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 Form 10-Q.
The discussion and analysis that follows may contain statements that relate to
future events or future performance. In some cases, such forward-looking
statements can be identified by terminology such as "may," "should," "could,"
"expect," "plan," "anticipate," "believe," "estimate," "predict," "potential" or
the negative of these terms or other comparable terminology. None of the Trust,
the Sponsor, the Advisor, the Trustee or the Delaware Trustee assumes
responsibility for the accuracy or completeness of any forward-looking
statements. Except as required by applicable disclosure laws, none of the Trust,
the Sponsor, the Advisor, the Trustee or the Delaware Trustee is under a duty to
update any of the forward-looking statements to conform such statements to
actual results or to a change in expectations or predictions.
Although the Trust is an "emerging growth company" subject to reduced public company reporting requirements under U.S. federal securities laws, it has elected not to make use of the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the Jumpstart Our Business Startups Act of 2012, as amended, and has otherwise prepared the financial statements and disclosures included in this Form 10-Q in a manner comparable to that of other iShares® exchange-traded funds.
The Trust intends to offer Shares on a continuous basis. The Trust issues and redeems Shares only in one or more blocks of 50,000 Shares ("Baskets"). Only certain institutions, called "Authorized Participants," that enter into an agreement with the Trust may purchase or redeem Baskets, in exchange for Index Futures and Collateral Assets with an aggregate value equal to the net asset value per Share, or "NAV" of the Shares being purchased or redeemed. Owners of beneficial interests in Shares ("Shareholders") who are not Authorized Participants have no right to redeem their Shares. In order to liquidate their investment in the Shares, Shareholders who are not Authorized Participants must generally sell their Shares in the secondary market, assuming that demand for their Shares exists. The price obtained by the Shareholders for the Shares may be less than the NAV of those Shares.
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Shares of the Trust trade on
Valuation of Index Futures; Computation of the Trust's Net Asset Value
The Sponsor has the exclusive authority to determine the net asset value of the Trust and the net asset value per Share, or "NAV," which it has delegated to the Trustee under the Trust Agreement. The Trustee determines the net asset value of the Trust and the NAV as of
The Trustee values the Trust's long positions in Index Futures on the basis of that day's announced CME settlement prices for the Index Futures held by the Trust. The value of the Trust's positions in any particular Index Futures of any particular expiration will equal the product of (a) the number of such Index Futures of such expiration owned by the Trust, (b) the settlement price of such Index Futures on the date of calculation and (c) the multiplier of such Index Futures. If there is no announced CME settlement price for a particular Index Future on a Business Day, the Trustee uses the most recently announced CME settlement price unless the Trustee, in consultation with the Sponsor, determines that such price is inappropriate as a basis for valuation. The daily settlement price for each the Index Futures currently held by the Trust is established on each trading day by the CME shortly after the close of trading for such Index Future, which is generally
The Trustee values all other holdings of the Trust at (a) its current market value, if quotations for such property are readily available, or (b) its fair value, as reasonably determined by the Trustee, if the current market value cannot be determined.
Once the value of the Index Futures and interest earned on the Trust's Collateral Assets has been determined, the Trustee subtracts all accrued expenses and liabilities of the Trust as of the time of calculation in order to calculate the net asset value of the Trust.
Once the net asset value of the Trust has been calculated, the Trustee determines the NAV by dividing the net asset value of the Trust by the number of Shares outstanding at the time the calculation is made. Any changes to NAV that may result from creation and redemption activity are not reflected in the NAV calculations for purposes of the Trust's operations until the Business Day following the Business Day on which they occur, but are reflected in the Trust's financial statements as of such first Business Day.
Results of Operations
The Quarter Ended
The Trust's net asset value increased from
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Net gain for the quarter ended
The Six Months Ended
The Trust's net asset value increased from
Net gain for the six months ended
Liquidity and Capital Resources
The Trust's assets consist of Index Futures and Collateral Assets used to satisfy applicable margin requirements for those Index Future positions. The Trust does not anticipate any further need for liquidity, because creations and redemptions of Shares generally occur in kind and ordinary expenses are met by cash on hand. Interest earned on the assets posted as collateral is paid to the Trust and is used to pay the Sponsor's fees and purchase additional Index Futures and Collateral Assets, or, in the discretion of the Sponsor, distributed to Shareholders. In exchange for a fee based on the net asset value of the Trust, the Sponsor has assumed most of the ordinary expenses incurred by the Trust. In the case of an extraordinary expense and/or insufficient interest income to cover ordinary expenses, however, the Trust could be forced to liquidate its positions in Index Futures and Collateral Assets to pay such expenses.
The Sponsor is unaware of any other trends, demands, conditions or events that are reasonably likely to result in material changes to the Trust's liquidity needs.
Because the Trust trades Index Futures, its capital is at risk due to changes in the value of the Index Futures or other assets (market risk) or the inability of counterparties to perform (credit risk).
The Trust holds Index Future positions and Collateral Assets to satisfy applicable margin requirements on those Index Future positions. Because of this limited diversification of the Trust's assets, fluctuations in the value of the Index Futures are expected to directly affect the value of the Shares. The value of the Index Futures is expected to track generally the Bloomberg Roll Select CI, although this correlation may not be exact. The Bloomberg Roll Select CI, in turn, reflects the value of a diversified group of commodities, while also seeking to minimize the effect of contango and maximize the effect of backwardation in connection with periodically switching or "rolling" into new futures contracts. The Trust's exposure to market risk will be influenced by a number of factors, including the lack of liquidity of the Index Future market and activities of other market participants.
When the Trust purchases or holds Index Futures, it is exposed to the credit risk of a default by the CME's clearing house, which serves as the counterparty to each Index Future position, and of a default by its clearing futures commission merchant (the "Clearing FCM"). In the case of such a default, the Trust may be unable to recover amounts due to it on its Index Future positions and Collateral Assets posted as margin. The Trust is also exposed to credit risk as a result of its ownership of U.S. Treasury bills.
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Off-Balance Sheet Arrangements and Contractual Obligations
The Trust does not use and is not expected to use special purpose entities to facilitate off-balance sheet financing arrangements. The Trust does not have and is not expected to have loan guarantee arrangements or other 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 that are in the interest of the Trust. While the Trust's exposure under such indemnification provisions cannot be estimated, these general business indemnifications are not expected to have a material impact on the Trust's financial position.
Critical Accounting Policies
The financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in