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CMDT > SEC Filings for CMDT > Form 10-K on 28-Feb-2014All Recent SEC Filings

Show all filings for ISHARES DOW JONES-UBS ROLL SELECT COMMODITY INDEX TRUST

Form 10-K for ISHARES DOW JONES-UBS ROLL SELECT COMMODITY INDEX TRUST


28-Feb-2014

Annual Report


Item 7. 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 with this report. 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. 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-­K in a manner comparable to that of other iShares® exchange-­traded funds.

Results of Operations

The period from August 8, 2013 (commencement of operations) to December 31, 2013

The Trust's net asset value increased from $5,000,000 at August 8, 2013 (commencement of operations) to $12,594,593 at December 31, 2013. The increase in the Trust's net asset value resulted primarily from an increase in outstanding Shares, which rose from 100,000 at August 8, 2013 to 250,000 at December 31, 2013, due to 150,000 Shares (3 Baskets) being created and zero Shares being redeemed during the period.

Net gain for the period was $127,561, resulting from a net investment loss of $22,327 and net realized and unrealized gains of $149,888. For the period ended December 31, 2013, the Trust had a net realized gain of $187 on short-term investments and net realized and unrealized gains of $149,701 on futures contracts. Other than the Sponsor's fees of $19,456 and brokerage commissions and fees of $3,828, the Trust had no expenses during the period.

Liquidity and Capital Resources

The Trust's assets consist of Index Futures and Collateral Assets used to satisfy applicable margin requirements for the Trust's 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).

Market 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 DJ-UBS Roll Select CI, although this correlation may not be exact. The DJ-UBS 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.


Table Of Contents

Credit Risk

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 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.

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 the United States of America. The preparation of these financial statements relies on estimates and assumptions that impact the Trust's financial position and results of operations. These estimates and assumptions affect the Trust's application of accounting policies. In addition, please refer to Note 2 to the financial statements of the Trust for further discussion of the Trust's accounting policies.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Quantitative Disclosure

The Trust is exposed to commodity price risk through the Trust's holdings of Index Futures. The following table provides information about the Trust's futures contract positions, which are sensitive to changes in commodity prices. As of December 31, 2013, the Trust's open Index Future positions (long) were as follows:

Number of Contracts:                            424
Expiration Date:                         March 2014
Weighted-Average Price per Contract:   $     297.06
Notional Amount (Fair Value):          $ 12,570,328

The notional amount is calculated using the settlement price for the Index Futures on the CME on December 31, 2013, which was $296.47 per contract, and the $100 multiplier applicable under the contract terms.

Qualitative Disclosure

As described herein, it is the objective of the Trust that the performance of the Shares will correspond generally, but will not necessarily be identical, to the performance of the Index, which reflects the return on a fully collateralized investment in the DJ-UBS Roll Select CI, before payment of expenses and liabilities. The Index itself is intended to reflect the performance of a diversified group of physical commodities, including energy commodities, precious and industrial metal commodities, agricultural commodities and livestock commodities. The Trust obtains this exposure to commodity prices through the Trust's Index Future positions. As a result, fluctuations in the value of the Index Futures are expected to directly affect the value of the Shares.

The Trust will not engage in any activities designed to obtain a profit from, or ameliorate losses caused by, changes in the level of Index or the DJ-UBS Roll Select CI, or the value of any Collateral Assets. The Trust's exposure to market risk may be influenced by a number of factors, including the lack of liquidity of the Index Future market and activities of other market participants.


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