-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Hjrj2N2FFk2vfv0fQb3JfVMUZ0bDahGOAewAvbJPGUy9kYOcxN/NfMes6GDyKO9n E8Mturat/N42UllPiU/KAg== 0001047469-04-000497.txt : 20040109 0001047469-04-000497.hdr.sgml : 20040109 20040108215921 ACCESSION NUMBER: 0001047469-04-000497 CONFORMED SUBMISSION TYPE: N-CSRS PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20031031 FILED AS OF DATE: 20040109 EFFECTIVENESS DATE: 20040109 FILER: COMPANY DATA: COMPANY CONFORMED NAME: POWERSHARES EXCHANGE TRADED FUND TRUST CENTRAL INDEX KEY: 0001209466 FILING VALUES: FORM TYPE: N-CSRS SEC ACT: 1940 Act SEC FILE NUMBER: 811-21265 FILM NUMBER: 04516543 MAIL ADDRESS: STREET 1: 227 E PRAIRIE AVE CITY: WHEATON STATE: IL ZIP: 60187 N-CSRS 1 a2125739zn-csrs.txt N-CSRS UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act File number 811-21265 ------------ PowerShares Exchange-Traded Fund Trust ----------------------------------------------------------------- (Exact name of registrant as specified in charter) Wheaton Oaks Professional Building 855 West Prairie Avenue Wheaton, IL 60187 ----------------------------------------------------- (Address of principal executive offices) (Zip code) H. Bruce Bond Wheaton Oaks Professional Building 855 West Prairie Avenue Wheaton, IL 60187 ------------------------------------------------------ (Name and address of agent for service) Registrant's telephone number, including area code: 800-983-0903 -------------- Date of fiscal year end: April 30, 2004 ---------------- Date of reporting period: October 31, 2003 ----------------- Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles. A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget ("OMB") control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. Section 3507. ITEM 1. REPORTS TO STOCKHOLDERS. 2003 SEMI-ANNUAL REPORT TO SHAREHOLDERS 31 OCTOBER 2003 [POWERSHARES(TM) XCHANGE TRADED FUNDS(TM) LOGO] [GRAPHIC] POWERSHARES DYNAMIC MARKET PORTFOLIO(SM) POWERSHARES DYNAMIC OTC PORTFOLIO(SM) TABLE OF CONTENTS Shareholder Letter 2 Managers' Analysis 4 Schedule of Investments PowerShares Dynamic Market Portfolio 8 Financial Statements PowerShares Dynamic Market Portfolio 10 Financial Highlights PowerShares Dynamic Market Portfolio 13 Schedule of Investments PowerShares Dynamic OTC Portfolio 14 Financial Statements PowerShares Dynamic OTC Portfolio 16 Financial Highlights PowerShares Dynamic OTC Portfolio 19 Notes to Financial Statements 20
TO OUR SHAREHOLDERS For many, the past year has represented yet another tumultuous financial period. Investors have encountered not only an unpredictable economy and wars but also allegations of financial scandals spanning from large corporations to the mutual fund industry. These allegations have shaken the faith of Americans in many of the countries most trusted financial and business institutions. This new environment has caused many to reevaluate, for the first time, the type of investment vehicles they are using to pursue their financial goals. Investors driven by the current events have sought investments which are transparent, efficient, low-cost, tax-advantaged, highly liquid and which can protect them from the adverse effects arising from excessive market timing and trading. During their search for alternatives the benefits of PowerShares and Exchange Traded Funds have shown brightly causing ETFs to become the investment of choice for many. At PowerShares we hold fast to the belief that gross investment performance before adjustment for risk, all fees and taxes is meaningless and that absolute returns (Total Returns after accounting for all expenses, taxes, reliability and risk) are what enable individuals to build wealth over time. More directly stated -- "Performance Doesn't Matter if You Can't Take it Home." Cost and tax inefficiencies of an investment vehicle can be the single greatest deterrent to building wealth and should be among the first decisions an investor makes, even before considering the stated historical performance of an investment. With this said, we are extremely pleased with the performance of the PowerShares Dynamic Portfolios over the period. The PowerShares Dynamic Market Portfolio (PWC) is based on the Market Intellidex methodology which effectively identified top performing equities during the period, generating significant outperformance for the Market fund. The total return of the PowerShares Dynamic Market Portfolio for the period was 20.72% compared to 14.67% for the S&P 500 and 16.90% for the broader market Russell 3000. The PowerShares Dynamic OTC Portfolio (PWO) is based on the OTC Intellidex methodology which effectively identified top performing equities during the period, generating significant outperformance for the OTC fund. The total return of the PowerShares Dynamic OTC Portfolio for the period was 33.93% compared to 27.23% for the Nasdaq 100 and 31.21% for the broader Nasdaq Composite. On behalf of PowerShares Capital Management LLC and the Board of Trustees for the PowerShares Exchange-Traded Fund Trust, I want to thank you for using PowerShares in your financial planning. We look forward to continuing to provide compelling investment value and innovations to the financial market place. Sincerely, /s/ H. Bruce Bond H. Bruce Bond President and Chairman of the Board of Trustees for PowerShares Exchange-Traded Fund Trust 2 THERE ARE RISKS INVOLVED WITH INVESTING IN ETFs INCLUDING POSSIBLE LOSS OF MONEY. POWERSHARES ARE OPEN END FUNDS, ARE NOT ACTIVELY MANAGED AND ARE SUBJECT TO RISK SIMILAR TO STOCKS, INCLUDING THOSE RELATED TO SHORT SELLING AND MARGIN MAINTENANCE. POWERSHARES ARE NOT FDIC INSURED, MAY LOSE VALUE, AND HAVE NO BANK GUARANTEE. POWERSHARES IS A TRADEMARK OF POWERSHARES CAPITAL MANAGEMENT, LLC. INTELLIDEX IS A SERVICE MARK OF THE AMEX. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. FOR MORE COMPLETE INFORMATION ABOUT POWERSHARES CALL 800.THE.AMEX OR VISIT OUR WEBSITE POWERSHARES.COM FOR A PROSPECTUS WHICH CONTAINS MORE INFORMATION INCLUDING RISK, FEES AND EXPENSES. PLEASE READ THE PROSPECTUS CAREFULLY BEFORE INVESTING OR SENDING MONEY. ALPS DISTRIBUTORS, INC. IS THE DISTRIBUTOR OF THE POWERSHARES EXCHANGE-TRADED FUND TRUST. 3 MANAGERS' ANALYSIS POWERSHARES DYNAMIC MARKET PORTFOLIO(SM) AS OF 31 OCTOBER 2003 PowerShares Capital Management LLC seeks to match the performance of the Underlying Market Intellidex. The Market Intellidex is comprised of 100 US stocks selected each quarter pursuant to a quantitative proprietary method. The Market Intellidex uses market-like sector weightings and market-cap groupings in seeking to produce a sector and size dispersion similar to the overall broad market. To accomplish this the 2,000 largest U.S. stocks (by market capitalization) traded on the New York Stock Exchange, the American Stock Exchange and the NASDAQ are ranked for investment potential using a proprietary AMEX Market Intellidex methodology. Companies are ranked quarterly, based on a variety of criteria including fundamental growth, stock valuation, timeliness and risk factors and then sorted based on their cumulative score on the above criteria. The one hundred companies identified as having the greatest capital appreciation potential are then selected from the top of each sector and size category. This portfolio construction method provides precise market exposures using the stocks from across the marketplace identified as having the greatest investment merit persuant to the methodology. This process is repeated quarterly to assure precise market weightings and timely selections of stocks identified as having the greatest investment potential.
- FUND PERFORMANCE HISTORY AS OF 31 DECEMBER 2002 AS OF 31 OCTOBER 2003 1 YEAR 3 YEAR 5 YEAR 10 YEAR SINCE INCEPTION INDEX (%)* INTELLIDEX -10.19 -0.75 6.13 13.31 20.54 S&P 500 -23.37 -15.71 -1.94 7.28 14.67 RUSSELL 3K -22.81 -14.87 -2.06 6.96 16.90 FUND NAV 20.72 SHARE PRICE / MARKET 20.77
FUND INCEPTION 1 MAY 2003 PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS, CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN PERFORMANCE QUOTED. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE AND SHARES WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. SEE powershares.com TO FIND THE MOST RECENT MONTHLY PERFORMANCE NUMBERS. INVESTMENT OBJECTIVES, RISKS AND EXPENSES SHOULD ALSO BE CONSIDERED WHEN COMPARING INVESTMENT RETURNS. THE S&P 500 INDEX AND THE RUSSELL 3000 INDEX ARE UNMANAGED INDEXES THAT ARE BROAD-MEASUREMENTS OF CHANGE IN STOCK MARKET CONDITIONS BASED ON THE AVERAGE PERFORMANCE OF 500 AND 3000 WIDELY HELD COMMON STOCKS. - SECTOR ALLOCATION (%)* CONSUMER DISCRETIONARY 12.9 CONSUMER STAPLES 10.6 ENERGY 5.2 FINANCIALS 21.9 HEALTH CARE 14.5 INDUSTRIALS 10.0 INFORMATION TECHNOLOGY 15.4 MATERIALS 2.7 TELECOMMUNICATIONS 3.6 UTILITIES 3.2
- STYLE ALLOCATION (%)* LARGE CAP GROWTH 42.9 LARGE CAP VALUE 28.5 MID CAP GROWTH 8.5 MID CAP VALUE 7.8 SMALL CAP GROWTH 8.2 SMALL CAP VALUE 4.1
* AS OF 30 SEPTEMBER 2003 4 - - FREQUENCY DISTRIBUTION OF DISCOUNTS & PREMIUMS
CLOSING PRICE ABOVE NAV CLOSING PRICE BELOW NAV 50-99 100-199 H200 50-99 100-199 H200 BASIS POINTS BASIS POINTS BASIS POINTS BASIS POINTS BASIS POINTS BASIS POINTS 2003 QUARTER ENDED 09.30.2003 4 0 0 0 0 0 QUARTER ENDED 06.30.2003 0 0 0 0 0 0
* COMMENCEMENT OF TRADING ON THE AMEX: 1 MAY 2003 [CHART] - - GROWTH OF INVESTMENT SINCE INCEPTION
POWERSHARES DYNAMIC MARKET PORTFOLIO S&P 500 INDEX 5/1/2003 0.00% 0.00% 5/2/2003 1.60% 1.50% 5/5/2003 1.94% 1.12% 5/6/2003 2.34% 1.97% 5/7/2003 2.34% 1.45% 5/8/2003 1.28% 0.43% 5/9/2003 2.23% 1.87% 5/12/2003 3.65% 3.14% 5/13/2003 3.47% 2.84% 5/14/2003 3.21% 2.51% 5/15/2003 3.88% 3.31% 5/16/2003 3.88% 3.06% 5/19/2003 1.83% 0.49% 5/20/2003 1.72% 0.37% 5/21/2003 2.44% 0.78% 5/22/2003 3.34% 1.70% 5/23/2003 3.85% 1.85% 5/27/2003 5.51% 3.84% 5/28/2003 5.61% 4.03% 5/29/2003 5.52% 3.64% 5/30/2003 7.49% 5.16% 6/2/2003 7.89% 5.53% 6/3/2003 8.37% 6.03% 6/4/2003 9.67% 7.63% 6/5/2003 10.51% 8.06% 6/6/2003 10.00% 7.80% 6/9/2003 8.45% 6.51% 6/10/2003 9.46% 7.48% 6/11/2003 11.05% 8.86% 6/12/2003 11.42% 8.97% 6/13/2003 10.34% 7.89% 6/16/2003 12.59% 10.31% 6/17/2003 12.43% 10.41% 6/18/2003 12.17% 10.24% 6/19/2003 10.53% 8.56% 6/20/2003 10.28% 8.66% 6/23/2003 8.78% 7.13% 6/24/2003 8.91% 7.33% 6/25/2003 8.69% 6.44% 6/26/2003 9.89% 7.59% 6/27/2003 9.26% 6.54% 6/30/2003 9.02% 6.35% 7/1/2003 9.90% 7.21% 7/2/2003 11.67% 8.45% 7/3/2003 11.10% 7.57% 7/7/2003 12.71% 9.62% 7/8/2003 13.70% 9.99% 7/9/2003 13.02% 9.38% 7/10/2003 11.73% 7.90% 7/11/2003 12.62% 8.93% 7/14/2003 13.09% 9.56% 7/15/2003 12.43% 9.18% 7/16/2003 11.19% 8.48% 7/17/2003 10.07% 7.14% 7/18/2003 11.11% 8.41% 7/21/2003 9.33% 6.82% 7/22/2003 10.48% 7.84% 7/23/2003 10.52% 7.89% 7/24/2003 9.52% 7.13% 7/25/2003 11.11% 8.99% 7/28/2003 11.11% 8.75% 7/29/2003 11.00% 7.96% 7/30/2003 10.74% 7.77% 7/31/2003 10.52% 8.08% 8/1/2003 9.59% 6.97% 8/4/2003 9.11% 7.26% 8/5/2003 7.18% 5.37% 8/6/2003 6.77% 5.54% 8/7/2003 7.63% 6.31% 8/8/2003 8.33% 6.69% 8/11/2003 8.92% 7.02% 8/12/2003 10.15% 8.08% 8/13/2003 9.70% 7.39% 8/14/2003 10.40% 8.10% 8/15/2003 10.55% 8.12% 8/18/2003 10.55% 9.11% 8/19/2003 12.67% 9.39% 8/20/2003 12.74% 9.17% 8/21/2003 13.00% 9.49% 8/22/2003 11.70% 8.38% 8/25/2003 11.41% 8.45% 8/26/2003 11.89% 8.78% 8/27/2003 12.18% 8.78% 8/28/2003 13.18% 9.44% 8/29/2003 14.11% 10.01% 9/2/2003 16.19% 11.53% 9/3/2003 16.48% 12.00% 9/4/2003 16.78% 12.19% 9/5/2003 15.93% 11.47% 9/8/2003 16.82% 12.59% 9/9/2003 15.96% 11.66% 9/10/2003 13.81% 10.33% 9/11/2003 14.30% 10.93% 9/12/2003 14.48% 11.17% 9/15/2003 14.44% 10.75% 9/16/2003 15.41% 12.33% 9/17/2003 15.30% 11.97% 9/18/2003 16.63% 13.45% 9/19/2003 16.41% 13.10% 9/22/2003 15.26% 11.63% 9/23/2003 16.04% 12.30% 9/24/2003 13.96% 10.16% 9/25/2003 12.85% 9.49% 9/26/2003 12.11% 8.79% 9/29/2003 13.33% 9.85% 9/30/2003 12.89% 8.69% 10/1/2003 15.26% 11.12% 10/2/2003 15.67% 11.34% 10/3/2003 17.08% 12.39% 10/6/2003 17.56% 12.88% 10/7/2003 17.97% 13.42% 10/8/2003 17.74% 12.82% 10/9/2003 18.15% 13.36% 10/10/2003 18.15% 13.29% 10/13/2003 19.45% 14.08% 10/14/2003 19.86% 14.53% 10/15/2003 19.08% 14.24% 10/16/2003 19.89% 14.60% 10/17/2003 18.93% 13.43% 10/20/2003 19.78% 14.01% 10/21/2003 20.23% 14.16% 10/22/2003 18.34% 12.45% 10/23/2003 18.34% 12.82% 10/24/2003 17.74% 12.29% 10/27/2003 18.41% 12.53% 10/28/2003 19.34% 14.24% 10/29/2003 20.08% 14.39% 10/30/2003 19.97% 14.26% 10/31/2003 20.37% 14.67%
5 MANAGERS' ANALYSIS POWERSHARES DYNAMIC OTC PORTFOLIO(SM) AS OF 31 OCTOBER 2003 PowerShares Capital Management LLC will seek to match the performance of the Underlying OTC Intellidex. The OTC Intellidex is comprised of 100 US stocks selected each quarter pursuant to a quantitative proprietary method. The OTC Intellidex uses Nasdaq market-like sector weightings and market-cap groupings in seeking to produce a sector and size dispersion similar to the overall broad market. To accomplish this the 1,000 largest U.S. stocks (by market capitalization) traded on the NASDAQ are ranked for investment potential using a proprietary AMEX OTC Intellidex methodology. Companies are ranked quarterly, based on a variety of criteria including fundamental growth, stock valuation, timeliness and risk factors and then sorted based on their cumulative score on the above criteria. The one hundred companies identified as having the greatest capital appreciation potential are then selected from the top of each sector and size category. This portfolio construction method provides precise OTC market exposures using NASDAQ stocks identified as having the greatest investment merit persuant to the methodology. This process is repeated quarterly to assure precise market weightings and timely selections of stocks identified as having the greatest investment potential.
- FUND PERFORMANCE HISTORY AS OF 31 DECEMBER 2002 AS OF 31 OCTOBER 2003 1 YEAR 3 YEAR 5 YEAR 10 YEAR SINCE INCEPTION INDEX INTELLIDEX -19.18 -12.48 10.90 18.33 33.99 NASDAQ 100 -37.58 -35.73 -0.13 10.58 27.23 NASDAQ -31.53 -31.02 -3.19 7.03 31.21 FUND NAV 33.93 SHARE PRICE / MARKET 33.94
FUND INCEPTION 1 MAY 2003 PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS, CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN PERFORMANCE QUOTED. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE AND SHARES WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. SEE powershares.com TO FIND THE MOST RECENT MONTHLY PERFORMANCE NUMBERS. INVESTMENT OBJECTIVES, RISKS AND EXPENSES SHOULD ALSO BE CONSIDERED WHEN COMPARING INVESTMENT RETURNS. THE NASDAQ 100 AND NASDAQ COMPOSITE ARE UNMANAGED INDEXES THAT ARE BROAD-MEASUREMENTS OF CHANGE IN OVER THE COUNTER (OTC) STOCK MARKET CONDITIONS BASED ON THE AVERAGE PERFORMANCE OF THE 100 LARGEST AND ALL NASDAQ TRADED SECURITIES. - SECTOR ALLOCATION (%)* CONSUMER DISCRETIONARY 11.3 CONSUMER STAPLES 0.5 ENERGY 0.2 FINANCIALS 10.1 HEALTH CARE 12.0 INDUSTRIALS 4.6 INFORMATION TECHNOLOGY 56.4 MATERIALS 0.5 TELECOMMUNICATIONS 4.4 UTILITIES 0.0
- STYLE ALLOCATION (%)* LARGE CAP GROWTH 31.9 LARGE CAP VALUE 0.0 MID CAP GROWTH 27.7 MID CAP VALUE 12.2 SMALL CAP GROWTH 23.4 SMALL CAP VALUE 4.8
* As of 30 September 2003 6 - - FREQUENCY DISTRIBUTION OF DISCOUNTS & PREMIUMS
CLOSING PRICE ABOVE NAV CLOSING PRICE BELOW NAV 50-99 100-199 H200 50-99 100-199 H200 BASIS POINTS BASIS POINTS BASIS POINTS BASIS POINTS BASIS POINTS BASIS POINTS 2003 QUARTER ENDED 09.30.2003 5 0 0 0 0 0 QUARTER ENDED 06.30.2003 0 0 0 1 0 0
* COMMENCEMENT OF TRADING ON THE AMEX: 1 MAY 2003 [CHART] - - GROWTH OF INVESTMENT SINCE INCEPTION
POWERSHARES DYNAMIC OTC PORTFOLIO NASDAQ 5/1/2003 0.00% 0.00% 5/2/2003 2.36% 2.06% 5/5/2003 2.91% 2.14% 5/6/2003 3.17% 3.47% 5/7/2003 3.17% 2.32% 5/8/2003 0.81% 1.16% 5/9/2003 1.89% 3.23% 5/12/2003 3.19% 4.67% 5/13/2003 3.49% 4.56% 5/14/2003 3.40% 4.23% 5/15/2003 4.44% 5.35% 5/16/2003 3.69% 4.48% 5/19/2003 0.71% 1.37% 5/20/2003 0.47% 1.26% 5/21/2003 1.01% 1.18% 5/22/2003 2.07% 2.38% 5/23/2003 2.80% 2.55% 5/27/2003 5.37% 5.71% 5/28/2003 6.20% 6.16% 5/29/2003 7.21% 6.95% 5/30/2003 7.97% 8.38% 6/2/2003 7.82% 8.03% 6/3/2003 8.89% 8.90% 6/4/2003 11.44% 11.01% 6/5/2003 12.67% 11.78% 6/6/2003 12.05% 10.52% 6/9/2003 9.85% 8.92% 6/10/2003 10.92% 10.53% 6/11/2003 12.04% 11.78% 6/12/2003 13.03% 12.30% 6/13/2003 11.12% 10.45% 6/16/2003 13.09% 13.18% 6/17/2003 13.20% 13.30% 6/18/2003 13.83% 13.89% 6/19/2003 12.07% 11.96% 6/20/2003 11.23% 11.69% 6/23/2003 8.60% 9.38% 6/24/2003 8.23% 9.04% 6/25/2003 8.93% 8.83% 6/26/2003 10.57% 10.96% 6/27/2003 10.01% 10.37% 6/30/2003 9.58% 10.20% 7/1/2003 10.56% 11.38% 7/2/2003 13.09% 14.00% 7/3/2003 12.31% 12.96% 7/7/2003 15.12% 16.85% 7/8/2003 17.32% 18.60% 7/9/2003 17.52% 18.67% 7/10/2003 15.77% 16.52% 7/11/2003 16.67% 17.75% 7/14/2003 18.15% 19.17% 7/15/2003 17.63% 19.06% 7/16/2003 16.52% 18.70% 7/17/2003 12.11% 15.31% 7/18/2003 12.89% 16.02% 7/21/2003 11.68% 14.18% 7/22/2003 12.81% 15.86% 7/23/2003 13.96% 16.75% 7/24/2003 12.53% 15.54% 7/25/2003 13.79% 17.53% 7/28/2003 14.31% 17.85% 7/29/2003 14.07% 17.58% 7/30/2003 13.19% 16.87% 7/31/2003 13.58% 17.82% 8/1/2003 12.91% 16.51% 8/4/2003 12.53% 16.40% 8/5/2003 10.88% 13.65% 8/6/2003 8.67% 12.23% 8/7/2003 8.36% 12.20% 8/8/2003 8.36% 11.64% 8/11/2003 9.44% 12.83% 8/12/2003 11.16% 14.56% 8/13/2003 11.51% 14.54% 8/14/2003 12.56% 15.47% 8/15/2003 12.63% 15.58% 8/18/2003 12.63% 18.13% 8/19/2003 17.74% 19.60% 8/20/2003 17.74% 19.56% 8/21/2003 19.04% 20.71% 8/22/2003 18.09% 19.88% 8/25/2003 17.57% 19.81% 8/26/2003 18.16% 20.24% 8/27/2003 19.18% 21.02% 8/28/2003 19.95% 22.25% 8/29/2003 20.37% 22.95% 9/2/2003 22.71% 25.05% 9/3/2003 24.08% 25.83% 9/4/2003 24.74% 26.92% 9/5/2003 24.15% 26.19% 9/8/2003 26.46% 28.25% 9/9/2003 25.37% 27.22% 9/10/2003 21.91% 23.85% 9/11/2003 23.06% 25.37% 9/12/2003 23.55% 25.97% 9/15/2003 23.10% 25.34% 9/16/2003 26.21% 28.16% 9/17/2003 26.88% 27.88% 9/18/2003 28.25% 29.68% 9/19/2003 28.35% 29.41% 9/22/2003 26.60% 27.30% 9/23/2003 28.74% 29.14% 9/24/2003 25.02% 25.20% 9/25/2003 22.15% 23.41% 9/26/2003 20.19% 21.70% 9/29/2003 22.43% 23.90% 9/30/2003 21.14% 21.35% 10/1/2003 24.43% 24.43% 10/2/2003 25.02% 24.70% 10/3/2003 28.28% 27.71% 10/6/2003 31.43% 28.58% 10/7/2003 32.87% 29.56% 10/8/2003 31.71% 28.60% 10/9/2003 32.10% 29.84% 10/10/2003 32.73% 30.07% 10/13/2003 34.65% 31.30% 10/14/2003 35.46% 31.96% 10/15/2003 34.51% 31.68% 10/16/2003 34.41% 32.43% 10/17/2003 31.89% 29.87% 10/20/2003 32.03% 30.73% 10/21/2003 33.25% 31.80% 10/22/2003 30.73% 28.90% 10/23/2003 29.65% 28.04% 10/24/2003 28.53% 26.69% 10/27/2003 29.72% 27.87% 10/28/2003 32.69% 31.22% 10/29/2003 33.88% 31.51% 10/30/2003 34.16% 31.25% 10/31/2003 33.92% 31.21%
7 SCHEDULE OF INVESTMENTS POWERSHARES DYNAMIC MARKET PORTFOLIO OCTOBER 31, 2003 (UNAUDITED)
NUMBER OF SHARES VALUE - ------------ ------------ COMMON STOCKS--100.0% CONSUMER DISCRETIONARY--13.5% 1,957 ADVO, Inc.* $ 87,732 2,711 American Axle & Manufacturing Holdings, Inc.* 93,801 3,855 Ameristar Casinos, Inc.* 81,418 2,983 Autoliv, Inc. 98,797 27,332 AutoNation, Inc.* 511,108 10,225 Best Buy Co., Inc.* 596,220 9,036 Fortune Brands, Inc. 588,695 2,122 GTECH Holdings Corp. 94,811 4,968 Handleman Co. 88,182 2,260 K-Swiss, Inc., Class A 99,304 4,148 Lithia Motors, Inc. 97,976 2,100 Neiman Marcus Group (The), Inc., Class A* 99,855 18,167 RadioShack Corp. 544,828 ------------ 3,082,727 ------------ CONSUMER STAPLES--10.4% 8,824 7-Eleven, Inc.* 140,743 3,445 Church & Dwight Co., Inc. 128,395 3,711 Dean Foods Co.* 112,258 4,289 Fresh Del Monte Produce, Inc. 107,225 24,147 Gillette (The) Co. 770,289 8,760 Procter & Gamble (The) Co. 861,021 3,671 Sanderson Farms, Inc. 128,999 4,602 SUPERVALU, INC. 116,062 ------------ 2,364,992 ------------ ENERGY--4.9% 3,181 Cabot Oil & Gas Corp. 81,275 5,484 ChevronTexaco Corp. 407,462 10,745 Exxon Mobil Corp. 393,052 3,678 FMC Technologies, Inc.* 73,854 3,419 Holly Corp. 85,201 1,919 Pogo Producing Co. 80,233 ------------ 1,121,077 ------------ FINANCIALS--21.9% 16,184 AFLAC, Inc. 590,392 8,743 Anchor BanCorp Wisconsin, Inc. 217,701 5,283 BancorpSouth, Inc. 124,203 6,722 Bank of America Corp. 509,057 2,730 Doral Financial Corp. 137,865 4,734 First American Corp. 135,629 3,672 First BanCorp. 122,278 17,117 John Hancock Financial Services, Inc. 605,085 2,465 LandAmerica Financial Group, Inc. 123,275 1,579 Legg Mason, Inc. 131,452 3,351 Old Republic International Corp. 120,435 11,035 PNC Financial Services Group 591,145 16,961 Principal Financial Group, Inc. 531,727 3,870 Stewart Information Services Corp.* 120,551 14,573 Universal American Financial Corp.* $ 146,459 3,294 W. R. Berkley Corp. 112,951 12,350 Wachovia Corp. 566,495 6,074 Waypoint Financial Corp. 126,461 ------------ 5,013,161 ------------ HEALTH CARE--14.4% 2,021 AMERIGROUP Corp.* 84,518 3,265 Apria Healthcare Group, Inc.* 94,685 22,116 Caremark Rx, Inc.* 554,006 1,773 Coventry Health Care, Inc.* 97,072 2,807 DaVita, Inc.* 98,526 17,150 Health Net, Inc.* 541,769 4,862 Humana, Inc.* 98,650 1,719 Mid Atlantic Medical Services, Inc.* 100,390 3,630 Owens & Minor, Inc. 73,834 1,707 PacifiCare Health Systems, Inc.* 101,567 2,998 Select Medical Corp.* 100,643 21,640 Service Corp. International* 104,954 3,408 Sybron Dental Specialties, Inc.* 78,384 10,914 UnitedHealth Group, Inc. 555,303 9,374 Varian Medical Systems, Inc.* 599,373 ------------ 3,283,674 ------------ INDUSTRIALS--9.9% 6,056 AirTran Holdings, Inc.* 98,168 5,827 ExpressJet Holdings, Inc.* 89,153 2,641 Forward Air Corp.* 76,800 1,978 Genlyte Group, Inc.* 93,282 1,942 ITT Educational Services, Inc.* 96,712 2,142 Oshkosh Truck Corp. 98,168 18,716 Rockwell Automation, Inc. 581,132 18,345 Rockwell Collins, Inc. 503,570 6,319 United Technologies Corp. 535,156 3,438 Watson Wyatt & Co. Holdings* 82,684 ------------ 2,254,825 ------------ INFORMATION TECHNOLOGY--15.4% 11,699 Aspect Communications Corp.* 158,287 6,012 Checkpoint Systems, Inc.* 113,266 5,125 Citrix Systems, Inc.* 129,560 13,096 Computer Associates International, Inc. 308,018 1,989 FactSet Research Systems, Inc. 86,800 10,660 InfoUSA, Inc.* 87,412 5,964 International Business Machines Corp. 533,659 4,717 National Processing, Inc.* 104,199 39,545 Oracle Corp.* 472,958 3,901 Plantronics, Inc.* 108,487 15,080 Scientific-Atlanta, Inc. 446,368 5,245 SpectraLink Corp.* 92,312 3,910 Storage Technology Corp.* 94,231 5,837 Sybase, Inc.* 104,482 21,787 Thermo Electron Corp.* 478,878
SEE NOTES TO FINANCIAL STATEMENTS. 8
NUMBER OF SHARES VALUE - ------------ ------------ COMMON STOCKS (CONTINUED) 1,320 University of Phoenix Online* $ 90,763 12,994 Westell Technologies, Inc., Class A* 108,240 ------------ 3,517,920 ------------ MATERIALS--2.6% 1,607 AptarGroup, Inc. 57,531 1,638 Cytec Industries, Inc.* 57,183 7,866 Sigma-Aldrich Corp. 412,571 4,810 Wausau-Mosinee Paper Corp. 59,451 ------------ 586,736 ------------ TELECOMMUNICATIONS--4.0% 9,028 BellSouth Corp. 237,527 12,858 Nextel Communications, Inc.* 311,163 1,107 NII Holdings, Inc., Class B* 85,339 2,181 NTL, Inc.* 134,633 9,720 PTEK Holdings, Inc.* 84,661 5,398 TALK America Holdings, Inc. 67,367 ------------ 920,690 ------------ UTILITIES--3.0% 2,958 Black Hills Corp. 95,159 2,691 Constellation Energy Group, Inc. 97,872 7,618 Exelon Corp. 483,362 ------------ 676,393 ------------ TOTAL INVESTMENTS (Cost $21,053,617)--100.0% 22,822,195 Liabilities in excess of other assets--0.0% (10,954) ------------ NET ASSETS--100.0% $ 22,811,241 ============
* Non-income producing security. SEE NOTES TO FINANCIAL STATEMENTS. 9 STATEMENT OF ASSETS AND LIABILITIES POWERSHARES DYNAMIC MARKET PORTFOLIO OCTOBER 31, 2003 (UNAUDITED) ASSETS: Investments at value, (Cost $21,053,617) $ 22,822,195 Receivables: Dividends 13,985 Due from Administrator 45,690 --------------- TOTAL ASSETS 22,881,870 --------------- LIABILITIES: Due to custodian 3,671 Accrued Advisory fees 21,268 Other accrued expenses 45,690 --------------- TOTAL LIABILITIES 70,629 --------------- NET ASSETS $ 22,811,241 =============== NET ASSETS CONSIST OF: Paid-in capital $ 15,366,199 Distributions in excess of net investment income (11,483) Net realized gain on investments 5,687,947 Net unrealized appreciation on investments 1,768,578 --------------- NET ASSETS $ 22,811,241 =============== Shares outstanding 702,228 Net asset value $ 32.48 ===============
SEE NOTES TO FINANCIAL STATEMENTS. 10 STATEMENT OF OPERATIONS POWERSHARES DYNAMIC MARKET PORTFOLIO FOR THE PERIOD MAY 1, 2003* THROUGH OCTOBER 31, 2003 (UNAUDITED) INVESTMENT INCOME: Dividends $ 226,251 --------------- EXPENSES: Advisory fees 97,049 Legal 61,302 Administration 30,000 Accounting services 27,500 Insurance 23,725 Trustees 20,110 Amortization of offering cost 12,839 Audit 6,667 Custodian 4,035 Distribution fees 1,827 Other fees 19,380 --------------- TOTAL EXPENSES 304,434 Less: Advisory waiver (97,049) Less: Other fees waived by the Adviser (44,561) Less: Fees waived Administrator (24,145) Fund Accounting (21,545) --------------- NET EXPENSES 117,134 --------------- NET INVESTMENT INCOME 109,117 --------------- REALIZED AND UNREALIZED GAIN ON INVESTMENTS: Net realized gain on investments 5,687,947 Net unrealized appreciation on investments 1,768,578 --------------- Net realized and unrealized gain on investments 7,456,525 --------------- Net increase in net assets resulting from operations $ 7,565,642 ===============
* Commencement of Investment Operations. SEE NOTES TO FINANCIAL STATEMENTS. 11 STATEMENT OF CHANGES IN NET ASSETS POWERSHARES DYNAMIC MARKET PORTFOLIO
FOR THE PERIOD MAY 1, 2003* THROUGH OCTOBER 31, 2003 (UNAUDITED) ---------------- OPERATIONS: Net investment income $ 109,117 Net realized gain on investments 5,687,947 Net unrealized appreciation on investments 1,768,578 ---------------- Net increase in net assets resulting from operations 7,565,642 ---------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income (120,600) ---------------- CAPITAL STOCK TRANSACTIONS: Proceeds from capital stock sold 91,084,049 Value of capital stock repurchased (75,777,292) ---------------- Net increase in net assets resulting from capital stock transactions 15,306,757 ---------------- INCREASE IN NET ASSETS 22,751,799 NET ASSETS: Beginning of period 59,442 ---------------- End of period $ 22,811,241 ================ CHANGES IN CAPITAL STOCK OUTSTANDING:** Shares sold 2,300,000 Shares repurchased (1,600,000) Shares outstanding, beginning of period 2,228 ---------------- Shares outstanding, end of period 702,228 ================
* Commencement of Investment Operations. ** Amounts have been adjusted for stock split (See Note 7). SEE NOTES TO FINANCIAL STATEMENTS. 12 FINANCIAL HIGHLIGHTS POWERSHARES DYNAMIC MARKET PORTFOLIO
FOR THE PERIOD MAY 1, 2003* THROUGH OCTOBER 31, 2003 (UNAUDITED) ---------------- PER SHARE OPERATING PERFORMANCE:+ Net asset value at beginning of period $ 26.90 ---------------- Net investment income** 0.09 Net realized and unrealized gain on investments 5.70 ---------------- Total from investment operations 5.79 ---------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income (0.21) ---------------- Net asset value at end of period $ 32.48 ---------------- TOTAL RETURN 21.08%*** RATIOS/SUPPLEMENTAL DATA: Net assets at end of period (000's omitted) $ 22,811 Ratio to average net assets of: Expenses, net of waivers 0.60%**** Expenses, prior to waivers 1.57%**** Net investment income, net of waivers 0.56%**** Portfolio turnover rate 36%++
* Commencement of Investment Operations. ** Based on average shares outstanding. *** Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period, and redemption on the last day of the period. Total investment return is calculated for a period of less than one year is not annualized. **** Annualized. + Per share amounts have been adjusted for 4 for 1 stock split (See Note 7). ++ Portfolio turnover is not annualized and does not include securities received or delivered from processing creations or redemptions. SEE NOTES TO FINANCIAL STATEMENTS. 13 SCHEDULE OF INVESTMENTS POWERSHARES DYNAMIC OTC PORTFOLIO OCTOBER 31, 2003 (UNAUDITED)
NUMBER OF SHARES VALUE - ------------ ------------ COMMON STOCKS--100.1% CONSUMER DISCRETIONARY--15.0% 4,295 Ameristar Casinos, Inc.* $ 90,710 5,759 Corinthian Colleges, Inc.* 356,597 13,684 Harris Interactive, Inc.* 90,999 4,289 Hibbett Sporting Goods, Inc.* 117,133 5,715 Hollywood Entertainment Corp. 86,868 2,511 K-Swiss, Inc., Class A 110,333 3,300 Matthews International Corp., Class A 89,067 3,246 Monro Muffler Brake, Inc.* 106,631 3,813 PACCAR, Inc. 301,074 27,967 PanAmSat Corp.* 578,918 14,577 Rent-A-Center, Inc.* 455,677 7,217 Ryan's Family Steak Houses, Inc.* 100,605 11,805 Scientific Games Corp., Class A* 157,007 16,704 Starbucks Corp.* 527,846 ------------ 3,169,465 ------------ CONSUMER STAPLES--0.5% 2,908 Sanderson Farms, Inc. 102,187 ------------ ENERGY--0.2% 611 Clayton Williams Energy, Inc.* 12,831 991 Patterson-UTI Energy, Inc.* 28,333 ------------ 41,164 ------------ FINANCIALS--10.0% 2,354 Anchor BanCorp Wisconsin, Inc. 58,615 8,970 Associated Banc-Corp. 369,204 7,313 Bankrate, Inc.* 111,670 1,802 Chemical Financial Corp. 62,620 1,731 City Holding Co. 58,542 3,172 Columbia Banking Systems, Inc. 61,442 2,798 First Federal Capital Corp. 61,528 9,688 IPC Holdings, Ltd. 362,815 2,873 Mid-State Bancshares 69,900 10,141 SEI Investments Co. 295,306 8,073 T. Rowe Price Group, Inc. 332,204 4,472 TrustCo Bank Corp. NY 58,360 7,541 Universal American Financial Corp.* 75,787 4,909 USI Holdings Corp.* 62,295 3,145 Waypoint Financial Corp. 65,479 ------------ 2,105,767 ------------ HEALTH CARE--9.6% 6,728 Cytyc Corp.* 86,993 3,677 Dynacq International, Inc.* 61,516 27,517 Endo Pharmaceuticals Holdings, Inc.* 450,178 5,581 Genencor International, Inc.* 85,389 8,329 Gentiva Health Services, Inc. 95,034 7,915 Henry Schein, Inc.* 491,126 4,100 Merit Medical Systems, Inc.* 107,379 6,717 Omnicell, Inc.* 95,583 11,051 Respironics, Inc.* $ 460,716 2,995 Young Innovations, Inc. 89,850 ------------ 2,023,764 ------------ INDUSTRIALS--1.1% 1,616 Charles River Associates, Inc.* 49,644 1,007 Engineered Support Systems, Inc. 68,082 1,832 Forward Air Corp.* 53,275 1,374 Genlyte Group, Inc.* 64,798 ------------ 235,799 ------------ INFORMATION TECHNOLOGY--58.1% 2,614 ANSYS, Inc.* 93,163 2,959 Applied Films Corp.* 92,765 11,862 Artesyn Technologies, Inc.* 97,624 11,281 Aspect Communications Corp.* 152,632 2,327 BARRA, Inc.* 88,426 11,970 CDW Corp. 718,799 32,022 Cisco Systems, Inc.* 671,822 32,652 Citrix Systems, Inc.* 825,442 60,864 CMGI, Inc.* 114,424 18,912 Cognizant Technology Solutions Corp.* 858,415 17,227 Conexant Systems, Inc.* 100,433 3,448 DSP Group, Inc.* 82,338 12,796 EarthLink, Inc. 117,083 7,263 eFunds Corp.* 116,281 11,862 Epicor Software Corp.* 119,925 33,184 Foundry Networks, Inc.* 771,859 12,993 GlobespanVirata, Inc.* 80,037 10,279 InfoUSA, Inc.* 84,288 22,079 Intel Corp. 729,711 13,121 Intervoice, Inc.* 136,590 9,250 Lightbridge, Inc.* 88,800 5,138 Metrologic Instruments, Inc.* 120,383 23,019 Microsoft Corp. 601,947 7,229 MRO Software, Inc.* 91,447 6,964 MTS Systems Corp. 122,497 26,966 NetScreen Technologies, Inc.* 717,835 49,125 Oracle Corp.* 587,535 13,121 Pegasystems, Inc.* 99,851 3,934 Planar Systems, Inc.* 91,033 37,134 Polycom, Inc.* 743,793 11,212 Presstek, Inc.* 86,445 4,604 Progress Software Corp.* 101,610 5,210 RadiSys Corp.* 101,856 36,059 Rambus, Inc.* 892,820 3,754 Renaissance Learning, Inc.* 94,451 5,056 SpectraLink Corp.* 88,986 4,945 SS&C Technologies, Inc. 108,790 3,546 Syntel, Inc. 87,976 8,620 Systems & Computer Technology Corp.* 126,714
SEE NOTES TO FINANCIAL STATEMENTS. 14
NUMBER OF SHARES VALUE - ------------ ------------ Common Stocks (Continued) 9,250 Tradestation Group, Inc.* $ 78,718 7,056 Transaction Systems Architects, Inc., Class A* 141,120 916 University of Phoenix Online* 62,984 18,598 VERITAS Software Corp.* 672,318 40,574 Vignette Corp.* 101,841 12,533 Westell Technologies, Inc., Class A* 104,400 9,390 Xicor, Inc.* 106,295 ------------ 12,274,502 ------------ MATERIALS--0.5% 1,264 Sigma-Aldrich Corp. 66,297 931 Silgan Holdings, Inc.* 29,773 ------------ 96,070 ------------ TELECOMMUNICATIONS--5.1% 10,807 Nextel Communications, Inc.* 261,529 11,333 NTL, Inc.* 699,587 12,258 PTEK Holdings, Inc.* 106,767 ------------ 1,067,883 ------------ TOTAL INVESTMENTS (Cost $18,416,029)--100.1% 21,116,601 Liabilities in excess of other assets--(0.1%) (19,910) ------------ NET ASSETS--100.0% $ 21,096,691 ============
* Non-income producing security. SEE NOTES TO FINANCIAL STATEMENTS. 15 STATEMENT OF ASSETS AND LIABILITIES POWERSHARES DYNAMIC OTC PORTFOLIO OCTOBER 31, 2003 (UNAUDITED) ASSETS: Investments at value, (Cost $18,416,029) $ 21,116,601 Receivables: Dividends 9,265 Due from Administrator 48,218 --------------- TOTAL ASSETS 21,174,084 --------------- LIABILITIES: Due to custodian 10,035 Accrued Advisory fees 19,140 Other accrued expenses 48,218 --------------- TOTAL LIABILITIES 77,393 --------------- NET ASSETS $ 21,096,691 =============== NET ASSETS CONSIST OF: Paid-in capital $ 11,899,305 Net investment loss (2,189) Net realized gain on investments 6,499,003 Net unrealized appreciation on investments 2,700,572 --------------- NET ASSETS $ 21,096,691 =============== Shares outstanding 551,424 Net asset value $ 38.26 ===============
SEE NOTES TO FINANCIAL STATEMENTS. 16 STATEMENT OF OPERATIONS POWERSHARES DYNAMIC OTC PORTFOLIO FOR THE PERIOD MAY 1, 2003* THROUGH OCTOBER 31, 2003 (UNAUDITED) INVESTMENT INCOME: Dividends $ 88,541 ----------- EXPENSES: Advisory fees 75,092 Legal 61,302 Administration 30,000 Accounting services 27,500 Insurance 23,725 Trustees 20,110 Amortization of offering cost 12,509 Audit 6,667 Custodian 5,420 Distribution fees 1,750 Other fees 18,204 ----------- TOTAL EXPENSES 282,279 Less: Advisory waiver (75,092) Less: Other fees waived by the Adviser (68,239) Less: Fees waived Administrator (25,464) Fund Accounting (22,754) ----------- NET EXPENSES 90,730 ----------- NET INVESTMENT LOSS (2,189) ----------- REALIZED AND UNREALIZED GAIN ON INVESTMENTS: Net realized gain on investments 6,499,003 Net unrealized appreciation on investments 2,700,572 ----------- Net realized and unrealized gain on investments 9,199,575 ----------- Net increase in net assets resulting from operations $ 9,197,386 ===========
* Commencement of Investment Operations. SEE NOTES TO FINANCIAL STATEMENTS. 17 STATEMENT OF CHANGES IN NET ASSETS POWERSHARES DYNAMIC OTC PORTFOLIO
FOR THE PERIOD MAY 1, 2003* THROUGH OCTOBER 31, 2003 (UNAUDITED) ---------------- OPERATIONS: Net investment loss $ (2,189) Net realized gain on investments 6,499,003 Net unrealized appreciation on investments 2,700,572 ---------------- Net increase in net assets resulting from operations 9,197,386 ---------------- CAPITAL STOCK TRANSACTIONS: Proceeds from capital stock sold 71,402,566 Value of capital stock repurchased (59,543,267) ---------------- Net increase in net assets resulting from capital stock transactions 11,859,299 ---------------- INCREASE IN NET ASSETS 21,056,685 NET ASSETS: Beginning of period 40,006 ---------------- End of period $ 21,096,691 ================ CHANGES IN CAPITAL STOCK OUTSTANDING:** Shares sold 1,600,000 Shares repurchased (1,050,000) Shares outstanding, beginning of period 1,424 ---------------- Shares outstanding, end of period 551,424 ================
* Commencement of Investment Operations. ** Amounts have been adjusted for stock split (See Note 7). SEE NOTES TO FINANCIAL STATEMENTS. 18 FINANCIAL HIGHLIGHTS POWERSHARES DYNAMIC OTC PORTFOLIO
FOR THE PERIOD MAY 1, 2003* THROUGH OCTOBER 31, 2003 (UNAUDITED) ---------------- PER SHARE OPERATING PERFORMANCE:+ Net asset value at beginning of period $ 28.09 ---------------- Net investment loss** (0.00)++ Net realized and unrealized gain on investments 10.17 ---------------- Net asset value at end of period $ 38.26 ---------------- TOTAL RETURN 36.18%*** RATIOS/SUPPLEMENTAL DATA: Net assets at end of period (000's omitted) $ 21,097 Ratio to average net assets of: Expenses, net of waivers 0.60%**** Expenses, prior to waivers 1.88%**** Net investment loss, net of waivers (0.01)%**** Portfolio turnover rate 42%+++
* Commencement of Investment Operations. ** Based on average shares outstanding. *** Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period, and redemption on the last day of the period. Total investment return is calculated for a period of less than one year is not annualized. **** Annualized. + Per share amounts have been adjusted for 4 for 1 stock split (See Note 7). ++ Amount less than $0.01 per share. +++ Portfolio turnover is not annualized and does not include securities received or delivered from processing creations or redemptions. SEE NOTES TO FINANCIAL STATEMENTS. 19 NOTES TO FINANCIAL STATEMENTS POWERSHARES EXCHANGE-TRADED FUND TRUST OCTOBER 31, 2003 (UNAUDITED) NOTE 1. ORGANIZATION PowerShares Exchange-Traded Fund Trust (the "Trust"), which is registered under the Investment Company Act of 1940, as amended, is an open-end non-diversified management investment company that was organized as a Massachusetts business trust on June 9, 2000. The Trust currently consists of two portfolios, the PowerShares Dynamic Market Portfolio and PowerShares Dynamic OTC Portfolio, each of which represents a separate series of beneficial interest in the Trust (collectively referred to as the "Fund"). The Fund's shares are listed on the American Stock Exchange and traded on the American Stock Exchange at market prices that may differ to some degree from net asset value of the shares of the Fund. Unlike conventional mutual funds, each Fund issues and redeems shares on a continuous basis, at net asset value, only in a large specified number of shares called a "Creation Unit." Creation Units are issued and redeemed principally in-kind for securities included in the relevant index. Except when aggregated in Creation Units, shares are not redeemable securities of the Funds. NOTE 2. SIGNIFICANT ACCOUNTING POLICIES The preparation of the financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from these estimates. In the normal course of business, the Trust enters into contracts that contain a variety of representations which provide general indemnifications. The Trust's maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Trust that have not yet occurred. However, the Trust expects any risk of loss to be remote. A. SECURITY VALUATION The Fund's securities are valued based on their last sale price. Price information on listed securities is taken from the exchange where the security is primarily traded. Securities regularly traded in an over-the-counter market are valued at the latest quoted sale price in such market. Other portfolio securities and assets for which market quotations are not readily available are valued based on fair value as determined in good faith by the Fund's accounting agent in accordance with procedures adopted by the Board of Trustees. B. FEDERAL INCOME TAXES The Fund intends to comply with the provisions of the Internal Revenue Code applicable to regulated investment companies and will distribute all net investment income and net taxable capital gains to its shareholders. Therefore, no provision for Federal income taxes is required. Income and capital gain distributions are determined in accordance with federal income tax regulations, which may differ from accounting principles generally accepted in the United States. These differences are primarily due to differing book and tax treatments for in-kind transactions, futures and options, losses deferred due to wash sales, losses deferred due to post-October losses, and excise tax regulations. C. INVESTMENT INCOME Dividend income is recorded on the ex-dividend date. Interest income is recorded on the accrual basis. The value of additional securities received as dividend payments is recorded as income and as an increase to the cost basis of such securities. 20 D. EXPENSES Expenses of the Trust, which are directly identifiable to a specific Fund, are applied to that Fund. Expenses, which are not readily identifiable to a specific Fund, are allocated in such a manner as deemed equitable, taking into consideration the nature and type of expense and the relative net assets of the Funds. E. INVESTMENT TRANSACTIONS Investment transactions are recorded on the trade date. Realized gains and losses from the sale or disposition of securities are recorded on the identified cost basis. Corporate actions (including cash dividends) are recorded net of nonreclaimable foreign tax withholdings on the ex-dividend date. F. DIVIDENDS AND DISTRIBUTION TO SHAREHOLDERS The Trust declares and pays dividends from net investment income to its shareholders quarterly. Each Fund distributes its net realized taxable capital gains, if any, to shareholders annually. G. PROXY VOTING POLICIES Information regarding how the Funds voted proxies relating to portfolio securities during the 12 month period from May 1, 2003 through April 30, 2004 will be available in June 2004 without charge by calling 1-800-843-2639, and on the SEC's website at www.sec.gov. NOTE 3. ADVISORY, ADMINISTRATION AND OTHER TRANSACTIONS WITH AFFILIATES PowerShares Capital Management LLC ("Adviser") has overall responsibility as the Fund's investment adviser for the selection and ongoing monitoring of the Fund's investments, managing the Fund's business affairs, and providing certain clerical, bookkeeping and other administrative services. The Adviser will receive fees from each Fund equal to 0.50% of the Fund's average daily net assets. The Bank of New York is the administrator, custodian, fund accounting and transfer agent for each Fund. For the period ended October 31, 2003, The Bank of New York voluntarily waived administration and fund accounting fees for PowerShares Dynamic Market Portfolio amounting to $24,145 and $21,545, respectively. In addition, The Bank of New York voluntarily waived administration and fund accounting fees for PowerShares Dynamic OTC Portfolio amounting to $25,464 and $22,754, respectively. Each Fund is responsible for all its expenses, including the investment advisory fees, costs of transfer agency, custody, fund administration, legal, audit and other services, interest, taxes, brokerage commissions and other expenses connected with executions of portfolio transactions, paying for licensing fees related to the Market Intellidex and the OTC Intellidex, any distribution fees or expenses and extraordinary expenses. Pursuant to the Management Agreement, until at least April 30, 2005, the Adviser has agreed to waive fees and/or reimburse expenses to the extent necessary to prevent the operating expenses of each Fund (excluding interest expense, brokerage commissions and other trading expenses, taxes, and extraordinary expenses) from exceeding 0.60% of average daily net assets. The American Stock Exchange LLC (the "AMEX") Intellidex Index has entered into an agreement with respect to PowerShares Dynamic Market Portfolio and PowerShares Dynamic OTC Portfolio for the licensed use of the Intellidex Index. Pursuant to such license agreement, the Trust has entered into a sub-license agreement which required that each Fund pay a fee of $5,000, an annual aggregate listing fee in accordance with AMEX's annual listing fee schedule, which shall not exceed the maximum annual listing fee for a stock issue set forth in such schedule (which fee is currently $14,500) for all POWERSHARES ETF; and an annual fee of 21 $10,000 per fund for the intra-day calculation of estimated share values based on the creation basket for each POWERSHARES ETF. For the period ended October 31, 2003, the Advisor waived fees for PowerShares Dynamic Market Portfolio and PowerShares Dynamic OTC Portfolio amounting to $141,610 and $143,331, respectively. NOTE 4. DISTRIBUTION SERVICES AGREEMENT ALPS Distributors, Inc. (the "Distributor") serves as the Distributor of Creation Units of each Fund pursuant to a Distribution Plan and Agreement pursuant to Rule 12b-1 under the 1940 Act, between the Distributor and the Trust. The Distributor does not maintain a secondary market in Shares. The Board of Trustees of the Trust has adopted a distribution plan pursuant to Rule 12b-1 under the 1940 Act. In accordance with its Rule 12b-1 plan, each Fund is authorized to pay an amount up to a maximum annual rate of 0.25% of the average daily net assets of each year for certain distribution-related activities. No 12b-1 fees are currently charged to either Fund, and there are no plans to impose these fees. NOTE 5. INVESTMENT TRANSACTIONS For the period ended October 31, 2003, the cost of securities purchased and proceeds from sales of securities, excluding short-term securities and in-kind transactions, were as follows:
PURCHASES SALES --------------- --------------- PowerShares Dynamic Market $ 13,591,579 $ 13,375,245 PowerShares Dynamic OTC 12,029,851 11,947,198
There were no purchases or sales of U.S. government or government agency obligation for the period ended October 31, 2003. At October 31, 2003, the cost of investments for federal income tax purposes was substantially the same as the cost for financial reporting purposes. Accordingly, gross unrealized appreciation and gross unrealized depreciation of investments was as follows:
UNREALIZED UNREALIZED NET UNREALIZED APPRECIATION DEPRECIATION APPRECIATION ------------ ------------ -------------- PowerShares Dynamic Market $ 2,047,108 $ (278,530) $ 1,768,578 PowerShares Dynamic OTC 2,992,362 (291,790) 2,700,572
NOTE 6. CAPITAL Shares are created and redeemed by the Trust only in Creation Unit size aggregations of 50,000. Transaction fees at scheduled amounts ranging from $500 to $2,000 per Creation Unit are charged to those persons creating or redeeming Creation Units. Such transactions are generally permitted on an in-kind basis, with a balancing cash component to equate the transaction to the net asset value per unit of each portfolio of the Trust on the transaction date. 22 NOTE 7. STOCK SPLIT On July 15, 2003 the Board of Trustees of the Trust declared a 4-for-1 stock split for each Fund based on the shares outstanding at the close of business on July 15, 2003. The stock split entitles each shareholder of record three additional shares for every share of the exchange-traded fund. All capital share activity and per share data have been restated to reflect these stock splits. 23 This page intentionally left blank [POWERSHARES(TM) LOGO] WHEATON OAKS PROFESSIONAL BUILDING 855 WEST PRAIRIE AVENUE WHEATON, IL 60187 800.983.0903 www.powershares.com ITEM 2. CODE OF ETHICS. Not required for semi-annual report. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. Not applicable at this time. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. Not applicable at this time. ITEMS 5-6. [RESERVED] ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable. ITEM 8. [RESERVED] ITEM 9. CONTROLS AND PROCEDURES. (a) The Fund's principal executive officer and principal financial officer have concluded that the Fund's disclosure controls and procedures are sufficient to ensure that information required to be disclosed by the Fund in this Form N-CSR was recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, based upon such officers' evaluation of these controls and procedures as of a date within 90 days of the filing date of the report. There were no significant changes or corrective actions with regard to significant deficiencies or material weaknesses in the Fund's internal controls or in other factors that could significantly affect the Fund's internal controls subsequent to the date of their evaluation. (b) There were no changes in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. ITEM 10. EXHIBITS. (a) Any code of ethics, or amendment thereto, that is the subject of the disclosure required by Item 2, to the extent that the registrant intends to satisfy the Item 2 requirements through filing of an exhibit: Attached hereto. Not Required for Semi annual report (b) A separate certification for each principal executive officer and principal financial officer of the registrant as required by Rule 30a-2 under the Act (17 CFR 270.30a-2) in the exact form set forth below: Attached hereto. EX-99.CERT 3 a2125739zex-99_cert.txt EXHIBIT-99.CERT EX.-10(b)(i) CERTIFICATIONS I, H. Bruce Bond, certify that: 1. I have reviewed this report on Form N-CSR of PowerShares Exchange-Traded Fund Trust; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; and 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report. 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-2(c) under the Investment Company Act of 1940) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this report (the "Evaluation Date"); and c) presented in this report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of trustees: a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize, and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: 1 / 6 / 2004 /s/ H. Bruce Bond ----------------------- H. Bruce Bond, Chairman and CEO EX.-10(b)(ii) CERTIFICATIONS I, John W. Southard, certify that: 1. I have reviewed this report on Form N-CSR of PowerShares Exchange-Traded Fund Trust; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; and 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report. 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-2(c) under the Investment Company Act of 1940) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this report (the "Evaluation Date"); and c) presented in this report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of trustees: a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize, and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: 1 / 6 / 2004 /s/ John W. Southard --------------------------- John W. Southard, Vice President and Treasurer EX-99.906CERT 4 a2125739zex-99_906cert.txt EXHIBIT-99.906CERT EX. -99.906CERT(i) CERTIFICATIONS I, H. Bruce Bond, Chairman of PowerShares Exchange-Traded Fund Trust, certify that: 1. The Form N-CSR of the Fund (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Fund. A signed original of this written statement required by Section 906 has been provided to the Fund and will be retained by the Fund and furnished to the Securities and Exchange Commission or its staff upon request. Dated: 1 / 6 / 2004 /s/ H. Bruce Bond ------------------------- H. Bruce Bond Chairman and CEO EX. -99.906CERT9(ii) CERTIFICATIONS I, John W. Southard, Vice President & Treasurer of PowerShares Exchange-Traded Fund Trust, certify that: 1. The Form N-CSR of the Fund (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Fund. A signed original of this written statement required by Section 906 has been provided to the Fund and will be retained by the Fund and furnished to the Securities and Exchange Commission or its staff upon request. Dated: 1 / 6 / 2004 /s/ John W. Southard ---------------------------- John W. Southard, Vice President & Treasurer SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. (Registrant) PowerShares Exchange-Traded Fund Trust -------------------------------------------------------------------- By (Signature and Title)* /s/ H. Bruce Bond --------------------------------------------------------- H. Bruce Bond, Chairman and CEO Date: 1 / 6 / 2004 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By (Signature and Title)* /s/ H. Bruce Bond ------------------------------------------------------- H. Bruce Bond , Chairman and CEO Date 1/6/2004 ---------------------------------------------------------------- By (Signature and Title)* /s/ John W. Southard ------------------------------------------------------- John W. Southard, Vice President & Treasurer * Print the name and title of each signing officer under his or her signature. -----END PRIVACY-ENHANCED MESSAGE-----