Quarterly report [Sections 13 or 15(d)]

>

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x

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

For the quarterly period ended March 31, 2016

OR

o

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

For the transition period from                      to

Commission File Number:                    001-33240

POWERSHARES DB ENERGY FUND

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

(Exact name of Registrant as specified in its charter)

Delaware

87-0778060

(State or Other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification No.)

c/o Invesco PowerShares Capital Management LLC

3500 Lacey Road, Suite 700

Downers Grove, Illinois

60515

(Address of Principal Executive Offices)

(Zip Code)

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

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes x No o

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, an Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).    Yes x No o

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

Large Accelerated Filer

o

Accelerated Filer

x

Non-Accelerated Filer

o (Do not check if a smaller reporting company)

Smaller reporting company

o

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

Indicate the number of outstanding Shares as of March 31, 2016: 7,200,000 Shares.


POWERSHARES DB ENERGY FUND

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

QUARTER ENDED MARCH 31, 2016

TABLE OF CONTENTS

Page

PART I.

FINANCIAL INFORMATION

1

ITEM 1.

FINANCIAL STATEMENTS

1

Notes to Unaudited Financial Statements

8

ITEM 2.

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

17

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

29

ITEM 4.

CONTROLS AND PROCEDURES

31

PART II.

OTHER INFORMATION

31

Item 1.

Legal Proceedings

31

Item 1A.

Risk Factors

31

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

32

Item 3.

Defaults Upon Senior Securities

32

Item 4.

Mine Safety Disclosures

32

Item 5.

Other Information

33

Item 6.

Exhibits

33

SIGNATURES

34


PART I. FINANCI AL INFORMATION

ITEM  1.

FINANCIAL STATEMENTS.

PowerShares DB Energy Fund

Statements of Financial Condition

March 31, 2016 and December 31, 2015

(Unaudited)

March 31,

2016

December 31,

2015

Assets

United States Treasury Obligations, at fair value (cost $69,960,958 and $89,684,684,

respectively) (a)

$

69,977,482

$

89,690,202

Cash held by custodian

621,633

2,554,013

Variation margin receivable

1,515,877

Receivable for securities sold

6,999,501

Total assets

$

77,598,616

$

93,760,092

Liabilities

Variation margin payable

$

16,981

$

Payable for shares redeemed

2,095,308

Management fee payable

49,783

63,020

Brokerage fee payable

4,865

4,998

Total liabilities

2,166,937

68,018

Commitments and Contingencies (Note 9)

Equity

Shareholder's equity—General Shares

419

446

Shareholders' equity—Shares

75,431,260

93,691,628

Total shareholders' equity

75,431,679

93,692,074

Total liabilities and equity

$

77,598,616

$

93,760,092

General Shares outstanding

40

40

Shares outstanding

7,200,000

8,400,000

Net asset value per share

$

10.48

$

11.15

Market value per share

$

10.46

$

11.17

(a)

$20,976,719 and $20,995,800, respectively is restricted for maintenance margin purposes.

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

1


PowerShares DB Energy Fund

Schedule of Investments

March 31, 2016

(Unaudited)

Description

Percentage of

Shareholders'

Equity

Fair Value

Face Value

United States Treasury Obligations (a)

U.S. Treasury Bills, 0.325% due June 2, 2016 (b)

76.87

%

$

57,984,862

$

58,000,000

U.S. Treasury Bills, 0.235% due July 7, 2016

15.90

11,992,620

12,000,000

Total United States Treasury Obligations (cost $69,960,958)

92.77

%

$

69,977,482

( a)

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

(b)

All or a portion of United States Treasury Obligations are on deposit with the Commodity Broker and held as maintenance margin for open futures contracts.

Description

Unrealized

Appreciation/

(Depreciation)

as a

Percentage of

Shareholders'

Equity

Unrealized

Appreciation/

(Depreciation) (c)

Notional

Market

Value

Commodity Futures Contracts

ICE-UK Brent Crude (394 contracts, settlement date October 31, 2016)

(4.78)%

$

(3,604,665

)

$

17,020,800

NYMEX Natural Gas (369 contracts, settlement date August 29, 2016)

(2.76

)

(2,083,555

)

8,254,530

NYMEX NY Harbor ULSD (330 contracts, settlement date May 31, 2016)

(10.04

)

(7,569,459

)

16,655,562

NYMEX RBOB Gasoline (361 contracts, settlement date November 30, 2016)

(1.22

)

(921,899

)

18,417,281

NYMEX WTI Crude (344 contracts, settlement date February 21, 2017)

1.11

834,510

15,077,520

Total Commodity Futures Contracts

(17.69)%

$

(13,345,068

)

$

75,425,693

(c)

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

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

2


PowerShares DB Energy Fund

Schedule of Investments

December 31, 2015

(Unaudited)

Description

Percentage of

Shareholders'

Equity

Fair Value

Face Value

United States Treasury Obligations (a)(b)

U.S. Treasury Bills, 0.235% due January 7, 2016

2.35

%

$

2,199,991

$

2,200,000

U.S. Treasury Bills, 0.205% due January 14, 2016

10.67

9,999,720

10,000,000

U.S. Treasury Bills, 0.195% due January 21, 2016

3.74

3,499,857

3,500,000

U.S. Treasury Bills, 0.170% due January 28, 2016

10.67

9,999,180

10,000,000

U.S. Treasury Bills, 0.200% due February 4, 2016

11.74

10,999,142

11,000,000

U.S. Treasury Bills, 0.135% due February 11, 2016

7.47

6,999,076

7,000,000

U.S. Treasury Bills, 0.145% due February 18, 2016

22.41

20,997,228

21,000,000

U.S. Treasury Bills, 0.140% due February 25, 2016

4.27

3,999,608

4,000,000

U.S. Treasury Bills, 0.215% due March 3, 2016

16.01

14,997,630

15,000,000

U.S. Treasury Bills, 0.280% due March 10, 2016

6.40

5,998,770

6,000,000

Total United States Treasury Obligations (cost $89,684,684)

95.73

%

$

89,690,202

( a)

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

(b)

A portion of United States Treasury Obligations are on deposit with the Commodity Broker and held as maintenance margin for open futures contracts.

Description

Unrealized

Appreciation/

(Depreciation)

as a

Percentage of

Shareholders'

Equity

Unrealized

Appreciation/

(Depreciation) (c)

Notional

Market

Value

Commodity Futures Contracts

ICE-UK Brent Crude (460 contracts, settlement date

October 31, 2016)

(5.38

)%

$

(5,040,239

)

$

20,424,000

NYMEX Natural Gas (431 contracts, settlement date

August 29, 2016)

(1.74

)

(1,630,995

)

10,865,510

NYMEX NY Harbor ULSD (386 contracts, settlement

date May 31, 2016)

(11.61

)

(10,873,235

)

19,704,065

NYMEX RBOB Gasoline (422 contracts, settlement date

November 30, 2016)

(1.25

)

(1,170,267

)

22,215,261

NYMEX WTI Crude (537 contracts, settlement date

February 22, 2016)

(11.11

)

(10,412,552

)

20,497,290

Total Commodity Futures Contracts

(31.09

)%

$

(29,127,288

)

$

93,706,126

(c)

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

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

3


PowerShares DB Energy Fund

Statements of Income and Expenses

For the Three Months Ended March 31, 2016 and 2015

(Unaudited)

Three Months Ended

March 31,

2016

2015

Income

Interest Income

$

40,136

$

7,591

Expenses

Management Fee

144,983

257,120

Brokerage Commissions and Fees

4,381

13,285

Interest Expense (a)

1,735

Total Expenses

151,099

270,405

Net Investment Income (Loss)

(110,963

)

(262,814

)

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

Obligations and Commodity Futures Contracts

Net Realized Gain (Loss) on

United States Treasury Obligations

1,040

573

Commodity Futures Contracts

(21,895,954

)

(21,357,291

)

Net Realized Gain (Loss)

(21,894,914

)

(21,356,718

)

Net Change in Unrealized Gain (Loss) on

United States Treasury Obligations

11,006

(2,774

)

Commodity Futures Contracts

15,782,220

11,233,819

Net Change in Unrealized Gain (Loss)

15,793,226

11,231,045

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

Obligations and Commodity Futures Contracts

(6,101,688

)

(10,125,673

)

Net Income (Loss)

$

(6,212,651

)

$

(10,388,487

)

(a)

Interest Expense for the period ended March 31, 2016 represents interest expense on overdraft balances. These amounts are included in Interest Income for the period ended March 31, 2015.

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

4


PowerShares DB Energy Fund

Statement of Changes in Shareholders’ Equity

For the Three Months Ended March 31, 2016

(Unaudited)

General Shares

Shares

Total

Shares

Total

Equity

Shares

Total

Equity

Shareholders'

Equity

Balance at January 1, 2016

40

$

446

8,400,000

$

93,691,628

$

93,692,074

Sale of Shares

1,000,000

9,370,569

9,370,569

Redemption of Shares

(2,200,000

)

(21,418,313

)

(21,418,313

)

Net Increase (Decrease) due to Share Transactions

(1,200,000

)

(12,047,744

)

(12,047,744

)

Net Income (Loss)

Net Investment Income (Loss)

(1

)

(110,962

)

(110,963

)

Net Realized Gain (Loss) on United States Treasury

Obligations and Commodity Futures Contracts

(95

)

(21,894,819

)

(21,894,914

)

Net Change in Unrealized Gain (Loss) on United States

Treasury Obligations and Commodity Futures

Contracts

69

15,793,157

15,793,226

Net Income (Loss)

(27

)

(6,212,624

)

(6,212,651

)

Net Change in Shareholders' Equity

(27

)

(1,200,000

)

(18,260,368

)

(18,260,395

)

Balance at March 31, 2016

40

$

419

7,200,000

$

75,431,260

$

75,431,679

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

5


PowerShares DB Energy Fund

Statement of Changes in Shareholders’ Equity

For the Three Months Ended March 31, 2015

(Unaudited)

General Shares

Shares

Total

Shares

Total

Equity

Shares

Total

Equity

Shareholders'

Equity

Balance at January 1, 2015

40

$

685

8,200,000

$

140,437,650

$

140,438,335

Sale of Shares

1,400,000

23,051,370

23,051,370

Redemption of Shares

(1,000,000

)

(16,771,788

)

(16,771,788

)

Net Increase (Decrease) due to Share Transactions

400,000

6,279,582

6,279,582

Net Income (Loss)

Net Investment Income (Loss)

(1

)

(262,813

)

(262,814

)

Net Realized Gain (Loss) on United States Treasury

Obligations and Commodity Futures Contracts

(105

)

(21,356,613

)

(21,356,718

)

Net Change in Unrealized Gain (Loss) on United States

Treasury Obligations and Commodity Futures

Contracts

55

11,230,990

11,231,045

Net Income (Loss)

(51

)

(10,388,436

)

(10,388,487

)

Net Change in Shareholders' Equity

(51

)

400,000

(4,108,854

)

(4,108,905

)

Balance at March 31, 2015

40

$

634

8,600,000

$

136,328,796

$

136,329,430

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

6


PowerShares DB Energy Fund

Statements of Cash Flows

For the Three Months Ended March 31, 2016 and 2015

(Unaudited)

Three Months Ended

March 31,

2016

March 31,

2015

Cash flows from operating activities

Net Income (Loss)

$

(6,212,651

)

$

(10,388,487

)

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

activities:

Cost of securities purchased

(76,934,306

)

(104,944,818

)

Proceeds from securities sold and matured

89,699,707

139,999,698

Net accretion of discount on United States Treasury Obligations

(40,136

)

(8,316

)

Net realized (gain) loss on United States Treasury Obligations

(1,040

)

(573

)

Net change in unrealized (gain) loss on United States Treasury Obligations and

Commodity Futures Contracts

(11,006

)

(11,231,045

)

Cash transfer to Commodity Broker to satisfy variation margin requirements (Note 4)

(28,875,198

)

Cash received (paid) to Commodity Broker to satisfy open variation margin, net

(Note 4)

(6,929,408

)

Change in operating receivables and payables:

Variation margin

1,532,858

1,750,447

Management fee payable

(13,237

)

2,453

Brokerage fee payable

(133

)

(4,375

)

Net cash provided by (used for) operating activities

8,020,056

(20,629,622

)

Cash flows from financing activities

Proceeds from sale of Shares

9,370,569

23,051,370

Redemption of Shares

(19,323,005

)

(16,771,788

)

Net cash provided by (used for) financing activities

(9,952,436

)

6,279,582

Net change in cash held

(1,932,380

)

(14,350,040

)

Cash at beginning of year

2,554,013

47,572,082

Cash at end of year

$

621,633

$

33,222,042

Supplemental disclosure of cash flow information

Cash paid for interest

$

1,735

$

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

7


PowerShares DB Energy Fund

Notes to Unaudited Financial Statements

March 31, 2016

(1) Background

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

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

(2) Organization

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

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

This Quarterly Report (the “Report”) covers the three months ended March 31, 2016 and 2015 (hereinafter referred to as the “Three Months Ended March 31, 2016” and the “Three Months Ended March 31, 2015”, respectively). The Fund’s performance information from inception up to and excluding the Closing Date is a reflection of the performance associated with the Predecessor Managing Owner. The Managing Owner has served as managing owner of the Fund since the Closing Date, and the Fund’s performance information since the Closing Date is a reflection of the performance associated with the Managing Owner. Past performance of the Fund is not necessarily indicative of future performance.

The accompanying unaudited financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions for Form 10-Q and the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”). In the opinion of management, all material adjustments, consisting only of normal recurring adjustments, considered necessary for a fair statement of the interim period financial statements have been made. Interim period results are not necessarily indicative of results for a full-year period. These financial statements and the notes thereto should be read in conjunction with the Fund’s financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2015 as filed with the SEC on February 29, 2016.

(3) Fund Investment Overview

The Fund invests with a view to tracking the changes, whether positive or negative, in the level of the DBIQ Optimum Yield Energy Index Excess Return™ (the “Index”) over time plus the excess, if any, of the Fund’s interest income from its holdings of United States Treasury Obligations over the expenses of the Fund.

The Index is intended to reflect the change in market value of the energy sector. The commodities comprising the Index are Light Sweet Crude Oil, Ultra Low Sulphur Diesel (also commonly known as Heating Oil), Brent Crude Oil, RBOB Gasoline and Natural Gas (the “Index Commodities”).

8


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

(4) Service Providers and Related Party Agreements

The Trustee

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

The Managing Owner

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

The Commodity Broker

Effective as of the Closing Date, Morgan Stanley & Co. LLC, a Delaware limited liability company, serves as the Fund’s futures clearing broker (the “Commodity Broker”). Deutsche Bank Securities Inc. (“DBSI”), a Delaware corporation, served as the Fund’s futures clearing broker up to and excluding the Closing Date (the “Predecessor Commodity Broker”).

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

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

The Administrator, Custodian and Transfer Agent

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

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

As of December 31, 2014, the Fund held $47,572,082 of cash and $141,996,424 of United States Treasury Obligations at the Predecessor Commodity Broker. In conjunction with the Transaction, during the three-day period from February 24, 2015 to

9


February 26, 2015, the Fund transferred $38,322,750 of cash and $133,996,466 of United States Treasury Obligations from the Predecessor Commodity Broker to the Custodian. Additionally, during that same three-day period, the Fund transferred all of its open positions of commodity futures contracts from the Predecessor Commodity Broker to the Commodity Broker, $59,994,000 of United States Treasury Obligations from the Custodian to the Commodity Broker to satisfy maintenance margin requirements and $28,875,198 of cash from the Custodian to the Commodity Broker to satisfy variation margin requirements for open commodity futures contracts. Effective February 26, 2015, the Managing Owner began transferring cash daily from the Custodian to the Commodity Broker to satisfy the previous day’s variation margin on open futures contracts.

The Distributor

ALPS Distributors, Inc. (the “Distributor”) provides certain distribution services to the Fund. Pursuant to the Distribution Services Agreement among the Managing Owner, the Fund and the Distributor, the Distributor assists the Managing Owner and the Administrator with certain functions and duties relating to distribution and marketing services to the Fund including reviewing and approving marketing materials.

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

Index Sponsor

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

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

Marketing Agent

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

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

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

(5) Summary of Significant Accounting Policies

(a) Basis of Presentation

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

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

(b) Use of Estimates

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

(c) Financial Instruments and Fair Value

United States Treasury Obligations and commodity futures contracts are recorded in the Statements of Financial Condition on a trade date basis at fair value with changes in fair value recognized in earnings in each period. U.S. GAAP defines fair value as the

10


price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions.

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

Level 1:

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

Level 2:

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

Level 3:

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

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

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

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

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

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

Level 1

Level 2

Level 3

Total

United States Treasury Obligations

$

$

69,977,482

$

$

69,977,482

Commodity Futures Contracts (a)

$

(13,345,068

)

$

$

$

(13,345,068

)

(a)

Unrealized appreciation (depreciation).

The following is a summary of the tiered valuation input levels as of December 31, 2015:

Level 1

Level 2

Level 3

Total

United States Treasury Obligations

$

$

89,690,202

$

$

89,690,202

Commodity Futures Contracts (a)

$

(29,127,288

)

$

$

$

(29,127,288

)

(a)

Unrealized appreciation (depreciation).

(d) Deposits with Commodity Broker

The Fund deposits cash and United States Treasury Obligations with its Commodity Broker subject to CFTC regulations and various exchange and broker requirements. The combination of the Fund’s deposits with its Commodity Broker of cash and United States Treasury Obligations and the unrealized profit or loss on open commodity futures contracts represents the Fund’s overall equity in its broker trading account. To meet the Fund’s maintenance margin requirements, the Fund holds United States Treasury Obligations. The Fund transfers cash to the Commodity Broker to satisfy variation margin requirements. The Fund earns interest on any excess cash deposited with the Commodity Broker and incurs interest expense on any deficit balance with the Commodity Broker.

11


(e) Investment Transactions and Investment Income

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

Interest income on United States Treasury Obligations is recognized on an accrual basis when earned. Premiums and discounts are amortized or accreted over the life of the United States Treasury Obligations.

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

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

(g) Cash Held by Commodity Broker

The Fund’s arrangement with the Commodity Broker requires the Fund to meet its variation margin requirement related to the price movements on commodity futures contracts held by the Fund by maintaining cash on deposit with the Commodity Broker. The Fund assesses its variation margin requirements on a daily basis by recalculating the change in value of the futures contracts based on price movements. Subsequent cash payments are made or received by the Fund each business day depending upon whether unrealized gains or losses are incurred on the futures contracts. Effective February 24, 2015, only the current day’s variation margin receivable or payable is disclosed as an asset or liability on the Statement of Financial Condition.

The Fund defines cash and cash equivalents to be highly liquid investments, with original maturities of three months or less when purchased. There were no cash equivalents held by the Fund as of March 31, 2016 and December 31, 2015.

(h) Income Taxes

The Fund is classified as a partnership for U.S. federal income tax purposes. Accordingly, the Fund will generally not incur U.S. federal income taxes. No provision for federal, state, and local income taxes has been made in the accompanying financial statements, as investors are individually liable for income taxes, if any, on their allocable share of the Fund’s income, gain, loss, deductions and other items.

The Managing Owner has reviewed all of the Fund’s open tax years and major jurisdictions and concluded that there is no tax liability resulting from unrecognized tax benefits relating to uncertain tax positions taken or expected to be taken in future tax returns. The Fund is also not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months. On an ongoing basis, the Managing Owner will monitor the Fund’s tax positions taken under the interpretation (and consult with its tax counsel from time to time when appropriate) to determine if adjustments to conclusions are necessary based on factors including, but not limited to, on-going analysis of tax law, regulation, and interpretations thereof. The major tax jurisdiction for the Fund and the earliest tax year subject to examination: United States, 2012.

(i) Commodity Futures Contracts

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

The Fair Value of Derivative Instruments is as follows:

March 31, 2016

December 31, 2015

Risk Exposure/Derivative Type (a)

Assets

Liabilities

Assets

Liabilities

Commodity risk

Commodity Futures Contracts

$

834,510

$

(14,179,578

)

$

$

(29,127,288

)

12


(a)

Includes cumulative appreciation (depreciation) of commodity futures contracts. Only current day’s variation margin receivable (payable) is reported in the March 31, 2016 and December 31, 2015 Statements of Financial Condition.

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

Location of Gain or (Loss) on Derivatives

For the Three Months  Ended

March 31,

Risk Exposure/Derivative Type

Recognized in Income

2016

2015

Commodity risk

Commodity Futures Contracts

Net Realized Gain (Loss)

$

(21,895,954

)

$

(21,357,291

)

Net Change in Unrealized Gain (Loss)

15,782,220

11,233,819

Total

$

(6,113,734

)

$

(10,123,472

)

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

For the Three Months Ended March 31,

2016

2015

Average Notional Value

$

80,515,834

$

145,335,270

The brokerage agreement with the Commodity Broker provides for the net settlement of all financial instruments covered by the agreement in the event of default or termination of any one contract. The Managing Owner will utilize any excess cash held at the Commodity Broker to offset any realized losses incurred in the commodity futures contracts, if available. To the extent that any excess cash held at the Commodity Broker is not adequate to cover any realized losses, a portion of the United States Treasury Obligations on deposit with the Commodity Broker will be sold to make additional cash available. For financial reporting purposes, the Fund offsets financial assets and financial liabilities that are subject to netting arrangements. In order for an arrangement to be eligible for netting, the Fund must have a basis to conclude that such netting arrangements are legally enforceable. The following table presents derivative instruments that are either subject to an enforceable netting agreement or offset by collateral arrangements as of March 31, 2016, net by contract:

Gross Amounts

Offset in the

Net Amounts

Presented in

Gross Amounts Not Offset in the

Statement of Financial Condition

Gross Amounts

Recognized

Statement of

Financial Condition

the Statement of

Financial Condition

Financial

Instruments (a)

Cash Collateral

Pledged (a)

Net

Amount

Assets

Commodity Futures Contracts

$

14,162,597

$

(14,162,597

)

$

$

$

$

Liabilities

Commodity Futures Contracts

$

(14,179,578

)

$

14,162,597

$

(16,981

)

$

16,981

$

$

The following table presents derivative instruments that are either subject to an enforceable netting agreement or offset by collateral arrangements as of December 31, 2015, net by contract:

Gross Amounts

Offset in the

Net Amounts

Presented in

Gross Amounts Not Offset in the

Statement of Financial Condition

Gross Amounts

Recognized

Statement of

Financial Condition

the Statement of

Financial Condition

Financial

Instruments (a)

Cash Collateral

Pledged (a)

Net

Amount

Assets

Commodity Futures Contracts

$

30,643,165

$

(29,127,288

)

$

1,515,877

$

$

$

1,515,877

Liabilities

Commodity Futures Contracts

$

(29,127,288

)

$

29,127,288

$

$

$

$

(a)

As of March 31, 2016 and December 31, 2015, a portion of the Fund’s US Treasury Obligations were required to be deposited as maintenance margin in support of the Fund’s futures positions.

(j) Brokerage Commissions and Fees

The Fund incurs all brokerage commissions, including applicable exchange fees, National Futures Association (“NFA”) fees, give-up fees, pit brokerage fees and other transaction related fees and expenses charged in connection with trading activities by the Commodity Broker. These costs are recorded as Brokerage Commissions and Fees in the Statements of Income and Expenses. The Commodity Broker’s brokerage commissions and trading fees are determined on a contract-by-contract basis. On average, total

13


charges paid to the Commodity Broker and the Predecessor Commodity Broker, as applicable, were less than $6.00 and $6.00 per round-turn trade during the Three Months Ended March 31, 2016 and 2015, respectively.

(k) Routine Operational, Administrative and Other Ordinary Expenses

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

(l) Non-Recurring Fees and Expenses

The Fund pays all non-recurring and unusual fees and expenses (referred to as extraordinary fees and expenses in the Trust Agreement), if any, of itself, as determined by the Managing Owner. Non-recurring and unusual fees and expenses are fees and expenses which are non-recurring and unusual in nature, such as legal claims and liabilities, litigation costs or indemnification or other unanticipated expenses. Such non-recurring and unusual fees and expenses, by their nature, are unpredictable in terms of timing and amount. For the Three Months Ended March 31, 2016 and 2015, the Fund did not incur such expenses.

(6) Financial Instrument Risk

In the normal course of its business, the Fund is a party to financial instruments with off-balance sheet risk. The term “off-balance sheet risk” refers to an unrecorded potential liability that, even though it does not appear on the balance sheet, may result in a future obligation or loss in excess of the amounts shown on the Statements of Financial Condition. The financial instruments used by the Fund are commodity futures, whose values are based upon an underlying asset and generally represent future commitments that have a reasonable possibility of being settled in cash or through physical delivery. The financial instruments are traded on an exchange and are standardized contracts.

Market risk is the potential for changes in the value of the financial instruments traded by the Fund due to market changes, including fluctuations in commodity prices. In entering into these commodity futures contracts, there exists a market risk that such commodity futures contracts may be significantly influenced by adverse market conditions, resulting in such commodity futures contracts being less valuable. If the markets should move against all of the commodity futures contracts at the same time, the Fund could experience substantial losses.

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

The Fund has not utilized, nor does it expect to utilize in the future, special purpose entities to facilitate off-balance sheet financing arrangements and has no loan guarantee arrangements or off-balance sheet arrangements of any kind, other than agreements entered into in the normal course of business noted above.

(7) Share Purchases and Redemptions

(a) Purchases

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

14


Unless otherwise agreed to by the Managing Owner and the Authorized Participant as provided in the next sentence, Baskets are issued on the creation order settlement date as of 2:45 p.m., Eastern Time, on the business day immediately following the creation order date at the applicab le net asset value per Share as of the closing time of the NYSE Arca or the last to close of the exchanges on which its commodity futures contracts are traded, whichever is later, on the creation order date, but only if the required payment has been timely received. Upon submission of a creation order, the Authorized Participant may request the Managing Owner to agree to a creation order settlement date up to three business days after the creation order date.

Creation orders may be placed either (i) through the Continuous Net Settlement (“CNS”) clearing processes of the National Securities Clearing Corporation (the “NSCC”) (the “CNS Clearing Process”) or (ii) if outside the CNS Clearing Process, only through the facilities of The Depository Trust Company (“DTC” or the “Depository”) (the “DTC Process”), or a successor depository.

(b) Redemptions

On any business day, an Authorized Participant may place an order with the Transfer Agent to redeem one or more Baskets. Redemption orders must be placed by 10:00 a.m., Eastern Time. The day on which the Managing Owner receives a valid redemption order is the redemption order date. The day on which a redemption order is settled is the redemption order settlement date. As provided below, the redemption order settlement date may occur up to three business days after the redemption order date. The redemption procedures allow Authorized Participants to redeem Baskets. Individual Shareholders may not redeem directly from the Fund. Instead, individual Shareholders may only redeem Shares in integral multiples of 200,000 and only through an Authorized Participant.

Unless otherwise agreed to by the Managing Owner and the Authorized Participant as provided in the next sentence, by placing a redemption order, an Authorized Participant agrees to deliver the Baskets to be redeemed through DTC’s book-entry system to the Fund not later than the redemption order settlement date as of 2:45 p.m., Eastern Time, on the business day immediately following the redemption order date. Upon submission of a redemption order, the Authorized Participant may request the Managing Owner to agree to a redemption order settlement date up to three business days after the redemption order date. By placing a redemption order, and prior to receipt of the redemption proceeds, an Authorized Participant’s DTC account is charged the non-refundable transaction fee due for the redemption order.

Redemption orders may be placed either (i) through the CNS Clearing Process or (ii) if outside the CNS Clearing Process, only through the DTC Process, or a successor depository, and only in exchange for cash. The redemption proceeds from the Fund consist of the cash redemption amount. The cash redemption amount is equal to the net asset value of the number of Basket(s) of the Fund requested in the Authorized Participant’s redemption order as of the closing time of the NYSE Arca or the last to close of the exchanges on which the Fund’s commodity futures contracts are traded, whichever is later, on the redemption order date. The Managing Owner will distribute the cash redemption amount at the redemption order settlement date as of 2:45 p.m., Eastern Time, on the redemption order settlement date through DTC to the account of the Authorized Participant as recorded on DTC’s book-entry system.

The redemption proceeds due from the Fund are delivered to the Authorized Participant at 2:45 p.m., Eastern Time, on the redemption order settlement date if, by such time, the Fund’s DTC account has been credited with the Baskets to be redeemed. If the Fund’s DTC account has not been credited with all of the Baskets to be redeemed by such time, the redemption distribution is delivered to the extent of whole Baskets received. Any remainder of the redemption distribution is delivered on the next business day to the extent of remaining whole Baskets received if the Transfer Agent receives the fee applicable to the extension of the redemption distribution date which the Managing Owner may, from time-to-time, determine and the remaining Baskets to be redeemed are credited to the Fund’s DTC account by 2:45 p.m., Eastern Time, on such next business day. Any further outstanding amount of the redemption order will be cancelled. The Managing Owner is also authorized to deliver the redemption distribution notwithstanding that the Baskets to be redeemed are not credited to the Fund’s DTC account by 2:45 p.m., Eastern Time, on the redemption order settlement date if the Authorized Participant has collateralized its obligation to deliver the Baskets through DTC’s book-entry system on such terms as the Managing Owner may determine from time-to-time.

(8) Profit and Loss Allocations and Distributions

Pursuant to the Trust Agreement, income and expenses are allocated pro rata to the Managing Owner as holder of the General Shares and to the Shareholders monthly based on their respective percentage interests as of the close of the last trading day of the preceding month. Distributions (other than redemption of units) may be made at the sole discretion of the Managing Owner on a pro rata basis in accordance with the respective capital balances of the shareholders.

No distributions were paid for the Three Months Ended March 31, 2016 and 2015.

15


( 9) Commitments and Contingencies

The Managing Owner, either in its own capacity or in its capacity as the Managing Owner and on behalf of the Fund, has entered into various service agreements that contain a variety of representations, or provide indemnification provisions related to certain risks service providers undertake in performing services which are in the best interests of the Fund. As of March 31, 2016 and December 31, 2015, no claims had been received by the Fund. Further, the Fund has not had prior claims or losses pursuant to these contracts. Accordingly, the Managing Owner expects the risk of loss to be remote.

(10) Net Asset Value and Financial Highlights

The Fund is presenting the following net asset value and financial highlights related to investment performance for a Share outstanding for the Three Months Ended March 31, 2016 and 2015. An individual investor’s return and ratios may vary based on the timing of capital transactions.

Net asset value per Share is the net asset value of the Fund divided by the number of outstanding Shares at the date of each respective period presented.

Three Months Ended

March 31,

2016

2015

Net Asset Value

Net asset value per Share, beginning of period

$

11.15

$

17.13

Net realized and change in unrealized gain (loss) on

United States Treasury Obligations and Commodity

Futures Contracts

(0.66

)

(1.25

)