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EX-32.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 906 - PowerShares DB Commodity Index Tracking Fundd230651dex321.htm
EX-31.1 - CERTIFICATION REQUIRED UNDER EXCHANGE ACT RULES 13A-14 AND 15D-14 - PowerShares DB Commodity Index Tracking Fundd230651dex311.htm
EXCEL - IDEA: XBRL DOCUMENT - PowerShares DB Commodity Index Tracking FundFinancial_Report.xls
EX-32.2 - CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO SECTION 906 - PowerShares DB Commodity Index Tracking Fundd230651dex322.htm
EX-31.2 - CERTIFICATION REQUIRED UNDER EXCHANGE ACT RULES 13A-14 AND 15D-14 - PowerShares DB Commodity Index Tracking Fundd230651dex312.htm
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2011

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:                     001-32726

 

 

POWERSHARES DB COMMODITY INDEX TRACKING FUND

(Exact name of Registrant as specified in its charter)

 

 

 

Delaware   32-6042243

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

c/o DB Commodity Services LLC

60 Wall Street

New York, New York

  10005
(Address of Principal Executive Offices)   (Zip Code)

Registrant’s telephone number, including area code: (212) 250-5883

 

 

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  þ    No  ¨

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, an 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  þ    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 “accelerated filer,” “large accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large Accelerated Filer   x    Accelerated Filer   ¨
Non-Accelerated Filer   ¨  (Do not check if a smaller reporting company)    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  þ

Indicate the number of outstanding Shares as of September 30, 2011: 209,600,000 Shares.

 

 

 


Table of Contents

POWERSHARES DB COMMODITY INDEX TRACKING FUND

QUARTER ENDED SEPTEMBER 30, 2011

TABLE OF CONTENTS

 

 

 

          Page  

PART I.

  

FINANCIAL INFORMATION

     1   

ITEM 1.

  

FINANCIAL STATEMENTS

     1   
  

Notes to Unaudited Financial Statements

     10   

ITEM 2.

  

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

     17   

ITEM 3.

  

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     29   

ITEM 4.

  

CONTROLS AND PROCEDURES

     32   

PART II.

  

OTHER INFORMATION

     33   

Item 1.

  

Legal Proceedings

     33   

Item 1A.

  

Risk Factors

     33   

Item 2.

  

Unregistered Sales of Equity Securities and Use of Proceeds

     35   

Item 3.

  

Defaults Upon Senior Securities

     35   

Item 4.

  

Reserved

     35   

Item 5.

  

Other Information

     35   

Item 6.

  

Exhibits

     36   

SIGNATURES

     37   

EXHIBIT INDEX

     E-1   

Exhibit 31.1

  

Certification required under Exchange Act Rules 13a–14 and 15d–14

     E-2   

Exhibit 31.2

  

Certification required under Exchange Act Rules 13a–14 and 15d–14

     E-3   

Exhibit 32.1

  

Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

     E-4   

Exhibit 32.2

  

Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

     E-5   

Exhibit 101

  

Interactive data file pursuant to Rule 405 of Regulation S-T: (i) the Statements of Financial Condition - September 30, 2011 (unaudited) and December 31, 2010, (ii) the Unaudited Schedule of Investments - September 30, 2011, (iii) the Schedule of Investments - December 31, 2010, (iv) the Unaudited Statements of Income and Expenses - Three Months Ended September 30, 2011 and 2010 and Nine Months Ended September 30, 2011 and 2010, (v) the Unaudited Statements of Changes in Shareholders’ Equity - Three Months Ended September 30, 2011, (vi) the Unaudited Statements of Changes in Shareholders’ Equity - Three Months Ended September 30, 2010, (vii) the Unaudited Statements of Changes in Shareholders’ Equity - Nine Months Ended September 30, 2011, (viii) the Unaudited Statements of Changes in Shareholders’ Equity - Nine Months Ended September 30, 2010, (ix) the Unaudited Statements of Cash Flows - Nine Months Ended September 30, 2011 and 2010, and (x) Notes to Unaudited Financial Statements.

  

 

i


Table of Contents

PART I. FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS.

PowerShares DB Commodity Index Tracking Fund

Statements of Financial Condition

September 30, 2011 (unaudited) and December 31, 2010

 

     September 30,
2011
    December 31,
2010
 

Assets

    

Equity in broker trading accounts:

    

United States Treasury Obligations, at fair value (cost $5,447,622,280 and $4,489,205,023 respectively)

   $ 5,447,740,042      $ 4,489,390,393   

Cash held by broker (restricted $0 and $5,640,739, respectively)

     464,124,269        57,572,732   

Net unrealized appreciation (depreciation) on futures contracts

     (475,060,863     563,328,004   
  

 

 

   

 

 

 

Deposits with broker

     5,436,803,448        5,110,291,129   
  

 

 

   

 

 

 

Other assets

     —          1,000   
  

 

 

   

 

 

 

Total assets

   $ 5,436,803,448      $ 5,110,292,129   
  

 

 

   

 

 

 

Liabilities

    

Management fee payable

   $ 4,190,955      $ 3,507,183   

Brokerage fee payable

     344,868        9,019   
  

 

 

   

 

 

 

Total liabilities

     4,535,823        3,516,202   
  

 

 

   

 

 

 

Commitments and Contingencies (Note 9)

    
    

Equity

    

Shareholders’ equity

    

General shares:

    

Paid in capital—40 shares issued and outstanding as of September 30, 2011 and December 31, 2010, respectively

     1,000        1,000   

Accumulated earnings (deficit)

     37        103   
  

 

 

   

 

 

 

Total General shares

     1,037        1,103   
  

 

 

   

 

 

 
    

Shares:

    

Paid in capital—209,600,000 and 185,200,000 redeemable Shares issued and outstanding as of September 30, 2011 and December 31, 2010, respectively

     5,016,704,524        4,278,778,296   

Accumulated earnings (deficit)

     415,562,064        827,996,528   
  

 

 

   

 

 

 

Total Shares

     5,432,266,588        5,106,774,824   
  

 

 

   

 

 

 
    

Total shareholders’ equity

     5,432,267,625        5,106,775,927   
  

 

 

   

 

 

 
    

Total liabilities and equity

   $ 5,436,803,448      $ 5,110,292,129   
  

 

 

   

 

 

 

Net asset value per share

    

General shares

   $ 25.93      $ 27.58   

Shares

   $ 25.92      $ 27.57   

See accompanying notes to unaudited financial statements.

 

1


Table of Contents

PowerShares DB Commodity Index Tracking Fund

Unaudited Schedule of Investments

September 30, 2011

 

Description

   Percentage of
Net Assets
    Fair
Value
     Face
Value
 

United States Treasury Obligations

       

U.S. Treasury Bills, 0.02% due October 6, 2011

     25.07   $ 1,361,998,638       $ 1,362,000,000   

U.S. Treasury Bills, 0.025% due October 13, 2011

     3.93        213,499,360         213,500,000   

U.S. Treasury Bills, 0.015% due October 20, 2011

     5.72        310,998,134         311,000,000   

U.S. Treasury Bills, 0.055% due October 27, 2011

     15.38        835,293,317         835,300,000   

U.S. Treasury Bills, 0.115% due November 3, 2011

     14.43        783,991,376         784,000,000   

U.S. Treasury Bills, 0.045% due November 10, 2011

     4.47        242,997,570         243,000,000   

U.S. Treasury Bills, 0.035% due November 17, 2011

     4.16        225,997,062         226,000,000   

U.S. Treasury Bills, 0.015% due November 25, 2011

     3.44        186,996,634         187,000,000   

U.S. Treasury Bills, 0.015% due December 1, 2011

     6.44        349,994,400         350,000,000   

U.S. Treasury Bills, 0.03% due December 8, 2011

     2.98        161,997,246         162,000,000   

U.S. Treasury Bills, 0.01% due December 15, 2011

     3.87        209,994,750         210,000,000   

U.S. Treasury Bills, 0.01% due December 22, 2011

     3.41        184,994,820         185,000,000   

U.S. Treasury Bills, 0.02% due December 29, 2011

     6.98        378,986,735         379,000,000   
  

 

 

   

 

 

    

Total United States Treasury Obligations (cost $5,447,622,280)

     100.28   $ 5,447,740,042      
  

 

 

   

 

 

    

A portion of the above United States Treasury Obligations are held as initial margin against open futures contracts, as described in Note 4(e).

 

Description

   Percentage of
Net Assets
    Fair
Value
 

Unrealized Appreciation/(Depreciation) on Futures Contracts

    

Aluminum (3,662 contracts, settlement date September 17, 2012)

     (0.55 )%    $ (30,010,225

Brent Crude (7,668 contracts, settlement date February 14, 2012)

     (0.83     (45,309,529

Copper (1,100 contracts, settlement date March 19, 2012)

     (1.38     (74,864,250

Corn (6,404 contracts, settlement date December 14, 2011)

     0.23        12,605,413   

Corn (4,032 contracts, settlement date March 14, 2012)

     (0.05     (2,696,225

Gold (3,171 contracts, settlement date February 27, 2012)

     (0.29     (15,924,980

Heating Oil (6,711 contracts, settlement date May 31, 2012)

     (1.99     (108,140,693

Light Sweet Crude Oil (7,453 contracts, settlement date June 20, 2012)

     (3.01     (163,435,610

Natural Gas (6,018 contracts, settlement date September 26, 2012)

     (0.25     (13,430,490

RBOB Gasoline (7,339 contracts, settlement date November 30, 2011)

     0.87        47,459,714   

Red Wheat (2,002 contracts, settlement date July 13, 2012)

     (0.20     (10,998,813

Silver (811 contracts, settlement date December 28, 2011)

     0.13        7,236,760   

Soybean Meal (876 contracts, settlement date December 14, 2011)

     (0.08     (4,579,470

Soybean Oil (856 contracts, settlement date December 14, 2011)

     (0.06     (3,446,706

Soybeans (3,083 contracts, settlement date November 14, 2011)

     0.23        12,680,800   

Soybeans (1,660 contracts, settlement date January 13, 2012)

     (0.07     (3,868,900

Sugar (11,159 contracts, settlement date June 29, 2012)

     0.11        5,806,898   

Wheat (965 contracts, settlement date December 14, 2011)

     (0.19     (10,269,788

Wheat (3,217 contracts, settlement date July 13, 2012)

     (0.67     (36,116,075

Zinc (3,600 contracts, settlement date July 16, 2012)

     (0.70     (37,758,694
  

 

 

   

 

 

 

Net Unrealized Depreciation on Futures Contracts

     (8.75 )%    $ (475,060,863
  

 

 

   

 

 

 

Net unrealized depreciation is comprised of unrealized losses of $590,507,313 and unrealized gains of $115,446,450.

See accompanying notes to unaudited financial statements.

 

2


Table of Contents

PowerShares DB Commodity Index Tracking Fund

Schedule of Investments

December 31, 2010

 

Description

   Percentage of
Net Assets
    Fair
Value
     Face
Value
 

United States Treasury Obligations

       

U.S. Treasury Bills, 0.08% due January 6, 2011

     17.10   $ 872,998,254       $ 873,000,000   

U.S. Treasury Bills, 0.085% due January 13, 2011

     4.03        205,498,150         205,500,000   

U.S. Treasury Bills, 0.07% due January 20, 2011

     3.56        181,996,360         182,000,000   

U.S. Treasury Bills, 0.065% due January 27, 2011

     15.55        794,270,611         794,300,000   

U.S. Treasury Bills, 0.125% due February 3, 2011

     13.45        686,948,475         687,000,000   

U.S. Treasury Bills, 0.125% due February 10, 2011

     9.77        498,951,597         499,000,000   

U.S. Treasury Bills, 0.13% due February 17, 2011

     2.10        106,985,234         107,000,000   

U.S. Treasury Bills, 0.12% due February 24, 2011

     3.70        188,969,382         189,000,000   

U.S. Treasury Bills, 0.175% due March 3, 2011

     3.78        192,961,400         193,000,000   

U.S. Treasury Bills, 0.145% due March 10, 2011

     2.35        119,973,600         120,000,000   

U.S. Treasury Bills, 0.14% due March 17, 2011

     6.34        323,927,748         324,000,000   

U.S. Treasury Bills, 0.13% due March 24, 2011

     2.13        108,972,096         109,000,000   

U.S. Treasury Bills, 0.18% due March 31, 2011

     4.05        206,937,486         207,000,000   
  

 

 

   

 

 

    

Total United States Treasury Obligations (cost $4,489,205,023)

     87.91   $ 4,489,390,393      
  

 

 

   

 

 

    

A portion of the above United States Treasury Obligations are held as initial margin against open futures contracts, as described in Note 4(e).

 

Description

   Percentage of
Net Assets
    Fair
Value
 

Unrealized Appreciation on Futures Contracts

    

Aluminum (3,355 contracts, settlement date September 19, 2011)

     0.14   $ 7,231,369   

Brent Crude (6,913 contracts, settlement date January 14, 2011)

     0.47        24,156,450   

Copper (955 contracts, settlement date March 14, 2011)

     1.37        70,201,738   

Corn (3,270 contracts, settlement date March 14, 2011)

     0.61        31,143,450   

Corn (6,407 contracts, settlement date December 14, 2011)

     0.16        8,081,812   

Gasoline (6,485 contracts, settlement date November 30, 2011)

     0.67        33,961,708   

Light Sweet Crude Oil (6,824 contracts, settlement date June 21, 2011)

     1.62        83,185,660   

Gold (2,810 contracts, settlement date August 29, 2011)

     0.26        13,290,940   

Heating Oil (6,032 contracts, settlement date May 31, 2011)

     0.93        47,513,239   

Natural Gas (6,081 contracts, settlement date September 28, 2011)

     0.04        1,990,610   

Red Wheat (2,481 contracts, settlement date July 14, 2011)

     0.56        28,609,038   

Silver (717 contracts, settlement date December 28, 2011)

     0.37        18,780,495   

Soybeans (3,084 contracts, settlement date November 14, 2011)

     0.76        38,910,775   

Soybeans (1,501 contracts, settlement date January 13, 2012)

     0.15        7,466,350   

Sugar (9,488 contracts, settlement date September 30, 2011)

     2.01        102,491,726   

Wheat (3,218 contracts, settlement date July 14, 2011)

     0.87        44,316,550   

Wheat (965 contracts, settlement date December 14, 2011)

     0.03        1,616,513   

Zinc (3,299 contracts, settlement date May 16, 2011)

     0.01        379,581   
  

 

 

   

 

 

 

Net Unrealized Appreciation on Futures Contracts

     11.03   $ 563,328,004   
  

 

 

   

 

 

 

Net unrealized appreciation is comprised of unrealized gains of $568,006,558 and unrealized losses of $4,678,554.

See accompanying notes to unaudited financial statements.

 

3


Table of Contents

PowerShares DB Commodity Index Tracking Fund

Unaudited Statements of Income and Expenses

For the Three Months Ended September 30, 2011 and 2010 and Nine Months Ended September 30, 2011 and 2010

 

     Three Months Ended     Nine Months Ended  
     September 30,
2011
    September 30,
2010
    September 30,
2011
    September 30,
2010
 

Income

        

Interest Income

   $ 567,628      $ 1,461,215      $ 3,416,329      $ 3,669,535   
  

 

 

   

 

 

   

 

 

   

 

 

 

Expenses

        

Management Fee

     13,105,781        9,196,620        38,205,824        28,254,874   

Brokerage Commissions and Fees

     3,485        191,564        1,124,873        815,677   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Expenses

     13,109,266        9,388,184        39,330,697        29,070,551   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (12,541,638     (7,926,969     (35,914,368     (25,401,016
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Realized and Net Change in Unrealized Gain (Loss) on United States Treasury Obligations, Futures and Foreign Currency Translation

        

Net Realized Gain (Loss) on

        

United States Treasury Obligations

     10,612        (278     37,252        (1,863

Futures

     31,724,525        (85,961,933     661,899,061        (160,813,034

Foreign Currency Translation

     —          126,496        —          (19,555
  

 

 

   

 

 

   

 

 

   

 

 

 

Net realized gain (loss)

     31,735,137        (85,835,715     661,936,313        (160,834,452
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Change in Unrealized Gain (Loss) on

        

United States Treasury Obligations

     (60,700     149,199        (67,608     (31,278

Futures

     (712,268,722     544,331,472        (1,038,388,867     62,416,107   

Foreign Currency Translation

     —          4,618        —          —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Net change in unrealized gain (loss)

     (712,329,422     544,485,289        (1,038,456,475     62,384,829   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and net change in unrealized gain (loss) on United States Treasury Obligations, Futures and Foreign Currency Translation

     (680,594,285     458,649,574        (376,520,162     (98,449,623
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Income (Loss)

   $ (693,135,923   $ 450,722,605      $ (412,434,530   $ (123,850,639
  

 

 

   

 

 

   

 

 

   

 

 

 

Less: net (income) loss attributed to the non-controlling interest in subsidiary - related party

     —          (97     —          22   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Income (Loss) Attributable to PowerShares DB Commodity Index Tracking Fund

   $ (693,135,923   $ 450,722,508      $ (412,434,530   $ (123,850,617
  

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to unaudited financial statements.

 

4


Table of Contents

PowerShares DB Commodity Index Tracking Fund

Unaudited Statement of Changes in Shareholders’ Equity

For the Three Months Ended September 30, 2011

 

    General Shares     Shares        
    Shares     Paid in
Capital
    Accumulated
Earnings

(Deficit)
    Total
Equity
    Shares     Paid in
Capital
    Accumulated
Earnings
(Deficit)
    Total
Equity
    Total
Shareholders’
Equity
 

Balance at July 1, 2011

    40      $ 1,000      $ 166      $ 1,166        206,800,000      $ 4,920,804,860      $ 1,108,697,858      $ 6,029,502,718      $ 6,029,503,884   

Sale of Shares

            14,600,000        429,814,372          429,814,372        429,814,372   

Redemption of Shares

            (11,800,000     (333,914,708       (333,914,708     (333,914,708

Net Income (Loss)

                 

Net investment income (loss)

        (1     (1         (12,541,637     (12,541,637     (12,541,638

Net realized gain (loss) on United States Treasury Obligations and Futures

        14        14            31,735,123        31,735,123        31,735,137   

Net change in unrealized gain (loss) on United States Treasury Obligations and Futures

        (142     (142         (712,329,280     (712,329,280     (712,329,422
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net Income (Loss)

        (129     (129         (693,135,794     (693,135,794     (693,135,923
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 30, 2011

    40      $ 1,000      $ 37      $ 1,037        209,600,000      $ 5,016,704,524      $ 415,562,064      $ 5,432,266,588      $ 5,432,267,625   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to unaudited financial statements.

 

5


Table of Contents

PowerShares DB Commodity Index Tracking Fund

Unaudited Statement of Changes in Shareholders’ Equity

For the Three Months Ended September 30, 2010

 

    General Shares     Shares                    
    Shares     Paid in
Capital
    Accumulated
Earnings

(Deficit)
    Total
Equity
    Shares     Paid in
Capital
    Accumulated
Earnings
(Deficit)
    Total
Equity
    Total
Shareholders’
Equity
    Non-controlling
Interest
    Total
Equity
 

Balance at July 1, 2010

    40      $ 1,000      $ (133   $ 867        198,800,000      $ 4,564,189,820      $ (253,864,727   $ 4,310,325,093      $ 4,310,325,960      $ 867      $ 4,310,326,827   

Sale of Shares

            1,800,000        40,351,794          40,351,794        40,351,794          40,351,794   

Redemption of Shares

            (17,400,000     (386,555,026       (386,555,026     (386,555,026       (386,555,026

Net Income (Loss)

                     

Net investment income (loss)

        (3     (3         (7,926,963     (7,926,963     (7,926,966     (3     (7,926,969

Net realized gain (loss) on United States Treasury Obligations and Futures

        (17     (17         (85,835,681     (85,835,681     (85,835,698     (17     (85,835,715

Net change in unrealized gain (loss) on United States Treasury Obligations and Futures

        117        117            544,485,055        544,485,055        544,485,172        117        544,485,289   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net Income (Loss)

        97        97            450,722,411        450,722,411        450,722,508        97        450,722,605   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 30, 2010

    40      $ 1,000      $ (36   $ 964        183,200,000      $ 4,217,986,588      $ 196,857,684      $ 4,414,844,272      $ 4,414,845,236      $ 964      $ 4,414,846,200   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to unaudited financial statements.

 

6


Table of Contents

PowerShares DB Commodity Index Tracking Fund

Unaudited Statement of Changes in Shareholders’ Equity

For the Nine Months Ended September 30, 2011

 

     General Shares     Shares        
     Shares      Paid in
Capital
     Accumulated
Earnings
(Deficit)
    Total
Equity
    Shares     Paid in
Capital
    Accumulated
Earnings
(Deficit)
    Total
Equity
    Total
Shareholders’
Equity
 

Balance at January 1, 2011

     40       $ 1,000       $ 103      $ 1,103        185,200,000      $ 4,278,778,296      $ 827,996,528      $ 5,106,774,824      $ 5,106,775,927   

Sale of Shares

               49,200,000        1,452,358,698          1,452,358,698        1,452,358,698   

Redemption of Shares

               (24,800,000     (714,432,470       (714,432,470     (714,432,470

Net Income (Loss)

                    

Net investment income (loss)

           (6     (6         (35,914,362     (35,914,362     (35,914,368

Net realized gain (loss) on United States Treasury Obligations and Futures

           155        155            661,936,158        661,936,158        661,936,313   

Net change in unrealized gain (loss) on United States Treasury Obligations and Futures

           (215     (215         (1,038,456,260     (1,038,456,260     (1,038,456,475
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net Income (Loss)

           (66     (66         (412,434,464     (412,434,464     (412,434,530
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 30, 2011

     40       $ 1,000       $ 37      $ 1,037        209,600,000      $ 5,016,704,524      $ 415,562,064      $ 5,432,266,588      $ 5,432,267,625   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to unaudited financial statements.

 

7


Table of Contents

PowerShares DB Commodity Index Tracking Fund

Unaudited Statement of Changes in Shareholders’ Equity

For the Nine Months Ended September 30, 2010

 

    General Shares     Shares                    
    Shares     Paid in
Capital
    Accumulated
Earnings
(Deficit)
    Total
Equity
    Shares     Paid in
Capital
    Accumulated
Earnings
(Deficit)
    Total
Equity
    Total
Shareholders’
Equity
    Non-controlling
Interest
    Total
Equity
 

Balance at January 1, 2010

    40      $ 1,000      $ (14   $ 986        178,000,000      $ 4,067,244,194      $ 320,708,279      $ 4,387,952,473      $ 4,387,953,459      $ 986      $ 4,387,954,445   

Sale of Shares

            36,800,000        856,425,956          856,425,956        856,425,956          856,425,956   

Redemption of Shares

            (31,600,000     (705,683,562       (705,683,562     (705,683,562       (705,683,562

Net Income (Loss)

                     

Net investment income (loss)

        (6     (6         (25,401,004     (25,401,004     (25,401,010     (6     (25,401,016

Net realized gain (loss) on United States Treasury Obligations and Futures

        (32     (32         (160,834,388     (160,834,388     (160,834,420     (32     (160,834,452

Net change in unrealized gain (loss) on United States Treasury Obligations and Futures

        16        16            62,384,797        62,384,797        62,384,813        16        62,384,829   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net Income (Loss)

        (22     (22         (123,850,595     (123,850,595     (123,850,617     (22     (123,850,639
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 30, 2010

    40      $ 1,000      $ (36   $ 964        183,200,000      $ 4,217,986,588      $ 196,857,684      $ 4,414,844,272      $ 4,414,845,236      $ 964      $ 4,414,846,200   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to unaudited financial statements.

 

8


Table of Contents

PowerShares DB Commodity Index Tracking Fund

Unaudited Statements of Cash Flows

For the Nine Months Ended September 30, 2011 and 2010

 

     Nine Months Ended  
     September 30,
2011
    September 30,
2010
 

Cash flows from operating activities:

    

Net Income (Loss)

   $ (412,434,530   $ (123,850,639

Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities:

    

Cost of securities purchased

     (17,564,337,576     (12,468,313,290

Proceeds from securities sold and matured

     16,609,391,466        12,561,311,603   

Net accretion of discount on United States Treasury Obligations

     (3,433,895     (3,685,835

Net realized (gain) loss on United States Treasury Obligations

     (37,252     1,863   

Net change in unrealized (gain) loss on United States Treasury Obligations and futures

     1,038,456,475        (62,384,829

(Increase) decrease in restricted cash

     5,640,739        3,241,775   

Change in operating receivables and liabilities:

    

Payable to broker

     —          (298,202

Management fee payable

     683,772        293,284   

Other assets

     1,000        —     

Brokerage fee payable

     335,849        9,048   
  

 

 

   

 

 

 

Net cash provided by (used for) operating activities

     (325,733,952     (93,675,222
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Proceeds from sale of Shares

     1,452,358,698        856,425,956   

Redemption of Shares

     (714,432,470     (705,683,562
  

 

 

   

 

 

 

Net cash provided by (used for) financing activities

     737,926,228        150,742,394   
  

 

 

   

 

 

 

Net change in cash held by broker

     412,192,276        57,067,172   

Unrestricted cash held by broker at beginning of period

     51,931,993        242,582,007   
  

 

 

   

 

 

 

Unrestricted cash held by broker at end of period

   $ 464,124,269      $ 299,649,179   
  

 

 

   

 

 

 

See accompanying notes to unaudited financial statements.

 

9


Table of Contents

PowerShares DB Commodity Index Tracking Fund

Notes to Unaudited Financial Statements

September 30, 2011

(1) Organization

PowerShares DB Commodity Index Tracking Fund (the “Fund”) was formed as a Delaware statutory trust on May 23, 2005. DB Commodity Services LLC, a Delaware Limited Liability Company (“DBCS” or the “Managing Owner”), seeded the Fund with a capital contribution of $1,000 in exchange for 40 General Shares of the Fund. The fiscal year end of the Fund is December 31st. The term of the Fund is perpetual (unless terminated earlier in certain circumstances) as provided for in the Second Amended and Restated Declaration of Trust and Trust Agreement of the Fund (the “Trust Agreement”).

The Fund was originally formed as a master-feeder structure. Prior to the close of business on December 31, 2010, the master-feeder structure was collapsed. As a result of the collapse of the master-feeder structure, on December 31, 2010, the Managing Owner’s and the Fund’s interests in DB Commodity Index Tracking Master Fund (the “Master Fund”) were redeemed for all assets and liabilities held by the Master Fund. Hereafter, all references to the Fund either represent the structure in place as of December 31, 2010 or the structure in place prior to such date whereby the financial statements reflect the consolidation of the Fund and the Master Fund. The collapse of the master-feeder structure had no impact on a Shareholder’s net asset value or the results of operations for the Fund.

The Fund offers common units of beneficial interest (the “Shares”) only to certain eligible financial institutions (the “Authorized Participants”) in one or more blocks of 200,000 Shares, called a Basket. The Fund commenced investment operations on January 31, 2006. The Fund commenced trading on the American Stock Exchange (now known as the NYSE Alternext US LLC (the “NYSE Alternext”)) on February 3, 2006 and, as of November 25, 2008, is listed on the NYSE Arca, Inc. (the “NYSE Arca”).

This Report covers the three months ended September 30, 2011 and 2010 (hereinafter referred to as the “Three Months Ended September 30, 2011” and the “Three Months Ended September 30, 2010”, respectively) and the nine months ended September 30, 2011 and 2010 (hereinafter referred to as the “Nine Months Ended September 30, 2011” and the “Nine Months Ended September 30, 2010”, respectively).

(2) Fund Investment Overview

The Fund invests with a view to tracking the changes, whether positive or negative, in the level of the DBIQ Optimum Yield Diversified Commodity Index Excess Return™ (the “Index”) over time, plus the excess, if any, of the 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.

The Index is intended to reflect the change in market value of certain commodities. The commodities comprising the Index are Light Sweet Crude Oil, Heating Oil, Aluminum, Gold, Corn, Wheat, Brent Crude, Copper Grade A, Natural Gas, RBOB Gasoline, Silver, Soybeans, Sugar and Zinc (each an “Index Commodity”, and collectively, the “Index Commodities”). During the period from October 19, 2009 to December 31, 2010, the Fund invested with a view to tracking the changes, whether positive or negative, in the level of the Deutsche Bank Liquid Commodity Index-Optimum Yield Diversified Excess Return™ (the “Interim Index”) over time, plus the excess, if any, of the Fund’s 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. After December 31, 2010, the Fund commenced tracking the Index. The Fund’s Interim Index is identical to the Index except with respect to the following non-substantive changes: (i) name of Index, and (ii) inception date of Index for Commodity Futures Trading Commission (the “CFTC”) purposes. Except as provided in the immediately preceding sentence, all prior underlying formulae, data (e.g., closing levels, measure of volatility, all other numerical statistics and measures) and all other characteristics (e.g., Base Date, Index Sponsor, rolling, etc.) with respect to the Interim Index is identical to the Index. The Fund also holds United States Treasury Obligations and other high credit quality short-term fixed income securities for deposit with the Fund’s commodity broker as margin.

The CFTC and/or commodity exchanges, as applicable, impose position limits on market participants trading in certain commodities included in the Index. The Index is comprised of futures contracts on each of the Index Commodities that expire in a specific month and trade on a specific exchange (the “Index Contracts”). As disclosed in the Fund’s Prospectus, if the Managing Owner determines in its commercially reasonable judgment that it has become impracticable or inefficient for any reason for the Fund to gain full or partial exposure to any Index Commodity by investing in a specific Index Contract, the Fund may invest in a futures contract referencing the particular Index Commodity other than the Index Contract or, in the alternative, invest in other futures contracts not based on the particular Index Commodity if, in the commercially reasonable judgment of the Managing Owner, such futures contracts tend to exhibit trading prices that correlate with such Index Commodity. Because the Fund is approaching or has reached position limits with respect to certain futures contracts comprising the Index, the Fund has commenced investing in other futures contracts based on commodities that comprise the Fund’s Index and in futures contracts based on commodities other than commodities that comprise the Fund’s Index. Please see http://dbfunds.db.com/dbc/weights.aspx with respect to the most recently

 

10


Table of Contents

PowerShares DB Commodity Index Tracking Fund

Notes to Unaudited Financial Statements—(Continued)

September 30, 2011

 

available weighted composition of the Fund and http://dbfunds.db.com/dbc/index.aspx with respect to the composition of the Index on the Base Date.

The Fund does not employ leverage. As of September 30, 2011 and December 31, 2010, the Fund had $5,436,803,448 (or 100%) and $5,110,291,129 (or 100%), respectively, of its holdings of cash, United States Treasury Obligations and unrealized appreciation/depreciation of futures contracts on deposit with its Commodity Broker. Of this, $460,610,207 (or 8.47%) and $330,490,820 (or 6.47%), respectively, of the Fund’s holdings of cash and United States Treasury Obligations are required to be deposited as margin in support of the Fund’s long futures positions as of September 30, 2011 and December 31, 2010. For additional information, please see the unaudited Schedule of Investments as of September 30, 2011 and the audited Schedule of Investments as of December 31, 2010 for details of the Fund’s portfolio holdings.

DBLCI™, DBIQ™ and Deutsche Bank Liquid Commodity Index™ are trademarks of Deutsche Bank AG London (the “Index Sponsor”). Trademark applications in the United States are pending with respect to both the Fund and aspects of the Index. The Fund and the Managing Owner have been licensed by the Index Sponsor to use the above noted trademarks. Deutsche Bank AG London is an affiliate of the Fund and the Managing Owner.

(3) Service Providers and Related Party Agreements

The Trustee

Under the Trust Agreement, Wilmington Trust Company, the trustee of the Fund (the “Trustee”), has delegated to the Managing Owner the exclusive management and control of all aspects of the business of the 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 Managing Owner

The Managing Owner serves the Fund as commodity pool operator, commodity trading advisor, and managing owner, and is an indirect wholly-owned subsidiary of Deutsche Bank AG. During the Three Months Ended September 30, 2011 and 2010, the Fund incurred Management Fees of $13,105,781 and $9,196,620, respectively. Management Fees incurred during the Nine Months Ended September 30, 2011 and 2010 by the Fund were $38,205,824 and $28,254,874, respectively. As of September 30, 2011 and December 31, 2010, Management Fees payable to the Managing Owner were $4,190,955 and $3,507,183, respectively.

The Commodity Broker

Deutsche Bank Securities Inc., a Delaware corporation, serves as the Fund’s clearing broker (the “Commodity Broker”). The Commodity Broker is also an indirect wholly-owned subsidiary of Deutsche Bank AG and is an affiliate of the Managing Owner. In its capacity as clearing broker, the Commodity Broker executes and clears each of the Fund’s futures transactions and performs certain administrative and custodial services for the Fund. As custodian of the Fund’s assets, the Commodity Broker is responsible, among other things, for providing periodic accountings of all dealings and actions taken by the Fund during the reporting period, together with an accounting of all securities, cash or other indebtedness or obligations held by it or its nominees for or on behalf of the Fund. During the Three Months Ended September 30, 2011 and 2010, the Fund incurred brokerage fees of $3,485 and $191,564, respectively. Brokerage fees incurred during the Nine Months Ended September 30, 2011 and 2010 by the Fund were $1,124,873 and $815,677, respectively. As of September 30, 2011 and December 31, 2010, brokerage fees payable were $344,868 and $9,019, respectively.

The Administrator

The Bank of New York Mellon (the “Administrator”) has been appointed by the Managing Owner as the administrator, custodian and transfer agent of the Fund, and has entered into separate administrative, custodian, transfer agency and service agreements (collectively referred to as the “Administration Agreement”).

Pursuant to the Administration Agreement, the Administrator performs or supervises the performance of services necessary for the operation and administration of the 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.

 

11


Table of Contents

PowerShares DB Commodity Index Tracking Fund

Notes to Unaudited Financial Statements—(Continued)

September 30, 2011

 

The Distributor

ALPS Distributors, Inc. (the “Distributor”) provides certain distribution services to the Fund. Pursuant to the Distribution Services Agreement among the Managing Owner in its capacity as managing owner of the Fund, the Fund and the Distributor, the Distributor assists the Managing Owner and the Administrator with certain functions and duties relating to distribution and marketing services to the Fund including reviewing and approving marketing materials.

Invesco PowerShares Capital Management LLC

Under the License Agreement among Invesco PowerShares Capital Management LLC (the “Licensor”) and the Managing Owner in its own capacity and in its capacity as managing owner of the Fund (the Fund and the Managing Owner, collectively, the “Licensees”), the Licensor granted to each Licensee a non-exclusive license to use the “PowerShares®” trademark (the “Trademark”) anywhere in the world, solely in connection with the marketing and promotion of the Fund and to use or refer to the Trademark in connection with the issuance and trading of the Fund as necessary.

Invesco Aim Distributors, Inc.

Through a marketing agreement between the Managing Owner and Invesco Aim Distributors, Inc. (“Invesco Aim Distributors”), an affiliate of Invesco PowerShares Capital Management LLC (“Invesco PowerShares”), the Managing Owner, on behalf of the Fund, has appointed Invesco Aim Distributors as a marketing 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 engages in public seminars, road shows, conferences, media interviews, and distributes sales literature and other communications (including electronic media) regarding the Fund.

(4) Summary of Significant Accounting Policies

(a) Basis of Presentation

The financial statements of the Fund have been prepared using U.S. generally accepted accounting principles and include the financial statements of the Fund and the Master Fund when applicable. As described in note 1, the Fund was originally formed as a master-feeder structure and such structure was collapsed on December 31, 2010. The financial statements reflect consolidation of the Fund and the Master Fund for all periods presented prior to December 31, 2010. Upon the initial offering of the Shares on January 31, 2006, the capital raised by the Fund was used to purchase 100% of the common units of beneficial interest of the Master Fund (the “Master Fund Limited Units”) (excluding common units of beneficial interest of the Master Fund held by the Managing Owner (the “Master Fund General Units”)). The Master Fund Limited Units owned by the Fund provided the Fund and its investors certain controlling rights and abilities over the Master Fund. Consequently, the financial statement balances of the Master Fund were consolidated with the Fund’s financial statement balances for the periods previously described, and all significant inter-company balances and transactions were eliminated.

(b) Use of Estimates

The preparation of the financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses and related disclosure of contingent assets and liabilities during the reporting period of the financial statements and accompanying notes. Actual results could differ from those estimates.

(c) Financial Instruments and Fair Value

United States Treasury Obligations and commodity futures contracts are recorded in the statements of financial condition on a trade date basis at fair value with changes in fair value recognized in earnings in each period. The fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (the exit price).

Financial Accounting Standards Board (FASB) fair value measurement and disclosure guidance requires a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets and liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:

 

12


Table of Contents

PowerShares DB Commodity Index Tracking Fund

Notes to Unaudited Financial Statements—(Continued)

September 30, 2011

 

Basis of Fair Value Measurement

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2: Quoted prices in markets that are not active or financial instruments for which all significant inputs are observable, either directly or indirectly;

Level 3: Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.

A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

In determining fair value of United States Treasury Obligations and commodity futures contracts, the Fund uses unadjusted quoted market prices in active markets. United States Treasury Obligations and commodity futures contracts are classified within Level 1 of the fair value hierarchy. The Fund does not adjust the quoted prices for United States Treasury Obligations and commodity futures contracts.

(d) Deposits with Broker

The Fund deposits cash and United States Treasury Obligations with its Commodity Broker subject to CFTC regulations and various exchange and broker requirements. The combination of the Fund’s deposits with its Commodity Broker of cash and United States Treasury Obligations and the unrealized profit or loss on open futures contracts (variation margin) represents the Fund’s overall equity in its broker trading account. To meet the Fund’s initial margin requirements, the Fund holds United States Treasury Obligations. The Fund uses its cash held by the Commodity Broker to satisfy variation margin requirements. The Fund earns interest on its cash deposited with the Commodity Broker.

(e) United States Treasury Obligations

The Fund records purchases and sales of United States Treasury Obligations on a trade date basis. These holdings are marked to market based on quoted market closing prices. The Fund holds United States Treasury Obligations for deposit with the Fund’s Commodity Broker to meet margin requirements and for trading purposes. Interest income is recognized on an accrual basis when earned. Premiums and discounts are amortized or accreted over the life of the United States Treasury Obligations. Included in the United States Treasury Obligations as of September 30, 2011 and December 31, 2010 were holdings of $460,610,207 and $330,490,820, respectively, which were restricted and held against initial margin of the open futures contracts.

(f) Cash Held by Broker

The Fund’s arrangement with the Commodity Broker requires the Fund to meet its variation margin requirement related to the price movements, both positive and negative, on futures contracts held by the Fund by keeping cash on deposit with the Commodity Broker. The Fund defines cash and cash equivalents held by the Commodity Broker to be highly liquid investments, with original maturities of three months or less, when purchased. As of September 30, 2011 the Fund had $464,124,269 of cash held with the Commodity Broker all of which was on deposit to satisfy the Fund’s negative variation margin on open futures contracts. As of December 31, 2010 the Fund had $57,572,732 of cash held with the Commodity Broker of which $5,640,739 was restricted. Restrictions on cash held by broker pertain to the settlement of closed futures contracts traded on the London Metals Exchange. As of September 30, 2011 and December 31, 2010 there were no cash equivalents held by the Fund.

(g) Income Taxes

The Fund is classified as a partnership for U.S. federal income tax purposes. Accordingly, the Fund will not incur U.S. federal income taxes. No provision for federal, state, and local income taxes has been made in the accompanying financial statements, as investors are individually liable for income taxes, if any, on their allocable share of the Fund’s income, gain, loss, deductions and other items.

The major tax jurisdiction for the Fund and the earliest tax year subject to examination: United States 2008.

(h) Futures Contracts

All commodity futures contracts are held and used for trading purposes. The commodity futures are recorded on a trade date basis and open contracts are recorded in the statement of financial condition at fair value on the last business day of the period, which represents market value for those commodity futures for which market quotes are readily available. However, when market closing prices are not available, the Managing Owner may value an asset of the 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 statement of income and expenses in the period

 

13


Table of Contents

PowerShares DB Commodity Index Tracking Fund

Notes to Unaudited Financial Statements—(Continued)

September 30, 2011

 

in which the contract is closed or the changes occur, respectively. As of September 30, 2011 and December 31, 2010, the futures contracts held by the Fund were in a net unrealized depreciation position of $475,060,863 and a net unrealized appreciation position of $563,328,004, respectively.

(i) Management Fee

The Fund pays the Managing Owner a management fee (the “Management Fee”), monthly in arrears, in an amount equal to 0.85% per annum of the daily net asset value of the Fund. The Management Fee is paid in consideration of the Managing Owner’s commodity futures trading advisory services.

(j) Brokerage Commissions and Fees

The Fund incurs all brokerage commissions, including applicable exchange fees, NFA fees, give-up fees, pit brokerage fees and other transaction related fees and expenses charged in connection with trading activities by the Commodity Broker. These costs are recorded as brokerage commissions and fees in the statement of income and expenses as incurred. The Commodity Broker’s brokerage commissions and trading fees are determined on a contract-by-contract basis. On average, total charges paid to the Commodity Broker were less than $10.00 per round-turn trade for the Three Months Ended September 30, 2011 and 2010 and the Nine Months Ended September 30, 2011 and 2010.

(k) Routine Operational, Administrative and Other Ordinary Expenses

The Managing Owner assumes all routine operational, administrative and other ordinary expenses of the Fund, including, but not limited to, computer services, the fees and expenses of the Trustee, legal and accounting fees and expenses, tax preparation expenses, filing fees and printing, mailing and duplication costs. Accordingly, all such expenses are not reflected in the statement of income and expenses of the Fund.

(l) Organizational and Offering Costs

All organizational and offering expenses of the Fund are incurred and assumed by the Managing Owner. The Fund is not responsible to the Managing Owner for the reimbursement of organizational and offering costs. Expenses incurred in connection with the continuous offering of Shares also will be paid by the Managing Owner.

(m) Non-Recurring and Unusual Fees and Expenses

The Fund pays all fees and expenses which are non-recurring and unusual in nature. Such expenses include legal claims and liabilities, litigation costs or indemnification or other unanticipated expenses. Such fees and expenses, by their nature, are unpredictable in terms of timing and amount. For the Three Months Ended September 30, 2011 and 2010 and the Nine Months Ended September 30, 2011 and 2010, the Fund did not incur such expenses.

(5) Fair Value Measurements

The Fund’s assets and liabilities recorded at fair value have been categorized based upon the fair value hierarchy discussed in Note 4(c).

Assets and Liabilities Measured at Fair Value were as follows:

 

     September 30,
2011
    December 31,
2010
 

United States Treasury Obligations (Level 1)

   $ 5,447,740,042      $ 4,489,390,393   

Commodity Futures Contracts (Level 1)

   $ (475,060,863   $ 563,328,004   

There were no Level 2 or Level 3 holdings as of September 30, 2011 and December 31, 2010.

(6) Financial Instrument Risk

In the normal course of its business, the Fund is a 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 Fund are commodity futures, whose values are based upon an underlying asset and generally represent future commitments that have a reasonable possibility of being settled in cash or through physical delivery. The financial instruments are traded on an exchange and are standardized contracts.

Market risk is the potential for changes in the value of the financial instruments traded by the Fund due to market changes, including fluctuations in commodity prices. In entering into these futures contracts, there exists a market risk that such futures contracts may be significantly influenced by adverse market conditions, resulting in such futures contracts being less valuable. If the markets should move against all of the futures contracts at the same time, the Fund could experience substantial losses.

 

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PowerShares DB Commodity Index Tracking Fund

Notes to Unaudited Financial Statements—(Continued)

September 30, 2011

 

Credit risk is the possibility that a loss may occur due to the failure of an exchange clearinghouse to perform according to the terms of a futures contract. Credit risk with respect to exchange-traded instruments is reduced to the extent that an exchange or clearing organization acts as a counterparty to the transactions. The Fund’s risk of loss in the event of counterparty default is typically limited to the amounts recognized in the statement of financial condition and not represented by the futures contract or notional amounts of the instruments.

The Fund has not utilized, nor does it expect to utilize in the future, special purpose entities to facilitate off-balance sheet financing arrangements and has 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.

(7) Share Purchases and Redemptions

(a) Purchases

Shares may be purchased from the Fund only by Authorized Participants in one or more blocks of 200,000 Shares, called a Basket. The Fund issues Shares in Baskets only to Authorized Participants continuously as of noon, New York time, on the business day immediately following the date on which a valid order to create a Basket is accepted by the Fund, at the net asset value of 200,000 Shares as of the closing time of the NYSE Arca or the last to close of the exchanges on which the Fund’s assets are traded, whichever is later, on the date that a valid order to create a Basket is accepted by the Fund.

(b) Redemptions

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 10:00 a.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 The Depository Trust Company’s (the “DTC”) book-entry system to the Fund not later than noon, New York time, on the business day immediately following the redemption order date. By placing a redemption order, and prior to receipt of the redemption proceeds, an Authorized Participant’s DTC account is charged the non-refundable transaction fee due for the redemption order.

The redemption proceeds from the Fund consist of the cash redemption amount. The cash redemption amount is equal to the net asset value of the number of Basket(s) requested in the Authorized Participant’s redemption order as of the closing time of the NYSE Arca or the last to close of the exchanges on which the Fund’s assets are traded, whichever is later, on the redemption order date. The Fund will distribute the cash redemption amount at noon, New York time, on the business day immediately following the redemption order date through DTC to the account of the Authorized Participant as recorded on DTC’s book-entry system.

The redemption proceeds due from the Fund are delivered to the Authorized Participant at noon, New York time, on the business day immediately following the redemption order date if, by such time on such business day immediately following the redemption order date, the Fund’s DTC account has been credited with the Baskets to be redeemed. If the Fund’s DTC account has not been credited with all of the Baskets to be redeemed by such time, the redemption proceeds are delivered to the extent of whole Baskets received. Any remainder of the redemption proceeds are delivered on the next business day to the extent of remaining whole Baskets received if the Managing Owner receives the fee applicable to the extension of the redemption distribution date which the Managing Owner may, from time-to-time, determine and the remaining Baskets to be redeemed are credited to the Fund’s DTC account by noon, New York time, on such next business day. Any further outstanding amount of the redemption order will be canceled. The Managing Owner is also authorized to deliver the redemption proceeds notwithstanding that the Baskets to be redeemed are not credited to the Fund’s DTC account by noon, New York time, on the business day immediately following the redemption order date if the Authorized Participant has collateralized its obligation to deliver the Baskets through DTC’s book-entry system on such terms as the Managing Owner may from time-to-time agree upon.

(c) Share Transactions

Summary of Share Transactions for the Three Months Ended September 30, 2011 and 2010

and the Nine Months Ended September 30, 2011 and 2010

 

    Shares
Three Months Ended
    Paid in Capital
Three Months Ended
    Shares
Nine Months Ended
    Paid in Capital
Nine Months Ended
 
    September 30,
2011
    September 30,
2010
    September 30,
2011
    September 30,
2010
    September 30,
2011
    September 30,
2010
    September 30,
2011
    September 30,
2010
 

Shares Sold

    14,600,000        1,800,000      $ 429,814,372      $ 40,351,794        49,200,000        36,800,000      $ 1,452,358,698      $ 856,425,956   

Shares Redeemed

    (11,800,000     (17,400,000     (333,914,708     (386,555,026     (24,800,000     (31,600,000     (714,432,470     (705,683,562
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net Increase/ (Decrease)

    2,800,000        (15,600,000   $ 95,899,664      $ (346,203,232     24,400,000        5,200,000      $ 737,926,228      $ 150,742,394   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

PowerShares DB Commodity Index Tracking Fund

Notes to Unaudited Financial Statements—(Continued)

September 30, 2011

 

(8) Profit and Loss Allocations and Distributions

Pursuant to the Trust Agreement, income and expenses are allocated pro rata to the Managing Owner as holder of the General Shares and to the Shareholders monthly based on their respective percentage interests as of the close of the last trading day of the preceding month. Any losses allocated to the Managing Owner (as the owner of the General Shares) which are in excess of the Managing Owner’s capital balance are allocated to the Shareholders in accordance with their respective interest in the Fund as a percentage of total shareholders’ equity. Distributions (other than redemption of units) may be made at the sole discretion of the Managing Owner on a pro rata basis in accordance with the respective capital balances of the shareholders.

(9) Commitments and Contingencies

The Managing Owner, either in its own capacity or in its capacity as the Managing Owner and on behalf of the Fund, has entered into various service agreements that contain a variety of representations, or provide indemnification provisions related to certain risks service providers undertake in performing services which are in the best interests of the Fund. As of September 30, 2011, no claims had been received by the Fund and it was therefore not possible to estimate the Fund’s potential future exposure under such indemnification provisions.

(10) Net Asset Value and Financial Highlights

The Fund is presenting the following net asset value and financial highlights related to investment performance for a Share outstanding for the Three Months Ended September 30, 2011 and 2010 and for the Nine Months Ended September 30, 2011 and 2010. The net investment income and total expense ratios are calculated using average net asset value. The net asset value presentation is calculated using daily Shares outstanding. The net investment income and total expense ratios have been annualized. The total return is based on the change in net asset value of the Shares during the period. An individual investor’s return and ratios may vary based on the timing of capital transactions.

Net asset value per Share is the net asset value of the Fund divided by the number of outstanding Shares.

 

     Three Months Ended     Nine Months Ended  
     September 30,
2011
    September 30,
2010
    September 30,
2011
    September 30,
2010
 

Net Asset Value

        

Net asset value per Share, beginning of period

   $ 29.16      $ 21.68      $ 27.57      $ 24.65   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and change in unrealized gain (loss) on United States Treasury Obligations, Futures

     (3.18     2.46        (1.47     (0.42

Net investment income (loss)

     (0.06     (0.04     (0.18     (0.13
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     (3.24     2.42        (1.65     (0.55

Net asset value per Share, end of period

   $ 25.92      $ 24.10      $ 25.92      $ 24.10   
  

 

 

   

 

 

   

 

 

   

 

 

 

Market value per Share, beginning of period

   $ 28.96      $ 21.57      $ 27.55      $ 24.62   
  

 

 

   

 

 

   

 

 

   

 

 

 

Market value per Share, end of period

   $ 25.75      $ 24.11      $ 25.75      $ 24.11   
  

 

 

   

 

 

   

 

 

   

 

 

 

Ratio to average Net Assets*

        

Net investment income (loss)

     (0.81 )%      (0.73 )%      (0.80 )%      (0.76 )% 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

     0.85     0.87     0.87     0.87
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Return, at net asset value **

     (11.11 )%      11.16     (5.98 )%      (2.23 )% 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Return, at market value **

     (11.08 )%      11.78     (6.53 )%      (2.07 )% 
  

 

 

   

 

 

   

 

 

   

 

 

 

 

* Percentages are annualized.
** Percentages are not annualized.

(11) Subsequent Events

The Fund evaluated the need for disclosures and/or adjustments resulting from subsequent events through the date the financial statements were issued. This evaluation did not result in any subsequent events that necessitated disclosures and/or adjustments.

 

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

This information should be read in conjunction with the financial statements and notes included in Item 1 of Part I of this Quarterly Report (the “Report”). The discussion and analysis which follows may contain trend analysis and other forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 which reflect our current views with respect to future events and financial results. Words such as “anticipate”, “expect”, “intend,” “plan,” “believe,” “seek,” “outlook” and “estimate”, as well as similar words and phrases, signify forward-looking statements. PowerShares DB Commodity Index Tracking Fund’s (the “Fund”) forward-looking statements are not guarantees of future results and conditions and important factors, risks and uncertainties may cause our actual results to differ materially from those expressed in our forward-looking statements.

You should not place undue reliance on any forward-looking statements. Except as expressly required by the Federal securities laws, DB Commodity Services LLC (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 Report, as a result of new information, future events or changed circumstances or for any other reason after the date of this Report.

Overview/Introduction

Prior to the close of business on December 31, 2010, the Fund invested substantially all of its assets in the DB Commodity Index Tracking Master Fund (the “Master Fund”). After the determination of the net asset value of the Master Fund on December 31, 2010, the Master Fund transferred and distributed all of its assets and liabilities to the Fund and terminated. Effective January 1, 2011, the reorganized Fund has performed all of the necessary functions in order to continue normal Fund operations. The collapse of the master-feeder structure had no effect on the operations or processes of the Fund. All reference to historical results of the Fund include results of the Master Fund where the context requires.

The Fund seeks to track changes, whether positive or negative, in the level of the DBIQ Optimum Yield Diversified Commodity Index Excess Return™ (the “Index”) over time, plus the excess, if any, of the 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. The Index is intended to reflect the change in market value of certain commodities. The commodities comprising the Index are Light Sweet Crude Oil, Heating Oil, Aluminum, Gold, Corn, Wheat, Brent Crude, Copper Grade A, Natural Gas, RBOB Gasoline, Silver, Soybeans, Sugar and Zinc (each an “Index Commodity”, and collectively, the “Index Commodities”). During the period from January 31, 2006 (commencement of investment operations) to May 23, 2006, the Fund invested with a view to tracking the changes, whether positive or negative, in the level of the Deutsche Bank Liquid Commodity Index–Excess Return™ over time, plus the excess, if any, of the 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. During the period from May 24, 2006 to October 16, 2009, the Fund invested with a view to tracking changes, whether positive or negative, in the level of the Deutsche Bank Liquid Commodity Index–Optimum Yield Excess Return™ over time, plus the excess, if any, of the Fund’s 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. The commodities comprising the Deutsche Bank Liquid Commodity Index–Optimum Yield Excess Return™ are Light Sweet Crude Oil, Heating Oil, Aluminum, Gold, Corn and Wheat. From October 19, 2009 to December 31, 2010, the Fund invested with a view to tracking changes, whether positive or negative, in the level of the Deutsche Bank Liquid Commodity Index-Optimum Yield Diversified Excess Return™ (the “Interim Index”) over time, plus the excess, if any, of the Fund’s 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. After December 31, 2010, the Fund commenced tracking the Index. The Fund’s Interim Index is identical to the Index except with respect to the following non-substantive changes: (i) name of Index, and (ii) inception date of Index for Commodity Futures Trading Commission (the “CFTC”) purposes. Except as provided in the immediately preceding sentence, all prior underlying formulae, data (e.g., closing levels, measure of volatility, all other numerical statistics and measures) and all other characteristics (e.g., Base Date, Index Sponsor, rolling, etc.) with respect to the Interim Index are identical to the Index. The Fund also holds United States Treasury Obligations and other high credit quality short-term fixed income securities for deposit with the Fund’s Commodity Broker as margin.

The Fund pursues its investment objective by investing in a portfolio of exchange-traded futures contracts in the Index Commodities. The notional amounts of each Index Commodity included in the Index are broadly in proportion to historic levels of the world’s production and stocks of the Index Commodities. The Fund also holds United States Treasury Obligations and other high credit quality short-term fixed income securities for deposit with the Fund’s Commodity Broker as margin.

DBLCI™, DBIQ™ and Deutsche Bank Liquid Commodity Index™ are trademarks of Deutsche Bank AG London (the “Index Sponsor”). Trademark applications in the United States are pending with respect to both the Fund and aspects of the Index. The Fund and the Managing Owner have been licensed by the Index Sponsor to use the above noted trademarks. Deutsche Bank AG London is an affiliate of the Fund and the Managing Owner.

 

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Table of Contents

The closing level of the Index is calculated on each business day by the Index Sponsor based on the closing price of the futures contracts for each of the Index Commodities and the notional amount of such Index Commodity.

The Index is rebalanced annually in November to ensure that each of the Index Commodities is weighted in the same proportion that such Index Commodities were weighted on September 3, 1997 (the “Base Date”). The Index has been calculated back to the Base Date. On the Base Date, the closing level was 100. The following table reflects the index base weights of each Index Commodity on the Base Date (the “Index Base Weights”):

 

Index Commodity

   Index Base Weight (%)  

Light Sweet Crude Oil

     12.375   

Heating Oil

     12.375   

RBOB Gasoline

     12.375   

Natural Gas

     5.500   

Brent Crude

     12.375   

Gold

     8.000   

Silver

     2.000   

Aluminum

     4.166   

Zinc

     4.167   

Copper Grade A

     4.167   

Corn

     5.625   

Wheat

     5.625   

Soybeans

     5.625   

Sugar

     5.625   
  

 

 

 

Closing Level on Base Date:

     100.000   
  

 

 

 

The following table reflects the Fund weights of each Index Commodity or related futures contracts, as applicable, as of September 30, 2011:

 

Index Commodity

   Fund Weight (%)  

Light Sweet Crude Oil

     10.94   

Heating Oil

     13.62   

RBOB Gasoline

     13.98   

Natural Gas

     4.68   

Brent Crude

     13.73   

Gold

     9.36   

Silver

     2.22   

Aluminum

     3.69   

Zinc

     3.12   

Copper Grade A

     3.52   

Corn

     5.67   

Wheat

     4.01   

Soybeans

     5.09   

Soybean Oil

     0.47   

Soybean Meal

     0.49   

Sugar

     5.41   
  

 

 

 

Closing Level as of September 30, 2011

     100.00   
  

 

 

 

The Index Commodities are traded on the following futures exchanges: Light Sweet Crude Oil, Heating Oil, RBOB Gasoline and Natural Gas: New York Mercantile Exchange; Brent Crude: ICE Futures Europe; Gold and Silver: Commodity Exchange Inc., New York; Aluminum, Zinc and Copper Grade A: The London Metal Exchange Limited; Corn, Wheat and Soybeans: Board of Trade of the City of Chicago Inc.; and Sugar: ICE Futures U.S., Inc.

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 Commodities.

The Index includes provisions for the replacement of futures contracts as they approach maturity. This replacement takes place over a period of time in order to lessen the impact on the market for the futures contracts being replaced. With respect to each Index Commodity, the Fund employs a rule-based approach when it “rolls” from one futures contract to another. Rather than select a new futures contract based on a predetermined schedule (e.g., monthly), each Index Commodity rolls to the futures contract which

 

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generates the best possible “implied roll yield.” The futures contract with a delivery month within the next thirteen months which generates the best possible implied roll yield will be included in the Index. As a result, the Fund is able to potentially maximize the roll benefits in backwardated markets and minimize the losses from rolling in contangoed markets for each Index Commodity.

In general, as a futures contract approaches its expiration date, its price will move towards the spot price in a contangoed market. Assuming the spot price does not change, this would result in the futures contract price decreasing and a negative implied roll yield. The opposite is true in a backwardated market. Rolling in a contangoed market will tend to cause a drag on an Index Commodity’s contribution to the Fund’s return while rolling in a backwardated market will tend to cause a push on an Index Commodity’s contribution to the Fund’s return.

The DBIQ Optimum Yield Diversified Commodity Index Total Return™ and the Index are calculated in USD on both an excess return (unfunded) and total return (funded) basis.

The futures contract price for each Index Commodity will be the exchange closing price for such Index Commodity on each weekday when banks in New York, New York are open (the “Index Business Days”). If a weekday is not an Exchange Business Day (as defined in the following sentence) but is an Index Business Day, the exchange closing price from the previous Index Business Day will be used for each Index Commodity. “Exchange Business Day” means, in respect of an Index Commodity, a day that is a trading day for such Index Commodity on the relevant exchange (unless either an Index disruption event or force majeure event has occurred).

On the first New York business day (the “Verification Date”) of each month, each Index Commodity futures contract will be tested in order to determine whether to continue including it in the Index. If the Index Commodity futures contract requires delivery of the underlying commodity in the next month, known as the Delivery Month, a new Index Commodity futures contract will be selected for inclusion in the Index. For example, if the first New York business day is October 1, 2011, and the Delivery Month of the Index Commodity futures contract currently in the Index is November 2011, a new Index Commodity futures contract with a later Delivery Month will be selected.

For each underlying Index Commodity in the Index, the new Index Commodity futures contract selected will be the Index Commodity futures contract with the best possible “implied roll yield” based on the closing price for each eligible Index Commodity futures contract. Eligible Index Commodity futures contracts are any Index Commodity futures contracts having a Delivery Month (i) no sooner than the month after the Delivery Month of the Index Commodity futures contract currently in the Index, and (ii) no later than the 13th month after the Verification Date. For example, if the first New York business day is October 1, 2011 and the Delivery Month of an Index Commodity futures contract currently in the Index is November 2011, the Delivery Month of an eligible new Index Commodity futures contract must be between December 2011 and October 2012. The implied roll yield is then calculated and the futures contract on the Index Commodity with the best possible implied roll yield is then selected. If two futures contracts have the same implied roll yield, the futures contract with the minimum number of months prior to the Delivery Month is selected.

After the futures contract selection, the monthly roll for each Index Commodity subject to a roll in that particular month unwinds the old futures contract and enters a position in the new futures contract. This takes place between the 2nd and 6th Index Business Day of the month.

On each day during the roll period, new notional holdings are calculated. The calculations for the old Index Commodities that are leaving the Index and the new Index Commodities are then calculated.

On all days that are not monthly index roll days, the notional holdings of each Index Commodity future remains constant.

The Index is re-weighted on an annual basis on the 6th Index Business Day of each November.

The calculation of the Index is expressed as the weighted average return of the Index Commodities.

The CFTC and/or commodity exchanges, as applicable, impose position limits on market participants trading in certain commodities included in the Index. If the Managing Owner determines in its commercially reasonable judgment that it has become impracticable or inefficient for any reason for the Fund to gain full or partial exposure to any Index Commodity by investing in a specific futures contract that is a part of the Index, the Fund may invest in a futures contract referencing the particular Index Commodity other than the specific contract that is a part of the Index or, in the alternative, invest in other futures contracts not based on the particular Index Commodity if, in the commercially reasonable judgment of the Managing Owner, such futures contracts tend to exhibit trading prices that correlate with a futures contract that is a part of the Index. Please see http://dbfunds.db.com/dbc/weights.aspx with respect to the most recently available weighted composition of the Fund and http://dbfunds.db.com/dbc/index.aspx with respect to the composition of the Fund’s Index on the Base Date.

Under the Second Amended and Restated Declaration of Trust and Trust Agreement of the Fund (the “Trust Agreement”), Wilmington Trust Company, the Trustee of the Fund, has delegated to the Managing Owner the exclusive management and control of

 

19


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all aspects of the business of the 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 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 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 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.

Margin Calls

Like other futures and derivatives traders, the Fund will be subject to margin calls from time-to-time. The term “margin” has a different meaning in the context of futures contracts and other derivatives than it does in the context of securities. In particular, “margin” on a futures position does not constitute a borrowing of money or the collateralization of a loan. The Fund does not borrow money.

To establish a position in an exchange-traded futures contract, the Fund makes a deposit of “initial margin.” The amount of initial margin required to be deposited in order to establish a position in an exchange-traded futures contract varies from instrument to instrument depending, generally, on the historical volatility of the futures contract in question. Determination of the amount of the required initial margin deposit in respect of a particular contract is made by the exchange on which the contract is listed. To establish a long position in an over-the-counter instrument, the counterparty may require an analogous deposit of collateral, depending upon the anticipated volatility of the instrument and the creditworthiness of the person seeking to establish the position. The deposit of initial margin provides assurance to futures commission merchants and clearing brokers involved in the settlement process that sufficient resources are likely to be on deposit to enable a client’s position to be closed by recourse to the initial margin deposit should the client fail to meet a demand for variation margin, even if changes in the value of the contract in question, which are marked to market from day to day, continue to reflect the contract’s historical volatility. Collateral deposited in support of an over-the-counter instrument serves a similar purpose.

Once a position has been established on a futures exchange, “variation margin” generally is credited or assessed at least daily to reflect changes in the value of the position. In contrast to “initial margin,” “variation margin” represents a system of marking to market the futures contract’s value. Thus, traders in exchange-traded futures contracts are assessed daily in an amount equal to that day’s accumulated losses in respect of any open position (or are credited daily with accumulated gains in respect of such position). Collateral may move between the parties to an over-the-counter instrument in a similar manner as gains or losses accumulate in the instrument. As with initial margin, variation margin serves to secure the obligations of the investor under the contract and to protect those involved in the settlement process against the possibility that a client will have insufficient resources to meet its contractual obligations. Collateral deposited in support of an over-the-counter instrument serves a similar purpose. Like initial margin (or an equivalent deposit of collateral), variation margin (or an equivalent deposit of collateral) does not constitute a borrowing of money, is not considered to be part of the contract purchase price and is returned upon the contract’s termination unless it is used to cover a loss in the contract position. United States Treasury Obligations are used routinely to collateralize OTC derivative positions, and are deposited routinely as margin to collateralize futures positions. The Fund may liquidate United States Treasury Obligations to meet an initial or variation margin requirement.

Performance Summary

This Report covers the three months ended September 30, 2011 and 2010 (hereinafter referred to as the “Three Months Ended September 30, 2011” and the “Three Months Ended September 30, 2010”, respectively) and the nine months ended September 30, 2011 and 2010 (hereinafter referred to as the “Nine Months Ended September 30, 2011” and the “Nine Months Ended September 30, 2010”, respectively). The Fund commenced trading on the American Stock Exchange (now known as the NYSE Alternext US LLC (the “NYSE Alternext”)) on February 3, 2006, and, as of November 25, 2008, is listed on the NYSE Arca, Inc. (the “NYSE Arca”).

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

The Index is intended to reflect the change in market value of the Index Commodities. In turn, the notional amounts of each Index Commodity are broadly in proportion to historic levels of the world’s production and stocks of such Index Commodities. The DBIQ Optimum Yield Diversified Commodity Index Total Return™ (the “DBIQ-OY Diversified TR™”) and the DB Liquid Commodity Index-Optimum Yield Diversified Total Return™ (the “DBCLI-OY Diversified TR™”) consists of the Index plus 3-

 

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month United States Treasury Obligations returns. Past Index results are not necessarily indicative of future changes, positive or negative, in the Index closing levels.

The section “Summary of the DBIQ-OY Diversified TR™ and Underlying Index Commodity Returns for the Three Months Ended September 30, 2011 and the Nine Months Ended September 30, 2011 and the Summary of the DBLCI-OY Diversified TR™ and Underlying Index Commodity Returns for the Three Months Ended September 30, 2010 and the Nine Months Ended September 30, 2010” below provides an overview of the changes in the closing levels of DBIQ-OY Diversified TR™ and DBLCI-OY Diversified TR™ by disclosing the change in market value of each underlying component Index Commodity through a “surrogate” (and analogous) index plus 3-month United States Treasury Obligations returns. Please note also that the Fund’s objective is to track the Index (not the DBIQ-OY Diversified TR™), and the Fund does not attempt to outperform or underperform the Index. The Index employs the optimum yield roll method with the objective of mitigating the negative effects of contango, the condition in which distant delivery prices for futures exceed spot prices, and maximizing the positive effects of backwardation, a condition opposite of contango.

Summary of the DBIQ-OY Diversified TR™ and Underlying Index Commodity Returns for the Three Months Ended September 30, 2011 and the Nine Months Ended September 30, 2011 and the Summary of the DBLCI-OY Diversified TR™ and Underlying Index Commodity Returns for the Three Months Ended September 30, 2010 and the Nine Months Ended September 30, 2010

 

     AGGREGATE RETURNS FOR INDICES IN THE
DBIQ-OY DIVERSIFIED TR™ & DBLCI-OY DIVERSIFIED TR™
 

Underlying Index

   Three Months
Ended
September 30,
2011
    Three Months
Ended
September 30,
2010
    Nine Months
Ended
September 30,
2011
    Nine Months
Ended
September 30,
2010
 

DB Light Crude Oil Indices

     (12.58 )%      8.54     2.02     (0.37 )% 

DB Heating Oil Indices

     (10.84 )%      6.68     2.85     (2.03 )% 

DB Aluminum Indices

     (15.56 )%      17.55     (14.53 )%      1.89

DB Gold Indices

     7.77     4.82     13.48     18.88

DB Corn Indices

     (4.51 )%      32.78     5.48     12.59

DB Wheat Indices

     (6.91 )%      25.86     (32.42 )%      (0.66 )% 

DB RBOB Gasoline Indices

     (9.28 )%      5.52     6.25     (2.15 )% 

DB Natural Gas Indices

     (15.61 )%      (21.68 )%      (19.66 )%      (37.09 )% 

DB Silver Indices

     (13.68 )%      16.29     (3.41 )%      28.91

DB Zinc Indices

     (21.07 )%      20.86     (25.52 )%      (16.31 )% 

DB Copper Grade A Indices

     (25.44 )%      22.34     (25.48 )%      8.17

DB Soybeans Indices

     (8.88 )%      22.68     (9.86 )%      9.23

DB Sugar Indices

     (2.77 )%      25.30     (5.51 )%      (22.94 )% 

DB Brent Crude Indices

     (19.29 )%      6.40     (17.01 )%      (6.99 )% 
  

 

 

   

 

 

   

 

 

   

 

 

 

AGGREGATE RETURNS

     (10.89 )%      11.16     (5.92 )%      (2.03 )% 
  

 

 

   

 

 

   

 

 

   

 

 

 

If the Fund’s interest income from its holdings of fixed income securities were to exceed the Fund’s fees and expenses, the aggregate return on an investment in the Fund is expected to outperform the DBIQ-OY Diversified ER™ and underperform the DBIQ-OY Diversified TR™. The only difference between (i) the Index (the “Excess Return Index”) and (ii) the DBIQ-OY Diversified TR™ (the “Total Return Index”) is that the Excess Return Index does not include interest income from a hypothetical basket of fixed income securities while the Total Return Index does include such a component. Thus, the difference between the Excess Return Index and the Total Return Index is attributable entirely to the hypothetical interest income from this hypothetical basket of fixed income securities. If the Fund’s interest income from its holdings of fixed-income securities exceeds the Fund’s fees and expenses, then the amount of such excess is expected to be distributed periodically. The market price of the Shares is expected to closely track the Index. The aggregate 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, the Fund’s aggregate return is expected to outperform the Excess Return Index by the amount of the excess, if any, of its interest income over its fees and expenses but, as a result of the Fund’s fees and expenses, the aggregate return on the Fund is expected to underperform the Total Return Index. If the Fund’s fees and expenses were to exceed the Fund’s interest income from its holdings of fixed income securities, the aggregate return on an investment in the Fund is expected to underperform the Excess Return Index.

 

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Net Asset Value

Net asset value means the total assets of the Fund, including, but not limited to, all futures, cash and investments less total liabilities of the 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 commodity futures contracts, and any other credit or debit accruing to the Fund but unpaid or not received by the Fund. All open commodity futures contracts will be calculated at their then current market value, which will be based upon the settlement price for that particular commodity futures contract traded on the applicable exchange on the date with respect to which net asset value is being determined; provided, that if a commodity 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 Managing Owner may value such futures contract pursuant to policies the Managing Owner has adopted, which are consistent with normal industry standards. The Managing Owner may in its discretion (and under 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 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 Fund’s brokerage account is accrued monthly. The amount of any distribution is a liability of the Fund from the day when the distribution is declared until it is paid.

Critical Accounting Policies

The 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 financial statements and accompanying notes. The financial statements of the Fund include the consolidated financial statements of the Fund and Master Fund when applicable. As described above, the Fund was originally formed as a master-feeder structure and such structure was collapsed on December 31, 2010. The financial statements reflect consolidation of the Fund and the Master Fund for all periods prior to December 31, 2010. The Fund’s application of these policies involves judgments and actual results may differ from the estimates used.

The Fund holds a significant portion of its assets in futures contracts and United States Treasury Obligations, both of which are recorded on a trade date basis and at fair value in the financial statements, with changes in fair value reported in the statement of income and expenses.

The use of fair value to measure financial instruments, with related unrealized gains or losses recognized in earnings in each period is fundamental to the Fund’s financial statements. The fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (the exit price).

In determining fair value of United States Treasury Obligations and commodity futures contracts, the Fund uses unadjusted quoted market prices in active markets. FASB fair value measurement and disclosure guidance requires a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The objective of a fair value measurement is to determine the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). The hierarchy gives the highest priority to unadjusted quoted prices for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. See Note 4(c) within the financial statements in Item 1 for further information.

When market closing prices are not available, the Managing Owner may value an asset of the Fund pursuant to policies the Managing Owner has adopted, which are consistent with normal industry standards.

Realized gains (losses) and changes in unrealized gain (loss) on open positions are determined on a specific identification basis and recognized in the 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.

 

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Market Risk

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

The 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 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 Fund enters into futures contracts, the Fund is exposed to credit risk that the counterparty to the contract will not meet its obligations. The counterparty for futures contracts traded on United States and on most foreign futures exchanges is the clearing house associated with the particular exchange. In general, clearing houses are backed by their corporate members who may be required to share in the financial burden resulting from the nonperformance by one of their members and, as such, should significantly reduce this credit risk. In cases where the clearing house is not backed by the clearing members (i.e., some foreign exchanges), it may be backed by a consortium of banks or other financial institutions. There can be no assurance that any counterparty, clearing member or clearinghouse will meet its obligations to the Fund.

The Commodity Broker, when acting as the 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 Fund all assets of the 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 Fund related to foreign futures trading.

Liquidity

All of the Fund’s source of capital is derived from the Fund’s offering of Shares to Authorized Participants. The Fund in turn allocates its net assets to commodities trading. A significant portion of the net asset value is held in United States Treasury Obligations and cash, which are used as margin for the Fund’s trading in commodities. 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 Fund’s commodity interests change. The balance of the net assets is held in the Fund’s commodity trading account. Interest earned on the Fund’s interest-bearing funds is paid to the Fund.

The Fund’s commodity 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 certain commodity 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 for a particular commodity has increased or decreased by an amount equal to the daily limit, positions in the commodity futures contract can neither be taken nor liquidated unless the traders are willing to effect trades at or within the limit. Commodity futures prices have occasionally moved the daily limit for several consecutive days with little or no trading. Such market conditions could prevent the Fund from promptly liquidating its commodity futures positions.

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

Authorized Participants may also redeem Baskets of Shares. 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 10:00 a.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 only 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 activity of the Fund is to raise capital from Authorized Participants through the issuance of Shares. This cash 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.

 

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Operating Activities

Net cash flow used for operating activities was $325.7 million and $93.7 million for the Nine Months Ended September 30, 2011 and 2010, respectively. This amount primarily includes net purchases and sales of United States Treasury Obligations which are held at fair value on the statement of financial condition.

During the Nine Months Ended September 30, 2011, $17,564.3 million was paid to purchase United States Treasury Obligations and $16,609.4 million was received from sales and maturing contracts. During the Nine Months Ended September 30, 2010, $12,468.3 million was paid to purchase United States Treasury Obligations and $12,561.3 million was received from sales and maturing contracts. Unrealized appreciation on United States Treasury Obligations and futures increased by $1,038.5 million and decreased by $62.4 million during the Nine Months Ended September 30, 2011 and 2010, respectively.

Financing Activities

The Fund’s net cash flow provided by financing activities was $737.9 million and $150.7 million during the Nine Months Ended September 30, 2011 and 2010, respectively. This included $1,452.4 million and $856.4 million from the sale of Shares to Authorized Participants during the Nine Months Ended September 30, 2011 and 2010, respectively.

Results of Operations

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010 AND THE NINE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010

The Fund was launched on January 31, 2006 at $25.00 per Share. The Shares traded on the NYSE Alternext from February 3, 2006 to November 25, 2008 and have been trading on the NYSE Arca since November 25, 2008.

The Fund seeks to track changes in the closing levels of the DBIQ Optimum Yield Diversified Commodity Index Excess Return™ (the “Index”) over time, plus the excess, if any, of the 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. The following graphs illustrate changes in (i) the price of the Shares (as reflected by the graph “DBC”), (ii) the Fund’s NAV (as reflected by the graph “DBCNAV”), and (iii) the closing levels of the Index (as reflected by the graph “DBLCIX”). Whenever the interest income earned by the Fund exceeds Fund expenses, the price of the Shares generally has exceeded the levels of the Index primarily because the Share price reflects interest income from the Fund’s collateral holdings whereas the Index does not consider such interest income. There can be no assurances that the price of the Shares will exceed the Index levels.

The Index is a set of rules applied to a body of data and does not represent the results of actual investment or trading. The Index is frictionless, in that it does not take into account fees or expenses associated with investing in the Fund. Also, because it does not represent actual futures positions, the Index is not subject to, and does not take into account the impact of, speculative position limits or certain other similar limitations on the ability of the Fund to trade the Index Commodities. The “TR” version of the Index includes an assumed amount of interest income based on prevailing rates that is adjusted from time to time. The Fund, by contrast, invests actual money and trades actual futures contracts. As a result, the performance of the Fund involves friction, in that fees and expenses impose a drag on performance. The Fund may be subject to speculative position limits and certain other limitations on its ability to trade the Index Commodities, which may compel the Fund to trade futures or other instruments that are not Index Commodities as proxies for the Index Commodities. The interest rate actually earned by the Fund over any period may differ from the assumed amount of interest income factored into the “TR” version of the Index over the same period. All of these factors can contribute to discrepancies between changes in net asset value per Share and changes in the level of the Index over any period of time. Fees and expenses always will tend to cause changes in the net asset value per Share to underperform changes in the value of the Index over any given period, all other things being equal. Actual interest income could be higher or lower than the assumed interest income factored into the “TR” version of the Index, and therefore could cause changes in the net asset value per Share to outperform or underperform changes in the value of the “TR” version of the Index over any given period, all other things being equal. Similarly, trading futures or other instruments that are not Index Commodities as proxies for the Index Commodities could cause changes in the net asset value per Share to outperform or underperform changes in the value of the Index over any given period, all other things being equal.

[Remainder of page left blank intentionally.]

 

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COMPARISON OF DBC, DBCNAV AND DBLCIX FOR THE THREE MONTHS ENDED

SEPTEMBER 30, 2011 AND 2010 AND THE NINE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010

 

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 below.

 

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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 below.

Additional Legends

DBIQ Optimum Yield Diversified Commodity 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 OCTOBER 2010, 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

 

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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 THE INDEX CLOSING LEVELS. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY INVESTMENT METHODOLOGIES, WHETHER ACTIVE OR PASSIVE.

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 SEPTEMBER 1997 THROUGH SEPTEMBER 2010, THE INDEX CLOSING LEVELS REFLECT THE APPLICATION OF THE INDEX’S METHODOLOGY, AND SELECTION OF INDEX COMMODITIES, 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” SET FORTH IN THE FUND’S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2010, RELATED TO THE COMMODITIES 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, AN INDIRECT WHOLLY OWNED SUBSIDIARY OF DEUTSCHE BANK AG, COMMENCED OPERATIONS IN JANUARY 2006. AS MANAGING OWNER, THE MANAGING OWNER AND ITS TRADING PRINCIPALS HAVE BEEN MANAGING THE DAY-TO-DAY OPERATIONS FOR THE FUND AND MANAGING FUTURES ACCOUNTS AND RELATED PRODUCTS. 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.

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2011 COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 2010

Fund Share Price Performance

For the Three Months Ended September 30, 2011, the NYSE Arca market value of each Share decreased 11.08% from $28.96 per Share to $25.75 per Share. The Share price high and low for the Three Months Ended September 30, 2011 and related change from the Share price on June 30, 2011 was as follows: Shares traded from a high of $30.84 per Share (+6.49%) on July 26, 2011, to a low of $25.75 per Share (-11.08%) on September 30, 2011.

For the Three Months Ended September 30, 2010, the NYSE Arca market value of each Share increased 11.78% from $21.57 per Share to $24.11 per Share. The Share price low and high for the Three Months Ended September 30, 2010 and related change from the Share price on June 30, 2010 was as follows: Shares traded from a low of $21.20 per Share (-1.72%) on July 2, 2010, to a high of $24.11 per Share (+11.78%) on September 30, 2010.

Fund Share Net Asset Performance

For the Three Months Ended September 30, 2011, the net asset value of each Share decreased 11.11% from $29.16 per Share to $25.92 per Share. Falling futures contracts prices for light crude oil, heating oil, aluminum, corn, RBOB gasoline, brent crude oil, copper grade A, wheat, zinc, soybean, natural gas, sugar, and silver were partially offset by higher futures contract prices for gold

 

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during the Three Months Ended September 30, 2011 contributing to an overall 10.89% decrease in the level of the DBIQ-OY Diversified TR™.

Net loss for the Three Months Ended September 30, 2011 was $693.1 million, resulting from $0.6 million of interest income, net realized gain of $31.7 million, net unrealized loss of $712.3 million and operating expenses of $13.1 million.

For the Three Months Ended September 30, 2010, the net asset value of each Share increased 11.16% from $21.68 per Share to $24.10 per Share. Rising futures contracts prices for crude oil, heating oil, aluminum, corn, wheat, RBOB gasoline, brent crude oil, zinc, copper grade A, soybeans and sugar, gold, and silver were partially offset by lower futures contract prices for natural gas during the Three Months Ended September 30, 2010 contributing to an overall 11.16% increase in the level of the DBLCI-OY Diversified TR™.

Net income for the Three Months Ended September 30, 2010 was $450.7 million, resulting from $1.4 million of interest income, net realized loss of $85.8 million, net unrealized gain of $544.5 million and operating expenses of $9.4 million.

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2011 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 2010

Fund Share Price Performance

For the Nine Months Ended September 30, 2011, the NYSE Arca market value of each Share decreased 6.53% from $27.55 per Share to $25.75 per Share. The Share price high and low for the Nine Months Ended September 30, 2011 and related change from the Share price on December 31, 2010 was as follows: Shares traded from a high of $31.92 per Share (+15.86%) on April 8, 2011, to a low of $25.75 per Share (-6.53%) on September 30, 2011.

For the Nine Months Ended September 30, 2010, the NYSE Arca market value of each Share decreased 2.07% from $24.62 per Share to $24.11 per Share. The Share price high and low for the Nine Months Ended September 30, 2010 and related change from the Share price on December 31, 2009 was as follows: Shares traded from a high of $25.72 per Share (+4.47%) on January 6, 2010 to a low of $21.20 per Share (-13.89%) on July 2, 2010.

Fund Share Net Asset Performance

For the Nine Months Ended September 30, 2011, the net asset value of each Share decreased 5.98% from $27.57 per Share to $25.92 per Share. Falling futures contracts prices for aluminum, brent crude oil, wheat, zinc, copper Grade A, soybean, sugar, natural gas and silver were partially offset by higher futures contract prices for RBOB gasoline, corn, heating oil, gold and light crude oil during the Nine Months Ended September 30, 2011 contributing to an overall 5.92% decrease in the level of the DBIQ-OY Diversified TR™.

Net loss for the Nine Months Ended September 30, 2011 was $412.4 million, resulting from $3.4 million of interest income, net realized gain of $662.0 million, net unrealized loss of $1,038.5 million and operating expenses of $39.3 million.

For the Nine Months Ended September 30, 2010, the net asset value of each Share decreased 2.23% from $24.65 per Share to $24.10 per Share. Falling futures contracts prices for natural gas, sugar, zinc, Brent crude oil, RBOB gasoline, heating oil, wheat and light crude were partially offset by higher futures contract prices for silver, gold, corn, soybeans, copper, and aluminum during the Nine Months Ended September 30, 2010 contributing to an overall 2.03% decrease in the level of the DBLCI-OY Diversified TR™.

Net loss for the Nine Months Ended September 30, 2010 was $123.9 million, resulting from $3.7 million of interest income, net realized loss of $160.8 million, net unrealized gain of $62.3 million and operating expenses of $29.1 million.

Off-Balance Sheet Arrangements and Contractual Obligations

In the normal course of its business, the Fund is a 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 Fund are commodity 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 has not utilized, nor does it expect to utilize in the future, special purpose entities to facilitate off-balance sheet financing arrangements and has 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. While the Fund’s exposure under such indemnification provisions cannot be estimated, these general business indemnifications are not expected to have a material impact on the Fund’s financial position.

 

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The 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 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.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

INTRODUCTION

The Fund is designed to replicate positions in a commodity 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.

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 commodities.

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 effects of margin, and any other multiplier features, as applicable, 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).

Value at risk, or VaR, is a statistical measure of the value of losses that would not be expected to be exceeded over a given time horizon and at a given probability level arising from movement of underlying risk factors. Loss is measured as a decline in the fair value of the portfolio as a result of changes in any of the material variables by which fair values are determined. VaR is measured over a specified holding period (1 day) and to a specified level of statistical confidence (99th percentile). 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 VaR 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 VaR or by the Fund’s attempts to manage its market risk.

THE FUND’S TRADING VALUE AT RISK

The Fund calculates VaR using the actual historical market movements of the Fund’s total assets.

The following table indicates the trading VaR associated with the Fund’s total assets as of September 30, 2011.

 

Description

   Total Assets      Daily Volatility     VaR*
(99  Percentile)
     Number of times
VaR Exceeded
 

PowerShares DB Commodity Index Tracking Fund

   $ 5,436,803,448         1.31   $ 165,311,480         5   

The following table indicates the trading VaR associated with the Fund’s total assets as of December 31, 2010.

 

Description

   Total Assets      Daily Volatility     VaR*
(99  Percentile)
     Number of times
VaR Exceeded
 

PowerShares DB Commodity Index Tracking Fund

   $ 5,110,292,129         1.18   $ 140,128,100         2   

 

* The VaR represents the one day downside risk, under normal market conditions, with a 99% confidence level. It is calculated using historical market moves of the Fund’s total assets and uses a one year look-back.

 

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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.

The following were the primary trading risk exposures of the Fund as of September 30, 2011 by market sector.

ENERGY

Light Sweet Crude Oil

The price of light sweet crude oil is volatile and is affected by numerous factors. The level of global industrial activity influences the demand for light sweet crude oil. In addition, various other factors can affect the demand for light sweet crude oil, such as weather, political events and labor activity. The supply of light sweet crude oil can be affected by many events, in particular, the meetings of the Organization of Petroleum Exporting Countries. Market expectations about events that will influence either demand or supply can cause prices for light sweet crude oil to fluctuate greatly. A significant amount of the world oil production capacity is controlled by a relatively small number of producers. Any large change in production by one of these producers could have a substantial effect on the price of light sweet crude oil.

Heating Oil

The price of heating oil is volatile and is affected by numerous factors. The level of global industrial activity influences the demand for heating oil. In addition, the seasonal temperatures in countries throughout the world can also heavily influence the demand for heating oil. Heating oil is derived from crude oil and as such, any factors that influence the supply of crude oil may also influence the supply of heating oil.

Brent Crude Oil

The price of Brent crude oil is volatile and is affected by numerous factors. The price of Brent crude oil is influenced by many factors, including, but not limited to, the amount of output by oil producing nations, worldwide supply/stockpiles, weather, various geopolitical factors that cause supply disruptions (e.g., war, terrorism), global demand (particularly from emerging nations), currency fluctuations, and activities of market participants such as hedgers and speculators.

RBOB Gasoline

The price of RBOB Gasoline is volatile and is affected by numerous factors. The level of global industrial activity influences the demand for RBOB Gasoline. In addition, the demand has seasonal variations, which occur during “driving seasons” usually considered the summer months in North America and Europe. RBOB Gasoline is derived from crude oil and as such, any factors that influence the supply of crude oil may also influence the supply of RBOB Gasoline.

Natural Gas

The price of natural gas is volatile and is affected by numerous factors. The level of global industrial activity influences the demand for natural gas. In addition to the seasonal temperatures in countries throughout the world, any fluctuations in temperature may also heavily influence the demand for natural gas.

METALS

Gold

The price of gold is volatile and is affected by numerous factors. Gold prices float freely in accordance with supply and demand. The price movement of gold may be influenced by a variety of factors, including announcements from central banks regarding reserve gold holdings, agreements among central banks, purchases and sales of gold by central banks, other governmental agencies that hold

 

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large supplies of gold, political uncertainties, economic concerns such as an increase or decrease in confidence in the global monetary system, the relative strength of the U.S. dollar, interest rates and numerous other factors. Gold prices may also be affected by industry factors such as industrial and jewelry demand.

Silver

The price of silver is volatile and is affected by numerous factors. The largest industrial users of silver (e.g., photographic, jewelry, and electronic industries) may influence its price. A change in economic conditions, such as a recession, can adversely affect industries which are dependent upon the use of silver. In turn, such a negative economic impact may decrease demand for silver, and, consequently, its price. Worldwide speculation and hedging activity by silver producers may also impact its price.

Aluminum

The price of aluminum is volatile. The price movement of aluminum may be influenced by a variety of factors, including the level of global industrial activity and demand, especially relating to the transportation, packaging and building sectors, each of which significantly influences the demand, and in turn, the price of aluminum. Prices for aluminum are influenced by a number of factors including the level of economic activity in large aluminum consuming markets, political uncertainties, economic concerns and the rate of supply of new metal from producers. The production of aluminum is a power intensive process that requires large amounts of inexpensive power. Disruptions in the amount of energy available to aluminum producers could affect the supply of aluminum.

Zinc

The price of zinc is volatile and is affected by numerous factors. The price of zinc is primarily affected by the global demand for and supply of zinc. Demand for zinc is significantly influenced by the level of global industrial economic activity. The galvanized steel industrial sector is particularly important given that the use of zinc in the manufacture of galvanized steel accounts for approximately 50% of world-wide zinc demand. The galvanized steel sector is in turn heavily dependent on the automobile and construction sectors. An additional, but highly volatile component of demand, is adjustments to inventory in response to changes in economic activity and/or pricing levels. The supply of zinc concentrate (the raw material) has generally been dominated by China, Australia, North America and Latin America. The supply of zinc is also affected by current and previous price levels, which will influence investment decisions in new mines and smelters. It is not possible to predict the aggregate effect of all or any combination of these factors.

Copper

The price of copper is volatile. The price of copper is primarily affected by the global demand for and supply of copper. Demand for copper is significantly influenced by the level of global industrial economic activity. Industrial sectors which are particularly important include the electrical and construction sectors. In recent years demand has been supported by strong consumption from newly industrializing countries, which continue to be in a copper-intensive period of economic growth as they develop their infrastructure (such as China). An additional, but highly volatile, component of demand is adjustments to inventory in response to changes in economic activity and/or pricing levels. Apart from the United States, Canada and Australia, the majority of copper concentrate supply (the raw material) comes from outside the Organization for Economic Cooperation and Development countries. Chile is the largest producer of copper concentrate. In previous years, copper supply has been affected by strikes, financial problems, political turmoil and terrorist activity.

AGRICULTURAL

Corn

The price of corn is volatile. The price movement of corn may be influenced by three primary supply factors: farmer planting decisions, climate, and government agricultural policies and three major market demand factors: livestock feeding, shortages or surpluses of world grain supplies, and domestic and foreign government policies and trade agreements. Additionally, the price movement of corn may be influenced by a variety of other factors, including weather conditions, disease, transportation costs, political uncertainties and economic concerns.

Wheat

The price of wheat is volatile. The price movement of wheat may be influenced by three primary supply factors: farmer planting decisions, climate, and government agricultural policies and three major market demand factors: food, shortages or surpluses of world grain supplies, and domestic and foreign government policies and trade agreements. Additionally, the price movement of wheat may be influenced by a variety of other factors, including weather conditions, disease, transportation costs, political uncertainties and economic concerns.

 

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Soybeans

The price of soybeans is volatile. The price movement of soybeans may be influenced by a variety of factors, including demand, weather conditions, disease, crop production, transportation costs, political uncertainties and economic concerns.

Sugar

The price of sugar is volatile. The price movement of sugar may be influenced by a variety of factors, including demand, weather conditions, disease, crop production, transportation costs, political uncertainties and economic concerns.

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.

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 only on the “long” side of the market and does not employ “stop-loss” techniques.

 

ITEM 4. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of the management of the Managing Owner, including Hans Ephraimson, its Chief Executive Officer, and Michael Gilligan, its Principal Financial Officer, the Fund carried out an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this quarterly report, and, based upon that evaluation, Hans Ephraimson, the Chief Executive Officer, and Michael Gilligan, the Principal Financial Officer of the Managing Owner, concluded that the Fund’s disclosure controls and procedures were effective to ensure that information the Fund is required to disclose in the reports that it files or submits with the Securities and Exchange Commission (the “SEC”) under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and to ensure that information required to be disclosed by the Fund in the reports that it files or submits under the Exchange Act is accumulated and communicated to management of the Managing Owner, including its Chief Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There has been no change in internal control over financial reporting (as defined in the Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during the Fund’s last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Fund’s internal control over financial reporting.

 

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PART II. OTHER INFORMATION

 

Item 1. Legal Proceedings.

Not Applicable.

 

Item 1A. Risk Factors.

There are no material changes from risk factors as previously disclosed in the Annual Report on Form 10-K for the year ended December 31, 2010, filed February 28, 2011 except for the following:

(3) Regulatory and Exchange Position Limits and Other Rules May Restrict the Creation of Baskets and the Operation of the Fund.

CFTC and commodity exchange rules impose speculative position limits on market participants, including the Fund, trading in certain commodities. These position limits prohibit any person from holding a position of more than a specific number of such futures contracts.

The Index is composed of 14 Index Commodities, of which 10 Index Commodities are subject to speculative position limits imposed by either the CFTC or the rules of the futures exchanges on which the futures contracts for the applicable Index Commodities are traded. The purposes of speculative position limits are to diminish, eliminate or prevent sudden or unreasonable fluctuations or unwarranted changes in the prices of futures contracts. Currently, speculative position limits (i) for corn, oats, wheat, soybean, soybean oil and cotton are determined by the CFTC and (ii) for all other commodities are determined by the futures exchanges. Pursuant to the statutory mandate of the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, which was signed into law on July 21, 2010, the CFTC proposed regulations in January 2011, or the Proposed Regulations, would, in pertinent part, impose new federal position limits on futures and options on a subset of energy, metal, and agricultural commodities, or the Referenced Contracts, and economically equivalent swaps. The Referenced Contracts subject to the 2011 Proposed Rules represent 75.125% of original base weights of the Index Commodities.

Generally, speculative position limits in the physical delivery markets are set at a stricter level during the spot month, the month when the futures contract matures and becomes deliverable, versus the limits set for all other months. If the Managing Owner determines that the Fund’s trading may be approaching any of these speculative position limits, the Fund may reduce its trading in that commodity or trade in other commodities or instruments that the Index Sponsor determines comply with the rules and goals of the Index. Below is a chart that sets forth certain relevant information, including current speculative position limits for each Affected Index Commodity that any person may hold, separately or in combination, net long or net short, for the purchase or sale of any commodity futures contract or, on a futures-equivalent basis, options thereon. Speculative position limit levels remain subject to change by the CFTC or the relevant exchanges.

Under current regulations, subject to any relevant exemptions, traders, such as the Fund, may not exceed speculative position limits, either individually or in the aggregate with other persons with whom they are under common control or ownership. Under the Proposed Regulations, the CFTC would require certain persons to aggregate exchange listed futures and economically equivalent swap positions owned or controlled by such persons.

 

Affected Index Commodity

  

Exchange (Symbol)1

  

Exchange Position Limits2

Corn

   CBOT (C)   

600 – Spot Month

13,500 – Single Month

22,000 – All Months Combined

Soybeans

   CBOT (S)   

600 – Spot Month

6,500 – Single Month

10,000 – All Months Combined

Wheat

   CBOT (W)   

600 – Spot Month

5,000 – Single Month

6,500 – All Months Combined

Sugar #11

   ICE US (SB)    5,000 – Spot Month

Light Sweet Crude Oil

   NYMEX (CL)   

3, 000 – Spot Month

10,000 – Single Month

 

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Affected Index Commodity

  

Exchange (Symbol)1

  

Exchange Position Limits2

      20,000 – All Months Combined

Heating Oil

   NYMEX (HO)   

1,000 – Spot Month

5,000 – Single Month

7,000 – All Months Combined

Natural Gas

   NYMEX (NG)   

1,000 – Spot Month

6,000 – Single Month

12,000 –All Months Combined

Silver

   COMEX (SI)   

1,500 – Spot Month

6,000 – Single Month

6,000 – All Months Combined

Gold

   COMEX (GC)   

3,000 – Spot Month

6,000 – Single Month

6,000 – All Months Combined

RBOB Gasoline

   NYMEX (XB)   

1,000 – Spot Month

5,000 – Single Month

7,000 – All Months Combined

 

1 

Legend:

“CBOT” means the Board of Trade of the City of Chicago Inc., or its successor.

“ICE US” means ICE Futures U.S., Inc. or its successor.

“NYMEX” means the New York Mercantile Exchange or its successor.

“COMEX” means the Commodity Exchange Inc., New York or its successor.

 

2

Subject to any additional limitations on an exchange-by-exchange basis, as applicable.

The Fund is subject to position limits and, consequently, the Fund’s ability to issue new Baskets, or the Fund’s ability to reinvest income in additional futures contracts corresponding to the Affected Index Commodities, may be limited to the extent these activities would cause the Fund to exceed its applicable position limits. Limiting the size of the Fund may affect the correlation between the price of the Shares, as traded on the NYSE Arca, and the net asset value of the Fund. That is, the inability to create additional Baskets could result in Shares trading at a premium or discount to net asset value of the Fund.

Under the Dodd-Frank Act, the CFTC is required, among other things, to establish speculative position limits on exchange listed futures and options on physical commodities (including certain energy, metals and agricultural products) and economically equivalent over-the-counter derivatives. The Dodd-Frank Act will also require the CFTC to establish aggregate position limits for contracts based on the same underlying commodity, including certain contracts traded on non-U.S. exchanges. Depending on the outcome of the Proposed Regulations and any future CFTC or futures exchange rulemaking, as applicable, the rules concerning position limits may be amended in a manner that is detrimental to the Fund. For example, if the amended rules are detrimental to the Fund, its ability to issue new Baskets, or reinvest income in additional futures contracts corresponding to the Affected Index Commodities, may be limited to the extent these activities would cause the Fund to exceed the applicable position limits. Limiting the size of the Fund may affect the correlation between the price of the Shares, as traded on the NYSE Arca, and the net asset value of the Fund. That is, the inability to create additional Baskets could result in Shares in the Fund trading at a premium or discount to net asset value of the Fund.

(27) The Effect Of Market Disruptions and Government Intervention Are Unpredictable And May Have An Adverse Effect On The Value Of Your Shares.

The global financial markets have in the past few years gone through pervasive and fundamental disruptions that have led to extensive and unprecedented governmental intervention. Such intervention has in certain cases been implemented on an “emergency” basis, suddenly and substantially eliminating market participants’ ability to continue to implement certain strategies or manage the risk of their outstanding positions. In addition—as one would expect given the complexities of the financial markets and the limited time frame within which governments have felt compelled to take action—these interventions have typically been unclear in scope and application, resulting in confusion and uncertainty which in itself has been materially detrimental to the efficient functioning of the markets as well as previously successful investment strategies.

 

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The Fund may incur major losses in the event of disrupted markets and other extraordinary events in which historical pricing relationships become materially distorted. The risk of loss from pricing distortions is compounded by the fact that in disrupted markets many positions become illiquid, making it difficult or impossible to close out positions against which the markets are moving. The financing available to market participants from their banks, dealers and other counterparties is typically reduced in disrupted markets. Such a reduction may result in substantial losses to the affected market participants. Market disruptions may from time to time cause dramatic losses, and such events can result in otherwise historically low-risk strategies performing with unprecedented volatility and risk.

(28) Regulatory Changes or Actions, Including the Implementation of the Dodd-Frank Act, May Alter the Operations and Profitability of the Fund.

The regulation of commodity interest transactions in the United States is a rapidly changing area of law and is subject to ongoing modification by governmental and judicial action. Considerable regulatory attention has been focused on non-traditional investment pools that are publicly distributed in the United States. The Dodd-Frank Act seeks to regulate markets, market participants and financial instruments that previously have been unregulated and substantially alters the regulation of many other markets, market participants and financial instruments. Because many provisions of the Dodd-Frank Act require rulemaking by the applicable regulators before becoming fully effective and the Dodd-Frank Act mandates multiple agency reports and studies (which could result in additional legislative or regulatory action), it is difficult to predict the impact of the Dodd-Frank Act on the Fund, the Managing Owner, and the markets in which the Fund may invest, the Net Asset Value of the Fund or the market price of the Shares. The Dodd-Frank Act could result in the Fund’s investment strategy becoming non-viable or non-economic to implement. Therefore, the Dodd-Frank Act and regulations adopted pursuant to the Dodd-Frank Act could have a material adverse impact on the profit potential of the Fund and in turn the value of your Shares.

 

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

(a) There have been no unregistered sales of the Fund’s securities. No Fund securities are authorized for issuance by the Fund under equity compensation plans.

(b) Not Applicable.

(c) The following table summarizes the redemptions by Authorized Participants during the Three Months Ended September 30, 2011 and 2010:

 

Period of Redemption

   Total Number of
Shares  Redeemed
     Average Price
Paid per Share
 

Three Months Ended September 30, 2011

     11,800,000       $ 28.30   

Three Months Ended September 30, 2010

     17,400,000       $ 22.22   

 

Item 3. Defaults Upon Senior Securities.

None.

 

Item 4. Reserved.

 

Item 5. Other Information.

None.

 

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Item 6. Exhibits.

 

  31.1    Certification required under Exchange Act Rules 13a-14 and 15d-14 (filed herewith)
  31.2    Certification required under Exchange Act Rules 13a-14 and 15d-14 (filed herewith)
  32.1    Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)
  32.2    Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)
101    Interactive data file pursuant to Rule 405 of Regulation S-T: (i) the Statements of Financial Condition - September 30, 2011 (unaudited) and December 31, 2010, (ii) the Unaudited Schedule of Investments - September 30, 2011, (iii) the Schedule of Investments - December 31, 2010, (iv) the Unaudited Statements of Income and Expenses - Three Months Ended September 30, 2011 and 2010 and Nine Months Ended September 30, 2011 and 2010, (v) the Unaudited Statements of Changes in Shareholders’ Equity - Three Months Ended September 30, 2011, (vi) the Unaudited Statements of Changes in Shareholders’ Equity - Three Months Ended September 30, 2010, (vii) the Unaudited Statements of Changes in Shareholders’ Equity - Nine Months Ended September 30, 2011, (viii) the Unaudited Statements of Changes in Shareholders’ Equity - Nine Months Ended September 30, 2010, (ix) the Unaudited Statements of Cash Flows - Nine Months Ended September 30, 2011 and 2010, and (x) Notes to Unaudited Financial Statements.

 

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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.

 

PowerShares DB Commodity Index Tracking Fund
By:  

DB Commodity Services LLC,

its Managing Owner

 

By:   /S/    HANS EPHRAIMSON        
Name:  

Hans Ephraimson

Chief Executive Officer

Title:  
By:   /S/    MICHAEL GILLIGAN        
Name:  

Michael Gilligan

Principal Financial Officer

Title:  

Dated: November 7, 2011

 

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EXHIBIT INDEX

 

Exhibit

Number

  

Description of Document

  

Page

Number

 
  31.1    Certification required under Exchange Act Rules 13a-14 and 15d-14 (filed herewith)      E-2   
  31.2    Certification required under Exchange Act Rules 13a-14 and 15d-14 (filed herewith)      E-3   
  32.1    Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)      E-4   
  32.2    Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)      E-5   
101    Interactive data file pursuant to Rule 405 of Regulation S-T: (i) the Statements of Financial Condition - September 30, 2011 (unaudited) and December 31, 2010, (ii) the Unaudited Schedule of Investments - September 30, 2011, (iii) the Schedule of Investments - December 31, 2010, (iv) the Unaudited Statements of Income and Expenses - Three Months Ended September 30, 2011 and 2010 and Nine Months Ended September 30, 2011 and 2010, (v) the Unaudited Statements of Changes in Shareholders’ Equity - Three Months Ended September 30, 2011, (vi) the Unaudited Statements of Changes in Shareholders’ Equity - Three Months Ended September 30, 2010, (vii) the Unaudited Statements of Changes in Shareholders’ Equity - Nine Months Ended September 30, 2011, (viii) the Unaudited Statements of Changes in Shareholders’ Equity - Nine Months Ended September 30, 2010, (ix) the Unaudited Statements of Cash Flows - Nine Months Ended September 30, 2011 and 2010, and (x) Notes to Unaudited Financial Statements.   

 

E-1