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

January 3, 2018 10:26 AM EST

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     September 30, 2017

2017 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(a)

PowerShares QQQ TrustSM, Series 1 (QQQ)

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  
  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  

Number
of Shares

          Value  
   Common Stocks and Other Equity Interests (continued)  
   Internet & Direct Marketing Retail (continued)  
  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  
  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  
  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  
     

 

 

 
 

 

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

 

 

  2  

 


 

Schedule of Investments(a) (continued)

PowerShares QQQ TrustSM, Series 1 (QQQ)

September 30, 2017

 

Number
of Shares

          Value  
   Common Stocks and Other Equity Interests (continued)  
   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  
  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  
     

 

 

 

Number
of Shares

          Value  
   Common Stocks and Other Equity Interests (continued)  
   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  
     

 

 

 

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.

 

 

  3  

 


 

Statement of Assets and Liabilities

September 30, 2017

 

    PowerShares QQQ TrustSM,
Series 1 (QQQ)
 
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.

 

 

  4  

 


 

Statements of Operations

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

 

    PowerShares QQQ TrustSM, Series 1 (QQQ)  
    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.

 

 

  5  

 


 

Statements of Changes in Net Assets

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

 

    PowerShares QQQ TrustSM, Series 1 (QQQ)  
    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.

 

 

  6  

 


 

Financial Highlights

 

PowerShares QQQ TrustSM, Series 1 (QQQ)

 

    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.

 

 

  7  

 


 

Notes to Financial Statements

PowerShares QQQ TrustSM, Series 1

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 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.

 

 

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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 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.

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

 

 

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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 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.

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.

 

 

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  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.

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.

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.

 

 

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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.

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.

 

 

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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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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, 2012 through September 30, 2017.

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, 2017

 

Premium/Discount Range

   Number of
Trading Days(a)
     Percentage of
Total Trading Days
 
Greater than 0.25%      5        0.40%  
Between zero and 0.25%      579        46.02%  
Closing Price Equal to NAV             —%  
Between zero and -0.25%      672        53.42%  
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 QQQ TrustSM, Series 1

Annualized Total Return

For the Period Ending September 30, 2017

 

    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     23.82%       23.70%       24.08%       17.65%       17.64%        17.91%        12.01%        12.00%        12.24%        6.46%        6.45%        6.68%  

Cumulative Total Return

For the Period Ending September 30, 2017

 

    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     23.82%       23.70%       24.08%       125.37%       125.28%       127.90%       210.77%       210.72%       217.30%        219.36%       218.72%       231.88%  

 

(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, 2017, 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 2018, you will be advised on IRS Form 1099 DIV as to the Federal tax status of the distributions received by you in calendar year 2017.

 

 

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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

Invesco Distributors, Inc.

11 Greenway Plaza, Suite 1000

Houston, TX 77046

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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