424B3 1 d424b3.htm PROSPECTUS Prospectus
Table of Contents

Filed Pursuant to Rule 424(b)(3)
Registration Nos. 333-132484
333-132484-01

POWERSHARES DB G10 CURRENCY HARVEST FUND

$1,314,241,076 Common Units of Beneficial Interest

PowerShares DB G10 Currency Harvest Fund, or the Fund, is organized as a Delaware statutory trust. The Fund issues common units of beneficial interest, or Shares, which represent units of fractional undivided beneficial interest in and ownership of the Fund.

Authorized Participants may sell the Shares they purchase from the Fund in blocks of 200,000 Shares, called Baskets, to other investors at prices that are expected to reflect, among other factors, the trading price of the Shares on the Amex and the supply of and demand for 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.

The Shares trade on the Amex under the symbol “DBV”.

The Fund invests the proceeds of its offering of Shares in DB G10 Currency Harvest Master Fund, or the Master Fund. The Master Fund is organized as a Delaware statutory trust.

DB Commodity Services LLC serves as the Managing Owner, commodity pool operator and commodity trading advisor of each of the Fund and the Master Fund. The Master Fund trades exchange-traded futures on the currencies comprising the Deutsche Bank G10 Currency Future Harvest Index – Excess ReturnTM, or the Index, with a view to tracking the Index over time. The Fund also earns interest income from United States Treasury and other high credit quality short-term fixed income securities.

The Index is designed to reflect the return from investing on a 2:1 leveraged basis in long currency futures positions for certain currencies associated with relatively high yielding interest rates and in short currency futures positions for certain currencies associated with relatively low yielding interest rates. The Index is designed to exploit the trend that currencies associated with relatively high interest rates, on average, tend to rise in value relative to currencies associated with relatively low interest rates. The Index exploits this trend using both long and short futures positions, which is expected to provide more consistent and less volatile returns than could be obtained by taking long positions only or short positions only.

The Index, at any time, is comprised of six of the following Group of Ten, or G10, currencies: United States Dollars, Euros, Japanese Yen, Canadian Dollars, Swiss Francs, British Pounds, Australian Dollars, New Zealand Dollars, Norwegian Krone and Swedish Krona, or, collectively, the Eligible Index Currencies. At any time, the Index is comprised of long futures positions in the three

 

Eligible Index Currencies associated with the highest interest rates and short futures positions in the three Eligible Index Currencies associated with the lowest interest rates. The Index’s six component currencies from time-to-time, comprised of the three long and three short futures positions, are referred to as the Index Currencies and are used to calculate the value of the Index.

Allocations among the Eligible Index Currencies are adjusted quarterly to take into account changes in the relevant interest rates. To track the Index, the Master Fund generally will establish long futures positions in the three Eligible Index Currencies associated with the highest interest rates and short futures positions in the three Eligible Index Currencies associated with the lowest interest rates and will adjust its holdings quarterly as the Index is adjusted. However, if the United States Dollar, or USD, is among the Index Currencies from time-to-time, the Master Fund will not establish a long or short futures position (as the case may be) in USD, because USD is the Fund’s home currency and, as a consequence, the Master Fund never can enjoy profit or suffer loss from long or short futures positions in USD.

When the USD is not associated with the highest or lowest interest rates among the Eligible Index Currencies, the aggregate notional value of the Master Fund’s futures contracts at the time they are established will be double the value of the Master Fund’s holdings of United States Treasury and other high credit quality short-term fixed income securities, which means the Fund will have a leverage ratio at such time of 2:1. If the USD is associated with the highest or lowest interest rates among the Eligible Index Currencies, the aggregate notional value of the Master Fund’s futures contracts at the time they are established will be approximately 1.66 times the value of the Master Fund’s holdings of United States Treasury and other high credit quality short-term fixed income securities, which means the Fund will have a leverage ratio at such time of approximately 1.66:1. The Master Fund’s ability to track the Index will not be affected by the presence or absence of the USD among the Index Currencies. Because the notional value of the Master Fund’s futures positions can rise or fall over time, the leverage ratio could be higher or lower between quarterly adjustments of the Index Currencies.

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 19.

•      Futures trading is volatile and even a small movement in market prices could cause large losses.

•      The success of the Master Fund’s trading program depends upon the skill of the Managing Owner and its trading principals.

 

•      You could lose all or substantially all of your investment.

•      Investors pay fees in connection with their investment in Shares including asset-based fees of 0.75% per annum. Additional charges include brokerage fees expected to be approximately 0.06% per annum in the aggregate.

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 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 the 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.

Neither the Fund nor the Master Fund 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.

THE COMMODITY FUTURES TRADING COMMISSION HAS NOT PASSED UPON THE MERITS OF PARTICIPATING IN THIS POOL 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.

May 14, 2008


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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 THIS POOL AT PAGE 68 AND A STATEMENT OF THE PERCENTAGE RETURN NECESSARY TO BREAK EVEN, THAT IS, TO RECOVER THE AMOUNT OF YOUR INITIAL INVESTMENT, AT PAGE 14.

 

THIS BRIEF STATEMENT CANNOT DISCLOSE ALL THE RISKS AND OTHER FACTORS NECESSARY TO EVALUATE YOUR PARTICIPATION IN THIS COMMODITY POOL. THEREFORE, BEFORE YOU DECIDE TO PARTICIPATE IN THIS COMMODITY POOL, YOU SHOULD CAREFULLY STUDY THIS DISCLOSURE DOCUMENT, INCLUDING A DESCRIPTION OF THE PRINCIPAL RISK FACTORS OF THIS INVESTMENT, AT PAGES 19 THROUGH 29.

 

THIS PROSPECTUS DOES NOT INCLUDE ALL OF THE INFORMATION OR EXHIBITS IN THE REGISTRATION STATEMENT OF THE FUND AND THE MASTER FUND. YOU CAN READ AND COPY THE ENTIRE REGISTRATION STATEMENT AT THE PUBLIC REFERENCE FACILITIES MAINTAINED BY THE SEC IN WASHINGTON, D.C.

 

 

 

THE FUND AND THE MASTER FUND 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 1-800-SEC-0330 FOR FURTHER INFORMATION.

 

THE FILINGS OF THE FUND AND THE MASTER FUND 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 FUND, THE 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.

 

 

 

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THE BOOKS AND RECORDS OF THE FUND AND THE MASTER FUND ARE MAINTAINED AS FOLLOWS: ALL MARKETING MATERIALS ARE MAINTAINED AT THE OFFICES OF ALPS DISTRIBUTORS, INC., 1290 BROADWAY, SUITE 1100, DENVER, COLORADO 80203; TELEPHONE NUMBER (303) 623-2577; 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) 315-4850. ALL OTHER BOOKS AND RECORDS OF THE FUND AND THE MASTER FUND (INCLUDING MINUTE BOOKS AND OTHER GENERAL CORPORATE RECORDS, TRADING RECORDS AND RELATED REPORTS AND OTHER ITEMS RECEIVED FROM THE MASTER FUND’S COMMODITY BROKERS) ARE MAINTAINED AT THE FUND’S PRINCIPAL OFFICE, C/O DB COMMODITY SERVICES LLC, 60 WALL STREET, NEW YORK, NEW YORK 10005; TELEPHONE NUMBER (212) 250-5883. 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 CONFORMING TO COMMODITY FUTURES TRADING COMMISSION (THE “CFTC”) AND THE NATIONAL FUTURES ASSOCIATION (THE “NFA”) REQUIREMENTS ARE POSTED ON THE MANAGING OWNER’S WEBSITE AT WWW.DBFUNDS.DB.COM. ADDITIONAL REPORTS MAY BE POSTED ON THE MANAGING OWNER’S WEBSITE IN THE DISCRETION OF THE MANAGING OWNER OR AS REQUIRED BY REGULATORY AUTHORITIES. THERE WILL SIMILARLY BE DISTRIBUTED TO SHAREHOLDERS, NOT MORE THAN 90 DAYS AFTER THE CLOSE OF EACH OF THE FUND’S FISCAL YEARS, CERTIFIED AUDITED FINANCIAL STATEMENTS AND (IN NO EVENT LATER THAN MARCH 15 OF THE IMMEDIATELY FOLLOWING YEAR) THE TAX INFORMATION RELATING TO SHARES OF THE FUND NECESSARY FOR THE PREPARATION OF SHAREHOLDERS’ ANNUAL FEDERAL INCOME TAX RETURNS.

 

 

 

THE DIVISION OF INVESTMENT MANAGEMENT OF THE SECURITIES AND EXCHANGE COMMISSION REQUIRES THAT THE FOLLOWING STATEMENT BE PROMINENTLY SET FORTH HEREIN: “NEITHER THE FUND NOR THE MASTER FUND 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 G10 CURRENCY HARVEST FUND

 

Table of Contents

 

Prospectus Section

   Page

PART ONE

DISCLOSURE DOCUMENT

  
      

SUMMARY

   1

The Fund; The Master Fund

   1

Shares Listed on the Amex

   1

Purchases and Sales in the Secondary Market, on the Amex

   1

Pricing Information Available on the Amex and Other Sources

   2

CUSIP Number

   2

The Master-Feeder Structure

   2

Risk Factors

   2

The Trustee

   4

Investment Objective

   4

Shares Should Track Closely the Value of the Index

   8

The Managing Owner

   8

The Commodity Broker

   8

The Administrator

   9

ALPS Distributors, Inc.

   10

“800” Number for Investors

   10

Invesco Aim Distributors, Inc.

   10

Limitation of Liabilities

   11

Creation and Redemption of Shares

   11

The Offering

   11

Authorized Participants

   11

Net Asset Value

   12

Clearance and Settlement

   12

Segregated Accounts/Interest Income

   12

Fees and Expenses

   13

Breakeven Amounts

   14

Distributions

   14

Fiscal Year

   14

Financial Information

   14

U.S. Federal Income Tax Considerations

   14

“Breakeven Table”

   15

Reports to Shareholders

   17

Cautionary Note Regarding Forward-Looking Statements

   17

Patent Applications Pending

   17

ORGANIZATION CHART

   18

THE RISKS YOU FACE

   19

Prospectus Section

   Page

(1)     The Value of the Shares Relates Directly to the Value of the Futures Contracts on the Index Currencies and Other Assets Held by the Master Fund and Fluctuations in the Price of These Assets Could Materially Adversely Affect an Investment in the Shares.

   19

(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.

   19

(3)    The Fund’s Performance May Not Always Replicate Exactly the Changes in the Levels of its Index.

   20

(4)    The Master Fund Is Not Actively Managed and Tracks the Index During Periods in which the Index Is Flat or Declining as well as when the Index Is Rising.

   20

(5)     The Dual Assumptions Underpinning the Index that High Yielding Interest Rates With Respect to Certain Eligible Index Currencies Suggest Taking Long Positions in Futures Contracts in Such Currencies and Low Yielding Interest Rates With Respect to Certain Eligible Index Currencies Suggest Taking Short Positions in Futures Contracts in Such Currencies May Be Detrimental to the Value of Your Shares Should Either or Both Assumptions Fail.

   20

(6)    Interest Rates Will Change Between Re-Weightings of the Index.

   20

(7)    Amex May Halt Trading in the Shares Which Would Adversely Impact Your Ability to Sell Shares.

   21

(8)    The Lack of An Active Trading Market for the Shares May Result in Losses on Your Investment at the Time of Disposition of Your Shares.

   21

 

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Prospectus Section

   Page

(9)    The Shares Are a New Securities Product and Their Value Could Decrease if Unanticipated Operational or Trading Problems Arise.

   21

(10)   As the Managing Owner and its Principals have Only a Limited History of Operating Investment Vehicles like the Fund or the Master Fund, their Experience may be Inadequate or Unsuitable to Manage the Fund or the Master Fund.

   21

(11)  You May Not Rely on Past Performance or Index Results in Deciding Whether to Buy Shares.

   21

(12)  Fewer Representative Index Currencies May Result In Greater Index Volatility.

   21

(13)  Leverage Will Fluctuate Between Index Re-Weighting Periods and May be Greater or Less than the Leverage on Each Index Re-Weighting Period.

   22

(14)  Because the Fund’s Trading will be Leveraged, a Relatively Small Movement in the Price of a Contract May Cause Greater Losses.

   22

(15)  Short Selling Theoretically Exposes the Master Fund to Unlimited Losses.

   23

(16)  Price Volatility May Possibly Cause the Total Loss of Your Investment.

   23

(17)  Fees and Commissions are Charged Regardless of Profitability and May Result in Depletion of Assets.

   24

(18)  You Cannot Be Assured of the Managing Owner’s Continued Services, Which Discontinuance May Be Detrimental to the Fund.

   24

(19)  Possible Illiquid Markets May Exacerbate Losses.

   24

(20)  You May Be Adversely Affected by Redemption Orders that Are Subject To Postponement, Suspension or Rejection Under Certain Circumstances.

   24

Prospectus Section

   Page

(21)  Because the Futures Contracts Have No Intrinsic Value, the Positive Performance of Your Investment Is
Wholly Dependent Upon an Equal and Offsetting Loss.

   25

(22)  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.

   25

(23)  Shareholders Do Not Have the Protections Associated With Ownership of Shares in an
Investment Company Registered Under the Investment Company Act of 1940.

   25

(24)  Various Actual and Potential Conflicts of Interest May Be
Detrimental to Shareholders.

   25

(25)   Shareholders of the Fund Will Be Subject to Taxation on Their Share of the Fund’s Taxable Income
(Including the Fund’s Share of the Master Fund’s Taxable Income), Whether or Not They Receive Cash Distributions.

   25

(26)   Items of Income, Gain, Deduction, Loss and Credit with respect to Shares could be Reallocated if the
IRS does not Accept the Assumptions or Conventions Used by the Fund or the Master Fund in Allocating Such Tax Items.

   26

(27)  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.

   26

(28)  Failure of Futures Commission Merchants or Commodity Brokers to  Segregate Assets May Increase
Losses; Despite Segregation of Assets, the Master Fund Remains at Risk of Significant Losses Because
the Master Fund May Only Receive a Pro-Rata Share of the Assets or No assets at All.

   26

(29)  Regulatory Changes or Actions May Alter the Nature of an Investment in
the Fund.

   26

 

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Prospectus Section

   Page

(30)  Lack of Independent Advisers Representing Investors.

   27

(31)  Possibility of Termination of the Fund or Master Fund May Adversely Affect Your Portfolio.

   27

(32)  Shareholders Do Not Have the Rights Enjoyed by Investors in Certain Other Vehicles.

   27

(33)  An Investment in the Shares May Be Adversely Affected by Competition From Other Methods of Investing in Currencies.

   27

(34)  Competing Claims Over Ownership of Intellectual Property Rights Related to the Fund Could Adversely Affect the Fund and an Investment in the Shares.

   27

(35)  The Value of the Shares Will be Adversely Affected if the Fund or the Master Fund is Required to Indemnify the Trustee or the Managing Owner.

   28

(36)  The Net Asset Value Calculation of the Master Fund 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.

   28

(37)  Exchange Rates on the Index Currencies Could be Volatile and Could Materially and Adversely Affect the Performance of the Shares.

   28

(38)  Substantial Sales of Index Currencies by the Official Sector Could Adversely Affect an Investment in the Shares.

   28

(39)  Although the Shares are Limited Liability Investments, Certain Circumstances such as Bankruptcy of the Fund or Indemnification of the Fund by the Shareholders will Increase a Shareholder’s Liability.

   29

THE MASTER-FEEDER STRUCTURE

   29

INVESTMENT OBJECTIVE

   29

Investment Objective

   29

Role of Managing Owner

   30

Market Diversification

   31

Prospectus Section

   Page

PERFORMANCE OF POWERSHARES DB G10 CURRENCY HARVEST FUND

   32

DESCRIPTION OF THE DEUTSCHE BANK G10 CURRENCY FUTURE HARVEST INDEX – EXCESS RETURN™

   33

General

   33

Index Calculation and Rules

   33

Publication of Closing Levels and Adjustments

   35

Change in the Methodology of the Index

   36

Interruption of Index Calculation

   37

Historical Closing Levels

   37

Cautionary Statement–Statistical Information

   38

PERFORMANCE OF COMMODITY POOLS OPERATED BY THE MANAGING OWNER AND ITS AFFILIATES

   48

PERFORMANCE OF POWERSHARES DB COMMODITY INDEX TRACKING FUND (TICKER: DBC)

   49

PERFORMANCE OF POWERSHARES DB US DOLLAR INDEX BULLISH FUND (TICKER: UUP), A SERIES OF POWERSHARES DB US DOLLAR INDEX TRUST

   50

PERFORMANCE OF POWERSHARES DB US DOLLAR INDEX BEARISH FUND (TICKER: UDN), A SERIES OF POWERSHARES DB US DOLLAR INDEX TRUST

   50

PERFORMANCE OF POWERSHARES DB ENERGY FUND (TICKER: DBE), A SERIES OF POWERSHARES DB MULTI-SECTOR COMMODITY TRUST

   51

PERFORMANCE OF POWERSHARES DB OIL FUND (TICKER: DBO), A SERIES OF POWERSHARES DB MULTI-SECTOR COMMODITY TRUST

   51

PERFORMANCE OF POWERSHARES DB PRECIOUS METALS FUND (TICKER: DBP), A SERIES OF POWERSHARES DB MULTI-SECTOR COMMODITY TRUST

   52

PERFORMANCE OF POWERSHARES DB GOLD FUND (TICKER: DGL), A SERIES OF POWERSHARES DB MULTI-SECTOR COMMODITY TRUST

   52

 

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Prospectus Section

   Page

PERFORMANCE OF POWERSHARES DB SILVER FUND (TICKER: DBS), A SERIES OF POWERSHARES DB MULTI-SECTOR COMMODITY TRUST

   53

PERFORMANCE OF POWERSHARES DB BASE METALS FUND (TICKER: DBB), A SERIES OF POWERSHARES DB MULTI-SECTOR COMMODITY TRUST

   53

PERFORMANCE OF POWERSHARES DB AGRICULTURE FUND (TICKER: DBA), A SERIES OF POWERSHARES DB MULTI-SECTOR COMMODITY TRUST

   54

INFORMATION BARRIERS BETWEEN THE INDEX SPONSOR AND THE MANAGING OWNER

   55

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

   55

Overview/Introduction

   55

Performance Summary

   56

Net Asset Value

   57

Off-Balance Sheet Arrangements and Contractual Obligations

   65

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

   65

Introduction

   65

Standard of Materiality

   66

QUANTIFYING THE FUND’S TRADING VALUE AT RISK

   66

Quantitative Forward-Looking Statements

   66

THE FUND’S TRADING VALUE AT RISK IN DIFFERENT CURRENCY CONTRACTS

   66

NON-TRADING RISK

   67

QUALITATIVE DISCLOSURES REGARDING PRIMARY TRADING RISK EXPOSURES

   67

QUALITATIVE DISCLOSURES REGARDING NON-TRADING RISK EXPOSURE

   67

General

   67

QUALITATIVE DISCLOSURES REGARDING MEANS OF MANAGING RISK EXPOSURE

   68

Prospectus Section

   Page

USE OF PROCEEDS

   68

CHARGES

   68

Management Fee

   68

Organization and Offering Expenses

   69

Brokerage Commissions and Fees

   69

Routine Operational, Administrative and Other Ordinary Expenses

   69

Extraordinary Fees and Expenses

   70

Management Fee and Expenses to be Paid First out of Interest Income

   70

Selling Commission

   70

WHO MAY SUBSCRIBE

   70

CREATION AND REDEMPTION OF SHARES

   70

THE COMMODITY BROKER

   73

CONFLICTS OF INTEREST

   74

General

   74

The Managing Owner

   74

Relationship of the Managing Owner to the Commodity Broker

   74

The Commodity Broker

   74

Proprietary Trading/Other Clients

   75

DESCRIPTION OF THE SHARES AND THE MASTER FUND UNITS; CERTAIN MATERIAL TERMS OF THE TRUST DECLARATIONS

   75

Description of the Shares and the Master Fund Units

   75

Principal Office; Location of Records

   76

The Trustee

   76

The Managing Owner

   77

Fiduciary and Regulatory Duties of the Managing Owner

   78

Ownership or Beneficial Interest in the Fund

   79

Management; Voting by Shareholders

   79

Recognition of the Fund and the Master Fund in Certain States

   80

Possible Repayment of Distributions Received by Shareholders; Indemnification by Shareholders

   80

Shares Freely Transferable

   80

Book-Entry Form

   81

Reports to Shareholders

   81

Net Asset Value

   81

Termination Events

   82

DISTRIBUTIONS

   83

THE ADMINISTRATOR

   83

 

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Prospectus Section

   Page

ALPS DISTRIBUTORS, INC.

   83

“800” Number for Investors

   84

INVESCO AIM DISTRIBUTORS, INC.

   84

THE SECURITIES DEPOSITORY; BOOK-ENTRY-ONLY SYSTEM; GLOBAL SECURITY

   84

SHARE SPLITS

   85

MATERIAL CONTRACTS

   85

Brokerage Agreement

   85

Administration Agreement

   86

Global Custody Agreement

   87

Transfer Agency and Service Agreement

   89

Distribution Services Agreement

   89

Marketing Agreement

   90

MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS

   91

Status of the Fund and the Master
Fund

   92

U.S. Shareholders

   93

PURCHASES BY EMPLOYEE BENEFIT PLANS

   102

General

   102

“Plan Assets”

   103

Ineligible Purchasers

   104

PLAN OF DISTRIBUTION

   104

Authorized Participants

   104

Likelihood of Becoming a Statutory Underwriter

   105

General

   105

LEGAL MATTERS

   106

EXPERTS

   106

ADDITIONAL INFORMATION

   107

RECENT FINANCIAL INFORMATION AND ANNUAL REPORTS

   107

PRIVACY POLICY OF THE MANAGING OWNER

   107

INDEX TO FINANCIAL STATEMENTS

   108

Report of Independent Registered Public Accounting Firm

   109

PowerShares DB G10 Currency Harvest Fund and Subsidiary Consolidated Statements of Financial Condition as of December 31, 2007 and 2006

   110

Prospectus Section

   Page

PowerShares DB G10 Currency Harvest Fund and Subsidiary Consolidated Schedule of Investments as of December 31, 2007

   111

PowerShares DB G10 Currency Harvest Fund and Subsidiary Consolidated Schedule of Investments as of December 31, 2006

   112

PowerShares DB G10 Currency Harvest Fund and Subsidiary Consolidated Statements of Income and Expenses for the Year ended December 31, 2007 and Period Ended December 31, 2006

   113

PowerShares DB G10 Currency Harvest Fund and Subsidiary Consolidated Statement of Changes in Shareholders’ Equity for the Year Ended December 31, 2007

   114

PowerShares DB G10 Currency Harvest Fund and Subsidiary Consolidated Statement of Changes in Shareholders’ Equity for the Year Ended December 31, 2006

   115

PowerShares DB G10 Currency Harvest Fund and Subsidiary Consolidated Statements of Cash Flows for the Year ended December 31, 2007 and for the Period Ended December 31, 2006

   116

PowerShares DB G10 Currency Harvest Fund and Subsidiary Notes to Consolidated Financial Statements

   117

DB Commodity Services LLC Report of Independent Registered Public Accounting Firm

   127

DB Commodity Services LLC Statements of Financial Condition for the Year Ended December 31, 2007 and for the Year Ended December 31, 2006

   128

DB Commodity Services LLC Statements of Income and Expenses for the Year Ended December 31, 2007 and for the Year Ended December 31, 2006

   129

DB Commodity Services LLC Statements of Changes in Member’s Deficit for the Year Ended December 31, 2007 and for the Year Ended December 31, 2006

   130

DB Commodity Services LLC Statements of Cash Flows for the Year Ended December 31, 2007 and for the Year Ended December 31, 2006

   131

DB Commodity Services LLC Notes to Financial Statements

   132

 

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PART TWO

STATEMENT OF ADDITIONAL

INFORMATION

General Information Relating to Deutsche Bank AG

   143

The Futures Markets

   143

Futures Contracts

   143

Hedgers and Speculators

   144

Futures Exchanges

   144

Daily Limits

   145

Regulations

   145

Margin

   146

Exhibit A—Privacy Notice

   P–1

 

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SUMMARY

 

This summary of all material information provided in this Prospectus is intended for quick reference only. 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 any Shares. This Prospectus is dated May 14, 2008.

 

 

 

The Fund; The Master Fund

 

   

PowerShares DB G10 Currency Harvest Fund, or the Fund, was formed as a Delaware statutory trust on April 12, 2006. The Fund was originally named “DB Currency Index Value Fund” and changed its name to PowerShares DB G10 Currency Harvest Fund effective July 20, 2006. The Fund issues common units of beneficial interest, or Shares, which represent units of fractional undivided beneficial interest in and ownership of the Fund. The term of the Fund is perpetual (unless terminated earlier in certain circumstances). The principal offices of the Fund are located at c/o DB Commodity Services LLC, 60 Wall Street, New York, New York 10005, and its telephone number is (212) 250-5883.

 

   

DB G10 Currency Harvest Master Fund, or the Master Fund, was formed as a Delaware statutory trust on April 12, 2006. The 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. The Master Fund issues common units of beneficial interest, or Master Fund Units, which represent units of fractional undivided beneficial interest in and ownership of the Master Fund. The term of the Master Fund is perpetual (unless terminated earlier in certain circumstances). The principal offices of the Master Fund are located at c/o DB Commodity Services LLC, 60 Wall Street, New York, New York 10005, and its telephone number is (212) 250-5883.

 

Shares Listed on the Amex

 

The Shares of the Fund are listed on the Amex under the symbol “DBV.” 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 the Fund trade on the Amex like any other equity security.

 

Baskets of Shares may be created or redeemed only by Authorized Participants. It is expected that Baskets will be created when there is sufficient demand for Shares that the market price per Share is at a premium to the net asset value per Share. Authorized Participants will then 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 on the Amex and the supply of and demand for 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 will be redeemed when the market price per Share 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 may not be identical to the net asset value per Share, but these valuations are expected to be very close. Investors are able to use the indicative intra-day value of the Fund to determine if they want to purchase in the secondary market via the Amex. The intra-day indicative value per Share of the Fund is based on the prior day’s final net asset value, adjusted four times per minute throughout the day to reflect the continuous price changes of the Master Fund’s 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

 

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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 Fund and the Index:

 

FBV

  

Indicative intra-day value per Share

of the Fund

 

FBV.NV

  

End of day net asset value of the

Fund

 

DBCFHX

  

Intra-day and Index closing level as

of close of Amex from the prior day

 

 

The intra-day data in the above table is published once every fifteen seconds throughout each trading day.

 

The Index Sponsor publishes the closing level of the Index daily. The Managing Owner publishes the net asset value of the 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 the Fund (quoted in USD) once every fifteen seconds throughout each trading day. All of the foregoing information is published as follows:

 

The intra-day level of the Index (symbol: DBCFHX) and the intra-day indicative value per Share of the Fund (symbol: FBV) (each quoted in USD) are published once every fifteen seconds throughout each trading day on the consolidated tape, Reuters and/or Bloomberg and on the Managing Owner’s website at http://www.dbfunds.db.com, or any successor thereto.

 

The current trading price per Share (symbol: DBV) (quoted in USD) are published continuously as trades occur throughout each trading day on the consolidated tape, Reuters and/or Bloomberg and on the Managing Owner’s website at http://www.dbfunds.db.com, or any successor thereto.

 

The most recent end-of-day Index closing level (symbol: DBCFHX) is published as of the close of business for the Amex each trading day on the consolidated tape, Reuters and/or Bloomberg and on the Managing Owner’s website at http://www.dbfunds.db.com, or any successor thereto.

 

The most recent end-of-day net asset value of the Fund (symbol: FBV.NV) is published as of the close of business on Reuters and/or Bloomberg and on the Managing Owner’s 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 (symbol: FBV.NV) 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 obtains information for inclusion in, or for use in the calculation of, the Index from sources the Index Sponsor considers reliable. None of the Index Sponsor, the Managing Owner, the Fund, the Master Fund or any of their respective affiliates accepts responsibility for or guarantees the accuracy and/or completeness of the Index or any data included in the Index.

 

CUSIP Number

 

The Fund’s CUSIP number is 73935Y102.

 

The Master-Feeder Structure

 

The Fund invests substantially all of its assets in the Master Fund in a master-feeder structure. The Fund holds no investment assets other than Master Fund Units. The Master Fund is wholly-owned by the Fund and the Managing Owner. Each Share issued by the Fund correlates with a Master Fund Unit issued by the Master Fund and held by the Fund.

 

Risk Factors

 

An investment in Shares is speculative and involves a high degree of risk. The summary risk factors set forth below are intended merely to highlight certain risks of the Fund. The Fund has particular risks that are set forth elsewhere in this Prospectus.

 

   

The Fund and the Master Fund have a limited operating history. Therefore, a

 

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potential investor has only a limited performance history to serve as a factor for evaluating an investment in the Fund.

 

   

Past performance is not necessarily indicative of future results; all or substantially all of an investment in the Fund could be lost.

 

   

The trading of the Master Fund takes place in very volatile markets.

 

   

Because the Master Fund’s trading will be leveraged, a relatively small movement in the price of a futures contract owned by the Master Fund may cause greater losses.

 

   

Investment in foreign exchange related products is subject to many factors which contribute or increase potential volatility, 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 currency’s value soon will change.

 

   

The Fund and the Master Fund are subject to the fees and expenses described herein (in addition to the amount of any commissions charged by the investor’s broker in connection with an investor’s purchase of Shares) and will be successful only if significant losses are avoided.

 

   

The Fund and the Master Fund are subject to fees and expenses in the aggregate amount of approximately 0.81% 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 0.81% per annum. Because it is expected that interest income will exceed the fees and costs incurred by the Fund and Master Fund at the end of the first twelve months of an investment, the percentage of profit required for the Fund to breakeven at the end of the first twelve months of an investment, by definition, is expected to be 0.00%. The Master Fund (and, in turn, the Fund) is expected to earn interest income equal to 1.25% per annum, based upon the yield of 3-month U.S. Treasury bills as of April 17, 2008. Therefore, based upon the difference between the current yield of 3-month U.S. Treasury bills and the annual fees and expenses, the Fund is expected to have a net income equal to approximately 0.44% per annum, assuming that the Fund has not experienced gains or losses from its futures trading. Actual interest income could be higher or lower than the current yield of 3-month U.S. Treasury bills.

 

   

There can be no assurance that either the Shares or the Master Fund Units will

 

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achieve profits or avoid losses, significant or otherwise.

 

   

Performance of the Fund may not track the Index during particular periods or over the long term. Such tracking error may cause the Fund to outperform or underperform the Index.

 

   

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 Fund and for its other customers. More specifically, the Commodity Broker will benefit from executing orders for other clients, whereas the Master Fund may be harmed to the extent that the Commodity Broker has fewer resources to allocate to the Master Fund’s accounts due to the existence of such other clients. 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 the Master Fund or may compete with the 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 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 Fund.

 

The Trustee

 

Wilmington Trust Company, or the Trustee, a Delaware banking corporation, is the sole trustee of the Fund and the Master Fund. The Trustee delegated to the Managing Owner certain of the power and authority to manage the business and affairs of the Fund and the Master Fund and has only nominal duties and liabilities to the Fund and the Master Fund.

 

Investment Objective

 

The Fund and the Master Fund seek to track changes, whether positive and negative, in the level of the Deutsche Bank G10 Currency Future Harvest Index – Excess Return™, or the Index, over time, plus the excess, if any, of the Master Fund’s 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. The Index is designed to reflect the return from investing on a 2:1 leveraged basis in long currency futures positions for certain currencies associated with relatively high yielding interest rates and in short currency futures positions for certain currencies associated with relatively low yielding interest rates. The Index is designed to exploit the trend that currencies associated with relatively high interest rates, on average, tend to rise in value relative to currencies associated with relatively low interest rates. The Index exploits this trend using both long and short futures positions, which is expected to provide more consistent and less volatile returns than could be obtained by taking long positions only or short positions only.

 

Advantages of investing in the Shares include:

 

   

Ease and Flexibility of Investment. The Shares will 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 can be easier and less expensive for an investor than constructing and trading a comparable foreign currency futures portfolio.

 

   

The Fund May Provide Gains on Both the Upside and Downside Price Movements of the Index Currencies. The Index will rise as a result of any upward price movement of the Index Currencies that are expected to gain relative to the USD by investing in long futures positions on such Index Currencies. The Index also will rise as a result of any downward price movement of the Index Currencies that are expected to lose relative to the USD by investing in short futures positions on such Index Currencies.

 

   

Margin. Shares are eligible for margin accounts.

 

   

Diversification. The Shares may help to diversify a portfolio because historically the Index has tended to exhibit low to negative correlation with both equities and conventional bonds.

 

   

Transparency. The Shares provide a more direct investment in currencies than mutual funds that invest in currency-linked products, which may have implicit imbedded costs, credit risk and other potentially opaque features.

 

Investing in the Shares does not insulate Shareholders from certain risks, including price volatility.

 

The sponsor of the Index, or the Index Sponsor, is Deutsche Bank AG London. The composition of the Index may be adjusted in the Index Sponsor’s discretion.

 

The currencies that are eligible for inclusion in the Index, or Eligible Index Currencies, are the currencies of The Group of Ten, or G10, countries, which include the following currencies:

 

Eligible Index Currency

   Symbol
   

United States Dollar

   USD

Euro

   EUR

Japanese Yen

   JPY

Canadian Dollar

   CAD

Swiss Franc

   CHF

British Pound

   GBP

Australian Dollar

   AUD

New Zealand Dollar

   NZD

Norwegian Krone

   NOK

Swedish Krona

   SEK

 

Futures contracts referencing each of the Eligible Index Currencies (except USD) currently are traded on the Chicago Mercantile Exchange, or CME, although currency futures contracts on the Eligible Index Currencies also trade on other exchanges in the United States and the Master Fund may invest in such contracts.

 

At any time, the Index is comprised of long futures positions in the three Eligible Index Currencies associated with the highest interest rates and short futures positions in the three Eligible Index Currencies associated with the lowest interest rates. The Index’s six component currencies from time-to-time, comprised of the three long and three short futures positions, are referred to as the Index Currencies and are used to calculate the value of the Index. The composition of the Index may be adjusted in the event that the Index Sponsor is not able to calculate the closing prices of the Index Currencies.

 

The Index Sponsor calculates the Index on both an excess return basis and a total return basis. The excess return basis calculation reflects the change in market value of the applicable underlying currency futures only. The total return basis calculation reflects the sum of the change in market value of the applicable underlying currency futures plus the return on 3-month U.S. Treasury bills. The Fund and the Master Fund seek to track changes, whether positive

 

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and negative, in the level of the Index calculated on an excess return basis, over time, plus the excess, if any, of the Master Fund’s 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.

 

The Fund will make distributions at the discretion of the Managing Owner. To the extent that the Master Fund’s 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 Fund and the Master Fund, the Managing Owner expects periodically to make distributions of the amount of such excess. The Fund currently does not expect to make distributions with respect to its capital gains. Depending on the Fund’s 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 the Fund’s net ordinary income or loss and capital gain or loss may exceed any distributions you receive with respect to such year.

 

In order to determine which Eligible Index Currencies to include in the Index from time-to-time, the Index Sponsor will review the composition of the Index on a quarterly basis as described in “Description of the Deutsche Bank G10 Currency Future Harvest Index – Excess Return™.”

 

The Index Sponsor will review the three month Libor rate for each Eligible Index Currency other than the SEK and NOK and will review the three month Stibor rate and the three month Nibor rate for the SEK and NOK, respectively. The Libor, Stibor and Nibor rates for the Eligible Index Currencies, as applicable, mean the London, Stockholm and Norway interbank offered rates for overnight deposits, respectively, each of which is published by Reuters on pages libor01 and libor02 with respect to Libor and pages SIDE and NIBR with respect to Stibor and Nibor. The Eligible Index Currencies are then ranked according to yield. The three highest yielding and three lowest yielding are selected as Index Currencies for inclusion in calculating the Index. If two Index Currencies have the same yield, then the previous quarter’s ranking will be used.

 

The Index is re-weighted quarterly. Upon re-weighting, the high yielding Index Currencies are allocated a base weight of 33 1/3% and the low yielding Index Currencies are allocated a base weight of -33 1/3%. These new weights are applied during the Index Re-Weighting Period, as described in “Description of the Deutsche Bank G10 Currency Future Harvest Index – Excess Return™.”

 

The CME-traded futures contract of each applicable Index Currency that is closest to expiration is used in the Index calculation. The futures contracts on the Index Currencies are rolled during the Index Re-Weighting Period. The new futures contract on an Index Currency that has the next closest expiration date is selected. The calculation of the Index on an excess return basis is the weighted return on the change in price of the futures contracts on the Index Currencies.

 

A 3-month U.S. Treasury bill return is then calculated and included to calculate the total return index. Please refer to Exhibit B of the Amended and Restated Declaration of Trust of the Master Fund for the mathematical formulae of the Index.

 

The Index has been calculated using historical data since March 12, 1993. The Index is composed of notional amounts of each Index Currency. The notional amounts of the Index Currencies included in the Index are based on the Index Closing Level as of the Index Re-Weighting Period. The Index Closing Level reflects an arithmetic weighted return of the change in the Index Currencies exchange rates against the USD since March 12, 1993. March 1993 was chosen as a starting period because it represents the earliest date on which reliable data for all the Eligible Index Currencies exists. On March 12, 1993, the closing Index level was USD 100. Between March 12, 1993 to February 29, 2008, the Index level as calculated on an excess return basis has ranged from as high as USD 315.27 (July 25, 2007) to as low as USD 94.03 (July 30, 1993). Past Index results are not necessarily indicative of future changes, positive and negative, in the Index.

 

The Fund will pursue its investment objective by investing substantially all of its assets in the Master Fund. To track the Index, the Master Fund

 

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generally will establish long futures positions in the three Eligible Index Currencies associated with the highest interest rates and short futures positions in the three Eligible Index Currencies associated with the lowest interest rates and will adjust its holdings quarterly as the Index is adjusted. However, if the USD is among the Index Currencies from time-to-time, the Master Fund will not establish a long or short futures position (as the case may be) in USD, because USD is the Fund’s home currency and, as a consequence, the Master Fund never can enjoy profit or suffer loss from long or short futures positions in USD. When the USD is not associated with the highest or lowest interest rates among the Eligible Index Currencies, the aggregate notional value of the Master Fund’s futures contracts at the time they are established will be double the value of the Master Fund’s holdings of United States Treasury and other high credit quality short term fixed income securities, which means the Fund will have a leverage ratio at such time of 2:1. If the USD is associated with the highest or lowest interest rates among the Eligible Index Currencies, the aggregate notional value of the Master Fund’s futures contracts at the time they are established will be approximately 1.66 times the value of the Master Fund’s holdings of United States Treasury and other high credit quality short term fixed income securities, which means the Fund will have a leverage ratio at such time of approximately 1.66:1. Holding futures positions with a notional amount in excess of the Master Fund’s net asset value constitutes a form of leverage. The use of leverage will increase the potential for both trading profits and losses, depending on the changes, positive and negative, in the Index. The Master Fund’s ability to track the Index will not be affected by the presence or absence of the USD among the Index Currencies. Because the notional value of the Master Fund’s futures positions can rise or fall over time, the leverage ratio could be higher or lower between quarterly adjustments of the Index Currencies.

 

The use of long and short positions in the construction of the Index causes the Index to rise as a result of any upward price movement of Index Currencies expected to gain relative to the USD and to rise as a result of any downward price movement of Index Currencies expected to lose relative to the USD. The inclusion of both long and short positions is also expected to reduce the country specific foreign exchange risk of the Index (and, therefore, risk in connection with an investment in the Fund) relative to a directional (outright long or short) exposure to any or all of the Index Currencies.

 

There can be no assurance that the use of both long and short positions will reduce the volatility of the Index during any or all market cycles or performance periods, or that the Master Fund will achieve its objectives.

 

As a result of its use of leverage, the Master Fund will be required to deposit a greater proportion of its net assets as margin, not expected to exceed 5% of net assets. This represents margin deposit requirements approximately twice as great as would be required if the Master Fund did not use leverage. Similarly, as a result of its use of leverage, the Master Fund will trade more futures contracts and incur more brokerage commission expense than it would if it did not use leverage. The additional amount of brokerage commission expense generally will be proportional to the Master Fund’s leverage ratio.

 

The Master Fund’s portfolio also includes United States Treasury securities and other high credit quality short-term fixed income securities for deposit with the Master Fund’s Commodity Broker as margin.

 

Under the Trust Declarations of the Fund and the Master Fund, Wilmington Trust Company, the Trustee of the Fund and the Master Fund, has delegated to the Managing Owner the exclusive management and control of all aspects of the business of the Fund and the Master Fund. 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.

 

There can be no assurance that the Fund or the Master Fund will achieve its investment objective or avoid substantial losses. The Master Fund has only a limited performance history. The value of the Shares is expected to fluctuate generally in relation to changes in the value of the Master Fund Units.

 

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Shares Should Track Closely the Value of the Index

 

The Shares are intended to provide investment results that generally correspond to the changes, positive or negative, in the levels of the Index over time.

 

The value of the Shares is expected to fluctuate in relation to changes in the value of the Master Fund’s portfolio. The market price of the Shares may not be identical to the net asset value per Share, but these two valuations are expected to be very close.

 

The Master Fund holds a leveraged portfolio of both long and short futures contracts on the Index Currencies which comprise the Index from time-to-time (other than the USD), each of which are traded on various currency futures markets in the United States. The Master Fund also holds cash and United States Treasury securities and other high credit quality short-term fixed income securities for deposit with the Master Fund’s Commodity Broker as margin. The Master Fund’s portfolio is traded with a view to tracking the Index over time, whether the Index is rising, falling or flat over any particular period. The Master Fund is not “managed” by traditional methods, which typically involve effecting changes in the composition of the Master Fund’s portfolio on the basis of judgments relating to economic, financial and market considerations with a view to obtaining positive results under all market conditions. To maintain the correspondence between the composition and weightings of the Index Currencies of the Index to the Fund, the Managing Owner adjusts the portfolio on a quarterly basis to conform to periodic changes in the composition and relative weightings of the Index Currencies. The Managing Owner will aggregate certain of the adjustments and makes changes to the portfolio at least monthly or more frequently in the case of significant changes to the Index.

 

The Managing Owner

 

DB Commodity Services LLC, a Delaware limited liability company, serves as Managing Owner of the Fund and the 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 Fund and the Master Fund. The Managing Owner and its trading principals have limited experience in operating commodity pools and in 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 Fund and the 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 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.

 

The Master Fund pays the Managing Owner a Management Fee, monthly in arrears, in an amount equal to 0.75% per annum of the daily net asset value of the Master Fund. No separate fee is paid by the Fund. The Management Fee is paid in consideration of the Managing Owner’s commodity futures trading advisory services.

 

The Commodity Broker

 

A variety of executing brokers execute futures transactions on behalf of the Master Fund. Such executing brokers give-up all such transactions to

 

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Deutsche Bank Securities Inc., a Delaware corporation, which serves as the Master Fund’s 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 of the Master Fund’s futures transactions and performs certain administrative services for the 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.

 

The 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. On average, total charges paid to the Commodity Broker are expected to be less than USD 10.00 per round-turn trade, although the Commodity Broker’s 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 0.06% of the net asset value of the 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 Managing Owner, on behalf of the Fund and the Master Fund, has appointed The Bank of New York as the administrator, or the Administrator, of the Fund and the Master Fund and has entered into an Administration Agreement in connection therewith. The Bank of New York serves as custodian, or Custodian, of the 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 the 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, 12th 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 the 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 York’s 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 the Fund and the 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 certain financial books and records, including: Basket creation and redemption books and records, fund accounting records, ledgers with respect to assets, liabilities, capital, income and expenses, the registrar, transfer journals and related details and trading and related documents received from futures commission merchants, c/o The Bank of New York, 2 Hanson Place, 12th 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 the 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 Administrator’s own bad faith, negligence or willful misconduct) which may be imposed on, incurred by or asserted against the Administrator in

 

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performing its obligations or duties under the Administration Agreement. Key terms of the Administration Agreement are summarized under the heading “Material Contracts.”

 

The Administrator’s monthly fees are paid on behalf of the Fund and the 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.

 

The Administrator receives a transaction processing fee in connection with orders from Authorized Participants to create or redeem Baskets in the amount of USD 500 per order. These transaction processing fees are paid indirectly by the Authorized Participants and not by the Fund or the Master Fund.

 

The Fund is expected to retain the services of one or more additional service providers to assist with certain tax reporting requirements of the Fund and its Shareholders.

 

ALPS Distributors, Inc.

 

The Managing Owner, on behalf of the Fund and the Master 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 at c/o ALPS Distributors, Inc., 1290 Broadway, Suite 1100, Denver, Colorado 80203; telephone number (303) 623-2577. Investors may contact ALPS Distributors toll-free in the U.S. at (877) 369-4617. The Fund has entered into a Distribution Services Agreement with ALPS Distributors. ALPS Distributors is affiliated with ALPS 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 350,000 shareholder accounts and approximately $17 billion in client mutual fund assets under administration. ALPS Distributors provides distribution services to approximately $232 billion in client assets.

 

The Managing Owner, out of the Management Fee, pays ALPS Distributors for performing its duties on behalf of the Fund and the 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. 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 the Fund. Certain marketing services may be provided for the Fund by Invesco Aim Distributors, Inc. or Invesco 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 Invesco PowerShares Capital Management LLC. Invesco PowerShares Capital Management LLC is not a sponsor or promoter of the Fund and has no responsibility for the performance of the Fund or the decisions made or actions taken by the Managing Owner.

 

“800” Number for Investors

 

Investors may contact Invesco PowerShares Capital Management LLC toll free in the U.S. at (800) 983-0903.

 

Invesco Aim Distributors, Inc.

 

Through a marketing agreement between the Managing Owner and Invesco Aim Distributors, Inc. (formerly known as A I M Distributors, Inc.), or Invesco Aim Distributors, an affiliate of Invesco PowerShares Capital Management LLC (formerly known as PowerShares Capital Management LLC), or Invesco PowerShares, the Managing Owner, on behalf of the Fund and the Master Fund, has appointed Invesco Aim Distributors as a marketing

 

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agent. Invesco Aim Distributors assists the Managing Owner and the Administrator with certain functions and duties such as providing various educational and marketing activities regarding the Fund, primarily in the secondary trading market, which activities include, but are not limited to, communicating the Fund’s name, characteristics, uses, benefits, and risks, consistent with the prospectus. Invesco Aim Distributors will not open or maintain customer accounts or handle orders for the Fund. Invesco Aim Distributors is a subsidiary of Invesco Ltd. Invesco Ltd. is a leading independent global investment manager operating under the AIM, Atlantic Trust, Invesco, Perpetual, PowerShares, Trimark and WL Ross brands.

 

The Managing Owner, out of the Management Fee, pays Invesco Aim Distributors for performing its duties on behalf of the Fund and the Master Fund.

 

Limitation of Liabilities

 

You cannot lose more than your investment in the Shares. Shareholders are entitled to limitation on liability equivalent to the limitation on liability enjoyed by stockholders of a Delaware business corporation for profit.

 

Creation and Redemption of Shares

 

The 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 USD 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 Fund to other investors.

 

The 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. The Master Fund is wholly-owned by the Fund and the Managing Owner. Each Share issued by the Fund correlates with a Master Fund Unit issued by the Master Fund and held by the Fund.

 

See “Creation and Redemption of Shares” for more details.

 

The Offering

 

The 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 as of the closing time of the Amex or the last to close of the exchanges on which its Master Fund’s futures contracts are traded, whichever is later, on the date that a valid order to create a Basket is accepted by the Fund.

 

The Master Fund will issue Master Fund Units in Master Unit Baskets 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 Amex or the last to close of the exchanges on which its Master Fund’s 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. The Master Fund will be wholly-owned by the Fund and the Managing Owner. Each Share issued by the Fund will correlate with a Master Fund Unit issued by the 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 the 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 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 the Fund and the Master Fund sets forth the procedures for the creation

 

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and redemption of Master Unit Baskets by the Fund. See “Creation and Redemption of Shares” for more details.

 

Net Asset Value

 

Net asset value 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 the 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 is the net asset value of the Master Fund divided by the number of outstanding Master Fund Units. Because there is a one-to-one correlation between Shares and Master Fund Units and the Master Fund has assumed all liabilities of the Fund, the net asset value per Share and the net asset value per Master Fund Unit is equal.

 

See “Description of the Shares and the Master Fund Units; Certain Material Terms of the Trust Declarations—Net Asset Value” for more details.

 

Clearance and Settlement

 

The Shares are evidenced by global certificates that the Fund issues to DTC. The Shares are available only in book-entry form. Shareholders may hold their Shares through DTC, if they are participants in DTC, or indirectly through entities that are participants in DTC. The Master Fund Units are uncertificated and held by the Fund in book-entry form.

 

Segregated Accounts/Interest Income

 

The proceeds of the offering are deposited in cash in a segregated account in the name of the Master Fund at the Commodity Broker (or another eligible financial institution, as applicable) in accordance with CFTC investor protection and segregation requirements. The 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 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 is estimated to be 1.25% per annum, based upon the yield on 3-month U.S. Treasury bills as of April 17, 2008. This interest income is used by the Master Fund to pay its own expenses and the expenses of the Fund. See “Fees and Expenses” for more details.

 

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Fees and Expenses

 

Management Fee    The Master Fund pays the Managing Owner a Management Fee, monthly in arrears, in an amount equal to 0.75% per annum of the daily net asset value of the Master Fund. No separate management fee is paid by the Fund. The Management Fee is paid in consideration of the Managing Owner’s currency futures trading advisory services.
Organization and Offering Expenses    Expenses incurred in connection with organizing the Fund and the Master Fund and the initial offering of the Shares were paid by the Managing Owner. Expenses incurred in connection with the continuous offering of Shares after the commencement of the Master Fund’s trading operations also will be paid by the Managing Owner.
Brokerage Commissions and Fees    The 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 USD 10.00 per round-turn trade, although the Commodity Broker’s 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 0.06% of the net asset value of the 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 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.
Extraordinary Fees and Expenses    The Master Fund pays all the extraordinary fees and expenses, if any, of the Fund and the Master 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 the Fund and the Master Fund are paid first out of interest income from the Master Fund’s 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 the Fund and the Master Fund and it is expected to continue to do so. 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 Fund’s 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.

 

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Breakeven Amounts

 

The estimated amount of all fees and expenses which are anticipated to be incurred by a new investor in Shares of the Fund during the first twelve months of investment is 0.81% per annum of the net asset value of the Fund plus the amount of any commissions charged by the investor’s broker.

 

The Fund and the Master Fund 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 0.81% per annum. Because it is expected that interest income will exceed the fees and costs incurred by the Fund and Master Fund at the end of the first twelve months of an investment, the percentage of profit required for the Fund to breakeven at the end of the first twelve months of an investment, by definition, is expected to be 0.00%. The Master Fund (and, in turn, the Fund) is expected to earn interest income equal to 1.25% per annum, based upon the yield of 3-month U.S. Treasury bills as of April 17, 2008. Therefore, based upon the difference between the current yield of 3-month U.S. Treasury bills and the annual fees and expenses, the Fund is expected to have a net income equal to approximately 0.44% per annum, assuming that the Fund has not experienced gains or losses from its futures trading. Actual interest income could be higher or lower than the current yield of 3-month U.S. Treasury bills.

 

Distributions

 

The Fund will make distributions at the discretion of the Managing Owner. To the extent that the Master Fund’s 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 Fund and the Master Fund, the Managing Owner expects periodically to make distributions of the amount of such excess. The Fund currently does not expect to make distributions with respect to its capital gains. Depending on the Fund’s 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 the Fund’s net ordinary income or loss and capital gain or loss may exceed any distributions you receive with respect to such year.

 

Fiscal Year

 

The Fund’s fiscal year ends on December 31 of each year.

 

Financial Information

 

The Fund and the Master Fund have only recently been organized and have a limited financial history.

 

U.S. Federal Income Tax Considerations

 

Subject to the discussion below in “Material U.S. Federal Income Tax Considerations,” each of the Fund and the Master Fund will be classified as a partnership for U.S. federal income tax purposes. Accordingly, neither the Fund nor the Master Fund will incur U.S. federal income tax liability; rather, each beneficial owner of Shares will be required to take into account its allocable share of the Fund’s income, gain, loss, deduction and other items (which includes the Fund’s allocable share of the Master Fund’s income, gain, loss, deduction and other items) for the Fund’s taxable year ending with or within the owner’s taxable year.

 

Regulated investment companies (“RICs”) that invest in Shares will be treated as owning a proportionate share of the Master Fund’s Units and will take into account their allocable share of the Master Fund’s income, gain, loss and deduction when testing compliance with the asset, income and other statutory requirements specifically applicable to them. The Master Fund does not meet 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 specifically applicable to RICs. However, under current interpretation of the RIC qualification rules, a RIC’s allocable share of income from the Master Fund’s currency futures transactions and interest income from its investment in debt obligations is treated as qualifying income. Because the Master Fund is not a qualified PTP, a RIC’s investment in Shares would not be counted against the 25 percent limit on a RIC’s 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 RIC qualification requirements. The U.S. Treasury has

 

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specific statutory authority to promulgate tax regulations to exclude from the definition of qualifying income foreign currency gains which are unrelated to a RIC’s 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 the Master Fund’s foreign currency futures transactions as nonqualifying income for a RIC. The Fund and the Master Fund 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 Shares under the 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 U.S. federal income tax consequences of the purchase, ownership and disposition of Shares.

 

“Breakeven Table”

 

The “Breakeven Table” on the following page indicates the approximate percentage and dollar returns required for the value of an initial USD 25.00 investment in a Share to equal the amount originally invested twelve months after issuance.

 

The “Breakeven Table,” as presented, is an approximation only. The capitalization of the Fund does not directly affect the level of its charges as a percentage of its net asset value, other than brokerage commissions.

 

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“Breakeven Table”

 

      Dollar Amount and Percentage of Expenses
of the Fund1
Expense    USD    %

Management Fee2

   USD 0.19    0.75%

Organization and Offering Expense Reimbursement3

   USD  0.00    0.00%

Brokerage Commissions and Fees4

   USD 0.02    0.06%

Routine Operational, Administrative and Other Ordinary Expenses5,6

   USD 0.00    0.00%

Interest Income7

   USD (0.31)    1.25%

12-Month Breakeven8,9, 10

   USD (0.10)    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 USD 25.00 as the net asset value per Share. See “Charges” on page 68 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 Invesco Aim Distributors.
3. The Managing Owner is responsible for paying the organization and offering expenses of the Fund and the Master Fund.
4. The actual amount of brokerage commissions and trading fees to be incurred will vary based upon the trading frequency of the Master Fund and the specific futures contracts traded.
5. The Managing Owner is responsible for paying all routine operational, administrative and other ordinary expenses of the Fund and the Master Fund.
6. In connection with orders to create and redeem Baskets, Authorized Participants pay a transaction fee in the amount of USD 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 1.25%, based upon the yield on 3-month U.S. Treasury bills as of April 17, 2008. Actual interest income could be higher or lower than the current yield of 3-month U.S. Treasury bills.
8. Because it is expected that interest income will exceed the fees and costs incurred by the Fund and the Master Fund at the end of the first twelve months of an investment, the percentage of profit required for the 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 Fund and the Master Fund are collectively subject to (i) a Management Fee of 0.75% per annum and (ii) estimated brokerage commissions and fees of 0.06% per annum. The Fund and the Master Fund are subject to fees and expenses in the aggregate amount of approximately 0.81% per annum. The Fund and Master Fund 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 0.81% per annum. The Master Fund (and, in turn, the Fund) is expected to earn 1.25% per annum, based upon the yield of 3-month U.S. Treasury bills as of April 17, 2008. Actual interest income could be higher or lower than the current yield of 3-month U.S. Treasury bills. Therefore, based upon the difference between the yield of 3-month U.S. Treasury bills and the annual fees and expenses, the Fund would be expected to earn approximately 0.44% per annum, assuming that the Fund has 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.

 

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Reports to Shareholders

 

The Managing Owner will furnish you with an annual report of the Fund within 90 calendar days after the end of the Fund’s 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 Fund and the Master Fund. You also will be provided with appropriate information to permit you to file your U.S. 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 Owner’s website at www.dbfunds.db.com. Additional reports may be posted on the Managing Owner’s 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 Owner’s current expectations about the future results, performance, prospects and opportunities of the Fund and the Master Fund. 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 Fund and the Master Fund 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

 

Patent applications directed to the creation and operation of the Fund and the Index are pending at the United States Patent and Trademark Office.

 

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ORGANIZATION CHART

 

POWERSHARES DB G10 CURRENCY HARVEST FUND

 

LOGO

 

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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 Relates Directly to the Value of the Futures Contracts on the Index Currencies and Other Assets Held by the Master Fund and Fluctuations in the Price of These Assets Could Materially Adversely Affect an Investment in the Shares.

 

The Shares are designed to reflect as closely as possible the changes, positive or negative, in the closing levels of the Index over time through the Master Fund’s portfolio of exchange traded futures contracts on the Index Currencies. The value of the Shares relates directly to the value of the portfolio, less the liabilities (including estimated accrued but unpaid expenses) of the Fund and the Master Fund. The price of the Index Currencies may fluctuate widely. Several factors may affect the prices of the Index Currencies, 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 currency’s 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 will change as fluctuations occur in the market value of the Master Fund’s portfolio. Investors should be aware that the public trading price of a Basket of Shares 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 may be different from the net asset value per Share. Consequently, an Authorized Participant may be able to create or redeem a Basket of Shares at a discount or a premium to the public trading price per Share. 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 is 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 the 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 or can redeem a Redemption Basket at a premium over the public trading price of the Shares. The Managing Owner expects that the exploitation of such arbitrage opportunities by Authorized Participants and their clients and customers will tend to cause the public trading price to track net asset value per Share closely over time.

 

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The value of a Share may be influenced by non-concurrent trading hours between the Amex and the various futures exchanges on which the Index Currencies are traded. As a result, during periods when the Amex is open and the futures exchanges on which the Index Currencies are traded are closed, trading spreads and the resulting premium or discount on the Shares may widen, and, therefore, increase the difference between the price of the Shares and the net asset value of the Shares.

 

(3) The Fund’s Performance May Not Always Replicate Exactly the Changes in the Levels of its Index.

 

It is possible that the Fund’s performance may not fully replicate the changes in the closing levels of the Index due to disruptions in the markets for the Index Currencies or due to other extraordinary circumstances. In addition, the Fund is not able to replicate exactly the changes in the closing levels of the Index because the total return generated by the Master Fund is reduced by expenses and transaction costs, including those incurred in connection with the Master Fund’s trading activities, and increased by interest income from the Master Fund’s holdings of short-term high quality fixed income securities. Tracking the Index requires trading of the Master Fund’s 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 Fund Is Not Actively Managed and Tracks the Index During Periods in which the Index Is Flat or Declining as well as when the Index Is Rising.

 

The Master Fund is not actively managed by traditional methods. Therefore, if positions in any one or more of the Index Currencies are declining in value, the 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 seeks 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) The Dual Assumptions Underpinning the Index that High Yielding Interest Rates With Respect to Certain Eligible Index Currencies Suggest Taking Long Positions in Futures Contracts in Such Currencies and Low Yielding Interest Rates With Respect to Certain Eligible Index Currencies Suggest Taking Short Positions in Futures Contracts in Such Currencies May Be Detrimental to the Value of Your Shares Should Either or Both Assumptions Fail.

 

The Index is expected to rise as a result of any upward price movement on long positions in futures contracts on the Index Currencies when the prices of these long futures contracts increase relative to the USD. The Index also is expected to rise as a result of any downward price movement on short positions in futures contracts on the Index Currencies when the prices of these short futures contracts decrease relative to the USD. Because the price of your Shares is expected to track the Index, if the price of the Master Fund’s long futures contracts decreases relative to the USD or the price of the Master Fund’s short futures contracts increases relative to the USD on any or all of the Index Currencies, the value of your Shares may decrease. The decrease in the value of your Shares will be amplified if both assumptions fail simultaneously (i.e., both the price of the Master Fund’s long futures contracts decreases relative to the USD and the price of the Master Fund’s short futures contracts increases relative to the USD on any or all of the Index Currencies).

 

(6) Interest Rates Will Change Between Re-Weightings of the Index.

 

The Index is re-weighted quarterly based upon the three highest and three lowest yielding Eligible Index Currencies at the time of re-weighting. At any point in time between quarterly re-weightings, the Index Currencies may not be among the three highest or lowest yielding Eligible Index Currencies. Between quarterly re-weightings of the Index, a currency that was among the three highest yielding Eligible Index Currencies could be among the three lowest yielding Eligible Index Currencies, or vice versa. Under such circumstances, the Fund may not be able to exploit efficiently the trend that currencies associated with relatively high interest rates, on average, tend to rise in value relative to currencies associated with relatively low interest rates. If the interest rates associated with the Eligible Index Currencies change sufficiently during any quarter, the Fund may find itself positioned such that the

 

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effects of this trend will cause the Fund to lose money. Even if the interest rates associated with the Eligible Index Currencies vary substantially between re-weightings, the Fund will not adjust its portfolio of currency futures until the next quarterly re-weighting.

 

(7) Amex May Halt Trading in the Shares Which Would Adversely Impact Your Ability to Sell Shares.

 

The Shares are listed for trading on the Amex under the market symbol DBV. Trading in Shares 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 inadvisable. In addition, trading is subject to trading halts caused by 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 will continue to be met or will remain unchanged. The Fund and the Master Fund will be terminated if the Shares are delisted.

 

(8) The Lack of An Active Trading Market for the Shares May Result in Losses on Your Investment at the Time of Disposition of Your Shares.

 

Although the Shares are listed and traded on the Amex, there can be no guarantee that an active trading market for the Shares 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.

 

(9) The Shares 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 this securities product. Consequently, there may be unanticipated problems or issues with respect to the mechanics of the operations of the Fund and the Master Fund and the trading of the Shares that could have a material adverse effect on an investment in the Shares. In addition, although the Master Fund is not actively “managed” by traditional methods, to the extent that unanticipated operational or trading problems or issues arise, the Managing Owner’s past experience and qualifications may not be suitable for solving these problems or issues.

 

(10) As the Managing Owner and its Principals have Only a Limited History of Operating Investment Vehicles like the Fund or the Master Fund, their Experience may be Inadequate or Unsuitable to Manage the Fund or the Master Fund.

 

The Managing Owner was formed to be the managing owner of investment vehicles such as the Fund and the Master Fund and has only a limited history of past performance. The past performances of the Managing Owner’s management of other commodity pools are no indication of its ability to manage an investment vehicle such as the Fund or the Master Fund. If the experience of the Managing Owner and its principals is not adequate or suitable to manage an investment vehicle such as the Fund and the Master Fund, the operations of the Fund and the Master Fund may be adversely affected.

 

(11) You May Not Rely on Past Performance or Index Results in Deciding Whether to Buy Shares.

 

The Fund and the Master Fund have a limited performance history upon which to evaluate your investment in the Fund and the Master Fund. Although past performance is not necessarily indicative of future results, if the Fund and the 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 the Fund and the Master Fund. Likewise, the Index has a limited history which may not be indicative of future Index results, or of the future performance of the Fund or the Master Fund. Therefore, you will have to make your decision to invest in the Fund on the basis of limited information.

 

(12) Fewer Representative Index Currencies May Result In Greater Index Volatility.

 

The ten Eligible Index Currencies are United States Dollars, Euro, Japanese Yen, Canadian Dollars, Swiss Francs, British Pounds, Australian

 

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Dollars, New Zealand Dollars, Norwegian Krone and Swedish Krona. The Index is comprised of only six of the ten Eligible Index Currencies from time-to-time. Accordingly, the Index is concentrated in terms of the number of currencies represented. You should be aware that other currency indices 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 Index and the net asset value of the Fund and the Master Fund, which track the Index under specific market conditions and over time.

 

(13) Leverage Will Fluctuate Between Index Re-Weighting Periods and May be Greater or Less than the Leverage on Each Index Re-Weighting Period.

 

Although the Master Fund does not establish positions that exceed a leverage ratio of 2:1 at the time of establishment, movements in the market price of the Master Fund’s futures positions between the Index Re-Weighting Periods may increase or decrease the Master Fund’s leverage ratio. Any such increase or decrease, respectively, in the Master Fund’s leverage ratio will magnify or decrease, respectively, the potential for loss or gain of the Master Fund’s futures positions and, in turn, the value of your Shares.

 

(14) Because the Fund’s Trading will be Leveraged, a Relatively Small Movement in the Price of a Contract May Cause Greater Losses.

 

The Master Fund will take long futures positions in the high-yielding Eligible Index Currencies and will take short futures positions in the low-yielding Eligible Index Currencies with a view to tracking the changes in the Index over time. Assuming that the USD is not one of the three highest or lowest yielding currencies during any Index Re-Weighting Period, the long futures positions and short futures positions in the Index Currencies will each have a notional value approximately equal to the Master Fund’s net asset value. Accordingly, if the USD is not one of the three highest or lowest yielding currencies during any the Index Re-Weighting Period, the aggregate notional amount of the futures positions held by the Master Fund is expected to be approximately, but not in excess of, 200% of the Master Fund’s net asset value. If the USD is one of the three highest or lowest yielding currencies, the Master Fund will not establish a long or short futures position (as the case may be) in USD, as the Master Fund never can enjoy profit or suffer loss from long or short futures positions in USD because USD is the Fund’s home currency. Consequently, if USD is one of the three highest or lowest yielding currencies, the aggregate notional amount of the futures positions held by the Master Fund is expected to be approximately, but not in excess of, 166 2/3% of the Master Fund’s net asset value. Holding futures positions with a notional amount in excess of the Master Fund’s net asset value constitutes a form of leverage. The use of leverage increases the potential for both trading profits and losses, depending on the changes in market value of the Index Currencies in which the Master Fund has long futures positions relative to the Index Currencies in which the Master Fund has short futures positions.

 

The use of long and short positions in the construction of the Index causes the Index to rise as a result of any upward price movement of Index Currencies expected to gain relative to the USD and to rise as a result of any downward price movement of Index Currencies expected to lose relative to the USD. The inclusion of both long and short positions is also expected to reduce the country specific foreign exchange risk of the Index (and, therefore, risk in connection with an investment in the Fund) relative to a directional (outright long or short) exposure to any or all of the Index Currencies.

 

There can be no assurance that the use of both long and short positions will reduce the volatility of the Index during any or all market cycles or periods, or that the Master Fund will achieve its objectives. It is possible that, prior to an Index rebalancing, that Index Currencies expected to lose relative to the USD may rise and/or Index Currencies expected to gain relative to the USD may fall. In such cases, the Master Fund may experience losses in both its long and short positions at the same time. Such losses will be greater as a result of the Master Fund’s use of leverage, reflected in its long futures exposure to Index Currencies with a notional value of up to 100% of the Master Fund’s net asset value and its short futures exposure to Index Currencies with a notional value of up to 100% of the Master Fund’s net asset value. Under such circumstances, the Master Fund’s losses would be greater as a result of its leverage than would be the case were it to limit its overall exposure to Index Currencies with a notional value of 100% of the Master Fund’s net assets.

 

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As a result of its use of leverage, the Master Fund is required to deposit a greater proportion of its net assets as margin, not expected to exceed 5% of net assets. This represents margin deposit requirements approximately twice as great as would be required if the Master Fund did not use leverage. Similarly, as a result of its use of leverage, the Master Fund will trade more futures contracts and incur more brokerage commission expense than it would if it did not use leverage. The additional amount of brokerage commission expense generally is proportional to the Master Fund’s leverage ratio.

 

(15) Short Selling Theoretically Exposes the Master Fund to Unlimited Losses.

 

The Master Fund holds short futures positions in the three lowest-yielding Eligible Index Currencies (other than the USD).

 

A long futures position in a foreign currency requires the Master Fund to purchase at a future date the equivalent in USD of a fixed amount of a foreign currency at a fixed price in USD. The Master Fund profits if the price of the foreign currency rises relative to the USD while the contract is open and the Master Fund suffers losses if the price of the foreign currency falls relative to the USD while the contract is open. Because the price in USD of the foreign currency cannot fall below zero, the Master Fund’s exposure to loss is limited to the value in USD of the fixed amount of the foreign currency at the time of the establishment of the long futures contract.

 

By contrast, a short futures position in a foreign currency requires the Master Fund to deliver at a future date an amount in USD equal to the price in USD of a fixed amount of the foreign currency at that future date. The Master Fund will profit if the price of the foreign currency falls relative to the USD while the contract is open and the Master Fund will suffer loss if the price of the foreign currency rises relative to the USD while the contract is open. Because the price in USD of a fixed amount of the foreign currency could, in theory, rise to infinity, a short futures position exposes the Master Fund to theoretically unlimited liability.

 

The Master Fund’s losses could result in the total loss of your investment.

 

(16) 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 the Fund.

 

The following table* reflects various measures of volatility** of the history of the Index as calculated on an excess return basis:

 

Volatility Type    Volatility

Daily volatility over full history

   7.92%

Average rolling 3 month daily volatility

   7.34%

Monthly return volatility

   7.54%

Average annual volatility

   7.79%

 

The following table reflects the daily volatility on an annual basis of the Index:

 

Year  

Daily

Volatility

      1993***     8.67%
1994     4.97%
1995   13.93%
1996     7.01%
1997     7.73%
1998     8.90%
1999     5.70%
2000     6.17%
2001     5.37%
2002     7.45%
2003     6.69%
2004     7.90%
2005     5.41%
2006     7.10%
2007   10.95%
  2008*   10.69%

 

  * As of February 29, 2008. Past Index results are not necessarily indicative of future changes, positive and negative, in the 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.

 

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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 March 12, 1993. Past Index results are not necessarily indicative of future changes, positive and negative, in the Index levels.

 

(17) Fees and Commissions are Charged Regardless of Profitability and May Result in Depletion of Assets.

 

The Fund is indirectly subject to the fees and expenses described herein which are payable irrespective of profitability. Such fees and expenses include asset-based fees of 0.75% per annum. Additional charges include brokerage fees of approximately 0.06% per annum in the aggregate and selling commissions. The Fund is expected to earn interest income at an annual rate of 1.25% per annum, based upon the current yield on 3-month U.S. Treasury bills as of April 17, 2008. Consequently, it is expected that interest income will exceed fees (other than selling commissions); however, if interest rates fall below 0.81%, the Fund will need to have positive performance in order to break even net of fees and expenses. Consequently, depending upon the interest rate environment, the expenses of the Master Fund could, over time, result in losses to your investment therein. You may never achieve profits, significant or otherwise.

 

(18) You Cannot Be Assured of the Managing Owner’s Continued Services, Which Discontinuance May Be Detrimental to the Fund.

 

You cannot be assured that the Managing Owner will be willing or able to continue to service the Fund and the Master Fund for any length of time. If the Managing Owner discontinues its activities on behalf of the Fund and the Master Fund, the Fund and the Master Fund may be adversely affected.

 

(19) 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 Fund. The large size of the positions which the Master Fund may acquire on behalf of the Fund increases the risk of illiquidity by both making its positions more difficult to liquidate and increasing the losses incurred while trying to do so.

 

(20) You May Be Adversely Affected by Redemption Orders that Are Subject To Postponement, Suspension or Rejection Under Certain Circumstances.

 

The Fund 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. In addition, the Fund will reject a redemption order if the order is not in proper form as described in the participant agreement among the Authorized Participant, the Managing Owner and the Managing Owner in its capacity as managing owner of the Fund 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 Participant’s redemption proceeds if the net asset value of the Fund declines during the period of delay. The Fund disclaims any liability for any loss or damage that may result from any such suspension or postponement.

 

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(21) 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 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 trade unprofitably.

 

(22) 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 the Index is not 100% negatively correlated with financial assets such as stocks and bonds means the Fund cannot be expected to be automatically profitable during unfavorable periods for the stock or bond market, or vice versa. If the Shares 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 and the Shares may produce no gains to offset your losses from other investments.

 

(23) Shareholders Do Not Have the Protections Associated With Ownership of Shares in an Investment Company Registered Under the Investment Company Act of 1940.

 

Neither the Fund nor the Master Fund is registered as an investment company under the Investment Company Act of 1940 and is not required to register under such Act. Consequently, Shareholders do not have the regulatory protections provided to investors in registered and regulated investment companies.

 

(24) Various Actual and Potential Conflicts of Interest May Be Detrimental to Shareholders.

 

The Fund and the Master Fund 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 Fund and the Master Fund, which also presents the potential for numerous conflicts of interest with the Fund and the Master Fund. As a result of these and other relationships, parties involved with the Fund and the Master Fund have a financial incentive to act in a manner other than in the best interests of the Fund and the Master Fund 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 Fund and the Master Fund 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, purchasing opposite or competing positions on behalf of third party accounts traded through the Commodity Broker.

 

(25) Shareholders of the Fund Will Be Subject to Taxation on Their Share of the Fund’s Taxable Income (Including the Fund’s Share of the Master Fund’s Taxable Income), Whether or Not They Receive Cash Distributions.

 

Shareholders of the Fund will be subject to U.S. federal income taxation and, in some cases, state, local, or foreign income taxation on their share of the Fund’s taxable income (including the Master Fund’s taxable income allocable to the Fund), whether or not they receive cash distributions from the Fund. Shareholders of the Fund may not receive cash distributions equal to their share of the Fund’s taxable income (including the Master Fund’s taxable

 

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income) or even the tax liability that results from such income.

 

(26) Items of Income, Gain, Deduction, Loss and Credit with respect to Shares could be Reallocated if the IRS does not Accept the Assumptions or Conventions Used by the Fund or the Master Fund in Allocating Such Tax Items.

 

U.S. federal income tax rules applicable to partnerships are complex and often difficult to apply to publicly traded partnerships. The Fund and the Master Fund will apply certain assumptions and conventions in an attempt to comply with the applicable rules and to report items of income, gain, deduction, loss and credit to Shareholders of the Fund in a manner that reflects the Shareholders’ beneficial interest in such tax items, but these assumptions and conventions may not be considered to be in compliance with all aspects of the applicable tax requirements. It is possible that the IRS will successfully assert that the conventions and assumptions used by the Fund or the Master Fund do not satisfy the technical requirements of the Code and/or Treasury Regulations and could require that items of income, gain, loss and deduction be adjusted or reallocated in a manner that adversely affects one or more Shareholders.

 

(27) 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 U.S. 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; SUCH TAX CONSEQUENCES MAY DIFFER IN RESPECT OF DIFFERENT INVESTORS.

 

(28) Failure of Futures Commission Merchants or Commodity Brokers to Segregate Assets May Increase Losses; Despite Segregation of Assets, the Master Fund Remains at Risk of Significant Losses Because the Master Fund May Only Receive a Pro-Rata Share of the Assets or No assets at All.

 

The Commodity Exchange Act requires a clearing broker to segregate all funds received from customers from such broker’s proprietary assets. If the Commodity Broker fails to do so, the assets of the Master Fund might not be fully protected in the event of the Commodity Broker’s bankruptcy. Furthermore, in the event of the Commodity Broker’s 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 Broker’s combined customer accounts or the Master Fund Units may not recover any assets at all, even though certain property specifically traceable to the 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, the 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.

 

(29) Regulatory Changes or Actions May Alter the Nature of an Investment in the Fund.

 

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 Fund or the ability of the Fund to continue to implement its investment strategy.

 

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,

 

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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 Fund is impossible to predict, but could be substantial and adverse.

 

(30) Lack of Independent Advisers Representing Investors.

 

The Managing Owner has consulted with counsel, accountants and other advisers regarding the formation and operation of the Fund and the Master Fund. 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.

 

(31) Possibility of Termination of the Fund or Master Fund May Adversely Affect Your Portfolio.

 

The Managing Owner may withdraw from the Fund upon 120 days’ notice, which would cause the Fund and the Master Fund to terminate unless a substitute managing owner were obtained. Owners of 50% of the Shares have the power to terminate the Fund. If it is so exercised, investors who may wish to continue to invest in the Index through the vehicle of the Fund will have to find another vehicle, and may not be able to find another vehicle that offers the same features as the Fund. See “Description of the Shares and the Master Fund Units; 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 Fund and the Master Fund.

 

(32) Shareholders Do Not Have the Rights Enjoyed by Investors in Certain Other Vehicles.

 

As interests in an investment 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 Fund is not required to pay regular distributions, although the Fund may pay distributions in the discretion of the Managing Owner).

 

(33) An Investment in the Shares May Be Adversely Affected by Competition From Other Methods of Investing in Currencies.

 

The Fund and the Master Fund 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 Owner’s 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 and reduce the liquidity of the Shares.

 

(34) Competing Claims Over Ownership of Intellectual Property Rights Related to the Fund Could Adversely Affect the Fund and an Investment in the Shares.

 

While the Managing Owner believes that all intellectual property rights needed to operate the Fund and the Master Fund 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 Fund and the Master Fund. 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 Fund and the Master Fund and an investment in the Shares, for example, resulting in expenses or damages or the termination of the Fund and the Master Fund.

 

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(35) The Value of the Shares Will be Adversely Affected if the Fund or the Master Fund is 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 the 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 the Master Fund and the value of the Shares.

 

(36) The Net Asset Value Calculation of the Master Fund 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 the Master Fund (and, in turn, the Fund) includes, in part, any unrealized profits or losses on open foreign exchange futures contracts. Under normal circumstances, the net asset value of the 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 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. In such a situation, there is a risk that the calculation of the net asset value of the 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 Master Fund (and, in turn, the Fund) could be under or overstated, perhaps to a significant degree. Although the Eligible Index Currencies 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, and thus, may subject the Fund to the above-described risks.

 

(37) Exchange Rates on the Index Currencies Could be Volatile and Could Materially and Adversely Affect the Performance of the Shares.

 

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 currency’s value soon will change may also affect exchange rates on the Index Currencies. 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 futures contracts on the Index Currencies, which would then negatively impact the value of your Shares.

 

(38) Substantial Sales of Index Currencies by the Official Sector Could Adversely Affect an Investment in the Shares.

 

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

 

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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 then negatively impact the Shares.

 

(39) Although the Shares are Limited Liability Investments, Certain Circumstances such as Bankruptcy of the Fund or Indemnification of the Fund by the Shareholders will Increase a Shareholder’s Liability.

 

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 could be required, as a matter of bankruptcy law, to return to the estate of the Fund any distribution they received at a time when the 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 the Fund for any harm suffered by it as a result of

 

   

Shareholders’ actions unrelated to the business of the Fund, or

 

   

taxes separately imposed on the Fund by any state, local or foreign taxing authority.

 

THE MASTER-FEEDER STRUCTURE

 

The Fund will invest substantially all of its assets in the Master Fund in a master-feeder structure. The Fund will hold no investment assets other than Master Fund Units. The Master Fund will be wholly-owned by the Fund and the Managing Owner. Each Share issued by the Fund will correlate with a Master Fund Unit issued by the Master Fund and held by the Fund.

 

INVESTMENT OBJECTIVE

 

Investment Objective

 

The Fund and the Master Fund seek to track changes, whether positive and negative, in the level of the Deutsche Bank G10 Currency Future Harvest Index – Excess Return™, or the Index, over time, plus the excess, if any, of the Master Fund’s 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. The Index is designed to reflect the return from investing on a 2:1 leveraged basis in long currency futures positions for certain currencies associated with relatively high yielding interest rates and in short currency futures positions for certain currencies associated with relatively low yielding interest rates. The Shares are designed for investors who want a cost-effective and convenient way to invest in a diversified index of currency futures.

 

The Index is designed to exploit the trend that currencies associated with relatively high interest rates, on average, tend to rise in value relative to currencies associated with relatively low interest rates. This trend is consistent with economic theory regarding the correct price of a currency future, known as the Interest Rate Parity formula or the Covered Interest Arbitrage formula, and can be seen in the historical trading patterns of currency futures.

 

The theoretical or “fair market” price of a currency future contract is derived from the spot FX rate, interest rates of the two currencies and time to expiry of the currency future contract and represents an equilibrium relationship among the interest rates, spot markets and futures markets associated with the currencies in question. If an equilibrium relationship does not exist between two currencies, arbitrage opportunities arise and the exploitation of these opportunities by arbitrageurs will tend to drive currency futures prices toward equilibrium. Application of the Interest Rate Parity formula under circumstances in which currencies are not in an equilibrium relationship predicts that if the currency future is based on a rate ranging from a high yielding currency to a low yielding currency, the fair market price of the currency future will be below the spot rate. The longer the time to the expiry of the currency future the greater the amount the fair market price of the currency future will be below the spot rate. If the

 

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spot rate stays approximately the same then, as you move closer to the expiry of the currency future, the fair market price will increase. In other words, the currency future rate between a relatively high interest rate currency and low interest rate currency tends to increase over time (assuming spot is relatively stable).

 

The Index exploits this trend using both long and short futures positions, which is expected to provide more consistent and less volatile returns than could be obtained by taking long positions only or short positions only.

 

Advantages of investing in the Shares include:

 

   

Ease and Flexibility of Investment. The Shares 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.

 

   

Shares May Provide A More Cost Effective Alternative. Investing in the Shares can be easier and less expensive for an investor than constructing and trading a comparable foreign currency futures portfolio.

 

   

The Fund May Provide Gains on Both the Upside and Downside Price Movements of the Index Currencies. The Index will rise as a result of any upward price movement of the Index Currencies that are expected to gain relative to the USD by investing in long futures positions on such Index Currencies. The Index also will rise as a result of any downward price movement of the Index Currencies that are expected to lose relative to the USD by investing in short futures positions on such Index Currencies.

 

   

Margin. Shares are eligible for margin accounts.

 

   

Diversification. The Shares may help to diversify a portfolio because historically the Index has tended to exhibit low to negative correlation with both equities and conventional bonds.

 

   

Transparency. The Shares provide a more direct investment in currencies than mutual funds that invest in currency-linked products, which may have implicit imbedded costs, credit risk and other potentially opaque features.

 

To the extent that the Master Fund’s 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 Fund and the Master Fund, the Managing Owner expects periodically to make distributions of the amount of such excess.

 

Investing in the Shares does not insulate Shareholders from certain risks, including price volatility.

 

Role of Managing Owner

 

The Managing Owner serves as the commodity pool operator and commodity trading advisor of the Fund and the Master Fund.

 

Specifically, with respect to the Fund and the Master Fund, 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 Fund and the Master Fund may from time-to-time require.

 

Specifically, with respect to the Master Fund, the Managing Owner:

 

   

selects the Commodity Broker; and

 

   

monitors the performance results of the Master Fund’s portfolio and reallocates assets within the portfolio with a view to causing the performance of the Master Fund’s portfolio to track that of the Index 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.

 

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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.

 

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 world’s 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 world’s markets, creating risk but also providing the potential for profitable trading opportunities. By allocating a portion of the risk segment of their portfolios to the Fund, which invests through the Master Fund in futures related to the Index Currencies, 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 nation’s economy.

 

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PERFORMANCE OF POWERSHARES DB G10 CURRENCY HARVEST FUND

 

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 February 29, 2008: $664,653,418

Net Asset Value as of February 29, 2008: $524,400,424

Net Asset Value per Share as of February 29, 2008: $26.76

Worst Monthly Drawdown: (3.94)% August 2007

Worst Peak-to-Valley Drawdown: (8.45)% October 2007 – February 20086

 

Monthly Rate of Return    2008(%)    2007(%)    2006(%)

January

   (2.26)    1.01   

February

   0.00    0.65   

March

        2.47   

April

        2.27   

May

        2.14   

June

        3.09   

July

        (0.97)   

August

        (3.94)   

September

        2.79    (0.24)

October

        3.10    1.92

November

        (3.76)    (1.30)

December

        (2.67)7    2.998

Compound Rate of Return

  

(2.26)%

(2 months)

  

5.96%

   3.36% (3 1/2 months)

 

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.

 

Footnotes to Performance Information

 

1. “Aggregate Gross Capital Subscriptions” is the aggregate of all amounts ever contributed to the pool, including redeemed investments.

 

2. “Net Asset Value” is the net asset value of the pool as of February 29, 2008.

 

3. “Net Asset Value per Share” is the Net Asset Value of the pool divided by the total number of Shares outstanding as of February 29, 2008.

 

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 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. The Worst Peak-to-Valley Drawdown from October 2007 – February 2008 includes the effect of the distribution made to Shareholders of record as of December 19, 2007. Please see Footnote 7.

 

7. The December 2007 return of (2.67)% includes the $0.80 per Share distribution made to Shareholders of record as of December 19, 2007. Prior to the December 28, 2007 distribution, the pool’s return for December 2007 was 0.14%.

 

8. The December 2006 return of 2.99% includes the $0.06 per Share distribution made to Shareholders of record as of December 20, 2006. Prior to the December 29, 2006 distribution, the pool’s return for December 2006 was 3.23%.

 

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DESCRIPTION OF THE DEUTSCHE BANK G10 CURRENCY FUTURE HARVEST INDEX –

EXCESS RETURN™

 

A Trade Mark application for Deutsche Bank G10 Currency Future Harvest Index™ is pending. Any use of this mark must be with the consent of or under license from the Index Sponsor. The Fund, Master Fund and the Managing Owner have been licensed to use Deutsche Bank G10 Currency Future Harvest Index™. The Index Sponsor does not approve, endorse or recommend the Fund, the Master Fund or the Managing Owner.

 

General

 

The sponsor of the Index, or the Index Sponsor, is Deutsche Bank AG London. The composition of the Index may be adjusted in the Index Sponsor’s discretion.

 

Index Calculation and Rules

 

The currencies that are eligible for inclusion in the Index, or Eligible Index Currencies, are the currencies of The Group of Ten, or G10, countries, which include the following currencies:

 

Eligible Index Currency    Symbol

United States Dollar

  

USD

Euro

  

EUR

Japanese Yen

  

JPY

Canadian Dollar

  

CAD

Swiss Franc

  

CHF

British Pound

  

GBP

Australian Dollar

  

AUD

New Zealand Dollar

  

NZD

Norwegian Krone

  

NOK

Swedish Krona

  

SEK

 

Futures contracts referencing each of the Eligible Index Currencies (except USD) currently are traded on the Chicago Mercantile Exchange, or CME, although currency futures contracts on the Eligible Index Currencies also trade on other exchanges in the United States and the Master Fund may invest in such contracts.

 

At any time, the Index is comprised of long futures positions in the three Eligible Index Currencies associated with the highest interest rates and short futures positions in the three Eligible Index Currencies associated with the lowest interest rates. The Index’s six component currencies from time-to-time, comprised of the three long and three short futures positions, are referred to as the Index Currencies and are used to calculate the value of the Index. The composition of the Index may be adjusted in the event that the Index Sponsor is not able to calculate the closing prices of the Index Currencies.

 

The Index Sponsor calculates the Index on both an excess return basis and a total return basis. The excess return basis calculation reflects the change in market value of the applicable underlying currency futures only. The total return basis calculation reflects the sum of the change in market value of the applicable underlying currency futures plus the return on 3-month U.S. Treasury bills. The Fund and the Master Fund seek to track changes, whether positive and negative, in the level of the Index calculated on an excess return basis, over time, plus the excess, if any, of the Master Fund’s 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.

 

The Fund will make distributions at the discretion of the Managing Owner. To the extent that the Master Fund’s 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 Fund and the Master Fund, the Managing Owner expects periodically to make distributions of the amount of such excess. The Fund currently does not expect to make distributions with respect to its capital gains. Depending on the Fund’s 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 the Fund’s net ordinary income or loss and capital gain or loss may exceed any distributions you receive with respect to such year.

 

In order to determine which Eligible Index Currencies to include in the Index from time-to-time, the Index Sponsor will review the composition of the Index on a quarterly basis 5 business days prior to the IMM Date. “IMM Date” means the third Wednesday of March, June, September and December, a traditional settlement date in the International Money Market.

 

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The Index Sponsor will review the three month Libor rate for each Eligible Index Currency other than the SEK and NOK and will review the three month Stibor rate and the three month Nibor rate for the SEK and NOK, respectively. The Libor, Stibor and Nibor rates for the Eligible Index Currencies, as applicable, mean the London, Stockholm and Norway interbank offered rates for overnight deposits, respectively, each of which is published by Reuters. The Eligible Index Currencies are then ranked according to yield. The three highest yielding and three lowest yielding are selected as Index Currencies for inclusion in calculating the Index. If two Index Currencies have the same yield, then the previous quarter’s ranking will be used.

 

The Index is re-weighted quarterly. Upon re-weighting, the high yielding Index Currencies are allocated a base weight of 33 1/3% and the low yielding Index Currencies are allocated a base weight of -33 1/3%. These new weights are applied during the Index re-weighting period, which takes place between the fourth and third Index Business Days prior to the applicable IMM Date, or Index Re-Weighting Period.

 

The CME traded futures contract of each applicable Index Currency that is closest to expiration is used in the Index calculation. The futures contracts on the Index Currencies are rolled during the Index Re-Weighting Period. The new futures contract on an Index Currency that has the next closest expiration date is selected. The calculation of the Index on an excess return basis is the weighted return on the change in price of the futures contracts on the Index Currencies.

 

A 3-month U.S. Treasury bill return is then calculated and included to calculate the total return index. Please refer to Exhibit B of the Amended and Restated Declaration of Trust of the Master Fund for the mathematical formulae of the Index.

 

The Index has been calculated using historical data since March 12, 1993. The Index is composed of notional amounts of each Index Currency. The notional amounts of the Index Currencies included in the Index are based on the Index Closing Level as of the Index Re-Weighting Period. The Index Closing Level reflects an arithmetic weighted return of the change in the Index Currencies exchange rates against the USD since March 12, 1993. March 1993 was chosen as a starting period because it represents the earliest date on which reliable data for all the Eligible Index Currencies exists. On March 12, 1993, the closing Index level was USD 100. Between March 12, 1993 to February 29, 2008, the Index level as calculated on an excess return basis has ranged from as high as USD 315.27 (July 25, 2007) to as low as USD 94.03 (July 30, 1993). Past Index results are not necessarily indicative of future changes, positive and negative, in the Index.

 

The Fund will pursue its investment objective by investing substantially all of its assets in the Master Fund. To track the Index, the Master Fund generally will establish long futures positions in the three Eligible Index Currencies associated with the highest interest rates and short futures positions in the three Eligible Index Currencies associated with the lowest interest rates and will adjust its holdings quarterly as the Index is adjusted. However, if the United States Dollar, or USD, is among the Index Currencies from time-to-time, the Master Fund will not establish a long or short futures position (as the case may be) in USD, because USD is the Fund’s home currency and, as a consequence, the Master Fund never can enjoy profit or suffer loss from long or short futures positions in USD. When the USD is not associated with the highest or lowest interest rates among the Eligible Index Currencies, the aggregate notional value of the Master Fund’s futures contracts at the time they are established will be double the value of the Master Fund’s holdings of United States Treasury and other high credit quality short term fixed income securities, which means the Fund will have a leverage ratio at such time of 2:1. If the USD is associated with the highest or lowest interest rates among the Eligible Index Currencies, the aggregate notional value of the Master Fund’s futures contracts at the time they are established will be approximately 1.66 times the value of the Master Fund’s holdings of United States Treasury and other high credit quality short term fixed income securities, which means the Fund will have a leverage ratio at such time of approximately 1.66:1. Holding futures positions with a notional amount in excess of the Master Fund’s net asset value constitutes a form of leverage. The use of leverage will increase the potential for both trading profits and losses, depending on the changes, positive and negative, in the Index. The Master Fund’s ability to track the Index will not be affected by the presence or absence of the USD among the Index Currencies. Because the notional value of the Master Fund’s

 

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futures positions can rise or fall over time, the leverage ratio could be higher or lower between quarterly adjustments of the Index Currencies.

 

The use of long and short positions in the construction of the Index causes the Index to rise as a result of any upward price movement of Index Currencies expected to gain relative to the USD and to rise as a result of any downward price movement of Index Currencies expected to lose relative to the USD. The inclusion of both long and short positions is also expected to reduce the country specific foreign exchange risk of the Index (and, therefore, risk in connection with an investment in the Fund) relative to a directional (outright long or short) exposure to any or all of the Index Currencies.

 

There can be no assurance that the use of both long and short positions will reduce the volatility of the Index during any or all market cycles or performance periods, or that the Master Fund will achieve its objectives. It is possible that, prior to an Index rebalancing, that Index Currencies expected to lose relative to the USD may rise and/or Index Currencies expected to gain relative to the USD may fall. In such cases, the Master Fund may experience losses in both its long and short positions at the same time. Such losses will be greater as a result of the Master Fund’s use of leverage, reflected in its long futures exposure to Index Currencies with a notional value of up to 100% of the Master Fund’s net asset value and its short futures exposure to Index Currencies with a notional value of up to 100% of the Master Fund’s net asset value. Under such circumstances, the Master Fund’s losses would be greater as a result of its leverage than would be the case were it to limit its overall exposure to Index Currencies with a notional value of 100% of the Master Fund’s net asset value.

 

As a result of its use of leverage, the Master Fund will be required to deposit a greater proportion of its net assets as margin, not expected to exceed 5% of net assets. This represents margin deposit requirements approximately twice as great as would be required if the Master Fund did not use leverage. Similarly, as a result of its use of leverage, the Master Fund will trade more futures contracts and incur more brokerage commission expense than it would if it did not use leverage. The additional amount of brokerage commission expense generally will be proportional to the Master Fund’s leverage ratio.

 

The Master Fund’s portfolio also will include United States Treasury securities and other high credit quality short-term fixed income securities for deposit with the Master Fund’s Commodity Broker as margin.

 

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

 

There can be no assurance that the Fund or the Master Fund will achieve its investment objective or avoid substantial losses. The Master Fund has only a limited performance history. The value of the Shares is expected to fluctuate generally in relation to changes in the value of the Master Fund Units.

 

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 underlying futures contract with respect to each Index Currency of the Index. 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 Fund every 15 seconds throughout the trading day.

 

The intra-day indicative value per Share of the Fund is calculated by adding the intra-day U.S. Treasury bills level plus the intra-day Index level which will then be 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 the Fund and the net asset value per Share daily. Additionally, the Index Sponsor publishes the intra-day Index level, and the Managing

 

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Owner publishes the indicative value per Share of the Fund (quoted in USD) once every fifteen seconds throughout each trading day. All of the foregoing information is published as follows:

 

The intra-day level of the Index (symbol: DBCFHX) and the intra-day indicative value per Share of the Fund (symbol: FBV) (each quoted in USD) are published once every fifteen seconds throughout each trading day on the consolidated tape, Reuters and/or Bloomberg and on the Managing Owner’s website at http://www.dbfunds.db.com, or any successor thereto.

 

The current trading price per Share (symbol: DBV) (quoted in USD) is published continuously as trades occur throughout each trading day on the consolidated tape, Reuters and/or Bloomberg and on the Managing Owner’s website at http://www.dbfunds.db.com, or any successor thereto.

 

The most recent end-of-day Index closing level (symbol: DBCFHX) is published as of the close of the Amex each trading day on the consolidated tape, Reuters and/or Bloomberg and on the Managing Owner’s website at http://www.dbfunds.db.com, or any successor thereto.

 

The most recent end-of-day net asset value of the Fund (symbol: FBV.NV) is published as of the close of business on Reuters and/or Bloomberg and on the Managing Owner’s 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 (symbol: FBV.NV) 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 will publish any adjustments made to the Index on the Managing Owner’s website at http://www.dbfunds.db.com and https://index.db.com, or any successor thereto.

 

The final net asset value of the Fund and the final net asset value per Share will be calculated as of the closing time of the Amex or the last to close of the exchanges on which its Master Fund’s 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 CME, there is no effect on the net asset value calculations as a result.

 

The Shares are intended to provide investment results that generally correspond to the changes, positive and negative, in the levels of the Index over time. The value of the Shares is expected to fluctuate in relation to changes in the value of the Master Fund’s portfolio. The market price of the Shares 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 the Fund or the Master Fund will achieve its investment objective or avoid substantial losses. The Master Fund has only a limited performance history. The value of the Shares is expected to fluctuate generally in relation to changes in the value of the Master Fund Units.

 

Change in the Methodology of the Index

 

The Index Sponsor will employ the methodology described above and its application of such methodology shall be conclusive and binding. While the Index Sponsor currently intends to employ 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 any Index Currency or a futures contract) 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.

 

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Interruption of Index Calculation

 

Calculation of the Index 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 Index 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 Index 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 Index 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 Index.

 

Additionally, calculation of the Index may also be disrupted by an event that would require the Index Sponsor to calculate the closing price in respect of the relevant 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 Index as it deems appropriate.

 

Historical Closing Levels

 

Set out below are the closing levels based on historical data from March 12, 1993 to February 29, 2008.

 

The following Closing Levels table starts from March 12, 1993 and reflects both the high and low closing values, the annual Index changes and Index changes since inception of the Index. Since March 13, 2003, CME currency futures close prices were used in the Index calculation. The Index Sponsor has not independently verified the CME currency futures close prices obtained from Bloomberg. Since February 1, 2006, the Index Sponsor has obtained the CME currency futures close prices from Reuters. Prior to March 13, 2003, implied futures prices were calculated using the relevant currencies spot rates, money market rates and USD money market rates obtained from Reuters, Bloomberg and WM Company. Implied futures prices are an accurate proxy for the futures close prices due to the high liquidity in foreign exchange forward markets.

 

It is not necessary to have a USD futures contract because the forward rate of the USD vis-à-vis the USD will be equal. Whenever USD was used to calculate the value of the Index, the futures price of USD was assumed to be 100.

 

The Index Sponsor used 3 month money market rates as a proxy for 3 month Libor fixings with respect to the USD on and prior to June 10, 1998.

 

The Index Sponsor used 3 month money market rates as a proxy for 3 month Libor fixings with respect to the EUR, JPY, GBP, CHF, CAD and AUD on and prior to March 11, 1998.

 

The Index Sponsor used 3 month money market rates as a proxy for 3 month Libor fixings with respect to the NZD on and prior to September 10, 2003.

 

The Index Sponsor used 3 month money market rates as a proxy for 3 month Stibor fixings with respect to the SEK on and prior to December 9, 1998.

 

The Index Sponsor used 3 month money market rates as a proxy for 3 month Nibor fixings with respect to the NOK on and prior to December 9, 1998.

 

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The Libor, Stibor and Nibor rates for the Eligible Index Currencies, as applicable, mean the London, Stockholm and Norway interbank offered rates for overnight deposits, respectively, each of which is published by Reuters on pages libor01 and libor02 with respect to Libor and pages SIDE and NIBR with respect to Stibor and Nibor.

 

The Index Sponsor considers the use of 3 month money market rates as a proxy for Libor, Stibor and Nibor to be appropriate because the difference between Libor, Stibor and Nibor rates and money market rates should not be material in light of the liquidity of the 3 month deposit markets.

 

The CME-traded futures contract of each applicable Index Currency that is closest to expiration is used in the Index calculation. The futures contracts on the Index Currencies are rolled during the Index Re-Weighting Period. The new futures contract on an Index Currency that has the next closest expiration date is selected. The calculation of the Index on an excess return basis is the weighted return on the change in price of the futures contracts on the Index Currencies.

 

The Index is calculated on both an excess return basis and a total return basis. The excess return index reflects the return of the applicable underlying currencies. The total return is the sum of the return of the applicable underlying currencies 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 Index.

 

Cautionary Statement–Statistical Information

 

Various statistical information is presented on the following pages, relating to the Closing Levels of the Index, on an annual and cumulative basis, including certain comparisons of the Index to other currencies indices. In reviewing such information, prospective investors should consider that:

 

   

Changes in Closing Levels of the Index during any particular period or market cycle may be volatile. For example, the “worst peak-to-valley drawdown” of the Index, representing the greatest percentage decline from any month-end Closing Level, without such Closing Level being equaled or exceeded as of a subsequent month-end, is 11.63% and occurred during the period December 31, 1994 through March 31, 1995. The worst monthly drawdown of the Index during such period was 6.95%, and occurred in March 1995. See “The Risks You Face—(16) Price Volatility May Possibly Cause the Total Loss of Your Investment.”

 

   

Neither the fees charged by the Fund nor the execution costs associated with establishing futures positions in the Index Currencies are incorporated into the Closing Levels of the Index. Accordingly, such Index Levels have not been reduced by the costs associated with an actual investment, such as the Fund, with an investment objective of tracking the Index.

 

   

The Index was established in December 2005, and is independently calculated by Deutsche Bank AG London, the Index Sponsor. The Index calculation methodology and commodity futures contracts selection is the same before and after December 2005, as described above. Accordingly, the Closing Levels of the Index, terms of the Index methodology and Index Currencies, reflect an element of hindsight at the time the Index was established. See “The Risks You Face—(11) You May Not Rely on Past Performance or Index Results in Deciding Whether to Buy Shares” and “—(12) Fewer Representative Index Currencies May Result In Greater Index Volatility.”

 

WHILE THE FUND’S OBJECTIVE IS NOT TO GENERATE PROFIT THROUGH ACTIVE PORTFOLIO MANAGEMENT, BUT IS TO TRACK THE INDEX, BECAUSE THE INDEX WAS ESTABLISHED IN DECEMBER 2005, CERTAIN INFORMATION RELATING TO THE 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

 

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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 FUND’S PAST PERFORMANCE OR THE HISTORICAL ANNUAL OR CUMULATIVE CHANGES IN 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 MARCH 1993 THROUGH NOVEMBER 2005, THE INDEX CLOSING LEVELS REFLECT THE APPLICATION OF THE INDEX METHODOLOGY, AND SELECTION OF INDEX CURRENCIES, 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 FUND’S EFFORTS TO TRACK THE INDEX OVER TIME WHICH CANNOT BE, AND HAVE NOT BEEN, ACCOUNTED FOR IN THE PREPARATION OF THE INDEX INFORMATION SET FORTH ON THE FOLLOWING PAGES, ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL PERFORMANCE RESULTS FOR THE FUND. FURTHERMORE, THE INDEX INFORMATION DOES NOT INVOLVE FINANCIAL RISK OR ACCOUNT FOR THE IMPACT OF FEES AND COSTS ASSOCIATED WITH THE FUND.

 

THE MANAGING OWNER HAS HAD LIMITED EXPERIENCE IN TRADING ACTUAL ACCOUNTS FOR ITSELF OR FOR CLIENTS. BECAUSE THERE ARE LIMITED ACTUAL TRADING RESULTS TO COMPARE TO THE INDEX CLOSING LEVELS SET FORTH HEREIN, PROSPECTIVE INVESTORS SHOULD BE PARTICULARLY WARY OF PLACING UNDUE RELIANCE ON THE ANNUAL OR CUMULATIVE INDEX RESULTS.

 

[Remainder of page left blank intentionally.]

 

39


Table of Contents

DEUTSCHE BANK G10 CURRENCY FUTURE HARVEST INDEX—EXCESS RETURN™

 

CLOSING LEVELS TABLE

 

       
      Closing Level              
      High1    Low2   

Annual Index

Changes3

   

Index Changes

Since Inception

 

19934

   105.60    94.03    -0.19 %   -0.19 %

1994

   108.79    99.81    7.42 %   7.22 %

1995

   110.52    94.16    2.66 %   10.07 %

1996

   140.05    110.42    27.23 %   40.05 %

1997

   146.72    137.83    2.58 %   43.67 %

1998

   151.79    132.52    -6.35 %   34.55 %

1999

   151.12    134.71    9.81 %   47.76 %

2000

   158.57    146.79    4.73 %   54.74 %

2001

   171.15    154.68    10.61 %   71.15 %

2002

   199.51    172.25    15.76 %   98.13 %

2003

   234.45    199.00    18.33 %   134.45 %

2004

   252.36    230.02    6.69 %   150.14 %

2005

   286.06    248.34    10.66 %   176.81 %

2006

   280.48    254.18    1.00 %   179.58 %

2007

   315.27    276.77    5.15 %   193.98 %

20085

   295.87    282.49    -2.78 %   185.79 %

 

THE FUND WILL TRADE WITH A VIEW TO TRACKING THE DEUTSCHE BANK G10 CURRENCY FUTURE HARVEST INDEX—EXCESS RETURN™ 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 FUND’S FUTURE PERFORMANCE.

 

DEUTSCHE BANK G10 CURRENCY FUTURE HARVEST INDEX—TOTAL RETURN™

 

CLOSING LEVELS TABLE

 

       
      Closing Level              
      High1    Low2   

Annual Index

Changes3

   

Index Changes

Since Inception

 

19934

   106.15    95.13    2.30 %   2.30 %

1994

   116.32    102.32    12.15 %   14.73 %

1995

   124.55    102.55    8.56 %   24.55 %

1996

   166.84    125.01    33.95 %   66.84 %

1997

   180.54    164.92    8.01 %   80.19 %

1998

   195.70    172.90    -1.68 %   77.17 %

1999

   203.96    177.49    15.12 %   103.96 %

2000

   227.93    202.75    11.11 %   126.61 %

2001

   259.57    226.67    14.55 %   159.57 %

2002

   307.46    261.27    17.68 %   205.47 %

2003

   365.18    306.83    19.55 %   265.18 %

2004

   398.22    359.55    8.18 %   295.05 %

2005

   465.10    392.65    14.23 %   351.27 %

2006

   479.65    421.90    5.96 %   378.18 %

2007

   554.63    477.16    9.96 %   425.80 %

20085

   531.26    506.23    -2.38 %   413.29 %

 

THE FUND WILL NOT TRADE WITH A VIEW TO TRACKING THE DEUTSCHE BANK G10 CURRENCY FUTURE HARVEST INDEX—TOTAL RETURN™ 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 FUND’S FUTURE PERFORMANCE.

 

Please refer to notes and legends that follow on page 45.

 

40


Table of Contents

INDEX CURRENCY WEIGHTS TABLE

 

DEUTSCHE BANK G10 CURRENCY FUTURE HARVEST INDEX – EXCESS RETURN™

 

     USD     EUR     JPY     CAD     CHF     GBP     AUD     NZD     NOK     SEK  
     High1     Low2     High     Low     High     Low     High     Low     High     Low     High     Low     High     Low     High     Low     High     Low     High     Low  

19934

  -31.6 %   -36.8 %   33.8 %   34.0 %   -33.7 %   -37.2 %   0.0 %   -36.8 %   0.0 %   0.0 %   0.0 %   0.0 %   -31.1 %   0.0 %   0.0 %   0.0 %   33.9 %   34.1 %   33.9 %   32.3 %

1994

  0.0 %   -33.3 %   -33.0 %   32.5 %   -33.1 %   -32.5 %   0.0 %   -33.4 %   -33.1 %   0.0 %   0.0 %   0.0 %   33.2 %   0.0 %   33.3 %   33.6 %   0.0 %   0.0 %   33.4 %   33.2 %

1995

  0.0 %   0.0 %   -33.7 %   -35.7 %   -33.1 %   -39.1 %   0.0 %   35.9 %   -33.7 %   -36.8 %   0.0 %   0.0 %   32.4 %   0.0 %   33.0 %   36.3 %   0.0 %   0.0 %   36.2 %   34.6 %

1996

  0.0 %   0.0 %   0.0 %   -33.5 %   -31.7 %   -32.5 %   -32.1 %   0.0 %   -31.5 %   -33.3 %   33.3 %   0.0 %   32.4 %   33.3 %   32.6 %   33.3 %   0.0 %   0.0 %   0.0 %   33.2 %

1997

  0.0 %   0.0 %   0.0 %   0.0 %   -31.5 %   -30.6 %   -31.7 %   -33.1 %   -32.2 %   -30.4 %   33.2 %   31.7 %   31.9 %   31.5 %   32.6 %   32.3 %   0.0 %   0.0 %   0.0 %   0.0 %

1998

  0.0 %   0.0 %   -32.3 %   -36.7 %   -32.9 %   -40.1 %   0.0 %   0.0 %   -31.8 %   -37.5 %   32.3 %   36.0 %   34.2 %   0.0 %   34.2 %   36.5 %   0.0 %   35.7 %   0.0 %   0.0 %

1999

  32.6 %   33.0 %   -31.6 %   -32.2 %   -31.3 %   -34.4 %   0.0 %   0.0 %   -31.4 %   -32.0 %   31.6 %   32.5 %   0.0 %   0.0 %   0.0 %   0.0 %   32.1 %   34.1 %   0.0 %   0.0 %

2000

  31.9 %   33.3 %   -29.4 %   -33.7 %   -30.8 %   -32.9 %   0.0 %   0.0 %   -30.5 %   -33.5 %   31.6 %   33.5 %   0.0 %   0.0 %   31.6 %   0.0 %   0.0 %   33.5 %   0.0 %   0.0 %

2001

  -33.1 %   33.1 %   0.0 %   0.0 %   -32.1 %   -32.4 %   0.0 %   0.0 %   -32.5 %   -34.5 %   0.0 %   0.0 %   32.7 %   0.0 %   33.0 %   34.1 %   32.8 %   34.1 %   0.0 %   -33.7 %

2002

  -33.2 %   -32.9 %   0.0 %   0.0 %   -33.1 %   -31.6 %   0.0 %   0.0 %   -33.5 %   -32.7 %   0.0 %   0.0 %   33.3 %   32.6 %   33.5 %   33.1 %   33.5 %   33.0 %   0.0 %   0.0 %

2003

  -33.0 %   -33.2 %   0.0 %   0.0 %   -33.0 %   -33.4 %   0.0 %   0.0 %   -33.5 %   -34.2 %   33.7 %   0.0 %   33.4 %   33.2 %   33.4 %   33.9 %   0.0 %   34.1 %   0.0 %   0.0 %

2004

  0.0 %   -34.6 %   0.0 %   0.0 %   -33.2 %   -33.5 %   0.0 %   0.0 %   -33.0 %   -34.7 %   33.4 %   34.1 %   33.6 %   32.6 %   33.4 %   32.3 %   -33.1 %   0.0 %   0.0 %   0.0 %

2005

  0.0 %   0.0 %   0.0 %   0.0 %   -29.1 %   -34.4 %   0.0 %   0.0 %   -30.7 %   -32.8 %   30.7 %   32.7 %   31.2 %   33.9 %   32.7 %   33.2 %   0.0 %   -33.2 %   -30.2 %   0.0 %

2006

  32.9 %   36.0 %   0.0 %   0.0 %   -32.6 %   -38.1 %   0.0 %   0.0 %   -32.9 %   -39.1 %   0.0 %   0.0 %   33.2 %   37.1 %   33.7 %   35.1 %   0.0 %   0.0 %   -33.1 %   -38.8 %

2007

  0.0 %   33.3 %   0.0 %   0.0 %   -33.2 %   -33.7 %   0.0 %   0.0 %   -33.2 %   -33.1 %   33.8 %   0.0 %   34.2 %   32.9 %   34.8 %   32.8 %   0.0 %   0.0 %   -34.1 %   -32.3 %

20085

  0.0 %   0.0 %   0.0 %   0.0 %   -34.8 %   -37.3 %   0.0 %   0.0 %   -35.2 %   -36.9 %   32.7 %   33.9 %   32.7 %   35.3 %   35.6 %   34.8 %   0.0 %   0.0 %   -34.6 %   -34.9 %

 

THE FUND WILL TRADE WITH A VIEW TO TRACKING THE DEUTSCHE BANK G10 CURRENCY FUTURE HARVEST INDEX – EXCESS RETURN™ 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 FUND’S FUTURE PERFORMANCE.

 

DEUTSCHE BANK G10 CURRENCY FUTURE HARVEST INDEX – TOTAL RETURN™

 

     USD     EUR     JPY     CAD     CHF     GBP     AUD     NZD     NOK     SEK  
     High1     Low2     High     Low     High     Low     High     Low     High     Low     High     Low     High     Low     High     Low     High     Low     High     Low  

19934

  -31.6 %   -36.8 %   33.6 %   34.0 %   -34.8 %   -37.2 %   0.0 %   -36.8 %   0.0 %   0.0 %   0.0 %   0.0 %   -30.3 %   0.0 %   0.0 %   0.0 %   33.6 %   34.1 %   34.7 %   32.3 %

1994

  0.0 %   -33.3 %   -33.1 %   32.5 %   -33.1 %   -32.5 %   0.0 %   -33.4 %   -33.1 %   0.0 %   0.0 %   0.0 %   33.2 %   0.0 %   33.3 %   33.6 %   0.0 %   0.0 %   33.4 %   33.2 %

1995

  0.0 %   0.0 %   -33.5 %   -35.7 %   -32.9 %   -39.1 %   0.0 %   35.9 %   -33.6 %   -36.8 %   0.0 %   0.0 %   33.4 %   0.0 %   33.4 %   36.3 %   0.0 %   0.0 %   33.2 %   34.6 %

1996

  0.0 %   0.0 %   0.0 %   -33.5 %   -31.7 %   -32.5 %   -32.1 %   0.0 %   -31.5 %   -33.3 %   33.3 %   0.0 %   32.4 %   33.3 %   32.6 %   33.3 %   0.0 %   0.0 %   0.0 %   33.2 %

1997

  32.4 %   0.0 %   -32.1 %   0.0 %   -30.0 %   -30.6 %   0.0 %   -33.1 %   -32.8 %   -30.4 %   34.0 %   31.7 %   0.0 %   31.5 %   31.3 %   32.3 %   0.0 %   0.0 %   0.0 %   0.0 %

1998

  0.0 %   0.0 %   -32.3 %   -36.7 %   -32.9 %   -40.1 %   0.0 %   0.0 %   -31.8 %   -37.5 %   32.3 %   36.0 %   34.2 %   0.0 %   34.2 %   36.5 %   0.0 %   35.7 %   0.0 %   0.0 %

1999

  33.1 %   33.0 %   -32.5 %   -32.2 %   -32.9 %   -34.4 %   0.0 %   0.0 %   -32.4 %   -32.0 %   32.8 %   32.5 %   0.0 %   0.0 %   0.0 %   0.0 %   32.8 %   34.1 %   0.0 %   0.0 %

2000

  32.9 %   33.3 %   0.0 %   -33.7 %   -32.3 %   -32.9 %   0.0 %   0.0 %   -33.7 %   -33.5 %   0.0 %   33.5 %   0.0 %   0.0 %   34.0 %   0.0 %   33.4 %   33.5 %   -33.0 %   0.0 %

2001

  -33.1 %   33.1 %   0.0 %   0.0 %   -32.1 %   -32.4 %   0.0 %   0.0 %   -32.5 %   -34.5 %   0.0 %   0.0 %   32.7 %   0.0 %   33.0 %   34.1 %   32.8 %   34.1 %   0.0 %   -33.7 %

2002

  -33.2 %   -32.9 %   0.0 %   0.0 %   -33.1 %   -31.6 %   0.0 %   0.0 %   -33.5 %   -32.7 %   0.0 %   0.0 %   33.3 %   32.6 %   33.5 %   33.1 %   33.5 %   33.0 %   0.0 %   0.0 %

2003

  -33.0 %   -33.2 %   0.0 %   0.0 %   -33.0 %   -33.4 %   0.0 %   0.0 %   -33.5 %   -34.2 %   33.7 %   0.0 %   33.4 %   33.2 %   33.4 %   33.9 %   0.0 %   34.1 %   0.0 %   0.0 %

2004

  0.0 %   -34.2 %   0.0 %   0.0 %   -33.5 %   -33.2 %   0.0 %   0.0 %   -33.8 %   -33.8 %   33.7 %   33.6 %   33.8 %   32.6 %   33.8 %   32.4 %   -33.7 %   0.0 %   0.0 %   0.0 %

2005

  0.0 %   0.0 %   0.0 %   0.0 %   -29.7 %   -33.8 %   0.0 %   0.0 %   -30.9 %   -32.7 %   30.8 %   32.7 %   31.1 %   33.8 %   32.4 %   33.1 %   0.0 %   -33.0 %   -30.4 %   0.0 %

2006

  33.1 %   35.7 %   0.0 %   0.0 %   -32.9 %   -38.0 %   0.0 %   0.0 %   -33.1 %   -38.6 %   0.0 %   0.0 %   33.2 %   37.3 %   33.7 %   34.9 %   0.0 %   0.0 %   -33.4 %   -38.4 %

2007

  0.0 %   33.0 %   0.0 %   0.0 %   -33.4 %   -32.7 %   0.0 %   0.0 %   -33.9 %   -33.0 %   34.2 %   0.0 %   34.4 %   33.3 %   34.9 %   33.7 %   0.0 %   0.0 %   -34.9 %   -33.3 %

20085

  0.0 %   0.0 %   0.0 %   0.0 %   -19.4 %   -36.4 %   0.0 %   0.0 %   -19.6 %   -36.1 %   18.2 %   33.8 %   20.1 %   35.4 %   19.8 %   34.7 %   0.0 %   0.0 %   -19.3 %   -35.0 %

 

THE FUND WILL NOT TRADE WITH A VIEW TO TRACKING THE DEUTSCHE BANK G10 CURRENCY FUTURE HARVEST INDEX – TOTAL RETURN™ 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 FUND’S FUTURE PERFORMANCE.

 

Please refer to notes and legends that follow on page 45.

 

41


Table of Contents

VARIOUS STATISTICAL MEASURES*

   INDEX-TR6,7    INDEX-ER7,8    DXY9    EFFAS US
Treasuries10
   S&P 500 TR11    DBLCI12

Annualized Changes to Index Level13

   11.4%    7.2%    -1.5%    6.5%    9.5%    15.6%

Average rolling 3 month daily volatility14

   7.4%    7.3%    7.6%    4.5%    15.0%    19.0%

Sharpe Ratio15

   1.04    0.46    -0.70    0.61    0.38    0.62

% of months with positive change

   71%    68%    46%    68%    64%    57%

Average monthly positive return change

   2.0%    1.8%    1.7%    1.2%    3.2%    5.1%

Average monthly negative return change

   -1.7%    -1.9%    -1.6%    -0.9%    -3.4%    -3.6%
                 

CORRELATION OF MONTHLY INDEX LEVELS*,16

   INDEX-TR    INDEX-ER    DXY    EFFAS US
Treasuries
   S&P 500 TR    DBLCI

Index TR

   100%    100%    19%    -7%    21%    8%

Index-ER

      100%    18%    -8%    20%    9%

DXY

         100%    -16%    5%    -18%

EFFAS US Treasuries

            100%    -12%    2%

S&P 500 TR

               100%    1%

DBLCI

                  100%

 

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 FUND’S FUTURE PERFORMANCE.

 

WHILE THE FUND’S OBJECTIVE IS NOT TO GENERATE PROFIT THROUGH ACTIVE PORTFOLIO MANAGEMENT, BUT IS TO TRACK THE INDEX, BECAUSE THE INDEX WAS ESTABLISHED IN DECEMBER 2005, CERTAIN INFORMATION RELATING TO THE 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 FUND’S PAST PERFORMANCE OR THE HISTORICAL ANNUAL OR CUMULATIVE CHANGES IN 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 MARCH 1993 THROUGH NOVEMBER 2005, THE INDEX CLOSING LEVELS REFLECT THE APPLICATION OF THE INDEX METHODOLOGY, AND SELECTION OF INDEX CURRENCIES, 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 FUND’S EFFORTS TO TRACK THE INDEX OVER TIME WHICH CANNOT BE, AND HAVE NOT BEEN, ACCOUNTED FOR IN THE PREPARATION OF THE INDEX INFORMATION SET FORTH ON THE FOLLOWING PAGES, ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL PERFORMANCE RESULTS FOR THE FUND. FURTHERMORE, THE INDEX INFORMATION DOES NOT INVOLVE FINANCIAL RISK OR ACCOUNT FOR THE IMPACT OF FEES AND COSTS ASSOCIATED WITH THE FUND.

 

THE MANAGING OWNER HAS HAD LIMITED EXPERIENCE IN TRADING ACTUAL ACCOUNTS FOR ITSELF OR FOR CLIENTS. BECAUSE THERE ARE LIMITED ACTUAL TRADING RESULTS TO COMPARE TO THE INDEX CLOSING LEVELS SET FORTH HEREIN, PROSPECTIVE INVESTORS SHOULD BE PARTICULARLY WARY OF PLACING UNDUE RELIANCE ON THE ANNUAL OR CUMULATIVE INDEX RESULTS.

 

Please refer to notes and legends that follow on page 45.

 

42


Table of Contents

COMPARISON OF THE INDICES WITH CERTAIN GENERAL MARKET INDICES REPRESENTING

CURRENCIES, BONDS, STOCKS AND COMMODITIES

 

(MARCH, 1993—FEBRUARY, 2008)*

 

LOGO

 

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 FUND’S FUTURE PERFORMANCE.

 

Each of the Index-TR, EFFAS US Treasuries, S&P 500 TR, DBLCI and DXY are indices and do not reflect actual trading.

Each of the indices, except DXY, are calculated on a total return basis and does not reflect any fees or expenses.

 

WHILE THE FUND’S OBJECTIVE IS NOT TO GENERATE PROFIT THROUGH ACTIVE PORTFOLIO MANAGEMENT, BUT IS TO TRACK THE INDEX, BECAUSE THE INDEX WAS ESTABLISHED IN DECEMBER 2005, CERTAIN INFORMATION RELATING TO THE 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 FUND’S PAST PERFORMANCE OR THE HISTORICAL ANNUAL OR CUMULATIVE CHANGES IN 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 MARCH 1993 THROUGH NOVEMBER 2005, THE INDEX CLOSING LEVELS REFLECT THE APPLICATION OF THE INDEX METHODOLOGY, AND SELECTION OF INDEX CURRENCIES, 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 FUND’S EFFORTS TO TRACK THE INDEX OVER TIME WHICH CANNOT BE, AND HAVE NOT BEEN, ACCOUNTED FOR IN THE PREPARATION OF THE INDEX INFORMATION SET FORTH ON THE FOLLOWING PAGES, ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL PERFORMANCE RESULTS FOR THE FUND. FURTHERMORE, THE INDEX INFORMATION DOES NOT INVOLVE FINANCIAL RISK OR ACCOUNT FOR THE IMPACT OF FEES AND COSTS ASSOCIATED WITH THE FUND.

 

THE MANAGING OWNER HAS HAD LIMITED EXPERIENCE IN TRADING ACTUAL ACCOUNTS FOR ITSELF OR FOR CLIENTS. BECAUSE THERE ARE LIMITED ACTUAL TRADING RESULTS TO COMPARE TO THE INDEX CLOSING LEVELS SET FORTH HEREIN, PROSPECTIVE INVESTORS SHOULD BE PARTICULARLY WARY OF PLACING UNDUE RELIANCE ON THE ANNUAL OR CUMULATIVE INDEX RESULTS.

 

Please refer to notes and legends that follow on page 45.

 

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COMPARISON OF ANNUAL PERCENTAGE CHANGE IN THE INDICES

WITH CERTAIN GENERAL MARKET INDICES REPRESENTING BONDS AND STOCKS

 

(MARCH, 1993—FEBRUARY, 2008)*

 

LOGO

 

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 FUND’S FUTURE PERFORMANCE.

 

Each of the Index-TR, EFFAS US Treasuries and S&P 500 TR are indices and do not reflect actual trading.

Each of these indices are calculated on a total return basis and does not reflect any fees or expenses.

 

WHILE THE FUND’S OBJECTIVE IS NOT TO GENERATE PROFIT THROUGH ACTIVE PORTFOLIO MANAGEMENT, BUT IS TO TRACK THE INDEX, BECAUSE THE INDEX WAS ESTABLISHED IN DECEMBER 2005, CERTAIN INFORMATION RELATING TO THE 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 FUND’S PAST PERFORMANCE OR THE HISTORICAL ANNUAL OR CUMULATIVE CHANGES IN 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 MARCH 1993 THROUGH NOVEMBER 2005, THE INDEX CLOSING LEVELS REFLECT THE APPLICATION OF THE INDEX METHODOLOGY, AND SELECTION OF INDEX CURRENCIES, 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 FUND’S EFFORTS TO TRACK THE INDEX OVER TIME WHICH CANNOT BE, AND HAVE NOT BEEN, ACCOUNTED FOR IN THE PREPARATION OF THE INDEX INFORMATION SET FORTH ON THE FOLLOWING PAGES, ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL PERFORMANCE RESULTS FOR THE FUND. FURTHERMORE, THE INDEX INFORMATION DOES NOT INVOLVE FINANCIAL RISK OR ACCOUNT FOR THE IMPACT OF FEES AND COSTS ASSOCIATED WITH THE FUND.

 

THE MANAGING OWNER HAS HAD LIMITED EXPERIENCE IN TRADING ACTUAL ACCOUNTS FOR ITSELF OR FOR CLIENTS. BECAUSE THERE ARE LIMITED ACTUAL TRADING RESULTS TO COMPARE TO THE INDEX CLOSING LEVELS SET FORTH HEREIN, PROSPECTIVE INVESTORS SHOULD BE PARTICULARLY WARY OF PLACING UNDUE RELIANCE ON THE ANNUAL OR CUMULATIVE INDEX RESULTS.

 

Please refer to notes and legends that follow on page 45.

 

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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. Closing levels as of inception on March 12, 1993.

 

5. Closing levels as of February 29, 2008.

 

6. “INDEX-TR” is Deutsche Bank G10 Currency Future Harvest Index—Total Return™. The Deutsche Bank G10 Currency Future Harvest Index™ is calculated on both an excess return basis and total return. The Index-TR calculation is funded and reflects the change in market value of both the underlying index currencies 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. A Trade Mark application for Deutsche Bank G10 Currency Future Harvest Index™ is pending.

 

7. In the current interest rate environment, the total return on an investment in the Fund is expected to outperform the INDEX-ER (as such term is defined in the following footnote) and underperform the INDEX-TR. The only difference between the INDEX-ER and the INDEX-TR is that the INDEX-ER does not include interest income from a hypothetical basket of fixed income securities while the INDEX-TR does include such a component. The difference between the INDEX-ER and the INDEX-TR is attributable entirely to the hypothetical interest income from this hypothetical basket of fixed income securities. The Fund’s interest income from its holdings of fixed-income securities is expected to exceed the Fund’s fees and expenses, and the amount of such excess is expected to be distributed periodically. The market price of the Shares is expected closely to track the INDEX-ER. The total return on an investment in the Fund over any period is the sum of the capital appreciation or depreciation of the Shares over the period, plus the amount of any distributions during the period. Consequently, in the current interest rate environment, the Fund’s total return is expected to outperform the INDEX-ER by the amount of the excess of its interest income over its fees and expenses but, as a result of the Fund’s fees and expenses, the total return on the Fund is expected to underperform the INDEX-TR. If the Fund’s fees and expenses were to exceed the Fund’s interest income from its holdings of fixed income securities, the Fund would underperform the INDEX-ER.

 

8. “INDEX-ER” is the Deutsche Bank G10 Currency Future Harvest Index—Excess Return™. The excess return calculation is unfunded and reflects the change in market value of the underlying index currencies.

 

9. “DXY” is U.S. Dollar Index®. The U.S. Dollar Index® provides a general indication of the international value of the USD by averaging the exchange rates between the USD and the following six major world currencies: Euro, Japanese Yen, British Pound, Canadian Dollar, Swedish Krona and Swiss Franc. U.S. Dollar Index® is a registered service mark of ICE Futures U.S.

 

10. “EFFAS US Treasuries” is Bloomberg/EFFAS Index of U.S. Treasuries. The Bloomberg/EFFAS indices are designed as transparent benchmarks for government bond markets. Indices are grouped by country and maturity sectors. Bloomberg computes daily values and index characteristics for each sector. The Bloomberg/EFFAS Index of U.S. Treasuries includes treasuries with more than one year prior to maturity and is representative of the bond market.

 

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11. “S&P 500 TR” is the Standard & Poor’s 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.

 

12. “DBLCI” is the Deutsche Bank Liquid Commodity Index—Total Return™. This Index is intended to reflect the change in market value of 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 world’s 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—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.

 

13. “Annualized Changes to Index Level” reflect the change to the level of the applicable index on an annual basis as of December 31 of each applicable year.

 

14. “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.

 

15. “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 3.80%.

 

16. “Correlation of Monthly Index Levels.” 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.

 

* For the period from March 12, 1993 to February 29, 2008.

 

WHILE THE FUND’S OBJECTIVE IS NOT TO GENERATE PROFIT THROUGH ACTIVE PORTFOLIO MANAGEMENT, BUT IS TO TRACK THE INDEX, BECAUSE THE INDEX WAS ESTABLISHED IN DECEMBER 2005, CERTAIN INFORMATION RELATING TO THE 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 FUND’S PAST PERFORMANCE OR THE HISTORICAL ANNUAL OR CUMULATIVE CHANGES IN 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.

 

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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 MARCH 1993 THROUGH NOVEMBER 2005, THE INDEX CLOSING LEVELS REFLECT THE APPLICATION OF THE INDEX METHODOLOGY, AND SELECTION OF INDEX CURRENCIES, 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 FUND’S EFFORTS TO TRACK THE INDEX OVER TIME WHICH CANNOT BE, AND HAVE NOT BEEN, ACCOUNTED FOR IN THE PREPARATION OF THE INDEX INFORMATION SET FORTH ON THE FOLLOWING PAGES, ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL PERFORMANCE RESULTS FOR THE FUND. FURTHERMORE, THE INDEX INFORMATION DOES NOT INVOLVE FINANCIAL RISK OR ACCOUNT FOR THE IMPACT OF FEES AND COSTS ASSOCIATED WITH THE FUND.

 

THE MANAGING OWNER HAS HAD LIMITED EXPERIENCE IN TRADING ACTUAL ACCOUNTS FOR ITSELF OR FOR CLIENTS. BECAUSE THERE ARE LIMITED ACTUAL TRADING RESULTS TO COMPARE TO THE INDEX CLOSING LEVELS SET FORTH HEREIN, PROSPECTIVE INVESTORS SHOULD BE PARTICULARLY WARY OF PLACING UNDUE RELIANCE ON THE ANNUAL OR CUMULATIVE INDEX RESULTS.

 

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 WILL 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 ISSUER’S SECURITY HOLDERS OR CUSTOMERS OR ANY SUCH COUNTERPARTY’S 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.

 

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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. The Fund differs materially in certain respects from the performance of the following pools which are included herein. The following sets forth summary performance information for all pools operated by the Managing Owner (other than the Fund) as of February 29, 2008.

 

The below pools, the performance of which are summarized herein, are materially different in certain respects from the Fund and the past performance summary of such pools are generally not representative of how the Fund might perform in the future. These pools also have material differences from the 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 Owner’s capabilities by indicating the past performance of other pools sponsored by the Managing Owner.

 

All summary performance information is current as of February 29, 2008. 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) 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)) and (iii) February 20, 2007 (inception with respect to each of PowerShares DB US Dollar Index Bullish Fund (UUP) and PowerShares DB US Dollar Index Bearish Fund (UDN)). 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 FUND AND THE POOLS WHOSE PERFORMANCE ARE SUMMARIZED HEREIN.

 

INVESTORS SHOULD NOTE THAT INTEREST INCOME MAY CONSTITUTE A SIGNIFICANT PORTION OF A COMMODITY POOL’S INCOME AND, IN CERTAIN INSTANCES, MAY GENERATE PROFITS WHERE THERE HAVE BEEN REALIZED AND UNREALIZED LOSSES FROM COMMODITY TRADING.

 

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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 February 29, 2008: $1,711,003,580

Net Asset Value as of February 29, 2008: $2,153,038,468

Net Asset Value per Share as of February 29, 2008: $36.12

Worst Monthly Drawdown: (4.70)% December 2006*

Worst Peak-to-Valley Drawdown: (9.74)% November 2006 – January 2007**

 

Monthly Rate of Return

   2008(%)    2007(%)    2006(%)

January

   3.24    (2.36)     

February

   11.21    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

        8.58    (4.54)

October

        8.58    1.21

November

        0.26    6.40

December

        3.76****    (4.70)*

Compound Rate of Return

   14.81%

(2 months)

   28.15%    1.23%***

(11 months)

 

* The December 2006 return of (4.70)% includes the $0.61 per Share distribution made to Shareholders of record as of December 20, 2006. Prior to the December 29, 2006 distribution, the pool’s return for December 2006 was (2.33)%.

** The Worst Peak-to-Valley Drawdown from November 2006 – January 2007 includes the effect of the distribution made to Shareholders of record as of December 20, 2006. Please see Footnote *.

*** “Compound Rate of Return” is based on an initial net asset value per share of $24.25 and is calculated by multiplying on a compound basis each of the monthly rates of return set forth in the chart above and not by adding or averaging such monthly rates of return. For periods of less than one year, the results are year-to-date.

****The December 2007 return of 3.76% includes the $0.76 per Share distribution made to Shareholders of record as of the December 19, 2007. Prior to the December 28, 2007 distribution, the pool’s return for December 2007 was 6.23%.

 

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.

See accompanying Footnotes to Performance Information on page 54.

 

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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 February 29, 2008: $143,999,276

Net Asset Value as of February 29, 2008: $100,975,921

Net Asset Value per Share as of February 29, 2008: $22.95

Worst Monthly Drawdown: (3.31)% September 2007

Worst Peak-to-Valley Drawdown: (7.91)% February 2007 – February 2008*

 

Monthly Rate of Return

   2008(%)    2007(%)

January

   (1.47)    —  

February

   (1.84)    (0.32)

March

        (0.32)

April

        (1.29)

May

        1.55

June

        0.00

July

        (0.92)

August

        0.57

September

        (3.31)

October

        (1.17)

November

        0.04

December

        0.04**

Compound Rate of Return

   (3.29)%

(2 months)

   (5.08)%

(10 1/4 months)

 

* The Worst Peak-to-Valley Drawdown from February 2007 – February 2008 includes the effect of the distribution made to Shareholders of record as of December 19, 2007. Please see Footnote **.

** The December 2007 return of 0.04% includes the $0.20 per Share distribution made to Shareholders of record as of December 19, 2007. Prior to the December 28, 2007 distribution, the pool’s return for December 2007 was 0.76%.

 

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 February 29, 2008: $80,209,226

Net Asset Value as of February 29, 2008: $80,414,156

Net Asset Value per Share as of February 29, 2008: $28.72

Worst Monthly Drawdown: (1.92)% December 2007*

Worst Peak-to-Valley Drawdown: (1.92)% November—December 2007**

 

Monthly Rate of Return

   2008(%)    2007(%)

January

   2.14    —  

February

   4.28    0.64

March

        0.99

April

        2.01

May

        (0.73)

June

        0.74

July

        1.54

August

        0.38

September

        3.82

October

        1.68

November

        0.68

December

        (1.92)*

Compound Rate of Return

   6.52%

(2 months)

   10.16%

(10 1/4 months)

 

* The December 2007 return of (1.92)% includes the $0.40 per Share distribution made to Shareholders of record as of December 19, 2007. Prior to the December 28, 2007 distribution, the pool’s return for December 2007 was 0.39%.

** The Worst Peak-to-Valley Drawdown from November—December 2007 includes the effect of the distribution made to Shareholders of record as of December 19, 2007. Please see Footnote *.

 

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.

See accompanying Footnotes to Performance Information on page 54.

 

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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 February 29, 2008: $78,516,964

Net Asset Value as of February 29, 2008: $53,834,260

Net Asset Value per Share as of February 29, 2008: $38.45

Worst Monthly Drawdown: (4.07)% August 2007

Worst Peak-to-Valley Drawdown: (4.07)% July—August 2007

 

Monthly Rate of Return

   2008(%)    2007(%)

January

   (1.17)    0.08

February

   10.62    5.80

March

        5.33

April

        0.86

May

        (0.92)

June

        3.41

July

        2.26

August

        (4.07)

September

        7.78

October

        12.90

November

        (2.56)

December

        4.95*

Compound Rate of Return

   9.33%

(2 months)

   40.68%

 

* The December 2007 return of 4.95% includes the $0.90 per Share distribution made to Shareholders of record as of December 19, 2007. Prior to the December 28, 2007 distribution, the pool’s return for December 2007 was 7.64%.

 

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.

 

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 February 29, 2008: $81,941,766

Net Asset Value as of February 29, 2008: $37,273,632

Net Asset Value per Share as of February 29, 2008: $37.27

Worst Monthly Drawdown: (4.20)% August 2007

Worst Peak-to-Valley Drawdown: (4.63)% March—May 2007

 

Monthly Rate of Return

   2008(%)    2007(%)

January

   (3.00)    (2.08)

February

   10.99    6.13

March

        4.77

April

        (2.20)

May

        (2.48)

June

        4.58

July

        2.65

August

        (4.20)

September

        9.59

October

        15.62

November

        (2.39)

December

        4.85*

Compound Rate of Return

   7.65%

(2 months)

   38.48%

 

* The December 2007 return of 4.85% includes the $1.28 per Share distribution made to Shareholders of record as of December 19, 2007. Prior to the December 28, 2007 distribution, the pool’s return for December 2007 was 7.93%.

 

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.

See accompanying Footnotes to Performance Information on page 54.

 

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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 February 29, 2008: $101,022,816

Net Asset Value as of February 29, 2008: $109,725,403

Net Asset Value per Share as of February 29, 2008: $36.58

Worst Monthly Drawdown: (5.36)% October 2007

Worst Peak-to-Valley Drawdown: (5.49)% April—June 2007

 

Monthly Rate of Return

   2008(%)    2007(%)

January

   10.18    4.04

February

   7.34    2.77

March

        (1.87)

April

        2.10

May

        (2.43)

June

        (3.14)

July

        2.96

August

        (0.77)

September

        16.86

October

        (5.36)

November

        3.95

December

        4.04*

Compound Rate of Return

   18.27%

(2 months)

   23.72%

 

* The December 2007 return of 4.04% includes the $0.60 per Share distribution made to Shareholders of record as of December 19, 2007. Prior to the December 28, 2007 distribution, the pool’s return for December 2007 was 5.58%.

 

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.

 

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 February 29, 2008: $73,664,730

Net Asset Value as of February 29, 2008: $72,751,970

Net Asset Value per Share as of February 29, 2008: $36.38

Worst Monthly Drawdown: (2.93)% May 2007

Worst Peak-to-Valley Drawdown: (4.86)% April—June 2007

 

Monthly Rate of Return

   2008(%)    2007(%)

January

   9.67    3.44

February

   5.14    2.44

March

        (1.02)

April

        2.86

May

        (2.93)

June

        (1.99)

July

        2.61

August

        0.68

September

        9.81

October

        6.01

November

        (1.26)

December

        3.54*

Compound Rate of Return

   15.31%

(2 months)

   26.20%

 

* The December 2007 return of 3.54% includes the $0.81 per Share distribution made to Shareholders of record as of December 19, 2007. Prior to the December 28, 2007 distribution, the pool’s return for December 2007 was 5.84%.

 

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.

See accompanying Footnotes to Performance Information on page 54.

 

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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 February 29, 2008: $55,285,358

Net Asset Value as of February 29, 2008: $58,551,819

Net Asset Value per Share as of February 29, 2008: $36.59

Worst Monthly Drawdown: (7.80)% June 2007

Worst Peak-to-Valley Drawdown: (14.25)% February—August 2007

 

Monthly Rate of Return

   2008(%)    2007(%)

January

   12.83    6.48

February

   16.53    4.13

March

        (4.91)

April

        0.49

May

        (0.26)

June

        (7.80)

July

        4.60

August

        (6.71)

September

        13.76

October

        3.92

November

        (2.92)

December

        2.02*

Compound Rate of Return

   31.48%

(2 months)

   11.32%

 

* The December 2007 return of 2.02% includes the $0.87 per Share distribution made to Shareholders of record as of December 19, 2007. Prior to the December 28, 2007 distribution, the pool’s return for December 2007 was 5.24%.

 

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.

 

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 February 29, 2008: $169,656,540

Net Asset Value as of February 29, 2008: $118,131,441

Net Asset Value per Share as of February 29, 2008: $26.85

Worst Monthly Drawdown: (8.98)% December 2007*

Worst Peak-to-Valley Drawdown: (21.01)% July—December 2007**

 

Monthly Rate of Return

   2008(%)    2007(%)

January

   8.82    (5.84)

February

   12.16    3.70

March

        1.88

April

        10.74

May

        (2.40)

June

        (1.19)

July

        4.86

August

        (7.61)

September

        2.37

October

        (2.43)

November

        (5.95)

December

        (8.98)*

Compound Rate of Return

   22.05%

(2 months)

   (12.00)%

 

* The December 2007 return of (8.98)% includes the $0.96 per Share distribution made to Shareholders of record as of December 19, 2007. Prior to the December 28, 2007 distribution, the pool’s return for December 2007 was (5.01)%.

** The Worst Peak-to-Valley Drawdown from July—December 2007 includes the effect of the distribution made to Shareholders of record as of December 19, 2007. Please see Footnote *.

 

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.

See accompanying Footnotes to Performance Information on page 54.

 

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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 February 29, 2008: $2,387,167,878

Net Asset Value as of February 29, 2008: $2,790,888,963

Net Asset Value per Share as of February 29, 2008: $41.66

Worst Monthly Drawdown: (5.81)% March 2007

Worst Peak-to-Valley Drawdown: (7.63)% February – April 2007

 

Monthly Rate of Return    2008(%)    2007(%)
January    12.47    3.44
February    12.90    3.91
March         (5.81)
April         (1.94)
May         5.84
June         (0.04)
July         (0.50)
August         2.07
September         10.20
October         (0.17)
November         4.94
December         6.56*
Compound Rate of Return    26.97%

(2 months)

   31.24%

 

* The December 2007 return of 6.56% includes the $0.45 per Share distribution made to Shareholders of record as of December 19, 2007. Prior to the December 28, 2007 distribution, the pool’s return for December 2007 was 7.89%.

 

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.

See accompanying Footnotes to Performance Information.

 

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 February 29, 2008.

 

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 February 29, 2008.

 

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. “Compound Rate of Return” is calculated by multiplying on a compound basis each of the monthly rates of return set forth in the respective charts above and not by adding or averaging such monthly rates of return. For periods of less than one year, the results are year-to-date.

 

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INFORMATION BARRIERS BETWEEN THE INDEX SPONSOR AND THE MANAGING OWNER

 

It is Deutsche Bank’s 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 the 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 bank’s exposure to instruments linked to the Index, or Public Personnel, in order to prevent the improper sharing of information relating to the recomposition of the 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 the Index and securities linked to the 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 the Index. In particular, the Calculation Group may not release any information concerning a change in the methodology of calculating the 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 DBCFHX, FBV, FBV.NV and DBV and on the websites http://www.dbfunds.db.com and https://index.db.com, or any successor thereto.

 

   

The Calculation Group and Public Personnel may not coordinate or seek to coordinate decision-making on the selection of the Index constituent instruments.

 

   

The Calculation Group also may not enter into any trades based on any non-public, proprietary or confidential information with respect to the Index.

 

These procedures supplement and do not override policies and procedures concerning information barriers otherwise adopted by Deutsche Bank AG or any of Deutsche Bank’s affiliates.

 

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

 

Overview/Introduction

 

For the purposes of this section only, the Fund issues limited shares, or Limited Shares, to Authorized Participants only, and general shares, or General Shares to the Managing Owner.

 

For the purposes of this section only, the Master Fund issues Master Fund limited units, or Master Fund Limited Units, to the Fund and issues Master Fund general units, or Master Fund General Units to the Managing Owner.

 

The Fund and the Master Fund seek to track changes, whether positive or negative, in the level of the Deutsche Bank G10 Currency Future Harvest Index—Excess Return™, or the Index, over time, plus the excess, if any, of the Master Fund’s interest income from its holdings of United States Treasury Obligations and other high credit quality short-term fixed income securities over the expenses of the Fund and the Master Fund. The Index is designed to reflect the return from investing on a 2:1 leveraged basis in long currency futures positions for certain currencies associated with relatively high yielding interest rates and in short currency futures positions for certain currencies associated with relatively low yielding interest rates.

 

The Index is designed to exploit the trend that currencies associated with relatively high interest rates, on average, tend to rise in value relative to currencies associated with relatively low interest rates. This trend is consistent with economic theory regarding the correct price of a currency future, known as the Interest Rate Parity formula or the Covered Interest Arbitrage formula, and can be seen in the historical trading patterns of currency futures.

 

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The theoretical or “fair market” price of a currency future contract is derived from the spot FX rate, interest rates of the two currencies and time to expiry of the currency future contract and represents an equilibrium relationship among the interest rates, spot markets and futures markets associated with the currencies in question. If an equilibrium relationship does not exist between two currencies, arbitrage opportunities arise and the exploitation of these opportunities by arbitrageurs will tend to drive currency futures prices toward equilibrium. Application of the Interest Rate Parity formula under circumstances in which currencies are not in an equilibrium relationship predicts that if the currency future is based on a rate ranging from a high yielding currency to a low yielding currency, the fair market price of the currency future will be below the spot rate. The longer the time to the expiry of the currency future the greater the amount the fair market price of the currency future will be below the spot rate. If the spot rate stays approximately the same then, as you move closer to the expiry of the currency future, the fair market price will increase. In other words, the currency future rate between a relatively high interest rate currency and low interest rate currency tends to increase over time (assuming spot is relatively stable).

 

The Index exploits this trend using both long and short futures positions, which is expected to provide more consistent and less volatile returns than could be obtained by taking long positions only or short positions only.

 

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

 

The Index Sponsor obtains information for inclusion in, or for use in the calculation of, the Index from sources the Index Sponsor considers reliable. None of the Index Sponsor, the Managing Owner, the Fund, the Master Fund or any of their respective affiliates accepts responsibility for or guarantees the accuracy and/or completeness of the Index or any data included in the Index.

 

The Limited Shares are intended to provide investment results that generally correspond to the changes, positive or negative, in the levels of the Index over time. The value of the Limited Shares is expected to fluctuate in relation to changes in the value of the Master Fund’s portfolio. The market price of the Limited Shares may not be identical to the net asset value per Limited Share, but these two valuations are expected to be very close.

 

Performance Summary

 

Performance information herein covers the twelve months ended December 31, 2007 and the period from September 15, 2006 (commencement of investment operations) to December 31, 2006 (herein referred to as the “Year Ended December 31, 2007” and the “Period Ended December 31, 2006”, respectively).

 

Performance of the Fund and the exchange traded Limited Shares are detailed below in “Results of Operations”. Past performance of the Fund is not necessarily indicative of future performance.

 

The Index is intended to reflect the change in market value of its underlying currency futures contracts. The Deutsche Bank G10 Currency Future Harvest Index—Total Return™ (DBCFH-TR), consists of the Index plus 3-month United States Treasury Obligations returns. Because DBCFH-TR is an index, it does not reflect (i) actual trading and (ii) any fees or expenses. Past Index results are not necessarily indicative of future changes, positive or negative, in the Index closing levels.

 

The section “Summary of DBCFH-TR™ and Underlying Index Currency Returns for the Year Ended December 31, 2007 and for the Period Ended December 31, 2006” below provides an overview of the changes in the closing levels of DBCFH-TR™ by disclosing the change in closing levels of the Index itself plus 3-month United States Treasury Obligations returns. Please note that the Fund’s objective is to track the Index (not DBCFH-TR™) and the Fund does not attempt to outperform or underperform the Index.

 

The following chart highlights the results of the DBCFH-TR for the Year Ended December 31, 2007 and for the Period Ended December 31, 2006.

 

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Summary of DBCFH-TR™ and Underlying Index Currency Returns for the Year Ended December 31, 2007 and for the Period Ended December 31, 2006.

 

DBCFH-TR: The DBCFH-TR returned 9.96% for the Year Ended December 31, 2007 and 3.89% from September 15, 2006 (commencement of investment operations) to December 29, 2006 (last day of investment trading in 2006).

 

     TOTAL RETURNS FOR INDEX
IN THE DBCFH-TR™
 
     Long Position1     Short Position1  
Underlying Index   Year
Ended
2007
    Period
Ended
2006
    Year
Ended
2007
    Period
Ended
2006
 

British Pounds (GBP)

  0.65 %   N/A     N/A     N/A  

Australian Dollar (AUD)

  4.86 %   1.52 %   N/A     N/A  

New Zealand Dollar (NZD)

  4.42 %   2.24 %   N/A     N/A  

Swedish Krona (SEK)

  N/A     N/A     (1.91 )%   1.65 %

Japanese Yen (JPY)

  N/A     N/A     (1.00 )%   0.85 %

Swiss Franc (CHF)

  N/A     N/A     (1.87 )%   0.55 %

 

1 Although the United States Dollar was one of the Eligible Index Currencies associated with the top three highest interest rates from January 1, 2007 to March 14, 2007 and September 15, 2006 to December 29, 2006, the Index (as per its rules) did not include a long USD futures position. Returns from 3-month United States Treasury bills over these periods were 4.81% and 1.48%, respectively.

 

In the current interest rate environment, the total return on an investment in the Fund is expected to outperform the Index and underperform the DBCFH-TR™. The only difference between the Index and the DBCFH-TR™ is that the Index does not include interest income from a hypothetical basket of fixed income securities while the DBCFH-TR™ does include such a component. The difference between the Index and the DBCFH-TR™ is attributable entirely to the hypothetical interest income from this hypothetical basket of fixed income securities. The Fund’s interest income from its holdings of fixed-income securities is expected to exceed the Fund’s fees and expenses, and the amount of such excess is expected to be distributed periodically. The market price of the Shares is expected closely to track the Index. The total return on an investment in the Fund over any period is the sum of the capital appreciation or depreciation of the Shares over the period, plus the amount of any distributions during the period. Consequently, in the current interest rate environment, the Fund’s total return is expected to outperform the Index by the amount of the excess of its interest income over its fees and expenses but, as a result of the Fund’s fees and expenses, the total return on the Fund is expected to underperform the DBCFH-TR™. If the Fund’s fees and expenses were to exceed the Fund’s interest income from its holdings of fixed income securities, the Fund would underperform the Index.

 

Net Asset Value

 

Net asset value means the total assets of the Master Fund, including, but not limited to, all futures, cash and investments less total liabilities of the Master Fund, each determined on the basis of U.S. generally accepted accounting principles, consistently applied under the accrual method of accounting. In particular, net asset value includes any unrealized appreciation or depreciation on open currency futures contracts, and any other credit or debit accruing to the Master Fund but unpaid or not received by the Master Fund. All open currency futures contracts will be calculated at their then current market value, which will be based upon the settlement price for that particular currency futures contract traded on the applicable exchange on the date with respect to which net asset value is being determined; provided, that if a currency futures contract could not be liquidated on such day, due to the operation of daily limits or other rules of the exchange upon which that position is traded or otherwise, the settlement price on the most recent day on which the position could have been liquidated will be the basis for determining the market value of such position for such day. The Managing Owner may in its discretion (and only under extraordinary circumstances, including, but not limited to, periods during which a settlement price of a futures contract is not available due to exchange limit orders or force majeure type events such as systems failure, natural or man-made disaster, act of God, armed conflict, act of terrorism, riot or labor disruption or any similar intervening circumstance) value any asset of the

 

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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 the Master Fund’s brokerage account is accrued monthly. The amount of any distribution is a liability of the Master Fund from the day when the distribution is declared until it is paid.

 

The Fund invests substantially all of its assets in the Master Fund in a master-feeder structure. The Fund holds no investment assets other than Master Fund Limited Units. The Fund is the majority Master Fund Limited Unit owner and the Managing Owner holds a minority interest in the Master Fund. Each Limited Share issued by the Fund correlates with the Master Fund Limited Unit issued by the Master Fund and held by the Fund.

 

Net asset value per Master Fund Limited Unit and Master Fund General Unit (collectively, “Master Fund Units”) is the net asset value of the Master Fund divided by the number of outstanding Master Fund Units. Because there is a one-to-one correlation between Limited Shares of the Fund and Master Fund Limited Units, the net asset value per Limited Share of the Fund and the net asset value per Master Fund Limited Unit are equal.

 

Critical Accounting Policies

 

The Fund’s and Master Fund’s critical accounting policies are as follows:

 

Preparation of the financial statements and related disclosures in conformity with U.S. generally accepted accounting principles requires the application of appropriate accounting rules and guidance, as well as the use of estimates, and requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenue and expense and related disclosure of contingent assets and liabilities during the reporting period of the consolidated financial statements and accompanying notes. Both the Fund’s and the Master Fund’s application of these policies involve judgments and actual results may differ from the estimates used.

 

The Master Fund expects to hold a significant portion of its assets in currency futures contracts and United States Treasury Obligations, both of which will be recorded on a trade date basis and at fair value in the consolidated financial statements, with changes in fair value reported in the consolidated statement of income and expenses. Generally, fair values are based on quoted market closing prices. However, when market closing prices are not available, the Managing Owner may value an asset of the Master Fund pursuant to policies the Managing Owner has adopted, which are consistent with normal industry standards.

 

Realized gains (losses) and changes in unrealized appreciation (depreciation) on open positions are determined on a specific identification basis and recognized in the consolidated statement of income and expenses in the period in which the contract is closed or the changes occur, respectively.

 

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

 

Market Risk

 

Trading in futures contracts involves the Master Fund entering into contractual commitments to purchase or sell a particular currency at a specified date and price. The market risk associated with the Master Fund’s commitments to purchase currencies is limited to the gross or face amount of the contracts held.

 

The Master Fund’s exposure to market risk is also influenced by a number of factors including the volatility of interest rates and foreign currency exchange rates, the liquidity of the markets in which the contracts are traded and the relationships among the contracts held. The inherent uncertainty of the Master Fund’s trading as well as the development of drastic market occurrences could ultimately lead to a loss of all or substantially all of the investors’ capital.

 

Credit Risk

 

When the Master Fund enters into futures contracts, the Master Fund will be exposed to credit risk that an exchange clearinghouse will not meet its obligations. The counterparty for futures contracts traded on United States exchanges is the clearing house associated with the particular exchange. In

 

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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, which should significantly reduce credit risk. There can be no assurance that any clearinghouse will meet its obligations to the Master Fund.

 

The Commodity Broker, when acting as the Master Fund’s futures commission merchant in accepting orders for the purchase or sale of domestic futures contracts, is required by CFTC regulations to separately account for and segregate as belonging to the Master Fund all assets of the Master Fund relating to domestic futures trading and the Commodity Broker is not allowed to commingle such assets with other assets of the Commodity Broker. In addition, CFTC regulations also require the Commodity Broker to hold in a secure account assets of the Master Fund related to foreign futures trading.

 

Liquidity

 

All of the Master Fund’s source of capital is derived from the Fund through the Fund’s offering of Limited Shares to Authorized Participants. Authorized Participants may then subsequently redeem such Limited Shares. The Master Fund in turn allocates its net assets to currency futures trading. A significant portion of the net asset value is held in United States Treasury Obligations and cash, which is used as margin for the Master Fund’s trading in currency futures. The percentage that United States Treasury Obligations bear to the total net assets will vary from period to period as the market values of the Master Fund’s currency futures change. The balance of the net assets is held in the Master Fund’s trading account. Interest earned on the Master Fund’s interest-bearing funds is paid to the Master Fund.

 

The Master Fund’s foreign exchange futures contracts may be subject to periods of illiquidity because of market conditions, regulatory considerations or for other reasons. For example, commodity exchanges generally have the ability to limit fluctuations in futures contract prices during a single day by regulations referred to as “daily limits.” During a single day, no trades may be executed at prices beyond the daily limit. Once the price of a particular futures contract has increased or decreased by an amount equal to the daily limit, positions in the future can neither be taken nor liquidated unless traders are willing to effect trades at or within the limit. Although the Eligible Index Currencies that the Master Fund invests in are not currently subject to daily limits, the currency futures held by the Master Fund could become subject to such limits in the future. Such market conditions could prevent the Master Fund from promptly liquidating its currency futures positions.

 

Because the Master Fund trades futures contracts, its capital is at risk due to changes in the value of future contracts (market risk) or the inability of an exchange clearinghouse to perform under the terms of the contracts (credit risk).

 

On any business day, an Authorized Participant may place an order with the Managing Owner to redeem one or more Baskets. Redemption orders must be placed by 1:00 p.m., New York time. The day on which the Managing Owner receives a valid redemption order is the redemption order date. Redemption orders are irrevocable. The redemption procedures allow Authorized Participants to redeem Baskets. Individual Shareholders may not redeem directly from the Fund. By placing a redemption order, an Authorized Participant agrees to deliver the Baskets to be redeemed through DTC’s book-entry system to the Fund no 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 Participant’s DTC account is charged the non-refundable transaction fee due for the redemption order.

 

Cash flows

 

The primary cash flow activities of the Fund are to raise capital from Authorized Participants through the issuance of Limited Shares in the Fund. This cash is invested into the Master Fund where it is used to invest in United States Treasury Obligations and to meet margin requirements as a result of the positions taken in futures contracts to match the fluctuations of the Index the Fund is tracking.

 

Operating activities

 

Net cash flow used in operating activities was $363.4 million and $120.4 million during the Year Ended December 31, 2007 and Period Ended

 

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December 31, 2006, respectively. These amounts primarily include net purchases and sales of United States Treasury Obligations which are held at fair value on the statement of financial condition. During the Year Ended December 31, 2007 $1,786.3 million was paid to purchase United States Treasury Obligations against $1,419.1 million received from sales of maturing contracts. During the Period Ended December 31, 2006 $154.0 million was paid to purchase United States Treasury Obligations against $33.0 million received from sales of maturing contracts. Unrealized appreciation on futures decreased by $7.3 million and increased by $1.4 million during the Year Ended December 31, 2007 and Period Ended December 31, 2006, respectively.

 

Financing activities

 

The Fund’s net cash flow provided from financing activities was $371.0 million and $126.5 million during the Year Ended December 31, 2007 and Period Ended December 31, 2006. This included $494.9 million and $126.7 million from the sale of Limited shares to Authorized Participants during the Year Ended December 31, 2007 and Period Ended December 31, 2006, respectively.

 

Results of Operations

 

FOR THE THREE MONTHS ENDED DECEMBER 31, 2007 AND 2006 AND FOR THE YEAR ENDED DECEMBER 31, 2007 AND THE PERIOD ENDED DECEMBER 31, 2006

 

The Fund was launched on September 15, 2006 at $25.00 per share and listed for trading on the Amex on September 18, 2006.

 

The Fund and the Master Fund seek to track changes in the closing levels of the Deutsche Bank G10 Currency Future Harvest Index—Excess Return™, or the Index, over time, plus the excess, if any, of the Master Fund’s interest income from its holdings of United States Treasury Obligations and other high credit quality short-term fixed income securities over the expenses of the Fund and the Master Fund. The following graphs illustrate changes in (i) the price of the Limited Shares (as reflected by the graph “DBV”), (ii) the Fund’s NAV (as reflected by the graph “FBVNAV”), and (iii) the closing levels of the Index (as reflected by the graph “DBCFHX”). The price of the Limited Shares generally has exceeded the levels of the Index primarily because the Limited Share price reflects interest income from the Master Fund’s collateral holdings whereas the Index does not consider such interest income. There can be no assurances that the price of the Limited Shares will continue to exceed the Index levels.

 

[Remainder of page left blank intentionally.]

 

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COMPARISON OF DBV, FBVNAV AND DBCFHX FOR THE YEAR ENDED DECEMBER 31, 2007, THE PERIOD ENDED DECEMBER 31, 2006 AND FOR THE THREE MONTHS ENDED DECEMBER 31, 2007 AND 2006

LOGO

 

NEITHER THE PAST PERFORMANCE OF THE FUND NOR THE PRIOR INDEX LEVELS AND CHANGES, POSITIVE OR NEGATIVE, SHOULD BE TAKEN AS AN INDICATION OF THE FUND’S FUTURE PERFORMANCE.

 

LOGO

 

NEITHER THE PAST PERFORMANCE OF THE FUND NOR THE PRIOR INDEX LEVELS AND CHANGES, POSITIVE OR NEGATIVE, SHOULD BE TAKEN AS AN INDICATION OF THE FUND’S FUTURE PERFORMANCE.

See Additional Legends on page 63.

 

 

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LOGO

 

NEITHER THE PAST PERFORMANCE OF THE FUND NOR THE PRIOR INDEX LEVELS AND CHANGES, POSITIVE OR NEGATIVE, SHOULD BE TAKEN AS AN INDICATION OF THE FUND’S FUTURE PERFORMANCE.

 

LOGO

 

NEITHER THE PAST PERFORMANCE OF THE FUND NOR THE PRIOR INDEX LEVELS AND CHANGES, POSITIVE OR NEGATIVE, SHOULD BE TAKEN AS AN INDICATION OF THE FUND’S FUTURE PERFORMANCE.

 

See Additional Legends on page 63.

 

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Additional Legends

 

Deutsche Bank G10 Currency Future Harvest Index – Excess Return™ is an index and does not reflect (i) actual trading and (ii) any fees or expenses.

 

WHILE THE FUND’S OBJECTIVE IS NOT TO GENERATE PROFIT THROUGH ACTIVE PORTFOLIO MANAGEMENT, BUT IS TO TRACK THE INDEX, BECAUSE THE INDEX WAS ESTABLISHED IN DECEMBER 2005, CERTAIN INFORMATION RELATING TO THE INDEX CLOSING LEVELS MAY BE CONSIDERED TO BE “HYPOTHETICAL.” HYPOTHETICAL INFORMATION MAY HAVE CERTAIN INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW.

 

WITH RESPECT TO INDEX DATA, NO REPRESENTATION IS BEING MADE THAT THE INDEX WILL OR IS LIKELY TO ACHIEVE ANNUAL OR CUMULATIVE CLOSING LEVELS CONSISTENT WITH OR SIMILAR TO THOSE SET FORTH HEREIN. SIMILARLY, NO REPRESENTATION IS BEING MADE THAT THE FUND WILL GENERATE PROFITS OR LOSSES SIMILAR TO THE FUND’S PAST PERFORMANCE OR THE HISTORICAL ANNUAL OR CUMULATIVE CHANGES IN INDEX CLOSING LEVELS. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY INVESTMENT METHODOLOGIES, WHETHER ACTIVE OR PASSIVE.

 

WITH RESPECT TO INDEX DATA, ONE OF THE LIMITATIONS OF HYPOTHETICAL INFORMATION IS THAT IT IS GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. TO THE EXTENT THAT INFORMATION PRESENTED HEREIN RELATES TO THE PERIOD MARCH 1993 THROUGH NOVEMBER 2005, THE INDEX CLOSING LEVELS REFLECT THE APPLICATION OF THE INDEX METHODOLOGY, AND SELECTION OF INDEX CURRENCIES, 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 ITEM 1A: “RISK FACTORS” HEREIN, RELATED TO THE CURRENCIES MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF THE FUND’S EFFORTS TO TRACK THE INDEX OVER TIME WHICH CANNOT BE, AND HAVE NOT BEEN, ACCOUNTED FOR IN THE PREPARATION OF THE INDEX INFORMATION SET FORTH ON THE FOLLOWING PAGES, ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL PERFORMANCE RESULTS FOR THE FUND. FURTHERMORE, THE INDEX INFORMATION DOES NOT INVOLVE FINANCIAL RISK OR ACCOUNT FOR THE IMPACT OF FEES AND COSTS ASSOCIATED WITH THE FUND.

 

THE MANAGING OWNER HAS HAD LIMITED EXPERIENCE IN TRADING ACTUAL ACCOUNTS FOR ITSELF OR FOR CLIENTS. BECAUSE THERE ARE LIMITED ACTUAL TRADING RESULTS TO COMPARE TO THE INDEX CLOSING LEVELS SET FORTH HEREIN, PROSPECTIVE INVESTORS SHOULD BE PARTICULARLY WARY OF PLACING UNDUE RELIANCE ON THE ANNUAL OR CUMULATIVE INDEX RESULTS.

 

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FOR THE YEAR ENDED DECEMBER 31, 2007 COMPARED TO THE PERIOD ENDED DECEMBER 31, 2006

 

Fund Limited Share Price Performance

 

On December 28, 2007, the Fund made a $0.80 per share distribution to Limited shareholders of record as of December 19, 2007.

 

For the Year Ended December 31, 2007, the Amex market value of Limited Shares increased 5.90% from $25.95 per share to $27.48 per share. The Limited Share price high and low for the Year Ended December 31, 2007 and related change from the Limited Share Price from December 31, 2006 was as follows: Limited Shares traded from a high of $29.78 per share (+14.76%) on July 23 and on July 25, 2007 to a low of $25.72 per share (-0.89%) on March 5, 2007. Total return for the Fund, on a market value basis, including the above noted distribution, was 8.98% for the period.

 

The Fund was launched on September 15, 2006 at $25.00 per share and listed for trading on the Amex on September 18, 2006.

 

On December 29, 2006, the Fund made a $0.06 per share distribution to Limited shareholders of record as of December 20, 2006.

 

For the Period Ended December 31, 2006, the Amex market value of Limited Shares increased 3.80% from $25.00 per share to $25.95 per share. The Limited Share price high and low for the Year Ended December 31, 2006 and related change from the Limited Share Price from September 15, 2006 was as follows: Limited Shares traded from a high of $26.00 per share (+4.00%) on December 28, 2006 to a low of $24.80 per share (-0.80%) on September 22, 2006. Total return for the Fund, on a market value basis, including the above noted distribution, was 4.04% for the period.

 

Fund Limited Share Net Asset Performance

 

For the Year Ended December 31, 2007, the net asset value of each Limited Share increased 5.96% from $25.84 per share to $27.38 per share. On December 28, 2007, the Fund made a $0.80 per share distribution to Limited shareholders of record as of December 19, 2007. Therefore, total return on a net asset value basis, for the Fund including the distribution was 9.06%.

 

Net income for the Year Ended December 31, 2007 was $14.6 million, resulting from $18.9 million of interest income supplemented by net realized gain of $6.3 million and net unrealized loss of $7.3 million and operating expenses of $3.3 million.

 

For the Period Ended December 31, 2006, the net asset value of each Limited Share increased 3.36% from $25.00 per share to $25.84 per share. On December 29, 2006, the Fund made a $0.06 per share distribution to Limited shareholders of record as of December 20, 2006. Therefore, total return on a net asset value basis, for the Fund including the distribution was 3.60%.

 

Net income for the Period Ended December 31, 2006 was $2.8 million, resulting from $0.8 million of interest income supplemented by net realized gains $0.7 million and net unrealized gains of $1.4 million and operating expenses of $0.1 million.

 

FOR THE THREE MONTHS ENDED DECEMBER 31, 2007 COMPARED TO THE THREE MONTHS ENDED DECEMBER 31, 2006

 

Fund Limited Share Price Performance

 

On December 28, 2007, the Fund made a $0.80 per share distribution to Limited shareholders of record as of December 19, 2007.

 

For the three months ended December 31, 2007, the Amex market value of Limited Shares decreased (-3.38)% from $28.44 per share to $27.48 per share. The Limited Share price high and low for the three months ended December 31, 2007 and related change from the Limited Share Price on September 30, 2007 was as follows: Limited Shares traded from a high of $29.29 per share (+2.99%) on October 31, 2007 to a low of $26.92 per share (-5.34%) on November 26, 2007. Total return for the Fund, on a market value basis, including the above noted distribution, for the period was (-0.56%) for the three month period ended December 31, 2007.

 

For the three months ended December 31, 2006, the Amex market value of Limited Shares increased 3.80% from $25.00 to $25.95 per share. The Limited Share price high and low for the three months ended December 31, 2006 and related change from the Limited Share Price on September 30, 2006 was as follows: Limited Shares traded from a high of $26.00

 

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per share (+4.00%) on December 28, 2006 to a low of $24.98 per share (-0.08%) on November 27, 2006. Total return for the Fund, on a market value basis, including the below noted distribution, was 4.04% for the three month period ended December 31, 2006.

 

On December 29, 2006, the Fund made a $0.06 per share distribution to Limited shareholders of record as of December 20, 2006.

 

Fund Limited Share Net Asset Performance

 

For the three months ended December 31, 2007, the net asset value of each Limited Share decreased (-3.42%) from $28.35 per share to $27.38 per share. On December 28, 2007, the Fund made a $0.80 per share distribution to Limited shareholders of record as of December 19, 2007. Therefore, total return on a net asset value basis for the Fund including the above noted distribution was (-0.60)%.

 

Net loss for the three months ended December 31, 2007 was $3.6 million, resulting from $5.2 million of interest income supplemented by net realized gain $9.9 million and net unrealized loss of $17.6 million less operating expenses of $1.1 million.

 

For the three months ended December 31, 2006, the net asset value of each Limited Share increased 3.61% for the period from $24.94 per share to $25.84 per share. On December 29, 2006, the Fund made a $0.06 per share distribution to Limited shareholders of record as of December 20, 2006. Therefore, total return on a net asset value basis for the Fund including the above distribution was 3.85%.

 

Net income for the three months ended December 31, 2006 was $2.8 million, resulting from $0.8 million of interest income supplemented by net realized gains $0.6 million and net unrealized gains of $1.5 million less operating expenses of $0.1 million.

 

Off-Balance Sheet Arrangements and Contractual Obligations

 

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

 

The Fund and the Master Fund have not utilized, nor do they expect to utilize in the future, special purpose entities to facilitate off balance sheet financing arrangements and have no loan guarantee arrangements or off balance sheet arrangements of any kind, other than agreements entered into in the normal course of business noted above, which may include indemnification provisions related to certain risks service providers undertake in performing services which are in the best interests of the Fund and the Master Fund. While the Fund’s and the Master Fund’s exposure under such indemnification provisions cannot be estimated, these general business indemnifications are not expected to have a material impact on either the Fund’s or the Master Fund’s financial position.

 

The Fund and Master Fund’s contractual obligations are with the Managing Owner and the Commodity Broker. Management Fee payments made to the Managing Owner are calculated as a fixed percentage of the Master Fund’s 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.

 

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Introduction

 

The Fund is designed to replicate positions in a currency futures index. The market sensitive instruments held by it are subject to the risk of trading loss. Unlike an operating company, the risk of market sensitive instruments is integral, not incidental, to the Fund’s main line of business.

 

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Market movements can produce frequent changes in the fair market value of the Fund’s open positions and, consequently, in its earnings and cash flow. The Fund’s market risk is primarily influenced by changes in the price of currencies.

 

Value at Risk is a measure of the maximum amount which the Fund could reasonably be expected to lose in a given market sector. However, the inherent uncertainty in the markets in which the Fund trades and the recurrence in the markets traded by the Fund of market movements far exceeding expectations could result in actual trading or non-trading losses far beyond the indicated Value at Risk or the Fund’s experience to date (i.e., “risk of ruin”). In light of this, as well as the risks and uncertainties intrinsic to all future projections, the inclusion of the quantification included in this section should not be considered to constitute any assurance or representation that the Fund’s losses in any market sector will be limited to Value at Risk or by the Fund’s attempts to manage its market risk.

 

Standard of Materiality

 

Materiality as used in this section, “Quantitative and Qualitative Disclosures About Market Risk,” is based on an assessment of reasonably possible market movements and the potential losses caused by such movements, taking into account the leverage, and multiplier features of the Fund’s market sensitive instruments.

 

QUANTIFYING THE FUND’S TRADING VALUE AT RISK

 

Quantitative Forward-Looking Statements

 

The following quantitative disclosures regarding the Fund’s market risk exposures contain “forward-looking statements” within the meaning of the safe harbor from civil liability provided for such statements by the Private Securities Litigation Reform Act of 1995 (set forth in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934). All quantitative disclosures in this section are deemed to be forward-looking statements for purposes of the safe harbor, except for statements of historical fact (such as the dollar amount of maintenance margin required for market risk sensitive instruments held at the end of the reporting period).

 

The Fund’s risk exposure in the various market sectors traded by the Fund is quantified below in terms of Value at Risk. Exchange maintenance margin requirements have been used by the Fund as the measure of its Value at Risk. Maintenance margin requirements are set by exchanges to equal or exceed 95-99% of the maximum one-day losses at fair value of any given contract incurred during the time period over which historical price fluctuations are researched for purposes of establishing margin levels. The maintenance margin levels are established by exchanges using historical price studies as well as an assessment of current market volatility and economic fundamentals to provide a probabilistic estimate of the maximum expected near-term one-day price fluctuation.

 

THE FUND’S TRADING VALUE AT RISK IN DIFFERENT CURRENCY CONTRACTS

 

The following table indicates the trading Value at Risk associated with the Fund’s open positions by market category as of December 31, 2007.

 

Currency

Contract

  Delivery
Month
    Value at
Risk
(VaR) $
Value*
    Value at
Risk
(“VaR”)*
% of Net
Assets
    Number of
times VaR
Exceeded
 
Australian Dollar   March 2008                3,075,575                0.60 %           10             
New Zealand Dollar   March 2008     3,528,102     0.69 %   9  
Japanese Yen   March 2008     2,355,426     0.46 %   8  
Swiss Franc   March 2008     1,725,230     0.34 %   7  
Swedish Krona   March 2008     2,168,938     0.42 %   6  
British Pound   March 2008     1,669,842     0.32 %   7  
Aggregate/Total:         7,898,156     1.53 %   7  

 

The following table indicates the trading Value at Risk associated with the Fund’s open positions by market category as of December 31, 2006. There has been no material change in the trading Value at Risk information previously disclosed in the Fund’s Annual Report on Form 10-K for the Period Ended December 31, 2006.

 

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Currency
Contract
  Delivery
Month
    Value at
Risk
(VaR) $
Value*
    Value at
Risk
(“VaR”)*
% of Net
Assets
    Number
of times
VaR
Exceeded
 
Australian Dollar   March 2007                568,542                0.44 %           3             
New Zealand Dollar   March 2007     646,071     0.50 %   2  
Japanese Yen   March 2007     581,464     0.45 %   2  
Swiss Franc   March 2007     594,385     0.46 %   2  
Swedish Krona   March 2007     620,228     0.48 %   3  
Aggregate/Total:         1,460,120     1.13 %   3  

 

* The VaR for a contract represents the one day, downside risk, under normal market conditions, with a 99% confidence level. It is calculated using historical market moves for the contract and uses a one year look-back. The aggregate VaR for the fund represents the VaR of the Fund’s open positions across all contracts, and is less than the sum of VaRs for each individual contract due to the diversification benefit across the contracts.

 

NON-TRADING RISK

 

The Fund has non-trading market risk as a result of investing in short-term United States Treasury Obligations. The market risk represented by these investments is expected to be immaterial.

 

QUALITATIVE DISCLOSURES REGARDING PRIMARY TRADING RISK EXPOSURES

 

The following qualitative disclosures regarding the Fund’s market risk exposures—except for those disclosures that are statements of historical fact—constitute forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act. The Fund’s primary market risk exposures are subject to numerous uncertainties, contingencies and risks. Government interventions, defaults and expropriations, illiquid markets, the emergence of dominant fundamental factors, political upheavals, changes in historical price relationships, an influx of new market participants, increased regulation and many other factors could result in material losses as well as in material changes to the risk exposures of the Fund. There can be no assurance that the Fund’s current market exposure will not change materially. Investors may lose all or substantially all of their investment in the Fund.

 

Several factors may affect the price of the Index Currencies, 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 currency’s value soon will change.

 

QUALITATIVE DISCLOSURES REGARDING NON-TRADING RISK EXPOSURE

 

General

 

The Fund is unaware of any (i) anticipated known demands, commitments or capital expenditures; (ii) material trends, favorable or unfavorable, in its capital resources; or (iii) trends or uncertainties that will have a material effect on operations.

 

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QUALITATIVE DISCLOSURES REGARDING MEANS OF MANAGING RISK EXPOSURE

 

Under ordinary circumstances, the Managing Owner’s discretionary power is limited to determining whether the Fund will make a distribution. Under emergency or extraordinary circumstances, the Managing Owner’s discretionary powers increase, but remain circumscribed. These special circumstances, for example, include the unavailability of the Index or certain natural or man-made disasters. The Managing Owner does not apply risk management techniques. The Fund initiates positions on both the “long” and “short” side of the market and does not employ “stop-loss” techniques.

 

USE OF PROCEEDS

 

A substantial amount of proceeds of the offering of the Shares are used by the Fund, through the Master Fund, to engage in the trading of exchange-traded futures on the Index Currencies with a view to tracking the changes, positive or negative, in the levels of the Index over time, less the expenses of the operations of the Fund and the Master Fund. The Master Fund’s portfolio also includes United States Treasury securities and other high credit quality short-term fixed income securities for deposit with the Master Fund’s Commodity Broker as margin.

 

To the extent, if any, that the Master Fund trades in futures contracts on United States exchanges, the assets deposited by the 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.

 

To the extent, if any, that the 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, the Master Fund estimates:

 

(i) up to approximately 5% of the net asset value of the Master Fund is placed in segregated accounts in the name of the 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 of all commodities combined. Such funds are segregated pursuant to CFTC rules;

 

(ii) approximately 95% of the net asset value of the Master Fund is maintained in segregated accounts in the name of the Master Fund in bank deposits or United States Treasury and United States Government Agencies issues.

 

It is expected that the Master Fund will commit 5% or less of net assets to margin its futures positions in the Index Currencies.

 

The Managing Owner, a registered commodity pool operator and commodity trading advisor, is responsible for the cash management activities of the Master Fund, including investing in United States Treasury and United States Government Agencies issues.

 

In addition, assets of the Master Fund not required to margin positions may be maintained in United States bank accounts opened in the name of the Master Fund and may be held in United States Treasury bills (or other securities approved by the CFTC for investment of customer funds).

 

The Master Fund receives 100% of the interest income earned on its fixed income assets.

 

CHARGES

 

See “Summary—Breakeven Amounts” and “Summary—‘Breakeven Table’” for additional breakeven related information.

 

Management Fee

 

The Master Fund pays the Managing Owner a Management Fee, monthly in arrears, in an amount equal to 0.75% per annum of the daily net asset value

 

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of the Master Fund. No separate management fee is paid by the Fund. The Management Fee will be paid in consideration of the Managing Owner’s currency futures trading advisory services.

 

Organization and Offering Expenses

 

Expenses incurred in connection with