Form N-30B-2 POWERSHARES QQQ TRUST, For: Sep 30

December 29, 2016 12:35 PM EST

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     September 30, 2016

2016 Annual Report to Shareholders

 

QQQ    PowerShares QQQ TrustSM, Series 1


 

Table of Contents

 

PowerShares QQQ TrustSM, Series 1   
Introduction      1   
Schedule of Investments      2   
Statement of Assets and Liabilities      4   
Statements of Operations      5   
Statements of Changes in Net Assets      6   
Financial Highlights      7   
Notes to Financial Statements      8   
Report of Independent Registered Public Accounting Firm      13   
Supplemental Information (Unaudited)      14   
Tax Information (Unaudited)      16   


 

Introduction

 

 

 

The PowerShares QQQ TrustSM, Series 1 (the “Trust’’) is a unit investment trust that issues securities called PowerShares QQQ SharesSM. The Trust holds all of the component securities of the NASDAQ-100 Index® (the “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.

 

 

 

  1  

 


 

Schedule of Investments

PowerShares QQQ TrustSM, Series 1 (QQQ)

September 30, 2016

 

Number
of Shares

          Value  
   Common Stocks and Other Equity Interests—99.9%    
   Airlines—0.3%   
  3,713,874       American Airlines Group, Inc.    $ 135,964,927   
     

 

 

 
   Auto Manufacturers—0.9%   
  2,456,587       PACCAR, Inc.      144,398,184   
  1,045,899       Tesla Motors, Inc.(a)      213,394,773   
     

 

 

 
        357,792,957   
     

 

 

 
   Beverages—0.5%   
  1,334,054       Monster Beverage Corp.(a)      195,852,468   
     

 

 

 
   Biotechnology—9.4%   
  1,571,582       Alexion Pharmaceuticals, Inc.(a)      192,581,658   
  5,244,886       Amgen, Inc.      874,899,434   
  1,535,662       Biogen, Inc.(a)      480,708,276   
  1,198,931       BioMarin Pharmaceutical, Inc.(a)      110,925,096   
  5,432,409       Celgene Corp.(a)      567,849,713   
  9,248,804       Gilead Sciences, Inc.      731,765,372   
  1,027,398       Illumina, Inc.(a)      186,637,121   
  1,317,573       Incyte Corp.(a)      124,233,958   
  724,539       Regeneron Pharmaceuticals, Inc.(a)      291,279,169   
  1,736,498       Vertex Pharmaceuticals, Inc.(a)      151,439,990   
     

 

 

 
        3,712,319,787   
     

 

 

 
   Commercial Services—1.8%   
  3,197,100       Automatic Data Processing, Inc.      281,984,220   
  8,458,682       PayPal Holdings, Inc.(a)      346,552,201   
  1,184,188       Verisk Analytics, Inc.(a)      96,250,801   
     

 

 

 
        724,787,222   
     

 

 

 
   Computers—12.0%   
  37,765,277       Apple, Inc.      4,269,364,565   
  4,253,713       Cognizant Technology Solutions Corp., Class A(a)      202,944,647   
  1,950,061       NetApp, Inc.      69,851,185   
  2,100,942       Seagate Technology PLC      80,991,314   
  1,992,296       Western Digital Corp.      116,489,547   
     

 

 

 
        4,739,641,258   
     

 

 

 
   Distribution & Wholesale—0.2%   
  2,025,137       Fastenal Co.      84,610,224   
     

 

 

 
   Engineering & Construction—0.2%   
  873,329       SBA Communications Corp.,
Class A(a)
     97,952,580   
     

 

 

 
   Environmental Control—0.1%   
  595,978       Stericycle, Inc.(a)      47,761,677   
     

 

 

 
   Food—3.3%   
  8,533,999       Kraft Heinz Co. (The)      763,878,250   
  10,901,983       Mondelez International, Inc., Class A      478,597,054   
  2,234,348       Whole Foods Market, Inc.      63,343,766   
     

 

 

 
        1,305,819,070   
     

 

 

 
   Healthcare—Products—1.0%   
  1,632,998       DENTSPLY Sirona, Inc.      97,049,071   
  573,244       Henry Schein, Inc.(a)      93,427,307   
  269,678       Intuitive Surgical, Inc.(a)      195,470,705   
     

 

 

 
        385,947,083   
     

 

 

 
   Internet—27.1%   
  2,066,436       Alphabet, Inc., Class A(a)      1,661,538,530   
  2,408,070       Alphabet, Inc., Class C(a)      1,871,768,730   
  3,322,529       Amazon.com, Inc.(a)      2,781,986,757   

Number
of Shares

          Value  
   Common Stocks and Other Equity Interests (continued)    
   Internet (continued)   
  1,920,530       Baidu, Inc. ADR(a)    $ 349,670,897   
  2,621,894       Ctrip.com International Ltd. ADR(a)      122,101,604   
  7,912,746       eBay, Inc.(a)      260,329,343   
  960,716       Expedia, Inc.      112,134,772   
  16,280,571       Facebook, Inc., Class A(a)      2,088,308,842   
  6,418,656       JD.com, Inc. ADR(a)      167,462,735   
  947,664       Liberty Ventures, Series A(a)      37,783,364   
  3,004,710       Netflix, Inc.(a)      296,114,170   
  346,395       Priceline Group, Inc. (The)(a)      509,716,779   
  4,314,301       Symantec Corp.      108,288,955   
  931,103       TripAdvisor, Inc.(a)      58,827,088   
  6,670,541       Yahoo!, Inc.(a)      287,500,317   
     

 

 

 
        10,713,532,883   
     

 

 

 
   Leisure Time—0.2%   
  1,591,671       Norwegian Cruise Line Holdings
Ltd.(a)
     60,005,997   
     

 

 

 
   Lodging—0.3%   
  1,782,906       Marriott International, Inc., Class A      120,043,061   
     

 

 

 
   Media—6.5%   
  1,898,722       Charter Communications, Inc., Class A(a)      512,597,978   
  16,837,196       Comcast Corp., Class A      1,116,979,583   
  1,057,482       Discovery Communications, Inc., Class A(a)      28,467,416   
  1,671,733       Discovery Communications, Inc., Class C(a)      43,983,295   
  1,586,827       DISH Network Corp., Class A(a)      86,926,383   
  1,852,862       Liberty Global PLC, Class A(a)      63,330,823   
  4,518,834       Liberty Global PLC, Series C(a)      149,302,275   
  34,186,990       Sirius XM Holdings, Inc.(a)      142,559,748   
  7,457,034       Twenty-First Century Fox, Inc., Class A      180,609,364   
  5,596,426       Twenty-First Century Fox, Inc., Class B      138,455,579   
  2,433,526       Viacom, Inc., Class B      92,717,341   
     

 

 

 
        2,555,929,785   
     

 

 

 
   Pharmaceuticals—1.1%   
  4,416,930       Express Scripts Holding Co.(a)      311,526,073   
  3,748,886       Mylan NV(a)      142,907,534   
     

 

 

 
        454,433,607   
     

 

 

 
   Retail—6.1%   
  1,082,521       Bed Bath & Beyond, Inc.      46,667,480   
  3,070,173       Costco Wholesale Corp.      468,232,084   
  1,651,603       Dollar Tree, Inc.(a)      130,361,025   
  3,130,300       Liberty Interactive Corp. QVC Group, Class A(a)      62,637,303   
  665,279       O’Reilly Automotive, Inc.(a)      186,351,301   
  2,799,952       Ross Stores, Inc.      180,036,914   
  10,278,693       Starbucks Corp.      556,488,439   
  936,764       Tractor Supply Co.      63,091,055   
  437,005       Ulta Salon Cosmetics & Fragrance, Inc.(a)      103,998,450   
  7,585,456       Walgreens Boots Alliance, Inc.      611,539,463   
     

 

 

 
        2,409,403,514   
     

 

 

 
   Semiconductors—11.4%   
  2,154,864       Analog Devices, Inc.      138,880,985   
  7,575,464       Applied Materials, Inc.      228,400,240   
  2,771,987       Broadcom Ltd.      478,223,197   
  33,157,543       Intel Corp.      1,251,697,248   
  1,123,150       Lam Research Corp.      106,373,537   
  1,680,122       Linear Technology Corp.      99,614,433   
 

 

See accompanying Notes to Financial Statements which are an integral part of the financial statements.

 

 

  2  

 


 

Schedule of Investments (continued)

PowerShares QQQ TrustSM, Series 1 (QQQ)

September 30, 2016

 

Number
of Shares

          Value  
   Common Stocks and Other Equity Interests (continued)    
   Semiconductors (continued)   
  1,987,010       Maxim Integrated Products, Inc.    $ 79,341,309   
  1,508,805       Microchip Technology, Inc.      93,757,143   
  7,277,505       Micron Technology, Inc.(a)      129,394,039   
  3,749,512       NVIDIA Corp.      256,916,562   
  2,377,376       NXP Semiconductors NV(a)      242,516,126   
  10,328,108       QUALCOMM, Inc.      707,475,398   
  1,314,006       Skyworks Solutions, Inc.      100,048,417   
  7,030,951       Texas Instruments, Inc.      493,432,141   
  1,776,469       Xilinx, Inc.      96,533,325   
     

 

 

 
        4,502,604,100   
     

 

 

 
   Software—13.1%   
  5,196,580       Activision Blizzard, Inc.      230,208,494   
  3,492,234       Adobe Systems, Inc.(a)      379,047,078   
  1,224,513       Akamai Technologies, Inc.(a)      64,886,944   
  1,555,170       Autodesk, Inc.(a)      112,485,446   
  2,936,201       CA, Inc.      97,129,529   
  2,366,841       Cerner Corp.(a)      146,152,432   
  1,201,733       Check Point Software Technologies Ltd.(a)      93,266,498   
  1,091,374       Citrix Systems, Inc.(a)      93,006,892   
  2,107,922       Electronic Arts, Inc.(a)      180,016,539   
  1,540,614       Fiserv, Inc.(a)      153,244,875   
  1,793,305       Intuit, Inc.      197,281,483   
  54,614,333       Microsoft Corp.      3,145,785,581   
  535,143       NetEase, Inc. ADR      128,851,731   
  2,526,787       Paychex, Inc.      146,225,164   
     

 

 

 
        5,167,588,686   
     

 

 

 
   Telecommunications—3.7%   
  35,251,006       Cisco Systems, Inc.      1,118,161,910   
  5,766,175       T-Mobile US, Inc.(a)      269,395,696   
  2,803,625       Vodafone Group PLC ADR      81,725,669   
     

 

 

 
        1,469,283,275   
     

 

 

 
   Toys & Games & Hobbies—0.2%   
  2,387,231       Mattel, Inc.      72,285,355   
     

 

 

 
   Transportation—0.5%   
  6,630,032       CSX Corp.      202,215,976   
     

 

 

 
   Total Investments
(Cost $41,613,978,571)—99.9%
     39,515,775,492   
   Other assets less liabilities—0.1%      20,045,384   
     

 

 

 
   Net Assets—100.0%    $ 39,535,820,876   
     

 

 

 

Investment Abbreviations:

ADR-American Depositary Receipt

Notes to Schedule of Investments:

(a)  Non-income producing security.
 

 

See accompanying Notes to Financial Statements which are an integral part of the financial statements.

 

 

  3  

 


 

PowerShares QQQ TrustSM, Series 1 (QQQ)

Statement of Assets and Liabilities

September 30, 2016

 

Assets:  

Investments in securities, at value

  $ 39,515,775,492   

Cash

    126,096,948   

Receivables:

 

Investments sold

    822,397,466   

Shares sold

    552,062,246   

Dividends

    14,924,064   
 

 

 

 

Total Assets

    41,031,256,216   
 

 

 

 
Liabilities:  

Payables:

 

Shares repurchased

    822,800,699   

Investments purchased

    551,797,482   

Distributions

    97,403,211   

Amount due to Sponsor

    12,316,220   

Amount due to Licensor

    8,370,942   

Amount due to Trustee

    2,158,482   

Accrued expenses

    588,304   
 

 

 

 

Total Liabilities

    1,495,435,340   
 

 

 

 
Net Assets   $ 39,535,820,876   
 

 

 

 
Net Assets Consist of:  

Shares of beneficial interest

  $ 46,614,196,005   

Undistributed net investment income

    14,909,771   

Undistributed net realized gain (loss)

    (4,995,081,821

Net unrealized appreciation (depreciation)

    (2,098,203,079
 

 

 

 
Net Assets   $ 39,535,820,876   
 

 

 

 

Shares outstanding (unlimited shares authorized, no par value)

    333,000,000   

Net asset value

  $ 118.73   
 

 

 

 

Total investments, at cost

  $ 41,613,978,571   
 

 

 

 

 

See accompanying Notes to Financial Statements which are an integral part of the financial statements.

 

 

  4  

 


 

PowerShares QQQ TrustSM, Series 1 (QQQ)

Statements of Operations

For the years ended September 30, 2016, 2015 and 2014

 

    2016      2015      2014  
Investment Income:        

Dividend income

  $ 519,683,143       $ 512,997,339       $ 771,162,567   

Foreign withholding tax

    (73,945      (80,353      (1,203,461
 

 

 

    

 

 

    

 

 

 

Total Income

    519,609,198         512,916,986         769,959,106   
 

 

 

    

 

 

    

 

 

 
Expenses:        

Licensing fees

    33,337,145         34,109,036         37,223,496   

Trustee fees

    22,333,835         22,859,000         24,802,194   

Marketing expenses

    20,191,614         19,390,239         24,028,070   

Professional fees

    124,879         118,835         138,439   

Other expenses

    1,129,262         1,005,277         616,570   
 

 

 

    

 

 

    

 

 

 

Total Expenses

    77,116,735         77,482,387         86,808,769   
 

 

 

    

 

 

    

 

 

 

Net Investment Income

    442,492,463         435,434,599         683,150,337   
 

 

 

    

 

 

    

 

 

 
Realized and Unrealized Gain (Loss):        

Net realized gain (loss) from:

       

Investment securities

    (1,001,892,563      (220,983,369      (392,168,338

In-kind redemptions

    3,709,338,441         6,807,071,254         8,959,055,466   
 

 

 

    

 

 

    

 

 

 

Net realized gain

    2,707,445,878         6,586,087,885         8,566,887,128   
 

 

 

    

 

 

    

 

 

 

Net change in unrealized appreciation (depreciation) on investment securities

    2,767,708,537         (5,787,099,822      792,269,664   
 

 

 

    

 

 

    

 

 

 

Net realized and unrealized gain

    5,475,154,415         798,988,063         9,359,156,792   
 

 

 

    

 

 

    

 

 

 

Net increase in net assets resulting from operations

  $ 5,917,646,878       $ 1,234,422,662       $ 10,042,307,129   
 

 

 

    

 

 

    

 

 

 

 

See accompanying Notes to Financial Statements which are an integral part of the financial statements.

 

 

  5  

 


 

PowerShares QQQ TrustSM, Series 1 (QQQ)

Statements of Changes in Net Assets

For the years ended September 30, 2016, 2015 and 2014

 

    2016      2015      2014  
Operations:        

Net investment income

  $ 442,492,463       $ 435,434,599       $ 683,150,337   

Net realized gain

    2,707,445,878         6,586,087,885         8,566,887,128   

Net change in unrealized appreciation (depreciation)

    2,767,708,537         (5,787,099,822      792,269,664   
 

 

 

    

 

 

    

 

 

 

Net increase in net assets resulting from operations

    5,917,646,878         1,234,422,662         10,042,307,129   
 

 

 

    

 

 

    

 

 

 
Distributions to Shareholders from:        

Net investment income

    (433,083,827      (429,531,545      (665,867,146
 

 

 

    

 

 

    

 

 

 
Shareholder Transactions:        

Proceeds from shares sold

    90,897,588,061         86,225,545,103         63,740,600,578   

Value of shares repurchased

    (93,669,443,359      (92,265,126,607      (69,310,164,621
 

 

 

    

 

 

    

 

 

 

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

    (2,771,855,298      (6,039,581,504      (5,569,564,043
 

 

 

    

 

 

    

 

 

 

Increase (Decrease) in Net Assets

    2,712,707,753         (5,234,690,387      3,806,875,940   
 

 

 

    

 

 

    

 

 

 
Net Assets:        

Beginning of year

    36,823,113,123         42,057,803,510         38,250,927,570   
 

 

 

    

 

 

    

 

 

 

End of year

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

 

 

    

 

 

    

 

 

 

Undistributed net investment income at end of year

  $ 14,909,771       $ 11,928,461       $ 10,684,900   
 

 

 

    

 

 

    

 

 

 
Changes in Shares Outstanding:        

Shares sold

    831,600,000         821,400,000         713,900,000   

Shares repurchased

    (860,050,000      (885,750,000      (773,500,000

Shares outstanding, beginning of year

    361,450,000         425,800,000         485,400,000   
 

 

 

    

 

 

    

 

 

 

Shares outstanding, ending of year

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

 

 

    

 

 

    

 

 

 

 

See accompanying Notes to Financial Statements which are an integral part of the financial statements.

 

 

  6  

 


 

Financial Highlights

 

PowerShares QQQ TrustSM, Series 1 (QQQ)

 

    Year Ended September 30,  
    2016      2015      2014      2013      2012  
Per Share Operating Performance:              

Net asset value at beginning of year

  $ 101.88       $ 98.77       $ 78.80       $ 68.61       $ 52.47   

Net investment income(a)

    1.26         1.16         1.41         1.02         0.63   

Net realized and unrealized gain on investments

    16.83         3.10         19.90         10.16         16.13   

Total from investment operations

    18.09         4.26         21.31         11.18         16.76   

Distributions to Shareholders from:

             

Net investment income

    (1.24      (1.15      (1.34      (0.99      (0.62

Net asset value at end of year

  $ 118.73       $ 101.88       $ 98.77       $ 78.80       $ 68.61   
Net Asset Value Total Return(b)     17.85      4.27      27.20      16.48      32.04
Ratios/Supplemental Data              

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

  $ 39,535,821       $ 36,823,113       $ 42,057,804       $ 38,250,928       $ 34,629,132   

Ratio to average net assets of:

             

Expenses

    0.20      0.20      0.20      0.20      0.20

Net investment income

    1.15      1.10      1.57      1.46      1.00

Portfolio turnover rate(c)

    7.49      11.43      5.19      14.73      9.12

 

(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.

 

 

  7  

 


 

Notes to Financial Statements

PowerShares QQQ TrustSM, Series 1

September 30, 2016

 

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 investment objective of the Trust is to provide investment results that generally correspond to the price and yield performance of the NASDAQ — 100 Index® (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 preparation of the financial statements in accordance with accounting principles generally accepted in the United States of America (“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. The following is a summary of the significant accounting policies followed by the Trust in preparation of the financial statements.

A. Security Valuation

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

Portfolio securities are valued at the NASDAQ last trade or official closing price of The NASDAQ Stock Market, Inc. (the “NASDAQ Stock Market”), which is deemed to be the principal market on which the securities are traded. If there is no NASDAQ last trade or official closing price on the day of valuation, a security is valued at the closing bid price of the NASDAQ Stock Market. If a security is not quoted on the NASDAQ Stock Market, the principal market of the security is other than the NASDAQ Stock Market, 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 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

 

 

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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 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 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. 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.

Corporate Actions (including cash dividends) are recorded net of non-reclaimable foreign tax withholdings on the ex-date.

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.

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.

Note 3. Agreements with the Trustee, Licensor and Sponsor

The Trust pays 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. License fees of $8,370,942 were payable to the Licensor at September 30, 2016. 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

 

 

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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 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. Trustee fees of $2,158,482 were payable to the Trustee at September 30, 2016.

Marketing expenses for the years ended September 30, 2016, 2015 and 2014, 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. The amount of $12,316,220 remains payable to the Sponsor at September 30, 2016.

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, 2016, 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.

Invesco Distributors, Inc., an affiliate of the Sponsor, is the distributor for the Trust. Prior to January 2, 2016, ALPS Distributors, Inc. was 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),

 

 

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  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, 2016, 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.

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, 2016, 2015 and 2014:

 

     2016      2015      2014  
Ordinary Income    $ 433,083,827       $ 429,531,545       $ 665,867,146   

Tax Components of Net Assets at Fiscal Year-End:

 

Undistributed Ordinary Income    $ 105,141,697   
Temporary Book/Tax Differences      (97,403,212
Net Unrealized Appreciation (Depreciation)      (2,198,717,297
Capital Loss Carryforward      (4,284,853,044
Post-October Capital Losses Deferrals*      (602,543,273
Shares of Beneficial Interest      46,614,196,005   
  

 

 

 
Total Net Assets    $ 39,535,820,876   
  

 

 

 

 

* The Funds 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 each Fund’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 carryforward 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, 2016.

 

                Post-effective/ no expiration              
2017   2018     2019     Short-Term     Long-Term     Total*     Expired  
$610,749,524   $ 1,571,731,420      $ 145,185,141      $ 33,240,902      $ 1,923,946,057      $ 4,284,853,044      $ 1,887,411,542   

 

* 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.

Note 6. Investment Transactions

For the fiscal year ended September 30, 2016, 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 $2,895,250,430 and $2,893,801,867, respectively.

For the fiscal year ended September 30, 2016, in-kind transactions associated with creations and redemptions were $90,774,926,634 and $93,540,742,447 respectively.

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

At September 30, 2016, the aggregate cost and the net unrealized appreciation (depreciation) of investments for tax purposes were as follows:

 

Aggregate gross unrealized appreciation of investment securities    $ 1,204,645,974   
Aggregate gross unrealized (depreciation) of investment securities      (3,403,363,271
  

 

 

 
Net unrealized appreciation (depreciation) of investment securities      (2,198,717,297
  

 

 

 
Cost of investment securities for tax purposes is $41,714,492,789.   

 

 

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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, 2016, 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, 2016, the reclassifications were as follows:

 

Undistributed Net Investment Income    $ (6,427,326
Undistributed Net Realized Gain (Loss)      (1,335,074,512
Shares of Beneficial Interest      1,341,501,838   

Note 8. Capital

The Trust’s Shares are issued and redeemed only in size aggregations of 50,000 Shares, called “Creation Units”. 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.

Transaction fees are received by the Trustee from the participating party and used to offset the expense of processing orders. For the years ended September 30, 2016, 2015 and 2014, the Trustee earned $1,371,500, $1,244,000 and $972,050, 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, 2016, 2015 and 2014.

Note 9. Representations and 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.

 

 

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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, 2016, the results of its operations, the changes in its net assets and the financial highlights for each of the three years in the period then ended, 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, 2016 by correspondence with the custodian and brokers, and the application of alternative auditing procedures where confirmations of security purchases have not been received, provide a reasonable basis for our opinion. The financial highlights for the years ended September 30, 2013 and prior 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, 2016

 

 

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Supplemental Information

(Unaudited)

 

Information Regarding Closing Prices vs. Net Asset Value Frequency Distribution

The table that follows presents information about the differences between the daily market prices on secondary market for one share of the Trust and the Trust’s net asset value. Net Asset Value, or “NAV”, is the price at which a Trust issues and redeems shares. The “Closing Market Price” of a share in the Trust is determined and published by The Nasdaq Stock Market, as of the time that the Trust’s NAV is calculated. The Trust’s Closing Market Price may be below, at or above, its NAV. The NAV will fluctuate with the changes in the market value or its portfolio holdings.

Premiums or discounts are the differences (expressed as a percentage) between the NAV and Closing Market Price of a Trust on a given day, generally at the time the NAV is calculated. A premium is the amount that a Trust is trading above the reported NAV, expressed as a percentage of the NAV. A discount is the amount that a Trust is trading below the reported NAV, expressed as a percentage of the NAV.

The following information shows the frequency distributions of premiums and discounts for the Trust for the period October 1, 2011 through September 30, 2016.

Each line in the table shows the number of trading days that the Trust traded within the premium/discount range indicated. The number of trading days in each premium/discount range is also shown as a percentage of the total number of trading days in the period covered by the table. All data presented here represents past performance, which cannot be used to predict future performance.

PowerShares QQQ TrustSM, Series 1

Five Year Period Ended September 30, 2016

 

Premium/Discount Range

   Number of
Trading Days(a)
     Percentage of
Total Trading Days
 
Greater than 0.25%      4         0.32%   
Between zero and 0.25%      589         46.82%   
Closing Price Equal to NAV              —%   
Between zero and -0.25%      663         52.70%   
Less than -0.25%      2         0.16%   
Total      1,258         100.00%   

 

(a)  Number of Trading Days refers to the number of days during which there is buy/sell activity for the Trust on the Exchange.

Annualized and Cumulative Returns for the PowerShares QQQ TrustSM, Series 1

Annualized Total Return

For the Period Ended September 30, 2016

 

    Past One Year(a)     Past Five Year(a)      Past Ten Year(a)      From Inception(a)  
    NAV     Closing
Market
    Index     NAV     Closing
Market
     Index      NAV      Closing
Market
     Index      NAV      Closing
Market
     Index  
PowerShares QQQ TrustSM, Series 1     17.85%        18.04%        18.13%        19.17%        19.16%         19.44%         12.28%         12.29%         12.50%         5.54%         5.54%         5.76%   

Cumulative Total Return

For the Period Ended September 30, 2016

 

    Past One Year(a)     Past Five Year(a)     Past Ten Year(a)      From Inception(a)  
    NAV     Closing
Market
    Index     NAV     Closing
Market
    Index     NAV     Closing
Market
    Index      NAV     Closing
Market
    Index  
PowerShares QQQ TrustSM, Series 1     17.85%        18.04%        18.13%        140.36%        140.29%        143.13%        218.45%        218.73%        224.78%         157.94%        157.70%        167.47%   

 

(a)  Annualized Total Return and Cumulative Total Return and for the period since inception is calculated from the inception date March 10, 1999. “Cumulative Total Return” represents the total change in value of an investment over the period indicated.

 

 

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Supplemental Information (continued)

(Unaudited)

 

Closing Market Price and NAV returns assume that dividends and capital gains distributions have been reinvested in the Trust at market closing price and net asset value, respectively. Since Trust shares typically do not trade in the secondary market until after several days after Trust inception, for the period from inception to the first day of secondary market trading in fund shares, the net asset value is used as a proxy for secondary market trading price to calculate closing market returns.

Unlike the Trust, an Index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by the Trust. Trust expenses negatively impact the performance of the Trust. Also, market returns do not include brokerage commissions that may be payable on secondary market transactions. If brokerage commissions were included, market returns would be lower. The returns shown in the table above do not reflect the deduction of taxes that a shareholder would pay on Trust distributions or the redemption or sale of Trust shares. Trust shares may be worth more or less than their original cost when they are redeemed or sold in the market. The Trust’s past performance is no guarantee of future results.

 

 

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Tax Information

(Unaudited)

 

For the year ended September 30, 2016, the Trust reports, in accordance with Section 854 of the Internal Revenue Code, the following percentages of ordinary income distributions paid as qualified dividend income (QDI) and eligible for corporate dividends received deduction (DRD):

 

     QDI      DRD  
PowerShares QQQ TrustSM, Series 1      100%         100%   

In January 2017, you will be advised on IRS Form 1099 DIV as to the Federal tax status of the distributions received by you in calendar year 2016.

 

 

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PowerShares QQQ TrustSM, Series 1

Sponsor

Invesco PowerShares Capital Management, LLC

3500 Lacey Road, Suite 700

Downers Grove, IL 60515

Trustee

The Bank of New York Mellon

2 Hanson Place

Brooklyn, NY 11217

Distributor

Effective January 2, 2016:

Invesco Distributors, Inc.

11 Greenway Plaza, Suite 1000

Houston, TX 77046

Prior to January 2, 2016:

ALPS Distributors, Inc.

1290 Broadway, Suite 1100

Denver, CO 80203

Independent Registered Public Accounting Firm

PricewaterhouseCoopers LLP

1 N. Wacker Drive

Chicago, IL 60606

Legal Counsel

Stradley Ronon Stevens & Young, LLP

1250 Connecticut Avenue, N.W., Suite 500

Washington, D.C. 20036


 

 

 

 

P-QQQ-AR-1



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