Form 485BPOS POWERSHARES QQQ TRUST,

January 29, 2018 5:34 PM EST

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File No. 333-61001

As filed with the Securities and Exchange Commission on January 29, 2018

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

POST-EFFECTIVE AMENDMENT NO. 25

TO

 

 

FORM S-6

 

 

FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933 OF

SECURITIES OF UNIT INVESTMENT TRUSTS REGISTERED

ON FORM N-8B-2

 

 

 

A. Exact name of trust:

POWERSHARES QQQ TRUSTSM, SERIES 1

(formerly known as the Nasdaq-100 Trust, Series 1)

(I.R.S. Employer Identification Number: 13-7173427)

 

B. Name of depositor (Sponsor):

Invesco PowerShares Capital Management LLC

 

C. Complete address of Sponsor’s principal executive offices:

INVESCO POWERSHARES CAPITAL MANAGEMENT LLC

3500 Lacey Road

Suite 700

Downers Grove, IL 60515

 

D. Name and complete address of agent for service:

Daniel Draper, Chief Executive Officer

INVESCO POWERSHARES CAPITAL MANAGEMENT LLC

3500 Lacey Road

Suite 700

Downers Grove, IL 60515

Copy to:

Eric S. Purple

Stradley Ronon Stevens & Young, LLP

1250 Connecticut Avenue, N.W.

Suite 500

Washington, D.C. 20036

It is proposed that this filing will become effective on January 31, 2018 pursuant to paragraph (b) of Rule 485.

 

E. Title of securities being registered:

An indefinite number of units of beneficial interest pursuant to Rule 24f-2 under the Investment Company Act of 1940.

 

F. Approximate date of proposed sale to public: Immediately upon effectiveness.

☐ Check box if it is proposed that this filing will become effective on the date hereof pursuant to Rule 487.

 

G. Amount of filing fee:

In accordance with Rule 24f-2, no fee was paid on December 26, 2017 in connection with the filing of the Rule 24f-2 Notice for the Trust’s most recent fiscal year.

 

 

 


POWERSHARES QQQ TRUSTSM , SERIES 1

Cross Reference Sheet

Pursuant to Regulation C

Under the Securities Act of 1933, as amended

(Form N-8B-2 Items required by Instruction 1

as to Prospectus in Form S-6)

 

Form N-8B-2   Form S-6

Item Number

 

Heading in Prospectus

I. Organization and General Information
1.   (a)   Name of Trust and Internal Revenue Service Employer Identification Number   Registration Statement Front Cover
  (b)   Title of securities issued   Registration Statement Front Cover
2.   Name, address and Internal Revenue Service Employer Identification Number of sponsor   Sponsor
3.   Name, address and Internal Revenue Service Employer Identification Number of trustee   Trustee
4.   Name, address and Internal Revenue Service Employer Identification Number of principal underwriter   *
5.   State of organization of Trust   Highlights
6.   (a)   Dates of execution and termination of Trust Agreement under which Trust organized   Highlights
  (b)   Dates of execution and termination of Trust Agreement pursuant to which proceeds of securities held by Trustee   Same as set forth in 6(a)
7.   Changes of name   *
8.   Fiscal Year   *
9.   Material Litigation   *
        
II. General Description of the Trust and Securities of the Trust
10.   (a)   Registered or bearer securities   The Trust—Book-Entry-Only System
  (b)   Cumulative or distributive   Summary
  (c)   Rights of holders as to withdrawal or redemption   Redemption of PowerShares QQQ Shares; Administration of the Trust—Rights of Beneficial Owners
  (d)   Rights of holders as to conversion, transfer, etc   Redemption of PowerShares QQQ Shares; Administration of the Trust—Rights of Beneficial Owners
  (e)   Lapses or defaults in principal payments with respect to periodic payment plan certificates   *
  (f)   Voting rights   Administration of the Trust—Rights of Beneficial Owners
  (g)   Notice to holders as to change in
    (1)   Composition of Trust assets   *
    (2)   Terms and conditions of Trust’s securities   Administration of the Trust—Amendment
    (3)   Provisions of Trust Agreement   Same as set forth in 10(g) (2)
    (4)   Identity of sponsor and trustee   The Sponsor; The Trustee
  (h)   Consent of holders required to change:
    (1)   Composition of Trust assets   *
    (2)   Terms and conditions of Trust’s securities   Administration of the Trust—Amendment
    (3)   Provisions of Trust Agreement   Same as set forth in 10(h) (2)
    (4)   Identity of sponsor and trustee   The Sponsor; The Trustee
      (i)    Other principal features of the securities   Summary; Highlights

 

 

* Not applicable, answer negative or not required.

 

i


Form N-8B-2   Form S-6

Item Number

 

Heading in Prospectus

11.   Type of securities comprising units   Prospectus Front Cover; Highlights; The Portfolio; The Index
12.   Certain information regarding securities comprising periodic payment certificates   *
13.   (a)   Certain information regarding loads, fees, expenses and charges   Summary; Expenses of the Trust; Redemption of PowerShares QQQ Shares—Procedure for Redemption of PowerShares QQQ Shares
  (b)   Certain information regarding periodic payment plan certificates   *
  (c)   Certain percentages   Expenses of the Trust; The Trust—Creation of Creation Units; Redemption of PowerShares QQQ Shares- Procedure for Redemption of PowerShares QQQ Shares
  (d)   Reasons for certain differences in price   *
  (e)   Certain other loads, fees or charges payable by holders   Summary; The Trust—Creation of Creation Units; Redemption of PowerShares QQQ Shares—Procedure for Redemptions of PowerShares QQQ Shares
  (f)   Certain profits receivable by sponsor, principal underwriters, custodian, trustee or   Same as set forth in 13(a) affiliated persons and also The Portfolio—Adjustments to the Portfolio; License Agreement
  (g)   Ratio of annual charges and deductions to income   *
14.   Issuance of Trust’s securities   The Trust—Creation of Creation Units;—Book-Entry-Only System
15.   Receipt and handling of payments from purchasers   The Trust
16.   Acquisition and disposition of underlying securities   The Trust—Creation of Creation Units; The Portfolio; Administration of the Trust; Redemption of PowerShares QQQ Shares—Procedure for Redemption of PowerShares QQQ Shares
17.   (a)   Withdrawal or redemption by holders   Administration of the Trust;
—Rights of Beneficial Owners; Redemption of PowerShares QQQ Shares
  (b)   Persons entitled or required to redeem or repurchase securities   Same as set forth in 17(a)
  (c)   Cancellation or resale of repurchased or redeemed securities   Same as set forth in 17(a)
18.   (a)   Receipt, custody and disposition of income   Administration of the Trust—Distributions to Beneficial Owners
  (b)   Reinvestment of distributions   *
  (c)   Reserves or special funds   Same as set forth in 18(a)
  (d)   Schedule of distributions   *
19.   Records, accounts and reports   Administration of the Trust;
—Distributions to Beneficial Owners;—Statements to Beneficial Owners
20.   Certain miscellaneous provisions of Trust Agreement
  (a)   Amendments   Administration of the Trust—Amendment
  (b)   Extension or termination   Administration of the Trust
—Amendment;—Termination
  (c)   Removal or resignation of trustee   The Trustee
  (d)   Successor trustee   Same as set forth in 20(c)
  (e)   Removal or resignation of sponsor   The Sponsor
  (f)   Successor sponsor   Same as set forth in 20(e)

 

 

* Not applicable, answer negative or not required.

 

ii


Form N-8B-2   Form S-6

Item Number

 

Heading in Prospectus

21.   Loans to security holders   *
22.   Limitations on liabilities   The Trustee; The Sponsor
23.   Bonding arrangements   *
24.   Other material provisions of Trust Agreement   *

 

III. Organization, Personnel and Affiliated Persons of Sponsor

25.   Organization of sponsor   Sponsor
26.   Fees received by sponsor   License Agreement
27.   Business of sponsors   Sponsor
28.   Certain information as to officials and affiliated persons of sponsor   Sponsor
29.   Ownership of voting securities of sponsor   Sponsor
30.   Persons controlling sponsor   *
31.   Remuneration of officers of sponsor to Trust   *
32.   Remuneration of directors of sponsor   *
33.   Remuneration of employees of sponsor for certain services rendered to Trust   *
34.   Compensation of other persons for certain services rendered to Trust   *

 

IV. Distribution and Redemption of Securities

35.   Distribution of Trust’s securities in states   Continuous Offering of PowerShares QQQ Shares
36.   Suspension of sales of Trust’s securities   *
37.   Denial or revocation of authority to distribute   *
38.   (a)   Method of distribution   The Trust; Marketplace Listing; Continuous Offering of PowerShares QQQ Shares
  (b)   Underwriting agreements   Continuous Offering of PowerShares QQQ Shares; The Trust—Placement of Creation Orders using the PowerShares QQQ Clearing Process
  (c)   Selling agreements   Same as set forth in 38(b)
39.   (a)   Organization of principal underwriter   Highlights
40.   Certain fees received by principal underwriters   *
41.   (a)   Business of principal underwriters   Highlights
  (b)   Branch offices of principal underwriters   *
  (c)   Salesmen of principal underwriters   *
42.   Ownership of Trust’s securities by certain persons   *
43.   Certain brokerage commissions received by principal underwriters   *

 

 

* Not applicable, answer negative or not required.

 

iii


Form N-8B-2   Form S-6

Item Number

 

Heading in Prospectus

44.   (a)   Method of valuation for determining offering price   The Portfolio; Valuation
  (b)   Schedule as to components of offering price   *
  (c)   Variation in offering price to certain persons   *
45.   Suspension of redemption rights   *
46.   (a)   Certain information regarding redemption or withdrawal valuation   Valuation; Redemption of PowerShares QQQ Shares
  (b)   Schedule as to components of redemption price   *
47.   Maintenance of position in underlying securities   The Trust; The Portfolio; Valuation; Administration of the Trust—Distributions to Beneficial Owners; Redemption of PowerShares QQQ Shares; Continuous Offering of PowerShares QQQ Shares

 

V. Information Concerning the Trustee or Custodian

48.   Organization and regulation of trustee   Trustee
49.   Fees and expenses of trustee   Summary; Expenses of the Trust
50.   Trustee’s lien   Expenses of the Trust; Redemption of PowerShares QQQ Shares

 

VI. Information Concerning Insurance of Holders of Securities

51.   (a)   Name and address of insurance company   *
  (b)   Types of policies   *
  (c)   Types of risks insured and excluded   *
  (d)   Coverage   *
  (e)   Beneficiaries   *
  (f)   Terms and manner of cancellation   *
  (g)   Method of determining premiums   *
  (h)   Aggregate premiums paid   *
  (i)   Recipients of premiums   *
  (j)   Other material provisions of Trust Agreement relating to insurance   *

 

VII. Policy of Registrant

52.   (a)   Method of selecting and eliminating securities from the Trust   The Trust—Creation of Creation Units; The Portfolio; Administration of the Trust; Redemption of PowerShares QQQ Shares—Procedure for Redemption of PowerShares QQQ Shares
  (b)   Elimination of securities from the Trust   *
  (c)   Policy of Trust regarding substitution and elimination of securities   Same as set forth in 52(a)
  (d)   Description of any other fundamental policy of the Trust   *
  (e)   Code of Ethics of the Trust   Code of Ethics
53.   (a)   Taxable status of the Trust   Tax Status of the Trust
  (b)   Qualification of the Trust as a regulated investment company   Same as set forth in 53(a)

 

VIII. Financial and Statistical Information

54.   Information regarding the Trust’s last ten fiscal years   *
55.   Certain information regarding periodic payment plan certificates   *
56.   Certain information regarding periodic payment plan certificates   *
57.   Certain information regarding periodic payment plan certificates   *
58.   Certain information regarding periodic payment plan certificates   *
59.   Financial statements (Instruction 1(c) to Form S-6)   *

 

 

* Not applicable, answer negative or not required.

 

iv


PROSPECTUS

POWERSHARES QQQ

TRUSTSM, SERIES 1

A Unit Investment Trust

 

 

 

The NASDAQ-100 Index®:

 

  measures the average performance of a broadly diversified group of stocks listed on The NASDAQ Stock Market®.

 

  includes securities issued by 100 of the largest non-financial companies listed on The NASDAQ Stock Market, Inc.

 

  is a modified capitalization-weighted index which promotes portfolio weight diversification.

The PowerShares QQQ TrustSM, Series 1:

 

  ·   is a unit investment trust designed to generally correspond to the price and yield performance of the NASDAQ-100 Index®.

 

  ·   holds all of the stocks in the NASDAQ-100 Index®.

 

  ·   issues and redeems PowerShares QQQ SharesSM only in multiples of 50,000 shares in exchange for the stocks in the NASDAQ-100 Index® and cash.

 

  ·   Shares represent fractional undivided ownership interests in the PowerShares QQQ TrustSM, Series 1.

 

  ·   Shares listed on The NASDAQ Stock Market, Inc. under the symbol “QQQ.”

 

  ·   minimum trading unit: 1 Share.

 

 

Sponsor: Invesco PowerShares Capital Management LLC

 

 

The Securities and Exchange Commission has not approved or

disapproved of these securities or determined if this prospectus is

truthful or complete. Any contrary representation is a criminal offense.

 

 

Prospectus dated January 31, 2018

COPYRIGHT © 2018 by Invesco PowerShares Capital Management LLC, all rights reserved


The PowerShares QQQ TrustSM, Series 1

 

 

PowerShares QQQ SharesSM

Table of Contents

 

     Page  

SUMMARY

     1  

ESSENTIAL INFORMATION AS OF SEPTEMBER 30, 2017

     1  

HIGHLIGHTS

     3  

PowerShares QQQ SharesSM are Ownership Interests in the PowerShares QQQ Trust

     3  

PowerShares QQQ Shares Should Generally Correspond to the Value  of the Underlying NASDAQ-100 Index®

     3  

PowerShares QQQ Shares are Listed on The NASDAQ Stock Market, Inc.

     4  

The PowerShares QQQ Trust Issues and Redeems PowerShares QQQ Shares in Multiples of 50,000 Shares Called “Creation Units”

     4  

Creation Orders Must be Placed With the Distributor

     4  

Bar Chart and Table

     6  

Expenses of the Trust

     9  

Example of Expenses

     10  

Book-Entry Ownership Only of PowerShares QQQ Shares

     10  

Distributions

     10  

Federal Income Tax Considerations

     11  

Termination of the PowerShares QQQ Trust

     11  

Purchases of PowerShares QQQ Shares by Registered Investment Companies

     12  

Risk Factors

     12  

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING  FIRM AND FINANCIAL STATEMENTS

     16  

SPECIAL CONSIDERATIONS

     36  

THE TRUST

     36  

REDEMPTION OF POWERSHARES QQQ SHARES

     43  

THE PORTFOLIO

     47  

THE INDEX

     55  

LICENSE AGREEMENT

     62  

MARKETPLACE LISTING

     64  

TAX STATUS OF THE TRUST

     64  

ERISA CONSIDERATIONS

     69  

CONTINUOUS OFFERING OF POWERSHARES QQQ SHARES

     70  

EXPENSES OF THE TRUST

     71  

VALUATION

     74  

ADMINISTRATION OF THE TRUST

     75  

SPONSOR

     81  

TRUSTEE

     88  

DEPOSITORY

     89  

DISTRIBUTOR

     89  

LEGAL OPINION

     89  

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

     89  

CODE OF ETHICS

     89  

INFORMATION AND COMPARISON RELATING TO PREMIUMS AND DISCOUNTS AND RETURNS

     90  

ADDITIONAL INFORMATION

     91  

 


SUMMARY

ESSENTIAL INFORMATION AS OF SEPTEMBER 30, 2017(1)

 

Glossary:

All defined terms used in this Prospectus and page numbers on which their definitions appear are listed in the Glossary beginning on page 93.

 

Total Trust Net Assets:    $52,177,634,729
Number of PowerShares QQQ Shares:    358,550,000
Fractional Undivided Interest in the Trust Represented by each PowerShares QQQ Share:    1/358,550,000
NAV per PowerShares QQQ Share (based on the value of the Securities, other net assets of the Trust, and the number of PowerShares QQQ Share outstanding):    $145.52
Annual Trust Ordinary Operating Expenses:    0.20% of the Trust’s average net assets.

 

Dividend Payment Dates:

Quarterly, on the last Business Day of April, July, October and December. Annually for net realized capital gains, if any. Distributions (if any) will be of the dividends accumulated in respect of the Securities held by the Trust net of Trust fees and expenses.

 

Record Dates:

Quarterly, on the second Business Day following the third Friday in each of March, June, September and December.

 

Evaluation Time:

Closing time of the regular trading session (ordinarily 4:00 p.m. Eastern time) on The NASDAQ Stock Market, Inc. (“NASDAQ”).

 

Licensor:

Nasdaq, Inc. (“Nasdaq”)

 

 

(1) The Trust Agreement became effective and the initial deposit was made on March 4, 1999 (the “Initial Date of Deposit”).

 

1


Mandatory Termination Date:

The first to occur of (i) March 4, 2124 or (ii) the date 20 years after the death of the last survivor of fifteen persons named in the Trust Agreement, the oldest of whom was born in 1986 and the youngest of whom was born in 1996.

 

Discretionary Termination:

The Trust may be terminated if at any time the value of the Securities held by the Trust is less than $350,000,000, as such amount is adjusted for inflation.(2)

 

Market Symbol:

PowerShares QQQ Shares are listed on NASDAQ under the symbol “QQQ.”

 

CUSIP:

73935A 104

 

 

(2) The Trust may also be terminated under other circumstances. See “Administration of the Trust—Termination.”

Remainder of this page intentionally left blank

 

2


HIGHLIGHTS

PowerShares QQQ SharesSM are Ownership Interests in the PowerShares QQQ Trust

The PowerShares QQQ TrustSM, Series 1 (the “Trust” and also referred to in this Prospectus as the “PowerShares QQQ Trust”) is a unit investment trust organized under the laws of the State of New York that issues fractional undivided interests in the Trust called PowerShares QQQ Shares (formerly known as NASDAQ-100 Tracking Stock). The Trust is governed by a standard terms and conditions of trust (the “Terms and Conditions”) between The Bank of New York Mellon, a corporation organized under the laws of the State of New York with trust powers (the “Trustee”), and NASDAQ Global Funds, the predecessor sponsor to Invesco PowerShares Capital Management LLC (the “Sponsor”), dated and executed as of March 1, 1999, as amended by Amendment No. 1 to the Terms and Conditions, dated as of April 17, 2001, by Amendment No. 2 to the Terms and Conditions, dated as of February 4, 2004, Amendment No. 3 to the Terms and Conditions, dated as of January 1, 2006, Amendment No. 4 to the Terms and Conditions, dated as of November 16, 2012, Amendment No. 5 to the Terms and Conditions, dated as of August 2, 2017 and Amendment No. 6 to the Terms and Conditions, dated as of January 26, 2018. The Sponsor and the Trustee are also parties to a trust indenture and agreement of the Trust (the “Trust Agreement”) dated as of March 4, 1999, as amended by Amendment No. 1 to the Trust Agreement dated as of March 21, 2007. PowerShares QQQ Shares represent fractional undivided ownership interests in the portfolio of stocks held by the Trust. The Trust holds all of the stocks of the NASDAQ-100 Index® (the “Index”).

PowerShares QQQ Shares Should Generally Correspond to the Value of the Underlying NASDAQ-100 Index®

The investment objective of the Trust is to provide investment results that generally correspond to the price and yield performance of the Index (the component securities of the Index are sometimes referred to herein as “Index Securities”). There can be no assurance that this investment objective will be met fully.

The Trust holds the Portfolio (as hereinafter defined) and cash and is not actively managed by traditional methods, which typically involve effecting changes in the Portfolio on the basis of judgments made relating to economic, financial and market considerations. To maintain the correspondence between the composition and weights of the securities in the Trust (the “Securities”) and the stocks in the NASDAQ-100 Index®, the Trustee adjusts the Securities from time to time to conform to periodic changes in the identity and/or relative weights of Index Securities. The composition and weighting of the securities portion of a Portfolio Deposit (as hereinafter defined) are also adjusted to conform to changes in the Index. Changes to the Index are made after the close of the market (see “The Portfolio—Adjustments to the Portfolio Deposit”).

The value of the PowerShares QQQ Shares will fluctuate in relation to changes in the value of the Trust’s portfolio of securities. However, at any point in time, the market

 

3


price of each individual PowerShares QQQ Share may not be identical to the net asset value (“NAV”) of such Share. Historically, these two valuations have been very close.

The current value of the NASDAQ-100 Index® will ordinarily continue to be reported even when trading is interrupted in its component stocks. In that event, the reported Index level will be based on the current market price of those stocks still being traded (if any) and the last reported prices for those stocks that are not currently trading. As a result, reported Index levels may at times be based on noncurrent price information with respect to some or even all of the stocks in the Index Securities.

PowerShares QQQ Shares are Listed on The NASDAQ Stock Market, Inc.

PowerShares QQQ Shares are listed for trading on the NASDAQ Global Market tier of NASDAQ. PowerShares QQQ Shares are bought and sold in the secondary market like regular shares of stock at any time during the trading day. PowerShares QQQ Shares generally trade in round lots of 100 shares, but can be traded in odd lots of as little as one share. Trading of PowerShares QQQ Shares on NASDAQ may be halted under the circumstances described in the paragraphs below relating to the risks of investing in PowerShares QQQ Shares.

The PowerShares QQQ Trust Issues and Redeems PowerShares QQQ Share in Multiples of 50,000 Shares Called “Creation Units”

The Trust issues PowerShares QQQ Shares only in multiples of 50,000 Shares, which are referred to as “Creation Units.” Creation Units are issued by the Trust to anyone who, after placing a creation order with Invesco Distributors, Inc. (the “Distributor”), deposits with the “Trustee” of the Trust, a specified portfolio of NASDAQ-100 Index securities, as well as a cash payment, if any, generally equal to accumulated dividends of the securities (net of expenses) up to the time of deposit.

PowerShares QQQ Shares are not individually redeemable, except upon termination of the Trust. PowerShares QQQ Shares can be redeemed only by tendering to the Trust 50,000 PowerShares QQQ Shares or multiples thereof. Upon redemption, the redeeming holder will receive a portfolio of NASDAQ-100 Index securities based on the NAV of the Trust plus, in some cases, a cash payment. The cash payment amount is generally equal to the cash amount determined for creations of PowerShares QQQ Shares and, likewise, may be paid by either the redeeming holder or the Trust, depending on the values of the dividends received, Trust expenses and the adjustment amount.

Creation Orders Must be Placed With the Distributor

All orders to create PowerShares QQQ Shares must be placed with the Distributor (see “The Trust—Procedures for Creation of Creation Units”). To be eligible to place orders with the Distributor to create Creation Unit size aggregations of PowerShares QQQ Shares, an entity or person either must be (1) a “Participating Party,” as hereinafter defined, or (2) a DTC Participant (see “Book-Entry Ownership Only of PowerShares QQQ Shares”), and in each case must have executed a PowerShares QQQ

 

4


Participant Agreement. The term “Participating Party” means a broker-dealer or other participant in the PowerShares QQQ Clearing Process, through the Continuous Net Settlement (“CNS”) System of the National Securities Clearing Corporation (“NSCC”), a clearing agency that is registered with the Securities and Exchange Commission (the “Commission”). Upon acceptance of an order to create PowerShares QQQ Shares, the Distributor will transmit such order to the Trustee and instruct the Trustee to initiate the book-entry movement of the appropriate number of PowerShares QQQ Shares to the account of the entity placing the order. Payment for orders to create PowerShares QQQ Shares will be made by deposits with the Trustee of a portfolio of securities that is substantially similar in composition and weighting to the Index Securities (see “The Trust—Creation of Creation Units”), together, in certain cases, with a cash payment in an amount which shall be equal to the Income Net of Expense Amount (as hereinafter defined), plus or minus, as the case may be, the Balancing Amount (as hereinafter defined). The “Income Net of Expense Amount” is an amount equal, on a per Creation Unit basis, to the dividends on all the Securities with ex-dividend dates within the period beginning on the most recent ex-dividend date for PowerShares QQQ Shares (the first Business Day after the third Friday in each of March, June, September, and December, see “Distributions”) through and including the current Business Day (the “Accumulation Period”) as if all of the Securities had been held for such period, net of accrued expenses and liabilities for such period not previously deducted (including, without limitation, (x) taxes or other governmental charges against the Trust not previously deducted, if any, and (y) accrued fees of the Trustee and other expenses of the Trust (including legal and auditing expenses) and other expenses not previously deducted (see “Expenses of the Trust”)). The “Balancing Amount” serves the function of compensating for any differences between (1) the value of the portfolio of securities deposited with the Trustee in connection with a creation of PowerShares QQQ Shares, together with the Income Net of Expense Amount, and (2) the NAV of the Trust on a per Creation Unit basis (see “The Portfolio—Adjustments to the Portfolio Deposit” for a further description thereof).

The Income Net of Expense Amount and the Balancing Amount are collectively referred to herein as the “Cash Component” and the deposit of such a portfolio of securities and the Cash Component are collectively referred to herein as a “Portfolio Deposit.” In connection with an order to create PowerShares QQQ Shares on any given day, the Cash Component of the Portfolio Deposit may be payable either by the Trustee on behalf of the Trust to the creator of PowerShares QQQ Shares or by the creator of PowerShares QQQ Shares to the Trustee on behalf of the Trust, depending upon the respective amounts of the Income Net of Expense Amount and the Balancing Amount.

An entity or person placing creation orders with the Distributor must either (i) initiate instructions pertaining to Portfolio Deposits through the CNS clearing processes of NSCC, creations and redemptions, such processes being referred to herein as the “PowerShares QQQ Clearing Process,” or (ii) deposit Portfolio Deposits with the Trustee outside the PowerShares QQQ Clearing Process (i.e., through the facilities of The Depository Trust Company).

 

5


The Distributor acts as underwriter of PowerShares QQQ Shares on an agency basis. The Distributor maintains records of the orders placed with it and the confirmations of acceptance and furnishes to those placing such orders confirmations of acceptance of the orders. The Distributor also is responsible for delivering a prospectus to persons creating PowerShares QQQ Shares. The Distributor also maintains a record of the delivery instructions in response to orders and may provide certain other administrative services, such as those related to state securities law compliance. The Distributor is located at 11 Greenway Plaza, Suite 1000, Houston, Texas 77046-1173. The Distributor is a registered broker-dealer and a member of the Financial Industry Regulatory Authority (“FINRA”). The Sponsor pays the Distributor a flat annual fee for certain distribution services. The Sponsor will not seek reimbursement for such payment from the Trust without obtaining prior exemptive relief from the Commission.

Bar Chart and Table

The bar chart that follows entitled “Annual Total Returns for the Trust” and table below entitled “Average Annual Total Returns (for periods ending December 31, 2017)” provide some indication of the risks of investing in the Trust by showing the variability of the Trust’s returns based on net assets and comparing the Trust’s performance to the performance of the NASDAQ-100 Index®. Past performance (both before and after tax) is not necessarily an indication of how the Trust will perform in the future.

The after-tax returns presented below are calculated using highest applicable historical individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your specific tax situation and may differ from those shown below. After-tax returns are not relevant to investors who hold PowerShares QQQ Shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.

The total returns in the bar chart below, as well as the total and after-tax returns presented in the Table, do not reflect Transaction Fees payable by those persons purchasing and redeeming Creation Units or brokerage commissions incurred by those persons purchasing and selling PowerShares QQQ Shares in the secondary market (see footnotes to the Table).

This bar chart shows the performance of the Trust for each full calendar year for the past 10 years ended December 31, 2017. During the period shown below (January 1, 2008 through December 31, 2017), the highest quarterly return for the Trust was 21.17% for the quarter ended March 31, 2012, and the lowest quarterly return for the Trust was (23.92%) for the quarter ended December 31, 2008.

 

6


Annual Total Returns for the Trust

 

LOGO

Average Annual Total Returns (for periods ending December 31, 2017)

 

     Past
One Year
    Past
Five Years
    Past
Ten Years
 

PowerShares QQQ TrustSM, Series 1

      

Return Before Taxes(1)

     32.72     20.41     12.81

Return After Taxes on Distributions(1)

     32.41     20.08     12.60

Return After Taxes on Distributions and Redemption of Creation Units(1)

     18.71     16.62     10.70

NASDAQ-100 Index®(2)

     32.99     20.68     13.05

 

(1) Includes all applicable fees and expenses.

 

(2) Does not reflect deduction for fees, expenses or taxes. See the Calendar Year-End Dividend Yield on the Index in the table beginning on page 56 in the section entitled “The Index.”

Future expense accruals will depend primarily on the level of the Trust’s net assets and the level of expenses. There is no guarantee that in the future the Trust’s ordinary operating expenses will not exceed 0.20% of the Trust’s daily NAV. The Sponsor reserves the right to discontinue its reimbursement policy in the future. See “Expenses of the Trust.”

A transaction fee is payable to the Trustee in connection with each creation and redemption of Creation Units made through the PowerShares QQQ Clearing Process (“Transaction Fee”) and is nonrefundable, regardless of the NAV of the Trust.

 

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Until further notice is given as described below, the Transaction Fee charged in connection with each creation of Creation Units through the PowerShares QQQ Clearing Process is (i) $500 per Participating Party per day for creations of Creation Unit size aggregations of PowerShares QQQ Shares where there are also, in the same day, separate creations in any number, or redemptions in an amount not equal to the number of PowerShares QQQ Shares created, of other similar exchange traded funds based on the Index for which the Trustee or its affiliate acts as trustee, fund administrator or in any similar capacity; (ii) no fee per Participating Party where there is, in the same day, a redemption of an equal number of shares of another similar exchange traded fund based on the Index for which the Trustee or its affiliate acts as the trustee, fund administrator or in any similar capacity; and (iii) in all other cases $1,000 per Participating Party per day, regardless of the number of Creation Units created on such day by such Participating Party. Likewise, until further notice is given as described below, the Transaction Fee charged in connection with the redemption of Creation Units through the PowerShares QQQ Clearing Process is (i) $500 per Participating Party per day for redemptions of Creation Unit size aggregations of PowerShares QQQ Shares where there are also, in the same day, separate redemptions in any number, or creations in an amount not equal to the number of PowerShares QQQ Shares similar exchange traded fund based on the Index for which the Trustee or its affiliate acts as trustee, fund administrator or in any similar capacity; (ii) no fee per Participating Party where there is, in the same day, a creation of an equal number of shares of another similar exchange traded fund based on the Index for which the Trustee or its affiliate acts as the trustee, fund administrator or in any similar capacity; and (iii) in all other cases $1,000 per Participating Party per day, regardless of the number of Creation Units redeemed on such day by such Participating Party. This Transaction Fee may subsequently be changed by the Trustee, with the consent of the Sponsor, but will not in any event exceed 10/100 of one percent (10 basis points) of the value of a Creation Unit at the time of creation or redemption, as the case may be (the “10 Basis Point Limit”). No modification to, or reductions, discounts or waivers of, the Transaction Fee charged in connection with the creation of Creation Units is scheduled or currently contemplated by the Sponsor or the Trustee.

For creations and redemptions outside the PowerShares QQQ Clearing Process, an additional amount not to exceed three (3) times the applicable Transaction Fee will be charged to the creator or redeemer. Under the current schedule, therefore, the total fee charged in connection with the creation or redemption of Creation Units outside the PowerShares QQQ Clearing Process would be (i) $500 per Participating Party per day for creations of Creation Unit size aggregations of PowerShares QQQ Shares where there are also, in the same day, separate creations in any number, or redemptions in an amount not equal to the number of PowerShares QQQ Shares created, of other similar exchange traded funds based on the Index for which the Trustee or its affiliate acts as trustee, fund administrator or in any similar capacity; (ii) no fee per Participating Party where there is, in the same day, a redemption of an equal number of shares of another similar exchange traded fund based on the Index for which the Trustee or its affiliate acts as the trustee, fund administrator or in any similar capacity; and (iii) in all other

 

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cases $1,000 (the Transaction Fee for the creation or redemption of a Creation Unit) plus an additional amount not to exceed $3,000 (3 times $1,000) for a total of $4,000.

Expenses of the Trust

The expenses of the Trust will be accrued daily and reflected in the NAV of the Trust. Until the Sponsor otherwise determines, the Sponsor has undertaken that the ordinary operating expenses of the Trust will not exceed 0.20% per annum of the daily NAV of the Trust, and the Sponsor will reimburse the Trust or assume invoices on behalf of the Trust for expenses incurred by the Trust in excess of such amount.

Trust Annual Ordinary Operating Expenses(1):

 

     As a % of Average
Trust Net Assets
 

Trustee’s Fee

     0.06 %(2)

Nasdaq License Fee

     0.09

Marketing Expenses

     0.05 %(3)

Estimated Other Operating Expenses

     0.00
  

 

 

 

Total Gross Expenses

     0.20 %(4)
  

 

 

 

 

(1) In addition, secondary market purchases and sales of PowerShares QQQ Shares are subject to ordinary brokerage commissions and charges.

 

(2) The Trustee’s annual fee ranges from 0.04% to 0.10%, based on the NAV of the Trust, with a minimum fee amount not to fall below $180,000. See “Expenses of the Trust.” Ordinary operating expenses of the Trust do not include brokerage commissions incurred on the purchase or sale of Securities.

 

(3) Marketing expenses include direct advertising in print and television media, and the cost of production of such advertising, consultant fees and prospectus printing expenses.

 

(4) Until the Sponsor otherwise determines, the Sponsor has undertaken that the ordinary operating expenses of the Trust as calculated by the Trustee will not be permitted to exceed an amount which is 20/100 of one percent (0.20%) per annum of the daily net assets of the Trust. Gross expenses of the Trust for the year ended September 30, 2017, without regard to this undertaking, were also 0.20% of the NAV of the Trust and, accordingly, no expenses of the Trust were assumed by the Sponsor. The Sponsor may, in its sole discretion, discontinue its undertaking to limit ordinary operating expenses of the Trust. See “Expenses of the Trust.”

An investor does not pay any sales charges in connection with purchases or reinvestment of distributions of PowerShares QQQ Shares or ordinarily any deferred sales charge on the redemption (redemptions are only allowed in Creation Unit sizes—i.e., 50,000 Shares of PowerShares QQQ Shares). Investors purchasing or selling PowerShares QQQ Shares in the secondary market would incur customary brokerage commissions and charges.

 

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Transaction fees charged in connection with each creation or redemption of Creation Units through the PowerShares QQQ Clearing Process range from $0 to $1,000 per Participating Party, depending on whether they are separate creations or redemptions of PowerShares QQQ Shares or shares of other similar exchange-traded funds based on the Index.

Example of Expenses

An investor would pay the following expenses on a $10,000 investment as a result of the operating expense ratio cap of 0.20% set forth in footnote (4) above for the year ended September 30, 2017 being applicable for the first period, and assuming for the remaining periods that estimated gross operating expenses thereafter remain at 0.20% of the NAV of the Trust and a 5% annual return on investment throughout the periods.

Cumulative Expenses Paid for Period of:

 

1 Year      3 Years      5 Years      10 Years
$20      $64      $113      $255

The above example assumes the reinvestment of all dividends and distributions and utilizes a 5% annual rate of return as mandated by Commission regulations applicable to mutual funds. Although the Trust is a unit investment trust rather than a mutual fund, this information is represented to permit a comparison of fees. The example should not be considered a representation of past or future expenses or annual rate of return; the actual expenses and annual rate of return may be more or less than those assumed for purposes of this example. Investors should also note that the presentation of a $10,000 investment is for illustration purposes only. Pursuant to an exemptive order obtained from the Commission, the Trust may reimburse the Sponsor for certain expenses relating to the printing and distribution of marketing materials describing the PowerShares QQQ Shares and the Trust, reimbursement to the Sponsor for annual licensing fees and federal and state annual registration fees for the issuance of PowerShares QQQ Shares up to 0.20% (20 basis points) of the Trust’s total assets.

Book-Entry Ownership Only of PowerShares QQQ Shares

The Depository Trust Company, New York, New York, a limited purpose trust company organized under the laws of the State of New York (referred to herein as “DTC”), or its nominee will be the record or registered owner of all outstanding PowerShares QQQ Shares. Beneficial ownership of PowerShares QQQ Shares will be shown on the records of the DTC or its participants. Certificates will not be issued for PowerShares QQQ Shares, whether in Creation Unit size aggregations or otherwise.

Distributions

Distributions by the Trust are made quarterly to the extent that dividends accumulated in respect of the Securities and other income, if any, received by the Trust exceed Trust fees and expenses accrued during the quarterly Accumulation Period

 

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which ends on the Business Day preceding each ex-dividend date for PowerShares QQQ Shares. However, no net dividend distribution will be made in any given quarter, and any net dividend amounts will be rolled into the next Accumulation Period, if the aggregate net dividend distribution would be in an amount less than 5/100 of one percent (0.05%) of the NAV of the Trust, unless the Trustee determines that such distribution is required to be made in order to maintain the Trust’s status as a regulated investment company, to avoid the imposition of income or excise taxes on undistributed income. The Trustee further reserves the right to declare special dividends if, in its discretion, it would be otherwise advantageous to the Beneficial Owners.

The expenses of the Trust may be as great as or in excess of the dividend and other income to be received by the Trust during any quarter and, under such circumstances, no quarterly net dividend distributions would be made.

Any net capital gains recognized by the Trust in any taxable year are to be distributed at least annually. The Trust may make additional distributions after the end of the year in order to satisfy certain distribution requirements imposed by the Internal Revenue Code of 1986, as amended (the “Code”). Although income distributions, if any, are currently made on a quarterly basis, the Trustee reserves the right to vary the frequency of distributions.

Federal Income Tax Considerations

The Trust has elected tax treatment as a “regulated investment company” under the Code and distributes annually its entire investment company taxable income and capital gain, if any. Distributions that are taxable as ordinary income to Beneficial Owners generally are expected to constitute dividend income for federal income tax purposes and to be eligible for the dividends-received deduction available to many corporations to the extent of qualifying dividend income received by the Trust. The quarterly distributions, if any, made by the Trust will be based on the dividend performance of the Securities held during such quarterly distribution period, net of Trust fees and expenses, rather than the actual taxable income of the Trust. As a result, a portion of any such distributions of the Trust may be treated as a return of capital or a capital gain dividend for federal income tax purposes or the Trust may be required to make additional distributions to maintain its status as a regulated investment company or to avoid imposition of income or excise taxes on undistributed income.

Termination of the PowerShares QQQ Trust

The Trust has a specified lifetime term. The Trust will terminate by its terms on the first to occur of: (i) March 4, 2124 or (ii) the date twenty (20) years after the death of the last survivor of fifteen persons named in the Trust Agreement, the oldest of whom was born in 1986 and the youngest of whom was born in 1996 (the “Mandatory Termination Date”).

 

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Purchases of PowerShares QQQ Shares by Registered Investment Companies

Purchases of PowerShares QQQ Shares by registered investment companies are subject to the restrictions set forth in Section 12(d)(1) of the Investment Company Act of 1940, as amended (the “1940 Act”). On February 27, 2007, the Commission issued an order that permits registered investment companies to invest in PowerShares QQQ Shares beyond these limits, subject to certain conditions and terms stated in the application. One such condition stated in the application is that registered investment companies relying on the order must enter into a written agreement with the Trust regarding the terms of the investment.

Risk Factors

Investors can lose money by investing in PowerShares QQQ Shares. Investors should carefully consider the risk factors described below together with all of the other information included in this Prospectus before deciding to invest in PowerShares QQQ Shares.

Investment in the Trust involves the risk that the value of the Securities may fluctuate in accordance with changes in the financial condition of the issuers of the Securities, the value of common stocks generally, and other factors. The composition and weighting of the Index Securities and hence the composition and weighting of the Securities held in the Trust also change from time to time.

The financial condition of the issuers of the Securities may become impaired or the general condition of the stock market may deteriorate (either of which may cause a decrease in the value of the Securities and thus in the value of PowerShares QQQ Shares). Common stocks are susceptible to general stock market fluctuations and to volatile increases and decreases in value as market confidence in and perceptions of their issuers change. These investor perceptions are based on various and unpredictable factors, including expectations regarding government, economic, monetary and fiscal policies, inflation and interest rates, economic expansion or contraction, and global or regional political, economic, and banking crises. There can be no assurance that the issuers of the Securities will pay dividends on outstanding shares of common stock. Distributions on the Securities will generally depend upon the declaration of dividends by the issuers of the Securities; the declaration of such dividends generally depends upon various factors, including the financial condition of the issuers and general economic conditions.

The Trust is not actively managed by traditional methods, and therefore the adverse financial condition of an issuer will not result in the elimination of its securities from the Securities held by the Trust unless the Securities of such issuer are removed from the Index.

Holders of common stocks of any given issuer incur more risk than holders of preferred stocks and debt obligations of such issuer because common stockholders, as owners of such issuer, have generally subordinate rights to receive payments from such issuer in comparison with the rights of creditors of, or holders of debt obligations or

 

12


preferred stocks issued by, such issuer. Further, unlike debt securities which typically have a stated principal amount payable at maturity (whose value, however, will be subject to market fluctuations prior thereto), or preferred stocks which typically have a liquidation preference and which may have stated optional or mandatory redemption provisions, common stocks have neither a fixed principal amount nor a maturity. Common stock values are subject to market fluctuations as long as the common stock remains outstanding. The value of the Securities may therefore be expected to fluctuate over the entire life of the Trust.

All of the Securities are currently listed on the NASDAQ Global Select or NASDAQ Global Market tier of NASDAQ. The existence of a liquid trading market for certain Securities may depend on whether dealers will make a market in such Securities. There can be no assurance that a market will be made for any of the Securities, that any market for the Securities will be maintained, or that any such market will be or remain liquid. The price at which the Securities may be sold and the value of the Trust will be adversely affected if trading markets for the Securities are limited or absent.

An investment in the Trust should also be made with an understanding that the Trust will not be able to replicate exactly the performance of the Index because the total return generated by the Securities will be reduced by transaction costs incurred in adjusting the actual balance of the Securities and other Trust expenses, whereas such transaction costs and expenses are not included in the calculation of the Index. It is also possible that for short periods of time, the Trust may not fully replicate the performance of the Index due to the temporary unavailability of certain Index Securities in the secondary market or due to other extraordinary circumstances. Such events are unlikely to continue for an extended period of time because the Trustee is required to correct such imbalances by means of adjusting the composition of the Securities. It is also possible that the composition of the Trust may not exactly replicate the composition of the Index if the Trust has to adjust its portfolio holdings in order to continue to qualify as a “regulated investment company” under the Code.

The time frames for delivery of Securities, cash, or PowerShares QQQ Shares in connection with creation and redemption activity within the PowerShares QQQ Clearing Process as set forth herein are based on NSCC’s current “regular way” settlement period of two (2) days during which NSCC is open for business (each such day an “NSCC Business Day). NSCC may, in the future, reduce such “regular way” settlement period, in which case it is anticipated that there would be a corresponding reduction or increase in settlement periods applicable to PowerShares QQQ Shares creations and redemptions.

Distribution of dividends to Beneficial Owners is dependent on the payment of dividends by issuers of the Securities.

The Sponsor has currently undertaken to limit ordinary operating expenses of the Trust to 0.20% of the Trust’s daily NAV. The Sponsor may, in its sole discretion, discontinue its undertaking to limit ordinary operating expenses of the Trust. In such event, expenses of the Trust could exceed the dividend and other income received by

 

13


the Trust during each quarter. The Trust will pay any such excess expenses with the proceeds realized from the sale of Securities effected ordinarily whenever the Trustee determines that projected annualized fees and expenses accrued on a daily basis exceed projected annualized dividends and the Trust income accrued on a daily basis by more than 1/100 of one percent (0.01%) of the NAV of the Trust.

The NAV of the PowerShares QQQ Shares may not always correspond to market price. The NAV of PowerShares QQQ Shares in Creation Unit size aggregations and, proportionately, the NAV per PowerShares QQQ Shares changes as fluctuations occur in the market value of the Securities. Investors should also be aware that the aggregate public trading market price of 50,000 PowerShares QQQ Shares may be different from the NAV of a Creation Unit size aggregation of PowerShares QQQ Shares (i.e., 50,000 PowerShares QQQ Shares may trade at a premium over or at a discount to the NAV of a Creation Unit) and similarly the public trading market price per PowerShares QQQ Share may be different from the NAV of a Creation Unit on a per PowerShares QQQ Share basis. This price difference may be due, in large part, to the fact that supply and demand forces at work in the secondary trading market for PowerShares QQQ Shares will be closely related to, but not identical to, the same forces influencing the prices of the Index Securities trading individually or in the aggregate at any point in time. The expenses of the Trust, which are accrued daily, are reflected in the NAV of PowerShares QQQ Shares in Creation Unit size aggregations.

Trading in PowerShares QQQ Shares on NASDAQ may be halted due to market conditions or, in light of NASDAQ rules and procedures for reasons that, in the view of NASDAQ, make trading in PowerShares QQQ Shares inadvisable. There can be no assurance that the requirements of NASDAQ necessary to maintain the listing of PowerShares QQQ Shares will continue to be met or will remain unchanged. The Trust will be terminated in the event PowerShares QQQ Shares are delisted from NASDAQ and are not subsequently relisted on a national securities exchange or a quotation medium operated by a national securities association.

PowerShares QQQ Shares are subject to the risk of an investment in a portfolio of equity securities in economic sectors in which the Index may be highly concentrated (e.g., technology) as well as to the risks specific to the performance of a few individual component Securities which currently represent a highly concentrated weighting in the Index. These include the risks that the level of stock prices in these sectors or the stock prices of these specific companies may decline, thereby adversely affecting the value of PowerShares QQQ Shares. In addition, because it is the policy of the Trust to invest in the securities that comprise the Index, if the Index is concentrated in an industry or group of industries, the portfolio of Securities also will be concentrated in that industry or group of industries. Furthermore, investors should be aware that in the event that one or more stocks which currently have a highly concentrated weighting in the Index were to leave NASDAQ, if a company with a large market capitalization were to list its shares on NASDAQ, or if there were a significant rebalancing of the Index, then the composition and weighting of the Index, and hence the composition and weighting of the Securities in the Trust, would change significantly and the performance of PowerShares QQQ Shares would reflect the performance of the new Index as reconfigured.

 

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Furthermore, due to the concentration of the Index in sectors characterized by relatively higher volatility in price performance when compared to other economic sectors, the performance of the Index may be more volatile when compared to other broad-based stock indexes. It is anticipated that the price volatility of PowerShares QQQ Shares may be greater than the price volatility of other market-traded securities which are issued by investment companies based upon indexes other than the Index.

PowerShares QQQ Shares are also subject to risks other than those associated with an investment in a broad market portfolio of equity securities in that the selection of the securities included in the Trust’s portfolio, the expenses associated with the Trust, or other factors distinguishing an ownership interest in a trust from the direct ownership of a portfolio of securities may affect trading the PowerShares QQQ Shares as compared with trading in a broad market portfolio of equity securities.

The Trustee will ordinarily deliver a portfolio of Securities for each Creation Unit size aggregation of PowerShares QQQ Shares delivered for redemption, substantially identical in composition to the Securities portion of a Portfolio Deposit as in effect on the date a request for redemption is deemed received by the Trustee. If a redemption is processed through the PowerShares QQQ Clearing Process, to the extent that the Securities to be delivered on settlement date are not delivered, they will be covered by NSCC’s guarantee of the completion of such delivery. Any Securities not received on settlement date will be marked to the market on a daily basis until delivery is completed. The Trust, to the extent it has not already done so, remains obligated to deliver such Securities to NSCC, and the market risk of any increase in the value of such Securities until delivery is made by the Trust to NSCC could adversely affect the NAV of the Trust. Investors should note that the Securities to be delivered to a redeemer submitting a redemption request outside of the PowerShares QQQ Clearing Process that are not delivered to such redeemer are not covered by NSCC’s guarantee of completion of such delivery.

The Sponsor of the Trust has been granted a license to use the NASDAQ-100 Index® as a basis for determining the composition and the weighting of securities held by the Trust and to use certain trade names and trademarks of Nasdaq. The Trust may be terminated if the license agreement is terminated.

The Trust, like all companies, may be susceptible to operational and information security risks. Cyber security failures or breaches of the Trust or its service providers or the issuers of securities in which the Trust invests, have the ability to cause disruptions and impact business operations, potentially resulting in financial losses, the inability of Trust shareholders to transact business, violations of applicable privacy and other laws, regulatory fines, penalties, reputational damage, reimbursement or other compensation costs, and/or additional compliance costs. The Trust and its shareholders could be negatively impacted as a result. Similar types of cyber security risks are also

present for issuers of securities in which the Trust may invest, which could result in material adverse consequences for such issuers and may cause the Trust’s investment in such companies to lose value.

 

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Sponsor, Trustee and Unitholders of PowerShares QQQ TrustSM, Series 1:

In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of PowerShares QQQ TrustSM, Series 1 (the “Trust” ) as of September 30, 2017, the results of its operations and changes in its net assets for each of the three years in the period then ended and the financial highlights for each of the years ended September 30, 2017, 2016, 2015 and 2014, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Trust’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities as of September 30, 2017 by correspondence with the custodian and brokers, and when replies were not received from brokers, we performed other auditing procedures, provide a reasonable basis for our opinion. The financial highlights of the Trust for the year ended September 30, 2013 were audited by other auditors whose report dated January 16, 2014 expressed an unqualified opinion on those financial highlights.

PricewaterhouseCoopers LLP

Chicago, IL

December 22, 2017

 

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PowerShares QQQ TrustSM, Series 1 (QQQ)

Schedule of Investments(a)

September 30, 2017

 

 

 

Number

of Shares

       Value  
  Common Stocks and Other Equity Interests—100.0%  
  Airlines—0.3%   

3,716,169

  American Airlines Group, Inc.    $ 176,480,866  
    

 

 

 
  Automobiles—0.8%   

1,273,516

  Tesla, Inc.(b)      434,396,308  
    

 

 

 
  Beverages—0.5%   

4,335,516

  Monster Beverage Corp.(b)      239,537,259  
    

 

 

 
  Biotechnology—8.6%   

1,703,017

  Alexion Pharmaceuticals, Inc.(b)      238,916,255  

5,567,822

  Amgen, Inc.      1,038,120,412  

1,613,374

  Biogen, Inc.(b)      505,179,667  

1,337,467

  BioMarin Pharmaceutical, Inc.(b)      124,478,054  

5,970,075

  Celgene Corp.(b)      870,556,336  

9,964,994

  Gilead Sciences, Inc.      807,363,814  

1,569,668

  Incyte Corp.(b)      183,243,042  

803,061

  Regeneron Pharmaceuticals, Inc.(b)      359,064,634  

556,236

  Shire PLC ADR      85,181,981  

1,923,859

  Vertex Pharmaceuticals, Inc.(b)      292,503,522  
    

 

 

 
         4,504,607,717  
    

 

 

 
  Commercial Services & Supplies—0.2%   

804,560

  Cintas Corp.      116,081,917  
    

 

 

 
  Communications Equipment—2.5%   

38,153,360

  Cisco Systems, Inc.      1,283,097,497  
    

 

 

 
  Food & Staples Retailing—2.3%   

3,346,766

  Costco Wholesale Corp.      549,840,186  

8,165,448

  Walgreens Boots Alliance, Inc.      630,535,895  
    

 

 

 
       1,180,376,081  
    

 

 

 
  Food Products—2.3%   

9,295,935

  Kraft Heinz Co. (The)      720,899,759  

11,504,175

  Mondelez International, Inc., Class A      467,759,756  
    

 

 

 
       1,188,659,515  
    

 

 

 
  Health Care Equipment & Supplies—1.1%   

1,751,272

  DENTSPLY Sirona, Inc.      104,743,578  

 

See accompanying notes to financial statements which are an integral part of the financial statements.

 

17


PowerShares QQQ TrustSM, Series 1 (QQQ)

Schedule of Investments(a) (continued)

September 30, 2017

 

 

 

Number

of Shares

       Value  
  Common Stocks and Other Equity Interests (continued)  
  Health Care Equipment & Supplies (continued)   

2,140,165

  Hologic, Inc.(b)    $ 78,522,654  

665,971

  IDEXX Laboratories, Inc.(b)      103,551,831  

284,555

  Intuitive Surgical, Inc.(b)      297,610,383  
    

 

 

 
       584,428,446  
    

 

 

 
  Health Care Providers & Services—0.7%   

4,407,090

  Express Scripts Holding Co.(b)      279,056,939  

1,206,518

  Henry Schein, Inc.(b)      98,922,411  
    

 

 

 
       377,979,350  
    

 

 

 
  Health Care Technology—0.3%   

2,530,204

  Cerner Corp.(b)      180,454,149  
    

 

 

 
  Hotels, Restaurants & Leisure—2.1%   

2,841,776

  Marriott International, Inc., Class A      313,334,222  

1,741,030

  Norwegian Cruise Line Holdings Ltd.(b)      94,102,672  

11,017,734

  Starbucks Corp.      591,762,493  

782,658

  Wynn Resorts Ltd.      116,553,429  
    

 

 

 
       1,115,752,816  
    

 

 

 
  Internet & Direct Marketing Retail—10.6%   

3,665,578

  Amazon.Com, Inc.(b)      3,523,903,410  

3,495,426

  Ctrip.com International Ltd. ADR(b)      184,348,767  

1,059,410

  Expedia, Inc.      152,491,476  

7,004,502

  JD.com, Inc. ADR(b)      267,571,977  

3,219,720

  Liberty Interactive Corp. QVC Group, Series A(b)      75,888,800  

620,565

  Liberty Ventures, Series A(b)      35,713,516  

3,294,509

  NetFlix, Inc.(b)      597,459,207  

374,365

  Priceline Group, Inc. (The)(b)      685,394,929  
    

 

 

 
         5,522,772,082  
    

 

 

 
  Internet Software & Services—17.2%   

1,308,100

  Akamai Technologies, Inc.(b)      63,730,632  

2,274,302

  Alphabet, Inc., Class A(b)      2,214,533,343  

2,653,456

  Alphabet, Inc., Class C(b)      2,544,956,184  

2,102,422

  Baidu, Inc. ADR(b)      520,748,905  

8,167,130

  eBay, Inc.(b)      314,107,820  

 

See accompanying notes to financial statements which are an integral part of the financial statements.

 

18


PowerShares QQQ TrustSM, Series 1 (QQQ)

Schedule of Investments(a) (continued)

September 30, 2017

 

 

 

Number

of Shares

       Value  
  Common Stocks and Other Equity Interests (continued)  
  Internet Software & Services (continued)   

18,086,933

  Facebook, Inc., Class A(b)    $ 3,090,514,242  

336,952

  MercadoLibre, Inc.      87,246,981  

578,929

  NetEase, Inc. ADR      152,727,260  
    

 

 

 
         8,988,565,367  
    

 

 

 
  IT Services—3.2%   

3,390,889

  Automatic Data Processing, Inc.      370,691,985  

4,506,826

  Cognizant Technology Solutions Corp., Class A      326,925,158  

1,606,000

  Fiserv, Inc.(b)      207,109,760  

2,742,397

  Paychex, Inc.      164,434,124  

9,174,963

  Paypal Holdings, Inc.(b)      587,472,881  
    

 

 

 
       1,656,633,908  
    

 

 

 
  Leisure Products—0.3%   

954,462

  Hasbro, Inc.      93,222,304  

2,615,232

  Mattel, Inc.      40,483,791  
    

 

 

 
       133,706,095  
    

 

 

 
  Life Sciences Tools & Services—0.4%   

1,114,100

  Illumina, Inc.(b)      221,928,720  
    

 

 

 
  Machinery—0.4%   

2,681,248

  PACCAR, Inc.      193,961,480  
    

 

 

 
  Media—6.0%   

1,967,787

  Charter Communications, Inc., Class A(b)      715,133,151  

35,893,523

  Comcast Corp., Class A      1,381,182,765  

1,174,610

  Discovery Communications, Inc., Class A(b)      25,007,447  

1,667,456

  Discovery Communications, Inc., Class C(b)      33,782,658  

1,737,352

  DISH Network Corp., Class A(b)      94,216,599  

1,720,630

  Liberty Global PLC, Class A(b)      58,346,563  

4,544,486

  Liberty Global PLC, Class C(b)      148,604,692  

371,388

  Liberty Global PLC Lilac, Class A(b)      8,824,179  

921,623

  Liberty Global PLC Lilac, Class C(b)      21,473,816  

35,199,831

  Sirius XM Holdings, Inc.      194,303,067  

8,031,470

  Twenty-First Century Fox, Inc., Class A      211,870,179  

6,093,202

  Twenty-First Century Fox, Inc., Class B      157,143,680  

 

See accompanying notes to financial statements which are an integral part of the financial statements.

 

19


PowerShares QQQ TrustSM, Series 1 (QQQ)

Schedule of Investments(a) (continued)

September 30, 2017

 

 

 

Number

of Shares

       Value  
  Common Stocks and Other Equity Interests (continued)  
  Media (continued)   

2,691,439

  Viacom, Inc., Class B    $ 74,929,662  
    

 

 

 
       3,124,818,458  
    

 

 

 
  Multiline Retail—0.3%   

1,807,295

  Dollar Tree, Inc.(b)      156,909,352  
    

 

 

 
  Pharmaceuticals—0.2%   

4,092,188

  Mylan NV(b)      128,371,937  
    

 

 

 
  Professional Services—0.2%   

1,255,683

  Verisk Analytics, Inc.(b)      104,460,269  
    

 

 

 
  Road & Rail—0.9%   

6,969,086

  CSX Corp.      378,142,607  

835,091

  JB Hunt Transport Services, Inc.      92,761,908  
    

 

 

 
       470,904,515  
    

 

 

 
  Semiconductors & Semiconductor Equipment—11.7%   

2,805,509

  Analog Devices, Inc.      241,750,710  

8,137,913

  Applied Materials, Inc.      423,903,888  

3,102,575

  Broadcom Ltd.      752,498,540  

35,855,976

  Intel Corp.      1,365,395,566  

1,196,799

  KLA-Tencor Corp.      126,860,694  

1,239,639

  Lam Research Corp.      229,382,801  

2,152,367

  Maxim Integrated Products, Inc.      102,689,430  

1,775,867

  Microchip Technology, Inc.      159,437,339  

8,500,933

  Micron Technology, Inc.(b)      334,341,695  

4,578,380

  NVIDIA Corp.      818,476,993  

11,263,222

  QUALCOMM, Inc.      583,885,428  

1,402,114

  Skyworks Solutions, Inc.      142,875,417  

7,554,882

  Texas Instruments, Inc.      677,219,622  

1,896,985

  Xilinx, Inc.      134,363,448  
    

 

 

 
         6,093,081,571  
    

 

 

 
  Software—12.6%   

5,760,464

  Activision Blizzard, Inc.      371,607,533  

3,764,970

  Adobe Systems, Inc.(b)      561,658,225  

1,672,604

  Autodesk, Inc.(b)      187,766,525  

 

See accompanying notes to financial statements which are an integral part of the financial statements.

 

20


PowerShares QQQ TrustSM, Series 1 (QQQ)

Schedule of Investments(a) (continued)

September 30, 2017

 

 

 

Number

of Shares

       Value  
  Common Stocks and Other Equity Interests (continued)  
  Software (continued)   

3,214,535

  CA, Inc.    $ 107,301,178  

1,247,182

  Check Point Software Technologies Ltd.(b)      142,203,692  

1,156,150

  Citrix Systems, Inc.(b)      88,815,443  

2,355,790

  Electronic Arts, Inc.(b)      278,124,567  

1,955,101

  Intuit, Inc.      277,898,056  

58,772,378

  Microsoft Corp.      4,377,954,437  

4,689,306

  Symantec Corp.      153,856,130  
    

 

 

 
       6,547,185,786  
    

 

 

 
  Specialty Retail—1.0%   

671,682

  O’reilly Automotive, Inc.(b)      144,660,152  

2,969,675

  Ross Stores, Inc.      191,751,915  

966,772

  Tractor Supply Co.      61,187,000  

468,776

  Ulta Beauty, Inc.(b)      105,971,502  
    

 

 

 
       503,570,569  
    

 

 

 
  Technology Hardware, Storage & Peripherals—12.2%   

39,413,497

  Apple, Inc.      6,074,408,158  

2,196,363

  Seagate Technology PLC      72,853,361  

2,250,096

  Western Digital Corp.      194,408,294  
    

 

 

 
       6,341,669,813  
    

 

 

 
  Trading Companies & Distributors—0.2%   

2,197,431

  Fastenal Co.      100,158,905  
    

 

 

 
  Wireless Telecommunication Services—0.9%   

6,341,371

  T-Mobile US, Inc.(b)      391,008,936  

3,545,726

  Vodafone Group PLC ADR      100,911,362  
    

 

 

 
       491,920,298  
    

 

 

 
  Total Investments in Securities
(Cost $53,664,514,234)—100.0%
     52,162,471,046  
  Other assets less liabilities—0.0%      15,163,683  
    

 

 

 
  Net Assets—100.0%    $ 52,177,634,729  
    

 

 

 

 

See accompanying notes to financial statements which are an integral part of the financial statements.

 

21


PowerShares QQQ TrustSM, Series 1 (QQQ)

Schedule of Investments(a) (continued)

September 30, 2017

 

 

 

 

Investment Abbreviations:

ADR - American Depositary Receipt

Notes to Schedule of Investments:

(a) Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s.
(b) Non-income producing security.

 

See accompanying notes to financial statements which are an integral part of the financial statements.

 

22


PowerShares QQQ TrustSM, Series 1 (QQQ)

Statement of Assets and Liabilities

September 30, 2017

 

 

 

Assets:

 

Investments in securities, at value

  $ 52,162,471,046  

Cash

    146,122,755  

Receivables:

 

Investments sold

    1,124,728,626  

Shares sold

    784,366,200  

Dividends

    11,022,134  
 

 

 

 

Total assets

  $ 54,228,710,761  
 

 

 

 

Liabilities:

 

Payables:

 

Shares repurchased

  $ 1,125,167,200  

Investments purchased

    784,061,382  

Distributions

    114,162,381  

Amount due to Licensor

    11,052,601  

Amount due to Sponsor

    10,924,402  

Amount due to Trustee

    5,124,649  

Accrued expenses

    583,417  
 

 

 

 

Total liabilities

    2,051,076,032  
 

 

 

 

NET ASSETS

  $ 52,177,634,729  
 

 

 

 

Net assets consist of:

 

Shares of beneficial interest

  $ 58,188,675,118  

Undistributed net investment income

    (11,117,839

Undistributed net realized gain

    (4,497,879,362

Net unrealized appreciation (depreciation)

    (1,502,043,188
 

 

 

 

NET ASSETS

  $ 52,177,634,729  
 

 

 

 

Shares outstanding (unlimited shares authorized, no par value)

    358,550,000  
 

 

 

 

Net asset value

  $ 145.52  
 

 

 

 

Investments in securities, at cost

  $ 53,664,514,234  
 

 

 

 

See accompanying notes to financial statements which are an integral part of the financial statements.

 

23


PowerShares QQQ TrustSM, Series 1 (QQQ)

Statements of Operations

For the years ended September 30, 2017, 2016, 2015

 

 

 

     2017     2016     2015  

Investment income:

      

Dividend income

   $ 564,847,024     $ 519,683,143     $ 512,997,339  

Foreign withholding tax

           (73,945     (80,353
  

 

 

   

 

 

   

 

 

 

Total income

     564,847,024       519,609,198       512,916,986  
  

 

 

   

 

 

   

 

 

 

Expenses:

      

Licensing fees

     39,745,597       33,337,145       34,109,036  

Trustee fees

     26,301,891       22,333,835       22,859,000  

Marketing expenses

     26,129,704       20,191,614       19,390,239  

Professional fees

     124,352       124,879       118,835  

Other expenses

     809,161       1,129,262       1,005,277  
  

 

 

   

 

 

   

 

 

 

Total expenses

     93,110,705       77,116,735       77,482,387  
  

 

 

   

 

 

   

 

 

 

Net investment income

     471,736,319       442,492,463       435,434,599  
  

 

 

   

 

 

   

 

 

 

Realized and unrealized gain (loss):

      

Net realized gain (loss) from:

      

Investment securities .

     (269,285,290     (1,001,892,563     (220,983,369

In-kind redemptions

     9,004,808,623       3,709,338,441       6,807,071,254  
  

 

 

   

 

 

   

 

 

 

Net realized gain

     8,735,523,333       2,707,445,878       6,586,087,885  
  

 

 

   

 

 

   

 

 

 

Net change in unrealized appreciation (depreciation) on investment securities

     596,159,891       2,767,708,537       (5,787,099,822
  

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain

     9,331,683,224       5,475,154,415       798,988,063  
  

 

 

   

 

 

   

 

 

 

Net increase in net assets resulting from operations

   $ 9,803,419,543     $ 5,917,646,878     $ 1,234,422,662  
  

 

 

   

 

 

   

 

 

 

See accompanying notes to financial statements which are an integral part of the financial statements.

 

24


PowerShares QQQ TrustSM, Series 1 (QQQ)

Statements of Changes in Net Assets

For the years ended September 30, 2017, 2016, 2015

 

 

 

     2017     2016     2015  

Operations:

      

Net investment income

   $ 471,736,319     $ 442,492,463     $ 435,434,599  

Net realized gain

     8,735,523,333       2,707,445,878       6,586,087,885  

Net change in unrealized appreciation (depreciation)

     596,159,891       2,767,708,537       (5,787,099,822
  

 

 

   

 

 

   

 

 

 

Net increase in net assets resulting from operations

     9,803,419,543       5,917,646,878       1,234,422,662  
  

 

 

   

 

 

   

 

 

 

Distributions to Shareholders from:

      

Net investment income

     (470,968,171     (433,083,827     (429,531,545
  

 

 

   

 

 

   

 

 

 

Shareholder transactions:

      

Proceeds from shares sold

     117,962,019,824       90,897,588,061       86,225,545,103  

Value of shares repurchased

     (114,652,657,343     (93,669,443,359     (92,265,126,607
  

 

 

   

 

 

   

 

 

 

Net increase (decrease) in net assets resulting from shares transactions

     3,309,362,481       (2,771,855,298     (6,039,581,504
  

 

 

   

 

 

   

 

 

 

Increase (Decrease) in Net Assets

     12,641,813,853       2,712,707,753       (5,234,690,387
  

 

 

   

 

 

   

 

 

 

Net Assets:

      

Beginning of year

     39,535,820,876       36,823,113,123       42,057,803,510  
  

 

 

   

 

 

   

 

 

 

End of year

   $ 52,177,634,729     $ 39,535,820,876     $ 36,823,113,123  
  

 

 

   

 

 

   

 

 

 

Undistributed net investment income at end of year

   $ (11,117,839   $ 14,909,771     $ 11,928,461  
  

 

 

   

 

 

   

 

 

 

Changes in Shares Outstanding:

      

Shares sold

     888,200,000       831,600,000       821,400,000  

Shares repurchased

     (862,650,000     (860,050,000     (885,750,000

Shares outstanding, beginning of year

     333,000,000       361,450,000       425,800,000  
  

 

 

   

 

 

   

 

 

 

Shares outstanding, ending of year

     358,550,000       333,000,000       361,450,000  
  

 

 

   

 

 

   

 

 

 

See accompanying notes to financial statements which are an integral part of the financial statements.

 

25


PowerShares QQQ TrustSM, Series 1 (QQQ)

Financial Highlights

 

 

 

    Year Ended September 30,  
    2017     2016     2015     2014     2013  

Per Share Operating Performance:

         

Net asset value at beginning of year

  $ 118.73     $ 101.88     $ 98.77     $ 78.80     $ 68.61  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net investment income(a)

    1.33       1.26       1.16       1.41       1.02  

Net realized and unrealized gain on investments

    26.79       16.83       3.10       19.90       10.16  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    28.12       18.09       4.26       21.31       11.18  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Distributions to Shareholders from:

         

Net investment income

    (1.33     (1.24     (1.15     (1.34     (0.99
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net asset value at end of year

  $ 145.52     $ 118.73     $ 101.88     $ 98.77     $ 78.80  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net Asset Value Total Return(b)

    23.82     17.85     4.27     27.20     16.48

Ratios/Supplemental Data

         

Net assets at end of year (000’s omitted)

  $ 52,177,635     $ 39,535,821     $ 36,823,113     $ 42,057,804     $ 38,250,928  

Ratio to average net assets of:

         

Expenses

    0.20     0.20     0.20     0.20     0.20

Net investment income

    1.01     1.15     1.10     1.57     1.46

Portfolio turnover rate(c)

    4.16     7.49     11.43     5.19     14.73

 

(a) Based on average shares outstanding.

 

(b) Net asset value total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period, and redemption on the last day of the period. Net asset value total return includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total investment returns calculated for a period of less than one year are not annualized.

 

(c) Portfolio turnover rate is not annualized for periods less than one year, if applicable, and does not include securities received or delivered from processing creations or redemptions.

See accompanying notes to financial statements which are an integral part of the financial statements.

 

26


PowerShares QQQ TrustSM, Series 1

Notes to Financial Statements

September 30, 2017

 

 

Note 1. Organization

The PowerShares QQQ TrustSM, Series 1 ( the “Trust”) is a unit investment trust organized under the laws of the State of New York and registered under the Investment Company Act of 1940, as amended (the “1940 Act”).

The shares of the Trust are referred to herein as “Shares” or “Trust’s Shares.” The Trust’s Shares are listed and traded on the NASDAQ Global Market tier of NASDAQ.

The market price of each Share may differ to some degree from the Fund’s net asset value (“NAV”). Unlike conventional mutual funds, each Fund issues and redeems Shares on a continuous basis, at NAV, only in a large specified number of Shares, each called a “Creation Unit.” Creation Units are issued and redeemed principally in-kind for securities included in the NASDAQ100 – Index® (the “Underlying Index”).

The investment objective of the Trust is to provide investment results that generally correspond to the price and yield performance of the Underlying Index.

The Bank of New York Mellon (the “Trustee”) has entered into an Agency Agreement with Invesco PowerShares Capital Management LLC (the “Sponsor”) (the “Agency Agreement”). Under the terms of the Agency Agreement, the Sponsor will perform certain functions on behalf of the Trustee: (a) relating to the evaluation of the portfolio securities held by the Trust for the purposes of determining the net asset value of the Trust, and (b) relating to rebalancing and adjustments of the Trust’s portfolio.

Note 2. Significant Accounting Policies

The following is a summary of the significant accounting policies followed by the Trust in preparation of its financial statements.

The Trust is an investment company and accordingly follows the investment company accounting and reporting guidance in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 946, Financial Services—Investment Companies.

A. Security Valuation

Securities, including restricted securities, are valued according to the following policies:

Portfolio securities are valued at the last trade or official closing price of the exchange on which they trade, which is deemed to be the principal market on which the securities are traded, or if there is no last trade or official closing price on the day of valuation, a security is valued at the closing bid price on that day. If a security is not quoted, if the principal market of the security is other than an exchange, or the Sponsor

 

27


deems the last trade, official close price or closing bid price inappropriate for valuation purposes, then the security shall be fair valued in good faith by the Sponsor, in a manner consistent with the Trust Indenture and Agreement (the “Trust Agreement”) and the Agency Agreement based (a) on the last trade or closing price for the security on another market on which the security is traded or if there is no such appropriate closing price, at the closing bid price on such other market, (b) on current bid prices on the principal market or such other markets, (c) if bid prices are not available, on the basis of current bid prices for comparable securities, (d) by the Sponsor appraising the value of the securities in good faith, or (e) any combination thereof. In the event that the Agency Agreement is terminated, the Trustee would be responsible for the valuation steps set forth above in accordance with the terms and conditions of the Trust Agreement.

B. Other Risks

Index Risk.  Unlike many investment companies, the Trust does not utilize an investing strategy that seeks returns in excess of its Underlying Index. Therefore, the Trust would not necessarily buy or sell a security unless that security is added or removed, respectively, from its Underlying Index, even if that security generally is underperforming.

Equity Risk.  Equity risk is the risk that the value of the securities that the Trust holds will fall due to general market and economic conditions, perceptions regarding the industries in which the issuers of securities the Trust holds participate or factors relating to specific companies in which the Trust invests. For example, an adverse event, such as an unfavorable earnings report, may depress the value of securities the Trust holds; the price of securities may be particularly sensitive to general movements in the stock market; or a drop in the stock market may depress the price of most or all of the securities the Trust holds. In addition, securities of an issuer in the Trust’s portfolio may decline in price if the issuer fails to make anticipated dividend payments because, among other reasons, the issuer of the security experiences a decline in its financial condition.

Non-Correlation Risk.  The Trust’s return may not match the return of its Underlying Index for a number of reasons. For example, the Trust incurs operating expenses not applicable to its Underlying Index, and incurs costs in buying and selling securities, especially when rebalancing the Trust’s securities holdings to reflect changes in the composition of its Underlying Index. In addition, the performance of the Trust and its Underlying Index may vary due to asset valuation differences and differences between the Trust’s portfolio and its Underlying Index resulting from legal restrictions, cost or liquidity constraints.

C. Federal Income Taxes

The Trust intends to comply with the provisions of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), applicable to regulated investment companies and to distribute substantially all of the Trust’s taxable earnings to its

 

28


shareholders. As such, the Trust will not be subject to federal income taxes on otherwise taxable income (including net realized gains) that is distributed to the shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements.

The Trust recognizes the tax benefits of uncertain tax positions only when the position is more likely than not to be sustained. Management has analyzed the Trust’s uncertain tax positions and concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions. Management is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next 12 months.

Income and capital gain distributions are determined in accordance with federal income tax regulations, which may differ from accounting principles generally accepted in the United States of America (“GAAP”). These differences are primarily due to differing book and tax treatments for in-kind transactions, losses deferred due to wash sales, the expiration of capital loss carryforwards and return of capital adjustments on investments, if any.

The Trust files U.S. federal tax returns and tax returns in certain other jurisdictions. Generally, a Trust is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period.

D. Investment Transactions and Investment Income

Investment transactions are accounted for on a trade date basis. Realized gains and losses from the sale or disposition of securities are computed on the specific identified cost basis. Interest income is recorded on the accrual basis from settlement date. Pay-in-kind interest income and non-cash dividend income received in the form of securities in-lieu of cash are recorded at the fair value of the securities received. Dividend income (net of withholding tax, if any) is recorded on the ex-dividend date. Realized gains, dividends and interest received by the Trust may give rise to withholding and other taxes imposed by foreign countries. Tax conventions between certain countries and the United States may reduce or eliminate such taxes.

The Trust may periodically participate in litigation related to the Trust’s investments. As such, the Trust may receive proceeds from litigation settlements. Any proceeds received are included in the Statements of Operations as realized gain (loss) for investments no longer held and as unrealized gain (loss) for investments still held.

E. Expenses

Under the Trust Agreement, the Trust is responsible for the Trustee’s fee (including fees for extraordinary expenses and other services), transfer agency services fees, governmental fees, any taxes, fees, and charges payable by the Trustee with respect to Shares, indemnification of the Trustee or the Sponsor, brokerage commissions and other transactional charges and other out-of-pocket expenses of the Trust.

 

29


In addition, the Trust may be charged for expenses related to reimbursement to the Sponsor for annual licensing fees, federal and state annual registration fees and expenses of the Sponsor relating to the printing and distribution of marketing materials. Pursuant to the provisions of an exemptive order, the expenses set forth in this paragraph may be charged to the Trust in an amount equal to the actual costs incurred, but shall not exceed 0.20% per annum of the daily NAV of the Trust.

F. Dividends and Distributions to Shareholders

The Trust declares and distributes dividends, if any, from net investment income quarterly. The Trust will declare and distribute net realized capital gains, if any, at least annually.

G. Accounting Estimates

The preparation of the financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements, including estimates and assumptions related to taxation. Actual results could differ from these estimates. In addition, the Trust monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print.

Note 3. Agreements with the Trustee, Licensor and Sponsor

The Trust accrues daily and pays monthly the expenses of its operations, including Trustee fees, reimbursement to the Sponsor for expenses relating to the marketing of the Trust and fees to The NASDAQ OMX Group, Inc. (the “Licensor”) for a license to use the Index as a basis for determining the composition and weighting of securities held by the Trust.

The Sponsor entered into a license agreement with the Licensor (the “License Agreement”). Under the License Agreement, the license fee payable by the Trust is at an annual rate equal to the sum of (i) the product of (A) that portion of the average net assets of the Trust and the PowerShares EQQQ Fund, on an aggregate basis, up to and including $25,000,000,000 and (B) 0.09%, and (ii) the product of (A) an amount equal to that portion of the average net assets of the Trust and the PowerShares EQQQ Fund, on an aggregate basis, in excess of $25,000,000,000 and (B) 0.08%, with such sum multiplied by the percentage of the aggregate average net assets attributable to the Trust. The license fee, under no circumstances, will exceed 0.09% of the aggregate average net assets, but may be lower in the future based on the aggregate average net assets. The License Agreement may be amended by the parties thereto without the consent of any of the beneficial owners of Trust shares and the License Agreement has no express termination date.

In accordance with the Trust Agreement, the Trustee maintains the Trust’s accounting records, acts as custodian and transfer agent to the Trust, and provides administrative services, including filing of all required regulatory reports. The Trustee is also

 

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responsible for determining the composition of the portfolio of securities, which must be delivered in exchange for the issuance of Creation Units of the Trust, and for adjusting the composition of the Trust’s portfolio from time to time to conform to changes in the compositions and/or weighting structure of the respective index.

For these services, the Trustee receives a fee at the following annual rates:

 

Net Assets of the Trust                    

  

Fee as a Percentage of
Net Assets of the Trust

$0-$499,999,999*

   10/100 of 1% per annum

$500,000,000-$2,499,999,999*

   8/100 of 1% per annum

$2,500,000,000-$24,999,999,999*

   6/100 of 1% per annum

$25,000,000,000-$49,999,999,999*

   5/100 of 1% per annum

$50,000,000,000 and over*

   4/100 of 1% per annum

 

* The fee indicated applies to that portion of the net assets of the Trust which falls in the size category indicated and is computed each business day on the basis of the net assets of the Trust on such day.

The minimum annual fee, which shall be paid to the Trustee, is $180,000. To the extent that the amount of the Trustee’s compensation is less than such minimum annual fee, the Sponsor has agreed to pay the amount of such shortfall.

Marketing expenses for the years ended September 30, 2017, 2016 and 2015, represent expenses incurred by the Sponsor, if any, on behalf of the Trust and charged to the Trust, subject to the reimbursement provisions below. Marketing expenses are paid by the Sponsor on behalf of the Trust for invoices received directly by the Sponsor during the year.

In accordance with the terms of the Trust Agreement and the Agency Agreement, the Trustee will pay, from its own assets, the Sponsor to perform the following services for the Trust: adjust the composition of the portfolio, calculate and adjust, if necessary, the weighting of each security in the portfolio, dispose of or exchange securities after it has been determined that such securities will be removed from the Index and direct securities transactions to brokers or dealers, which may include affiliates of the Trustee, but will not include affiliates of the Sponsor.

The Sponsor had undertaken that on each day during the fiscal year ended September 30, 2017, and until determined otherwise, the ordinary operating expenses of the Trust as calculated by the Trustee would not be permitted to exceed an amount which is 20/100 of one percent (0.20%) per annum of the daily net asset value of the Trust. To the extent during such period that ordinary operating expenses of the Trust exceeds such 0.20% amount, the Sponsor has agreed to reimburse the Trust for or assume such excess ordinary operating expenses. The Sponsor may be repaid by the Trust for expenses so reimbursed or assumed to the extent that subsequently during the fiscal year expenses fall below the 0.20% per annum level on any given day.

 

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Invesco Distributors, Inc., an affiliate of the Sponsor, is the distributor for the Trust. The Sponsor, not the Trust, pays the Distributor a flat annual fee of $35,000 for its distribution services.

Note 4. Additional Valuation Information

GAAP defines fair value as 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, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods, giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3), generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:

 

Level 1   -   Prices are determined using quoted prices in an active market for identical assets.
Level 2   -   Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others.
Level 3   -   Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect a fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information.

As of September 30, 2017, all of the securities in the Trust were valued based on Level 1 inputs (see the Schedule of Investments for security categories). The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.

The Trust’s policy is to recognize transfers in and out of the valuation levels as of the end of the reporting period. During the year ended September 30, 2017, there were no material transfers between valuation levels.

 

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Note 5. Distributions to Shareholders and Tax Components of Net Assets

Tax Character of Distributions to Shareholders Paid During the Fiscal Years Ended September 30, 2017, 2016 and 2015:

 

     2017      2016      2015  

Ordinary Income

   $ 470,968,171      $ 433,083,827      $ 429,531,545  

Tax Components of Net Assets at Fiscal Year-End:

 

Undistributed Ordinary Income

   $ 88,900,627  

Temporary Book/Tax Differences

     (114,162,381

Net Unrealized Appreciation (Depreciation)

     (1,518,931,015

Capital Loss Carryforward

     (4,267,059,810

Post-October Capital Losses Deferrals*

     (199,787,810

Shares of Beneficial Interest

     58,188,675,118  
  

 

 

 

Total Net Assets

   $ 52,177,634,729  
  

 

 

 

 

* The Trust will elect to defer net capital losses incurred after October 31 (“Post-October Capital Losses”) within the taxable year that are deemed to arise on the first business day of the Trust’s next taxable year.

Capital loss carryforwards are calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforwards actually available for the Trust to utilize. Capital losses generated in years beginning after December 22, 2010 can be carried forward for an unlimited period, whereas previous losses expire within eight tax years. Capital losses with an expiration date may not be used to offset capital gains until all net capital losses without an expiration date have been utilized. Capital loss carryforwards with no expiration date will retain their character as either short-term or long-term capital losses instead of as short-term capital losses as under prior law. The ability to utilize capital loss carryforwards in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.

The following table presents available capital loss carryforwards and expiration dates for the Trust as of September 30, 2017.

 

          Post-effective/ no expiration              
2018   2019     Short-Term     Long-Term     Total*     Expired  
$1,571,731,420   $ 145,185,141     $ 134,163,973     $ 2,415,979,276     $ 4,267,059,810     $ 610,749,524  

 

* Capital loss carryforwards as of the date listed above is reduced for limitations, if any, to the extent required by the Internal Revenue Code and may be further limited depending upon a variety of factors, including the realization of net unrealized gains or losses as of the date of any reorganization.

 

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Note 6. Investment Transactions

For the fiscal year ended September 30, 2017, the cost of securities purchased and proceeds from sales of securities (other than short-term securities, U.S. Treasury obligations, money market funds and in-kind transactions, if any) were $1,947,177,597 and $1,935,460,066, respectively.

For the fiscal year ended September 30, 2017, in-kind transactions associated with creations and redemptions were $117,813,294,158 and $114,509,925,633 respectively.

Gains (losses) on in-kind transactions are generally not considered taxable gains (losses) for federal income tax purposes.

At September 30, 2017, cost of investments, including any derivatives, on a tax basis includes adjustments for financial reporting purposes, as of the most recently completed federal income tax reporting period-end.

 

Aggregate unrealized appreciation of investments

   $ 1,182,775,195  

Aggregate unrealized (depreciation) of investments

     (2,701,706,210
  

 

 

 

Net unrealized appreciation (depreciation) of investments

   $ (1,518,931,015
  

 

 

 

Cost of investments for tax purposes is $53,681,402,061

Note 7. Reclassification of Permanent Differences

Primarily as a result of differing book/tax treatment of in-kind transactions, and expired capital loss carryforwards on September 30, 2017, amounts were reclassified between undistributed net investment income, undistributed net realized gain (loss) and Shares of beneficial interest. These reclassifications had no effect on the net assets of the Trust. For the fiscal year ended September 30, 2017, the reclassifications were as follows:

 

Undistributed Net Investment Income

   $ (26,795,758

Undistributed Net Realized Gain (Loss)

     (8,238,320,874

Shares of Beneficial Interest

     8,265,116,632  

Note 8. Capital

The Trust’s Shares are issued and redeemed only in Creation Units of 50,000 Shares. Such transactions are only permitted on an in-kind basis, with a separate cash payment that is equivalent to the undistributed net investment income per PowerShares QQQ shares and a balancing cash component to equate the transaction to the net asset value per share of the Trust on the transaction date. The transaction fee charged in connection with creation or redemption of Creation Units through the continuous net settlement system of National Securities Clearing Corporation (the “Clearing Process”) is either, $0, $500 or $1,000 per participating party per day, depending on specific circumstances. The total fee that can be charged in connection with the creation or redemption of Creation Units outside the Clearing Process is $4,000 per participating party per day.

 

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Transaction fees are received by the Trustee from the participating party and used to offset the expense of processing orders, which are treated as increases in capital. For the years ended September 30, 2017, 2016 and 2015, the Trustee earned $1,505,750, $1,371,500 and $1,244,000, respectively, in transaction fees. The Trustee, in its sole discretion, may voluntarily reduce or waive the transaction fee, or modify the transaction fee schedule, subject to certain limitations. There were no such reductions or waivers for the years ended September 30, 2017, 2016 and 2015.

Note 9. Indemnifications

In the normal course of business, the Trust enters into contracts that contain a variety of representations and warranties, which provide general indemnifications. The Trust’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Trust that have not yet occurred. However, based on experience, the Trust expects the risk of loss to be remote.

 

35


SPECIAL CONSIDERATIONS

The Sponsor is a registered investment adviser, commodity pool operator and commodity trading advisor with offices at 3500 Lacey Road, Suite 700, Downers Grove, IL 60515. The Sponsor serves as the investment adviser to the Invesco PowerShares family of U.S. exchange-traded funds and serves as managing owner to a family of U.S. exchange-traded commodity pools, which comprise 154 exchange-traded funds and 11 exchange-traded commodity pools, respectively, with total combined assets in excess of $78 billion as of December 31, 2017. In addition, the Sponsor is the sub-adviser to the Invesco Multi-Asset Income Fund, which had assets in excess of $705 million as of December 31, 2017. In addition, as of December 31, 2017 the Sponsor served as sponsor to five U.S. exchange traded funds organized as unit investment trusts (including the Trust) with total assets under management in excess of $58 billion and provided advisory services to various Invesco affiliated non-U.S. pooled investment vehicles, including exchange traded funds sponsored or advised by Invesco Canada, Invesco Global Asset Management DAC and Source Investment Management Limited.

On September 18, 2006 INVESCO PLC, now known as Invesco, Ltd., acquired the Sponsor. Invesco, Ltd. and its subsidiaries are an independent global investment management group. Invesco, Ltd. is listed on the New York Stock Exchange with the symbol IVZ.

Under the terms of a license agreement with Nasdaq, the Sponsor has been granted a license to use the Index as a basis for determining the composition of the Trust and to use certain service marks and trademarks of Nasdaq in connection with the Trust (see “License Agreement”). Under the terms of the license agreement, the Sponsor pays to Nasdaq an annual licensing fee for use of the Index and such service marks and trademarks. The Sponsor ordinarily will seek reimbursement from the Trust for the amount of licensing fees (see “Expenses of the Trust”).

The Index is determined, composed, and calculated by Nasdaq without regard to the Sponsor, the Trust, or the Beneficial Owners of PowerShares QQQ Shares. Nasdaq has complete control and sole discretion in determining, composing, or calculating the Index or in modifying in any way its method for determining, composing, or calculating the Index in the future.

THE TRUST

The Trust, an exchange-traded fund or “ETF,” is a registered investment company which both (a) continuously issues and redeems “in-kind” its shares, known as PowerShares QQQ SharesSM or QQQSM, only in large lot sizes called Creation Units at their once-daily NAV and (b) lists the shares individually for trading on NASDAQ at prices established throughout the trading day, like any other listed equity security trading in the secondary market on NASDAQ. The Securities held by the Trust consist of a portfolio of equity securities or, in the case of securities not yet delivered in connection with purchases made by the Trust or Portfolio Deposits, confirmations of contracts to purchase such securities (collectively, the “Portfolio”).

 

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Creation of Creation Units

Portfolio Deposits may be deposited with the Trustee via instructions submitted through the PowerShares QQQ Clearing Process of NSCC, following placement with the Distributor of orders to create PowerShares QQQ Shares by a person who has executed a Participant Agreement with the Distributor and the Trustee. The Distributor shall reject any order that is not submitted in proper form. Investors may deposit Portfolio Deposits through the PowerShares QQQ Clearing Process or directly with the Trustee outside the PowerShares QQQ Clearing Process. The Transaction Fee will be charged at the time of creation of a Creation Unit size aggregation of PowerShares QQQ Shares. An additional amount not to exceed three (3) times the Transaction Fee applicable for a Creation Unit will be charged to a creator creating outside the PowerShares QQQ Clearing Process (i.e., depositing Portfolio Deposits directly with the Trustee through DTC), in part due to the increased expense associated with settlement outside the PowerShares QQQ Clearing Process.

The Trustee and the Sponsor, from time to time and for such periods as they may determine, together may increase(3) or reduce the amount and/or waive the imposition altogether of the Transaction Fee (and/or the additional amounts charged in connection with creations and/or redemptions outside the PowerShares QQQ Clearing Process) for certain numbers of Creation Units of PowerShares QQQ Shares created or redeemed, whether applied solely to creations and/or redemptions made through the PowerShares QQQ Clearing Process, solely to creations and/or redemptions made outside the PowerShares QQQ Clearing Process, or to both methods of creation and/or redemption. The Sponsor also reserves the right, from time to time, to vary the number of PowerShares QQQ Shares per Creation Unit (currently 50,000 PowerShares QQQ Shares) and such change may or may not be made in conjunction with a change to the Transaction Fee. The occurrence of any increase, reduction, or waiver of the Transaction Fee and the number of Creation Units created or redeemed to which such increase, reduction, or waiver applies shall be disclosed in the then current PowerShares QQQ Shares Prospectus.

 

 

(3) Such increase is subject to the 10 Basis Point Limit discussed above under “Highlights—Average Annual Total Returns.” Redemption of PowerShares QQQ Shares or of the additional amounts charged in connection with the creation or redemption of PowerShares QQQ Shares outside the PowerShares QQQ Clearing Process is beyond that which is discussed herein under the caption “Highlights—Average Annual Total Returns.”

The Sponsor makes available on each Business Day a list of the names and the required number of shares for each of the securities in the current Portfolio Deposit as well as the Income Net of Expense Amount effective through and including the previous Business Day per outstanding PowerShares QQQ Shares. The Sponsor may choose within its discretion to make available, frequently throughout each Business Day, a number representing, on a per PowerShares QQQ Share basis, the sum of the Income Net of Expense Amount effective through and including the previous Business

 

37


Day plus the current value of the securities portion of a Portfolio Deposit as in effect on such day (which value will occasionally include a cash-in-lieu amount to compensate for the omission of a particular Index Security from such Portfolio Deposit, see “The Portfolio—Adjustments to the Portfolio Deposit”). NASDAQ calculates the NASDAQ-100 Index® intra-day once per second on every business day in which NASDAQ is open for trading. If the Sponsor elects to make such information available, it would be calculated based upon the best information available to the Sponsor and may be calculated by other persons designated to do so by the Sponsor. If the Sponsor elects to make such information available, the inability of the Sponsor or its designee to provide such information for any period of time will not in itself result in a halt in the trading of PowerShares QQQ Shares on NASDAQ. If such information is made available, investors interested in creating PowerShares QQQ Shares or purchasing PowerShares QQQ Shares in the secondary market should not rely solely on such information in making investment decisions but should also consider other market information and relevant economic and other factors (including, without limitation, information regarding the Index, the Index Securities, and financial instruments based on the Index).

Upon receipt of one or more Portfolio Deposits following placement with the Distributor of an order to create PowerShares QQQ Shares, the Trustee will register the ownership of the PowerShares QQQ Shares in Creation Unit size aggregations in the name of the DTC or its nominee. In turn, the PowerShares QQQ Shares position will be removed from the Trustee’s account at the DTC and will be allocated to the account of the DTC Participant acting on behalf of the depositor creating Creation Unit(s). Each PowerShares QQQ Share represents a fractional undivided interest in the Trust in an amount equal to one (1) divided by the total number of PowerShares QQQ Shares outstanding. The Trustee may reject a request to create Creation Units made by any depositor or group of depositors if such depositor(s), upon the acceptance by the Trustee of such request and the issuance to such depositor(s) of PowerShares QQQ Shares, would own eighty percent (80%) or more of the outstanding PowerShares QQQ Shares. The Trustee also may reject any Portfolio Deposit or any component thereof under certain other circumstances. In the event there is a failure to deliver the Index Securities which are the subject of such contracts to purchase or the Cash Component includes cash in lieu of the delivery of one or more Index Securities, the Trustee will be instructed pursuant to the Trust Agreement to acquire such Index Securities in an expeditious manner. Hence, price fluctuations during the period from the time the cash is received by the Trustee to the time the requisite Index Securities are purchased and delivered will affect the value of all PowerShares QQQ Shares.

Procedures for Creation of Creation Units

All orders to create PowerShares QQQ Shares must be placed in multiples of 50,000 PowerShares QQQ Shares (Creation Unit size). All orders to create PowerShares QQQ Shares, whether through the PowerShares QQQ Clearing Process or outside the PowerShares QQQ Clearing Process, must be received by the Distributor

 

38


by no later than the closing time of the regular trading session on The NASDAQ Stock Market (“Closing Time”) (ordinarily 4:00 p.m. Eastern time) in each case on the date such order is placed in order for creation of PowerShares QQQ Shares to be effected based on the NAV of the Trust as determined on such date. Orders must be transmitted by telephone or other transmission method acceptable to the Distributor and Trustee, pursuant to procedures set forth in the PowerShares QQQ Participant Agreement, as described in this prospectus. Severe economic or market changes or disruptions, or telephone or other communication failure, may impede the ability to reach the Trustee, the Distributor, a Participating Party, or a DTC Participant. PowerShares QQQ Shares may also be created in advance of the receipt by the Trustee of all or a portion of the securities portion of the Portfolio Deposit relating to such PowerShares QQQ Shares, but only through the PowerShares QQQ Clearing Process. In such cases, the Participating Party intending to utilize this procedure will be required to post collateral with the Trustee outside of NSCC consisting of cash ranging from at least 105% to 115% of the closing value, on the day the order is deemed received, of the portion of the Portfolio Deposit not expected to be available in the account of the Participating Party for delivery to the Trust on the second NSCC Business Day following placement of such order, as such amount is marked-to-the-market daily by the Trustee only for increases in such value. This cash collateral will be required to be posted with the Trustee by 11:00 a.m. Eastern time on the morning of the NSCC Business Day following the day such order is deemed received by the Distributor, or else the order to create PowerShares QQQ Shares will be canceled. The Trustee will hold such collateral in an account separate and apart from the Trust. Under NSCC rules, by midnight of the day following the receipt by NSCC of such order, NSCC will normally guarantee to the Trustee the delivery of the securities portion of the Portfolio Deposit on the second NSCC Business Day following receipt of such order. Provided that the NSCC guarantee is established, the Trustee will issue the PowerShares QQQ Shares (in Creation Unit size aggregations) so ordered on such second NSCC Business Day, relying on the NSCC guarantee to make good on the delivery of the Portfolio Deposit. In the event that the required securities are not delivered on such second NSCC Business Day, the Trustee will take steps to “buy-in” the missing portion of the Portfolio Deposit in accordance with NSCC rules. Alternatively, to the extent permitted by a Participant Agreement, the Trustee may purchase the missing Shares at any time and the Participating Party or DTC Participant agrees to accept liability for any shortfall between the cost to the Trust of purchasing such securities and the value of the collateral, which may be sold by the Trust at such time, and in such manner, as the Trustee may determine in its sole discretion.

Information concerning the procedures for such cash collateralization is available from the Distributor.

All questions as to the number of shares of each of the Index Securities, the amount and identity of the payor of the Cash Component (i.e., the Trustee on behalf of the Trust or the PowerShares QQQ Share creator), and the validity, form, eligibility (including time of receipt), and acceptance for deposit of any Index Securities to be delivered shall be determined by the Trustee, whose determination shall be final and

 

39


binding. The Trustee reserves the absolute right to reject a creation order transmitted to it by the Distributor in respect of any Portfolio Deposit or any component thereof if (a) the depositor or group of depositors, upon obtaining the PowerShares QQQ Shares ordered, would own 80% or more of the current outstanding PowerShares QQQ Shares; (b) the Portfolio Deposit is not in proper form; (c) acceptance of the Portfolio Deposit would have certain adverse tax consequences (see “Tax Status of the Trust”); (d) the acceptance of the Portfolio Deposit would, in the opinion of counsel, be unlawful; (e) the acceptance of the Portfolio Deposit would otherwise, in the discretion of the Trustee, have an adverse effect on the Trust or the rights of Beneficial Owners; or (f) in the event that circumstances outside the control of the Trustee make it for all practical purposes impossible to process creations of PowerShares QQQ Shares. The Trustee and the Sponsor shall not incur any liability in connection with any notification of defects or irregularities in the delivery of Portfolio Deposits or any component thereof or in connection with the rejection of a creation order.

Placement of Creation Orders Using the PowerShares QQQ Clearing Process

Portfolio Deposits created through the PowerShares QQQ Clearing Process must be delivered through a Participating Party that has executed a participant agreement with the Distributor and with the Trustee (as the same may be from time to time amended in accordance with its terms, the “PowerShares QQQ Participant Agreement”). The PowerShares QQQ Participant Agreement authorizes the Trustee to transmit to NSCC on behalf of the Participating Party such trade instructions as are necessary to effect the Participating Party’s creation order. Pursuant to such trade instructions from the Trustee to NSCC, the Participating Party agrees to transfer the requisite Index Securities (or contracts to purchase such Index Securities that are expected to be delivered in a “regular way” manner through NSCC by the second (2nd) NSCC Business Day) and the Cash Component (if required) to the Trustee, together with such additional information as may be required by the Trustee.

Placement of Creation Orders Outside the PowerShares QQQ Clearing Process

Portfolio Deposits created outside the PowerShares QQQ Clearing Process must be delivered through a DTC Participant that has executed a PowerShares QQQ Participant Agreement with the Distributor and with the Trustee and has stated in its order that it is not using the PowerShares QQQ Clearing Process and that creation will instead be effected through a transfer of stocks and cash. The requisite number of Index Securities must be delivered through DTC to the account of the Trustee by no later than 11:00 a.m. Eastern time of the next Business Day immediately following the Transmittal Date. The Trustee, through the Federal Reserve Bank wire system, must receive the Cash Component no later than 1:00 p.m. Eastern time on the next Business Day immediately following the Transmittal Date. If the Trustee does not receive both the requisite Index Securities and the Cash Component (if required) in a timely fashion on the next Business Day immediately following the Transmittal Date, such order will be canceled. Upon written notice to the Distributor, such canceled order may be resubmitted the following Business Day using a Portfolio Deposit as newly constituted

 

40


to reflect the current NAV of the Trust. The delivery of PowerShares QQQ Shares so created will occur no later than the second (2nd) Business Day following the day on which the creation order is deemed received by the Distributor.

Securities Depository; Book-Entry-Only System

The DTC acts as securities depository for PowerShares QQQ Shares. Cede & Co., as nominee for the DTC, is registered as the record owner of all PowerShares QQQ Shares on the books of the Trustee. Certificates will not be issued for PowerShares QQQ Shares.

The DTC has advised the Sponsor and the Trustee as follows: the DTC is a limited-purpose trust company organized under the laws of the State of New York, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934, as amended. The DTC was created to hold securities of its participants (the “DTC Participants”) and to facilitate the clearance and settlement of securities transactions among the DTC Participants in such securities through electronic book-entry changes in accounts of the DTC Participants, thereby eliminating the need for physical movement of securities certificates. DTC Participants include securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations, some of whom (and/or their representatives) own The Depository Trust & Clearing Corporation, the parent company of the DTC and NSCC. Access to the DTC system is also available to others such as banks, brokers, dealers, and trust companies that maintain a custodial relationship with a DTC Participant, either directly or indirectly (the “Indirect Participants”).

Upon the settlement date of any creation, transfer, or redemption of PowerShares QQQ Shares, the DTC will credit or debit, on its book-entry registration and transfer system, the number of PowerShares QQQ Shares so created, transferred, or redeemed to the accounts of the appropriate DTC Participants. The accounts to be credited and charged shall be designated by the Trustee to NSCC, in the case of a creation or redemption through the PowerShares QQQ Clearing Process, or by the Trustee and the DTC Participant, in the case of a creation or redemption transacted outside of the PowerShares QQQ Clearing Process. Beneficial ownership of PowerShares QQQ Shares is limited to DTC Participants, Indirect Participants, and persons holding interests through DTC Participants and Indirect Participants. Ownership of beneficial interests in PowerShares QQQ Shares (owners of such beneficial interests are referred to herein as “Beneficial Owners”) will be shown on, and the transfer of ownership will be effected only through, records maintained by the DTC (with respect to DTC Participants) and on the records of DTC Participants (with respect to Indirect Participants and Beneficial Owners that are not DTC Participants). Beneficial Owners are expected to receive from or through the DTC Participant a written confirmation relating to their purchase of PowerShares QQQ Shares. The laws of some jurisdictions may require that certain purchasers of securities take physical delivery of such securities in definitive form. Such laws may impair the ability of certain investors to acquire beneficial interests in PowerShares QQQ Shares.

 

41


So long as Cede & Co., as nominee of the DTC, is the registered owner of PowerShares QQQ Shares, references herein to the registered or record owners of PowerShares QQQ Shares shall mean Cede & Co. and shall not mean the Beneficial Owners of PowerShares QQQ Shares. Beneficial Owners of PowerShares QQQ Shares will not be entitled to have PowerShares QQQ Shares registered in their names, will not receive or be entitled to receive physical delivery of certificates in definitive form, and will not be considered the record or registered holder thereof under the Trust Agreement. Accordingly, each Beneficial Owner must rely on the procedures of the DTC, the DTC Participant, and any Indirect Participant through which such Beneficial Owner holds its interests, to exercise any rights of a holder of PowerShares QQQ Shares under the Trust Agreement.

The Trustee recognizes the DTC or its nominee as the owner of all PowerShares QQQ Shares for all purposes except as expressly set forth in the Trust Agreement. Pursuant to the agreement between the Trustee and DTC (the “Depository Agreement”), the DTC is required to make available to the Trustee upon request and for a fee to be charged to the Trust a listing of the PowerShares QQQ Share holdings of each DTC Participant. The Trustee shall inquire of each such DTC Participant as to the number of Beneficial Owners holding PowerShares QQQ Shares, directly or indirectly, through such DTC Participant. The Trustee shall provide each such DTC Participant with copies of such notice, statement, or other communication, in such form, number, and at such place as such DTC Participant may reasonably request, in order that such notice, statement, or communication may be transmitted by such DTC Participant, directly or indirectly, to such Beneficial Owners. In addition, the Trustee on behalf of the Trust shall pay to each such DTC Participant a fair and reasonable amount as reimbursement for the expenses attendant to such transmittal, all subject to applicable statutory and regulatory requirements.

PowerShares QQQ Share distributions shall be made to the DTC or its nominee, Cede & Co. Upon receipt of any payment of distributions in respect of the PowerShares QQQ Shares, the DTC or Cede & Co. is required immediately to credit DTC Participants’ accounts with payments in amounts proportionate to their respective beneficial interests in the PowerShares QQQ Shares, as shown on the records of DTC or its nominee. Payments by DTC Participants to Indirect Participants and Beneficial Owners of the PowerShares QQQ Shares held through such DTC Participants will be governed by standing instructions and customary practices, as is now the case with securities held for the accounts of customers in bearer form or registered in a “street name,” and will be the responsibility of such DTC Participants. Neither the Trustee nor the Sponsor has or will have any responsibility or liability for any aspects of the records relating to or notices to Beneficial Owners, or payments made on account of beneficial ownership interests in the PowerShares QQQ Shares, or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests or for any other aspect of the relationship between the DTC and the DTC Participants or the relationship between such DTC Participants and the Indirect Participants and Beneficial Owners owning through such DTC Participants.

 

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The DTC may determine to discontinue providing its service with respect to PowerShares QQQ Shares at any time by giving notice to the Trustee and the Sponsor and discharging its responsibilities with respect thereto under applicable law. Under such circumstances, the Trustee and the Sponsor shall take action either to find a replacement for the DTC to perform its functions at a comparable cost or, if such a replacement is unavailable, to terminate the Trust (see “Administration of the Trust—Termination”).

REDEMPTION OF POWERSHARES QQQ SHARES

The PowerShares QQQ Shares are redeemable only in Creation Units. Creation Units are redeemable in kind only and are not redeemable for cash except as described under “Summary—Highlights—Termination of the PowerShares QQQ Trust.”

Procedure for Redemption of PowerShares QQQ Shares

Requests for redemptions of Creation Units may be made on any Business Day through the PowerShares QQQ Clearing Process to the Trustee at its trust office at 2 Hanson Place, 12th Floor, Brooklyn, NY 11217, or at such other office as may be designated by the Trustee. Requests for redemptions of Creation Units may also be made directly to the Trustee outside the PowerShares QQQ Clearing Process. Requests for redemptions shall not be made to the Distributor. In the case of redemptions made through the PowerShares QQQ Clearing Process, the Transaction Fee will be deducted from the amount delivered to the redeemer or added to the amount owed by the redeemer to the Trustee, as applicable. In case of redemptions tendered directly to the Trustee outside the PowerShares QQQ Clearing Process, a total fee will be charged equal to the Transaction Fee plus an additional amount not to exceed three (3) times the Transaction Fee applicable for a Creation Unit (due in part to the increased expense associated with delivery outside the PowerShares QQQ Clearing Process), and such amount will be deducted from the amount delivered to the redeemer or added to the amount owed by the redeemer to the Trustee on behalf of the Trust, as applicable (see “Summary”). In all cases, the tender of PowerShares QQQ Shares for redemption and distributions to the redeemer (or payments to the Trustee, as applicable) in respect of PowerShares QQQ Shares redeemed will be effected through DTC and the relevant DTC Participant(s) to the Beneficial Owner thereof as recorded on the book-entry system of DTC or the relevant DTC Participant, as the case may be (see “The Trust—Book-Entry-Only System”).

The Trustee will transfer to the redeeming Beneficial Owner via DTC and the relevant DTC Participant(s) a portfolio of Securities for each Creation Unit size aggregation of PowerShares QQQ Shares delivered, generally identical in composition and weighting to the securities portion of a Portfolio Deposit as in effect (1) on the date a request for redemption is deemed received by the Trustee as described below, in the case of redemptions made either through the PowerShares QQQ Clearing Process or outside the PowerShares QQQ Clearing Process or (2) on the date that notice of the termination of the Trust is given. The Trustee also transfers via the relevant DTC

 

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Participant(s) to the redeeming Beneficial Owner a “Cash Redemption Payment,” which on any given Business Day is an amount identical to the amount of the Cash Component and is equal to a proportional amount of the following: dividends on all the Securities for the period through the date of redemption, net of accrued expenses and liabilities for such period not previously deducted (including, without limitation, (x) taxes or other governmental charges against the Trust not previously deducted, if any, and (y) accrued fees of the Trustee and other expenses of the Trust (including legal and auditing expenses) and other expenses not previously deducted (see “Expenses of the Trust”)), plus or minus the Balancing Amount. The redeeming Beneficial Owner must deliver to the Trustee any amount by which the amount payable to the Trust by such Beneficial Owner exceeds the amount of the Cash Redemption Payment (“Excess Cash Amounts”). For redemptions outside the PowerShares QQQ Clearing Process, the Trustee on behalf of the Trust will transfer the Cash Redemption Amount (if required) and the securities to the redeeming Beneficial Owner by the second (2nd) Business Day following the date on which the request for redemption is deemed received. In cases in which the Cash Redemption Amount is payable by the redeemer to the Trustee, the redeeming Beneficial Owner (via the DTC and the relevant DTC Participant(s)) is required to make payment of such cash amount by the second (2nd) NSCC Business Day, for redemptions made through the PowerShares QQQ Clearing Process, or the first (1st) Business Day, for redemptions outside the PowerShares QQQ Clearing Process, following the date on which the request for redemption is deemed received. The Trustee will cancel all PowerShares QQQ Shares delivered upon redemption.

If the Trustee determines that an Index Security is likely to be unavailable or available in insufficient quantity for delivery by the Trust upon the redemption of PowerShares QQQ Shares in Creation Unit size aggregations, the Trustee shall have the right in its discretion to include the cash equivalent value of such Index Security or Index Securities, based on the market value of such Index Security or Index Securities as of the Evaluation Time on the date such redemption is deemed received by the Trustee, in the calculation of the Cash Redemption Amount in lieu of delivering such Index Security or Index Securities to the redeemer.

In connection with the redemption of PowerShares QQQ Shares, if a redeeming investor requests redemption in cash, rather than in kind, with respect to one or more Securities, the Trustee shall have the right in its discretion to include the cash equivalent value of such Index Security or Index Securities, based on the market value of such Index Security or Index Securities as of the Evaluation Time on the date such redemption order is deemed received by the Trustee, in the calculation of the Cash Redemption Amount in lieu of delivering such Index Security or Index Securities to the redeemer. In such case, such investor will pay the Trustee the standard Transaction Fee, plus an additional amount not to exceed three (3) times the Transaction Fee applicable for a Creation Unit (see “Summary”).

The Trustee, in its discretion, upon the request of a redeeming investor, may redeem Creation Units in whole or in part by providing such redeemer with a portfolio of Securities differing in exact composition from the Index Securities but not differing

 

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in NAV from the then-current Portfolio Deposit. Such a redemption is likely to be made only if it were to be determined that this composition would be appropriate in order to maintain the Portfolio’s correlation to the composition and weighting of the Index.

The Trustee may sell Securities to obtain sufficient cash proceeds to deliver to the redeeming Beneficial Owner. To the extent cash proceeds are received by the Trustee in excess of the amount required to be provided to the redeeming Beneficial Owner, such cash amounts shall be held by the Trustee and shall be applied in accordance with the guidelines applicable to Misweightings (as defined below).

If the income received by the Trust in the form of dividends and other distributions on the Securities is insufficient to allow distribution of the Cash Redemption Amount to a redeemer of PowerShares QQQ Shares, the Trustee may advance out of its own funds any amounts necessary in respect of redemptions of PowerShares QQQ Shares; otherwise, the Trustee may sell Securities in an amount sufficient to effect such redemptions. The Trustee may reimburse itself in the amount of such advance, plus any amounts required by the Federal Reserve Board which are related to such advance, together with interest thereon at a percentage rate equal to the then current overnight federal funds rate, by deducting such amounts from (1) dividend payments or other income of the Trust when such payments or other income is received, (2) the amounts earned or benefits derived by the Trustee on cash held by the Trustee for the benefit of the Trust, and (3) the sale of Securities. Notwithstanding the foregoing, in the event that any advance remains outstanding for more than forty-five (45) Business Days, the Trustee shall ordinarily sell Securities to reimburse itself for such advance and any accrued interest thereon. Such advances will be secured by a lien upon and a security interest in the assets of the Trust in favor of the Trustee.

The Trustee may, in its discretion, and will when so directed by the Sponsor, suspend the right of redemption, or postpone the date of payment of the NAV for more than five (5) Business Days following the date on which the request for redemption is deemed received by the Trustee (1) for any period during which the New York Stock Exchange is closed; (2) for any period during which an emergency exists as a result of which disposal or evaluation of the Securities is not reasonably practicable; or (3) for such other period as the Commission may by order permit for the protection of Beneficial Owners. Neither the Sponsor nor the Trustee is liable to any person or in any way for any loss or damages that may result from any such suspension or postponement.

To be eligible to place orders with the Trustee to redeem PowerShares QQQ Shares in Creation Unit size aggregations, an entity or person must be (1) a Participating Party, with respect to redemptions through the PowerShares QQQ Clearing Process, or (2) a DTC Participant, with respect to redemptions outside the PowerShares QQQ Clearing Process, and in either case must have executed a PowerShares QQQ Participant Agreement with the Distributor and the Trustee.

All orders to redeem PowerShares QQQ Shares must be placed in multiples of 50,000 shares (Creation Unit size). Orders must be transmitted to the Trustee by

 

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telephone or other transmission method acceptable to the Trustee so as to be received by the Trustee not later than the Closing Time on the Transmittal Date, pursuant to procedures set forth in the PowerShares QQQ Participant Agreement. Severe economic or market changes or disruptions, or telephone or other communication failure, may impede the ability to reach the Trustee, a Participating Party, or a DTC Participant.

Orders to redeem Creation Unit size aggregations of PowerShares QQQ Shares shall be placed with a Participating Party or DTC Participant, as applicable, in the form required by such Participating Party or DTC Participant. Investors should be aware that their particular broker may not have executed a PowerShares QQQ Participant Agreement, and that, therefore, orders to redeem Creation Unit size aggregations of PowerShares QQQ Shares may have to be placed by the investor’s broker through a Participating Party or a DTC Participant who has executed a PowerShares QQQ Participant Agreement. At any given time there may be only a limited number of broker-dealers that have executed a PowerShares QQQ Participant Agreement. Those placing orders to redeem PowerShares QQQ Shares should afford sufficient time to permit (1) proper submission of the order by a Participating Party or DTC Participant to the Trustee and (2) the receipt of the PowerShares QQQ Shares to be redeemed and the Cash Redemption Amount, if any, by the Trustee in a timely manner, as described below. Orders for redemption that are effected outside the PowerShares QQQ Clearing Process are likely to require transmittal by the DTC Participant earlier on the Transmittal Date than orders effected using the PowerShares QQQ Clearing Process. Those persons placing orders outside the PowerShares QQQ Clearing Process should ascertain the deadlines applicable to DTC and the Federal Reserve Bank wire system by contacting the operations department of the broker or depository institution effectuating such transfer of PowerShares QQQ Shares and Cash Redemption Amount. These deadlines will vary by institution. The Participant notified of an order to redeem outside the PowerShares QQQ Clearing Process will be required to transfer PowerShares QQQ Shares through DTC and the Cash Redemption Amount, if any, through the Federal Reserve Bank wire system in a timely manner (see “Placement of Redemption Orders Outside the PowerShares QQQ Clearing Process”). Information regarding the Cash Redemption Amount, number of outstanding PowerShares QQQ Shares, and Transaction Fees may be obtained from the Trustee at the toll-free number: (888) 627-3837.

Placement of Redemption Orders Using the PowerShares QQQ Clearing Process

A redemption order using the PowerShares QQQ Clearing Process is deemed received by the Trustee on the Transmittal Date if (i) such order is received by the Trustee not later than the Closing Time on such Transmittal Date and (ii) all other procedures set forth in the PowerShares QQQ Participant Agreement are properly followed. A redemption order using the PowerShares QQQ Clearing Process made in proper form but received by the Trustee after the Closing Time will be deemed received on the next Business Day immediately following the Transmittal Date. The PowerShares QQQ Participant Agreement authorizes the Trustee to transmit to NSCC on behalf of the Participating Party such trade instructions as are necessary to effect the Participating Party’s redemption order. Pursuant to such trade instructions from the

 

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Trustee to NSCC, the Trustee will transfer the requisite Securities (or contracts to purchase such Securities which are expected to be delivered in a “regular way” manner through NSCC) by the second (2nd) NSCC Business Day following the date on which such request for redemption is deemed received, and the Cash Redemption Amount, if any. If the Cash Redemption Amount is owed by the Beneficial Owner to the Trustee, such amount must be delivered by the second (2nd) NSCC Business Day following the date on which the redemption request is deemed received.

Placement of Redemption Orders Outside the PowerShares QQQ Clearing Process

A DTC Participant who wishes to place an order for redemption of PowerShares QQQ Shares to be effected outside the PowerShares QQQ Clearing Process need not be a Participating Party, but such orders must state that the DTC Participant is not using the PowerShares QQQ Clearing Process and that redemption of PowerShares QQQ Shares will instead be effected through transfer of PowerShares QQQ Shares directly through DTC. An order to redeem PowerShares QQQ Shares outside the PowerShares QQQ Clearing Process is deemed received by the Trustee on the Transmittal Date if (i) such order is received by the Trustee not later than the Closing Time on such Transmittal Date; (ii) such order is preceded or accompanied by the requisite number of PowerShares QQQ Shares specified in such order, which delivery must be made through DTC to the Trustee no later than the Closing Time of the regular trading session on NASDAQ on such Transmittal Date; and (iii) all other procedures set forth in the PowerShares QQQ Participant Agreement are properly followed. The Cash Redemption Amount owed by the Beneficial Owner, if any, must be delivered no later than 1:00 p.m. Eastern time on the Business Day immediately following the Transmittal Date.

The Trustee will initiate procedures to transfer the requisite Securities and the Cash Redemption Amount to the redeeming Beneficial Owner (where such amount is payable from the Trustee to the Beneficial Owner) by the second (2nd) Business Day following the Transmittal Date on which such redemption order is deemed received by the Trustee.

THE PORTFOLIO

Because the objective of the Trust is to provide investment results that generally correspond to the price and yield performance of the Index, the Portfolio will, under most circumstances, consist of all of the Index Securities. It is anticipated that cash or cash items normally would not be a substantial part of the Trust’s net assets. Although the Trust may at any time fail to own certain of the Index Securities, the Trust will be substantially invested in Index Securities and the Sponsor believes that such investment should result in a close correspondence between the investment performance of the Index and that derived from ownership of PowerShares QQQ Shares.

Adjustments to the Portfolio

The Index is a modified capitalization-weighted index of securities issued by 100 of the largest non-financial companies listed on the NASDAQ Global Select or

 

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NASDAQ Global Market tier of NASDAQ (see “The Index”). At any moment in time, the value of the Index equals the aggregate value of the then-current Index share weights of each of the component Index Securities multiplied by each such security’s respective official closing price on NASDAQ, divided by the Divisor, which results in the reported Index value. The Divisor serves the purpose of scaling such aggregate value (otherwise in the trillions) to a lower order of magnitude which is more desirable for Index reporting purposes.(4)

 

 

(4) For example, on December 31, 2017 the aggregate value of the then-current Index share weights of each of the Index Securities multiplied by their respective last sale price on NASDAQ was $7,320,892,899,813.28, the Divisor was 1,144,529,349.25 on December 31, 2017, the base value was 125, as adjusted, at the start of the Index, and the reported Index value was 6396.42 on December 31, 2017.

Periodically (typically, several times per quarter), Nasdaq may determine that total shares outstanding have changed in one or more Index Securities due to secondary offerings, repurchases, conversions, or other corporate actions. Under such circumstances, in accordance with Nasdaq policies and procedures for making adjustments to the Index, the Index share weights would be adjusted by the same percentage amounts by which the total shares outstanding have changed in such Index Securities. Additionally, Nasdaq may replace one or more component securities in the Index due to mergers and acquisitions, bankruptcies, or other market conditions (i.e., corporate actions), or due to removal if an issuer fails to meet the criteria for continued inclusion in the Index or it chooses to list its securities on another marketplace. For example, for the 2006, 2007, 2008, 2009, 2010, 2011, 2012, 2013 and 2014 calendar years, there were 7, 8, 4, 3, 0, 4, 4, 8 and 4 company changes due to corporate actions, respectively; for the 2015, 2016 and 2017 calendar years, there were 9 additions and 8 deletions (as a result of the index methodology allowing multiple share classes of component issuers), 10 additions and 11 deletions and 5 additions and 5 deletions, respectively, to the Index due to corporate actions. For the 2006, 2007, 2008, 2009, 2010, 2011, 2012, 2013 and 2014 calendar years, there were 3, 5, 11, 7, 7, 5, 10, 5 and 9 other company changes made at year-end in connection with Nasdaq’s annual evaluation process for determining the securities comprising the Index for the upcoming year, respectively; for the 2015, 2016 and 2017 calendar years, there were 7 additions and 9 deletions, 6 additions and 4 deletions and 5 additions and 6 deletions (as a result of the index methodology allowing multiple share classes of component issuers), respectively (see “The Index—Initial Eligibility Criteria” and “—Continued Eligibility Criteria”). The ratio of the market capitalization of the securities replaced in the Index in 2006, 2007, 2008, 2009, 2010, 2011, 2012, 2013, 2014, 2015, 2016 and 2017 to the total market capitalization of the securities comprising the Index at year-end was 3.8%, 5.0%, 2.45%, 2.06%, 1.47%, 3.68%, 2.66%, 6.24%, 0.60%, 5.01%, 1.46% and 2.16%, respectively.

The Index share weights, which are based upon the total shares outstanding in each of the Index Securities, are additionally subject, in certain cases, to a rebalancing

 

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(see “The Index—Rebalancing of the Index”). Ordinarily, whenever there is a change in Index share weights or a change in a component security included in the Index, Nasdaq adjusts the Divisor to assure that there is no discontinuity in the value of the Index which might otherwise be caused by any such change.

Because the investment objective of the Trust is to provide investment results that generally correspond to the price and yield performance of the Index, composition and weighting changes, and associated Divisor changes to the Index, create the need for the Trustee to make corresponding adjustments to the Securities held in the Trust as described below.

The Trust is not managed and therefore the adverse financial condition of an issuer does not require the sale of stocks from the Portfolio. The Trustee on a nondiscretionary basis adjusts the composition of the Portfolio from time to time to conform to changes in the composition and/or weighting of the Index Securities. The Trustee aggregates certain of these adjustments and makes conforming changes to the Trust’s Portfolio at least monthly; however, adjustments are made more frequently in the case of changes to the Index that are significant. Specifically, the Trustee is required to adjust the composition of the Portfolio at any time that there is a change in the identity of any Index Security (i.e., a substitution of one security in replacement of another), which adjustment is to be made within two (2) Business Days before or after the day on which the change in the identity of such Index Security is scheduled to take effect at the close of the market. Although the investment objective of the Trust is to provide investment results which resemble the performance of the Index, it is not always efficient to replicate identically the share composition of the Index if the transaction costs incurred by the Trust in so adjusting the Portfolio would exceed the expected misweighting that would ensue by failing to replicate identically minor and insignificant share changes to the Index.

Accordingly, to further the investment objective of the Trust, minor misweightings are generally permitted within the guidelines set forth below. The Trustee is required to adjust the composition of the Portfolio at any time that the weighting of any Security varies in excess of one hundred fifty percent (150%) of a specified percentage (a “Misweighting Amount”), from the weighting of such Security in the Index (a “Misweighting”). The Misweighting Amounts vary depending on the NAV of the Trust and are set forth in the table below:

 

NAV of the Trust

   Misweighting
Amount
 

Less than $25,000,000

     0.25

$25,000,000 – $99,999,999

     0.20

$100,000,000 – $499,999,999

     0.10

$500,000,000 – $999,999,999

     0.05

$1,000,000,000 and over

     0.02

The Trustee examines each Security in the Portfolio on each Business Day, comparing the weighting of each such Security in the Portfolio to the weighting of the corresponding Index Security in the Index, based on prices at the close of the market

 

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on the preceding Business Day (a “Weighting Analysis”). In the event that there is a Misweighting in any Security in excess of one hundred fifty percent (150%) of the applicable Misweighting Amount, the Trustee shall calculate an adjustment to the Portfolio in order to bring the Misweighting of such Security within the Misweighting Amount, based on prices at the close of the market on the day on which such Misweighting occurs. Also, on a monthly basis, the Trustee shall perform a Weighting Analysis for each Security in the Portfolio, and in any case in which there exists a Misweighting exceeding one hundred percent (100%) of the applicable Misweighting Amount, the Trustee shall calculate an adjustment to the Portfolio in order to bring the Misweighting of such Security within the applicable Misweighting Amount, based on prices at the close of the market on the day on which such Misweighting occurs. In the case of any adjustment to the Portfolio due to a Misweighting as described herein, the purchase or sale of securities necessitated by such adjustment shall be made within two (2) Business Days of the day on which such Misweighting is determined. In addition to the foregoing adjustments, the Trustee reserves the right to make additional adjustments periodically to Securities that may be misweighted by an amount within the applicable Misweighting Amount in order to reduce the overall Misweighting of the Portfolio.

The foregoing guidelines with respect to Misweightings shall also apply to any Index Security that (1) is likely to be unavailable for delivery or available in insufficient quantity for delivery or (2) cannot be delivered to the Trustee due to restrictions prohibiting a creator from engaging in a transaction involving such Index Security. Upon receipt of an order for a Creation Unit that will involve such an Index Security, the Trustee shall determine whether the substitution of cash for such Index Security will cause a Misweighting in the Trust’s Portfolio with respect to such Index Security. If a Misweighting results, the Trustee shall purchase the required number of shares of such Index Security on the opening of the market on the following Business Day. If a Misweighting does not result and the Trustee would not hold cash in excess of the permitted amounts described below, the Trustee may hold such cash or, if such an excess would result, make the required adjustments to the Portfolio in accordance with the procedures described herein.

Under the terms of the Trust Agreement and Indenture, the Trustee may employ one or more agents at its own expense to perform the portfolio adjustments described in this prospectus. These agents may include, but are not required to include, the Sponsor. Pursuant to this authority, the Trustee has entered into an Agency Agreement with the Sponsor, dated November 16, 2012 (the “Agency Agreement”). In accordance with the terms of the Trust Agreement and under the terms of the Agency Agreement, the Sponsor will perform the following functions on behalf of the Trust and the Trustee: adjust the composition of the portfolio; calculate and adjust, if necessary, the weighting of each security in the portfolio; dispose of or exchange securities after it has been determined that such securities will be removed from the Index; and direct securities transactions to brokers or dealers, which may include affiliates of the Trustee, but will not include affiliates of the Sponsor. The Trustee will pay the Sponsor for these services from its own assets.

 

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Pursuant to these guidelines, the Sponsor shall calculate the required adjustments and shall purchase and sell the appropriate securities. As a result of the purchase and sale of securities in accordance with these requirements, or the creation of Creation Units, the Trust may hold some amount of residual cash (other than cash held temporarily due to timing differences between the sale and purchase of securities or cash delivered in lieu of Index Securities or undistributed income or undistributed capital gains) as a result of such transactions, which amount shall not exceed for more than five (5) consecutive Business Days 5/10th of 1 percent (0.5%) of the aggregate value of the Securities. In the event that the Trustee has made all required adjustments and is left with cash in excess of 5/10th of 1 percent (0.5%) of the aggregate value of the Securities, the Trustee shall use such cash to purchase additional Index Securities that are under-weighted in the Portfolio as compared to their relative weighting in the Index, although the Misweighting of such Index Securities may not be in excess of the applicable Misweighting Amount.

In addition to adjustments to the Portfolio from time to time to conform to changes in the composition or weighting of the Index Securities, the Sponsor is also ordinarily required to sell Securities to obtain sufficient cash proceeds for the payment of Trust fees and expenses at any time that projected annualized fees and expenses accrued on a daily basis exceed projected annualized dividends and other Trust income accrued on a daily basis by more than 1/100 of one percent (0.01%) of the NAV of the Trust. Whenever the 0.01% threshold is exceeded, the Sponsor will sell sufficient Securities to cover such excess no later than the next occasion it is required to make adjustments to the Portfolio due to a Misweighting, unless the Trustee Sponsor, in its discretion, that such a sale is unnecessary because the cash to be generated is not needed by the Trust at that time for the payment of expenses then due or because the Sponsor otherwise determines that such a sale is not warranted or advisable. At the time of the sale, the Sponsor shall first sell Securities that are over-weighted in the Portfolio as compared to their relative weighting in the Index.

All Portfolio adjustments shall be made pursuant to the foregoing specifications and as set forth in the Trust Agreement and the Agency Agreement and shall be nondiscretionary. All portfolio adjustments will be made as described herein unless such adjustments would cause the Trust to lose its status as a “regulated investment company” under Subchapter M of the Code. Additionally, the Sponsor is required to adjust the composition of the Portfolio at any time if it is necessary to ensure the continued qualification of the Trust as a regulated investment company. The adjustments provided herein are intended to conform the composition and weighting of the Portfolio, to the extent practicable, to the composition and weighting of the Index Securities. Such adjustments are based upon the Index as it is currently determined by Nasdaq. To the extent that the method of determining the Index is changed by Nasdaq in a manner that would affect the adjustments provided for herein, the Trustee and the Sponsor shall have the right to amend the Trust Agreement, without the consent of the DTC or Beneficial Owners, to conform the adjustments provided herein and in the Trust Agreement to such changes so that the objective of tracking the Index is maintained.

 

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The Trustee relies on information made publicly available by Nasdaq as to the composition and weighting of the Index Securities. If the Trustee becomes incapable of obtaining or processing such information or NSCC is unable to receive such information from the Trustee on any Business Day, then the Trustee shall use the composition and weighting of the Index Securities for the most recently effective Portfolio Deposit for the purposes of all adjustments and determinations described herein (including, without limitation, determination of the securities portion of the Portfolio Deposit) until the earlier of (a) such time as current information with respect to the Index Securities is available or (b) two (2) consecutive Business Days have elapsed. If such current information is not available and two (2) consecutive Business Days have elapsed, the composition and weighting of the Securities (as opposed to the Index Securities) shall be used for the purposes of all adjustments and determinations herein (including, without limitation, determination of the securities portion of the Portfolio Deposit) until current information with respect to the Index Securities is available.

If the Trust is terminated, the Trustee shall use the composition and weighting of the Securities held in the Trust as of the date of notice of the Trust termination for the purpose and determination of all redemptions or other required uses of the securities portion of the Portfolio Deposit.

From time to time Nasdaq may make adjustments to the composition of the Index as a result of a merger or acquisition involving one or more of the Index Securities. In such cases, the Trust, as shareholder of securities of an issuer that is the object of such merger or acquisition activity, may receive various offers from would-be acquirers of the issuer. The Trustee is not permitted to accept any such offers until such time as it has been determined that the security of the issuer will be removed from the Index. In selling the securities of such issuer after it has been determined that the security will be removed from the Index, the Trust may receive, to the extent that market prices do not provide a more attractive alternative, whatever consideration is being offered to the shareholders of such issuer that have not tendered their shares prior to such time. Any cash received in such transactions will be reinvested in Index Securities in accordance with the criteria set forth above. Any securities received as a part of the consideration that are not Index Securities will be sold as soon as practicable and the cash proceeds of such sale will be reinvested in accordance with the criteria set forth above.

Purchases and sales of Securities resulting from the adjustments described above will be made in the share amounts dictated by the foregoing specifications, whether round lot or odd lot. Certain Index Securities, however, may at times not be available in the quantities that the foregoing calculations require. For this and other reasons, precise duplication of the proportionate relationship between the Portfolio and the Index Securities may not ever be attained but nevertheless will continue to be the objective of the Trust in connection with all acquisitions and dispositions of Securities.

The Trust is a unit investment trust registered under the 1940 Act and is not a managed fund. Traditional methods of investment management for a managed fund

 

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typically involve frequent changes to a portfolio of securities on the basis of economic, financial, and market analyses. The Portfolio held by the Trust, however, is not actively managed. Instead, the only purchases and sales that are made with respect to the Portfolio will be those necessary to create a portfolio that is designed to replicate the Index to the extent practicable, taking into consideration the adjustments referred to above. Since no attempt is made to manage the Trust in the traditional sense, the adverse financial condition of an issuer will not be the basis for the sale of its securities from the Portfolio unless the issuer is removed from the Index.

The Trust will be liquidated on the fixed Mandatory Termination Date unless terminated earlier under certain circumstances. In addition, Beneficial Owners of PowerShares QQQ Shares in Creation Unit size aggregations have the right to redeem in kind.

Adjustments to the Portfolio Deposit

On each Business Day (each such day, an “Adjustment Day”), the number of shares and/or identity of each of the Index Securities in a Portfolio Deposit is adjusted in accordance with the following procedure. Generally, as of the 4:00 p.m. Eastern time market close on each Adjustment Day, the Trustee calculates the NAV of the Trust (see “Valuation”). The NAV is divided by the number of all outstanding PowerShares QQQ Shares multiplied by 50,000 shares in one Creation Unit aggregation resulting in an NAV. The Trustee then calculates the number of shares (without rounding) of each of the component securities of the Index in a Portfolio Deposit for the following Business Day (“Request Day”), such that (1) the market value at the close of the market on Adjustment Day of the securities to be included in the Portfolio Deposit on Request Day, together with the Income Net of Expense Amount effective for requests to create or redeem on Adjustment Day, equals the NAV and (2) the identity and weighting of each of the securities in a Portfolio Deposit mirror proportionately the identity and weighting of the securities in the Index, each as in effect on Request Day. For each security, the number resulting from such calculation is rounded to the nearest whole share, with a fraction of 0.50 being rounded up. The identities and number of shares of the securities so calculated constitute the securities portion of the Portfolio Deposit effective on Request Day and thereafter until the next subsequent Adjustment Day, as well as the Securities ordinarily to be delivered by the Trustee in the event of a request for redemption of PowerShares QQQ Shares in Creation Unit size aggregations on Request Day and thereafter until the following Adjustment Day (see “Redemption of PowerShares QQQ Shares”). In addition to the foregoing adjustments, in the event that there shall occur a stock split, stock dividend, or reverse split with respect to any Index Security, the Portfolio Deposit shall be adjusted to take account of such stock split, stock dividend, or reverse split by applying the stock split, stock dividend, or reverse stock split multiple (e.g., in the event of a two-for-one stock split of an Index Security, by doubling the number of shares of such Index Security in the prescribed Portfolio Deposit), in each case rounded to the nearest whole share, with a fraction of 0.50 being rounded up.

 

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On the Request Day and on each day that a request for the creation or redemption of PowerShares QQQ Shares is deemed received, the Trustee calculates the market value of the securities portion of the Portfolio Deposit as in effect on Request Day as of the close of the market and adds to that amount the Income Net of Expense Amount effective for requests to create or redeem on Request Day (such market value and Income Net of Expense Amount are collectively referred to herein as the “Portfolio Deposit Amount”). The Trustee then calculates the NAV, based on the close of the market on Request Day. The difference between the NAV so calculated and the Portfolio Deposit Amount is the “Balancing Amount.” The Balancing Amount serves the function of compensating for any differences between the value of the Portfolio Deposit Amount and the NAV at the close of trading on Request Day due to, for example, (1) differences in the market value of the securities in the Portfolio Deposit and the market value of the Securities on Request Day and (2) any variances from the proper composition of the Portfolio Deposit.

On any Adjustment Day on which (a) no change in the identity and/or share weighting of any Index Security is scheduled to take effect that would cause the Divisor to be adjusted after the close of the market on such Business Day(5), and (b) no stock split, stock dividend, or reverse stock split with respect to any Index Security has been declared to take effect on the corresponding Request Day, the Trustee may forego making any adjustment to the securities portion of the Portfolio Deposit and use the composition and weighting of the Index Securities for the most recently effective Portfolio Deposit for the Request Day following such Adjustment Day. In addition, the Trustee may calculate the adjustment to the number of shares and/or identity of the Index Securities in a Portfolio Deposit as described above except that such calculation would be employed two (2) Business Days rather than one (1) Business Day prior to Request Day.

 

 

(5) Such increase is subject to the 10 Basis Point Limit discussed above under “Highlights—Average Annual Total Returns.” Redemption of PowerShares QQQ Shares or of the additional amounts charged in connection with the creation or redemption of PowerShares QQQ Shares outside the PowerShares QQQ Clearing Process is beyond that which is discussed herein under the caption “Highlights—Average Annual Total Returns.”

The Income Net of Expense Amount and the Balancing Amount in effect at the close of business on Request Day are collectively referred to as the Cash Component (with respect to creations of PowerShares QQQ Shares) or the Cash Redemption Amount (with respect to redemptions of PowerShares QQQ Shares). If the resulting Cash Component has a positive value, then the creator of PowerShares QQQ Shares will be obligated to pay such cash to the Trustee in connection with orders to create PowerShares QQQ Shares; if the resulting Cash Component has a negative value, then such cash shall be paid by the Trustee on behalf of the Trust to the creator of PowerShares QQQ Shares. Similarly, if the resulting Cash Redemption Amount has a positive value, then such cash shall be transferred to a redeemer by the Trustee on behalf of the Trust in connection with orders to redeem PowerShares QQQ Shares; if

 

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the resulting Cash Redemption Amount has a negative value, then such cash shall be paid by the redeemer of PowerShares QQQ Shares to the Trustee on behalf of the Trust.

In the event that the Trustee has included the cash equivalent value of one or more Index Securities in the Portfolio Deposit because the Trustee has determined that such Index Securities are likely to be unavailable or available in insufficient quantity for delivery, the Portfolio Deposit so constituted shall dictate the Index Securities to be delivered in connection with the creation of PowerShares QQQ Shares in Creation Unit size aggregations and upon the redemption of PowerShares QQQ Shares in Creation Unit size aggregations for all purposes hereunder until such time as the securities portion of the Portfolio Deposit is subsequently adjusted. Brokerage commissions incurred by the Trustee in connection with the acquisition of any such Index Securities will be at the expense of the Trust and will affect the value of all PowerShares QQQ Shares.

In connection with the creation or redemption of PowerShares QQQ Shares, if an investor is restricted by regulation or otherwise from investing or engaging in a transaction in one or more Index Securities, the Trustee, in its discretion, shall have the right to include the cash equivalent value of such Index Securities in the Portfolio Deposit in the calculation of the Cash Component (or the Cash Redemption Amount, as the case may be) in lieu of the inclusion of such Index Securities in the securities portion of the Portfolio Deposit for the particular affected investor. The amount of such cash equivalent payment shall be used by the Trustee in accordance with the guidelines regarding allowable Misweightings and permitted amounts of cash which may require the Trustee to purchase the appropriate number of shares of the Index Security that such investor was unable to purchase. In any such case, such investor shall pay the Trustee the standard Transaction Fee, plus an additional amount not to exceed three (3) times the Transaction Fee applicable for a Creation Unit.

The Trustee, in its discretion, upon the request of the redeeming investor, may redeem Creation Units in whole or in part by providing such redeemer with a portfolio of Securities differing in exact composition from the Index Securities but not differing in NAV from the then-current Portfolio Deposit. Such a redemption is likely to be made only if it were to be determined that this composition would be appropriate in order to maintain the Portfolio of the Trust in correlation to the modified capitalization-weighted composition of the Index, for instance, in connection with a replacement of one of the Index Securities (e.g., due to a merger, acquisition, or bankruptcy).

THE INDEX

The Sponsor selected the NASDAQ-100 Index® as the basis for the selection of the Securities to be held by the Trust because, in the opinion of the Sponsor, the Index constitutes a broadly diversified segment of the largest companies listed on NASDAQ. Additionally, the Index has achieved wide acceptance by both investors and market professionals. Specifically, the Index is composed of securities issued by 100 of the largest non-financial companies listed on the NASDAQ Global Select or NASDAQ

 

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Global Market tier of NASDAQ by market capitalization. In administering the Index, Nasdaq will exercise reasonable discretion as it deems appropriate.

The Sponsor has been granted a license to use the Index as a basis for determining the composition of the Trust and to use certain service marks and trademarks of Nasdaq in connection with the Trust (see “License Agreement”). Nasdaq is not responsible for and shall not participate in the creation or sale of PowerShares QQQ Shares or in the determination of the timing of, prices at, or quantities and proportions in which purchases or sales of Index Securities or Securities shall be made. In addition, Nasdaq determines, comprises and calculates the Index without regard to the Trust.

The Index was first published in January 1985 and includes companies across a variety of major industry groups. The Index does not contain financial companies, including registered investment companies. As of December 31, 2017, the major industry groups covered in the Index (listed according to their respective capitalization in the Index) were as follows: Industrials (4.01%), Consumer Goods (4.30%), Health Care (8.92), Consumer Services (22.66%), Telecommunication (0.83%), and Technology (59.28%). These industry groups are based on the Industry Classification Benchmark (ICB) maintained by FTSE. The identity and capitalization weightings of the five largest companies represented in the Index as of December 31, 2017 were as follows: Apple Inc. (11.87%), Microsoft Corporation (9.01%), Amazon.com, Inc. (7.70%), Facebook, Inc. (5.75%), and Alphabet Inc. (5.00%). Current information regarding the market value of the Index is available from Nasdaq as well as numerous market information services.

The following table shows the actual performance of the Index for the years 1985 through 2017. Stock prices fluctuated widely during this period. The results shown should not be considered as a representation of the income yield or capital gain or loss that may be generated by the Index in the future, nor should the results be considered as a representation of the performance of the Trust.

 

Year

   Calendar Year-
End Index Value*
(January 31,
1985 = 125.00)
     Point Change
in Index for
Calendar Year*
     Year % Change
in Index*
    Calendar Year-
End Dividend
Yield**
 

1985***

     132.29        7.29        5.83     N/

1986

     141.41        9.12        6.89     0.33

1987

     156.25        14.84        10.49     0.41

1988

     177.41        21.16        13.54     0.47

1989

     223.84        46.43        26.17     0.91

1990

     200.53        –23.31        –10.41     1.07

1991

     330.86        130.33        64.99     0.53

1992

     360.19        29.33        8.86     0.55

1993

     398.28        38.09        10.57     0.52

1994

     404.27        5.99        1.50     0.46

1995

     576.23        171.96        42.54     0.26

 

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Year

   Calendar Year-
End Index Value*
(January 31,
1985 = 125.00)
     Point Change
in Index for
Calendar Year*
     Year % Change
in Index*
    Calendar Year-
End Dividend
Yield**
 

1996

     821.36        245.13        42.54     0.11

1997

     990.80        169.44        20.63     0.13

1998

     1836.01        845.21        85.31     0.07

1999

     3707.83        1871.81        101.95     0.03

2000

     2341.70        –1366.13        –36.84     0.06

2001

     1577.05        –764.65        –32.65     0.06

2002

     984.36        –592.69        –37.58     0.12

2003

     1467.92        483.56        49.12     0.21

2004

     1621.12        153.20        10.44     1.13

2005

     1645.20        24.08        1.49     0.52

2006

     1756.90        111.70        6.79     0.51

2007

     2084.93        328.03        18.67     0.44

2008

     1211.65        –873.28        –41.89     0.93

2009

     1860.31        648.66        53.54     0.65

2010

     2217.86        357.55        19.22     0.81

2011

     2277.83        59.97        2.70     1.04

2012

     2660.93        383.10        16.82     1.48

2013

     3592.00        931.07        34.99     1.25

2014

     4236.28        644.28        17.94     1.99

2015

     4593.27        356.99        8.43     1.17

2016

     4863.62        270.35        5.89     1.25

2017

     6396.42        1532.80        31.52     1.04

 

* Source: Nasdaq. Year-end Index values shown do not reflect reinvestment of dividends.

 

** Source: Nasdaq. Dividend yields are obtained by taking the list of component securities in the Index at year-end and dividing their aggregate cash dividend value for the year aggregate Index Market value at the year-end. The dividend value includes special cash dividends paid during the year. The dividend yields from 1985 through 1997 are based on the market value of the securities (using shares outstanding), while the yields from 1998 through current use the modified market value of the securities.

 

*** Data for 1985 are for the eleven-month period from January 31, 1985 through December 31, 1985.

Initial Eligibility Criteria*

To be eligible for initial inclusion in the Index, an Index Security(1) must meet the following criteria:

 

   

the issuer of the security’s primary U.S. listing must be exclusively listed on the NASDAQ Global Select Market or the NASDAQ Global Market tier of

 

57


 

NASDAQ (unless the security was dually listed on another U.S. market prior to January 1, 2004 and has continuously maintained such listing);

 

    a security must be issued by a non-financial company;(2)

 

    a security may not be issued by an issuer currently in bankruptcy proceedings;

 

    a security must have average daily trading volume of at least 200,000 shares (measured annually during the Ranking Review process);

 

    if the issuer of the security is organized under the laws of a jurisdiction outside the United States, then such security must have listed options on a recognized options market in the United States or be eligible for listed-options trading on a recognized options market in the U.S. (measured annually during the Ranking Review process);

 

    the issuer of the security may not have entered into a definitive agreement or other arrangement which would likely result in the security no longer being Index eligible;

 

    the issuer of the security may not have annual financial statements with an audit opinion that is currently withdrawn;

 

    the security must have “seasoned” on NASDAQ , NYSE or NYSE Amex. Generally, a company is considered to be seasoned if it has been listed on a market for at least three full months (excluding the first month of initial listing).

 

 

(1) An Index Security is defined as a security meeting all eligibility requirements for the Index.

 

(2) Non-Financial companies are those companies that are classified under all Industry Codes except 8000 according to the Industry Classification Benchmark (ICB), a product of FTSE International Limited and has been licensed for use.

Continued Eligibility Criteria*

To be eligible for continued inclusion in the Index, an Index Security(1) must meet the following criteria:

 

    the issuer of the security’s primary U.S. listing must be exclusively listed on the NASDAQ Global Select Market or the NASDAQ Global Market tier of NASDAQ

 

    the security must be issued by a non-financial company;(2)

 

    the security may not be issued by an issuer currently in bankruptcy proceedings;

 

    the security must have average daily trading volume of at least 200,000 shares in the previous three month trading period (measured annually during the Ranking Review process);

 

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    if the issuer of the security is organized under the laws of a jurisdiction outside the United States, then such security must have listed options on a recognized options market in the United States or be eligible for listed-options trading on a recognized options market in the United States;

 

    the issuer must have an adjusted market capitalization equal to or exceeding 0.10% of the aggregate adjusted market capitalization of the Index at each month-end. In the event a company does not meet this criterion for two consecutive month-ends, it is removed from the Index effective after the close of trading on the third Friday of the following month; and

 

    the issuer of the security may not have annual financial statements with an audit opinion that is currently withdrawn.

 

 

(1) Index Securities are defined as securities meeting all eligibility requirements for the Index.

 

(2) Non-Financial companies are those companies that are classified under all Industry Codes except 8000 according to the Industry Classification Benchmark (ICB), a product of FTSE International Limited and has been licensed for use.

These Index eligibility criteria may be revised from time to time by Nasdaq without regard to the Trust.

Ranking Review

Except under extraordinary circumstances that may result in an interim evaluation, Index composition is reviewed on an annual basis as follows. Issuer securities which meet the applicable eligibility criteria are ranked by market value. Index-eligible securities which are already in the Index and whose issuer is ranked in the top 100 eligible companies (based on market capitalization) are retained in the Index. An Index Issuer that is ranked 101 to 125 is also retained, provided that such issuer was ranked in the top 100 eligible issuers as of the previous Ranking Review or was added to the Index subsequent to the previous Ranking Review. Index issuers not meeting such criteria are replaced. The replacement securities chosen are those Index-eligible securities not currently in the Index whose issuers have the largest market capitalization. The data used in the ranking includes end of October market data and is updated for total shares outstanding submitted in a publicly filed SEC document via EDGAR through the end of November.(1) Replacements are made effective after the close of trading on the third Friday in December. Moreover, if at any time during the year other than the Ranking Review, an Index Issuer no longer meets the Continued Eligibility Criteria, or is otherwise determined to have become ineligible for continued inclusion in the Index, it is replaced with the largest market capitalization issuer not currently in the Index and meeting the Initial Eligibility criteria listed above

 

 

(1) If a security is a depositary receipt, the total shares outstanding is the actual depositary shares outstanding as reported by the depositary banks.

 

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In addition to the Ranking Review, the securities in the Index are monitored every day by Nasdaq with respect to changes in total shares outstanding arising from secondary offerings, stock repurchases, conversions, or other corporate actions. Nasdaq has adopted the following weight adjustment procedures with respect to such changes. Changes in total shares outstanding arising from stock splits, stock dividends, or spin-offs are generally made to the Index on the evening prior to the effective date of such corporate action. If the change in total shares outstanding arising from other corporate actions is greater than or equal to 10%, the change will be made as soon as practicable, normally within ten (10) days of such action. Otherwise, if the change in total shares outstanding is less than 10%, then all such changes are accumulated and made effective at one time on a quarterly basis after the close of trading on the third Friday in each of March, June, September, and December. In any case, the Index share weights for such Index Securities are adjusted by the same percentage amount by which the total shares outstanding have changed in such Index Securities.

* For the purposes of Index eligibility criteria, if the security is a depositary receipt representing a security of a non-U.S. issuer, then references to the “issuer” are references to the issuer of the underlying security.

Calculation of the Index

The Index is a modified capitalization-weighted index of securities issued by 100 of the largest non-financial companies listed on the NASDAQ Global Select or NASDAQ Global Market tier of NASDAQ. The value of the Index equals the aggregate value of the Index share weights of each of the component Index Securities multiplied by each such security’s respective official closing price on NASDAQ, divided by the Divisor. The Divisor serves the purpose of scaling such aggregate value (otherwise in the trillions) to a lower order of magnitude which is more desirable for Index reporting purposes. Ordinarily, whenever there is a change in Index share weights or a change in a component security included in the Index, Nasdaq adjusts the Divisor to assure that there is no discontinuity in the value of the Index which might otherwise be caused by any such change. Accordingly, each Index Security’s influence on the value of the Index is directly proportional to the value of its weight in the Index. The Index share weights noted above, which are based upon the total shares outstanding in each of the Index Securities, are additionally subject, in certain cases, to a rebalancing (see “The Index-Rebalancing of the Index”). The percentage of the Trust’s assets invested in each of the Index Securities is intended to approximate the percentage each Index Security represents in the Index.

Rebalancing of the Index

Effective after the close of trading on December 18, 1998, the Index has been calculated under a “modified capitalization-weighted” methodology, which is a hybrid between equal weighting and conventional capitalization weighting. This methodology is expected to: (1) retain in general the economic attributes of capitalization weighting; (2) promote portfolio weight diversification (thereby limiting domination of the Index

 

60


by a few large stocks); (3) reduce Index performance distortion by preserving the capitalization ranking of companies; and (4) reduce market impact on the smallest Index Securities from necessary weight rebalancings.

Under the methodology employed, on a quarterly basis coinciding with Nasdaq’s quarterly scheduled weight adjustment procedures, the Index Securities are categorized as either “Large Stocks” or “Small Stocks” depending on whether their current percentage weights (after taking into account such scheduled weight adjustments due to stock repurchases, secondary offerings, or other corporate actions) are greater than, or less than or equal to, the average percentage weight in the Index (i.e., as a 100-stock index, the average percentage weight in the Index is 1.0%).

Such quarterly examination will result in an Index rebalancing if either one or both of the following two weight distribution requirements are not met: (1) the current weight of the single largest market capitalization Index Security must be less than or equal to 24.0% and (2) the “collective weight” of those Index Securities whose individual current weights are in excess of 4.5%, when added together, must be less than or equal to 48.0%. In addition, Nasdaq may conduct a special rebalancing if it is determined necessary to maintain the integrity of the Index.

If either one or both of these weight distribution requirements are not met upon quarterly review or Nasdaq determines that a special rebalancing is required, a weight rebalancing will be performed. First, relating to weight distribution requirement (1) above, if the current weight of the single largest Index Security exceeds 24.0%, then the weights of all Large Stocks will be scaled down proportionately towards 1.0% by enough for the adjusted weight of the single largest Index Security to be set to 20.0%. Second, relating to weight distribution requirement (2) above, for those Index Securities whose individual current weights or adjusted weights in accordance with the preceding step are in excess of 4.5%, if their “collective weight” exceeds 48.0%, then the weights of all Large Stocks will be scaled down proportionately towards 1.0% by just enough for the “collective weight,” so adjusted, to be set to 40.0%.

The aggregate weight reduction among the Large Stocks resulting from either or both of the above rescalings will then be redistributed to the Small Stocks in the following iterative manner. In the first iteration, the weight of the largest Small Stock will be scaled upwards by a factor which sets it equal to the average Index weight of 1.0%. The weights of each of the smaller remaining Small Stocks will be scaled up by the same factor reduced in relation to each stock’s relative ranking among the Small Stocks such that the smaller the Index Security in the ranking, the less the scale-up of its weight. This is intended to reduce the market impact of the weight rebalancing on the smallest component securities in the Index.

In the second iteration, the weight of the second largest Small Stock, already adjusted in the first iteration, will be scaled upwards by a factor which sets it equal to the average index weight of 1.0%. The weights of each of the smaller remaining Small Stocks will be scaled up by this same factor reduced in relation to each stock’s relative ranking among the Small Stocks such that, once again, the smaller the stock in the ranking, the less the scale-up of its weight.

 

61


Additional iterations will be performed until the accumulated increase in weight among the Small Stocks exactly equals the aggregate weight reduction among the Large Stocks from rebalancing in accordance with weight distribution requirement (1) and/or weight distribution requirement (2).

Then, to complete the rebalancing procedure, once the final percent weights of each Index Security are set, the Index share weights will be determined a new based upon the official closing prices and aggregate capitalization of the Index at the close on the last trading day in February, May, August and November. Changes to the Index share weights will be made effective after the close of trading on the third Friday in March, June, September, and December and an adjustment to the Divisor will be made to ensure continuity of the Index.

Ordinarily, new rebalanced weights will be determined by applying the above procedures to the current Index share weights. However, Nasdaq may from time to time determine rebalanced weights, if necessary, by instead applying the above procedure to the actual current market capitalization of the Index components. In such instances, Nasdaq would announce the different basis for rebalancing prior to its implementation.

LICENSE AGREEMENT

Under the terms of a license agreement with Nasdaq (the “License Agreement”), the Sponsor has been granted a license to use the Index as a basis for determining the composition of the Trust and to use certain trade names, trademarks, and service marks of Nasdaq in connection with the Trust. The License Agreement may be amended by the parties thereto without the consent of any of the Beneficial Owners of PowerShares QQQ Shares and the License Agreement has no express termination date.

Under the terms of the License Agreement, the Sponsor pays to Nasdaq an annual licensing fee for use of the Index and certain trademarks and service marks which is paid quarterly and is based upon the NAV of the Trust, but shall not exceed 0.09% of the Trust’s net assets. The license fee may be lower based on the Trust’s NAV. The Sponsor ordinarily will seek reimbursement from the Trust for the amount of licensing fees (see “Expenses of the Trust”).

None of the Trust, the Trustee, the Distributor, the DTC, or any Beneficial Owner of PowerShares QQQ Shares is entitled to any rights whatsoever under the foregoing licensing arrangements or to use the trademarks and service marks “Nasdaq-100 Index®,” “Nasdaq-100®,” “Nasdaq®,” “The Nasdaq Stock Market®,” “PowerShares QQQ ShareSM,” “QQQ®,” “PowerShares QQQ SharesSM,” or “PowerShares QQQ TrustSM” or to use the Index except as specifically described therein or as may be specified in the Trust Agreement.

The Index is determined, composed, and calculated by Nasdaq without regard to the Sponsor, the Trust, or the Beneficial Owners of PowerShares QQQ Shares. Nasdaq has complete control and sole discretion in determining, comprising, or calculating the

 

62


Index or in modifying in any way its method for determining, comprising, or calculating the Index in the future.

PowerShares QQQ Shares are not sponsored, endorsed, sold or promoted by Nasdaq and its affiliates. Nasdaq and its affiliates have not passed on the legality or suitability of, or the accuracy or adequacy of descriptions and disclosures relating to the PowerShares QQQ Shares. Nasdaq and its affiliates make no representation or warranty, express or implied to the Beneficial Owners of the PowerShares QQQ Shares or any member of the public regarding the advisability of investing in securities generally or in the PowerShares QQQ Shares particularly, or the ability of the Index to track general stock market performance. Nasdaq and its affiliates relationship to the Sponsor is in the licensing of the trademarks and service marks “Nasdaq-100 Index®,” “Nasdaq-100®,” “Nasdaq®,” “The Nasdaq Stock Market®,” “PowerShares QQQ ShareSM,” “QQQ®,” “PowerShares QQQ SharesSM,” or “PowerShares QQQ TrustSM” and the use of the Index which is determined, composed and calculated by Nasdaq without regard to the Sponsor or the PowerShares QQQ Shares. Nasdaq and its affiliates have no obligation to take the needs of the Sponsor or the Beneficial Owners of the PowerShares QQQ Shares into consideration in determining, composing or calculating the Index. Nasdaq and its affiliates are not responsible for and have not participated in the determination of the timing of, prices at, or quantities of the PowerShares QQQ Shares to be issued or in the determination or calculation of the equation by which the PowerShares QQQ Shares are to be converted into cash. Nasdaq and its affiliates have no liability in connection with the administration, marketing or trading of the PowerShares QQQ Shares.

Nasdaq and its affiliates do not guarantee the accuracy and/or the completeness of the Index or any data used to calculate the Index or determine the Index components. Nasdaq and its affiliates do not guarantee the uninterrupted or undelayed calculation or dissemination of the Index. Nasdaq and its affiliates shall have no liability for any errors, omissions, or interruptions therein. Nasdaq and its affiliates do not guarantee that the Index accurately reflects past, present, or future market performance. Nasdaq and its affiliates make no warranty, express or implied, as to results to be obtained by the Sponsor, the Trust, Beneficial Owners of PowerShares QQQ Shares, or any other person or entity from the use of the Index or any data included therein. Nasdaq and its affiliates make no express or implied warranties, and expressly disclaim all warranties of merchantability or fitness for a particular purpose or use, with respect to the Index or any data included therein. Nasdaq and its affiliates make no representation or warranty, express or implied, and bear no liability with respect to PowerShares QQQ Shares. Without limiting any of the foregoing, in no event shall Nasdaq or its affiliates have any liability for any lost profits or indirect, punitive, special, or consequential damages (including lost profits), even if notified of the possibility of such damages.

 

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MARKETPLACE LISTING

PowerShares QQQ Shares are listed for trading on the NASDAQ Global Market tier of NASDAQ. Transactions involving PowerShares QQQ Shares in the public trading market are subject to customary brokerage charges and commissions.

The prior sponsor’s aim in designing PowerShares QQQ Shares was to provide investors with a security whose initial market value would approximate one-fortieth (1/40th) the value of the Index. The market price of a PowerShares QQQ Share may be affected by supply and demand for the underlying securities, market volatility, sentiment, and other factors. Note also, that due to these factors as well as other factors, including required distributions for tax purposes (see “Tax Status of the Trust”) or the sale of Securities to meet Trust expenses in excess of the dividends received on the Securities (see “Expenses of the Trust”), the one-fortieth (1/40th) relationship between the initial value of a PowerShares QQQ Share and the value of the Index is not expected to persist indefinitely.

There can be no assurance that PowerShares QQQ Shares will always be listed on NASDAQ. Nasdaq will consider the suspension of trading in or removal from listing of PowerShares QQQ Shares: (a) if the Trust has more than 60 days remaining until termination and there are fewer than 50 record and/or beneficial holders of PowerShares QQQ Shares for 30 or more consecutive trading days; (b) if the Index is no longer calculated or available; or (c) if such other event shall occur or condition exists which, in the opinion of Nasdaq, makes further dealings on Nasdaq inadvisable.

The Trust will be terminated in the event that PowerShares QQQ Shares are delisted from NASDAQ and are not subsequently relisted on a national securities exchange or a quotation medium operated by a national securities association (see “Administration of the Trust—Termination”).

TAX STATUS OF THE TRUST

For the fiscal year ended September 30, 2017, the Trust qualified for tax treatment as a “regulated investment company” under Subchapter M of the Code. The Trust intends to continue to so qualify. To qualify for treatment as a regulated investment company, the Trust must, among other things, (a) derive in each taxable year at least 90% of its gross income from dividends, interest, gains from the sale or other disposition of stock, securities or foreign currencies, or certain other sources; (b) meet certain diversification tests; and (c) distribute in each taxable year at least the sum of 90% of its investment company taxable income and 90% of its net exempt interest income, if any. If the Trust qualifies as a regulated investment company, subject to certain conditions and requirements, the Trust will not be subject to federal income tax to the extent its income is distributed in a timely manner. Any undistributed income may be subject to tax, including a four percent (4%) excise tax imposed by section 4982 of the Code on certain undistributed income of a regulated investment company that does not distribute to Beneficial Owners in a timely manner at least ninety-eight percent (98%) of its ordinary taxable income for the calendar year and

 

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ninety-eight point two percent (98.2%) of its capital gain net income for the one year period ending on October 31.

Tax Consequences to Beneficial Owners

Any net dividends paid by the Trust from its investment company taxable income (which includes dividends, interest, and the excess of net short-term capital gains over net long-term capital losses) will be taxable to Beneficial Owners as ordinary income. Non-corporate holders, however, will be eligible for a special maximum tax rate for qualified dividend income (0%,15% or 20% depending on a taxpayer’s taxable income) to the extent the Trust’s dividends are designated by the Trust as attributable to qualified dividend income received by the Trust (generally, dividends received by the Trust from domestic corporations and certain foreign corporations). A net dividend, if any, paid in January will be considered for federal income tax purposes to have been paid by the Trust and received by Beneficial Owners on the preceding December 31 if the net dividend was declared in the preceding October, November, or December to Beneficial Owners of record shown on the records of the DTC and the DTC Participants (see “The Trust—Book-Entry-Only System”) on a date in one of those months.

Distributions paid by the Trust from the excess of net long-term capital gains over net short-term capital losses (“net capital gain”) are taxable as long-term capital gain, regardless of the length of time an investor has owned PowerShares QQQ Shares. For non-corporate holders, long-term capital gains are taxed at the specified maximum tax rate mentioned above. Any loss on the sale or exchange of a PowerShares QQQ Share held for six months or less may be treated as a long-term capital loss to the extent of any capital gain dividends received by the Beneficial Owner. For corporate investors, net dividends from net investment income (but not return of capital distributions or capital gain dividends) generally will qualify for the corporate dividends-received deduction to the extent of qualifying dividend income received by the Trust, subject to the limitations contained in the Code. Investors should note that the quarterly net dividends paid by the Trust, if any, will not be based on the Trust’s investment company taxable income and net capital gain, but rather will be based on the dividends paid with respect to the Securities net of accrued expenses and liabilities of the Trust. As a result, a portion of the distributions of the Trust may be treated as a return of capital or a capital gain dividend for federal income tax purposes, or the Trust may make additional distributions in excess of the yield performance of the Securities in order to distribute all of its investment company taxable income and net capital gain.

Distributions in excess of the Trust’s current or accumulated earnings and profits (as specially computed) generally will be treated as a return of capital for federal income tax purposes and will reduce a Beneficial Owner’s tax basis in PowerShares QQQ Shares. Return of capital distributions may result, for example, if a portion of the net dividends, if any, declared represents cash amounts deposited in connection with Portfolio Deposits rather than dividends actually received by the Trust. Under certain circumstances, a significant portion of any quarterly net dividends of the Trust could

 

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be treated as return of capital distributions. Such circumstances may be more likely to occur in periods during which the number of outstanding PowerShares QQQ Shares fluctuates significantly, as may occur during the initial years of the Trust. Beneficial Owners will receive annual notification from the Trustee through the DTC Participants as to the tax status of the Trust’s distributions (see “The Trust—Book-Entry-Only System”). A distribution, if any, paid shortly after a purchase or creation of PowerShares QQQ Shares may be taxable even though in effect it may represent a return of capital.

Certain non-corporate taxpayers may be subject to an additional 3.8% net investment income tax on their dividend income, net capital gains and certain other amounts. Affected investors should consult with their own tax advisors about the possible impact of this tax.

The sale of PowerShares QQQ Shares by a Beneficial Owner is a taxable event, and may result in a gain or loss, which generally should be a capital gain or loss for Beneficial Owners that are not dealers in securities.

Under the Code, an in-kind redemption of PowerShares QQQ Shares will not result in the recognition of taxable gain or loss by the Trust but generally will constitute a taxable event for the redeeming Beneficial Owner. Upon redemption, a Beneficial Owner generally will recognize gain or loss measured by the difference on the date of redemption between the aggregate value of the cash and securities received and its tax basis in the PowerShares QQQ Shares redeemed. Securities received upon redemption (which will be comprised of the securities portion of the Portfolio Deposit in effect on the date of redemption) generally will have an initial tax basis equal to their respective market values on the date of redemption. The U.S. Internal Revenue Service (“IRS”) may assert that any resulting loss may not be deducted by a Beneficial Owner on the basis that there has been no material change in such Beneficial Owner’s economic position or that the transaction has no significant economic or business utility apart from the anticipated tax consequences. Beneficial Owners of PowerShares QQQ Shares in Creation Unit size aggregations should consult their own tax advisors as to the consequences to them of the redemption of PowerShares QQQ Shares.

Net dividend distributions, capital gains distributions, and capital gains from sales or redemptions may also be subject to state, local and foreign taxes. Beneficial Owners are urged to consult their tax advisors regarding the applicability of such taxes to their particular situations.

Deposit of a Portfolio Deposit with the Trustee in exchange for PowerShares QQQ Shares in Creation Unit size aggregations will not result in the recognition of taxable gain or loss by the Trust but generally will constitute a taxable event to the depositor under the Code, and a depositor generally will recognize gain or loss with respect to each security deposited equal to the difference between the amount realized in respect of the security and the depositor’s tax basis therein. The amount realized with respect to a security deposited should be determined by allocating the value on the date of deposit of the PowerShares QQQ Shares received (less any cash paid to the

 

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Trust, or plus any cash received from the Trust, in connection with the deposit) among the securities deposited on the basis of their respective fair market values at that time. The IRS may assert that any resulting losses may not be deducted by a depositor on the basis that there has been no material change in the depositor’s economic position or that the transaction has no significant economic or business utility or purpose apart from the anticipated tax consequences. Depositors should consult their own tax advisors as to the tax consequences to them of a deposit to the Trust.

The Trustee has the right to reject the order to create Creation Units transmitted to it by the Distributor if the depositor or group of depositors, upon obtaining the PowerShares QQQ Shares ordered, would own eighty percent (80%) or more of the outstanding PowerShares QQQ Shares, and if pursuant to section 351 of the Code such a circumstance would result in the Trust having a basis in the securities deposited different from the market value of such securities on the date of deposit. The Trustee has the right to require information regarding PowerShares QQQ Share ownership pursuant to the PowerShares QQQ Participant Agreement and from the DTC and to rely thereon to the extent necessary to make the foregoing determination as a condition to the acceptance of a Portfolio Deposit.

Distributions of ordinary income paid to Beneficial Owners who are nonresident aliens or foreign entities that are not effectively connected to the conduct of a trade or business within the United States will generally be subject to a 30% United States withholding tax unless a reduced rate of withholding or a withholding exemption is provided under applicable treaty law. However, Beneficial Owners who are nonresident aliens or foreign entities will generally not be subject to United States withholding or income tax on gains realized on the sale of the PowerShares QQQ Shares or on dividends from capital gains unless (i) such gain or capital gain dividend is effectively connected with the conduct of a trade or business within the United States, or (ii) in the case of an individual Beneficial Owner, the Beneficial Owner is present in the United States for a period or periods aggregating 183 days or more during the year of the sale or capital gain dividend and certain other conditions are met. Gains on the sale of PowerShares QQQ Shares and dividends that are effectively connected with the conduct of a trade or business within the United States will generally be subject to United States federal net income taxation at regular income tax rates. Dividends paid by the Trust to Beneficial Owners who are nonresident aliens or foreign entities that are derived from short-term capital gains and qualifying net interest income (including income from original issue discount and market discount), and that are properly designated by a Fund as “interest-related dividends” or “short- term capital gain dividends,” will generally not be subject to United States withholding tax, provided that the income would not be subject to federal income tax if earned directly by the Beneficial Owner.

Pursuant to the Foreign Account Tax Compliance Act (“FATCA”), and IRS guidance, the Fund will be required to withhold 30% of (1) income dividends, (2) certain capital gain distributions, return of capital distributions and the gross proceeds of share redemptions it pays after December 31, 2018, to certain non-U.S.

 

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Beneficial Owners that fail to meet certain information reporting or certification requirements. Those non-U.S. Beneficial Owners include foreign financial institutions (“FFIs”), such as non-U.S. investment funds, and non-financial foreign entities (“NFFEs”). To avoid withholding under FATCA, (a) an FFI must enter into an information-sharing agreement with the IRS or with a governmental authority in its own country in which it agrees to report identifying information (including name, address, and taxpayer identification number) of the Beneficial Owner’s direct and indirect U.S. owners and (b) an NFFE must provide to the withholding agent a certification and, in certain circumstances, requisite information regarding its substantial U.S. owners, if any. Those non-U.S. Beneficial Owners also may fall into certain exempt, excepted, or deemed compliant categories established by regulations and other guidance. A non-U.S. Beneficial Owner resident or doing business in a country that has entered into an intergovernmental agreement with the United States to implement FATCA will be exempt from FATCA withholding provided that the Beneficial Owner and the applicable foreign government comply with the terms of the agreement. A non-U.S. Beneficial Owner that invests in the Fund will need to provide the Fund with documentation properly certifying the Beneficial Owner’s status under FATCA to avoid FATCA withholding. Beneficial Owners are encouraged to consult with their own tax advisors concerning the possible implications of these requirements, particularly if such Beneficial Owners have direct or indirect U.S. owners.

In addition, capital gains distributions attributable to gains from U.S. real property interests (including certain U.S. real property holding corporations and which may include certain real estate investment trusts and certain real estate investment trust capital gain dividends) will generally be subject to United States withholding tax and may give rise to an obligation on the part of the Beneficial Owner to file a United States tax return. Nonresident Beneficial Owners of PowerShares QQQ Shares are urged to consult their own tax advisors concerning the applicability of the United States withholding tax.

Backup withholding at a current rate of 24% will apply to dividends, capital gain distributions, redemptions and sales of PowerShares QQQ Shares unless (a) the Beneficial Owner is a corporation or comes within certain other exempt categories and, when required, demonstrates this fact, or (b) provides a taxpayer identification number, certifies as to no loss of exemption from backup withholding, and otherwise complies with applicable requirements of the backup withholding rules. The amount of any backup withholding from a payment to a Beneficial Owner will be allowed as a credit against the holder’s U.S. federal income tax liability and may entitle such holder to a refund from the IRS, provided that the required information is furnished to the IRS.

The tax discussion set forth above is included for general information only. Prospective investors should consult their own tax advisors concerning the federal, state, local, and foreign tax consequences to them of an investment in the Trust, including the effect of possible legislative changes.

 

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ERISA CONSIDERATIONS

In considering the advisability of an investment in PowerShares QQQ Shares, fiduciaries of pension, profit sharing, or other tax-qualified retirement plans (including Keogh Plans) and welfare plans (collectively, “Plans”) subject to the fiduciary responsibility requirements of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), should consider, among other things, whether an investment in PowerShares QQQ Shares is permitted by the documents and instruments governing the Plan and whether the investment satisfies the exclusive benefit, prudence, and diversification requirements of ERISA and whether any investment in the Trust could result in a prohibited transaction (as defined below) that is not exempt under ERISA and Section 4975 of the Code or pursuant to an exemption issued by the U.S. Department of Labor (the “DOL”). Individual retirement account (“IRA”) investors should consider that an IRA may make only such investments as are authorized by its governing instruments.

The fiduciary standards and prohibited transactions rules of ERISA and Section 4975 of the Code will not apply to transactions involving the Trust’s assets while PowerShares QQQ Shares are held by a Plan or IRA. Unlike many other investment vehicles offered to Plans and IRAs, the Trust’s assets will not be treated as “plan assets” of the Plans or other plans subject to Section 4975 of the Code, such as IRAs, which acquire or purchase PowerShares QQQ Shares. Although ERISA imposes certain duties on Plan fiduciaries and ERISA and/or Section 4975 of the Code prohibit certain transactions (“prohibited transactions”) involving “plan assets” between Plans or other plans subject to Section 4975 of the Code, such as IRAs, and their fiduciaries or certain related persons, those rules will not apply to transactions involving the Trust’s assets because PowerShares QQQ Shares represent an interest in the Trust, and the Trust is registered as an investment company under the 1940 Act. ERISA, the Code, and the DOL regulations contain unconditional language exempting the assets of registered investment companies under the 1940 Act from treatment as “plan assets” in applying the fiduciary and prohibited transaction provisions of ERISA and the Code. However, Plans and IRAs that are purchasers of PowerShares QQQ Shares should be sure that the purchase and holding of the Shares does not involve a prohibited transaction.

Employee benefit plans that are governmental plans (as defined in Section 3(32) of ERISA), certain church plans (as defined in Section 3(33) of ERISA that have not made the election under Section 410(d) of the Code) and foreign plans (as described in Section 4(b)(4) of ERISA) are not subject to the requirements of ERISA or Section 4975 of the Code. The fiduciaries of governmental plans should, however, consider the impact of their respective state pension codes on investments in the PowerShares QQQ Shares, and fiduciaries of church plans and foreign plans should consider the impact of applicable law, and the considerations discussed above, to the extent applicable.

 

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CONTINUOUS OFFERING OF POWERSHARES QQQ SHARES

PowerShares QQQ Shares in Creation Unit size aggregations are offered continuously to the public by the Trust through the Distributor and are delivered upon the deposit of a Portfolio Deposit (see “The Trust—Procedures for Creation of Creation Units”). Persons making Portfolio Deposits and creating Creation Unit size aggregations of PowerShares QQQ Shares will receive no fees, commissions, or other form of compensation or inducement of any kind from the Sponsor or the Distributor, nor will any such person have any obligation or responsibility to the Sponsor or Distributor to effect any sale or resale of PowerShares QQQ Shares. Notwithstanding the above, the Sponsor reserves the right, in its sole discretion, to periodically reimburse in whole or in part the Transaction Fees paid by eligible entities in connection with the creation or redemption of certain lot-sizes of PowerShares QQQ Shares.

Because new PowerShares QQQ Shares can be created and issued on an ongoing basis, at any point during the life of the Trust a “distribution,” as such term is used in the Securities Act of 1933, as amended (the “Securities Act”), may be occurring. Broker-dealers and other persons are cautioned that some activities on their part may, depending on the circumstances, result in their being deemed participants in a distribution in a manner which could render them statutory underwriters and subject them to the prospectus-delivery and liability provisions of the Securities Act. For example, a broker-dealer firm or its client may be deemed a statutory underwriter if it takes Creation Units after placing a creation order with the Distributor, breaks them down into the constituent PowerShares QQQ Shares, and sells the PowerShares QQQ Shares directly to its customers, or if it chooses to couple the creation of a supply of new PowerShares QQQ Shares with an active selling effort involving solicitation of secondary market demand for PowerShares QQQ Shares. A determination of whether one is an underwriter must take into account all the facts and circumstances pertaining to the activities of the broker-dealer or its client in the particular case, and the examples mentioned above should not be considered a complete description of all the activities that could lead to categorization as an underwriter.

Dealers who are not “underwriters” but are participating in a distribution (as contrasted to ordinary secondary trading transactions), and thus dealing with PowerShares QQQ Shares that are part of an “unsold allotment” within the meaning of Section 4(a)(3)(C) of the Securities Act, would be unable to take advantage of the prospectus-delivery exemption provided by Section 4(a)(3) of the Securities Act.

The Sponsor intends to market PowerShares QQQ Shares through broker-dealers who are members of FINRA. Investors intending to create or redeem Creation Unit size aggregations of PowerShares QQQ Shares in transactions not involving a broker-dealer registered in such investor’s state of domicile or residence should consult counsel regarding applicable broker-dealer or securities regulatory requirements under such state securities laws prior to such creation or redemption.

 

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EXPENSES OF THE TRUST

Until the Sponsor determines otherwise, the Sponsor has undertaken that the ordinary operating expenses of the Trust will not be permitted to exceed 0.20% per annum of the daily NAV of the Trust. If the ordinary operating expenses of the Trust exceed such 0.20% level, the Sponsor will reimburse the Trust or assume invoices on behalf of the Trust for such excess ordinary operating expenses. The Sponsor retains the ability to be repaid by the Trust for expenses so reimbursed or assumed to the extent that subsequently during the fiscal year expenses fall below the 0.20% per annum level on any given day. Ordinary operating expenses of the Trust do not include taxes, brokerage commissions, and such extraordinary nonrecurring expenses as may arise, including without limitation the cost of any litigation to which the Trust or Trustee may be a party. The Sponsor may discontinue its undertaking to limit ordinary operating expenses of the Trust or renew this undertaking for an additional period of time, or may choose to reimburse or assume certain Trust expenses in later periods in order to keep Trust expenses at a level lower than what would reflect ordinary operating expenses of the Trust, but is not obligated to do so. In any event, it is possible that, on any day and during any period over the life of the Trust, total fees and expenses of the Trust may exceed 0.20% per annum.

Subject to any applicable cap, the Sponsor reserves the right to charge the Trust a special sponsor fee from time to time in reimbursement for certain services it may provide to the Trust which would otherwise be provided by the Trustee in an amount not to exceed the actual cost of providing such services. The Sponsor or the Trustee from time to time may voluntarily assume some expenses or reimburse the Trust so that total expenses of the Trust are reduced, although neither the Sponsor nor the Trustee is obligated to do so and either one or both parties may discontinue such voluntary assumption of expenses or reimbursement at any time without notice.

The following charges are or may be accrued and paid by the Trust: (a) the Trustee’s fee as discussed more fully below; (b) fees payable to transfer agents for the provision of transfer agency services; (c) fees of the Trustee for extraordinary services performed under the Trust Agreement; (d) various governmental charges; (e) any taxes, fees, and charges payable by the Trustee with respect to PowerShares QQQ Shares (whether in Creation Unit size aggregations or otherwise); (f) expenses and costs of any action taken by the Trustee or the Sponsor to protect the Trust and the rights and interests of Beneficial Owners of PowerShares QQQ Shares (whether in Creation Unit size aggregations or otherwise); (g) indemnification of the Trustee or the Sponsor for any losses, liabilities or expenses incurred by them in the administration of the Trust without gross negligence, bad faith, willfull misconduct, or willfull malfeasance on their part or reckless disregard of their obligations and duties; (h) expenses incurred in contacting Beneficial Owners of PowerShares QQQ Shares during the life of the Trust and upon termination of the Trust; (i) brokerage commissions incurred by the Trustee when acquiring or selling Index Securities pursuant to the provisions of the Trust Agreement; and (j) other out-of-pocket expenses of the Trust incurred pursuant to actions permitted or required under the Trust Agreement.

 

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Prior to the implementation of the Agency Agreement, the Trustee used the services of ConvergEx Execution Solutions LLC, or its predecessor entities (“ConvergEx”), for the execution of all brokerage transactions for the Trust, including adjustments to the Portfolio in connection with the addition or removal of Index Securities from the Index. For its services, ConvergEx (which is a broker-dealer affiliated with the Trustee) received a fixed commission per Index Security share on all such brokerage transactions and, in return for such commission, sought to execute purchases and sales of Index Security shares at the closing price or at a price more beneficial to the Trust. Any price improvement relative to the closing price of the Index Security that was obtained inured to the benefit of the Trust, and not the Trustee or ConvergEx.

The Trustee has delegated its trading authority to the Sponsor pursuant to the terms of the Trust Agreement and the Agency Agreement. Under this delegation, the Sponsor or its affiliates are responsible for, among other things, directing securities transactions to brokers or dealers for execution on behalf of the Trust. Under the terms of the Agency Agreement and the Trust Agreement, the Sponsor or its agents are required to direct the Trust’s securities transactions only to brokers or dealers, which may include affiliates of the Trustee, from which the Sponsor expects to receive the best execution of orders. The Sponsor has reviewed the execution services provided under the Agency Agreement and determined that they are consistent with the requirements of that agreement and the Trust Agreement.

The Trustee, from its own assets, pays the Sponsor for its services under the Agency Agreement. The amount paid to the Sponsor will not exceed the cost to the Sponsor of providing such services. However, to the extent any fees, expenses and disbursements that are incurred in connection with the services performed by the Sponsor, its affiliates or its agents would constitute fees, expenses or disbursements of the Trust if incurred by the Trustee, such fees, expenses and disbursements will be paid by the Trust pursuant to the terms of the Trust Agreement and in accordance with applicable law.

In addition to the specific expenses discussed in the previous paragraph, the following expenses are or may be charged to the Trust: (a) reimbursement to the Sponsor of amounts paid by it to Nasdaq in respect of annual licensing fees pursuant to the License Agreement, (b) federal and state annual registration fees for the issuance of PowerShares QQQ Shares, and (c) expenses of the Sponsor relating to the printing and distribution of marketing materials describing PowerShares QQQ Shares and the Trust (including, but not limited to, associated legal, audit, consulting, advertising, and marketing costs and other out-of-pocket expenses such as printing). Pursuant to the provisions of an exemptive order, the expenses set forth in this paragraph may be charged to the Trust by the Trustee in an amount equal to the actual costs incurred, but in no case shall such charges exceed 20/100 of 1% (0.20%) per annum of the daily NAV of the Trust.

If income received by the Trust in the form of dividends and other distributions on the Securities is insufficient to cover Trust fees and expenses, the Trustee will sell

 

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Securities in an amount sufficient to pay the excess of accrued fees and expenses over the dividends and other Trust accrued income. Specifically, the Trustee will ordinarily be required to sell Securities whenever the Trustee determines that projected annualized fees and expenses accrued on a daily basis exceed projected annualized dividends and other Trust income accrued on a daily basis by more than 1/100 of one percent (0.01%) of the NAV of the Trust. Whenever the 0.01% threshold is exceeded, the Trustee will sell sufficient Securities to cover such excess no later than the next occasion it is required to make adjustments to the Portfolio due to a Misweighting (see “The Portfolio—Adjustments to the Portfolio”), unless the Trustee determines, in its discretion, that such a sale is unnecessary because the cash to be generated is not needed by the Trust at that time for the payment of expenses then due or because the Trustee otherwise determines that such sale is not warranted or advisable. At the time of the sale, the Trustee shall first sell Securities that are over-weighted in the Portfolio as compared to their relative weighting in the Index.

The Trustee may also make advances to the Trust to cover expenses. The Trustee may reimburse itself in the amount of any such advance, plus any amounts required by the Federal Reserve Board which are related to such advances, together with interest thereon at a percentage rate equal to the then-current overnight federal funds rate, by deducting such amounts from (1) dividend payments or other income of the Trust when such payments or other income is received, (2) the amounts earned or benefits derived by the Trustee on cash held by the Trustee for the benefit of the Trust, and (3) the sale of Securities. Notwithstanding the foregoing, in the event that any advance remains outstanding for more than forty-five (45) Business Days, the Trustee shall ordinarily sell Securities to reimburse itself for the amount of such advance and any accrued interest thereon. Such advances, as well as rights of the Trustee to the payment of its fee, reimbursement of expenses and other claims, will be secured by a lien upon and a security interest in the assets of the Trust in favor of the Trustee. The expenses of the Trust are reflected in the NAV of the Trust (see “Valuation”).

For services performed under the Trust Agreement, the Trustee is paid by the Trust a fee at an annual rate of 4/100 of 1% to 10/100 of 1% of the NAV of the Trust, as shown below, such percentage amount to vary depending on the NAV of the Trust. Such compensation is computed on each Business Day on the basis of the NAV of the Trust on such day, and the amount thereof is accrued daily and paid monthly. The Trustee, in its discretion, may waive all or a portion of such fee. Notwithstanding the fee schedule set forth in the table below, the Trustee shall be paid a minimum annual fee of $180,000 per annum. To the extent that the amount of the Trustee’s compensation is less than such minimum annual fee, the Sponsor has agreed to pay the amount of any such shortfall.

 

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TRUSTEE FEE SCALE

 

NAV of the Trust

  

Fee as a Percentage of Net
Asset Value of the Trust

$0 – $499,999,999

   10/100 of 1% per annum*

$500,000,000 – $2,499,999,999

   8/100 of 1% per annum*

$2,500,000,000 – $24,999,999,999

   6/100 of 1% per annum*

$25,000,000,000 – $49,999,999,999

   5/100 of 1% per annum*

$50,000,000,000 and over

   4/100 of 1% per annum*

 

 

* The fee indicated applies to that portion of the NAV of the Trust which falls in the size category indicated.

VALUATION

The NAV of the Trust is computed as of the Evaluation Time shown under “Summary-Essential Information” on each Business Day. The NAV of the Trust on a per PowerShares QQQ Share basis is determined by subtracting all liabilities (including accrued expenses and dividends payable) from the total value of the Trust’s investments and other assets and dividing the result by the total number of outstanding PowerShares QQQ Shares.

The aggregate value of the Securities shall be determined by the Trustee in good faith in the following manner. The value of a Security shall generally be based on the NASDAQ last trade or official closing price for the Security on that day (unless the Trustee deems such price inappropriate as a basis for evaluation) on NASDAQ or, if there is no such appropriate trade or closing sale price on NASDAQ, at the closing bid price (unless the Trustee deems such price inappropriate as a basis for evaluation).

Under the terms of the Trust Agreement and Indenture, the Trustee may employ one or more agents at its own expense to evaluate the securities held by the Trust, and determine their fair value to the extent that market quotations are not readily available. These agents may include, but are not required to include, the Sponsor. Pursuant to this authority, the Trustee has entered into the Agency Agreement. Under the terms of the Agency Agreement, if a Security is not quoted on NASDAQ, or the principal market of the Security is other than NASDAQ, or the Sponsor deems the last trade or official close price or closing bid price inappropriate for valuation purposes, then the Security shall be fair valued in good faith by the Sponsor, in a manner consistent with the Standard Terms and Conditions of Trust Indenture and Agreement (the “Trust Agreement”) and the Agency Agreement based (a) on the last trade or closing price for the Security on another market on which the Security is traded or if there is no such appropriate closing price, at the closing bid price on such other market; (b) on current bid prices on the NASDAQ Stock Market or such other markets; (c) if bid prices are not available, on the basis of current bid prices for comparable securities; (d) by the Sponsor appraising the value of the Securities in good faith; or (e) any combination thereof. In the event that the Agency Agreement is terminated, the Trustee would be

 

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responsible for the valuation steps set forth above in accordance with the terms and conditions of the Trust Agreement.

ADMINISTRATION OF THE TRUST

Distributions to Beneficial Owners

The regular quarterly ex-dividend date with respect to net dividends, if any, for PowerShares QQQ Shares is the first Business Day after the third Friday in each of March, June, September, and December. Beneficial Owners as reflected on the records of the DTC and the DTC Participants on the first Business Day following the ex-dividend date (the “Record Date”) are entitled to receive an amount, if any, representing dividends accumulated on the Securities through the quarterly Accumulation Period which ends on the Business Day preceding such ex-dividend date (including Securities with ex-dividend dates falling within such quarterly dividend period) and other income, if any, received by the Trust, net of the fees and expenses of the Trust, accrued daily for such period. For the purposes of such distributions, dividends per PowerShares QQQ Share are calculated at least to the nearest 1/100th of $0.01. However, there shall be no net dividend distribution in any given quarter, and any net dividend amounts will be rolled into the next Accumulation Period, if the aggregate net dividend distribution would be in an amount less than 5/100 of one percent (0.05%) of the NAV of the Trust as of the Friday in the week immediately preceding the ex-dividend date, unless the Trustee determines that such net dividend distribution is required to be made in order to maintain the Trust’s status as a regulated investment company or to avoid the imposition of income or excise taxes on undistributed income (see “Tax Status of the Trust”). When net dividend payments are to be made by the Trust, payment will be made on the last Business Day in the calendar month following each ex-dividend date, except that payment will be made on the last Business Day of December following the ex-dividend date occurring in December (the “Dividend Payment Date”).

Dividends payable to the Trust in respect of the Securities are credited by the Trustee to a non-interest bearing account as of the date on which the Trust receives such dividends. Other moneys received by the Trustee in respect of the Securities, including but not limited to the Cash Component, the Cash Redemption Amount, all moneys realized by the Trustee from the sale of options, warrants, or other similar rights received or distributed in respect of the Securities as dividends or distributions and capital gains resulting from the sale of Securities, are also credited by the Trustee to a non-interest bearing account. All funds collected or received are held by the Trustee without interest until distributed or otherwise utilized in accordance with the provisions of the Trust Agreement. To the extent the amounts credited to such accounts generate interest income or an equivalent benefit to the Trustee, such interest income or benefit is used to reduce any charges made in connection with advances made by the Trustee on behalf of the Trust to cover Trust expenses in those cases when the Trust income is insufficient to pay such expenses when due (see “Expenses of the Trust”).

 

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The Trust has qualified, and intends to continue to qualify, as a regulated investment company for federal income tax purposes. A regulated investment company is not subject to federal income tax on its net investment income and capital gains that it distributes to shareholders, so long as it meets certain overall distribution and diversification requirements and other conditions under Subchapter M of the Code. The Trust intends to satisfy these overall distribution and diversification requirements and to otherwise satisfy any required conditions. The Trustee intends to make additional distributions to the minimum extent necessary (i) to distribute the entire annual investment company taxable income of the Trust, plus any net capital gains (from sales of securities in connection with adjustments to the Portfolio, payment of the expenses of the Trust, or to generate cash for such distributions), and (ii) to avoid imposition of the excise tax imposed by section 4982 of the Code. The additional distributions, if needed, would consist of (a) any amount by which estimated Trust investment company taxable income and net capital gains for a fiscal year exceed the amount of Trust taxable income previously distributed with respect to such year or, if greater, the minimum amount required to avoid imposition of such excise tax, and (b) a distribution soon after the actual annual investment company taxable income and net capital gains of the Trust have been computed of the amount, if any, by which such actual income exceeds the distributions already made. The NAV of the Trust will be reduced by the amount of such additional distributions. The magnitude of the additional distributions, if any, will depend upon a number of factors, including the level of redemption activity experienced by the Trust. Because substantially all proceeds from the sale of Securities in connection with adjustments to the Portfolio will have been used to purchase shares of Index Securities, the Trust may have no cash or insufficient cash with which to pay any such additional distributions. In that case, the Trustee typically will have to sell shares of the Securities sufficient to produce the cash required to make such additional distributions. In selecting the Securities to be sold to produce cash for such distributions, the Trustee will choose among the Securities that are over-weighted in the Portfolio relative to their weighting in the Index first and then from among all other Securities in a manner so as to maintain the weighting of each of the Securities within the applicable Misweighting Amount.

The Trustee may declare special dividends if, in its reasonable discretion, such action is necessary or advisable to preserve the status of the Trust as a regulated investment company or to avoid imposition of income or excise taxes on undistributed income. The Trustee further reserves the right to declare special dividends if, in its discretion, it would be otherwise advantageous to the Beneficial Owners.

The Trustee may vary the frequency with which periodic distributions, if any, are to be made from the Trust (e.g., from quarterly to semi-annually) if it is determined by the Sponsor and the Trustee, in their discretion, that such a variance would be advisable to facilitate compliance with the rules and regulations applicable to regulated investment companies or would otherwise be advantageous to the Trust. In addition, the Trustee reserves the right to change the regular ex-dividend date for PowerShares QQQ Shares to another regular date if it is determined by the Sponsor and the Trustee, in their discretion, that such a change would be advantageous to the Trust. Notice of

 

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any such variance or change (which notice shall include changes to the Record Date, the ex-dividend date, the Dividend Payment Date, and the Accumulation Period resulting from such variance) shall be provided to Beneficial Owners via the DTC and the DTC Participants (see “The Trust—Book-Entry-Only System”).

The Trustee may advance out of its own funds any amounts necessary to permit distributions via the DTC to Beneficial Owners. The Trustee may reimburse itself in the amount of such advance, together with interest thereon at a percentage rate equal to the then current overnight federal funds rate, plus Federal Reserve Bank requirements, by deducting such amounts from (1) dividend payments or other income of the Trust when such payments or other income is received, (2) the amounts earned or benefits derived by the Trustee on cash held by the Trustee for the benefit of the Trust, and (3) the sale of Securities. Notwithstanding the foregoing, in the event that any advance remains outstanding for more than forty-five (45) Business Days, the Trustee shall ordinarily sell Securities to reimburse itself for such advance and any accrued interest thereon. Such advances will be secured by a lien upon and a security interest in the assets of the Trust in favor of the Trustee.

In addition, as soon as practicable after notice of termination of the Trust, the Trustee will distribute via the DTC and the DTC Participants to each Beneficial Owner redeeming PowerShares QQQ Shares in Creation Unit size aggregations prior to the termination date specified in such notice, a portion of the Securities and cash as described above. Otherwise, the Trustee will distribute to each Beneficial Owner (whether in Creation Unit size aggregations or otherwise), as soon as practical after termination of the Trust, such Beneficial Owner’s pro rata share in cash of the NAV of the Trust.

All distributions are made by the Trustee through the DTC and the DTC Participants to Beneficial Owners as recorded on the book-entry system of the DTC and the DTC Participants.

The settlement date for the creation of PowerShares QQQ Shares in Creation Unit size aggregations or the purchase of PowerShares QQQ Shares in the secondary market must occur on or prior to the Record Date in order for such creator or purchaser to receive any distributions made by the Trust on the next Dividend Payment Date. If the settlement date for such creation or a secondary market purchase occurs after the Record Date, the distribution will be made to the prior security holder or Beneficial Owner as of such Record Date.

Statements to Beneficial Owners; Annual Reports

With each distribution, the Trustee will furnish for distribution to Beneficial Owners (see “The Trust—Book-Entry-Only System”) a statement setting forth the amount being distributed expressed as a dollar amount per PowerShares QQQ Share.

Promptly after the end of each fiscal year, the Trustee will furnish to the DTC Participants, for distribution to each person who was a Beneficial Owner of PowerShares QQQ Shares at the end of such fiscal year, an annual report of the Trust

 

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containing financial statements audited by independent accountants of nationally recognized standing and such other information as may be required by applicable laws, rules, and regulations.

Rights of Beneficial Owners

PowerShares QQQ Shares in Creation Unit size aggregations (i.e., 50,000 PowerShares QQQ Shares) may be tendered to the Trustee for redemption. Beneficial Owners may sell PowerShares QQQ Shares in the secondary market, but must accumulate enough PowerShares QQQ Shares (i.e., 50,000 shares) to constitute a full Creation Unit in order to redeem through the Trust. The death or incapacity of any Beneficial Owner will not operate to terminate the Trust nor entitle such Beneficial Owner’s legal representatives or heirs to claim an accounting or to take any action or proceeding in any court for a partition or winding up of the Trust. By its purchase of a PowerShares QQQ Share, each Beneficial Owner expressly waives any right he or she may have under law to require the Trustee at any time to account, in any manner other than as expressly provided in the Trust Agreement, for the Securities or moneys from time to time received, held, and applied by the Trustee under the Trust.

Beneficial Owners shall not (a) have the right to vote concerning the Trust, except with respect to termination and as otherwise expressly set forth in the Trust Agreement, (b) in any manner control the operation and management of the Trust or (c) be liable to any other person by reason of any action taken by the Sponsor or the Trustee. The Trustee has the right to vote all of the voting securities in the Trust. The Trustee votes the voting securities of each issuer in the same proportionate relationship as all other shares of each such issuer are voted to the extent permissible and, if not permitted, abstains from voting.

Amendment

The Trust Agreement may be amended from time to time by the Trustee and the Sponsor without the consent of any Beneficial Owners (a) to cure any ambiguity or to correct or supplement any provision thereof which may be defective or inconsistent or to make such other provisions in regard to matters or questions arising thereunder as will not adversely affect the interests of Beneficial Owners; (b) to change any provision thereof as may be required by the Commission; (c) to add or change any provision as may be necessary or advisable for the continuing qualification of the Trust as a “regulated investment company” under the Code; (d) to add or change any provision thereof as may be necessary or advisable in the event that NSCC or the DTC is unable or unwilling to continue to perform its functions as set forth therein; (e) to add or change any provision thereof to conform the adjustments to the Portfolio and the Portfolio Deposit to changes, if any, made by NASDAQ in its method of determining the Index; (f) to add or change any provision thereof as may be necessary to implement a dividend reinvestment plan or service; (g) to make changes to the Transaction Fee and to other amounts charged in connection with creations and redemptions of PowerShares QQQ Shares within the original parameters set forth in

 

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the Trust Agreement; and (h) to make changes to the level of net dividends below which a dividend distribution will not be paid in a given quarter and will instead be rolled into the next Accumulation Period.

The Trust Agreement may also be amended from time to time by the Sponsor and the Trustee with the consent of the Beneficial Owners of 51% of the outstanding PowerShares QQQ Shares to add provisions to or change or eliminate any of the provisions of the Trust Agreement or to modify the rights of Beneficial Owners; provided, however, that the Trust Agreement may not be amended without the consent of the Beneficial Owners of all outstanding PowerShares QQQ Shares if such amendment would (1) permit, except in accordance with the terms and conditions of the Trust Agreement, the acquisition of any securities other than those acquired in accordance with the terms and conditions of the Trust Agreement; (2) reduce the interest of any Beneficial Owner in the Trust; or (3) reduce the percentage of Beneficial Owners required to consent to any such amendment.

If directed by the Sponsor, the Trustee shall, promptly after the execution of any such amendment, receive from the DTC, pursuant to the terms of the Depository Agreement, a list of all DTC Participants holding PowerShares QQQ Shares. The Trustee shall inquire of each such DTC Participant as to the number of Beneficial Owners for whom such DTC Participant holds PowerShares QQQ Shares, and provide each such DTC Participant with sufficient copies of a written notice of the substance of such amendment for transmittal by each such DTC Participant to such Beneficial Owners. Notice of any amendment which the Sponsor does not direct to be delivered pursuant to this procedure shall be published on the Sponsor’s website promptly following execution of the amendment and shall be included in the annual report provided to Beneficial Owners.

Termination

The Trust Agreement provides that the Sponsor has the discretionary right to direct the Trustee to terminate the Trust if at any time the NAV of the Trust is less than $350,000,000, as such dollar amount shall be adjusted for inflation in accordance with the Consumer Price Index for All Urban Consumers (“CPI-U”), such adjustment to take effect at the end of the fourth year following the Initial Date of Deposit and at the end of each year thereafter and to be made so as to reflect the percentage increase in consumer prices as set forth in the CPI-U for the twelve-month period ending in the last month of the preceding fiscal year.

The Trust will also terminate in the event that PowerShares QQQ Shares are delisted from NASDAQ and are not subsequently relisted on a national securities exchange or a quotation medium operated by a national securities association. NASDAQ will consider the suspension of trading in or the delisting of PowerShares QQQ Shares as discussed above.

The Trust may also be terminated (a) by the agreement of the Beneficial Owners of 66 2/3% of outstanding PowerShares QQQ Shares; (b) if the DTC is unable or unwilling to continue to perform its functions as set forth under the Trust Agreement and a suitable

 

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replacement is unavailable; (c) if NSCC no longer provides clearance services with respect to PowerShares QQQ Shares and a suitable replacement is unavailable, or if the Trustee is no longer a participant in NSCC or any successor to NSCC providing clearance services; (d) if NASDAQ ceases publishing the Index; and (e) if the License Agreement is terminated. The Trust will also terminate by its terms on the Mandatory Termination Date.

If either the Sponsor or the Trustee shall resign or be removed and a successor is not appointed, the Trust will terminate. The dissolution of the Sponsor or its ceasing to exist as a legal entity for any cause whatsoever, however, will not cause the termination of the Trust Agreement or the Trust unless the Trustee deems termination to be in the best interests of Beneficial Owners.

Prior written notice of the termination of the Trust will be given at least twenty (20) days prior to termination of the Trust to all Beneficial Owners in the manner described above. The notice will set forth the date on which the Trust will be terminated (the “Termination Date”), the period during which the assets of the Trust will be liquidated, the date on which Beneficial Owners of PowerShares QQQ Shares (whether in Creation Unit size aggregations or otherwise) will receive in cash the NAV of the PowerShares QQQ Shares held, and the date determined by the Trustee upon which the books of the Trust shall be closed. Such notice shall further state that, as of the date thereof and thereafter, neither requests to create additional Creation Units nor Portfolio Deposits will be accepted, and that, as of the date thereof and thereafter, the portfolio of Securities delivered upon redemption shall be essentially identical in composition and weighting to the Securities held in the Trust as of such date rather than the securities portion of the Portfolio Deposit as in effect on the date the request for redemption is deemed received. Beneficial Owners of PowerShares QQQ Shares in Creation Unit size aggregations may, in advance of the Termination Date, redeem in kind directly from the Trust.

Within a reasonable period of time after the Termination Date the Trustee shall, subject to any applicable provisions of law, use its best efforts to sell all of the Securities not already distributed to redeeming Beneficial Owners of Creation Units. The Trustee shall not be liable for or responsible in any way for depreciation or loss incurred by reason of any such sale or sales.

The Trustee may suspend such sales upon the occurrence of unusual or unforeseen circumstances, including but not limited to a suspension in trading of a Security, the closing or restriction of trading, the outbreak of hostilities, or the collapse of the economy. Upon receipt of proceeds from the sale of the last Security, the Trustee shall deduct therefrom its fees and all other expenses. The remaining amount shall be transmitted to the DTC for distribution via the DTC Participants, together with a final statement setting forth the computation of the gross amount distributed. PowerShares QQQ Shares not redeemed prior to termination of the Trust will be redeemed in cash at NAV based on the proceeds of the sale of the Securities. Such redemptions in cash at NAV shall be available to all Beneficial Owners, with no minimum aggregation of PowerShares QQQ Shares required.

 

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SPONSOR

The Sponsor of the Trust is Invesco PowerShares Capital Management LLC, a Delaware limited liability company formed on February 7, 2003 with offices at 3500 Lacey Road, Suite 700, Downers Grove, IL 60515. The Sponsor’s Internal Revenue Service Employer Identification Number is 75-3098642. NASDAQ Global Funds, Inc. was previously the sponsor of the Trust until March 21, 2007 when sponsorship of the Trust was transferred to the Sponsor.

The Sponsor, at its own expense, may from time to time provide additional promotional incentives to brokers who sell PowerShares QQQ Shares to the public. In certain instances, these incentives may be provided only to those brokers who meet certain threshold requirements for participation in a given incentive program, such as selling a significant number of PowerShares QQQ Shares within a specified time period.

If at any time the Sponsor shall fail to undertake or perform or become incapable of undertaking or performing any of the duties which by the terms of the Trust Agreement are required of it to be undertaken or performed, or shall resign, or shall become bankrupt or its affairs shall be taken over by public authorities, the Trustee may appoint a successor Sponsor as shall be satisfactory to the Trustee, agree to act as Sponsor itself, or may terminate the Trust Agreement and liquidate the Trust. Notice of the resignation or removal of the Sponsor and the appointment of a successor shall be mailed by the Trustee to the DTC and the DTC Participants for distribution to Beneficial Owners. Upon a successor Sponsor’s execution of a written acceptance of such appointment as Sponsor of the Trust, such successor Sponsor shall become vested with all of the rights, powers, duties, and obligations of the original Sponsor. Any successor Sponsor may be compensated at rates deemed by the Trustee to be reasonable.

The Sponsor may resign by executing and delivering to the Trustee an instrument of resignation. Such resignation shall become effective upon the appointment of a successor Sponsor and the acceptance of such appointment by the successor Sponsor, unless the Trustee either agrees to act as Sponsor or terminates the Trust Agreement and liquidates the Trust, which the Trustee shall do if no successor Sponsor is appointed. The dissolution of the Sponsor or its ceasing to exist as a legal entity for any reason whatsoever will not cause the termination of the Trust Agreement or the Trust unless the Trustee deems termination to be in the best interests of the Beneficial Owners of PowerShares QQQ Shares.

The Trust Agreement provides that the Sponsor is not liable to the Trustee, the Trust, or to the Beneficial Owners of PowerShares QQQ Shares for taking any action or for refraining from taking any action made in good faith or for errors in judgment, but is liable only for its own gross negligence, bad faith, willfull misconduct, or willfull malfeasance in the performance of its duties or its reckless disregard of its obligations and duties under the Trust Agreement. The Sponsor is not liable or responsible in any way for depreciation or loss incurred by the Trust by reason of the sale of any Securities of the Trust.

 

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The Trust Agreement further provides that the Sponsor and its directors, subsidiaries, shareholders, officers, employees, and affiliates under common control with the Sponsor (each a “Sponsor Indemnified Party”) shall be indemnified from the assets of the Trust and held harmless against any loss, liability, or expense incurred without gross negligence, bad faith, willfull misconduct, or willfull malfeasance on the part of any Sponsor Indemnified Party in the performance of its duties or reckless disregard of its obligations and duties under the Trust Agreement, including the payment of the costs and expenses (including counsel fees) of defending against any claim or liability.

As of January 29, 2018, the following persons served as officers or managers of the Sponsor:

 

Name

  

Nature of Relationship or
Affiliation with Sponsor

Daniel E. Draper    Managing Director, Chief Executive Officer and Principal Executive Officer

Annette Lege

   Chief Financial Officer
Steven M. Hill    Principal Financial and Accounting Officer-Pooled Investments
John M. Zerr    Managing Director
David Warren    Managing Director

 

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The principal business address for each of the officers and managers listed above is c/o Invesco PowerShares Capital Management LLC, 3500 Lacey Road, Suite 700, Downers Grove, IL 60515. None of the officers or managers listed above either directly or indirectly owns, controls or holds with power to vote any of the outstanding limited liability company interests of the Sponsor. All of the outstanding limited liability company interests of the Sponsor are owned by Invesco North American Holdings Inc., which is an indirect subsidiary of Invesco Limited. None of the managers or officers of the Sponsor listed above owns, controls or holds with the power to vote any of the outstanding Units of the Trust.

 

Name        

  

Business Experience

Daniel Draper    President and Principal Executive Officer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust, PowerShares Actively Managed Exchange-Traded Fund Trust, PowerShares Actively Managed Exchange-Traded Commodity Fund Trust (2015-Present) and PowerShares Exchange-Traded Self-Indexed Fund Trust (2016-Present); Chief Executive Officer and Principal Executive Officer (2016-Present) and Managing Director (2013-Present), Invesco PowerShares Capital Management LLC; Senior Vice President, lnvesco Distributors, Inc. (2014-Present). Formerly: Vice President, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust, PowerShares Actively Managed Exchange-Traded Fund Trust (2013-2015) and PowerShares Actively Managed Exchange-Traded Commodity Fund Trust (2014-2015); Managing Director, Credit Suisse Asset Management (2010-2013) and Lyxor Asset Management/Societe Generale (2007-2010).

 

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Name        

  

Business Experience

Annette Lege   

Vice President, Invesco Group Services, Inc. and Invesco Holding Company (US), Inc. (2017-present); Director, Invesco (India) Private Limited (2017-present); Treasurer, Chief Financial Officer and Chief Accounting Officer, Invesco Advisers, Inc. (2017-present); Treasurer, Invesco Distributors, Inc. (2011-present); Director, Invesco (Hyderabad) Private Limited (2017-present); Chief Financial Officer and Treasurer, Invesco Investment Services, Inc. and Invesco Management Group, Inc. (2017-present); Chief Accounting Officer and Group Controller, Invesco Ltd.; Vice President, Invesco Finance, Inc. (2017- present); Director, Invesco Private Capital, Inc., INVESCO Private Capital Investments, Inc., INVESCO Realty, Inc., Invesco Senior Secured Management, Inc. and Invesco Trust Company (2017-present); Chief Financial Officer, Invesco PowerShares Capital Management, LLC (2017- present); Chief Financial Officer and Treasurer, Stein Roe Investment Counsel, Inc. (2009-present); and Chief Financial Officer and Treasurer, Invesco Investment Advisers LLC (2017-present).

 

Formerly: Chief Financial Officer, INVESCO National Trust Company (2008-2014); Controller (2007-2015) and Treasurer (2007-2009), Invesco Advisers, Inc.; Vice President, Invesco Mortgage Capital, Inc. (2013-2014); Financial and Operations Principal (2010-2011), Treasurer and Chie Financial Office, Invesco Capital Markets, Inc. (2011-2016); Chief Financial Officer, Invesco Distributors, Inc. (2011-2015); Corporate Controller, Invesco Management Group, Inc. (2004-2017); Vice President, Invesco Finance, Inc. (2017-2017); Controller, Invesco Private Capital, Inc. and INVESCO Private Capital Investments, Inc. (2008-2009); Controller, INVESCO Realty, Inc. and Invesco Senior Secured Management, Inc. (2008-2015); Chief Financial Officer, Invesco Trust Company (2013-2014); Corporate Controller, Van Kampen Exchange Corp (2010-2016); Corporate Controller, Van Kampen Investments, Inc. (2010-2011); and Financial & Operations Principal, Invesco Investment Advisers, LLC (2010-2015).

 

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Name        

  

Business Experience

Steven M. Hill    Vice President and Treasurer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust, PowerShares Actively Managed Exchange-Traded Fund Trust (2013-Present), PowerShares Actively Managed Exchange-Traded Commodity Fund Trust (2014-Present) and PowerShares Exchange-Traded Self-Index Fund Trust (2016-Present); Head of Global ETF Administration, Invesco PowerShares Capital Management LLC (2011-Present); Principal Financial and Accounting Officer—Investment Pools, Invesco PowerShares Capital Management LLC (2015-Present); formerly, Senior Managing Director and Chief Financial Officer, Destra Capital Management LLC and its subsidiaries (2010-2011); Chief Financial Officer, Destra Investment Trust and Destra Investment Trust II (2010-2011); Senior Managing Director, Claymore Securities, Inc. (2003-2010); and Chief Financial Officer, Claymore sponsored mutual funds (2003-2010).

 

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Name        

  

Business Experience

John M. Zerr    Director, Senior Vice President, Secretary and General Counsel, Invesco Management Group, Inc. (formerly known as Invesco AIM Management Group, Inc.) (2006-Present); Senior Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser) (2009-Present); Senior Vice President and Secretary, Invesco Distributors, Inc. (formerly known as Invesco AIM Distributors, Inc.) (2006-Present); Director, Invesco Investment Services, Inc. (formerly known as Invesco AIM Investment Services, Inc.) (2007-Present); Vice President and Secretary, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) (2006-Present); Senior Vice President, Chief Legal Officer and Secretary, The Invesco Funds (2006-Present); Managing Director, Invesco PowerShares Capital Management LLC (2006-Present); Director, Secretary and General Counsel, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management) (2010-Present); Secretary and General Counsel, Invesco Capital Markets, Inc. (formerly known as Van Kampen Funds Inc.) (2010-Present) and Chief Legal Officer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust (2010-Present), PowerShares Actively Managed Exchange-Traded Commodity Fund Trust (2014-Present) and PowerShares Exchange-Traded Self-Indexed Fund Trust (2016-present). Formerly: Director, Secretary, General Counsel and Senior Vice President, Van Kampen Exchange Corp. (2010-2016); Director, Vice President and Secretary, IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.) (2006-2010); Director and Vice President, INVESCO Funds Group, Inc. (2006-2016); Director and Vice President, Van Kampen Advisors Inc. (2010-2011); Director, Vice President, Secretary and General Counsel, Van Kampen Investor Services Inc. (2010-2011); Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) (2007-2010); Director, Senior Vice President, General Counsel and Secretary, Invesco Aim Advisers, Inc. (2006-2009) and Van Kampen Investments Inc. (2010-2011); Director, Vice President and Secretary, Fund Management Company (2006-2007); Director, Senior Vice President, Secretary, General Counsel and Vice President, Invesco AIM Capital Management, Inc. (2006-

 

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Name        

  

Business Experience

   2009); Prior to 2006, Chief Operating Officer and General Counsel, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company) and PBHG Insurance Series Fund (an investment company); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator) and Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company).
David Warren    Vice President, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust (2009-Present), PowerShares Actively Managed Exchange-Traded Commodity Fund Trust (2014-Present) and PowerShares Exchange-Traded Self-Indexed Fund Trust (2016-Present); Managing Director—Chief Administrative Officer, Americas, Invesco PowerShares Capital Management LLC; Senior Vice President, Invesco Advisers, Inc. (2009-Present); Director, Invesco Inc. (2009-Present); Senior Vice President, Invesco Management Group, Inc. (2007- Present); Director, Executive Vice President and Chief Financial Officer, Invesco Canada Ltd. (formerly, Invesco Trimark Ltd.); Chief Administrative Officer, North American Retail, Invesco Ltd. (2007-Present); Director, Invesco Global Direct Real Estate Feeder GP Ltd. (2015-Present); Director, Invesco Canada Holdings Inc. (2002-Present), Director, Invesco Corporate Class Inc. (2014-Present), Director, Invesco Financial Services Ltd. / Services Financiers Invesco Ltée and Trimark Investments Ltd./Placements Trimark Ltée (2014-Present); Director, Invesco IP Holdings (Canada) Ltd. (2016-Present); Director, Invesco Global Direct Real Estate GP Ltd. (2015-Present); Formerly, Executive Vice President and Chief Financial Officer, Invesco, Inc. (2009-2015); Director, Executive Vice President and Chief Financial Officer, Invesco Canada Ltd. (formerly, Invesco Trimark Ltd.) (2000-2011).

 

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TRUSTEE

The Trustee is The Bank of New York Mellon, a corporation organized under the laws of the State of New York with trust powers. The Trustee has an office at 2 Hanson Place, 9th Floor, Brooklyn, NY 11217 and its Internal Revenue Service Employer Identification Number is 13-5160382. The Trustee is subject to supervision and examination by the Federal Reserve Bank of New York and the New York State Department of Financial Services.

Under the Trust Agreement, the Trustee may resign and be discharged of the Trust created by the Trust Agreement by executing an instrument of resignation in writing and filing such instrument with the Sponsor and mailing a copy of a notice of resignation to all DTC Participants that are reflected on the records of the DTC as owning PowerShares QQQ Shares, for distribution to Beneficial Owners as provided above (see “The Trust—Book-Entry-Only System”) not less than sixty (60) days before the date such resignation is to take effect. Such resignation will become effective upon the appointment of and the acceptance of the Trust by a successor Trustee or, if no successor is appointed within sixty (60) days after the date such notice of resignation is given, the Trust shall terminate (see “Administration of the Trust—Termination”). The Sponsor, upon receiving notice of such resignation, is obligated to use its best efforts to appoint a successor Trustee promptly.

In case the Trustee becomes incapable of acting as such or is adjudged bankrupt or is taken over by any public authority, the Sponsor may remove the Trustee and appoint a successor Trustee as provided in the Trust Agreement. Notice of such appointment shall be mailed by the successor Trustee to the DTC and the DTC Participants for distribution to Beneficial Owners. Upon a successor Trustee’s execution of a written acceptance of an appointment as Trustee for the Trust, such successor Trustee will become vested with all the rights, powers, duties, and obligations of the original Trustee. The Trustee and any successor Trustee is required to be a bank, trust company, corporation, or national banking association organized and doing business under the laws of the United States or any state thereof, to be authorized under such laws to exercise corporate trust powers, and to have at all times an aggregate capital, surplus, and undivided profit of not less than $50,000,000.

Beneficial Owners of 51% of the then outstanding PowerShares QQQ Shares may at any time remove the Trustee by written instrument(s) delivered to the Trustee and the Sponsor. The Sponsor shall thereupon use its best efforts to appoint a successor Trustee in the manner specified above and in the Trust Agreement.

The Trust Agreement provides that the Trustee is not liable for any action taken in reasonable reliance on properly executed documents or for the disposition of moneys or Securities or for the evaluations required to be made thereunder, except by reason of its own gross negligence, bad faith, willfull malfeasance, willfull misconduct, or reckless disregard of its duties and obligations, nor is the Trustee liable or responsible in any way for depreciation or loss incurred by reason of the sale by the Trustee of any Securities in the Trust. The Trustee is not personally liable for any taxes or other governmental charges imposed upon or in respect of the Securities or upon the

 

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income thereon or upon it as Trustee or upon or in respect of the Trust which the Trustee may be required to pay under any present or future law of the United States of America or of any other taxing authority having jurisdiction and the Trustee shall be reimbursed from the Trust for all such taxes and related expenses. In addition, the Trust Agreement contains other customary provisions limiting the liability of the Trustee. The Trustee and its directors, subsidiaries, shareholders, officers, employees, and affiliates under common control with the Trustee (each a “Trustee Indemnified Party”) will be indemnified from the assets of the Trust and held harmless against any loss, liability, or expense incurred without gross negligence, bad faith, willfull misconduct, willfull malfeasance on the part of such Trustee Indemnified Party, or incurred without reckless disregard of its duties and obligations, arising out of, or in connection with its acceptance or administration of the Trust, including the costs and expenses (including counsel fees) of defending against any claim or liability.

DEPOSITORY

The DTC is a limited purpose trust company and member of the Federal Reserve System.

DISTRIBUTOR

Invesco Distributors Inc. serves as the Distributor for the Trust. The Distributor is located at 11 Greenway Plaza, Suite 1000, Houston, Texas 77046-1173. The Distributor is a registered broker-dealer and a member of FINRA.

LEGAL OPINION

The legality of the PowerShares QQQ Shares offered hereby has been passed upon by Stradley Ronon Stevens and Young, LLP, Washington, DC, as counsel for the Trust.

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The financial statements as of September 30, 2017 in this Prospectus have been included in reliance upon the report of PricewaterhouseCoopers LLP, independent registered public accounting firm, given on the authority of the firm as experts in auditing and accounting.

CODE OF ETHICS

The Trust and the Sponsor have adopted a code of ethics regarding personal securities transactions by their respective employees. Any references in such code of ethics to the Trusts shall include PowerShares QQQ TrustSM, Series 1. Subject to certain conditions and standards, the code permits employees to invest in the PowerShares QQQ Shares for their own accounts. The code is designed to prevent

 

89


fraud, deception and misconduct against the Trust and to provide reasonable standards of conduct. The code is on file with the Commission and you may obtain a copy by visiting the Commission at the address listed on the back cover of this prospectus. The code is also available on the EDGAR Database on the Commission’s Internet site at http://www.sec.gov. A copy may be obtained, after paying a duplicating fee, by electronic request at publicinfosec.gov, or by writing the Commission at the address listed on the back cover of this prospectus.

INFORMATION AND COMPARISON RELATING TO PREMIUMS AND DISCOUNTS AND RETURNS

One important difference between PowerShares QQQ Shares and conventional mutual fund shares is that PowerShares QQQ Shares are available for purchase or sale on an intraday basis on NASDAQ. An investor who buys shares in a conventional mutual fund will usually buy or sell shares at a price at or related to the closing NAV per share, as determined by the fund. In contrast, PowerShares QQQ Shares are not offered for purchase or redeemed for cash at a fixed relationship to closing NAV. The tables below illustrate the distribution relationships of the closing price versus net asset value for PowerShares QQQ Shares for the 2017 calendar year as well as return information.

Investors may wish to evaluate the potential of PowerShares QQQ Shares to approximate the value of the assets in the Trust as a basis of valuation of the shares. The Closing Price versus Net Asset Value table illustrates the closing value of PowerShares QQQ Shares in relation to the underlying value of the assets in the Trust on a daily basis.

The information provided in the following tables with respect to the PowerShares QQQ Shares may vary materially over time.

CLOSING PRICE V. NET ASSET VALUE

FREQUENCY DISTRIBUTION FOR

POWERSHARES QQQ TRUSTSM, SERIES 1

(From January 1, 2017 through December 31, 2017)

 

     Closing Price*
Above Trust NAV
    Closing Price*
Below Trust NAV
 

Range

   Frequency      % of Total     Frequency      % of Total  

0.00-0.50%

     104        100     147        100

0.50%-1.00%

     0        0.00 %     0        0.00 %

1.00%-2.00%

     0        0.00 %     0        0.00 %

>2.00%

     0        0.00 %     0        0.00 %
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

     104        100.00     147        100.00

 

* Consolidated closing prices are used for the PowerShares QQQ Trust.

 

90


CUMULATIVE AND AVERAGE ANNUAL RETURNS FOR

NASDAQ-100 INDEX® AND POWERSHARES QQQ

TRUSTSM, SERIES 1

 

    Cumulative Return(1)     Average Annual Return(1)(2)  
    PowerShares
QQQ Shares
    NASDAQ-
100 Index
    PowerShares
QQQ Shares
    NASDAQ-
100 Index
 
    Net Asset
Value
    Closing
Price(3)
    Total
Return(4)
    Closing
Price
    Net Asset
Value
    Closing
Price(3)
    Total
Return(4)
    Closing
Price
 

One Year Ended 12/31/2017

    32.72 %     32.73 %     32.99 %     31.52 %     32.72 %     32.73 %     32.99 %     31.52

5 Year Ended 12/31/2017

    153.10 %     153.86 %     155.98 %     140.38 %     20.41 %     20.48 %     20.68 %     19.17

10 Year Ended 12/31/2017

    233.82 %     234.26 %     240.83 %     206.79 %     12.81 %     12.83 %     13.05 %     11.86

 

(1) In determining the cumulative return and average annual return of the Trust, some of the component securities of the Trust paid dividends which offset a portion, but not all, of the expenses of the Trust. The Index was calculated without regard to fees or expenses.

 

(2) Returns are annualized for the periods of more than one year.

 

(3) Consolidated closing prices are used for the PowerShares QQQ Trust.

 

(4) Include dividends reinvested on the ex-dividend date.

Source: Invesco PowerShares Capital Management LLC, The Bank of New York Mellon, FactSet Research Systems, Inc. and The NASDAQ Stock Market, Inc.

ADDITIONAL INFORMATION

A Registration Statement on Form S-6, including amendments thereto, relating to the Trust, of which this Prospectus forms a part, has been filed with the Commission. This Prospectus does not contain all of the information set forth in the Registration Statement and the exhibits thereto. Statements contained in this Prospectus as to the contents of any contract or other document referred to are not necessarily complete and in each instance reference is made to the copy of such contract or other document filed as an exhibit to the Registration Statement, each such statement being qualified in all respects by such reference. For further information with respect to the Trust, reference is made to such Registration Statement and the exhibits thereto. A copy of the Registration Statement may be inspected by anyone without charge at the Commission’s principal office located at 100 F Street, N.E., Washington, D.C. 20549, and copies of all or any part thereof may be obtained from the Public Reference Branch of the Commission upon the payment of certain fees

 

91


prescribed by the Commission. In addition, the Registration Statement may be accessed electronically at the Commission’s site on the World Wide Web located at http://www.sec.gov. Such information is also available from Invesco PowerShares by calling: 1-800-983-0903.

Remainder of this page intentionally left blank.

 

92


GLOSSARY OF DEFINED TERMS

 

     Page  

10 Basis Point Limit

     8  

1940 Act

     12  

Accumulation Period

     5  

Adjustment Day

     53  

Agency Agreement

     27  

Balancing Amount

     5  

Beneficial Owners

     41  

Cash Component

     5  

Cash Redemption Payment

     44  

Closing Time

     39  

ConvergEx

     72  

CNS

     5  

Code

     11  

Commission

     5  

CPI-U

     79  

Creation Units

     4  

Depository Agreement

     42  

Distributor

     4  

Dividend Payment Date

     75  

DTC

     10  

DTC Participants

     41  

ERISA

     69  

ETF

     36  

Excess Cash Amounts

     44  

FINRA

     6  

Income Net of Expense Amount

     5  

Index

     3  

Index Securities

     3  

Indirect Participants

     41  

Initial Date of Deposit

     1  

IRA

     69  

IRS

     66  

Large Stocks

     61  

License Agreement

     62  

Mandatory Termination Date

     2  

Misweighting

     49  

Misweighting Amount

     49  

NASDAQ

     1  

Nasdaq

     1  

NAV

     4  

NSCC

     5  

NSCC Business Day

     13  

 

93


     Page  

Participating Party

     5  

Plans

     69  

Portfolio

     36  

Portfolio Deposit Amount

     54  

Portfolio Deposit

     5  

PowerShares QQQ Clearing Process

     5  

PowerShares QQQ Participant Agreement

     40  

PowerShares QQQ Shares

     3  

PowerShares QQQ Trust

     3  

Ranking Review

     59  

Record Date

     75  

Request Day

     53  

Securities

     3  

Securities Act

     70  

Small Stocks

     61  

Sponsor

     3  

Sponsor Indemnified Party

     82  

Termination Date

     80  

Terms and Conditions

     3  

Transaction Fee

     7  

Trust

     3  

Trust Agreement

     3  

Trustee

     3  

Trustee Indemnified Party

     89  

Weighting Analysis

     50  

 

 

 

94


POWERSHARES QQQ SHARESSM

POWERSHARES QQQ

TRUSTSM, SERIES 1

SPONSOR:

INVESCO POWERSHARES CAPITAL

MANAGEMENT LLC

 

 

This Prospectus does not include all of the information with respect to the PowerShares QQQ Trust set forth in its Registration Statement filed with the Securities and Exchange Commission (the “Commission”) under the:

Securities Act of 1933 (File No. 333-61001); and

Investment Company Act of 1940 (File No. 811-08947).

To obtain copies of such information, including the Trust’s Code of Ethics, from the Commission at prescribed rates—

 

Write:    Public Reference Section of the Commission
   100 F Street, N.E., Washington, D.C. 20549
Call:    1-800-SEC-0330
Visit:    http://www.sec.gov

 

 

No person is authorized to give any information or make any representation about the PowerShares QQQ Trust not contained in this Prospectus, and you should not rely on any other information. Read and keep both parts of this Prospectus for future reference.

 

 

 

Prospectus dated January 31, 2018      P-QQQ-PRO-1  


PART II—ADDITIONAL INFORMATION

NOT REQUIRED IN PROSPECTUS

UNDERTAKING TO FILE REPORTS

Subject to the terms and conditions of Section 15(d) of the Securities Exchange Act of 1934, the undersigned registrant hereby undertakes to file with the Securities and Exchange Commission such supplementary and periodic information, documents, and reports as may be prescribed by any rule or regulation of the Commission heretofore or hereafter duly adopted pursuant to authority conferred in that section.

CONTENTS OF REGISTRATION STATEMENT

This Registration Statement on Form S-6 comprises the following papers and documents:

The facing sheet.

The cross-reference sheet.

The prospectus.

The undertaking to file reports.

The signatures.

The following Exhibits:

1. Ex. 99.A1—Trust Indenture and Agreement, by and between Nasdaq-Amex Investment Product Services, Inc., as Sponsor, and The Bank of New York, as Trustee, incorporating by reference the Nasdaq-100 Trust, Series 1 and any Subsequent and Similar Series of the Nasdaq-100 Trust Standard Terms and Conditions, dated as of March 4, 1999 (incorporated by reference to Exhibit 99.A(1)(b) to the Nasdaq-100 Trust, Series 1 Form N-8b-2 (Registration No. 001-14863) filed with the Securities and Exchange Commission on March 9, 1999).

2. Ex. 99.A1 (a)—Amendment No. 1 to the Trust Indenture and Agreement, dated March 4, 1999, between PowerShares Capital Management LLC, as Sponsor and the Bank of New York, as Trustee, dated March 21, 2007 (incorporated by reference to Exhibit 25.1 to the PowerShares QQQ Trust, Series 1 Post-Effective Amendment No. 14 to Form S-6 (Registration No. 333-61001) filed with the Securities and Exchange Commission on January 31, 2008.

3. Ex. 99.A2—Nasdaq-100 Trust, Series 1 and any Subsequent and Similar Series of the Nasdaq-100 Trust Standard Terms and Conditions, by and between Nasdaq-Amex Investment Product Services, Inc., as Sponsor, and The Bank of New York, as Trustee, dated as of March 1, 1999 (incorporated by reference to Exhibit 99.A(1)(a) to the Nasdaq-100 Trust, Series 1 Form N-8b-2 (Registration No. 001-14863) filed with the Securities and Exchange Commission on March 9, 1999).

4. Ex. 99.A2 (a)—Amendment No. 1 to the Standard Terms and Conditions, dated as of March 1, 1999, by and between Nasdaq-Amex Investment Product Services, Inc., as Sponsor, and The Bank of New York, as Trustee, dated as of April 17, 2001 (incorporated by reference to Exhibit 99.A2(a) to the PowerShares QQQ Trust, Series 1 Post-Effective Amendment No. 19 to Form S-6 (Registration No. 333-61001) filed with the Securities and Exchange Commission on January 30, 2012).

5. Ex. 99.A2 (b)—Amendment No. 2 to the Standard Terms and Conditions, dated as of March 1, 1999, by and between Nasdaq-Amex Investment Product Services, Inc., as Sponsor, and The Bank of New York, as Trustee, dated as of February 4, 2004 (incorporated by reference to Exhibit 99.1 to the Nasdaq-100 Trust, Series 1 Form N-8b-2 (Registration No. 811-08947) filed with the Securities and Exchange Commission on February 5, 2004).

6. Ex. 99.A2 (c)—Amendment No. 3 to the Standard Terms and Conditions, dated as of March 1, 1999, by and between Nasdaq-Amex Investment Product Services, Inc., as Sponsor, and The Bank of New York, as Trustee, dated as of January 1, 2006 (incorporated by reference to Exhibit 99.A2(b) to the PowerShares QQQ Trust, Series 1 Post-Effective Amendment No. 19 to Form S-6 (Registration No. 333-61001) filed with the Securities and Exchange Commission on January 30, 2012).

 

1


7. Ex. 99.A2 (d)—Amendment No. 4 to the Standard Terms and Conditions, dated as of March 1, 1999 by and between Nasdaq-Amex Investment Product Services, Inc., as Sponsor, and The Bank of New York Mellon, as Trustee, dated as of November 16, 2012 (incorporated by reference to Exhibit 99.A2(d) to the PowerShares QQQ Trust, Series 1 Post-Effective Amendment No. 20 to Form S-6 (Registration No. 333-61001) filed with the Securities and Exchange Commission on January 31, 2013.

8. Ex. 99.A2 (e)—Amendment No. 5 to the Standard Terms and Conditions, dated as of March 1, 1999 by and between Nasdaq-Amex Investment Product Services, Inc., as Sponsor, and The Bank of New York Mellon, as Trustee, dated as of August 2, 2017.

9. Ex. 99. A3 (f)—Amendment No. 6 to the Standard Terms and Conditions, dated as of March 1, 1999 by and between Nasdaq-Amex Investment Product Services, Inc. as Sponsor, and the Bank of New York Mellon, as Trustee, dated as of January 26, 2018.

10. Ex. 99.A3B—Form of Participant Agreement (incorporated by reference to Exhibit 99.A(9)(c) to the Nasdaq-100 Trust, Series 1 Form N-8b-2 (Registration No. 001-14863) filed with the Securities and Exchange Commission on March 9, 1999).

11. Ex. 99.A3B—Form of Participant Agreement.

12. Ex. 99.A4—License Agreement, by and between Nasdaq-Amex Investment Product Services, Inc., as Sponsor, and the Nasdaq Stock Market, Inc. dated as of August 7, 1998 (incorporated by reference to Exhibit 99.A(9)(b) to the Nasdaq-100 Trust, Series 1 Form N-8b-2 (Registration No. 001-14863) filed with the Securities and Exchange Commission on March 9, 1999).

13. Ex. 99.A8—Depository Agreement, by and among Nasdaq-Amex Investment Product Services, Inc., as Sponsor, The Bank of New York, as Trustee, and the Depository Trust Company dated as of March 4, 1999 (incorporated by reference to Exhibit 99.A(9)(a) to the Nasdaq-100 Trust, Series 1 Form N-8b-2 (Registration No. 001-14863) filed with the Securities and Exchange Commission on March 9, 1999).

14. Ex. 99.A4—Distribution Agreement, by and among PowerShares Capital Management LLC, as Sponsor, PowerShares QQQ Trust and Invesco Distributors, Inc., as Distributor dated as of January 2, 2016 (incorporated by reference to Exhibit 99.A4 to the PowerShares QQQ Trust, Series 1 Post Effective Amendment No. 23 on Form S-6 (Registration No. 001-14863) filed with the Securities and Exchange Commission on January 28, 2016).

15. Ex. 99.A6—Certificate of Formation of Invesco PowerShares Capital Management LLC (incorporated by reference to Exhibit 99.A.6 to the BLDRS Index Funds Trust’s Post-Effective Amendment No. 7 on Form S-6 (Registration No. 811-21057) filed with the Securities and Exchange Commission on January 30, 2009).

16. Ex. 99.A11—Code of Ethics of the Trust adopted under Rule 17j-1 under the Investment Company Act (incorporated by reference to Exhibit 99.A11 to the Powershares QQQ Trust, Series 1 Post-Effective Amendment No. 17 on Form S-6 (Registration No. 333-61001) filed with the Securities and Exchange Commission on January 28, 2011).

17. Ex. 99.24—Power of Attorney.

18. Ex. 99.2—Opinion of Counsel as to legality of securities being registered and consent of Counsel.

19. Ex. 99.C1—Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm.

 

2


FINANCIAL STATEMENTS

1. Statement of Financial Condition of the Trust as shown in the current Prospectus for this series herewith.

2. Financial Statements of the Sponsor, Invesco PowerShares Capital Management LLC, as part of Invesco Ltd.’s current consolidated financial statements incorporated by reference to Form 10-K, dated February 23, 2017.

 

3


SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant, PowerShares QQQ TrustSM, Series 1, certifies that it meets all of the requirements for effectiveness of this Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused this Post-Effective Amendment No. 25 to the Registration Statement to be signed on its behalf by the undersigned thereunto duly authorized, all in the City of Downer’s Grove, and State of Illinois, on the 29th day of January, 2018.

 

POWERSHARES QQQ TRUSTSM, SERIES 1

(Name of Registrant)

By: INVESCO POWERSHARES CAPITAL MANAGEMENT LLC

(Sponsor)

By: /s/ Daniel E. Draper

Daniel E. Draper

Managing Director, Chief Executive Officer and

Principal Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Post-Effective Amendment No. 25 to the Registration Statement has been signed on behalf of Invesco PowerShares Capital Management LLC, the Sponsor, by the following persons who constitute a majority of its Board of Managers and by the named persons who are in the following capacities on the date above indicated.

 

INVESCO POWERSHARES CAPITAL MANAGEMENT LLC   

/s/ Annette Lege*

   Chief Financial Officer
Annette Lege   

/s/ Steven M. Hill

   Principal Financial and Accounting Officer — Pooled Investments
Steven M. Hill   

/s/ John M. Zerr*

   Managing Director
John M. Zerr   

/s/ David Warren*

  

Managing Director

David Warren

  

/s/ Daniel E. Draper

   Managing Director

Daniel E. Draper

  

 

* By his signature below, Daniel E. Draper, pursuant to a duly executed Power of Attorney filed herewith, has signed this Post-Effective Amendment No. 25 to the Registration Statement on behalf of the persons whose signatures are printed above, in the capacities set forth opposite their respective names.

 

/s/ Daniel E. Draper

Daniel E. Draper

Managing Director, Chief Executive Officer and

Principal Executive Officer

 

4


EXHIBIT INDEX

 

Exhibit No.

 

Title of Document

1. Ex. 99.A1   Trust Indenture and Agreement, by and between Nasdaq-Amex Investment Product Services, Inc., as Sponsor, and The Bank of New York, as Trustee, incorporating by reference the Nasdaq-100 Trust, Series 1 and any Subsequent and Similar Series of the Nasdaq-100 Trust Standard Terms and Conditions, dated as of March 4, 1999 (incorporated by reference to Exhibit 99.A(1)(b) to the Nasdaq-100 Trust, Series 1 Form N-8b-2 (Registration No. 001-14863) filed with the Securities and Exchange Commission on March 9, 1999).
2. Ex. 99.A1 (a)   Amendment No. 1 to the Trust Indenture and Agreement, dated March 4, 1999, between PowerShares Capital Management LLC, as Sponsor and the Bank of New York, as Trustee, dated March 21, 2007 (incorporated by reference to Exhibit 25.1 to the PowerShares QQQ Trust, Series 1 Post-Effective Amendment No. 14 to Form S-6 (Registration No. 333-61001) filed with the Securities and Exchange Commission on January 31, 2008.
3. Ex. 99.A1   Nasdaq-100 Trust, Series 1 and any Subsequent and Similar Series of the Nasdaq-100 Trust Standard Terms and Conditions, by and between Nasdaq-Amex Investment Product Services, Inc., as Sponsor, and The Bank of New York, as Trustee, dated as of March 1, 1999 (incorporated by reference to Exhibit 99.A(1)(a) to the Nasdaq-100 Trust, Series 1 Form N-8b-2 (Registration No. 001-14863) filed with the Securities and Exchange Commission on March 9, 1999).
4. Ex. 99.A2 (a)   Amendment No. 1 to the Standard Terms and Conditions, dated as of March 1, 1999, by and between Nasdaq-Amex Investment Product Services, Inc., as Sponsor, and The Bank of New York, as Trustee, dated as of April 17, 2001 (incorporated by reference to Exhibit 99.A2(a) to the PowerShares QQQ Trust, Series 1 Post-Effective Amendment No. 19 to Form S-6 (Registration No. 333-61001) filed with the Securities and Exchange Commission on January 30, 2012).
5. Ex. 99.A2 (b)   Amendment No. 2 to the Standard Terms and Conditions, dated as of March 1, 1999, by and between Nasdaq-Amex Investment Product Services, Inc., as Sponsor, and The Bank of New York, as Trustee, dated as of February 4, 2004 (incorporated by reference to Exhibit 99.1 to the Nasdaq-100 Trust, Series 1 Form N-8b-2 (Registration No. 811-08947) filed with the Securities and Exchange Commission on February 5, 2004).
6. Ex. 99.A2 (c)   Amendment No. 3 to the Standard Terms and Conditions, dated as of March 1, 1999, by and between Nasdaq-Amex Investment Product Services, Inc., as Sponsor, and The Bank of New York, as Trustee, dated as of January 1, 2006 (incorporated by reference to Exhibit 99.A2(b) to the PowerShares QQQ Trust, Series 1 Post-Effective Amendment No. 19 to Form S-6 (Registration No. 333-61001) filed with the Securities and Exchange Commission on January 30, 2012).
7. Ex. 99.A2 (d)   Amendment No. 4 to the Standard Terms and Conditions, dated as of March 1, 1999 by and between Nasdaq-Amex Investment Product Services, Inc., as Sponsor, and The Bank of New York Mellon, as Trustee, dated as of November 16, 2012 (incorporated by reference to Exhibit 99.A2(d) to the PowerShares QQQ Trust, Series 1 Post-Effective Amendment No. 20 to Form S-6 (Registration No. 333-61001) filed with the Securities and Exchange Commission on January 31, 2013.
8. Ex. 99.A2 (e)   Amendment No. 5 to the Standard Terms and Conditions, dated as of March 1, 1999 by and between Nasdaq-Amex Investment Product Services, Inc., as Sponsor, and The Bank of New York Mellon, as Trustee, dated as of August 2, 2017.
9. Ex. 99.A3 (f)   Amendment No. 6 to the Standard Terms and Conditions, dated as of March 1, 1999 by and between Nasdaq-Amex Investment Product Services, Inc., as Sponsor, and The Bank of New York Mellon, as Trustee, dated as of January 26, 2018.
10. Ex. 99.A3B   Form of Participant Agreement (incorporated by reference to Exhibit 99.A(9)(c) to the Nasdaq-100 Trust, Series 1 Form N-8b-2 (Registration No. 001-14863) filed with the Securities and Exchange Commission on March 9, 1999).
11. Ex. 99.A3B   Form of Participant Agreement.

 

1


12. Ex. 99.A4    License Agreement, by and between Nasdaq-Amex Investment Product Services, Inc., as Sponsor, and the Nasdaq Stock Market, Inc. dated as of August 7, 1998 (incorporated by reference to Exhibit 99.A(9)(b) to the Nasdaq-100 Trust, Series 1 Form N-8b-2 (Registration No. 001-14863) filed with the Securities and Exchange Commission on March 9, 1999).
13. Ex. 99.A8    Depository Agreement, by and among Nasdaq-Amex Investment Product Services, Inc., as Sponsor, The Bank of New York, as Trustee, and the Depository Trust Company dated as of March 4, 1999 (incorporated by reference to Exhibit 99.A(9)(a) to the Nasdaq-100 Trust, Series 1 Form N-8b-2 (Registration No. 001-14863) filed with the Securities and Exchange Commission on March 9, 1999).
14. Ex. 99.A4    Distribution Agreement, by and among PowerShares Capital Management LLC, as Sponsor, PowerShares QQQ Trust and Invesco Distributors, Inc., as Distributor dated as of January 2, 2016 (incorporated by reference to Exhibit 99.A4 to the PowerShares QQQ Trust, Series 1 Post Effective Amendment No. 23 on Form S-6 (Registration No. 001-14863) filed with the Securities and Exchange Commission on January 28, 2016).
15. Ex. 99.A6    Certificate of Formation of Invesco PowerShares Capital Management LLC (incorporated by reference to Exhibit 99.A.6 to the BLDRS Index Funds Trust’s Post-Effective Amendment No. 7 on Form S-6 (Registration No. 811-21057) filed with the Securities and Exchange Commission on January 30, 2009).
16. Ex. 99.A11    Code of Ethics of the Trust adopted under Rule 17j-1 under the Investment Company Act (incorporated by reference to Exhibit 99.A11 to the Powershares QQQ Trust, Series 1 Post-Effective Amendment No. 17 on Form S-6 (Registration No. 333-61001) filed with the Securities and Exchange Commission on January 28, 2011).
17. Ex. 99.24    Power of Attorney.
18. Ex. 99.2    Opinion of Counsel as to legality of securities being registered and consent of Counsel.
19. Ex. 99.C1    Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm.

 

2

AMENDMENT NO. 5 TO

THE STANDARD TERMS AND CONDITIONS OF TRUST

This Amendment No. 5 to the Standard Terms and Conditions of Trust, dated as of August 2, 2017 (“Amendment No. 5”), by and between Invesco PowerShares Capital Management LLC, as sponsor (in such capacity, the “Sponsor”), and The Bank of New York Mellon, as trustee (in such capacity, the “Trustee”), amends the Standard Terms and Conditions of Trust dated as of March 1, 1999, and effective as of March 4, 1999, as amended on April 17, 2001, February 4, 2004, January 1, 2006 and November 16, 2012 (collectively, the “Standard Terms”), by and between the Sponsor, or its predecessor as sponsor, and the Trustee of PowerShares QQQ TrustSM, Series I (the “Trust”). Defined terms used herein and not otherwise defined shall have the meaning assigned to such terms in the Standard Terms.

WITNESSETH THAT:

WHEREAS Section 10.01(a)(l) of the Standard Terms authorizes the Trust’s sponsor and trustee to amend the Standard Terms, without the consent of the Beneficial Owners, “to make such other provisions in regard to matters or questions arising thereunder as will not adversely affect the interests of Beneficial Owners”; and

WHEREAS the Trust’s sponsor and trustee have entered into four prior amendments to the Standard Terms, dated April 17, 2001, February 4, 2004, January 1, 2006 and November 16, 2012 ; and

WHEREAS the Standard Terms does not address the disposition of Income Net of Expense Amount payments to the Trust in connection with Portfolio Deposits and the Trustee has determined, and the Sponsor has agreed, that it is in the best interest of the Beneficial Owners that such amounts be invested rather than distributed; and

WHEREAS the Sponsor and the Trustee desire that the Sponsor have the authority to designate from time to time the independent registered public accounting firm which will audit the accounts of the Trust Fund; and

WHEREAS the Sponsor and the Trustee desire to revise the provisions relating to the time for settlement of creation and redemption transactions to comply with the requirements of a two business day settlement cycle (currently scheduled to occur on September 5, 2017) and to change the Ex-Dividend Date; and

WHEREAS the Sponsor and the Trustee also desire to provide for the delivery of notices of amendments by inclusion in the Trust’s annual report; and

WHEREAS the Sponsor and the Trustee now desire to further amend the Standard Terms as provided herein.


NOW, THEREFORE, in consideration of the premises the Sponsor and the Trustee agree to amend the Standard Terms as follows:

 

1. The second sentence of paragraph (d) of Section 2.04, “Portfolio and Portfolio Deposit Adjustments,” is amended to read in its entirety as follows:

As a result of the purchase and sale of securities in accordance with these requirements, or the creation or redemption of Creation Units, the Trust may hold some amount of residual cash (other than cash held temporarily due to timing differences between the sale and purchase of securities or cash delivered in lieu of Index Securities or undistributed income or undistributed capital gains), including cash received in respect of Income Net of Expense Amount payments to the Trust in connection with Portfolio Deposits, which residual cash amount shall not exceed for more than five (5) consecutive Business Days 5/10ths of 1 percent of the aggregate value of the Securities.

 

2. Paragraph (a) of Section 3.01, “Collection of Income,” is amended to read in its entirety as follows:

(a) The Trustee shall collect, or claim on, any Income on the Securities as it becomes payable (including the Income Net of Expense Amount (when such amount is paid to the Trustee on behalf of the Trust by a creator of PowerShares QQQ SharesSM) and that part of the proceeds of the sale or liquidation of any of the Securities which represents accrued dividends or distributions and capital gains thereon). Income so collected, exclusive of the Income Net of Expense Amount received in connection with Portfolio Deposits, shall be held uninvested until distributed pursuant to the provisions of this Agreement. The Trustee shall accrue all Income to the Trust as of the date on which the Trust is entitled to such Income as a holder of record of the Securities. Funds representing collection of Income Net of Expense Amounts in connection with Portfolio Deposits shall be held for investment pursuant to Section 2.04(d).

 

3. Effective for the distribution to be made on the October 31, 2017 and subsequent Dividend Payment Dates, the first three sentences of paragraph (g) of Section 3.04, “Certain Deductions and Distributions,” are amended to read in their entirety as follows:

The Trustee shall compute on a daily basis the dividends accumulated and declared for the Securities within each Accumulation Period. For the avoidance of doubt, amounts received in respect of Income Net of Expense Amount payments to the Trust in connection with Portfolio Deposits are excluded from the calculation of dividends accumulated and declared for the Securities within each Accumulation Period as used in the preceding sentence and referenced hereafter in this paragraph. The regular quarterly ex-dividend date for PowerShares QQQ Trust will be the first Business Day subsequent to the third Friday in each of March, June, September and December (the “Ex-Dividend Date”). Beneficial Owners as reflected on the records of the Depository and the DTC Participants on the first (1st) Business Day following the Ex-Dividend Date (the “Record Date”) will be entitled to receive an amount (if any) representing dividends accumulated on the Securities through the quarterly Accumulation Period which ends on the Business

 

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Day-preceding such Ex-Dividend Date (including securities with ex-dividend dates falling within such quarterly dividend period) and other income, if any, received by the Trust, net of fees and expenses of the Trust, accrued daily for such period.

 

4. Paragraph (c) of Section 5.01, “Redemption of PowerShares QQQ SharesSM in Creation Unit Size Aggregations,” is amended to add the following sentence as the fifth sentence of such paragraph:

For the avoidance of doubt, as used in the preceding sentence, ‘Income Net of Expense Amount’ refers to dividends accumulated and declared for the Securities held by the Trust and does not include Income Net of Expense Amount payments to the Trust in connection with Portfolio Deposits.

 

5. The third sentence of paragraph (f) of Section 8.01, “General Definition of Trustee’s Rights, Duties and Responsibilities,” is amended to read in its entirety as follows:

The accounts of the Trust Fund shall be audited, as required by law, by an independent registered public accounting firm designated from time to time by the Sponsor, and the report of such accountants shall be furnished by the Trustee to Beneficial Owners via the Depository as described in Section 3.11 in accordance with Section 3.05 upon request.

 

6. For all orders to create or redeem PowerShares QQQ SharesSM which are placed and accepted on or after such day as the settlement cycle for most broker-dealer securities transactions is changed from a three business day settlement cycle to a two business day settlement cycle (such change is currently scheduled to occur on September 5, 2017), paragraph (e) of Section 2.03, “Creation and Issuance of Creation Units,” and paragraph (c) of Section 5.01 “Redemption of Powershares QQQ SharesSM in Creation Unit Size Aggregations,” are amended to substitute “second (2nd)” for “third (3rd)” in each place the latter appears. Paragraph (d) of Section 2.03 is amended to substitute “two (2) NSCC Business Days” for “three (3) NSCC Business Days” where the latter appears.

 

7. Paragraph (b) of Section 10.01 , “Amendment and Waiver,” is amended to read in its entirety as follows:

If directed by the Sponsor, the Trustee shall, promptly after the execution of any such amendment, receive from the Depository, pursuant to the terms of the Depository Agreement, a list of all DTC Participants holding PowerShares QQQ SharesSM. The Trustee shall inquire of each such DTC Participant as to the number of Beneficial Owners for whom such DTC Participant holds PowerShares QQQ SharesSM, and provide each such DTC Participant with sufficient copies of a written notice of the substance of such

 

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amendment for transmittal by each such DTC Participant to such Beneficial Owners. Notice of any amendment which the Sponsor does not direct to be delivered pursuant to the preceding sentence shall be published on the Sponsor’s website promptly following execution of the amendment and shall be included in the annual report provided to Beneficial Owners pursuant to Section 3.05 hereof.

 

8. Pursuant to Section 10.01 of the Standard Terms, the parties hereby agree that this Amendment No. 5 is made in compliance with the provisions of Section 10.01 (a) thereof and that the parties hereto have determined in good faith that the amendments contained in this Amendment No. 5 will not adversely affect the interests of the Beneficial Owners.

 

9. Pursuant to Section 10.01 of the Standard Terms, the Trustee agrees that it shall promptly furnish each DTC Participant with sufficient copies of a written notice of the substance of the terms of this Amendment No. 5 for transmittal by each such DTC Participant to the Beneficial Owners of the Trust.

 

10. Except as amended hereby, the Standard Terms as now in effect are in all respects ratified and confirmed hereby. This Amendment No. 5 and all of its provisions shall be deemed to be a part of the Standard Terms, and the Standard Terms, as amended hereby and previously amended, are incorporated in and amend the Trust Indenture and Agreement dated as of March 4, 1999, as previously amended by Amendment No. 1 thereto, dated March 4, 2007.

 

11. This Amendment No. 5 shall be governed by and construed in accordance with the laws of the State of New York without regard to conflicts of laws thereof, and all laws or rules of construction of such State shall govern the rights of the panics thereto and the Beneficial Owners and the interpretation of the provisions hereof.

 

12. This Amendment No. 5 may be executed in any number of counterparts, each of which, when so executed and delivered, shall be an original, but all such counterparts shall together constitute but one and the same Amendment No. 5. Each of the parties hereto acknowledges having received an executed counterpart of this Amendment No. 5. Facsimile and PDF or other similar format signatures shall be acceptable and binding.

[Signature Page Follows]

 

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IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 5 to be duly executed as of the day and year set forth herein.

 

Invesco PowerShares Capital Management LLC. as Sponsor
By:  

/s/ Steven M. Hill

  Name:   Steven M. Hill
  Title:   Head of Global ETF Administration
Bank of New York Mellon, as Trustee
By:  

/s/ Thomas Porrazo

  Name:   Thomas Porrazo
  Title:   Managing Director

 

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Exhibit 99.A3 (f)

AMENDMENT NO. 6 TO

THE STANDARD TERMS AND CONDITIONS OF TRUST

This Amendment No. 6 to the Standard Terms and Conditions of Trust, dated as of January 26, 2018 (“Amendment No. 6”), by and between Invesco PowerShares Capital Management LLC, as sponsor (in such capacity, the “Sponsor”), and The Bank of New York Mellon, as trustee (in such capacity, the “Trustee”), amends the Standard Terms and Conditions of Trust dated as of March 1, 1999, and effective as of March 4, 1999, as amended on April 17, 2001, February 4, 2004, January 1, 2006, November 16, 2012, and August 2, 2017 (collectively, the “Standard Terms”), by and between the Sponsor, or its predecessor as sponsor, and the Trustee of PowerShares QQQ TrustSM, Series 1 (the “Trust”). Defined terms used herein and not otherwise defined shall have the meaning assigned to such terms in the Standard Terms.

WITNESSETH THAT:

WHEREAS Section 10.01(a)(1) of the Standard Terms authorizes the Trust’s sponsor and trustee to amend the Standard Terms, without the consent of the Beneficial Owners, “to make such other provisions in regard to matters or questions arising thereunder as will not adversely affect the interests of Beneficial Owners”; and

WHEREAS the Trust’s sponsor and trustee have entered into five prior amendments to the Standard Terms, dated April 17, 2001, February 4, 2004, January 1, 2006, November 16, 2012, and August 2, 2017; and

WHEREAS the Sponsor and the Trustee have determined that an adjustment to the Dividend Payment Date should be made to provide that dividends declared for the Trust in December of a given calendar year will be paid on the last business day of that month; and

WHEREAS the Sponsor and the Trustee now desire to further amend the Standard Terms as provided herein;

NOW, THEREFORE, in consideration of the premises the Sponsor and the Trustee agree to amend the Standard Terms as follows:

 

  1. Paragraph (g) of Section 3.04, “Certain Deductions and Distributions,” is amended in its entirety to read as follows:

The Trustee shall compute on a daily basis the dividends accumulated and declared for the Securities within each Accumulation Period. For the avoidance of doubt, amounts received in respect of Income Net of Expense Amount payments to the Trust in connection with Portfolio Deposits are excluded from the calculation of dividends accumulated and declared for the Securities within each


Accumulation Period as used in the preceding sentence and referenced hereafter in this paragraph. The regular quarterly ex-dividend date for PowerShares QQQ Trust will be the first Business Day subsequent to the third Friday in each of March, June, September and December (the “Ex-Dividend Date”). Beneficial Owners as reflected on the records of the Depository and the DTC Participants on the first (1st) Business Day following the Ex-Dividend Date (the “Record Date”) will be entitled to receive an amount (if any) representing dividends accumulated on the Securities through the quarterly Accumulation Period which ends on the Business Day-preceding such Ex-Dividend Date (including securities with ex-dividend dates falling within such quarterly dividend period) and other income, if any, received by the Trust, net of fees and expenses of the Trust, accrued daily for such period. In the event that Trust fees and expenses exceed dividends accumulated on the Securities for such period, no distributions to Beneficial Owners shall be made. In addition, no dividend distribution shall be made for any given quarter, and such amount shall be rolled over into the next quarterly Accumulation Period, if the aggregate dividend distribution so determined would be in an amount less than 5/100 of one percent (0.05%) of the net asset value of the Trust as of the Friday in the week immediately preceding the Ex-Dividend Date, unless the Trustee determines that such dividend distribution is required to be made to maintain the Trust’s status as a Regulated Investment Company or to avoid the imposition of income or excise taxes on undistributed income. For the purposes of all dividend distributions, dividends per Nasdaq-100 Share will be calculated at least to the nearest 1/100th of $0.01. On each Record Date, the Trustee shall compute the aggregate amount of funds (if any) to be distributed through the Depository to Beneficial Owners as described in Section 3.11 which shall be paid on the last Business Day in the calendar month following each Ex-Dividend Date (the “Dividend Payment Date”). However, for the regular Ex-Dividend Date occurring on the first Business Day subsequent to the third Friday of the month December, the Dividend Payment Date shall instead be the last Business Day in December. On each Dividend Payment Date, the Trustee shall distribute to the Depository (i) the aggregate amount of funds to be distributed to each Beneficial Owner pursuant to this Section 3.04 and (ii) the aggregate amount of Nasdaq-100 Shares and cash, if any, to Beneficial Owners participating in a dividend reinvestment plan or service pursuant to Section 3.09, if and when established. All such distributions shall be made in accordance with the provisions of Section 3.11.

 

  2. Pursuant to Section 10.01 of the Standard Terms, the parties hereby agree that this Amendment No. 6 is made in compliance with the provisions of Section 10.01(a) thereof and that the parties hereto have determined in good faith that the amendments contained in this Amendment No. 6 will not adversely affect the interests of the Beneficial Owners.

 

  3.

Pursuant to Section 10.01 of the Standard Terms, the Sponsor shall publish the notice of this Amendment No. 6 on the Sponsor’s website promptly following execution of


  this amendment and shall include the text of the amendment in the annual report provided to Beneficial Owners pursuant to Section 3.05 of the Standard Terms.

 

  4. Except as amended hereby, the Standard Terms as now in effect are in all respects ratified and confirmed hereby. This Amendment No. 6 and all of its provisions shall be deemed to be a part of the Standard Terms, and the Standard Terms, as amended hereby and previously amended, are incorporated in and amend the Trust Indenture and Agreement dated as of March 4, 1999, as previously amended by Amendment No. 1 thereto, dated March 4, 2007.

 

  5. This Amendment No. 6 shall be governed by and construed in accordance with the laws of the State of New York without regard to conflicts of laws thereof, and all laws or rules of construction of such State shall govern the rights of the parties thereto and the Beneficial Owners and the interpretation of the provisions hereof.

 

  6. This Amendment No. 6 may be executed in any number of counterparts, each of which, when so executed and delivered, shall be an original, but all such counterparts shall together constitute but one and the same Amendment No. 6. Each of the parties hereto acknowledges having received an executed counterpart of this Amendment No. 6. Facsimile and PDF or other similar format signatures shall be acceptable and binding.

[Signature Page Follows]


IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 6 to be duly executed as of the day and year set forth herein.

 

Invesco PowerShares Capital Management LLC, as Sponsor
By:  

/S/ Daniel E. Draper

  Name: Daniel E. Draper
  Title: Chief Executive Officer
The Bank of New York Mellon, as Trustee
By:  

/s/ Thomas Porrazzo

  Name: Thomas Porrazzo
  Title: Managing Director

POWERSHARES QQQ TRUST

PARTICIPANT AGREEMENT

This Participant Agreement (this “Agreement”) is entered into between Invesco Distributors, Inc. (the “Distributor”) and                                          (the “Participant”) and is subject to acceptance by The Bank of New York Mellon (the “Trustee”). The Trustee serves as the trustee of the PowerShares QQQ Trust, Series 1 (the “Trust” or “PowerShares QQQ”) pursuant to certain Standard Terms and Conditions of Trust dated as of March 1, 1999, as amended, and the Trust Indenture and Agreement dated March 4, 1999, as amended (collectively, the “Trust Agreement”), and is an Index Receipt Agent as that term is defined in the rules of the National Securities Clearing Corporation (“NSCC”). The Distributor has been retained to provide certain services with respect to acting as principal underwriter of the Trust in connection with the creation and distribution of PowerShares QQQ Shares. As specified in the PowerShares QQQ Shares Prospectus (the “Prospectus”) and the Trust Agreement, PowerShares QQQ Shares may be created or redeemed only in aggregations of 50,000 PowerShares QQQ Shares, referred to therein and herein as a “Creation Unit.” The Trust Agreement provides that Creation Units be issued in exchange for a Portfolio Deposit delivered by the Participant to the Trustee. Capitalized terms not otherwise defined herein are used herein as defined in the Prospectus or the Trust Agreement.

This Agreement is intended to set forth certain premises and the procedures by which the Participant may create and/or redeem Creation Units (i) through the Continuous Net Settlement (“CNS”) clearing processes of NSCC as such processes have been enhanced to effect creations and redemptions of Creation Units, such processes being referred to herein as the “CNS Clearing Process,” or (ii) outside the CNS Clearing Process (i.e., through the facilities of the Depository Trust Company (“DTC”)). The parties hereto in consideration of the premises and of the agreements contained herein, agree as follows:

1. STATUS OF PARTICIPANT. The Participant hereby represents, covenants and warrants that (i) with respect to orders for the creation or redemption of Creation Units by means of the CNS Clearing Process, it is a member of NSCC and a participant in the CNS System of NSCC (as defined in the Prospectus, a “Participating Party”); and (ii) with respect to orders for

 

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the creation or redemption of Creation Units outside the CNS Clearing Process, it is a DTC Participant (as defined in the Prospectus, a “DTC Participant”). The Participant may place orders for the creation or redemption of Creation Units either through the CNS Clearing Process or outside the CNS Clearing Process, subject to the procedures for creation and redemption referred to in paragraph 2 of this Agreement (“Execution of Orders”) and the procedures described in the Annexes attached hereto. Any change in the foregoing status of the Participant shall cause the Participant to become ineligible to create or redeem PowerShares QQQ Shares, and shall cause this Agreement to terminate. The Participant shall give immediate notice to the Distributor and the Trustee of such change.

The Participant further represents that it is a broker-dealer registered with the Securities and Exchange Commission and a member of the Financial Industry Regulatory Authority (“FINRA”) or is exempt from or otherwise not required to be licensed as a broker-dealer or a member of FINRA. The Participant is qualified as a broker or dealer under all applicable state laws where it is required to do so in order that PowerShares QQQ Shares may be sold in such states where the Participant intends to sell PowerShares QQQ Shares. The Participant agrees to conform to the rules of FINRA (if it is a member of FINRA) and the securities laws of any jurisdiction in which it sells, directly or indirectly, PowerShares QQQ Shares.

If the Participant is offering or selling Shares of the Trust in jurisdictions outside the several states, territories and possessions of the United States (“US”) and is not otherwise required to be registered, qualified, or a member FINRA as set forth above, the Participant nevertheless agrees (i) to observe the applicable laws of the jurisdiction in which such offer and/or sale is made, (ii) to comply with the full disclosure requirements of the Securities Act of 1933, as amended (the “1933 Act”) and the regulations promulgated thereunder and (iii) to conduct its business in accordance with the spirit of the FINRA Conduct Rules.

The Authorized Participant represents, covenants and warrants that it has established and presently maintains an anti-money laundering program (the “Program”) reasonably designed to prevent the Authorized Participant from being used as a conduit for money laundering or other illicit purposes or the financing of terrorist activities, and is in compliance with the Program and all anti-money laundering laws, regulations and rules now or hereafter in effect that are applicable to it, including, without limitation, the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the “USA PATRIOT ACT”).

 

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The Participant has the capability to send and receive communications via authenticated telecommunication facility to and from the Distributor, the Trustee, and the Authorized Participant’s custodian. The Participant shall confirm such capability to the satisfaction of the Distributor and the Trustee prior to placing its first Order with the Trustee in its capacity as transfer agent (whether it is a Purchase Order or a Redemption Order).

2. EXECUTION OF ORDERS. All orders for the creation or redemption of Creation Units shall be handled in accordance with the terms of the Prospectus, the Trust Agreement and the procedures described in the Annexes to this Agreement. Each party hereto agrees to comply with the provisions of such documents to the extent applicable to it. In the event the procedures include the use of recorded telephone lines, the Participant hereby consents to such use. The Trustee reserves the right to issue additional or other procedures relating to the manner of creating or redeeming Creation Units, and the Participant and the Distributor agree to comply with such procedures as may be issued from time to time.

The Participant acknowledges and agrees on behalf of itself and any party for which it is acting (whether as a customer or otherwise) that delivery of a Purchase Order or Redemption Order shall be irrevocable, provided that the Trustee and the Distributor on behalf of the Trust reserve the right to reject any Purchase Order until the trade is confirmed as described in the Annexes hereto and any Redemption Order that is not in “proper form” as described in the Prospectus.

3. NSCC. Solely with respect to orders for the creation or redemption of Creation Units through the CNS Clearing Process, the Participant as a Participating Party hereby authorizes the Trustee to transmit to NSCC on behalf of the Participant such instructions, including share and cash amounts as are necessary with respect to the creation and redemption of Creation Units consistent with the instructions issued by the Participant to the PowerShares QQQ telephone representative identified in the Annexes hereto (the “PowerShares QQQ Telephone Representative”), or through the electronic order entry system made available by the Trustee, subject to the terms and conditions related thereto. The Participant agrees to be bound by the terms of such instructions issued by the Trustee and reported to NSCC as though such instructions were issued by the Participant directly to NSCC.

 

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4. INFORMATION ABOUT CREATION DEPOSITS. The Participant understands that the number and names of the designated portfolio of Deposit Securities to be included in the current Creation Deposit for the Trust will be made available by NSCC on each day that the Listing Exchange, as hereinafter defined, is open for trading and will also be made available on each such day through the facilities of the NSCC.

5. PROSPECTUS, MARKETING MATERIALS AND REPRESENTATIONS. The Distributor will provide, or cause to be provided, to the Participant copies of the then current Prospectus and any printed supplemental information in reasonable quantities upon request. The Participant shall, upon request of the Trustee, provide the Trustee with sufficient documentation and other evidence that the Participant is providing Prospectuses and, where applicable, product descriptions, to the purchasers of any PowerShares QQQ Shares. The Distributor represents, warrants and agrees that it will notify, or cause to be notified, the Participant when a revised, supplemented or amended Prospectus for any PowerShares QQQ Shares is available and deliver or otherwise make available to the Participant copies of such revised, supplemented or amended Prospectus at such time and in such numbers as to enable the Participant to comply with any obligation it may have to deliver such Prospectus to customers. As a general matter, the Distributor will make such revised, supplemented or amended Prospectus available to the Participant in a reasonable time period. The Distributor shall be deemed to have complied with this Section when the Participant has received such revised, supplemented or amended Prospectus by email at such email address as Participant may advise Distributor of from time to time, in printable form, with such number of hard copies as may be agreed from time to time by the parties promptly thereafter.

The Participant understands that the Trust will not be advertised or marketed as an open-end investment company, (i.e., as a mutual fund), which offers redeemable securities, and that any advertising materials will prominently disclose the fact that the PowerShares QQQ Shares are not redeemable shares of the Trust. In addition, the Participant understands that any advertising material that addresses redemptions of PowerShares QQQ Shares, including the

 

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Prospectus, will disclose that the owners of PowerShares QQQ Shares may acquire PowerShares QQQ Shares and tender PowerShares QQQ Shares for redemption to the Trust in whole Creation Units only.

6. TITLE TO SECURITIES; RESTRICTED SHARES. The Participant represents on behalf of itself and any party for which it acts that upon delivery of a portfolio of PowerShares QQQ Securities to the Trustee in accordance with the terms of the Trust Agreement, the Trust will acquire good and unencumbered title to such securities, free and clear of all liens, restrictions, charges and encumbrances and not subject to any adverse claims, including, without limitation, any restriction upon the sale or transfer of such securities imposed by (i) any agreement or arrangement entered into by the Participant or any party for which it is acting in connection with a Purchase Order or (ii) any provision of the 1933 Act, and any regulations thereunder (except that portfolio securities of issuers other than U.S. issuers shall not be required to have been registered under the 1933 Act, if exempt from such registration), or of the applicable laws or regulations of any other applicable jurisdiction and (iii) no such securities are “restricted securities” as such term is used in Rule 144(a)(3)(i) promulgated under the 1933 Act.

7. FEES. In connection with the creation or redemption of Creation Units, the Trustee shall charge, and the Participant agrees to pay to the Trustee, the Transaction Fee prescribed in the PowerShares QQQ Shares Prospectus applicable to creations or redemptions through the CNS Clearing Process, or the Transaction Fee and such additional amounts as may be prescribed pursuant to the Prospectus applicable to (i) creations or redemptions outside the CNS Clearing Process and (ii) creations within the CNS Clearing Process where the cash equivalent value of one or more Index Securities (the “Index Securities”) is being deposited in lieu of the inclusion of such Index Security in the securities portion of the Portfolio Deposit because the Participant is restricted by regulation or otherwise from investing or engaging in a transaction in such security. The Transaction Fee may be waived or otherwise adjusted from time to time subject to the provisions relating thereto and any limitations as prescribed in the Prospectus and the Trust Agreement.

 

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8. ROLE OF PARTICIPANT. The Participant acknowledges and agrees that for all purposes of this Agreement, the Participant will be deemed to be an independent contractor, and shall have no authority in any transaction to act as agent of the Distributor, the Trustee or the Trust, in any manner or in any respect. The Participant agrees to make itself and its employees available, upon request, during normal business hours to consult with the Trust, the Distributor, the Trustee, or the Participant’s custodian or their designees concerning the performance of the Participant’s responsibilities under this Agreement.

a. In executing this Agreement, the Participant agrees in connection with any purchase or redemption transactions in which it acts for a customer or for any other Participant or indirect participant, or any other shareholder in an underlying shares account (“Beneficial Owner”), that it shall extend to any such party all of the rights, and shall be bound by all of the obligations, of a DTC Participant in addition to any obligations that it undertakes hereunder or in accordance with the Prospectus.

b. The Participant agrees to maintain records of all sales of PowerShares QQQ Shares made by or through it and to furnish copies of such records to the Trust or the Distributor upon the request of the Trust or the Distributor. The Participant agrees (i) subject to any privacy obligations or other obligations arising under the federal or state securities laws it may have to its customers, to assist the Distributor in ascertaining certain information regarding sales of PowerShares QQQ Shares made by or through the Participant upon the request of the Trust or the Distributor necessary for the Trust to comply with their obligations to distribute information to its shareholders as may be required from time to time under applicable state or federal securities laws or (ii) in lieu thereof, and at the option of the Participant, the Participant may undertake to deliver Prospectuses, as may be amended or supplemented from time to time, proxy material, annual and other reports of the Trust or other similar information that the Trust is obligated to deliver to its shareholders to the Participant’s customers that custody PowerShares QQQ Shares with the Participant, after receipt from the Trust or the Distributor of sufficient quantities to allow mailing thereof to such customers. None of the Distributor, the Trust or any of their respective affiliates shall use the names and addresses and other information concerning Participant’s customers for any purpose except in connection with the performance of their duties and responsibilities hereunder and except for servicing and informational mailings described in this Section, or as may otherwise be required by applicable law.

 

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9. AUTHORIZED PERSONS OF THE PARTICIPANT. Concurrently with the execution of this Agreement and from time to time thereafter, the Participant shall deliver to the Distributor and the Trustee, duly certified as appropriate by its secretary or other duly authorized official, a certificate setting forth the names and signatures of all persons authorized to give instructions relating to activity contemplated hereby or any other notice, request or instruction on behalf of the Participant (each, an “Authorized Person”). Such certificate may be accepted and relied upon by the Distributor and the Trustee as conclusive evidence of the facts set forth therein and shall be considered to be in full force and effect until delivery to the Distributor and the Trustee of a superseding certificate bearing a subsequent date. The Trustee shall issue to each Authorized Person a unique personal identification number (“PIN Number”) by which such Authorized Person and the Participant shall be identified and instructions issued by the Participant hereunder shall be authenticated. Upon the termination or revocation of authority of such Authorized Person by the Participant, the Participant shall give immediate written notice of such fact to the Distributor and the Trustee and such notice shall be effective upon receipt by both the Distributor and the Trustee.

10. REDEMPTION. The Participant understands and agrees that Redemption Orders may be submitted only on days that the US stock exchange where the PowerShares QQQ Shares are principally listed (as specified in the Prospectus) (the “Listing Exchange”) is open for trading or business. The Participant represents and warrants that it will not obtain a Submission Number (as defined in the Annexes attached hereto) from the Trustee for the purpose of redeeming a Creation Unit unless it first ascertains that (i) it or its customer, as the case may be, owns outright the requisite number of PowerShares QQQ Shares to be redeemed and (ii) such PowerShares QQQ Shares have not been loaned or pledged to another party nor are they the subject of a repurchase agreement, securities lending agreement or such other arrangement which would preclude the delivery of such shares to the Trustee on a “regular way” basis.

 

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11. BENEFICIAL OWNERSHIP. The Participant represents and warrants to the Distributor and the Trustee that either (i) it does not, and will not in the future, hold for the account of any single Beneficial Owner of PowerShares QQQ Shares, 80 percent (80%) or more of outstanding Trust Shares or (ii) if it does hold for the account of any single Beneficial Owner of PowerShares QQQ Shares, 80 percent (80%) or more of outstanding PowerShares QQQ Shares, that such a circumstance would not cause the Trust to have a basis in the Index Securities deposited with the Trust different from the market value of such Index Securities on the date of such deposit, pursuant to Section 351 of the Internal Revenue Code of 1986, as amended. The Trustee shall have the right to require information from the Participant regarding PowerShares QQQ Share ownership and to rely thereon to the extent necessary to make a determination regarding ownership of 80 percent (80%) or more of outstanding PowerShares QQQ Shares by a Beneficial Owner as a condition to the acceptance of a Portfolio Deposit.

12. INDEMNIFICATION. The Participant hereby agrees to indemnify and hold harmless the Distributor, the Trustee, the Trust, Invesco PowerShares Capital Management, LLC, the Trust sponsor (the “Sponsor”), their respective subsidiaries, affiliates, directors, officers, employees and agents, and each person, if any, who controls such persons within the meaning of Section 15 of the 1933 Act (each an “Indemnified Party”) from and against any loss, liability, cost and expense incurred by such Participant Indemnified Party as a result of (i) any breach by the Participant of any provision of this Agreement that relates to such Participant; (ii) any failure on the part of the Participant to perform any of its obligations set forth in the Agreement; (iii) any failure by the Participant to comply with applicable laws, including rules and regulations of self-regulatory organizations in relation to its role as Participant, except that the Participant shall not be required to indemnify an Indemnified Party to the extent that such failure was caused by Participant’s adherence to instructions given or representations made by the Distributor or the Trustee, as applicable; (iv) any breach by the Participant of any representation or warranty provided in the Agreement or provided pursuant to the Annexes attached hereto; or (v) action of such Indemnified Party in accordance with any instructions issued by the Participant and reasonably believed by the Distributor or the Trustee, as applicable, to be genuine and to have been given by the Participant, except to the extent that the Participant had previously revoked a PIN Number used in giving such instructions or representations (where

 

8


applicable) and such revocation was given by the Participant and received by the Distributor and the Trustee in accordance with the terms of this Agreement. The Participant and the Distributor understand and agree that the Trust as a third party beneficiary to this Agreement is entitled and intends to proceed directly against the Participant in the event that the Participant fails to honor any of its obligations pursuant to this Agreement that benefit the Trust.

The foregoing shall not apply to any loss, damage, charge, liability, cost, expense, cause of action, obligation, judgment or fee incurred by such Indemnified Party arising out of Indemnified Party’s gross negligence or reckless or willful acts or omissions or the Indemnified Party’s failure to perform any of its obligation or responsibilities under this Agreement. With respect to (i) through (iii) above, Indemnified Party’s failure to promptly acknowledge Participant’s breach of, failure to perform or failure to comply with the terms of this Agreement shall not negate the foregoing indemnification. This paragraph shall survive the termination of this Agreement. The term “affiliate” in this Section shall include, with respect to any person, entity or organization, any other person, entity or organization which directly, or indirectly through one or more intermediaries, controls, is controlled by or is under common control with such person, entity or organization.

13. LIMITATION OF LIABILITY. The Distributor and the Trustee undertake to perform such duties and only such duties as are expressly set forth herein, or expressly incorporated herein by reference, and no implied covenants or obligations shall be read into this Agreement against the Distributor or the Trustee.

Limitation on Distributor and Trustee Liability. In the absence of bad faith, gross negligence or willful misconduct on its part, neither the Distributor, nor the Trustee, whether acting directly or through agents or attorneys as provided below, shall be liable for any action taken, suffered or omitted or for any error of judgment made by any of them in the performance of their duties hereunder. Neither the Distributor nor the Trustee shall be liable for any error of judgment made in good faith unless the party exercising such shall have been negligent in ascertaining the pertinent facts necessary to make such judgment.

In no event shall the Distributor or the Trustee be liable for special, indirect or consequential loss or damage of any kind whatsoever (including but not limited to lost profit), even if such parties have been advised of the likelihood of such loss or damage and regardless of

 

9


the form of action. In no event shall the Distributor or the Trustee be liable for the acts or omissions of DTC, NSCC or any other securities depository or clearing corporation.

Force Majeure. Neither the Distributor nor the Trustee shall be responsible or liable for any failure or delay in the performance of their obligations under this Agreement arising out of or caused, directly or indirectly, by circumstances beyond its reasonable control, including, without limitation: acts of God; earthquakes; fires; floods; wars; civil or military disturbances; terrorism; sabotage; epidemics; riots; interruptions; loss or malfunction of utilities, computer (hardware or software) or communications service; accidents; labor disputes; acts of civil or military authority or governmental actions.

Reasonable Reliance on Instructions. The Distributor and the Trustee may conclusively rely upon, and shall be fully protected in acting or refraining from acting upon, any communication authorized hereby and upon any written or oral instruction, notice, request, direction or consent reasonably believed by them to be genuine.

Trustee Expenses. The Trustee shall not be required to advance, expend or risk its own funds or otherwise incur or become exposed to financial liability in the performance of its duties hereunder, except as may be required as a result of its own gross negligence, willful misconduct or bad faith in connection with any duty owed to the Trust.

Tax Liability. To the extent any payment of any transfer tax, sales or use tax, stamp tax, recording tax, value added tax or any other similar tax or government charge applicable to the creation or redemption of any Creation Unit of PowerShares QQQ Shares of the Trust made pursuant to this Agreement is imposed, the Participant shall be responsible for the payment of such tax or government charge regardless of whether or not such tax or charge is imposed directly on the Participant. To the extent the Trust or the Distributor is required by law to pay any such tax or charge, the Participant agrees to promptly reimburse, indemnify and hold harmless such party for any such payment, together with any applicable penalties, additions to tax or interest thereon.

14. TRUSTEE CAPACITY. The parties acknowledge that the Trustee is acting in its capacity hereunder as trustee in accordance with and pursuant to the Trust Agreement and not in its general corporate capacity.

 

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15. ACKNOWLEDGMENT. The Participant acknowledges receipt of the Prospectus and represents it has reviewed such document and understands the terms thereof.

16. NOTICES. Except as otherwise specifically provided in this Agreement, all notices required or permitted to be given pursuant to this Agreement shall be given in writing and delivered by personal delivery or by postage prepaid registered or certified United States first class mail, return receipt requested, or by telex, telegram or facsimile or similar means of same day delivery (with a confirming copy by mail as provided herein). Unless otherwise notified in writing, all notices to the Trustee shall be given or sent as follows: The Bank of New York Mellon, 2 Hanson Place, Brooklyn, New York 11217, Attn: PowerShares QQQ. All notices to the Participant and the Distributor shall be directed to the address or telephone, facsimile or telex numbers indicated below the signature line of such party.

17. TERMINATION AND AMENDMENT. This Agreement shall become effective in this form as of the date accepted by the Trustee and may be terminated at any time by any party upon thirty (30) day prior notice to the other parties (i) unless earlier terminated by the Trustee in the event of a breach of this Agreement or the procedures described herein by the Participant or (ii) in the event that the Trust is terminated pursuant to the Trust Agreement. This Agreement supersedes any prior agreement between the parties. This Agreement may be amended by the Trustee without consent of any Beneficial Owner from time to time by the following procedure. The Trustee will mail a copy of the amendment to the Distributor and the Participant. For the purposes of this Agreement, mail will be deemed received by the recipient thereof on the third (3rd) day following the deposit of such mail into the U.S. postal system. If neither the Distributor nor the Participant objects in writing to the amendment within ten (10) days after its receipt, the amendment will become part of this Agreement in accordance with its terms. Distributor, in coordination with Trustee, may upon written notice to the Participant and Distributor amend the Annexes attached hereto.

18. REPRESENTATIONS REGARDING TRUST SHARES. The Participant shall not make, or permit any representative to make, in connection with any sale or solicitation of a sale of PowerShares QQQ Shares, any representations concerning PowerShares QQQ Shares

 

11


except those contained in the then current Prospectus and in printed information approved by the Distributor and the Trust as information supplemental to such Prospectus. Copies of the then current Prospectus and any such printed supplemental information will be supplied by the Distributor to the Participant in reasonable quantities upon request.

19. COUNTERPARTS. This Agreement may be simultaneously executed in several counterparts, each of which shall be an original and all shall constitute but one and the same instrument.

20. SPONSOR AS THIRD PARTY BENEFICIARY. The Sponsor shall be a third-party beneficiary of this Agreement and is entitled to enforce directly against the Participant the obligations owed to the Sponsor by the Participant (including, without limitation, bringing proceedings against the Participant in the Sponsor’s name).

21. GOVERNING LAW, CONSENT TO JURISDICTION. This Agreement shall be governed by and construed in accordance with the laws of the State of New York (regardless of the laws that might otherwise govern under applicable New York conflict of laws principles) as to all matters, including matters of validity, construction, effect, performance and remedies. Each party hereto irrevocably consents to the jurisdiction of the courts of the State of New York and of any federal court located in the Borough of Manhattan in such State in connection with any action, suit or other proceeding arising out of or relating to this Agreement or any action taken or omitted hereunder, and waives any claim of forum non conveniens and any objections as to laying of venue. Each party hereto hereby irrevocably waives any and all rights to trial by jury in any legal proceeding arising out of or relating to this Agreement.

22. SUCCESSORS AND ASSIGNS. This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the parties and their respective successors and permitted assigns.

23. ASSIGNMENT. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any party without the prior written consent of the

 

12


other parties, except that any entity into which a party hereto may be merged or converted or with which it may be consolidated or any entity resulting from any merger, conversion, or consolidation to which such party hereunder shall be a party, or any entity succeeding to all or substantially all of the business of the party, shall be the successor of the party under this Agreement. The party resulting from any such merger, conversion, consolidation or succession shall notify the other parties hereto of the change. Any purported assignment in violation of the provisions hereof shall be null and void.

24. INTERPRETATION. The article and section headings contained in this Agreement are solely for the purpose of reference, are not part of the agreement of the parties and shall not in any way affect the meaning or interpretation of this Agreement.

25. ENTIRE AGREEMENT. This Agreement, along with any other agreement or instrument delivered pursuant to this Agreement, supersede all prior agreements and understandings between the parties with respect to the subject matter hereof.

26. SEVERANCE. If any provision of this Agreement is held by any court or any act, regulation, rule or decision of any other governmental or supra national body or authority or regulatory or self-regulatory organization to be invalid, illegal or unenforceable for any reason, it shall be invalid, illegal or unenforceable only to the extent so held and shall not affect the validity, legality or enforceability of the other provisions of this Agreement and this Agreement will be construed as if such invalid, illegal, or unenforceable provision had never been contained herein, unless the Trustee determines in its discretion, after consulting with the Distributor, that the provision of this Agreement that was held invalid, illegal or unenforceable does affect the validity, legality or enforceability of one or more other provisions of this Agreement, and that this Agreement should not be continued without the provision that was held invalid, illegal or unenforceable, and in that case, upon the Trustee’s notification of the Distributor of such a determination, this Agreement shall immediately terminate and the Distributor will so notify the Participant immediately.

Signatures on Following Page

 

13


POWERSHARES QQQ TRUST PARTICIPATION AGREEMENT

 

 

INVESCO DISTRIBUTORS, INC.
BY:  

                                              

NAME:  

 

TITLE:  

 

ADDRESS:  

 

 

 

TELEPHONE:  

 

[PARTICIPANT]
BY:  

 

NAME:  

 

TITLE:  

 

ADDRESS:  

 

 

 

TELEPHONE:  

 

 

ACCEPTED BY:
THE BANK OF NEW YORK MELLON, AS TRUSTEE
BY:  

                                          

NAME:  

 

TITLE  

 

ADDRESS:  

                                                  

 

 

TELEPHONE:  

 

DATED:  

 

 

 

14


ANNEX

POWERSHARES QQQ PARTICIPATION AGREEMENT

PROCEDURES FOR PROCESSING

PURCHASE ORDERS AND REDEMPTION ORDERS

These Annexes to the Participant Agreement supplement the Prospectus with respect to the procedures to be used in processing (1) a Purchase Order for the purchase of Shares of PowerShares QQQ Trust in Creation Units of each Fund and (2) a Redemption Order for the redemption of Shares of PowerShares QQQ Trust in Creation Units of the Trust. Capitalized terms, unless otherwise defined in this Annex, have the meanings attributed to them in the Authorized Participant Agreement or the Prospectus.

A Participant is required to have signed the Participant Agreement. Upon acceptance of the Agreement and execution thereof by the Distributor and in connection with the initial Purchase Order submitted by the Participant, the Transfer Agent will assign a PIN Number to each Authorized Person authorized to act for a Participant. This will allow a Participant through its Authorized Person(s) to place a Purchase Order or Redemption Order with respect to the purchase or redemption of Creation Units of Shares of PowerShares QQQ Trust.

 

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ANNEX I — PART A

TO

PARTICIPANT AGREEMENT

FOR THE POWERSHARES QQQ TRUST

TO PLACE A PURCHASE ORDER FOR CREATION UNIT(S)

OF SHARES OF THE POWERSHARES QQQ TRUST

1. PLACING A PURCHASE ORDER.

Purchase Orders for Creation Units of Shares of the PowerShares QQQ Trust may be initiated only on days that the Listing Exchange is open for trading (“Business Days”). Purchase Orders may only be made in whole Creation Units of Shares of each Fund.

The Authorized Participant (“AP”) submitting an order to create shall submit such orders containing the information required by the Transfer Agent in the following manner: (a) in writing transmitted by (i) facsimile or (ii) telex; (b) through Transfer Agent’s electronic order entry system, as such may be made available and constituted from time to time, the use of which shall be subject to the terms and conditions attached hereto as Annex III; or (c) by telephone to the Transfer Agent Representative and the Distributor, as applicable, according to the procedures set forth below. The order so transmitted (either in writing, orally or electronic form) is hereinafter referred to as the “Submission” or the “Purchase Order” as applicable, and the Business Day on which a Submission is made is hereinafter referred to as the “Transmittal Date”. NOTE THAT THE TELEPHONIC METHOD OF SUBMITTING ORDERS IS USED, THE TELEPHONE CALL IN WHICH THE SUBMISSION NUMBER IS ISSUED INITIATES THE ORDER PROCESS BUT DOES NOT ALONE CONSTITUTE THE ORDER. AN ORDER OR REQUEST IS ONLY COMPLETED AND PROCESSED UPON RECEIPT OF THE SUBMISSION.

To begin a telephone Purchase Order, the AP must telephone the Transfer Agent at (718) 315-7500 or such other number as the Distributor or Transfer Agent designates in writing to the AP. This telephone call must be made by an Authorized Person of the AP not later than the closing time of the regular trading session on the Listing Exchange which is ordinarily 4:00 p.m. Eastern Time (“Listing Exchange Closing Time”). Upon verifying the authenticity of the AP (as determined by the use of the appropriate PIN Number), Transfer Agent will request that the AP place the Purchase Order. To do so, the AP must provide the appropriate ticker symbols when referring to the Trust. After the AP has placed the Purchase Order, Transfer Agent will read the

 

A-2


Purchase Order back to the AP. The AP then must affirm that the Purchase Order has been taken correctly by Transfer Agent. If the AP affirms that Purchase Order has been taken correctly, Transfer Agent will issue a Confirmation Number to the AP. PLEASE NOTE: A PURCHASE ORDER REQUEST IS NOT COMPLETE UNTIL THE CONFIRMATION NUMBER IS ISSUED BY THE TRANSFER AGENT REPRESENTATIVE. AN ORDER CANNOT BE CANCELED BY THE AP REPRESENTATIVE AFTER THE LISTING EXCHANGE CLOSING TIME. INCOMING TELEPHONE CALLS ARE QUEUED AND WILL BE HANDLED IN THE SEQUENCE RECEIVED. ACCORDINGLY THE AP SHOULD NOT HANG UP AND REDIAL. CALLS THAT ARE IN PROGRESS BY 3:59:59 ARE VALID FOR PROCESSING AND IF OTHERWISE IN ORDER, WILL BE TAKEN SUBMITTED FOR ACCEPTANCE. PLEASE NOTE THAT “IN PROGRESS” IS DEFINED AS AN AP ACTUALLY SPEAKING WITH A TRANSFER AGENT REPRESENTATIVE. CALLS THAT ARE PLACED BEFORE 3:59:59 BUT THAT ARE STILL HOLDING IN QUEUE UNANSWERED AT OR AFTER 4:00 PM WILL NOT BE PROCESSED OR ACCEPTED. INCOMING CALLS RECEIVED AFTER THE LISTING EXCHANGE CLOSES WILL NOT BE ANSWERED. ALL TELEPHONE CALLS WILL BE RECORDED.

2. RECEIPT OF TRADE CONFIRMATION.

Subject to the conditions that a properly completed telephone Purchase Order has been placed by the AP (either on its own or its customer’s behalf) not later than the Listing Exchange Closing Time, the Distributor will accept the Purchase Order on behalf of the Trust and Distributor and will confirm in writing to the AP that its Purchase Order has been accepted by 4:45 p.m. Eastern Standard Time on the Business Day that the Purchase Order is received.

3. QUALITY ASSURANCE.

After a Confirmation Number is issued by the Transfer Agent to the AP, the Transfer Agent will either fax or email a written version of the Purchase Order to the AP. Upon receipt, the AP should immediately telephone Distributor, if the AP believes that the Purchase Order has not been taken correctly by the Transfer Agent. In addition, the Transfer Agent will telephone the AP within 15 minutes of the fax or e-mail to corroborate the Purchase Order.

 

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4. PROCESSING A PURCHASE ORDER.

During the telephone call, the Transfer Agent will request that the AP state that the AP will not own 80% or more of the Shares of the Trust upon execution of the Purchase Order. If the AP is not able to so confirm, the Transfer Agent has the right to not accept the Purchase Order.

5. REJECTING OR SUSPENDING PURCHASE ORDERS.

The Trust or Distributor reserve the absolute right to reject or revoke acceptance of a Purchase Order if (i) the order is not in proper form as determined by the Trustee, the Transfer Agent or Distributor, (ii) the portfolio of Deposit Securities delivered is not as specified by Distributor; (iii) acceptance of the Deposit Securities would have certain adverse tax consequences to the Trust; (iv) the acceptance of the Portfolio Deposit would, in the opinion of counsel, be unlawful; (v) the acceptance of the Portfolio Deposit would otherwise, in the discretion of the Trustee, have an adverse effect on the Trust or the rights of beneficial owners of a Fund; or (vi) circumstances outside the control of the Trust, Distributor or Transfer Agent make it for all practical purposes impossible to process a Purchase Order. The Trustee or the Distributor shall notify the AP of a rejection or revocation of any Purchase Order. The Trustee and Distributor are under no duty, however, to give notification of any defects or irregularities in the delivery of Portfolio Deposits nor shall either of them incur any liability for the failure to give any such notification.

Except as provided herein, all Purchase Orders for Creation Units of Shares of the Trust are irrevocable by the AP. The Trustee acknowledges its agreement to return to the AP or any party for which it is acting any dividend, distribution or other corporate action paid to the Trustee in respect of any Deposit Security that is transferred to the Trust that, based on the valuation of such Deposit Security at the time of transfer, should have been paid to the AP or any party for which it is acting.

6. CONTRACTUAL SETTLEMENT

(1) Except as provided below, Deposit Securities must be delivered through the National Securities Clearing Corporation (“NSCC”) to a Depository Trust Company (“DTC”) account maintained at the Trustee on or before the Domestic Contractual Settlement Date (defined below). The AP must also make available on or before the Contractual Settlement Date, by means satisfactory to the Trustee, immediately available or same day funds estimated by the Trustee to be sufficient to pay the Cash Component next determined after acceptance of the

 

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Purchase Order, together with the applicable purchase Transaction Fee. Any excess funds will be returned following settlement of the issue of the Creation Unit of Shares of the Trust. The “Domestic Contractual Settlement Date” is the earlier of (i) date upon which all of the required Deposit Securities, the Cash Component and any other cash amounts which may be due are delivered to the Trustee and (ii) trade date plus two (t+2) Business Days. Except as provided in the next two paragraphs, a Creation Unit of Shares of the Trust will be issued concurrently with the transfer of good title to the Trustee of the portfolio of Deposit Securities through the NSCC’s Continuous Net Settlement (“CNS”) system and the payment of the Cash Component and the purchase Transaction Fee through DTC.

(2) The Trust reserves the right to permit or require the substitution of an amount of cash (i.e., a “cash in lieu” amount) to be added to the Cash Component to replace any Deposit Security with respect to the Trust which may not be available in sufficient quantity for delivery or which may not be eligible for transfer through the CNS Clearing Process, or which may not be eligible for transfer through the systems of DTC and hence not eligible for transfer through the CNS Clearing Process (discussed below) and will be at the expense of the Trust and will affect the value of all Shares of the Trust; but the Trustee, subject to the approval of the Board, may adjust the “Transaction Fee” within the parameters described below to protect ongoing shareholders.

(3) Any settlement outside the CNS Clearing Process is subject to additional requirements and fees as discussed in the Prospectus.

7. CASH PURCHASES

When, in the sole discretion of the Trustee, cash purchases of Creation Units of Shares are available or specified for the Trust, such purchases shall be effected in essentially the same manner as in-kind purchases thereof. In the case of a cash purchase, the AP must pay the cash equivalent of the Deposit Securities it would otherwise be required to provide through an in-kind purchase, plus the same Cash Component required to be paid by an in-kind purchaser. In addition, to offset the Trust’s brokerage and other transaction costs associated with using the cash to purchase the requisite Deposit Securities, the AP must pay a fixed purchase Transaction Fee, plus an additional variable charge for cash purchases, which is expressed as a percentage of the value of the Deposit Securities. The Transaction Fees for in-kind and cash purchases of Creation Units of Shares are described in the Prospectus.

 

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ANNEX I — PART B

TO

PARTICIPANT AGREEMENT

FOR THE POWERSHARES QQQ TRUST

PROCEDURES TO PLACE A REDEMPTION ORDER FOR

CREATION UNIT(S) OF SHARES OF THE POWERSHARES QQQ TRUST

1. PLACING A REDEMPTION ORDER

Redemption Orders for Creation Units of Shares may be initiated only on days that the Listing Exchange is open for trading. Redemption Orders may only be made in whole Creation Units of shares of the Trust.

The AP submitting a request to redeem shall submit such requests containing the information required by to the Transfer Agent in the following manner: (a) in writing transmitted by (i) facsimile or (ii) telex; (b) through Transfer Agent’s electronic order entry system, as such may be made available and constituted from time to time, the use of which shall be subject to the terms and conditions attached hereto as Annex III; or (c) by telephone to the Transfer Agent Representative, according to the procedures set forth below. The request so transmitted (either in writing, orally or electronic form) is hereinafter referred to as the “Submission” or the “Redemption Order” as applicable, and the Business Day on which a Submission is made is hereinafter referred to as the “Transmittal Date”. NOTE THAT WHEN THE TELEPHONIC METHOD OF REQUESTING A REDEMPTION IS USED, THE TELEPHONE CALL IN WHICH THE REQUEST NUMBER IS ISSUED INITIATES THE REQUEST PROCESS BUT DOES NOT ALONE CONSTITUTE THE REQUEST. A REQUEST IS ONLY COMPLETED AND PROCESSED UPON RECEIPT OF THE SUBMISSION.

To begin a telephone Redemption Order, the AP must telephone the Transfer Agent at (718) 315-7500 or such other number as the Distributor or Transfer Agent designates in writing to the AP. This telephone call must be made by an Authorized Person of the AP not later than the closing time of the regular trading session on the Listing Exchange which is ordinarily 4:00 p.m. Eastern Time (“Listing Exchange Closing Time”). Upon verifying the authenticity of the AP (as determined by the use of the appropriate PIN Number), Transfer Agent will request that the AP place the Redemption Order. To do so, the AP must provide the appropriate ticker symbols when referring to each Fund. After the AP has placed the Redemption Order, Transfer Agent will read

 

A-6


the Redemption Order back to the AP. The AP then must affirm that the Redemption Order has been taken correctly by Transfer Agent. If the AP affirms that Redemption Order has been taken correctly, Transfer Agent will issue a Confirmation Number to the AP. PLEASE NOTE: A REDEMPTION ORDER REQUEST IS NOT COMPLETE UNTIL THE CONFIRMATION NUMBER IS ISSUED BY THE TRANSFER AGENT REPRESENTATIVE. AN ORDER CAN NOT BE CANCELED BY THE AP REPRESENTATIVE AFTER THE LISTING EXCHANGE CLOSING TIME. INCOMING TELEPHONE CALLS ARE QUEUED AND WILL BE HANDLED IN THE SEQUENCE RECEIVED. ACCORIDINGLY THE AP SHOULD NOT HANG UP AND REDIAL. CALLS THAT ARE IN PROGRESS BY 3:59:59 ARE VALID FOR PROCESSING AND IF OTHERWISE IN ORDER, WILL BE TAKEN SUBMITTED FOR ACCEPTANCE. PLEASE NOTE THAT “IN PROGRESS” IS DEFINED AS AN AP ACTUALLY SPEAKING WITH A TRANSFER AGENT REPRESENTATIVE. CALLS THAT ARE PLACED BEFORE 3:59:59 BUT THAT ARE STILL HOLDING IN QUEUE UNANSWERED AT OR AFTER 4:00 PM WILL NOT BE PROCESSED OR ACCEPTED. INCOMING CALLS RECEIVED AFTER THE LISTING EXCHANGE CLOSES WILL NOT BE ANSWERED. ALL TELEPHONE CALLS WILL BE RECORDED.

2. RECEIPT OF CONFIRMATION.

Subject to the conditions that a duly completed Redemption Order is received by the Transfer Agent from the AP on behalf of itself or another redeeming investor by the Listing Exchange Closing Time, the Transfer Agent will accept the Redemption Order on behalf of the Trust and the Transfer Agent and will confirm in writing to the AP that its Redemption Order has been accepted by 4:45 p.m. Eastern Standard Time on the Business Day the Redemption Order is received.

3. QUALITY ASSURANCE.

(a) After a Confirmation Number is issued by the Transfer Agent to the AP, the Transfer Agent will either fax or email a copy of the Redemption Order to the AP. Upon receipt, the AP should immediately telephone the Transfer Agent, if the AP believes that the Redemption Order has not been taken correctly by the Transfer Agent. In addition, the Transfer Agent will telephone the AP within 15 minutes of the fax or e-mail to corroborate the Redemption Order.

 

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(b) In the Redemption Order, the AP will be required to acknowledge its agreement on behalf of itself and any party for which it is acting (whether as a customer or otherwise) to return to the Trust any dividend, distribution or other corporate action paid to it or to the party for which it is acting in respect of any Deposit Security that is transferred to the AP or any party for which it is acting that, based on the valuation of such Deposit Security at the time of transfer, should be paid to the Trust to which the Redemption Order relates. In the Redemption Order, the AP will also be required to acknowledge its agreement on behalf of itself and any party for which it is acting (whether as a customer or otherwise) that the Trust is entitled to reduce the amount of money or other proceeds due to the AP or any party for which it is acting by an amount equal to any dividend, distribution or other corporate action to be paid to it or to the party for which it is acting in respect of any Deposit Security that is transferred to the AP or any party for which it is acting that, based on the valuation of such Deposit Security at the time of transfer, should be paid to the Trust to which the Redemption Order relates.

4. TAKING DELIVERY OF DEPOSIT SECURITIES.

The Deposit Securities constituting in-kind redemption proceeds will be delivered to the appropriate account which must be indicated in the AP’s Standing Redemption Instructions. An Authorized Person of the AP may amend the AP’s Standing Redemption Instructions from time to time in writing to the Transfer Agent and the Trust in a form approved by the Trust. A redeeming Beneficial Owner or the AP acting on behalf of such Beneficial Owner must maintain appropriate securities broker-dealer, bank or other custody arrangements to which account such Deposit Securities will be delivered. Redemptions of Shares for Deposit Securities will be subject to compliance with applicable United States federal and state securities laws.

5. CONTRACTUAL SETTLEMENT.

(1) Except as provided below, the Shares of the Trust must be delivered through the National Securities Clearing Corporation (“NSCC”) to a Depository Trust Company (“DTC”) account maintained at the Trustee on or before the Domestic Contractual Settlement Date (defined below). The Trustee will make available on the Domestic Contractual Settlement Date, the Cash Component next determined after acceptance of the Redemption Order, less the applicable purchase Transaction Fee. The “Domestic Contractual Settlement Date” is the date upon which all of the required Shares must be delivered to the Trustee and, the Deposit Securities, Cash Component less any fees are delivered by the Trustee to the AP (ordinarily trade

 

A-8


date plus two (t+2) Business Days). Except as provided in the next two paragraphs, the Deposit Securities representing Creation Units of Shares will be issued concurrently with the transfer of good title to Trustee of the required number of Shares through the NSCC’s Continuous Net Settlement (CNS) system and the delivery of the Cash Component less the purchase Transaction Fee through DTC.

(2) The Trust reserves the right to permit or require the substitution of an amount of cash (i.e., a “cash in lieu” amount ) to be added to the Cash Component to replace any Deposit Security with respect to the Trust which may not be available in sufficient quantity for delivery or which may not be eligible for transfer through the CNS Clearing Process, or which may not be eligible for transfer through the systems of DTC and hence not eligible for transfer through the CNS Clearing Process (discussed below) and will be at the expense of the Fund and will affect the value of all Shares of such Trust; but the Trustee may adjust the Transaction Fee within the parameters described below to protect ongoing shareholders. Any settlement outside the CNS Clearing Process is subject to additional requirements and fees as discussed in the Prospectus.

(3) In the event that the number of Shares is insufficient on the settlement date for Creation Unit(s) of Shares, the Trustee may deliver the Deposit Securities notwithstanding such deficiency in reliance on the undertaking of the AP to deliver the missing Shares as soon as possible, which undertaking shall be secured by such AP’s delivery and maintenance of collateral consisting of cash having a value at least equal to 105% of the value of the missing Shares marked to market daily. The parties hereto further agree that the Trustee may purchase the missing Shares at any time and the AP agrees to accept liability for any shortfall between the cost to the Trust of purchasing such securities and the value of the collateral, which may be sold by the Trust at such time, and in such manner, as the Trustee may determine in its sole discretion.

6. CASH REDEMPTIONS.

In the event that, in the sole discretion of the Trustee, cash redemptions are permitted or required by the Trustee, proceeds will be paid to the AP redeeming Shares on behalf of the redeeming investor as soon as practicable after the date of redemption.

 

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7. STANDING REDEMPTION INSTRUCTIONS.

The Annexes hereto contain the AP’s Standing Redemption Instructions, which includes information identifying the account(s) into which Deposit Securities of each Trust and any other redemption proceeds should be delivered by the Trustee pursuant to a Redemption Order.

 

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ANNEX I — PART C

TO

PARTICIPANT AGREEMENT

FOR THE POWERSHARES QQQ TRUST

POWERSHARES QQQ TRUST FUNDS FLOW PROCESS

This description of the Trust’s funds flow process supplements the Trust’s Prospectus with respect to the procedures to be used by the Distributor and Transfer Agent in processing an order for the creation or redemption of the Trust.

A. The AP is required to have (i) signed an Authorized Participant Agreement for the Trust and (ii) assigned a personal identification number to each Authorized Person that the AP has authorized to act for such AP. This will allow an AP through its Authorized Person(s) to place a creation or redemption order with respect to Shares of the Trust.

B. The AP and Distributor shall implement the “Funds Flow Process” as agreed to by the parties from time to time.

C. Note that trades placed through the NSCC/DTC may only occur on any day that NSCC/DTC is open for business (“NSCC/DTC Business Day”).

FUNDS FLOW PROCESS

 

ORIGINATOR

  

ACTIVITY

1. The AP calls on the Transfer Agent recorded number to place a Share Creation and/or Redemption order. These trades are to be placed by 4:00 PM EST on any Listing Exchange Business Day.    1. The Transfer agent greets caller.

2. AP identifies his/her name, the Institution he/she represents, and PIN #.

 

The AP states the Trust’s name and relevant ticker symbol(s).

 

AP will identify and list any securities that will not be delivered or received in kind.

 

AP will make alternate arrangements with the Transfer Agent to deliver or receive the value for those securities that cannot be delivered. AP and Transfer Agent will exchange delivery or receive instructions for any security being delivered outside of the CNS system.

  

2. The Transfer Agent will confirm the AP’s PIN #.

 

The Transfer Agent records the PIN # and the order, and provides the AP with an order confirmation number.

 

The order confirmation constitutes a binding order, which may only be reversed by the Transfer Agent, the Distributor or the Trustee.

 

AP will make alternate arrangements with the Transfer Agent to deliver or receive the value for those securities that cannot be delivered. AP and Transfer Agent will exchange delivery or receive instructions for any security being delivered outside of the CNS system.

 

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ORIGINATOR

  

ACTIVITY

3. AP will fax a copy of the order form to the Transfer Agent within 15 minutes from the time the call is made.

 

The AP will provide, as a part of the order form, a statement confirming that the AP will not be placing trades that would raise the AP’s total holdings to 80% or more of the outstanding Shares of the Trust.

 

The signed Order Form will be sent as the physical receipt for the AP that the order is confirmed.

 

The above procedures will be repeated until all orders have been placed by the AP.

  

The Transfer Agent will receive a copy of the completed order form from the AP faxed within 15 minutes from the time the order is placed.

 

All orders received from the APs are time stamped by the Transfer Agent at the time the order is placed.

 

The Distributor will verify that the appropriate disclaimers have been made by the AP and validate the disclaimer by calculating the AP’s position, including the subscriptions requested, to the Shares outstanding.

 

The Distributor will sign the Order Form and the signed Order Form will be sent as the physical receipt for the AP that the order is confirmed.

4. The AP receives the fax.

 

The AP will assume responsibility for an incorrect trade.

  

4. The AP will assume responsibility for an incorrect trade and contact the Transfer Agent, if necessary.

 

If trades are corrected, the Transfer Agent will delete the first trade and reenter the corrected trade. A second affirmation will be faxed to the AP with all trades placed that day. The corrected trade will be coded on the affirmation so that the AP can see the correction.

 

No corrections will be permitted after 4 p.m.

5. EXCEPTION – International Settlements

 

APs must deliver units for redemption orders no later than Trade Date Plus 1 in order to meet the affirmed order requirements placed the previous day.

  

 

* Times may vary depending on the trade value from APs.

 

A-12


ANNEX II

TO

PARTICIPANT AGREEMENT

FOR THE POWERSHARES QQQ TRUST

THE AP ACCOUNTS

FOR DELIVERY OF DEPOSIT SECURITIES

The accounts into which the PowerShares QQQ Trust should deposit the securities constituting the Deposit Securities of each Fund upon redemption by the AP are set forth below:

 

A-13


ANNEX III

TO

PARTICIPANT AGREEMENT

FOR THE POWERSHARES QQQ TRUST

ORDER ENTRY SYSTEM TERMS AND CONDITIONS

This Annex shall govern use by Authorized Participant of the electronic order entry system for placing Purchase Orders and Redemption Orders for Shares (the “System”). Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to such terms in the Authorized Participant Agreement (the “AP Agreement”). In the event of any conflict between the terms of this Annex and the main body of the AP Agreement with respect to the placing of Purchase Orders and Redemption Orders, the terms of this Annex shall control.

1. (a) Authorized Participant shall provide to the Transfer Agent a duly executed authorization letter, in a form satisfactory to Transfer Agent, identifying those Authorized Persons who will access the System. Authorized Participant shall notify the Transfer Agent in writing in the event that any person’s status as an Authorized Person is revoked or terminated as soon as possible, in order to give the Transfer Agent a reasonable opportunity to terminate such Authorized Person’s access to the System.

(b) It is understood and agreed that each Authorized Person shall be designated as an authorized user of Authorized Participant for the purpose of the AP Agreement. Upon termination of the AP Agreement, the Authorized Participant’s and each Authorized Person’s access rights with respect to System shall be immediately revoked.

2. Transfer Agent grants to Authorized Participant a personal, nontransferable and nonexclusive license to use the System solely for the purpose of transmitting Purchase Orders and Redemption Orders and otherwise communicating with Transfer Agent in connection with the same. Authorized Participant shall use the System solely for its own internal and proper business purposes. Except as set forth herein, no license or right of any kind is granted to Authorized Participant with respect to the System. Authorized Participant acknowledges that Transfer Agent and its suppliers retain and have title and exclusive proprietary rights to the System. Authorized Participant further acknowledges that all or a part of the System may be copyrighted or trademarked (or a registration or claim made therefor) by Transfer Agent or its suppliers. Authorized Participant shall not take any action with respect to the System inconsistent with the foregoing acknowledgments. Authorized Participant may not copy, distribute, sell, lease

 

A-14


or provide, directly or indirectly, the System or any portion thereof to any other person or entity without Transfer Agent’s prior written consent. Authorized Participant may not remove any statutory copyright notice or other notice included in the System. Authorized Participant shall reproduce any such notice on any reproduction of any portion of the System and shall add any statutory copyright notice or other notice upon Transfer Agent’s request.

3. (a) Authorized Participant acknowledges that any user manuals or other documentation (whether in hard copy or electronic form) (collectively, the “Material”), which is delivered or made available to Authorized Participant regarding the System is the exclusive and confidential property of Transfer Agent. Authorized Participant shall keep the Material confidential by using the same care and discretion that Authorized Participant uses with respect to its own confidential property and trade secrets, but in no event less than reasonable care. Authorized Participant may make such copies of the Material as is reasonably necessary for Authorized Participant to use the System and shall reproduce Transfer Agent’s proprietary markings on any such copy. The foregoing shall not in any way be deemed to affect the copyright status of any of the Material which may be copyrighted and shall apply to all Material whether or not copyrighted. TRANSFER AGENT AND ITS SUPPLIERS MAKE NO WARRANTIES, EXPRESS OR IMPLIED, CONCERNING THE MATERIAL OR ANY PRODUCT OR SERVICE, INCLUDING BUT NOT LIMITED TO WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.

(b) Upon termination of the Agreement for any reason, Authorized Participant shall return to Transfer Agent all copies of the Material which is in Authorized Participant’s possession or under its control.

4. Authorized Participant agrees that it shall have sole responsibility for maintaining adequate security and control of the user IDs, passwords and codes for access to the System, which shall not be disclosed to any third party without the prior written consent of Transfer Agent. Transfer Agent shall be entitled to rely on the information received by it from the Authorized Participant and Transfer Agent may assume that all such information was transmitted by or on behalf of an Authorized Person regardless of by whom it was actually transmitted.

5. Transfer Agent shall have no liability in connection with the use of the System, the access granted to the Authorized Participant and its Authorized Persons hereunder, or any transaction effected or attempted to be effected by the Authorized Participant hereunder, except for damages

 

A-15


incurred by the Authorized Participant as a direct result of Transfer Agent’s gross negligence or willful misconduct. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, IT IS HEREBY AGREED THAT IN NO EVENT SHALL TRANSFER AGENT OR ANY MANUFACTURER OR SUPPLIER OF EQUIPMENT, SOFTWARE OR SERVICES BE RESPONSIBLE OR LIABLE FOR ANY SPECIAL, INDIRECT, OR CONSEQUENTIAL DAMAGES WHICH THE AUTHORIZED P ARTICIP ANT MAY INCUR OR EXPERIENCE BY REASON OF ITS HAVING ENTERED INTO OR RELIED ON THIS AGREEMENT, OR IN CONNECTION WITH THE ACCESS GRANTED TO AUTHORIZED PARTICIPANT HEREUNDER, OR ANY TRANSACTION EFFECTED OR ATTEMPTED TO BE EFFECTED BY AUTHORIZED PARTICIPANT HEREUNDER, EVEN IF TRANSFER AGENT OR SUCH MANUFACTURER OR SUPPLIER HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, NOR SHALL TRANSFER AGENT OR ANY SUCH MANUFACTURER OR SUPPLIER BE LIABLE FOR ACTS OF GOD, MACHINE OR COMPUTER BREAKDOWN OR MALFUNCTION, INTERRUPTION OR MALFUNCTION OF COMMUNICATION FACILITIES, LABOR DIFFICULTIES OR ANY OTHER SIMILAR OR DISSIMILAR CAUSE BEYOND SUCH PERSON’S REASONABLE CONTROL.

6. Transfer Agent reserves the right to revoke Authorized Participant’s access to the System immediately and without notice upon any breach by the Authorized Participant of the terms and conditions of this Annex.

7. Transfer Agent shall acknowledge through the System its receipt of each Purchase Order or Redemption Order communicated through the System, and in the absence of such acknowledgment Transfer Agent shall not be liable for any failure to act in accordance with such orders and Authorized Participant may not claim that such Purchase Order or Redemption Order was received by Transfer Agent. Transfer Agent may in its discretion decline to act upon any instructions or communications that are insufficient or incomplete or are not received by Transfer Agent in sufficient time for Transfer Agent to act upon, or in accordance with such instructions or communications.

8. Authorized Participant agrees to use reasonable efforts to prevent the transmission through the System of any software or file which contains any viruses, worms, harmful component or corrupted data and agrees not to use any device, software, or routine to interfere or attempt to interfere with the proper working of the Systems.

 

A-16


9. Authorized Participant acknowledges and agrees that encryption may not be available for every communication through the System, or for all data. Authorized Participant agrees that Transfer Agent may deactivate any encryption features at any time, without notice or liability to Authorized Participant, for the purpose of maintaining, repairing or troubleshooting its systems.

 

A-17


ANNEX IV

AUTHORIZED PERSONS

Date:                                 

[PARTICIPANT ADDRESS]

Attn: PowerShares QQQ Trust Participant Agreement

The Bank of New York Mellon

2 Hanson Place, 12th floor

Brooklyn, NY 11217

Attn: ETF Services

 

Re: Authorized Persons for                                     . under the PowerShares QQQ Trust Participant Agreement (the “Agreement”)

Ladies and Gentlemen:

Pursuant to the Agreement, following are the names and signatures of all Authorized Persons (as defined in the Agreement).

 

Name

  

Signature

  

Phone

  

Email

Please provide PIN numbers for those listed above.

 

      Very truly yours,

Corp Seal

     
     

 

      Name:
      Title:

 

A-18

Power of Attorney

PowerShares QQQ Trust, Series 1 (the “Trust”)

The undersigned does hereby constitute and appoint Alan P. Goldberg, Eric S. Purple, Daniel Draper and Anna Paglia, and each of them, her true and lawful attorney and agent, with power of substitution or resubstitution, to do any and all acts and things and to execute any and all instruments which said attorney and agent may deem necessary or advisable or which may be required to enable the Trust to comply with the Securities Act of 1933, as amended (the “1933 Act”) and the Investment Company Act of 1940, as amended (the “1940 Act”), and any rules, regulations or requirements of the Securities and Exchange Commission (“SEC”) in respect thereof, in connection with the Trust’s Registration Statement on a form prescribed by the SEC pursuant to the 1933 Act and the 1940 Act, together with any and all amendments thereto, including within the foregoing, the power and authority to sign in the name and on behalf of the undersigned as an officer of the sponsor of the Trust such Registration Statement and any and all such amendments filed with the SEC under the 1933 Act and the 1940 Act, and any other instruments or documents related thereto, and the undersigned does hereby ratify and confirm all that said attorney and agents shall do or cause to be done by virtue hereof.

 

/s/ Annette Lege

Annette Lege

Date: January 26, 2018


Power of Attorney

PowerShares QQQ Trust, Series 1 (the “Trust”)

The undersigned does hereby constitute and appoint Alan P. Goldberg, Eric S. Purple, Daniel Draper and Anna Paglia, and each of them, his true and lawful attorney and agent, with power of substitution or resubstitution, to do any and all acts and things and to execute any and all instruments which said attorney and agent may deem necessary or advisable or which may be required to enable the Trust to comply with the Securities Act of 1933, as amended (the “1933 Act”) and the Investment Company Act of 1940, as amended (the “1940 Act”), and any rules, regulations or requirements of the Securities and Exchange Commission (“SEC”) in respect thereof, in connection with the Trust’s Registration Statement on a form prescribed by the SEC pursuant to the 1933 Act and the 1940 Act, together with any and all amendments thereto, including within the foregoing, the power and authority to sign in the name and on behalf of the undersigned as an officer of the sponsor of the Trust such Registration Statement and any and all such amendments filed with the SEC under the 1933 Act and the 1940 Act, and any other instruments or documents related thereto, and the undersigned does hereby ratify and confirm all that said attorney and agents shall do or cause to be done by virtue hereof.

 

/s/ David Warren

David Warren

Date: January 26, 2018


Power of Attorney

PowerShares QQQ Trust, Series 1 (the “Trust”)

The undersigned does hereby constitute and appoint Alan P. Goldberg, Eric S. Purple, Daniel Draper and Anna Paglia, and each of them, his true and lawful attorney and agent, with power of substitution or resubstitution, to do any and all acts and things and to execute any and all instruments which said attorney and agent may deem necessary or advisable or which may be required to enable the Trust to comply with the Securities Act of 1933, as amended (the “1933 Act”) and the Investment Company Act of 1940, as amended (the “1940 Act”), and any rules, regulations or requirements of the Securities and Exchange Commission (“SEC”) in respect thereof, in connection with the Trust’s Registration Statement on a form prescribed by the SEC pursuant to the 1933 Act and the 1940 Act, together with any and all amendments thereto, including within the foregoing, the power and authority to sign in the name and on behalf of the undersigned as an officer of the sponsor of the Trust such Registration Statement and any and all such amendments filed with the SEC under the 1933 Act and the 1940 Act, and any other instruments or documents related thereto, and the undersigned does hereby ratify and confirm all that said attorney and agents shall do or cause to be done by virtue hereof.

 

/s/ John M. Zerr

John M. Zerr

Date: January 26, 2018

LOGO   

Stradley Ronon Stevens & Young, LLP

 

1250 Connecticut Avenue, N.W., Suite 500

 

Washington, DC 20036

 

Telephone 202.822.9611

 

Fax 202.822.0140

 

www.stradley.com

January 29, 2018

Invesco PowerShares Capital Management LLC

300 West Roosevelt Road

Wheaton, IL 60187

Ladies and Gentlemen:

We have acted as counsel to Invesco PowerShares Capital Management, LLC, as sponsor (the “Sponsor”) of PowerShares QQQ TrustSM, Series 1, a unit investment trust organized under the laws of the State of New York (the “Trust”), in connection with Post-Effective Amendment No. 25 to the Trust’s registration statement on Forms S-6 and N-8B-2 (File No. 333-61001) (the “Registration Statement”), to be filed with the U. S. Securities and Exchange Commission (the “Commission”) on or about January 29, 2018, registering an indefinite number of units of fractional undivided interest of the Trust, (the “Shares”) under the Securities Act of 1933, as amended (the “Securities Act”).

This opinion letter is being delivered at your request in accordance with the requirements of Form S-6 under the Investment Company Act of 1940, as amended (the “Investment Company Act”).

For purposes of this opinion letter, we have examined originals or copies, certified or otherwise identified to our satisfaction, of:

 

  (i) the prospectus filed as part of the Registration Statement (the “Prospectus”);

 

  (ii) the Trust Indenture Agreement and the Standard Terms and Conditions of Trust in effect on the date of this opinion letter;

 

  (iii) the agreements adopted by the Sponsor and The Bank of New York Mellon, a corporation organized under the laws of the State of New York with trust powers (the “Trustee”) of the Trust relating to the Registration Statement, the Shares, and the authorization for issuance and sale of the Shares; and

 

  (iv) the exemptive order applicable to the Trust issued by the Commission under the Investment Company Act permitting the Trust to operate as a unit investment trust (the “Exemptive Order”)

As to certain matters of fact that are material to our opinions, we have relied on certificates of officers of the Sponsor and the Trustee. We have not independently established any of the facts on which we have so relied.


Page 2

January 29, 2018

 

For purposes of this opinion letter, we have assumed the accuracy and completeness of each document submitted to us, the genuineness of all signatures on original documents, the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as facsimile, electronic, certified, conformed, or photostatic copies thereof, and the due execution and delivery of all documents where due execution and delivery are prerequisites to the effectiveness thereof. We have further assumed the legal capacity of natural persons, that persons identified to us as officers of the Sponsor or trustee of the Trust are actually serving in such capacity, and that the representations of officers of the Sponsor or trustee of the Trust are correct as to matters of fact. We have also assumed compliance by the applicants with each of the conditions contained in the application, as amended, for the Exemptive Order. We have not independently verified any of these assumptions.

The opinions expressed in this opinion letter are based on the facts in existence and the laws in effect on the date hereof and are limited to the laws of the State of New York and the provisions of the Investment Company Act that are applicable to equity securities issued by registered unit investment trusts. We are not opining on, and we assume no responsibility for, the applicability to or effect on any of the matters covered herein of any other laws.

Based upon and subject to the foregoing, it is our opinion that (1) the Shares to be issued pursuant to the Registration Statement, when issued and paid for by the purchasers upon the terms described in the Registration Statement and the Prospectus, will be validly issued, and (2) such purchasers will have no obligation to make any further payments for the purchase of the Shares or contributions to the Trust solely by reason of their ownership of the Shares.

This opinion is rendered solely in connection with the filing of the Registration Statement and supersedes any previous opinion of this firm in connection with the issuance of Shares. We hereby consent to the filing of this opinion with the Commission in connection with the Registration Statement and to the reference to this firm’s name under the heading “Legal Opinion” in the Prospectus. In giving this consent, we do not thereby admit that we are experts with respect to any part of the Registration Statement or Prospectus within the meaning of the term “expert” as used in Section 11 of the Securities Act or the rules and regulations promulgated thereunder by the Commission, nor do we admit that we are within the category of persons whose consent is required under Section 7 of the Securities Act or the rules and regulations of the Commission promulgated thereunder.

 

Very truly yours,
/s/ Stradley Ronon Stevens & Young, LLP

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the use in this Registration Statement on Form S-6 of PowerShares QQQ Trust, Series 1 of our report dated December 22, 2017, relating to the financial statements and financial highlights of PowerShares QQQ Trust, Series 1, which appear in such Registration Statement. We also consent to the reference to us under the heading “Independent Registered Public Accounting Firm” in such Registration Statement.

/s/ PricewaterhouseCoopers LLP

Chicago, Illinois

January 29, 2018



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