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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended April 30, 2012

or

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____ to ____

Commission File Number 001-35304

CurrencyShares® Chinese Renminbi Trust

Sponsored by Guggenheim Specialized Products, LLC,

d/b/a Guggenheim Investments

(Exact name of registrant as specified in its charter)

 

New York   No. 45-6344265

(State or other jurisdiction of

incorporation or organization)

  (IRS Employer Identification No.)

 

    805 King Farm Boulevard, Suite 600 Rockville, Maryland       20850   
    (Address of principal executive offices)     (Zip Code)   

(301) 296-5100

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (d232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” “non-accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):    Large accelerated filer  ¨    Accelerated filer  ¨    Non-accelerated filer  ¨    Smaller reporting company  x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

 

 

 


Table of Contents

CURRENCYSHARES® CHINESE RENMBINI TRUST

INDEX

 

Caption

   Page  

PART I FINANCIAL INFORMATION

  

Item 1. Financial Statements (Unaudited)

  

Statements of Financial Condition at April 30, 2012 and October 31, 2011

     2   

Statement of Income and Comprehensive Income for the three months ended April  30, 2012 and the six months ended April 30, 2012

     3   

Statements of Changes in Shareholders’ Equity for the six months ended April  30, 2012 and the period from August 16, 2011 (Date of Inception) to October 31, 2011

     4   

Statement of Cash Flows for the six months ended April 30, 2012

     5   

Notes to Financial Statements

     6   

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

     10   

Item 3. Quantitative and Qualitative Disclosures about Market Risk

     14   

Items 4. Controls and Procedures

     14   

Part II OTHER INFORMATION

  

Item 1. Legal Proceedings

     15   

Item 1A. Risk Factors

     15   

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

     15   

Item 3. Defaults Upon Senior Securities

     15   

Item 4. (Removed and Reserved)

     15   

Item 5. Other Information

     15   

Item 6. Exhibits

     16   

SIGNATURES

     17   

 

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PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements

CurrencyShares® Chinese Renminbi Trust

Statements of Financial Condition

 

     April 30, 2012
(Unaudited)
     October 31, 2011  

Assets

     

Current Assets:

     

Chinese Renminbi deposits, interest bearing

   $ 7,924,270       $ 7,821,666   

Chinese Renminbi deposits, non-interest bearing

     —           —     

Receivable from accrued interest

     660         608   
  

 

 

    

 

 

 

Total Current Assets

   $ 7,924,930       $ 7,822,274   
  

 

 

    

 

 

 

Liabilities, Redeemable Capital Shares and Shareholders’ Equity

     

Current Liabilities:

     

Accrued Sponsor’s fee

   $ 2,598       $ 2,400   
  

 

 

    

 

 

 

Total Current Liabilities

     2,598         2,400   

Commitments and Contingent Liabilities (note 8)

     —           —     

Redeemable Capital Shares, at redemption value, no par value, 7,000,000 authorized – 100,000 issued and outstanding

     7,922,332         7,819,874   

Shareholders’ Equity:

     

Retained Earnings

     —           —     

Cumulative Translation Adjustment

     —           —     
  

 

 

    

 

 

 

Total Liabilities, Redeemable Capital Shares and Shareholders’ Equity

   $ 7,924,930       $ 7,822,274   
  

 

 

    

 

 

 

See Notes to Financial Statements.

 

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CurrencyShares® Chinese Renminbi Trust

Statement of Income and Comprehensive Income

(Unaudited)

 

     Three months
ended
April 30, 2012
    Six months
ended
April 30, 2012
 

Income

    

Interest Income

   $ 1,738      $ 3,750   
  

 

 

   

 

 

 

Total Income

     1,738        3,750   

Expenses

    

Sponsor’s fee

     (6,880     (14,794
  

 

 

   

 

 

 

Total Expenses

     (6,880     (14,794

Net Loss

   $ (5,142   $ (11,044
  

 

 

   

 

 

 

Other Comprehensive Loss:

    

Currency translation adjustment

     (5     (51
  

 

 

   

 

 

 

Total Comprehensive Loss

   $ (5,147   $ (11,095
  

 

 

   

 

 

 

Basic and Diluted Earnings per Share

   $ (0.06   $ (0.12

Weighted-average Shares Outstanding

     88,333        94,231   

Cash Dividends per Share

   $ —        $ —     

See Notes to Financial Statements.

 

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Table of Contents

CurrencyShares® Chinese Renminbi Trust

Statements of Changes in Shareholders’ Equity

 

     Six months ended
April 30, 2012
(Unaudited)
    August 16, 2011
[Date of Inception]
to October 31, 2011
 

Retained Earnings, Beginning of Period

   $ —        $ —     

Net Loss

     (11,044     (1,780

Adjustment of redeemable capital shares to redemption value

     11,044        1,780   
  

 

 

   

 

 

 

Retained Earnings, End of Period

   $ —        $ —     
  

 

 

   

 

 

 

Cumulative Translation Adjustment, Beginning of Period

   $ —        $ —     

Currency translation adjustment

     (51     (11

Adjustment of redeemable capital shares to redemption value

     51        11   
  

 

 

   

 

 

 

Cumulative Translation Adjustment, End of Period

   $ —        $ —     
  

 

 

   

 

 

 

See Notes to Financial Statements.

 

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CurrencyShares® Chinese Renminbi Trust

Statement of Cash Flows

(Unaudited)

 

     Six months ended
April 30, 2012
 

Cash flows from operating activities

  

Cash received for accrued income

   $ 3,707   

Cash paid for expenses

     (14,634
  

 

 

 

Net cash used in operating activities

     (10,927

Cash flows from financing activities

  

Cash received to purchase redeemable shares

     3,945,375   

Cash paid to redeem redeemable shares

     (3,946,006
  

 

 

 

Net cash used in financing activities

     (631

Adjustment to period cash flows due to currency movement

     114,162   
  

 

 

 

Increase in cash

     102,604   

Cash at beginning of period

     7,821,666   
  

 

 

 

Cash at end of period

   $ 7,924,270   
  

 

 

 

Reconciliation of net loss to net cash used in operating activities

  

Net Loss

   $ (11,044

Adjustments to reconcile net loss to net cash used in operating activities:

  

Receivable from accrued interest

     (660

Prior period receivable from accrued interest

     608   

Currency translation adjustment

     (29

Accrued sponsor fee

     2,598   

Prior period accrued sponsor fee

     (2,400
  

 

 

 

Net cash used in operating activities

   $ (10,927
  

 

 

 

See Notes to Financial Statements.

 

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Table of Contents

CurrencyShares® Chinese Renminbi Trust

Notes to Financial Statements

(Unaudited)

 

1. Organization and Description of the Trust

The CurrencyShares® Chinese Renminbi Trust (the “Trust”) was formed under the laws of the State of New York on August 16, 2011. On August 16, 2011, Guggenheim Specialized Products, LLC (formerly known as Rydex Specialized Products LLC) d/b/a “Guggenheim Investments” (the “Sponsor”) deposited 500 Chinese Yuan in the Trust’s primary deposit account held by JPMorgan Chase Bank, N.A., London Branch (the “Depository”). The Sponsor is a Delaware limited liability company whose sole member is Security Investors, LLC (also d/b/a “Guggenheim Investments”). The Sponsor is responsible for, among other things, overseeing the performance of The Bank of New York Mellon (the “Trustee”) and the Trust’s principal service providers, including the preparation of financial statements. The Trustee is responsible for the day-to-day administration of the Trust.

The investment objective of the Trust is for the Trust’s shares (the “Shares”) to reflect the price of the Chinese Renminbi plus accrued interest, if any, less the Trust’s expenses and liabilities. The Shares are intended to provide investors with a simple, cost-effective means of gaining investment benefits similar to those of holding Chinese Renminbi. The Trust’s assets primarily consist of Chinese Renminbi on demand deposit in two deposit accounts maintained by the Depository: a primary deposit account which earns interest and a secondary deposit account which does not earn interest. The secondary deposit account is used to account for any interest that may be received and paid out on creations and redemptions of blocks of 50,000 Shares (“Baskets”). The secondary account is also used to account for interest earned, if any, on the primary deposit account, pay Trust expenses and distribute any excess interest to holders of Shares (“Shareholders”) on a monthly basis.

The accompanying unaudited financial statements were prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions for Form 10-Q. In the opinion of management, all material adjustments, consisting only of normal recurring adjustments, considered necessary for a fair statement of the interim period financial statements have been made. Interim period results are not necessarily indicative of results for a full-year period. These financial statements and the notes thereto should be read in conjunction with the Trust’s financial statements included in the Form 10-K as filed on January 13, 2012.

 

2. Significant Accounting Policies

 

  A. Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires 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 statement and the evaluation of subsequent events through the issuance date of the financial statements. Actual results could differ from those estimates.

 

  B. Foreign Currency Translation

The Trustee calculates the Trust’s net asset value (“NAV”) each business day, as described in Note 4 below. For NAV calculation purposes, Chinese Renminbi Deposits (cash) are translated at the Closing Spot Rate, which is the Chinese Renminbi /U.S. Dollar (“USD”) exchange rate as determined and published by The World Markets Company PLC, a State Street business, at 4:00 PM (London fixing) on each day that NYSE Arca is open for regular trading.

The functional currency of the Trust is the Chinese Renminbi in accordance with generally accepted accounting standards. For financial statement reporting purposes, the USD is the reporting currency. As a result, the financial statement is translated from Chinese Renminbi to USD. The Closing Spot Rate on the last day of the period is used for translation in the statement of financial condition. The average Closing Spot Rate for the period is used for translation in the statements of income and comprehensive income and the statements of cash flows. Any currency translation adjustment is included in comprehensive income.

 

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Table of Contents
  C. Federal Income Taxes

The Trust is treated as a “grantor trust” for federal income tax purposes and, therefore, no provision for federal income taxes is required. Interest, gains and losses are passed through to the Shareholders.

Shareholders generally will be treated, for U.S. federal income tax purposes, as if they directly owned a pro-rata share of the assets held in the Trust. Shareholders also will be treated as if they directly received their respective pro-rata portion of the Trust’s income, if any, and as if they directly incurred their respective pro-rata portion of the Trust’s expenses. The acquisition of Shares by a U.S. Shareholder as part of a creation of a Basket will not be a taxable event to the Shareholder.

The Sponsor’s fee accrues daily and is payable monthly. For U.S. federal income tax purposes, an accrual-basis U.S. Shareholder generally will be required to take into account as an expense its allocable portion of the USD-equivalent of the amount of the Sponsor’s fee that is accrued on each day, with such USD-equivalent being determined by the currency exchange rate that is in effect on the respective day. To the extent that the currency exchange rate on the date of payment of the accrued amount of the Sponsor’s fee differs from the currency exchange rate in effect on the day of accrual, the U.S. Shareholder will recognize a currency gain or loss for U.S. federal income tax purposes.

The Trust does not expect to generate taxable income except for interest income (if any) and gain (if any) upon the sale of Chinese Renminbi. A non-U.S. Shareholder generally will not be subject to U.S. federal income tax with respect to gain recognized upon the sale or other disposition of Shares, or upon the sale of Chinese Renminbi by the Trust, unless: (1) the non-U.S. Shareholder is an individual and is present in the United States for 183 days or more during the taxable year of the sale or other disposition, and the gain is treated as being from United States sources; or (2) the gain is effectively connected with the conduct by the non-U.S. Shareholder of a trade or business in the United States.

A non-U.S. Shareholder’s portion of any interest income earned by the Trust generally will not be subject to U.S. federal income tax unless the Shares owned by such non-U.S. Shareholder are effectively connected with the conduct by the non-U.S. Shareholder of a trade or business in the United States.

 

  D. Revenue Recognition

Interest on the primary deposit account, if any, accrues daily as earned and is received on a monthly basis.

 

  E. Dividends

To the extent that the interest earned by the Trust exceeds the sum of the Sponsor’s fee for the prior month plus other Trust expenses, if any, the Trust will distribute, as a dividend (herein referred to as dividends or distributions), the excess interest earned in Chinese Renminbi effective on the first business day of the subsequent month. The Trustee will direct that the excess Chinese Renminbi be converted into USD at the prevailing market rate and the Trustee will distribute the USD as promptly as practicable to Shareholders on a pro-rata basis (in accordance with the number of Shares that they own).

 

3. Chinese Renminbi Deposits

Chinese Renminbi principal deposits are held in a Chinese Renminbi-denominated, interest-bearing demand account. The Chinese Yuan is the unit of account for the Chinese Renminbi. For the six months ended April 30, 2012, there were Chinese Yuan principal deposits of 24,965,639, Chinese Yuan principal redemptions of 24,969,635 and Chinese Yuan withdrawals (to pay expenses) of 69,142, resulting in an ending Chinese Yuan principal balance of 49,926,862. This equates to 7,924,270 USD. For the period from August 16, 2011 (date of inception) to October 31, 2011, there were Chinese Yuan principal deposits of 50,000,500 and Chinese Yuan principal redemptions of 500, resulting in an ending Chinese Yuan principal balance of 50,000,000. This equates to 7,821,666 USD.

 

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4. Redeemable Capital Shares

Shares are classified as “redeemable” for financial statement purposes, since they are subject to redemption. Shares are issued and redeemed continuously in Baskets in exchange for Chinese Renminbi. Individual investors cannot purchase or redeem Shares in direct transactions with the Trust. Authorized Participants (as defined below) may place orders to create and redeem Baskets. An Authorized Participant is a Depository Trust Company (“DTC”) participant that is a registered broker-dealer or other institution eligible to settle securities transactions though the book-entry facilities of DTC and which has entered into a contractual arrangement with the Trust and the Sponsor governing, among other matters, the creation and redemption process. Authorized Participants may redeem their Shares at any time in Baskets.

Due to expected continuing creations and redemptions of Baskets and the three-day period for settlement of each creation or redemption, the Trust reflects Shares created as a receivable on the trade date. Shares redeemed are reflected as a liability on the trade date. Outstanding Shares are reflected at a redemption value, which is the NAV per Share at the period end date. Adjustments to redeemable capital Shares at redemption value are recorded against retained earnings or, in the absence of retained earnings, by charges against the cumulative translation adjustment.

Activity in redeemable capital Shares is as follows:

 

     Six months ended
April 30, 2012
(Unaudited)
    August 16, 2011
[Date of Inception]
to October 31, 2011
 
     Shares     U.S. Dollar
Amount
    Shares     U.S. Dollar
Amount
 

Opening balance

     100,000      $ 7,819,874        —        $ —     

Shares issued

     50,000        3,945,375        100,001        7,773,288   

Shares redeemed

     (50,000     (3,946,006     (1     (77

Adjustment to period Shares due to currency movement and other

     —          103,089        —          46,663   
  

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

     100,000      $ 7,922,332        100,000      $ 7,819,874   
  

 

 

   

 

 

   

 

 

   

 

 

 

The Trustee calculates the Trust’s NAV each business day. To calculate the NAV, the Trustee will subtract the Sponsor’s accrued fee through the previous day from the Chinese Renminbi held by the Trust (including all unpaid interest accrued, if any, through the preceding day) and calculate the value of the Chinese Renminbi in USD based upon the Closing Spot Rate. 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 will be used to determine the NAV of the Trust unless the Sponsor determines that such price is inappropriate to use as the basis for the valuation. If the Sponsor determines the most recent Closing Spot Rate is not an appropriate basis for valuation of the Trust’s Chinese Renminbi, the Sponsor will determine an alternative 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. Shares deliverable under a purchase order are considered outstanding for purposes of determining NAV per Share; Shares deliverable under a redemption order are not considered outstanding for this purpose.

 

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Table of Contents
5. Sponsor’s Fee

The Sponsor’s fee accrues daily at an annual nominal rate of 0.40% of the Chinese Renminbi in the Trust (including all unpaid interest but excluding unpaid fees, each as accrued through the immediately preceding day) and is paid monthly.

The Sponsor assumes and pays the following administrative and marketing expenses incurred by the Trust: the Trustee’s monthly fee, NYSE Arca listing fees, SEC registration fees, typical maintenance and transaction fees of the Depository, printing and mailing costs, audit fees and expenses, up to $100,000 per year in legal fees and expenses, and applicable license fees. The Sponsor has also paid the costs of the Trust’s organization and the initial sales of the Shares, which were approximately $133,235.93 when the Trust was formed.

In certain exceptional cases the Trust will pay for some expenses in addition to the Sponsor’s fee. These exceptions include expenses not assumed by the Sponsor (i.e., expenses other than those identified in the preceding paragraph), taxes and governmental charges, expenses and costs of any extraordinary services performed by the Trustee or the Sponsor on behalf of the Trust or action taken by the Trustee or the Sponsor to protect the Trust or the interests of Shareholders, indemnification of the Sponsor under the Depositary Trust Agreement, and legal expenses in excess of $100,000 per year.

 

6. Related Parties

The Sponsor is a related party of the Trust. The Sponsor oversees the performance of the Trustee and the Trust’s principal service providers, including the preparation of financial statements, but does not exercise day-to-day oversight over the Trustee or the Trust’s service providers. The Sponsor has also paid the costs of the Trust’s organization and the initial sales of the Shares, as described in Note 5.

 

7. Concentration Risk

All of the Trust’s assets are Chinese Renminbi, which creates a concentration risk associated with fluctuations in the price of the Chinese Renminbi. Accordingly, a decline in the Chinese Renminbi to USD exchange rate will have an adverse effect on the value of the Shares. Factors that may have the effect of causing a decline in the price of the Chinese Renminbi include national debt levels and trade deficits, domestic and foreign inflation rates, domestic and foreign interest rates, investment and trading activities of institutions and global or regional political, economic or financial events and situations. Substantial sales of Chinese Renminbi by the official sector (central banks, other governmental agencies and related institutions that buy, sell and hold Chinese Renminbi as part of their reserve assets) could adversely affect an investment in the Shares.

All of the Trust’s Chinese Renminbi are held by the Depository. Accordingly, a risk associated with the concentration of the Trust’s assets in accounts held by a single financial institution exists and increases the potential for loss by the Trust and the Trust’s beneficiaries in the event that the Depository becomes insolvent

 

8. Commitments and Contingencies

Under the Trust’s organizational documents, the Sponsor is indemnified against any liability or expense it incurs without negligence, bad faith or willful misconduct on its part. The Trust’s maximum exposure under this arrangement is unknown, as this would involve future claims that may be made against the Trust that have not yet occurred.

 

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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”, “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 Chinese Renminbi, as the value of the Shares relates directly to the value of the Chinese Renminbi 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® Chinese Renminbi Trust (the “Trust”) is a grantor trust that was formed on August 16, 2011. The Trust issues shares (the “Shares”) in blocks of 50,000 (a “Basket”) in exchange for deposits of Chinese Renminbi and distributes Chinese Renminbi in connection with the redemption of Baskets. The Shares began trading on NYSE Arca under the ticker symbol “FXCH” on October 4, 2011.

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 Chinese Renminbi plus accrued interest, 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 Chinese Renminbi.

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 Chinese Renminbi in the Trust at the end of the preceding day accrued but unpaid interest, Chinese Renminbi receivable under pending purchase orders and the value of other Trust assets, and subtracts the accrued but unpaid Sponsor’s fee, Chinese Renminbi payable under pending redemption orders and other Trust expenses and liabilities, if any. The NAV is expressed in U.S. Dollars (“USD”) based on the “Closing Spot Rate,” which is the USD/ Chinese Renminbi exchange rate as determined by The World Markets Company PLC, a State Street business, as of 4:00 PM (London fixing) 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 NAV per Share is 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.

 

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Movements in the Price of Chinese Renminbi

The investment objective of the Trust is for the Shares to reflect the price of the Chinese Renminbi 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 Chinese Renminbi. Each outstanding Share represents a proportional interest in the Chinese Renminbi held by the Trust. The following chart provides recent trends on the price of the Chinese Renminbi. The chart illustrates movements in the price of Chinese Renminbi in USD and is based on the Closing Spot Rate.

Closing Spot Rate

 

LOGO

 

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NAV per Share; Valuation of the Chinese Renminbi

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 Closing Spot Rate expressed as a multiple of 500 Chinese Renminbi:

FXCH Price Movement

 

LOGO

 

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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, JPMorgan Chase, N.A., London Branch, maintains two deposit accounts for the Trust: a primary deposit account which may 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 April 30, 2012 was an annual nominal rate of 0.10%. The following chart provides the daily rate paid by the Depository since the Shares began trading:

FXCH Daily Rate

 

LOGO

In exchange for a fee, the Sponsor bears most of the expenses incurred by the Trust. As a result, the only ordinary expense of the Trust during the period 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 Chinese Renminbi 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, 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 April 30, 2011.

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 Chinese Renminbi in accordance with ASC 830, Foreign Currency Translation.

 

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Results of Operations

The Chinese Yuan is the unit of account for the Chinese Renminbi. The Trust was formed on August 16, 2011 when the Sponsor deposited 500 Chinese Yuan with the Depository in exchange for one Share. The Depository received 50,000,000 Chinese Yuan on behalf of the Trust in exchange for 100,000 Shares on September 29, 2011. Trading in the Shares of the Trust on the NYSE commenced on October 4, 2011. Through the fiscal period ended October 31, 2011 no additional Shares were created and the single seed share was redeemed in exchange for 500 Chinese Yuan. As of October 31, 2011 the number of Chinese Yuan owned by the Trust was 50,000,000, resulting in a redeemable capital share value of $7,819,874.

During the six months ended April 30, 2012, 50,000 Shares were created in exchange for 24,965,639 Chinese Yuan and 50,000 Shares were redeemed in exchange for 24,969,635 Chinese Yuan. In addition, 69,142 Chinese Yuan were withdrawn to pay the portion of sponsor fee that exceeded the interest earned. As of April 30, 2012, the number of Chinese Yuan owned by the Trust was 49,926,862, resulting in a redeemable capital Share value of $7,922,332.

An increase in the Trust’s redeemable capital Share value from $7,819,874 at October 31, 2011 to $7,922,332 at April 30, 2012 was primarily the result of an increase in the Closing Spot Rate from 0.15643 at October 31, 2011 to 0.15872 at April 30, 2012.

Interest income was $1,738 for the three months ended April 30, 2012 and $3,750 for the six months ended April 30, 2012.

The Sponsor’s fee accrues daily at an annual nominal rate of 0.40% of the Chinese Renminbi in the Trust. The Sponsor’s fee was $6,880 for the three months ended April 30, 2012 and $14,794 for the six months ended April 30, 2012. The only expense of the Trust during the three months and six months ended April 30, 2012 was the Sponsor’s fee.

The Trust’s net loss for the three months ended April 30, 2012 was $5,142 due to the Sponsor’s fee of $6,880 exceeding interest income of $1,738. The Trust’s net loss for the six months ended April 30, 2012 was $11,044 due to the Sponsor’s fee of $14,794 exceeding interest income of $3,750.

Cash dividends were not paid by the Trust during the three months ended April 30, 2012 and the six months ended April 30, 2012 as the Trust’s income did not exceed the Trust’s expenses during those periods.

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Except as described above with respect to the USD/Chinese Renminbi exchange rate and the nominal annual interest rate paid by the Depository on Chinese Renminbi held by the Trust, the Trust is not subject to market risk. The Trust does not hold securities and does not invest in derivative instruments.

 

Item 4. Controls and Procedures

The Trust maintains disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) designed to ensure that material information relating to the Trust is recorded, processed and disclosed on a timely basis. The Trust’s disclosure controls and procedures are designed by or under the supervision of the Sponsor’s chief executive officer and chief financial officer, who exercise oversight over the Trust as the Trust has no officers. The chief executive officer and chief financial officer of the Sponsor have evaluated the effectiveness of the Trust’s disclosure controls and procedures as of April 30, 2012. Based on that evaluation, the chief executive officer and chief financial officer of the Sponsor have concluded that the disclosure controls and procedures of the Trust were effective as of the end of the period covered by this report.

There were no changes in the Trust’s internal control over financial reporting that occurred during the Trust’s last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Trust’s internal control over financial reporting.

 

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PART II – OTHER INFORMATION

 

Item 1. Legal Proceedings

None.

 

Item 1A. Risk Factors

There have been no material changes from the risk factors disclosed in the “Risk Factors” section of the Trust’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on January 13, 2012.

 

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

(a) None.

(b) Not applicable.

(c) During the quarter ended April 30, 2012, 1 Basket (50,000 Shares registered pursuant to Section 12 of the Securities Exchange Act of 1934) was redeemed by the Trust, as follows:

 

Period

   Total Number of
Registered Shares Redeemed
     Average Price
Per Share
 

02/01/2012 – 02/29/2012

     50,000       $ 79.31   

03/01/2012 – 03/31/2012

     —         $ —     

04/01/2012 – 04/30/2012

     —         $ —     

 

Item 3. Defaults Upon Senior Securities

None.

 

Item 4. (Removed and Reserved)

None.

 

Item 5. Other Information

None.

 

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Item 6. Exhibits

 

Exhibit No.

  

Description

  31.1    Certification by Principal Executive Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.
  31.2    Certification by Principal Financial Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.
  32.1    Certification by Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
  32.2    Certification by Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS    XBRL Instance Document.
101.SCH    XBRL Taxonomy Extension Schema Document.
101.CAL    XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF    XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB    XBRL Taxonomy Extension Label Linkbase Document.
101.PRE    XBRL Taxonomy Extension Presentation Linkbase Document.

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

    CURRENCYSHARES® CHINESE RENMINBI TRUST
    By:   Guggenheim Specialized Products, LLC
      Sponsor of the CurrencyShares® Chinese Renminbi Trust
Date: June 11, 2012       By:   /S/ JOSEPH ARRUDA
        Joseph Arruda
        Chief Financial Officer
        (principal financial officer)

 

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