ITEM 1.
|
FINANCIAL STATEMENTS.
|
PowerShares DB US Dollar Index Bullish Fund and Subsidiary
Consolidated Statements of Financial
Condition
September 30, 2007 (unaudited) and December 31, 2006 (i)
|
|
|
|
|
|
|
|
|
|
September 30,
2007
(unaudited)
|
|
|
December 31, 2006
|
Assets
|
|
|
|
|
|
|
|
United States Treasury Obligations, at fair value (cost $7,957,517)
|
|
$
|
7,964,728
|
|
|
$
|
|
Cash held by broker
|
|
|
1,837,096
|
|
|
|
1,000
|
Other assets
|
|
|
2,557
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
9,804,381
|
|
|
$
|
1,000
|
|
|
|
|
|
|
|
|
Liabilities and shareholders equity
|
|
|
|
|
|
|
|
Unrealized depreciation on futures contracts
|
|
$
|
201,000
|
|
|
$
|
|
Management fee payable
|
|
|
4,025
|
|
|
|
|
Other liabilities
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
206,025
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies (Note 9)
|
|
|
|
|
|
|
|
Shareholders equity
|
|
|
|
|
|
|
|
General shares:
|
|
|
|
|
|
|
|
Paid in capital - 40 shares issued and outstanding as of September 30, 2007 and December 31, 2006, respectively
|
|
|
1,000
|
|
|
|
1,000
|
Accumulated deficit
|
|
|
(40
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total General shares
|
|
|
960
|
|
|
|
1,000
|
|
|
|
|
|
|
|
|
Limited shares:
|
|
|
|
|
|
|
|
Paid in capital - 400,000 and no redeemable shares issued and outstanding as of September 30, 2007 and December 31, 2006,
respectively
|
|
|
10,092,434
|
|
|
|
|
Accumulated deficit
|
|
|
(495,038
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total Limited shares
|
|
|
9,597,396
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
9,598,356
|
|
|
|
1,000
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
9,804,381
|
|
|
$
|
1,000
|
|
|
|
|
|
|
|
|
Net asset value per share
|
|
|
|
|
|
|
|
General shares
|
|
$
|
24.00
|
|
|
$
|
25.00
|
Limited shares
|
|
$
|
23.99
|
|
|
|
Not
Applicable
|
See accompanying notes to unaudited consolidated financial statements.
(i)
|
Represents financial condition only for PowerShares DB US Dollar Index Bullish Fund as consolidation of DB US Dollar Index Bullish Master Fund.
|
1
PowerShares DB US Dollar Index Bullish Fund and Subsidiary
Unaudited Consolidated Schedule of
Investments
September 30, 2007
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
Percentage of
Net Assets
|
|
|
Fair Value
|
|
|
Face Value
|
United States Treasury Obligations
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury Bills, 4.63% due November 15, 2007
|
|
82.98
|
%
|
|
$
|
7,964,728
|
|
|
$
|
8,000,000
|
|
|
|
|
|
|
|
|
|
|
|
Total United States Treasury Obligations (cost $7,957,517)
|
|
82.98
|
%
|
|
$
|
7,964,728
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A portion of the above United States Treasury Obligations are held as initial margin against open futures contracts, as noted in Note 4(d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
Percentage of
Net Assets
|
|
|
Fair Value
|
|
|
|
Unrealized Depreciation on Futures Contracts
|
|
|
|
|
|
|
|
|
Dollar Index (120 contracts, settlement date December 17, 2007)
|
|
(2.09
|
)%
|
|
$
|
(201,000
|
)
|
|
|
|
|
|
|
|
|
|
|
Net Unrealized Depreciation on Futures Contracts
|
|
(2.09
|
)%
|
|
$
|
(201,000
|
)
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited consolidated financial statements.
2
PowerShares DB US Dollar Index Bullish Fund and Subsidiary
Unaudited Consolidated Statements of
Income and Expenses
For the Three Months and Period Ended September 30, 2007 (i)
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
September 30, 2007
|
|
|
Period
Ended
September 30, 2007
|
|
Income
|
|
|
|
|
|
|
|
|
Interest Income
|
|
$
|
131,762
|
|
|
$
|
544,355
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
Management fee
|
|
|
14,384
|
|
|
|
55,607
|
|
Brokerage commissions and fees
|
|
|
1,439
|
|
|
|
5,561
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
15,823
|
|
|
|
61,168
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
115,939
|
|
|
|
483,187
|
|
|
|
|
|
|
|
|
|
|
Realized and Net Change in Unrealized Gain (Loss) on United States Treasury Obligations and Futures
|
|
|
|
|
|
|
|
|
Realized Gain (Loss) on
|
|
|
|
|
|
|
|
|
United States Treasury Obligations
|
|
|
(496
|
)
|
|
|
264
|
|
Futures
|
|
|
(541,200
|
)
|
|
|
(784,740
|
)
|
|
|
|
|
|
|
|
|
|
Net realized loss
|
|
|
(541,696
|
)
|
|
|
(784,476
|
)
|
|
|
|
|
|
|
|
|
|
Net Change in Unrealized Gain (Loss) on
|
|
|
|
|
|
|
|
|
United States Treasury Obligations
|
|
|
3,715
|
|
|
|
7,211
|
|
Futures
|
|
|
(10,200
|
)
|
|
|
(201,000
|
)
|
|
|
|
|
|
|
|
|
|
Net change in unrealized loss
|
|
|
(6,485
|
)
|
|
|
(193,789
|
)
|
|
|
|
|
|
|
|
|
|
Net realized and unrealized loss on United States Treasury Obligations and Futures
|
|
|
(548,181
|
)
|
|
|
(978,265
|
)
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(432,242
|
)
|
|
$
|
(495,078
|
)
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited consolidated financial statements.
(i)
|
PowerShares DB US Dollar Index Bullish Fund commenced operations on February 15, 2007, therefore no operating results occurred prior to that date.
|
3
PowerShares DB US Dollar Index Bullish Fund and Subsidiary
Unaudited Consolidated Statement of
Changes in Shareholders Equity
For the Three Months Ended September 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General Shares
|
|
|
Limited Shares
|
|
|
Total
|
|
|
|
General Shares
|
|
Accumulated
Earnings
(Deficit)
|
|
|
Total
General
Shareholders
Equity (Deficit)
|
|
|
Limited Shares
|
|
|
Accumulated
Earnings (Deficit)
|
|
|
Total Limited
Shareholders
Equity (Deficit)
|
|
|
Total
Shareholders
Equity
(Deficit)
|
|
|
|
Shares
|
|
Amount
|
|
|
|
Shares
|
|
|
Amount
|
|
|
|
|
Balance at July 1, 2007
|
|
40
|
|
$
|
1,000
|
|
|
(4
|
)
|
|
$
|
996
|
|
|
600,000
|
|
|
$
|
15,002,880
|
|
|
$
|
(62,832
|
)
|
|
$
|
14,940,048
|
|
|
$
|
14,941,044
|
|
Redemptions of Limited Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(200,000
|
)
|
|
|
(4,910,446
|
)
|
|
|
|
|
|
|
(4,910,446
|
)
|
|
|
(4,910,446
|
)
|
Net income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
|
|
|
|
|
10
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
115,929
|
|
|
|
115,929
|
|
|
|
115,939
|
|
Net realized loss on United States Treasury Obligations and Futures
|
|
|
|
|
|
|
|
(53
|
)
|
|
|
(53
|
)
|
|
|
|
|
|
|
|
|
|
(541,643
|
)
|
|
|
(541,643
|
)
|
|
|
(541,696
|
)
|
Net change in unrealized loss on United States Treasury Obligations and Futures
|
|
|
|
|
|
|
|
7
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
(6,492
|
)
|
|
|
(6,492
|
)
|
|
|
(6,485
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
(36
|
)
|
|
|
(36
|
)
|
|
|
|
|
|
|
|
|
|
(432,206
|
)
|
|
|
(432,206
|
)
|
|
|
(432,242
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2007
|
|
40
|
|
$
|
1,000
|
|
$
|
(40
|
)
|
|
$
|
960
|
|
|
400,000
|
|
|
$
|
10,092,434
|
|
|
$
|
(495,038
|
)
|
|
$
|
9,597,396
|
|
|
$
|
9,598,356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited consolidated financial statements.
4
PowerShares DB US Dollar Index Bullish Fund and Subsidiary
Unaudited Consolidated Statement of
Changes in Shareholders Equity
For the Period Ended September 30, 2007 (i)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General Shares
|
|
|
Limited Shares
|
|
|
Total
|
|
|
|
General Shares
|
|
Accumulated
Earnings
(Deficit)
|
|
|
Total
General
Shareholders
Equity (Deficit)
|
|
|
Limited Shares
|
|
|
Accumulated
Earnings
(Deficit)
|
|
|
Total Limited
Shareholders
Equity (Deficit)
|
|
|
Total
Shareholders
Equity (Deficit)
|
|
|
|
Shares
|
|
Amount
|
|
|
|
Shares
|
|
|
Amount
|
|
|
|
|
Balance at January 1, 2007
|
|
40
|
|
$
|
1,000
|
|
$
|
|
|
|
$
|
1,000
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,000
|
|
Sale of Limited Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,000,000
|
|
|
|
25,000,000
|
|
|
|
|
|
|
|
25,000,000
|
|
|
|
25,000,000
|
|
Redemptions of Limited Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(600,000
|
)
|
|
|
(14,907,566
|
)
|
|
|
|
|
|
|
(14,907,566
|
)
|
|
|
(14,907,566
|
)
|
Net income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
|
|
|
|
|
27
|
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
483,160
|
|
|
|
483,160
|
|
|
|
483,187
|
|
Net realized loss on United States Treasury Obligations and Futures
|
|
|
|
|
|
|
|
(65
|
)
|
|
|
(65
|
)
|
|
|
|
|
|
|
|
|
|
(784,411
|
)
|
|
|
(784,411
|
)
|
|
|
(784,476
|
)
|
Net change in unrealized loss on United States Treasury Obligations and Futures
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
(193,787
|
)
|
|
|
(193,787
|
)
|
|
|
(193,789
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
(40
|
)
|
|
|
(40
|
)
|
|
|
|
|
|
|
|
|
|
(495,038
|
)
|
|
|
(495,038
|
)
|
|
|
(495,078
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2007
|
|
40
|
|
$
|
1,000
|
|
$
|
(40
|
)
|
|
$
|
960
|
|
|
400,000
|
|
|
$
|
10,092,434
|
|
|
$
|
(495,038
|
)
|
|
$
|
9,597,396
|
|
|
$
|
9,598,356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited consolidated financial statements.
(i)
|
PowerShares DB US Dollar Index Bullish Fund commenced operations on February 15, 2007, therefore no operating results occurred prior to that date.
|
5
PowerShares DB US Dollar Index Bullish Fund and Subsidiary
Unaudited Consolidated Statement of Cash
Flows
For the Period Ended September 30, 2007 (i)
|
|
|
|
|
Cash flow provided by operating activities
|
|
|
|
|
Net Loss
|
|
$
|
(495,078
|
)
|
Adjustments to reconcile net loss to net cash used by operating activities:
|
|
|
|
|
Cost of securities purchased
|
|
|
(53,356,469
|
)
|
Proceeds from securities sold
|
|
|
45,893,861
|
|
Net accretion of discount and amortization of premium on United States Treasury Obligations
|
|
|
(494,645
|
)
|
Net realized gain on United States Treasury Obligations
|
|
|
(264
|
)
|
Net unrealized loss on United States Treasury Obligations and futures
|
|
|
193,789
|
|
Increase in operating assets and liabilities:
|
|
|
|
|
Other assets
|
|
|
(2,557
|
)
|
Management fee payable
|
|
|
4,025
|
|
Other liabilities
|
|
|
1,000
|
|
|
|
|
|
|
Net cash used for operating activities
|
|
|
(8,256,338
|
)
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
Proceeds from sale of Limited Shares
|
|
|
25,000,000
|
|
Redemption of Limited Shares
|
|
|
(14,907,566
|
)
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
10,092,434
|
|
|
|
|
|
|
Net increase in cash held by broker
|
|
|
1,836,096
|
|
Cash held by broker at beginning of period
|
|
|
1,000
|
|
|
|
|
|
|
Cash held by broker at end of period
|
|
$
|
1,837,096
|
|
|
|
|
|
|
See accompanying notes to unaudited consolidated financial statements.
(i)
|
PowerShares DB US Dollar Index Bullish Fund commenced operations on February 15, 2007, therefore no operating results occurred prior to that date.
|
6
PowerShares DB US Dollar Index Bullish Fund and Subsidiary
Notes to Unaudited Consolidated Financial
Statements
September 30, 2007
PowerShares DB US Dollar Index
Bullish Fund (the Fund; Fund may also refer to the Fund and the Master Fund, collectively, as the context requires), a separate series of PowerShares DB US Dollar Index Trust (the Trust), a Delaware statutory
trust organized in two separate series and formed on August 3, 2006, and its subsidiary, DB US Dollar Index Bullish Master Fund (the Master Fund), a separate series of DB US Dollar Index Bullish Master Trust (the Master
Trust), a Delaware statutory trust organized in two separate series and formed on August 3, 2006. DB Commodity Services LLC, a Delaware limited liability company, (DBCS or the Managing Owner) funded both the Fund
and the Master Fund with a capital contribution of $1,000 to each Fund in exchange for 40 General Shares of each Fund. 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 in the Amended and Restated Declaration of Trust and Trust Agreement of the Trust and the Master Trust (the Trust Agreement).
The Fund offers common units of beneficial interest (the Limited Shares) only to certain eligible financial institutions (Authorized Participants) in one or more blocks of 200,000 Limited
Shares, called a Basket. The proceeds from the offering of Limited Shares are invested in the Master Fund. The Fund and the Master Fund commenced investment operations on February 15, 2007 with the initial offering of 1,000,000 Limited Shares
to Deutsche Bank Securities Inc. as initial purchaser of the Fund in exchange for $25,000,000. The Fund commenced trading on the American Stock Exchange (the Amex) on February 20, 2007.
The accompanying consolidated financial statements are unaudited, but in the opinion of management, all adjustments (which include normal recurring
adjustments) considered necessary to present fairly the consolidated financial statements have been made. Certain information and footnote disclosure normally included in financial statements prepared in accordance with U.S. generally accepted
accounting principles may have been condensed or omitted. The Funds Prospectus should be read in conjunction with these interim consolidated financial statements. Interim period results are not necessarily indicative of results for a full-year
period.
This report covers the three months ended September 30, 2007 and the period from February 15, 2007 (commencement of
investment operations) to September 30, 2007 (herein referred to as Period Ended September 30, 2007).
(2)
|
Fund Investment Overview
|
The Master Fund invests in futures contracts, or DX Contracts, with a view to tracking the changes, whether positive or negative, in the level of the Deutsche Bank US Dollar Index (USDX
®
) Futures Index Excess Return (Long Index), or the Index, over time. The Fund earns interest income from United States Treasury and other high credit quality short-term fixed income securities. The Index is
calculated to reflect the changes in market value over time, whether positive or negative, of long positions on DX Contracts. DX Contracts are traded through the currency markets of ICE Futures U.S. (formerly known as the New York Board of
Trade
®
), under the symbol DX. The changes in market value over time, whether positive or negative, of the DX Contracts are related to the changes, whether positive or negative,
in the level of the U.S. Dollar Index
®
, or the USDX
®
. The Index provides a general indication of the international value of
the U.S. dollar relative to the six major world currencies, or Index Currencies, which comprise the USDX
®
Euro, Japanese Yen, British Pound, Canadian Dollar, Swedish Krona and Swiss
Franc.
The Fund, through its Master Fund, establishes long positions in DX Contracts with a view to tracking the changes, whether positive
or negative, in the level of the Index. The performance of the Fund also is intended to reflect the excess, if any, of its Master Funds interest income from its holdings of United States Treasury and other high credit quality short-term fixed
income securities over the expenses of such Fund and its Master Fund.
A patent application directed to the creation and operation of the
Trust is pending at the United States Patent and Trademark Office.
7
PowerShares DB US Dollar Index Bullish Fund and Subsidiary
Notes to Unaudited Consolidated Financial Statements
September 30, 2007
(3)
|
Related Party Agreements
|
The Managing Owner
The Managing Owner serves the Fund and Master Fund as commodity pool operator, commodity trading advisor and managing owner, and is an
indirect wholly-owned subsidiary of Deutsche Bank AG.
The Commodity Broker
Deutsche Bank Securities Inc., a Delaware corporation, serves as the Master Funds clearing broker (the Commodity Broker). The Commodity
Broker is an indirect wholly-owned subsidiary of Deutsche Bank AG. In its capacity as clearing broker, the Commodity Broker will execute and clear each of the Master Funds futures transactions and will perform certain administrative services
for the Master Fund. The Commodity Broker is an affiliate of the Managing Owner.
(4)
|
Summary of Significant Accounting Policies
|
|
(a)
|
Basis of Presentation and Consolidation
|
The
consolidated financial statements of the Fund have been prepared using U.S. generally accepted accounting principles, and they include the financial statement balances of the Fund and the Master Fund. Upon the initial offering of the Limited Shares
on February 15, 2007, the capital raised by the Fund was used to purchase 100% of the common units of beneficial interest of the Master Fund (Master Fund Limited Units) (excluding common units of beneficial interest of the Master
Fund held by the Managing Owner (Master Fund General Units)). The Master Fund Limited Units owned by the Fund provide the Fund and its investors certain controlling rights and abilities over the Master Fund. Consequently, the financial
statement balances of the Master Fund have been consolidated with the Funds financial statement balances beginning February 15, 2007 (commencement of investment operations), and all significant inter-company balances and transactions have
been eliminated.
The preparation of the
consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenue and expense and related
disclosure of contingent assets and liabilities during the reporting period of the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
The Fund defines cash and cash
equivalents to be highly liquid investments, with original maturities of three months or less when purchased. Included in the cash balance is $201,000, which relates to variation margin against open futures contracts held by the Fund as of
September 30, 2007. There were no cash equivalents held by the Fund as of September 30, 2007.
|
(d)
|
United States Treasury Obligations
|
The Fund
records purchases and sales of United States Treasury obligations on a trade date basis. These holdings are marked to market based on quoted market closing prices. The Fund holds United States Treasury obligations for deposit with the Master
Funds currency futures brokers as margin and for investment trading purposes. Included in the United States Treasury obligations is $135,660, which is restricted and held against initial margin on the open futures contracts. Interest income is
recognized on an accrual basis when earned. Premiums and discounts are amortized or accreted over the life of the United States Treasury obligations.
8
PowerShares DB US Dollar Index Bullish Fund and Subsidiary
Notes to Unaudited Consolidated Financial Statements
September 30, 2007
The Fund and the Master Fund are
classified as a grantor trust and a partnership, respectively, for U.S. federal income tax purposes. Accordingly, neither the Fund nor the Master Fund will incur U.S. federal income taxes. No provision for federal, state, and local income taxes has
been made in the accompanying consolidated financial statements, as investors are individually liable for income taxes, if any, on their allocable share of the Funds share of the Master Funds income, gain, loss, deductions and other
items.
All commodity futures contracts
are held and used for trading purposes. The commodity futures are recorded on a trade date basis and open contracts are recorded in the consolidated statement of financial condition at fair value on the last business day of the period, which
represents market value for those commodity futures for which market quotes are readily available. However, when market closing prices are not available, the Managing Owner may value an asset of the Master Fund pursuant to policies the Managing
Owner has adopted, which are consistent with normal industry standards. Realized gains (losses) and changes in unrealized appreciation (depreciation) on open positions are determined on a specific identification basis and recognized in the
consolidated statement of income and expenses in the period in which the contract is closed or the changes occur, respectively.
The Master Fund pays the Managing
Owner a management fee (Management Fee), monthly in arrears, in an amount equal to 0.50% per annum of the daily net asset value of the Master Fund. No separate management fee is paid by the Fund. The Management Fee is paid in
consideration of the Managing Owners currency futures trading advisory services.
|
(h)
|
Brokerage Commissions and Fees
|
The Master Fund
incurs all brokerage commissions, including applicable exchange fees, 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 consolidated statement of income and expenses. On average, total charges paid to the Commodity Broker were approximately $7.00 per round-turn trade during the three months ended and the period ended
September 30, 2007, although the Commodity Brokers brokerage commissions and trading fees are determined on a contract-by-contract basis. Brokerage commissions and fees were approximately 0.05%, on an annual basis, of the net asset value
of the Master Fund during the three months ended and the period ended September 30, 2007.
|
(i)
|
Routine Operational, Administrative and Other Ordinary Expenses
|
The Managing Owner assumes all routine operational, administrative and other ordinary expenses of the Fund and the Master 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. Accordingly, such expenses are not reflected in the consolidated statement of income and expenses of the Fund.
|
(j)
|
Non-Recurring and Unusual Fees and Expenses
|
The
Master Fund pays all fees and expenses, if any, of the Fund and the Master Fund, which are non-recurring and unusual in nature. Such expenses include legal claims and liabilities, litigation costs or indemnification or other unanticipated expenses.
Such fees and expenses, by their nature, are unpredictable in terms of timing and amount. For the three months ended and the period ended September 30, 2007, the Fund and the Master Fund did not incur such expenses.
9
PowerShares DB US Dollar Index Bullish Fund and Subsidiary
Notes to Unaudited Consolidated Financial Statements
September 30, 2007
(5)
|
Financial Instrument Risk
|
In the normal course of
its business, the Master Fund is 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. The financial instruments used by the Master Fund are currency 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 Master Fund due to market changes, including fluctuations in currency prices. In entering into these futures contracts, there exists a market risk that such
futures contracts may be significantly influenced by conditions, resulting in such futures contracts being less valuable. If the markets should move against all of the futures contracts at the same time, the Master Fund could experience substantial
losses.
Credit risk is the possibility that a loss may occur due to the failure of an exchange clearinghouse to perform according to the
terms of a 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 Master Funds risk of loss in the event of
counterparty default is typically limited to the amounts recognized in the consolidated statement of financial condition and not represented by the futures contract or notional amounts of the instruments.
The Fund and the Master Fund have not utilized, nor do they expect to utilize in the future, special purpose entities to facilitate off-balance sheet
financing arrangements and have 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.
(6)
|
Share Purchases and Redemptions
|
Limited Shares may be purchased from the
Fund only by Authorized Participants in one or more blocks of 200,000 Shares, called a Basket. The Fund issues Limited Shares in Baskets only to Authorized Participants continuously as of noon, New York time, on the business day immediately
following the date on which a valid order to create a Basket is accepted by the Fund, at the net asset value of 200,000 Limited Shares as of the closing time of the Amex or the last to close of the exchanges on which the Master Funds assets
are traded, whichever is later, on the date that a valid order to create a Basket is accepted by the Fund.
On any business day, an Authorized
Participant may place an order with the Managing Owner to redeem one or more Baskets. Redemption orders must be placed by 1:00 p.m. New York time. The day on which the Managing Owner receives a valid redemption order is the redemption order date.
Redemption orders are irrevocable. The redemption procedures allow Authorized Participants to redeem Baskets. Individual shareholders may not redeem directly from the Fund.
By placing a redemption order, an Authorized Participant agrees to deliver the Baskets to be redeemed through The Depository Trust Companys
(DTC) book-entry system to the Fund not later than noon, New York time, on the business day immediately following the redemption order date. By placing a redemption order, and prior to receipt of the redemption proceeds, an Authorized
Participants DTC account is charged the non-refundable transaction fee due for the redemption order.
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) requested in the Authorized Participants redemption order as of the closing time of the Amex
10
PowerShares DB US Dollar Index Bullish Fund and Subsidiary
Notes to Unaudited Consolidated Financial Statements
September 30, 2007
or the last to close of the exchanges on which the Master Funds assets are traded, whichever is later, on the redemption order date. The Fund will
distribute the cash redemption amount at noon, New York time, on the business day immediately following the redemption order date through DTC to the account of the Authorized Participant as recorded on DTCs book-entry system.
The redemption proceeds due from the Fund are delivered to the Authorized Participant at noon, New York time, on the business day immediately following
the redemption order date if, by such time on such business day immediately following the redemption order date, the Funds DTC account has been credited with the Baskets to be redeemed. If the Funds DTC account has not been credited with
all of the Baskets to be redeemed by such time, the redemption proceeds are delivered to the extent of whole Baskets received. Any remainder of the redemption proceeds are delivered on the next business day to the extent of remaining whole Baskets
received if the Managing Owner 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 Funds DTC
account by noon, New York time, on such next business day. Any further outstanding amount of the redemption order will be canceled. The Managing Owner is also authorized to deliver the redemption proceeds notwithstanding that the Baskets to be
redeemed are not credited to the Funds DTC account by noon, New York time, on the business day immediately following the redemption order date if the Authorized Participant has collateralized its obligation to deliver the Baskets through
DTCs book-entry system on such terms as the Managing Owner may from time-to-time agree upon.
|
(c)
|
Limited Share Transactions
|
The Fund and the Master
Fund commenced investment operations on February 15, 2007 with the initial offering of 1,000,000 Limited Shares to Deutsche Bank Securities Inc. as Initial Purchaser of the Fund in exchange for $25,000,000. The Fund commenced trading on the
Amex on February 20, 2007. In the three months ended September 30, 2007, no Limited Shares were issued and 200,000 shares were redeemed for $4,910,446. In the period ended September 30, 2007, no additional Limited Shares were issued
and 600,000 Limited Shares were redeemed for $14,907,566.
(7)
|
Profit and Loss Allocations and Distributions
|
Pursuant to the Trust Agreement of the Master Trust, income and expenses are allocated pro rata to the General and Limited Shareholders monthly based on their respective percentage interests as of the close of the last trading day of the
preceding month. Any losses allocated to the Managing Owner (the owner of the General Shares) which are in excess of the Managing Owners capital balance are allocated to the Limited Shareholders in accordance with their respective interest in
the Master Fund as a percentage of total shareholders equity. 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.
(8)
|
Organizational and Offering Costs
|
All organizing
and offering expenses of the Fund and its Master Fund are incurred and assumed by the Managing Owner. Expenses incurred in connection with the continuous offering of Shares of the Fund after the commencement of the Master Funds trading
operations also will be paid by the Managing Owner.
(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 and the Master 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 and the Master Fund. While the Funds and the Master Funds exposure under such indemnification provisions cannot be estimated,
until a claim arises, these general business indemnifications are not expected to have a material impact on either the Funds or the Master Funds financial position.
11
PowerShares DB US Dollar Index Bullish Fund and Subsidiary
Notes to Unaudited Consolidated Financial Statements
September 30, 2007
(10)
|
Net Asset Value and Financial Highlights
|
The Fund
is presenting the following net asset value and financial highlights related to investment performance and operations for a Limited Share outstanding for the three months ended September 30, 2007 and for the period from February 15, 2007
(commencement of investment operations) to September 30, 2007 (herein referred to as Period ended September 30, 2007). The net investment income and total expense ratios are calculated using average net asset value. The net
asset value presentation is calculated using daily Limited Shares outstanding. The net investment income and total expense ratios have been annualized. The total return is based on the change in net asset value of the Limited Shares during the
period. An individual investors return and ratios may vary based on the timing of capital transactions.
12
PowerShares DB US Dollar Index Bullish Fund and Subsidiary
Notes to Unaudited Consolidated Financial Statements
September 30, 2007
|
|
|
|
|
|
|
|
|
Net Asset Value
|
|
Three Months Ended
September 30, 2007
|
|
|
Period Ended
September 30, 2007
|
|
Initial offering price per Limited Share
|
|
$
|
|
|
|
$
|
25.00
|
|
|
|
|
Net realized and change in unrealized gain on United States Treasury Obligations and Futures
|
|
$
|
(1.17
|
)
|
|
$
|
(1.67
|
)
|
|
|
|
Net investment income
|
|
|
0.26
|
|
|
|
0.66
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in net assets from operations
|
|
|
(0.91
|
)
|
|
|
(1.01
|
)
|
|
|
|
Distributions of net investment income on Limited Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease)
|
|
|
(0.91
|
)
|
|
|
(1.01
|
)
|
|
|
|
Net asset value per Limited Share, beginning of period
|
|
$
|
24.90
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value per Limited Share, end of period
|
|
$
|
23.99
|
|
|
$
|
23.99
|
|
|
|
|
|
|
|
|
|
|
Market value per Limited Share, beginning of period
|
|
$
|
24.88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market value per Limited Share, end of period
|
|
$
|
24.05
|
|
|
$
|
24.05
|
|
|
|
|
|
|
|
|
|
|
Ratio to average net assets (i)
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
4.11
|
%
|
|
|
4.26
|
%
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
0.56
|
%
|
|
|
0.54
|
%
|
|
|
|
|
|
|
|
|
|
Total Return, at net asset value (ii)
|
|
|
(3.65
|
) %
|
|
|
(4.04
|
)%
|
|
|
|
|
|
|
|
|
|
Total Return, at market value (ii)
|
|
|
(3.34
|
) %
|
|
|
(3.80
|
)%
|
|
|
|
|
|
|
|
|
|
(i)
|
Percentages are annualized.
|
(ii)
|
Percentages are not annualized and for the period ended September 30, 2007 are calculated based on initial offering price upon commencement of investment operations of $25.00.
|
13
PowerShares DB US Dollar Index Bullish Fund and Subsidiary
Notes to Unaudited Consolidated Financial Statements
September 30, 2007
(11)
|
Recently Issued Accounting Standards
|
In July 2006,
the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement 109. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprises financial
statements and prescribes a threshold of more-likely-than-not for recognition of tax benefits of uncertain tax positions taken or expected to be taken in a tax return. FIN 48 also provides related guidance on measurement, derecognition,
classification, interest and penalties, and disclosure. The Fund adopted FIN 48 on January 1, 2007 and has determined that the application of this standard will not impact the financial statements.
In September 2006, the FASB issued FASB Statement No. 157, Fair Value Measurement (Statement 157). Statement 157 defines fair value, establishes
framework for the measurement of fair value and enhances disclosures about fair value measurements. The Statement does not require any new fair value measures. The Statement is effective for fair value measures already required or permitted by other
standards for fiscal years beginning after November 15, 2007. The Fund is required to adopt Statement 157 beginning on January 1, 2008. Statement 157 is required to be applied prospectively, except for certain financial instruments. Any
transition adjustment will be recognized as an adjustment to opening retained earnings in the year of adoption. The Fund is currently evaluating the impact of adopting Statement 157 on its results of operations and financial position.
14
ITEM 2.
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
|
This information should be read in conjunction with the consolidated financial statements and notes included in Item 1 of Part I of this Quarterly Report, or Report. The discussion and analysis which follows
may contain trend analysis and other forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 which reflect our current views with respect to future events and financial results. Words such as
anticipate, expect, intend, plan, believe, seek, outlook and estimate as well as similar words and phrases signify forward-looking statements.
PowerShares DB US Dollar Index Bullish Funds forward-looking statements are not guarantees of future results and conditions and important factors, risks and uncertainties may cause our actual results to differ materially from those expressed
in our forward-looking statements.
You should not place undue reliance on any forward-looking statements. Except as expressly required by the
Federal securities laws, DB Commodity Services LLC, or the Managing Owner, undertakes no obligation to publicly update or revise any forward-looking statements or the risks, uncertainties or other factors described in this Report, as a result of new
information, future events or changed circumstances or for any other reason after the date of this Report.
Overview/Introduction
The Master Fund invests in futures contracts, or DX Contracts, with a view
to tracking the changes, whether positive or negative, in the level of the Deutsche Bank US Dollar Index (USDX
®
) Futures Index Excess Return (Long Index), or the Index, over time.
The Fund earns interest income from United States Treasury and other high credit quality short-term fixed income securities. The Index is calculated to reflect the changes in market value over time, whether positive or negative, of long positions on
DX Contracts. DX Contracts are traded through the currency markets of ICE Futures U.S. (formerly known as the New York Board of Trade
®
), under the symbol DX. The changes in
market value over time, whether positive or negative, of the DX Contracts are related to the changes, whether positive or negative, in the level of the U.S. Dollar Index
®
, or the
USDX
®
. The Index provides a general indication of the international value of the U.S. dollar relative to the six major world currencies, or Index Currencies, which comprise the USDX
®
Euro, Japanese Yen, British Pound, Canadian Dollar, Swedish Krona and Swiss Franc.
The Fund, through its Master Fund, establishes long positions in DX Contracts with a view to tracking the changes, whether positive or negative, in the level of the Index. The performance of the Fund also is intended to reflect the excess,
if any, of its Master Funds interest income from its holdings of United States Treasury and other high credit quality short-term fixed income securities over the expenses of such Fund and its Master Fund.
Under the Trust Declarations of the Trust and the Master Trust, Wilmington Trust Company, the Trustee of the Trust and the Master Trust has delegated to
the Managing Owner the exclusive management and control of all aspects of the business of each Fund and its corresponding Master 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 Index Sponsor obtains information for inclusion in, or
for use in the calculation of, the Index from sources the Index Sponsor considers reliable. None of the Index Sponsor, the Managing Owner, the Trust, the Master Trust or any of their respective affiliates accepts responsibility for or guarantees the
accuracy and/or completeness of the Index or any data included in the Index.
The Limited Shares are intended to provide investment results
that generally correspond to the changes, positive or negative, in the levels of the Index over time. The value of the Limited Shares is expected to fluctuate in relation to changes in the value of the Master Funds portfolio. The market price
of the Limited Shares may not be identical to the net asset value per Limited Share, but these two valuations are expected to be very close.
Performance Summary
This report covers the three months ended September 30, 2007 and the period from February 15,
2007 (commencement of investment operations) to September 30, 2007 (herein referred to as Period Ended September 30, 2007). The Fund commenced trading on the American Stock Exchange (the Amex) on February 20,
2007.
15
Performance of the Fund and the exchange traded Limited Shares are detailed below in Results of
Operations. Past performance of the Fund is not necessarily indicative of future performance.
The Index provides a general indication of the international value of the U.S. dollar relative to the six major world currencies, or Index Currencies, which comprise the USDX
®
Euro, Japanese Yen, British Pound, Canadian Dollar, Swedish Krona and Swiss Franc. The Deutsche Bank US Dollar Index (USDX
®
) Futures Index
Total Return (Long Index) (Long Index-TR), consists of the Index plus 3-month United States Treasury bills returns. Past Index results are not necessarily indicative of future changes, positive or negative, in the Index closing levels.
The section Summary of Deutsche Bank US Dollar Index (USDX
®
) Futures Index Total Return (Long Index) and Underlying DX Contract Returns for the Three Months Ended September 30, 2007 and the Period Ended September 30, 2007 below provides an overview of
the changes in the closing levels of the Index by disclosing the change in closing levels of the Index itself and the underlying DX Contracts of the Index.
Summary of Deutsche Bank US Dollar Index (USDX
®
)
Futures Index Total Return (Long Index) and Underlying DX Contract Returns for the Three Months Ended September 30, 2007 and the Period Ended September 30, 2007
.
|
|
|
|
|
|
|
Underlying DX Contract Returns
|
|
Total returns for the
LONG INDEX-TR
|
|
|
Three Months
Ended
September 30,
2007
|
|
|
Period Ended
September 30,
2007
|
|
DX Contract
|
|
-3.70
|
%
|
|
-3.90
|
%
|
|
|
|
|
|
|
|
TOTAL RETURN
|
|
-3.70
|
%
|
|
-3.90
|
|
|
|
|
|
|
|
|
In the current interest rate environment,
the total return on an investment in the Fund is expected to outperform the Index and underperform the Deutsche Bank US Dollar Index (USDX
®
) Futures Index Total Return (the
Long Index). The only difference between the Index and the Long Index is that the Index does not include interest income from a hypothetical basket of fixed income securities while the Long Index does include such a component. The
difference between the Index and the Long Index is attributable entirely to the hypothetical interest income from this hypothetical basket of fixed income securities. The Funds interest income from its holdings of fixed-income securities is
expected to exceed the Funds fees and expenses, and the amount of such excess is expected to be distributed periodically. The market price of the Shares is expected closely to track the Index. The total return on an investment in the Fund over
any period is the sum of the capital appreciation or depreciation of the Shares over the period, plus the amount of any distributions during the period. Consequently, in the current interest rate environment, the Funds total return is expected
to outperform the Index by the amount of the excess of its interest income over its fees and expenses but, as a result of the Funds fees and expenses, the total return on the Fund is expected to underperform the Long Index. If the Funds
fees and expenses were to exceed the Funds interest income from its holdings of fixed income securities, the Fund would underperform the Index.
Net Asset Value
Net asset value means the total assets of the Master Fund, including, but not limited to, all
futures, cash and investments less total liabilities of the Master Fund, each determined on the basis of U.S. generally accepted accounting principles, consistently applied under the accrual method of accounting. In particular, net asset value
includes any unrealized appreciation or depreciation on open currency futures contracts, and any other credit or debit accruing to the Master Fund but unpaid or not received by the Master Fund. All open currency futures contracts will be calculated
at their then current market value, which will be based upon the settlement price for that particular currency futures contract traded on the applicable exchange on the date with respect to which net asset value is being determined; provided, that
if a currency futures contract could not be liquidated on such day, due to the operation of daily limits or other rules of the exchange upon which that position is traded or otherwise, the settlement price on the most recent day on which the
position could have been liquidated will be the basis for determining the market value of such position for such day. The Managing Owner may in its discretion (and only under extraordinary circumstances, including, but not limited to, periods during
which a settlement price of a futures contract is not available due to exchange limit orders or force majeure type events such as systems failure, natural or man-made disaster, act of God, armed conflict, act of terrorism, riot or labor disruption
or any similar intervening circumstance) value any asset of the Master Fund pursuant to such other principles as the Managing Owner deems fair
16
and equitable so long as such principles are consistent with normal industry standards. Interest earned on the Master Funds brokerage account is
accrued monthly. The amount of any distribution is a liability of the Master Fund from the day when the distribution is declared until it is paid.
The Fund invests substantially all of its assets in the Master Fund in a master-feeder structure. The Fund holds no investment assets other than Master Fund Limited Units. The Fund is the majority Master Fund Limited Unit owner and the
Managing Owner holds a minority interest in the Master Fund. Each Limited Share issued by the Fund correlates with the Master Fund Limited Unit issued by the Master Fund and held by the Fund.
Net asset value per Master Fund Limited Unit and Master Fund General Unit (collectively, Master Fund Units) is the net asset value of the
Master Fund divided by the number of outstanding Master Fund Units. Because there is a one-to-one correlation between Limited Shares of the Fund and the Master Fund Units, the net asset value per Limited Share and the net asset value per Master Fund
Limited Unit are substantially equal.
Critical Accounting Policies
The Funds and Master Funds critical accounting policies are as follows:
Preparation of the
financial statements and related disclosures in conformity with U.S. generally accepted accounting principles requires the application of appropriate accounting rules and guidance, as well as the use of estimates, and requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities, revenue and expense and related disclosure of contingent assets and liabilities during the reporting period of the consolidated financial statements and
accompanying notes. Both the Funds and the Master Funds application of these policies involve judgments and actual results may differ from the estimates used.
The Master Fund expects to hold a significant portion of its assets in currency futures contracts and United States Treasury Obligations, both of which will be recorded on a trade date basis and at fair value in the
consolidated financial statements, with changes in fair value reported in the consolidated statement of income and expenses. Generally, fair values are based on quoted market closing prices. However, when market closing prices are not available, the
Managing Owner may value an asset of the Master Fund pursuant to policies the Managing Owner has adopted, which are consistent with normal industry standards.
Realized gains (losses) and changes in unrealized appreciation (depreciation) on open positions are determined on a specific identification basis and recognized in the consolidated statement of income and expenses in
the period in which the contract is closed or the changes occur, 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.
Market Risk
Trading in futures contracts involves the Master Fund entering into contractual commitments to purchase or sell
a particular currency at a specified date and price. The market risk associated with the Master Funds commitments to purchase currencies is limited to the gross or face amount of the contracts held.
The Master Funds exposure to market risk is also influenced by a number of factors including the volatility of interest rates and foreign currency
exchange rates, the liquidity of the markets in which the contracts are traded and the relationships among the contracts held. The inherent uncertainty of the Master Funds trading as well as the development of drastic market occurrences could
ultimately lead to a loss of all or substantially all of the investors capital.
Credit Risk
When the Master Fund enters into futures contracts, the Master Fund is exposed to credit risk that the counterparty to the contract will not meet its
obligations. The counterparty for futures contracts traded on United States and on most of foreign futures
17
exchanges is the clearing house associated with the particular exchange. In general, clearing houses are backed by their corporate members who may be
required to share in the financial burden resulting from the nonperformance by one of their members and, as such, should significantly reduce this credit risk. In cases where the clearing house is not backed by the clearing members (i.e., 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 clearinghouse will meet its obligations to the Master Fund.
Liquidity
All of the Master Funds source of
capital is derived from the Fund through the Funds offering of Limited Shares to Authorized Participants. Authorized Participants may then subsequently redeem such Limited Shares. The Master Fund in turn allocates its net assets to currency
futures trading. A significant portion of the net asset value is held in 3-month United States Treasury obligations and cash, which is used as margin for the Master Funds trading in currency futures. The percentage that United States Treasury
obligations bear to the total net assets will vary from period to period as the market values of the Master Funds currency futures change. The balance of the net assets is held in the Master Funds brokerage account. Interest earned on
the Master Funds interest-bearing funds is paid to the Master Fund.
The Master Funds foreign exchange futures contracts may be
subject to periods of illiquidity because of market conditions, regulatory considerations or for other reasons. For example, commodity exchanges generally have the ability to limit fluctuations in futures contract prices during a single day by
regulations referred to as daily limits. During a single day, no trades may be executed at prices beyond the daily limit. Once the price of a particular futures contract has increased or decreased by an amount equal to the daily limit,
positions in the future can neither be taken nor liquidated unless traders are willing to effect trades at or within the limit. Although the DX Contracts that the Master Fund invests in are not currently subject to daily limits, the DX Contracts
held by the Master Fund could become subject to such limits in the future. Such market conditions could prevent the Master Fund from promptly liquidating its currency futures positions.
Because the Master Fund trades futures contracts, its capital is at risk due to changes in the value of future contracts (market risk) or the inability
of an exchange clearinghouse to perform under the terms of the contracts (credit risk).
The Commodity Broker, when acting as the Master
Funds futures commission merchant in accepting orders for the purchase or sale of domestic futures contracts, is required by CFTC regulations to separately account for and segregate as belonging to the Master Fund all assets of the Master 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 Master Fund related to foreign futures trading.
On any business day, an Authorized Participant may place an order with the Managing
Owner to redeem one or more Baskets. Redemption orders must be placed by 1:00 p.m., New York time. The day on which the Managing Owner receives a valid redemption order is the redemption order date. Redemption orders are irrevocable. The redemption
procedures allow Authorized Participants to redeem Baskets. Individual Shareholders may not redeem directly from the Fund. By placing a redemption order, an Authorized Participant agrees to deliver the Baskets to be redeemed through DTCs
book-entry system to the Fund not later than noon, New York time, on the business day immediately following the redemption order date. By placing a redemption order, and prior to receipt of the redemption proceeds, an Authorized Participants
DTC account is charged the non-refundable transaction fee due for the redemption order.
Results of Operations
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2007 AND THE PERIOD FEBRUARY 15, 2007 (COMMENCEMENT OF INVESTMENT OPERATIONS) TO SEPTEMBER 30, 2007
(REFERRED TO HEREIN AS PERIOD ENDED SEPTEMBER 30, 2007)
The Fund was launched on February 15, 2007 at $25.00 per
share and listed for trading on the Amex on February 20, 2007.
The Fund and
the Master Fund seek to track changes in the closing levels of the Deutsche Bank US Dollar Index (USDX
®
) Futures Index Excess Return (Long Index), or the Index, over time, plus the
excess, if any, of the Master Funds interest income from its holdings of United States Treasury obligations and other high credit quality short-term fixed income securities over the expenses of the Fund and the Master Fund. The following
graphs illustrate changes in (i) the price of the Limited Shares (as reflected
18
by the graph UUP), (ii) the Funds NAV (as reflected by the graph UUPNAV), and (iii) the closing levels of the Index
(as reflected by the graph USDUPX). The price of the Limited Shares generally has exceeded the levels of the Index primarily because the Limited Share price reflects interest income from the Master Funds collateral holdings whereas
the Index does not consider such interest income. There can be no assurances that the price of the Limited Shares will continue to exceed the Index levels.
COMPARISON OF UUP, UUPNAV AND USDUPX FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2007 AND THE PERIOD ENDED SEPTEMBER 30, 2007
NEITHER THE PAST PERFORMANCE OF THE FUND NOR THE PRIOR INDEX LEVELS AND CHANGES, POSITIVE OR NEGATIVE, SHOULD
BE TAKEN AS AN INDICATION OF THE FUNDS FUTURE PERFORMANCE.
See Additional Legends below
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NEITHER THE PAST PERFORMANCE OF THE FUND NOR THE PRIOR INDEX LEVELS AND CHANGES, POSITIVE OR NEGATIVE, SHOULD
BE TAKEN AS AN INDICATION OF THE FUNDS FUTURE PERFORMANCE.
See Additional Legends below
Additional Legends
Deutsche Bank US Dollar Index (USDX
®
) Futures Index Excess Return (Long Index) is an index and does not reflect (i) actual trading and (ii) any fees or expenses.
WHILE THE FUNDS OBJECTIVE IS NOT TO GENERATE PROFIT THROUGH ACTIVE PORTFOLIO MANAGEMENT, BUT IS TO TRACK THE INDEX, BECAUSE THE INDEX WAS
ESTABLISHED IN AUGUST 2006, CERTAIN INFORMATION RELATING TO INDEX CLOSING LEVELS MAY BE CONSIDERED TO BE HYPOTHETICAL. HYPOTHETICAL INFORMATION MAY HAVE CERTAIN INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW.
WITH RESPECT TO INDEX DATA, NO REPRESENTATION IS BEING MADE THAT THE INDEX WILL OR IS LIKELY TO ACHIEVE ANNUAL OR CUMULATIVE CLOSING LEVELS CONSISTENT WITH OR SIMILAR TO
THOSE SET FORTH HEREIN. SIMILARLY, NO REPRESENTATION IS BEING MADE THAT THE FUND WILL GENERATE PROFITS OR LOSSES SIMILAR TO THE FUNDS PAST PERFORMANCE OR THE HISTORICAL ANNUAL OR CUMULATIVE CHANGES IN THE INDEX CLOSING LEVELS. IN FACT, THERE
ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY INVESTMENT METHODOLOGIES, WHETHER ACTIVE OR PASSIVE.
WITH RESPECT TO INDEX DATA, ONE OF THE LIMITATIONS OF HYPOTHETICAL INFORMATION IS THAT IT IS GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. TO THE EXTENT THAT INFORMATION PRESENTED HEREIN RELATES TO THE PERIOD DECEMBER 1986 THROUGH JULY
2006, THE INDEX CLOSING LEVELS REFLECT THE APPLICATION OF THE INDEXS METHODOLOGY, AND SELECTION OF DX CONTRACTS, IN HINDSIGHT.
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NO HYPOTHETICAL RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THERE ARE
NUMEROUS FACTORS RELATED TO THE CURRENCIES MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF THE FUNDS EFFORTS TO TRACK THE INDEX OVER TIME WHICH CANNOT BE, AND HAVE NOT BEEN, ACCOUNTED FOR IN THE PREPARATION OF THE INDEX INFORMATION SET FORTH ON
THE FOLLOWING PAGES, ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL PERFORMANCE RESULTS FOR THE FUND. FURTHERMORE, THE INDEX INFORMATION DOES NOT INVOLVE FINANCIAL RISK OR ACCOUNT FOR THE IMPACT OF FEES AND COSTS ASSOCIATED WITH THE FUND.
THE MANAGING OWNER HAS HAD LIMITED EXPERIENCE IN TRADING ACTUAL ACCOUNTS FOR ITSELF OR FOR CLIENTS. BECAUSE THERE ARE LIMITED ACTUAL TRADING RESULTS TO COMPARE TO THE
INDEX CLOSING LEVELS SET FORTH HEREIN, PROSPECTIVE INVESTORS SHOULD BE PARTICULARLY WARY OF PLACING UNDUE RELIANCE ON THE ANNUAL OR CUMULATIVE INDEX RESULTS.
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2007
Fund Limited Share Price Performance
For the three months ended September 30, 2007, Limited Shares decreased 3.34% from $24.88 per share to $24.05 per share. The Limited Share price low
and high for the three months ended September 30, 2007 and related change from the Limited Share price on June 30, 2007 was as follows: Limited Shares traded from a high of $25.07 per share (+0.76%) on August 15, 2007 to a low of
$24.05 per share (-3.34%) on September 30, 2007. Total return for the Fund, on a market value basis was -3.34% for the three months ended September 30, 2007.
Fund Limited Share Net Asset Performance
For the three months ended September 30, 2007, the net
asset value of each Limited Share decreased 3.65% from $24.90 per share to $23.99 per share. Total return on a net asset value basis, for the Fund, was -3.65% for the three months ended September 30, 2007.
Net loss for the three months ended September 30, 2007 was $ 0.43 million, resulting from $0.13 million of interest income and realized and
unrealized losses of $0.55 million and operating expenses of $0.01 million for the three months ended September 30, 2007.
FOR THE
PERIOD ENDED SEPTEMBER 30, 2007
Fund Limited Share Price Performance
For the Period ended September 30, 2007, Limited Shares decreased 3.80% from $25.00 per share to $24.05 per share. The Limited Share price low and high for the Period ended September 30, 2007 and related
change from the Limited Share price on February 15, 2007 (commencement of operations) was as follows: Limited Shares traded from a high of $25.23 per share (+0.92%) on June 14, 2007 to a low of $24.05 per share (-3.80%) on
September 30, 2007. Total return for the Fund, on a market value basis was -3.80% for the period ended September 30, 2007.
Fund Limited Share
Net Asset Performance
For the Period ended September 30, 2007, the net asset value of each Limited Share decreased 4.04% from
$25.00 per share to $23.99 per share. Total return on a net asset value basis, for the Fund, was -4.04% for the period ended September 30, 2007.
Net loss for the Period ended September 30, 2007 was $0.50 million, resulting from $0.54 million of interest income and realized and unrealized losses of $0.98 million and operating expenses of $0.06 million for
the period ended September 30, 2007.
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Off-Balance Sheet Arrangements and Contractual Obligations
In the normal course of its business, the Master Fund is 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. The financial instruments used by the Master Fund are currency futures, whose values are
based upon an underlying asset and generally represent future commitments which have a reasonable possibility to be settled in cash or through physical delivery. The financial instruments are traded on an exchange and are standardized contracts.
The Fund and the Master Fund have not utilized, nor do they expect to utilize in the future, special purpose entities to facilitate
off-balance sheet financing arrangements and have 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, which may include indemnification
provisions related to certain risks service providers undertake in performing services which are in the best interests of the Fund and the Master Fund. While the Funds and the Master Funds exposure under such indemnification provisions
cannot be estimated, these general business indemnifications are not expected to have a material impact on either the Funds or the Master Funds financial position.
The Fund and Master Funds contractual obligations are with the Managing Owner and the Commodity Broker. Management Fee payments made to the
Managing Owner are calculated as a fixed percentage of the Master Funds net asset value. Commission payments to the Commodity Broker are on a contract-by-contract, or round-turn, basis. As such, the Managing Owner cannot anticipate the amount
of payments that will be required under these arrangements for future periods as net asset values are not known until a future date. These agreements are effective for one year terms, renewable automatically for additional one year terms unless
terminated. Additionally, these agreements may be terminated by either party for various reasons.