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Currencyshares Euro Trust 10-K 2011
Form 10-K/A
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

 

 

FORM 10-K/A

Amendment No. 1

 

 

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

OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended October 31, 2010

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 001-32694

 

 

CurrencyShares® Euro Trust

Sponsored by Rydex Specialized Products LLC,

d/b/a Rydex Investments

(Exact name of registrant as specified in its charter)

 

 

 

New York   No. 20-3613421

(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 if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  x

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 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

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  x    Non-accelerated filer   ¨    Smaller reporting company  ¨

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

Aggregate market value of 3,650,000 shares of registrant’s common stock held by non-affiliates of the registrant, based on the closing price of a share of the registrant’s common stock on April 30, 2010 as reported by NYSE Arca on that date: $484,610,500.

 

 

 


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EXPLANATORY NOTE

This Amendment No. 1 on Form 10-K/A to the Annual Report on Form 10-K for the year ended October 31, 2010 of CurrencyShares® Euro Trust, which Form 10-K was originally filed with the Securities and Exchange Commission on January 14, 2011, is being filed for the purpose of amending Item 15 in order to (i) include the report and consent of our prior independent registered public accounting firm, (ii) amend the Exhibit Index, (iii) amend Note 5 to the financial statements to correct the weighted-average shares outstanding for the three-months ended October 31, 2009 and (iv) file certain exhibits as indicated in the Exhibit Index. Other than providing updates to the cover page, amending Item 15 and filing updated exhibits and certifications, no other changes have been made to the original Form 10-K. This Amendment No. 1 does not reflect any subsequent events occurring after the filing of the original Form 10-K or modify or update in any way disclosures made in the original filing.


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PART IV

 

Item 15. Exhibits and Financial Statement Schedules

Financial Statements

See Index to Financial Statements on Page F-1 for a list of the financial statements being filed as a part of this report. Schedules have been omitted since they are either not required, not applicable or the information has otherwise been included.

Exhibits

 

Exhibit No.

  

Description

  3.1    Certificate of Formation of Rydex Specialized Products LLC, incorporated herein by reference to Exhibit 3.1 filed with Form S-1 Registration Statement (File number 333-125581) filed on June 7, 2005.
  3.2    Limited Liability Company Agreement of Rydex Specialized Products LLC, incorporated herein by reference to Exhibit 3.2 filed with Form S-1 Registration Statement (File number 333-125581) filed on June 7, 2005.
  4.1    Depositary Trust Agreement dated as of December 2, 2005 among Rydex Specialized Products LLC, The Bank of New York, all registered owners and beneficial owners of Euro Currency Shares issued thereunder and all depositors.
  4.2    Amendment to Depositary Trust Agreement dated as of November 13, 2008 between Rydex Specialized Products LLC and The Bank of New York Mellon, incorporated herein by reference to Exhibit 4.1 filed with Form 10-Q on September 9, 2010.
  4.3    Participant Agreement dated as of March 25, 2010 among Knight Clearing Services, LLC, The Bank of New York, and Rydex Specialized Products LLC (together with Schedule pursuant to Instruction 2 to Item 601 of Regulation S-K).
  4.4    Amendment to Participant Agreements dated as of December 9, 2010 between The Bank of New York Mellon, the trusts set forth on Schedule A thereto and Rydex Specialized Products LLC.
  4.5    Amendment to Participant Agreements dated as of January 15, 2011 between The Bank of New York Mellon, the trusts set forth on Schedule A thereto and Rydex Specialized Products LLC.
10.1    Deposit Account Agreement dated as of November 30, 2005 between The Bank of New York and the London Branch of JPMorgan Chase Bank, N.A.
10.2    Amendment to Deposit Account Agreement dated as of November 13, 2008 between The Bank of New York Mellon and the London Branch of JPMorgan Chase Bank, N.A., incorporated herein by reference to Exhibit 10.1 filed with Form 10-Q on September 9, 2010.
10.3    Sublicense Agreement dated as of November 2005 between PADCO Advisors II, Inc. and Rydex Specialized Products LLC.
23.1    Consent of PricewaterhouseCoopers LLP.
23.2    Consent of Ernst & Young LLP.
31.1    Certification by Principal Executive Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.


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  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


Table of Contents

CurrencyShares® Euro Trust

Financial Statements as of October 31, 2010

Index

 

     Page  

Independent Registered Public Accounting Firm Reports

     F-2   

Statements of Financial Condition at October 31, 2010 and October 31, 2009

     F-5   

Statements of Income and Comprehensive Income for the year ended October  31, 2010, the year ended October 31, 2009 and the year ended October 31, 2008

     F-6   

Statements of Changes in Shareholders’ Equity for the year ended October  31, 2010, the year ended October 31, 2009 and the year ended October 31, 2008

     F-7   

Statements of Cash Flows for the year ended October 31, 2010, the year ended October  31, 2009 and the year ended October 31, 2008

     F-8   

Notes to the Financial Statements

     F-9   

 

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Report of Independent Registered Public Accounting Firm

To the Shareholders of CurrencyShares® Euro Trust:

In our opinion, the balance sheet as of October 31, 2009 and the related statements of income and comprehensive income, of changes in shareholders’ equity and of cash flows for each of two years in the period ended October 31, 2009 present fairly, in all material respects, the financial position of CurrencyShares® Euro Trust (the “Trust”) at October 31, 2009, and the results of its operations and its cash flows for each of the two years in the period ended October 31, 2009, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Trust’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these 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 provide a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP

Baltimore, Maryland

December 23, 2009

 

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Report of Independent Registered Public Accounting Firm

To the Shareholders of CurrencyShares® Euro Trust:

We have audited the accompanying statement of financial condition of CurrencyShares® Euro Trust (the “Trust”) at October 31, 2010 and the related statements of income and comprehensive income, changes in shareholders’ equity, and cash flows for the year then ended. These 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 audits 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of CurrencyShares® Euro Trust at October 31, 2010 and the and the results of its operations and its cash flows for the year then ended, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of CurrencyShares® Euro Trust’s internal control over financial reporting as of October 31, 2010, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated January 14, 2011 expressed an unqualified opinion thereon.

 

/s/ Ernst & Young LLP
McLean, VA
January 14, 2011

 

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Report of Independent Registered Public Accounting Firm

To the Shareholders of CurrencyShares® Euro Trust:

We have audited CurrencyShares® Euro Trust’ (the “Trust”) internal control over financial reporting as of October 31, 2010, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). CurrencyShares® Euro Trust’ management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting appearing under Item 9A. Our responsibility is to express an opinion on the Trust’s internal control over financial reporting based on our audit.

We conducted our audit 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 effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, CurrencyShares® Euro Trust maintained, in all material respects, effective internal control over financial reporting as of October 31, 2010 based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the statement of financial condition as of October 31, 2010 and the related statements of income and comprehensive income, changes in shareholder’ equity and cash flows for the year ended October 31, 2010 of CurrencyShares® Euro Trust and our report dated January 14, 2011 expressed an unqualified opinion thereon.

 

/s/ Ernst & Young LLP
McLean, Virginia
January 14, 2011

 

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CurrencyShares® Euro Trust

Statements of Financial Condition

 

     October 31, 2010      October 31, 2009  

Assets

     

Current Assets:

     

Euro deposits, interest bearing

   $ 463,875,260       $ 589,687,376   

Euro deposits, non-interest bearing

     842         —     

Receivable from accrued interest

     167,448         42,662   
                 

Total Current Assets

   $ 464,043,550       $ 589,730,038   
                 

Liabilities, Redeemable Capital Shares and Shareholders’ Equity

     

Current Liabilities:

     

Redemptions payable

   $ 76,163,423       $ 14,738,573   

Accrued Sponsor’s fee

     139,083         195,543   
                 

Total Current Liabilities

     76,302,506         14,934,116   

Commitments and Contingent Liabilities (note 9)

     —           —     

Redeemable Capital Shares, at redemption value, no par value, 67,000,000 and 32,000,000 authorized, respectively – 2,800,000 and 3,900,000 issued and outstanding, respectively

     387,741,044         574,795,922   

Shareholders’ Equity:

     

Retained Earnings

     —           —     

Cumulative Translation Adjustment

     —           —     
                 

Total Liabilities, Redeemable Capital Shares and Shareholders’ Equity

   $ 464,043,550       $ 589,730,038   
                 

See Notes to Financial Statements.

 

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CurrencyShares® Euro Trust

Statements of Income and Comprehensive Income

 

     Year ended
October 31, 2010
    Year ended
October 31, 2009
    Year ended
October 31, 2008
 

Income

      

Interest Income

   $ 699,872      $ 4,855,647      $ 43,981,227   
                        

Total Income

     699,872        4,855,647        43,981,227   

Expenses

      

Sponsor’s fee

     (2,259,026     (2,319,835     (4,591,505
                        

Total Expenses

     (2,259,026     (2,319,835     (4,591,505

Net (Loss)/Income

   $ (1,559,154   $ 2,535,812      $ 39,389,722   
                        

Other Comprehensive Income/(Loss):

      

Currency translation adjustment

     9,254        (67,545     (701,782
                        

Total Comprehensive (Loss)/Income

   $ (1,549,900   $ 2,468,267      $ 38,687,940   
                        

Basic and Diluted Earnings per share

   $ (0.37   $ 0.59      $ 5.22   

Weighted-average Shares Outstanding

     4,202,329        4,265,753        7,552,732   

Cash Dividends per Share

   $ —        $ 1.11      $ 5.27   

See Notes to Financial Statements.

 

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CurrencyShares® Euro Trust

Statements of Changes in Shareholders’ Equity

 

     Year ended
October 31, 2010
    Year ended
October 31, 2009
    Year ended
October 31, 2008
 

Retained Earnings, Beginning of Year

   $ —        $ —        $ —     

Net (Loss)/Income

     (1,559,154     2,535,812        39,389,722   

Distributions Paid

     —          (4,922,939     (39,703,921

Adjustment of redeemable capital shares to redemption value

     1,559,154        2,387,127        314,199   
                        

Retained Earnings, End of Year

   $ —        $ —        $ —     
                        

Cumulative Translation Adjustment, Beginning of Year

   $ —        $ —        $ —     

Currency translation adjustment

     9,254        (67,545     (701,782

Adjustment of redeemable capital shares to redemption value

     (9,254     67,545        701,782   
                        

Cumulative Translation Adjustment, End of Year

   $ —        $ —        $ —     
                        

See Notes to Financial Statements.

 

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CurrencyShares® Euro Trust

Statements of Cash Flows

 

     Year ended
October 31, 2010
    Year ended
October 31, 2009
    Year ended
October 31, 2008
 

Cash flows from operating activities

      

Cash received for accrued income

   $ 582,467      $ 7,480,322      $ 44,321,625   

Cash paid for expenses

     (2,301,142     (2,402,522     (4,640,842
                        

Net cash (used in)/provided by operating activities

     (1,718,675     5,077,800        39,680,783   

Cash flows from financing activities

      

Cash received to purchase redeemable shares

     2,527,532,186        553,905,548        2,066,798,350   

Cash paid to redeem redeemable shares

     (2,614,731,248     (588,099,632     (2,441,169,915

Cash paid for distributions

     —          (4,922,939     (39,703,921
                        

Net cash used in financing activities

     (87,199,062     (39,117,023     (414,075,486

Adjustment to period cash flows due to currency movement

     (36,893,537     85,278,433        (63,652,761
                        

(Decrease)/Increase in cash

     (125,811,274     51,239,210        (438,047,464

Cash at beginning of year

     589,687,376        538,448,166        976,495,630   
                        

Cash at end of year

   $ 463,876,102      $ 589,687,376      $ 538,448,166   
                        

Reconciliation of net (loss)/income to net cash (used in)/provided by operating activities

      

Net (loss)/income

   $ (1,559,154   $ 2,535,812      $ 39,389,722   

Adjustments to reconcile net (loss)/income to net cash (used in)/provided by operating activities:

      

Receivable from accrued interest

     (167,448     (42,662     (2,325,782

Prior period receivable from accrued interest

     42,662        2,325,782        3,182,231   

Currency translation adjustment

     21,725        303,465        (461,816

Accrued sponsor fee

     139,083        195,543        240,140   

Prior period accrued sponsor fee

     (195,543     (240,140     (343,712
                        

Net cash (used in)/provided by operating activities

   $ (1,718,675   $ 5,077,800      $ 39,680,783   
                        

See Notes to Financial Statements.

 

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CurrencyShares® Euro Trust

Notes to Financial Statements

 

1. Organization and Description of the Trust

The CurrencyShares® Euro Trust (the “Trust”) was formed under the laws of the State of New York on December 5, 2005 when Rydex Specialized Products LLC d/b/a “Rydex Investments” (the “Sponsor”) deposited 100 euro 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 Rydex Advisors II, LLC (also d/b/a “Rydex 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 euro plus accrued interest 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 euro. The Trust’s assets primarily consist of euro on demand deposit in two deposit accounts maintained by the Depository: a primary deposit account which may earn 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 audited financial statements were prepared in accordance with accounting principles generally accepted in the United States of America.

 

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, liabilities and disclosures of contingent liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the period 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. Prior to November 13, 2008, euro deposits (cash) were translated for NAV calculation purposes at the Noon Buying Rate, which was the U.S. Dollar (“USD”)/euro exchange rate as determined and published by the Federal Reserve Bank of New York. As of November 13, 2008, euro deposits (cash) are translated for NAV calculation purposes at the Closing Spot Rate, which is the USD/euro exchange rate as determined by WM/Reuters at 4:00 PM (London time) on each day that NYSE Arca is open for regular trading.

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

 

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  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 euro. 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 euro 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 euro effective on the first business day of the subsequent month. The Trustee will direct that the excess euro be converted into USD at a 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). An income distribution of $0.00873 per share with an ex-dividend date of November 1, 2010 was paid on November 8, 2010.

 

3. Euro Deposits

Euro principal deposits are held in a euro-denominated, interest-bearing demand account. For the year ended October 31, 2010, there were euro principal deposits of 1,874,094,511, euro principal redemptions of 1,983,555,915 and euro withdrawals (to pay expenses) of 1,274,352, resulting in an ending euro principal balance of 278,954,364. This equates to 387,716,634 USD (which is net of USD redemptions payable). For the year ended October 31, 2009, there were euro principal deposits of 404,954,700, euro principal redemptions of 409,941,175 and euro withdrawals (to pay expenses) of 323,405, resulting in an ending euro principal balance of 389,690,120. This equates to 574,948,803 USD (which is net of USD redemptions payable). For the year ended October 31, 2008, there were euro principal deposits of 1,380,000,000 and euro principal redemptions of 1,660,000,000 resulting in an ending

 

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euro principal balance of 395,000,000. This equates to 500,939,000 USD (which is net of USD redemptions payable).

Net interest, if any, associated with creation and redemption activity is held in a euro-denominated non-interest-bearing account, and any balance is distributed in full as part of the monthly income distributions.

 

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 euro. Individual investors cannot purchase or redeem Shares in direct transactions with the Trust. Only 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 through 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. 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:

 

     Year ended
October 31, 2010
    Year ended
October 31, 2009
    Year ended
October 31, 2008
 
     Shares     U.S. Dollar
Amount
    Shares     U.S. Dollar
Amount
    Shares     U.S. Dollar
Amount
 

Opening balance

     3,900,000      $ 574,795,922        3,950,000      $ 502,378,480        6,750,000      $ 979,334,149   

Shares issued

     18,800,000        2,527,532,186        4,050,000        553,905,548        13,800,000        2,066,798,350   

Shares redeemed

     (19,900,000     (2,675,163,019     (4,100,000     (560,619,175     (16,600,000     (2,486,161,939

Adjustment to period Shares due to currency movement and other

     —          (39,424,045     —          79,131,069        —          (57,592,080
                                                

Ending balance

     2,800,000      $ 387,741,044        3,900,000      $ 574,795,922        3,950,000      $ 502,378,480   
                                                

The Trustee calculates the Trust’s NAV each business day. To calculate the NAV, the Trustee subtracts the Sponsor’s accrued fee through the previous day from the euro held by the Trust (including all unpaid interest accrued through the preceding day) and calculates the value of the euro 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 Trustee, in consultation with the Sponsor, determines that such price is inappropriate to use as the basis for the valuation. If the Trustee and the Sponsor determine that the most recent Closing Spot Rate is not an appropriate basis for valuation of the Trust’s euro, they 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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5. Selected Quarterly Information (Unaudited)

Fiscal Period Ended October 31, 2010:

 

     Three months
ended

October  31, 2010
    Three months
ended

July 31, 2010
    Three months
ended

April  30, 2010
    Three months
ended

January  31, 2010
 

Income

        

Interest income

   $ 310,708      $ 150,146      $ 113,344      $ 125,674   
                                

Total Income

     310,708        150,146        113,344        125,674   

Expenses

        

Sponsor’s fee

     (489,422     (528,334     (623,086     (618,184
                                

Total Expenses

     (489,422     (528,334     (623,086     (618,184

Net Loss

   $ (178,714   $ (378,188   $ (509,742   $ (492,510

Other Comprehensive (Loss)/Income:

        

Currency translation adjustment

     (8,160     (14,998     9,661        22,751   
                                

Total Comprehensive Loss

   $ (186,874   $ (393,186   $ (500,081   $ (469,759
                                

Basic and Diluted Earnings per Share

   $ (0.05   $ (0.09   $ (0.11   $ (0.12

Weighted-average Shares Outstanding

     3,718,478        4,171,739        4,708,427        4,227,174   

Cash Dividends per Share

   $ —        $ —        $ —        $ —     

Fiscal Period Ended October 31, 2009:

 

     Three months
ended

October  31, 2009
    Three months
ended

July 31, 2009
    Three months
ended

April  30, 2009
    Three months
ended

January  31, 2009
 

Income

        

Interest income

   $ 121,945      $ 500,289      $ 1,143,297      $ 3,090,116   
                                

Total Income

     121,945        500,289        1,143,297        3,090,116   

Expenses

        

Sponsor’s fee

     (573,536     (600,103     (575,001     (571,195
                                

Total Expenses

     (573,536     (600,103     (575,001     (571,195

Net (Loss)/Income

   $ (451,591   $ (99,814   $ 568,296      $ 2,518,921   

Other Comprehensive (Loss)/Income:

        

Currency translation adjustment

     (6,425     (1,857     9,949        (69,212
                                

Total Comprehensive (Loss)/Income

   $ (458,016   $ (101.671   $ 578,245      $ 2,449,709   
                                

Basic and Diluted Earnings per Share

   $ (0.12   $ (0.02   $ 0.13      $ 0.57   

Weighted-average Shares Outstanding

     3,860,326        4,275,000        4,530,899        4,405,435   

Cash Dividends per Share

   $ —        $ 0.04      $ 0.23      $ 0.80   

 

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6. Sponsor’s Fee

The Sponsor’s fee accrues daily at an annual nominal rate of 0.40% of the euro 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.

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.

 

7. 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.

 

8. Concentration Risk

All of the Trust’s assets are euro, which creates a concentration risk associated with fluctuations in the price of euro. Accordingly, a decline in the euro 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 euro 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. The price of euro has fluctuated widely over the past several years, and volatility has increased in recent months due, in part, to concern over the national debt levels of certain European Union members and the potential impact of this debt on the value of the euro. Substantial sales of euro by the official sector (central banks, other governmental agencies and related institutions that buy, sell and hold euro as part of their reserve assets) could adversely affect an investment in the Shares. All of the Trust’s euro 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.

 

9. 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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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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 in the City of Rockville, State of Maryland, on March 10, 2011.

 

CURRENCYSHARES®
EURO TRUST
By   Rydex Specialized Products LLC
  Sponsor of the CurrencyShares®
  Euro Trust
  By:  

/s/ NICK BONOS

    Nick Bonos
    Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities* and on the dates indicated.

 

Signature

  

Capacity

  

Date

/s/ NICK BONOS

   Director and Chief Executive Officer    March 10, 2011
Nick Bonos    (principal executive officer)   

/s/ JOSEPH ARRUDA

   Director and Chief Financial Officer    March 10, 2011
Joseph Arruda    (principal financial officer and principal accounting officer)   

/s/ MICHAEL BYRUM

   Director    March 10, 2011
Michael Byrum      

 

* The registrant is a trust and the persons are signing in their capacities as officers or directors of Rydex Specialized Products LLC, the Sponsor of the registrant.
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