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EX-4.1 - AMENDMENT TO DEPOSITARY TRUST AGREEMENT - CURRENCYSHARES CANADIAN DOLLAR TRUSTdex41.htm
EX-31.2 - CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO SECTION 302(A) - CURRENCYSHARES CANADIAN DOLLAR TRUSTdex312.htm
EX-32.2 - CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO SECTION 906 - CURRENCYSHARES CANADIAN DOLLAR TRUSTdex322.htm
EX-31.1 - CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO SECTION 302(A) - CURRENCYSHARES CANADIAN DOLLAR TRUSTdex311.htm
EX-32.1 - CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO SECTION 906 - CURRENCYSHARES CANADIAN DOLLAR TRUSTdex321.htm
EX-10.1 - AMENDMENT TO DEPOSIT ACCOUNT AGREEMENT - CURRENCYSHARES CANADIAN DOLLAR TRUSTdex101.htm
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

 

 

FORM 10-Q

 

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 31, 2010

or

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission File Number 001-32910

 

 

CurrencyShares® Canadian Dollar Trust

Sponsored by Rydex Specialized Products LLC,

d/b/a Rydex Investments

(Exact name of registrant as specified in its charter)

 

 

 

New York   No. 06-6551776

(State or other jurisdiction of

incorporation or organization)

 

(IRS Employer

Identification No.)

9601 Blackwell Road, Suite 500

Rockville, Maryland 20850

(Address of principal executive offices) (Zip Code)

(301) 296-5100

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ¨    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  ¨    Accelerated filer  x    Non-accelerated filer  ¨    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

 

 

 


Table of Contents

CURRENCYSHARES® CANADIAN DOLLAR TRUST

INDEX

 

Caption

   Page
PART I FINANCIAL INFORMATION   

Item 1. Financial Statements (Unaudited)

  

Statements of Financial Condition at July 31, 2010 and October 31, 2009

   2

Statements of Income and Comprehensive Income for the three months ended July  31, 2010, the three months ended July 31, 2009, the nine months ended July 31, 2010 and the nine months ended July 31, 2009

   3

Statements of Changes in Shareholders’ Equity for the nine months ended July  31, 2010 and the year ended October 31, 2009

   4

Statements of Cash Flows for the nine months ended July 31, 2010 and the nine months ended July  31, 2009

   5

Notes to Financial Statements

   6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

   11

Item 3. Quantitative and Qualitative Disclosures about Market Risk

   15

Item 4. Controls and Procedures

   15
Part II OTHER INFORMATION   

Item 1. Legal Proceedings

   16

Item 1A. Risk Factors

   16

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

   16

Item 3. Defaults Upon Senior Securities

   16

Item 4. (Removed and Reserved)

   16

Item 5. Other Information

   16

Item 6. Exhibits

   17
SIGNATURES    18

 

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PART I - FINANCIAL INFORMATION

 

Item 1. FINANCIAL STATEMENTS

CurrencyShares® Canadian Dollar Trust

Statements of Financial Condition

 

     July 31, 2010
(Unaudited)
   October 31, 2009

Assets

     

Current Assets:

     

Canadian Dollar deposits, interest bearing

   $ 613,284,852    $ 560,327,680

Canadian Dollar deposits, non-interest bearing

     —        —  

Receivable from accrued interest

     57,705      —  
             

Total Assets

   $ 613,342,557    $ 560,327,680
             

Liabilities and Shareholders’ Equity

     

Current Liabilities:

     

Redemptions payable

   $ 19,311,400    $ 4,629,451

Accrued Sponsor’s fee

     210,120      176,225
             

Total Current Liabilities

     19,521,520      4,805,676

Commitments and Contingent Liabilities (note 8)

     —        —  

Redeemable Capital Shares, at redemption value, no par value, 16,500,000 and 11,500,000 authorized, respectively – 6,150,000 and 6,000,000 issued and outstanding, respectively

     593,821,037      555,522,004

Shareholders’ Equity:

     

Retained Earnings

     —        —  

Cumulative Translation Adjustment

     —        —  
             

Total Liabilities and Shareholders’ Equity

   $ 613,342,557    $ 560,327,680
             

See Notes to Financial Statements.

 

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CurrencyShares® Canadian Dollar Trust

Statements of Income and Comprehensive Income

(Unaudited)

 

     Three months ended
July  31, 2010
    Three months ended
July  31, 2009
    Nine months ended
July  31, 2010
    Nine months ended
July  31, 2009
 

Income

        

Interest income

   $ 69,294      $ —        $ 69,294      $ 612,517   
                                

Total Income

     —          —          —          612,517   

Expenses

        

Sponsor’s fee

     (606,964     (453,033     (1,782,091     (899,726
                                

Total Expenses

     (606,964     (453,033     (1,782,091     (899,726

Net Loss

   $ (537,670   $ (453,033   $ (1,712,797   $ (287,209
                                

Other Comprehensive Loss:

        

Currency translation adjustment

     (6,029     (22,293     (7,499     (34,793
                                

Total Comprehensive Loss

   $ (543,699   $ (475,326   $ (1,720,296   $ (322,002
                                

Basic and Diluted Earnings per Share

   $ (0.09   $ (0.09   $ (0.28   $ (0.08

Weighted-average Shares Outstanding

     6,305,435        5,110,870        6,225,275        3,620,879   

Cash Dividends per Share

   $ —        $ —        $ —        $ 0.17   

See Notes to Financial Statements.

 

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CurrencyShares® Canadian Dollar Trust

Statements of Changes in Shareholders’ Equity

 

     Nine months ended
July  31, 2010
(Unaudited)
    Year ended
October 31, 2009
 

Retained Earnings, Beginning of Period

   $ —        $ —     

Net Loss

     (1,712,797     (785,325

Distributions Paid

     —          (628,316

Adjustment of redeemable capital shares to redemption value

     1,712,797        1,413,641   
                

Retained Earnings, End of Period

   $ —        $ —     
                

Cumulative Translation Adjustment, Beginning of Period

   $ —        $ —     

Currency translation adjustment

     (7,499     (33,499

Adjustment of redeemable capital shares to redemption value

     7,499        33,499   
                

Cumulative Translation Adjustment, End of Period

   $ —        $ —     
                

See Notes to Financial Statements.

 

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CurrencyShares® Canadian Dollar Trust

Statements of Cash Flows

(Unaudited)

 

     Nine months ended
July 31, 2010
    Nine months ended
July 31, 2009
 

Cash flows from operating activities

    

Cash received for accrued income

   $ 12,238      $ 887,476   

Cash paid for expenses

     (1,756,317     (794,277
                

Net cash (used in)/provided by operating activities

     (1,744,079     93,199   

Cash flows from financing activities

    

Cash received to purchase redeemable shares

   $ 186,530,392      $ 365,762,023   

Cash paid to redeem redeemable shares

     (157,816,238     (78,940,514

Cash paid for distributions

     —          (613,164
                

Net cash provided by financing activities

     28,714,154        286,208,345   

Adjustment to period cash flows due to currency movement

     25,987,097        51,134,974   
                

Increase in cash

     52,957,172        337,436,518   

Cash at beginning of period

     560,327,680        152,163,185   
                

Cash at end of period

   $ 613,284,852      $ 489,599,703   
                

Reconciliation of net loss to net cash (used in)/provided by operating activities

    

Net loss

   $ (1,712,797   $ (287,209

Adjustments to reconcile net loss to net cash (used in)/provided by operating activities:

    

Receivable from accrued interest

     (57,705     —     

Prior period receivable from accrued interest

     —          257,325   

Currency translation adjustment

     (7,472     12,416   

Accrued sponsor fee

     210,120        165,595   

Prior period accrued sponsor fee

     (176,225     (54,928
                

Net cash (used in)/provided by operating activities

   $ (1,744,079   $ 93,199   
                

See Notes to Financial Statements.

 

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CurrencyShares® Canadian Dollar Trust

Notes to Financial Statements

(Unaudited)

 

1. Organization and Description of the Trust

The CurrencyShares® Canadian Dollar Trust (the “Trust”) was formed under the laws of the State of New York on June 8, 2006 when Rydex Specialized Products LLC d/b/a “Rydex Investments” (the “Sponsor”) deposited 100 Canadian Dollars in the Trust’s primary deposit account held by JPMorgan Chase Bank, N.A., London Branch (the “Depository”). The Sponsor is a Delaware limited liability company whose sole member is Rydex Advisors II, LLC (also d/b/a “Rydex Investments”). The Sponsor is responsible for, among other things, overseeing the performance of The Bank of New York Mellon (the “Trustee”) and the Trust’s principal service providers, including the preparation of financial statements. The Trustee is responsible for the day-to-day administration of the Trust.

The investment objective of the Trust is for the Trust’s shares (the “Shares”) to reflect the price of the Canadian Dollar plus accrued interest less the Trust’s expenses and liabilities. The Shares are intended to provide investors with a simple, cost-effective means of gaining investment benefits similar to those of holding Canadian Dollars. The Trust’s assets primarily consist of Canadian Dollars on demand deposit in two deposit accounts maintained by the Depository: a primary deposit account which may earn interest and a secondary deposit account which does not earn interest. The secondary deposit account is used to account for any interest that may be received and paid out on creations and redemptions of blocks of 50,000 Shares (“Baskets”). The secondary account is also used to account for interest earned, if any, on the primary deposit account, pay Trust expenses and distribute any excess interest to holders of Shares (“Shareholders”) on a monthly basis.

The accompanying unaudited financial statements were prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions for Form 10-Q. In the opinion of management, all material adjustments, consisting only of normal recurring adjustments, considered necessary for a fair statement of the interim period financial statements have been made. Interim period results are not necessarily indicative of results for a full-year period. These financial statements and the notes thereto should be read in conjunction with the Trust’s audited financial statements included in the Form 10-K filed on January 14, 2010.

 

2. Significant Accounting Policies

 

A. Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of the assets, liabilities and disclosures of contingent liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the period and the evaluation of subsequent events through the issuance of the financial statements. Actual results could differ from those estimates.

 

B. Foreign Currency Translation

The Trustee calculates the Trust’s net asset value (“NAV”) each business day, as described in Note 4. Prior to November 13, 2008, Canadian Dollar deposits (cash) were translated for NAV calculation purposes at the Noon Buying Rate, which was the U.S. Dollar (“USD”)/Canadian Dollar exchange rate as determined and published by the Federal Reserve Bank of New York. As of November 13, 2008, Canadian Dollar deposits (cash) are translated for NAV calculation purposes at the Closing Spot Rate, which is the USD/Canadian Dollar exchange rate as determined by WM/Reuters at 4:00 PM (London time) on each day that NYSE Arca is open for regular trading.

 

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The functional currency of the Trust is the Canadian Dollar in accordance with generally accepted accounting standards. For financial statement reporting purposes, the U.S. Dollar is the reporting currency. As a result, the financial records of the Trust are translated from Canadian Dollars to USD. The Closing Spot Rate on the last day of the period is used for translation in the statements of financial condition. The average Closing Spot Rate for the period is used for translation in the statement of income and comprehensive income and the statement of cash flows. Any currency translation adjustment is included in comprehensive income.

 

C. Federal Income Taxes

The Trust is treated as a “grantor trust” for federal income tax purposes and, therefore, no provision for federal income taxes is required. Interest, gains and losses are passed through to the Shareholders.

Shareholders generally will be treated, for U.S. federal income tax purposes, as if they directly owned a pro-rata share of the assets held in the Trust. Shareholders also will be treated as if they directly received their respective pro-rata protion of the Trust’s income, if any, and as if they directly incurred their respective pro-rata portion of the Trust’s expenses. The acquisition of Shares by a U.S. Shareholder as part of a creation of a Basket will not be a taxable event to the Shareholder.

The Sponsor’s fee accrues daily and is payable monthly. For U.S. federal income tax purposes, an accrual-basis U.S. Shareholder generally will be required to take into account as an expense its allocable portion of the USD-equivalent of the amount of the Sponsor’s fee that is accrued on each day, with such USD-equivalent being determined by the currency exchange rate that is in effect on the respective day. To the extent that the currency exchange rate on the date of payment of the accrued amount of the Sponsor’s fee differs from the currency exchange rate in effect on the day of accrual, the U.S. Shareholder will recognize a currency gain or loss for U.S. federal income tax purposes.

The Trust does not expect to generate taxable income except for interest income (if any) and gain (if any) upon the sale of Canadian Dollars. A non-U.S. Shareholder generally will not be subject to U.S. federal income tax with respect to gain recognized upon the sale or other disposition of Shares, or upon the sale of Canadian Dollars by the Trust, unless: (1) the non-U.S. Shareholder is an individual and is present in the United States for 183 days or more during the taxable year of the sale or other disposition, and the gain is treated as being from United States sources; or (2) the gain is effectively connected with the conduct by the non-U.S. Shareholder of a trade or business in the United States.

A non-U.S. Shareholder’s portion of any interest income earned by the Trust generally will not be subject to U.S. federal income tax unless the Shares owned by such non-U.S. Shareholder are effectively connected with the conduct by the non-U.S. Shareholder of a trade or business in the United States.

 

D. Revenue Recognition

Interest on the primary deposit account, if any, accrues daily as earned and is received on a monthly basis.

 

E. Dividends

To the extent that the interest earned by the Trust exceeds the sum of the Sponsor’s fee for the prior month plus other Trust expenses, if any, the Trust will distribute, as a dividend, the excess interest earned in Canadian Dollars effective on the first business day of the subsequent month. The Trustee will direct that the excess Canadian Dollars be converted into USD at a prevailing market rate and the Trustee will distribute the USD as promptly as practicable to Shareholders on a pro-rata basis (in accordance with the number of Shares that they own).

 

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3. Canadian Dollar Deposits

Canadian Dollar principal deposits are held in a Canadian Dollar-denominated, interest-bearing demand account. For the nine months ended July 31, 2010, there were Canadian Dollar principal deposits of 194,122,179, Canadian Dollar principal redemptions of 159,252,515 and Canadian Dollar withdrawals (to pay expenses) of 1,815,063, resulting in an ending Canadian Dollar principal balance of 631,652,733. This equates to 593,973,452 USD (which is net of USD redemptions payable of 19,311,400). For the year ended October 31, 2009, there were Canadian Dollar principal deposits of 544,589,735, Canadian Dollar principal redemptions of 129,857,128 and Canadian Dollar withdrawals (to pay expenses) of 1,134,475, resulting in an ending Canadian Dollar principal balance of 598,598,132. This equates to 555,698,229 USD (which is net of USD redemptions payable of 4,629,451).

Net interest, if any, associated with creation and redemption activity is held in a Canadian Dollar-denominated non-interest bearing account, and any balance is distributed in full as part of the monthly income distributions.

 

4. Redeemable Capital Shares

Shares are classified as “redeemable” for financial statement purposes, since they are subject to redemption. Shares are issued and redeemed continuously in Baskets in exchange for Canadian Dollars. Individual investors cannot purchase or redeem Shares in direct transactions with the Trust. Only Authorized Participants (as defined below) may place orders to create and redeem Baskets. An Authorized Participant is a Depository Trust Company (“DTC”) participant that is a registered broker-dealer or other institution eligible to settle securities transactions through the book-entry facilities of DTC and which has entered into a contractual arrangement with the Trust and the Sponsor governing, among other matters, the creation and redemption process. Authorized Participants may redeem their Shares at any time in Baskets.

Due to expected continuing creations and redemptions of Baskets and the three-day period for settlement of each creation or redemption, the Trust reflects Shares created as a receivable. Shares redeemed are reflected as a liability on the trade date. Outstanding Shares are reflected at a redemption value, which is the NAV per Share at the period end date. Adjustments to redeemable capital shares at redemption value are recorded against retained earnings, or, in the absence of retained earnings, by charges against the cumulative translation adjustment.

 

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Activity in redeemable capital Shares is as follows:

 

     Nine months ended
July 31, 2010
(Unaudited)
    Year ended
October 31, 2009
 
     Shares     U.S. Dollar
Amount
    Shares     U.S. Dollar
Amount
 

Opening balance

   6,000,000      $ 555,522,004      1,850,000      $ 152,365,582   

Shares issued

   1,950,000        186,530,392      5,450,000        464,050,396   

Shares redeemed

   (1,800,000     (172,136,342   (1,300,000     (110,652,465

Adjustment to period Shares due to currency movement and other

   —          23,904,983      —          49,758,491   
                            

Ending balance

   6,150,000      $ 593,821,037      6,000,000      $ 555,522,004   
                            

The Trustee calculates the Trust’s NAV each business day. To calculate the NAV, the Trustee subtracts the Sponsor’s accrued fee through the previous day from the Canadian Dollars held by the Trust (including all unpaid interest accrued, if any, through the preceding day) and calculates the value of the Canadian Dollars in USD based upon the Closing Spot Rate. If, on a particular evaluation day, the Closing Spot Rate has not been determined and announced by 6:00 PM (London time), then the most recent Closing Spot Rate will be used to determine the NAV of the Trust unless the Trustee, in consultation with the Sponsor, determines that such price is inappropriate to use as the basis for the valuation. If the Trustee and the Sponsor determine that the most recent Closing Spot Rate is not an appropriate basis for valuation of the Trust’s Canadian Dollars, they will determine an alternative basis for the valuation. The Trustee also determines the NAV per Share, which equals the NAV of the Trust divided by the number of outstanding Shares. Shares deliverable under a purchase order are considered outstanding for purposes of determining NAV per Share; Shares deliverable under a redemption order are not considered outstanding for this purpose.

 

5. Sponsor’s Fee

The Sponsor’s fee accrues daily at an annual nominal rate of 0.40% of the Canadian Dollars in the Trust (including all unpaid interest but excluding unpaid fees, each as accrued through the immediately preceding day) and is paid monthly.

The Sponsor assumes and pays the following administrative and marketing expenses incurred by the Trust: the Trustee’s monthly fee, NYSE Arca listing fees, SEC registration fees, typical maintenance and transaction fees of the Depository, printing and mailing costs, audit fees and expenses, up to $100,000 per year in legal fees and expenses, and applicable license fees.

In certain exceptional cases the Trust will pay for some expenses in addition to the Sponsor’s fee. These exceptions include expenses not assumed by the Sponsor (i.e., expenses other than those identified in the preceding paragraph), taxes and governmental charges, expenses and costs of any extraordinary services performed by the Trustee or the Sponsor on behalf of the Trust or action taken by the Trustee or the Sponsor to protect the Trust or the interests of Shareholders, indemnification of the Sponsor under the Depositary Trust Agreement, and legal expenses in excess of $100,000 per year.

 

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6. Related Parties

The Sponsor is a related party of the Trust. The Sponsor oversees the performance of the Trustee and the Trust’s principal service providers, including the preparation of financial statements, but does not exercise day-to-day oversight over the Trustee or the Trust’s service providers.

 

7. Concentration Risk

All of the Trust’s assets are Canadian Dollars, which creates a concentration risk associated with fluctuations in the price of the Canadian Dollar. Accordingly, a decline in the Canadian Dollar to USD exchange rate will have an adverse effect on the value of the Shares. Factors that may have the effect of causing a decline in the price of the Canadian Dollar include national debt levels and trade deficits, domestic and foreign inflation rates, domestic and foreign interest rates, investment and trading activities of institutions and global or regional political, economic or financial events and situations. Substantial sales of Canadian Dollars by the official sector (central banks, other governmental agencies and related institutions that buy, sell and hold Canadian Dollars as part of their reserve assets) could adversely affect an investment in the Shares.

All of the Trust’s Canadian Dollars are held by the Depository. Accordingly, a risk associated with the concentration of the Trust’s assets in accounts held by a single financial institution exists and increases the potential for loss by the Trust and the Trust’s beneficiaries in the event that the Depository becomes insolvent.

 

8. Commitments and Contingencies

Under the Trust’s organizational documents, the Sponsor is indemnified against any liability or expense it incurs without negligence, bad faith or willful misconduct on its part. The Trust’s maximum exposure under this arrangement is unknown, as this would involve future claims that may be made against the Trust that have not yet occurred.

 

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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cautionary Statement Regarding Forward-Looking Information and Risk Factors

This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In some cases, such forward-looking statements can be identified by terminology such as “anticipate,” “expect,” “intend,” “plan,” “believe,” “seek,” “outlook” and “estimate” as well as similar words and phrases that signify forward-looking statements. These statements are predictions and actual events or results may differ materially from those expressed in our forward-looking statements. Risks and uncertainties may cause our actual results to differ materially from those expressed in our forward-looking statements. These risks and uncertainties include fluctuations in the price of the Canadian Dollar, as the value of the Shares relates directly to the value of the Canadian Dollars held by the Trust and price fluctuations could materially adversely affect an investment in the Shares. Readers are urged to review the “Risk Factors” section contained in the Trust’s most recent annual report on Form 10-K for a description of other risks and uncertainties that may affect an investment in the Shares.

Neither Rydex Specialized Products LLC d/b/a Rydex Investments (the “Sponsor”) nor any other person assumes responsibility for the accuracy or completeness of forward-looking statements contained in this report. Further, these forward-looking statements are made as of the date of this report, and will not be revised or updated to reflect actual results or changes in the Sponsor’s expectations or predictions.

Trust Overview

CurrencyShares® Canadian Dollar Trust (the “Trust”) is a grantor trust that was formed on June 8, 2006. The Trust issues shares (the “Shares”) in blocks of 50,000 each (a “Basket”) in exchange for deposits of Canadian Dollars and distributes Canadian Dollars in connection with the redemption of Baskets.

The Trust is a passive investment vehicle. The Trust does not have any officers, directors or employees. The investment objective of the Trust is for the Shares to reflect the price of the Canadian Dollar plus accrued interest, if any, less the expenses of the Trust’s operations. The Trust does not engage in any activities designed to obtain profit from, or ameliorate losses caused by, changes in the price of the Canadian Dollar. Investing in the Shares does not insulate the investor from certain risks, including price volatility.

The Shares began trading on the New York Stock Exchange (“NYSE”) under the ticker symbol “FXC” on June 26, 2006. The primary listing of the Shares was transferred to NYSE Arca on October 30, 2007.

Definition of Net Asset Value; Valuation of the Canadian Dollar

The net asset value (“NAV”) of the Trust is the aggregate value, expressed in U.S. Dollars (“USD”), of the Trust’s assets. To calculate the NAV, The Bank of New York Mellon (the “Trustee”) adds to the amount of Canadian Dollars in the Trust at the end of the preceding business day accrued but unpaid interest, if any, Canadian Dollars receivable under pending purchase orders and the value of other Trust assets, and subtracts the accrued but unpaid Sponsor’s fee, Canadian Dollars payable under pending redemption orders and other Trust expenses and liabilities, if any.

Prior to November 13, 2008, the NAV was expressed in USD based on the “Noon Buying Rate,” which was the USD/Canadian Dollar exchange rate as determined by the Federal Reserve Bank of New York. As of November 13, 2008, the NAV is expressed in USD based on the USD/Canadian Dollar exchange rate as determined by WM/Reuters at 4:00 PM (London time) (the “Closing Spot Rate”) on each day that NYSE Arca is open for regular trading. If, on a particular evaluation day, the Closing Spot Rate has not been determined and announced by 6:00 PM (London time), then the most recent Closing Spot Rate will be used to determine the NAV of the Trust unless the Trustee, in consultation with the Sponsor, determines that such price is inappropriate to use as the basis for the valuation. The Trustee also determines the NAV per Share, which equals the NAV of the Trust divided by the number of outstanding Shares.

 

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The Sponsor publishes the NAV and NAV per Share on each day that the NYSE Arca is open for regular trading on the Trust’s website, www.currencyshares.com.

The following chart illustrates the movement in the price of the Shares based on (1) NAV per Share, (2) the “bid” and “ask” midpoint offered on the NYSE (prior to October 30, 2007) and NYSE Arca (as of October 30, 2007) and (3) the Noon Buying Rate (prior to November 13, 2008) and the Closing Spot Rate (as of November 13, 2008) expressed as a multiple of 100 Canadian Dollars:

LOGO

 

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Liquidity

The Sponsor is not aware of any trends, demands, conditions or events that are reasonably likely to result in material changes to the Trust’s liquidity needs. The Trust’s depository, JPMorgan Chase Bank, N.A., London Branch (the “Depository”), maintains two deposit accounts for the Trust, a primary deposit account that may earn interest and a secondary deposit account that does not earn interest. Interest on the primary deposit account, if any, accrues daily and is paid monthly. The interest rate in effect as of July 31, 2010 was an annual nominal rate of 0.25%. The following chart provides the daily rate paid by the Depository since the Shares began trading:

LOGO

In exchange for a fee, the Sponsor bears most of the expenses incurred by the Trust. As a result, the only ordinary expense of the Trust during the period covered by this report was the Sponsor’s fee. Each month the Depository deposits into the secondary deposit account accrued but unpaid interest, if any, and the Trustee withdraws Canadian Dollars from the secondary deposit account to pay the accrued Sponsor’s fee for the previous month plus other Trust expenses, if any. In the event that any interest deposited exceeds the sum of the Sponsor’s fee for the prior month plus other Trust expenses, if any, the Trustee converts the excess into USD at a prevailing market rate and distributes the USD as promptly as practicable to Shareholders on a pro-rata basis (in accordance with the number of Shares that they own).

The Trust did not make any distributions during the quarter ended July 31, 2010.

Critical Accounting Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the Sponsor’s management to make estimates and assumptions that affect the reported amounts of the assets and liabilities and disclosures of contingent liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the periods covered by this report.

In addition to the description below, please refer to Note 2 to the financial statements for further discussion of the Trust’s accounting policies.

The Trustee calculates the Trust’s NAV each business day. For NAV calculation purposes, Canadian Dollar deposits (cash) are translated at the Closing Spot Rate as determined by WM/Reuters as of 4:00 PM (London time) on each day that NYSE Arca is open for regular trading.

The functional currency of the Trust is the Canadian Dollar in accordance with generally accepted accounting standards.

 

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Results of Operations

As of October 31, 2009, the number of Canadian Dollars owned by the Trust was 598,598,132, resulting in a redeemable capital share value of $555,522,004. During the nine months ended July 31, 2010, an additional 1,950,000 Shares were created in exchange for 194,122,179 Canadian Dollars and 1,800,000 Shares were redeemed in exchange for 159,252,515 Canadian Dollars. In addition, 1,815,063 Canadian Dollars were withdrawn by the Sponsor to pay the portion of the Sponsor’s fee that exceeded the interest earned. As of July 31, 2010, the number of Canadian Dollars owned by the Trust was 631,652,733, resulting in a redeemable capital share value of $593,821,037.

Growth in the Trust’s redeemable capital share value from $555,522,004 at October 31, 2009 to $593,821,037 at July 31, 2010 was primarily the result of an increase in the number of Shares outstanding from 6,000,000 at October 31, 2009 to 6,150,000 at July 31, 2010, coupled with an increase in the Closing Spot Rate from 0.9283 at October 31, 2009 to 0.97092 at July 31, 2010.

Interest income increased from $0 for the three months ended July 31, 2009 to $69,294 for the three months ended July 31, 2010 attributable primarily to an increase in the annual nominal interest rate paid by the Depository as set forth in the chart above. Interest income decreased from $612,517 for the nine months ended July 31, 2009 to $69,294 for the nine months ended July 31, 2010 attributable primarily to a reduction in the annual nominal interest rate paid by the Depository as set forth in the chart above.

The only expense of the Trust during the three months and nine months ended July 31, 2010 was the Sponsor’s fee. The Sponsor’s fee accrues daily at an annual nominal rate of 0.40% of the Canadian Dollars in the Trust. Due primarily to an increase in the weighted-average Canadian Dollars in the Trust, the Sponsor’s fee increased from $453,033 for the three months ended July 31, 2009 to $606,964 for the three months ended July 31, 2010, and increased from $899,726 for the nine months ended July 31, 2009 to $1,782,091 for the nine months ended July 31, 2010.

The Trust’s net loss for the three months ended July 31, 2010 was $537,670 due to the Sponsor’s fee of $606,964 exceeding interest income of $69,294. The Trust’s net loss for the nine months ended July 31, 2010 was $1,712,797 due to the Sponsor’s fee of $1,782,091 exceeding interest income of $69,294.

Cash dividends were not paid by the Trust for the three months ended July 31, 2009 and the three months ended July 31, 2010 as the Trust’s interest income did not exceed the Trust’s expenses during those periods. Cash dividends per Share decreased from $0.17 for the nine months ended July 31, 2009 to $0.00 per Share for the nine months ended July 31, 2010. This decrease in cash dividends per Share was primarily the result of a decrease in the annual nominal interest rate paid by the Depository.

Movements in the Price of the Canadian Dollar

The investment objective of the Trust is for the Shares to reflect the price of the Canadian Dollar plus accrued interest, if any, less the expenses of the Trust’s operations. The Shares are intended to provide institutional and retail investors with a simple, cost-effective means of gaining investment benefits similar to those of holding Canadian Dollars. Each outstanding Share represents a proportional interest in the Canadian Dollars held by the Trust. The following chart provides historical trends in the price of the Canadian Dollar. The chart illustrates movements in the price of the Canadian Dollar in USD and is based on the Noon Buying Rate (prior to November 13, 2008) and the Closing Spot Rate (as of November 13, 2008).

 

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LOGO

 

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Except as described above with respect to fluctuations in the USD/Canadian Dollar exchange rate and changes in the nominal annual interest rate paid by the Depository on Canadian Dollars held by the Trust, the Trust is not subject to market risk. The Trust does not hold securities and does not invest in derivative products.

 

Item 4. CONTROLS AND PROCEDURES

The Trust maintains disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) designed to ensure that material information relating to the Trust is recorded, processed and disclosed on a timely basis. The Trust’s disclosure controls and procedures are designed by or under the supervision of the Sponsor’s chief executive officer and chief financial officer, who exercise oversight over the Trust as the Trust has no officers. The chief executive officer and chief financial officer of the Sponsor have evaluated the effectiveness of the Trust’s disclosure controls and procedures as of July 31, 2010. Based on that evaluation, the chief executive officer and chief financial officer of the Sponsor have concluded that the disclosure controls and procedures of the Trust were effective as of the end of the period covered by this report.

There were no changes in the Trust’s internal control over financial reporting that occurred during the Trust’s last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Trust’s internal control over financial reporting.

 

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PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings

None.

 

Item 1A. Risk Factors

There have been no material changes from the risk factors disclosed in the “Risk Factors” section of the Trust’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on January 14, 2010.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

(a) None.

 

(b) Not applicable.

 

(c) During the quarter ended July 31, 2010, 22 Baskets (1,100,000 Shares registered pursuant to Section 12 of the Securities Exchange Act of 1934) were redeemed by the Trust, as follows:

 

Period

   Total Number of Registered
Shares Redeemed
   Average Price Per Share

05/01/2010 – 05/31/2010

   250,000    $ 94.01

06/01/2010 – 06/30/2010

   —        —  

07/01/2010 – 07/31/2010

   850,000    $ 95.01

 

Item 3. Defaults Upon Senior Securities

None.

 

Item 4. (Removed and Reserved)

 

Item 5. Other Information

None.

 

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Item 6. Exhibits

 

Number

 

Description of Exhibit

4.1   Amendment to Depositary Trust Agreement, dated November 13, 2008, by and between Rydex Specialized Products LLC, as Sponsor, and The Bank of New York Mellon, as Trustee.
10.1   Amendment to Deposit Account Agreement, dated November 13, 2008, by and between The Bank of New York Mellon, as Trustee, and JPMorgan Chase Bank, N.A., London Branch, as Depository.
31.1   Certification of Principal Executive Officer Pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.
31.2   Certification of Principal Financial Officer Pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.
32.1   Certification of Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2   Certification of Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

    CURRENCYSHARES® CANADIAN DOLLAR TRUST
    By:   Rydex Specialized Products LLC
     

Sponsor of the CurrencyShares®

Canadian Dollar Trust

Date: September 9, 2010

  By:  

/s/ Joseph Arruda

      Joseph Arruda
      Chief Financial Officer
      (principal financial officer)

 

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