NOTES TO FINANCIAL STATEMENTS (Unaudited)
March 31, 2013
1. Organization
The Nuveen Long/Short Commodity Total Return Fund (the Fund) was organized as a Delaware statutory trust on
May 25, 2011, to operate as a commodity pool. Nuveen Commodities Asset Management, LLC, the Funds manager (NCAM or the Manager), a wholly-owned subsidiary of Nuveen Investments, Inc. (Nuveen
Investments), is a Delaware limited liability company registered as a commodity pool operator with the Commodity Futures Trading Commission (the CFTC) and is a member of the National Futures Association (the NFA). The
Fund commenced operations on October 25, 2012, with its initial public offering of 18,800,000 shares. The Fund operates pursuant to an Amended and Restated Trust Agreement dated September 14, 2012 (the Trust Agreement). The
Funds shares represent units of fractional undivided beneficial interest in, and ownership of, the Fund. The Funds shares trade on the NYSE MKT under the ticker symbol CTF. The Fund is not a mutual fund, a closed-end fund, or
any other type of investment company within the meaning of the Investment Company Act of 1940, as amended, and is not subject to regulation thereunder.
Prior to its initial public offering, the Fund had no operations other than those related to organizational matters, the initial contribution of $20,055 by the Manager, the recording of the Funds
organizational expenses of $452,000 and their reimbursement by Nuveen Securities, LLC, (Nuveen), a wholly-owned subsidiary of Nuveen Investments. The initial contribution of $20,055 by the Manager was received on August 31, 2011, in
exchange for 840 Fund shares.
The Manager has selected its affiliate, Gresham Investment Management LLC (Gresham
LLC), acting through its Near Term Active division (in that capacity, Gresham or the Commodity Sub-advisor), to manage the Funds commodity investment strategy and its options strategy. Gresham LLC is a Delaware
limited liability company, the successor to Gresham Investment Management, Inc., formed in July 1992. Gresham LLC is registered with the CFTC as a commodity trading advisor and commodity pool operator, is a member of the NFA and is registered with
the Securities and 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.
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 will invest directly in a diverse portfolio of
exchange-traded commodity futures contracts that represent the main commodity sectors and are among the most actively traded futures contracts in the global commodity markets. Generally, individual commodity futures positions may be either long or
short (or flat in the case of energy futures contracts) depending upon market conditions. The Funds Commodity Sub-advisor uses a rules based approach to determine the commodity futures contracts in which the Fund will invest, their respective
weightings, and whether the futures positions in each commodity are held long, short or flat. The Funds commodity investments will, at all times, be fully collateralized. The Fund is not leveraged, and the notional amount of its combined long,
short and flat futures positions will not exceed 100% of the Funds net assets. The Fund will also employ a commodity option writing strategy that seeks to produce option premiums for the purpose of enhancing the Funds risk-adjusted total
return over time. The Funds investment strategy will utilize the Commodity Sub-advisors proprietary long/short commodity investment program, which has three principal elements:
|
|
|
An actively managed long/short portfolio of exchange-traded commodity futures contracts;
|
|
|
|
A portfolio of exchange-traded commodity option contracts; and
|
12
NUVEEN LONG/SHORT COMMODITY TOTAL RETURN FUND
NOTES TO FINANCIAL STATEMENTS (Continued) (Unaudited)
March 31, 2013
1. Organization (continued)
|
|
|
A collateral portfolio of cash equivalents, U.S. government securities and other short-term, high grade debt securities.
|
2. Summary of Significant Accounting Policies
The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial
statements in accordance with accounting principles generally accepted in the United States (U.S. GAAP). The presentation of Unrealized appreciation and depreciation on futures contracts on the Statements of Financial
Condition has been reclassified to conform to the March 31, 2013 presentation.
The accompanying unaudited financial
statements were prepared in accordance with U.S. GAAP for interim financial information and with the instructions for Form 10-Q and the rules and regulations of the SEC. In the opinion of management, all material adjustments, consisting only of
normal recurring adjustments, considered necessary for a fair statement of the interim period financial statements have been made. Interim period results are not necessarily indicative of results for a full-year period. These financial statements
and the notes thereto should be read in conjunction with the Funds financial statements, included in the Funds Annual Report on Form 10-K for the year ended December 31, 2012.
Basis of Accounting
The accompanying financial statements have been prepared in conformity with U.S. GAAP. The preparation of financial statements in conformity with U.S. GAAP requires management to make certain estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations
during the reporting period. Actual results could differ from those estimates.
Futures Contracts
The Fund invests in commodity futures contracts. Upon execution of a futures contract, the Fund is obligated to deposit cash or eligible securities, also known as initial margin, into an
account at its clearing broker. Generally investments in futures contracts also obligate the investor and the clearing broker to settle monies on a daily basis representing changes in the prior days mark-to-market of the open contracts.
If the investor has unrealized appreciation the clearing broker would credit the investors account with an amount equal to appreciation and conversely if the investor has unrealized depreciation the clearing broker would debit the investors account
with an amount equal to depreciation. These daily cash settlements are also known as variation margin. In lieu of posting variation margin daily, the Fund has deposited cash with the clearing broker, generally representing approximately
twice the required initial margin to cover the initial margin and the daily changes in the market value of its futures investments. Cash held by the clearing broker to cover both margin requirements on open futures contracts is recognized as
Deposits with brokers on the Statements of Financial Condition.
During the period the futures contract is open,
changes in the value of the contract are recognized as an unrealized gain or loss by marking-to-market on a daily basis to reflect the changes in market value of the contract, which are recognized as a component of Unrealized
appreciation or depreciation on futures contracts on the Statements of Financial Condition and Change in net unrealized appreciation (depreciation) of futures contracts on the Statements of Operations. When the contract is closed,
the Fund records a realized gain or loss
13
NUVEEN LONG/SHORT COMMODITY TOTAL RETURN FUND
NOTES TO FINANCIAL STATEMENTS (Continued) (Unaudited)
March 31, 2013
2. Summary of Significant Accounting Policies (continued)
equal to the difference between the value of the contract on the closing date and the value of the contract when originally entered into, which is recognized as a component of Net realized
gain (loss) from futures contracts on the Statements of Operations.
Risks of investments in commodity futures contracts
include possible adverse movement in the price of the commodities underlying the contracts, the possibility that there may not be a liquid secondary market for the contracts and the possibility that a change in the value of the contract may not
correlate with a change in the value of the underlying commodities.
The average number of long and short futures contracts
outstanding during the three months ended March 31, 2013 and the period October 31, 2012 (date on which the Fund began entering into futures contracts) through December 31, 2012 was as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31, 2013
|
|
|
For the Period
October 31, 2012
through
December 31, 2012
|
|
Average number of long and short futures contracts outstanding*
|
|
|
5,788
|
|
|
|
5,255
|
|
|
|
|
|
|
|
|
|
|
*
|
The average number of contracts is calculated based on the absolute aggregate value of outstanding number of contracts at the beginning of the fiscal year and at the
end of each quarter within the current fiscal year. For the period October 31, 2012 through December 31, 2012, the average number of contracts is calculated based on the outstanding number of contracts at the beginning of the period and at
the end of each month within the remainder of the period.
|
Refer to Note 3 Derivative Instruments and
Hedging Activities within these Notes to Financial Statements for further details on futures contract activity.
Options Contracts
The Fund may write (sell) and purchase options on commodity futures contracts to enhance the Funds risk-adjusted total return. When
the Fund writes an option, an amount equal to the premium received is recognized as a component of Options written, at value on the Statements of Financial Condition and is subsequently adjusted to reflect the current value of the
written option until the option expires or the Fund enters into a closing purchase transaction. The changes in value of the options written during the reporting period are recognized as a component of Change in net unrealized appreciation
(depreciation) of options written on the Statements of Operations. When an option is exercised or expires, or the Fund enters into a closing purchase transaction, the difference between the net premium received and any amount paid at
expiration or on executing a closing purchase transaction is recognized as a component of Net realized gain (loss) from options written on the Statements of Operations. The Fund, as writer of an option, has no control over whether the
underlying instrument may be sold (called) and as a result bears the risk of an unfavorable change in the market value of the instrument underlying the written option. There is also the risk the Fund may not be able to enter into a closing
transaction because of an illiquid market. During the three months ended March 31, 2013 and the period November 1, 2012 (date on which the Fund began entering into option contracts) through December 31, 2012 the Fund wrote call and put options on
futures contracts.
The Fund did not purchase options on futures contracts during the three months ended March 31, 2013 and the
period October 25, 2012 (commencement of operations) through December 31, 2012. The purchase of
14
NUVEEN LONG/SHORT COMMODITY TOTAL RETURN FUND
NOTES TO FINANCIAL STATEMENTS (Continued) (Unaudited)
March 31, 2013
2. Summary of Significant Accounting Policies (continued)
options involves the risk of loss of all or part of the cash paid for the options (the premium). The market risk associated with purchasing options is limited to the premium paid. The
counterparty credit risk of purchasing options, however, needs to take into account the current value of the option, as this is the performance expected from the counterparty.
Transactions in both call and put options written were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
2013
|
|
|
Year Ended
December 31,
2012
|
|
|
|
Number of
Contracts
|
|
|
Premiums
Received
|
|
|
Number of
Contracts
|
|
|
Premiums
Received
|
|
Outstanding, beginning of period
|
|
|
1,024
|
|
|
$
|
4,747,719
|
|
|
|
|
|
|
$
|
|
|
Options written
|
|
|
2,008
|
|
|
|
7,895,929
|
|
|
|
2,228
|
|
|
|
9,526,927
|
|
Options terminated in closing purchase transactions
|
|
|
(388)
|
|
|
|
(1,989,796
|
)
|
|
|
(1,110
|
)
|
|
|
(4,375,188
|
)
|
Options expired
|
|
|
(533)
|
|
|
|
(2,480,257
|
)
|
|
|
(62
|
)
|
|
|
(213,570
|
)
|
Options exercised
|
|
|
(1,110)
|
|
|
|
(4,502,474
|
)
|
|
|
(32
|
)
|
|
|
(190,450
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, end of the period
|
|
|
1,001
|
|
|
$
|
3,671,121
|
|
|
|
1,024
|
|
|
$
|
4,747,719
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The average number of options written outstanding during the three months ended March 31, 2013 and the period
November 1, 2012 (date on which the Fund began entering into options contracts) through December 31, 2012 was as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31, 2013
|
|
|
For the Period
November 1, 2012
through
December 31, 2012
|
|
Average number of options written outstanding*
|
|
|
1,013
|
|
|
|
709
|
|
|
|
|
|
|
|
|
|
|
*
|
The average number of contracts is calculated based on the outstanding number of contracts at the beginning of the fiscal year and at the end of each quarter within the
current fiscal year. For the period November 1, 2012 through December 31, 2012, the average number of contracts is calculated based on the outstanding number of contracts at the beginning of the period and at the end of each month within
the remainder of the period.
|
Refer to Note 3 Derivative Instruments and Hedging Activities within these
Notes to Financial Statements for further details on options activity.
Collateral Investments
Currently approximately 15% of the Funds net assets are committed to secure the Funds futures contract positions. These assets
are placed in a commodity futures account maintained by the Funds clearing broker, and are held in high-quality instruments permitted under CFTC regulations.
The Funds remaining assets are held in a separate collateral investment account managed by the Collateral Sub-advisor. The Funds assets held in the separate collateral account are invested in
cash equivalents, U.S. government securities and other high-quality short-term debt securities with final terms not exceeding one year at the time of investment. These collateral investments (other than U.S. government securities) shall be rated at
the applicable highest short-term or long-term debt or deposit rating or money market fund rating as determined by
15
NUVEEN LONG/SHORT COMMODITY TOTAL RETURN FUND
NOTES TO FINANCIAL STATEMENTS (Continued) (Unaudited)
March 31, 2013
2. Summary of Significant Accounting Policies (continued)
at least one nationally recognized statistical rating organization, or if unrated, judged by the Collateral Sub-advisor to be of comparable quality.
Investment Valuation
Commodity futures contracts and options on commodity futures contracts traded on an exchange will be valued at the final settlement price
or official closing price as determined by the principal exchange on which the instruments are traded as supplied by independent pricing services. These investments are generally classified as Level 1 for fair value measurement purposes. OTC
commodity futures contracts and options on commodity futures contracts not traded on an exchange will be valued, in order of hierarchy, by independent pricing services, price quotations obtained from counterparty broker-dealers, or through fair
valuation methodologies as determined by the Manager. These investments are generally classified as Level 2. Additionally, events may occur after the close of the market, but prior to the determination of the Funds net asset value, that may
affect the values of the Funds investments. In such circumstances, the Manager will determine a fair valuation for such investments that in its opinion is reflective of fair market value. These investments are generally classified as Level 2
or Level 3 depending on the priority of the significant inputs.
Prices of fixed-income securities, including, but not limited
to, highly rated zero coupon fixed-income securities and U.S. Treasury bills, are provided by a pricing service approved by the Funds Manager. These securities are generally classified as Level 2. The pricing service establishes a
securitys fair value using methods that may include consideration of the following: yields or prices of investments of comparable quality, type of issue, coupon, maturity and rating, market quotes or indications of value from security dealers,
evaluations of anticipated cash flows or collateral, general market conditions and other information and analysis, including the obligors credit characteristics considered relevant. These securities are generally classified as Level 2 or Level
3 depending on the priority of the significant inputs.
Fair Value Measurements
Fair value is defined as the price that the Fund would receive upon selling an investment or transferring a liability in an orderly
transaction to an independent buyer in the principal or most advantageous market for the investment. A three-tier hierarchy is used to maximize the use of observable market data and minimize the use of unobservable inputs and to establish
classification of fair value measurements for disclosure purposes. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability. Observable inputs are based on market data obtained from sources
independent of the reporting entity. Unobservable inputs reflect the reporting entitys own assumptions about the assumptions market participants would use in pricing the asset or liability. Unobservable inputs are based on the best information
available in the circumstances. The following is a summary of the three-tier hierarchy of valuation inputs.
Level 1Inputs are unadjusted and prices are determined by quoted prices in active markets for identical
securities.
Level 2Prices are determined using other significant observable inputs (including
quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).
Level 3Prices are determined using significant unobservable inputs (including managements assumptions
in determining the fair value of investments).
16
NUVEEN LONG/SHORT COMMODITY TOTAL RETURN FUND
NOTES TO FINANCIAL STATEMENTS (Continued) (Unaudited)
March 31, 2013
2. Summary of Significant Accounting Policies (continued)
The inputs or methodologies used for valuing securities are not an indication of the
risks associated with investing in those securities. The following is a summary of the Funds fair value measurements as of March 31, 2013 and December 31, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2013
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Short-Term Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government and Agency Obligations
|
|
$
|
|
|
|
$
|
347,585,797
|
|
|
$
|
|
|
|
$
|
347,585,797
|
|
Derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Futures Contracts*
|
|
|
2,510,647
|
|
|
|
|
|
|
|
|
|
|
|
2,510,647
|
|
Options Written
|
|
|
(4,016,116
|
)
|
|
|
|
|
|
|
|
|
|
|
(4,016,116
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(1,505,469
|
)
|
|
$
|
347,585,797
|
|
|
$
|
|
|
|
$
|
346,080,328
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Short-Term Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government and Agency Obligations
|
|
$
|
|
|
|
$
|
372,303,955
|
|
|
$
|
|
|
|
$
|
372,303,955
|
|
Derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Futures Contracts*
|
|
|
(3,255,655
|
)
|
|
|
|
|
|
|
|
|
|
|
(3,255,655
|
)
|
Options Written
|
|
|
(3,465,424
|
)
|
|
|
|
|
|
|
|
|
|
|
(3,465,424
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(6,721,079
|
)
|
|
$
|
372,303,955
|
|
|
$
|
|
|
|
$
|
365,582,876
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
Represents net unrealized appreciation (depreciation) as reported in the Schedule of Investments as of the end of each reporting period.
|
The Manager is responsible for the Funds valuation process and has delegated daily oversight of the process to the Managers
Valuation Committee. The Valuation Committee, pursuant to its valuation policies and procedures, is responsible for making fair value determinations, evaluating the effectiveness of the Funds pricing policies, and reporting to the
Managers senior management. The Valuation Committee is aided in its efforts by the Managers Securities Valuation Team, which is responsible for administering the daily valuation process and applying fair value methodologies as approved
by the Valuation Committee. When determining the reliability of independent pricing services for investments owned by the Fund, the Valuation Committee, among other things, conducts due diligence reviews of the pricing services and monitors the
quality of security prices received through various testing reports conducted by the Securities Valuation Team.
For each
portfolio instrument that has been fair valued pursuant to the Valuation Committees policies, the fair value price is compared against the last available and next available market quotations. The Valuation Committee reviews the results of such
testing and fair valuation occurrences are reported to the Managers senior management.
Investment Transactions
Investment transactions are recorded on a trade date basis. Realized gains and losses from investment transactions are determined on the
specific identification method, which is the same for federal income tax purposes.
17
NUVEEN LONG/SHORT COMMODITY TOTAL RETURN FUND
NOTES TO FINANCIAL STATEMENTS (Continued) (Unaudited)
March 31, 2013
2. Summary of Significant Accounting Policies (continued)
Investment Income
Interest income, which reflects the amortization of premiums and includes accretion of discount for financial reporting purposes, is
recorded on an accrual basis.
Brokerage Commissions and Fees
The Fund pays brokerage commissions, including applicable clearing costs, exchange fees, NFA fees, give-up fees, pit brokerage fees and
other transaction-related fees and expenses, incurred in connection with its commodity trading activities.
Income Taxes
No provision for federal, state, and local income taxes has been made in the accompanying financial statements because the Fund has elected to be classified as a partnership for U.S. federal income tax
purposes. Each owner of the Funds shares will be required to take into account its allocable share of the Funds income, gains, losses, deductions and other items for the Funds taxable year.
For all open tax years and all major taxing jurisdictions, the Manager of the Fund has concluded that there are no significant uncertain
tax positions that would require recognition in the financial statements. Open tax years are those that are open for examination by taxing authorities (i.e., generally the last four tax year ends and the interim tax period since then). Furthermore,
the Manager of the Fund is also not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.
Expense Recognition
All expenses of the Fund are recognized on an accrual basis. The Fund pays all routine and extraordinary costs and expenses of its
operations, brokerage expenses, custody fees, transfer agent expenses, professional fees, expenses of preparing, printing and distributing reports, notices, information statements, proxy statements, reports to governmental agencies, and taxes, if
any.
Organizational Expenses and Offering Costs
In connection with the Funds initial public offering on October 25, 2012, Nuveen (i) reimbursed all organizational expenses of
the Fund and (ii) paid all offering costs (other than sales load and underwriting commissions) that exceeded $.05 per share. The Funds share of offering costs ($940,000) was recorded as a reduction of the proceeds from the sale of the
shares.
Calculation of Net Asset Value
The net asset value per share of the Fund on any given day is computed by dividing the value of all assets of the Fund (including any
accrued interest), less all liabilities (including accrued expenses and distributions declared but unpaid), by the total number of shares outstanding.
Distributions
The Fund intends to make regular monthly distributions to its shareholders (stated in terms of a fixed cents per share distribution rate) based on the past and projected performance of the Fund. Among
other factors, the
18
NUVEEN LONG/SHORT COMMODITY TOTAL RETURN FUND
NOTES TO FINANCIAL STATEMENTS (Continued) (Unaudited)
March 31, 2013
2. Summary of Significant Accounting Policies (continued)
Fund seeks to establish a distribution rate that roughly corresponds to the Managers projections of the total return that could reasonably be expected to be generated by the Fund over an
extended period of time. Each monthly distribution is not solely dependent on the amount of income earned or capital gains realized by the Fund, and such distributions may from time to time represent a return of capital and may require that the Fund
liquidate investments. As market conditions and portfolio performance may change, the rate of distribution on the shares and the Funds distribution policy could change. The Fund reserves the right to change its distribution policy and the
basis for establishing the rate of its monthly distributions, or may temporarily suspend or reduce distributions without a change in policy, at any time and may do so without prior notice to shareholders.
Distributions to shareholders are recorded on the ex-dividend date.
Commitments and Contingencies
Under the Funds organizational documents, the Manager, Wilmington Trust Company (the Funds Delaware trustee) and the Managers independent committee members are indemnified against
certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund enters into contracts that provide general indemnifications to other parties. The Funds maximum exposure
under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. However, the Fund believes the risk of loss pursuant to these contracts to be remote.
Financial Instrument Risk
The Fund utilizes commodity futures and options, whose values are based upon an underlying asset and generally represent future
commitments that have a reasonable possibility of being settled in cash or through physical delivery. As of March 31, 2013 and December 31, 2012, the financial instruments held by the Fund were traded on an exchange and are standardized
contracts.
Market risk is the potential for changes in the value of the financial instruments traded by the Fund due to market
changes, including fluctuations in commodity prices. Investing in commodity futures contracts involves the Fund entering into contractual commitments to purchase or sell a particular commodity at a specified date and price. The market risk
associated with the Funds commitments to purchase commodities will be limited to the gross or face amount of the contracts held. The Funds exposure to market risk may be influenced by a number of factors, including changes in
international balances of payments and trade, currency devaluations and revaluations, changes in interest and foreign currency exchange rates, price volatility of commodity futures contracts and market liquidity, weather, geopolitical events
and other factors. These factors also affect the Funds investments in options on commodity futures contracts. The inherent uncertainty of the Funds investments as well as the development of drastic market occurrences could ultimately
lead to a loss of all, or substantially all, of investors capital.
Credit risk is the possibility that a loss may occur
due to failure of a counterparty performing according to the terms of the futures and option contracts. The Fund may be exposed to credit risk from its investments in commodity futures contracts and options on commodity futures contracts resulting
from the clearing house associated with a particular exchange failing to meet its obligations to the Fund. In general, clearing houses are backed by their corporate members who may be required to share in the financial burden resulting from the
19
NUVEEN LONG/SHORT COMMODITY TOTAL RETURN FUND
NOTES TO FINANCIAL STATEMENTS (Continued) (Unaudited)
March 31, 2013
2. Summary of Significant Accounting Policies (continued)
nonperformance of one of their members, which should significantly reduce this credit risk. In cases where the clearing house is not backed by the clearing members (i.e., as in some foreign
exchanges), it may be backed by a consortium of banks or other financial institutions. There can be no assurance that any counterparty, clearing member or clearing house will meet its obligations to the Fund.
The Fund is subject to short exposure when it sells short a futures contract or writes a put option.
Short
sales are transactions in which the Fund initiates a position by selling a futures contract short. A short futures position allows the short seller to profit from declines in the price of the underlying commodity to the extent such declines exceed
the transaction costs. In a short sale transaction, the Fund must deliver the underlying commodity at the contract price to a buyer of the contract who stands for delivery under the rules of the exchange that lists the contract or must offset the
contract by entering into an opposite and offsetting transaction in the market. Likewise, the writer of a call option is required to deliver the underlying futures contract at the strike price or offset the option by entering into an opposite and
offsetting transaction in the market. The price at such time may be higher or lower than the price at which the futures contract was sold short or the strike price of the call option when the option was written. If the underlying price of the
futures contract goes down between the time that the Fund sells the contract short and offsets the contract, the Fund will realize a gain on the transaction. If the price of the underlying futures contract drops below the strike price of the call
option written, the option will expire worthless and the Fund also will realize a gain to the extent of the option premium received. Conversely, if the price of the underlying short futures contract goes up during the period, the Fund will realize a
loss on the transaction. If the price of the underlying futures contract is higher than the strike price of a call option written, the option will become in-the-money and the Fund may realize a loss less any premium received for writing the option.
A short sale creates the risk of an unlimited loss since the price of the underlying commodity in a futures contract or the underlying futures contract in a call option written could theoretically increase without limit, thus increasing the cost of
covering the short positions. In circumstances where a market has reached its maximum price limits imposed by the exchange, the short seller may be unable to offset its short position until the next trading day, when prices could increase again in
rapid trading.
The commodity markets have volatility risk.
The commodity markets have experienced periods of extreme
volatility. General market uncertainty and consequent repricing risk have led to market imbalances of sellers and buyers, which in turn have resulted in significant reductions in values of a variety of commodities. Similar future market conditions
may result in rapid and substantial valuation increases or decreases in the 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.
3. Derivative Instruments and Hedging Activities
The Fund records derivative instruments at fair value, with changes in fair value recognized on the Statements of
Operations.
20
NUVEEN LONG/SHORT COMMODITY TOTAL RETURN FUND
NOTES TO FINANCIAL STATEMENTS (Continued) (Unaudited)
March 31, 2013
3. Derivative Instruments and Hedging Activities (continued)
The following tables present the fair value of all derivative instruments held by the
Fund, the location of these instruments on the Statements of Financial Condition and the primary underlying risk exposure.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
2013
|
|
|
|
|
|
Location on the Statements of Financial
Condition
|
|
Underlying
Risk Exposure
|
|
Derivative
Instrument
|
|
Asset Derivatives
|
|
|
Liability Derivatives
|
|
|
|
Location
|
|
Value
|
|
|
Location
|
|
Value
|
|
|
|
Commodity
|
|
Futures Contracts
|
|
Unrealized appreciation on futures contracts*
|
|
$
|
4,910,579
|
|
|
Unrealized depreciation on futures contracts*
|
|
$
|
(2,399,932
|
)
|
Commodity
|
|
Call Options
|
|
|
|
|
|
|
|
Options written, at value
|
|
|
(1,991,055
|
)
|
Commodity
|
|
Put Options
|
|
|
|
|
|
|
|
Options written, at value
|
|
|
(2,025,061
|
)
|
Total
|
|
|
|
|
|
$
|
4,910,579
|
|
|
|
|
$
|
(6,416,048
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
2012
|
|
|
|
|
|
Location on the Statements of Financial
Condition
|
|
Underlying
Risk Exposure
|
|
Derivative
Instrument
|
|
Asset Derivatives**
|
|
|
Liability Derivatives
|
|
|
|
Location
|
|
Value
|
|
|
Location
|
|
Value
|
|
|
|
Commodity
|
|
Futures Contracts
|
|
Unrealized appreciation on futures contracts*
|
|
$
|
1,499,470
|
|
|
Unrealized depreciation on futures contracts*
|
|
$
|
(4,755,125
|
)
|
Commodity
|
|
Call Options
|
|
|
|
|
|
|
|
Options written, at value
|
|
|
(2,274,790
|
)
|
Commodity
|
|
Put Options
|
|
|
|
|
|
|
|
Options written, at value
|
|
|
(1,190,634
|
)
|
Total
|
|
|
|
|
|
$
|
1,499,470
|
|
|
|
|
$
|
(8,220,549
|
)
|
*
|
Value represents cumulative gross unrealized appreciation (depreciation) of futures contracts as reported in the Schedule of Investments as of the end of each reporting
period and not the Deposits with brokers as presented on the Statements of Financial Condition.
|
**
|
Amounts have been reclassified to conform to the current presentation.
|
The following table presents the amount of net realized gain (loss) and change in net unrealized appreciation (depreciation) recognized on derivative instruments and the primary underlying risk exposure.
|
|
|
|
|
|
|
|
|
Commodity Risk Exposure
|
|
Three Months Ended
March 31, 2013
|
|
|
Three Months Ended
March 31, 2012***
|
|
Net realized gain (loss) from:
|
|
|
|
|
|
|
|
|
Futures contracts
Call options written
Put options written
|
|
$
|
(21,185,094
5,792,479
1,261,694
|
)
|
|
$
|
|
|
Change in net unrealized appreciation (depreciation) of:
|
|
|
|
|
|
|
|
|
Futures contracts
Call options written
Put options written
|
|
$
|
5,766,302
(1,356,258
(271,032
|
)
)
|
|
$
|
|
|
***
|
The Fund was organized as a statutory trust under Delaware law on May 25, 2011, and commenced operations on October 25, 2012.
|
4. Related Parties
The Manager, the Commodity Sub-advisor and the Collateral Sub-advisor are considered to be related parties to the Fund.
21
NUVEEN LONG/SHORT COMMODITY TOTAL RETURN FUND
NOTES TO FINANCIAL STATEMENTS (Continued) (Unaudited)
March 31, 2013
4. Related Parties (continued)
For the services and facilities provided by the Manager, the Fund pays the Manager an
annual management fee, payable monthly, based on the Funds average daily net assets, according to the following schedule:
|
|
|
|
|
Average Daily Net Assets
|
|
Management Fee
|
|
For the first $500 million
|
|
|
1.250
|
%
|
For the next $500 million
|
|
|
1.225
|
|
For the next $500 million
|
|
|
1.200
|
|
For the next $500 million
|
|
|
1.175
|
|
For net assets over $2 billion
|
|
|
1.150
|
|
Average daily net assets means the total assets of the Fund, minus the sum of its total
liabilities.
The Manager and the Fund have entered into sub-advisory agreements with the Commodity Sub-advisor and the
Collateral Sub-advisor. Both the Commodity Sub-advisor and the Collateral Sub-advisor are compensated for their services to the Fund from the management fees paid to the Manager, and the Fund does not reimburse the Manager for those fees.
5. Share Repurchase Program
On March 14, 2013, the Fund announced the adoption of an open-market share repurchase program pursuant to which it is
authorized to repurchase an aggregate of up to 10% of its outstanding common shares (approximately 1,800,000 shares) in open-market transactions. As of March 31, 2013, the Fund has not repurchased any of its common shares outstanding.
6. Financial Highlights
The following financial highlights relate to investment performance and operations for a Fund share outstanding during
the three months ended March 31, 2013. As of March 31, 2012, the Fund had no operations other than those related to organizational matters and therefore there are no financial highlights presented. The Net Asset Value presentation is calculated
using average daily shares outstanding. The Ratios to Average Net Assets are calculated using average daily net assets and have been annualized for periods less than a full fiscal year. The Total Returns at Net Asset Value and Market Value are based
on the change in net asset value and
22
NUVEEN LONG/SHORT COMMODITY TOTAL RETURN FUND
NOTES TO FINANCIAL STATEMENTS (Continued) (Unaudited)
March 31, 2013
6. Financial Highlights (continued)
market value, respectively, for a share during the period. An investors return and ratios will vary based on the timing of purchasing and selling Fund shares.
|
|
|
|
|
|
|
Three Months Ended
March 31,
2013
|
|
Net Asset Value:
|
|
|
|
|
Net asset value per share
beginning of period
|
|
$
|
22.72
|
|
Net investment income (loss)
|
|
|
(.09
|
)
|
Net realized and unrealized gain (loss)
|
|
|
(.53
|
)
|
Distributions
|
|
|
(.47
|
)
|
|
|
|
|
|
Net asset value per shareend of period
|
|
$
|
21.63
|
|
|
|
|
|
|
Market Value:
|
|
|
|
|
Market value per sharebeginning of
period
|
|
$
|
21.22
|
|
|
|
|
|
|
Market value per shareend of period
|
|
$
|
20.23
|
|
|
|
|
|
|
Ratios to Average Net
Assets:
(a)
|
|
|
|
|
Net investment income (loss)
|
|
|
(1.64
|
)%
|
|
|
|
|
|
Expenses
|
|
|
1.77
|
%
|
|
|
|
|
|
Total Returns:
(b)
|
|
|
|
|
Based on Net Asset Value
|
|
|
(2.77
|
)%
|
|
|
|
|
|
Based on Market Value
|
|
|
(2.58
|
)%
|
|
|
|
|
|
(b)
|
Total Return Based on Net Asset Value is the combination of changes in net asset value per share and the assumed reinvestment of distributions, if any, at net asset
value per share on the distribution payment date. The last distribution declared in the period, which is typically paid on the first business day of the following month, is assumed to be reinvested at the net asset value per share at the end of
the period. Total returns are not annualized.
|
Total Return Based on Market Value is the combination of changes in
the market price per share and the assumed reinvestment of distributions, if any, at the ending market price per share on the distribution payment date. The last distribution declared in the period, which is typically paid on the first business
day of the following month, is assumed to be reinvested at the ending market price per share at the end of the period. Total returns are not annualized.
7. Subsequent Events
Share Repurchase Program
Subsequent to March 31, 2013, the Fund began repurchasing its outstanding common shares. During April 2013, the Fund repurchased 9,500 common shares at a weighted average price of $18.76 per share.
23