Is it truly HT bypass

Normally you would have the subwoofer connected to your AV7005, and then analog L/R from the AV7005 into the DAC2 with HT bypass set for that pair of analog inputs.

@nekoaudio thanks for the response. In that case I am bypassing the preamp functionality of the DAC totally - right? But I do want to use the DAC2 preamp for 2.1 stereo playback and yet find a way when playing movies to leverage 5.1 - not sure how to. Maybe I have this whole thing wrong and confused. 

Correct. HT bypass means the volume control is disabled and instead there will be unity gain. It doesn't necessarily mean the DAC2 circuitry is being bypassed, although with some electronics a majority of circuitry will be bypassed.

For the following, I am going to assume you have one set of DAC2 analog outputs connected to your W5 and the second set of DAC2 analog outputs connected to your f112. And that you're currently okay with the fact both the L/R speakers and the f112 are receiving the full-range audio.

If you want to have the subwoofer work both through the AV7705 and when only using the DAC2, then you probably need to configure the AV7705 with no subwoofer, and tell the AV7705 to route all LFE and the lower frequencies of your center and surround speakers to the main L and R speakers.

Ideally, you would have a crossover somewhere for the L/R speakers and the subwoofer, so the subwoofer gets the low frequencies and the L/R speakers get the high frequencies. Especially for movies. But I'm not aware of the DAC2 having that functionality. And most of the time placing a preamp that crossover functionality into HT bypass disables the crossover.