Invesco DB US Dollar Index Bearish Fund (UDN)
Filed: 26 Oct 09, 12:00am
Exhibit 99.1
DB COMMODITY SERVICES LLC
(An Indirect Wholly Owned Subsidiary of Deutsche Bank AG)
Financial Statements
June 30, 2009
DB COMMODITY SERVICES LLC
(An Indirect Wholly Owned Subsidiary of Deutsche Bank AG)
Statements of Financial Condition
June 30, 2009 (unaudited) and December 31, 2008
| Assets | June 30, 2009 | December 31, 2008 | ||
Due from DB Exchange Traded Funds | $ 4,244,321 | 1,901,076 | ||
Investment in DB Exchange Traded Funds, at fair value | 22,938 | 21,238 | ||
Due from affiliate, net | 25,428,048 | 20,676,128 | ||
Total assets | $ 29,695,307 | 22,598,442 | ||
| Liabilities and Member’s Capital | ||||
Liabilities: | ||||
Accrued expenses | $ 7,801,633 | 8,795,506 | ||
Total liabilities | 7,801,633 | 8,795,506 | ||
Member’s capital | 21,893,674 | 13,802,936 | ||
Total liabilities and member’s capital | $ 29,695,307 | 22,598,442 | ||
See accompanying notes to unaudited financial statements.
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DB COMMODITY SERVICES LLC
(An Indirect Wholly Owned Subsidiary of Deutsche Bank AG)
Unaudited Statements of Income and Expenses
For the Six Months Ended June 30, 2009 and 2008
| 2009 | 2008 | ||||
Income: | |||||
Management fees | $ | 17,212,851 | 22,017,374 | ||
Change in net unrealized appreciation in investment | 1,700 | 5,458 | |||
Total income | $ | 17,214,551 | 22,022,832 | ||
Expenses: | |||||
Legal fees | 1,119,680 | 2,198,618 | |||
Audit fees and tax services | 3,509,943 | 2,475,673 | |||
Printing services | 300,000 | 1,187,133 | |||
Administrator and Trustee fees | 1,175,174 | 1,384,801 | |||
Distribution fees | 2,789,320 | 3,646,546 | |||
Other | 229,696 | 1,045,345 | |||
Total expenses | 9,123,813 | 11,938,116 | |||
Net income | $ | 8,090,738 | 10,084,716 | ||
See accompanying notes to unaudited financial statements.
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DB COMMODITY SERVICES LLC
(An Indirect Wholly Owned Subsidiary of Deutsche Bank AG)
Unaudited Statements of Changes in Member’s Capital (Deficit)
For the Six Months Ended June 30, 2009 and 2008
| 2009
| 2008
| |||
Member’s capital (deficit), opening balance | $ 13,802,936 | (2,252,898) | ||
Net income | 8,090,738 | 10,084,716 | ||
Member’s capital, closing balance | $ 21,893,674 | 7,831,818 | ||
See accompanying notes to unaudited financial statements.
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DB COMMODITY SERVICES LLC
(An Indirect Wholly Owned Subsidiary of Deutsche Bank AG)
Unaudited Statements of Cash Flows
For the Six Months Ended June 30, 2009 and 2008
| 2009 | 2008 | ||||
Cash flows from operating activities: | |||||
Net income | $ | 8,090,738 | 10,084,716 | ||
Adjustments to reconcile net income to net cash provided | |||||
(Increase) decrease in operating assets: | |||||
Due from DB Exchange Traded Funds | (2,343,245) | (2,230,947) | |||
Due from affiliate, net | (4,751,920) | (7,633,849) | |||
Net change in unrealized gain on Investment in DB | (1,700) | (5,458) | |||
Increase (decrease) in operating liabilities: | |||||
Accrued expenses | (993,873) | (214,462) | |||
Net cash provided by (used in) operating activities | — | — | |||
Cash and cash equivalents at beginning of period | — | — | |||
Cash and cash equivalents at end of period | $ | — | — | ||
See accompanying notes to unaudited financial statements.
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DB COMMODITY SERVICES LLC
(An Indirect Wholly Owned Subsidiary of Deutsche Bank AG)
Notes to Unaudited Financial Statements
June 30, 2009
| (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; a Delaware statutory trust organized on May 23, 2005; commenced investment operations on January 31, 2006 (the DBC Feeder Fund). DBC Feeder Fund was originally named “DB Commodity Index Tracking Fund” and changed its name to “PowerShares DB Commodity Index Tracking Fund” effective August 10, 2006, |
| • | DB Commodity Index Tracking Master Fund; a Delaware statutory trust organized on May 23, 2005; commenced investment operations on January 31, 2006 (the DBC Master Fund), |
| • | PowerShares DB G10 Currency Harvest Fund; a Delaware statutory trust organized on April 12, 2006; commenced investment operations on September 15, 2006 (the DBV Feeder Fund). DBV FeederFund was originally named “DB Currency Index Value Fund” and changed its name to “PowerShares DB G10 Currency Harvest Fund” effective July 20, 2006, |
| • | DB G10 Currency Harvest Master Fund; a Delaware statutory trust organized on April 12, 2006; commenced investment operations on September 15, 2006 (the DBV Master Fund). 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, |
| • | PowerShares DB Multi Sector Commodity Trust; a Delaware statutory trust, in seven separate series, or Funds, organized on August 3, 2006; commenced investment operations on January 3, 2007: |
| – | PowerShares DB Energy Fund (the DBE Feeder Fund), |
| – | PowerShares DB Oil Fund (the DBO Feeder Fund), |
| – | PowerShares DB Precious Metals Fund (the DBP Feeder Fund), |
| – | PowerShares DB Gold Fund (the DGL Feeder Fund), |
| – | PowerShares DB Silver Fund (the DBS Feeder Fund), |
| – | PowerShares DB Base Metals Fund (the DBB Feeder Fund), |
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DB COMMODITY SERVICES LLC
(An Indirect Wholly Owned Subsidiary of Deutsche Bank AG)
Notes to Unaudited Financial Statements
June 30, 2009
| – | PowerShares DB Agriculture Fund (the DBA Feeder Fund). |
| • | DB Multi Sector Commodity Master Trust; a Delaware statutory trust, in seven separate series, or Master Funds, organized on August 3, 2006; commenced investment operations on January 3, 2007: |
| – | DB Energy Master Fund (the DBE Master Fund), |
| – | DB Oil Master Fund (the DBO Master Fund), |
| – | DB Precious Metals Master Fund (the DBP Master Fund), |
| – | DB Gold Master Fund (the DGL Master Fund), |
| – | DB Silver Master Fund (the DBS Master Fund), |
| – | DB Base Metals Master Fund (the DBB Master Fund), |
| – | DB Agriculture Master Fund (the DBA Master Fund). |
| • | PowerShares DB US Dollar Index Trust; a Delaware statutory trust, in two separate series, or Funds, organized on August 3, 2006; commenced investment operations on February 15, 2007: |
| – | PowerShares DB US Dollar Index Bullish Fund (the UUP Feeder Fund), |
| – | PowerShares DB US Dollar Index Bearish Fund (the UDN Feeder Fund). |
| • | DB US Dollar Index Master Trust; a Delaware statutory trust, in two separate series, or Master Funds, organized on August 3, 2006; commenced investment operations on February 15, 2007: |
| – | DB US Dollar Index Bullish Master Fund (the UUP Master Fund), |
| – | DB US Dollar Index Bearish Master Fund (the UDN Master Fund). |
| • | DB-New York Nuclear Uranium Fund; a Delaware statutory trust organized on October 1, 2007 and has not yet commenced investment operations. |
The above noted Feeder Funds and Master Funds 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 |
| (a) | Basis of Accounting |
The accompanying financial statements have been prepared in conformity with U.S. generally accepted accounting principles.
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DB COMMODITY SERVICES LLC
(An Indirect Wholly Owned Subsidiary of Deutsche Bank AG)
Notes to Unaudited Financial Statements
June 30, 2009
| (b) | Use of Estimates |
The preparation of the 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 related disclosure of contingent assets and liabilities during the reporting period of the financial statements and accompanying notes. Actual results could differ from those estimates.
| (c) | Due from DB Exchange Traded Funds |
Due from DB Exchange Traded Funds represents outstanding management fees for services provided to the DB Exchange Traded Funds as commodity pool operator, commodity trading advisor and managing owner. The fees are recorded at the invoiced amounts and do not bear interest. Management has determined that there was no risk of unrecoverable amounts, and therefore, no allowance for doubtful accounts was provided for as of June 30, 2009 or December 31, 2008.
| (d) | Investment in DB Exchange Traded Funds |
The Company’s investments in DB Exchange Traded Funds consist of capital contributions in the general shares of the Funds.
Upon the establishment of the Funds, the Company’s investment represents 100% ownership and is stated at cost. Upon commencement of the Funds’ investment operations and issuance of the Funds’ Shares, the Company’s general share ownership of the Feeder Funds is recorded as capital in the consolidated financial statements of the Funds, and the Company’s general share ownership of the Master Funds is recorded as a non-controlling interest in the Master Funds.
| (e) | Income Taxes |
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 liable for income taxes, if any, on the Company’s income, loss, and other items and there is no tax-sharing arrangement between the Company and its owner-member. Based on the effective tax rate of the Company’s owner member, the Company’s pro-rata income tax expense would be approximately $2,400,000 and $2,500,000 for the federal tax, $550,000 and $570,000 for the New York State tax, and $620,000 and $640,000 for the New York City tax for the six-month period ended June 30, 2009 and 2008, respectively. The following is the major tax jurisdiction for the Company and the earliest tax year subject to examination: United States – 2005.
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DB COMMODITY SERVICES LLC
(An Indirect Wholly Owned Subsidiary of Deutsche Bank AG)
Notes to Unaudited Financial Statements
June 30, 2009
| (f) | Revenue Recognition |
Fees for management services are recognized on an accrual basis when earned. Fees for management services are accrued for each of the Master Funds monthly. 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 DBA, DBB, DBC, 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 their net asset values.
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 their net asset values.
During the Six Months Ended June 30, 2009 and 2008 the Company earned management fees of $17,212,851 and $22,017,374, respectively. As of June 30, 2009 and December 31, 2008 Due from DB Exchange Traded Funds were $4,244,321 and $1,901,076.
| 2009 | 2008 | 2009 Due from DB | 2008 Due from DB | |||||||||||||
Management fees | Management fees | Exchange- Traded Funds | Exchange- Traded Funds | |||||||||||||
DBA Master Fund | $ 6,036,019 | 9,093,446 | 1,497,440 | 627,835 | ||||||||||||
DBB Master Fund | 524,632 | 353,161 | 184,331 | 21,332 | ||||||||||||
DBC Master Fund | 6,855,646 | 8,593,033 | 1,775,594 | 689,981 | ||||||||||||
DBE Master Fund | 286,472 | 355,998 | 107,384 | 21,326 | ||||||||||||
DBO Master Fund | 417,304 | 115,927 | 108,995 | 27,885 | ||||||||||||
DBP Master Fund | 432,583 | 375,648 | 94,643 | 46,086 | ||||||||||||
DBS Master Fund | 154,959 | 136,760 | 34,958 | 17,198 | ||||||||||||
DBV Master Fund | 1,055,983 | 1,999,372 | 194,073 | 187,455 | ||||||||||||
DGL Master Fund | 257,256 | 181,392 | 51,995 | 30,192 | ||||||||||||
UDN Master Fund | 512,558 | 227,495 | 75,859 | 51,585 | ||||||||||||
UUP Master Fund | 679,439 | 585,143 | 119,049 | 180,201 | ||||||||||||
| $17,212,851 | 22,017,374 | 4,244,321 | 1,901,076 |
| (b) | Organization and Offering Costs |
The Company assumes all organization and offering costs of the Funds and Master Funds. Expenses incurred with the continuous offering of limited shares will also be paid by the Company.
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DB COMMODITY SERVICES LLC
(An Indirect Wholly Owned Subsidiary of Deutsche Bank AG)
Notes to Unaudited Financial Statements
June 30, 2009
| (c) | Administration Expenses |
The Company assumes all routine operational, administrative and other ordinary expenses of the Funds and Master Funds, including, but not limited to, computer services, the fees and expenses of the Trustee, legal and accounting fees and expenses, audit and 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.
| (d) | Service Agreement |
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.
| (e) | Due from Affiliate, Net |
Deutsche Bank AG New York Branch provides the Company with a cash facility to cover its operational expenses and to deposit management fees received from the DB Exchange Traded Funds. This cash management program is non-interest bearing and there is no expiration date. As of June 30, 2009 and December 31, 2008, the Company had a net receivable from affiliate of $25,428,048 and $20,676,128, respectively.
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DB COMMODITY SERVICES LLC
(An Indirect Wholly Owned Subsidiary of Deutsche Bank AG)
Notes to Unaudited Financial Statements
June 30, 2009
| (4) | Investments in DB Exchange Traded Funds |
Investments in DB Exchange Traded Funds as of June 30, 2009 and December 31, 2008 are:
| 2009 | 2008 | |||
DB-New York Nuclear Uranium Fund | $1,000 | $1,000 | ||
PowerShares DB Commodity Index Tracking Fund | 898 | 857 | ||
DB Commodity Index Tracking Master Fund | 898 | 857 | ||
PowerShares DB G10 Currency Harvest Fund | 859 | 780 | ||
DB G10 Currency Harvest Master Fund | 859 | 780 | ||
PowerShares DB Energy Fund | 973 | 833 | ||
DB Energy Master Fund | 973 | 833 | ||
PowerShares DB Oil Fund | 1,009 | 811 | ||
DB Oil Master Fund | 1,009 | 811 | ||
PowerShares DB Precious Metals Fund | 1,271 | 1,189 | ||
DB Precious Metals Master Fund | 1,271 | 1,189 | ||
PowerShares DB Gold Fund | 1,339 | 1,287 | ||
DB Gold Master Fund | 1,339 | 1,287 | ||
PowerShares DB Silver Fund | 974 | 811 | ||
DB Silver Master Fund | 974 | 811 | ||
PowerShares DB Base Metals Fund | 605 | 477 | ||
DB Base Metals Master Fund | 605 | 477 | ||
PowerShares DB Agriculture Fund | 1,015 | 1,038 | ||
DB Agriculture Master Fund | 1,015 | 1,038 | ||
PowerShares DB US Dollar Index Bullish Fund | 956 | 989 | ||
DB US Dollar Index Bullish Master Fund | 956 | 989 | ||
PowerShares DB Bearish Index Tracking Fund | 1,070 | 1,047 | ||
DB US Dollar Index Bearish Master Fund | 1,070 | 1,047 | ||
| $22,938 | $21,238 |
The Company’s ownership in each of the above DB Exchange Traded Funds represents less than 1.0%.
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DB COMMODITY SERVICES LLC
(An Indirect Wholly Owned Subsidiary of Deutsche Bank AG)
Notes to Unaudited Financial Statements
June 30, 2009
| (5) | Accrued Expenses |
Accrued expenses as of June 30, 2009 and December 31, 2008 consist of the following:
| 2009 | 2008 | |||||
Audit fees and tax services | $ 4,069,216 | 6,189,411 | ||||
Distribution fees | 1,335,891 | 323,243 | ||||
Administrator and trustees fees | 667,823 | 489,861 | ||||
Legal fees | 1,200,000 | 1,230,301 | ||||
Printing services | 345,384 | 372,690 | ||||
Other | 183,319 | 190,000 | ||||
| $ 7,801,633 | 8,795,506 |
| (6) | Service Agreements |
| (a) | Trust Agreement |
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.
Trustee fees are 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 Mellon 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 Administrator’s monthly fees are paid on behalf of the Funds by the Company.
| (c) | Distribution Services Agreement |
ALPS Distributors, Inc. (the Distributor) provides certain distribution services to the Funds. Pursuant to the Distribution Services Agreement between the Company in its capacity as managing owner of the Funds and the Distributor, the Distributor assists the Company and the Administrator with certain functions and duties relating to distribution and marketing including reviewing and approving marketing materials.
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DB COMMODITY SERVICES LLC
(An Indirect Wholly Owned Subsidiary of Deutsche Bank AG)
Notes to Unaudited Financial Statements
June 30, 2009
The Distribution Services Agreement is terminable without penalty on sixty days’ written notice by the Company or by the Distributor. The Distribution Services Agreement will automatically terminate in the event of its assignment.
Distribution fees are paid on behalf of the Funds by the Company.
| (d) | License Agreement |
Under the License Agreement among Invesco PowerShares Capital Management LLC (the Licensor), and the Company in its own capacity, and in its capacity as the managing owner and on behalf of the Funds, the Licensor granted to the Funds a nonexclusive license to use the PowerShares® trademark (the Trademark) anywhere in the world, solely in connection with the marketing and promotion of the Funds and to use or refer to the Trademark in connection with the issuance and trading of the Funds’ shares as necessary.
License fees are paid on behalf of the Funds by the Company.
| (e) | Marketing Agreement |
Pursuant to a marketing agreement between Invesco AIM Distributors, Inc. an affiliate of the Licensor and the Company in its capacity as the managing owner and on behalf of the Funds, Invesco AIM Distributors, Inc. assists 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. Invesco AIM Distributors, Inc. will not open customer accounts or handle orders for 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 that are in the best interests of the Funds. While the Company’s 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 Company’s financial position.
| (8) | Business and Credit Concentration |
The Company’s business is to serve as the managing owner, commodity pool operator, and commodity trading advisor to the DB Exchange Traded Funds. The 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 Company’s income from management fees.
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DB COMMODITY SERVICES LLC
(An Indirect Wholly Owned Subsidiary of Deutsche Bank AG)
Notes to Unaudited Financial Statements
June 30, 2009
| (9) | Recently Adopted Accounting Standards |
In December 2007, the Financial Accounting Standards Board (FASB) released FASB Statement No. 160,Noncontrolling Interests in Consolidated Financial Statements – an Amendment to ARB No. 51 (Statement No. 160). Statement No. 160 requires noncontrolling interests (previously referred to as minority interests) to be reported as a component of equity, which changes the accounting for transactions with noncontrolling interest holders. The Company adopted Statement No. 160 on January 1, 2009. Management has determined that the application of this Statement did not have any impact on the Company’s financial statements.
In May 2009, the Financial Accounting Standards Board released FASB Statement No. 165, Subsequent Events (Statement No. 165). Statement No. 165 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. The Company adopted Statement No. 165 on June 30, 2009.
| (10) | Subsequent Events |
The Company evaluated the need for disclosures and/or adjustments resulting from subsequent events through August 28, 2009, the date the financial statements were available to be issued. This evaluation did not result in any subsequent events that necessitated disclosures and/or adjustments.
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