Item 1. Business
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 and commenced operations on October 25, 2012, with the public offering of 18,800,000 shares. The Funds shares represent units of fractional
undivided beneficial interest in, and ownership of, the Fund. Fund shares trade on the NYSE MKT (formerly known as NYSE Amex) under the ticker symbol CTF. The Fund operates pursuant to an Amended and Restated Trust Agreement (the
Trust Agreement). 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 (the 1940 Act), and is not subject
to regulation thereunder.
Prior to its initial public offering, the Fund had no operations other than those related to organizational matters
and the recording of organization expenses ($452,000) and their reimbursement by Nuveen Securities, LLC (Nuveen), a wholly-owned subsidiary of Nuveen Investments, Inc. (Nuveen Investments). On August 31, 2011, the Fund
received a $20,055 initial capital contribution from, and issued 840 shares to, Nuveen Commodities Asset Management, LLC, the Funds manager (NCAM or the Manager). NCAM, a
wholly-owned
subsidiary of Nuveen Investments, is a Delaware limited liability company registered as a commodity pool operator (CPO) with the Commodity Futures Trading Commission (the
CFTC) and is a member of the National Futures Association (NFA). The Manager has the power and authority, without shareholder approval, to cause the Fund to issue shares from time to time as it deems necessary or desirable.
The number of shares authorized is unlimited.
The Manager has selected its affiliate, Gresham Investment Management LLC (Gresham
LLC), acting through its Near Term Active division (Gresham NTA), as the Funds commodity sub-advisor, which is referred to in this Annual Report in that capacity as Gresham or the Commodity
Sub-advisor. 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 advisor (CTA) and a CPO, is
a member of the NFA and is registered with the Securities Exchange Commission (SEC) as an investment adviser.
The Manager has
selected its affiliate, Nuveen Asset Management, LLC (Nuveen Asset Management or the Collateral Sub-advisor), to manage the Funds 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 Objective and Investment Strategy
The Funds
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 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.
The Funds investment strategy has three principal elements:
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An actively managed long/short portfolio of exchange-traded commodity futures contracts;
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A portfolio of exchange-traded commodity option contracts; and
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A collateral portfolio of cash equivalents, U.S. government securities and other short-term, high grade debt securities.
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During temporary defensive periods or during adverse market circumstances, the Fund may deviate from its
investment objective and policies.
Long/Short Commodity Investment Program.
The Funds long/short commodity investment program is
an actively managed, fully collateralized, rules-based commodity investment strategy that seeks to capitalize on opportunities in both up and down commodity markets. Fully collateralized means that the Fund will maintain as collateral
cash equivalents, U.S. government securities and other short-term, high grade debt securities in an aggregate amount corresponding to the full notional value of its commodity investments. Long/short means that the Funds commodity
futures contracts may be invested on both a long basis, seeking to profit from potential increases in commodity prices, and a short basis, seeking to profit from declines in commodity prices. Rules-based means that the Fund will manage
its commodity investments consistent with program rules which specify minimum liquidity requirements for commodity futures contract investing and other parameters such as eligible commodity futures contracts, contract term, commodity weightings and
annual and interim rebalancing of individual commodities and the long/short portfolio.
The Fund makes investments in the most actively traded
commodity futures contracts in the four main commodity sectors in the global commodities markets:
Generally, the
program rules are used to determine the specific commodity futures contracts in which the Fund will invest, the relative weighting for each commodity and whether a position is either long or short (or flat in the case of energy futures contracts).
The commodity markets are dynamic and as such the long/short commodity investment program may require frequent adjustments in the Funds
commodity positions. The Commodity Sub-advisor expects to trade each position no less frequently than once per month. The relative balance of the Funds long/short commodity investments may vary significantly over time, and at certain times,
the Funds aggregate exposure may be all long, all short and flat, or may consist of various combinations (long, short, and/or flat) thereof. Gresham will manage its overall strategy so that the notional amount of the Funds combined long,
short and flat futures positions will not exceed 100% of the Funds net assets.
The Fund will not short energy futures contracts and
will instead hold a flat position, because the prices of energy futures contracts are generally more sensitive to geopolitical events than to economic factors and, as a result, significant price variations are often driven by factors other than
supply-demand imbalances. References to a flat position mean that instead of shorting an energy futures contract 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. In that circumstance, the sum of the notional value of the portfolios futures contracts will be less than the sum of the collateral assets.
The specific commodities and the total number of futures contracts in which the Fund will invest, and the relative weighting of those contracts, will be determined annually by the Commodity Sub-advisor
based upon the composition of the Index at that time. The selected commodity futures contracts are expected to remain unchanged until the next annual reconstitution each December. Upon annual reconstitution, the target weight of any individual
commodity futures contract will be set and will be limited to 10% of the Funds net assets to provide for diversification. The Commodity Sub-advisor expects the actual portfolio weights to vary during the year due to market movements. If price
movements cause an individual commodity contract to represent more than 10% of the Index at any time between monthly rebalancing, the Fund would seek to match the target
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weighting at the time of the monthly rebalancing. Generally, the Fund expects to invest in short-term commodity futures contracts with terms of one to three months, but may invest in commodity
futures contracts with terms of up to six months.
Integrated Options Strategy.
The Fund employs a commodity option writing strategy
that seeks to produce option premiums for the purpose of enhancing the Funds risk-adjusted total return over time. Option premiums generated by this strategy may also enable the Fund to more efficiently implement its distribution policy. There
can be no assurance that the Funds options strategy will be successful.
A call option gives its owner (buyer) the right but not the
obligation to buy the underlying futures contract at a particular price, known as the strike price, at any time between the purchase date and the expiration date of the option. The person who sells the call option to the buyer is thus required to
fulfill the contractual obligation (by selling the underlying futures contract to the buyer at the strike price) should the call option be exercised. A put option gives its owner (buyer) the right but not the obligation to sell the underlying
futures contract at the strike price, at anytime between the purchase date and the expiration date of the option. The person who sells the put option to the buyer is thus required to fulfill the contractual obligation (by buying the underlying
futures contract from the seller at the strike price) should the put option be exercised.
Pursuant to the options strategy, the Fund may sell
exchange-traded commodity call or put options on a continual basis on up to approximately 25% of the notional value of each of its commodity futures contracts that, in Greshams determination, have sufficient option trading volume and
liquidity. If Gresham buys the commodity futures contract, they will sell a call option on the same underlying commodity futures contract. If Gresham shorts the commodity futures contract, they will sell a put option on the same underlying commodity
futures contract (except in the case of energy futures contracts). Gresham may exercise discretion with respect to commodity futures contract selection. Due to trading and liquidity considerations, Gresham may determine that it is in the best
interest of Fund shareholders to sell options on like commodities (for example, gas oil and heating oil are like commodities) and not matched commodity futures contracts.
Generally, the Fund expects to sell short-term commodity options with terms of one to three months. Subject to the foregoing limitations, the implementation of the options strategy will be within
Greshams discretion. Over extended periods of time, the moneyness of the commodity options may vary significantly. Upon sale, the commodity options may be in-the-money, at-the-money or
out-of-the-money. A call option is said to be in-the-money if the exercise price is below current market levels, out-of-the-money if the exercise price is above current market levels and at-the-money
if the exercise price is at current market levels. Conversely, a put option is said to be in-the-money if the exercise price is above the current market levels and out-of-the-money if the exercise price is below current
market levels. The Fund sells commodity options that are U.S. exchange-traded and that are typically American-Style (exerciseable at any time prior to expiration). The Fund also may sell commodity options that are non-U.S. exchange
traded and that are typically European-style (exerciseable only at the time of expiration). The Funds risk-adjusted return over any particular period may be positive or negative.
When initiating new trades, the Fund expects to sell covered in-the-money options and will not sell uncovered options. Because the Fund will maintain
options positions until expiration, the Fund may have uncovered out-of-the-money options in its portfolio depending on price movements of the underlying futures contracts. In certain circumstances, the Fund may hold out-of-the-money option positions
that due to subsequent trades by the Fund become uncovered. An out-of-the-money option is worthless and there is no expectation that it will be exercised. As long as the option remains out-of-the-money, there is no additional exposure for the Fund.
For example, if the Fund is long wheat futures and sells covered call options on wheat futures, subsequent price movements (i.e., price declines) in wheat futures may result in Gresham, on behalf of the Fund, reversing from a long wheat futures
contract position to a short wheat futures contract position. In this example, Gresham would then sell the long wheat futures contracts and continue to hold what would then be an out-of-the-money call option. At the same time, to effect its short
position Gresham would short wheat futures contracts and sell covered put options
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on wheat futures. Due to market impact and other trading considerations, the Fund will hold the out-of-the-money call option instead of incurring additional trading costs to exit the position.
The Fund will rebalance its positions no less often than monthly and as a result it is anticipated that no out-of-the-money option position would be uncovered for longer than one month. This element of the Funds options strategy increases the
Funds gap risk, which is the risk that a commodity price will change from one level to another with no trading in between. In the event of an extreme market change or gap move in the price of a single commodity, the Funds options
strategy may result in increased exposure to that commodity from any uncovered options. Continuing the wheat example above, if a gap move causes the out-of-the-money call option position to become in-the-money, the Fund may temporarily have exposure
on the wheat call option position but no corresponding long position in the underlying wheat futures contracts. In response to such a gap move, Gresham would attempt to quickly move to implement appropriate offsetting trades consistent with its
unleveraged commodity investment strategy. Gap risk could adversely affect the Funds performance and may negatively impact the trading price of the Funds shares. See Item 1A. Risk FactorsOptions Strategy Risks.
If the Commodity Sub-advisor 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-advisor 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.
Collateral Portfolio.
The
Funds commodity investments generally do not require significant outlays of principal. Currently, in the normal course of business, approximately 15% of the Funds net assets are committed as initial and variation
margin to secure the Funds futures contracts. These assets are placed in one or more commodity futures accounts maintained by the Fund at Barclays Capital Inc. (BCI), the Funds clearing broker, and are invested by BCI in
high-quality instruments permitted under CFTC regulations. The remaining collateral (approximately 85% of the Funds net assets) is held in a separate collateral investment account managed by the Collateral Sub-advisor.
The Funds assets held in this separate collateral account are invested in cash equivalents, U.S. government securities and other short-term, high
grade debt securities with final terms not exceeding one year at the time of investment. These collateral investments (other than U.S. government securities) shall be rated at all times at the applicable highest short-term or long-term debt or
deposit rating or money market fund rating as determined by at least one nationally recognized statistical rating organization (NRSRO) or, if unrated, judged by the Collateral Sub-advisor to be of comparable quality. These collateral
investments consist primarily of direct and guaranteed obligations of the U.S. government and senior obligations of U.S. government agencies and may also
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include, among others, money market funds and bank money market accounts invested in U.S. government securities as well as repurchase agreements collateralized with U.S. government securities.
While the principal investment objective for the separate collateral account is the preservation of capital, the assets in the collateral
account also provide the potential for returns that may supplement the returns from the Funds commodity investments. The assets in the separate collateral account may only be used for the purposes of making distributions to shareholders,
payment of operating expenses and to replenish the Funds margin account, if necessary (and if there are excess funds in the margin account, those will be transferred to the separate collateral account). No parties other than the Fund have any
access to, rights to, or ability to control the assets in the collateral account, and those assets will not be pledged. The Fund may not pledge any of its assets except to collateralize its investments in accordance with its investment objectives
(i.e., for margin purposes), and only the assets maintained by the Fund with BCI will be used for this purpose. Any declines in the value of the assets held in the Funds collateral account would negatively affect the net asset value of the
Funds shares.
Management of the Fund
Trustee
Wilmington Trust Company (the Delaware Trustee), a Delaware trust
company, is the resident Delaware trustee of the Fund. The Delaware Trustee is unaffiliated with the Manager. The Delaware Trustees duties with respect to the Funds management are limited to its express obligations under the Trust
Agreement. In particular, the Delaware Trustee will accept service of legal process on the Fund in the State of Delaware and will make certain filings as required under the Delaware Statutory Trust Act, as amended (the Delaware Statutory Trust
Act). The rights and duties of the Delaware Trustee, the Independent Committee (as defined below), the Manager and the shareholders are governed by the provisions of the Delaware Statutory Trust Act and by the Trust Agreement. Except for the
limited duties described herein and in the Trust Agreement that are exercised by the Delaware Trustee and the Independent Committee, all duties and responsibilities to manage the business and affairs of the Fund are vested in the Manager, pursuant
to the Trust Agreement and Delaware Statutory Trust Act.
Independent Committee
The Manager has established the independent committee, comprised of four members who are unaffiliated with the Manager (the Independent
Committee), which fulfills the audit committee and nominating committee functions for the Fund, as well as any other functions required under the NYSE MKT listing standards or as set forth in the Trust Agreement. Each member of the Independent
Committee receives an annual fee of $30,000, and each member of the Independent Committee also receives (a) a fee of $1,250 per meeting per fund for attendance in person or by telephone at a regularly scheduled quarterly meeting of the
Independent Committee; and (b) a fee of $1,500 per meeting for attendance in person or by telephone at any special, non-regularly scheduled meeting of the Independent Committee. In addition to the payments described above, the Independent
Committee chair receives an additional annual fee of $6,000. The Independent Committee members will also be compensated for out-of-pocket costs in connection with attending Independent Committee meetings. The fees of the Independent Committee
members are paid by NCAM, which will be reimbursed for such fees on a pro rata basis by each fund managed by NCAM. NCAM currently manages two funds, the Fund and the Nuveen Diversified Commodity Fund (CFD).
The Independent Committee does not have any duties (including fiduciary duties) or responsibilities to manage the Fund, all of which the Trust Agreement
vests in the Manager, except those functions required under the listing standards of the NYSE MKT. Consequently, the Independent Committee does not have the wide-ranging duties and powers similar to a board of directors of an investment company. The
Trust Agreement provides that the members of the Independent Committee will be indemnified by the Fund against liabilities arising out of the performance of their duties pursuant to the Trust Agreement, except to the extent that any such liabilities
result
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from actual fraud or willful misconduct by such member of the Independent Committee. The Fund also provides Directors and Officers Insurance coverage to the members of the Independent
Committee. The Independent Committee has the authority to remove any member of the Independent Committee who either ceases to be an independent director pursuant to the NYSE MKT listing standards or is subject to statutory
disqualification under Sections 8a(2) or 8a(3) of the Commodities Exchange Act (CEA). The Independent Committee may appoint new members of the Independent Committee in the event of any vacancy caused by death, resignation or removal.
Manager
NCAM is the manager
of the Fund, and is responsible for determining the Funds overall investment strategy and its implementation, including:
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the selection and ongoing monitoring of:
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the Commodity Sub-advisor, which invests the Funds assets in commodity futures contracts and options on commodity futures contracts; and
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the Collateral Sub-advisor, which invests the Funds collateral in cash equivalents, U.S. government securities and other short-term, high grade
debt securities;
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assessment of performance and potential needs to modify strategy or change sub-advisors;
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the determination of the Funds administrative policies;
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the management of the Funds business affairs; and
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the provision of certain clerical, bookkeeping and other administrative services for the Fund.
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The Manager is registered with the CFTC as a CPO (effective date of registration January 4, 2006) and is a member of the NFA. The Manager was
previously registered as a CTA, but withdrew its CTA registration effective as of March 5, 2013. Except to the extent carried out by the Independent Committee, the Manager has complete responsibility to ensure that the Fund complies with all
obligations under the CEA. The Manager, Commodity Sub-advisor and Collateral Sub-advisor act in a similar capacity for CFD, a commodity pool traded on the NYSE MKT. Neither the Fund nor the Manager has established formal procedures to resolve
potential conflicts of interest related to managing the investments and operations of the Fund.
The Manager may change, or temporarily
deviate from, the Funds investment strategy and the manner in which the strategy is implemented if the Manager determines that it is in the best interests of Fund shareholders to do so based on existing market conditions or otherwise. For
instance, the Manager could change or deviate from the Funds investment strategy or the manner in which it is implemented if, among other things, the Manager determined to replace Gresham (in which case the Fund would no longer employ the
long/short commodity investment program because the long/short commodity investment program is proprietary to Gresham), or if the commodity option markets experienced a lack of volatility or liquidity so that it was no longer in the best interest of
the Fund and its shareholders for the Fund to employ the options strategy, or if other unforeseen circumstances arose that necessitated a change in the Funds strategy or its implementation. In addition, the Manager has the rights and
obligations with respect to the Fund as described under the Trust Agreement. As permitted under Delaware law, the Trust Agreement provides that the Manager does not owe any duties (including fiduciary duties) to the Fund, other than the implied
contractual covenant of good faith and fair dealing.
The Manager is a wholly-owned subsidiary of Nuveen Investments, a Delaware corporation.
Founded in 1898, Nuveen Investments and its affiliates had approximately $220.5 billion of assets under management as of December 31, 2013. Nuveen Investments is a listed principal of the Manager.
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Commodity Sub-advisor
The Manager has selected Gresham to manage the Funds commodity futures investment strategy and 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 CTA (effective date of registration August 17, 1994) and as a CPO (effective date of registration August 17, 1994) and is a member of the NFA.
Gresham LLC also is registered with the SEC as an investment adviser since April 2005. As of December 31, 2013, Gresham LLC had approximately $14.7 billion of client assets under management, including approximately $6.7 billion under management
by Gresham NTA and approximately $8.0 billion under management by Gresham LLCs other division, the Term Structure Monetization division (Gresham TSM). Gresham LLCs senior management team has extensive experience in overall
supervision of commodities portfolio management and trading operations. Gresham LLCs sole business activity is to render commodity investment advisory services and manage assets on behalf of its clients and in doing so it administers several
commodity investment programs.
Gresham LLC offers investment management services through two independent divisions, Gresham NTA and Gresham
TSM. Gresham NTA and Gresham TSM operate independently of each other under the independent account controller exemption under CFTC Regulation 150.3(a). Each division implements independent trading decisions and positions, and is restricted from
having access to, or knowledge of, the other divisions trading decisions and positions, and is physically and technologically separated from the other division. See Item 1A. Risk FactorsCommodity Investment Strategy Risks for
further discussion.
On December 31, 2011, Nuveen Investments completed its acquisition of a 60% stake in Gresham LLC. As part of the
acquisition, Gresham LLCs management and investment teams maintained a significant minority ownership stake in the firm, and will operate independently while leveraging the strengths of certain shared resources of Nuveen Investments.
Collateral Sub-advisor
The
Manager has selected Nuveen Asset Management to invest the Funds collateral (excluding the initial and variation margin maintained at BCI) in short-term, high grade debt securities. Nuveen Asset Management, a registered investment adviser, is
a subsidiary of Nuveen Investments. As of December 31, 2013, Nuveen Asset Management had approximately $117.0 billion of assets under management. The Funds collateral is invested in cash equivalents, U.S. government securities and other
short-term, high grade debt securities, including corporate obligations. Such securities are common investments for Nuveen Asset Management in several of its investment strategies.
Management Fees
For the services and facilities provided by the Manager, the Fund pays the
Manager an annual fee based on the Funds average daily net assets, payable on a monthly basis, according to the following schedule:
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Average Daily Net Assets
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Management Fee
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For the first $500 million
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1.250
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%
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For the next $500 million
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1.225
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For the next $500 million
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1.200
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For the next $500 million
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1.175
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For net assets over $2 billion
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1.150
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Pursuant to an agreement among the Manager, the Fund, and the Commodity Sub-advisor, the Commodity
Sub-advisor receives from the Manager an annual fee based on the Funds average daily net assets, payable on a monthly basis, according to the following schedule:
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Average Daily Net Assets
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Management Fee
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For the first $250 million
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.500
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%
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For the next $250 million
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.475
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For the next $250 million
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.450
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For the next $250 million
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.425
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For net assets over $1 billion
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.400
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Pursuant to an agreement among the Manager, the Fund, and the Collateral Sub-advisor, the Collateral Sub-advisor receives
from the Manager an annual fee based on the Funds average daily net assets, payable on a monthly basis, according to the following schedule:
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Average Daily Net Assets
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Management Fee
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For the first $250 million
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.150
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%
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For the next $250 million
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.140
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For the next $250 million
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.130
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For the next $250 million
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.120
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For net assets over $1 billion
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.110
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Average daily net assets means the total assets of the Fund, minus the sum of its total liabilities.
The fees of the Commodity Sub-advisor and Collateral Sub-advisor (collectively, the Sub-advisors) are paid by the Manager out of
the fees the Manager receives from the Fund, and the Fund does not reimburse the Manager for those fees.
In addition to the fee of the
Manager, the Fund pays all other costs and expenses of its operations, including, but not limited to, custody fees, transfer agent expenses, legal fees, expenses of independent auditors, expenses of preparing, printing and distributing shareholder
reports, notices, proxy statements and reports to governmental agencies, and taxes, if any.
The agreements with each of the Sub-advisors may
be terminated at any time, without penalty, by either the Manager or a Sub-advisor upon 120 days written notice. Also, the agreement with the Commodity
Sub-advisor
can be terminated by the Commodity Sub-advisor in certain circumstances on 90 days notice. Each of the agreements provides that each of the Sub-advisors
will not be liable to the Fund in connection with the performance of its duties, and the Fund will indemnify the Sub-advisor for losses and costs arising out of its status as a Sub-advisor to the Fund if the Sub-advisor acted in good faith and in a
manner it reasonably believed to be in, or not opposed to, the best interests of the Fund, except, in each case, for a loss resulting from the
Sub-advisors
willful misfeasance, bad faith or gross
negligence or reckless disregard of its duties and obligations under the agreement. The Sub-advisors will indemnify the Fund and the Manager for losses and costs attributable to such willful misfeasance, bad faith, gross negligence or reckless
disregard.
If the Manager determines it is in the best interests of shareholders to select additional CTAs or replace a sub-advisor, the
Manager will consider certain information with respect to each new CTA, including the following:
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general information, including the identity of its affiliates and key personnel;
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investment strategy and risk management of the CTA;
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the CTAs financial condition;
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relevant performance history and the quality of services provided;
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capacity to take on new business.
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None of the foregoing agreements, or any extensions or replacements of such agreements, are subject to the approval of the Independent Committee or the Funds shareholders. As a result, the Manager
may amend, extend or replace any such agreement in its sole discretion, and therefore may increase the fees of the Manager and either sub-advisor without any approval by the Independent Committee or the Funds shareholders.
Employees
The Fund has no employees.
Available Information
The
Fund files with or submits to the SEC annual and quarterly reports and other information meeting the information requirements pursuant to Section 13(a) and 15(d) of the Exchange Act. These reports are available on the Funds website at
http://www.nuveen.com/CommodityInvestments
. Investors may also inspect and copy any materials the Fund files with the SEC at the SECs Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. Investors may obtain information on
the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains a website (http://www.sec.gov) which contains reports, proxy statements and other information filed electronically with the SEC. The Fund
also posts on its website an information statement and certain daily and monthly reports required by CFTC regulations, all of which may contain information, including performance information of the Fund and the Commodity Sub-advisor, that is
disclosed only through such website posting.
An investment in the Fund
involves a high degree of risk. Investors should be aware of the various risks, including those described below. Investors should consider carefully the risks described below before making an investment decision. Investors should also refer to the
other information included in this Annual Report, including the Funds financial statements and the related notes and the Funds other filings with the SEC. Additional risks and uncertainties not presently known by the Fund or not
presently deemed material by the Fund may also impair the Funds operations and performance. If any of the following events occur, the Funds performance could be materially and adversely affected. In such case, the Funds net asset
value and the trading price of the Funds shares may decline and you may lose all or part of your investment.
An investment in the
Fund involves a high degree of risk. You should not invest in shares unless you can afford to lose all of your investment.
Commodity
Investment Strategy Risks
You may lose all of your investment.
An investment in the Funds shares is subject to investment
risk, including the possible loss of the entire amount that you invest. An investment in the Funds shares represents an indirect investment in the commodity futures contracts owned by the Fund, the prices of which can be volatile, particularly
over short time periods. Investments in individual commodity futures contracts and options on futures contracts historically have had a high degree of price variability and may be subject to rapid and substantial price changes. These price changes
may be magnified by computer-driven algorithmic trading, which is becoming more prevalent in the commodities markets. The Fund could incur significant losses on its investments in those commodity futures contracts. If the Fund experiences greater
losses than gains during the period you hold shares, you will experience a loss for the period even if the Funds historical performance is positive. The Funds risk-adjusted returns over any particular period may be positive or negative.
Movements in commodity investment prices are outside of the Funds control, are extremely difficult to predict, and may not be anticipated by the Commodity Sub-advisor. Price movements may be influenced by, among other things:
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governmental, agricultural, trade, fiscal, monetary and exchange control programs and policies;
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weather and climate conditions;
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changing supply and demand relationships;
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changes in international balances of payments and trade;
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U.S. and international rates of inflation;
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currency devaluations and revaluations;
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U.S. and international political and economic events;
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changes in interest and foreign currency/exchange rates;
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changes in philosophies and emotions of market participants.
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The Funds shares do not represent a deposit or obligation of, and are not guaranteed or endorsed by, any bank or other insured depository institution, and are not federally insured by the Federal
Deposit Insurance Corporation, the Federal Reserve Board or any other governmental agency.
The changing interests of investors, hedgers
and speculators in the commodity markets may influence whether futures prices are above or below the expected future spot price.
In order to induce investors or speculators to take the corresponding long side of a futures contract, commodity
producers must be willing to sell futures contracts at prices that are below the present value of expected future spot prices. Conversely, if the predominant participants in the futures market are the ultimate purchasers of the underlying commodity
futures contracts in order to hedge against a rise in prices, then speculators should only take the short side of the futures contract if the futures price is greater than the present value of the expected future spot price of the commodity. This
can have significant implications for the Fund when it is time to reinvest the proceeds from a maturing futures contract into a new futures contract. If the interests of investors, hedgers and speculators in futures markets have shifted such that
commodity purchasers are the predominant participants in the market, the Fund will be constrained to reinvest at higher futures prices which could have a negative effect on the Funds returns and may cause the Fund to suffer losses on its short
positions. Conversely, if commodity sellers are the predominant participants in the market, the Fund will be constrained to reinvest at lower prices which could have a negative effect on the Funds returns and may cause it to suffer losses on
its long positions.
Regulatory developments could significantly and adversely affect the Fund.
Commodity markets are subject to
comprehensive statutes and regulations promulgated not only by the CFTC but also by self-regulatory organizations such as the NFA. Among other things, the CFTC and the exchanges on which futures contracts are traded are authorized to take
extraordinary actions in the event of a market emergency, including, for example, the retroactive implementation of speculative position limits or higher margin requirements, the establishment of daily limits, and the suspension of trading. Any of
these actions, if taken, could adversely affect the returns of the Fund by limiting or precluding investment decisions the Fund might otherwise make. The regulation of commodity transactions in the U.S. is a rapidly changing area of law and is
subject to ongoing modification by government, self-regulatory and judicial action. In addition, various national governments have expressed concern regarding the disruptive effects of speculative trading in the currency markets and the need to
regulate the derivatives markets in general. The effect of any future regulatory change on the Fund is impossible to predict, but could be substantial and adverse to the Fund.
Daily trading limits imposed by the exchanges and position limits established by the CFTC may adversely affect the Fund.
The CFTC and U.S. commodities exchanges limit the amount of fluctuation
permitted in futures contract prices during a single trading day by regulations referred to as daily price fluctuation limits or daily trading limits. Once the daily trading limit has been reached in a particular futures
contract, no trades may be made that day at a price beyond that limit or trading may be suspended for specified periods during the trading day. Futures contract prices could move to the limit for several consecutive trading days with little or no
trading, thereby preventing prompt liquidation of futures positions and potentially disguising substantial losses the Fund may ultimately incur.
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Separately, the CFTC and the U.S. commodities exchanges and certain non-U.S. exchanges have established
limits referred to as speculative position limits or accountability levels on the maximum net long or short futures positions that any person may hold or control in contracts traded on such exchanges. In October 2011, the
CFTC adopted final regulations pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the Dodd-Frank Act) that would have imposed position limits on 28 individual agricultural, metal and energy commodity
futures and options contracts and on swaps that are economically equivalent to such contracts in order to prevent excessive speculation and manipulation in the commodity markets. On September 28, 2012, the U.S. District Court for the District
of Columbia vacated the new position limit regulations and remanded the matter to the CFTC for further consideration consistent with the courts opinion. The CFTC originally appealed the courts decision, but in November 2013, the CFTC
withdrew its appeal and re-proposed position limit regulations substantially as outlined above, with a few modifications. In addition, the CFTC proposed regulations that would expand certain exemptions from aggregation of accounts of related parties
for these purposes. The public comment period for these proposed regulations closed on February 10, 2014. It remains to be seen whether the CFTC will modify the proposed regulations in response to public comments.
The CFTCs existing position limit regulations require that a trader aggregate all positions in accounts over which the trader controls trading.
However, a trader is not required to aggregate positions in multiple accounts or commodity pools if such trader (or its applicable divisions/subsidiaries) qualifies as an independent account controller under applicable CFTC regulations
and avails itself of the independent account controller exemption under such regulations. In February 2013, Gresham NTA began operating under the independent account controller exemption available under the CFTCs existing position limit
regulations such that Gresham NTA is not required to aggregate its positions with Greshams other division. The re-proposed regulations would maintain the independent account controller exemption. However, if the CFTC does not adopt or renew
the independent account controller exemption, or if the exemption were modified or otherwise unavailable, Gresham NTA would be required to aggregate its positions with Gresham LLCs other division for purposes of the CFTCs position limits
regulations. In that case, it is possible that investment decisions of the Commodity Sub-advisor would be modified and that positions held by the Fund would have to be liquidated to avoid exceeding such position limits, potentially resulting in
substantial losses to the Fund and the value of your investment. In addition, failure to comply with the requirements of the independent account controller exemption could lead to an enforcement proceeding against Gresham LLC and could adversely
affect the Fund.
The re-proposed regulations are extremely complex and, if ultimately implemented, whether in their current or an alternative
form, may require further guidance and interpretation by the CFTC to determine in all respects how they apply to the Fund. The full implementation of the Funds investment strategy could be negatively impacted by the existing or any future
position limits regulations.
Any deflation or unanticipated changes in inflation may negatively affect the expected future spot price of
underlying commodities.
Deflation or unanticipated changes in the rate of inflation may result in changes in the future spot price of the underlying commodities that could negatively affect the Funds profitability and result in potential
losses. In addition, reduced economic growth may lead to reduced demand for the underlying commodities and put downward pressure on the future spot prices, adversely affecting the Funds operations and profitability, to the extent the Fund has
taken a long position in the affected commodities.
Options Strategy Risks
There can be no assurance that the Funds options strategy will be successful.
The Fund employs a commodity option writing strategy that seeks to produce option premiums for the purpose of
enhancing the Funds risk-adjusted total return over time. Option premiums generated by this strategy may also enable the Fund to more efficiently implement its distribution policy. The Funds use of options, however, may not provide any,
or only partial, protection from adverse commodity price changes.
Specific price movements of the commodities or futures contracts underlying
an option cannot be accurately predicted. There may be imperfect correlation between the changes in the market value of the futures contracts
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and the corresponding options contracts held by the Fund. Accordingly, the return performance of the Funds commodity futures contracts may not parallel the performance of the commodities
that serve as the basis for the options bought or sold by the Fund; this basis risk may reduce the Funds overall returns. Investing in options is volatile and requires an accurate assessment of the market and the underlying instrument. Factors
such as increased or reduced volatility, limited dollar value traded and timing of placing and executing orders may preclude the Fund from achieving the desired results of the options strategy and could affect the Funds ability to generate
income and gains and limit losses. Because of the volatile nature of the commodities markets, the writing (selling) of commodity options involves a high degree of risk.
The Fund may forego gains (i.e., capital appreciation above the option exercise price for sold call options) on up to 25% of its long commodity futures contracts as a result of selling commodity call
options. The Fund may forego gains on up to 25% of its short commodity futures contracts as a result of selling commodity put options.
The Fund expects to sell short-term commodity call or put options with terms of up to twelve months on a
continual basis on up to approximately 25% of the notional value of each of its commodity futures contracts that, in Greshams determination, have sufficient option trading volume and liquidity. Accordingly, the Fund is effectively limiting its
potential for gains from price increases on long commodity futures positions and effectively limiting its potential for gains from price declines on short commodity futures positions during the option term on up to 25% of the notional value of its
portfolio invested in commodity futures contracts. The extent of foregone capital appreciation depends on the value of the commodity futures contract relative to the exercise price of each such option and option premium realized.
The Fund is subject to gap risk, which is the risk that a commodity price will change from one level to another with no trading in between.
Usually such movements occur when there are adverse news announcements, which can cause a commodity price to drop substantially from the previous days closing price. In the event of an extreme market change or gap move in the price of a single
commodity when Gresham is unable to trade, the Funds exposure to that commodity will increase in proportion to the Funds option exposure. The Funds option strategy increases the Funds gap risk and could adversely affect the
Funds performance in the event that the price of an individual commodity futures contract drops or increases substantially. Gap risk may also negatively impact the trading price of the Funds shares.
Risk that the Funds Shares May Trade at a Discount to Net Asset Value
There is a risk that the Funds shares may trade at prices other than the Funds net asset value per share.
The net asset value of each share will change as fluctuations occur in the
market value of the Funds portfolio. Investors should be aware that the public trading price of a share may be different from the net asset value of a share and that shares may trade at a discount from their net asset value (which could be
significant). The price difference may be due to the fact that supply and demand forces at work in the secondary trading market for shares are not necessarily the same as the forces influencing the prices of the commodity futures contracts and other
instruments held by the Fund at any point in time.
Risks Related to an Exchange Listing
NYSE MKT may halt trading in the shares which would adversely impact your ability to sell shares.
The Funds shares are listed on the NYSE MKT
under the market symbol CTF. Trading in shares may be halted due to market conditions or, in light of the NYSE MKT rules and procedures, for reasons that, in the view of the NYSE MKT, make trading in shares inadvisable. In addition,
trading is subject to trading halts caused by extraordinary market volatility pursuant to circuit breaker rules that require trading to be halted for a specified period based on a specified market decline. There can be no assurance that
the requirements necessary to maintain the listing of the shares will continue to be met or will remain unchanged.
The lack of an active
trading market for shares may result in losses on your investment at the time of disposition of your shares.
Although the Funds shares are listed on the NYSE MKT, there can be no guarantee that an active
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trading market for the shares will be maintained. If you need to sell your shares at a time when no active market for them exists, the price you receive for your shares, assuming that you are
able to sell them, likely will be lower than that you would receive if an active market did exist.
Commodity Sub-advisor Risks
Past performance is no assurance of future results.
The Funds performance to date is due in part to the proprietary commodity
investment methodology employed by Gresham. Any subsequent commodity sub-advisor to the Fund may employ a different commodity investment methodology than Gresham. Neither Greshams proprietary methodology nor the investment methodology that may
be used by any subsequent commodity sub-advisor takes into account unanticipated world events that may cause losses to the Fund. In any event, past performance does not assure future results.
Descriptions of the Commodity Sub-advisors strategies may not be applicable in the future.
The Commodity Sub-advisor or any subsequent commodity sub-advisor may make material changes to the
investment strategy it uses in investing the Funds assets with the consent of the Manager, who has the sole authority to authorize any material changes. If this happens, the descriptions in this document would no longer be accurate or useful.
The Manager does not anticipate that this will occur frequently, if at all. You will be informed of any changes to the Commodity Sub-advisors strategy that the Manager deems to be material; however, you may not be notified until after a change
occurs. Non-material changes may be made by the Commodity Sub-advisor or any subsequent commodity sub-advisor without the Managers consent. Such potential changes may nevertheless affect the Funds performance.
Speculative position limits and daily trading limits may reduce profitability and result in substantial losses.
All accounts owned or managed by a
commodity trading advisor, such as the Commodity Sub-advisor, its principals and its affiliates, are typically combined for speculative position limit purposes unless an exemption from aggregation is available.
It is possible that the Commodity Sub-advisor will approach or reach position limits for accounts managed within the Gresham NTA division, irrespective
of the independent account controller exemption. If so, the Commodity Sub-advisor may have a conflict of interest with respect to allocating limited positions among various accounts it manages. Further, the investment decisions of the Commodity
Sub-advisor may be modified to avoid exceeding regulatory position limits, potentially subjecting the Fund to substantial losses and forcing the Fund to forego certain opportunities. The Commodity Sub-advisor may have to reduce the size of positions
that would otherwise be taken for the Fund, liquidate commodity futures contracts at disadvantageous times or prices, or not trade in certain markets on behalf of the Fund in order to avoid exceeding such limits.
Modification of trades that would otherwise be made by the Fund, if required, could adversely affect the Funds operations as well as profitability
compared to the Index. In addition, a violation of speculative position limits by the Commodity Sub-advisor could lead to regulatory or self-regulatory action resulting in mandatory liquidation of certain positions held by the Commodity Sub-advisor
on behalf of its accounts. There can be no assurance that the Commodity Sub-advisor will liquidate positions held on behalf of all the Commodity Sub-advisors accounts, including the Commodity Sub-advisors own accounts, in a proportionate
manner. In the event the Commodity Sub-advisor chooses to liquidate a disproportionate number of positions held on behalf of the Fund at unfavorable prices, the Fund may incur substantial losses.
Increased competition could adversely affect the Fund.
The Commodity Sub-advisor believes that there has been, over time, an increase in interest
in commodity investing. As Greshams capital under management increases, an increasing number of traders may attempt to initiate or liquidate substantial positions at or about the same time as the Commodity Sub-advisor, or otherwise alter
historical trading patterns or affect the execution of trades, to the detriment of the Fund.
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Other Risks of the Funds Investment Strategy
Shares may be adversely affected if Gresham makes changes to the Fund in response to changes in the composition and/or valuation of the Index.
The
composition of the Index may change over time as the commodity futures contracts in the Index are added or replaced. In addition, Index positions, and, therefore, positions taken by the Fund, may change quickly and frequently in response to changes
in the commodities markets, which would result in greater trading expenses being incurred by the Fund. Furthermore, the Index sponsor may modify the method for determining the composition and weightings of the Index and for calculating its value in
order to ensure that the Index represents a measure of the performance over time of the markets for the underlying commodities. Because the Index is serving as a benchmark measure for the Fund, the composition and weighting of their respective
portfolios, while not identical, are likely to largely resemble each other. If the method for determining the Index composition and/or weighting were to change over time, any such changes could adversely impact the ability of the Fund to continue to
track the Index.
An investment in the Fund may not necessarily diversify an investors overall portfolio.
The investment
performance of the Index, the benchmark against which the Fund compares its performance, has shown little long-term historical correlation to the performance of other asset classes such as U.S. equities and U.S. bonds. Little correlation means that
there is a low statistical relationship between the performance of the Index, on the one hand, and U.S. equities and U.S. bonds, on the other hand. Because there is little long-term historical correlation, the Fund cannot be expected to be
automatically profitable during unfavorable periods in the stock or bond markets, or vice versa. If, during a particular period of time, the Funds performance moves in the same general direction as the other financial markets, or the Fund does
not perform successfully relative to overall commodity markets, you may obtain little or no diversification benefits during that period from an investment in the Funds shares. In such a case, the Fund may have no gains to offset your losses
from such other investments, and you may suffer losses on your investment in the Fund at the same time losses on your other investments are increasing.
The concentration of certain commodities in the Index may result in greater volatility.
As of December 31, 2013, the Index had its highest weightings in the energy and agriculture sectors
(53.12% and 26.09%, respectively). As a result, the Fund may invest a substantial portion of its net assets in long positions in the energy and agriculture sectors. A downturn in the energy and agriculture sectors could have a larger impact on the
Fund than on a fund that does not concentrate in these sectors. In addition, the Fund may invest a substantial portion of its net assets in short positions in the agriculture sector and this concentration could negatively impact the Fund if prices
of agricultural commodities trend up.
During a period when commodity prices are fairly stable, the absence of backwardation in
the prices of commodity futures contracts held long by the Fund and the absence of contango in the prices of commodity futures contracts held short may cause the price of your shares to decrease.
As the futures contracts included in
the Index and held by the Fund near expiration, they are replaced by contracts that have a later expiration. For example, a contract purchased and held (long or short) in March 2013 may have an expiration date in June 2013. As this contract nears
expiration, a long position in the contract may be replaced by selling the June 2013 contract and purchasing a contract expiring in September 2013, or a short position may be replaced by covering or purchasing the June 2013 contract and selling
short the September 2013 contract. This process is known as rolling. Historically, the prices of some futures contracts (generally those relating to commodities such as crude oil, heating oil and sugar, that are typically consumed
immediately rather than stored) have often been higher for contracts with near-term expirations than for contracts with longer-term expirations. This circumstance is referred to as backwardation. Absent other factors, in these
circumstances, the sale of a long position in the June 2013 contract would be made at a higher price than the purchase of the September 2013 contract, thereby allowing the Fund to purchase a greater quantity of the September 2013 contract.
Conversely, a contango market is one in which the prices of commodity futures contracts in the near-term months are lower than the prices of contracts in the longer-term months due to long-term storage costs and other factors.
Commodities that
have historically traded in a contango market are wheat, corn, gold, natural gas, coffee, lean hogs and soybean
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oil. Absent other factors, covering a short position in the September 2013 contract by purchasing that contract at a lower price than the price of replacing it with a short position in the
December 2013 contract would allow the Fund to sell short a greater quantity of the December 2013 contract. Because the Funds strategy is based in part on taking advantage of such backwardation and contango situations,
the absence of backwardation or contango in certain commodities in which the Fund is long or short could adversely affect the value of the Funds portfolio and consequently decrease the value of your shares.
The Fund is subject to whipsaw risk, which is the risk that commodity price trends will rapidly change adversely to long or short
positions taken by the Fund.
Price momentum is an important factor in determining the Funds long and short/flat positions. As a result, whipsaw markets, in which significant price movements develop but then rapidly reverse,
could cause substantial losses to the Fund. For example, price patterns in the commodity markets may indicate upward momentum, causing the Fund to shift from short or flat positions to long positions. However, such patterns may reverse rapidly,
forcing the Fund to shift from long positions back to short or flat positions, leading to losses on such positions by the Fund. An unexpected change in government economic policy, a significant political or economic event, a surprise change in
monetary policy, or a sudden shift in supply or demand could cause a severe reversal in a number of the Funds long or short positions, resulting in significant losses to the Fund.
There may be a loss on investments in short-term debt securities.
When the Fund purchases a futures contract, the Fund is required to deposit with its futures commission merchant only a portion of
the value of the contract. This deposit is known as initial margin. If and when the market moves against the position, the Fund is required to make additional deposits known as variation margin. The Fund invests its assets,
other than the amount of margin required to be maintained by the Fund, in short-term, high grade debt securities. The value of these high grade debt securities generally moves inversely with movements in interest rates (declining as interest rates
rise). The value of these high grade debt securities might also decline if the credit quality of the issuer deteriorates, or if the issuer defaults on its obligations. If the Fund is required to sell short-term debt securities before they mature
when the value of the securities has declined, the Fund will realize a loss. This loss may adversely impact the price of the Funds shares.
Daily disclosure of portfolio holdings could allow replication of the Funds portfolio and could have a negative effect on the Funds holdings.
Because the Funds total portfolio
holdings are disclosed on a daily basis, other investors may attempt to replicate the Funds portfolio or otherwise use the information in a manner that could have a negative effect on the Funds individual portfolio holdings and the
Funds portfolio as a whole.
Certain of the Funds investments may become illiquid.
The Fund may not always be able to
liquidate its investments at the desired price. It is difficult to execute a trade at a specific price when there is a relatively small volume of buy and sell orders in a market. Recently, some institutional investors have scaled back or exited
their commodity trading business, which has resulted, and may continue to result, in reduced liquidity and significantly increased spreads in the commodity markets. A market disruption, such as a foreign government taking political actions that
disrupt the market in its currency or in a major export, can also make it difficult to liquidate a position. Alternatively, limits imposed by futures exchanges or other regulatory organizations, such as speculative position limits and daily price
fluctuation limits, may contribute to a lack of liquidity with respect to some commodity investments.
Market illiquidity and higher spreads
may cause losses to investors. The large stated value of the Funds commodity investments increases the risk of illiquidity by both making those investments more difficult to liquidate at favorable prices and increasing the losses incurred
while trying to do so.
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.
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Likewise, the writer of a call option is required to deliver the underlying futures contract at the strike price or 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.
Investments in futures contracts will expose the Fund to the risk of temporary aberrations or distortions in the commodity markets.
The Fund is subject to the risk that temporary aberrations or distortions in the markets (such as war, strikes, geopolitical events and natural disasters) will occur that impact commodity prices and negatively impact the value of the Funds
long and/or short positions, thereby adversely affecting the value of your shares.
Because futures contracts have no intrinsic value, the
positive performance of your investment is wholly dependent upon an equal and offsetting loss.
Futures trading is a risk transfer economic activity. For every gain there is an equal and offsetting loss rather than an opportunity to participate
over time in general economic growth. Unlike most alternative investments, an investment in shares of the Fund does not involve acquiring any asset with intrinsic value. Overall stock and bond prices could rise significantly and the economy as a
whole prosper while shares of the Fund trade unprofitably.
Because the Fund may invest a substantial portion of its net assets in the
energy sector, it is subject to certain risks.
A downturn in the energy sector could have a larger impact on the Fund than on a fund that does not concentrate in the sector. At times, the performance of commodities in the energy sector may lag
the performance of other sectors or the broader commodity market. The prices of commodities in the energy sector may be adversely effected by weather and other catastrophic events such as leaks, fires, explosions, damage to facilities and equipment
resulting from natural disasters, inadvertent damage to facilities and equipment, and terrorist acts.
Recent market conditions.
The
recent financial crisis in the U.S. and global economies, including the European sovereign debt crisis, has resulted, and may continue to result, in an unusually high degree of volatility in the financial markets, both domestic and foreign.
Liquidity in some markets has decreased and credit has become scarcer worldwide. Recent regulatory changes, including the Dodd-Frank Act and the introduction of new international capital and liquidity requirements under Basel III, may cause lending
activity within the financial services sector to be constrained for several years as Basel III rules phase in and rules and regulations are promulgated and interpreted under the Dodd-Frank Act. In response to the crisis, the U.S. and other
governments, and the Federal Reserve and certain foreign central banks, have taken steps to support financial markets. Withdrawal of this support (even when anticipated and done gradually, as in the case of the Federal Reserves tapering of its
bond purchases), failure of efforts in response to the crisis, or investor perception that such efforts are not succeeding, could adversely impact the value and liquidity of certain securities and futures contracts.
In addition, since 2010, the risks of investing in certain foreign government debt have increased dramatically as a result of the European debt crisis,
which began in Greece and spread to various other European countries. These debt crises and the ongoing efforts of governments around the world to address these debt crises have also resulted in increased volatility and uncertainty in the global
financial markets. It is impossible to predict the effects of these or similar events in the future on the Fund, though it is possible that these or similar events could have a significant adverse impact on the value and risk of investments held by
the Fund.
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In the United States, on August 5, 2011, Standard & Poors Financial Services, LLC, a
subsidiary of The McGraw-Hill Companies, Inc. (S&P), lowered its long-term sovereign credit rating on the U.S. federal government debt to AA+ from AAA. Any further credit rating downgrade could increase
volatility in financial markets, and could result in higher interest rates and higher Treasury yields and increase the costs of capital and financing. In addition, global economies and financial markets are becoming increasingly interconnected,
which increases the possibilities that conditions in one country or region might adversely impact issuers in a different country or region.
Risk of Investing in Non-U.S. Markets
Investing in non-U.S. markets will expose the Fund to additional credit and regulatory risk.
The Fund may invest in commodity futures contracts and
options on commodity futures contracts in non-U.S. markets. Some non-U.S. markets present risks because they are not subject to the same degree of regulation as their U.S. counterparts. None of the SEC, CFTC, NFA or any domestic exchange regulate
activities of any foreign boards of trade or exchanges, including the execution, delivery and clearing of transactions, nor do they have the power to compel enforcement of the rules of a foreign board of trade or exchange or of any applicable
non-U.S. laws or regulations. Similarly, the rights of market participants, such as the Fund, in the event of the insolvency or bankruptcy of a non-U.S. exchange or broker are also likely to be more limited than in the case of U.S. exchanges or
brokers. As a result, in these markets, the Fund would have less legal and regulatory protection than it does when it invests domestically.
Investing through non-U.S. exchanges is subject to the risks presented by exchange controls, expropriation, increased tax burdens and exposure to local
economic declines and political instability. An adverse development with respect to any of these variables could reduce the profit or increase the loss on investments of the Fund in the affected international markets.
Regulatory and Operating Risks
The
Fund is not a regulated investment company.
Unlike other Nuveen Investments-sponsored funds, the Fund is not a mutual fund, a closed-end fund, or any other type of investment company within the meaning of the 1940 Act. Accordingly, you do not
have the protections afforded by that statute which, among other things, regulates the relationship between the investment company and its investment adviser and mandates certain authority to be held by the board of directors of an investment
company.
The Fund has a limited operating history.
Therefore, the Fund has a limited performance history to serve as a basis for you
to evaluate an investment in the Fund.
Manager and Commodity Sub-advisor experience.
The Manager, Commodity Sub-advisor, and
Collateral Sub-advisor act in similar capacities for CFD, which is a Nuveen Investments-sponsored commodity pool traded on the NYSE MKT that completed its initial public offering on September 30, 2010. Prior to the initial public offering of
CFD, the Manager had not previously operated a commodity pool or selected a commodity trading advisor. Prior to the completion of the Funds initial public offering, the Commodity Sub-advisor had not previously managed client accounts utilizing
the long/short commodity investment program.
The Fund is a relatively new investment product and the value of the Funds shares could
decrease if the trading methodology fails to produce the desired results or unanticipated operational or trading problems occur.
Certain mechanisms and operational procedures involving the trading and composition of the Funds portfolio
have been developed specifically for this Fund. Accordingly, there may be unanticipated problems or issues with respect to the trading and operational procedures of the Fund that could have a material adverse effect on an investment in the shares.
In addition, there can be no assurance that the trading methodology employed in determination of the Funds positions will deliver the desired results.
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Conflicts of interest could adversely affect the Fund.
There are conflicts of interest in the
structure and operation of the Fund. The Manager has sole authority to manage the Fund, and its interests may conflict with those of Fund shareholders. For example, the Managers fees are based on the Funds net assets, which could provide
an incentive for the Manager to reduce or suspend distributions by the Fund. In addition, the Collateral Sub-advisor and Commodity Sub-advisor are affiliates of the Manager. Each Sub-advisor may encounter conflicts between the interests of the Fund
and its other clients. Further, a conflict of interest may also arise when the Commodity Sub-advisor approaches or reaches position limits with respect to futures positions established for the benefit of the Fund and fails to allocate limited
contracts available among other accounts it manages or, alternatively, liquidates positions held by other accounts in a disproportionate manner. Although the Fund, the Manager and the Sub-advisors have not established formal procedures to resolve
potential conflicts of interest related to managing the investments and operations of the Fund, the Manager and the Sub-advisors have adopted codes of ethics in recognition of their fiduciary obligations to clients, including the Fund, and in
accordance with applicable securities and commodities laws and regulations. Each of the Manager and the Sub-advisors resolve conflicts of interest as they arise based on its judgment and analysis of the particular conflict. The Manager and the
Sub-advisors seek to resolve all potential conflicts in a manner that is fair and equitable to the Fund and its shareholders over time. However, it is possible that the Manager and/or the Sub-advisors could resolve a potential conflict in a manner
that is not in the best interest of the Fund or its shareholders.
Departure of key personnel could adversely affect the Fund.
In
managing and directing the Funds activities and affairs, the Manager relies heavily on Gresham LLC, which has a relatively small number of personnel. If any of Jonathan S. Spencer, President and Chief Investment Officer of Gresham LLC, or
Susan Wager and Randy Migdal, the Funds portfolio managers, were to leave Gresham LLC or be unable to carry out their present responsibilities, it may have an adverse effect on the Funds management. In addition, should market conditions
deteriorate or for other reasons, Nuveen Investments, NCAM, Nuveen Asset Management and Gresham LLC may need to implement cost reductions in the future which could make the retention of qualified and experienced personnel more difficult and could
lead to personnel turnover.
The Funds long/short commodity investment strategy is not designed to provide the return of any single
commodity or to replicate the performance of long-only commodity market benchmarks.
In any given period, the net asset value returns of the Fund may differ substantially from any single commodity or long-only commodity market benchmarks. The
relative balance of the Funds long/short exposure may vary significantly over time and at certain times the Funds aggregate exposure may be all long, all short or flat, or may consist of various combinations (long, short and flat)
thereof. The Fund is not expected to provide a hedge against inflation in market environments when the Funds aggregate exposure is predominantly short and flat.
In the event of a loss on your investment, you have no recourse against Morningstar, Inc., the sponsor of the Index.
The shares are not sponsored, endorsed, sold or promoted by the Index sponsor.
The Index sponsor makes no representation or warranty, express or implied, to the owners of shares or any member of the public regarding the advisability of investing in commodity futures or option contracts or in the Fund. The Index sponsors
only relationship to the Manager and the Fund is the licensing of certain trademarks, trade names and other intellectual property of the Index sponsor. The Index is determined and composed by the Index sponsor without regard to the Manager or the
Fund. The Index sponsor has no obligation or liability in connection with the formation, management, marketing or promotion of shares or the trading of the Funds portfolio.
Shareholders have limited voting rights, and the Independent Committee has certain limited duties and powers, and neither will be able to affect management of the Fund regardless of performance.
Unlike the holder of capital stock in an investment company, Fund shareholders have limited voting rights or other means to control or affect the Funds business. The Fund also does not have a board with the ability to control the
management and operation of the Fund that would be typical of a board of directors of a corporation. In addition, the powers and duties of the Independent Committee are very limited with respect to the Fund. The sole power of the Independent
Committee is to serve the audit committee and nominating committee functions of the Fund. The Independent Committee, unlike the board of directors of an investment company, does not have the power to
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cause the Fund to change its investment objective or policies, effect changes to operations, approve the advisory fees of the Manager or replace the Manager or Sub-advisors. Rather, the power to
determine the Funds policies and direct its operations is conferred on the Manager. Thus, Fund shareholders do not benefit from the protection of their interests afforded to registered investment companies under the 1940 Act through the
existence of an independent board of directors with extensive powers to control the operations of the company. Therefore, the shareholders to a large extent are dependent on the abilities, judgment and good faith of the Manager in exercising its
wide-ranging powers over the Fund, limited solely by the implied covenant of good faith and fair dealing applicable to the Manager in its relations with the Fund and its shareholders. If the Manager voluntarily withdraws or is removed by a vote of
shareholders and shareholders have not voted to elect a replacement manager, the Fund will terminate and will liquidate its assets pursuant to the Trust Agreement.
The Manager may not be removed by Fund shareholders except upon approval by the affirmative vote of the holders of over 50% of the outstanding shares (excluding shares owned by the Manager and its
affiliates), subject to the satisfaction of certain conditions. Any removal of the Manager by Fund shareholders will result in the liquidation of the Fund if at the time there is not a remaining manager unless a successor manager is appointed as
provided in the Trust Agreement.
Thus, it is extremely unlikely that Fund shareholders will be able to make any changes in the management of
the Fund, even if performance is poor.
Fees and expenses are charged regardless of Fund performance and may result in depletion of
assets.
Regardless of its investment performance, the Fund pays brokerage commissions, over-the-counter dealer spreads, management fees and operating and extraordinary expenses. A management fee will be paid by the Fund even if the Fund
experiences a net loss for the year. Consequently, the expenses of the Fund could, over time, result in significant losses to your investment therein, including the loss of all of your investment. You may not achieve profits, significant or
otherwise.
The value of the shares may be adversely affected if the Fund is required to indemnify the members of the Independent Committee
or the Manager.
Under the Trust Agreement, each of the members of the Independent Committee and the Manager has the right to be indemnified for any liability or expense it incurs absent actual fraud or willful misconduct. That means that the
Manager may require the assets of the Fund to be sold in order to cover losses or liability suffered by it or by members of the Independent Committee. Any sale of that kind would reduce the net asset value of the Fund and the value of the shares.
The failure of a clearing broker to comply with financial responsibility and customer segregation rules and/or the bankruptcy of one of
the Funds clearing brokers could result in a total loss of Fund assets.
Under current CFTC regulations, a clearing broker maintains customers assets in a bulk segregated account. There is a risk that assets deposited by the Fund with
the clearing broker as margin for futures contracts may, in certain circumstances, be used to satisfy losses of other clients of the Funds clearing broker or the clearing brokers own payment obligations. In addition, the assets of the
Fund may not be fully protected in the event of that clearing brokers bankruptcy, as the clearing brokers customers, such as the Fund, are entitled to recover, even in respect of property specifically traceable to them, only a pro rata
share of all property, if any, available for distribution to all of that clearing brokers customers. The Fund also may be subject to the risk of the failure of, or delay in performance by, any exchanges and their clearing organizations, if
any, on which commodity interest contracts are traded.
Similarly, the CEA requires a clearing organization approved by the CFTC as a
derivatives clearing organization to segregate all funds and other property received from a clearing members clients in connection with domestic futures and options contracts from any funds held at the clearing organization to support the
clearing members proprietary trading. Nevertheless, all customer funds held at a clearing organization in connection with any futures or options contracts are held in a commingled omnibus account and are not identified to the name of the
clearing members individual customers. With respect to futures and options contracts, a clearing organization
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may use assets of a non-defaulting customer held in an omnibus account at the clearing organization to satisfy payment obligations of a defaulting customer of the clearing member to the clearing
organization. As a result, in the event of a default of the clearing brokers other clients or the clearing brokers failure to extend its own funds in connection with any such default, the Fund would not be able to recover the full amount
of assets deposited by the clearing broker on behalf of the Fund with the clearing organization.
The clearing brokers may be subject to legal
or regulatory proceedings in the ordinary course of their business. A clearing brokers involvement in costly or time-consuming legal proceedings may divert financial resources or personnel away from the clearing brokers trading
operations, which could impair the clearing brokers ability to successfully execute and clear the Funds trades.
An investment
in the shares may be adversely affected by competition from other methods of investing in commodities.
The Fund competes with other financial vehicles, including other commodity pools, hedge funds, traditional debt and equity securities issued
by companies in the commodities industry, other securities backed by or linked to such commodities, and direct investments in the underlying commodities or commodity futures contracts. Market and financial conditions, and other conditions beyond the
Managers or Commodity Sub-advisors control, may make it more attractive to invest in other financial vehicles or to invest in such commodities directly, which could limit the market for the shares.
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 Funds holdings. In addition, volatility in the commodity and securities markets may directly and adversely affect the setting of distribution rates on the Funds shares.
The Fund has not been subject to independent review or review on your behalf.
Shareholders do not have legal counsel representing them in
connection with the Fund. Accordingly, a shareholder should consult its legal, tax and financial advisers regarding the desirability of investing in the Fund. As previously noted, you cannot predict the expected results of this Fund from the
performance history of other accounts managed by the Commodity Sub-advisor.
Deregistration of the Manager or Sub-advisors could disrupt
operations.
The Manager and the Commodity Sub-advisor are registered commodity pool operators, the Commodity Sub-advisor is a registered commodity trading advisor and the Collateral Sub-advisor is a registered investment adviser. If the CFTC
were to terminate, suspend, revoke or not renew the Managers commodity pool operator registration, the Manager would be compelled to withdraw as the Funds Manager, and shareholders would then determine whether to select a replacement
manager or to dissolve the Fund. If the CFTC and/or the SEC, as applicable, were to terminate, suspend, revoke or not renew either of the Sub-advisors registrations, the Manager would terminate the management agreement with that Sub-advisor.
The Manager could choose to appoint a new sub-advisor or terminate the Fund. No action is currently pending or threatened against the Manager, the Commodity Sub-advisor or the Collateral Sub-advisor.
The Funds distribution policy may change at any time.
Distributions paid by the Fund to its shareholders are generally expected over the
long-term to be derived from the current income and gains from the Funds portfolio investments and the options strategy, but to the extent such current income and gains are not sufficient to pay distributions, the Funds distributions may
represent a return of capital. The Funds 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 several years, when the distribution
rate exceeds the Funds actual total returns. In that event, the Fund may liquidate investments in order to make distributions, and the timing and terms of any such liquidations could be disadvantageous to the Fund and its shareholders. The
manager reserves the right to change the Funds distribution policy and the basis for establishing the rate of its monthly distributions, or may
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temporarily suspend or reduce distributions without a change in policy, at any time and may do so without prior notice to shareholders. Any suspension or reduction of distributions will increase
the Funds assets under management upon which NCAM earns management fees and may negatively affect the market price of the Funds shares.
New regulatory developments may increase competition from other exchange-traded commodity funds that could limit the market for, and reduce the liquidity of, the shares.
The CFTC recently adopted
rules that, subject to certain conditions, permit the manager (commodity pool operator) of an exchange-traded commodity fund to claim relief from certain requirements relating to the delivery and acknowledgment of commodity pool disclosure
documents, delivery of monthly account statements, and the requirement to keep the Funds books and records at the commodity pool operators main business office. In addition, those rules exempt the independent directors and trustees of an
actively managed, exchange-traded commodity pool from having to register as commodity pool operators in their own right, where those persons are required to serve as such only for purposes of composing an audit or other committee under the
Sarbanes-Oxley Act of 2002 and exchange listing requirements. These rules may increase the attractiveness of forming exchange-traded commodity funds similar to the Fund, relative to other investment vehicles, including hedge funds, other commodity
pools, traditional debt and equity securities issued by companies in the commodities industry and securities backed by or linked to commodities. An increase in the number of such funds facilitated by the new rules could limit the market for, and
reduce the liquidity of, the shares and/or make it more difficult for the Fund to implement its investment strategy.
Tax Risk
Your tax liability may exceed cash distributions.
You will be taxed on your share of the Funds taxable income and gain each
year, regardless of whether you receive any cash distributions from the Fund. Your share of such income or gain, as well as the tax liability generated by such income or gain, may exceed the distributions you receive from the Fund for the year.
Certain provisions of the Internal Revenue Code may cause investors who purchased Fund shares at a discount to net asset value to
recognize gain in the first year of purchase without having sold their shares.
The Fund is taxed as a partnership, and as such you are treated as owning your proportionate share of Fund assets. Section 743(b) of the Internal Revenue Code of
1986, as amended (the Code), generally requires the Fund to adjust your proportionate share of the basis in the Funds assets (your share of the inside basis in the Fund) to reflect your initial outside basis
in your shares (i.e., the initial purchase price of your shares). In addition, Section 1256 of the Code requires the Fund to treat a large majority of its futures contracts as having been sold for tax purposes at the end of each year at their
then-current market value.
The combined effect of Sections 743(b) and 1256 is that if you purchase Fund shares at a discount to net asset
value during the year and hold those shares through year end, you would be deemed to have realized a capital gain substantially equal to the amount of that discount. Any such deemed gain would be reflected on your Schedule K-1 for that year (in
addition to all other items of gain and loss for the year), and your outside basis in the Funds shares would be stepped up by the amount of that gain. This basis step-up would have the effect of reducing your capital gain (or
increasing your capital loss) upon any subsequent sale of your shares. This would accelerate your realization of capital gain, but would not increase the amount of gain realized over the full period of the investment. This acceleration effect would
be particularly acute for investors who purchase shares at substantial discounts to net asset value. This deemed capital gain would be avoided if the Funds net asset value per share were to fall below your purchase price per share by year end;
conversely, if the Funds net asset value were to increase by year end, your deemed capital gain would be higher than the amount of the discount.
The calculations under Section 743(b) of the Code are complex, and there is little legal authority concerning the mechanics of the calculations, particularly in the context of publicly traded
partnerships. It is possible that the Internal Revenue Service (IRS) will successfully assert that some or all of the conventions utilized by the Fund to determine and allocate the Section 743(b) basis adjustments do not satisfy the
technical requirements of the Code or the regulations and, thus, will require different basis adjustments to be made.
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You could owe tax on your share of the Funds ordinary income despite overall losses.
Gain or
loss on futures contracts and options on futures contracts will generally be taxed as capital gains or losses for U.S. federal income tax purposes. Interest income is ordinary income. In the case of an individual, capital losses can only be used to
offset capital gains plus $3,000 ($1,500 in the case of a married taxpayer filing a separate return) of ordinary income each year. Therefore, you may be required to pay U.S. federal income tax on your allocable share of the Funds ordinary
income, even though the Fund incurs overall losses.
Certain Fund expenses may be treated as miscellaneous itemized deductions rather than
as deductible ordinary and necessary business expenses.
Certain expenses incurred by the Fund may be treated as miscellaneous itemized deductions for U.S. federal income tax purposes, rather than as deductible ordinary and necessary business
expenses, with the result that shareholders who are individuals, trusts, or estates may be subject to limitations on the deductibility of their allocable share of such expenses.
Tax-exempt investors may recognize unrelated business taxable income with respect to their investment in the Fund.
Persons that are otherwise exempt from U.S. federal income tax may be allocated
unrelated business taxable income as a result of their investment in the Fund. In particular, for charitable remainder trusts, investment in the Fund may not be appropriate.
Non-U.S. investors may face U.S. tax consequences.
Non-U.S. investors should consult their own tax advisors concerning the applicable foreign as well as the U.S. federal income tax implications of
an investment in the Fund. Non-U.S. investors may also be subject to special withholding tax provisions if they fail to furnish the Fund (or another appropriate person) with a timely and properly completed Form W-8BEN or other applicable form.
Changes in the Funds tax treatment could adversely affect distributions to shareholders.
The Fund believes that under current
law and regulations it will be taxed as a partnership that is not subject to corporate income tax for U.S. federal income tax purposes. However, the Fund has not requested, nor will it request, any ruling from the IRS as to this status. If the IRS
were to challenge the U.S. federal income tax status of the Fund, such a challenge could result in (i) an audit of each shareholders entire tax return and (ii) adjustments to items on that return that are unrelated to the ownership
of shares. In addition, each shareholder would bear the cost of any expenses incurred in connection with an examination of its personal tax return.
In addition, the Fund generally could be impacted adversely by proposed changes and future changes in U.S. federal income tax laws or tax administration, including changes that might treat publicly traded
partnerships like the Fund as taxable corporations.
If for any reason the Fund were taxable as a corporation for U.S. federal income tax
purposes in any taxable year, its income, gains, losses and deductions would be reflected on its own tax return rather than being passed through (proportionately) to shareholders. Its net income would be subject to taxation, reducing cash available
for distributions and resulting in distributions being treated as dividends to the extent of current or accumulated earnings and profits. Such a tax reclassification could materially reduce the overall performance and after-tax returns of the Fund,
possibly causing a decline in the price of the Fund shares.
Items of income, gain, deduction, loss and credit with respect to Fund shares
could be reallocated if the IRS does not accept the conventions used by the Fund in allocating Fund tax items.
U.S. federal income tax rules applicable to partnerships are complex and often difficult to apply to widely held partnerships. The
Fund will apply certain conventions in an attempt to comply with applicable rules and to report income, gain, deduction, loss and credit to Fund shareholders in a manner that reflects shareholders share of Fund items, but these conventions may
not be in full technical compliance with applicable tax requirements. It is possible that the IRS will successfully assert that the conventions used by the Fund to allocate income to the shareholders do not satisfy the technical requirements of the
U.S. federal income tax law and could require that items of income, gain, deduction, loss or credit be reallocated in a manner that adversely affects you.
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Tax rates and other features under current U.S. federal income tax law may be adversely affected in the
future.
Long-term capital gains and ordinary income are now taxed to non-corporate investors at maximum U.S. federal income tax rates of 20% and 39.6%, respectively. There continue to be proposals for further changes to U.S. federal income tax
law, some of which could adversely affect the Fund or its shareholders.
Increased oversight of foreign financial assets.
Under the
Foreign Account Tax Compliance provisions of the Hiring Incentives to Restore Employment Act (commonly known as FATCA) enacted in 2010, foreign financial institutions and non-financial foreign entities and certain U.S. taxpayers holding
foreign financial assets will be subject to an enhanced reporting, disclosure, certification, withholding, and enforcement regime. Among other things, certain withholdable payments made to a foreign financial institution or non-financial
foreign entity will generally be subject to withholding tax unless the foreign financial institution enters into a disclosure compliance agreement with the U.S. Treasury or the non-financial foreign entity certifies as to its ownership. Such
potentially withholdable payments under FATCA include certain interest, dividends, rents, and other gains or income from U.S. sources, but exclude income derived from the active conduct of a business. The general effective date of FATCA
is July 1, 2014. Investors should consult their tax advisors concerning the potential impact of FATCA on them.
You will receive a Schedule
K-1 and as a result may incur additional costs.
Investors in the Fund will receive a Schedule K-1 (not a Form 1099) reporting their allocable portion of the tax items of the Fund. This form is expected to be available by the end of the first
week of March following the taxable year it relates to. If there were a delay in making Schedule K-1 available, it could be more difficult for investors to complete their tax return in a timely fashion. In the event the Fund has income and/or gains,
investors may be required to pay taxes on their portion of such income and/or gains and the amount of those taxes may exceed their distributions from the Fund or the amount they receive when they sell their shares. Schedule K-1 is complex and
shareholders who seek advice from tax advisors with respect to their Schedule K-1 may incur additional costs in the form of fees.
Possible
constructive termination.
Under U.S. federal income tax law applicable to publicly traded partnerships like the Fund, if a partnership experiences sales or exchanges of 50% or more of its shares during a twelve month period, the partnership is
constructively terminated, requiring it to close its tax year (and file its tax returns for that period or request an extension by the 15th day of the fourth month after the month in which the termination occurs) and restart a new tax
year. It is difficult for publicly traded partnerships to ascertain on a real-time basis when constructive terminations occur given that shares are typically held in street name. Publicly traded partnerships typically identify actual beneficial
owners only during the course of preparing year-end tax information for shareholders. Therefore, a publicly traded partnership may not be aware that a constructive termination occurred until well after the fact, which potentially subjects the
partnership to substantial penalties for failing to file the tax return for the period preceding the termination in a timely manner. Based on information received by the Manager to date, the Manager does not believe the Fund experienced a
constructive termination during the tax year ended December 31, 2013.
If you loan your shares to a short seller to cover
a short sale of shares, you may be considered as having disposed of those shares.
Because you may be considered to have sold shares that you loan to a short seller to cover a short sale of shares, you may no longer be treated for tax
purposes as a partner with respect to those shares during the period of the loan to the short seller and you may recognize gain or loss from such disposition. Moreover, during the period of the loan to the short seller, any of our income, gain, loss
or deduction with respect to those shares may not be reportable by you and any cash distributions you receive as to those shares could be fully taxable as ordinary income. Shareholders desiring to assure their status as partners and avoid the risk
of gain recognition from a loan to a short seller are urged to modify any applicable brokerage account agreements to prohibit their brokers from borrowing their shares.
Shareholders are strongly urged to consult their own tax advisors and counsel with respect to the possible tax consequences to them of an investment in any shares. The tax consequences may differ in
respect of different shareholders.
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