As Filed with the Securities and Exchange Commission on October 5, 2007
Registration No. 333-136574
Registration No. 333-136574-01
Registration No. 333-136574-02
Registration No. 333-136574-03
Registration No. 333-136574-04
Registration No. 333-136574-05
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 1 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
POWERSHARES DB US DOLLAR INDEX
TRUST
(Registrant)
POWERSHARES DB US DOLLAR INDEX BULLISH FUND
POWERSHARES DB US DOLLAR INDEX BEARISH FUND
DB US DOLLAR INDEX MASTER TRUST
DB
US DOLLAR INDEX BULLISH MASTER FUND
DB US DOLLAR INDEX BEARISH MASTER FUND
(Rule 140 Co-Registrants)
(Exact name
of registrant as specified in its charter)
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Delaware
(State of Organization)
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6799
(Primary Standard Industrial
Classification Number)
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87-0778080 (Trust)
87-0778081 (Master Trust)
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(I.R.S. Employer
Identification Number)
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c/o DB Commodity Services LLC
60 Wall
Street
New York, New York 10005
(212)
250-5883
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Kevin Rich
c/o DB Commodity Services LLC
60 Wall Street
New York, New York
10005
(212) 250-5883
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(Address, including zip code, and telephone number, including area code, of registrants principal executive offices)
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(Name, address, including zip code, and telephone number, including area code, of agent for service)
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Copies to:
Michael J. Schmidtberger
Sidley Austin
LLP
787 Seventh Avenue
New York, New York 10019
Approximate
date of commencement of proposed sale to the public:
As promptly as practicable after the effective date of this Registration
Statement.
If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule
415 under the Securities Act of 1933, check the following box.
x
If this form is filed to
register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same
offering.
¨
If this
form is a posteffective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same
offering.
¨
If this
form is a posteffective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same
offering.
¨
CALCULATION OF REGISTRATION FEE
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Title of Securities to be Registered
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Proposed Maximum
Aggregate Offering Price
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Amount of
Registration Fee
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PowerShares DB US Dollar Index Bullish Fund Common Units of Beneficial Interest
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$500,000,000
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$53,500
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PowerShares DB US Dollar Index Bearish Fund Common Units of Beneficial Interest
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$500,000,000
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$53,500
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The proposed maximum aggregate offering price has been calculated assuming that all Shares are sold at a price of $25 per Share.
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The amount of the registration fee of the Shares is calculated in reliance upon Rule 457(o) under the Securities Act and using the proposed maximum aggregate offering price as
described above. 4,000,000 Shares were registered and the registration fee of $10,700 in respect thereof was paid on August 11, 2006. 36,000,000 additional Shares were registered and the registration fee of $96,300 in respect thereof was paid
on January 17, 2007.
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The registrant hereby amends this Registration Statement on such date or dates as may be
necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act or
until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
The information in this Prospectus is not complete and may be changed. We may not sell these securities until the registration statement
filed with the Securities and Exchange Commission is effective. This Prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
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Subject to completion, dated October 5, 2007
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POWERSHARES DB US DOLLAR INDEX TRUST
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PowerShares DB US Dollar Index Bullish Fund
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$475,000,000 Common Units of Beneficial Interest
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PowerShares DB US Dollar Index Bearish Fund
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$448,105,084 Common Units of Beneficial Interest
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PowerShares DB US Dollar
Index Trust, or the Trust, is organized in two separate series as a Delaware statutory trust. Each series of the Trust, called a Fund, issues common units of beneficial interest, or Shares, which represent units of fractional undivided beneficial
interest in and ownership of such Fund only. Shares in each Fund are being separately offered. Shares may be purchased from each Fund only by certain eligible financial institutions, called Authorized Participants, and only in one or more blocks of
200,000 Shares, called a Basket. Each Fund will issue its Shares in Baskets 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 Shares of the Fund as of the closing time of the American Stock Exchange, or the Amex, or the last to close of the exchanges on which the corresponding Master Funds futures contracts are traded,
whichever is later, on the date that a valid order to create a Basket is accepted by the Fund.
Authorized Participants may sell the Shares
they purchase from a Fund in Baskets, to other investors at prices that are expected to reflect, among other factors, the trading price of such Funds Shares on the Amex and the supply of and demand for Shares of such Fund at the time of sale
and are expected to fall between net asset value and the trading price of the Shares of such Fund on the Amex at the time of sale.
The
Shares of each Fund trade on the Amex under the following symbols: PowerShares DB US Dollar Index Bullish Fund UUP and PowerShares DB US Dollar Index Bearish Fund UDN.
Each Fund invests the proceeds of its offering of Shares in a corresponding series of DB US Dollar Index Master Trust, or the Master Trust. The Master
Trust is organized in two separate series as a Delaware statutory trust. Each series of the Master Trust, called a Master Fund, corresponds to a particular Fund.
DB Commodity Services LLC serves as the Managing Owner, commodity pool operator and commodity trading advisor of each
Fund and each Master Fund. Each 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, or the Index, over time. Each Fund also 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, or the Long Index, and the changes in market value over time, whether positive or negative,
of short positions on DX Contracts, or the Short Index. DX Contracts are traded exclusively through ICE Futures U.S., a wholly-owned subsidiary of IntercontinentalExchange, Inc., or ICE Futures U.S., 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.
PowerShares DB US Dollar Index Bullish Fund, or the Bullish 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 Long Index and PowerShares DB US Dollar Index Bearish Fund, or the Bearish Fund, through its Master Fund, establishes short positions in DX Contracts
with a view to tracking the changes, whether positive or negative, in the level of the Short Index. The performance of each Fund also is intended to reflect the excess, if any, of its corresponding 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 corresponding Master Fund.
Except when aggregated in Baskets, the Shares are not redeemable securities.
INVESTING IN THE SHARES INVOLVES SIGNIFICANT RISKS. PLEASE REFER TO
THE RISKS YOU FACE
BEGINNING ON PAGE 18.
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Futures trading is volatile and even a small movement in market prices could cause large losses.
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The success of each Master Funds trading program depends upon the skill of the Managing Owner and its trading principals.
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You could lose all or substantially all of your investment.
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Investors pay fees in connection with their investment in Shares including asset-based fees of 0.50% per annum. Additional charges include brokerage fees
expected to be approximately 0.05% per annum in the aggregate.
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Authorized Participants may offer to the public, from time-to-time, Shares from any Baskets they create. Shares offered to the public by Authorized Participants will be
offered at a per-Share offering price that will vary depending on, among other factors, the trading price of the Shares of each Fund on the Amex, the net asset value per Share and the supply of and demand for the Shares at the time of the offer.
Shares initially comprising the same Basket but offered by Authorized Participants to the public at different times may have different offering prices. Authorized Participants will not receive from either Fund, the Managing Owner or any of their
affiliates, any fee or other compensation in connection with their sale of Shares to the public.
An Authorized Participant may receive commissions or fees
from investors who purchase Shares through their commission or fee-based brokerage accounts.
These securities have not been approved or disapproved
by the Securities and Exchange Commission or any state securities commission nor has the Securities and Exchange Commission or any state securities commission passed upon the accuracy or adequacy of this Prospectus. Any representation to the
contrary is a criminal offense. None of the Funds nor any of the Master Funds are a mutual fund or any other type of investment company within the meaning of the Investment Company Act of 1940, as amended, and is not subject to regulation
thereunder.
THE COMMODITY FUTURES TRADING COMMISSION HAS NOT PASSED UPON THE MERITS OF PARTICIPATING IN THESE POOLS NOR HAS THE COMMISSION PASSED
UPON THE ADEQUACY OR ACCURACY OF THIS DISCLOSURE DOCUMENT. The Shares are neither interests in nor obligations of any of the Managing Owner, the Trustee or any of their respective affiliates. The Shares are not insured by the Federal Deposit
Insurance Corporation or any other governmental agency.
, 2007 (Not for use after
, 2008)
COMMODITY FUTURES TRADING COMMISSION
RISK DISCLOSURE STATEMENT
YOU SHOULD CAREFULLY CONSIDER WHETHER YOUR
FINANCIAL CONDITION PERMITS YOU TO PARTICIPATE IN A COMMODITY POOL. IN SO DOING, YOU SHOULD BE AWARE THAT FUTURES TRADING CAN QUICKLY LEAD TO LARGE LOSSES AS WELL AS GAINS. SUCH TRADING LOSSES CAN SHARPLY REDUCE THE NET ASSET VALUE OF THE POOL AND
CONSEQUENTLY THE VALUE OF YOUR INTEREST IN THE POOL. IN ADDITION, RESTRICTIONS ON REDEMPTIONS MAY AFFECT YOUR ABILITY TO WITHDRAW YOUR PARTICIPATION IN THE POOL.
FURTHER, COMMODITY POOLS MAY BE SUBJECT TO SUBSTANTIAL CHARGES FOR MANAGEMENT AND ADVISORY AND BROKERAGE FEES. IT MAY BE NECESSARY FOR THOSE POOLS THAT ARE SUBJECT TO THESE CHARGES TO MAKE SUBSTANTIAL TRADING
PROFITS TO AVOID DEPLETION OR EXHAUSTION OF THEIR ASSETS. THIS DISCLOSURE DOCUMENT CONTAINS A COMPLETE DESCRIPTION OF EACH EXPENSE TO BE CHARGED TO THESE POOLS AT PAGE 70 AND A STATEMENT OF THE PERCENTAGE RETURNS NECESSARY TO BREAK EVEN, THAT
IS, TO RECOVER THE AMOUNT OF YOUR INITIAL INVESTMENT, AT PAGE 13.
THIS BRIEF STATEMENT CANNOT DISCLOSE ALL THE RISKS AND
OTHER FACTORS NECESSARY TO EVALUATE YOUR PARTICIPATION IN EITHER OF THESE COMMODITY POOLS. THEREFORE, BEFORE YOU DECIDE TO PARTICIPATE IN THESE COMMODITY POOLS, YOU SHOULD CAREFULLY STUDY THIS DISCLOSURE DOCUMENT, INCLUDING A DESCRIPTION OF THE
PRINCIPAL RISK FACTORS OF THIS INVESTMENT, AT PAGES 18 THROUGH 28.
THE BOOKS AND RECORDS OF EACH FUND AND EACH MASTER FUND ARE MAINTAINED AS FOLLOWS: ALL MARKETING MATERIALS ARE MAINTAINED AT THE OFFICES OF ALPS
DISTRIBUTORS, INC., 1625 BROADWAY, SUITE 2200, DENVER, COLORADO 80202; TELEPHONE NUMBER (303) 6232577; BASKET CREATION AND REDEMPTION BOOKS AND RECORDS, ACCOUNTING AND CERTAIN OTHER FINANCIAL BOOKS AND RECORDS (INCLUDING FUND AND MASTER
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 FUTURES COMMISSION MERCHANTS ARE MAINTAINED BY
THE BANK OF NEW YORK, 2 HANSON PLACE, 12TH FLOOR, BROOKLYN, NEW YORK 11217, TELEPHONE NUMBER (718) 3154850. ALL OTHER BOOKS AND RECORDS OF EACH FUND AND EACH MASTER FUND (INCLUDING MINUTE BOOKS AND OTHER GENERAL CORPORATE RECORDS, TRADING
RECORDS AND RELATED REPORTS AND OTHER ITEMS RECEIVED FROM EACH MASTER FUNDS COMMODITY BROKERS) ARE MAINTAINED AT THE FUNDS PRINCIPAL OFFICE, C/O DB COMMODITY SERVICES LLC, 60 WALL STREET, NEW YORK, NEW YORK 10005; TELEPHONE NUMBER
(212) 2505883. SHAREHOLDERS WILL HAVE THE RIGHT, DURING NORMAL BUSINESS HOURS, TO HAVE ACCESS TO AND COPY (UPON PAYMENT OF REASONABLE REPRODUCTION COSTS) SUCH BOOKS AND RECORDS IN PERSON OR BY THEIR AUTHORIZED ATTORNEY OR AGENT. MONTHLY
ACCOUNT STATEMENTS FOR EACH FUND CONFORMING TO COMMODITY FUTURES TRADING COMMISSION (THE CFTC) AND THE NATIONAL FUTURES ASSOCIATION (THE NFA) REQUIREMENTS ARE POSTED ON THE MANAGING OWNERS WEBSITE AT WWW.DBFUNDS.DB.COM.
ADDITIONAL REPORTS ARE POSTED ON THE MANAGING OWNERS WEBSITE IN THE DISCRETION OF THE MANAGING OWNER OR AS REQUIRED BY REGULATORY AUTHORITIES. THERE WILL SIMILARLY BE
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DISTRIBUTED TO SHAREHOLDERS OF EACH FUND, NOT MORE THAN 90 DAYS AFTER THE CLOSE OF EACH FUNDS FISCAL YEAR, CERTIFIED AUDITED FINANCIAL STATEMENTS
AND (IN NO EVENT LATER THAN MARCH 15 OF THE IMMEDIATELY FOLLOWING YEAR) THE TAX INFORMATION RELATING TO SHARES OF EACH FUND NECESSARY FOR THE PREPARATION OF SHAREHOLDERS ANNUAL FEDERAL INCOME TAX RETURNS.
THIS PROSPECTUS DOES NOT
INCLUDE ALL OF THE INFORMATION OR EXHIBITS IN THE REGISTRATION STATEMENT OF THE TRUST AND THE MASTER TRUST. YOU CAN READ AND COPY THE ENTIRE REGISTRATION STATEMENT AT THE PUBLIC REFERENCE FACILITIES MAINTAINED BY THE SEC IN WASHINGTON, D.C.
THE FUNDS
AND THE MASTER FUNDS FILE QUARTERLY AND ANNUAL REPORTS WITH THE SEC. YOU CAN READ AND COPY THESE REPORTS AT THE SEC PUBLIC REFERENCE FACILITIES IN WASHINGTON, D.C. PLEASE CALL THE SEC AT 1800SEC0330 FOR FURTHER INFORMATION.
THE FILINGS OF THE TRUST AND THE MASTER TRUST ARE POSTED AT THE SEC WEBSITE AT HTTP://WWW.SEC.GOV.
REGULATORY NOTICES
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN
THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE TRUST, EITHER FUND, THE MASTER TRUST OR EITHER MASTER FUND, THE MANAGING OWNER, THE AUTHORIZED PARTICIPANTS OR
ANY OTHER PERSON.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION TO SELL OR A SOLICITATION OF AN OFFER TO BUY, NOR
SHALL THERE BE ANY OFFER, SOLICITATION, OR SALE OF THE SHARES IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION, OR SALE IS NOT AUTHORIZED OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE ANY SUCH OFFER, SOLICITATION, OR SALE.
THE DIVISION OF INVESTMENT
MANAGEMENT OF THE SECURITIES AND EXCHANGE COMMISSION REQUIRES THAT THE FOLLOWING STATEMENT BE PROMINENTLY SET FORTH HEREIN: NEITHER POWERSHARES DB US DOLLAR INDEX TRUST NOR DB US DOLLAR INDEX MASTER TRUST NOR ANY SERIES THEREOF IS A MUTUAL
FUND OR ANY OTHER TYPE OF INVESTMENT COMPANY WITHIN THE MEANING OF THE INVESTMENT COMPANY ACT OF 1940, AS AMENDED, AND IS NOT SUBJECT TO REGULATION THEREUNDER.
AUTHORIZED PARTICIPANTS MAY BE
REQUIRED TO DELIVER A PROSPECTUS WHEN TRANSACTING IN SHARES. SEE PLAN OF DISTRIBUTION.
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POWERSHARES DB US DOLLAR INDEX TRUST
Table of Contents
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-vii-
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Prospectus Section
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Page
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PowerShares DB US Dollar Index Bearish Fund and Subsidiary Unaudited Consolidated Statement of Changes in Shareholders Equity For the Three Months Ended June 30, 2007
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153
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PowerShares DB US Dollar Index Bearish Fund and Subsidiary Unaudited Consolidated Statement of Changes in Shareholders Equity For the Period Ended June 30, 2007
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154
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PowerShares DB US Dollar Index Bearish Fund and Subsidiary Unaudited Consolidated Statement of Cash Flows For the Period Ended June 30, 2007
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155
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PowerShares DB US Dollar Index Bearish Fund and Subsidiary Notes to Unaudited Consolidated Financial Statements
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156
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Independent Auditors Report
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164
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DB Commodity Services LLC Statement of Financial Condition as of December 31, 2006 and 2005
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165
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DB Commodity Services LLC Statements of Income and Expenses For the Year Ended December 31, 2006 and For the Period from May 23, 2005(Inception) to December 31, 2005
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166
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DB Commodity Services LLC Statements of Changes in Members Capital (Deficit) for the Year Ended December 31, 2006 and for the Period from May 23, 2005 (Inception) to December 31,
2005
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167
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DB Commodity Services LLC Statement of Cash Flows For the Year Ended December 31, 2006 and for the Period from May 23, 2005 (Inception) to December 31, 2005
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168
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DB Commodity Services LLC Notes to Financial Statements
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169
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DB Commodity Services LLC Unaudited Statement of Financial Condition as of June 30, 2007
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177
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DB Commodity Services LLC Unaudited Statement of Income and Expenses For the Six Months Ended June 30, 2007 and June 30, 2006
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178
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PART TWO
STATEMENT OF ADDITIONAL INFORMATION
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SUMMARY
This summary of all material information provided in this Prospectus is intended for quick reference only. For
ease of reference, any references throughout this Prospectus to various actions taken by each of the Funds or each of the Master Funds are actually actions that the Trust or the Master Trust has taken on behalf of each such respective Fund or Master
Fund. The remainder of this Prospectus contains more detailed information. You should read the entire Prospectus, including all exhibits to the Prospectus, before deciding to invest in Shares of either Fund. This Prospectus is intended to be used
beginning [
], 2007.
The Trust and the Funds; The Master Trust and the Master Funds
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PowerShares DB US Dollar Index Trust, or the Trust, was formed as a Delaware statutory trust in two separate series, or Funds, on August 3, 2006. Each Fund
issues common units of beneficial interest, or Shares, which represent units of fractional undivided beneficial interest in and ownership of such Fund. The term of the Trust and each Fund is perpetual (unless terminated earlier in certain
circumstances). The principal offices of the Trust and each Fund are located at c/o DB Commodity Services LLC, 60 Wall Street, New York, New York 10005, and the telephone number of each of them is (212) 250-5883.
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DB US Dollar Index Master Trust, or the Master Trust, was formed as a Delaware statutory trust in two separate series, or Master Funds, on August 3, 2006. Each
Master Fund issues common units of beneficial interest, or Master Fund Units, which represent units of fractional undivided beneficial interest in and ownership of such Master Fund. The term of the Master Trust and each Master Fund is perpetual
(unless terminated earlier in certain circumstances). The principal offices of the Master Trust and each Master Fund are located at c/o DB Commodity Services LLC, 60 Wall Street, New York, New York 10005, and the telephone number of each of
them is (212) 250-5883.
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Each of the Trust and Master Trust was organized
in two separate series as a Delaware statutory trust rather than as two separate statutory trusts in order to achieve certain administrative efficiencies. The interests of investors are not adversely affected by the choice of form of organization.
Shares Listed on the Amex
The Shares of each Fund are listed on the Amex under the following symbols:
PowerShares DB US Dollar Index Bullish Fund UUP; and
PowerShares DB US Dollar Index Bearish Fund UDN.
Secondary market purchases and sales of Shares are subject to ordinary brokerage commissions and charges.
Purchases and Sales in the Secondary Market, on the Amex
The Shares of each Fund trade on the Amex like
any other equity security.
Baskets of Shares in each Fund may be created or redeemed only by Authorized Participants. It is expected that
Baskets in a Fund will be created when there is sufficient demand for Shares in such Fund that the market price per Share is at a premium to the net asset value per Share. Authorized Participants are expected to sell such Shares, which are listed on
the Amex, to the public at prices that are expected to reflect, among other factors, the trading price of the Shares of such Fund on the Amex and the supply of and demand for the Shares at the time of sale and are expected to fall between net asset
value and the trading price of the Shares on the Amex at the time of sale. Similarly, it is expected that Baskets in a Fund will be redeemed when the market price per Share of such Fund is at a discount to the net asset value per Share. Retail
investors seeking to purchase or sell Shares on any day are expected to effect such transactions in the secondary market, on the Amex, at the market price per Share, rather than in connection with the creation or redemption of Baskets.
The market price of the Shares of a Fund may not be identical to the net asset value per Share, but these valuations are expected to be very
close.
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Investors are able to use the indicative intra-day value per Share to determine if they want to purchase in the secondary market via the Amex. The intra-day
indicative value per Share of each Fund is based on the prior days final net asset value, adjusted four times per minute throughout the trading day to reflect the continuous price changes of the Master Funds futures contracts to provide
a continuously updated estimated net asset value per Share.
Retail investors may purchase and sell Shares through traditional
brokerage accounts. Purchases or sales of Shares may be subject to customary brokerage commissions. Investors are encouraged to review the terms of their brokerage accounts for applicable charges.
Pricing Information Available on the Amex and Other Sources
The following table lists additional Amex symbols
and their meanings with respect to the Funds and the Indexes:
Bullish Fund:
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UUP
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Intra-day indicative value per Share of the Bullish
Fund
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UUP.NV
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End of day net asset value of the Bullish Fund
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USDUPX
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Intra-day and Long Index closing level as of close of Amex from the prior day
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Bearish Fund:
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UDN
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Intra-day indicative value per Share of the Bearish
Fund
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UDN.NV
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End of day net asset value of the Bearish Fund
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USDDNX
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Intra-day and Short Index closing level as of close of Amex from the prior day
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The intra-day data in the above tables is published once every fifteen seconds throughout
each trading day.
The Index Sponsor publishes the daily closing level of the Indexes as of the close of the Amex. The Managing Owner
publishes the net asset value of each Fund and the net asset value per Share daily.
Additionally, the Index Sponsor publishes the intra-day Index level, and the Managing Owner publishes the indicative value per Share of each Fund (quoted in
U.S. dollars) once every fifteen seconds throughout each trading day. All of the foregoing information is published as follows:
The
intra-day level of the Indexes (symbols: Long Index: USDUPX; Short Index: USDDNX) and the intra-day indicative value per Share of each Fund (symbols: Bullish Fund: UUP; Bearish Fund: UDN) (each quoted in U.S. dollars) are published once every
fifteen seconds throughout each trading day on the consolidated tape, Reuters and/or Bloomberg and on the Managing Owners website at
http://www.dbfunds.db.com
, or any successor thereto.
The current trading price per Share of each Fund (symbols: Bullish Fund: UUP; Bearish Fund: UDN) (quoted in U.S. dollars) is published continuously as
trades occur throughout each trading day on the consolidated tape, Reuters and/or Bloomberg and on the Managing Owners website at
http://www.dbfunds.db.com
, or any successor thereto.
The most recent end-of-day Index closing level (symbols: Long Index: USDUPX; Short Index: USDDNX) is published as of the close of the Amex each trading
day on the consolidated tape, Reuters and/or Bloomberg and on the Managing Owners website at
http://www.dbfunds.db.com
, or any successor thereto.
The most recent end-of-day net asset value of each Fund (symbols: Bullish Fund: UUP.NV; Bearish Fund: UDN.NV) is published as of the close of business on Reuters and/or Bloomberg and on the Managing Owners
website at
http://www.dbfunds.db.com
, or any successor thereto. In addition, the most recent end-of-day net asset value of each Fund is published the following morning on the consolidated tape.
All of the foregoing information with respect to the Indexes is also published at
https://index.db.com.
The Index Sponsor obtains information for inclusion in, or for use in the calculation of, the Indexes from sources the Index Sponsor considers reliable.
None of the Index Sponsor, the Managing Owner, the Funds, the Master Funds or any of their
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respective affiliates accepts responsibility for or guarantees the accuracy and/or completeness of the Indexes or any data included in the Indexes.
CUSIP Numbers
The Bullish Funds CUSIP number is 73936D107.
The Bearish Funds CUSIP number is 73936D206.
The Master-Feeder Structure
Each Fund invests substantially all of its assets in a separate Master Fund in
a master-feeder structure. Neither Fund holds any investment assets other than Master Fund Units of its corresponding Master Fund. Each Master Fund is wholly-owned by its corresponding Fund and the Managing Owner. Each Share issued by a Fund
correlates with a Master Fund Unit issued by such Funds corresponding Master Fund and held by such Fund.
Risk Factors
An investment in Shares of either Fund is speculative and involves a high degree of risk. The summary risk
factors set forth below are intended merely to highlight certain risks that are common to each Fund. Each Fund has particular risks that are set forth elsewhere in this Prospectus.
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The Funds and Master Funds have a limited operating history. Therefore, a potential investor has only a limited performance history to serve as a factor for
evaluating an investment in either the Bullish Fund or the Bearish Fund.
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Past performance is not necessarily indicative of future results; all or substantially all of an investment in either the Bullish Fund or the Bearish Fund could be
lost.
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The trading of each Master Fund takes place in very volatile markets.
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Investment in foreign exchange related products are subject to many factors which contribute or increase potential volatility, including, but not limited to:
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National debt levels and trade deficits, including changes in balances of payments and trade;
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Domestic and foreign inflation rates and investors expectations concerning inflation rates;
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Domestic and foreign interest rates and investors expectations concerning interest rates;
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Currency exchange rates;
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Investment and trading activities of mutual funds, hedge funds and currency funds;
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Global or regional political, economic or financial events and situations;
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Supply and demand changes which influence the foreign exchange rates of various currencies;
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Monetary policies of governments (including exchange control programs, restrictions on local exchanges or markets and limitations on foreign investment in a country or on
investment by residents of a country in other countries), trade restrictions, currency devaluations and revaluations;
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Governmental intervention in the currency market, directly and by regulation, in order to influence currency prices; and
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Expectations among market participants that a currencys value soon will change.
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The Funds and the Master Funds are subject to fees and expenses in the aggregate amount of approximately 0.55% per annum as described herein and will be
successful only if their annual returns from futures trading, plus their annual interest income from their holdings of United States Treasury securities and other high credit quality short-term fixed income securities, exceed such fees and expenses
of approximately 0.55% per annum. Because it is expected that interest income will exceed the fees and costs incurred by each Fund and Master Fund at the end of the first twelve months of an investment, the percentage of profit required for
each Fund to break even at the end of the first twelve months of an investment, by definition, is expected to be 0.00%. The Master Funds (and,
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-3-
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in turn, the Funds) are expected to earn interest income equal to 3.93% per annum, based upon the yield of 3-month U.S. Treasury bills as of
October 1, 2007. Therefore, based upon the difference between the current yield of 3-month U.S. Treasury bills and the annual fees and expenses, each of the Bullish Fund and the Bearish Fund is expected to have net income equal to approximately
3.38% per annum, assuming that both Funds have not experienced gains or losses from their futures trading.
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There can be no assurance that either the Bullish Fund or the Bearish Fund will achieve profits or avoid losses, significant or otherwise.
|
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Performance of a Fund may not track its Index during particular periods or over the long term. Such tracking error may cause a Fund to outperform or underperform
its Index.
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Certain potential conflicts of interest exist between the Managing Owner and its affiliates and the Shareholders. For example, because the Managing Owner and the
Commodity Broker are both indirect wholly-owned subsidiaries of Deutsche Bank AG, the Managing Owner has a disincentive to replace the Commodity Broker. The Commodity Broker may have a conflict of interest between its execution of trades for the
Master Funds and for its other customers. More specifically, the Commodity Broker will benefit from executing orders for other clients, whereas the Master Funds may be harmed to the extent that the Commodity Broker has fewer resources to allocate to
the Master Funds accounts due to the existence of such other clients. Allocation of resources between the Master Funds adds to the potential conflict. Proprietary trading by the affiliates of the Managing Owner and the Commodity Broker may
create conflicts of interest from time-to-time because such proprietary trades may take a position that is opposite of that of a Master Fund or may compete with a Master Fund for certain positions within the marketplace. See Conflicts of
Interest for a more complete disclosure of various conflicts. Although the Managing Owner has established procedures designed to resolve certain of these conflicts equitably, the Managing Owner has not established formal procedures to resolve
all potential conflicts of
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interest. Consequently, investors may be dependent on the good faith of the respective parties subject to such conflicts to resolve them equitably. Although
the Managing Owner attempts to monitor these conflicts, it is extremely difficult, if not impossible, for the Managing Owner to ensure that these conflicts will not, in fact, result in adverse consequences to the Funds.
|
The Trustee
Wilmington Trust Company, or the Trustee, a Delaware banking corporation, is the sole trustee of
the Trust and the Master Trust. The Trustee delegated to the Managing Owner certain of the power and authority to manage the business and affairs of the Trust and each Fund and the Master Trust and each Master Fund and has only nominal duties and
liabilities to the Trust, the Funds, the Master Trust and the Master Funds.
Investment Objectives and the Index
The Funds and
the Master Funds seek to track changes, whether positive or negative, in the level of the Deutsche Bank US Dollar Index (USDX
®
) Futures Index Excess Return, or the Index, over time,
plus the excess, if any, of its corresponding 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 each Fund and its corresponding Master
Fund. The Long Index is calculated to reflect the changes in market value over time, whether positive or negative, of long positions in futures contracts (symbol: DX, traded exclusively through ICE Futures U.S.), or DX Contracts. The Short Index is
calculated to reflect the changes in market value over time of short positions in DX Contracts. Both the Long Index and the Short Index reflect the changes in market value over time, whether positive or negative, of the DX Contract which expires
during the months of March, June, September and December. Each Fund pursues its investment objective by investing substantially all of its assets in a corresponding Master Fund. The Bullish Master Fund seeks to track the Long Index by establishing
long positions in DX Contracts while the Bearish Master Fund seeks to track the Short Index by establishing short positions in DX Contracts. The Shares are designed for investors who want a cost-effective and convenient way to invest in a currency
futures contract
-4-
on a currency index that reflects the changes in market value over time, whether positive or negative, of the DX Contracts, and in turn, of the U.S. dollar
relative to the underlying Index Currencies.
Advantages of investing in the Shares include:
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Ease and Flexibility of Investment
. The Shares of each Fund trade on the Amex and provide institutional and retail investors with indirect access
to the currency futures markets. The Shares may be bought and sold on the Amex like other exchange-listed securities. Retail investors may purchase and sell Shares through traditional brokerage accounts.
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Shares May Provide A More Cost Effective Alternative.
Investing in the Shares of a Fund can be easier and less expensive for an investor than
constructing and trading a comparable foreign currency futures portfolio.
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Each Master Fund invests in DX Contracts Which may be More Efficient and Transparent than Alternatives.
Although the Master Funds will not take
physical delivery due to rolling the underlying DX Contracts prior to expiration, DX Contracts tend to be more efficient and transparent because physical delivery is required upon the expiration of the contract.
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Margin.
Shares are eligible for margin accounts.
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Diversification
. The Shares may help to diversify a portfolio because historically the Indexes have tended to exhibit low to negative correlation
with both equities and conventional bonds.
|
Investing in the Shares does not insulate Shareholders from certain risks,
including price volatility.
DX Contracts are linked to the six underlying
currencies of the USDX
®
, or the Index Currencies. The Index Currencies are Euro, Japanese Yen, British Pound, Canadian Dollar, Swedish Krona and Swiss Franc. The Index Currencies represent
the currencies of the major trading partners of the U.S. (and represent the currencies of 17 countries, 12 countries of the Euro zone plus five other countries). The changes in market value over time, whether positive or negative, of DX Contracts is
tied to the
U.S. Dollar Index
®
, or USDX
®
.
USDX
®
is composed of notional amounts of each Index Currency. The notional amounts of the Index Currencies included in USDX
®
reflect a geometric weighted average of the change in the Index Currencies exchange rates against the U.S. dollar relative to March 1973. March 1973 was chosen as a base period of USDX
®
because it represents a significant milestone in foreign exchange history when the worlds major trading nations allowed their currencies to float freely against each other.
The Index reflects changes in market value over time, whether positive or negative, of the first to expire DX Contract relative to the value of the
dollar as of December 31, 1986, or Base Date. Although the DX Contract started trading in 1985, the Base Date of December 31, 1986 was selected because reasonably reliable pricing data was not available prior to December 31, 1986.
The use of long positions in DX Contracts in the construction of the Long Index
causes the Long Index to rise as a result of any upward price movement in the DX Contracts. In turn, this appreciation in the long DX Contracts reflects the rise of the U.S. dollar relative to the underlying basket of Index Currencies which comprise
the USDX
®
.
The use of
short positions in DX Contracts in the construction of the Short Index causes the Short Index to rise as a result of any downward price movement in the DX Contracts. In turn, this appreciation in the short DX Contracts reflects the fall of the U.S.
dollar relative to the underlying basket of Index Currencies which comprise the USDX
®
.
The Index Sponsor calculates the closing level of each Index on both an excess return basis and a total return basis. The excess return index reflects the changes in market value over time, whether positive or negative, of the DX Contracts.
The total return is the sum of the changes in market value over time, whether positive or negative, of the DX Contracts plus the return of 3-month U.S. Treasury bills. The closing levels of each Index have been calculated using historic exchange
closing price data of the DX Contract since the Base Date.
Since the Base Date, the Long Index closing level has ranged on a daily basis
from as high as
-5-
100.58 on January 5, 1987 to as low as 59.41 on December 30, 2004. Since the Base Date, the Short Index closing level has ranged on a daily basis
from as high as 148.76 on April 18, 1995 to as low as 91.91 on July 5, 2001. Past Index levels are not necessarily indicative of future Index levels.
The underlying DX Contracts of the Index are rolled quarterly on the Index Roll Day which is the Wednesday prior to the applicable IMM Date. IMM Date means the third Wednesday of March, June,
September and December, a traditional settlement date in the International Money Market.
DX Contracts are rolled on the Wednesday prior to
each IMM Date as follows:
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The DX Contract that expires on the next IMM Date is sold.
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A position in the DX Contract that expires on the IMM Date following the next IMM Date is purchased.
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Volatility of the Index has been historically comparable in range and variability to a broad-based, multi-capitalization stock index future. The DX
Contract price is sized at $1000 times the Index closing level. Thus, if the Index closing level is 100.00, the DX Contract will be valued $100,000. If the Index closing level is 112.50, each DX Contract will have a $112,500 value.
The sponsor of each Index, or the Index Sponsor, is Deutsche Bank AG London. The composition of each Index may be adjusted in the Index Sponsors
discretion.
The following table reflects the index base weights, or Index Base
Weights, of each Index Currency as of March 1973 with respect to USDX
®
:
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Index Currency
|
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Index Base Weight
(%)
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Euro
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57.60
|
Japanese
Yen
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13.60
|
British Pound
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11.90
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Canadian Dollar
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9.10
|
Swedish Krona
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4.20
|
Swiss Franc
|
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3.60
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Closing Level at
Inception:
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100.00
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USDX
®
has been calculated since
inception in March 1973. The closing level at inception was 100.00.
The Index
Currencies and Index Base Weights used in the calculation of USDX
®
are based on those used in the original Federal Reserve Boards trade-weighted U.S. Dollar Index. The Index Base
Weights of the Index Currencies comprising the USDX
®
in the above table have been fixed since inception in 1973, except for the changes necessitated by the introduction of the Euro. Because
USDX
®
is based only on indications of foreign exchange rate values, it may occasionally differ from a value calculated using other data sources. USDX
®
is calculated as a geometric weighted average of the change in the Index Currency exchange rates against the U.S. dollar relative to March 1973. USDX
®
measures the dollars general value relative to a base of 100.00. A quote of 105.50 means the dollars value has risen 5.50% since March 1973 relative to the underlying basket of Index Currencies which comprise the USDX
®
.
Each Master Funds portfolio also holds United States Treasury
securities and other high credit quality short-term fixed income securities for deposit with such Master Funds Commodity Broker as margin.
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 has 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.
There can be no assurance that any Fund or any Master Fund will achieve its investment objective or avoid substantial losses. The Master Funds have
limited performance histories. The value of the Shares of each Fund is expected to fluctuate generally in relation to changes in the value of its corresponding Master Fund Units.
Shares of Each Fund Should Track Closely the Value of its Index
The Shares of each of the Bullish Fund and
the Bearish Fund are intended to provide investment
-6-
results that generally correspond to the changes, whether positive or negative, in the levels of either the Long Index and the Short Index, respectively,
over time.
The value of the Shares of each Fund is expected to fluctuate in relation to changes in the value of its corresponding Master
Funds portfolio. The market price of the Shares of a Fund may not be identical to the net asset value per Share, but these two valuations are expected to be very close.
Each Master Fund invests in DX Contracts, which are futures contracts on the USDX
®
. DX Contracts are traded exclusively through ICE Futures U.S. Each Master Funds portfolio also holds United States Treasury securities and other high credit quality short-term fixed
income securities for deposit with such Master Funds Commodity Broker as margin. Each Master Funds portfolio is traded with a view to tracking the changes, whether positive or negative, in the levels of the Long Index or the Short Index,
as appropriate, over time, whether the Index is rising, falling or flat over any particular period. The Bullish Master Fund establishes long positions in DX Contracts and the Bearish Master Fund establishes short positions in DX Contracts. Neither
Master Fund is managed by traditional methods, which typically involve effecting changes in the composition of a Master Funds portfolio on the basis of judgments relating to economic, financial and market considerations with a view
to obtaining positive results under all market conditions.
The Managing Owner
DB Commodity Services LLC, a Delaware limited liability company, serves as Managing
Owner of the Trust and each Fund and the Master Trust and each Master Fund. The Managing Owner was formed on May 23, 2005. The Managing Owner is an affiliate of Deutsche Bank AG. The Managing Owner serves as the commodity pool operator and
commodity trading advisor of the Trust and each Fund and the Master Trust and each Master Fund. The Managing Owner and its trading principals have limited experience in operating commodity pools and managing futures trading accounts. The Managing
Owner is registered as a commodity pool operator and commodity trading advisor with the Commodity Futures Trading Commission, or the CFTC, and is a member of the National Futures Association, or the
NFA. As a registered commodity pool operator and commodity trading advisor, with respect to both the Trust and each Fund and the Master Trust and each Master
Fund, the Managing Owner must comply with various regulatory requirements under the Commodity Exchange Act and the rules and regulations of the CFTC and the NFA, including investor protection requirements, antifraud prohibitions, disclosure
requirements, and reporting and recordkeeping requirements. The Managing Owner is also subject to periodic inspections and audits by the CFTC and NFA.
The Shares are not deposits or other obligations of the Managing Owner, the Trustee or any of their respective subsidiaries or affiliates or any other bank, are not guaranteed by the Managing Owner, the Trustee or any
of their respective subsidiaries or affiliates or any other bank and are not insured by the Federal Deposit Insurance Corporation or any other governmental agency. An investment in the Shares of either Fund is speculative and involves a high degree
of risk.
The principal office of the Managing Owner is located at 60 Wall Street, New York, New York 10005. The telephone number of the
Managing Owner is (212) 250-5883.
Each Master Fund pays the Managing Owner a Management Fee, monthly in arrears, in an amount
equal to 0.50% per annum of the daily net asset value of such Master Fund. No separate fee is paid by either Fund. The Management Fee is paid in consideration of the Managing Owners commodity futures trading advisory services.
The Commodity Broker
A variety of executing brokers execute futures transactions on behalf of the Master
Funds. Such executing brokers give-up all such transactions to Deutsche Bank Securities Inc., a Delaware corporation, which serves as each Master Funds clearing broker, or Commodity Broker. The Commodity Broker is an affiliate of the Managing
Owner. In its capacity as clearing broker, the Commodity Broker executes and clears each Master Funds futures transactions and performs certain administrative services for each Master Fund. Deutsche Bank Securities Inc. is registered with the
CFTC as a futures commission merchant and is a member of the NFA in such capacity.
-7-
Each Master Fund pays to the Commodity Broker 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 for each Master Fund. On average, total charges paid to the Commodity Broker are expected to be less than $10.00 per round-turn trade, although the Commodity Brokers brokerage commissions and trading fees are
determined on a contract-by-contract basis. The Managing Owner does not expect brokerage commissions and fees to exceed 0.05% of the net asset value of either Master Fund in any year, although the actual amount of brokerage commissions and fees in
any year or any part of any year may be greater.
A round-turn trade is a completed transaction involving both a purchase and a
liquidating sale, or a sale followed by a covering purchase.
The Administrator
The Trust and Master Trust, on behalf of each Fund and each Master Fund, respectively,
has appointed The Bank of New York as the administrator, or Administrator, of each Fund and each Master Fund and has entered into an Administration Agreement in connection therewith. The Bank of New York serves as custodian, or Custodian, of each
Fund and has entered into a Global Custody Agreement, or Custody Agreement, in connection therewith. The Bank of New York serves as the transfer agent, or Transfer Agent, of each Fund and has entered into a Transfer Agency and Service Agreement in
connection therewith.
The Bank of New York, a banking corporation organized
under the laws of the State of New York with trust powers, has an office at 2 Hanson Place, 12
th
Floor, Brooklyn, N.Y. 11217. The Bank of New York is
subject to supervision by the New York State Banking Department and the Board of Governors of the Federal Reserve System. Information regarding the net asset value of each Fund, creation and redemption transaction fees and the names of the parties
that have executed a Participant Agreement may be obtained from The Bank of New York by calling the following number: (718) 315-4412. A copy of the Administration Agreement is available for inspection at The Bank of New Yorks trust office
identified above.
Pursuant to the Administration Agreement, the Administrator performs or supervises the performance
of services necessary for the operation and administration of each Fund and each Master 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 retains, separately for each Fund and Master Fund, certain financial books and records, including: Basket creation and redemption books and records, Fund and
Master 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 futures commission merchants, c/o The
Bank of New York, 2 Hanson Place, 12
th
Floor, Brooklyn, New York 11217, telephone number (718) 315-4850.
The Administration Agreement will continue in effect from the commencement of trading operations unless terminated on at least 90 days prior
written notice by either party to the other party. Notwithstanding the foregoing, the Administrator may terminate the Administration Agreement upon 30 days prior written notice if either Fund and/or Master Fund has materially failed to perform
its obligations under the Administration Agreement.
The Administration Agreement provides for the exculpation and indemnification of the
Administrator from and against any costs, expenses, damages, liabilities or claims (other than those resulting from the Administrators own bad faith, negligence or willful misconduct) which may be imposed on, incurred by or asserted against
the Administrator in performing its obligations or duties under the Administration Agreement. Key terms of the Administration Agreement are summarized under the heading Material Contracts.
The Administrators monthly fees are paid on behalf of each Fund and each Master Fund by the Managing Owner out of the Management Fee.
The Administrator and any of its affiliates may from time-to-time purchase or sell Shares for their own account, as agent for their customers and for
accounts over which they exercise investment discretion.
-8-
The Administrator also receives a transaction processing fee in connection with orders from Authorized Participants to create or redeem Baskets in the amount
of $500 per order. These transaction processing fees are paid indirectly by the Authorized Participants and not by either Fund or either Master Fund.
Each Fund is expected to retain the services of one or more additional service providers to assist with certain tax reporting requirements of each Fund and its Shareholders.
ALPS Distributors, Inc.
The Trust, on behalf of each Fund, has appointed ALPS Distributors, Inc., or ALPS
Distributors, to assist the Managing Owner and the Administrator with certain functions and duties relating to distribution and marketing, including reviewing and approving marketing materials. ALPS Distributors retains all marketing materials
separately for each Fund and Master Fund, at c/o ALPS Distributors, Inc., 1625 Broadway, Suite 2200, Denver, Colorado 80202; telephone number (303) 623-2577. Investors may contact ALPS Distributors toll-free in the U.S. at (877) 369-4617.
The Managing Owner, on behalf of each Fund, has entered into a Distribution Services Agreement with ALPS Distributors. ALPS Distributors is affiliated with ALPS Mutual Fund Services, Inc., a Denver- based outsourcing solution for administration,
compliance, fund accounting, legal marketing, tax administration, transfer agency and shareholder services for open-end, closed-end, hedge and exchange-traded funds, with over 100,000 shareholder accounts and approximately $17 billion in client
mutual fund assets under administration. ALPS Distributors provides distribution services to over $170 billion in client assets.
The
Managing Owner, out of the relevant Management Fee, pays ALPS Distributors for performing its duties on behalf of each Fund and its corresponding Master Fund and may pay ALPS Distributors additional compensation in consideration of the performance
by ALPS Distributors of additional marketing, distribution and ongoing support services to each Fund or its corresponding Master Fund. Such additional services may include, among other services, the development and implementation of a marketing plan
and the
utilization of ALPS Distributors resources, which include an extensive broker database and a network of internal and external wholesalers.
ALPS Distributors, Inc. is the distributor of both PowerShares DB US Dollar Index Bullish Fund
and PowerShares DB US Dollar Index Bearish Fund. Certain marketing services may be provided for the Funds by A I M Distributors, Inc. or PowerShares Capital Management LLC. This assistance includes the licensing of the PowerShares
®
registered service mark to the Managing Owner for use with the Funds. PowerShares
®
is a registered service mark of PowerShares
Capital Management LLC. PowerShares Capital Management LLC is not a sponsor or promoter of the Funds and has no responsibility for the performance of the Funds or the decisions made or actions taken by the Managing Owner.
A I M Distributors, Inc.
Through a marketing agreement between the Managing Owner and A I M Distributors,
Inc., or AIM Distributors, an affiliate of PowerShares Capital Management LLC, or PowerShares, the Managing Owner, on behalf of each Fund and each Master Fund, has appointed AIM Distributors as a marketing agent. AIM Distributors assists the
Managing Owner and the Administrator with certain functions and duties such as providing various educational and marketing activities regarding each Fund, primarily in the secondary trading market, which activities include, but are not limited to,
communicating each Funds name, characteristics, uses, benefits, and risks, consistent with the prospectus. AIM Distributors does not open or maintain customer accounts or handle orders for the Funds. Investors may contact AIM Distributors toll
free in the U.S. at (800) 983-0903. AIM Distributors is a subsidiary of AMVESCAP PLC. AMVESCAP is a leading independent global investment manager operating under the AIM, INVESCO, AIM Trimark, Invesco Perpetual and Atlantic Trust brands.
The Managing Owner, out of the relevant Management Fee, pays AIM Distributors for performing its duties on behalf of such Fund, or its
corresponding Master Fund.
-9-
Limitation of Liabilities
Although the Managing Owner has unlimited liability for any obligations of each
Fund that exceed that Funds net assets, your investment in a Fund is part of the assets of that Fund and its corresponding Master Fund, and it will therefore be subject to the risks of that Funds and Master Funds trading only. You
cannot lose more than your investment in a Fund, and you will not be subject to the losses or liabilities of a Fund in which you have not invested. We have received an opinion of counsel that each Fund is entitled to the benefits of the limitation
on inter-series liability provided under the Delaware Statutory Trust Act. Each Share, when purchased in accordance with the Declaration of Trust, shall, except as otherwise provided by law, be fully-paid and non-assessable.
The debts, liabilities, obligations, claims and expenses of a particular Fund will be enforceable against the assets of that Fund only, and not against
the assets of the Trust generally or the assets of the other Fund or of the other Master Fund, and, unless otherwise provided in the Declaration of Trust, none of the debts, liabilities, obligations and expenses incurred, contracted for or otherwise
existing with respect to the Trust or Master Trust generally or any other series thereof will be enforceable against the assets of such Fund or Master Fund, as the case may be.
Creation and Redemption of Shares
The Funds create and redeem Shares from time-to-time, but only in one
or more Baskets. A Basket is a block of 200,000 Shares of a Fund. Baskets may be created or redeemed only by Authorized Participants. Except when aggregated in Baskets, the Shares are not redeemable securities. Authorized Participants pay a
transaction fee of $500 in connection with each order to create or redeem a Basket. Authorized Participants may sell the Shares included in the Baskets they purchase from the Funds to other investors.
The Master Funds create and redeem Master Fund Units from time-to-time, but only in one or more Master Unit Baskets. A Master Unit Basket is a block of
200,000 Master Fund Units. Master Unit Baskets in a particular Master Fund may be created or redeemed only by its corresponding Fund. Each Master Fund is wholly-owned by its corresponding
Fund and the Managing Owner. Each Share issued by its corresponding Fund correlates with a Master Fund Unit issued by its corresponding Master Fund and held
by such Fund.
See Creation and Redemption of Shares for more details.
The Offering
Each Fund issues Shares in Baskets 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 Shares of the Fund as of the closing time of the Amex or the last to close of the
exchanges on which the corresponding Master Funds futures contracts are traded, whichever is later, on the date that a valid order to create a Basket is accepted by the Fund.
Each Master Fund issues Master Fund Units in Master Unit Baskets to its corresponding Fund continuously as of noon, New York time, on the business day
immediately following the date on which a valid order to create a Master Unit Basket is accepted by the Master Fund, at the net asset value of 200,000 Master Fund Units as of the closing time of the Amex or the last to close of the exchanges on
which the corresponding Master Funds futures contracts are traded, whichever is later, on the date that a valid order to create a Master Unit Basket is accepted by the Master Fund. Each Master Fund is wholly-owned by its corresponding Fund and
the Managing Owner. Each Share issued by a Fund correlates with a Master Fund Unit issued by its corresponding Master Fund and held by the Fund.
Authorized Participants
Baskets may be created or redeemed only by Authorized Participants. Each Authorized
Participant must (1) be a registered broker dealer or other securities market participant such as a bank or other financial institution which is not required to register as a broker dealer to engage in securities transactions, (2) be a
participant in DTC, and (3) have entered into an agreement with each Fund and the Managing Owner (a Participant Agreement). The Participant Agreement sets forth the procedures for the creation and redemption of Baskets of Shares and for the
-10-
delivery of cash required for such creations or redemptions. A list of the current Authorized Participants can be obtained from the Administrator. A similar
agreement between each Fund and its corresponding Master Fund sets forth the procedures for the creation and redemption of Master Unit Baskets by the Funds. See Creation and Redemption of Shares for more details.
Net Asset Value
Net asset value, in respect of a Master Fund, means the total assets of the Master Fund
including, but not limited to, all cash and cash equivalents or other debt securities less total liabilities of such Master Fund, each determined on the basis of generally accepted accounting principles in the United States, consistently applied
under the accrual method of accounting.
Net asset value per Master Fund Unit, in respect of a Master Fund, is the net asset value of
the Master Fund divided by the number of its outstanding Master Fund Units. Because there is a one to one correlation between Shares of a Fund and Master Fund Units of its corresponding Master Fund and each Master Fund has assumed all liabilities of
its corresponding Fund, the net asset value per Share of either Fund and the net asset value per Master Fund Unit of its corresponding Master Fund are equal.
See Description of the Shares and the Master Fund Units; The Funds; Certain Material Terms of the Trust Declarations Net Asset Value for more details.
Clearance and Settlement
The Shares of each Fund are evidenced by global certificates that the Fund issues to
DTC. The Shares of each Fund are available only in book-entry form. Shareholders may hold Shares of a Fund through DTC, if they are participants in DTC, or indirectly through entities that are participants in DTC. The Master Fund Units of each
Master Fund are uncertificated and held by its corresponding Fund in book-entry form.
Segregated Accounts/Interest Income
The proceeds of the offering of each Fund are deposited in cash in a
segregated account in the name of its corresponding Master Fund at the Commodity
Broker (or another eligible financial institution, as applicable) in accordance with CFTC investor protection and segregation requirements. Each Master Fund
is credited with 100% of the interest earned on its average net assets on deposit with the Commodity Broker or such other financial institution each week. In an attempt to increase interest income earned, the Managing Owner expects to invest non
margin assets of each Master Fund in United States government securities (which include any security issued or guaranteed as to principal or interest by the United States), or any certificate of deposit for any of the foregoing, including United
States Treasury bonds, United States Treasury bills and issues of agencies of the United States government, and certain cash items such as money market funds, certificates of deposit (under nine months) and time deposits or other instruments
permitted by applicable rules and regulations. Currently, the rate of interest expected to be earned by each Master Fund is estimated to be 3.93% per annum, based upon the yield on 3-month U.S. Treasury bills as of October 1, 2007. This
interest income is used by each Master Fund to pay its own expenses and the expenses of its corresponding Fund. See Fees and Expenses for more details.
[Remainder of page left blank intentionally.]
-11-
Fees and Expenses
|
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Management Fees
|
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Each Master Fund pays the Managing Owner a Management Fee, monthly in
arrears, in an amount equal to 0.50% per annum of the daily net asset value of such Master Fund. No separate management fee is paid by its corresponding Fund. The Management Fee is paid in consideration of the Managing Owners futures trading
advisory services.
|
Organization and Offering Expenses
|
|
Expenses incurred in connection with organizing each Fund and its corresponding Master Fund and the initial offering of its Shares
were paid by the Managing Owner. Expenses incurred in connection with the continuous offering of Shares of each Fund after the commencement of its corresponding Master Funds trading operations are also paid by the Managing
Owner.
|
Brokerage Commissions and Fees
|
|
Each Master Fund pays to the Commodity Broker 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 its trading activities. On average, total charges paid to the Commodity Broker are
expected to be less than $10.00 per round-turn trade, although the Commodity Brokers brokerage commissions and trading fees are determined on a contract-by-contract basis. The Managing Owner does not expect brokerage commissions and fees to
exceed 0.05% of the net asset value of a Master Fund in any year, although the actual amount of brokerage commissions and fees in any year or any part of any year may be greater.
|
Routine Operational, Administrative and Other Ordinary
Expenses
|
|
The Managing Owner pays all of the routine operational, administrative and other ordinary expenses of each Fund and its corresponding
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.
|
Extraordinary Fees and
Expenses
|
|
Each Master Fund will pay all the extraordinary fees and expenses, if any, of itself and its
corresponding Fund. Extraordinary 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 extraordinary
fees and expenses, by their nature, are unpredictable in terms of timing and amount.
|
Management Fee and Expenses to be Paid First Out of Interest Income
|
|
The Management Fee and the brokerage commissions and fees of each
Master Fund and its corresponding Fund are paid first out of interest income from each Master Funds holdings of U.S. Treasury bills and other high credit quality short-term fixed income securities on deposit with the Commodity Broker as margin
or otherwise. Such interest income has been sufficient to cover the fees and expenses of each Master Fund and its corresponding Fund and is expected to continue to do so. To the extent interest income is not sufficient to cover the fees and expenses
of a Master Fund and its corresponding Fund during any period, the excess of such fees and expenses over such interest income will be paid out of income from futures trading, if any, or from sales of the Master Funds fixed income securities.
|
Selling Commission
|
|
Retail investors may purchase and sell Shares through traditional brokerage accounts. Investors are
expected to be charged a customary commission by their brokers in connection with purchases of Shares that will vary from investor to investor. Investors are encouraged to review the terms of their brokerage accounts for applicable
charges.
|
-12-
Breakeven Amounts
The estimated amount of all fees and expenses which are anticipated to be incurred by a new
investor in Shares of each Fund during the first twelve months of investment is the following percentage per annum of the net asset value of the Fund, plus the amount of any commissions charged by the investors broker:
|
|
|
|
The Bullish Fund
|
|
(0.55
|
)%
|
|
|
The Bearish Fund
|
|
(0.55
|
)%
|
The Funds and the Master Funds will be successful only if their annual returns from futures
trading, plus their annual interest income from their holdings of United States Treasury securities and other high credit quality short-term fixed income securities, exceed such fees and expenses of approximately 0.55% per annum. Because it is
expected that interest income will exceed the fees and costs incurred by each Fund and Master Fund at the end of the first twelve months of an investment, the percentage of profit required for each Fund to break even at the end of the first twelve
months of an investment, by definition, is expected to be 0.00%. The Master Funds (and, in turn, the Funds) are expected to earn interest income equal to 3.93% per annum, based upon the yield of 3-month U.S. Treasury bills as of October 1,
2007. Therefore, based upon the difference between the current yield of 3-month U.S. Treasury bills and the annual fees and expenses, each of the Bullish Fund and the Bearish Fund is expected to have net income equal to approximately 3.38% per
annum, assuming that both Funds have not experienced gains or losses from their futures trading.
Distributions
Each Fund will make distributions at the discretion of the Managing Owner. To the extent that a
Master Funds actual and projected interest income from its holdings of United States Treasury securities and other high credit quality short-term fixed income securities exceeds the actual and projected fees and expenses of such Master Fund
and its corresponding Fund, the Managing Owner expects periodically to make distributions of the amount of such excess. The Funds currently do not expect to make distributions with respect to capital gains. Depending on the applicable Funds
performance for the taxable year
and your own tax situation for such year, your income tax liability for the taxable year for your allocable share of such Funds net ordinary income or
loss and capital gain or loss may exceed any distributions you receive with respect to such year.
Fiscal Year
The fiscal year of each Fund and each Master Fund ends on December 31 of each year.
Financial Information
The Funds and the Master Funds have only recently been organized and have limited
financial histories.
U.S. Federal Income Tax Considerations
Subject to the discussion below in Material U.S. Federal Income
Tax Considerations, neither Fund will be classified as an association taxable as a corporation. Instead, each Fund expects that it will be classified as a grantor trust for United States federal income tax purposes. As a result, for United
States federal income tax purposes, you generally will be treated as the beneficial owner of a pro rata portion of the interests in the particular Master Fund held by the applicable Fund. Subject to the discussion below in Material U.S.
Federal Income Tax Considerations, each Master Fund will be classified as a partnership for United States federal income tax purposes. Accordingly, neither the Master Fund nor its corresponding Fund will incur United States federal income tax
liability; rather, each beneficial owner of a Funds Shares will be required to take into account its allocable share of its corresponding Master Funds income, gain, loss, deductions and other items for its corresponding Master
Funds taxable year ending with or within the owners taxable year.
Regulated investment companies (RICs) that
invest in Shares of a Fund will be treated as owning a proportionate share of the corresponding Master Funds assets and will take into account their allocable share of such Master Funds income, gain and loss when testing compliance with
the asset, income and other statutory requirements specifically applicable to them. Neither Master Fund meets the definition of a qualified publicly traded partnership (qualified PTP) within the meaning of the Internal Revenue Code of
1986, as amended, or the Code, for purposes of satisfying the qualification requirements
-13-
specifically applicable to RICs. However, under current interpretation of the RIC qualification rules, a RICs allocable share of income from a Master
Funds currency futures transactions and interest income from its investment in debt obligations is treated as qualifying income. Because neither Master Fund is a qualified PTP, a RICs investment in Shares of a Master Funds
corresponding Fund would not be counted against the 25 percent limit on a RICs permitted investment in securities issued by qualified PTPs, and a RIC need not limit its investment in the Shares provided it otherwise can satisfy the
qualification requirements. The U.S. Treasury has specific statutory authority to promulgate tax regulations to exclude from the definition of qualifying income foreign currency gains which are unrelated to the RICs business of investing in
stocks or securities, although to date no such regulations have been issued or proposed. Nonetheless, there is a risk that at some future date, regulations could be issued which would recharacterize all or a portion of the income from a Master
Funds foreign currency futures transactions as nonqualifying income for a RIC. The Master Funds do not intend to seek a ruling on this issue, and no assurance can be given that any future regulations would not have retroactive effect.
Prospective RIC investors should consult a tax adviser regarding the treatment of an investment in a Master Fund to them under current tax rules. See Material U.S. Federal Income Tax Considerations Regulated Investment Companies
below.
Additionally, please refer to the Material U.S. Federal Income Tax Considerations section below for information on
the potential United States federal income tax consequences of the purchase, ownership and disposition of Shares in a Fund.
Breakeven Table
The Breakeven Table on the following page indicates the approximate
percentage and dollar returns required for the value of an initial $25.00 investment in a Share of each Fund to equal the amount originally invested twelve months after issuance.
The Breakeven Table, as presented, is an approximation only. The capitalization of each Fund does not directly affect the level of its
charges as a percentage of its net asset value, other than brokerage commissions.
SUMMARY
(contd)
-14-
Breakeven Table
|
|
|
|
|
|
|
|
|
|
Dollar Amount and Percentages of
Expenses of each Fund
1
|
|
Expense
|
|
|
$
|
|
|
%
|
|
Management Fee
2
|
|
$
|
0.13
|
|
|
0.50
|
%
|
Organization and Offering Expense Reimbursement
3
|
|
$
|
0.00
|
|
|
0.00
|
%
|
Brokerage Commissions and Fees
4
|
|
$
|
0.01
|
|
|
0.05
|
%
|
Routine Operational, Administrative and Other Ordinary
Expenses
5,6
|
|
$
|
0.00
|
|
|
0.00
|
%
|
Interest Income
7
|
|
$
|
(0.98
|
)
|
|
(3.93
|
)%
|
12-Month
Breakeven
8,9, 10
|
|
$
|
(0.84
|
)
|
|
0.00
|
%
|
1.
|
The breakeven analysis set forth in this column assumes that the Shares have a constant month-end net asset value and is based on $25.00 as the net asset value per Share. See
Charges on page 70 for an explanation of the expenses included in the Breakeven Table.
|
2.
|
From the Management Fee, the Managing Owner is responsible for paying the fees and expenses of the Administrator, ALPS Distributors and AIM Distributors.
|
3.
|
The Managing Owner is responsible for paying the organization and offering expenses of each Fund and each Master Fund.
|
4.
|
The actual amount of brokerage commissions and trading fees to be incurred will vary based upon the trading frequency of each Master Fund.
|
5.
|
The Managing Owner is responsible for paying all routine operational, administrative and other ordinary expenses of each Fund and each Master Fund.
|
6.
|
In connection with orders to create and redeem Baskets, Authorized Participants will pay a transaction fee in the amount of $500 per order. Because these transaction fees are
de
minimis
in amount, are charged on a transaction-by-transaction basis (and not on a Basket-by-Basket basis), and are borne by the Authorized Participants, they have not been included in the Breakeven Table.
|
7.
|
Interest income currently is estimated to be earned at a rate of 3.93%, based upon the yield on 3-month U.S. Treasury bills as of October 1, 2007.
|
8.
|
Because it is expected that interest income will exceed the fees and costs incurred by each Fund and Master Fund at the end of the first twelve months of an investment, the
percentage of profit required for each Fund to break even at the end of the first twelve months of an investment, by definition, is expected to be 0.00%.
|
9.
|
The Funds and the Master Funds are subject to (i) a Management Fee of 0.50% per annum and (ii) estimated brokerage commissions and fees of 0.05% per annum. The
Funds and the Master Funds are subject to fees and expenses in the aggregate amount of approximately 0.55% per annum. The Funds and Master Funds will be successful only if their annual returns from the underlying futures contracts, including
annual income from 3-month U.S. Treasury bills, exceed approximately 0.55% per annum. The Master Funds (and, in turn, the Funds) are expected to earn 3.93% per annum, based upon the yield of 3-month U.S. Treasury bills as of
October 1, 2007. Therefore, based upon the difference between the current yield of 3-month U.S. Treasury bills and the annual fees and expenses, each of the Bullish Fund and the Bearish Fund would be expected to earn approximately
3.38% per annum, assuming that both Funds have not experienced either gains or losses resulting from investing in the underlying futures contracts.
|
10.
|
You may pay customary brokerage commissions in connection with purchases of the Shares. Because such brokerage commission rates will vary from investor to investor, such brokerage
commissions have not been included in the Breakeven Table. Investors are encouraged to review the terms of their brokerage accounts for applicable charges.
|
-15-
Reports to Shareholders
The Managing Owner will furnish you with an annual report of each Fund in which
you are invested within 90 calendar days after the end of such Funds fiscal year as required by the rules and regulations of the SEC as well as with those reports required by the CFTC and the NFA, including, but not limited to, an annual
audited financial statement certified by independent registered public accountants and any other reports required by any other governmental authority that has jurisdiction over the activities of the Funds and the Master Funds. You also will be
provided with appropriate information to permit you to file your United States federal and state income tax returns (on a timely basis) with respect to your Shares. Monthly account statements conforming to CFTC and NFA requirements are posted on the
Managing Owners website at
www.dbfunds.db.com
. Additional reports may be posted on the Managing Owners website in the discretion of the Managing Owner or as required by regulatory authorities.
Cautionary Note Regarding Forward-Looking Statements
This Prospectus includes forward-looking statements that
reflect the Managing Owners current expectations about the future results, performance, prospects and opportunities of the Funds and the Master Funds. The Managing Owner has tried to identify these forward-looking statements by using words
such as may, will, expect, anticipate, believe, intend, should, estimate or the negative of those terms or similar expressions. These forward-looking
statements are based on information currently available to the Managing Owner and are subject to a number of risks, uncertainties and other factors, both known, such as those described in Risk Factors in this Summary, in The Risks
You Face and elsewhere in this Prospectus, and unknown, that could cause the actual results, performance, prospects or opportunities of the Funds and the Master Funds to differ materially from those expressed in, or implied by, these
forward-looking statements.
You should not place undue reliance on any forward-looking statements. Except as expressly required by the
federal securities laws, 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
Prospectus, as a result of new information, future events or changed circumstances or for any other reason after the date of this Prospectus.
THE SHARES ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK.
Patent Applications Pending
A patent application directed to the creation and operation of the Trust is
pending at the United States Patent and Trademark Office.
[Remainder of page left blank intentionally.]
-16-
ORGANIZATION CHART
POWERSHARES DB US DOLLAR INDEX TRUST
-17-
THE RISKS YOU FACE
You could lose money investing in Shares. You should consider carefully the risks
described below before making an investment decision. You should also refer to the other information included in this Prospectus.
(1)
|
The Value of the Shares of each Fund Relates Directly to the Value of the Futures Contracts and Other Assets Held by its Corresponding Master Fund and Fluctuations in the Price of These Assets Could Materially Adversely
Affect an Investment in the Fund Shares.
|
The Shares of each Fund are designed to reflect as closely as
possible the changes, whether positive or negative, in the levels of its corresponding Index, over time, through its corresponding Master Funds investment in the DX Contracts. The value of the Shares relates directly to the changes in market
value over time, whether positive or negative, of the DX Contracts, less the liabilities (including estimated accrued but unpaid expenses) of the Fund and its corresponding Master Fund. The price of the DX Contracts may fluctuate widely. Several
factors may affect the price of the Index Currencies, and in turn, the DX Contracts owned by a Master Fund, including, but not limited to:
|
|
National debt levels and trade deficits, including changes in balances of payments and trade;
|
|
|
Domestic and foreign inflation rates and investors expectations concerning inflation rates;
|
|
|
Domestic and foreign interest rates and investors expectations concerning interest rates;
|
|
|
Currency exchange rates;
|
|
|
Investment and trading activities of mutual funds, hedge funds and currency funds;
|
|
|
Global or regional political, economic or financial events and situations;
|
|
|
Supply and demand changes which influence the foreign exchange rates of various currencies;
|
|
|
Monetary policies of governments (including exchange control programs, restrictions on local exchanges or markets and limitations on foreign
|
|
investment in a country or on investment by residents of a country in other countries), trade restrictions, currency devaluations and revaluations;
|
|
|
Governmental intervention in the currency market, directly and by regulation, in order to influence currency prices; and
|
|
|
Expectations among market participants that a currencys value soon will change.
|
(2)
|
Net Asset Value May Not Always Correspond to Market Price and, as a Result, Baskets may be Created or Redeemed at a Value that Differs from the Market Price of the Shares.
|
The net asset value per share of the Shares of a Fund will change as fluctuations occur in the market value of its corresponding Master Funds
portfolio. Investors should be aware that the public trading price of a Basket of Shares of a Fund may be different from the net asset value of a Basket of Shares (i.e., 200,000 Shares may trade at a premium over, or a discount to, net asset value
of a Basket of Shares) and similarly the public trading price per Share of the Fund may be different from the net asset value per Share of such Fund. Consequently, an Authorized Participant may be able to create or redeem a Basket of Shares of a
Fund at a discount or a premium to the public trading price per Share of the Fund. This price difference may be due, in large part, to the fact that supply and demand forces at work in the secondary trading market for Shares of a Fund are closely
related, but not identical, to the same forces influencing the prices of the Index Currencies trading individually or in the aggregate at any point in time. Investors also should note that the size of each Fund in terms of total assets held may
change substantially over time and from time-to-time as Baskets are created and redeemed.
Authorized Participants or their clients or
customers may have an opportunity to realize a riskless profit if they can purchase a Creation Basket at a discount to the public trading price of the Shares of a Fund or can redeem a Redemption Basket at a premium over the public trading price of
the Shares of the Fund. The Managing Owner expects that the exploitation of such arbitrage opportunities by Authorized Participants and their clients and
-18-
customers will tend to cause the public trading price to track net asset value per Share of the Funds closely over time.
The value of a Share of a Fund may be influenced by non-concurrent trading hours between the Amex and ICE Futures U.S., which is the futures exchange on
which DX Contracts are traded. While the Shares of each Fund trade on the Amex from 9:30 a.m. to 4:15 p.m. Eastern Standard Time, DX Contracts are traded for 22 consecutive hours on ICE Futures U.S. from 8:00 p.m. Eastern Standard Time to 6:00 p.m.
Eastern Standard Time on the next business day. Consequently, liquidity in DX Contracts will be reduced after the close of the Amexs trading at 4:15 p.m. Eastern Standard Time. As a result, during the time when the ICE Futures U.S. is open and
the Amex is closed, trading spreads and the resulting premium or discount on the Shares of a Fund may widen, and, therefore, increase the difference between the price of the Shares of a Fund and the net asset value of such Shares.
(3)
|
A Funds Performance May Not Always Replicate Exactly the Changes in the Level of its Corresponding Index.
|
It is possible that a Funds performance may not fully replicate the changes in the level of the Index to which it corresponds due to disruptions in the markets for the Index Currencies or DX Contracts, or due to
other extraordinary circumstances. In addition, a Fund is not able to replicate exactly the changes in the level of the Index because the total return generated by its corresponding Master Fund is reduced by expenses and transaction costs, including
those incurred in connection with such Master Funds trading activities, and increased by interest income from the Master Funds holdings of short-term high quality fixed income securities. Tracking the Index requires trading of a Master
Funds portfolio with a view to tracking the Index over time and is dependent upon the skills of the Managing Owner and its trading principals, among other factors.
(4)
|
The Master Funds are Not Actively Managed and Will Track the Index During Periods in which the Index Is Flat or Declining as well as when the Index Is Rising.
|
The Master Funds are not actively managed by traditional methods. For example, if the DX Contracts owned by the Bullish Master Fund are
declining in value, such Master Fund will not close out such positions, except in connection with a change in the composition or weighting of the Index. The
Managing Owner will seek to cause the net asset value to track the Index during periods in which the Index is flat or declining as well as when the Index is rising.
(5)
|
Investors who Invest Only in Either the Bullish Fund or the Bearish Fund May Not be Able to Profit if the Market Value of the DX Contracts Moves Against Such Investment.
|
The Bullish Fund is expected to rise as a result of any upward price movement in DX Contracts. The Bearish Fund is expected to rise as a result of any
downward price movement in DX Contracts.
If the price of the DX Contracts decreases, the Bearish Fund will profit and the Bullish Fund
will suffer loss. If the price of the DX Contracts increases, the Bullish Fund will profit and the Bearish Fund will suffer a loss. Therefore, the investment experience of investors who plan to invest in either the Bullish Fund or the Bearish Fund
will depend upon selection of the appropriate Fund in light of the price movements of the DX Contracts. Such selection may become unprofitable in the future if the price of the DX Contracts changes direction.
Certain investors who decide to invest in both the Bullish Fund Shares and the Bearish Fund Shares may, nevertheless, suffer losses if the
investors investment mix between the Bullish Fund Shares and the Bearish Fund Shares is biased in one direction and the market price of the DX Contracts moves in the opposite direction. Additionally, investors should not invest in equal
amounts in both the Bullish Fund and the Bearish Fund simultaneously. The net effect of such an investment will be the income from the underlying 3-month U.S. Treasury bills, less fees and expenses.
(6)
|
Amex May Halt Trading in the Shares of a Fund Which Would Adversely Impact Your Ability to Sell Shares.
|
Trading in Shares of a Fund may be halted due to market conditions or, in light of Amex rules and procedures, for reasons that, in the view of the Amex, make trading in Shares of a Fund inadvisable. In addition,
trading is subject to trading halts caused by
-19-
extraordinary market volatility pursuant to circuit breaker rules that require trading to be halted for a specified period based on a specified
market decline. There can be no assurance that the requirements necessary to maintain the listing of the Shares of a Fund will continue to be met or will remain unchanged. A Fund and its corresponding Master Fund will be terminated if the Shares are
delisted.
(7)
|
The Lack of Active Trading Markets for the Shares of a Fund May Result in Losses on Your Investment in a Fund at the Time of Disposition of Your Shares.
|
Although the Shares of each Fund are listed and traded on the Amex, there can be no guarantee that an active trading market for the Shares of a Fund will
develop or be maintained. If you need to sell your Shares at a time when no active market for them exists, the price you receive for your Shares, assuming that you are able to sell them, likely will be lower than the price you would receive if an
active market did exist.
(8)
|
The Shares of Each Fund Are a New Securities Product and Their Value Could Decrease if Unanticipated Operational or Trading Problems Arise.
|
The mechanisms and procedures governing the creation, redemption and offering of the Shares have been developed specifically for these securities
products. Consequently, there may be unanticipated problems or issues with respect to the mechanics of the operations of the Funds and the Master Funds and the trading of the Shares that could have a material adverse effect on an investment in the
Shares. In addition, although the Master Funds are not actively managed by traditional methods, to the extent that unanticipated operational or trading problems or issues arise, the Managing Owners past experience and
qualifications may not be suitable for solving these problems or issues.
(9)
|
As the Managing Owner and its Principals have Only a Limited History of Operating Investment Vehicles like the Funds or the Master Funds, their Experience may be Inadequate or Unsuitable to Manage the Funds or the Master
Funds.
|
The Managing Owner was formed to be the managing owner of investment vehicles such as the
Funds and the Master Funds and has only a limited history of past performance. The past performances of the Managing Owners management of other
commodity pools are no indication of its ability to manage investment vehicles such as the Funds or the Master Funds. If the experience of the Managing Owner and its principals is not adequate or suitable to manage investment vehicles such as the
Funds and the Master Funds, the operations of the Funds and the Master Funds may be adversely affected.
(10)
|
You May Not Rely on Past Performance or Index Results in Deciding Whether to Buy Shares.
|
Each Fund and its corresponding Master Fund has a limited performance history upon which to evaluate your investment in each Fund and its corresponding Master Fund. Although past performance is not necessarily indicative of future results,
if each Fund and its corresponding Master Fund had a longer performance history, such performance history might (or might not) provide you with more information on which to evaluate an investment in each Fund. Likewise, each Index has a limited
history which might be indicative of the future Index results, or of the future performance of each applicable Fund or its corresponding Master Fund. Therefore, you will have to make your decision to invest in each Fund on the basis of limited
information.
(11)
|
Fewer Representative Index Currencies May Result In Greater Index Volatility.
|
The changes in market value over time, whether positive or negative, of DX Contracts is linked to
the USDX
®
. The USDX
®
is comprised of only six Index Currencies. Accordingly, the USDX
®
is concentrated in terms of the number of currencies represented. You should be aware that other currency indexes are more diversified in terms of the number of currencies included. Concentration in fewer currencies
may result in a greater degree of volatility in the USDX
®
, and in turn, the changes in market value of the underlying DX Contracts, under specific market conditions and over time.
-20-
(
12)
|
Short Selling Theoretically Exposes the Bearish Master Fund to Unlimited Losses.
|
Investors may invest in either or both of the Bearish Fund and the Bullish Fund. In turn, the corresponding Master Fund establishes long or short
positions in the DX Contracts.
The Bullish Master Fund establishes long positions
in DX Contracts. The price of these DX Contracts is linked to the US Dollar Index, or USDX
®
. The Bullish Master Fund will profit if the USDX
®
rises and the Bullish Master Fund will suffer loss if the USDX
®
falls. Because the USDX
®
cannot
fall below zero, the Bullish Master Funds exposure to loss is limited to the notional value of the DX Contracts at the time of establishment.
By contrast, the Bearish Master Fund establishes short positions in DX Contracts. The price of
these DX Contracts is linked to the USDX
®
. The Bearish Master Fund will profit if the USDX
®
falls and the Bearish Master Fund
will suffer loss if the USDX
®
rises. Because the USDX
®
could, in theory, rise infinitely, a short position in DX Contracts
exposes the Bearish Master Fund to theoretically unlimited liability.
The Bearish Master Funds losses with respect to its
corresponding Fund Shares could result in the total loss of your investment. Because liability due to losses will be segregated to either the Bullish or Bearish Fund, as applicable, losses to investors in the Bearish Fund will not subject investors
in the Bullish Fund to such exposure.
(
13)
|
Unusually Long Peak-to-Valley Drawdown Periods With Respect To Both the Long Index and the Short Index May Be Reflected in Equally Long Peak-to-Valley Drawdown Periods with
Respect to the Performance of the Shares of the Bullish Fund and the Bearish Fund, Respectively.
|
Although
past Index levels are not necessarily indicative of future Index levels, both the Long Index and the Short Index have experienced unusually long peak-to-valley drawdown periods. As of August 31, 2007, the closing level of the Long Index
decreased (40.29)% from the period December 1986 December 2004. As of August 31, 2007, 2006, the closing level of the Short Index decreased (36.82)%
from the period June 1995 January 2002. During the period from June 1995 January 2002, both the Long Index and Short Index experienced drawdown
periods simultaneously.
Because it is expected that each Funds performance will track the changes in the closing levels of its
underlying Index, a Fund would suffer a continuous drawdown during the period that an Index suffers such a drawdown period, and in turn, the value of your Shares will also suffer.
[Remainder of page left blank intentionally.]
-21-
(
14) Price Volatility May Possibly Cause the Total Loss of Your Investment.
Futures contracts have a high
degree of price variability and are subject to occasional rapid and substantial changes. Consequently, you could lose all or substantially all of your investment in a Fund.
The following table* reflects various measures of volatility** of the history of the Long Index and the Short Index, each as calculated on an excess
return basis:
|
|
|
|
|
|
|
Volatility Type
|
|
Volatility
|
|
|
Long Index
|
|
|
Short Index
|
|
Daily volatility over full history
|
|
8.73
|
%
|
|
8.72
|
%
|
Average rolling 3 month daily volatility
|
|
8.48
|
%
|
|
8.46
|
%
|
Monthly return volatility
|
|
8.55
|
%
|
|
8.46
|
%
|
Average annual volatility
|
|
8.53
|
%
|
|
8.51
|
%
|
The following table reflects the daily volatility on an annual basis of the Long Index and
the Short Index:
|
|
|
|
|
|
|
|
|
Daily Volatility
|
|
Year
|
|
Long Index
|
|
|
Short Index
|
|
1986***
|
|
0.00
|
%
|
|
0.00
|
%
|
1987
|
|
9.44
|
%
|
|
9.07
|
%
|
1988
|
|
9.64
|
%
|
|
9.70
|
%
|
1989
|
|
10.25
|
%
|
|
10.23
|
%
|
1990
|
|
8.77
|
%
|
|
8.35
|
%
|
1991
|
|
11.53
|
%
|
|
11.89
|
%
|
1992
|
|
11.70
|
%
|
|
12.06
|
%
|
1993
|
|
9.43
|
%
|
|
9.54
|
%
|
1994
|
|
7.83
|
%
|
|
7.52
|
%
|
1995
|
|
9.78
|
%
|
|
9.55
|
%
|
1996
|
|
4.99
|
%
|
|
5.01
|
%
|
1997
|
|
7.59
|
%
|
|
7.91
|
%
|
1998
|
|
8.06
|
%
|
|
7.94
|
%
|
1999
|
|
7.59
|
%
|
|
7.71
|
%
|
2000
|
|
8.77
|
%
|
|
9.17
|
%
|
2001
|
|
8.79
|
%
|
|
8.65
|
%
|
2002
|
|
7.49
|
%
|
|
7.19
|
%
|
2003
|
|
8.44
|
%
|
|
8.25
|
%
|
2004
|
|
9.52
|
%
|
|
9.23
|
%
|
2005
|
|
8.11
|
%
|
|
8.48
|
%
|
2006
|
|
6.96
|
%
|
|
6.76
|
%
|
2007*
|
|
4.47
|
%
|
|
4.41
|
%
|
*
|
As of August 31, 2007. Past Index levels are not necessarily indicative of future Index levels.
|
**
|
Volatility, for these purposes means the following:
|
Daily Volatility
: The relative rate at which the price of the Index moves up and down, found by calculating the annualized standard deviation of the daily change in price.
Monthly Return Volatility
: The relative rate at which the price of the Index moves up and down, found by calculating the annualized standard
deviation of the monthly change in price.
Average Annual Volatility
: The average of yearly volatilities for a given sample period.
The yearly volatility is the relative rate at which the price of the Index moves up and down, found by calculating the annualized standard deviation of the daily change in price for each business day in the given year.
***
|
As of December 31, 1986.
|
-22-
(
15)
|
Fees and Commissions are Charged Regardless of Profitability and May Result in Depletion of Assets.
|
Each Fund indirectly is subject to the fees and expenses described herein which are payable irrespective of profitability. Such fees and expenses include
asset-based fees of 0.50% per annum. Additional charges include brokerage fees of approximately 0.05% per annum in the aggregate and selling commissions. Each Fund is expected to earn interest income at an annual rate of 3.93% per
annum, based upon the yield of 3-month U.S. Treasury bills as of October 1, 2007. Consequently, it is expected that interest income will exceed fees (other than selling commissions), however, if interest rates fall below 0.55%, each Fund will
need to have positive performance in order to break even net of fees and expenses. Consequently, depending upon the interest rate environments, the expenses of the applicable Master Fund could, over time, result in losses to your investment therein.
You may never achieve profits, significant or otherwise by investing in a Fund.
(
16)
|
You Cannot Be Assured of the Managing Owners Continued Services, Which Discontinuance May Be Detrimental to the Funds.
|
You cannot be assured that the Managing Owner will be willing or able to continue to service the Funds and the Master Funds for any length of time. If the
Managing Owner discontinues its activities on behalf of the Funds and the Master Funds, the Funds and the Master Funds may be adversely affected.
(
17)
|
Possible Illiquid Markets May Exacerbate Losses.
|
Futures positions cannot always be liquidated at the desired price. It is difficult to execute a trade at a specific price when there is a relatively small volume of buy and sell orders in a market. A market disruption, such as when foreign
governments may take or be subject to political actions which disrupt the markets in their currency or major exports, can also make it difficult to liquidate a position.
There can be no assurance that market illiquidity will not cause losses for the Funds. The large size of the positions which the Master Funds may acquire on behalf of the Funds increases the risk of illiquidity by
both making their positions more difficult to liquidate and increasing the losses incurred while trying to do so. Any type of disruption or illiquidity will
be exacerbated due to the fact that the Master Funds only invest in the DX Contract.
(
18)
|
You May Be Adversely Affected by Redemption Orders that Are Subject To Postponement, Suspension or Rejection Under Certain Circumstances.
|
The Funds may, in their discretion, suspend the right of redemption or postpone the redemption settlement date, (1) for any period during which an
emergency exists as a result of which the redemption distribution is not reasonably practicable, or (2) for such other period as the Managing Owner determines to be necessary for the protection of the Shareholders of a Fund. In addition, the
Funds will reject a redemption order if the order is not in proper form as described in the Participant Agreement or if the fulfillment of the order, in the opinion of its counsel, might be unlawful. Any such postponement, suspension or rejection
could adversely affect a redeeming Authorized Participant. For example, the resulting delay may adversely affect the value of the Authorized Participants redemption proceeds if the net asset value of the applicable Fund declines during the
period of delay. The Funds disclaim any liability for any loss or damage that may result from any such suspension or postponement.
(
19)
|
Because the Futures Contracts Have No Intrinsic Value, the Positive Performance of Your Investment Is Wholly Dependent Upon an Equal and Offsetting Loss.
|
Futures trading is a risk transfer economic activity. For every gain there is an equal and offsetting loss rather
than an opportunity to participate over time in general economic growth. Unlike most alternative investments, an investment in Shares of a Fund does not involve acquiring any asset with intrinsic value. Overall stock and bond prices could rise
significantly and the economy as a whole prosper while Shares of a Fund trade unprofitably.
-23-
(
20)
|
Failure of Currency Futures Trading to Exhibit Low to Negative Correlation to General Financial Markets Will Reduce Benefits of Diversification and May Exacerbate Losses to
Your Portfolio.
|
Historically, currency futures returns have tended to exhibit low to negative correlation with
the returns of other assets such as stocks and bonds. Although currency futures trading can provide a diversification benefit to investor portfolios because of its low to negative correlation with other financial assets, the fact that each Index is
not 100% negatively correlated with financial assets such as stocks and bonds means that each respective Fund cannot be expected to be automatically profitable during unfavorable periods for the stock or bond market, or vice-versa. If the Shares of
a Fund perform in a manner that correlates with the general financial markets or do not perform successfully, you will obtain no diversification benefits by investing in the Shares of a Fund and the Shares of a Fund may produce no gains to offset
your losses from other investments.
(
21)
|
Shareholders Will Not Have the Protections Associated With Ownership of Shares in an Investment Company Registered Under the Investment Company Act of 1940.
|
None of the Funds or the Master Funds are registered as an investment company under the Investment Company Act of
1940, and none of them are required to register under such Act. Consequently, Shareholders will not have the regulatory protections provided to investors in registered and regulated investment companies.
(
22)
|
Various Actual and Potential Conflicts of Interest May Be Detrimental to Shareholders.
|
The Funds and the Master Funds are subject to actual and potential conflicts of interest involving the Managing Owner, various commodity futures brokers
and Authorized Participants. The Managing Owner and its principals, all of whom are engaged in other investment activities, are not required to devote substantially all of their time to the business of the Funds and the Master Funds, which also
presents the potential for numerous conflicts of interest with the Funds and the Master Funds. As a result of these and other relationships, parties involved with the Funds and the Master Funds have a financial incentive to
act in a manner other than in the best interests of the Funds, the Master Funds and the Shareholders. The Managing Owner has not established any formal
procedure to resolve conflicts of interest. Consequently, investors are dependent on the good faith of the respective parties subject to such conflicts to resolve them equitably. Although the Managing Owner attempts to monitor these conflicts, it is
extremely difficult, if not impossible, for the Managing Owner to ensure that these conflicts do not, in fact, result in adverse consequences to the Shareholders.
The Funds and the Master Funds may be subject to certain conflicts with respect to the Commodity Broker, including, but not limited to, conflicts that result from receiving greater amounts of compensation from other
clients, or purchasing opposite or competing positions on behalf of third party accounts traded through the Commodity Broker.
(
23)
|
Shareholders of Each Fund Will Be Subject to Taxation on Their Share of the Corresponding Master Funds Taxable Income, Whether or Not They Receive Cash Distributions.
|
Shareholders of each Fund will be subject to United States federal income taxation and, in some cases, state, local,
or foreign income taxation on their share of the corresponding Master Funds taxable income allocable to its Fund, whether or not they receive cash distributions from the Fund. Shareholders of a Fund may not receive cash distributions equal to
their share of the corresponding Master Funds taxable income or even the tax liability that results from such income.
(
24)
|
Items of Income, Gain, Deduction, Loss and Credit with respect to Shares of a Fund could be Reallocated if the IRS does not Accept the Assumptions or Conventions Used by its
Corresponding Master Fund in Allocating Master Fund Tax Items.
|
U.S. federal income tax rules applicable to
partnerships are complex and often difficult to apply to publicly traded partnerships. Each Master Fund will apply certain assumptions and conventions in an attempt to comply with applicable rules and to report income, gain, deduction, loss and
credit to Shareholders of its corresponding Fund in a manner that reflects Shareholders beneficial shares of
-24-
partnership items, but these assumptions and conventions may not be in compliance with all aspects of applicable tax requirements. It is possible that the
IRS will successfully assert that the conventions and assumptions used by a Master Fund do not satisfy the technical requirements of the Code and/or Treasury regulations and could require that items of income, gain, deduction, loss or credit be
adjusted or reallocated in a manner that adversely affects you.
(
25)
|
The Current Treatment of Long-Term Capital Gains Under Current U.S. Federal Income Tax Law May Be Adversely Affected, Changed or Repealed in the Future.
|
Under current law, long-term capital gains are taxed to non-corporate investors at a maximum United States federal
income tax rate of 15%. This tax treatment may be adversely affected, changed or repealed by future changes in tax laws at any time and is currently scheduled to expire for tax years beginning after December 31, 2010.
PROSPECTIVE INVESTORS ARE STRONGLY URGED TO CONSULT THEIR OWN TAX ADVISERS AND COUNSEL WITH RESPECT TO THE POSSIBLE TAX CONSEQUENCES TO THEM OF AN
INVESTMENT IN THE SHARES OF A FUND; SUCH TAX CONSEQUENCES MAY DIFFER IN RESPECT OF DIFFERENT INVESTORS.
(
26)
|
Failure of Futures Commission Merchants or Commodity Brokers to Segregate Assets May Increase Losses; Despite Segregation of Assets, a Master Fund Remains at Risk of
Significant Losses Because the Master Fund May Only Receive a Pro-Rata Share of the Assets.
|
The Commodity
Exchange Act requires a clearing broker to segregate all funds received from customers from such brokers proprietary assets. If the Commodity Broker fails to do so, the assets of the Master Funds might not be fully protected in the event of
the Commodity Brokers bankruptcy. Furthermore, in the event of the Commodity Brokers bankruptcy, any Master Fund Units could be limited to recovering only a pro rata share of all available funds segregated on behalf of the Commodity
Brokers combined customer accounts, even though certain property specifically traceable to a particular Master Fund was held by the Commodity Broker.
The Commodity Broker may, from time-to-time, have been the subject of certain regulatory and private causes of action. Such material actions, if any, are
described under The Commodity Broker.
In the event of a bankruptcy or insolvency of any exchange or a clearing house, a Master
Fund could experience a loss of the funds deposited through its Commodity Broker as margin with the exchange or clearing house, a loss of any profits on its open positions on the exchange, and the loss of unrealized profits on its closed positions
on the exchange.
(
27)
|
Regulatory Changes or Actions May Alter the Nature of an Investment in the Funds.
|
Considerable regulatory attention has been focused on non-traditional investment pools which are publicly distributed in the United States.
There is a possibility of future regulatory changes altering, perhaps to a material extent, the nature of an investment in the Funds or the ability of the Funds to continue to implement their investment
strategies
.
The futures markets are subject to comprehensive statutes, regulations, and margin
requirements. In addition, the CFTC and the exchanges are authorized to take extraordinary actions in the event of a market emergency, including, for example, the retroactive implementation of speculative position limits or higher margin
requirements, the establishment of daily price limits and the suspension of trading. The regulation of futures transactions in the United States is a rapidly changing area of law and is subject to modification by government and judicial action. The
effect of any future regulatory change on the Funds is impossible to predict, but could be substantial and adverse.
(
28)
|
Lack of Independent Advisers Representing Investors.
|
The Managing Owner has consulted with counsel, accountants and other advisers regarding the formation and operation of the Funds and the Master Funds. No counsel has been appointed to represent you in connection with the offering of the
Shares. Accordingly, you should consult your own legal, tax and financial advisers regarding the desirability of an investment in the Shares of a Fund.
-25-
(
29)
|
Possibility of Termination of the Funds or Master Funds May Adversely Affect Your Portfolio.
|
The Managing Owner may withdraw from the Funds upon 120 days notice, which would cause the Funds and the Master Funds to terminate unless a
substitute managing owner were obtained. Owners of 50% of the Shares of either Fund have the power to terminate such Fund. If it is so exercised, investors who may wish to continue to invest in a Funds corresponding Index through a fund
vehicle will have to find another vehicle, and may not be able to find another vehicle that offers the same features as such Fund. See Description of the Shares and the Master Fund Units; The Funds; Certain Material Terms of the Trust
Declarations Termination Events for a summary of termination events. Such detrimental developments could cause you to liquidate your investments and upset the overall maturity and timing of your investment portfolio. If the
registrations with the CFTC or memberships in the NFA of the Managing Owner or the Commodity Broker were revoked or suspended, such entity would no longer be able to provide services to the Funds and the Master Funds.
(
30)
|
Shareholders Do Not Have the Rights Enjoyed by Investors in Certain Other Vehicles.
|
As interests in separate series of a Delaware statutory trust, the Shares have none of the statutory rights normally associated with the ownership of
shares of a corporation (including, for example, the right to bring oppression or derivative actions). In addition, the Shares have limited voting and distribution rights (for example, Shareholders do not have the right to
elect directors and the Funds are not required to pay regular distributions, although the Funds may pay distributions in the discretion of the Managing Owner).
(
31)
|
An Investment in Shares of the Funds May Be Adversely Affected by Competition From Other Methods of Investing in Currencies.
|
The Funds and the Master Funds constitute a new, and thus untested, type of investment vehicle. They compete with other financial vehicles, including
other commodity pools, hedge funds, traditional debt and equity securities issued by companies and foreign governments, other securities backed by or linked to currencies, and direct
investments in the underlying currencies or currencies futures contracts. Market and financial conditions, and other conditions beyond the Managing
Owners control, may make it more attractive to invest in other financial vehicles or to invest in such currencies directly, which could limit the market for the Shares of each Fund and reduce the liquidity of the Shares of each Fund.
(
32)
|
Competing Claims Over Ownership of Intellectual Property Rights Related to the Funds Could Adversely Affect the Funds and an Investment in the Shares.
|
While the Managing Owner believes that all intellectual property rights needed to operate the Funds and the Master
Funds are either owned by or licensed to the Managing Owner or have been obtained, third parties may allege or assert ownership of intellectual property rights which may be related to the design, structure and operations of the Funds and the Master
Funds. To the extent any claims of such ownership are brought or any proceedings are instituted to assert such claims, the negotiation, litigation or settlement of such claims, or the ultimate disposition of such claims in a court of law if a suit
is brought, may adversely affect the Funds and the Master Funds and an investment in the Shares, for example, resulting in expenses or damages or the termination of the Funds and the Master Funds.
(
33)
|
Because the Price of DX Contracts Are Primarily Influenced by Short-Term Interest Rate Differentials, You May Sell Your Shares at a Time When the DX Contracts Are Being Traded
at a Discount, and therefore Receive an Amount that Would be Lower than if the DX Contracts Were Trading at a Premium.
|
The price of DX Contracts responds directly to short-term interest rate differentials. For example, if interest rates in the U.S. are broadly higher than international interest rates, then DX Contracts will trade at a discount to the spot
index. If U.S. rates are lower, DX Contracts will trade at a premium to the spot index. This relationship also holds for long-dated futures versus nearby futures. Because interest rates move up and down, DX Contracts may trade at a premium some of
the time and at a discount at other times. In turn, if you sell your Shares during a period when the DX Contracts are trading at a discount, you may receive less than you may have received if you
-26-
sold your shares during a period when the DX Contracts are trading at a premium.
(
34)
|
The Value of the Shares Will be Adversely Affected if the Funds or the Master Funds are Required to Indemnify the Trustee or the Managing Owner.
|
Under the Trust Declarations, the Trustee and the Managing Owner have the right to be indemnified for any liability
or expense either incurs without negligence or misconduct. That means the Managing Owner may require the assets of a Master Fund to be sold in order to cover losses or liability suffered by it or by the Trustee. Any sale of that kind would reduce
the net asset value of a Master Fund and the value of the Shares of its corresponding Fund.
(
35)
|
The Net Asset Value Calculation of the Master Funds May Be Overstated or Understated Due to the Valuation Method Employed When a Settlement Price is not Available on the Date
of Net Asset Value Calculation.
|
Calculating the net asset value of each Master Fund (and, in turn, its corresponding
Fund) includes, in part, any unrealized profits or losses on open foreign exchange futures contracts. Under normal circumstances, the net asset value of each Master Fund reflects the settlement price of open foreign exchange futures contracts on the
date when the net asset value is being calculated. However, if a foreign exchange futures contract traded on an exchange (both U.S. and, to the extent it becomes applicable, non-U.S. exchanges) could not be liquidated on such day (due to the
operation of daily limits or other rules of the exchange 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. In
such a situation, there is a risk that the calculation of the net asset value of the applicable Master Fund on such day will not accurately reflect the realizable market value of such foreign exchange futures contract. For example, daily limits are
generally triggered in the event of a significant change in market price of a foreign exchange futures contract. Therefore, as a result of the daily limit, the current settlement price is unavailable. Because the settlement price on the most recent
day on which the position could have been liquidated would be used in lieu of the actual settlement price on the date of determination, there is
a risk that the resulting calculation of the net asset value of the applicable Master Fund (and, in turn, its corresponding Fund) could be under or
overstated, perhaps to a significant degree. Although the DX Contracts that the Master Funds will invest in are not currently subject to daily limits, the terms and conditions of these contracts may change in the future, and thus, may
subject the Funds to the above-described risks.
(
36)
|
Exchange Rates on the Index Currencies Could be Volatile and Could Materially and Adversely Affect the Performance of the Shares of a Fund.
|
Foreign exchange rates are influenced by national debt levels and trade deficits, domestic and foreign inflation rates and investors expectations
concerning inflation rates, domestic and foreign interest rates and investors expectations concerning interest rates, currency exchange rates, investment and trading activities of mutual funds, hedge funds and currency funds; and global or
regional political, economic or financial events and situations. Additionally, foreign exchange rates on the Index Currencies may also be influenced by changing supply and demand for a particular Index Currency, monetary policies of governments
(including exchange control programs, restrictions on local exchanges or markets and limitations on foreign investment in a country or on investment by residents of a country in other countries), changes in balances of payments and trade, trade
restrictions, currency devaluations and revaluations. Also, governments from time-to-time intervene in the currency markets, directly and by regulation, in order to influence prices directly. Additionally, expectations among market participants that
a currencys value soon will change may also affect exchange rates on the Index Currencies, and in turn, both the Index and the DX Contracts. These events and actions are unpredictable. The resulting volatility in the exchange rates on the
underlying Index Currencies may materially and adversely affect the market value of the DX Contracts, which would then negatively impact the value of your Shares.
-27-
(
37)
|
Substantial Sales of Index Currencies by the Official Sector Could Adversely Affect an Investment in the Shares of a Fund.
|
The official sector consists of central banks, other governmental agencies and multi-lateral institutions that buy, sell and hold certain Index Currencies
as part of their reserve assets. The official sector holds a significant amount of Index Currencies that can be mobilized in the open market. In the event that future economic, political or social conditions or pressures require members of the
official sector to sell their Index Currencies simultaneously or in an uncoordinated manner, the demand for Index Currencies might not be sufficient to accommodate the sudden increase in the supply of certain Index Currencies to the market.
Consequently, the price of an Index Currency may decline, which may materially and adversely affect the market value of the DX Contract, which would then negatively impact the Shares.
(
38)
|
Although the Shares of Each Fund are Limited Liability Investments, Certain Circumstances such as Bankruptcy of a Fund or Indemnification of a Fund by the Shareholder will
Increase a Shareholders Liability.
|
The Shares of each Fund are limited liability investments; investors
may not lose more than the amount that they invest plus any profits recognized on their investment. However, Shareholders could be required, as a matter of bankruptcy law, to return to the estate of a Fund any distribution they received at a time
when such Fund was in fact insolvent or in violation of its Trust Declaration. In addition, although the Managing Owner is not aware of this provision ever having been invoked in the case of any public futures fund, Shareholders agree in the Trust
Declaration that they will indemnify a Fund for any harm suffered by it as a result of
|
|
|
Shareholders actions unrelated to the business of such Fund, or
|
|
|
|
taxes imposed on the Shares by the states or municipalities in which such investors reside.
|
THE MASTER-FEEDER STRUCTURE
Each Fund invests substantially all of its assets in a separate Master Fund
in a master-feeder structure. Neither Fund holds any investment assets
other than Master Fund Units in its corresponding Master Fund. Each Master Fund is wholly-owned by its corresponding Fund and the Managing Owner. Each Share
issued by a Fund correlates with a Master Fund Unit issued by its corresponding Master Fund and held by the Fund.
INVESTMENT OBJECTIVES OF THE FUNDS
Investment Objectives
The Funds and the Master
Funds seek to track changes, whether positive or negative, in the level of the Deutsche Bank US Dollar Index (USDX
®
) Futures Index Excess Return, or the Index, over time, plus the
excess, if any, of its corresponding 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 each Fund and its corresponding Master Fund.
The Long Index is calculated to reflect the changes in market value over time, whether positive or negative, of long positions in futures contracts (symbol: DX, traded exclusively through ICE Futures U.S.), or DX Contracts. The Short Index is
calculated to reflect the changes in market value over time of short positions in DX Contracts. Both the Long Index and the Short Index reflect the changes in market value over time, whether positive or negative, of the DX Contract which expires
during the months of March, June, September and December. Each Fund pursues its investment objective by investing substantially all of its assets in a corresponding Master Fund. The Bullish Master Fund seeks to track the Long Index by establishing
long positions in DX Contracts while the Bearish Master Fund seeks to track the Short Index by establishing short positions in DX Contracts. The Shares are designed for investors who want a cost-effective and convenient way to invest in a currency
futures contract on a currency index that reflects the changes in market value over time, whether positive or negative, of the DX Contracts, and in turn, of the U.S. dollar relative to the underlying Index Currencies.
Advantages of investing in the Shares include:
|
|
|
Ease and Flexibility of Investment
. The Shares of each Fund trade on the Amex and provide institutional and retail investors with indirect access
to the currency futures markets. The Shares may be bought and sold on the Amex
|
-28-
|
like other exchange-listed securities. Retail investors may purchase and sell Shares through traditional brokerage accounts.
|
|
|
|
Shares May Provide A More Cost-Effective Alternative.
Investing in the Shares of a Fund can be easier and less expensive for an investor than
constructing and trading a comparable foreign currency futures portfolio.
|
|
|
|
Each Master Fund invests in DX Contracts Which may be More Efficient and Transparent than Alternatives.
Although the Master Funds will not take
physical delivery due to rolling the underlying DX Contracts prior to expiration, DX Contracts tend to be more efficient and transparent because physical delivery is required upon the expiration of the contract.
|
|
|
|
Margin.
Shares are eligible for margin accounts.
|
|
|
|
Diversification
. The Shares may help to diversify a portfolio because historically the Indexes have tended to exhibit low to negative correlation
with both equities and conventional bonds.
|
Investing in the Shares does not insulate Shareholders from certain risks,
including price volatility.
DX Contracts are linked to the six underlying
currencies of the USDX
®
, or the Index Currencies. The Index Currencies are Euro, Japanese Yen, British Pound, Canadian Dollar, Swedish Krona and Swiss Franc. The Index Currencies represent
the currencies of the major trading partners of the U.S. (and represent the currencies of 17 countries, 12 countries of the Euro zone plus five other countries). The changes in market value over time, whether positive or negative, of DX Contracts is
tied to the U.S. Dollar Index
®
, or USDX
®
. USDX
®
is composed of
notional amounts of each Index Currency. The notional amounts of the Index Currencies included in USDX
®
reflect a geometric weighted average of the change in the Index Currencies
exchange rates against the U.S. dollar relative to March 1973. March 1973 was chosen as a base period of USDX
®
because it represents a significant milestone in foreign exchange history when
the worlds major trading nations allowed their currencies to float freely against each other.
The Index reflects the changes in
market value over time, whether positive or negative, of the first to expire DX Contract relative to the value of the
U.S. dollar as of December 31, 1986, or Base Date. Although the DX Contract started trading in 1985, the Base Date of December 31, 1986 was
selected because reasonably reliable pricing data was not available prior to December 31, 1986.
Each Master Funds portfolio
also holds United States Treasury securities and other high credit quality short-term fixed income securities for deposit with such Master Funds Commodity Broker as margin.
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 has 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 publishes the daily closing level of the
Index as of the close of the Amex. The Managing Owner publishes the net asset value of each Fund and the net asset value per Share daily. Additionally, the Index Sponsor publishes the intra-day Index level, and the Managing Owner publishes the
indicative value per Share of each Fund (quoted in U.S. dollars) once every fifteen seconds throughout each trading day. All of the foregoing information is published as follows:
The intra-day level of the Indexes (symbols: Long Index: USDUPX; Short Index: USDDNX) and the intra-day indicative value per Share of each Fund (symbols:
Bullish Fund: UUP; Bearish Fund: UDN) (each quoted in U.S. dollars) are published once every fifteen seconds throughout each trading day on the consolidated tape, Reuters and/or Bloomberg and on the Managing Owners website at
http://www.dbfunds.db.com
, or any successor thereto.
The current trading price per Share of each Fund (symbols: Bullish Fund: UUP;
Bearish Fund: UDN) (quoted in U.S. dollars) is published continuously as trades occur throughout each trading day on the consolidated tape, Reuters and/or Bloomberg and on the Managing Owners website at
http://www.dbfunds.db.com
, or any
successor thereto.
-29-
The most recent end-of-day Index closing level (symbols: Long Index: USDUPX; Short Index: USDDNX) is published as of the close of the Amex each trading day
on the consolidated tape, Reuters and/or Bloomberg and on the Managing Owners website at
http://www.dbfunds.db.com
, or any successor thereto.
The most recent end-of-day net asset value of each Fund (symbols: Bullish Fund: UUP.NV; Bearish Fund: UDN.NV) is published as of the close of business on Reuters and/or Bloomberg and on the Managing Owners
website at
http://www.dbfunds.db.com
, or any successor thereto. In addition, the most recent end-of-day net asset value of each Fund is published the following morning on the consolidated tape.
All of the foregoing information with respect to each Index is also published at
https://index.db.com
.
The Index Sponsor publishes any adjustments made to the Indexes on the Managing Owners website
http://www.dbfunds.db.com
and
https://index.db.com
, or any successor thereto.
The intra-day indicative value per Share of each Fund is based on the prior
days final net asset value, adjusted four times per minute throughout the trading day to reflect the continuous price changes of the corresponding Master Funds futures contracts. The final net asset value of each Fund and the final net
asset value per Share is calculated as of the closing time of the Amex or the last to close of the exchanges on which the Master Funds futures contracts are traded, whichever is later, and posted in the same manner. Although a time gap may
exist between the close of the Amex and the close of the exchanges on which the DX Contracts are traded, there is no effect on the net asset value calculations as a result.
The Shares of the Bullish Fund and the Bearish Fund are intended to provide investment results that generally correspond to the changes, whether positive
or negative, in the levels of either the Long Index or the Short Index, over time.
The value of the Shares of each Fund is expected to
fluctuate in relation to changes in the value of its corresponding Master Funds portfolio. The market price of the Shares of a Fund may not be identical to the net asset value per Share, but these two valuations are expected to be very close.
See
The Risks You Face (2) Net Asset Value May Not Always Correspond to Market Price and, as a Result, Baskets may be Created or Redeemed at a
Value that Differs from the Market Price of the Shares.
There can be no assurance that each Fund or its corresponding Master
Fund will achieve its investment objective or avoid substantial losses. The Master Funds have limited performance histories. The value of the Shares of a Fund is expected to fluctuate generally in relation to changes in the value of the
corresponding Master Fund Units.
Role of Managing Owner
The Managing Owner serves as the commodity pool operator and commodity trading
advisor of the Funds and the Master Funds.
Specifically, with respect to the Funds and the Master Funds, the Managing Owner:
|
|
|
selects the Trustee, administrator, distributor, marketing agent and auditor;
|
|
|
|
negotiates various agreements and fees; and
|
|
|
|
performs such other services as the Managing Owner believes that the Funds and the Master Funds may from time-to-time require.
|
Specifically, with respect to the Master Funds, the Managing Owner:
|
|
|
selects the Commodity Broker; and
|
|
|
|
monitors the performance results of each Master Funds portfolio and reallocates assets within the portfolio with a view to causing the performance of such
Master Funds portfolio to track that of the Long Index or the Short Index, as applicable, over time.
|
The
Managing Owner is registered as a commodity pool operator and commodity trading advisor with the Commodity Futures Trading Commission and is a member of the National Futures Association.
The principal office of the Managing Owner is located at 60 Wall Street, New York, New York 10005. The telephone number of the Managing Owner is
(212) 250-5883.
-30-
Market Diversification
As global markets and investing become more complex, the inclusion of futures may
continue to increase in traditional portfolios of stocks and bonds managed by advisors seeking improved balance and diversification. The globalization of the worlds economy has the potential to offer significant investment opportunities, as
major political and economic events continue to have an influence, in some cases a dramatic influence, on the worlds markets, creating risk but also providing the potential for profitable trading opportunities. By allocating a portion of the
risk segment of their portfolios to a Fund, which invests through its corresponding Master Fund in futures related to the Indexes, investors have the potential, if their Fund investments are successful, to reduce the volatility of their portfolios
over time and the dependence of such portfolios on any single nations economy.
[Remainder of page left blank intentionally]
-31-
PERFORMANCE OF POWERSHARES DB US DOLLAR INDEX BULLISH FUND
(TICKER: UUP)
, A
SERIES OF
POWERSHARES DB US DOLLAR INDEX TRUST
Name of Pool:
PowerShares DB US Dollar Index Bullish Fund
Type of Pool:
Public, Exchange-Listed Commodity Pool
Inception of Trading:
February 2007
Aggregate Gross Capital Subscriptions as of August 31,
2007:
$25,001,000
Net Asset Value as of August 31, 2007:
$9,922,508
Net Asset Value per Share as of August 31, 2007:
$24.81
Worst Monthly
Drawdown:
(1.29)% April 2007
Worst Peak-to-Valley Drawdown:
(1.92)% February April 2007
|
|
|
Monthly Rate of Return
|
|
2007(%)
|
January
|
|
|
February
|
|
(0.32)
|
March
|
|
(0.32)
|
April
|
|
(1.29)
|
May
|
|
1.55
|
June
|
|
0.00
|
July
|
|
(0.92)
|
August
|
|
0.57
|
September
|
|
|
October
|
|
|
November
|
|
|
December
|
|
|
Compound Rate of
Return
|
|
(0.76)%
(7 months)
|
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
PERFORMANCE OF POWERSHARES DB US DOLLAR INDEX BEARISH FUND
(TICKER: UDN)
,
A SERIES OF POWERSHARES DB US DOLLAR INDEX TRUST
Name of Pool:
PowerShares DB US Dollar Index Bearish Fund
Type of Pool:
Public, Exchange-Listed Commodity Pool
Inception of Trading:
February 2007
Aggregate Gross Capital Subscriptions as of August 31, 2007:
$30,276,962
Net Asset Value as of August 31, 2007:
$31,698,626
Net Asset Value per
Share as of August 31, 2007:
$26.42
Worst Monthly Drawdown:
(0.73)% May 2007
Worst Peak-to-Valley Drawdown:
(0.73)% April May 2007
|
|
|
Monthly Rate of Return
|
|
2007(%)
|
January
|
|
|
February
|
|
0.64
|
March
|
|
0.99
|
April
|
|
2.01
|
May
|
|
(0.73)
|
June
|
|
0.74
|
July
|
|
1.54
|
August
|
|
0.38
|
September
|
|
|
October
|
|
|
November
|
|
|
December
|
|
|
Compound Rate of
Return
|
|
5.68%
(7 months)
|
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
See accompanying Footnotes to Performance Information on page 33.
-32-
Footnotes to Performance Information
1.
|
Aggregate Gross Capital Subscriptions is the aggregate of all amounts ever contributed to the relevant pool, including investors who subsequently redeemed their
investments.
|
2.
|
Net Asset Value is the net asset value of each pool as of August 31, 2007.
|
3.
|
Net Asset Value per Share is the Net Asset Value of the relevant pool divided by the total number of Shares outstanding with respect to such pool as of August 31,
2007.
|
4.
|
Worst Monthly Drawdown is the largest single month loss sustained since inception of trading. Drawdown as used in this section of the Prospectus means losses
experienced by the relevant pool over the specified period and is calculated on a rate of return basis, i.e., dividing net performance by beginning equity. Drawdown is measured on the basis of monthly returns only, and does not reflect
intra-month figures. Month is the month of the Worst Monthly Drawdown.
|
5.
|
Worst Peak-to-Valley Drawdown is the largest percentage decline in the Net Asset Value per Share over the history of the relevant pool. This need not be a continuous
decline, but can be a series of positive and negative returns where the negative returns are larger than the positive returns. Worst Peak-to-Valley Drawdown represents the greatest percentage decline from any month-end Net Asset Value
per Share that occurs without such month-end Net Asset Value per Share being equaled or exceeded as of a subsequent month-end. For example, if the Net Asset Value per Share of a particular pool declined by $1 in each of January and February,
increased by $1 in March and declined again by $2 in April, a peak-to-valley drawdown analysis conducted as of the end of April would consider that drawdown to be still continuing and to be $3 in amount, whereas if the Net
Asset Value per Share had increased by $2 in March, the January-February drawdown would have ended as of the end of February at the $2 level.
|
-33-
DESCRIPTION OF THE
DEUTSCHE BANK US DOLLAR INDEX
(USDX
®
) FUTURES INDEX EXCESS RETURN
The Index Sponsor does not approve, endorse or recommend the Funds, the Master Funds or the Managing Owner. ICE
®
,U.S. Dollar Index
®
and USDX
®
are registered service marks of IntercontinentalExchange, Inc.
General
The Deutsche Bank US Dollar Index
(USDX
®
) Futures Index Excess Return, or Index, is designed to reflect the changes in market value over time, whether positive or negative, from investing in the first to expire
futures contracts, or DX Contracts, whose changes in market value over time, whether positive or negative, in turn, is tied to the U.S. Dollar Index
®
, or USDX
®
. The first to expire DX Contracts are the futures contracts that expire in March, June, September and December. DX Contracts are traded exclusively through ICE Futures U.S., under the symbol
DX. As described further in Index Calculation below, the Index is calculated as either the long Index, or Long Index, or as the short Index, or Short Index.
The changes in market value over time, whether positive or negative, of DX Contracts are related
to the six underlying currencies of the USDX
®
, or the Index Currencies. (Although the Index tracks the changes in market value over time, whether positive or negative, of the first to
expire DX Contracts, the closing levels of the Index is in effect, and in part, a reflection of the changes, whether positive or negative, in the level of the underlying Index Currencies.) The Index Currencies are Euro, Japanese Yen, British Pound,
Canadian Dollar, Swedish Krona and Swiss Franc. The Index Currencies represent the currencies of the major trading partners of the U.S. (and represent the currencies of 17 countries, 12 countries of the Euro zone plus five other countries).
USDX
®
is composed of
notional amounts of each Index Currency. The notional amounts of the Index Currencies included in USDX
®
reflect a geometric weighted average of the change in the Index Currencies
exchange rates against the U.S. dollar relative to March 1973. March 1973 was chosen as a base period of USDX
®
because it represents a significant milestone in foreign exchange
history when the worlds major trading nations allowed their currencies to float freely against each other.
The fair value of DX Contracts is based on foreign exchange futures prices for the underlying Index Currencies. The fair value of DX Contracts is
calculated in the same way as a spot index. DX Contracts, similar to single currency futures contracts, will trade at a forward premium or discount based on the interest rate differential between the U.S. dollar and the Index Currencies.
Volatility of the Index has been historically comparable in range and variability to a broad-based, multi-capitalization stock index future. The DX
Contract price is sized at $1000 times the Index closing level. Thus, if the Index closing level is 100.00, the DX Contract will be valued $100,000. If the Index closing level is 112.50, each DX Contract will have a $112,500 value.
The sponsor of the Long Index and the Short Index is Deutsche Bank AG London, or the Index Sponsor.
USDX
®
Composition
The Index reflects the changes in market value over time, whether positive or negative, of the first to expire DX Contracts. In turn, the changes in market value over time, whether positive or negative, of DX
Contracts are related to the changes, positive and negative, in the level of the USDX
®
.
The USDX
®
provides a general
indication of the international value of the U.S. dollar and is composed of notional amounts of each of the Index Currencies. The notional amounts of each Index Currency included in the USDX
®
are weighted to reflect the currencies of the largest trading partners of the U.S. These largest trading partners constitute the bulk of international trade with the United States and have well-developed foreign
exchange markets with rates freely determined by market participants. In addition, many currencies not included in the USDX
®
move in close correlation with those that are included.
USDX
®
is computed 24 hours a day, seven days a week based on exchange rates supplied to Reuters by some 500 banks worldwide.
-34-
The following table reflects the index base weights, or Index Base Weights, of each Index Currency
as of March 1973 with respect to USDX
®
:
|
|
|
Index Currency
|
|
Index Base Weight
(%)
|
Euro
|
|
57.60
|
Japanese
Yen
|
|
13.60
|
British
Pound
|
|
11.90
|
Canadian
Dollar
|
|
9.10
|
Swedish
Krona
|
|
4.20
|
Swiss
Franc
|
|
3.60
|
Closing Level at
Inception:
|
|
100.00
|
USDX
®
has been calculated since inception in March 1973. The closing level at inception was 100.00.
The Euro was included in the USDX
®
in
1999 and replaced the following currencies that were originally included in the USDX
®
: Belgian Franc, Dutch Guilder, German Mark, French Franc and Italian Lira.
Index Calculation
The Index reflects the changes in
market value over time, whether positive or negative, of the first to expire DX Contract relative to the value of the dollar as of December 31, 1986, or Base Date. On the Base Date, the closing level was 100.00. Although the DX Contract started
trading in 1985, the Base Date of December 31, 1986 was selected because reasonably reliable pricing data was not available prior to December 31, 1986. A quote of 105.50 means the dollars value has risen 5.50% since the
Base Date relative to the underlying basket of Index Currencies which comprise the USDX
®
.
The Index Sponsor calculates the closing level of each Index on both an excess return basis and a total return basis. The excess return index reflects the changes in market value over time, whether positive or
negative, of the DX Contracts. The total return is the sum of the changes in market value over time, whether positive or negative, of the DX Contracts plus the return of 3-month U.S. Treasury bills. The closing levels of each Index have been
calculated using historic exchange closing price data of the DX Contract since the Base Date.
The Long Index is calculated to reflect the changes in market value over time, whether positive or negative, of long positions in DX Contracts. The Short Index is calculated to reflect the changes in market value over time, whether positive
or negative, of short positions in DX Contracts. Both the Long Index and the Short Index reflect the changes in market value over time, whether positive or negative, of the DX Contract which expires in March, June, September and December. The use of
long positions in DX Contracts in the construction of the Long Index causes the Long Index to rise as a result of any upward price movement in the DX Contracts. In turn, this appreciation in the long DX Contracts reflects the rise of the U.S. dollar
relative to the underlying basket of Index Currencies which comprise the USDX
®
. The use of short positions in DX Contracts in the construction of the Short Index causes the Short Index to
rise as a result of any downward price movement in the DX Contracts. In turn, this appreciation in the short DX Contracts reflects the fall of the U.S. dollar relative to the underlying basket of Index Currencies which comprise the USDX
®
.
Since the Base Date, the Long Index closing level has ranged on a daily basis
from as high as 100.58 on January 5, 1987 to as low as 59.41 on December 30, 2004. Since the Base Date, the Short Index closing level has ranged on a daily basis from as high as 148.76 on April 18, 1995 to as low as 91.91 on
July 5, 2001. Past Index levels are not necessarily indicative of future Index levels.
Index Rolls
The underlying DX Contracts of the Index are rolled quarterly on the Index Roll Day, which is the
Wednesday prior to the applicable IMM Date. IMM Date means the third Wednesday of March, June, September and December, a traditional settlement date in the International Money Market.
DX Contracts are rolled on the Wednesday prior to each IMM Date as follows:
|
|
|
The DX Contract that expires on the next IMM Date is sold.
|
|
|
|
A position in the DX Contract that expires on the IMM Date following the next IMM Date is purchased.
|
-35-
Change in the Methodology of the Index
The Index
Sponsor employs the methodology described above and its application of such methodology shall be conclusive and binding. While the Index Sponsor currently employs the above described methodology to calculate the Index, no assurance can be given that
fiscal, market, regulatory, juridical or financial circumstances (including, but not limited to, any changes to or any suspension or termination of or any other events affecting the Index, USDX
®
, DX Contracts, any Index Currency or any exchange instrument) will not arise that would, in the view of the Index Sponsor, necessitate a modification of or change to such methodology and in such circumstances the Index Sponsor may make any
such modification or change as it determines appropriate. The Index Sponsor may also make modifications to the terms of the Index in any manner that it may deem necessary or desirable, including (without limitation) to correct any manifest or proven
error or to cure, correct or supplement any defective provision of the Index. The Index Sponsor will publish notice of any such modification or change.
Publication of Closing Levels and Adjustments
In order to calculate the indicative Index level, the Index
Sponsor polls Reuters every 15 seconds to determine the real time price of each DX Contract. The Index Sponsor then applies a set of rules to these values to create the indicative level of the Index. These rules are consistent with the rules which
the Index Sponsor applies at the end of each trading day to calculate the closing level of the Index. A similar polling process is applied to the U.S. Treasury bills to determine the indicative value of the U.S. Treasury bills held by the Funds
every 15 seconds throughout the trading day.
The intra-day indicative value per Share of each Fund is calculated by adding the intra-day
U.S. Treasury bills level plus the intra-day Index level which is then applied to the last published net asset value of the Fund, less accrued fees.
The Index Sponsor publishes the closing level of the Index daily. The Managing Owner publishes the net asset value of each Fund and the net asset value per Share of the Fund daily. Additionally, the Index Sponsor
publishes the intra-day Index level, and the Managing Owner publishes the indicative value per
Share of each Fund (quoted in U.S. dollars) once every fifteen seconds throughout each trading day. All of the foregoing information is published as follows:
The intra-day level of the Indexes (symbols: Long Index: USDUPX; Short Index: USDDNX) and the intra-day indicative value per Share of each
Fund (symbols: Bullish Fund: UUP; Bearish Fund: UDN) (each quoted in U.S. dollars) are published once every fifteen seconds throughout each trading day on the consolidated tape, Reuters and/or Bloomberg and on the Managing Owners website at
http://www.dbfunds.db.com
, or any successor thereto.
The current trading price per Share of each Fund (symbols: Bullish Fund: UUP;
Bearish Fund: UDN) (quoted in U.S. dollars) is published continuously as trades occur throughout each trading day on the consolidated tape, Reuters and/or Bloomberg and on the Managing Owners website at
http://www.dbfunds.db.com
, or any
successor thereto.
The most recent end-of-day Index closing level (symbols: Long Index: USDUPX; Short Index: USDDNX) is published as of
the close of the Amex each trading day on the consolidated tape, Reuters and/or Bloomberg and on the Managing Owners website at
http://www.dbfunds.db.com
, or any successor thereto.
The most recent end-of-day net asset value of each Fund (symbols: Bullish Fund: UUP.NV; Bearish Fund: UDN.NV) is published as of the close of business on
Reuters and/or Bloomberg and on the Managing Owners website at
http://www.dbfunds.db.com
, or any successor thereto. In addition, the most recent end-of-day net asset value of the Fund is published the following morning on the
consolidated tape.
All of the foregoing information with respect to the Index is also published at
https://index.db.com
.
The Index Sponsor publishes any adjustments made to the Index on the Managing Owners website
http://www.dbfunds.db.com
,
or any successor thereto.
-36-
Interruption of Index Calculation
Calculation of the
Indexes may not be possible or feasible under certain events or circumstances, including, without limitation, a systems failure, natural or man-made disaster, act of God, armed conflict, act of terrorism, riot or labor disruption or any similar
intervening circumstance, that is beyond the reasonable control of the Index Sponsor and that the Index Sponsor determines affects the Indexes, DX Contracts, USDX
®
or any Index Currency.
Upon the occurrence of such force majeure events, the Index Sponsor may, in its discretion, elect one (or more) of the following options:
|
|
|
make such determinations and/or adjustments to the terms of the Indexes as it considers appropriate to determine any closing level on any such appropriate Index
business day; and/or
|
|
|
|
defer publication of the information relating to the Indexes until the next Index business day on which it determines that no force majeure event exists; and/or
|
|
|
|
permanently cancel publication of the information relating to the Indexes.
|
Additionally, calculation of the Indexes may also be disrupted by an event that prevents the Index Sponsor from obtaining the closing prices of the
underlying DX Contracts. In turn, the Index Sponsor would, in its discretion, either review the price of an instrument, if available, that is substantially similar to the DX Contract, or, if unavailable, obtain all the closing prices for the
unaffected Index Currencies, then, with respect to the disrupted Index Currencies, calculate the closing price in respect of the disrupted Index Currency on an alternative basis were such event to occur or exist on a day that is a trading day for
such Index Currency on the relevant exchange. If such an Index disruption event in relation to an Index Currency as described in the prior sentence occurs and continues for a period of five successive trading days for such Index Currency on the
relevant exchange, the Index Sponsor will, in its discretion, either
|
|
|
continue to calculate the relevant closing price for a further period of five successive trading days for such Index Currency on the relevant exchange or
|
|
|
|
if such period extends beyond the five successive trading days, the Index Sponsor may elect to replace the exchange-traded instrument with respect to a specific
Index Currency and shall make all necessary adjustments to the methodology and calculation of the Indexes as it deems appropriate.
|
[Remainder of page left blank intentionally.]
-37-
Historical Closing Levels
Set out below are the Closing Levels of both the Long Index and the Short Index
based on historical data from December 31, 1986 to August 31, 2007. The data with respect to Various Statistical Measures and Annualized Index Levels are from December 31, 1986 to August 31, 2007. The data with respect to
Correlation of Monthly Returns is from December 31, 1988 to August 31, 2007. The start date of December 31, 1988 was selected because underlying data with respect to DBLCI TR was not available prior to December 31, 1988.
The following Closing Levels Tables of both the Long Index and the Short Index reflect both the high and low Closing Levels, the
annual Index changes and Index changes since December 31, 1986, the Base Date, of each Index.
Since the Base Date of December 31, 1986 with respect to each of the Long Index and the Short Index, close prices of DX Contracts traded on the ICE Futures U.S. (formerly known as the New York Board of Trade or
NYBOT
®
) were used for each Index calculation. Although the DX Contract started trading in 1985, the Base Date of December 31, 1986 was selected because reasonably reliable pricing data
was not available prior to December 31, 1986. The Index Sponsor has not independently verified the DX Contracts close prices obtained from Bloomberg and Reuters.
The first to expire DX Contracts (i.e., March, June, September and December) were used in the Index calculation.
The underlying DX Contracts of the Index are rolled quarterly on the Index Roll Day, which is the Wednesday prior to the applicable IMM Date. IMM
Date means the third Wednesday of March, June, September and December, a traditional settlement date in the International Money Market.
DX Contracts are rolled on the Wednesday prior to each IMM Date as follows:
|
|
|
The DX Contract that expires on the next IMM Date is sold.
|
|
|
|
A position in the DX Contract that expires on the IMM Date following the next IMM Date is purchased.
|
Each Index is calculated on both an excess return basis and a total return basis. The excess return index reflects the changes in market value over time,
whether positive or negative, of the underlying DX Contracts. The total return is the sum of the changes in market value over time, whether positive or negative, of the underlying DX Contracts plus the return of 3-month U.S. Treasury bills. The
following tables reflect both the excess return calculation and the total return calculation of the Long Index and the Short Index.
Cautionary StatementStatistical Information
Various statistical information is presented on the
following pages, relating to the Closing Levels of the Long Index and the Short Index, on an annual and cumulative basis, including certain comparisons of each Index to other currency indices. In reviewing such information, prospective investors
should consider that:
|
|
|
Changes in Closing Levels of each Index during any particular period or market cycle may be volatile.
|
|
|
|
|
|
Index
|
|
Worst
Peak-to-Valley
Drawdown
and
Time
Period
|
|
Worst
Monthly
Drawdown
and Month
and Year
|
Long Index
|
|
(40.29)%,
12/86-12/04
|
|
(5.56)%,
12/91
|
Short Index
|
|
(36.82)%,
6/95-1/02
|
|
(8.77)%,
3/91
|
For example, the Worst Peak-to-Valley Drawdown of each Index, represents the greatest percentage
decline from any month-end Closing Level, without such Closing Level being equaled or exceeded as of a subsequent month-end, which occurred during the above-listed time period.
The Worst Monthly Drawdown of each Index occurred during the above-listed month and year.
See The
Risks You Face (14) Price Volatility May Possibly Cause the Total Loss of Your Investment.
|
|
Neither the fees charged by either Fund nor the execution costs associated with establishing futures positions in the DX Contracts are
|
-38-
|
incorporated into the Closing Levels of each Index. Accordingly, such Index Levels have not been reduced by the costs associated with an actual investment,
such as a Fund, with an investment objective of tracking the corresponding Index.
|
|
|
The Indexes were established in August 2006, and are independently calculated by Deutsche Bank AG London, the Index Sponsor. The Index calculation methodology and DX Contracts
selection is the same before and after August 2006, as described above. Accordingly, the Closing Levels of each Index, terms of each Index methodology and DX Contracts, reflect an element of hindsight at the time each Index was established. See
The Risks You Face (10) You May Not Rely on Past Performance or Index Results in Deciding Whether to Buy Shares and (11) Fewer Representative Index Currencies May Result In Greater Index Volatility.
|
WHILE EACH FUNDS OBJECTIVE IS NOT TO GENERATE PROFIT THROUGH ACTIVE PORTFOLIO MANAGEMENT, BUT IS TO TRACK THE
CORRESPONDING INDEX, BECAUSE EACH 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.
NO REPRESENTATION IS BEING MADE THAT EACH 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 EACH FUND WILL GENERATE PROFITS OR LOSSES SIMILAR TO THE FUNDS PAST PERFORMANCE, WHEN AVAILABLE, OR THE HISTORICAL ANNUAL OR
CUMULATIVE CHANGES IN THE CORRESPONDING 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.
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 WITH RESPECT TO EACH INDEX, AS APPLICABLE, EACH INDEXS CLOSING LEVELS REFLECT THE APPLICATION OF THE INDEXS METHODOLOGY, AND SELECTION OF DX CONTRACTS, IN HINDSIGHT.
NO HYPOTHETICAL RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THERE ARE NUMEROUS FACTORS,
INCLUDING THOSE DESCRIBED UNDER THE RISKS YOU FACE HEREIN, RELATED TO THE CURRENCIES MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF EACH FUNDS EFFORTS TO TRACK ITS CORRESPONDING INDEX OVER TIME WHICH CANNOT BE, AND HAVE NOT BEEN,
ACCOUNTED FOR IN THE PREPARATION OF SUCH INDEX INFORMATION SET FORTH ON THE FOLLOWING PAGES, ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL PERFORMANCE RESULTS FOR EACH FUND. FURTHERMORE, THE INDEX INFORMATION DOES NOT INVOLVE FINANCIAL RISK OR ACCOUNT
FOR THE IMPACT OF FEES AND COSTS ASSOCIATED WITH EACH FUND.
THE MANAGING OWNER HAS HAD LIMITED EXPERIENCE IN TRADING ACTUAL ACCOUNTS FOR
ITSELF OR FOR CLIENTS. BECAUSE THERE ARE NO 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.
-39-
DATA
RELATING TO THE
LONG INDEX
DEUTSCHE BANK US DOLLAR INDEX (USDX
®
) FUTURES INDEX EXCESS RETURN
DEUTSCHE BANK US DOLLAR INDEX (USDX
®
) FUTURES INDEX TOTAL RETURN
The following data relates to the Long Index closing levels and various statistical measures, each of which either analyzes
the Long Index closing levels data in terms of volatility, Sharpe ratios, etc. or compares the Long Index closing levels against various relevant benchmarks. The Long Index is calculated on both an excess return and total return basis.
THE BULLISH FUND TRADES WITH A VIEW TO TRACKING THE DEUTSCHE BANK US DOLLAR INDEX
(USDX
®
) FUTURES INDEX EXCESS RETURN (LONG INDEX) OVER TIME.
THE BULLISH FUND DOES NOT TRADE WITH A VIEW TO TRACKING THE DEUTSCHE BANK US DOLLAR INDEX (USDX
®
) FUTURES INDEX TOTAL RETURN (LONG INDEX) OVER TIME.
-40-
CLOSING LEVELS TABLE
DEUTSCHE BANK US DOLLAR INDEX (USDX
®
)
FUTURES INDEX EXCESS RETURN (LONG INDEX)
|
|
|
|
|
|
|
|
|
|
|
|
|
Closing Level
|
|
|
|
|
|
|
|
|
High
1
|
|
Low
2
|
|
Annual Index
Changes
3
|
|
|
Index Changes Since
Inception
4
|
|
1986
5
|
|
100.00
|
|
100.00
|
|
0.00
|
|
|
0.00
|
|
1987
|
|
100.58
|
|
80.31
|
|
-19.69
|
%
|
|
-19.69
|
%
|
1988
|
|
92.74
|
|
80.91
|
|
7.06
|
%
|
|
-14.02
|
%
|
1989
|
|
98.38
|
|
85.91
|
|
0.84
|
%
|
|
-13.30
|
%
|
1990
|
|
87.89
|
|
73.85
|
|
-13.34
|
%
|
|
-24.86
|
%
|
1991
|
|
85.99
|
|
72.11
|
|
-3.76
|
%
|
|
-27.69
|
%
|
1992
|
|
77.65
|
|
65.06
|
|
3.67
|
%
|
|
-25.04
|
%
|
1993
|
|
76.18
|
|
70.10
|
|
-0.51
|
%
|
|
-25.42
|
%
|
1994
|
|
74.65
|
|
64.27
|
|
-10.47
|
%
|
|
-33.23
|
%
|
1995
|
|
67.54
|
|
60.33
|
|
-5.30
|
%
|
|
-36.77
|
%
|
1996
|
|
66.56
|
|
63.18
|
|
4.32
|
%
|
|
-34.04
|
%
|
1997
|
|
76.53
|
|
66.13
|
|
14.46
|
%
|
|
-24.50
|
%
|
1998
|
|
78.10
|
|
70.33
|
|
-4.85
|
%
|
|
-28.16
|
%
|
1999
|
|
80.14
|
|
71.30
|
|
9.38
|
%
|
|
-21.42
|
%
|
2000
|
|
92.51
|
|
77.39
|
|
8.85
|
%
|
|
-14.47
|
%
|
2001
|
|
94.55
|
|
84.91
|
|
6.01
|
%
|
|
-9.33
|
%
|
2002
|
|
93.28
|
|
77.72
|
|
-14.28
|
%
|
|
-22.28
|
%
|
2003
|
|
78.64
|
|
65.14
|
|
-16.19
|
%
|
|
-34.86
|
%
|
2004
|
|
68.46
|
|
59.41
|
|
-8.33
|
%
|
|
-40.29
|
%
|
2005
|
|
68.31
|
|
60.01
|
|
13.14
|
%
|
|
-32.44
|
%
|
2006
|
|
67.50
|
|
62.03
|
|
-6.67
|
%
|
|
-36.95
|
%
|
2007
6
|
|
64.32
|
|
60.80
|
|
-2.58
|
%
|
|
-38.58
|
%
|
THE BULLISH FUND TRADES WITH A VIEW
TO TRACKING THE DEUTSCHE BANK US DOLLAR INDEX (USDX
®
) FUTURES INDEX EXCESS RETURN (LONG INDEX) OVER TIME. NEITHER THE PAST PERFORMANCE OF THE FUND NOR THE PRIOR INDEX LEVELS AND CHANGES, POSITIVE AND NEGATIVE, SHOULD BE TAKEN
AS AN INDICATION OF THE FUNDS FUTURE PERFORMANCE.
DEUTSCHE BANK US DOLLAR
INDEX (USDX
®
) FUTURES INDEX TOTAL RETURN (LONG INDEX)
|
|
|
|
|
|
|
|
|
|
|
|
|
Closing Level
|
|
|
|
|
|
|
|
|
High
1
|
|
Low
2
|
|
Annual Index
Changes
3
|
|
|
Index Changes Since
Inception
4
|
|
1986
5
|
|
100.00
|
|
100.00
|
|
0.00
|
|
|
0.00
|
|
1987
|
|
100.66
|
|
85.33
|
|
-14.67
|
%
|
|
-14.67
|
%
|
1988
|
|
102.65
|
|
86.02
|
|
14.80
|
%
|
|
-2.04
|
%
|
1989
|
|
116.74
|
|
97.97
|
|
9.54
|
%
|
|
7.30
|
%
|
1990
|
|
110.08
|
|
97.96
|
|
-6.41
|
%
|
|
0.43
|
%
|
1991
|
|
118.38
|
|
97.40
|
|
1.66
|
%
|
|
2.09
|
%
|
1992
|
|
110.58
|
|
94.16
|
|
7.37
|
%
|
|
9.61
|
%
|
1993
|
|
112.43
|
|
103.48
|
|
2.57
|
%
|
|
12.43
|
%
|
1994
|
|
112.56
|
|
100.16
|
|
-6.53
|
%
|
|
5.08
|
%
|
1995
|
|
106.73
|
|
96.63
|
|
0.14
|
%
|
|
5.24
|
%
|
1996
|
|
116.61
|
|
105.21
|
|
9.82
|
%
|
|
15.57
|
%
|
1997
|
|
139.28
|
|
115.91
|
|
20.51
|
%
|
|
39.28
|
%
|
1998
|
|
148.93
|
|
134.97
|
|
-0.11
|
%
|
|
39.13
|
%
|
1999
|
|
160.01
|
|
138.16
|
|
14.67
|
%
|
|
59.54
|
%
|
2000
|
|
198.12
|
|
157.20
|
|
15.48
|
%
|
|
84.23
|
%
|
2001
|
|
208.23
|
|
183.08
|
|
9.78
|
%
|
|
102.26
|
%
|
2002
|
|
208.39
|
|
176.24
|
|
-12.86
|
%
|
|
76.24
|
%
|
2003
|
|
178.34
|
|
149.23
|
|
-15.33
|
%
|
|
49.23
|
%
|
2004
|
|
157.39
|
|
138.01
|
|
-7.05
|
%
|
|
38.71
|
%
|
2005
|
|
163.02
|
|
139.43
|
|
16.79
|
%
|
|
62.00
|
%
|
2006
|
|
163.23
|
|
152.48
|
|
-2.09
|
%
|
|
58.62
|
%
|
2007
6
|
|
162.61
|
|
157.32
|
|
0.66
|
%
|
|
59.66
|
%
|
THE BULLISH FUND DOES NOT TRADE WITH
A VIEW TO TRACKING THE DEUTSCHE BANK US DOLLAR INDEX (USDX
®
) FUTURES INDEX TOTAL RETURN (LONG INDEX) OVER TIME. NEITHER THE PAST PERFORMANCE OF THE FUND NOR THE PRIOR INDEX LEVELS AND CHANGES, POSITIVE AND NEGATIVE, SHOULD BE
TAKEN AS AN INDICATION OF THE FUNDS FUTURE PERFORMANCE. Please refer to notes and legends that follow on page 45.
-41-
All Statistics based on data from December 31, 1986 to August 31, 2007
|
|
|
|
|
|
|
Various Statistical Measures
|
|
DB USDX Long Future ER
7,8
|
|
DB USDX Long Future TR
8,9
|
|
USDX Spot Index
10
|
Annualized Changes to Index Level
11
|
|
-2.3%
|
|
2.3%
|
|
-1.2%
|
Average rolling 3 month volatility
12
|
|
8.5%
|
|
8.5%
|
|
8.2%
|
Sharpe Ratio
13
|
|
-0.81
|
|
-0.26
|
|
-0.70
|
% of months with positive change
14
|
|
46%
|
|
53%
|
|
47%
|
Average monthly positive change
15
|
|
1.9%
|
|
2.0%
|
|
1.9%
|
Average monthly negative change
16
|
|
-1.9%
|
|
-1.8%
|
|
-1.8%
|
|
|
|
|
|
|
|
|
|
|
|
Annualized Index Levels
17
|
|
DB USDX Long Future ER
7,8
|
|
DB USDX Long Future TR
8,9
|
|
USDX Spot Index
10
|
1 yr
|
|
-3.6%
|
|
1.2%
|
|
-5.0%
|
3 yr
|
|
-2.3%
|
|
1.7%
|
|
-3.2%
|
5 yr
|
|
-5.6%
|
|
-2.9%
|
|
-5.5%
|
7 yr
|
|
-5.0%
|
|
-2.1%
|
|
-4.6%
|
10 yr
|
|
-1.9%
|
|
1.7%
|
|
-2.0%
|
15 yr
|
|
-0.4%
|
|
3.5%
|
|
0.2%
|
Correlation of Monthly Returns (between December 31, 1988 to August 31, 2007)*
,22
|
|
|
|
|
|
|
|
|
|
|
|
|
DB USDX Long
Future TR
7,8
|
|
S&P 500 TR
18
|
|
JP Morgan US
Treasury
19
|
|
DBLCI TR
20
|
|
NAR Existing One
Family Home Sales
Median Price
Index
21
|
DB USDX Long Future TR
|
|
1.00
|
|
0.05
|
|
-0.19
|
|
-0.09
|
|
0.00
|
S&P 500 TR
|
|
|
|
1.00
|
|
0.02
|
|
-0.09
|
|
0.03
|
JP Morgan US Treasury
|
|
|
|
|
|
1.00
|
|
-0.03
|
|
-0.09
|
DBLCI TR
|
|
|
|
|
|
|
|
1.00
|
|
-0.06
|
NAR Existing One Family Home Sales Median Price Index
|
|
|
|
|
|
|
|
|
|
1.00
|
NEITHER THE PAST PERFORMANCE OF THE FUND NOR THE PRIOR INDEX LEVELS AND CHANGES, POSITIVE AND NEGATIVE, SHOULD
BE TAKEN AS AN INDICATION OF THE FUNDS FUTURE PERFORMANCE.
* Correlation is a statistical term which describes the degree to which two or
more asset classes show a tendency to rise or fall in value together. Diversification of an investment portfolio among asset classes that are not correlated with each other tends to reduce overall volatility and risk in the portfolio as a whole. The
hypothetical returns of DB USDX Long Future TR have been compared with the S&P 500 TR, the JP Morgan U.S. Treasury, the DBCLI TR and the NAR Existing One Family Home Sales Median Price Index to permit an investor to compare and contrast the
degree of correlation between DB USDX Long Future TR (which is a currency index) and indices which are commonly used to measure the performance of the equity, fixed income, commodity and real estate markets, respectively.
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.
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, WHEN AVAILABLE, 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.
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.
NO HYPOTHETICAL RECORD CAN COMPLETELY ACCOUNT
FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THERE ARE NUMEROUS FACTORS, INCLUDING THOSE DESCRIBED UNDER THE RISKS YOU FACE HEREIN, RELATED TO THE CURRENCIES MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF THE
FUNDS EFFORTS TO TRACK ITS INDEX OVER TIME WHICH CANNOT BE, AND HAVE NOT BEEN, ACCOUNTED FOR IN THE PREPARATION OF SUCH 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 NO 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.
Please refer to notes and legends that follow on page 45.
-42-
COMPARISON OF VARIOUS US DOLLAR INDICES
(DECEMBER, 1986 AUGUST 31, 2007)
NEITHER THE PAST PERFORMANCE OF THE FUND NOR THE PRIOR INDEX LEVELS AND CHANGES, POSITIVE AND NEGATIVE, SHOULD BE TAKEN AS
AN INDICATION OF THE FUNDS FUTURE PERFORMANCE.
Each of the DB USDX Long Future-ER, DB USDX Long Future-TR and USDX Spot Index are indices and do not
reflect actual trading or any fees or expenses.
USDX Spot Index is calculated on an excess return basis.
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.
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, WHEN AVAILABLE, 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.
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.
NO HYPOTHETICAL RECORD CAN COMPLETELY ACCOUNT
FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THERE ARE NUMEROUS FACTORS, INCLUDING THOSE DESCRIBED UNDER THE RISKS YOU FACE HEREIN, RELATED TO THE CURRENCIES MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF THE
FUNDS EFFORTS TO TRACK ITS INDEX OVER TIME WHICH CANNOT BE, AND HAVE NOT BEEN, ACCOUNTED FOR IN THE PREPARATION OF SUCH 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 NO 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.
Please refer to notes and legends that follow on page 45.
-43-
COMPARISON OF ANNUAL RETURNS OF COMPARISON OF VARIOUS US DOLLAR INDICES
(DECEMBER, 1986 AUGUST 31, 2007)
NEITHER THE PAST PERFORMANCE OF THE FUND NOR THE PRIOR INDEX LEVELS AND CHANGES, POSITIVE AND NEGATIVE, SHOULD BE TAKEN AS
AN INDICATION OF THE FUNDS FUTURE PERFORMANCE.
Each of the DB USDX Long Future-ER and USDX Spot Index are indices and do not reflect actual trading
or any fees or expenses.
USDX Spot Index is calculated on an excess return basis.
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.
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, WHEN AVAILABLE, 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.
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.
NO HYPOTHETICAL RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THERE ARE
NUMEROUS FACTORS, INCLUDING THOSE DESCRIBED UNDER THE RISKS YOU FACE HEREIN, RELATED TO THE CURRENCIES MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF THE FUNDS EFFORTS TO TRACK ITS INDEX OVER TIME WHICH CANNOT BE, AND HAVE NOT
BEEN, ACCOUNTED FOR IN THE PREPARATION OF SUCH 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 NO 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.
Please refer to notes and legends that follow on page 45.
-44-
NOTES AND LEGENDS:
1.
|
High reflects the highest closing level of the Index during the applicable year.
|
2.
|
Low reflects the lowest closing level of the Index during the applicable year.
|
3.
|
Annual Index Changes reflect the change to the Index level on an annual basis as of December 31 of each applicable year.
|
4.
|
Index Changes Since Inception reflects the change of the Index level since inception on a compounded annual basis as of December 31 of each applicable year.
|
5.
|
Closing levels as of Base Date of December 31, 1986.
|
6.
|
Closing levels as of August 31, 2007.
|
7.
|
DB USDX Long Future ER is the Deutsche Bank US Dollar Index (USDX
®
) Futures Index Excess Return with respect to the Long Index. The Deutsche Bank US Dollar Index (USDX
®
) Futures Index is calculated on both an excess
return basis and total return basis. The DB USDX Long Future ER calculation is not funded and reflects the changes in market value over time, whether positive or negative, of the underlying DX Contracts. The sponsor of the Index, or the Index
Sponsor, is Deutsche Bank AG London.
|
8.
|
In the current interest rate environment, the total return on an investment in a Fund is expected to outperform the DB USDX Long Future ER and underperform the DB USDX Long Future
TR (as such term is defined in the following footnote). The only difference between the DB USDX Long Future ER and the DB USDX Long Future TR is that the DB USDX Long Future ER does not include interest income from a hypothetical basket of fixed
income securities while the DB USDX Long Future TR does include such a component. The difference in the changes in market value over time, whether positive or negative, in the DB USDX Long Future ER and the DB USDX Long Future TR is attributable
entirely to the hypothetical interest income from this hypothetical basket of fixed income securities. A Funds interest income from its holdings of fixed-income securities is expected to exceed such 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 DB USDX Long Future ER. The total return on an investment in a 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, a Funds total return is expected to outperform the DB USDX Long Future
ER by the amount of the excess of its interest income over its fees and expenses but, as a result of such Funds fees and expenses, the total return on a Fund is expected to underperform the DB USDX Long Future TR. If a Funds fees and
expenses were to exceed such Funds interest income from its holdings of fixed income securities, such Fund would underperform the DB USDX Long Future ER.
|
9.
|
DB USDX Long Future TR is the Deutsche Bank US Dollar Index (USDX
®
) Futures Index Total Return with respect to the Long Index. The Deutsche Bank US Dollar Index (USDX
®
) Futures Index is calculated on both an excess
return basis and total return basis. The DB USDX Long Future TR calculation is funded and reflects the changes in market value over time, whether positive or negative, of both the underlying DX Contracts and the interest income from a hypothetical
basket of fixed income securities. The sponsor of the Index, or the Index Sponsor, is Deutsche Bank AG London.
|
10.
|
USDX Spot Index is the U.S. Dollar Index
®
which provides a general indication of the international value of the USD by averaging the exchange rates between the USD and the six major world currencies the USDX Spot Index Euro, Japanese Yen, British Pound, Canadian Dollar, Swedish Krona
and Swiss Franc. U.S. Dollar Index
®
is a registered service mark of IntercontinentalExchange, Inc
.
|
-45-
11.
|
Annualized Changes to Index Level reflects the changes of the applicable index on an annual basis as of December 31 of each applicable year.
|
12.
|
Average rolling 3 month daily volatility. The daily volatility reflects the relative rate at which the price of the applicable index moves up and down, which is found by
calculating the annualized standard deviation of the daily change in price. In turn, an average of this value is calculated on a 3 month rolling basis.
|
13.
|
Sharpe Ratio compares the annualized rate of return minus the annualized risk-free rate of return to the annualized variability often referred to as the
standard deviation of the monthly rates of return. A Sharpe Ratio of 1:1 or higher indicates that, according to the measures used in calculating the ratio, the rate of return achieved by a particular strategy has equaled or
exceeded the risks assumed by such strategy. The risk-free rate of return that was used in these calculations was assumed to be 4.53%.
|
14.
|
% of months with positive change during the period from inception to August 31, 2007.
|
15.
|
Average monthly positive change during the period from inception to August 31, 2007.
|
16.
|
Average monthly negative change during the period from inception to August 31, 2007.
|
17.
|
Annualized Index Levels reflects the change in the applicable index on an annual basis as of December 31 of each the applicable time period (e.g., 1 year, 3,
5, 7, 10 or 15 years).
|
18.
|
S&P 500 TR is the Standard & Poors index calculated on a total return basis. Widely regarded as the benchmark gauge of the U.S. equities market, this
index includes a representative sample of 500 leading companies in leading industries of the U.S. economy. Although the S&P 500 focuses on the large-cap segment of the market, with over 80% coverage of U.S. equities, it also serves as a proxy
for the total market. The total return calculation provides investors with a price-plus-gross cash dividend return. Gross cash dividends are applied on the ex-date of the dividend.
|
19.
|
JP Morgan US Treasury means the JP Morgan US Treasury Index which is a broad total return index of US Treasury securities. It is published on a daily basis by JP Morgan
Indices.
|
20.
|
DBLCI-TR is the Deutsche Bank Liquid Commodity Index
TM
Total Return. This Index is intended to reflect the changes in notional value in the following commodities: Light, Sweet Crude Oil, Heating Oil, Aluminum, Gold, Corn and
Wheat. The notional amounts of each index commodity included in this index are broadly in proportion to historical levels of the worlds production and stocks of the index commodities. The sponsor of the Index, or the Index Sponsor, is Deutsche
Bank AG London. Deutsche Bank Liquid Commodity Index
TM
Total Return is a trade mark of Deutsche Bank AG and is the subject of Community Trade Mark
Number 3054996. Trade Mark applications in the United States are pending.
|
21.
|
NAR Existing One Family Home Sales Median Price Index is one component of The National Association Of
Realtors
®
Existing-Home Sales Series, which is the premier measurement of national and regional residential real estate market. On or about the 25
th
of each month, NAR releases statistics on sales and prices of existing single-family homes for the nation and the four regions. These figures include condos and co-ops, in addition
to single-family homes. NAR Existing One Family Home Sales Median Price Index reflects current sales rates, actual totals and median prices by month going back 12 months. Annual totals cover a period of three years, which includes all existing-home
sales single-family, condos and co-opsrolled into monthly and annual totals.
|
-46-
22.
|
Correlation of Monthly Returns. Every investment asset, by definition, has a correlation coefficient of 1.0 with itself; 1.0 indicates 100% positive correlation. Two
investments that always move in the opposite direction from each other have a correlation coefficient of -1.0; -1.0 indicates 100% negative correlation. Two investments that perform entirely independently of each other have a correlation coefficient
of 0; 0 indicates 100% non-correlation. December 31, 1988 was used as the start date with respect to the underlying data because closing levels with respect to DBLCI-TR was not available prior to December 31, 1988.
|
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.
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, WHEN AVAILABLE, 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.
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.
NO HYPOTHETICAL RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THERE ARE NUMEROUS FACTORS, INCLUDING THOSE
DESCRIBED UNDER THE RISKS YOU FACE HEREIN, RELATED TO THE CURRENCIES MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF THE FUNDS EFFORTS TO TRACK ITS INDEX OVER TIME WHICH CANNOT BE, AND HAVE NOT BEEN, ACCOUNTED FOR IN THE PREPARATION
OF SUCH 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 NO 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.
ALTHOUGH THE INDEX SPONSOR WILL OBTAIN INFORMATION FOR INCLUSION IN OR FOR USE IN THE CALCULATION OF THE INDEX FROM SOURCE(S) WHICH THE INDEX SPONSOR
CONSIDERS RELIABLE, THE INDEX SPONSOR WILL NOT INDEPENDENTLY VERIFY SUCH INFORMATION AND DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE INDEX OR ANY DATA INCLUDED THEREIN. THE INDEX SPONSOR SHALL NOT BE LIABLE (WHETHER IN NEGLIGENCE
OR OTHERWISE) TO ANY
-47-
PERSON FOR ANY ERROR IN THE INDEX AND THE INDEX SPONSOR IS UNDER NO OBLIGATION TO ADVISE ANY PERSON OF ANY ERROR THEREIN.
UNLESS OTHERWISE SPECIFIED, NO TRANSACTION RELATING TO THE INDEX IS SPONSORED, ENDORSED, SOLD OR PROMOTED BY THE INDEX SPONSOR AND THE INDEX SPONSOR MAKES
NO EXPRESS OR IMPLIED REPRESENTATIONS OR WARRANTIES AS TO (A) THE ADVISABILITY OF PURCHASING OR ASSUMING ANY RISK IN CONNECTION WITH ANY SUCH TRANSACTION (B) THE LEVELS AT WHICH THE INDEX STANDS AT ANY PARTICULAR TIME ON ANY PARTICULAR
DATE (C) THE RESULTS TO BE OBTAINED BY THE ISSUER OF ANY SECURITY OR ANY COUNTERPARTY OR ANY SUCH ISSUERS SECURITY HOLDERS OR CUSTOMERS OR ANY SUCH COUNTERPARTYS CUSTOMERS OR COUNTERPARTIES OR ANY OTHER PERSON OR ENTITY FROM THE USE
OF THE INDEX OR ANY DATA INCLUDED THEREIN IN CONNECTION WITH ANY LICENSED RIGHTS OR FOR ANY OTHER USE OR (D) ANY OTHER MATTER. THE INDEX SPONSOR MAKES NO EXPRESS OR IMPLIED REPRESENTATIONS OR WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE WITH RESPECT TO THE INDEX OR ANY DATA INCLUDED THEREIN.
WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL THE
INDEX SPONSOR HAVE ANY LIABILITY (WHETHER IN NEGLIGENCE OR OTHERWISE) TO ANY PERSON FOR ANY DIRECT, INDIRECT, SPECIAL, PUNITIVE, CONSEQUENTIAL OR ANY OTHER DAMAGES (INCLUDING LOST PROFITS) EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
-48-
DATA
RELATING TO THE
SHORT INDEX
DEUTSCHE BANK US DOLLAR INDEX (USDX
®
) FUTURES INDEX EXCESS RETURN
DEUTSCHE
BANK US DOLLAR INDEX (USDX
®
) FUTURES INDEX TOTAL RETURN
The following data relates to the Short Index closing levels and various statistical measures, each of which either analyzes the Short Index
closing levels data in terms of volatility, Sharpe ratios, etc. or compares the Short Index closing levels against various relevant benchmarks. The Short Index is calculated on both an excess return and total return basis.
THE BEARISH FUND TRADES WITH A VIEW TO TRACKING THE DEUTSCHE BANK US DOLLAR INDEX (USDX
®
) FUTURES INDEX EXCESS RETURN (SHORT INDEX) OVER TIME.
THE BEARISH FUND DOES NOT TRADE WITH A VIEW TO TRACKING THE DEUTSCHE BANK US DOLLAR INDEX (USDX
®
) FUTURES INDEX TOTAL RETURN (SHORT INDEX) OVER
TIME.
-49-
CLOSING LEVELS TABLE
DEUTSCHE BANK US DOLLAR INDEX (USDX
®
)
FUTURES INDEX EXCESS RETURN
(SHORT INDEX)
|
|
|
|
|
|
|
|
|
|
|
|
|
Closing Level
|
|
|
|
|
|
|
|
|
High
1
|
|
Low
2
|
|
Annual Index
Changes
3
|
|
|
Index Changes Since
Inception
4
|
|
1986
5
|
|
100.00
|
|
100.00
|
|
0.00
|
|
|
0.00
|
|
1987
|
|
123.07
|
|
99.42
|
|
23.07
|
%
|
|
23.07
|
%
|
1988
|
|
122.24
|
|
105.99
|
|
-7.47
|
%
|
|
13.88
|
%
|
1989
|
|
113.97
|
|
98.33
|
|
-2.79
|
%
|
|
10.70
|
%
|
1990
|
|
128.74
|
|
109.22
|
|
14.37
|
%
|
|
26.61
|
%
|
1991
|
|
131.41
|
|
109.44
|
|
1.96
|
%
|
|
29.10
|
%
|
1992
|
|
141.41
|
|
120.25
|
|
-5.86
|
%
|
|
21.54
|
%
|
1993
|
|
129.24
|
|
119.46
|
|
0.09
|
%
|
|
21.65
|
%
|
1994
|
|
140.43
|
|
121.53
|
|
11.19
|
%
|
|
35.26
|
%
|
1995
|
|
148.76
|
|
133.74
|
|
4.64
|
%
|
|
41.54
|
%
|
1996
|
|
141.66
|
|
134.35
|
|
-4.21
|
%
|
|
35.59
|
%
|
1997
|
|
135.23
|
|
115.36
|
|
-13.47
|
%
|
|
17.32
|
%
|
1998
|
|
125.36
|
|
113.35
|
|
4.85
|
%
|
|
23.01
|
%
|
1999
|
|
123.92
|
|
109.83
|
|
-8.91
|
%
|
|
12.05
|
%
|
2000
|
|
113.78
|
|
94.09
|
|
-9.29
|
%
|
|
1.64
|
%
|
2001
|
|
102.32
|
|
91.91
|
|
-5.82
|
%
|
|
-4.28
|
%
|
2002
|
|
110.87
|
|
92.90
|
|
15.83
|
%
|
|
10.87
|
%
|
2003
|
|
130.21
|
|
109.65
|
|
17.44
|
%
|
|
30.21
|
%
|
2004
|
|
141.83
|
|
123.83
|
|
8.41
|
%
|
|
41.16
|
%
|
2005
|
|
140.46
|
|
122.29
|
|
-12.22
|
%
|
|
23.91
|
%
|
2006
|
|
134.51
|
|
124.03
|
|
6.88
|
%
|
|
32.43
|
%
|
2007
6
|
|
137.15
|
|
129.74
|
|
2.58.
|
%
|
|
35.85
|
%
|
THE BEARISH FUND TRADES WITH A VIEW TO TRACKING THE
DEUTSCHE BANK US DOLLAR INDEX (USDX
®
) FUTURES INDEX EXCESS RETURN (SHORT
INDEX) OVER TIME. NEITHER THE PAST PERFORMANCE OF THE FUND NOR THE PRIOR INDEX LEVELS AND CHANGES, POSITIVE AND NEGATIVE, SHOULD BE TAKEN AS AN INDICATION OF THE FUNDS FUTURE PERFORMANCE.
DEUTSCHE BANK US DOLLAR INDEX (USDX
®
)
FUTURES INDEX TOTAL RETURN
(SHORT INDEX)
|
|
|
|
|
|
|
|
|
|
|
|
|
Closing Level
|
|
|
|
|
|
|
|
|
High
1
|
|
Low
2
|
|
Annual Index
Changes
3
|
|
|
Index Changes Since
Inception
4
|
|
1986
5
|
|
100.00
|
|
100.00
|
|
0.00
|
|
|
0.00
|
|
1987
|
|
130.76
|
|
99.50
|
|
30.76
|
%
|
|
30.76
|
%
|
1988
|
|
131.84
|
|
117.08
|
|
-0.78
|
%
|
|
29.74
|
%
|
1989
|
|
137.94
|
|
116.55
|
|
5.60
|
%
|
|
37.00
|
%
|
1990
|
|
170.77
|
|
135.31
|
|
23.51
|
%
|
|
69.21
|
%
|
1991
|
|
182.61
|
|
150.65
|
|
7.70
|
%
|
|
82.25
|
%
|
1992
|
|
204.64
|
|
170.95
|
|
-2.50
|
%
|
|
77.69
|
%
|
1993
|
|
192.01
|
|
175.28
|
|
3.19
|
%
|
|
83.36
|
%
|
1994
|
|
218.83
|
|
183.23
|
|
16.09
|
%
|
|
112.86
|
%
|
1995
|
|
240.62
|
|
210.69
|
|
10.66
|
%
|
|
135.54
|
%
|
1996
|
|
241.78
|
|
228.68
|
|
0.85
|
%
|
|
137.55
|
%
|
1997
|
|
236.99
|
|
208.43
|
|
-8.89
|
%
|
|
116.42
|
%
|
1998
|
|
240.56
|
|
212.61
|
|
10.07
|
%
|
|
138.22
|
%
|
1999
|
|
240.09
|
|
217.83
|
|
-4.51
|
%
|
|
127.49
|
%
|
2000
|
|
231.10
|
|
200.46
|
|
-3.77
|
%
|
|
118.91
|
%
|
2001
|
|
220.85
|
|
202.43
|
|
-2.46
|
%
|
|
113.52
|
%
|
2002
|
|
251.42
|
|
207.52
|
|
17.75
|
%
|
|
151.42
|
%
|
2003
|
|
298.30
|
|
248.66
|
|
18.65
|
%
|
|
198.30
|
%
|
2004
|
|
329.44
|
|
284.67
|
|
9.92
|
%
|
|
227.89
|
%
|
2005
|
|
327.76
|
|
291.85
|
|
-9.38
|
%
|
|
197.12
|
%
|
2006
|
|
337.28
|
|
299.83
|
|
12.13
|
%
|
|
233.15
|
%
|
2007
6
|
|
354.84
|
|
327.04
|
|
5.98
|
%
|
|
253.08
|
%
|
THE BEARISH FUND DOES NOT TRADE WITH A VIEW TO TRACKING THE
DEUTSCHE BANK US DOLLAR INDEX (USDX
®
) FUTURES INDEX TOTAL RETURN (SHORT INDEX)
OVER TIME. NEITHER THE PAST PERFORMANCE OF THE FUND NOR THE PRIOR INDEX LEVELS AND CHANGES, POSITIVE AND NEGATIVE, SHOULD BE TAKEN AS AN INDICATION OF THE FUNDS FUTURE PERFORMANCE.
Please refer to notes and legends that follow on page 54.
-50-
All Statistics based on data from December 31, 1986 to August 31, 2007
|
|
|
|
|
|
|
|
|
|
Various Statistical Measures
|
|
DB USDX Short Future ER
7,8
|
|
|
DB USDX Short Future TR
8,9
|
|
|
USDX Spot Index
10
|
|
Annualized Changes to Index Level
11
|
|
1.5
|
%
|
|
6.3
|
%
|
|
-1.2
|
%
|
Average rolling 3 month volatility
12
|
|
8.5
|
%
|
|
8.5
|
%
|
|
8.2
|
%
|
Sharpe Ratio
13
|
|
-0.36
|
|
|
0.21
|
|
|
-0.70
|
|
% of months with positive change
14
|
|
54
|
%
|
|
61
|
%
|
|
47
|
%
|
Average monthly positive change
15
|
|
1.9
|
%
|
|
2.1
|
%
|
|
1.9
|
%
|
Average monthly negative change
16
|
|
-1.9
|
%
|
|
-1.8
|
%
|
|
-1.8
|
%
|
|
|
|
|
|
|
|
|
|
|
Annualized Index
Levels
17
|
|
DB USDX Short Future ER
|
7,8
|
|
DB USDX Short Future TR
|
8,9
|
|
USDX Spot Index
|
10
|
1 yr
|
|
3.7%
|
|
|
8.9%
|
|
|
-5.0%
|
|
3 yr
|
|
1.8%
|
|
|
5.9%
|
|
|
-3.2%
|
|
5 yr
|
|
5.3%
|
|
|
8.3%
|
|
|
-5.5%
|
|
7 yr
|
|
4.5%
|
|
|
7.7%
|
|
|
-4.6%
|
|
10 yr
|
|
1.4%
|
|
|
5.1%
|
|
|
-2.0%
|
|
15 yr
|
|
-0.2%
|
|
|
3.7%
|
|
|
0.2%
|
|
Correlation of Monthly Returns (between
December 31, 1988 to August 31, 2007)*
, 22
|
|
|
|
|
|
|
|
|
|
|
|
|
DB USDX Short
Future TR
7,8
|
|
S&P 500 TR
18
|
|
JP Morgan US
Treasury
19
|
|
DBLCI TR
20
|
|
NAR Existing One
Family Home Sales
Median Price
Index
21
|
DB USDX Short Future TR
|
|
1.00
|
|
-0.04
|
|
0.22
|
|
0.10
|
|
-0.01
|
S&P 500 TR
|
|
|
|
1.00
|
|
0.02
|
|
-0.09
|
|
0.03
|
JP Morgan US Treasury
|
|
|
|
|
|
1.00
|
|
-0.03
|
|
-0.09
|
DBLCI TR
|
|
|
|
|
|
|
|
1.00
|
|
-0.06
|
NAR Existing One Family Home Sales Median Price Index
|
|
|
|
|
|
|
|
|
|
1.00
|
NEITHER THE PAST PERFORMANCE OF THE FUND NOR THE PRIOR INDEX LEVELS AND CHANGES, POSITIVE AND NEGATIVE, SHOULD
BE TAKEN AS AN INDICATION OF THE FUNDS FUTURE PERFORMANCE.
* Correlation is a statistical term which describes the degree to which two or
more asset classes show a tendency to rise or fall in value together. Diversification of an investment portfolio among asset classes that are not correlated with each other tends to reduce overall volatility and risk in the portfolio as a whole. The
hypothetical returns of DB USDX Short Future TR have been compared with the S&P 500 TR, the JP Morgan U.S. Treasury, the DBCLI TR and the NAR Existing One Family Home Sales Median Price Index to permit an investor to compare and contrast the
degree of correlation between DB USDX Short Future TR (which is a currency index) and indices which are commonly used to measure the performance of the equity, fixed income, commodity and real estate markets, respectively.
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.
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, WHEN AVAILABLE, 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.
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.
NO HYPOTHETICAL RECORD CAN COMPLETELY ACCOUNT
FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THERE ARE NUMEROUS FACTORS, INCLUDING THOSE DESCRIBED UNDER THE RISKS YOU FACE HEREIN, RELATED TO THE CURRENCIES MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF THE
FUNDS EFFORTS TO TRACK ITS INDEX OVER TIME WHICH CANNOT BE, AND HAVE NOT BEEN, ACCOUNTED FOR IN THE PREPARATION OF SUCH 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 NO 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.
Please refer to notes and legends that follow on page 54.
-51-
COMPARISON OF VARIOUS US DOLLAR INDICES
(DECEMBER, 1986 AUGUST 31, 2007)
NEITHER THE PAST PERFORMANCE OF THE FUND NOR THE PRIOR INDEX LEVELS AND CHANGES, POSITIVE AND NEGATIVE, SHOULD BE TAKEN AS
AN INDICATION OF THE FUNDS FUTURE PERFORMANCE.
Each of the DB USDX Short Future-ER, DB USDX Short Future-TR and USDX Spot Index are indices and do
not reflect actual trading or any fees or expenses.
USDX Spot Index is calculated on an excess return basis.
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.
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, WHEN AVAILABLE, 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.
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.
NO HYPOTHETICAL RECORD CAN COMPLETELY ACCOUNT
FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THERE ARE NUMEROUS FACTORS, INCLUDING THOSE DESCRIBED UNDER THE RISKS YOU FACE HEREIN, RELATED TO THE CURRENCIES MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF THE
FUNDS EFFORTS TO TRACK ITS INDEX OVER TIME WHICH CANNOT BE, AND HAVE NOT BEEN, ACCOUNTED FOR IN THE PREPARATION OF SUCH 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 NO 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.
Please refer to notes and legends that follow on page 54.
-52-
COMPARISON OF ANNUAL RETURNS OF COMPARISON OF VARIOUS US DOLLAR INDICES
(DECEMBER, 1986 AUGUST 31, 2007)
NEITHER THE PAST PERFORMANCE OF THE FUND NOR THE PRIOR INDEX LEVELS AND CHANGES, POSITIVE AND NEGATIVE, SHOULD BE TAKEN AS
AN INDICATION OF THE FUNDS FUTURE PERFORMANCE.
Each of the DB USDX Short Future-ER and USDX Spot Index are indices and do not reflect actual trading
or any fees or expenses.
USDX Spot Index is calculated on an excess return basis.
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.
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, WHEN AVAILABLE, 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.
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.
NO HYPOTHETICAL RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THERE ARE
NUMEROUS FACTORS, INCLUDING THOSE DESCRIBED UNDER THE RISKS YOU FACE HEREIN, RELATED TO THE CURRENCIES MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF THE FUNDS EFFORTS TO TRACK ITS INDEX OVER TIME WHICH CANNOT BE, AND HAVE NOT
BEEN, ACCOUNTED FOR IN THE PREPARATION OF SUCH 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 NO 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.
Please refer to notes and legends that follow on page 54.
-53-
NOTES AND LEGENDS:
1.
|
High reflects the highest closing level of the Index during the applicable year.
|
2.
|
Low reflects the lowest closing level of the Index during the applicable year.
|
3.
|
Annual Index Changes reflect the change to the Index level on an annual basis as of December 31 of each applicable year.
|
4.
|
Index Changes Since Inception reflects the change of the Index level since inception on a compounded annual basis as of December 31 of each applicable year.
|
5.
|
Closing levels as of Base Date of December 31, 1986.
|
6.
|
Closing levels as of August 31, 2007.
|
7.
|
DB USDX Short Future ER is the Deutsche Bank US Dollar Index (USDX
®
) Futures Index Excess Return with respect to the Short Index. The Deutsche Bank US Dollar Index (USDX
®
) Futures Index is calculated on both an excess
return basis and total return basis. The DB USDX Short Future ER calculation is not funded and reflects the changes in market value over time, whether positive or negative, of the underlying DX Contracts. The sponsor of the Index, or the Index
Sponsor, is Deutsche Bank AG London.
|
8.
|
In the current interest rate environment, the total return on an investment in a Fund is expected to outperform the DB USDX Short Future ER and underperform the DB USDX Short Future
TR (as such term is defined in the following footnote). The only difference between the DB USDX Short Future ER and the DB USDX Short Future TR is that the DB USDX Short Future ER does not include interest income from a hypothetical basket of fixed
income securities while the DB USDX Short Future TR does include such a component. The difference in the changes in market value over time, whether positive or negative, of the DB USDX Short Future ER and the DB USDX Short Future TR is attributable
entirely to the hypothetical interest income from this hypothetical basket of fixed income securities. A Funds interest income from its holdings of fixed-income securities is expected to exceed such 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 DB USDX Short Future ER. The total return on an investment in a 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, a Funds total return is expected to outperform the DB USDX Short Future
ER by the amount of the excess of its interest income over its fees and expenses but, as a result of such Funds fees and expenses, the total return on a Fund is expected to underperform the DB USDX Short Future TR. If a Funds fees and
expenses were to exceed such Funds interest income from its holdings of fixed income securities, such Fund would underperform the DB USDX Short Future ER.
|
9.
|
DB USDX Short Future TR is the Deutsche Bank US Dollar Index (USDX
®
) Futures Index Total Return with respect to the Short Index. The Deutsche Bank US Dollar Index (USDX
®
) Futures Index is calculated on both an excess
return basis and total return basis. The DB USDX Short Future TR calculation is funded and reflects the changes in market value over time, whether positive or negative, of both the underlying DX Contracts and the interest income from a hypothetical
basket of fixed income securities. The sponsor of the Index, or the Index Sponsor, is Deutsche Bank AG London.
|
10.
|
USDX Spot Index is the U.S. Dollar Index
®
which provides a general indication of the international value of the USD by averaging the exchange rates between the USD and the six major world currencies the USDX Spot Index Euro, Japanese Yen, British Pound, Canadian Dollar, Swedish Krona
and Swiss Franc. U.S. Dollar Index
®
is a registered service mark of IntercontinentalExchange, Inc.
|
-54-
11.
|
Annualized Changes to Index Level reflects the changes of the applicable index on an annual basis as of December 31 of each applicable year.
|
12.
|
Average rolling 3 month daily volatility. The daily volatility reflects the relative rate at which the price of the applicable index moves up and down, which is found by
calculating the annualized standard deviation of the daily change in price. In turn, an average of this value is calculated on a 3 month rolling basis.
|
13.
|
Sharpe Ratio compares the annualized rate of return minus the annualized risk-free rate of return to the annualized variability often referred to as the
standard deviation of the monthly rates of return. A Sharpe Ratio of 1:1 or higher indicates that, according to the measures used in calculating the ratio, the rate of return achieved by a particular strategy has equaled or
exceeded the risks assumed by such strategy. The risk-free rate of return that was used in these calculations was assumed to be 4.53%.
|
14.
|
% of months with positive change during the period from inception to August 31, 2007.
|
15.
|
Average monthly positive change during the period from inception to August 31, 2007.
|
16.
|
Average monthly negative change during the period from inception to August 31, 2007.
|
17.
|
Annualized Index Levels reflects the change in the applicable index on an annual basis as of December 31 of each the applicable time period (e.g., 1 year, 3,
5, 7, 10 or 15 years).
|
18.
|
S&P 500 TR is the Standard & Poors index calculated on a total return basis. Widely regarded as the benchmark gauge of the U.S. equities market, this
index includes a representative sample of 500 leading companies in leading industries of the U.S. economy. Although the S&P 500 focuses on the large-cap segment of the market, with over 80% coverage of U.S. equities, it also serves as a proxy
for the total market. The total return calculation provides investors with a price-plus-gross cash dividend return. Gross cash dividends are applied on the ex-date of the dividend.
|
19.
|
JP Morgan US Treasury means the JP Morgan US Treasury Index which is a broad total return index of US Treasury securities. It is published on a daily basis by JP Morgan
Indices.
|
20.
|
DBLCI-TR is the Deutsche Bank Liquid Commodity Index
TM
Total Return. This Index is intended to reflect the changes in notional value in the following commodities: Light, Sweet Crude Oil, Heating Oil, Aluminum, Gold, Corn and
Wheat. The notional amounts of each index commodity included in this index are broadly in proportion to historical levels of the worlds production and stocks of the index commodities. The sponsor of the Index, or the Index Sponsor, is Deutsche
Bank AG London. Deutsche Bank Liquid Commodity Index
TM
Total Return is a trade mark of Deutsche Bank AG and is the subject of Community Trade Mark
Number 3054996. Trade Mark applications in the United States are pending.
|
21.
|
NAR Existing One Family Home Sales Median Price Index is one component of The National Association Of
Realtors
®
Existing-Home Sales Series, which is the premier measurement of national and regional residential real estate market. On or about the 25
th
of each month, NAR releases statistics on sales and prices of existing single-family homes for the nation and the four regions. These figures include condos and co-ops, in addition
to single-family homes. NAR Existing One Family Home Sales Median Price Index reflects current sales rates, actual totals and median prices by month going back 12 months. Annual totals cover a period of three years, which includes all existing-home
sales single-family, condos and co-ops rolled into monthly and annual totals.
|
-55-
22.
|
Correlation of Monthly Returns. Every investment asset, by definition, has a correlation coefficient of 1.0 with itself; 1.0 indicates 100% positive correlation. Two
investments that always move in the opposite direction from each other have a correlation coefficient of -1.0; -1.0 indicates 100% negative correlation. Two investments that perform entirely independently of each other have a correlation coefficient
of 0; 0 indicates 100% non-correlation. December 31, 1988 was used as the start date with respect to the underlying data because closing levels with respect to DBLCI-TR was not available prior to December 31, 1988.
|
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.
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, WHEN AVAILABLE, 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.
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.
NO HYPOTHETICAL RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THERE ARE NUMEROUS FACTORS, INCLUDING THOSE
DESCRIBED UNDER THE RISKS YOU FACE HEREIN, RELATED TO THE CURRENCIES MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF THE FUNDS EFFORTS TO TRACK ITS INDEX OVER TIME WHICH CANNOT BE, AND HAVE NOT BEEN, ACCOUNTED FOR IN THE PREPARATION
OF SUCH 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 NO 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.
-56-
ALTHOUGH THE INDEX SPONSOR WILL OBTAIN INFORMATION FOR INCLUSION IN OR FOR USE IN THE CALCULATION OF THE
INDEX FROM SOURCE(S) WHICH THE INDEX SPONSOR CONSIDERS RELIABLE, THE INDEX SPONSOR WILL NOT INDEPENDENTLY VERIFY SUCH INFORMATION AND DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE INDEX OR ANY DATA INCLUDED THEREIN. THE INDEX
SPONSOR SHALL NOT BE LIABLE (WHETHER IN NEGLIGENCE OR OTHERWISE) TO ANY PERSON FOR ANY ERROR IN THE INDEX AND THE INDEX SPONSOR IS UNDER NO OBLIGATION TO ADVISE ANY PERSON OF ANY ERROR THEREIN.
UNLESS OTHERWISE SPECIFIED, NO TRANSACTION RELATING TO THE INDEX IS SPONSORED, ENDORSED, SOLD OR PROMOTED BY THE INDEX SPONSOR AND THE INDEX SPONSOR MAKES
NO EXPRESS OR IMPLIED REPRESENTATIONS OR WARRANTIES AS TO (A) THE ADVISABILITY OF PURCHASING OR ASSUMING ANY RISK IN CONNECTION WITH ANY SUCH TRANSACTION (B) THE LEVELS AT WHICH THE INDEX STANDS AT ANY PARTICULAR TIME ON ANY PARTICULAR
DATE (C) THE RESULTS TO BE OBTAINED BY THE ISSUER OF ANY SECURITY OR ANY COUNTERPARTY OR ANY SUCH ISSUERS SECURITY HOLDERS OR CUSTOMERS OR ANY SUCH COUNTERPARTYS CUSTOMERS OR COUNTERPARTIES OR ANY OTHER PERSON OR ENTITY FROM THE USE
OF THE INDEX OR ANY DATA INCLUDED THEREIN IN CONNECTION WITH ANY LICENSED RIGHTS OR FOR ANY OTHER USE OR (D) ANY OTHER MATTER. THE INDEX SPONSOR MAKES NO EXPRESS OR IMPLIED REPRESENTATIONS OR WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE WITH RESPECT TO THE INDEX OR ANY DATA INCLUDED THEREIN.
WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL THE
INDEX SPONSOR HAVE ANY LIABILITY (WHETHER IN NEGLIGENCE OR OTHERWISE) TO ANY PERSON FOR ANY DIRECT, INDIRECT, SPECIAL, PUNITIVE, CONSEQUENTIAL OR ANY OTHER DAMAGES (INCLUDING LOST PROFITS) EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
-57-
PERFORMANCE OF COMMODITY POOLS OPERATED BY
THE MANAGING OWNER AND ITS AFFILIATES
General
The performance
information included herein is presented in accordance with CFTC regulations. Both the Bullish Fund and the Bearish Fund differ materially in certain respects from the following pools performance which are included herein. The following sets
forth summary performance information for all pools operated by the Managing Owner (other than the Bullish Fund and the Bearish Fund).
The below pools, the performance of which are summarized herein, are materially different in certain respects from both the Bullish Fund and the Bearish Fund and the past performance summary of such pools are generally not representative of
how the Bullish Fund and the Bearish Fund might perform in the future. These pools also have material differences from the Bullish Fund and the Bearish Fund, such as different investment objectives and strategies, leverage, employment of short in
addition to long positions and fee structures, among other variations. The performance record of these pools may give some general indication of the Managing Owners capabilities by indicating the past performance of other pools sponsored by
the Managing Owner.
All summary performance information is current as of August 31, 2007. Performance information is set forth, in
accordance with CFTC Regulations, since (i) January 31, 2006 (inception with respect to PowerShares DB Commodity Index Tracking Fund (DBC)), (ii) September 18, 2006 (inception with respect to PowerShares DB G10 Currency Harvest
Fund (DBV)), and (iii) January 5, 2007 (inception with respect to each of PowerShares DB Energy Fund (DBE), PowerShares DB Oil Fund (DBO), PowerShares DB Precious Metals Fund (DBP), PowerShares DB Gold Fund (DGL), PowerShares DB Silver
Fund (DBS), PowerShares DB Base Metals Fund (DBB) and PowerShares DB Agriculture Fund (DBA)). CFTC Regulations require inclusion of only performance information within the five most recent calendar years and year-to-date, or, if inception of the
pool has been less than five years and year-to-date, then since inception.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE
RESULTS, AND MATERIAL DIFFERENCES EXIST AMONG THE BULLISH FUND, THE BEARISH FUND AND THE POOLS WHOSE PERFORMANCE ARE SUMMARIZED HEREIN.
INVESTORS SHOULD NOTE THAT INTEREST INCOME MAY CONSTITUTE A SIGNIFICANT PORTION OF A COMMODITY POOLS INCOME AND, IN CERTAIN INSTANCES, MAY GENERATE PROFITS WHERE THERE HAVE BEEN REALIZED AND UNREALIZED LOSSES FROM COMMODITY TRADING.
PERFORMANCE OF POWERSHARES DB COMMODITY INDEX TRACKING FUND
(TICKER: DBC)
Name of
Pool:
PowerShares DB Commodity Index Tracking Fund
Type of Pool:
Public, Exchange-Listed Commodity Pool
Inception of Trading:
February 2006
Aggregate Gross Capital Subscriptions as of August 31, 2007:
$1,071,796,020
Net Asset Value as of August 31,
2007:
$1,061,819,476
Net Asset Value per Share as of August 31, 2007:
$25.65
Worst Monthly Drawdown
(4.70)% December 2006
Worst Peak-to-Valley Drawdown:
(7.14)% July September 2006
|
|
|
|
|
Monthly Rate of Return
|
|
2007(%)
|
|
2006(%)
|
January
|
|
(2.36)
|
|
|
February
|
|
5.30
|
|
(4.66)
|
March
|
|
0.67
|
|
3.63
|
April
|
|
0.55
|
|
6.51
|
May
|
|
(0.51)
|
|
(0.42)
|
June
|
|
1.22
|
|
(0.29)
|
July
|
|
1.94
|
|
1.65
|
August
|
|
(2.21)
|
|
(2.71)
|
September
|
|
|
|
(4.54)
|
October
|
|
|
|
1.21
|
November
|
|
|
|
6.40
|
December
|
|
|
|
(4.70)
|
Compound Rate of Return
|
|
4.48%
(8 months)
|
|
1.24%
(11 months)
|
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
See accompanying Footnotes to Performance Information on page 63.
-58-
PERFORMANCE OF POWERSHARES DB G10 CURRENCY HARVEST FUND
(TICKER: DBV)
Name of Pool:
PowerShares DB G10 Currency Harvest Fund
Type of Pool:
Public, Exchange-Listed Commodity Pool
Inception of Trading:
September 2006
Aggregate Gross Capital Subscriptions as of August 31, 2007:
$564,803,652
Net Asset Value as
of August 31, 2007:
$502,017,326
Net Asset Value per Share as of August 31, 2007:
$27.58
Worst Monthly Drawdown:
(3.94)% August 2007
Worst Peak-to-Valley Drawdown:
(4.86)% June August 2007
|
|
|
|
|
Monthly Rate of Return
|
|
2007(%)
|
|
2006(%)
|
January
|
|
1.01
|
|
|
February
|
|
0.65
|
|
|
March
|
|
2.47
|
|
|
April
|
|
2.27
|
|
|
May
|
|
2.14
|
|
|
June
|
|
3.09
|
|
|
July
|
|
(0.97)
|
|
|
August
|
|
(3.94)
|
|
|
September
|
|
|
|
(0.24)
|
October
|
|
|
|
1.92
|
November
|
|
|
|
(1.30)
|
December
|
|
|
|
2.99
|
Compound Rate of Return
|
|
6.73%
(8 months)
|
|
3.36%
(3 1/2 months)
|
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
PERFORMANCE OF POWERSHARES DB ENERGY FUND
(
TICKER: DBE
)
, A SERIES OF POWERSHARES DB MULTI-SECTOR COMMODITY TRUST
Name of Pool
: PowerShares DB Energy Fund
Type of Pool
: Public, Exchange-Listed Commodity Pool
Inception of Trading
: January 2007
Aggregate Gross Capital Subscriptions as of August 31, 2007
: $64,105,162
Net Asset Value as of August 31, 2007
: $45,223,126
Net Asset Value per
Share as of August 31, 2007
: $28.26
Worst Monthly Drawdown
: (4.07)% August 2007
Worst Peak-to-Valley Drawdown
: (4.07)% July August 2007
|
|
|
Monthly Rate of Return
|
|
2007(%)
|
January
|
|
0.08
|
February
|
|
5.80
|
March
|
|
5.33
|
April
|
|
0.86
|
May
|
|
(0.92)
|
June
|
|
3.41
|
July
|
|
2.26
|
August
|
|
(4.07)
|
September
|
|
|
October
|
|
|
November
|
|
|
December
|
|
|
Compound Rate of
Return
|
|
13.04%
(8 months)
|
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
See accompanying Footnotes to Performance Information on page 63.
-59-
PERFORMANCE OF POWERSHARES DB OIL FUND
(
TICKER: DBO
)
, A SERIES OF POWERSHARES DB MULTI-SECTOR COMMODITY TRUST
Name of Pool:
PowerShares DB Oil Fund
Type of Pool:
Public, Exchange-Listed Commodity Pool
Inception of Trading:
January 2007
Aggregate Gross Capital Subscriptions as of August 31, 2007:
$61,418,404
Net Asset Value as of August 31, 2007:
$16,020,822
Net Asset Value per
Share as of August 31, 2007:
$26.70
Worst Monthly Drawdown:
(4.20)% August 2007
Worst Peak-to-Valley Drawdown:
(4.63)% March May 2007
|
|
|
Monthly Rate of Return
|
|
2007(%)
|
January
|
|
(2.08)
|
February
|
|
6.13
|
March
|
|
4.77
|
April
|
|
(2.20)
|
May
|
|
(2.48)
|
June
|
|
4.58
|
July
|
|
2.65
|
August
|
|
(4.20)
|
September
|
|
|
October
|
|
|
November
|
|
|
December
|
|
|
Compound Rate of Return
|
|
6.80%
(8 months)
|
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
PERFORMANCE OF POWERSHARES DB PRECIOUS METALS FUND (
TICKER: DBP
), A SERIES OF POWERSHARES DB MULTI-SECTOR COMMODITY TRUST
Name of Pool:
PowerShares DB Precious Metals Fund
Type of Pool:
Public,
Exchange-Listed Commodity Pool
Inception of Trading:
January 2007
Aggregate Gross Capital Subscriptions as of August 31, 2007:
$30,241,042
Net Asset Value as of August 31, 2007:
$20,688,804
Net Asset Value per Share as of August 31, 2007:
$25.86
Worst Monthly Drawdown:
(3.14)% June 2007
Worst Peak-to-Valley Drawdown:
(5.49)% April June 2007
|
|
|
Monthly Rate of Return
|
|
2007(%)
|
January
|
|
4.04
|
February
|
|
2.77
|
March
|
|
(1.87)
|
April
|
|
2.10
|
May
|
|
(2.43)
|
June
|
|
(3.14)
|
July
|
|
2.96
|
August
|
|
(0.77)
|
September
|
|
|
October
|
|
|
November
|
|
|
December
|
|
|
Compound Rate of Return
|
|
3.44%
(8 months)
|
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
See accompanying Footnotes to Performance Information on page 63.
-60-
PERFORMANCE OF POWERSHARES DB GOLD FUND
(TICKER: DGL)
, A SERIES OF POWERSHARES DB MULTI-SECTOR COMMODITY TRUST
Name of Pool:
PowerShares DB Gold Fund
Type of Pool:
Public, Exchange-Listed Commodity Pool
Inception of Trading:
January 2007
Aggregate Gross Capital Subscriptions as of August 31, 2007:
$35,781,754
Net Asset Value as
of August 31, 2007:
$21,206,825
Net Asset Value per Share as of August 31, 2007:
$26.51
Worst Monthly Drawdown:
(2.93)% May 2007
Worst Peak-to-Valley Drawdown:
(4.86)% April June 2007
|
|
|
Monthly Rate of Return
|
|
2007(%)
|
January
|
|
3.44
|
February
|
|
2.44
|
March
|
|
(1.02)
|
April
|
|
2.86
|
May
|
|
(2.93)
|
June
|
|
(1.99)
|
July
|
|
2.61
|
August
|
|
0.68
|
September
|
|
|
October
|
|
|
November
|
|
|
December
|
|
|
Compound Rate of
Return
|
|
6.04%
(8 months)
|
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
PERFORMANCE OF POWERSHARES DB SILVER FUND
(TICKER: DBS)
, A SERIES OF POWERSHARES DB MULTI-SECTOR COMMODITY TRUST
Name of Pool:
PowerShares DB Silver Fund
Type of Pool:
Public, Exchange-Listed Commodity Pool
Inception of Trading:
January 2007
Aggregate Gross Capital Subscriptions as of August 31, 2007:
$30,319,126
Net Asset Value as
of August 31, 2007:
$19,012,926
Net Asset Value per Share as of August 31, 2007:
$23.77
Worst Monthly Drawdown:
(7.80)% June 2007
Worst Peak-to-Valley Drawdown:
(8.04)% April June 2007
|
|
|
Monthly Rate of Return
|
|
2007(%)
|
January
|
|
6.48
|
February
|
|
4.13
|
March
|
|
(4.91)
|
April
|
|
0.49
|
May
|
|
(0.26)
|
June
|
|
(7.80)
|
July
|
|
4.60
|
August
|
|
(6.71)
|
September
|
|
|
October
|
|
|
November
|
|
|
December
|
|
|
Compound Rate of Return
|
|
(4.92)%
(8 months)
|
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
See accompanying Footnotes to Performance Information on page 63.
-61-
PERFORMANCE OF POWERSHARES DB BASE METALS FUND (
TICKER: DBB
), A SERIES OF POWERSHARES DB MULTI-SECTOR COMMODITY TRUST
Name of Pool:
PowerShares DB Base Metals Fund
Type of Pool:
Public,
Exchange-Listed Commodity Pool
Inception of Trading:
January 2007
Aggregate Gross Capital Subscriptions as of August 31, 2007:
$104,558,466
Net Asset Value as of August 31, 2007:
$87,485,567
Net Asset Value per Share as of August 31, 2007:
$25.73
Worst Monthly Drawdown:
(7.61)% August 2007
Worst Peak-to-Valley Drawdown:
(7.61)% July August 2007
|
|
|
Monthly Rate of Return
|
|
2007(%)
|
January
|
|
(5.84)
|
February
|
|
3.70
|
March
|
|
1.88
|
April
|
|
10.74
|
May
|
|
(2.40)
|
June
|
|
(1.19)
|
July
|
|
4.86
|
August
|
|
(7.61)
|
September
|
|
|
October
|
|
|
November
|
|
|
December
|
|
|
Compound Rate of Return
|
|
2.92%
(8 months)
|
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
PERFORMANCE OF POWERSHARES DB AGRICULTURE FUND
(TICKER: DBA)
, A SERIES OF POWERSHARES DB MULTI-SECTOR COMMODITY TRUST
Name of Pool:
PowerShares DB Agriculture Fund
Type of Pool:
Public, Exchange-Listed Commodity
Pool
Inception of Trading:
January 2007
Aggregate Gross Capital Subscriptions as of August 31, 2007:
$489,405,683
Net Asset Value as
of August 31, 2007:
$474,747,962
Net Asset Value per Share as of August 31, 2007:
$26.67
Worst Monthly Drawdown:
(5.81)% March 2007
Worst Peak-to-Valley Drawdown:
(7.63)% February April 2007
|
|
|
Monthly Rate of Return
|
|
2007(%)
|
January
|
|
3.44
|
February
|
|
3.91
|
March
|
|
(5.81)
|
April
|
|
(1.94)
|
May
|
|
5.84
|
June
|
|
(0.04)
|
July
|
|
(0.50)
|
August
|
|
2.07
|
September
|
|
|
October
|
|
|
November
|
|
|
December
|
|
|
Compound Rate of Return
|
|
6.68%
(8 months)
|
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
See accompanying Footnotes to Performance Information on page 63.
-62-
Footnotes to Performance Information
1.
|
Aggregate Gross Capital Subscriptions is the aggregate of all amounts ever contributed to the relevant pool, including investors who subsequently redeemed their
investments.
|
2.
|
Net Asset Value is the net asset value of each pool as of August 31, 2007.
|
3.
|
Net Asset Value per Share is the Net Asset Value of the relevant pool divided by the total number of Shares outstanding with respect to such pool as of August 31,
2007.
|
4.
|
Worst Monthly Drawdown is the largest single month loss sustained since inception of trading. Drawdown as used in this section of the Prospectus means losses
experienced by the relevant pool over the specified period and is calculated on a rate of return basis, i.e., dividing net performance by beginning equity. Drawdown is measured on the basis of monthly returns only, and does not reflect
intra-month figures. Month is the month of the Worst Monthly Drawdown.
|
5.
|
Worst Peak-to-Valley Drawdown is the largest percentage decline in the Net Asset Value per Share over the history of the relevant pool. This need not be a continuous
decline, but can be a series of positive and negative returns where the negative returns are larger than the positive returns. Worst Peak-to-Valley Drawdown represents the greatest percentage decline from any month-end Net Asset Value
per Share that occurs without such month-end Net Asset Value per Share being equaled or exceeded as of a subsequent month-end. For example, if the Net Asset Value per Share of a particular pool declined by $1 in each of January and February,
increased by $1 in March and declined again by $2 in April, a peak-to-valley drawdown analysis conducted as of the end of April would consider that drawdown to be still continuing and to be $3 in amount, whereas if the Net
Asset Value per Share had increased by $2 in March, the January-February drawdown would have ended as of the end of February at the $2 level.
|
6.
|
Special Footnote Only With Respect to PowerShares DB Commodity Index Tracking Fund (DBC): December 2006 return includes the $0.61 per Share distribution made to Shareholders of
record as of December 20, 2006.
|
7.
|
Special Footnote Only With Respect to PowerShares DB Commodity Index Tracking Fund (DBC): Compound Rate of Return is based on a price of $24.25 per Share on
January 31, 2006, which does not include the 3% selling commission charged to investors in the initial offering period. Adjusting for this selling commission, the total compound rate of return based on an initial offering price of $25 per Share
is 0.64%.
|
8.
|
Special Footnote Only With Respect to PowerShares DB G10 Currency Harvest Fund (DBV): December 2006 return includes the $0.06 per Share distribution made to Shareholders of record
as of December 20, 2006.
|
-63-
DESCRIPTION OF
DX CONTRACTS
Trading DX Contracts
Since its inception in 1985,
ICE Futures U.S. (formerly known as the New York Board of Trade) has featured futures and options based on USDX
®
. Each Fund, through its corresponding Master Fund, invests in DX Contracts,
which are futures contracts on the USDX
®
. USDX
®
provides a comprehensive and continuous statistical indication of the
international value of the U.S. dollar. Because the U.S. dollar is the principal international medium of exchange (settling over one-half of total world trade), movements in the value of the dollar may dramatically affect international trade. For
example, major global commodities such as cotton are priced in U.S. dollars. Changes in the relative strength of the dollar also represent potential investment opportunities. ICE Futures U.S. provides USDX
®
futures for the foreign exchange risk management needs of currency overlay managers, institutional investors and corporations, and as an investment vehicle for traders seeking to trade the direction of the dollar.
Each Fund, through its corresponding Master Fund, invests in DX Contracts. The minimum price movement of a DX Contract is .01 of an Index
point, or $10.00 per DX Contract. The DX Contract is traded for 22 consecutive hours exclusively on ICE Futures U.S. from 8:00 p. m. Eastern Standard Time to 6:00 p.m. Eastern Standard Time on the next business day. Liquidity for the Index is
derived from the underlying DX Contracts. In turn, the liquidity of DX Contracts is derived from the underlying foreign exchange market with respect to each Index Currency.
For risk management strategies involving diversified international businesses or investment
portfolios, investing in DX Contracts through a Fund may have important cost advantages over alternative methods of investing in foreign currency futures. International investment and pension fund managers whose performance is benchmarked against
Morgan Stanley Capital Internationals Europe, Australia and Far East Index (EAFE) or Salomon Brothers Non-U.S. dollar World Government Bond Index (WGBI) can find that the USDX
®
may be an effective tool for managing foreign currency exposure of these international indices.
Avoids Single Currency Risk
Prior to the
introduction of USDX
®
futures contracts, there were no efficient methods for market participants to trade the general direction of the U.S. dollar. Rather, positions involving the dollar
had to be taken against a particular currency, such as the Japanese yen. Because these bilateral exchange rates adjust to pressures affecting both the U.S. dollar and the counter currency, some exchange rates move more adversely even when the
general direction of the dollar is correctly anticipated. Because the Index captures the general movement of the dollar, DX Contracts avoid this single currency risk. In effect, the Index benefits from the risk-reduction of diversification. The
futures contracts on the USDX
®
were developed in order to enable the financial community to trade the worldwide value of the dollar through an exchange regulated marketplace. DX Contracts
may provide portfolio investors and multinational corporations with multiple currency exposure in cost-effective ways to manage foreign exchange rate risk, while offering position traders investment vehicles that may be used to take advantage of
international movements in the value of the dollar.
Pricing of DX Contracts
DX Contracts price in a
manner that is similar to the cash market forward price on the USDX
®
, which responds directly to short-term interest rate differentials. Economic theory predicts, and markets demonstrate,
that DX Contracts price in accordance with the
Interest Rate Parity Formula
(also known as the
Covered Interest Arbitrage Formula
), which describes an equilibrium relationship among the short-term interest rates associated with
deposits in the relevant currencies and prices in the spot and futures markets for the relevant currencies. According to the
Interest Rate Parity Formula
, if actual exchange rates and short-term interest rates do not correspond to the
equilibrium conditions described by the
Interest Rate Parity Formula
at any point in time, currency arbitrage opportunities arise and spot and futures prices of the relevant currencies will diverge or converge (as a result of arbitrage
trading) to reflect such interest rate differentials (as they may shift from time-to-time) until the equilibrium relationship is restored. For example, if interest rates in the U.S. are broadly higher than international interest rates, then DX
Contracts will
-64-
trade at a discount to the spot USDX
®
. If U.S. rates are lower, DX Contracts will trade at a
premium to the spot USDX
®
. This relationship also holds for long-dated futures versus nearby futures. (Long-dated futures contracts expire after nearby futures contracts. Nearby futures
contracts are the futures contracts that are next to expire.) Because interest rates move up and down, DX Contracts may trade at a premium some of the time and at a discount at other times. The price of DX Contracts, however, while very close to the
USDX
®
cash market forward price, generally trades at a premium to the forward price. (The USDX
®
forward price consists of the
USDX
®
spot price plus the cost of carry reflecting interest rate differentials).
Advantages of DX Contracts
Ease and Efficiency
Investing in the DX Contracts through either Fund provides an investor with an
easier and less expensive product than constructing and trading a similar foreign exchange basket composed of the six component Index Currencies. Additionally, active markets in all six component Index Currencies may not exist all of the time.
Superior Technical Applications
As an index, the
USDX
®
, and in turn, the Indexes, may reflect broad-based trends more efficiently than foreign exchange rate products that are linked to the relationship between the dollar and other
currencies individually. Country specific developments that may have a dramatic impact on one currency may have a much lesser impact on the USDX
®
, and in turn, the Indexes. The averaging
process used in the calculation of the USDX
®
strives to ensure that only broad-based price changes are reflected in the USDX
®
.
This characteristic may be particularly important to technical traders who require clear signals of when a trend is beginning or ending. Because it is an index, the USDX
®
, and in turn, the
Indexes, may trend better than most individual currencies, which may be another important benefit to technical traders.
INFORMATION BARRIERS BETWEEN THE INDEX SPONSOR AND THE MANAGING OWNER
It is Deutsche Banks policy
that procedures are implemented to prevent the improper sharing of information between different departments of the bank. Specifically, the procedures discussed below create an information barrier between the personnel within Deutsche Bank AG London
that calculate and reconstitute each Index, or the Calculation Group, and other Deutsche Bank personnel, including but not limited to the Managing Owner, those in sales and trading, external or internal fund managers and bank personnel who are
involved in hedging the banks exposure to instruments linked to each Index, or Public Personnel, in order to prevent the improper sharing of information relating to the recomposition of each Index. Effective information barriers between the
Calculation Group and Public Personnel will help ensure that Public Personnel may continue to trade in the futures contracts underlying each Index and securities linked to each Index (otherwise, restrictions might apply regarding trading on
nonpublic information under the securities laws of the United States).
As such, the information barriers erected under these procedures
require the Calculation Group to adhere to the following procedures:
|
|
|
The Calculation Group may not share any non-public, proprietary or confidential information concerning each Index. In particular, the Calculation Group may not
release any information concerning a change in the methodology of calculating each Index or a new composition of the Index to Public Personnel or others unless and until such information has been previously published by Amex, on Reuters, or
Bloomberg under the symbols UUP, UUP.IV, UUP.NV, USDUPX, UUP.SO, UUP.EU, UUP.TC, UDN, UDN.IV, UDN.NV, USDDNX, UDN.SO, UDN.EU and UDN.TC and on the websites
http://www.dbfunds.db.com
and
https://index.db.com
, or any successor thereto.
|
-65-
|
|
|
The Calculation Group and Public Personnel may not coordinate or seek to coordinate decision-making on the selection of each Indexs constituent instruments.
|
|
|
|
The Calculation Group also may not enter into any trades based on any non-public, proprietary or confidential information with respect to each Index.
|
These procedures supplement and do not override policies and procedures concerning information barriers otherwise
adopted by Deutsche Bank AG or any of Deutsche Banks affiliates.
-66-
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Critical
Accounting Policies
Preparation of the financial statements and related disclosures in compliance with U.S. generally accepted
accounting principles requires the application of appropriate accounting rules and guidance, as well as the use of estimates. Both the Funds and the Master Funds application of these policies involves judgments and actual results may
differ from the estimates used. Each Master Fund holds a significant portion of its assets in futures contracts and treasury securities, both of which are held at fair value.
Liquidity and Capital Resources
The Master Funds allocate their net assets to foreign exchange futures contracts trading. A significant portion of the net asset value of each Master Fund is held in U.S. Treasury bills and cash, which is used as margin for each Master
Funds trading in foreign exchange futures contracts. The percentage that U.S. Treasury bills bears to the total net assets of each Master Fund varies from period to period as the market values of the foreign exchange futures contracts change.
The balance of the net assets of each Master Fund is held in its commodity trading account. Interest earned on each Master Funds interest-bearing funds is paid to such Master Fund.
Each Master Funds foreign exchange futures contracts will be subject to periods of illiquidity because of market conditions, regulatory
considerations and other reasons. For example, commodity exchanges may limit fluctuations in certain 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 futures contract has increased or decreased by an amount equal to the daily limit, such positions can neither be taken nor liquidated unless the traders are willing to effect trades at or within
the limit. Futures contract prices have occasionally moved the daily limit for several consecutive days with little or no trading. Such market conditions could prevent a Master Fund from promptly liquidating its futures positions. Although the DX
Contracts that the Master Funds
invest in are not currently subject to daily limits, the terms and conditions of these contracts may change in the future.
Because each Master Fund trades futures contracts, its capital is at risk due to changes in the value of these contracts (market risk) or the inability
of counterparties to perform under the terms of the contracts (credit risk).
Market Risk
Trading in futures contracts involves each Master Fund entering into contractual commitments to purchase or sell futures contracts on the Index Currencies
at a specified date and price. The market risk to be associated with each Master Funds commitments to purchase Index Currencies is limited to the gross or face amount of the contracts held. However, should a Master Fund enter into a
contractual commitment to sell the Index Currencies, it would be required to make delivery of the underlying Index Currencies at the contract price and then repurchase the contract at prevailing market prices or settle in cash. Since the repurchase
price to which the Index Currencies can rise is unlimited, entering into commitments to sell Index Currencies exposes a Master Fund to theoretically unlimited risk.
Each Master Funds exposure to market risk is 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 each Master Funds trading as well as the development of drastic market occurrences could ultimately lead to a loss of all or substantially all of
investors capital.
Credit Risk
When a 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 foreign futures 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
-67-
risk. In cases where the clearing house is not backed by the clearing members (
i.e.
, some foreign exchanges, which may become applicable in the
future), it may be backed by a consortium of banks or other financial institutions. There can be no assurance that any counterparty, clearing member or clearing house will meet its obligations to a Master Fund.
The Managing Owner attempts to minimize these market and credit risks by requiring each Master Fund to abide by various trading limitations and policies,
which include limiting margin accounts, trading only in liquid markets and permitting the use of stop-loss provisions. The Managing Owner has implemented procedures which include, but are not be limited to:
|
|
|
executing and clearing trades with creditworthy counterparties;
|
|
|
|
limiting the amount of margin or premium required for any one currency or all currencies combined; and
|
|
|
|
generally limiting transactions to contracts which are traded in sufficient volume to permit the taking and liquidating of positions.
|
The Commodity Broker, when acting as a 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 each Master Fund related to foreign futures trading.
OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS
As of the date of this Prospectus, the Funds and
the Master Funds 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, which may include indemnification provisions related to certain risks service providers
undertake in performing services which are in the best interests of the Funds and the Master Funds. While each Funds and each Master Funds exposure under such indemnification provisions cannot be estimated, these general business
indemnifications are not expected to have a material impact on either a Funds or a Master Funds financial position.
Each
Master Funds contractual obligations are with the Managing Owner and the commodity brokers. Management Fee payments made to the Managing Owner are calculated as a fixed percentage of each 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.
USE OF PROCEEDS
A substantial amount of proceeds of the offering of the Shares of each Fund is used by
each Fund, through its corresponding Master Fund, to engage in the trading of exchange-traded futures on its corresponding Index with a view to tracking the changes, whether positive or negative, in the level of the corresponding Index over time,
less the expenses of the operations of the Fund and its corresponding Master Fund. Each Master Funds portfolio also holds United States Treasury securities and other high credit quality short-term fixed income securities for deposit with such
Master Funds Commodity Broker as margin.
To the extent, if any, that a Master Fund trades in futures contracts on United States
exchanges, the assets deposited by such Master Fund with its Commodity Broker as margin must be segregated pursuant to the regulations of the CFTC. Such segregated funds may be invested only in a limited range of instruments principally U.S.
government obligations.
-68-
To the extent, if any, that a Master Fund trades in futures on markets other than regulated United States futures exchanges, funds deposited to margin positions held on such exchanges are invested in bank deposits or
in instruments of a credit standing generally comparable to those authorized by the CFTC for investment of customer segregated funds, although applicable CFTC rules prohibit funds employed in trading on foreign exchanges from being
deposited in customer segregated fund accounts.
Although the percentages set forth below may vary substantially over time, as
of the date of this Prospectus, each Master Fund estimates:
(i) up to approximately 10% of the net asset value of the Master Fund is
placed in segregated accounts in the name of such Master Fund with the Commodity Broker (or another eligible financial institution, as applicable) in the form of cash or United States Treasury bills to margin positions in the DX Contracts. Such
funds are segregated pursuant to CFTC rules;
(ii) approximately 90% of the net asset value of the Master Fund is maintained in segregated
accounts in the name of such Master Fund in bank deposits or United States Treasury and United States Government Agencies issues.
The
Managing Owner, a registered commodity pool operator and commodity trading advisor, is responsible for the cash management activities of each Master Fund, including investing in United States Treasury and United States Government Agencies issues.
In addition, assets of each Master Fund not required to margin positions may be maintained in United States bank accounts opened in
the name of such Master Fund and may be held in United States Treasury bills (or other securities approved by the CFTC for investment of customer funds).
Each Master Fund receives 100% of the interest income earned on its fixed income assets.
[Remainder of
page left blank intentionally.]
-69-
CHARGES
See Summary Breakeven Amounts and Summary Breakeven
Table for additional breakeven related information.
Management Fee
Each Master Fund pays the Managing Owner a Management Fee, monthly in arrears, in an
amount equal to 0.50% per annum of the daily net asset value of such Master Fund. No separate management fee is paid by its corresponding Fund. The Management Fee is paid in consideration of the Managing Owners futures trading advisory
services.
Organization and Offering Expenses
Expenses incurred in connection with organizing each Fund and its
corresponding Master Fund and the initial offering of its Shares were paid by the Managing Owner. Expenses incurred in connection with the continuous offering of Shares of each Fund after the commencement of its corresponding Master Funds
trading operations are also paid by the Managing Owner.
Organization and offering expenses relating to both a Master Fund and its
corresponding Fund, as applicable, means those expenses incurred in connection with their formation, the qualification and registration of the Shares of such Fund and in offering, distributing and processing the Shares of such Fund under applicable
federal law, and any other expenses actually incurred and, directly or indirectly, related to the organization of such Fund and its corresponding Master Fund or the offering of the Shares of such Fund, including, but not limited to, expenses such
as:
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initial and ongoing registration fees, filing fees and taxes;
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costs of preparing, printing (including typesetting), amending, supplementing, mailing and distributing the Registration Statement, the exhibits thereto and the
Prospectus;
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the costs of qualifying, printing, (including typesetting), amending, supplementing, mailing and distributing sales materials
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used in connection with the offering and issuance of the Shares;
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travel, telegraph, telephone and other expenses in connection with the offering and issuance of the Shares;
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accounting, auditing and legal fees (including disbursements related thereto) incurred in connection therewith; and
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any extraordinary expenses (including, but not limited to, legal claims and liabilities and litigation costs and any permitted indemnification associated therewith)
related thereto.
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The Managing Owner does not allocate to the Funds or the Master Funds the indirect expenses of the
Managing Owner.
The Managing Owner currently estimates that the aggregate amount of the organization and offering expenses will be
approximately $982,500.
Brokerage Commissions and Fees
Each Master Fund pays to the Commodity Broker 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 its trading activities. On average, total charges paid to the Commodity Broker are expected to
be less than $10.00 per round-turn trade, although the Commodity Brokers brokerage commissions and trading fees are determined on a contract-by-contract, or round-turn basis. A round-turn trade is a completed transaction involving both a
purchase and a liquidating sale, or a sale followed by a covering purchase. The Managing Owner does not expect brokerage commissions and fees to exceed 0.05% of the net asset value of a Master Fund in any year, although the actual amount of
brokerage commissions and fees in any year or any part of any year may be greater.
Routine Operational, Administrative and Other Ordinary Expenses
The Managing Owner pays all of the
routine operational, administrative and other ordinary expenses of each Fund and its corresponding Master
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Fund generally, as determined by the Managing Owner 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. The Managing Owner expects that all of the routine operational, administrative and other ordinary expenses of each Fund and its
corresponding Master Fund will be approximately 0.40% per annum of each Funds net asset value.
Extraordinary Fees and Expenses
Each Master Fund will pay all extraordinary fees and expenses, if any, of
itself and its corresponding Fund, as determined by the Managing Owner. Extraordinary fees and expenses (as defined in the Trust Agreement) are fees and expenses which are non-recurring and unusual in nature, such as legal claims and liabilities and
litigation costs or indemnification or other unanticipated expenses. Extraordinary fees and expenses will also include material expenses which are not currently anticipated obligations of the Funds or Master Funds or of managed futures funds in
general. Routine operational, administrative and other ordinary expenses will not be deemed extraordinary expenses.
Management Fee and Expenses to be Paid First out of Interest Income
The Management Fee and the brokerage
commissions and fees of each Master Fund and its corresponding Fund are paid first out of interest income from each Master Funds holdings of U.S. Treasury bills and other high credit quality short-term fixed income securities on deposit with
the Commodity Broker as margin or otherwise. Such interest income has been sufficient to cover the fees and expenses of each Master Fund and its corresponding Fund and is expected to continue to do so.
To the extent interest income is not sufficient to cover the fees and expenses of a Master Fund and its corresponding Fund during any period, the excess
of such fees and expenses over such interest income will be paid out of income from futures trading, if any, or from sales of the Master Funds fixed income securities.
Selling Commission
Retail investors may purchase and sell Shares through traditional brokerage accounts.
Investors are expected to be charged a customary commission by their brokers in connection with purchases of Shares that will vary from investor to investor. Investors are encouraged to review the terms of their brokerage accounts for applicable
charges. Also, the excess, if any, of the price at which an Authorized Participant sells a Share over the price paid by such Authorized Participant in connection with the creation of such Share in a Basket will be deemed to be underwriting
compensation by the Financial Industry Regulatory Authority, or FINRA, Corporate Financing Department.
WHO MAY SUBSCRIBE
Baskets may be created or redeemed only by Authorized Participants. Each Authorized
Participant must (1) be a registered broker-dealer or other securities market participant such as a bank or other financial institution which is not required to register as a broker-dealer to engage in securities transactions, (2) be a
participant in DTC, and (3) have entered into an agreement with the Funds and the Managing Owner (a Participant Agreement). The Participant Agreement sets forth the procedures for the creation and redemption of Baskets of Shares and for the
delivery of cash required for such creations or redemptions. A list of the current Authorized Participants can be obtained from the Administrator. A similar agreement between each Fund and its corresponding Master Fund sets forth the procedures for
the creation and redemption of Master Unit Baskets by such Fund. See Creation and Redemption of Shares for more details.
CREATION AND REDEMPTION OF SHARES
Each Fund creates and redeems Shares from time-to-time, but only in
one or more Baskets. A Basket is a block of 200,000 Shares. Baskets may be created or redeemed only by Authorized Participants. Except when aggregated in Baskets, the Shares are not redeemable securities. Authorized Participants pay a transaction
fee of $500 in connection with each order to create or redeem a Basket of Shares. Authorized Participants may sell the Shares included in the Baskets they purchase from the Funds to other investors.
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Each Master Fund creates and redeems Master Fund Units from time-to-time, but only in one or more Master Unit Baskets. A Master Unit Basket is a block of 200,000 Master Fund Units. Master Unit Baskets may be created
or redeemed only by the Fund corresponding to such Master Fund. Each Master Fund is wholly owned by its corresponding Fund and the Managing Owner. Each Share issued by a Fund correlates with a Master Fund Unit issued by its corresponding Master Fund
and held by the Fund.
Authorized Participants are the only persons that may place orders to create and redeem Baskets. Authorized
Participants must be (1) registered broker dealers or other securities market participants, such as banks and other financial institutions, which are not required to register as broker dealers to engage in securities transactions, and
(2) participants in DTC. To become an Authorized Participant, a person must enter into a Participant Agreement with the Funds and the Managing Owner. The Participant Agreement sets forth the procedures for the creation and redemption of Baskets
and for the payment of cash required for such creations and redemptions. The Managing Owner may delegate its duties and obligations under the Participant Agreement to ALPS Distributors, AIM Distributors or the Administrator without consent from any
Shareholder or Authorized Participant. The Participant Agreement and the related procedures attached thereto may be amended by the Managing Owner without the consent of any Shareholder or Authorized Participant. To compensate the Administrator for
services in processing the creation and redemption of Baskets, an Authorized Participant is required to pay a transaction fee of $500 per order to create or redeem Baskets. Authorized Participants who purchase Baskets from a Fund receive no fees,
commissions or other form of compensation or inducement of any kind from either the Managing Owner or the Fund, and no such person has any obligation or responsibility to the Managing Owner or the Fund to effect any sale or resale of Shares.
Authorized Participants are cautioned that some of their activities will result in their being deemed participants in a distribution in a
manner which would render them statutory underwriters and subject them to the prospectus delivery and liability provisions of the Securities Act of 1933 (the Securities Act), as described in Plan of Distribution.
Each Authorized Participant must be registered as a broker dealer under the Securities Exchange Act of 1934 (the Exchange Act) and regulated by the FINRA,
or is exempt from being, or otherwise is not required to be, so regulated or registered, and is qualified to act as a broker or dealer in the states or other jurisdictions where the nature of its business so requires. Certain Authorized Participants
may be regulated under federal and state banking laws and regulations. Each Authorized Participant will have its own set of rules and procedures, internal controls and information barriers as it determines is appropriate in light of its own
regulatory regime.
Authorized Participants may act for their own accounts or as agents for broker dealers, custodians and other
securities market participants that wish to create or redeem Baskets.
Persons interested in purchasing Baskets should contact the Managing
Owner or the Administrator to obtain the contact information for the Authorized Participants. Shareholders who are not Authorized Participants will only be able to redeem their Shares through an Authorized Participant.
Under the Participant Agreements, the Managing Owner has agreed to indemnify the Authorized Participants against certain liabilities, including
liabilities under the Securities Act, and to contribute to the payments the Authorized Participants may be required to make in respect of those liabilities. The Managing Owner has agreed to reimburse the Authorized Participants, solely from and to
the extent of the Master Funds assets, for indemnification and contribution amounts due from the Managing Owner in respect of such liabilities to the extent the Managing Owner has not paid such amounts when due.
The following description of the procedures for the creation and redemption of Baskets is only a summary and an investor should refer to the relevant
provisions of the Trust Declaration and the form of Participant Agreement for more detail. The Trust Declaration and the form of Participant Agreement are filed as exhibits to the registration statement of which this Prospectus is a part.
Creation Procedures
On any business day, an Authorized Participant may place an order with the Managing Owner to
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create one or more Baskets. For purposes of processing both purchase 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. Purchase orders must be placed by 1:00 p.m., New York time. The day on which the Managing Owner receives a valid purchase order is the purchase order date. Purchase orders are
irrevocable. By placing a purchase order, and prior to delivery of such Baskets, an Authorized Participants DTC account will be charged the non refundable transaction fee due for the purchase order.
Determination of required payment
The total payment required to create each Basket is the net asset value of 200,000 Shares of the applicable Fund as of the closing time of the Amex or the last to close of the exchanges on which its corresponding Master Funds futures
contracts are traded, whichever is later, on the purchase order date. Baskets are issued as of noon, New York time, on the Business Day immediately following the purchase order date at the applicable net asset value per Share as of the closing time
of the Amex or the last to close of the exchanges on which the corresponding Master Funds futures contracts are traded, whichever is later, on the purchase order date, but only if the required payment has been timely received.
Because orders to purchase Baskets must be placed by 1:00 p.m., New York time, but the total payment required to create a Basket will not be
determined until 4:00 p.m., New York time, on the date the purchase order is received, Authorized Participants will not know the total amount of the payment required to create a Basket at the time they submit an irrevocable purchase order for the
Basket. The net asset value of a Fund and the total amount of the payment required to create a Basket could rise or fall substantially between the time an irrevocable purchase order is submitted and the time the amount of the purchase price in
respect thereof is determined.
Rejection of purchase orders
The Managing Owner may reject a purchase order if:
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It determines that the purchase order is not in proper form;
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The Managing Owner believes that the purchase order would have adverse tax consequences to either Fund or its Shareholders; or
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Circumstances outside the control of the Managing Owner make it, for all practical purposes, not feasible to process creations of Baskets.
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The Managing Owner will not be liable for the rejection of any purchase order.
Redemption Procedures
The
procedures by which an Authorized Participant can redeem one or more Baskets mirror the procedures for the creation of Baskets. 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 a Fund. Instead, individual Shareholders may only redeem Shares in integral multiples of 200,000 and only through an Authorized Participant.
By placing a redemption order, an Authorized Participant agrees to deliver the Baskets to be redeemed through DTCs book-entry system to the
applicable 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
will be charged the non refundable transaction fee due for the redemption order.
Determination of redemption proceeds
The redemption proceeds from a 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 such Fund requested in the Authorized Participants redemption order as of the closing time of the Amex or the last to close of the exchanges on which such Funds corresponding Master Funds futures contracts are traded,
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whichever is later, on the redemption order date. The Managing Owner 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.
Delivery of redemption proceeds
The redemption proceeds due from a 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 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 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 shall 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 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 determine from time-to-time.
Suspension or rejection of redemption orders
In respect of either Fund, the Managing Owner may, in its discretion, suspend the right of redemption, or postpone the redemption settlement date (1) for any period during which an emergency exists as a result of which the redemption
distribution is not reasonably practicable, or (2) for such other period as the Managing Owner determines to be necessary for the protection of the Shareholders. The Managing Owner will not be liable to any person or
in any way for any loss or damages that may result from any such suspension or postponement.
The Managing Owner will reject a redemption order if the order is not in proper form as described in the Participant Agreement or if the fulfillment of
the order, in the opinion of its counsel, might be unlawful.
Creation and Redemption Transaction Fee
To compensate the Administrator for services in processing the creation and redemption of Baskets, an Authorized Participant is required to pay a
transaction fee of $500 per order to create or redeem Baskets. An order may include multiple Baskets. The transaction fee may be reduced, increased or otherwise changed by the Managing Owner. The Managing Owner will notify DTC of any agreement to
change the transaction fee and will not implement any increase in the fee for the redemption of Baskets until 30 days after the date of the notice.
Monthly account statements conforming to CFTC and NFA requirements are posted on the Managing Owners
website at
www.dbfunds.db.com
. Additional reports may be posted on the Managing Owners website in the discretion of the Managing Owner or as required by regulatory authorities.
THE COMMODITY BROKER
A variety of executing brokers execute futures transactions on behalf of each
Master Fund. Such executing brokers give-up all such transactions to Deutsche Bank Securities Inc., a Delaware corporation, which serves as the clearing broker, or Commodity Broker, for each Master Fund. The Commodity Broker is an affiliate of
Deutsche Bank AG. In its capacity as clearing broker, the Commodity Broker executes and clears each of the futures transactions of each of the Master Funds and performs certain administrative services for each of the Master Funds. Deutsche Bank
Securities Inc. is also registered with the Commodity Futures Trading Commission as a futures commission merchant and is a member of the National Futures Association in such capacity.
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There is no litigation pending regarding Deutsche Bank Securities Inc. that would materially adversely affect its ability to carry on its commodity futures,
foreign exchange futures and options brokerage business.
Additional or replacement Commodity Brokers may be appointed in respect of a Master Fund in the future.
CONFLICTS OF INTEREST
General
The Managing Owner has not established formal procedures to resolve all potential conflicts of
interest. Consequently, investors may be dependent on the good faith of the respective parties subject to such conflicts to resolve them equitably. Although the Managing Owner attempts to monitor these conflicts, it is extremely difficult, if not
impossible, for the Managing Owner to ensure that these conflicts do not, in fact, result in adverse consequences to the Funds.
Prospective investors should be aware that the Managing Owner presently intends to assert that Shareholders have, by subscribing for Shares of a Fund, consented to the following conflicts of interest in the event of any proceeding alleging
that such conflicts violated any duty owed by the Managing Owner to investors.
The Managing Owner
The Managing Owner has a conflict of interest in allocating its own limited resources
among different clients and potential future business ventures, to each of which it owes fiduciary duties. Additionally, the professional staff of the Managing Owner also service other affiliates of the Managing Owner and their respective clients.
Although the Managing Owner and its professional staff cannot and will not devote all of its or their respective time or resources to the management of the business and affairs of the Funds and the Master Funds, the Managing Owner intends to devote,
and to cause its professional staff to devote, sufficient time and resources to manage properly the business and affairs of the Funds and the Master Funds consistent with its
or their respective fiduciary duties to the Funds and the Master Funds and others.
Relationship of the Managing Owner to the Commodity Broker
The Managing Owner and the Commodity Broker are
indirect wholly owned subsidiaries of Deutsche Bank AG. The Commodity Broker receives a brokerage commission for futures interests transactions effected for each Master Fund. Customers of the Commodity Broker who maintain commodity and foreign
exchange trading accounts may pay commissions at negotiated rates which are greater or less than the rate paid by the Master Funds.
The
Managing Owner has a disincentive to replace the Commodity Broker as the Master Funds broker because it is an affiliate of the Managing Owner. In connection with this conflict of interest, Shareholders should understand that the Commodity
Broker receives a round-turn brokerage fee from each of the Master Funds for serving as such Master Funds commodity broker. A round-turn trade is a completed transaction involving both a purchase and a liquidating sale, or a sale followed by a
covering purchase.
The Managing Owner and the Commodity Broker may, from time-to-time, have conflicting demands in respect of their
obligations to the Master Funds and to the Funds and, in the future, to other commodity pools and accounts. It is possible that future pools that the Managing Owner may become involved with may generate larger brokerage commissions, resulting in
increased payments to employees.
There is an absence of arms length negotiation with respect to some of the terms of this offering,
and there has been no independent due diligence conducted with respect to this offering.
The Commodity Broker
The Commodity Broker may act from time-to-time as a commodity broker for other accounts
with which it is affiliated or in which it or one of its affiliates has a financial interest. The compensation received by the Commodity Broker from such accounts may be more or less than the compensation received for brokerage services
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provided to each Master Fund. In addition, various accounts traded through the Commodity Broker (and over which their personnel may have discretionary
trading authority) may take positions in the futures markets opposite to those of each Master Fund or may compete with each Master Fund for the same positions. The Commodity Broker may have a conflict of interest in its execution of trades for each
Master Fund and for other customers. The Managing Owner will, however, not retain any commodity broker for a Master Fund which the Managing Owner has reason to believe would knowingly or deliberately favor any other customer over a Master Fund with
respect to the execution of commodity trades.
The Commodity Broker will benefit from executing orders for other clients, whereas each
Master Fund may be harmed to the extent that the Commodity Broker has fewer resources to allocate to such Master Funds accounts due to the existence of such other clients.
Certain officers or employees of the Commodity Broker may be members of United States commodities exchanges and/or serve on the governing bodies and
standing committees of such exchanges, their clearing houses and/or various other industry organizations. In such capacities, these officers or employees may have a fiduciary duty to the exchanges, their clearing houses and/or such various other
industry organizations which could compel such employees to act in the best interests of these entities, perhaps to the detriment of a Master Fund.
Proprietary Trading/Other Clients
The Managing Owner, the Commodity Broker and their respective affiliates
may trade in the commodity and foreign exchange markets for their own accounts and for the accounts of their clients, and in doing so may take positions opposite to those held by a Master Fund or may compete with a Master Fund for positions in the
marketplace. Such trading may create conflicts of interest on behalf of one or more such persons in respect of their obligations to each Master Fund. Records of proprietary trading and trading on behalf of other clients will not be available for
inspection by Shareholders.
Because the Managing Owner, the Commodity Broker and their respective principals and affiliates
may trade for their own accounts at the same time that they are managing the account of each Master Fund, prospective investors should be aware that
as a result of a neutral allocation system, testing a new trading system, trading their proprietary accounts more aggressively or other activities not constituting a breach of fiduciary duty such persons may from time-to-time take positions
in their proprietary accounts which are opposite, or ahead of, the positions taken for a Master Fund.
DESCRIPTION OF THE SHARES AND THE MASTER FUND UNITS; THE FUNDS; CERTAIN MATERIAL TERMS OF THE TRUST DECLARATIONS
The following summary describes in brief the Shares and the Master Fund Units and certain aspects of the operation of the Trust, each Fund, the Master Trust and each Master Fund and the respective responsibilities of the Trustee and the
Managing Owner concerning the Trust and Master Trust and the material terms of the Declarations of Trust, each of which are substantially identical except as set forth below. Prospective investors should carefully review the Forms of Declarations of
Trust filed as exhibits to the registration statement of which this Prospectus is a part and consult with their own advisers concerning the implications to such prospective subscribers of investing in a series of a Delaware statutory trust.
Capitalized terms used in this section and not otherwise defined shall have such meanings assigned to them under the applicable Trust Declaration.
Description of the Shares and the Master Fund Units
Each Fund issues common units of beneficial
interest, or Shares, which represent units of fractional undivided beneficial interest in and ownership of such Fund. The Shares of each Fund are listed on the Amex under the following symbols: PowerShares DB US Dollar Index Bullish Fund UUP
and PowerShares DB US Dollar Index Bearish Fund UDN.
The Shares may be purchased from each Fund or redeemed on a continuous
basis, but only by Authorized Participants and only in blocks of 200,000 Shares, or Baskets. Individual Shares may not be purchased from each Fund or redeemed.
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Shareholders that are not Authorized Participants may not purchase from each Fund or redeem Shares or Baskets.
Each Fund invests the proceeds of its offering of Shares in a corresponding Master Fund. Each Master Fund issues common units of beneficial interest, or
Master Fund Units, which represent units of fractional undivided beneficial interest in and ownership of such Master Fund. Master Fund Units may be purchased or redeemed on a continuous basis, but only by the Fund and only in blocks of 200,000
Master Fund Units, or Master Unit Baskets. Each Master Fund is wholly owned by the corresponding Fund and the Managing Owner. Each Share issued by a Fund correlates with a Master Fund Unit issued by such Funds corresponding Master Fund and
held by such Fund.
Principal Office; Location of Records
Each of the Trust and the Master Trust is organized in two separate
series as a statutory trust under the Delaware Statutory Trust Act. The Trust and Master Trust are managed by the Managing Owner, whose office is located at 60 Wall Street, New York, New York 10005, telephone: (212) 250- 5883.
The books and records of each Fund and each Master Fund are maintained as follows: all
marketing materials are maintained at the offices of ALPS Distributors, Inc., 1625 Broadway, Suite 2200, Denver, Colorado 80202; telephone number (303) 623-2577; Basket creation and redemption books and records, certain financial books and
records (including Fund and Master 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 futures
commission merchants are maintained by The Bank of New York, 2 Hanson Place, 12
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Floor, Brooklyn, New York 11217, telephone number (718) 315-4850.
All other books and records of each Fund and each Master Fund (including minute books and other general corporate records, trading records and related reports and other items received from each Master Funds Commodity Brokers) are maintained at
each Funds principal office, c/o DB Commodity Services LLC, 60 Wall Street, New York, New York 10005; telephone number (212) 250-5883.
The books
and records of each Fund, and each Master Fund are located at the foregoing addresses, and available for inspection and copying (upon payment of reasonable reproduction costs) by Shareholders of such Fund or their representatives for any purposes
reasonably related to a Shareholders interest as a beneficial owner of such Fund during regular business hours as provided in the Declarations of Trust. The Managing Owner will maintain and preserve the books and records of each Fund and
Master Fund for a period of not less than six years.
The Funds
The Trust and the Master Trust are formed and are operated in a manner such that each Fund is
liable only for obligations attributable to such Fund and Shareholders of a Fund are not subject to the losses or liabilities of the other Fund. If any creditor or Shareholder in a Fund asserted against a Fund or Master Fund a valid claim with
respect to its indebtedness or Shares, the creditor or Shareholder would only be able to recover money from that particular Fund and its assets and from the Managing Owner and its assets. Accordingly, the debts, liabilities, obligations and
expenses, or collectively, Claims, incurred, contracted for or otherwise existing solely with respect to a particular Fund are enforceable only against the assets of that Fund and against the Managing Owner and its assets, and not against the other
Fund or Master Fund or the Trust or Master Trust generally or any of their respective assets. The assets of each Fund include only those funds and other assets that are paid to, held by or distributed to the Fund or Master Fund on account of and for
the benefit of that Fund, including, without limitation, funds delivered to the Trust or Master Trust for the purchase of Shares or Units in a Fund or Master Fund. This limitation on liability is referred to as the Inter-Series Limitation on
Liability. The Inter-Series Limitation on Liability is expressly provided for under the Delaware Statutory Trust Act, which provides that if certain conditions (as set forth in Section 3804(a)) are met, then the debts of any particular
series are enforceable only against the assets of such series and not against the assets of any other Fund or Master Fund or the Trust or Master Trust generally.
In furtherance of the Inter-Series Limitation on Liability, every party providing services to the Trust
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or Master Trust, either Fund or Master Fund or the Managing Owner on behalf of the Trust or Master Trust or either Fund or Master Fund, has acknowledged and
consented in writing to:
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the Inter-Series Limitation on Liability with respect to such partys Claims;
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voluntarily reduce the priority of its Claims against the Funds or the Master Funds or their respective assets, such that its Claims are junior in right of
repayment to all other parties Claims against the Funds or the Master Funds or their respective assets, except that Claims against the Trust or Master Trust where recourse for the payment of such Claims was, by agreement, limited to the assets
of a particular Fund or Master Fund, will not be junior in right of repayment, but will receive repayment from the assets of such particular Fund or Master Fund (but not from the assets of the other Fund or the Trust or Master Fund or the Master
Trust generally) equal to the treatment received by all other creditors and Shareholders that dealt with such Fund or Master Fund; and
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a waiver of certain rights that such party may have under the United States Bankruptcy Code, if such party held collateral for its Claims, in the event that the
Trust or Master Trust is a debtor in a chapter 11 case under the United States Bankruptcy Code, to have any deficiency Claim (i.e., the difference, if any, between the amount of the Claim and the value of the collateral) treated as an unsecured
Claim against the Trust or Master Trust generally or either Fund or Master Fund.
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No special custody arrangements
are applicable to a Fund, and the existence of a trustee should not be taken as an indication of any additional level of management or supervision over a Fund or Master Fund. To the greatest extent permissible under Delaware law, the Trustee acts in
an entirely passive role, delegating all authority over the operation of each Trust, Master Trust, Fund and Master Fund to the Managing Owner.
Although Shares in a Fund need not carry any voting rights, the Declaration of Trust gives
Shareholders of each Fund voting rights in respect of the business and affairs of such Fund comparable to those typically extended to limited partners in
publicly-offered futures funds.
The Trustee
Wilmington Trust Company, a Delaware banking corporation, is the sole Trustee of the Trust, each
Fund and of the Master Trust and each Master Fund. The Trustees principal offices are located at Rodney Square North, 1100 North Market Street, Wilmington, Delaware 19890-0001. The Trustee is unaffiliated with the Managing Owner. The
Trustees duties and liabilities with respect to the offering of the Shares and the management of the Trust and each Fund and Master Trust and the Master Funds are limited to its express obligations under the Trust Declarations.
The rights and duties of the Trustee, the Managing Owner and the Shareholders are governed by the provisions of the Delaware Statutory Trust Act and by
the applicable Trust Declaration.
The Trustee serves as the sole trustee of the Trust and the Master Trust in the State of Delaware.
The Trustee will accept service of legal process on the Trust, the Funds and the Master Trust and the Master Funds in the State of Delaware and will make certain filings under the Delaware Statutory Trust Act. The Trustee does not owe any other
duties to the Trust or the Master Trust, the Managing Owner or the Shareholders of either Fund. The Trustee is permitted to resign upon at least sixty (60) days notice to the Trust and the Master Trust, provided, that any such resignation
will not be effective until a successor Trustee is appointed by the Managing Owner. Each of the Trust Declarations provides that the Trustee is compensated by each Fund or Master Fund, as appropriate, and is indemnified by each Fund or Master Fund,
as appropriate, against any expenses it incurs relating to or arising out of the formation, operation or termination of such Fund or Master Fund, as appropriate, or the performance of its duties pursuant to the Trust Declarations, except to the
extent that such expenses result from the gross negligence or willful misconduct of the Trustee. The Managing Owner has the discretion to replace the Trustee.
Only the Managing Owner has signed the registration statement of which this Prospectus is a
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part, and only the assets of the Trust, the Master Trust and the Managing Owner are subject to issuer liability under the federal securities laws for the
information contained in this Prospectus and under federal securities laws with respect to the issuance and sale of the Shares. Under such laws, neither the Trustee, either in its capacity as Trustee or in its individual capacity, nor any director,
officer or controlling person of the Trustee is, or has any liability as, the issuer or a director, officer or controlling person of the issuer of the Shares. The Trustees liability in connection with the issuance and sale of the Shares is
limited solely to the express obligations of the Trustee set forth in each Trust Declaration.
Under each Trust Declaration, the
Trustee has delegated to the Managing Owner the exclusive management and control of all aspects of the business of the Funds, the Trust, the Master Trust and the Master Funds. The Trustee has no duty or liability to supervise or monitor the
performance of the Managing Owner, nor does the Trustee have any liability for the acts or omissions of the Managing Owner. The Shareholders have no voice in the day to day management of the business and operations of the Funds, the Trust, the
Master Trust and the Master Funds, other than certain limited voting rights as set forth in each Trust Declaration. In the course of its management of the business and affairs of the Funds, the Trust, the Master Trust and the Master Funds, the
Managing Owner may, in its sole and absolute discretion, appoint an affiliate or affiliates of the Managing Owner as additional managing owners (except where the Managing Owner has been notified by the Shareholders that it is to be replaced as the
managing owner) and retain such persons, including affiliates of the Managing Owner, as it deems necessary for the efficient operation of the Funds, the Trust, the Master Trust or the Master Funds, as appropriate.
Because the Trustee has delegated substantially all of its authority over the operation of the Funds, the Trust, the Master Trust and the Master Funds to
the Managing Owner, the Trustee itself is not registered in any capacity with the CFTC.
Performance information with respect to the
offered pools starts on page 32. The section Performance of Commodity Pools Operated by the Managing Owner and its Affiliates on page 58
includes performance information of other pools managed by the Managing Owner.
The Managing Owner
Background and Principals
DB Commodity Services LLC, a Delaware limited liability company, is the Managing Owner of the Trust and each Fund and the Master Trust and each Master
Fund. The Managing Owner serves as both commodity pool operator and commodity trading advisor of the Trust and each Fund and Master Trust and each Master Fund. The Managing Owner has been registered with the CFTC as a commodity pool operator and
commodity trading advisor since June 7, 2005 and is a member in good standing of the NFA in such capacity. Its principal place of business is 60 Wall Street, New York, New York 10005, telephone number (212) 250-5883. The Managing Owner is
a wholly owned subsidiary of DB U.S. Financial Markets Holding Corporation, which is a wholly owned, indirect subsidiary of Deutsche Bank AG. DB U.S. Financial Markets Holding Corporation has been a principal of the Managing Owner since June 7,
2005. The registration of the Managing Owner with the CFTC and its membership in the NFA must not be taken as an indication that either the CFTC or the NFA has recommended or approved the Managing Owner, the Trust and each Fund or the Master Trust
and each Master Fund.
In its capacity as a commodity pool operator, the Managing Owner is an organization which operates or solicits funds
for commodity pools; that is, an enterprise in which funds contributed by a number of persons are combined for the purpose of trading futures contracts. In its capacity as a commodity trading advisor, the Managing Owner is an organization which, for
compensation or profit, advises others as to the value of or the advisability of buying or selling futures contracts.
Principals and
Key Employees
Kevin Rich, Gregory Collett and Martin Kremenstein serve as the Chief Executive Officer and Principal Financial
Officer, Chief Operating Officer and Vice President of the Managing Owner, respectively.
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The Managing Owner is managed by a Board of Managers. The Board of Managers is comprised of Messrs. Rich, Collett and Kremenstein.
Kevin Rich
joined Deutsche Bank AG in June 2003 and serves as a Director in the Global Currency & Commodities Complex Risk Group
with responsibility for providing currency and commodity-based investor solutions to the DB sales force in the Americas. Mr. Rich serves as an associated person, principal, Chief Executive Officer and Principal Financial Officer of the Managing
Owner and as an associated person of Deutsche Bank Securities Inc. Prior to joining Deutsche Bank, Mr. Rich was a Regional Vice President from November 2002 through May 2003 in Product Distribution for Claymore Securities, Inc.
(Claymore), responsible for distribution of closed-end funds and unit investment trusts in the State of New York. Mr. Rich acted as an independent product development consultant prior to joining Claymore (August through October,
2002). From January 2000 through July 2002, Mr. Rich worked at Lehman Brothers, Inc. Mr. Rich served in several roles supporting the equities, fixed income and investment banking product lines. Mr. Rich received his MBA in Finance
from the New York University Leonard N. Stern School of Business in 1996 and his Bachelors of Science in Business Administration from Taylor University in Upland, Indiana in 1983.
Gregory Collett
served as Vice President and Counsel in the Legal Department of Deutsche Bank AG from October 2002 through June 2006, where
he worked primarily with the Commodities Group to build Deutsche Banks power and gas trading and commodity funds businesses. Mr. Collett joined the Global Currency & Commodities Complex Risk Group in June 2006 with responsibility
for providing currency and commodity based investor solutions to the DB sales force in the Americas and serves as a principal and Chief Operating Officer of the Managing Owner. Mr. Collett also serves as an associated person of Deutsche Bank
Securities Inc. From March 2000 through October 2002, Mr. Collett was an associate with the law firm of Sidley Austin LLP in New York, and prior to that he was an attorney-advisor with the Commodity Futures Trading Commission from October 1998
to February 2000. From May 2003 through May 2007, Mr. Collett has served on the Futures Industry Associations Law & Compliance Executive
Committee. Mr. Collett received his J.D. from George Washington University Law School in 1997 and his B.A. from Colgate University in 1993.
Martin Kremenstein
joined Deutsche Bank AG in August 2006, and serves as a Vice President in the Global Currency &
Commodities Complex Risk Group with responsibility for providing currency and commodity-based investor solutions to the DB sales force in the Americas. Mr. Kremenstein serves as a Vice President of the Managing Owner. Prior to joining Deutsche
Bank, Mr. Kremenstein worked for JPMorgan Chase from September 1998 to August 2006, initially in London and then, from June 2003, in New York. From February 2005 to August 2006, Mr. Kremenstein worked in Market Risk Management, covering
the Credit Portfolio division initially as an Associate, and later as a Vice President. From September 1998 to February 2005, Mr. Kremenstein worked in various roles in Operations at JPMorgan Chase, including managing the Credit Portfolio
Credit Hedge Analysis team, managing projects for the Credit Portfolio Market Hedge team, and managing P&L production for the Counterparty Risk Book (London). Mr. Kremenstein received his B.A. from the University of Leeds in 1998.
Mr. Kremenstein is a principal and an associated person of the Managing Owner.
Fiduciary and Regulatory Duties of the Managing Owner
An investor should be aware that the Managing Owner
has a fiduciary responsibility to the Shareholders to exercise good faith and fairness in all dealings affecting the Trust and each Fund and the Master Trust and each Master Fund.
As managing owner of the Trust and each Fund and the Master Trust and each Master Fund, the Managing Owner effectively is subject to the duties and
restrictions imposed on fiduciaries under both statutory and common law. The Managing Owner has a fiduciary responsibility to the Shareholders to exercise good faith, fairness and loyalty in all dealings affecting the Trust and each Fund
and the Master Trust and each Master Fund, consistent with the terms of the Trust Declarations. A form of each of the Trust Declarations is filed as an exhibit to the registration statement of which this Prospectus is a part. The general fiduciary
duties which would otherwise be imposed on the Managing Owner
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(which would make the operation of the Trust and each Fund and the Master Trust and each Master Fund as described herein impracticable due to the strict
prohibition imposed by such duties on, for example, conflicts of interest on behalf of a fiduciary in its dealings with its beneficiaries), are defined and limited in scope by the disclosure of the business terms of the Trust and each Fund and the
Master Trust and each Master Fund, as set forth herein and in the Trust Declarations (to which terms all Shareholders, by subscribing to the Shares, are deemed to consent).
The Trust Declarations provide that the Managing Owner and its affiliates shall have no liability to the Trust and each Fund or the Master Trust and each
Master Fund or to any Shareholder for any loss suffered by the Trust and each Fund or the Master Trust and each Master Fund arising out of any action or inaction of the Managing Owner or its affiliates or their respective directors, officers,
shareholders, partners, members, managers or employees (the Managing Owner Related Parties) if the Managing Owner Related Parties, in good faith, determined that such course of conduct was in the best interests of the Fund or the Master
Fund, as applicable, and such course of conduct did not constitute negligence or misconduct by the Managing Owner Related Parties. The Trust and each Fund and the Master Trust and each Master Fund have agreed to indemnify the Managing Owner Related
Parties against claims, losses or liabilities based on their conduct relating to the Trust and each Fund and the Master Trust and each Master Fund, provided that the conduct resulting in the claims, losses or liabilities for which indemnity is
sought did not constitute negligence or misconduct and was done in good faith and in a manner reasonably believed to be in the best interests of the Fund or the Master Fund, as applicable.
Under Delaware law, a beneficial owner of a business trust (such as a Shareholder of each Fund) may, under certain circumstances, institute legal action
on behalf of himself and all other similarly situated beneficial owners (a class action) to recover damages from a managing owner of such business trust for violations of fiduciary duties, or on behalf of a business trust (a
derivative action) to recover damages from a third party where a managing owner has failed or refused to institute proceedings to recover such damages. In addition, beneficial owners may have the right, subject to
certain legal requirements, to bring class actions in federal court to enforce their rights under the federal securities laws and the rules and regulations
promulgated thereunder by the Securities and Exchange Commission, or the SEC. Beneficial owners who have suffered losses in connection with the purchase or sale of their beneficial interests may be able to recover such losses from a managing owner
where the losses result from a violation by the managing owner of the anti-fraud provisions of the federal securities laws.
Under
certain circumstances, Shareholders also have the right to institute a reparations proceeding before the CFTC against the Managing Owner (a registered commodity pool operator and commodity trading advisor), the Commodity Broker (registered futures
commission merchant), as well as those of their respective employees who are required to be registered under the Commodity Exchange Act, as amended, and the rules and regulations promulgated thereunder. Private rights of action are conferred by the
Commodity Exchange Act, as amended. Investors in futures and in commodity pools may, therefore, invoke the protections provided thereunder.
There are substantial and inherent conflicts of interest in the structure of the Trust and each Fund and the Master Trust and each Master Fund which are, on their face, inconsistent with the Managing Owners fiduciary duties. One of
the purposes underlying the disclosures set forth in this Prospectus is to disclose to all prospective Shareholders these conflicts of interest so that the Managing Owner may have the opportunity to obtain investors informed consent to such
conflicts. Prospective investors who are not willing to consent to the various conflicts of interest described under Conflicts of Interest and elsewhere should not invest in the Funds. The Managing Owner currently intends to raise such
disclosures and consent as a defense in any proceeding brought seeking relief based on the existence of such conflicts of interest.
The
foregoing summary describing in general terms the remedies available to Shareholders under federal law is based on statutes, rules and decisions as of the date of this Prospectus. This is a rapidly developing and changing area of the law. Therefore,
Shareholders who believe that they may have a legal cause of action against any of the foregoing parties should consult their own counsel as to their
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evaluation of the status of the applicable law at such time.
Ownership or Beneficial Interest in the Funds and Master Funds
The Managing Owner has made and expects
to maintain an aggregate investment of $25,000 in each Fund and Master Fund. No principal has an ownership or beneficial interest in either Fund or either Master Fund.
Management; Voting by Shareholders
The Shareholders of each Fund take no part in the management or control,
and have no voice in the operations or the business of the Trust, such Fund, the Master Trust, or the Master Funds. Shareholders, voting together as a single series, may, however, remove and replace the Managing Owner as the managing owner of the
Trust and all of the Funds, and may amend the Trust Declaration of the Trust, except in certain limited respects, by the affirmative vote of a majority of the outstanding Shares then owned by Shareholders (as opposed to by the Managing Owner and its
affiliates). The owners of a majority of the outstanding Shares then owned by Shareholders may also compel dissolution of the Trust and each of the Funds. The owners of 10% of the outstanding Shares then owned by Shareholders have the right to bring
a matter before a vote of the Shareholders. The Managing Owner has no power under the Trust Declaration to restrict any of the Shareholders voting rights. Any Shares purchased by the Managing Owner or its affiliates, as well as the Managing
Owners general liability interest in each Fund and the Trust or Master Trust and Master Funds, are non-voting.
The Managing
Owner has the right unilaterally to amend the Trust Declaration as it applies to either Fund provided that any such amendment is for the benefit of and not adverse to the Shareholders of such Fund or the Trustee and also in certain unusual
circumstances for example, if doing so is necessary to comply with certain regulatory requirements.
Recognition of the Trust, the Master Trust, the Funds and each Master Fund in Certain States
A number of
states do not have business trust statutes such as that under which the Trust and the
Master Trust have been formed in the State of Delaware. It is possible, although unlikely, that a court in such a state could hold that, due to the absence
of any statutory provision to the contrary in such jurisdiction, the Shareholders, although entitled under Delaware law to the same limitation on personal liability as stockholders in a private corporation for profit organized under the laws of the
State of Delaware, are not so entitled in such state. To protect Shareholders against any loss of limited liability, the Trust Declarations provide that no written obligation may be undertaken by any Fund or Master Fund unless such obligation is
explicitly limited so as not to be enforceable against any Shareholder personally. Furthermore, each Fund and Master Fund, respectively, itself indemnifies all its Shareholders against any liability that such Shareholders might incur in addition to
that of a beneficial owner. The Managing Owner is itself generally liable for all obligations of each Fund and Master Fund and will use its assets to satisfy any such liability before such liability would be enforced against any Shareholder
individually.
Possible Repayment of Distributions Received by Shareholders; Indemnification by Shareholders
The Shares are
limited liability investments; investors may not lose more than the amount that they invest plus any profits recognized on their investment. However, Shareholders of a Fund could be required, as a matter of bankruptcy law, to return to the estate of
such Fund any distribution they received at a time when such Fund was in fact insolvent or in violation of the Trust Declaration. In addition, although the Managing Owner is not aware of this provision ever having been invoked in the case of any
public futures fund, Shareholders of each Fund agree in the Trust Declaration that they will indemnify such Fund for any harm suffered by it as a result of
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Shareholders actions unrelated to the business of such Fund, or
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taxes separately imposed on the Fund by any state, local or foreign taxing authority.
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The foregoing repayment of distributions and indemnity provisions (other than the provision for Shareholders of a Fund indemnifying such Fund for taxes
imposed upon it by a state, local or foreign
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taxing authority, which is included only as a formality due to the fact that many states do not have business trust statutes so that the tax status of a Fund
in such states might, theoretically, be challenged although the Managing Owner is unaware of any instance in which this has actually occurred) are commonplace in statutory trusts and limited partnerships.
Shares Freely Transferable
The Shares of each Fund trade on the Amex and provide institutional and
retail investors with direct access to each Fund. Each Fund holds no investment assets other than the Master Fund Units of the corresponding Master Fund. Each Master Fund trades with a view of tracking either the Long Index or the Short Index, as
applicable, over time, less expenses. Each Funds Shares may be bought and sold on the Amex like any other exchange listed security.
Book-Entry Form
Individual certificates will not be issued for the Shares. Instead, global certificates are
deposited by the Trustee with DTC and registered in the name of Cede & Co., as nominee for DTC. The global certificates evidence all of the Shares outstanding at any time. Under the Trusts Trust Declaration, Shareholders are limited
to (1) participants in DTC such as banks, brokers, dealers and trust companies (DTC Participants), (2) those who maintain, either directly or indirectly, a custodial relationship with a DTC Participant (Indirect Participants), and
(3) those banks, brokers, dealers, trust companies and others who hold interests in the Shares through DTC Participants or Indirect Participants. The Shares are only transferable through the book-entry system of DTC. Shareholders who are not
DTC Participants may transfer their Shares through DTC by instructing the DTC Participant holding their Shares (or by instructing the Indirect Participant or other entity through which their Shares are held) to transfer the Shares. Transfers are
made in accordance with standard securities industry practice.
Reports to Shareholders
The Managing Owner will furnish you with an annual report of each Fund within 90
calendar days after the end of its fiscal year as required by the rules and regulations of the SEC as well as with those
reports required by the CFTC and the National Futures Association, or the NFA, including, but not limited to, an annual audited financial statement certified
by independent registered public accountants and any other reports required by any other governmental authority that has jurisdiction over the activities of the Trust, each Fund and the Master Trust and each Master Fund. You also will be provided
with appropriate information to permit you to file your United States federal and state income tax returns (on a timely basis) with respect to your Shares. Monthly account statements conforming to CFTC and NFA requirements are posted on the Managing
Owners website at
www.dbfunds.db.com
. Additional reports may be posted on the Managing Owners website in the discretion of the Managing Owner or as required by applicable regulatory authorities.
The Managing Owner will notify Shareholders of any change in the fees paid by the Trust and the Master Trust or of any material changes to either Fund or
either Master Fund by filing with the SEC a supplement to this Prospectus and a Form 8-K, which will be publicly available at www.sec.gov and at the Managing Owners website at
www.dbfunds.db.com
. Any such notification will include a
description of Shareholders voting rights.
Net Asset Value
Net asset value, in respect of a Master Fund, means the total assets of the Master Fund
including, but not limited to, all cash and cash equivalents or other debt securities less total liabilities of such Master Fund, each determined on the basis of generally accepted accounting principles in the United States, consistently applied
under the accrual method of accounting. In particular, net asset value includes any unrealized profit or loss on open futures contracts, and any other credit or debit accruing to a Master Fund but unpaid or not received by a Master Fund. All open
futures contracts traded on a United States exchange are calculated at their then current market value, which are based upon the settlement price for that particular futures contract traded on the applicable United States exchange on the date with
respect to which net asset value is being determined; provided, that if a futures contract traded on a United States exchange 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
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the basis for determining the market value of such position for such day. The current market value of all open futures contracts traded on a non-United
States exchange, to the extent applicable, are be based upon the settlement price for that particular futures contract traded on the applicable non-United States exchange on the date with respect to which net asset value is being determined;
provided further, that if a futures contract traded on a non-United States exchange, to the extent applicable, could not be liquidated on such day, due to the operation of daily limits (if applicable) 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 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 a Master Fund pursuant to such other principles as the Managing Owner deems fair and equitable so long
as such principles are consistent with normal industry standards. Interest earned on any Master Funds foreign exchange futures brokerage account will be accrued at least monthly. The amount of any distribution will be a liability of such
Master Fund from the day when the distribution is declared until it is paid.
Net asset value per Master Fund Unit, in respect of a Master
Fund is the net asset value of the Master Fund divided by the number of its outstanding Master Fund Units. Because there is a one-to-one correlation between Shares of a Fund and Master Fund Units of its corresponding Master Fund, the net asset value
per Share of either Fund and the net asset value per Master Fund Unit of its corresponding Master Fund are equal.
Termination Events
The Trust, or, as the case may be, any Fund, will dissolve at any time upon the
happening of any of the following events:
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The filing of a certificate of dissolution or revocation of the Managing Owners charter (and the expiration of 90 days after
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the date of notice to the Managing Owner of revocation without a reinstatement of its charter) or upon the withdrawal, removal, adjudication or admission of
bankruptcy or insolvency of the Managing Owner, or an event of withdrawal unless (i) at the time there is at least one remaining managing owner and that remaining managing owner carries on the business of the Fund or (ii) within 90 days of
such event of withdrawal all the remaining Shareholders agree in writing to continue the business of a Fund and to select, effective as of the date of such event, one or more successor managing owners. If the Trust is terminated as the result of an
event of withdrawal and a failure of all remaining Shareholders to continue the business of the Trust and to appoint a successor managing owner as provided above within 120 days of such event of withdrawal, Shareholders holding Shares representing
at least a majority (over 50%) of the net asset value of each Fund (not including Shares held by the Managing Owner and its affiliates) may elect to continue the business of the Trust by forming a new statutory trust, or reconstituted trust, on the
same terms and provisions as set forth in the Trust Declaration. Any such election must also provide for the election of a managing owner to the reconstituted trust. If such an election is made, all Shareholders of the Funds shall be bound thereby
and continue as Shareholders of series of the reconstituted trust.
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The occurrence of any event which would make unlawful the continued existence of the Trust or a Fund, as the case may be.
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In the event of the suspension, revocation or termination of the Managing Owners registration as a commodity pool operator, or membership as a commodity pool
operator with the NFA (if, in either case, such registration is required at such time unless at the time there is at least one remaining managing owner whose registration or membership has not been suspended, revoked or terminated.
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The Trust or a Fund, as the case may be, becomes insolvent or bankrupt.
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The Shareholders holding Shares representing at least a majority (over 50%) of the net asset value (which excludes the Shares of the Managing Owner) vote to
dissolve the Trust, notice of which is sent to the Managing Owner not less than ninety (90) Business Days prior to the effective date of termination.
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The determination of the Managing Owner that the aggregate net assets of a Fund in relation to the operating expenses of such Fund make it unreasonable or imprudent
to continue the business of such Fund, or, in the exercise of its reasonable discretion, the determination by the Managing Owner to dissolve the Trust because the aggregate net asset value of the Trust as of the close of business on any business day
declines below $10 million.
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The Trust or either Fund is required to be registered as an investment company under the Investment Company Act of 1940.
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DTC is unable or unwilling to continue to perform its functions, and a comparable replacement is unavailable.
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DISTRIBUTIONS
The Managing Owner has discretionary authority over all distributions made by each Fund and
its corresponding Master Fund. To the extent that a Master Funds actual and projected interest income from its holdings of United States Treasury securities and other high credit quality short-term fixed income securities exceeds the actual
and projected fees and expenses of the Master Fund and its corresponding Fund, the Managing Owner expects periodically to make distributions of the amount of such excess. The Funds currently do not expect to make distributions with respect to
capital gains. Depending on the applicable Funds performance for the taxable year and your own tax situation for such year, your income tax liability for the taxable year for your allocable share of such Funds net ordinary income or loss
and capital gain or loss may exceed any distributions you receive with respect to such year.
THE ADMINISTRATOR
The Trust and Master Trust, on behalf of each Fund and each Master Fund, respectively,
has appointed The Bank of New York as the administrator of each Fund and each Master Fund and has entered into an Administration Agreement in connection therewith.
The Bank of New York, a banking corporation organized under the laws of the State of New York with
trust powers, has an office at 2 Hanson Place, 12
th
Floor, Brooklyn, New York 11217. The Bank of New York is subject to supervision by the New York State
Banking Department and the Board of Governors of the Federal Reserve System. Information regarding the net asset value of each Fund, creation and redemption transaction fees and the names of the parties that have executed a Participant Agreement may
be obtained from The Bank of New York by calling the following number: (718) 315-4412. A copy of the Administration Agreement is available for inspection at The Bank of New Yorks trust office identified above.
The Administrator retains, separately for each Fund and each Master Fund, certain financial books
and records, including: Basket creation and redemption books and records, Fund and Master 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 futures commission merchants, c/o The Bank of New York, 2 Hanson Place, 12
th
Floor, Brooklyn, New York 11217,
telephone number (718) 315-4850.
A summary of the material terms of the Administration Agreement is disclosed in the
Material Contracts section.
The Administrators monthly fees of up to 0.05% per annum are paid on behalf of each
Fund and each Master Fund by the Managing Owner out of each Master Funds Management Fee.
The Administrator and any of its affiliates
may from time-to-time purchase or sell Shares for their own account, as agent for their customers and for accounts over which they exercise investment discretion.
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The Administrator and any successor administrator must be a participant in DTC or such other securities depository as shall then be acting.
The Administrator also receives a transaction processing fee in connection with orders from Authorized Participants to create or redeem Baskets in the
amount of $500 per order. These transaction processing fees are paid indirectly by the Authorized Participants and not by any Fund or any Master Fund.
The Trust retains the services of one or more additional service providers to assist with certain tax reporting requirements of each Fund and the Shareholders of each Fund.
ALPS DISTRIBUTORS, INC.
The Trust, on behalf of each Fund, has appointed ALPS Distributors, Inc. or
ALPS Distributors, to assist the Managing Owner and the Administrator with certain functions and duties relating to distribution and marketing, which include the following: consultation with the marketing staff of the Managing Owner and its
affiliates with respect to FINRA compliance in connection with marketing efforts; review and filing of marketing materials with the FINRA; and consultation with the Managing Owner and its affiliates in connection with marketing and sales strategies.
Investors may contact ALPS Distributors toll free in the U.S. at (877) 369-4617.
ALPS Distributors retains all marketing materials
separately for each Fund and Master Fund, at the offices of ALPS Distributors, Inc., 1625 Broadway, Suite 2200, Denver, Colorado 80202; telephone number (303) 623-2577.
The Managing Owner, out of the relevant Management Fee, pays ALPS Distributors for performing its duties on behalf of each Fund and its corresponding
Master Fund and may pay ALPS Distributors additional compensation in consideration of the performance by ALPS Distributors of additional marketing, distribution and ongoing support services to such Fund or its Master Fund. Such additional services
may include, among other services, the development and implementation of a marketing plan and the utilization of ALPS Distributors resources, which include an extensive broker database and a network of internal and
external wholesalers. ALPS Distributors is affiliated with ALPS Mutual Fund Services, Inc., a Denver based outsourcing solution for administration,
compliance, fund accounting, legal marketing, tax administration, transfer agency and shareholder services for open-end, closed-end, hedge and exchange-traded funds, with over 100,000 shareholder accounts and approximately $17 billion in client
mutual fund assets under administration. ALPS Distributors provides distribution services to over $170 billion in client assets.
ALPS Distributors is the distributor of both PowerShares DB US Dollar Index Bullish Fund and
PowerShares DB US Dollar Index Bearish Fund. Certain marketing services may be provided for each Fund by A I M Distributors, Inc. or PowerShares Capital Management LLC. This assistance includes the licensing of the PowerShares
®
registered service mark to the Managing Owner for use with each Fund. PowerShares
®
is a registered service mark of PowerShares
Capital Management LLC. PowerShares Capital Management LLC is not a sponsor or promoter of the Funds and has no responsibility for the performance of the Funds or the decisions made or actions taken by the Managing Owner.
A I M DISTRIBUTORS, INC.
Through a marketing agreement between the Managing Owner, A I M Distributors,
Inc., or AIM Distributors, an affiliate of PowerShares Capital Management LLC, or PowerShares, the Managing Owner, on behalf of each Fund and each Master Fund, has appointed AIM Distributors as a marketing agent. AIM Distributors assists the
Managing Owner and the Administrator with certain functions and duties such as providing various educational and marketing activities regarding each Fund, primarily in the secondary trading market, which activities include, but are not limited to,
communicating each Funds name, characteristics, uses, benefits, and risks, consistent with the prospectus. AIM Distributors does not open or maintain customer accounts or handle orders for the Funds. AIM Distributors engages in public
seminars, road shows, conferences, media interviews, field incoming telephone 800 number calls and distribute sales literature and other communications (including electronic media) regarding each Fund. Investors
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may contact AIM Distributors toll-free in the U.S. at (800) 983-0903.
AIM Distributors is a subsidiary of AMVESCAP PLC. AMVESCAP PLC is a leading independent global investment manager operating under the AIM, INVESCO, AIM Trimark, Invesco Perpetual and Atlantic Trust brands.
The Managing Owner, out of the relevant Management Fee, pays AIM Distributors for performing its duties on behalf of each Fund, and its
corresponding Master Fund.
THE SECURITIES DEPOSITORY; BOOK-ENTRY ONLY SYSTEM; GLOBAL SECURITY
DTC acts as securities depository for
the Shares. DTC is a limited purpose trust company organized under the laws of the State of New York, a member of the Federal Reserve System, a clearing corporation within the meaning of the New York Uniform Commercial Code, and a
clearing agency registered pursuant to the provisions of section 17A of the Exchange Act. DTC was created to hold securities of DTC Participants and to facilitate the clearance and settlement of transactions in such securities among the
DTC Participants through electronic book-entry changes. This eliminates the need for physical movement of securities certificates. DTC Participants include securities brokers and dealers, banks, trust companies, clearing corporations, and certain
other organizations, some of whom (and/or their representatives) own DTC. Access to the DTC system is also available to others such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a DTC
Participant, either directly or indirectly. DTC has agreed to administer its book-entry system in accordance with its rules and by laws and the requirements of law.
Individual certificates will not be issued for the Shares. Instead, global certificates are signed by the Trustee and the Managing Owner on behalf of each Fund, registered in the name of Cede & Co., as
nominee for DTC, and deposited with the Trustee on behalf of DTC. The global certificates evidence all of the Shares of each Fund outstanding at any time. The representations, undertakings and agreements made
on the part of each Fund in the global certificates are made and intended for the purpose of binding only the applicable Fund and not the Trustee or the
Managing Owner individually.
Upon the settlement date of any creation, transfer or redemption of Shares, DTC credits or debits, on its
book-entry registration and transfer system, the amount of the Shares so created, transferred or redeemed to the accounts of the appropriate DTC Participants. The Managing Owner and the Authorized Participants designate the accounts to be credited
and charged in the case of creation or redemption of Shares.
Beneficial ownership of the Shares is limited to DTC Participants, Indirect
Participants and persons holding interests through DTC Participants and Indirect Participants. Owners of beneficial interests in the Shares is shown on, and the transfer of ownership is effected only through, records maintained by DTC (with respect
to DTC Participants), the records of DTC Participants (with respect to Indirect Participants), and the records of Indirect Participants (with respect to Shareholders that are not DTC Participants or Indirect Participants). Shareholders are expected
to receive from or through the DTC Participant maintaining the account through which the Shareholder has purchased their Shares a written confirmation relating to such purchase.
Shareholders that are not DTC Participants may transfer the Shares through DTC by instructing the DTC Participant or Indirect Participant through which
the Shareholders hold their Shares to transfer the Shares. Shareholders that are DTC Participants may transfer the Shares by instructing DTC in accordance with the rules of DTC. Transfers are made in accordance with standard securities industry
practice.
DTC may decide to discontinue providing its service with respect to Baskets and/or the Shares of each Fund by giving notice to
the Trustee and the Managing Owner. Under such circumstances, the Trustee and the Managing Owner will either find a replacement for DTC to perform its functions at a comparable cost or, if a replacement is unavailable, terminate such Fund.
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The rights of the Shareholders generally must be exercised by DTC Participants acting on their behalf in accordance with the rules and procedures of DTC.
Because the Shares can only be held in book-entry form through DTC and DTC Participants, investors must rely on DTC, DTC Participants and any other financial intermediary through which they hold the Shares to receive the benefits and exercise the
rights described in this section. Investors should consult with their broker or financial institution to find out about procedures and requirements for securities held in book-entry form through DTC.
SHARE SPLITS
If the Managing Owner believes that the per Share price of a Fund in the secondary market has
fallen outside a desirable trading price range, the Managing Owner may direct the Trustee to declare a split or reverse split in the number of Shares outstanding and to make a corresponding change in the number of Shares of such Fund constituting a
Basket.
MATERIAL CONTRACTS
Brokerage Agreement
The Commodity Broker and the Master Trust (on behalf of each Master Fund) entered into a
brokerage agreement with respect to each Master Fund, each a Brokerage Agreement. As a result the Commodity Broker:
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acts as the clearing broker;
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acts as custodian of each Master Funds assets; and
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performs such other services for each Master Fund as the Managing Owner may from time-to-time request.
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As clearing broker for each Master Fund, the Commodity Broker receives orders for trades from the Managing Owner.
Confirmations of all executed trades are given to each Master Fund by the Commodity Broker. Each Brokerage Agreement incorporates the Commodity
Brokers standard customer agreements and related documents, which generally include provisions that:
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all funds, futures and open or cash positions carried for each Master Fund are held as security for each respective Master Funds obligations to the Commodity
Broker;
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the margins required to initiate or maintain open positions are as from time-to-time established by the Commodity Broker and may exceed exchange minimum levels; and
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the Commodity Broker may close out positions, purchase futures or cancel orders at any time it deems necessary for its protection, without the consent of the Master
Trust, on behalf of any Master Fund.
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As custodian of each Master Funds assets, the Commodity Broker is
responsible, among other things, for providing periodic accountings of all dealings and actions taken by the Master Trust on behalf of each Master 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 each Master Fund.
Administrative functions provided by the
Commodity Broker to each Master Fund include, but are not limited to, preparing and transmitting daily confirmations of transactions and monthly statements of account, calculating equity balances and margin requirements.
As long as a Brokerage Agreement between the Commodity Broker and the Master Trust, on behalf of each Master Fund, is in effect, the Commodity Broker
will not charge any Master Fund a fee for any of the services it has agreed to perform, except for the agreed upon brokerage fee.
Each
Brokerage Agreement is not exclusive and runs for successive one year terms to be renewed automatically each year unless terminated. The Brokerage Agreement is terminable by the Master Trust, on behalf of each Master Fund, or the Commodity Broker
without penalty upon thirty (30) days prior written notice (unless where certain events of default occur or there is a material adverse change to a Master Funds financial position, in
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which case only prior written notice is required to terminate the Brokerage Agreement).
Each Brokerage Agreement provides that neither the Commodity Broker nor any of its managing directors, officers, employees or affiliates will be liable
for any costs, losses, penalties, fines, taxes and damages sustained or incurred by the Master Trust or each Master Fund other than as a result of the Commodity Brokers gross negligence or reckless or intentional misconduct or breach of such
agreement.
Administration Agreement
Pursuant to the Administration Agreement among the Trust, the Master Trust,
each on behalf of itself and on behalf of each of its respective Funds and Master Funds, and the Administrator, the Administrator performs or supervises the performance of services necessary for the operation and administration of each Fund and each
Master 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 Administration Agreement will continue in effect from the commencement of trading operations unless terminated on at least 90 days
prior written notice by either party to the other party. Notwithstanding the foregoing, the Administrator may terminate the Administration Agreement with respect to a Fund or its corresponding Master Fund upon 30 days prior written notice if
the Fund and/or Master Fund has materially failed to perform its obligations under the Administration Agreement or upon the termination of the Global Custody Agreement.
The Administrator is both exculpated and indemnified under the Administration Agreement.
Except as
otherwise provided in the Administration Agreement, the Administrator will not be liable for any costs, expenses, damages, liabilities or claims (including attorneys and accountants fees) incurred by the Trust, the Master Trust or any
Fund or Master Fund, except those costs, expenses, damages, liabilities or claims arising out of the Administrators own gross negligence or
willful misconduct. In no event will the Administrator be liable to the Trust, the Master Trust, the Funds, the Master Funds or any third party for special,
indirect or consequential damages, or lost profits or loss of business, arising under or in connection with the Administration Agreement, even if previously informed of the possibility of such damages and regardless of the form of action. The
Administrator will not be liable for any loss, damage or expense, including counsel fees and other costs and expenses of a defense against any claim or liability, resulting from, arising out of, or in connection with its performance under the
Administration Agreement, including its actions or omissions, the incompleteness or inaccuracy of any Proper Instructions (as defined therein), or for delays caused by circumstances beyond the Administrators control, unless such loss, damage
or expense arises out of the gross negligence or willful misconduct of the Administrator.
Subject to limitations, the Trust, the Master
Trust and/or each of their respective Funds and Master Funds will indemnify and hold harmless the Administrator from and against any and all costs, expenses, damages, liabilities and claims (including claims asserted by the Trust, Master Trust or
any Fund or Master Fund), and reasonable attorneys and accountants fees relating thereto, which are sustained or incurred or which may be asserted against the Administrator by reason of or as a result of any action taken or omitted to be
taken by the Administrator in good faith under the Administration Agreement or in reliance upon (i) any law, act, regulation or interpretation of the same even though the same may thereafter have been altered, changed, amended or repealed,
(ii) the registration statement or Prospectus, (iii) any Proper Instructions, or (iv) any opinion of legal counsel for any Fund or any Master Fund, or arising out of transactions or other activities of any Fund or any Master Fund
which occurred prior to the commencement of the Administration Agreement; provided, that neither the Trust, Master Trust, any Fund nor any Master Fund will indemnify the Administrator for costs, expenses, damages, liabilities or claims for which the
Administrator is liable under the preceding paragraph. This indemnity will be a continuing obligation of each of the Trust, Master Trust, each Fund and Master Fund and their respective successors and assigns, notwithstanding the termination of the
Administration Agreement. Without limiting the generality of the foregoing, the Trust,
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Master Trust, each Fund or Master Fund will indemnify the Administrator against and save the Administrator harmless from any loss, damage or expense,
including counsel fees and other costs and expenses of a defense against any claim or liability, arising from any one or more of the following: (i) errors in records or instructions, explanations, information, specifications or documentation of
any kind, as the case may be, supplied to the Administrator by any third party described above or by or on behalf of the Fund or Master Fund; (ii) action or inaction taken or omitted to be taken by the Administrator pursuant to Proper
Instructions of the Trust or Master Trust, on behalf of each of their respective corresponding Funds or Master Funds or otherwise without gross negligence or willful misconduct; (iii) any action taken or omitted to be taken by the Administrator
in good faith in accordance with the advice or opinion of counsel for the Trust, Master Trust or any Fund or Master Fund or its own counsel; (iv) any improper use by the Trust, Master Trust, or any Fund or Master Fund or their respective
agents, distributor or investment advisor of any valuations or computations supplied by the Administrator pursuant to the Administration Agreement; (v) the method of valuation and the method of computing net asset value; or (vi) any
valuations or net asset value provided by any Fund or Master Fund.
Actions taken or omitted in reliance on Proper Instructions, or upon
any information, order, indenture, stock certificate, power of attorney, assignment, affidavit or other instrument believed by the Administrator to be genuine or bearing the signature of a person or persons believed to be authorized to sign,
countersign or execute the same, or upon the opinion of legal counsel for the Trust or the Master Trust, on behalf of each of their respective Funds or Master Funds or its own counsel, will be conclusively presumed to have been taken or omitted in
good faith.
Notwithstanding any other provision contained in the Administration Agreement, the Administrator will have no duty or
obligation with respect to, including, without limitation, any duty or obligation to determine, or advise or notify any Fund or Master Fund of: (a) the taxable nature of any distribution or amount received or deemed received by, or payable to
any Fund or Master Fund; (b) the taxable nature or effect on any Fund or Master Fund or their shareholders of any corporate actions, class actions, tax reclaims, tax refunds, or similar events; (c) the
taxable nature or taxable amount of any distribution or dividend paid, payable or deemed paid by each Fund or Master Fund to their respective shareholders;
or (d) the effect under any federal, state, or foreign income tax laws of each Fund or Master Fund making or not making any distribution or dividend payment, or any election with respect thereto.
Global Custody Agreement
The Bank of New York serves as each Funds custodian, or Custodian.
Pursuant to the Global Custody Agreement between the Trust, on its own behalf and behalf of each Fund, and the Custodian, or Custody Agreement, the Custodian serves as custodian of all securities and cash at any time delivered to Custodian by each
respective Fund during the term of the Custody Agreement and has authorized the Custodian to hold its securities in registered form in its name or the name of its nominees. The Custodian has established and maintains one or more securities accounts
and cash accounts for each Fund pursuant to the Custody Agreement. The Custodian maintains separate and distinct books and records segregating the assets of each Fund and its corresponding Master Fund.
The Trust, on behalf of each Fund, independently, and the Custodian may terminate the Custody Agreement by giving to the other party a notice in writing
specifying the date of such termination, which will be not less than ninety (90) days after the date of such notice. Upon termination thereof, the applicable Fund will pay to the Custodian such compensation as may be due to the Custodian, and
will likewise reimburse the Custodian for other amounts payable or reimbursable to the Custodian thereunder. The Custodian will follow such reasonable oral or written instructions concerning the transfer of custody of records, securities and other
items as the Trust, on behalf of each Fund, gives; provided, that (a) the Custodian will have no liability for shipping and insurance costs associated therewith, and (b) full payment will have been made to the Custodian of its
compensation, costs, expenses and other amounts to which it is entitled thereunder. If any securities or cash remain in any account, the Custodian may deliver to the Trust, on behalf of each Fund, such securities and cash. Except as otherwise
provided herein, all obligations of the parties to each other hereunder will cease upon termination of the Custody Agreement.
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The Custodian is both exculpated and indemnified under the Custody Agreement.
Except as otherwise expressly provided in the Custody Agreement, the Custodian will not be liable for any costs, expenses, damages, liabilities or claims, including attorneys and accountants fees, or
losses, incurred by or asserted against the Trust or any Fund, except those losses arising out of the gross negligence or willful misconduct of the Custodian. The Custodian will have no liability whatsoever for the action or inaction of any
depository. Subject to the Custodians delegation of its duties to its affiliates, the Custodians responsibility with respect to any securities or cash held by a subcustodian is limited to the failure on the part of the Custodian to
exercise reasonable care in the selection or retention of such subcustodian in light of prevailing settlement and securities handling practices, procedures and controls in the relevant market. With respect to any losses incurred by the Trust or any
Fund as a result of the acts or the failure to act by any subcustodian (other than an affiliate of the Custodian), the Custodian will take appropriate action to recover such losses from such subcustodian; and the Custodians sole responsibility
and liability to the Trust or any Fund will be limited to amounts so received from such subcustodian (exclusive of costs and expenses incurred by the Custodian). In no event will the Custodian be liable to the Trust or any Fund or any third party
for special, indirect or consequential damages, or lost profits or loss of business, arising in connection with the Custody Agreement.
The
Trust, on behalf of each Fund, as applicable, will indemnify the Custodian and each subcustodian for the amount of any tax that the Custodian, any such subcustodian or any other withholding agent is required under applicable laws (whether by
assessment or otherwise) to pay on behalf of, or in respect of income earned by or payments or distributions made to or for the account of each Fund (including any payment of tax required by reason of an earlier failure to withhold). The Custodian
will, or will instruct the applicable subcustodian or other withholding agent to, withhold the amount of any tax which is required to be withheld under applicable law upon collection of any dividend, interest or other distribution made with respect
to any security and any proceeds or income from the sale, loan or other transfer of any security.
In the event that the Custodian or any subcustodian is required under applicable law to pay any tax on behalf of each Fund, the Custodian is hereby
authorized to withdraw cash from any cash account in the amount required to pay such tax and to use such cash, or to remit such cash to the appropriate subcustodian, for the timely payment of such tax in the manner required by applicable law.
The Trust, on its own behalf and on behalf of each Fund, will indemnify the Custodian and hold the Custodian harmless from and against any
and all losses sustained or incurred by or asserted against the Custodian by reason of or as a result of any action or inaction, or arising out of the Custodians performance under the Custody Agreement, including reasonable fees and expenses
of counsel incurred by the Custodian in a successful defense of claims by any Fund; provided however, that the Trust, on its own behalf and on behalf of each Fund, as applicable, will not indemnify the Custodian for those losses arising out of the
Custodians gross negligence or willful misconduct. This indemnity will be a continuing obligation of the Trust, on its own behalf and on behalf of each Fund, as applicable, their successors and assigns, notwithstanding the termination of the
Custody Agreement.
Transfer Agency and Service Agreement
The Bank of New York serves as each Funds transfer agent, or
Transfer Agent. Pursuant to the Transfer Agency and Service Agreement between the Trust, on its own behalf and on behalf of each Fund, and the Transfer Agent, the Transfer Agent serves as each Funds transfer agent, dividend or distribution
disbursing agent, and agent in connection with certain other activities as provided under the Transfer Agency and Service Agreement.
The term of the Transfer Agency and Service Agreement is one year from the effective date and will automatically renew for additional one year terms unless any party provides written notice of termination (with respect to a specific Fund)
at least ninety (90) days prior to the end of any one year term or, unless earlier terminated as provided below:
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Either party terminates prior to the expiration of the initial term in the event the other party breaches any material
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provision of the Transfer Agency and Service Agreement, including, without limitation in the case of the Trust, on behalf of each Fund, its obligations to
compensate the Transfer Agent, provided that the non breaching party gives written notice of such breach to the breaching party and the breaching party does not cure such violation within 90 days of receipt of such notice.
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Each Fund may terminate the Transfer Agency and Service Agreement prior to the expiration of the initial term upon ninety (90) days prior written notice
in the event that the Managing Owner determines to liquidate the Trust or any Fund and terminate its registration with the Securities and Exchange Commission other than in connection with a merger or acquisition of the Trust.
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The Transfer Agent will have no responsibility and will not be liable for any loss or damage unless such loss or damage
is caused by its own gross negligence or willful misconduct or that of its employees, or its breach of any of its representations. In no event will the Transfer Agent be liable for special, indirect or consequential damages regardless of the form of
action and even if the same were foreseeable.
Pursuant to the Transfer Agency and Service Agreement, the Transfer Agent will not be
responsible for, and the Trust or each applicable Fund will indemnify and hold the Transfer Agent harmless from and against, any and all losses, damages, costs, charges, counsel fees, payments, expenses and liability, or Losses, arising out of or
attributable to:
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All actions of the Transfer Agent or its agents or subcontractors required to be taken pursuant to the Transfer Agency and Service Agreement, provided that such
actions are taken without gross negligence, or willful misconduct.
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The Trusts or the respective Funds gross negligence or willful misconduct.
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The breach of any representation or warranty of the Trust thereunder.
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The conclusive reliance on or use by the Transfer Agent or its agents or subcontractors of information, records, documents or services which (i) are received
by the Transfer Agent or its agents or subcontractors, and (ii) have been prepared, maintained or performed by the Trust, on its own behalf or on behalf of any Fund or any other person or firm on behalf of the Trust or a Fund including but not
limited to any previous transfer agent or registrar.
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The conclusive reliance on, or the carrying out by the Transfer Agent or its agents or subcontractors of any instructions or requests of the Trust, on its own
behalf and on behalf of each Fund.
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The offer or sale of Shares in violation of any requirement under the federal securities laws or regulations or the securities laws or regulations of any state that
such Shares be registered in such state or in violation of any stop order or other determination or ruling by any federal agency or any state with respect to the offer or sale of such Shares in such state.
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Distribution Services Agreement
ALPS Distributors provides certain distribution services to each Fund.
Pursuant to the Distribution Services Agreement between the Trust, as amended from time to time, with respect to each Fund, and ALPS Distributors, ALPS Distributors assists the Managing Owner and the Administrator with certain functions and duties
relating to distribution and marketing, including reviewing and approving marketing materials.
The date of the Distribution Services
Agreement is the effective date and such Agreement will continue until two years from such date and thereafter will continue automatically for successive annual periods, provided that such continuance is specifically approved at least annually
(i) by the Managing Owner with respect to each Fund or otherwise as provided under the Distribution Services Agreement. The Distribution Services Agreement is terminable without penalty on sixty days written notice by the Managing Owner
of each Fund (with
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respect to any individual Fund) or by ALPS Distributors. The Distribution Services Agreement will automatically terminate in the event of its assignment.
Pursuant to the Distribution Services Agreement, each Fund will indemnify ALPS Distributors as follows:
Each Fund indemnifies and holds harmless ALPS Distributors and each of its directors and officers and each person, if any, who controls ALPS Distributors
within the meaning of Section 15 of the Securities Act, against any loss, liability, claim, damages or expenses (including the reasonable cost of investigating or defending any alleged loss, liability, claim, damages or expenses and reasonable
counsel fees incurred in connection therewith) arising by reason of any person acquiring any Shares, based upon the ground that the registration statement, Prospectus, statement of additional information, Shareholder reports or other information
filed or made public by each respective Fund (as from time-to-time amended) included an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein not
misleading under the Securities Act or any other statute or the common law. However, the Funds do not indemnify ALPS Distributors or hold it harmless to the extent that the statement or omission was made in reliance upon, and in conformity with,
information furnished to each respective Fund by or on behalf of ALPS Distributors. In no case
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is the indemnity of each Fund in favor of ALPS Distributors or any person indemnified to be deemed to protect ALPS Distributors or any person against any liability
to each Fund or its security holders to which ALPS Distributors or such person would otherwise be subject by reason of willful misfeasance, bad faith or negligence in the performance of its duties or by reason of its reckless disregard of its
obligations and duties under the Distribution Services Agreement, or
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is any Fund to be liable under its indemnity agreement contained in this paragraph with respect to any claim made against ALPS Distributors or any person
indemnified
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unless ALPS Distributors or the person, as the case may be, will have notified the applicable Fund in writing of the claim promptly after the summons or
other first written notification giving information of the nature of the claims will have been served upon ALPS Distributors or any such person (or after ALPS Distributors or such person will have received notice of service on any designated agent).
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However, failure to notify each Fund of any claim will not relieve each Fund from any liability which it may have to any
person against whom such action is brought otherwise than on account of its indemnity agreement described herein. Each Fund will be entitled to participate at its own expense in the defense, or, if it so elects, to assume the defense of any suit
brought to enforce any claims, and if any Fund elects to assume the defense, the defense will be conducted by counsel chosen by such Fund. In the event any Fund elects to assume the defense of any suit and retain counsel, ALPS Distributors, officers
or directors or controlling person(s), defendant(s) in the suit, will bear the fees and expenses of any additional counsel retained by them. If no Fund elects to assume the defense of any suit, it will reimburse ALPS Distributors, officers or
directors or controlling person(s) or defendant(s) in the suit for the reasonable fees and expenses of any counsel retained by them. Each Fund agrees to notify ALPS Distributors promptly of the commencement of any litigation or proceeding against it
or any of its officers in connection with the issuance or sale of any of the Shares.
Marketing Agreement
AIM Distributors provides certain marketing services to each Fund. Pursuant to the
Marketing Agreement between the Managing Owner on behalf of each Fund and AIM Distributors, AIM Distributors assists the Managing Owner and the Administrator with certain functions and duties such as providing various educational and marketing
activities regarding each Fund, primarily in the secondary trading market, which activities include, but are not limited to, communicating each Funds name, characteristics, uses, benefits, and risks, consistent with the prospectus. AIM
Distributors does not open or maintain customer accounts or handle orders for the Funds. AIM Distributors
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engages in public seminars, road shows, conferences, media interviews, field incoming telephone 800 number calls and distribute sales literature
and other communications (including electronic media) regarding each Fund.
The effective date of the Marketing Agreement is the effective
date of the registration statement and such Marketing Agreement will continue until terminated. The Marketing Agreement is terminable upon written notice by the Managing Owner of each Fund (with respect to any individual Fund) or by AIM
Distributors. The Marketing Agreement may be terminated upon 30 days prior written notice for cause as provided under the Marketing Agreement or upon 90 days prior written notice as provided under the Marketing Agreement.
The Marketing Agreement may not be assigned without the prior written consent of the parties to the Marketing Agreement.
Pursuant to the Marketing Agreement, each party to this Agreement will indemnify and hold harmless the other parties to this Agreement against all
losses, claims, damages, liabilities or expenses (including reasonable fees and disbursements of counsel) from any claim, demand, action or suit arising out of or in connection with the indemnifying partys failure to comply with applicable
laws, rules and regulations in connection with performing its obligations under the Marketing Agreement; negligence or willful misconduct in carrying out its duties and responsibilities under the Marketing Agreement; or material breach of the terms
of the Marketing Agreement. The indemnities granted by the parties in the Marketing Agreement will survive the termination of the Marketing Agreement. Additionally, the Managing Owner will indemnify AIM Distributors and hold AIM Distributors
harmless from any losses, claims, damages, liabilities or expenses (including reasonable fees and disbursements of counsel) from any claim, demand, action or suit arising out of or in connection with any sales materials relating to each Fund
provided by the Managing Owner to AIM Distributors.
AIM Distributors will not perform any marketing in respect of any Fund prior to AIM
Distributors receipt of written notice from the Managing Owner that this registration statement has been declared effective by the SEC.
MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following discussion describes the material United
States federal (and certain state and local) income tax considerations associated with the purchase, ownership and disposition of Shares as of the date hereof by United States Shareholders (as defined below) and non-United States Shareholders (as
defined below). Except where noted, this discussion deals only with Shares held as capital assets by Shareholders who acquired Shares by purchase and does not address special situations, such as those of:
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dealers in securities or currencies;
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financial institutions;
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regulated investment companies, other than the application of certain qualification requirements to an investment in Shares;
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real estate investment trusts;
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tax-exempt organizations;
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persons holding Shares as a part of a hedging, integrated or conversion transaction or a straddle;
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traders in securities that elect to use a mark-to-market method of accounting for their securities holdings; or
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persons liable for alternative minimum tax.
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Furthermore, the discussion below is based upon the provisions of the Internal Revenue Code of 1986, as amended, or the Code, the Treasury regulations promulgated thereunder, or the Regulations, and administrative and judicial
interpretations thereof, all as of the date hereof, and such authorities may be repealed, revoked, modified or subject to differing interpretations, possibly on a retroactive basis, so as to result in United States federal income tax consequences
different from those described below.
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A U.S. Shareholder of Shares means a beneficial owner of Shares that is for United States federal income tax purposes:
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an individual citizen or resident of the United States;
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a corporation (or other entity taxable as a corporation) created or organized in or under the laws of the United States or any state thereof or the District of
Columbia;
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an estate the income of which is subject to United States federal income taxation regardless of its source; or
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a trust if it (1) is subject to the primary supervision of a court within the United States and one or more U.S. persons have the authority to control all
substantial decisions of such trust or (2) has a valid election in effect under applicable Regulations to be treated as a U.S. person.
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A non-U.S. Shareholder of Shares means a beneficial owner of Shares that is not a U.S. Shareholder.
If a partnership or other entity or arrangement treated as a partnership for United States federal income tax purposes holds Shares, the tax treatment of a partner will generally depend upon the status of the partner and the activities of
the partnership. If you are a partner of a partnership holding Shares, we urge you to consult your own tax adviser.
No statutory,
administrative or judicial authority directly addresses the treatment of Shares or instruments similar to Shares for United States federal income tax purposes. As a result, we cannot assure you that the United States Internal Revenue Service, or
IRS, or the courts will agree with the tax consequences described herein. A different treatment from that described below could adversely affect the amount, timing and character of income, gain or loss in respect of an investment in the Shares.
If you are considering the purchase of Shares, we urge you to consult your own tax adviser concerning the particular United States federal income tax consequences to you of the purchase, ownership and disposition of Shares, as well as any
consequences to you arising under the laws of any other taxing jurisdiction.
Status of the Funds
Under current law and assuming full compliance with the terms of the Trust Declaration
(and other relevant documents), in the opinion of Sidley Austin
LLP
, each of the Funds will not be classified as an association taxable as a corporation. As a result, for tax purposes, you will be treated as the beneficial owner of a
pro rata portion of the Master Fund Units in the corresponding Master Fund held by each Fund whose Shares you purchase. Each Fund intends to take the position that it is a grantor trust for Federal income tax purposes, although it is possible that
the IRS might disagree and choose to treat it as a partnership or disregarded entity. While such recharacterization would impact the manner in which a Funds annual tax information is reported to Shareholders, it should not materially impact
the timing of income or loss recognition or character of income realized by Shareholders. As described herein, the Master Fund underlying or corresponding to each Fund is classified as a partnership and each Fund will not under any characterization
be subject to entity-level income tax. If a Fund were to be treated as a disregarded entity, Shareholders in the Fund would be treated as directly owning a proportionate share of the Funds partnership interest in its underlying or
corresponding Master Fund and would take into account their allocable share of such Master Funds tax items, a result identical to that described above for treatment of the Fund as a grantor trust. If a Fund were classified as a partnership,
Shareholders of such Fund would be treated as owning interests in a holding partnership whose only investment is an equity interest in its underlying or corresponding Master Fund. Because ownership of the Fund and its underlying or corresponding
Master Fund will be identical (except for the small equity interest of the Managing Owner in each Master Fund), the tax years of the two partnerships would always be the same and Shareholders in the Fund would look through to the assets and tax
items of its underlying or corresponding Master Fund when determining their federal income tax liability for any particular tax year. This tax treatment is, likewise, the same as if the Fund were characterized as a grantor trust. The only impact a
reclassification of a Fund would have on Shareholders is the manner in which their annual share of tax items related to the underlying or corresponding Master Fund assets is reported to them. If the Managing Owner determines, based on a challenge to
a Funds tax status or otherwise, that the
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existence of the Fund results or is reasonably likely to result in a material tax detriment to Shareholders, then the Managing Owner may, among other things,
agree to dissolve the Fund and transfer its underlying or corresponding Master Fund Units to Shareholders of such Fund in exchange for their Shares.
Status of the Master Funds
A partnership is not a taxable entity and incurs no United States federal income
tax liability. Section 7704 of the Code provides that publicly traded partnerships will, as a general rule, be taxed as corporations. However, an exception exists with respect to publicly traded partnerships of which 90% or more of the gross
income during each taxable year consists of qualifying income within the meaning of Section 7704(d) of the Code (qualifying income exception). Qualifying income includes dividends, interest, capital gains from the sale
or other disposition of stocks and debt instruments and, in the case of a partnership (such as each Master Fund) a principal activity of which is the buying and selling of DX Contracts or regulated futures contracts with respect to currencies,
income and gains derived from DX Contracts or regulated futures contracts with respect to currencies. Each Master Fund anticipates that at least 90% of its gross income for each taxable year will constitute qualifying income within the meaning of
Section 7704(d) of the Code.
Under current law and assuming full compliance with the terms of the Trust Declaration (and other
relevant documents) and based upon factual representations made by each Master Fund, in the opinion of Sidley Austin
LLP
, each Master Fund will be classified as a partnership for United States federal income tax purposes. The factual
representations upon which Sidley Austin LLP has relied are: (a) the Master Fund has not elected and will not elect to be treated as a corporation for United States federal income tax purposes; and (b) for each taxable year, 90% or more of
the Master Funds gross income will be qualifying income.
There can be no assurance that the IRS will not assert that a Master Fund
should be treated as a publicly traded partnership taxable as a corporation. No ruling has been or will be sought from the IRS, and the IRS has made no determination as to the status of either Master Fund for United States federal income tax
purposes or whether the Master Funds
operations generate qualifying income under Section 7704(d) of the Code. Whether a Master Fund will continue to meet the qualifying income
exception is a matter that will be determined by the Master Funds operations and the facts existing at the time of future determinations. However, each Master Funds Managing Owner will use its best efforts to cause the operation of the
Master Fund in such manner as is necessary for the Master Fund to continue to meet the qualifying income exception.
If a Master Fund fails
to satisfy the qualifying income exception described above (other than a failure which is determined by the IRS to be inadvertent and which is cured within a reasonable period of time after the discovery of such failure), the Master Fund will be
treated as if it had transferred all of its assets, subject to its liabilities, to a newly formed corporation, on the first day of the year in which it failed to satisfy the exception, in return for stock in that corporation, and then distributed
that stock to the Shareholders in liquidation of their interests in the company. This contribution and liquidation generally should be tax free to Shareholders of the corresponding Fund and the Master Fund so long as the Master Fund, at that time,
does not have liabilities in excess of its tax basis in its assets. Thereafter, the Master Fund would be treated as a corporation for United States federal income tax purposes. If a Master Fund were taxable as a corporation in any taxable year,
either as a result of a failure to meet the qualifying income exception described above or otherwise, its items of income, gain, loss and deduction would be reflected only on its tax return rather than being passed through to the Shareholders, and
its net income would be taxed to it at the income tax rates applicable to domestic corporations. In addition, any distribution made to the corresponding Fund would be treated as taxable dividend income, to the extent of the Master Funds
current or accumulated earnings and profits, or, in the absence of current and accumulated earnings and profits, a nontaxable return of capital to the extent of each Shareholders tax basis in its Shares, or taxable capital gain, after the
Shareholders tax basis in its Shares is reduced to zero. Taxation of a Master Fund as a corporation could result in a material reduction in a Shareholders cash flow and after-tax return and thus could result in a substantial reduction of
the value of the Shares of its corresponding Fund.
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The discussion below is based on Sidley Austin LLPs opinion that each Master Fund will be classified as a partnership that is not subject to corporate
income tax for United States federal income tax purposes.
U.S. Shareholders
Treatment of Master Fund Income
A partnership does not incur United States federal income tax liability. Instead, each partner of a partnership is required to take into account its share
of items of income, gain, loss, deduction and other items of the partnership. Accordingly, each Shareholder in the Fund which corresponds to a particular Master Fund will be required to include in income its allocable share of the Master Funds
income, gain, loss, deduction and other items for the Master Funds taxable year ending with or within its taxable year. In computing a partners United States federal income tax liability, such items must be included, regardless of
whether cash distributions are made by the partnership. Thus, Shareholders in the Fund which corresponds to a particular Master Fund may be required to take into account taxable income without a corresponding current receipt of cash if the Master
Fund generates taxable income but does not make cash distributions in an amount equal to, or if the Shareholder is not able to deduct, in whole or in part, such Shareholders allocable share of the Master Funds expenses or capital losses.
Each Master Funds taxable year will end on December 31 unless otherwise required by law. Each Master Fund will use the accrual method of accounting.
Shareholders will take into account their share of ordinary income realized by such Funds underlying or corresponding Master Fund from accruals of interest on Treasury Bills (T-Bills) held in the
Master Funds portfolio. Each Master Fund may hold T-Bills with acquisition discount or original issue discount, in which case Shareholders in the Fund which corresponds to a particular Master Fund would be required to
include accrued amounts in taxable income on a current basis even though receipt of those amounts may occur in a subsequent year. Each Master Fund may also acquire T-Bills with market discount. Upon disposition of such obligations, gain
would generally be required to be treated as interest income to the extent of the market discount and Shareholders in the Fund that
corresponds with the particular Master Fund would be required to include as ordinary income their share of such market discount that accrued during the
period the obligations were held by the Master Fund.
The Code generally applies a mark-to-market system of taxing unrealized
gains and losses on, and otherwise provides for special rules of taxation with respect to Section 1256 Contracts. A Section 1256 Contract includes certain regulated futures contracts. It is expected that the futures on the Indexes held by
the Master Funds will constitute Section 1256 Contracts. Section 1256 Contracts held by the Master Funds at the end of a taxable year of the Master Funds will be treated for United States federal income tax purposes as if they were sold by
the Master Funds at their fair market value on the last business day of the taxable year. The net gain or loss, if any, resulting from these deemed sales (known as marking-to-market), together with any gain or loss resulting from any
actual sales of Section 1256 Contracts (or other termination of a Master Funds obligations under such contracts), must be taken into account by the Master Fund in computing its taxable income for the year. If a Section 1256 Contract
held by a Master Fund at the end of a taxable year is sold in the following year, the amount of any gain or loss realized on the sale will be adjusted to reflect the gain or loss previously taken into account under the mark-to-market rules.
Capital gains and losses from Section 1256 Contracts generally are characterized as short-term capital gains or losses to the
extent of 40% of the gains or losses and as long-term capital gains or losses to the extent of 60% of the gains or losses. Shareholders of a Fund will generally take into account their
pro rata
share of the long-term capital gains and losses
and short-term capital gains and losses from Section 1256 Contracts held by the underlying or corresponding Master Fund. If a non-corporate taxpayer incurs a net capital loss for a year, the portion of the loss, if any, which consists of a net
loss on Section 1256 Contracts may, at the election of the taxpayer, be carried back three years. A loss carried back to a year by a noncorporate taxpayer may be deducted only to the extent (1) the loss does not exceed the net gain on
Section 1256 Contracts for the year and (2) the allowance of the carryback does not increase or produce a net operating loss for the year.
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Because the regulated currency futures contracts in which the Master Funds will invest are Section 1256 Contracts, the provisions of Code
Section 988, relating to foreign currency-related gains and losses, will not apply to such futures contracts. However, investors in the Shares of a Fund are permitted to elect to have the provisions of Section 988 apply with respect to
their allocable share of the underlying or corresponding Master Funds currency futures contracts. If such election is made in a timely manner, such investors allocable share of the gains and losses from such contracts would receive
ordinary income or ordinary loss treatment rather than capital gain or loss treatment (as discussed above). The mark-to-market rules of Section 1256 would continue to apply to such contracts. If such election is made, the Section 988 rules
would apply to all of the taxpayers regulated futures contracts and non-equity options that are Section 988 transactions for the year in which such election is made and succeeding years, unless such election is revoked with the consent of
the IRS.
Allocation of the Master Funds Profits and Losses
For United States federal income tax purposes, a Shareholders distributive share of a Master Funds income, gain, loss, deduction and other
items will be determined by the Master Trusts Trust Declaration, unless an allocation under the agreement does not have substantial economic effect, in which case the allocations will be determined in accordance with the
partners interests in the partnership. Subject to the discussion below under Monthly Allocation and Revaluation Conventions and Section 754 Election, the allocations pursuant to the Master
Trusts Trust Declaration should be considered to have substantial economic effect or deemed to be made in accordance with the partners interests in the partnership.
If the allocations provided by the Master Trusts Trust Declaration were successfully challenged by the IRS, the amount of income or loss allocated
to Shareholders for U.S. federal income tax purposes under the agreement could be increased or reduced or the character of the income or loss could be modified.
As described in more detail below, the U.S tax rules that apply to partnerships are complex and their application is not always clear. Additionally, the rules
generally were not written for, and in some respects are difficult to apply to, publicly traded partnerships. Each Master Fund will apply certain assumptions
and conventions intended to comply with the intent of the rules and to report income, gain, deduction, loss and credit to Shareholders in a manner that reflects the economic gains and losses, but these assumptions and conventions may not comply with
all aspects of the applicable Treasury regulations. It is possible therefore that the IRS will successfully assert that assumptions made and/or conventions used do not satisfy the technical requirements of the Code or the Treasury regulations and
will require that tax items be adjusted or reallocated in a manner that could adversely impact you.
Monthly Allocation and
Revaluation Conventions
In general, each Master Funds taxable income and losses will be determined monthly and will be
apportioned among the holders of Shares of its corresponding Fund in proportion to the number of Shares treated as owned by each of them as of the close of the last trading day of the preceding month. By investing in Shares, a U.S. Holder agrees
that, in the absence of an administrative determination or judicial ruling to the contrary, it will report income and loss under the monthly allocation and revaluation conventions described below.
Under the monthly allocation convention, whomever is treated for U.S. federal income tax purposes as holding Shares as of the close of the last trading
day of the preceding month will be treated as continuing to hold the Shares until immediately before close of the last trading day of the following month. As a result, a holder who has disposed of shares prior to the close of the last trading day of
a month may be allocated income, gain, loss and deduction realized after the date of transfer.
The Code generally requires that items of
partnership income and deductions be allocated between transferors and transferees of partnership interests on a daily basis. It is possible that transfers of Shares could be considered to occur for U.S. federal income tax purposes when the transfer
is completed without regard to a Master Funds monthly convention for allocating income and deductions. If this were to occur, the Master Funds allocation method might be deemed to violate that requirement.
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In addition, for any month in which a creation or redemption of Shares takes place, a Master Fund generally will credit or debit, respectively, the
book capital accounts of the holders of existing Shares with any unrealized gain or loss in the Master Funds assets. This will result in the allocation of items of the Master Funds income, gain, loss, deduction and credit to
existing holders of Shares to account for the difference between the tax basis and fair market value of property owned by the Master Fund at the time new Shares are issued or old Shares are redeemed (reverse section 704(c) allocations).
The intended effect of these allocations is to allocate any built-in gain or loss in the Master Funds assets at the time of a creation or redemption of Shares to the investors that economically have earned such gain or loss.
As with the other allocations described above, each Master Fund generally will use a monthly convention for purposes of the reverse section 704(c)
allocations. More specifically, each Master Fund generally will credit or debit, respectively, the book capital accounts of the holders of existing Shares with any unrealized gain or loss in the Master Funds assets based on a
calculation utilizing the lowest trading price of the Funds Shares during the month in which the creation or redemption transaction takes place, rather than the fair market value of its assets at the time of such creation or redemption (the
revaluation convention). As a result, it is possible that, for U.S. federal income tax purposes, (i) a purchaser of newly issued Shares will be allocated some or all of the unrealized gain in the Master Funds assets at the
time it acquires the Shares or (ii) an existing holder of Shares will not be allocated its entire share in the unrealized loss in the Master Funds assets at the time of such acquisition. Furthermore, the applicable Treasury regulations
generally require that the book capital accounts will be adjusted based on the fair market value of partnership property on the date of adjustment and do not explicitly allow the adoption of a monthly revaluation convention.
The Code and applicable Treasury regulations generally require that items of partnership income and deductions be allocated between transferors and
transferees of partnership interests on a daily basis, and that adjustments to book capital accounts be made based on the fair market value of partnership property on the date of adjustment. The Code and regulations do not contemplate
monthly allocation or
revaluation conventions. If the IRS does not accept a Master Funds monthly allocation or revaluation convention, the IRS may contend that taxable
income or losses of the Master Funds must be reallocated among the holders of Shares of their respective corresponding Funds. If such a contention were sustained, the holders respective tax liabilities would be adjusted to the possible
detriment of certain holders. The Managing Owner is authorized to revise the Master Funds allocation and revaluation methods in order to comply with applicable law or to allocate items of partnership income and deductions in a manner that
reflects more accurately the Shareholders interests in the Master Funds.
Section 754 Election
Each Master Fund intends to make the election permitted by Section 754 of the Code. Such an election, once made, is irrevocable without the consent
of the IRS. The making of such election by a Master Fund will generally have the effect of requiring a purchaser of Shares in its corresponding Fund to adjust its proportionate share of the basis in the Master Funds assets, or the inside
basis, pursuant to Section 743(b) of the Code to fair market value (as reflected in the purchase price for the purchasers Shares), as if it had acquired a direct interest in the Master Funds assets. The Section 743(b)
adjustment is attributed solely to a purchaser of Shares and is not added to the bases of the Master Funds assets associated with all of the other Shareholders. Depending on the relationship between a holders purchase price for Shares
and its unadjusted share of the Master Funds inside basis at the time of the purchase, the Section 754 election may be either advantageous or disadvantageous to the holder as compared to the amount of gain or loss a holder would be
allocated absent the Section 754 election.
The calculations under Section 754 of the Code are complex, and there is little legal
authority concerning the mechanics of the calculations, particularly in the context of publicly traded partnerships. Therefore, if a Master Fund makes the election under Code Section 754, it is expected that the Master Fund will apply certain
conventions in determining and allocating the Section 743 basis adjustments to help reduce the complexity of those calculations and the resulting administrative costs to the Master Fund. It is possible that the IRS will successfully assert that
some or all of such
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conventions utilized by the Master Fund do not satisfy the technical requirements of the Code or the Regulations and, thus, will require different basis
adjustments to be made.
In order to make the basis adjustments permitted by Section 754, each Master Fund will be required to obtain
information regarding each holders secondary market transactions in Shares as well as creations and redemptions of Shares. Each Master Fund will seek such information from the record holders of Shares, and, by purchasing Shares, each
beneficial owner of Shares will be deemed to have consented to the provision of such information by the record owner of such beneficial owners Shares. Notwithstanding the foregoing, however, there can be no guarantee that any Master Fund will
be able to obtain such information from record owners or other sources, or that the basis adjustments that any Master Fund makes based on the information it is able to obtain will be effective in eliminating disparity between a holders outside
basis in its share of the Master Fund Interests and its share of inside basis.
Constructive Termination
A Master Fund will be considered to have terminated for tax purposes if there is a sale or exchange of 50 percent or more of the total Shares in the
corresponding Fund within a 12-month period. A constructive termination results in the closing of a Master Funds taxable year for all holders of Shares in the corresponding Fund. In the case of a holder of Shares reporting on a taxable year
other than the taxable year used by a Master Fund (which is expected to be a fiscal year ending December 31), the early closing of the Master Funds taxable year may result in more than 12 months of its taxable income or loss being
includable in such holders taxable income for the year of termination. The Master Fund would be required to make new tax elections after a termination, including a new election under Section 754. A termination could also result in
penalties if a Master Fund were unable to determine that the termination had occurred.
Treatment of Distributions
Distributions of cash by a partnership are generally not taxable to the distributee to the extent the amount of cash does not
exceed the distributees tax basis in its partnership interest. Thus, any cash
distributions made by a Master Fund will be taxable to a Shareholder only to the extent such distributions exceed the Shareholders tax basis in the
partnership interests it is treated as owning (see Tax Basis in Master Fund Units below). Any cash distributions in excess of a Shareholders tax basis generally will be considered to be gain from the sale or exchange of the
Shares (see Disposition of Shares below).
Creation and Redemption of Share Baskets
Shareholders, other than Authorized Participants (or holders for which an Authorized Participant is acting), generally will not recognize gain or loss as
a result of an Authorized Participants creation or redemption of a Basket of Shares. If the Master Fund disposes of assets in connection with the redemption of a Basket of Shares, however, the disposition may give rise to gain or loss that
will be allocated in part to you. An Authorized Participants creation or redemption of a Basket of Shares also may affect your share of a Master Funds tax basis in its assets, which could affect the amount of gain or loss allocated to
you on the a sale or disposition of portfolio assets by the Master Fund.
Disposition of Shares
If a U.S. Shareholder transfers Shares of a Fund, it will be treated for United States federal income tax purposes as transferring its
pro rata
share of the partnership interests held by the Fund. If such transfer is a sale or other taxable disposition, the U.S. Shareholder will generally be required to recognize gain or loss measured by the difference between the amount realized on the
sale and the U.S. Shareholders adjusted tax basis in the partnership interests deemed sold. The amount realized will include the U.S. Shareholders share of the Master Funds liabilities, as well as any proceeds from the sale. The
gain or loss recognized will generally be taxable as capital gain or loss. Capital gain of non-corporate U.S. Shareholders is eligible to be taxed at reduced rates where the Master Fund Units deemed sold are considered held for more than one year.
Capital gain of corporate U.S. Shareholders is taxed at the same rate as ordinary income. Any capital loss recognized by a U.S. Shareholder on a sale of Shares will generally be deductible only against capital gains, except that a non-corporate U.S.
Shareholder may also offset up to $3,000 per year of ordinary income.
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Tax Basis in Master Fund Units
A
U.S. Shareholders initial tax basis in the partnership interests it is treated as holding will equal the sum of (a) the amount of cash paid by such U.S. Shareholder for its Shares and (b) such U.S. Shareholders share of the
Master Funds liabilities. A U.S. Shareholders tax basis in the Master Fund Units it is treated as holding will be increased by (a) the U.S. Shareholders share of the Master Funds taxable income, including capital gain,
(b) the U.S. Shareholders share of the Master Funds income, if any, that is exempt from tax and (c) any increase in the U.S. Shareholders share of the Master Funds liabilities. A U.S. Shareholders tax basis in
Master Fund Units it is treated as holding will be decreased (but not below zero) by (a) the amount of any cash distributed (or deemed distributed) to the U.S. Shareholder, (b) the U.S. Shareholders share of the Master Funds
losses and deductions, (c) the U.S. Shareholders share of the Master Funds expenditures that are neither deductible nor properly chargeable to its capital account and (d) any decrease in the U.S. Shareholders share of the
Master Funds liabilities.
Limitations on Interest Deductions
The deductibility of a non-corporate U.S. Shareholders investment interest expense is generally limited to the amount of that
Shareholders net investment income. Investment interest expense would generally include interest expense incurred by a Master Fund, if any, and investment interest expense incurred by the U.S. Shareholder on any margin account
borrowing or other loan incurred to purchase or carry Shares. Net investment income includes gross income from property held for investment and amounts treated as portfolio income, such as dividends and interest, under the passive loss rules, less
deductible expenses, other than interest, directly connected with the production of investment income. For this purpose, any long-term capital gain or qualifying dividend income that is taxable at long-term capital gains rates is excluded from net
investment income unless the U.S. Shareholder elects to pay tax on such capital gain or dividend income at ordinary income rates.
Organization, Syndication and Other Expenses
In general, expenses incurred that are considered miscellaneous
itemized deductions may be
deducted by a U.S. Shareholder that is an individual, estate or trust only to the extent that they exceed 2% of the adjusted gross income of such U.S.
Shareholder. The Code imposes additional limitations (which are scheduled to be phased out between 2006 and 2010) on the amount of certain itemized deductions allowable to individuals, by reducing the otherwise allowable portion of such deductions
by an amount equal to the lesser of:
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3% of the individuals adjusted gross income in excess of certain threshold amounts; or
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80% of the amount of certain itemized deductions otherwise allowable for the taxable year.
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In addition, these expenses are also not deductible in determining the alternative minimum tax liability of a U.S. Shareholder. Each Master Fund will
report such expenses on a
pro rata
basis to the Shareholders, and each U.S. Shareholder will determine separately to what extent they are deductible on such U.S. Shareholders tax return. A U.S. Shareholders inability to deduct all
or a portion of such expenses could result in an amount of taxable income to such U.S. Shareholder with respect to the Master Fund that exceeds the amount of cash actually distributed to such U.S. Shareholder for the year. It is anticipated that
management fees each Master Fund will pay will constitute miscellaneous itemized deductions.
Under Section 709(b) of the Code,
amounts paid or incurred to organize a partnership may, at the election of the partnership, be treated as deferred expenses, which are allowed as a deduction ratably over a period of 180 months. The Master Funds have not yet determined whether they
will make such an election. A non-corporate U.S. Shareholders allocable share of such organizational expenses would constitute miscellaneous itemized deductions. Expenditures in connection with the issuance and marketing of Shares (so called
syndication fees) are not eligible for the 180-month amortization provision and are not deductible.
Passive Activity
Income and Loss
Individuals are subject to certain passive activity loss rules under Section 469 of the Code.
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Under these rules, losses from a passive activity generally may not be used to offset income derived from any source other than passive activities. Losses
that cannot be currently used under this rule may generally be carried forward. Upon an individuals disposition of an interest in the passive activity, the individuals unused passive losses may generally be used to offset other (i.e.,
non-passive) income. Under temporary Treasury regulations, income or loss from a Master Funds investments generally will not constitute income or losses from a passive activity. Therefore, income or loss from a Master Funds investments
will not be available to offset a U.S. Shareholders passive losses or passive income from other sources.
Transferor/Transferee Allocations
In general, a Master Funds taxable income and losses will be determined
monthly and will be apportioned among the Funds Shareholders in proportion to the number of Master Fund Units treated as owned by each of them as of the close of the last trading day of the preceding month. With respect to any Master Fund Unit
that was not treated as outstanding as of the close of the last trading day of the preceding month, the first person that is treated as holding such Master Fund Unit (other than an underwriter or other person holding in a similar capacity) for
United States federal income tax purposes will be treated as holding such Master Fund Unit for this purpose as of the close of the last trading day of the preceding month. As a result, a Shareholder transferring its Shares may be allocated income,
gain, loss and deduction realized after the date of transfer.
Section 706 of the Code generally requires that items of partnership
income and deductions be allocated between transferors and transferees of partnership interests on a daily basis. It is possible that transfers of Shares could be considered to occur for United States federal income tax purposes when the transfer is
completed without regard to a Master Funds convention for allocating income and deductions. In that event, the Master Funds allocation method might be considered a monthly convention that does not literally comply with that requirement.
If the IRS treats transfers of Shares as occurring throughout each month and a monthly convention is
not allowed by the Regulations (or only applies to transfers of less than all of a Shareholders Shares) or if the IRS otherwise does not accept a
Master Funds convention, the IRS may contend that taxable income or losses of the Master Fund must be reallocated among the Shareholders. If such a contention were sustained, the Shareholders respective tax liabilities would be adjusted
to the possible detriment of certain Shareholders. Each Master Funds Managing Owner is authorized to revise the Master Funds methods of allocation between transferors and transferees (as well as among Shareholders whose interests
otherwise vary during a taxable period).
Tax Reporting by each Fund and each Master Fund
Information returns will be filed with the IRS, as required, with respect to income, gain, loss, deduction and other items derived from Shares of each
Fund. Each Master Fund will file a partnership return with the IRS and intends to issue a Schedule K-1 to the Managing Owner on behalf of the Shareholders. The Managing Owner intends to report to you all necessary items on a tax information
statement or some other form as required by law. If you hold your Shares through a nominee (such as a broker), we anticipate that the nominee will provide you with an IRS Form 1099 or substantially similar form, which will be supplemented by
additional tax information that we will make available directly to you at a later date, but in time for you to prepare your federal income tax return. Each holder of Shares hereby agrees to allow brokers and nominees to report to the relevant Master
Funds its name and address and such other information as may be reasonably requested by the Master Fund for purposes of complying with its tax reporting obligations. We note that, given the lack of authority addressing structures similar to that of
the Funds and the Master Funds, it is not certain that the IRS will agree with the manner in which tax reporting by the Funds and the Master Funds will be undertaken. Therefore, Shareholders should be aware that future IRS interpretations or
revisions to Treasury regulations could alter the manner in which tax reporting by either Fund and any nominee will be undertaken.
Treatment of Securities Lending Transactions Involving Shares
A Shareholder whose Shares are loaned to a short
seller to cover a short sale of Shares may be
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considered as having disposed of those Shares. If so, such Shareholder would no longer be a beneficial owner of a
pro rata
portion of the partnership
interests with respect to those Shares during the period of the loan and may recognize gain or loss from the disposition. As a result, during the period of the loan, (1) any of the relevant Master Funds income, gain, loss, deduction or
other items with respect to those Shares would not be reported by the Shareholder, and (2) any cash distributions received by the Shareholder as to those Shares could be fully taxable, likely as ordinary income. Accordingly, Shareholders who
desire to avoid the risk of income recognition from a loan of their Shares to a short seller are urged to modify any applicable brokerage account agreements to prohibit their brokers from borrowing their Shares.
Audits and Adjustments to Tax Liability
Any challenge by the IRS to the tax treatment by a partnership of any item must be conducted at the partnership, rather than at the partner, level. A partnership ordinarily designates a tax matters partner
(as defined under Section 6231 of the Code) as the person to receive notices and to act on its behalf in the conduct of such a challenge or audit by the IRS.
Pursuant to the Master Trusts Trust Declaration, the Managing Owner will be appointed the tax matters partner of each Master Fund for all purposes pursuant to Sections 6221-6231 of the Code. The tax
matters partner, which is required by the Master Trusts Trust Declaration to notify all U.S. Shareholders of any U.S. federal income tax audit of any Master Fund, will have the authority under the Trust Declaration to conduct any IRS audits of
each Master Funds tax returns or other tax related administrative or judicial proceedings and to settle or further contest any issues in such proceedings. The decision in any proceeding initiated by the tax matters partner will be binding on
all U.S. Shareholders. As the tax matters partner, the Managing Owner will have the right on behalf of all Shareholders to extend the statute of limitations relating to the Shareholders United States federal income tax liabilities with respect
to Master Fund items.
A United States federal income tax audit of a Master Funds information return may result in an audit of the
returns of the U.S. Shareholders, which,
in turn, could result in adjustments of items of a Shareholder that are unrelated to the Master Fund as well as to the Master Fund related items. In
particular, there can be no assurance that the IRS, upon an audit of an information return of a Fund or a Master Fund or of an income tax return of a U.S. Shareholder, might not take a position that differs from the treatment thereof by the Master
Fund. A U.S. Shareholder would be liable for interest on any deficiencies that resulted from any adjustments. Potential U.S. Shareholders should also recognize that they might be forced to incur substantial legal and accounting costs in resisting
any challenge by the IRS to items in their individual returns, even if the challenge by the IRS should prove unsuccessful.
Foreign
Tax Credits
Subject to generally applicable limitations, U.S. Shareholders will be able to claim foreign tax credits with respect
to certain foreign income taxes paid or incurred by a Master Fund, withheld on payments made to us or paid by us on behalf of Fund Shareholders. If a Shareholder elects to claim foreign tax credit, it must include in its gross income, for United
States federal income tax purposes, both its share of the Master Funds items of income and gain and also its share of the amount which is deemed to be the Shareholders portion of foreign income taxes paid with respect to, or withheld
from interest or other income derived by the Master Fund. U.S. Shareholders may then subtract from their United States federal income tax the amount of such taxes withheld, or else treat such foreign taxes as deductions from gross income; however,
as in the case of investors receiving income directly from foreign sources, the above described tax credit or deduction is subject to certain limitations. Even if the Shareholder is unable to claim a credit, he or she must include all amounts
described above in income. U.S. Shareholders are urged to consult their tax advisers regarding this election and its consequences to them.
Tax Shelter Disclosure Rules
There are circumstances under which certain transactions must be disclosed to the IRS
in a disclosure statement attached to a taxpayers United States federal income tax return. (A copy of such statement must also be sent to the IRS Office of Tax Shelter Analysis.) In addition, the Code imposes a requirement on certain
material advisers to
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maintain a list of persons participating in such transactions, which list must be furnished to the IRS upon written request. These provisions can apply to
transactions not conventionally considered to involve abusive tax planning. Consequently, it is possible that such disclosure could be required by a Master Fund or the Shareholders (1) if a Shareholder incurs a loss (in each case, in excess of
a threshold computed without regard to offsetting gains or other income or limitations) from the disposition (including by way of withdrawal) of Shares, or (2) possibly in other circumstances. Furthermore, a Master Funds material advisers
could be required to maintain a list of persons investing in the Master Fund pursuant to the Code. While the tax shelter disclosure rules generally do not apply to a loss recognized on the disposition of an asset in which the taxpayer has a
qualifying basis (generally a basis equal to the amount of cash paid by the taxpayer for such asset), such rules will apply to a taxpayer recognizing a loss with respect to interests in a pass through entity (such as the Shares) even if its basis in
such interests is equal to the amount of cash it paid. In addition, under recently enacted legislation, significant penalties may be imposed in connection with a failure to comply with these reporting requirements. U.S. Shareholders are urged to
consult their tax advisers regarding the tax shelter disclosure rules and their possible application to them.
Non-U.S. Shareholders
A non-U.S. Shareholder will not be subject to United States federal income tax on such Shareholders distributive share of a
Master Funds income, provided that such income is not considered to be income of the Shareholder that is effectively connected with the conduct of a trade or business within the United States. In the case of an individual non-U.S. Shareholder,
such Shareholder will be subject to United States federal income tax on gains on the sale of Shares in a Master Funds or such Shareholders distributive share of gains if such Shareholder is present in the United States for 183 days or
more during a taxable year and certain other conditions are met.
If the income from a Master Fund is effectively connected
with a U.S. trade or business carried on by a non-U.S. Shareholder (and, if certain income tax treaties apply, is attributable to a U.S. permanent establishment), then such Shareholders share of any
income and any gains realized upon the sale or exchange of Shares will be subject to United States federal income tax at the graduated rates applicable to
United States citizens and residents and domestic corporations. Non-U.S. Shareholders that are corporations may also be subject to a 30% U.S. branch profits tax (or lower treaty rate, if applicable) on their effectively connected earnings and
profits that are not timely reinvested in a U.S. trade or business.
Non-U.S. Shareholders that are individuals will be subject to United
States federal estate tax on the value of United States situs property owned at the time of their death (unless a statutory exemption or tax treaty exemption applies). It is unclear whether partnership interests (such as the interests of a Master
Fund) will be considered United States situs property. Accordingly, non-U.S. Shareholders may be subject to U.S. federal estate tax on all or part of the value of the Shares owned at the time of their death.
Non-U.S. Shareholders are advised to consult their own tax advisers with respect to the particular tax consequences to them of an investment in the
Shares.
Regulated Investment Companies
Regulated investment company (RIC) investors in Shares will be treated as owning a proportionate share of a Master Funds assets and will take into account their allocable share of the Master
Funds income, gains and losses when testing the various compliance requirements specifically applicable to them. The Master Funds do not meet the definition of a qualified publicly traded partnership for purposes of the newly created category
of qualifying RIC income added to the Code by the American Jobs Creation Act of 2004. However, under current interpretation of the RIC qualification rules, a RICs allocable share of income from a Master Funds currency futures
transactions and interest income from its investment in debt obligations are treated as qualifying income. Because each Master Fund is not a qualified PTP, a RICs investment in the Shares will not be counted against the 25 percent limit on a
RICs permitted investment in securities issued by qualified PTPs, and a RIC need not limit its investment in Shares provided it otherwise can satisfy the qualification requirements. The U.S. Treasury has specific statutory authority
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(granted in 1987) to promulgate Regulations excluding from the definition of qualifying income foreign currency gains which are not directly related to the
companys principal business of investing in stock or securities (or options and futures with respect to stock or securities), although to date no such Regulations have been issued or proposed. For this reason, there are some RICs which do not
invest in foreign currencies except as a way to hedge risk for investments which may be denominated in or affected by certain foreign currency fluctuations. At least one RIC has obtained a private ruling from the IRS that gains on its derivative
investments used to obtain exposure to foreign currencies would constitute qualifying income under current law and, additionally, if the ruling is revoked or modified based on future regulations, the finding of the ruling will likely not be modified
retroactively. RIC investors that have not sought their own rulings on the issue face a risk that future regulations will recharacterize foreign currency gains received by them as nonqualifying income and be retroactive in application. Prospective
RIC investors should consult a tax adviser regarding the treatment of an investment in a Master Fund to them under current tax rules.
Tax-Exempt Organizations
An organization that is otherwise exempt from U.S. federal income tax is nonetheless
subject to taxation with respect to its unrelated business taxable income, or UBTI, to the extent that its UBTI from all sources exceeds $1,000 in any taxable year. Except as noted below with respect to certain categories of exempt
income, UBTI generally includes income or gain derived (either directly or through a partnership) from a trade or business, the conduct of which is substantially unrelated to the exercise or performance of the organizations exempt purpose or
function.
UBTI generally does not include passive investment income, such as dividends, interest and capital gains, whether realized by
the organization directly or indirectly through a partnership (such as the Master Funds) in which it is a partner. This type of income is exempt, subject to the discussion of unrelated debt-financed income below, even if it is realized
from securities trading activity that constitutes a trade or business.
UBTI includes not only trade or business income or gain as
described above, but also
unrelated debt-financed income. This latter type of income generally consists of (1) income derived by an exempt organization (directly or
through a partnership) from income producing property with respect to which there is acquisition indebtedness at any time during the taxable year and (2) gains derived by an exempt organization (directly or through a partnership)
from the disposition of property with respect to which there is acquisition indebtedness at any time during the twelve-month period ending with the date of the disposition.
All of the income realized by a Master Fund is expected to be short-term or long-term capital gain income, interest income or other passive investment
income of the type specifically exempt from UBTI as discussed above. None of the Funds or Master Funds will borrow funds for the purpose of acquiring or holding any investments or otherwise incur acquisition indebtedness with respect to
such investments. Therefore, a tax-exempt entity purchasing Shares of a Fund would not incur any UBTI by reason of its investment in the Shares or upon sale of such Shares provided that such tax-exempt entity does not borrow funds for the purpose of
investing in the Shares.
Certain State and Local Taxation Matters
Prospective Shareholders should consider, in addition to the United States federal income tax consequences described, potential state and local tax
considerations in investing in the Shares.
State and local laws often differ from United States federal income tax laws with respect to
the treatment of specific items of income, gain, loss, deduction and credit. A Shareholders distributive share of the taxable income or loss of a Fund generally will be required to be included in determining its reportable income for state and
local tax purposes in the jurisdiction in which the Shareholder is a resident. A Master Fund may conduct business in one or more jurisdictions that will subject a Shareholder to tax (and require a Shareholder to file an income tax return with the
jurisdiction in respect to the Shareholders share of the income derived from that business.) A prospective Shareholder should consult its tax adviser with respect to the availability of a credit for such tax in the jurisdiction in which the
Shareholder is resident.
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The Master Funds should not be subject to the New York City unincorporated business tax because such tax is not imposed on an entity that is primarily engaged in the purchase and sale of futures contracts and
securities for its own account. By reason of a similar own account exemption, it is also expected that a nonresident individual U.S. Shareholder should not be subject to New York State personal income tax with respect to his
or her share of income or gain recognized by any Master Fund. A nonresident individual U.S. Shareholder will not be subject to New York City earnings tax on nonresidents with respect to his or her investment in any Fund. New York State and New
York City residents will be subject to New York State and New York City personal income tax on their income recognized in respect of Shares. Because each Master Fund may conduct its business, in part, in New York City, corporate U.S. Shareholders
generally will be subject to the New York franchise tax and the New York City general corporation tax by reason of their investment in a Fund, unless certain exemptions apply. However, pursuant to applicable regulations, nonNew York corporate
U.S. Shareholders not otherwise subject to New York State franchise tax or New York City general corporation tax should not be subject to these taxes solely by reason of investing in shares based on qualification of each Fund as a portfolio
investment partnership under applicable rules. No ruling from the New York State Department of Taxation and Finance or the New York City Department of Finance has been, or will be, requested regarding such matters.
Backup Withholding
Each
Fund is required in certain circumstances to backup withhold on certain payments paid to non-corporate shareholders of Shares who do not furnish the Fund with their correct taxpayer identification number (in the case of individuals, their social
security number) and certain certifications, or who are otherwise subject to backup withholding. Backup withholding is not an additional tax. Any amounts withheld from payments made to you may be refunded or credited against your United States
federal income tax liability, if any, provided that the required information is furnished to the IRS.
Shareholders should be aware that certain
aspects of the United States federal, state and local income tax treatment regarding the purchase, ownership and disposition of Shares are not clear under existing law. Thus, Shareholders are urged to consult their own tax advisers to determine the
tax consequences of ownership of the Shares in their particular circumstances, including the application of United States federal, state, local and foreign tax laws.
Prospective investors are urged
to consult their tax advisers before deciding whether to invest in the Shares.
PURCHASES BY EMPLOYEE BENEFIT PLANS
Although there can be no assurance that an investment in a Fund,
or any other managed futures product, will achieve the investment objectives of an employee benefit plan in making such investment, futures investments have certain features which may be of interest to such a plan. For example, the futures markets
are one of the few investment fields in which employee benefit plans can participate in leveraged strategies without being required to pay tax on unrelated business taxable income. See Material U.S. Federal Income Tax
Considerations Tax-Exempt Organizations at page 105. In addition, because they are not taxpaying entities, employee benefit plans are not subject to paying annual tax on profits (if any) of a Fund.
General
The following section sets forth certain consequences under the Employee Retirement Income Security
Act of 1974, as amended (ERISA), and the Code, which a fiduciary of an employee benefit plan as defined in and subject to ERISA or of a plan as defined in and subject to Section 4975 of the Code who has
investment discretion should consider before deciding to invest the plans assets in a Fund (such employee benefit plans and plans being referred to herein as Plans, and such fiduciaries with investment
discretion being referred to herein as Plan
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Fiduciaries). The following summary is not intended to be complete, but only to address certain questions under ERISA and the Code which are likely to
be raised by the Plan Fiduciarys own counsel.
In general, the terms employee benefit plan as defined in ERISA and
plan as defined in Section 4975 of the Code together refer to any plan or account of various types which provide retirement benefits or welfare benefits to an individual or to an employers employees and their beneficiaries.
Such plans and accounts include, but are not limited to, corporate pension and profitsharing plans, simplified employee pension plans, KEOGH plans for self-employed individuals (including partners), individual retirement accounts
described in Section 408 of the Code and medical plans.
Each Plan Fiduciary must give appropriate consideration to the facts and
circumstances that are relevant to an investment in a Fund, including the role that such an investment would play in the Plans overall investment portfolio. Each Plan Fiduciary, before deciding to invest in a Fund, must be satisfied that such
investment is prudent for the Plan, that the investments of the Plan, including the investment in a Fund, are diversified so as to minimize the risk of large losses and that an investment in a Fund complies with the governing documents of the Plan.
EACH PLAN FIDUCIARY CONSIDERING ACQUIRING SHARES MUST CONSULT WITH ITS OWN LEGAL AND TAX ADVISERS BEFORE DOING SO. AN INVESTMENT
IN A FUND IS SPECULATIVE AND INVOLVES A HIGH DEGREE OF RISK. NEITHER FUND IS INTENDED AS A COMPLETE INVESTMENT PROGRAM.
Plan Assets
A regulation issued under ERISA (the ERISA Regulation) contains rules for
determining when an investment by a Plan in an equity interest of an entity will result in the underlying assets of such entity being considered to constitute assets of the Plan for purposes of ERISA and Section 4975 of the Code (
i.e.,
plan assets). Those rules provide that assets of an entity will not be considered assets of a Plan which purchases an equity interest in the entity if certain exceptions apply, including (i) an exception applicable if the equity
interest purchased is a
publicly-offered security (the Publicly-Offered Security Exception) and (ii) an exception applicable if the equity interest
purchased is an insignificant participation (the Insignificant Participation Exception).
The Publicly-Offered
Security Exception applies if the equity interest is a security that is (1) freely transferable, (2) part of a class of securities that is widely held and (3) either (a) part of a class of securities
registered under Section 12(b) or 12(g) of the Securities Exchange Act of 1934, or (b) sold to the Plan as part of a public offering pursuant to an effective registration statement under the Securities Act of 1933 and the class of which
such security is a part is registered under the Securities Exchange Act of 1934 within 120 days (or such later time as may be allowed by the SEC) after the end of the fiscal year of the issuer in which the offering of such security occurred.
The Publicly Offered Security Exception applies with respect to the Shares of each Fund due to their Amex listing.
Each Master Fund will be able to rely on the Insignificant Participation Exception. Because the Publicly Offered Security Exception applies to the Shares
of each Fund, each Master Funds assets will not be plan assets. In turn, because each Fund and the Managing Owner are the only investors in the corresponding Master Fund and the assets of the Managing Owner are not plan
assets either, each Master Fund will not have any plan asset investors, and therefore, qualifies for the Insignificant Participation Exception.
Ineligible Purchasers
Shares may not be purchased with the assets of a Plan if the Managing Owner, the
Commodity Broker or any of their respective affiliates, any of their respective employees or any employees of their respective affiliates: (a) has investment discretion with respect to the investment of such Plan assets; (b) has authority
or responsibility to give or regularly gives investment advice with respect to such Plan assets, for a fee, and pursuant to an agreement or understanding that such advice will serve as a primary basis for investment decisions with respect to such
Plan assets and that such advice will be based on the particular investment needs of the Plan; or
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(c) is an employer maintaining or contributing to such Plan. A party that is described in clause (a) or (b) of the preceding sentence is a
fiduciary under ERISA and the Code with respect to the Plan, and any such purchase might result in a prohibited transaction under ERISA and the Code.
Except as otherwise set forth, the foregoing statements regarding the consequences under ERISA and the Code of an investment in Shares of a Fund are based on the provisions of the Code and ERISA as currently in
effect, and the existing administrative and judicial interpretations thereunder. No assurance can be given that administrative, judicial or legislative changes will not occur that will not make the foregoing statements incorrect or incomplete.
THE PERSON WITH INVESTMENT DISCRETION SHOULD CONSULT WITH HIS OR HER ATTORNEY AND FINANCIAL ADVISERS AS TO THE PROPRIETY OF AN
INVESTMENT IN SHARES IN LIGHT OF THE CIRCUMSTANCES OF THE PARTICULAR PLAN AND CURRENT TAX LAW.
PLAN OF DISTRIBUTION
Authorized Participants
Each Fund issues Shares in Baskets 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 a Fund, at the net asset value of 200,000 Shares as of the closing time of the Amex or the last to close of the
exchanges on which its corresponding Master Funds futures contracts are traded, whichever is later, on the date that a valid order to create a Basket is accepted by the Fund.
Each Master Fund issues Master Fund Units in Master Unit Baskets to its corresponding Fund continuously as of noon New York time on the business day
immediately following the date on which a valid order to create a Master Unit Basket is accepted by the Master Fund, at the net asset value of 200,000 Master Fund Units as of the closing time of the Amex or the last to close of the exchanges on
which the corresponding Master Funds futures contracts are traded, whichever is later, on the date that a valid order to create a Master Unit Basket is
accepted by the Master Fund. Each Master Fund will be wholly-owned by its corresponding Fund and the Managing Owner. Each Share issued by a Fund will
correlate with a Master Fund Unit issued by its corresponding Master Fund and held by the Fund.
Authorized Participants may offer to
the public, from time-to-time, Shares of a Fund from any Baskets they create. Shares of a Fund offered to the public by Authorized Participants will be offered at a per Share offering price that will vary depending on, among other factors, the
trading price of the Shares of each Fund on the Amex, the net asset value per Share and the supply of and demand for the Shares at the time of the offer. Shares initially comprising the same Basket but offered by Authorized Participants to the
public at different times may have different offering prices. The excess, if any, of the price at which an Authorized Participant sells a Share over the price paid by such Authorized Participant in connection with the creation of such Share in a
Basket will be deemed to be underwriting compensation by the FINRA Corporate Financing Department. Authorized Participants will not receive from either Fund, the Managing Owner or any of their affiliates, any fee or other compensation in connection
with their sale of Shares to the public, although investors are expected to be charged a customary commission by their brokers in connection with purchases of Shares that will vary from investor to investor. Investors are encouraged to review the
terms of their brokerage accounts for applicable charges.
As of October 5, 2007, Deutsche Bank Securities Inc. and Merrill Lynch
Professional Clearing Corp. have each executed a Participant Agreement relating to each Fund and are the only Authorized Participants.
Likelihood of Becoming a Statutory Underwriter
Each Fund issues Shares in Baskets to Authorized
Participants from time-to-time in exchange for cash. Because new Shares can be created and issued on an ongoing basis at any point during the life of each Fund, a distribution, as such term is used in the Securities Act, will be
occurring. An Authorized Participant, other broker-dealer firm or its client will be deemed a statutory underwriter, and thus will be subject to the prospectus-delivery and liability provisions of the Securities Act, if it purchases a Basket from
each Fund, breaks the
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Basket down into the constituent Shares and sells the Shares to its customers; or if it chooses to couple the creation of a supply of new Shares with an
active selling effort involving solicitation of secondary market demand for the Shares. A determination of whether one is an underwriter must take into account all the facts and circumstances pertaining to the activities of the broker-dealer or its
client in the particular case, and the examples mentioned above should not be considered a complete description of all the activities that would lead to categorization as an underwriter. Authorized Participants, other broker-dealers and other
persons are cautioned that some of their activities will result in their being deemed participants in a distribution in a manner which would render them statutory underwriters and subject them to the prospectus-delivery and liability provisions of
the Securities Act.
Dealers who are neither Authorized Participants nor underwriters but are participating in a
distribution (as contrasted to ordinary secondary trading transactions), and thus dealing with Shares that are part of an unsold allotment within the meaning of section 4(3)(C) of the Securities Act, would be unable to take advantage of
the prospectus delivery exemption provided by section 4(3) of the Securities Act.
General
Retail investors may purchase and sell Shares through traditional brokerage accounts. Investors who
purchase Shares through a commission/fee-based brokerage account may pay commissions/fees charged by the brokerage account. Investors are encouraged to review the terms of their brokerage accounts for applicable charges.
The Managing Owner intends to qualify the Shares in certain states and through broker-dealers who are members of the FINRA. Investors intending to create
or redeem Baskets through Authorized Participants in transactions not involving a broker-dealer registered in such investors state of domicile or residence should consult their legal advisor regarding applicable broker-dealer or securities
regulatory requirements under the state securities laws prior to such creation or redemption.
The Managing Owner has agreed to
indemnify certain parties against certain liabilities, including
liabilities under the Securities Act, and to contribute to payments that such parties may be required to make in respect of those liabilities. The Trustee
has agreed to reimburse such parties, solely from and to the extent of each respective Funds assets, for indemnification and contribution amounts due from the Managing Owner in respect of such liabilities to the extent the Managing Owner has
not paid such amounts when due.
The offering of Baskets is being made in compliance with Conduct Rule 2810 of the NASD. Accordingly, the
Authorized Participants will not make any sales to any account over which they have discretionary authority without the prior written approval of a purchaser of Shares. The maximum amount of items of value to be paid to FINRA Members in connection
with the offering of the Shares by a Fund will not exceed 10% plus 0.5% for bona fide due diligence.
The Authorized Participants will not
charge a commission of greater than 1% (which represents a maximum of $10,000,000 of the amount registered hereby) of the price per Share of each Fund in offering and selling the Shares comprising the Baskets of each Fund.
Pursuant to the Distribution Services Agreement, ALPS Distributors will be paid out of the Management Fee of each Master Fund in an amount of
approximately $25,000 per annum, plus any fees or disbursements incurred by ALPS Distributors in connection with the performance by ALPS Distributors of its duties on behalf of each Fund and its corresponding Master Fund.
Pursuant to the Marketing Agreement, AIM Distributors will be paid the following fees out of the Management Fee of each Master Fund in an amount of
(i) 0.10% per annum on the first $3 billion of the average amount of the daily net assets of all DB Funds (as defined in the following paragraph) during each calendar year calculated in U.S. dollars, or Total Net Assets,
(ii) 0.12% per annum on the next $2 billion of Total Net Assets (i.e., the amount of Total Nets Assets above $3 billion but below $5 billion); and (iii) 0.15% per annum on the Total Net Assets in excess of $5 billion.
DB Funds means PowerShares DB Commodity Index Tracking Fund, DB Commodity
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Index Tracking Master Fund, PowerShares DB G10 Currency Harvest Fund, DB G10 Currency Harvest Master Fund, PowerShares DB Energy Fund, DB Energy Master Fund,
PowerShares DB Oil Fund, DB Oil Master Fund, PowerShares DB Precious Metals Fund, DB Precious Metals Master Fund, PowerShares DB Gold Fund, DB Gold Master Fund, PowerShares DB Silver Fund, DB Silver Master Fund, PowerShares DB Base Metals Fund, DB
Base Metals Master Fund, PowerShares DB Agriculture Fund, DB Agriculture Master Fund, PowerShares DB US Dollar Index Bullish Fund, DB US Dollar Index Bullish Master Fund, PowerShares DB US Dollar Index Bearish Fund and DB US Dollar Index Bearish
Master Fund.
The payments to ALPS Distributors and AIM Distributors will not, in the aggregate (of the Trust, and not on a
Fund-by-Fund basis), exceed 0.25% and 8.75%, respectively, of the aggregate dollar amount of the offering (or in an amount equal to $2,500,000 and $87,500,000, respectively, of the $1,000,000,000 registered on the initial Registration Statement on
Form S-1 in respect of the Trust). The Trust will advise ALPS Distributors and AIM Distributors if the payments described hereunder must be limited, when combined with selling commissions charged and any price spreads realized by other FINRA
members, in order to comply with the 10% limitation on total underwriters compensation pursuant to NASD Rule 2810.
The Bullish
Funds Shares trade on the Amex under the symbol UUP and the Bearish Funds Shares trade on the Amex under the symbol UDN.
LEGAL MATTERS
Sidley Austin
LLP
has advised the Managing Owner in connection with the
Shares being offered hereby. Sidley Austin
LLP
also advises the Managing Owner with respect to its responsibilities as managing owner of, and with respect to matters relating to, the Trust, each Fund and the Master Trust and each
Master Fund. Sidley Austin
LLP
has prepared the sections Material U.S. Federal Income Tax Considerations and Purchases By Employee Benefit Plans with respect to ERISA. Sidley Austin
LLP
has not represented, nor will it represent, the Trust, the Master Trust, any Fund or Master Fund or the Shareholders in matters relating to the Trust or any
Fund and no other counsel has been engaged to act on their behalf. Certain opinions of counsel have been filed with the SEC as exhibits to the Registration
Statement of which this Prospectus is a part.
Richards, Layton & Finger, P.A., special Delaware counsel to the Trust and Master
Trust, has advised the Trust and Master Trust in connection with the legality of the Shares being offered hereby.
EXPERTS
The statements of financial condition of the Funds as of December 31, 2006, have been included
in this Prospectus in reliance upon the reports of KPMG LLP, independent registered public accounting firm, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing.
The statements of financial condition of the Master Funds as of December 31, 2006, have been included in this Prospectus in reliance upon the reports of
KPMG LLP, independent registered public accounting firm, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing.
The statement of financial condition of DB Commodity Services LLC, the Managing Owner, as of December 31, 2006 and 2005, and the related statements of income and expenses, changes in members capital
(deficit) and cash flows for the year ended December 31, 2006 and for the period from May 23, 2005 (inception) to December 31, 2005, have been included in this Prospectus in reliance upon the report of KPMG LLP, independent auditors,
appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing.
UNAUDITED FINANCIAL INFORMATION
Included in this Prospectus are the unaudited consolidated statements
of financial condition of the Funds and their respective Subsidiaries as of June 30, 2007 and December 31, 2006, and the related statements of income and expenses, changes in shareholders equity and cash flows for the three months
and period ended June 30, 2007. In the opinion of DB Commodity Services LLC, such
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unaudited statements reflect all adjustments, which were of a normal and recurring nature, necessary for a fair presentation of financial position.
Included in this Prospectus are the unaudited statement of financial condition of DB Commodity Services LLC, the Managing Owner, as of
June 30, 2007, and the related statements of income and expenses, changes in members capital (deficit) and cash flows for the six months ended June 30, 2007 and June 30, 2006. In the opinion of DB Commodity Services LLC, such
unaudited statements reflect all adjustments, which were of a normal and recurring nature, necessary for a fair presentation of financial position.
ADDITIONAL INFORMATION
This Prospectus constitutes part of the Registration Statement filed by the Trust,
the Master Trust and the Trust and Master Trust on behalf of each Fund and Master Fund, respectively, with the SEC in Washington, D.C. This Prospectus does not contain all of the information set forth in such Registration Statement, certain portions
of which have been omitted pursuant to the rules and regulations of the SEC, including, without limitation, certain exhibits thereto (for example, the forms of the Participant Agreement and the Customer Agreement). The descriptions contained herein
of agreements included as exhibits to the Registration Statement are necessarily summaries; the exhibits themselves may be inspected without charge at the public reference facilities maintained by the SEC in Washington, D.C., and copies of all or
part thereof may be obtained from the Commission upon payment of the prescribed fees. The SEC maintains a Website that contains reports, proxy and information statements and other information regarding registrants that file electronically with the
SEC. The address of such site is http://www.sec.gov.
RECENT FINANCIAL INFORMATION AND ANNUAL REPORTS
The Managing Owner will furnish you with an annual report
of each Fund within 90 calendar days after the end of its fiscal year as required by the rules and regulations of the SEC as well as with those reports required by the CFTC and the NFA,
including, but not limited to, an annual audited financial statement certified by independent registered public accountants and any other reports required by
any other governmental authority that has jurisdiction over the activities of the Funds and the Master Funds. You also will be provided with appropriate information to permit you to file your United States federal and state income tax returns (on a
timely basis) with respect to your Shares. Monthly account statements conforming to CFTC and NFA requirements will be posted on the Managing Owners website at
www.dbfunds.db.com
. Additional reports may be posted on the Managing
Owners website in the discretion of the Managing Owner or as required by regulatory authorities.
PRIVACY POLICY OF THE MANAGING OWNER
The Managing Owner collects non-public information about you from
the following sources: (i) information received from you on applications or other forms; and (ii) information about your transactions with the Managing Owner and others. The Managing Owner does not disclose any non-public personal
information about you to anyone, other than as set forth below, as permitted by applicable law and regulation. The Managing Owner may disclose non-public personal information about you to the funds in which you invest. The Managing Owner may
disclose non-public personal information about you to non-affiliated companies that work with the Managing Owner to service your account(s), or to provide services or process transactions that you have requested. The Managing Owner may disclose
non-public personal information about you to parties representing you, such as your investment representative, your accountant, your tax adviser, or to other third parties at your direction/consent. If you decide to close your account(s) or become
an inactive customer, the Managing Owner will adhere to the privacy policies and practices as described in this notice. The Managing Owner restricts access to your personal and account information to those employees who need to know that information
to provide products and services to you. The Managing Owner maintains appropriate physical, electronic and procedural safeguards to guard your non-public personal information.
[Remainder of page left blank intentionally.]
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INDEX TO FINANCIAL STATEMENTS
|
|
|
|
|
Page
|
PowerShares DB US Dollar Index Bullish Fund
|
|
|
|
|
Report of Independent Registered Public Accounting Firm
|
|
114
|
Statement of Financial Condition as of December 31, 2006
|
|
115
|
Notes to Statement of Financial Condition
|
|
116
|
|
|
DB US Dollar Index Bullish Master Fund
|
|
|
|
|
Report of Independent Registered Public Accounting Firm
|
|
119
|
Statement of Financial Condition as of December 31, 2006
|
|
120
|
Notes to Statement of Financial Condition
|
|
121
|
|
|
PowerShares DB US Dollar Index Bullish Fund and Subsidiary
|
|
|
|
|
Consolidated Statement of Financial Condition as of June 30, 2007 (unaudited) and December 31, 2006
|
|
125
|
Consolidated Schedule of Investments as of June 30, 2007 (unaudited)
|
|
126
|
Unaudited Consolidated Statement of Income and Expenses For the Three Months and Period Ended June 30, 2007
|
|
127
|
Unaudited Consolidated Statement of Changes in Shareholders Equity For the Three Months Ended June 30, 2007
|
|
128
|
Unaudited Consolidated Statement of Changes in Shareholders Equity For the Period Ended June 30, 2007
|
|
129
|
Unaudited Consolidated Statement of Cash Flows For the Period Ended June 30, 2007
|
|
130
|
Notes to Unaudited Consolidated Financial Statements
|
|
131
|
|
|
PowerShares DB US Dollar Index Bearish Fund
|
|
|
|
|
Report of Independent Registered Public Accounting Firm
|
|
139
|
Statement of Financial Condition as of December 31, 2006
|
|
146
|
Notes to Statement of Financial Condition
|
|
141
|
|
|
DB US Dollar Index Bearish Master Fund
|
|
|
|
|
Report of Independent Registered Public Accounting Firm
|
|
144
|
Statement of Financial Condition as of December 31, 2006
|
|
145
|
Notes to Statement of Financial Condition
|
|
146
|
|
|
PowerShares DB US Dollar Index Bearish Fund and Subsidiary
|
|
|
|
|
Consolidated Statement of Financial Condition as of June 30, 2007 (unaudited) and December 31, 2006
|
|
150
|
Consolidated Schedule of Investments as of June 30, 2007 (unaudited)
|
|
151
|
Unaudited Consolidated Statement of Income and Expenses For the Three Months and Period Ended June 30, 2007
|
|
152
|
Unaudited Consolidated Statement of Changes in Shareholders Equity For the Three Months Ended June 30, 2007
|
|
153
|
Unaudited Consolidated Statement of Changes in Shareholders Equity For the Period Ended June 30, 2007
|
|
154
|
Unaudited Consolidated Statement of Cash Flows For the Period Ended June 30, 2007
|
|
155
|
Notes to Unaudited Consolidated Financial Statements
|
|
156
|
|
|
|
|
|
Page
|
|
|
DB Commodity Services LLC
|
|
|
|
|
Independent Auditors Report
|
|
164
|
Statement of Financial Condition as of December 31, 2006 and 2005
|
|
165
|
Statements of Income and Expenses for the Year Ended December 31, 2006 and for the Period from May 23, 2005(Inception) to December 31, 2005
|
|
166
|
Statements of Changes in Members Capital (Deficit) for the Year Ended December 31, 2006 and for the Period from May 23, 2005(Inception) to December 31, 2005
|
|
167
|
Statement of Cash Flows for the Year Ended December 31, 2006 and for the Period from May 23, 2005(Inception) to December 31, 2005
|
|
168
|
Notes to Financial Statements
|
|
169
|
Unaudited Statement of Financial Condition as of June 30, 2007
|
|
177
|
Unaudited Statement of Income and Expenses For the Six Months Ended June 30, 2007 and June 30, 2006
|
|
178
|
Unaudited Statement of Changes in Members Capital (Deficit) For the Six Months Ended June 30, 2007 and June 30, 2006
|
|
179
|
Unaudited Statement of Cash Flows For the Six Months Ended June 30, 2007 and June 30, 2006
|
|
180
|
Notes to Unaudited Financial Statements
|
|
181
|
113
Report of Independent Registered Public Accounting Firm
The Unitholder
PowerShares DB US Dollar Index Bullish Fund:
We have audited the
accompanying statement of financial condition of PowerShares DB US Dollar Index Bullish Fund (the Fund) as of December 31, 2006. This statement of financial condition is the responsibility of the Funds management. Our responsibility is to
express an opinion on this statement of financial condition based on our audit.
We conducted our audit in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statement of financial condition is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the statement of financial condition. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating
the overall statement of financial condition presentation. We believe that our audit of the statement of financial condition provides a reasonable basis for our opinion.
In our opinion, the statement of financial condition referred to above presents fairly, in all material respects, the financial position of PowerShares DB US Dollar Index Bullish Fund as of December 31, 2006, in
conformity with U.S. generally accepted accounting principles.
/s/ KPMG LLP
March 14, 2007
POWERSHARES DB US DOLLAR INDEX BULLISH FUND
(An Indirect Wholly Owned Subsidiary of Deutsche Bank AG)
Statement of Financial Condition
December 31, 2006
|
|
|
|
Assets
|
|
|
|
|
|
Due from DB US Dollar Index Bullish Master Fund
|
|
$
|
1,000
|
|
|
|
|
Total assets
|
|
$
|
1,000
|
|
|
|
|
Fund Capital
|
|
|
|
|
|
General units 40 general units
|
|
$
|
1,000
|
|
|
|
|
Total fund capital
|
|
$
|
1,000
|
|
|
|
|
See accompanying notes to statement of financial condition.
-115-
POWERSHARES DB US DOLLAR INDEX BULLISH FUND
(An Indirect Wholly Owned Subsidiary of Deutsche Bank AG)
Notes to Statement of Financial Condition
December 31, 2006
PowerShares DB US Dollar Index
Bullish Fund (the Fund) is a separate series of PowerShares DB US Dollar Index Trust (the Trust), a Delaware statutory trust organized in two separate series on August 3, 2006, that has not yet commenced operations. The Fund is an indirect
wholly owned subsidiary of Deutsche Bank AG (DBAG). The Trust will offer common units of beneficial interest in the Fund (the Shares) to investors (Shareholders). The only capital contributed to the Fund as of December 31, 2006 is a capital
contribution of $1,000 by DB Commodity Services LLC (the Managing Owner) whereby 40 general units were issued to the Managing Owner for its capital contribution. The Managing Owner, an indirect wholly owned subsidiary of DBAG, serves as the
managing owner, commodity pool operator and commodity trading advisor of the Trust, the Fund and DB US Dollar Index Bullish Master Fund (the Master Fund). The Master Fund is an indirect wholly owned subsidiary of DBAG. The Managing Owner and the
Shareholders will share in any profits, losses, and expenses of the Fund in proportion to the percentage interest owned by each.
The proceeds of the offering of Shares will be invested in the Master Fund. The Master Fund is a
separate series of DB US Dollar Index Master Trust, a Delaware statutory trust organized in two separate series on August 3, 2006, that has not yet commenced operations. To meet the Master Funds investment objective, it will establish
long positions in futures contracts (DX Contracts), which expire during the months of March, June, September and December with a view to tracking the Deutsche Bank US Dollar Index (USDX
®
)
Futures Index Excess Return (the Index) over time. The Index is calculated to reflect the changes in market value over time, whether positive or negative, of long positions on DX Contracts (the Long Index). 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
®
(USDX
®
). The Index provides a general indication of the international value of the U.S. dollar relative to the six major world currencies which comprise the USDX
®
Euro, Japanese Yen, British Pound, Canadian Dollar, Swedish Krona and Swiss Franc. The Master Funds portfolio also will include United States Treasury securities for deposit with the Master Funds
commodities brokers as margin and other high credit quality short term fixed income securities. The performance of the Fund also is intended to reflect the excess, if any, of the 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 the Fund and the Master Fund.
(2)
|
Summary of Significant Accounting Policies
|
The accompanying
statement of financial condition has been prepared in conformity with U.S. generally accepted accounting principles.
The preparation of the
statement of financial condition 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 and disclosure of contingent assets
and liabilities at the date of the statement of financial condition. Actual results could differ from those estimates.
(Continued)
-116-
POWERSHARES DB US DOLLAR INDEX BULLISH FUND
(An Indirect Wholly Owned Subsidiary of Deutsche Bank AG)
Notes to Statement of
Financial Condition
December 31, 2006
|
(c)
|
Due from DB US Dollar Index Bullish Master Fund
|
The Managing Owner funded cash to the Master Fund on behalf of the Fund as of December 31, 2006, which represents the Managing Owners capital contribution to the Fund.
The Master Fund and the Fund
will be classified as a partnership and a grantor trust, respectively, for United States federal income tax purposes. Accordingly, neither the Master Fund, nor the Fund will incur United States federal income taxes. No provision for federal, state,
and local income taxes has been made in the accompanying statement of financial condition, as each investor will be 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.
(3)
|
The Offering of the Shares
|
Shares may be
purchased from the Fund only by certain eligible financial institutions, (the Authorized Participants) and only in one or more blocks of 200,000 Shares, called a Basket, although the initial Basket(s) will be purchased by Deutsche Bank Securities
Inc. (the Initial Purchaser). The Fund will issue 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 Shares as of the closing time of the American Stock Exchange (Amex) or the last to close of the exchanges on which the Master Funds future contracts are traded, whichever is later, on the date that a
valid order to create a Basket is accepted by the Fund.
(4)
|
Operating Expenses, Organizational, and Offering Costs
|
Expenses incurred in connection with organizing the Fund and the Master Fund and the initial offering of its Shares are paid 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 will also be paid by the Managing Owner.
The term of the Fund is perpetual
unless terminated earlier in certain circumstances.
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 the Order Cut-Off Time (as such term is defined in the Amended and Restated Declaration of Trust and Trust Agreement of the
Trust). 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. Instead, individual Shareholders may only redeem Shares in integral multiples of 200,000 and only through an Authorized Participant.
(Continued)
-117-
POWERSHARES DB US DOLLAR INDEX BULLISH FUND
(An Indirect Wholly Owned Subsidiary of Deutsche Bank AG)
Notes to Statement of
Financial Condition (unaudited)
December 31, 2006
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 distribution, an
Authorized Participants DTC account will be charged the nonrefundable transaction fee due for the redemption order.
The redemption
distribution from the Fund consists of the cash redemption amount. The cash redemption amount is equal to the net asset value of the number of Baskets requested in the Authorized Participants redemption order as of the closing time of the Amex
or the last to close of the exchanges on which the Master Funds future contracts are traded, whichever is later, on the redemption order date. The Managing Owner on behalf of 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 distribution due from the Fund is 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 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 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 shall be canceled. The Managing Owner is also authorized to deliver the redemption distribution 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 determine from time-to-time.
-118-
Report of Independent Registered Public Accounting Firm
The Unitholder
DB US Dollar Index Bullish Master Fund:
We have audited the
accompanying statement of financial condition of DB US Dollar Index Bullish Master Fund (the Master Fund) as of December 31, 2006. This statement of financial condition is the responsibility of the Master Funds management. Our responsibility
is to express an opinion on this statement of financial condition based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statement of financial condition is free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and disclosures in the statement of financial condition. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as
evaluating the overall statement of financial condition presentation. We believe that our audit of the statement of financial condition provides a reasonable basis for our opinion.
In our opinion, the statement of financial condition referred to above presents fairly, in all material respects, the financial position of DB US Dollar Index Bullish Master Fund as of December 31, 2006, in conformity
with U.S. generally accepted accounting principles.
/s/ KPMG LLP
March 14, 2007
DB US DOLLAR INDEX BULLISH MASTER FUND
(An Indirect Wholly Owned Subsidiary of Deutsche Bank AG)
Statement of Financial Condition
December 31, 2006
|
|
|
|
Assets
|
|
|
|
Cash held by Commodity Broker
|
|
$
|
2,030
|
|
|
|
|
Total assets
|
|
$
|
2,030
|
|
|
|
|
Liabilities and Unitholders Capital
|
|
|
|
|
|
Due to PowerShares DB US Dollar Index Bullish Fund
|
|
$
|
1,000
|
|
|
|
|
Total liabilities
|
|
|
1,000
|
|
|
|
|
Unitholders Capital:
|
|
|
1,030
|
|
|
|
|
Total liabilities and unitholders capital
|
|
$
|
2,030
|
|
|
|
|
See accompanying notes to statement of financial condition.
-120-
(Continued)
DB US DOLLAR INDEX BULLISH MASTER FUND
(An Indirect Wholly Owned Subsidiary of Deutsche Bank AG)
Notes to Statement of Financial Condition
December 31, 2006
DB US Dollar Index Bullish Master
Fund (the Master Fund) is a separate series of DB US Dollar Index Master Trust (the Master Trust), a Delaware statutory trust organized in two separate series on August 3, 2006, that has not yet commenced operations. The Master Fund
is an indirect wholly owned subsidiary of Deutsche Bank AG (DBAG). The Master Trust will offer common units of beneficial interest in the Master Fund (the Units), and the only Unitholders will be PowerShares DB US Dollar Index Bullish Fund
(the Fund) and DB Commodity Services LLC (the Managing Owner). The Fund, an indirect wholly owned subsidiary of DBAG, was formed as a separate series of PowerShares US Dollar Index Trust, a Delaware statutory trust organized in two separate
series on August 3, 2006, that has not yet commenced operations. The only capital contributed to the Master Fund as of December 31, 2006 is a capital contribution of $1,000 by the Managing Owner whereby 40 general units were issued to the
Managing Owner for its capital contribution. The Managing Owner, an indirect wholly owned subsidiary of DBAG, serves as the managing owner, commodity pool operator and commodity trading advisor of the Master Trust, Master Fund and the Fund. The
Managing Owner and the Unitholders will share in any profits, losses and expenses of the Master Fund in proportion to the percentage interest owned by each.
The proceeds of the offering of Shares will be invested in the Master Fund. To meet the Master
Funds investment objective, it will establish long positions in futures contracts (DX Contracts), which expire during the months of March, June, September and December with a view to tracking the Deutsche Bank US Dollar Index (USDX
®
) Futures Index Excess Return (the Index) over time. The Index is calculated to reflect the changes in market value over time, whether positive or negative, of long positions on DX
Contracts (the Long Index). 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
®
(USDX
®
). The Index provides a general indication of the international value of the U.S. dollar relative to the six major world currencies which comprise the
USDX
®
Euro, Japanese Yen, British Pound, Canadian Dollar, Swedish Krona and Swiss Franc. The Master Funds portfolio also will include United States Treasury securities for
deposit with the Master Funds commodities brokers as margin and other high credit quality short term fixed income securities. The performance of the Fund also is intended to reflect the excess, if any, of the 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 the Fund and the Master Fund.
(2)
|
Summary of Significant Accounting Policies
|
The accompanying
statement of financial condition has been prepared in conformity with U.S. generally accepted accounting principles.
The preparation of the
statement of financial condition 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 and disclosure of contingent
assets and liabilities at the date of the statement of financial condition. Actual results could differ from those estimates.
-121-
DB US DOLLAR INDEX BULLISH MASTER FUND
(An Indirect Wholly Owned Subsidiary of Deutsche Bank AG)
Notes to Statement of
Financial Condition
December 31, 2006
|
(c)
|
Cash held by Commodity Broker
|
Deutsche
Bank Securities Inc. (a wholly owned subsidiary of Deutsche Bank AG and a related party to the Master Fund), a Delaware corporation, serves as the commodity broker of the Master Fund (the Commodity Broker). The Master Fund defines cash held by
the Commodity Broker on its behalf to be highly liquid investments, with original maturities of three months or less.
The Master Fund and the Fund
will be classified as a partnership and a grantor trust, respectively, for U.S. federal income tax purposes. Accordingly, neither the Master Fund, nor the Fund will incur United States federal income taxes. No provision for federal, state, and
local income taxes has been made in the accompanying statement of financial condition, as each investor will be 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.
(3)
|
The Offering of the Units
|
Master Fund Units
may be purchased from the Master Fund only by the Fund in one or more blocks of 200,000 Master Fund Units (Master Unit Basket). The Master Fund will issue Master Unit Baskets only to the Fund continuously, as of noon, New York time, on the business
day immediately following the date on which a valid order to create a Master Unit Basket is accepted by the Master Fund, at the net asset value of 200,000 Master Fund Units as of the closing time of the American Stock Exchange (Amex) or the last to
close of the exchanges on which the Master Funds future contracts are traded, whichever is later, on the date that a valid order to create a Master Unit Basket is accepted by the Master Fund.
|
(a)
|
Organization and Offering Expenses
|
Expenses
incurred in connection with organizing the Fund and the Master Fund and the initial offering of its shares are paid 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 will also be paid by the Managing Owner.
The Master Fund will pay the
Managing Owner a management fee (the Management Fee), monthly in arrears, in an amount equal to 0.50% per annum of the net asset value of Master Fund. No separate management fee will be paid by any Fund. The Management Fee will be paid in
consideration of the Managing Owners commodity futures trading advisory services.
|
(c)
|
Brokerage Commissions and Fees
|
The Master
Fund will pay to the Commodity Broker all brokerage commissions, including applicable exchange fees, National Futures Association fees, give up fees, pit brokerage fees and other transaction related fees and expenses charged in connection with its
trading activities. The Commodity Brokers brokerage commissions and trading fees will be determined on a contract by contract basis.
(Continued)
-122-
DB US DOLLAR INDEX BULLISH MASTER FUND
(An Indirect Wholly Owned Subsidiary of Deutsche Bank AG)
Notes to Statement of
Financial Condition
December 31, 2006
|
(d)
|
Routine Operational, Administrative and Other Ordinary Expenses
|
The Managing Owner will pay 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
(Wilmington Trust Company), legal and accounting fees and expenses, tax preparation expenses, filing fees, and printing, mailing and duplication costs.
|
(e)
|
Extraordinary Fees and Expenses
|
The
Master Fund will pay all the extraordinary fees and expenses (as such item is defined in the Amended and Restated Declaration of Trust and Trust Agreement of the Master Trust), if any, of itself and of the Fund. Extraordinary 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 extraordinary fees and expenses, by their nature, are unpredictable in
terms of timing and amount.
|
(f)
|
Management Fee and Expenses to be Paid First out of Interest Income
|
The Management Fee and brokerage commissions and fees of the Fund and the Master Fund will be paid, upon commencement of operations, first out of interest income from the Master Funds holdings of
U.S. Treasury bills and other high credit quality short-term fixed income securities on deposit with the Commodity Broker as margin or otherwise. To the extent interest income is not sufficient to cover the fees and expenses of the Fund and the
Master Fund during any period, the excess of such fees and expenses over such interest income will be paid out of income from futures trading, if any, or from sales of the Master Funds fixed income securities.
The term of the Master Fund is
perpetual unless terminated earlier in certain circumstances.
On any business day, the Fund may
place an order with the Managing Owner to redeem one or more Master Unit Baskets. Redemption orders must be placed by the Order Cut-Off Time (as such item is defined in the Amended and Restated Declaration of Trust and Trust Amendment of the Master
Trust). The day on which the Managing Owner receives a valid redemption order is the redemption order date. The redemption procedure allows the Fund to redeem Master Unit Baskets.
The redemption proceeds from the Master Fund consist of the cash redemption amount. The cash redemption amount is equal to the net asset value of the
number of Master Unit Baskets requested in the Funds redemption order as of the closing time of the Amex or the last to close of the exchanges on which the Master Funds future contracts are traded, whichever is later, on the redemption
order date. The Managing Owner on behalf of the Master Fund will distribute the cash redemption amount to the Fund no later than noon, New York time, on the business day immediately following the redemption order date.
The redemption proceeds due from the Master Fund are delivered to the Fund no later than noon, New York time, on the business day immediately following
the redemption order date if, by such time on such business
(Continued)
-123-
DB US DOLLAR INDEX BULLISH MASTER FUND
(An Indirect Wholly Owned Subsidiary of Deutsche Bank AG)
Notes to Statement of
Financial Condition
December 31, 2006
day immediately following the redemption order date, the Master Fund account has been credited with the Master Unit Baskets to be redeemed. If the Master
Funds account has not been credited with all of the Master Unit Baskets to be redeemed by such time, the redemption distribution is delivered to the extent of whole Master Unit Baskets received. Any remainder of the redemption distribution is
delivered on the next business day to the extent of remaining whole Master Unit 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 Master Unit Baskets to be redeemed are credited to the Master Funds account by noon, New York time, on such next business day. Any further outstanding amount of the redemption order shall be canceled. The Managing
Owner is also authorized to deliver the redemption distribution notwithstanding that the Master Unit Baskets to be redeemed are not credited to the Master Funds account by noon, New York time, on the business day immediately following the
redemption order date if the Fund has collateralized its obligation to deliver the Master Unit Baskets on such terms as the Managing Owner may determine from time-to-time.
-124-
POWERSHARES DB US DOLLAR INDEX BULLISH FUND AND SUBSIDIARY
Consolidated Statement of Financial Condition
June 30, 2007 (unaudited) and December 31, 2006 (i)
|
|
|
|
|
|
|
|
|
|
June 30, 2007
(unaudited)
|
|
|
December 31, 2006
|
Assets
|
|
|
|
|
|
|
|
United States Treasury Obligations, at fair value (cost $12,922,404)
|
|
$
|
12,925,900
|
|
|
$
|
|
Cash
|
|
|
2,211,778
|
|
|
|
1,000
|
Other assets
|
|
|
2,640
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
15,140,318
|
|
|
$
|
1,000
|
|
|
|
|
|
|
|
|
Liabilities and shareholders equity
|
|
|
|
|
|
|
|
Net unrealized depreciation on futures contracts
|
|
$
|
190,800
|
|
|
$
|
|
Management fee payable
|
|
|
7,474
|
|
|
|
|
Other Liabilities
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
199,274
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies (Note 9)
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity
|
|
|
|
|
|
|
|
General shares:
|
|
|
|
|
|
|
|
Paid in capital - 40 shares issued and outstanding as of June 30, 2007 and December 31, 2006, respectively
|
|
|
1,000
|
|
|
|
1,000
|
Accumulated deficit
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total General shares
|
|
|
996
|
|
|
|
1,000
|
|
|
|
|
|
|
|
|
Limited shares:
|
|
|
|
|
|
|
|
Paid in capital - 600,000 and no redeemable shares issued and outstanding as of June 30, 2007 and December 31, 2006, respectively
|
|
|
15,002,880
|
|
|
|
|
Accumulated deficit
|
|
|
(62,832
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total Limited shares
|
|
|
14,940,048
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
14,941,044
|
|
|
|
1,000
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
15,140,318
|
|
|
$
|
1,000
|
|
|
|
|
|
|
|
|
Net asset value per share
|
|
|
|
|
|
|
|
General shares
|
|
$
|
24.90
|
|
|
$
|
25.00
|
Limited shares
|
|
$
|
24.90
|
|
|
|
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 occurred upon commencement of
investment operations, as of February 15, 2007.
|
-125-
POWERSHARES DB US DOLLAR INDEX BULLISH FUND AND SUBSIDIARY
Consolidated Schedule of Investments
June 30, 2007 (unaudited)
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
Percentage of
Net Assets
|
|
|
Fair Value
|
|
|
Face Value
|
United States Treasury Obligations
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury Bills, 4.73% due August 16, 2007
|
|
86.51
|
%
|
|
$
|
12,925,900
|
|
|
$
|
13,000,000
|
|
|
|
|
|
|
|
|
|
|
|
Total United States Treasury Obligations (cost $12,922,404)
|
|
86.51
|
%
|
|
$
|
12,925,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
Percentage of
Net Assets
|
|
|
Fair Value
|
|
|
|
Unrealized Depreciation on Futures Contracts
|
|
|
|
|
|
|
|
|
|
|
Dollar Index (180 contracts, settlement date September 17, 2007)
|
|
(1.28
|
)%
|
|
$
|
(190,800
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Unrealized Depreciation on Futures Contracts
|
|
(1.28
|
)%
|
|
$
|
(190,800
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited consolidated financial statements.
-126-
POWERSHARES DB US DOLLAR INDEX BULLISH FUND AND SUBSIDIARY
Unaudited Consolidated Statement of Income and
Expenses
For the Three Months and Period Ended June 30, 2007 (i)
|
|
|
|
|
|
|
|
|
|
|
Three
Months
Ended
June 30, 2007
|
|
|
Period
Ended
June 30, 2007
|
|
Income
|
|
|
|
|
|
|
|
|
Interest Income
|
|
$
|
280,930
|
|
|
$
|
412,593
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
Management fee
|
|
|
27,537
|
|
|
|
41,223
|
|
Brokerage commissions and fees
|
|
|
2,753
|
|
|
|
4,122
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
30,290
|
|
|
|
45,345
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
250,640
|
|
|
|
367,248
|
|
|
|
|
|
|
|
|
|
|
Realized and Net Change in Unrealized Gain (Loss) on United States Treasury Obligations and Futures
|
|
|
|
|
|
|
|
|
|
|
|
Realized Gain (Loss) on
|
|
|
|
|
|
|
|
|
United States Treasury Obligations
|
|
|
760
|
|
|
|
760
|
|
Futures
|
|
|
(145,200
|
)
|
|
|
(243,540
|
)
|
|
|
|
|
|
|
|
|
|
Net realized loss
|
|
|
(144,440
|
)
|
|
|
(242,780
|
)
|
|
|
|
|
|
|
|
|
|
Net Change in Unrealized Gain (Loss) on
|
|
|
|
|
|
|
|
|
United States Treasury Obligations
|
|
|
(2,707
|
)
|
|
|
3,496
|
|
Futures
|
|
|
(1,800
|
)
|
|
|
(190,800
|
)
|
|
|
|
|
|
|
|
|
|
Net change in unrealized loss
|
|
|
(4,507
|
)
|
|
|
(187,304
|
)
|
|
|
|
|
|
|
|
|
|
Net realized and unrealized loss on United States Treasury Obligations and Futures
|
|
|
(148,947
|
)
|
|
|
(430,084
|
)
|
|
|
|
|
|
|
|
|
|
Net Income (Loss)
|
|
$
|
101,693
|
|
|
$
|
(62,836
|
)
|
|
|
|
|
|
|
|
|
|
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.
|
-127-
POWERSHARES DB US DOLLAR INDEX BULLISH FUND AND SUBSIDIARY
Unaudited Consolidated Statement of Changes in
Shareholders Equity
For the Three Months Ended June 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General Shares
|
|
|
Limited Shares
|
|
|
Total
|
|
|
|
General Shares
|
|
Accumulated
|
|
|
Total
General
Shareholders
Equity (Deficit)
|
|
|
Limited Shares
|
|
|
Accumulated
Earnings
(Deficit)
|
|
|
Total Limited
Shareholders
Equity
(Deficit)
|
|
|
Total
Shareholders
Equity
(Deficit)
|
|
|
|
Shares
|
|
Amount Earnings
(Deficit)
|
|
|
|
Shares
|
|
|
Amount
|
|
|
|
|
Balance at April 1, 2007
|
|
40
|
|
$
|
1,000
|
|
|
(6
|
)
|
|
$
|
994
|
|
|
1,000,000
|
|
|
$
|
25,000,000
|
|
|
$
|
(164,523
|
)
|
|
$
|
24,835,477
|
|
|
$
|
24,836,471
|
|
Sale of Limited Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redemptions of Limited Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(400,000
|
)
|
|
|
(9,997,120
|
)
|
|
|
|
|
|
|
(9,997,120
|
)
|
|
|
(9,997,120
|
)
|
Net income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
|
|
|
|
|
12
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
250,628
|
|
|
|
250,628
|
|
|
|
250,640
|
|
Net realized gain (loss) on United States Treasury Obligations and Futures
|
|
|
|
|
|
|
|
(8
|
)
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
(144,432
|
)
|
|
|
(144,432
|
)
|
|
|
(144,440
|
)
|
Net change in unrealized gain (loss) on United States Treasury Obligations and Futures
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
(4,505
|
)
|
|
|
(4,505
|
)
|
|
|
(4,507
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income:
|
|
|
|
|
|
|
|
2
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
101,691
|
|
|
|
101,691
|
|
|
|
101,693
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2007
|
|
40
|
|
$
|
1,000
|
|
$
|
(4
|
)
|
|
$
|
996
|
|
|
600,000
|
|
|
$
|
15,002,880
|
|
|
$
|
(62,832
|
)
|
|
$
|
14,940,048
|
|
|
$
|
14,941,044
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited consolidated financial statements.
-128-
POWERSHARES DB US DOLLAR INDEX BULLISH FUND AND SUBSIDIARY
Unaudited Consolidated Statement of Changes in
Shareholders Equity
For the Period Ended June 30, 2007 (i)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General Shares
|
|
|
Limited Shares
|
|
|
Total
|
|
|
|
General Shares
|
|
Accumulated
|
|
|
Total
General
Shareholders
Equity (Deficit)
|
|
|
Limited Shares
|
|
|
Accumulated
Earnings
(Deficit)
|
|
|
Total Limited
Shareholders
Equity
(Deficit)
|
|
|
Total
Shareholders
Equity
(Deficit)
|
|
|
|
Shares
|
|
Amount Earnings
(Deficit)
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(400,000
|
)
|
|
|
(9,997,120
|
)
|
|
|
|
|
|
|
(9,997,120
|
)
|
|
|
(9,997,120
|
)
|
Net income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
|
|
|
|
|
17
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
367,231
|
|
|
|
367,231
|
|
|
|
367,248
|
|
Net realized gain (loss) on United States Treasury Obligations and Futures
|
|
|
|
|
|
|
|
(12
|
)
|
|
|
(12
|
)
|
|
|
|
|
|
|
|
|
|
(242,768
|
)
|
|
|
(242,768
|
)
|
|
|
(242,780
|
)
|
Net change in unrealized gain (loss) on United States Treasury Obligations and Futures
|
|
|
|
|
|
|
|
(9
|
)
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
(187,295
|
)
|
|
|
(187,295
|
)
|
|
|
(187,304
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss:
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
(62,832
|
)
|
|
|
(62,832
|
)
|
|
|
(62,836
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2007
|
|
40
|
|
$
|
1,000
|
|
$
|
(4
|
)
|
|
$
|
996
|
|
|
600,000
|
|
|
$
|
15,002,880
|
|
|
$
|
(62,832
|
)
|
|
$
|
14,940,048
|
|
|
$
|
14,941,044
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
|
-129-
POWERSHARES DB US DOLLAR INDEX BULLISH FUND AND SUBSIDIARY
Unaudited Consolidated Statement of Cash Flows
For the Period Ended June 30, 2007 (i)
|
|
|
|
|
|
|
Period
Ended
June 30,
2007
|
|
Cash flow provided by operating activities
|
|
|
|
|
Net Loss
|
|
$
|
(62,836
|
)
|
Adjustments to reconcile net loss to net cash used by operating activities:
|
|
|
|
|
Cost of securities purchased
|
|
|
(45,443,323
|
)
|
Proceeds from securities sold
|
|
|
32,907,333
|
|
Net accretion of discount and amortization of premium on United States Treasury Obligations
|
|
|
(385,654
|
)
|
Net realized gain on United States Treasury Obligations and futures
|
|
|
(760
|
)
|
Net unrealized depreciation on United States Treasury Obligations and futures
|
|
|
187,304
|
|
Increase in operating assets:
|
|
|
|
|
Other Assets
|
|
|
(2,640
|
)
|
Increase in operating liabilities:
|
|
|
|
|
Management fee payable
|
|
|
7,474
|
|
Other Liabilities
|
|
|
1,000
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(12,792,102
|
)
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
Proceeds from sale of Limited Shares
|
|
|
25,000,000
|
|
Redemption of Limited Shares
|
|
|
(9,997,120
|
)
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
15,002,880
|
|
|
|
|
|
|
Net increase in cash
|
|
|
2,210,778
|
|
|
|
Cash at beginning of period
|
|
|
1,000
|
|
|
|
|
|
|
Cash at end of period
|
|
$
|
2,211,778
|
|
|
|
|
|
|
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.
|
-130-
POWERSHARES DB US DOLLAR INDEX BULLISH FUND AND SUBSIDIARY
Notes to Unaudited Consolidated Financial
Statements
June 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 31
st
. 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 June 30, 2007 and the period from February 15, 2007 (commencement of investment operations) to June 30, 2007 (herein referred to as Period Ended June 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 FINEX
®
currency markets of
the New York Board of Trade
®
, or the NYBOT
®
, 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
(Continued)
-131-
POWERSHARES DB US DOLLAR INDEX BULLISH FUND AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements
June 30, 2007
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.
(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 $190,800, which relates to variation margin
(Continued)
-132-
POWERSHARES DB US DOLLAR INDEX BULLISH FUND AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements
June 30, 2007
against open futures contracts held by the Fund as of June 30, 2007. There were no cash equivalents held by the Fund as of June 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 $203,490, 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.
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 June 30,
2007 and the period ended June 30, 2007, although the Commodity Brokers brokerage commissions and trading fees are
(Continued)
-133-
POWERSHARES DB US DOLLAR INDEX BULLISH FUND AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements
June 30, 2007
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 June 30, 2007 and the period ended June 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 June 30, 2007 and the period ended June 30, 2007, the Fund and the Master Fund did not incur such
expenses.
(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.
(Continued)
-134-
POWERSHARES DB US DOLLAR INDEX BULLISH FUND AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements
June 30, 2007
(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. Instead, individual shareholders may only redeem Limited Shares
in integral multiples of 200,000 and only through an Authorized Participant.
By placing a redemption order, an Authorized Participant
agrees to deliver the Baskets to be redeemed through The Depositary Trust Corporations (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 or the last to close of the exchanges on which the Master Funds futures contracts 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
(Continued)
-135-
POWERSHARES DB US DOLLAR INDEX BULLISH FUND AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements
June 30, 2007
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 June 30, 2007 and the period ended June 30, 2007, no additional Limited Shares were issued and 400,000 Limited Shares were redeemed for $9,997,120.
(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.
(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 June 30, 2007 and for the period from February 15, 2007
(commencement of investment operations) to June 30, 2007 (herein referred to as Period ended June 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
(Continued)
-136-
POWERSHARES DB US DOLLAR INDEX BULLISH FUND AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements
June 30, 2007
Shares outstanding. The net investment income and total expense ratios have been annualized and are shown gross and net of the allocation of Limited Shares
equity for organization and offering costs. 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.
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
June 30, 2007
|
|
|
Period Ended
June 30, 2007
|
|
Net Asset Value
|
|
|
|
|
|
|
|
|
Initial offering price per Limited Share
|
|
$
|
|
|
|
$
|
25.00
|
|
|
|
|
Net realized and change in unrealized gain on United States Treasury Obligations and Futures
|
|
$
|
(0.22
|
)
|
|
$
|
(0.50
|
)
|
Net investment income
|
|
|
0.28
|
|
|
|
0.40
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in net assets from operations
|
|
|
0.06
|
|
|
|
(0.10
|
)
|
|
|
|
Distributions of net investment income on Limited Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease)
|
|
|
0.06
|
|
|
|
(0.10
|
)
|
Net asset value per Limited Share, beginning of period
|
|
$
|
24.84
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value per Limited Share, end of period
|
|
$
|
24.90
|
|
|
$
|
24.90
|
|
|
|
|
|
|
|
|
|
|
Market value per Limited Share, beginning of period
|
|
$
|
24.79
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Market value per Limited Share, end of period
|
|
$
|
24.88
|
|
|
$
|
24.88
|
|
|
|
|
|
|
|
|
|
|
Ratio to average net assets
(i)
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
4.58
|
%
|
|
|
4.33
|
%
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
0.55
|
%
|
|
|
0.53
|
%
|
|
|
|
|
|
|
|
|
|
Total Return, at net asset value
(ii)
|
|
|
0.24
|
%
|
|
|
(0.40
|
)%
|
|
|
|
|
|
|
|
|
|
Total Return, at market value
(ii)
|
|
|
0.36
|
%
|
|
|
(0.48
|
)%
|
|
|
|
|
|
|
|
|
|
(i)
|
Percentages are annualized.
|
(ii)
|
Percentages are not annualized and for the period ended June 30, 2007 are calculated based on initial offering price upon commencement of investment operations of $25.00.
|
(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
(Continued)
-137-
POWERSHARES DB US DOLLAR INDEX BULLISH FUND AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements
June 30, 2007
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.
-138-
Report of Independent Registered Public Accounting Firm
The Unitholder
PowerShares DB US Dollar Index Bearish Fund:
We have audited the
accompanying statement of financial condition of PowerShares DB US Dollar Index Bearish Fund (the Fund) as of December 31, 2006. This statement of financial condition is the responsibility of the Funds management. Our responsibility is to
express an opinion on this statement of financial condition based on our audit.
We conducted our audit in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statement of financial condition is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the statement of financial condition. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating
the overall statement of financial condition presentation. We believe that our audit of the statement of financial condition provides a reasonable basis for our opinion.
In our opinion, the statement of financial condition referred to above presents fairly, in all material respects, the financial position of PowerShares DB US Dollar Index Bearish Fund as of December 31, 2006, in
conformity with U.S. generally accepted accounting principles.
/s/ KPMG LLP
March 14, 2007
-139-
POWERSHARES DB US DOLLAR INDEX BEARISH FUND
(An Indirect Wholly Owned Subsidiary of Deutsche Bank AG)
Statement of Financial Condition
December 31, 2006
|
|
|
|
Assets
|
|
|
|
Due from DB US Dollar Index Bearish Master Fund
|
|
$
|
1,000
|
|
|
|
|
Total assets
|
|
$
|
1,000
|
|
|
|
|
Fund Capital
|
|
|
|
General units 40 general units
|
|
$
|
1,000
|
|
|
|
|
Total fund capital
|
|
$
|
1,000
|
|
|
|
|
See accompanying notes to statement of financial condition.
-140-
POWERSHARES DB US DOLLAR INDEX BEARISH FUND
(An Indirect Wholly Owned Subsidiary of Deutsche Bank AG)
Notes to Statement of Financial Condition
December 31, 2006
PowerShares DB US Dollar Index
Bearish Fund (the Fund) is a separate series of PowerShares DB US Dollar Index Trust (the Trust), a Delaware statutory trust organized in two separate series on August 3, 2006, that has not yet commenced operations. The Fund is an indirect
wholly owned subsidiary of Deutsche Bank AG (DBAG). The Trust will offer common units of beneficial interest in the Fund (the Shares) to investors (Shareholders). The only capital contributed to the Fund as of December 31, 2006 is a capital
contribution of $1,000 by DB Commodity Services LLC (the Managing Owner) whereby 40 general units were issued to the Managing Owner for its capital contribution. The Managing Owner, an indirect wholly owned subsidiary of DBAG, serves as the
managing owner, commodity pool operator and commodity trading advisor of the Trust, the Fund and DB US Dollar Index Bearish Master Fund (the Master Fund). The Master Fund is an indirect wholly owned subsidiary of DBAG. The Managing Owner and the
Shareholders will share in any profits, losses, and expenses of the Fund in proportion to the percentage interest owned by each.
The proceeds of the offering of Shares will be invested in the Master Fund. The Master Fund is a
separate series of DB US Dollar Index Master Trust, a Delaware statutory trust organized in two separate series on August 3, 2006, that has not yet commenced operations. To meet the Master Funds investment objective, it will establish
short positions in futures contracts (DX Contracts), which expire during the months of March, June, September and December with a view to tracking the Deutsche Bank US Dollar Index (USDX
®
)
Futures Index Excess Return (the Index) over time. The Index is calculated to reflect the changes in market value over time, whether positive or negative, of short positions on DX Contracts (the Short Index). 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
®
(USDX
®
). The Index provides a general indication of the international value of the U.S. dollar relative to the six major world currencies which comprise the USDX
®
Euro, Japanese Yen, British Pound, Canadian Dollar, Swedish Krona and Swiss Franc. The Master Funds portfolio also will include United States Treasury securities for deposit with the Master Funds
commodities brokers as margin and other high credit quality short term fixed income securities. The performance of the Fund also is intended to reflect the excess, if any, of the 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 the Fund and the Master Fund.
(2)
|
Summary of Significant Accounting Policies
|
The accompanying
statement of financial condition has been prepared in conformity with U.S. generally accepted accounting principles.
The preparation of the
statement of financial condition 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 and disclosure of contingent assets
and liabilities at the date of the statement of financial condition. Actual results could differ from those estimates.
(Continued)
-141-
POWERSHARES DB US DOLLAR INDEX BEARISH FUND
(An Indirect Wholly Owned Subsidiary of Deutsche Bank AG)
Notes to Statement of
Financial Condition
December 31, 2006
|
(c)
|
Due from DB US Dollar Index Bearish Master Fund
|
The Managing Owner funded cash to the Master Fund on behalf of the Fund as of December 31, 2006, which represents the Managing Owners capital contribution to the Fund.
The Master Fund and the Fund
will be classified as a partnership and a grantor trust, respectively, for United States federal income tax purposes. Accordingly, neither the Master Fund, nor the Fund will incur United States federal income taxes. No provision for federal, state,
and local income taxes has been made in the accompanying statement of financial condition, as each investor will be 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.
(3)
|
The Offering of the Shares
|
Shares may be
purchased from the Fund only by certain eligible financial institutions, (the Authorized Participants) and only in one or more blocks of 200,000 Shares, called a Basket, although the initial Basket(s) will be purchased by Deutsche Bank
Securities Inc. (the Initial Purchaser). The Fund will issue 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 Shares as of the closing time of the American Stock Exchange (Amex) or the last to close of the exchanges on which the Master Funds future contracts are traded, whichever is later, on
the date that a valid order to create a Basket is accepted by the Fund.
(4)
|
Operating Expenses, Organizational, and Offering Costs
|
Expenses incurred in connection with organizing the Fund and the Master Fund and the initial offering of its Shares are paid 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 will also be paid by the Managing Owner.
The term of the Fund is perpetual
unless terminated earlier in certain circumstances.
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 the Order Cut-Off Time (as such term is defined in the Amended and Restated Declaration of Trust and Trust Agreement of the
Trust). 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. Instead, individual Shareholders may only redeem Shares in integral multiples of 200,000
and only through an Authorized Participant.
(Continued)
-142-
POWERSHARES DB US DOLLAR INDEX BEARISH FUND
(An Indirect Wholly Owned Subsidiary of Deutsche Bank AG)
Notes to Statement of Financial Condition
December 31, 2006
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 distribution, an Authorized Participants DTC account will be charged the nonrefundable transaction fee due for the redemption order.
The redemption distribution from the Fund consists of the cash redemption amount. The cash redemption amount is equal to the net asset value of the
number of Baskets requested in the Authorized Participants redemption order as of the closing time of the Amex or the last to close of the exchanges on which the Master Funds future contracts are traded, whichever is later, on the
redemption order date. The Managing Owner on behalf of 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 distribution due from the Fund is 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 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 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 shall be canceled. The Managing Owner is
also authorized to deliver the redemption distribution 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 determine from time-to-time.
-143-
Report of Independent Registered Public Accounting Firm
The Unitholder
DB US Dollar Index Bearish Master Fund:
We have audited the
accompanying statement of financial condition of DB US Dollar Index Bearish Master Fund (the Master Fund) as of December 31, 2006. This statement of financial condition is the responsibility of the Master Funds management. Our
responsibility is to express an opinion on this statement of financial condition based on our audit.
We conducted our audit in accordance with the
standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statement of financial condition is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the statement of financial condition. An audit also includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall statement of financial condition presentation. We believe that our audit of the statement of financial condition provides a reasonable basis for our opinion.
In our opinion, the statement of financial condition referred to above presents fairly, in all material respects, the financial position of DB US Dollar Index Bearish
Master Fund as of December 31, 2006, in conformity with U.S. generally accepted accounting principles.
/s/ KPMG LLP
March 14, 2007
-144-
DB US DOLLAR INDEX BEARISH MASTER FUND
(An Indirect Wholly Owned Subsidiary of Deutsche Bank AG)
Statement of Financial Condition
December 31, 2006
|
|
|
|
Assets
|
|
|
|
Cash held by Commodity Broker
|
|
$
|
2,030
|
|
|
|
|
Total assets
|
|
$
|
2,030
|
|
|
|
|
|
|
Liabilities and Unitholders Capital
|
|
|
|
|
|
Due to PowerShares DB US Dollar Index Bearish Fund
|
|
$
|
1,000
|
|
|
|
|
Total liabilities
|
|
|
1,000
|
|
|
|
|
Unitholders Capital:
|
|
|
1,030
|
|
|
|
|
Total liabilities and unitholders capital
|
|
$
|
2,030
|
|
|
|
|
See accompanying notes to statement of financial condition.
-145-
DB US DOLLAR INDEX BEARISH MASTER FUND
(An Indirect Wholly Owned Subsidiary of Deutsche Bank AG)
Notes to Statement of Financial Condition
December 31, 2006
DB US Dollar Index Bearish Master
Fund (the Master Fund) is a separate series of DB US Dollar Index Master Trust (the Master Trust), a Delaware statutory trust organized in two separate series on August 3, 2006, that has not yet commenced operations. The Master Fund is an
indirect wholly owned subsidiary of Deutsche Bank AG (DBAG). The Master Trust will offer common units of beneficial interest in the Master Fund (the Units), and the only Unitholders will be PowerShares DB US Dollar Index Bearish Fund (the Fund)
and DB Commodity Services LLC (the Managing Owner). The Fund, an indirect wholly owned subsidiary of DBAG, was formed as a separate series of PowerShares US Dollar Index Trust, a Delaware statutory trust organized in two separate series on
August 3, 2006, that has not yet commenced operations. The only capital contributed to the Master Fund as of December 31, 2006 is a capital contribution of $1,000 by the Managing Owner whereby 40 general units were issued to the Managing
Owner for its capital contribution. The Managing Owner, an indirect wholly owned subsidiary of DBAG, serves as the managing owner, commodity pool operator and commodity trading advisor of the Master Trust, Master Fund and the Fund. The Managing
Owner and the Unitholders will share in any profits, losses and expenses of the Master Fund in proportion to the percentage interest owned by each.
The proceeds of the offering of Shares will be invested in the Master Fund. To meet the Master
Funds investment objective, it will establish short positions in futures contracts (DX Contracts), which expire during the months of March, June, September and December with a view to tracking the Deutsche Bank US Dollar Index (USDX
®
) Futures Index Excess Return (the Index) over time. The Index is calculated to reflect the changes in market value over time, whether positive or negative, of short positions on DX
Contracts (the Short Index). 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
®
(USDX
®
). The Index provides a general indication of the international value of the U.S. dollar relative to the six major world currencies which comprise the
USDX
®
Euro, Japanese Yen, British Pound, Canadian Dollar, Swedish Krona and Swiss Franc. The Master Funds portfolio also will include United States Treasury securities for
deposit with the Master Funds commodities brokers as margin and other high credit quality short term fixed income securities. The performance of the Fund also is intended to reflect the excess, if any, of the 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 the Fund and the Master Fund.
(2)
|
Summary of Significant Accounting Policies
|
The accompanying
statement of financial condition has been prepared in conformity with U.S. generally accepted accounting principles.
The preparation of the
statement of financial condition 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 and disclosure of contingent
assets and liabilities at the date of the statement of financial condition. Actual results could differ from those estimates.
(Continued)
-146-
DB US DOLLAR INDEX BEARISH MASTER FUND
(An Indirect Wholly Owned Subsidiary of Deutsche Bank AG)
Notes to Statement of
Financial Condition
December 31, 2006
|
(c)
|
Cash held by Commodity Broker
|
Deutsche
Bank Securities Inc. (a wholly owned subsidiary of Deutsche Bank AG and a related party to the Master Fund), a Delaware corporation, serves as the commodity broker of the Master Fund (the Commodity Broker). The Master Fund defines cash held by
the Commodity Broker on its behalf to be highly liquid investments, with original maturities of three months or less.
The Master Fund and the Fund
will be classified as a partnership and a grantor trust, respectively, for U.S. federal income tax purposes. Accordingly, neither the Master Fund, nor the Fund will incur U.S. federal income taxes. No provision for federal, state, and
local income taxes has been made in the accompanying statement of financial condition, as each investor will be 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.
(3)
|
The Offering of the Units
|
Master Fund Units
may be purchased from the Master Fund only by the Fund in one or more blocks of 200,000 Master Fund Units (Master Unit Basket). The Master Fund will issue Master Unit Baskets only to the Fund continuously, as of noon, New York time, on the business
day immediately following the date on which a valid order to create a Master Unit Basket is accepted by the Master Fund, at the net asset value of 200,000 Master Fund Units as of the closing time of the American Stock Exchange (Amex) or the last to
close of the exchanges on which the Master Funds future contracts are traded, whichever is later, on the date that a valid order to create a Master Unit Basket is accepted by the Master Fund.
|
(a)
|
Organization and Offering Expenses
|
Expenses
incurred in connection with organizing the Fund and the Master Fund and the initial offering of its shares are paid 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 will also be paid by the Managing Owner.
The Master Fund will pay the
Managing Owner a management fee (the Management Fee), monthly in arrears, in an amount equal to 0.50% per annum of the net asset value of Master Fund. No separate management fee will be paid by any Fund. The Management Fee will be paid in
consideration of the Managing Owners commodity futures trading advisory services.
|
(c)
|
Brokerage Commissions and Fees
|
The Master
Fund will pay to the Commodity Broker all brokerage commissions, including applicable exchange fees, National Futures Association fees, give up fees, pit brokerage fees and other transaction related fees and expenses charged in connection with its
trading activities. The Commodity Brokers brokerage commissions and trading fees will be determined on a contract by contract basis.
(Continued)
-147-
DB US DOLLAR INDEX BEARISH MASTER FUND
(An Indirect Wholly Owned Subsidiary of Deutsche Bank AG)
Notes to Statement of
Financial Condition
December 31, 2006
|
(d)
|
Routine Operational, Administrative and Other Ordinary Expenses
|
The Managing Owner will pay 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
(Wilmington Trust Company), legal and accounting fees and expenses, tax preparation expenses, filing fees, and printing, mailing and duplication costs.
|
(e)
|
Extraordinary Fees and Expenses
|
The Master
Fund will pay all the extraordinary fees and expenses (as such term is defined in the Amended and Restated Declaration of Trust and Trust Agreement of the Master Trust), if any, of itself and of the Fund. Extraordinary 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 extraordinary fees and expenses, by their nature, are unpredictable in terms of
timing and amount.
|
(f)
|
Management Fee and Expenses to be Paid First out of Interest Income
|
The Management Fee and brokerage commissions and fees of the Fund and the Master Fund will be paid, upon commencement of operations, first out of interest income from the Master Funds holdings of
U.S. Treasury bills and other high credit quality short-term fixed income securities on deposit with the Commodity Broker as margin or otherwise. To the extent interest income is not sufficient to cover the fees and expenses of the Fund and the
Master Fund during any period, the excess of such fees and expenses over such interest income will be paid out of income from futures trading, if any, or from sales of the Master Funds fixed income securities.
The term of the Master Fund is
perpetual unless terminated earlier in certain circumstances.
On any business day, the Fund may
place an order with the Managing Owner to redeem one or more Master Unit Baskets. Redemption orders must be placed by the Order Cut-Off Time (as such term is defined in the Amended and Restated Declaration of Trust and Trust Agreement of the Master
Trust). The day on which the Managing Owner receives a valid redemption order is the redemption order date. The redemption procedure allows the Fund to redeem Master Unit Baskets.
The redemption proceeds from the Master Fund consist of the cash redemption amount. The cash redemption amount is equal to the net asset value of the
number of Master Unit Baskets requested in the Funds redemption order as of the closing time of the Amex or the last to close of the exchanges on which the Master Funds future contracts are traded, whichever is later, on the redemption
order date. The Managing Owner on behalf of the Master Fund will distribute the cash redemption amount to the Fund no later than noon, New York time, on the business day immediately following the redemption order date.
The redemption proceeds due from the Master Fund are delivered to the Fund no later than noon, New York time, on the business day immediately following
the redemption order date if, by such time on such business
(Continued)
-148-
DB US DOLLAR INDEX BEARISH MASTER FUND
(An Indirect Wholly Owned Subsidiary of Deutsche Bank AG)
Notes to Statement of
Financial Condition
December 31, 2006
day immediately following the redemption order date, the Master Fund account has been credited with the Master Unit Baskets to be redeemed. If the Master
Funds account has not been credited with all of the Master Unit Baskets to be redeemed by such time, the redemption distribution is delivered to the extent of whole Master Unit Baskets received. Any remainder of the redemption distribution is
delivered on the next business day to the extent of remaining whole Master Unit 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 Master Unit Baskets to be redeemed are credited to the Master Funds account by noon, New York time, on such next business day. Any further outstanding amount of the redemption order shall be canceled. The Managing
Owner is also authorized to deliver the redemption distribution notwithstanding that the Master Unit Baskets to be redeemed are not credited to the Master Funds account by noon, New York time, on the business day immediately following the
redemption order date if the Fund has collateralized its obligation to deliver the Master Unit Baskets on such terms as the Managing Owner may determine from time-to-time.
-149-
POWERSHARES DB US DOLLAR INDEX BEARISH FUND AND SUBSIDIARY
Consolidated Statement of Financial Condition
June 30, 2007 (unaudited) and December 31, 2006 (i)
|
|
|
|
|
|
|
|
|
June 30, 2007
(unaudited)
|
|
December 31,
2006
|
Assets
|
|
|
|
|
|
|
United States Treasury Obligations, at fair value (cost $22,862,715)
|
|
$
|
22,868,900
|
|
$
|
|
Cash
|
|
|
2,737,299
|
|
|
1,000
|
Net unrealized appreciation on futures contracts
|
|
|
324,360
|
|
|
|
Other assets
|
|
|
2,288
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
25,932,847
|
|
$
|
1,000
|
|
|
|
|
|
|
|
Liabilities and shareholders equity
|
|
|
|
|
|
|
|
|
|
Management fee payable
|
|
$
|
10,564
|
|
$
|
|
Other Liabilities
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
11,564
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 9)
|
|
|
|
|
|
|
|
|
|
Shareholders equity
|
|
|
|
|
|
|
General shares:
|
|
|
|
|
|
|
Paid in capital 40 shares issued and outstanding as of June 30, 2007 and December 31, 2006, respectively
|
|
|
1,000
|
|
|
1,000
|
Accumulated earnings
|
|
|
37
|
|
|
|
|
|
|
|
|
|
|
Total General shares
|
|
|
1,037
|
|
|
1,000
|
|
|
|
|
|
|
|
Limited shares:
|
|
|
|
|
|
|
Paid in capital 1,000,000 and no redeemable shares issued and outstanding as of June 30, 2007 and December 31, 2006,
respectively
|
|
|
25,000,000
|
|
|
|
Accumulated earnings
|
|
|
920,246
|
|
|
|
|
|
|
|
|
|
|
Total Limited shares
|
|
|
25,920,246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
25,921,283
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
25,932,847
|
|
$
|
1,000
|
|
|
|
|
|
|
|
Net asset value per share
|
|
|
|
|
|
|
General shares
|
|
$
|
25.93
|
|
$
|
25.00
|
Limited shares
|
|
$
|
25.92
|
|
|
Not Applicable
|
See accompanying notes to unaudited consolidated financial statements.
(i)
|
Represents financial condition only for PowerShares DB US Dollar Index Bearish Fund as consolidation of DB US Dollar Index Bearish Master Fund occurred upon commencement of
investment operations, as of February 15, 2007.
|
-150-
POWERSHARES DB US DOLLAR INDEX BEARISH FUND AND SUBSIDIARY
Consolidated Schedule of Investments
June 30, 2007 (unaudited)
|
|
|
|
|
|
|
|
|
|
Description
|
|
Percentage of
Net Assets
|
|
|
Fair Value
|
|
Face Value
|
United States Treasury Obligations
|
|
|
|
|
|
|
|
|
|
U.S. Treasury Bills, 4.73% due August 16, 2007
|
|
88.22
|
%
|
|
$
|
22,868,900
|
|
$
|
23,000,000
|
|
|
|
|
|
|
|
|
|
|
Total United States Treasury Obligations (cost $22,862,715)
|
|
88.22
|
%
|
|
$
|
22,868,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
Percentage of
Net Assets
|
|
|
Fair Value
|
|
|
Unrealized Appreciation on Futures Contracts
|
|
|
|
|
|
|
|
|
|
Dollar Index (306 contracts, settlement date September 17, 2007)*
|
|
1.25
|
%
|
|
$
|
324,360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Unrealized Appreciation on Futures Contracts
|
|
1.25
|
%
|
|
$
|
324,360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
Positions represent futures contracts sold.
|
See accompanying notes to
unaudited consolidated financial statements.
-151-
POWERSHARES DB US DOLLAR INDEX BEARISH FUND AND SUBSIDIARY
Unaudited Consolidated Statement of Income and
Expenses
For the Three Months and Period Ended June 30, 2007 (i)
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
June 30,
2007
|
|
|
Period Ended
June 30, 2007
|
Income
|
|
|
|
|
|
|
|
Interest Income
|
|
$
|
323,295
|
|
|
$
|
454,931
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
Management fee
|
|
|
32,039
|
|
|
|
45,821
|
Brokerage commissions and fees
|
|
|
3,204
|
|
|
|
4,582
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
35,243
|
|
|
|
50,403
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
288,052
|
|
|
|
404,528
|
|
|
|
|
|
|
|
|
Realized and Net change in Unrealized Gain (Loss) on United States Treasury Obligations and Futures
|
|
|
|
|
|
|
|
Realized Gain on
|
|
|
|
|
|
|
|
Futures
|
|
|
84,560
|
|
|
|
185,210
|
|
|
|
|
|
|
|
|
Net realized gain
|
|
|
84,560
|
|
|
|
185,210
|
|
|
|
|
|
|
|
|
Net Change in Unrealized Gain (Loss) on
|
|
|
|
|
|
|
|
United States Treasury Obligations
|
|
|
(17
|
)
|
|
|
6,185
|
Futures
|
|
|
134,100
|
|
|
|
324,360
|
|
|
|
|
|
|
|
|
Net change in unrealized gain
|
|
|
134,083
|
|
|
|
330,545
|
|
|
|
|
|
|
|
|
Net realized and unrealized gain on United States Treasury Obligations and Futures
|
|
|
218,643
|
|
|
|
515,755
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
506,695
|
|
|
$
|
920,283
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited consolidated financial statements.
(i)
|
PowerShares DB US Dollar Index Bearish Fund commenced operations on February 15, 2007, therefore no operating results occurred prior to that date.
|
-152-
POWERSHARES DB US DOLLAR INDEX BEARISH FUND AND SUBSIDIARY
Unaudited Consolidated Statement of Changes in
Shareholders Equity
For the Three Months Ended June 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General Shares
|
|
Limited Shares
|
|
Total
|
|
|
General Shares
|
|
Accumulated
Earnings
|
|
Total
General
Shareholders
Equity
|
|
Limited Shares
|
|
Accumulated
Earnings
|
|
Total
Limited
Shareholders
Equity
|
|
Total
Shareholders
Equity
|
|
|
Shares
|
|
Amount
|
|
|
|
Shares
|
|
Amount
|
|
|
|
Balance at April 1, 2007
|
|
40
|
|
$
|
1,000
|
|
$
|
17
|
|
$
|
1,017
|
|
1,000,000
|
|
$
|
25,000,000
|
|
$
|
413,571
|
|
$
|
25,413,571
|
|
$
|
25,414,588
|
Sale of Limited Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redemptions of Limited Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
|
|
|
|
|
12
|
|
|
12
|
|
|
|
|
|
|
|
288,040
|
|
|
288,040
|
|
|
288,052
|
Net realized gain (loss) on United States Treasury Obligations and Futures
|
|
|
|
|
|
|
|
4
|
|
|
4
|
|
|
|
|
|
|
|
84,556
|
|
|
84,556
|
|
|
84,560
|
Net change in unrealized gain (loss) on United States Treasury Obligations and Futures
|
|
|
|
|
|
|
|
4
|
|
|
4
|
|
|
|
|
|
|
|
134,079
|
|
|
134,079
|
|
|
134,083
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income:
|
|
|
|
|
|
|
|
20
|
|
|
20
|
|
|
|
|
|
|
|
506,675
|
|
|
506,675
|
|
|
506,695
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2007
|
|
40
|
|
$
|
1,000
|
|
$
|
37
|
|
$
|
1,037
|
|
1,000,000
|
|
$
|
25,000,000
|
|
$
|
920,246
|
|
$
|
25,920,246
|
|
$
|
25,921,283
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited consolidated financial statements.
-153-
POWERSHARES DB US DOLLAR INDEX BEARISH FUND AND SUBSIDIARY
Unaudited Consolidated Statement of Changes in
Shareholders Equity
For the Period Ended June 30, 2007 (i)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General Shares
|
|
Limited Shares
|
|
Total
|
|
General Shares
|
|
Accumulated
Earnings
|
|
Total
General
Shareholders
Equity
|
|
Limited Shares
|
|
Accumulated
Earnings
|
|
Total
Limited
Shareholders
Equity
|
|
Total
Shareholders
Equity
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
|
|
|
|
|
17
|
|
|
17
|
|
|
|
|
|
|
|
404,511
|
|
|
404,511
|
|
|
404,528
|
Net realized gain (loss) on United States Treasury Obligations and Futures
|
|
|
|
|
|
|
|
8
|
|
|
8
|
|
|
|
|
|
|
|
185,202
|
|
|
185,202
|
|
|
185,210
|
Net change in unrealized gain (loss) on United States Treasury Obligations and Futures
|
|
|
|
|
|
|
|
12
|
|
|
12
|
|
|
|
|
|
|
|
330,533
|
|
|
330,533
|
|
|
330,545
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income:
|
|
|
|
|
|
|
|
37
|
|
|
37
|
|
|
|
|
|
|
|
920,246
|
|
|
920,246
|
|
|
920,283
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2007
|
|
40
|
|
$
|
1,000
|
|
$
|
37
|
|
$
|
1,037
|
|
1,000,000
|
|
$
|
25,000,000
|
|
$
|
920,246
|
|
$
|
25,920,246
|
|
$
|
25,921,283
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited consolidated financial statements.
(i)
|
PowerShares DB US Dollar Index Bearish Fund commenced operations on February 15, 2007, therefore no operating results occurred prior to that date.
|
-154-
POWERSHARES DB US DOLLAR INDEX BEARISH FUND AND SUBSIDIARY
Unaudited Consolidated Statement of Cash Flows
For the Period Ended June 30, 2007 (i)
|
|
|
|
|
|
|
Period Ended
June 30, 2007
|
|
Cash flow provided by operating activities
|
|
|
|
|
Net Income
|
|
$
|
920,283
|
|
Adjustments to reconcile net income to net cash used by operating activities:
|
|
|
|
|
Cost of securities purchased
|
|
|
(45,443,323
|
)
|
Proceeds from securities sold
|
|
|
23,000,000
|
|
Net accretion of discount and amortization of premium on United States Treasury Obligations
|
|
|
(419,392
|
)
|
Net unrealized (appreciation) depreciation on United States Treasury Obligations and futures
|
|
|
(330,545
|
)
|
Increase in operating assets:
|
|
|
|
|
Other Assets
|
|
|
(2,288
|
)
|
Increase in operating liabilities:
|
|
|
|
|
Management fee payable
|
|
|
10,564
|
|
Other Liabilities
|
|
|
1,000
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(22,263,701
|
)
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
Proceeds from sale of Limited Shares
|
|
|
25,000,000
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
25,000,000
|
|
|
|
|
|
|
Net increase in cash
|
|
|
2,736,299
|
|
|
|
Cash at beginning of period
|
|
|
1,000
|
|
|
|
|
|
|
Cash at end of period
|
|
$
|
2,737,299
|
|
|
|
|
|
|
See accompanying notes to unaudited consolidated financial statements.
(i)
|
PowerShares DB US Dollar Index Bearish Fund commenced operations on February 15, 2007, therefore no operating results occurred prior to that date.
|
-155-
POWERSHARES DB US DOLLAR INDEX BEARISH FUND AND SUBSIDIARY
Notes to Unaudited Consolidated Financial
Statements
June 30, 2007
PowerShares DB US Dollar Index
Bearish 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 Bearish Master Fund (the Master Fund), a separate series of DB US Dollar Index Bearish 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 June 30, 2007 and the period from February 15, 2007 (commencement of
investment operations) to June 30, 2007 (herein referred to as Period Ended June 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 (Short 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 short positions on DX Contracts. DX Contracts are traded through the FINEX
®
currency markets of
the New York Board of Trade
®
, or the NYBOT
®
, 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.
(Continued)
-156-
POWERSHARES DB US DOLLAR INDEX BEARISH FUND AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements
June 30, 2007
The Fund, through its Master
Fund, establishes short 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.
(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.
(Continued)
-157-
POWERSHARES DB US DOLLAR INDEX BEARISH FUND AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements
June 30, 2007
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 June 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 $345,933, 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.
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
(Continued)
-158-
POWERSHARES DB US DOLLAR INDEX BEARISH FUND AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements
June 30, 2007
Commodity Broker were approximately $7.00 per round-turn trade during the three months ended June 30, 2007 and the period ended June 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 June 30, 2007 and the period ended June 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, all 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 June 30, 2007 and the period ended June 30, 2007, the Fund and the Master Fund did not incur such
expenses.
(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
(Continued)
-159-
POWERSHARES DB US DOLLAR INDEX BEARISH FUND AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements
June 30, 2007
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. Instead, individual shareholders may only redeem Limited Shares
in integral multiples of 200,000 and only through an Authorized Participant.
By placing a redemption order, an Authorized Participant
agrees to deliver the Baskets to be redeemed through The Depositary Trust Corporations (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 or the last to close of the exchanges on which the Master Funds futures contracts 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
(Continued)
-160-
POWERSHARES DB US DOLLAR INDEX BEARISH FUND AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements
June 30, 2007
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. There were no additional Limited Shares issued or redeemed during the three months and period ended June 30, 2007.
(7)
|
Profit and Loss Allocations and Distributions
|
Pursuant to the Amended and Restated Declaration of Trust and 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.
(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 June 30, 2007 and
(Continued)
-161-
POWERSHARES DB US DOLLAR INDEX BEARISH FUND AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements
June 30, 2007
for the period from February 15, 2007 (commencement of investment operations) to June 30, 2007 (herein referred to as Period ended
June 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 and are shown gross and net of the allocation of Limited Shares equity for organization and offering costs. 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.
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
June 30, 2007
|
|
|
Period Ended
June 30, 2007
|
|
Net Asset Value
|
|
|
|
|
|
|
|
|
Initial offering price per Limited Share
|
|
$
|
|
|
|
$
|
25.00
|
|
|
|
|
Net realized and change in unrealized gain (loss) on United States Treasury Obligations and Futures
|
|
$
|
0.22
|
|
|
$
|
0.52
|
|
Net investment income
|
|
|
0.29
|
|
|
|
0.40
|
|
|
|
|
|
|
|
|
|
|
Net increase in net assets from operations
|
|
|
0.51
|
|
|
|
0.92
|
|
Distributions of net investment income on Limited Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease)
|
|
|
0.51
|
|
|
|
0.92
|
|
Net asset value per Limited Share, beginning of period
|
|
$
|
25.41
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value per Limited Share, end of period
|
|
$
|
25.92
|
|
|
$
|
25.92
|
|
|
|
|
|
|
|
|
|
|
Market value per Limited Share, beginning of period
|
|
$
|
25.41
|
|
|
|
|
|
Market value per Limited Share, end of period
|
|
$
|
25.97
|
|
|
$
|
25.97
|
|
|
|
|
|
|
|
|
|
|
Ratio to average net assets
(i)
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
4.49
|
%
|
|
|
4.28
|
%
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
0.55
|
%
|
|
|
0.53
|
%
|
|
|
|
|
|
|
|
|
|
Total Return, at net asset value
(ii)
|
|
|
2.01
|
%
|
|
|
3.68
|
%
|
|
|
|
|
|
|
|
|
|
Total Return, at market value
(ii)
|
|
|
2.20
|
%
|
|
|
3.88
|
%
|
|
|
|
|
|
|
|
|
|
(i)
|
Percentages are annualized.
|
(ii)
|
Percentages are not annualized for the period ended June 30, 2007 and are calculated based on initial offering price upon commencement of investment operations of $25.00.
|
(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.
(Continued)
-162-
POWERSHARES DB US DOLLAR INDEX BEARISH FUND AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements
June 30, 2007
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.
-163-
Independent Auditors Report
The Board of Managers
DB Commodity Services LLC:
We have audited the accompanying statements
of financial condition of DB Commodity Services LLC (the Company) as of December 31, 2006 and 2005, and the related statements of income and expenses, changes in members capital (deficit), and cash flows for the year ended
December 31, 2006 and for the period from May 23, 2005 (inception) to December 31, 2005. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting
as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the
financial statements referred to above present fairly, in all material respects, the financial position of DB Commodity Services LLC as of December 31, 2006 and 2005, and the results of its operations and its cash flows for the year ended
December 31, 2006 and for the period from May 23, 2005 (inception) to December 31, 2005 in conformity with U.S. generally accepted accounting principles.
/s/ KPMG LLP
March 27, 2007
DB COMMODITY SERVICES LLC
(An Indirect Wholly Owned Subsidiary of Deutsche Bank AG)
Statement of Financial Condition
December
31, 2006 and 2005
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
Assets
|
|
|
|
|
|
|
Cash held by affiliate
|
|
$
|
|
|
|
50,000
|
Due from DB Exchange Traded Funds
|
|
|
512,115
|
|
|
|
Investment in DB Exchange Traded Funds
|
|
|
22,000
|
|
|
2,000
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
534,115
|
|
|
52,000
|
|
|
|
|
|
|
|
Liabilities and Members Capital
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
Cash overdraft with affiliate
|
|
$
|
2,674,315
|
|
|
|
Accrued expenses
|
|
|
1,621,064
|
|
|
|
Due to DB U.S. Financial Markets Holding Corporation
|
|
|
|
|
|
2,000
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
4,295,379
|
|
|
2,000
|
|
|
|
|
|
|
|
Members capital (deficit):
|
|
|
|
|
|
|
Members capital contributions
|
|
|
50,000
|
|
|
50,000
|
Net loss
|
|
|
(3,811,264
|
)
|
|
|
|
|
|
|
|
|
|
Total members deficit
|
|
|
(3,761,264
|
)
|
|
50,000
|
|
|
|
|
|
|
|
Total liabilities and members deficit
|
|
$
|
534,115
|
|
|
52,000
|
|
|
|
|
|
|
|
See accompanying notes to financial statements.
-165-
DB COMMODITY SERVICES LLC
(An Indirect Wholly Owned Subsidiary of Deutsche Bank AG)
Statements of Income and Expenses
Year Ended
December 31, 2006 and for the
Period from May 23, 2005 (Inception) to December 31, 2005 (i)
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005(i)
|
Income:
|
|
|
|
|
|
|
Management fees
|
|
$
|
3,924,547
|
|
|
|
|
|
|
|
|
|
|
Total income
|
|
|
3,924,547
|
|
|
|
|
|
|
|
|
|
|
Expense
|
|
|
|
|
|
|
Assumed DBC and DBV organization and offering costs
|
|
|
2,642,543
|
|
|
|
Legal fees
|
|
|
1,825,738
|
|
|
|
Audit fees and tax services
|
|
|
1,528,279
|
|
|
|
Registration fees
|
|
|
636,000
|
|
|
|
License fees
|
|
|
492,758
|
|
|
|
Printing services
|
|
|
223,552
|
|
|
|
Administrator fees
|
|
|
251,188
|
|
|
|
Trustee fees
|
|
|
38,541
|
|
|
|
Marketing costs
|
|
|
36,660
|
|
|
|
Other
|
|
|
60,552
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
7,735,811
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(3,811,264
|
)
|
|
|
|
|
|
|
|
|
|
See accompanying notes to financial statements.
(i):
|
DB Exchange Traded Funds commenced investment operations during 2006, therefore, the Company had no operating results in 2005.
|
-166-
DB COMMODITY SERVICES LLC
(An Indirect Wholly Owned Subsidiary of Deutsche Bank AG)
Statements of Changes in Members Capital (Deficit)
Year Ended December 31, 2006 and for the
Period from May 23, 2005 (Inception) to December 31,
2005
|
|
|
|
|
Members capital, May 23, 2005 (inception)
|
|
$
|
|
|
|
|
Capital contribution
|
|
|
50,000
|
|
|
|
|
|
|
Members capital, December 31, 2005
|
|
|
50,000
|
|
|
|
Net loss
|
|
|
(3,811,264
|
)
|
|
|
|
|
|
Members deficit, December 31, 2006
|
|
$
|
(3,761,264
|
)
|
|
|
|
|
|
See accompanying notes to financial statements.
-167-
DB COMMODITY SERVICES LLC
(An Indirect Wholly Owned Subsidiary of Deutsche Bank AG)
Statement of Cash Flows
Year Ended
December 31, 2006 and for the
Period from May 23, 2005 (Inception) to December 31, 2005
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(3,811,264
|
)
|
|
|
|
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
|
|
|
|
|
|
|
|
(Increase) decrease in operating assets:
|
|
|
|
|
|
|
|
Due from DB Exchange Traded Funds
|
|
|
(512,115
|
)
|
|
|
|
Increase (decrease) in operating liabilities:
|
|
|
|
|
|
|
|
Cash overdraft with affiliate
|
|
|
2,674,315
|
|
|
|
|
Accrued expenses
|
|
|
1,621,064
|
|
|
|
|
Due to DB U.S. Financial Markets Holding Corporation
|
|
|
(2,000
|
)
|
|
2,000
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
|
|
(30,000
|
)
|
|
2,000
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
Investment in DB Exchange Traded Funds
|
|
|
(20,000
|
)
|
|
(2,000
|
)
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(20,000
|
)
|
|
(2,000
|
)
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
Capital contribution from DB U.S. Financial Holding Corporation
|
|
|
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
Increase (Decrease) in cash held by affiliate
|
|
|
(50,000
|
)
|
|
50,000
|
|
Cash held by affiliate at beginning of period
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash held by affiliate at end of period
|
|
$
|
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
See accompanying notes to financial statements.
-168-
DB COMMODITY SERVICES LLC
(An Indirect Wholly Owned Subsidiary of Deutsche Bank AG)
Notes to Financial Statements
December 31,
2006 and 2005
(1)
|
Organization and Basis of Presentation
|
DB
Commodity Services LLC (the Company), a Delaware limited liability company, was formed on May 23, 2005, and is an indirect wholly owned subsidiary of Deutsche Bank AG and a direct wholly owned subsidiary of DB U.S. Financial Markets
Holding Corporation. The Company is registered as a commodity pool operator and commodity trading advisor with the Commodity Futures Trading Commission and is a member of the National Futures Association.
The Company serves as the managing owner, commodity pool operator and commodity trading advisor to the following funds:
|
|
|
PowerShares DB Commodity Index Tracking Fund (the DBC Fund)
1
,
|
|
|
|
DB Commodity Index Tracking Master Fund (the DBC Master Fund)
2
.
|
|
|
|
PowerShares DB G10 Currency Harvest Fund (the DBV Fund)
3
,
|
|
|
|
DB G10 Currency Harvest Master Fund (the DBV Master Fund)
4
.
|
As of December 31, 2006, the following commodity and currency
index based funds, for which the Company would serve as the managing owner, had not commenced investment operations:
|
|
|
PowerShares DB Multi-Sector Commodity Trust
5
and DB Multi-Sector Commodity Master Trust
6
:
|
|
|
|
PowerShares DB Energy Fund (the DBE Fund),
|
|
|
|
DB Energy Master Fund (the DBE Master Fund).
|
|
|
|
PowerShares DB Oil Fund (the DBO Fund),
|
|
|
|
DB Oil Master Fund (the DBO Master Fund).
|
|
|
|
PowerShares DB Precious Metals Fund (the DBP Fund),
|
|
|
|
DB Precious Metals Master Fund (the DBP Master Fund).
|
1 Organized as a Delaware statutory trust on May 23, 2005. DBC Fund was originally named DB Commodity Index Tracking Fund and changed its
name to PowerShares DB Commodity Index Tracking Fund effective August 10, 2006.
2 Organized as a Delaware statutory trust
on May 23, 2005.
3 Organized as a Delaware statutory trust on April 12, 2006. DBV Fund was originally named DB Currency
Index Value Fund and changed its name to PowerShares DB G10 Currency Harvest Fund effective July 20, 2006.
4
Organized as a Delaware statutory trust on April 12, 2006. DBV Master Fund was originally named DB Currency Index Value Master Fund and changed its name to DB G10 Currency Harvest Master Fund effective July 20,
2006.
5 Organized as a Delaware statutory trust, in seven separate series, or Funds, on August 3, 2006.
6 Organized as a Delaware statutory trust, in seven separate series, or Master Funds, on August 3, 2006.
(Continued)
169
DB COMMODITY SERVICES LLC
(An Indirect Wholly Owned Subsidiary of Deutsche Bank AG)
Notes to Financial
Statements
December 31, 2006 and 2005
|
|
|
PowerShares DB Gold Fund (the DGL Fund),
|
|
|
|
DB Gold Master Fund (the DGL Master Fund).
|
|
|
|
PowerShares DB Silver Fund (the DBS Fund),
|
|
|
|
DB Silver Master Fund (the DBS Master Fund).
|
|
|
|
PowerShares DB Base Metals Fund (the DBB Fund),
|
|
|
|
DB Base Metals Master Fund (the DBB Master Fund).
|
|
|
|
PowerShares DB Agriculture Fund (the DBA Fund),
|
|
|
|
DB Agriculture Master Fund (the DBA Master Fund).
|
|
|
|
PowerShares DB US Dollar Index Trust
7
and DB US Dollar Index Master Trust
8
|
|
|
|
PowerShares DB US Dollar Index Bullish Fund (the UUP Fund),
|
|
|
|
DB US Dollar Index Bullish Master Fund (the UUP Master Fund).
|
|
|
|
PowerShares DB US Dollar Index Bearish Fund (the UDN Fund),
|
|
|
|
DB US Dollar Index Bearish Master Fund (the UDN Master Fund).
|
The DBC Fund, DBC Master Fund, DBV Fund, DBV Master Fund, DBE Fund, DBE Master Fund, DBO Fund, DBO Master Fund, DBP Fund, DBP Master Fund, DGL Fund, DGL
Master Fund, DBS Fund, DBS Master Fund, DBB Fund, DBB Master Fund, DBA Fund, DBA Master Fund, UUP Fund, UUP Master Fund, UDN Fund and UDN Master Fund will be collectively referred to herein as the DB Exchange Traded Funds,
Funds, Feeder Funds or the Master Funds, as applicable.
(2)
|
Summary of Significant Accounting Policies
|
The accompanying
financial statements have been prepared in conformity with U.S. generally accepted accounting principles.
The preparation of
the financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect thereported amounts of
7
Organized as a Delaware statutory trust, in two separate series,
or Funds, on August 3, 2006.
8
Organized as a Delaware statutory
trust, in two separate series, or Master Funds, on August 3, 2006.
(Continued)
-170-
DB COMMODITY SERVICES LLC
(An Indirect Wholly Owned Subsidiary of Deutsche Bank AG)
Notes to Financial
Statements
December 31, 2006 and 2005
assets, liabilities, income, expenses and disclosure of contingent assets and liabilities during the reporting period of the financial statements. Actual
results could differ from those estimates.
|
(c)
|
Due from DB Exchange Traded Funds
|
Due from
DB Exchange Traded Funds is recorded at the invoiced amount and do not bear interest. Amounts collected on Due from DB Exchange Traded Funds are included in net cash provided by operating activities in the statement of cash flow. As management has
determined that there was no risk of unrecoverable amounts, no allowance for doubtful accounts was provided for as of December 31, 2006.
|
(d)
|
Investment in DB Exchange Traded Funds
|
The
Companys investments in DB Exchange Traded Funds consist of capital contributions in the general shares of the Funds.
Upon the
establishment of the Funds, the Companys investment represents 100% ownership and is stated at cost. Upon commencement of the Funds investment operations and issuance of the Funds limited shares, the Companys general share
ownership of the Feeder Funds is recorded as capital in the consolidated financial statements of the Funds, and the Companys general share ownership of the Master Funds is recorded as a minority shareholder.
The Company is a limited
liability company and did not elect to be taxable as a corporation for U.S. income tax purposes. Accordingly, the Company will not incur U.S. income taxes. No provision for federal, state and local income taxes has been made in the
accompanying financial statements, as its owner member is individually liable for income taxes, if any, on its share of the Companys income, loss and other items.
Fees earned for
management services are recorded on the accrual method of accounting. Fees for management services are received from the Master Funds upon commencement of operations and as services are provided. No separate fee is received from the Feeder Funds.
(3)
|
Related Party Transactions
|
|
(a)
|
Management Fees and Due from DB Exchange Traded Funds
|
The DBC Master Fund pays the Company a management fee, monthly in arrears, in an amount equal to 0.75% per annum of the net asset value of DBC Master Fund. Prior to July 12, 2006, the DBC management fee was
0.95% per annum.
The DBV Master Fund pays the Company a management fee, monthly in arrears, in an amount equal to 0.75% per
annum of the net asset value of DBV Master Fund.
(Continued)
-171-
DB COMMODITY SERVICES LLC
(An Indirect Wholly Owned Subsidiary of Deutsche Bank AG)
Notes to Financial
Statements
December 31, 2006 and 2005
As at December 31, 2006, management fees and Due from DB Exchange Traded Funds amounted to:
|
|
|
|
|
|
|
|
Management
Fees
|
|
Due from
the Funds
|
DBC Master Fund
|
|
$
|
3,802,033
|
|
454,280
|
DBV Master Fund
|
|
|
122,514
|
|
57,835
|
|
|
|
|
|
|
|
|
$
|
3,924,547
|
|
512,115
|
|
|
|
|
|
|
|
(b)
|
Organization and Offering Costs
|
Costs
incurred in connection with organization of the DBC and DBV Funds and Master Funds, including the initial offering of the limited shares of the Funds, were paid by Deutsche Bank AG on behalf DBC and DBV Master Fund. Costs incurred in connection with
the continuous offering of limited shares of the Funds after the commencement of the DBC and DBV Master Funds investment trading operations were also paid by Deutsche Bank AG on behalf DBC and DBV Master Fund.
Prior to July 12, 2006, these costs were subject to reimbursement by the DBC and DBV Master Funds, without interest, in 36 monthly payments
during each of the first 36 months after the commencement of the DBC and DBV Master Funds trading operations. Also, prior to July 12, 2006, DBC and DBVs Master Funds liability to Deutsche Bank AG was transferred to the
Company. Total cost reimbursement to the Company during 2006 amounted to $185,575.
As of July 12, 2006 the Company made an additional
investment in DBC and DBV Master Funds by assuming all organization and offering costs incurred prior to July 12, 2006. Total costs incurred by the DBC and DBV Funds and Master Funds prior to July 12, 2006, which have been assumed by the
Company, amounted to $2,642,543, which has been recorded in the Companys statement of income and expense.
The Company will also
assume DBC and DBV Master Funds organization and offering costs incurred subsequent to July 12, 2006.
|
(c)
|
Administration Expenses
|
Prior to
July 12, 2006, all routine operational, administrative and other ordinary expenses of the DBC and DBV Funds were paid by the DBC and DBV Master Funds.
Effective July 12, 2006, the Managing Owner has agreed to assume all future routine operational, administrative and other ordinary expenses of the DBC and DBV Funds and Master Funds, including, but not limited
to, computer services, trustee fees and expenses, legal and accounting fees and expenses, tax preparation expenses, filing fees and printing, mailing and duplication costs. Accordingly, such expenses are recorded in the statement of income and
expenses of the Company. Please refer to Note (6) for further details on service agreements.
In addition, the Company, in its
capacity as the managing owner and on behalf of the Funds, entered into a service agreement with Deutsche Bank AG for services including, but not limited to, trading,
(Continued)
-172-
DB COMMODITY SERVICES LLC
(An Indirect Wholly Owned Subsidiary of Deutsche Bank AG)
Notes to Financial
Statements
December 31, 2006 and 2005
accounting, legal, human resources and other. The costs of these services are assumed by Deutsche Bank AG with no cost allocation to the Company or the
Funds.
|
(d)
|
Cash and Cash Overdraft with affiliate
|
The
Company participates in a cash management program with Deutsche Bank AG New York Branch, which provides the Company with a cash facility to cover its operational expenses. The cash management program is non-interest bearing and there is no
expiration date. As per a Letter of Support, Deutsche Bank AG will continue to provide the Company with the funds necessary to meet its current and currently foreseeable obligations. As of December 31, 2006, the Company had an overdraft balance
of $2,674,315.
(4)
|
Investments in DB Exchange Traded Funds
|
Investment
in DB Exchange Traded Funds as of December 31, 2006 consist of the following:
|
|
|
|
|
|
|
|
|
Ownership %
|
|
|
Amount
|
PowerShares DB Commodity Index Tracking Fund(a)
|
|
(e
|
)
|
|
$
|
1,000
|
DB Commodity Index Tracking Master Fund(a)
|
|
(e
|
)
|
|
|
1,000
|
PowerShares DB G10 Currency Harvest Fund(b)
|
|
(e
|
)
|
|
|
1,000
|
DB G10 Currency Harvest Master Fund(b)
|
|
(e
|
)
|
|
|
1,000
|
PowerShares DB Energy Fund(c)
|
|
100
|
|
|
|
1,000
|
DB Energy Master Fund(c)
|
|
100
|
|
|
|
1,000
|
PowerShares DB Oil Fund(c)
|
|
100
|
|
|
|
1,000
|
DB Oil Master Fund(c)
|
|
100
|
|
|
|
1,000
|
PowerShares DB Precious Metals Fund(c)
|
|
100
|
|
|
|
1,000
|
DB Precious Metals Master Fund(c)
|
|
100
|
|
|
|
1,000
|
PowerShares DB Gold Fund(c)
|
|
100
|
|
|
|
1,000
|
DB Gold Master Fund(c)
|
|
100
|
|
|
|
1,000
|
PowerShares DB Silver Fund(c)
|
|
100
|
|
|
|
1,000
|
DB Silver Master Fund(c)
|
|
100
|
|
|
|
1,000
|
PowerShares DB Base Metals Fund(c)
|
|
100
|
|
|
|
1,000
|
DB Base Metals Master Fund(c)
|
|
100
|
|
|
|
1,000
|
PowerShares DB Agriculture Fund(c)
|
|
100
|
|
|
|
1,000
|
DB Agriculture Master Fund(c)
|
|
100
|
|
|
|
1,000
|
PowerShares DB US Dollar Index Bullish Fund(d)
|
|
100
|
|
|
|
1,000
|
DB US Dollar Index Bullish Master Fund(d)
|
|
100
|
|
|
|
1,000
|
PowerShares DB US Dollar Index Bearish Fund(d)
|
|
100
|
|
|
|
1,000
|
DB US Dollar Index Bearish Master Fund(d)
|
|
100
|
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
22,000
|
|
|
|
|
|
|
|
(a)
|
Commenced investment operations on January 31, 2006
|
(b)
|
Commenced investment operations on September 15, 2006
|
(c)
|
Commenced investment operations on January 3, 2007 (see note 10)
|
(d)
|
Commenced investment operations on February 15, 2007 (see note 10)
|
(e)
|
Ownership represents less than 1.0%
|
(Continued)
-173-
DB COMMODITY SERVICES LLC
(An Indirect Wholly Owned Subsidiary of Deutsche Bank AG)
Notes to Financial
Statements
December 31, 2006 and 2005
Investment in DB Exchange Traded Funds as of December 31, 2005 consist of the following:
|
|
|
|
|
|
|
|
Ownership %
|
|
Amount
|
PowerShares DB Commodity Index Tracking Fund(a)
|
|
100
|
|
$
|
1,000
|
DB Commodity Index Tracking Master Fund(a)
|
|
100
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
|
$
|
2,000
|
|
|
|
|
|
|
|
(a)
|
Commenced investment operations on January 31, 2006
|
Accrued expenses at
December 31, 2006 and 2005 consist of the following:
|
|
|
|
|
|
|
|
2006
|
|
2005
|
Audit fees and tax services
|
|
$
|
1,243,979
|
|
|
Marketing costs
|
|
|
237,513
|
|
|
Administrator services
|
|
|
118,955
|
|
|
Legal
|
|
|
11,575
|
|
|
Printing services
|
|
|
9,042
|
|
|
|
|
|
|
|
|
|
|
$
|
1,621,064
|
|
|
|
|
|
|
|
|
Under the trust agreement
of the Funds, Wilmington Trust Company, the Trustee of the Funds has delegated to the Company the exclusive management and control of all aspects of the business of the Funds.
The Trustee compensation is paid on behalf of the Funds by the Company.
|
(b)
|
Administration Agreement
|
The Company, in
its capacity as the managing owner and on behalf of each of the Funds and Master Funds, has appointed The Bank of New York as the administrator (the Administrator), custodian and transfer agent of the Funds and have entered into separate
administrative, custodian, transfer agency and service agreements (collectively referred to as the Administration Agreement). The Administrator performs or supervises the performance of services necessary for the operation and
administration of each of the Funds (other than making investment decisions), including receiving and processing orders to create and redeem shares of the Funds, net asset value calculations, accounting and other fund administrative services.
The Administrators monthly fees are paid on behalf of the Funds by the Company.
(Continued)
-174-
DB COMMODITY SERVICES LLC
(An Indirect Wholly Owned Subsidiary of Deutsche Bank AG)
Notes to Financial
Statements
December 31, 2006 and 2005
|
(c)
|
Distribution Services Agreement
|
ALPS
Distributors provide certain distribution services for each of the Funds. Pursuant to the Distribution Services Agreement between ALPS Distributors, the Company, in its capacity as the managing owner and on behalf of the Funds, ALPS Distributors
assists the Company with certain distribution and marketing functions, including reviewing and approving marketing materials.
ALPS
Distributors fees are paid on behalf of the Funds by the Company.
Under the License Agreement among PowerShares Capital Management LLC, the Company in its own capacity, and the Company in its capacity as the managing owner and on behalf of the Funds (the Funds and the Company,
collectively the Licensees), PowerShares Capital Management LLC granted to each Licensee a non-exclusive license to use the PowerShares
®
trademark anywhere in the
world, solely in connection with the marketing and promotion of the Funds, and issuance and trading of the Funds shares as necessary.
License fees are paid on behalf of the Funds by the Company.
Pursuant to the
Marketing Agreement between AIM Distributors and the Company in its capacity as the managing owner and on behalf of the Funds, AIM Distributors assist the Company and the Administrator with certain functions and duties such as providing various
educational and marketing activities regarding each of the Funds, primarily in the secondary trading market. Activities include, but are not limited to, communicating each of the Funds names, characteristics, uses, benefits, and risks,
consistent with the prospectus, engagement in public seminars, road shows, conferences, media interviews, fielding incoming telephone 800 number calls and distributing sales literature and other communications (including electronic
media) regarding each of the Funds.
Marketing fees are paid on behalf of the Funds by the Company.
(7)
|
Commitments and Contingencies
|
The Company has
entered into various service agreements on behalf of the Funds 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 Funds. While the Companys 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 the Companys
financial position.
(8)
|
Business and Credit Concentration
|
The
Companys business is to serve as the managing owner, commodity pool operator and commodity trading advisor to a number of DB Exchange Traded Funds. Basis for the management fee calculation is the Funds net asset value. Accordingly,
factors that may have the effect of causing a decline in the Funds net asset value will affect the Companys income from management fees.
(Continued)
-175-
DB COMMODITY SERVICES LLC
(An Indirect Wholly Owned Subsidiary of Deutsche Bank AG)
Notes to Financial
Statements
December 31, 2006 and 2005
(9)
|
Recently Issued Accounting Standards
|
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.
Statement 157 does not require any new fair value measures. Statement 157 is effective for fair value measures already required or permitted by other standards for fiscal years beginning after November 15, 2007. The Company 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 Company is currently evaluating the impact of adopting Statement 157 on its results of operations and financial position.
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 provisions of FIN 48 will be effective for the Company on January 1, 2007, with any cumulative effect of the change in accounting principle recorded as an adjustment to
operating retained earnings. The Company has determined the impact of adopting FIN 48 will not have a material impact on its results of operations and financial position.
On January 3, 2007 the
following funds commenced investment operations: DBE Fund, DBE Master Fund, DBO Fund, DBO Master Fund, DBP Fund, DBP Master Fund, DGL Fund, DGL Master Fund, DBS Fund, DBS Master Fund, DBB Fund, DBB Master Fund, DBA Fund and DBA Master Fund.
On February 15, 2007 the following funds commenced operations: UUP Fund, UUP Master Fund, UDN Fund and UDN Master Fund.
-176-
DB COMMODITY SERVICES LLC
(An Indirect Wholly Owned Subsidiary of Deutsche Bank AG)
Unaudited Statement of Financial Condition
June 30, 2007
|
|
|
|
|
|
|
2007
|
|
Assets
|
|
|
|
|
Due from DB Exchange Traded Funds
|
|
$
|
1,203,314
|
|
|
|
Investment in DB Exchange Traded Funds
|
|
|
22,000
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,225,314
|
|
|
|
|
|
|
Liabilities and Members Capital
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
Due to affiliate
|
|
$
|
1,338,036
|
|
Accrued expenses
|
|
|
3,345,621
|
|
|
|
|
|
|
Total liabilities
|
|
|
4,683,657
|
|
|
|
|
|
|
Members Capital (Deficit)
|
|
$
|
(3,458,343
|
)
|
|
|
|
|
|
Total liabilities and members capital (deficit)
|
|
$
|
1,225,314
|
|
|
|
|
|
|
See accompanying notes to unaudited financial statements.
-177-
DB COMMODITY SERVICES LLC
(An Indirect Wholly Owned Subsidiary of Deutsche Bank AG)
Unaudited Statement of Income and Expenses
For
the Six Months Ended June 30, 2007 and June 30, 2006
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
Income
|
|
|
|
|
|
|
Management fees
|
|
$
|
5,467,425
|
|
$
|
1,320,933
|
|
|
|
|
|
|
|
Total income
|
|
|
5,467,425
|
|
|
1,320,933
|
|
|
|
|
|
|
|
Expense
|
|
|
|
|
|
|
Legal fees
|
|
|
273,690
|
|
|
|
Audit fees and tax services
|
|
|
2,308,400
|
|
|
|
Printing services
|
|
|
574,022
|
|
|
|
Administrator fees
|
|
|
960,786
|
|
|
69,523
|
Marketing costs
|
|
|
921,188
|
|
|
166,855
|
Other
|
|
|
126,418
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
5,164,504
|
|
|
236,378
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
302,921
|
|
$
|
1,084,555
|
|
|
|
|
|
|
|
See accompanying notes to unaudited financial statements.
-178-
DB COMMODITY SERVICES LLC
(An Indirect Wholly Owned Subsidiary of Deutsche Bank AG)
Unaudited Statement of Changes in Members Capital (Deficit)
For the Six Months Ended June 30, 2007 and June 30, 2006
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
Members capital (deficit), January 1, 2007
|
|
$
|
(3,761,264
|
)
|
|
$
|
50,000
|
|
|
|
Net Income
|
|
|
302,921
|
|
|
|
1,084,555
|
|
|
|
|
|
|
|
|
Members capital (deficit), June 30, 2007
|
|
$
|
(3,458,343
|
)
|
|
$
|
1,134,555
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited financial statements.
-179-
DB COMMODITY SERVICES LLC
(An Indirect Wholly Owned Subsidiary of Deutsche Bank AG)
Unaudited Statement of Cash Flows
For the Six
Months Ended June 30, 2007 and June 30, 2006
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
302,921
|
|
|
$
|
1,084,555
|
|
Adjustments to reconcile net income to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
(Increase) decrease in operating assets:
|
|
|
|
|
|
|
|
|
Due from DB Exchange Traded Fund
|
|
|
(691,199
|
)
|
|
|
(3,072,679
|
)
|
Increase (decrease) in operating liabilities:
|
|
|
|
|
|
|
|
|
Cash overdraft with affiliate
|
|
|
(1,336,279
|
)
|
|
|
1,044,374
|
|
Accrued expenses
|
|
|
1,724,557
|
|
|
|
897,750
|
|
Decrease in due to DB US Financial Market Holdings
|
|
|
|
|
|
|
(2,000
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
|
|
|
|
(48,000
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in DB Exchange Traded Funds
|
|
|
|
|
|
|
(2,000
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
|
|
|
|
(2,000
|
)
|
|
|
|
|
|
|
|
|
|
Decrease in cash held by affiliate
|
|
|
|
|
|
|
(50,000
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
|
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited financial statements.
-180-
DB COMMODITY SERVICES LLC
(An Indirect Wholly Owned Subsidiary of Deutsche Bank AG)
Notes to Unaudited Financial Statements
June
30, 2007
(1)
|
Organization and Basis of Presentation
|
DB
Commodity Services LLC (the Company), a Delaware limited liability company, was formed on May 23, 2005, and is an indirect wholly owned subsidiary of Deutsche Bank AG and a direct wholly owned subsidiary of DB U.S. Financial Markets
Holding Corporation. The Company is registered as a commodity pool operator and commodity trading advisor with the Commodity Futures Trading Commission and is a member of the National Futures Association.
The Company serves as the managing owner, commodity pool operator and commodity trading advisor to the following funds:
|
|
|
PowerShares DB Commodity Index Tracking Fund (the DBC Fund)
1
,
|
|
|
|
DB Commodity Index Tracking Master Fund (the DBC Master Fund)
2
.
|
|
|
|
PowerShares DB G10 Currency Harvest Fund (the DBV Fund)
3
,
|
|
|
|
DB G10 Currency Harvest Master Fund (the DBV Master Fund)
4
.
|
|
|
|
PowerShares DB Multi-Sector Commodity Trust
5
and DB Multi-Sector Commodity Master Trust
6
:
|
|
|
PowerShares DB Energy Fund (the DBE Fund),
|
|
|
DB Energy Master Fund (the DBE Master Fund).
|
|
|
PowerShares DB Oil Fund (the DBO Fund),
|
|
|
DB Oil Master Fund (the DBO Master Fund).
|
|
|
PowerShares DB Precious Metals Fund (the DBP Fund),
|
|
|
DB Precious Metals Master Fund (the DBP Master Fund).
|
|
|
PowerShares DB Gold Fund (the DGL Fund),
|
1
Organized as a Delaware
statutory trust on May 23, 2005. DBC Fund was originally named DB Commodity Index Tracking Fund and changed its name to PowerShares DB Commodity Index Tracking Fund effective August 10, 2006.
2
Organized as a Delaware statutory trust on May 23, 2005.
3
Organized as a Delaware statutory trust on April 12, 2006. DBV Fund was
originally named DB Currency Index Value Fund and changed its name to PowerShares DB G10 Currency Harvest Fund effective July 20, 2006.
4
Organized as a Delaware statutory trust on April 12, 2006. DBV Master Fund was
originally named DB Currency Index Value Master Fund and changed its name to DB G10 Currency Harvest Master Fund effective July 20, 2006.
5
Organized as a Delaware statutory trust, in seven separate series, or Funds, on
August 3, 2006.
6
Organized as a Delaware statutory trust, in seven
separate series, or Master Funds, on August 3, 2006.
(Continued)
-181-
DB COMMODITY SERVICES LLC
(An Indirect Wholly Owned Subsidiary of Deutsche Bank AG)
Notes to Unaudited Financial
Statements
June 30, 2007
|
|
DB Gold Master Fund (the DGL Master Fund).
|
|
|
PowerShares DB Silver Fund (the DBS Fund),
|
|
|
DB Silver Master Fund (the DBS Master Fund).
|
|
|
PowerShares DB Base Metals Fund (the DBB Fund),
|
|
|
DB Base Metals Master Fund (the DBB Master Fund).
|
|
|
PowerShares DB Agriculture Fund (the DBA Fund),
|
|
|
DB Agriculture Master Fund (the DBA Master Fund).
|
|
|
|
PowerShares DB US Dollar Index Trust
7
and DB US Dollar Index Master Trust
8
|
|
|
PowerShares DB US Dollar Index Bullish Fund (the UUP Fund),
|
|
|
DB US Dollar Index Bullish Master Fund (the UUP Master Fund).
|
|
|
PowerShares DB US Dollar Index Bearish Fund (the UDN Fund),
|
|
|
DB US Dollar Index Bearish Master Fund (the UDN Master Fund).
|
The DBC Fund, DBC Master Fund, DBV Fund, DBV Master Fund, DBE Fund, DBE Master Fund, DBO Fund, DBO Master Fund, DBP Fund, DBP Master Fund, DGL Fund, DGL Master Fund, DBS Fund, DBS Master Fund, DBB Fund, DBB Master Fund, DBA Fund, DBA Master
Fund, UUP Fund, UUP Master Fund, UDN Fund and UDN Master Fund will be collectively referred to herein as the DB Exchange Traded Funds, Funds, Feeder Funds or the Master Funds, as applicable.
(2)
|
Summary of Significant Accounting Policies
|
The accompanying
unaudited financial statements have been prepared in conformity with U.S generally accepted accounting principles.
The preparation of the
unaudited 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, liabilities, income, expenses and disclosure of
contingent assets and liabilities during the reporting period of the unaudited financial statements. Actual results could differ from those estimates.
7
|
Organized as a Delaware statutory trust, in two separate series, or Funds, on August 3, 2006.
|
8
|
Organized as a Delaware statutory trust, in two separate series, or Master Funds, on August 3, 2006.
|
(Continued)
-182-
DB COMMODITY SERVICES LLC
(An Indirect Wholly Owned Subsidiary of Deutsche Bank AG)
Notes to Unaudited Financial
Statements
June 30, 2007
|
(c)
|
Due from DB Exchange Traded Funds
|
Due from
DB Exchange Traded Funds is recorded at the invoiced amounts and do not bear interest. Amounts collected on accounts receivable are included in net cash provided by operating activities in the statement of cash flow. Management has determined that
there was no risk of unrecoverable amounts, and no allowance for doubtful accounts was provided for as of June 30, 2007.
|
(d)
|
Investment in DB Exchange Traded Funds
|
The
Companys investments in DB Exchange Traded Funds consist of capital contributions in the general shares of the Funds.
Upon the
establishment of the Funds, the Companys investment represents 100% ownership and is stated at cost. Upon commencement of the Funds investment operations and issuance of the Funds limited shares, the Companys general share
ownership of the Feeder Funds is recorded as capital in the consolidated financial statements of the Funds, and the Companys general share ownership of the Master Funds is recorded as a minority shareholder.
The Company is a limited
liability company and did not elect to be taxable as a corporation for U.S. income tax purposes. Accordingly, the Company will not incur U.S. income taxes. No provision for federal, state and local income taxes has been made in the accompanying
financial statements, as its owner member is individually liable for income taxes, if any, on its share of the Companys income, loss and other items.
Fees earned for
management services are recorded on the accrual method of accounting. Fees for management services are received from each of the Master Funds upon commencement of operations. No separate fee is received from each of the Feeder Funds.
(3)
|
Related Party Transactions
|
|
(a)
|
Management Fees and Due from DB Exchange Traded Funds
|
The DBC Master Fund pays the Company a management fee, monthly in arrears, in an amount equal to 0.75% per annum of the net asset value of the DBC Master Fund. Prior to July 12, 2006, the DBC management fee
was 0.95% per annum.
The DBA, DBB, DBE, DBP and DBV Master Funds pay the Company a management fee, monthly in arrears, in an amount
equal to 0.75% per annum of the net asset value of the DBA, DBB, DBE, DBP and DBV Master Funds respectively.
The DBO, DBS, DGL, UDN
and UUP Master Funds pay the Company a management fee, monthly in arrears, in an amount equal to 0.50% per annum of the net asset value of the DBO, DBS, DGL, UDN and UUP Master Funds respectively.
(Continued)
-183-
DB COMMODITY SERVICES LLC
(An Indirect Wholly Owned Subsidiary of Deutsche Bank AG)
Notes to Unaudited Financial
Statements
June 30, 2007
Management fees as of June 30, 2007 and 2006, and due from DB Exchange-Traded Funds as of June 30, 2007 amounted to:
|
|
|
|
|
|
|
|
|
|
|
|
2007
Management Fees
|
|
2006
Management Fees
|
|
2007
Due from DB
Exchange Traded
Funds
|
DBA Master Fund
|
|
$
|
771,222
|
|
$
|
|
|
$
|
225,868
|
DBB Master Fund
|
|
|
134,425
|
|
|
|
|
|
42,747
|
DBC Master Fund
|
|
|
3,026,769
|
|
|
1,320,933
|
|
|
584,919
|
DBE Master Fund
|
|
|
97,443
|
|
|
|
|
|
16,092
|
DBO Master Fund
|
|
|
64,966
|
|
|
|
|
|
17,611
|
DBP Master Fund
|
|
|
77,553
|
|
|
|
|
|
9,563
|
DBS Master Fund
|
|
|
55,758
|
|
|
|
|
|
8,519
|
DBV Master Fund
|
|
|
1,097,224
|
|
|
|
|
|
271,424
|
DGL Master Fund
|
|
|
55,022
|
|
|
|
|
|
8,533
|
UDN Master Fund
|
|
|
45,821
|
|
|
|
|
|
10,564
|
UUP Master Fund
|
|
|
41,223
|
|
|
|
|
|
7,474
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,467,425
|
|
$
|
1,320,933
|
|
$
|
1,203,314
|
|
(b)
|
Organization, Offering and Administration Costs
|
Effective July 12, 2006, the Managing Owner agreed to assume all future routine operational, administrative and other ordinary expenses of the Funds and Master Funds, including, but not limited to, computer services, trustee fees and
expenses, legal and accounting fees and expenses, tax preparation expenses, filing fees and printing, mailing and duplication costs. Accordingly, such expenses are recorded in the unaudited statement of income and expenses of the Company. Please
refer to Note (6) for further details on service agreements.
In addition, the Company, in its capacity as the managing owner and on
behalf of the Funds, entered into a service agreement with Deutsche Bank AG for services including, but not limited to, trading, accounting, legal, human resources and other. The costs of these services are assumed by Deutsche Bank AG with no cost
allocation to the Company or the Funds.
The Company participates
in a cash management program with Deutsche Bank AG New York Branch, which provides the Company with a cash facility to cover its operational expenses. The cash management program is non-interest bearing and there is no expiration date. As per a
Letter of Support, Deutsche Bank AG will continue to provide the Company with the funds necessary to meet its current and currently foreseeable obligations. As of June 30, 2007, the Company had an overdraft balance of $1,338,036.
(Continued)
-184-
DB COMMODITY SERVICES LLC
(An Indirect Wholly Owned Subsidiary of Deutsche Bank AG)
Notes to Unaudited Financial
Statements
June 30, 2007
(4)
|
Investments in DB Exchange Traded Funds
|
Investments in DB Exchange Traded Funds as of June 30, 2007 consist of the following:
|
|
|
|
|
|
|
|
|
Ownership %
|
|
|
Amount
|
PowerShares DB Commodity Index Tracking Fund (a)
|
|
(e
|
)
|
|
$
|
1,000
|
DB Commodity Index Tracking Master Fund (a)
|
|
(e
|
)
|
|
|
1,000
|
PowerShares DB G10 Currency Harvest Fund (b)
|
|
(e
|
)
|
|
|
1,000
|
DB G10 Currency Harvest Master Fund (b)
|
|
(e
|
)
|
|
|
1,000
|
PowerShares DB Energy Fund (c)
|
|
(e
|
)
|
|
|
1,000
|
DB Energy Master Fund (c)
|
|
(e
|
)
|
|
|
1,000
|
PowerShares DB Oil Fund (c)
|
|
(e
|
)
|
|
|
1,000
|
DB Oil Master Fund (c)
|
|
(e
|
)
|
|
|
1,000
|
PowerShares DB Precious Metals Fund (c)
|
|
(e
|
)
|
|
|
1,000
|
DB Precious Metals Master Fund (c)
|
|
(e
|
)
|
|
|
1,000
|
PowerShares DB Gold Fund (c)
|
|
(e
|
)
|
|
|
1,000
|
DB Gold Master Fund (c)
|
|
(e
|
)
|
|
|
1,000
|
PowerShares DB Silver Fund (c)
|
|
(e
|
)
|
|
|
1,000
|
DB Silver Master Fund (c)
|
|
(e
|
)
|
|
|
1,000
|
PowerShares DB Base Metals Fund (c)
|
|
(e
|
)
|
|
|
1,000
|
DB Base Metals Master Fund (c)
|
|
(e
|
)
|
|
|
1,000
|
PowerShares DB Agriculture Fund (c)
|
|
(e
|
)
|
|
|
1,000
|
DB Agriculture Master Fund (c)
|
|
(e
|
)
|
|
|
1,000
|
PowerShares DB US Dollar Index Bullish Fund (d)
|
|
(e
|
)
|
|
|
1,000
|
DB US Dollar Index Bullish Master Fund (d)
|
|
(e
|
)
|
|
|
1,000
|
PowerShares DB US Dollar Index Bearish Fund (d)
|
|
(e
|
)
|
|
|
1,000
|
DB US Dollar Index Bearish Master Fund (d)
|
|
(e
|
)
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
22,000
|
|
|
|
|
|
|
|
(a)
|
Commenced investment operations on January 31, 2006
|
(b)
|
Commenced investment operations on September 15, 2006
|
(c)
|
Commenced investment operations on January 5, 2007
|
(d)
|
Commenced investment operations on February 20, 2007
|
(e)
|
Ownership represents less than 1.0%
|
(Continued)
-185-
DB COMMODITY SERVICES LLC
(An Indirect Wholly Owned Subsidiary of Deutsche Bank AG)
Notes to Unaudited Financial
Statements
June 30, 2007
Accrued expenses at June 30,
2007 consist of the following:
|
|
|
|
|
|
2007
|
Audit fees and tax services
|
|
|
1,717,189
|
Marketing costs
|
|
|
460,588
|
Administrator services
|
|
|
914,587
|
Legal
|
|
|
50,000
|
Printing services
|
|
|
193,738
|
Other
|
|
|
9,520
|
|
|
|
|
|
|
$
|
3,345,621
|
Under the trust agreement
of the Funds, Wilmington Trust Company, the Trustee of the Funds has delegated to the Company the exclusive management and control of all aspects of the business of the Funds.
The Trustee compensation is paid on behalf of the Funds by the Company.
|
(b)
|
Administration Agreement
|
The Company, in
its capacity as the managing owner and on behalf of each of the Funds and Master Funds, has appointed The Bank of New York as the administrator (the Administrator), custodian and transfer agent of the Funds and have entered into separate
administrative, custodian, transfer agency and service agreements (collectively referred to as the Administration Agreement). The Administrator performs or supervises the performance of services necessary for the operation and
administration of each of the Funds (other than making investment decisions), including receiving and processing orders to create and redeem shares of the Funds, net asset value calculations, accounting and other fund administrative services.
The Administrators monthly fees are paid on behalf of the Funds by the Company.
|
(c)
|
Distribution Services Agreement
|
ALPS
Distributors provide certain distribution services for each of the Funds. Pursuant to the Distribution Services Agreement between ALPS Distributors, the Company, in its capacity as the managing owner and on behalf of the Funds, ALPS Distributors
assists the Company with certain distribution and marketing functions, including reviewing and approving marketing materials.
ALPS
Distributors fees are paid on behalf of the Funds by the Company.
(Continued)
-186-
DB COMMODITY SERVICES LLC
(An Indirect Wholly Owned Subsidiary of Deutsche Bank AG)
Notes to Unaudited Financial
Statements
June 30, 2007
Under the License Agreement among PowerShares Capital Management LLC, the Company in its own capacity, and the Company in its capacity as the managing owner and on behalf of the Funds (the Funds and the Company,
collectively the Licensees), PowerShares Capital Management LLC granted to each Licensee a non-exclusive license to use the PowerShares
®
trademark anywhere in the
world, solely in connection with the marketing and promotion of the Funds, and issuance and trading of the Funds shares as necessary.
License fees are paid on behalf of the Funds by the Company.
Pursuant to the
Marketing Agreement between AIM Distributors and the Company in its capacity as the managing owner and on behalf of the Funds, AIM Distributors assist the Company and the Administrator with certain functions and duties such as providing various
educational and marketing activities regarding each of the Funds, primarily in the secondary trading market. Activities include, but are not limited to, communicating each of the Funds names, characteristics, uses, benefits, and risks,
consistent with the prospectus, engagement in public seminars, road shows, conferences, media interviews, fielding incoming telephone 800 number calls and distributing sales literature and other communications (including electronic
media) regarding each of the Funds.
Marketing fees are paid on behalf of the Funds by the Company.
(7)
|
Commitments and Contingencies
|
The Company has
entered into various service agreements on behalf of the Funds 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 Funds. While the Companys 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 the Companys
financial position.
(8)
|
Business and Credit Concentration
|
The
Companys business is to serve as the managing owner, commodity pool operator and commodity trading advisor to a number of DB Exchange Traded Funds. Basis for the management fee calculation is the Funds net asset value. Accordingly,
factors that may have the effect of causing a decline in the Funds net asset value will affect the Companys income from management fees.
(9)
|
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
(Continued)
-187-
DB COMMODITY SERVICES LLC
(An Indirect Wholly Owned Subsidiary of Deutsche Bank AG)
Notes to Unaudited Financial
Statements
June 30, 2007
a tax return. FIN 48 also provides related guidance on measurement, derecognition, classification, interest and penalties, and disclosure. The Company
adopted FIN 48 on January 1, 2007 and has determined that the application of this standard will not impact the Companys unaudited 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 Company 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 Company is currently evaluating the impact of adopting Statement 157 on its results of operations and financial position.
-188-
PART TWO
STATEMENT OF ADDITIONAL INFORMATION
POWERSHARES DB US DOLLAR INDEX TRUST
PowerShares DB US Dollar Index Bullish Fund
PowerShares DB US Dollar Index Bearish Fund
Shares of Beneficial Interest
The Shares are speculative
securities which involve the risk of loss.
Past performance is not necessarily indicative of future results.
See The Risks You Face beginning at page 18 in Part One.
THIS PROSPECTUS IS IN TWO PARTS: A DISCLOSURE
DOCUMENT AND A STATEMENT OF ADDITIONAL
INFORMATION. THESE PARTS ARE BOUND
TOGETHER, AND BOTH CONTAIN
IMPORTANT INFORMATION.
, 2007
DB Commodity Services LLC
Managing Owner
PART TWO
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
|
|
|
General Information Relating to Deutsche Bank AG
|
|
191
|
|
|
The Futures Markets
|
|
191
|
|
|
Futures Contracts
|
|
191
|
Hedgers and Speculators
|
|
192
|
Futures Exchanges
|
|
192
|
Daily Limits
|
|
192
|
Regulations
|
|
193
|
Margin
|
|
194
|
|
|
Exhibit APrivacy Notice
|
|
P1
|
-190-
GENERAL INFORMATION RELATING TO DEUTSCHE BANK AG
Deutsche Bank AG is a banking company with limited
liability incorporated under the laws of the Federal Republic of Germany under registration number HRB 30 000. Deutsche Bank AG has its registered office at Taunusanlage 12, D-60325 Frankfurt am Main. Deutsche Bank AG originated from the
reunification of Norddeutsche Bank Aktiengesellschaft, Hamburg, Deutsche Bank Aktiengesellschaft West, Düsseldorf, and Süddeutsche Bank Aktiengesellschaft, Munich; pursuant to the Law on the Regional Scope of Credit Institutions, these had
been disincorporated in 1952 from Deutsche Bank, founded in 1870. The merger and the name were entered in the Commercial Register of the District Court in Frankfurt am Main on May 2, 1957.
Deutsche Bank AG is the parent company of the Deutsche Bank Group, consisting of banks, capital market companies, fund management companies and a
property finance company, installment financing companies, research and consultancy companies and other domestic and foreign companies. The Deutsche Bank Group has over 1,500 branches and offices engaged in banking business and other financial
businesses worldwide.
The objectives of Deutsche Bank AG, as set forth in its Articles of Association, include the transaction of all
kinds of banking businesses, the provision of financial and other services and the promotion of international economic relations. Deutsche Bank AG may realize these objectives itself or through subsidiaries and affiliated companies. To the extent
permitted by law, Deutsche Bank AG is entitled to transact all business and to take all steps which appear likely to promote the objectives of Deutsche Bank AG, in particular, to acquire and dispose of real estate, to establish branches at home and
abroad, to acquire, administer and dispose of participations in other enterprises, and to conclude enterprise agreements.
The activities
of the Deutsche Bank Group include traditional deposit-taking and lending business for private clients, corporate and public sector entities, including mortgage lending, payment transactions, securities brokerage for customers, asset management,
investment banking, project finance,
structured finance, foreign trade finance, money and foreign exchange dealing, building savings business (Bauspargeschäft), as well as cash management,
payment and securities settlement, and payment cards and point-of-sale services.
As of December 31, 2006, the issued share
capital of Deutsche Bank AG amounted to euro 2.56 billion, consisting of 524.8 million ordinary registered shares without par value. These shares are fully paid up and in registered form. The shares are listed for trading and official quotation on
all the German stock exchanges. They are also listed on the stock exchanges in Amsterdam, Brussels, London, Luxembourg, New York, Paris, Tokyo and Vienna and on the Swiss Exchange.
As of December 31, 2006, the Deutsche Bank Group had total assets of euro 1.126 billion, total liabilities of euro 1.093 billion and
shareholders equity of euro 32.8 billion. Please refer to Deutsche Bank AGs Annual Report on Form 20-F, which is incorporated by reference herein, for additional financial information and financial statements.
Deutsche Bank AG London is the London branch of Deutsche Bank AG. Deutsche Bank AG, New York branch, is the New York branch of Deutsche Bank AG and
operates pursuant to license issued by the Superintendent of Banks of the State of New York on July 14, 1978.
THE FUTURES MARKETS
Futures Contracts
Futures contracts are standardized contracts made on United States or foreign exchanges
that call for the future delivery of specified quantities of various agricultural and tropical commodities, industrial commodities, currencies, financial instruments or metals at a specified time and place. The contractual obligations, depending
upon whether one is a buyer or a seller, may be satisfied either by taking or making, as the case may be, physical delivery of an approved grade of commodity or by making an offsetting sale or purchase of an equivalent but opposite futures contract
on the same, or mutually off-setting, exchange prior to the designated date of delivery. As an example of an offsetting transaction where the physical commodity is not delivered, the contractual obligation arising
-191-
from the sale of one contract of December 2007 wheat on a commodity exchange may be fulfilled at any time before delivery of the commodity is required by the
purchase of one contract of December 2007 wheat on the same exchange. The difference between the price at which the futures contract is sold or purchased and the price paid for the offsetting purchase or sale, after allowance for brokerage
commissions, constitutes the profit or loss to the trader. Certain futures contracts, such as those for stock or other financial or economic indices approved by the CFTC or Eurodollar contracts, settle in cash (irrespective of whether any attempt is
made to offset such contracts) rather than delivery of any physical commodity.
Hedgers and Speculators
The two broad classes of persons who trade futures interest contracts are
hedgers and speculators. Commercial interests, including farmers, that market or process commodities, and financial institutions that market or deal in commodities, including interest rate sensitive instruments, foreign
currencies and stocks, and which are exposed to currency, interest rate and stock market risks, may use the futures markets for hedging. Hedging is a protective procedure designed to minimize losses that may occur because of price fluctuations
occurring, for example, between the time a processor makes a contract to buy or sell a raw or processed commodity at a certain price and the time he must perform the contract. The futures markets enable the hedger to shift the risk of price
fluctuations to the speculator. The speculator risks his capital with the hope of making profits from price fluctuations in futures interests contracts. Speculators rarely take delivery of commodities, but rather close out their positions by
entering into offsetting purchases or sales of futures interests contracts. Since the speculator may take either a long or short position in the futures markets, it is possible for him to make profits or incur losses regardless of whether prices go
up or down.
Futures Exchanges
Futures exchanges provide centralized market facilities for trading futures contracts and
options (but not forward contracts). Members of, and trades executed on, a particular exchange are subject to the rules of that exchange. Among the principal exchanges in the United States are the Chicago Board of Trade,
the Chicago Mercantile Exchange, the New York Mercantile Exchange, and ICE Futures U.S.
Each futures exchange in the United States has an associated clearing house. Once trades between members of an exchange have been confirmed,
the clearing house becomes substituted for each buyer and each seller of contracts traded on the exchange and, in effect, becomes the other party to each traders open position in the market. Thereafter, each party to a trade looks only to the
clearing house for performance. The clearing house generally establishes some sort of security or guarantee fund to which all clearing members of the exchange must contribute; this fund acts as an emergency buffer that enables the clearing house, at
least to a large degree, to meet its obligations with regard to the other side of an insolvent clearing members contracts. Furthermore, clearing houses require margin deposits and continuously mark positions to market to provide
some assurance that their members will be able to fulfill their contractual obligations. Thus, a central function of the clearing houses is to ensure the integrity of trades, and members effecting futures transactions on an organized exchange need
not worry about the solvency of the party on the opposite side of the trade; their only remaining concerns are the respective solvencies of their commodity broker and the clearing house. The clearing house guarantee of performance on
open positions does not run to customers. If a member firm goes bankrupt, customers could lose money.
Foreign futures exchanges differ in
certain respects from their U.S. counterparts. In contrast to U.S. exchanges, certain foreign exchanges are principals markets, where trades remain the liability of the traders involved, and the exchange clearing house does not
become substituted for any party.
Daily Limits
Most U.S. futures exchanges (but generally not foreign exchanges or banks or dealers in the
case of forward contracts) limit the amount of fluctuation in futures interests contract prices during a single trading day by regulation. These regulations specify what are referred to as daily price fluctuation limits or more commonly
daily limits. The daily limits establish the maximum amount that the price of a futures interests contract may vary either up or down from the previous days settlement price. Once the
-192-
daily limit has been reached in a particular futures interest, no trades may be made at a price beyond the limit. See The Risks You Face The Net
Asset Value Calculation of the Master Funds May Be Overstated or Understated Due to the Valuation Method Employed When a Settlement Price is not Available on the Date of Net Asset Value Calculation.
Although the DX Contracts that the Master Fund will invest in are not currently subject to daily limits, the terms and conditions of these
contracts may change in the future.
Regulations
Futures exchanges in the United States are subject to regulation under the Commodity Exchange
Act, or CEAct, by the CFTC, the governmental agency having responsibility for regulation of futures exchanges and trading on those exchanges. (Investors should be aware that no governmental U.S. agency regulates the OTC foreign exchange
markets.)
The CEAct and the CFTC also regulate the activities of commodity trading advisors and commodity pool
operators and the CFTC has adopted regulations with respect to certain of such persons activities. Pursuant to its authority, the CFTC requires a commodity pool operator (such as the Managing Owner) to keep accurate, current and orderly
records with respect to each pool it operates. The CFTC may suspend the registration of a commodity pool operator if the CFTC finds that the operator has violated the CEAct or regulations thereunder and in certain other circumstances. Suspension,
restriction or termination of the Managing Owners registration as a commodity pool operator would prevent it, until such time (if any) as such registration were to be reinstated, from managing, and might result in the termination of, the Fund
and the Master Fund. The CEAct gives the CFTC similar authority with respect to the activities of commodity trading advisors, such as the Managing Owner. If the registration of a Managing Owner as a commodity trading advisor were to be terminated,
restricted or suspended, the Managing Owner would be unable, until such time (if any) as such registration were to be reinstated, to render trading advice to the Fund and the Master Fund. The Fund and the Master Fund themselves are not registered
with the CFTC in any capacity.
The CEAct requires all futures commission merchants, such as the Commodity Broker, to meet and maintain specified fitness and financial
requirements, segregate customer funds from proprietary funds and account separately for all customers funds and positions, and to maintain specified book and records open to inspection by the staff of the CFTC.
The CEAct also gives the states certain powers to enforce its provisions and the regulations of the CFTC.
Shareholders are afforded certain rights for reparations under the CEAct. Shareholders may also be able to maintain a private right of action for certain
violations of the CEAct. The CFTC has adopted rules implementing the reparation provisions of the CEAct which provide that any person may file a complaint for a reparations award with the CFTC for violation of the CEAct against a floor broker,
futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, and their respective associated persons.
Pursuant to authority in the CEAct, the NFA has been formed and registered with the CFTC as a registered futures association. At the present time, the NFA is the only non-exchange self-regulatory organization for commodities
professionals. NFA members are subject to NFA standards relating to fair trade practices, financial condition, and consumer protection. As the self-regulatory body of the commodities industry, the NFA promulgates rules governing the conduct of
commodity professionals and disciplines those professionals who do not comply with such standards. The CFTC has delegated to the NFA responsibility for the registration of commodity trading advisors, commodity pool operators, futures commission
merchants, introducing brokers and their respective associated persons and floor brokers. The Commodity Broker and the Managing Owner are members of the NFA (the Fund and the Master Fund themselves are not required to become members of the NFA).
The CFTC has no authority to regulate trading on foreign commodity exchanges and markets.
-193-
Margin
Initial or original margin is the minimum amount of funds that must be
deposited by a futures trader with his commodity broker in order to initiate futures trading or to maintain an open position in futures contracts. Maintenance margin is the amount (generally less than initial margin) to which a
traders account may decline before he must deliver additional margin. A margin deposit is like a cash performance bond. It helps assure the futures traders performance of the futures interests which contracts he purchases or sells.
Futures interests are customarily bought and sold on margins that represent a very small percentage (ranging upward from less than 2%) of the purchase price of the underlying commodity being traded. Because of such low margins, price fluctuations
occurring in the futures markets may create profits and losses that are greater, in relation to the amount invested, than are customary in other forms of investments. The minimum amount of margin required in connection with a particular futures
interests contract is set from time-to-time by the exchange on which such contract is traded, and may be modified from time-to-time by the exchange during the term of the contract.
Brokerage firms carrying accounts for traders in futures interests contracts may not accept lower, and generally require higher, amounts of margin as a
matter of policy in order to afford further protection for themselves.
Margin requirements are computed each day by a commodity broker.
When the market value of a particular open futures interests contract position changes to a point where the margin on deposit does not satisfy maintenance margin requirements, a margin call is made by the commodity broker. If the margin call is not
met within a reasonable time, the broker may close out the Master Funds position. With respect to the Managing Owners trading, only the Managing Owner, and not the Fund or its Shareholders personally, will be subject to margin calls.
-194-
EXHIBIT A
PRIVACY NOTICE
The importance of protecting the investors privacy is recognized by
PowerShares DB US Dollar Index Trust (the Trust) and DB Commodity Services LLC (the Managing Owner). The Trust and the Managing Owner protect personal information they collect about you by maintaining physical, electronic and
procedural safeguards to maintain the confidentiality and security of such information.
Categories Of Information
Collected.
In the normal course of business, the Trust and the Managing Owner may collect the following types of information concerning investors in the Funds who are natural persons:
|
|
Information provided in the Participant Agreements and other forms (including name, address, social security number, income and other financial-related information); and
|
|
|
Data about investor transactions (such as the types of investments the investors have made and their account status).
|
How the Collected Information is Used.
Any and all nonpublic personal information received by the Funds or the Managing Owner with
respect to the investors who are natural persons, including the information provided to the Funds by such an investor in the Participant Agreement, will not be shared with nonaffiliated third parties which are not service providers to the Trust or
the Managing Owner without prior notice to such investors. Such service providers include but are not limited to the Selling Agents, the Commodity Broker, administrators, auditors and the legal advisers of the Trust. Additionally, the Trust and/or
the Managing Owner may disclose such nonpublic personal information as required by applicable laws, statutes, rules and regulations of any government, governmental agency or self-regulatory organization or a court order. The same privacy policy will
also apply to the Shareholders who have fully redeemed.
For questions about the privacy policy, please contact the Trust.
P-1
PART II
Information Not Required in Prospectus
Item 13.
|
Other Expenses of Issuance and Distribution.
|
The
following expenses reflect the estimated amounts required to prepare and file this Registration Statement and complete the offering of the Shares (other than selling commissions).
|
|
|
|
|
|
Approximate
Amount
|
Securities and Exchange Commission Registration Fee
|
|
$
|
107,000
|
National Association of Securities Dealers, Inc. Filing Fee
|
|
|
75,500
|
Printing Expenses
|
|
|
200,000
|
Fees of Certified Public Accountants
|
|
|
150,000
|
Fees of Counsel
|
|
|
450,000
|
|
|
|
|
Total
|
|
$
|
982,500
|
|
|
|
|
Item 14.
|
Indemnification of Directors and Officers.
|
Section 4.7 of the Amended and Restated Declaration of Trust and Trust Agreement of each of the Trust and the Master Trust filed as exhibits to this Registration Statement and, as amended from time-to-time, provides for the
indemnification of the Managing Owner. The Managing Owner (including Covered Persons as provided under each Amended and Restated Declaration of Trust and Trust Agreement) shall be indemnified by the Funds or the Master Funds, as the case may be,
against any losses, judgments, liabilities, expenses and amounts paid in settlement of any claims sustained by it in connection with its activities for the Funds or the Master Funds, as the case may be, provided that (i) the Managing Owner was
acting on behalf of or performing services for the Funds or the Master Funds, as the case may be, and has determined, in good faith, that such course of conduct was in the best interests of the Funds or the Master Funds, as the case may be, and such
liability or loss was not the result of negligence, misconduct, or a breach of the Amended and Restated Declaration of Trust and Trust Agreement on the part of the Managing Owner and (ii) any such indemnification will only be recoverable from
the Trust Estate (as such term is defined in the Amended and Restated Declaration of Trust and Trust Agreement). All rights to indemnification permitted therein and payment of associated expenses shall not be affected by the dissolution or other
cessation to exist of the Managing Owner, or the withdrawal, adjudication of bankruptcy or insolvency of the Managing Owner, or the filing of a voluntary or involuntary petition in bankruptcy under Title 11 of the U.S. Code by or against the
Managing Owner. The source of payments made in respect of indemnification under either Amended and Restated Declaration of Trust and Trust Agreement shall be from assets of the Funds or the Master Funds, as the case may be.
Item 15.
|
Recent Sales of Unregistered Securities.
|
None.
II-1
Item 16.
|
Exhibits and Financial Statement Schedules.
|
The
following documents (unless otherwise indicated) are filed herewith and made a part of this Registration Statement:
|
(a)
|
Exhibits. The following exhibits are filed herewith:
|
|
|
|
Exhibit
Number
|
|
Description of Document
|
1.1
|
|
Form of Initial Purchaser Agreement*
|
|
|
4.1
|
|
Form of Amended and Restated Declaration of Trust and Trust Agreement of the Registrant*
|
|
|
4.2
|
|
Form of Amended and Restated Declaration of Trust and Trust Agreement of the Co-Registrant*
|
|
|
4.3
|
|
Form of Participant Agreement*
|
|
|
4.4
|
|
Form of Privacy Notice (annexed to the Prospectus as Exhibit A)
|
|
|
5.1
|
|
Opinion of Richards, Layton & Finger as to legality*
|
|
|
8.1
|
|
Opinion of Sidley Austin LLP as to income tax matters
|
|
|
10.1
|
|
Form of Customer Agreement**
|
|
|
10.2
|
|
Form of Administration Agreement**
|
|
|
10.3
|
|
Form of Global Custody Agreement**
|
|
|
10.4
|
|
Form of Transfer Agency and Service Agreement**
|
|
|
10.5
|
|
Form of Distribution Services Agreement*
|
|
|
10.6
|
|
Form of Marketing Agreement*
|
|
|
23.1
|
|
Consent of Sidley Austin LLP is included as part of this Registration Statement
|
|
|
23.2
|
|
Consent of Richards, Layton & Finger is included as part of this Registration Statement
|
|
|
23.3
|
|
Consent of Sidley Austin LLP as tax counsel is included as part of this Registration Statement
|
|
|
23.4
|
|
Consent of KPMG LLP, Independent Registered Public Accounting Firm, is included as part of this Registration Statement
|
*
|
Previously filed as an exhibit to Pre-Effective Amendment No. 2 to Form S-1 on January 17, 2007 and incorporated herein by reference.
|
**
|
Previously filed as an exhibit to Pre-Effective Amendment No. 1 to Form S-1 on October 16, 2006 and incorporated herein by reference.
|
|
(b)
|
The following financial statements are included in the Prospectus:
|
|
(1)
|
PowerShares DB US Dollar Index Bullish Fund
|
(i) Report
of Independent Registered Public Accounting Firm
(ii) Statement of Financial Condition as of December 31, 2006
(iii) Notes to Statement of Financial Condition
|
(2)
|
DB US Dollar Index Bullish Master Fund
|
(i) Report of
Independent Registered Public Accounting Firm
(ii) Statement of Financial Condition as of December 31, 2006
(iii) Notes to Statement of Financial Condition
II-2
|
(3)
|
PowerShares DB US Dollar Index Bullish Fund and Subsidiary
|
|
(i)
|
Consolidated Statement of Financial Condition as of June 30, 2007 (unaudited) and December 31, 2006
|
|
(ii)
|
Consolidated Schedule of Investments as of June 30, 2007 (unaudited)
|
|
(iii)
|
Unaudited Consolidated Statement of Income and Expenses For the Three Months and Period Ended June 30, 2007
|
|
(iv)
|
Unaudited Consolidated Statement of Changes in Shareholders Equity For the Three Months Ended June 30, 2007
|
|
(v)
|
Unaudited Consolidated Statement of Changes in Shareholders Equity For the Period Ended June 30, 2007
|
|
(vi)
|
Unaudited Consolidated Statement of Cash Flows For the Period Ended June 30, 2007
|
|
(vii)
|
Notes to Unaudited Consolidated Financial Statements
|
|
(4)
|
PowerShares DB US Dollar Index Bearish Fund
|
|
(i)
|
Report of Independent Registered Public Accounting Firm
|
|
(ii)
|
Statement of Financial Condition as of December 31, 2006
|
|
(iii)
|
Notes to Statement of Financial Condition
|
|
(5)
|
DB US Dollar Index Bearish Master Fund
|
|
(i)
|
Report of Independent Registered Public Accounting Firm
|
|
(ii)
|
Statement of Financial Condition as of December 31, 2006
|
|
(iii)
|
Notes to Statement of Financial Condition
|
|
(6)
|
PowerShares DB US Dollar Index Bearish Fund and Subsidiary
|
|
(i)
|
Consolidated Statement of Financial Condition as of June 30, 2007 (unaudited) and December 31, 2006
|
|
(ii)
|
Consolidated Schedule of Investments as of June 30, 2007 (unaudited)
|
|
(iii)
|
Unaudited Consolidated Statement of Income and Expenses For the Three Months and Period Ended June 30, 2007
|
|
(iv)
|
Unaudited Consolidated Statement of Changes in Shareholders Equity For the Three Months Ended June 30, 2007
|
|
(v)
|
Unaudited Consolidated Statement of Changes in Shareholders Equity For the Period Ended June 30, 2007
|
|
(vi)
|
Unaudited Consolidated Statement of Cash Flows For the Period Ended June 30, 2007
|
|
(vii)
|
Notes to Unaudited Consolidated Financial Statements
|
|
(7)
|
DB Commodity Services LLC
|
|
(i)
|
Independent Auditors Report
|
|
(ii)
|
Statement of Financial Condition as of December 31, 2006 and 2005
|
|
(iii)
|
Statements of Income and Expenses for the Year Ended December 31, 2006 and for the Period from May 23, 2005(Inception) to December 31, 2005
|
|
(iv)
|
Statements of Changes in Members Capital (Deficit) for the Year Ended December 31, 2006 and for the Period from May 23, 2005 (Inception) to December 31, 2005
|
|
(v)
|
Statement of Cash Flows For the Year Ended December 31, 2006 and For the Period from May 23, 2005 (Inception) to December 31, 2005
|
|
(vi)
|
Notes to Financial Statements
|
|
(vii)
|
Unaudited Statement of Financial Condition as of June 30, 2007
|
|
(viii)
|
Unaudited Statement of Income and Expenses For the Six Months Ended June 30, 2007 and June 30, 2006
|
II-3
|
(ix)
|
Unaudited Statement of Changes in Members Capital (Deficit) For the Six Months Ended June 30, 2007 and June 30, 2006
|
|
(x)
|
Unaudited Statement of Cash Flows For the Six Months Ended June 30, 2007 and June 30, 2006
|
|
(xi)
|
Notes to Unaudited Financial Statements
|
|
(a)
|
The undersigned registrant hereby undertakes:
|
|
(1)
|
To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement;
|
|
(i)
|
To include any prospectus required by section 10(a)(3) of the Securities Act of 1933, as amended;
|
|
(ii)
|
To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the Calculation of Registration Fee table in the effective registration statement;
|
|
(iii)
|
To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the
registration statement, provided however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the registration statement is on Form S-3, Form S-8 or Form F-3, and the information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the Commission by the registrant pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the registration statement.
|
Provided, however, That:
(A) Paragraphs (a)(1)(i) and (a)(1)(ii) of this section do not apply if the registration statement is on Form S8, and the
information required to be included in a post-effective amendment by those paragraphs is contained in reports filed with or furnished to the Commission by the registrant pursuant to section 13 or section 15(d) of the Securities Exchange Act of 1934
that are incorporated by reference in the registration statement; and
(B) Paragraphs (a)(1)(i), (a)(1)(ii) and (a)(1)(iii)
of this section do not apply if the registration statement is on Form S3 or Form F3 and the information required to be included in a post-effective amendment by those paragraphs is contained in reports filed with or furnished to the
Commission by the registrant pursuant to section 13 or section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the registration statement, or is contained in a form of prospectus filed pursuant to Rule 424(b) that
is part of the registration statement.
|
(2)
|
That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities at that time shall be deemed to be the
bona fide
offering thereof.
|
II-4
|
(3)
|
To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
|
|
(4)
|
That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser:
|
|
(i)
|
If the registrant is relying on Rule 430B:
|
(A) Each prospectus filed by the registrant pursuant to Rule 424(b)(3) shall be deemed to be part of the registration statement as of the date the filed prospectus was deemed part of and included in the registration statement; and
(B) Each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as part of a registration statement
in reliance on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (vii), or (x) for the purpose of providing the information required by section 10(a) of the Securities Act of 1933 shall be deemed to be part of and included
in the registration statement as of the earlier of the date such form of prospectus is first used after effectiveness or the date of the first contract of sale of securities in the offering described in the prospectus. As provided in Rule 430B, for
liability purposes of the issuer and any person that is at that date an underwriter, such date shall be deemed to be a new effective date of the registration statement relating to the securities in the registration statement to which that prospectus
relates, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or
made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such effective date,
supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such effective date; or
|
(ii)
|
If the registrant is subject to Rule 430C, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration
statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no
statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration
statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such
document immediately prior to such date of first use.
|
|
(5)
|
That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities:
|
The undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to
this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will
be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
|
(i)
|
Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424;
|
|
(ii)
|
Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;
|
II-5
|
(iii)
|
The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf
of the undersigned registrant; and
|
|
(iv)
|
Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.
|
(b) Insofar as indemnification for liabilities under the Securities Act of 1933 may be permitted to officers, directors or controlling persons of the
registrant pursuant to the provisions described in Item 14 above, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by an officer, director, or controlling person of
the registrant in the successful defense of any such action, suit or proceeding) is asserted by such officer, director or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-6
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Managing Owner of the Registrant
and each Co-Registrant has duly caused this Post-Effective Amendment No. 1 to the Registration Statement on Form S-1 to be signed on their behalf by the undersigned, thereunto duly authorized, in the city of New York, State of New York, on
the 5
th
day of October, 2007.
|
|
|
|
|
PowerShares DB US Dollar Index Trust
|
|
|
By:
|
|
DB Commodity Services LLC,
|
|
|
its
Managing Owner
|
|
|
By:
|
|
/s/ Kevin Rich
|
|
|
Name:
|
|
Kevin Rich
|
|
|
Title:
|
|
Director, Chief Executive Officer and
Principal Financial Officer
|
|
|
|
|
By:
|
|
/s/ Gregory Collett
|
|
|
Name:
|
|
Gregory Collett
|
|
|
Title:
|
|
Chief Operating Officer
|
|
PowerShares DB US Dollar Index Bullish Fund, a series of PowerShares DB US Dollar Index Trust
|
|
|
By:
|
|
DB Commodity Services LLC,
|
|
|
its
Managing Owner
|
|
|
By:
|
|
/s/ Kevin Rich
|
|
|
Name:
|
|
Kevin Rich
|
|
|
Title:
|
|
Director, Chief Executive Officer and
Principal
Financial Officer
|
|
|
By:
|
|
/s/ Gregory Collett
|
|
|
Name:
|
|
Gregory Collett
|
|
|
Title:
|
|
Chief Operating Officer
|
|
PowerShares DB US Dollar Index Bearish Fund, a series of PowerShares DB US Dollar Index Trust
|
|
|
By:
|
|
DB Commodity Services LLC,
|
|
|
its
Managing Owner
|
|
|
By:
|
|
/s/ Kevin Rich
|
|
|
Name:
|
|
Kevin Rich
|
|
|
Title:
|
|
Director, Chief Executive Officer and
Principal
Financial Officer
|
|
|
By:
|
|
/s/ Gregory Collett
|
|
|
Name:
|
|
Gregory Collett
|
|
|
Title:
|
|
Chief Operating Officer
|
II-7
|
|
|
|
|
DB US Dollar Index Master Trust
|
|
|
By:
|
|
DB Commodity Services LLC,
|
|
|
its Managing Owner
|
|
|
By:
|
|
/s/ Kevin Rich
|
|
|
Name:
|
|
Kevin Rich
|
|
|
Title:
|
|
Director, Chief Executive Officer and
Principal
Financial Officer
|
|
|
By:
|
|
/s/ Gregory Collett
|
|
|
Name:
|
|
Gregory Collett
|
|
|
Title:
|
|
Chief Operating Officer
|
|
DB US Dollar Index Bullish Master Fund, a series of DB US Dollar Index Master Trust
|
|
|
By:
|
|
DB Commodity Services LLC,
|
|
|
its Managing Owner
|
|
|
By:
|
|
/s/ Kevin Rich
|
|
|
Name:
|
|
Kevin Rich
|
|
|
Title:
|
|
Director, Chief Executive Officer and
Principal
Financial Officer
|
|
|
By:
|
|
/s/ Gregory Collett
|
|
|
Name:
|
|
Gregory Collett
|
|
|
Title:
|
|
Chief Operating Officer
|
|
DB US Dollar Index Bearish Master Fund, a series of DB US Dollar Index Master Trust
|
|
|
By:
|
|
DB Commodity Services LLC,
|
|
|
its Managing Owner
|
|
|
By:
|
|
/s/ Kevin Rich
|
|
|
Name:
|
|
Kevin Rich
|
|
|
Title:
|
|
Director, Chief Executive Officer and
Principal
Financial Officer
|
|
|
By:
|
|
/s/ Gregory Collett
|
|
|
Name:
|
|
Gregory Collett
|
|
|
Title:
|
|
Chief Operating Officer
|
II-8
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective Amendment No. 1
to the Registration Statement on Form S-1 has been signed by the following persons on behalf of the Managing Owner of the Registrant and each Co-Registrant in the capacities and on the date indicated.
DB Commodity Services LLC,
Managing Owner Of Registrant
and each Co-Registrant
|
|
|
|
|
/s/ Kevin Rich
Name: Kevin
Rich
|
|
Director and
Chief Executive Officer
(Principal Executive Officer)and Principal Financial Officer
|
|
October 5, 2007
|
|
|
|
/s/ Gregory Collett
Name: Gregory
Collett
|
|
Chief Operating Officer
|
|
October 5, 2007
|
(Being principal executive officer, the principal financial and accounting officer and a
majority of the managers of the Board of Managers of DB Commodity Services LLC)
DB Commodity Services LLC,
Managing Owner Of Registrant
and each Co-Registrant
|
|
|
|
|
/s/ Kevin Rich
Name: Kevin
Rich
|
|
Director and
Chief Executive Officer
(Principal Executive Officer)and Principal Financial Officer
|
|
October 5, 2007
|
|
|
|
/s/ Gregory Collett
Name: Gregory
Collett
|
|
Chief Operating Officer
|
|
October 5, 2007
|
II-9
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