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FXF > SEC Filings for FXF > Form 10-Q on 6-Sep-2013All Recent SEC Filings

Show all filings for CURRENCYSHARES SWISS FRANC TRUST | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for CURRENCYSHARES SWISS FRANC TRUST


6-Sep-2013

Quarterly Report


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

Cautionary Statement Regarding Forward-Looking Information

This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by words such as "anticipate," "expect," "intend," "plan," "believe," "seek," "outlook" and "estimate" and other similar words. Forward-looking statements are based upon our current expectations and beliefs concerning future developments and their potential effects on us. Such forward-looking statements are not guarantees of future performance. Various factors may cause our actual results to differ materially from those expressed in our forward-looking statements. These factors include fluctuations in the price of the Swiss Franc, as the value of the Shares relates directly to the value of the Swiss Francs held by the Trust and price fluctuations could materially adversely affect an investment in the Shares. Readers are urged to review the "Risk Factors" section contained in the Trust's most recent annual report on Form 10-K for a description of other risks and uncertainties that may affect an investment in the Shares.

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

Trust Overview

The CurrencyShares® Swiss Franc Trust (the "Trust") is a grantor trust that was formed on June 8, 2006. The Trust issues shares (the "Shares") in blocks of 50,000 (a "Basket") in exchange for deposits of Swiss Francs and distributes Swiss Francs in connection with the redemption of Baskets. The Shares commenced trading on the New York Stock Exchange ("NYSE") under the ticker symbol "FXF" on June 26, 2006. The primary listing of the Shares was transferred to NYSE Arca on October 30, 2007.

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

Definition of Net Asset Value

The Trustee calculates, and the Sponsor publishes, the Trust's Net Asset Value ("NAV") each business day. To calculate the NAV, the Trustee adds to the amount of Swiss Francs in the Trust at the end of the preceding day accrued but unpaid interest, if any, Swiss Francs receivable under pending purchase orders and the value of other Trust assets, and subtracts the accrued but unpaid Sponsor's fee, Swiss Francs payable under pending redemption orders and other Trust expenses and liabilities, if any. Prior to November 13, 2008, the NAV was expressed in U.S. Dollars ("USD") based on the "Noon Buying Rate," which is the Swiss Francs/USD exchange rate as determined by the Federal Reserve Bank of New York at 12:00 PM (New York time). As of November 13, 2008, the NAV is expressed in USD based on the Swiss Francs/USD exchange rate as determined by The WM Company, at 4:00 PM (London fixing) (the "Closing Spot Rate") on each day that NYSE Arca is open for regular trading. If, on a particular evaluation day, the Closing Spot Rate has not been determined and announced by 6:00 PM (London time), then the most recent Closing Spot Rate is used to determine the NAV of the Trust unless the Trustee, in consultation with the Sponsor, determines that such price is inappropriate to use as the basis for the valuation.

The Trustee also determines the NAV per Share, which equals the NAV of the Trust, divided by the number of outstanding Shares. The NAV of the Trust and the NAV per Share are published by the Sponsor on each day that NYSE Arca is open for regular trading and are posted on the Trust's website, www.currencyshares.com.


Table of Contents

Movements in the Price of Swiss Franc

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

[[Image Removed: LOGO]]


Table of Contents

NAV per Share; Valuation of the Swiss Franc

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

[[Image Removed: LOGO]]


Table of Contents

Liquidity

The Sponsor is not aware of any trends, demands, conditions or events that are reasonably likely to result in material changes to the Trust's liquidity needs. The Trust's Depository, JP Morgan Chase Bank, N.A., London Branch, maintains two deposit accounts for the Trust, a primary deposit account that is expected to earn interest and a secondary deposit account which does not earn interest. Interest on the primary deposit account, if any, accrues daily and is paid monthly. The interest rate in effect as of July 31, 2013 was an annual nominal rate of 0.00%. The following chart provides the daily rate paid by the Depository since the Shares began trading:

[[Image Removed: LOGO]]

In exchange for a fee, the Sponsor bears most of the expense incurred by the Trust. As a result, the only ordinary expense of the Trust during the periods covered by this report was the Sponsor's fee. Each month the Depository deposits into the secondary deposit account accrued but unpaid interest, if any, and the Trustee withdraws Swiss Franc from the secondary deposit account to pay the accrued Sponsor's fee for the previous month plus other Trust expenses, if any. When the interest deposited, if any, exceeds the sum of the Sponsor's fee for the prior month plus other Trust expenses if any, then the Trustee converts the excess into USD at a prevailing market rate and distributes the USD as promptly as practicable to Shareholders on a pro-rata basis (in accordance with the number of Shares that they own). The Trust did not make any distributions during the quarter ended July 31, 2013.

Critical Accounting Estimates

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

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

The functional currency of the Trust is the Swiss Franc in accordance with ASC 830, Foreign Currency Translation.


Table of Contents

Results of Operations

As of October 31, 2012, the number of Swiss Francs owned by the Trust was 310,166,419, resulting in a redeemable capital share value of $332,968,198. During the nine months ended July 31, 2013, 400,000 additional Shares were created in exchange for 39,303,834 Swiss Francs and 950,000 Shares were redeemed in exchange for 93,350,386 Swiss Francs. In addition, 875,839 Swiss Francs were withdrawn to pay the portion of the Sponsor's fee that exceeded the interest earned. As of July 31, 2013, the number of Swiss Francs owned by the Trust was 255,244,028 resulting in a redeemable capital Share value of $274,614,405.

A decrease in the Trust's redeemable capital Share value from $332,968,198 at October 31, 2012 to $274,614,405 at July 31, 2013, was primarily the result of a decrease in the Shares outstanding from 3,150,000 at October 31, 2012 to 2,600,000 at July 31, 2013. The decrease in the Trust's redeemable capital Share value was partially offset by an increase in the Closing Spot Rate from 1.0739 at October 31, 2012 to 1.0763 at July 31, 2013.

No interest income was earned during the three months ended July 31, 2012 and 2013 or the nine months ended July 31, 2012 and 2013 due to an annual nominal interest rate which remained at or below 0.00% through those periods, as set forth in the chart above. During the month of November, 2012, the interest rate fell below 0%, thus creating an interest expense to the Trust of $32.

The Sponsor's fee accrues daily at an annual nominal rate of 0.40% of the Swiss Francs in the Trust. Due primarily to a decrease in the weighted-average Swiss Francs in the Trust, the Sponsor's fee decreased from $348,518 for the three months ended July 31, 2012 to $279,517 for the three months ended July 31, 2013, and decreased from $1,209,848 for the nine months ended July 31, 2012 to $914,168 for the nine months ended July 31, 2013. The primary expense of the Trust during the three and nine months ended July 31, 2013 was the Sponsor's fee.

The Trust's net loss for the three months ended July 31, 2013 was $279,517, due to the Sponsor's fee of $279,517 exceeding the Trust's interest income of $0. The Trust's net loss for the nine months ended July 31, 2013 was $914,200, due to the Sponsor's fee of $914,168 and interest expense of $32 exceeding interest income of $0.

Cash dividends were not paid by the Trust during the three months ended July 31, 2012 and 2013 or the nine months ended July 31, 2012 and 2013 as the Trust's interest income did not exceed the Trust's expenses during those periods.

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