI ER™”, or the “Index”) over time, plus the excess, if any, of the sum of the Fund’s interest income from its holdings of United States Treasury Obligations (“Treasury Income”), dividends from its holdings in money market mutual funds (affiliated or otherwise) (“Money Market Income”) and dividends or distributions of capital gains from its holdings of T-Bill ETFs (as defined below) (“T-Bill ETF Income”) over the expenses of the Fund. The Fund gains an exposure to United States Treasury Obligations through an investment in exchange-traded funds (affiliated or otherwise) that track indexes that measure the performance of United States Treasury Obligations with a maximum remaining maturity of up to 12 months (“T-Bill ETFs”). For the avoidance of doubt, the Fund invests in futures contracts in an attempt to track its Index. The Fund holds United States Treasury Obligations, money market mutual funds (affiliated or otherwise) and T-Bill ETFs (affiliated or otherwise), if any, for margin and/or cash management purposes only.

The Commodity Futures Trading Commission (the “CFTC”) and/or commodity exchanges, as applicable, impose position limits on market participants trading in the commodity included in the Index. If the Managing Owner determines in its commercially reasonable judgment that it has become impracticable or inefficient for any reason for the Fund to gain full or partial exposure to the Index Commodity by investing in the Index Contract, the Fund may invest in a futures contract referencing the specific contract that comprises the applicable Index or, in the alternative, invest in other futures contracts not based on the Index Commodity if, in the commercially reasonable judgment of the Managing Owner, such futures contracts tend to exhibit trading prices that correlate with a futures contract that comprises the Index.

Should the Fund approach or reach position limits with respect to certain futures contracts comprising the Index, the Fund will commence investing in other futures contracts based on commodities that comprise the Fund’s Index and in futures contracts based on commodities other than commodities that comprise the Fund’s Index.

 

(4) Service Providers and Related Party Agreements

The Trustee

Under the Trust Agreement, Wilmington Trust Company, the trustee of the Trust and the Fund (the “Trustee”), has delegated to the Managing Owner the exclusive management and control of all aspects of the business of the Trust and the Fund. The Trustee will have no duty or liability to supervise or monitor the performance of the Managing Owner, nor will the Trustee have any liability for the acts or omissions of the Managing Owner.

The Managing Owner

The Managing Owner serves as the Fund’s commodity pool operator, commodity trading advisor and managing owner. The Fund pays the Managing Owner a management fee, monthly in arrears, in an amount equal to 0.75% per annum of the daily net asset value of the Fund (the “Management Fee”). From inception up to and excluding the Closing Date, all Management Fees were payable to the Predecessor Managing Owner. The Managing Owner has served as managing owner of the Fund since the Closing Date and all Management Fee accruals since the Closing Date have been paid to the Managing Owner.

 

The Fund for cash management purposes, invests in money market mutual funds and/or T-Bill ETFs that are managed by affiliates of the Managing Owner. The indirect portion of the management fee that the Fund incurs through such investments are in addition to the Management Fee paid to the Managing Owner. The Managing Owner has contractually agreed to waive the fees that it receives in an amount equal to the indirect management fees that the Fund incurs through its investments in affiliated money market mutual funds and/or affiliated T-Bill ETFs through June 20, 2018.

 

The Managing Owner waived fees of $734 for the Three Months Ended March 31, 2017.

The Commodity Broker

Morgan Stanley & Co. LLC, a Delaware limited liability company, serves as the Fund’s futures clearing broker (the “Commodity Broker”). The Commodity Broker is registered with the CFTC as a futures commission merchant and is a member of the National Futures Association (“NFA”) in such capacity. Deutsche Bank Securities Inc. (“DBSI”), a Delaware corporation, served as the Fund’s futures clearing broker up to and excluding the Closing Date (the “Predecessor Commodity Broker”). DBSI is an indirect wholly-owned subsidiary of Deutsche Bank AG and is an affiliate of the Predecessor Managing Owner.

9

 


 

A variety of executing brokers execute futures transactions on behalf of the Fund. Such executing brokers give-up all such transactions to the Commodity Broker. In its capacity as clearing broker, the Commodity Broker may execute or receive transactions executed by others and clears all of the Fund’s futures transactions and performs certain administrative and custodial services for the Fund. The Commodity Broker is responsible, among other things, for providing periodic accountings of all dealings and actions taken by the Trust on behalf of the Fund during the reporting period, together with an accounting of all securities, cash or other indebtedness or obligations held by it or its nominees for or on behalf of the Fund.

For the avoidance of doubt, from inception up to and excluding the Closing Date, commission payments were paid to the Predecessor Commodity Broker. The Commodity Broker has served as the Fund’s futures clearing broker since the Closing Date and all commission accruals since the Closing Date have been paid to the Commodity Broker.

The Administrator, Custodian and Transfer Agent

The Bank of New York Mellon (the “Administrator” and “Custodian”) is the administrator, custodian and transfer agent of the Fund. The Fund and the Administrator have entered into separate administrative, custodian, transfer agency and service agreements (collectively referred to as the “Administration Agreement”).

Pursuant to the Administration Agreement, the Administrator performs or supervises the performance of services necessary for the operation and administration of the Fund (other than making investment decisions), including receiving and processing orders from Authorized Participants to create and redeem Baskets, net asset value calculations, accounting and other fund administrative services. The Administrator maintains certain financial books and records, including: Basket creation and redemption books and records, fund accounting records, ledgers with respect to assets, liabilities, capital, income and expenses, the registrar, transfer journals and related details, and trading and related documents received from the Commodity Broker. The Managing Owner pays the Administrator fees for its services out of the Management Fee.

The Distributor

Effective June 20, 2016, Invesco Distributors, Inc. (the “Distributor”) became distributor and began providing certain distribution services to the Fund. Pursuant to the Distribution Services Agreement among the Managing Owner, the Fund and the Distributor, the Distributor assists the Managing Owner and the Administrator with certain functions and duties relating to distribution and marketing services to the Fund including reviewing and approving marketing materials. Prior to June 20, 2016, ALPS Distributors, Inc. provided distribution services to the Fund.

The Managing Owner pays the Distributor a distribution fee out of the Management Fee.

Index Sponsor

The Managing Owner, on behalf of the Fund, has appointed Deutsche Bank Securities Inc. to serve as the index sponsor (the “Index Sponsor”). The Index Sponsor calculates and publishes the daily index levels and the indicative intraday index levels. Additionally, the Index Sponsor also calculates the indicative value per Share of the Fund throughout each business day.

The Managing Owner pays the Index Sponsor a licensing fee and an index services fee out of the Management Fee for performing its duties.

Marketing Agent

The Managing Owner, on behalf of the Fund, has appointed Deutsche Bank Securities Inc. as the marketing agent (the “Marketing Agent”) to assist the Managing Owner by providing support to educate institutional investors about the DBIQ indices and to complete governmental or institutional due diligence questionnaires or requests for proposals related to the DBIQ indices.

The Managing Owner pays the Marketing Agent a marketing services fee out of the Management Fee.

The Marketing Agent will not open or maintain customer accounts or handle orders for the Fund. The Marketing Agent has no responsibility for the performance of the Fund or the decisions made or actions taken by the Managing Owner.

 

 

10

 


 

(5) Summary of Significant Accounting Policies

(a) Basis of Presentation

The financial statements of the Fund have been prepared using U.S. generally accepted accounting principles (“U.S. GAAP”).

The Fund has determined that it meets the definition of an investment company and has prepared the financial statements in conformity with U.S. GAAP for investment companies in conformity with accounting and reporting guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 946—Investment Companies.

(b) Use of Estimates

The preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses and related disclosure of contingent assets and liabilities during the reporting period of the financial statements and accompanying notes. Actual results could differ from those estimates.

(c) Financial Instruments and Fair Value

Investment transactions are recorded in the Statements of Financial Condition on a trade date basis at fair value with changes in fair value recognized in earnings in each period. U.S. GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions.

U.S. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods, giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3), generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods or market conditions may result in transfers in or out of an investment’s assigned level:

Level 1—Prices are determined using quoted prices in an active market for identical assets.

Level 2—Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others.

Level 3—Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information.

United States Treasury Obligations are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as developments related to specific securities, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. All debt obligations involve some risk of default with respect to interest and/or principal payments.

Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded.

          

          Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day NAV per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded.

When market closing prices are not available, the Managing Owner may value an asset of the Fund pursuant to policies the Managing Owner has adopted, which are consistent with normal industry standards.

The levels assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.

11

 


 

          The following is a summary of the tiered valuation input levels as of March 31, 2017:

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

United States Treasury Obligations

 

$

 

 

$

25,879,322

 

 

$

 

 

$

25,879,322

 

Money Market Mutual Fund

 

 

2,442,499

 

 

 

 

 

 

 

2,442,499

 

 

 

 

2,442,499

 

 

 

25,879,322

 

 

 

 

 

28,321,821

 

Commodity Futures Contracts (a)

 

 

915,859

 

 

 

 

 

 

 

915,859

 

Total Investments

 

$

3,358,358

 

 

$

25,879,322

 

 

$

 

 

$

29,237,680

 

 

(a)

Unrealized appreciation (depreciation).

The following is a summary of the tiered valuation input levels as of December 31, 2016:

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

United States Treasury Obligations

 

$

 

 

$

23,853,157

 

 

$

 

 

$

23,853,157

 

Commodity Futures Contracts (a)

 

$

(1,599,451

)

 

$

 

 

$

 

 

$

(1,599,451

)

Total Investments

 

$

(1,599,451

)

 

$

23,853,157

 

 

 

 

$

22,253,706

 

 

(a)

Unrealized appreciation (depreciation).

(d) Deposits with Commodity Broker and Custodian

           The Fund deposits cash and United States Treasury Obligations with its Commodity Broker subject to CFTC regulations and various exchange and broker requirements. The combination of the Fund’s deposits with its Commodity Broker of cash and United States Treasury Obligations and the unrealized profit or loss on open futures contracts represents the Fund’s overall equity in its broker trading account. To meet the Fund’s maintenance margin requirements, the Fund holds United States Treasury Obligations. The Fund transfers cash to the Commodity Broker to satisfy variation margin requirements. The Fund earns interest on any excess cash deposited with the Commodity Broker and incurs interest expense on any deficit balance with the Commodity Broker. The Fund may deposit T-Bill ETFs and money market mutual funds with the Commodity Broker as margin, to the extent permissible under CFTC rules.

           The Fund’s remaining cash, United States Treasury Obligations, T-Bill ETFs and money market mutual fund holdings are on deposit with its Custodian. The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with the Custodian. Such balances, if any at period-end, are shown on the Statement of Financial Condition under the payable caption Due to Custodian.

(e) Investment Transactions and Investment Income

           Investment transactions are accounted for on a trade date basis. Realized gains (losses) from the sale or disposition of securities or derivatives are determined on a specific identification basis and recognized in the Statements of Income and Expenses in the period in which the contract is closed or the sale or disposition occurs, respectively.

Interest income on United States Treasury Obligations is recognized on an accrual basis when earned. Premiums and discounts are amortized or accreted over the life of the United States Treasury Obligations. Dividend income (net of withholding tax, if any) is recorded on the ex-dividend date.

(f) Receivable/(Payable) for Shares Issued and Redeemed

On any business day, an Authorized Participant may place an order to create or redeem Shares of the Fund. Cash settlement occurs at the creation order settlement date or the redemption order settlement date as discussed in Note 7.

(g) Income Taxes

The Fund is classified as a partnership for U.S. federal income tax purposes. Accordingly, the Fund will generally not incur U.S. federal income taxes. No provision for federal, state, and local income taxes has been made in the accompanying financial statements,

12

 


 

as investors are individually liable for income taxes, if any, on their allocable share of the Fund’s income, gain, loss, deductions and other items.

The Managing Owner has reviewed all of the Fund’s open tax years and major jurisdictions and concluded that there is no tax liability resulting from unrecognized tax benefits relating to uncertain tax positions taken or expected to be taken in future tax returns. The Fund is also not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months. On an ongoing basis, the Managing Owner will monitor the Fund’s tax positions taken under the interpretation (and consult with its tax counsel from time to time when appropriate) to determine if adjustments to conclusions are necessary based on factors including, but not limited to, on-going analysis of tax law, regulation, and interpretations thereof. The major tax jurisdiction for the Fund and the earliest tax year subject to examination: United States, 2013.

(h) Commodity Futures Contracts

          The Fund utilizes derivative instruments to achieve its investment objective. A futures contract is an agreement between counterparties to purchase or sell a specified underlying security or index for a specified price at a future date.  All of the Fund’s commodity futures contracts are held and used for trading purposes. Initial margin deposits required upon entering into futures contracts are satisfied by the segregation of specific securities or cash as collateral with the Commodity Broker. During the period the futures contracts are open, changes in the value of the contracts are recognized as unrealized gains or losses by recalculating the value of the contracts on a daily basis. Subsequent or variation margin payments are received or made depending upon whether unrealized gains or losses are incurred. These amounts are reflected as a receivable or payable on the Statements of Financial Condition.  When the contracts are closed or expire, the Fund recognizes a realized gain or loss equal to the difference between the proceeds from, or cost of, the closing transaction and the Fund’s basis in the contract.  Realized gains (losses) and changes in unrealized appreciation (depreciation) on open positions are determined on a specific identification basis and recognized in the Statements of Income and Expenses in the period in which the contract is closed or the changes occur, respectively.

The Fair Value of Derivative Instruments is as follows:

 

 

 

March 31, 2017

 

 

December 31, 2016

 

Risk Exposure/Derivative Type (a)

 

Assets

 

 

Liabilities

 

 

Assets

 

 

Liabilities

 

Commodity risk

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity Futures Contracts

 

$

915,859

 

 

$

 

 

$

 

 

$

(1,599,451

)

 

(a)

Includes cumulative appreciation (depreciation) of commodity futures contracts. Only the current day’s variation margin receivable (payable) is reported in the March 31, 2017 and December 31, 2016 Statements of Financial Condition.

 

The Effect of Derivative Instruments on the Statements of Income and Expenses is as follows:

 

 

 

 

For the Three Months  Ended

 

 

Location of Gain or (Loss) on Derivatives

 

March 31,

 

Risk Exposure/Derivative Type

Recognized in Income

 

2017

 

 

2016

 

Commodity risk

 

 

 

 

 

 

 

 

 

Commodity Futures Contracts

Net Realized Gain (Loss)

 

$

938,046

 

 

$

769,972

 

 

Net Change in Unrealized Gain (Loss)

 

 

2,515,310

 

 

 

1,339,957

 

Total

 

 

$

3,453,356

 

 

$

2,109,929

 

 

The table below summarizes the average monthly notional value of futures contracts outstanding during the period:

 

 

 

For the Three Months Ended

 

 

 

March 31,

 

 

 

2017

 

 

2016

 

Average Notional Value

 

$

27,351,445

 

 

$

18,523,686

 

 

The brokerage agreement with the Commodity Broker provides for the net settlement of all financial instruments covered by the agreement in the event of default or termination of any one contract. The Managing Owner will utilize any excess cash held at the Commodity Broker to offset any realized losses incurred in the commodity futures contracts, if available. To the extent that any excess cash held at the Commodity Broker is not adequate to cover any realized losses, a portion of the United States Treasury Obligations

13

 


 

and T-Bill ETFs, if any on deposit with the Commodity Broker will be sold to make additional cash available. For financial reporting purposes, the Fund offsets financial assets and financial liabilities that are subject to netting arrangements. In order for an arrangement to be eligible for netting, the Fund must have a basis to conclude that such netting arrangements are legally enforceable.   

       

        

The following table presents derivative instruments that are either subject to an enforceable netting agreement or offset by collateral arrangements as of March 31, 2017, net by contract:

 

 

 

 

 

 

Gross Amounts

Offset in the

 

 

Net Amounts

Presented in

 

 

Gross Amounts Not Offset in the

Statement of Financial Condition

 

 

 

Gross Amounts

Recognized

 

 

Statement of

Financial Condition

 

 

the Statement of

Financial Condition

 

 

Financial

Instruments (a)

 

 

Cash Collateral

Pledged (a)

 

 

Net

Amount

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity Futures Contracts

 

$

915,859

 

 

$

(839,109

)

 

$

76,750

 

 

$

 

 

$

 

 

$

76,750

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity Futures Contracts

 

$

(839,109

)

 

$

839,109

 

 

$

 

 

$

 

 

$

 

 

$

 

 

The following table presents derivative instruments that are either subject to an enforceable netting agreement or offset by collateral arrangements as of December 31, 2016, net by contract:

 

 

 

 

 

 

 

Gross Amounts

Offset in the

 

 

Net Amounts

Presented in

 

 

Gross Amounts Not Offset in the

Statement of Financial Condition

 

 

 

Gross Amounts

Recognized

 

 

Statement of

Financial Condition

 

 

the Statement of

Financial Condition

 

 

Financial

Instruments (a)

 

 

Cash Collateral

Pledged (a)

 

 

Net

Amount

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity Futures Contracts

 

$

1,242,211

 

 

$

(1,242,211

)

 

$

 

 

$

 

 

$

 

 

$

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity Futures Contracts

 

$

(1,599,451

)

 

$

1,242,211

 

 

$

(357,240

)

 

$

357,240

 

 

$

 

 

$

 

 

(a) 

As of March 31, 2017 and December 31, 2016, a portion of the Fund’s U.S. Treasury Obligations were required to be deposited as maintenance margin in support of the Fund’s futures positions.

(i) Brokerage Commissions and Fees

The Fund incurs all brokerage commissions, including applicable exchange fees, NFA fees, give-up fees, pit brokerage fees and other transaction related fees and expenses charged in connection with trading activities by the Commodity Broker. These costs are recorded as Brokerage Commissions and Fees in the Statements of Income and Expenses. The Commodity Broker’s brokerage commissions and trading fees are determined on a contract-by-contract basis. On average, total charges paid to the Commodity Broker and the Predecessor Commodity Broker, as applicable were less than $6.00 and $6.00 per round-turn trade during the Three Months Ended March 31, 2017 and 2016, respectively.

(j) Routine Operational, Administrative and Other Ordinary Expenses

After the Closing Date, the Managing Owner assumed all routine operational, administrative and other ordinary expenses of the Fund, including, but not limited to, computer services, the fees and expenses of the Trustee, legal and accounting fees and expenses, tax preparation expenses, filing fees and printing, mailing and duplication costs. Prior to the Closing Date, the Predecessor Managing Owner assumed all routine operational, administrative and other ordinary expenses of the Fund. Accordingly, such expenses are not reflected in the Statements of Income and Expenses of the Fund. For the avoidance of doubt, the Fund does not reimburse the Managing Owner for routine operational, administrative and other ordinary expenses of the Fund.

(k) Non-Recurring Fees and Expenses

The Fund pays all non-recurring and unusual fees and expenses (referred to as extraordinary fees and expenses in the Trust Agreement), if any, of itself, as determined by the Managing Owner. Non-recurring and unusual fees and expenses are fees and expenses which are non-recurring and unusual in nature, such as legal claims and liabilities, litigation costs or indemnification or other unanticipated expenses. Such non-recurring and unusual fees and expenses, by their nature, are unpredictable in terms of timing and amount. For the Three Months Ended March 31, 2017 and 2016, the Fund did not incur such expenses.

 

 

14

 


 

(6) Financial Instrument Risk

In the normal course of its business, the Fund is a party to financial instruments with off-balance sheet risk. The term “off-balance sheet risk” refers to an unrecorded potential liability that, even though it does not appear on the balance sheet, may result in a future obligation or loss in excess of the amounts shown on the Statements of Financial Condition. The financial instruments used by the Fund are commodity futures contracts, 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. The financial instruments are 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. In entering into these futures contracts, there exists a market risk that such futures contracts may be significantly influenced by adverse market conditions, resulting in such futures contracts being less valuable. If the markets should move against all of the futures contracts at the same time, the Fund could experience substantial losses.

Credit risk is the possibility that a loss may occur due to the failure of the Commodity Broker and/or clearinghouse to perform according to the terms of a futures contract. Credit risk with respect to exchange-traded instruments is reduced to the extent that an exchange or clearing organization acts as a counterparty to the transactions. The Commodity Broker, when acting as the Fund’s futures commission merchant in accepting orders for the purchase or sale of domestic futures contracts, is required by CFTC regulations to separately account for and segregate as belonging to the Fund all assets of the Fund relating to domestic futures trading and the Commodity Broker is not allowed to commingle such assets with other assets of the Commodity Broker. In addition, CFTC regulations also require the Commodity Broker to hold in a secure account assets of the Fund related to foreign futures trading. The Fund’s risk of loss in the event of counterparty default is typically limited to the amounts recognized in the Statements of Financial Condition and not represented by the futures contract or notional amounts of the instruments.

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 noted above.

 

 

(7) Share Purchases and Redemptions

(a) Purchases

On any business day, an Authorized Participant may place an order with the Administrator who serves as the Fund’s transfer agent (“Transfer Agent”) to create one or more Baskets. For purposes of processing both creation and redemption orders, a “business day” means any day other than a day when banks in New York City are required or permitted to be closed. Creation orders must be placed by 10:00 a.m., Eastern Time. The day on which the Transfer Agent receives a valid creation order is the creation order date. The day on which a creation order is settled is the creation order settlement date. As provided below, the creation order settlement date may occur up to three business days after the creation order date. By placing a creation order, and prior to delivery of such Baskets, an Authorized Participant’s DTC account is charged the non-refundable transaction fee due for the creation order.

Unless otherwise agreed to by the Managing Owner and the Authorized Participant as provided in the next sentence, Baskets are issued on the creation order settlement date as of 2:45 p.m., Eastern Time, on the business day immediately following the creation order date at the applicable net asset value per Share as of the closing time of the NYSE Arca or the