ISHARES GOLD TRUST 10-Q 2012
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
For the quarterly period ended March 31, 2012
For the transition period from to
Commission file number: 001-32418
iShares® Gold Trust
(Exact name of registrant as specified in its charter)
c/o BlackRock Asset Management International Inc.
400 Howard Street
San Francisco, California 94105
Attn: Product Management Team
iShares® Product Research & Development
(Address of principal executive offices)
(Registrants telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
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 (§232.405 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 the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
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
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
At March 31, 2012 (Unaudited) and December 31, 2011
See notes to financial statements.
Income Statements (Unaudited)
For the three months ended March 31, 2012 and 2011
See notes to financial statements.
Statements of Changes in Shareholders Equity (Deficit)
For the three months ended March 31, 2012 (Unaudited)
and the year ended December 31, 2011
See notes to financial statements.
Statements of Cash Flows (Unaudited)
For the three months ended March 31, 2012 and 2011
See notes to financial statements.
Notes to Financial Statements (Unaudited)
March 31, 2012
1 - Organization
The iShares® Gold Trust (the Trust) was organized on January 21, 2005 as a New York trust. Prior to September 2, 2010, the Trust was known as iShares® COMEX® Gold Trust. The trustee is The Bank of New York Mellon (the Trustee), which is responsible for the day to day administration of the Trust. The Trusts sponsor is BlackRock Asset Management International Inc. (the Sponsor), a Delaware corporation. The Trust is governed by the Second Amended and Restated Depositary Trust Agreement dated as of September 2, 2010 (as amended, the Trust Agreement). The Trust issues units of beneficial interest (or Shares) representing fractional undivided beneficial interests in its net assets.
The objective of the Trust is for the value of its Shares to reflect, at any given time, the price of gold owned by the Trust at that time, less the Trusts expenses and liabilities. The Trust is designed to provide a vehicle for investors to own interests in gold bullion.
The accompanying unaudited financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) for interim financial information and with the instructions for Form 10-Q and the rules and regulations of the U.S. Securities and Exchange Commission (the SEC). 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 Trusts financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2011 as filed with the SEC on February 29, 2012.
The Trust is not an investment company registered under the Investment Company Act of 1940, as amended.
2 - Summary of Significant Accounting Policies
The following is a summary of significant accounting policies consistently followed by the Trust in the preparation of its financial statements in conformity with U.S. GAAP. The preparation of financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates and these differences could be material.
JPMorgan Chase Bank N.A., London branch (the Custodian), is responsible for the safekeeping of gold bullion owned by the Trust.
For financial statement purposes, the gold bullion held by the Trust is valued at the lower of cost or market, using the average cost method. Should the market value of the gold bullion held be lower than its average cost during the interim periods, an adjustment (market value reserve) to cost may be recorded by the Trust to reflect market value. At the end of the Trusts fiscal year, management will make a determination on whether the reserve is recovered or whether the cost basis of gold should be written down. Gain or loss on sales of gold bullion is calculated on a trade date basis. Fair value of the gold bullion is based on the price of gold fixed in the afternoon of each working day (London time) by the London Gold Market Fixing Ltd. (London PM Fix).
The following table summarizes activity in gold bullion for the three months ended March 31, 2012 (all balances in 000s):
The following table summarizes activity in gold bullion for the year ended December 31, 2011 (all balances in 000s):
Shares of the Trust are classified as redeemable for balance sheet purposes, since they are subject to redemption. Trust Shares are issued and redeemed continuously in aggregations of 50,000 Shares in exchange for gold bullion rather than cash. Individual investors cannot purchase or redeem Shares in direct transactions with the Trust. The Trust only transacts with registered broker-dealers eligible to settle securities transactions through the book-entry facilities of the Depository Trust Company and which have entered into a contractual arrangement with the Trust and the Sponsor governing, among other matters, the creation and redemption of Shares (such broker-dealers, the Authorized Participants). Holders of Shares of the Trust may redeem their Shares at any time acting through an Authorized Participant and in the prescribed aggregations of 50,000 Shares; provided, that redemptions of Shares may be suspended during any period while regular trading on NYSE Arca, Inc. (NYSE Arca) is suspended or restricted, or in which an emergency exists as a result of which delivery, disposal or evaluation of gold is not reasonably practicable.
The per Share amount of gold exchanged for a purchase or redemption is calculated daily by the Trustee, using the London PM Fix to calculate the gold amount in respect of any liabilities for which covering gold sales have not yet been made, and represents the per Share amount of gold held by the Trust, after giving effect to its liabilities, sales to cover expenses and liabilities and any losses that may have occurred.
When gold is exchanged in settlement of a redemption, it is considered a sale of gold for financial statement purposes.
Due to the expected continuing sales and redemption of capital stock and the three-day period for Share settlement, the Trust reflects capital Shares sold as a receivable, rather than as contra equity. Shares redeemed are reflected as a contra asset on the trade date. Outstanding Trust Shares are reflected at redemption value, which is the net asset value per Share at the period ended date. Adjustments to redemption value are reflected in shareholders equity.
Net asset value is computed by deducting all accrued fees, expenses and other liabilities of the Trust, including the Sponsors fees, from the fair value of the gold bullion held by the Trust.
Activity in redeemable capital Shares was as follows (all balances in 000s):
The Trust is treated as a grantor trust for federal income tax purposes and, therefore, no provision for federal income taxes is required. Any interest and gains and losses are deemed passed through to the holders of Shares of the Trust.
3 - Trust Expenses
The Trust pays to the Sponsor a Sponsors fee that accrues daily at an annualized rate equal to 0.25% of the adjusted net asset value of the Trust, paid monthly in arrears. The Sponsor has agreed to assume the following administrative and marketing expenses incurred by the Trust: the Trustees fee, the Custodians fee, NYSE Arca listing fees, SEC registration fees, printing and mailing costs, audit fees and expenses, and up to $100,000 per annum in legal fees and expenses.
4 - Related Parties
The Sponsor and the Trustee are considered to be related parties to the Trust. The Trustees fee is paid by the Sponsor and is not a separate expense of the Trust.
5 - Indemnification
Under the Trusts organizational documents, the Sponsor is indemnified against liabilities or expenses it incurs without negligence, bad faith or willful misconduct on its part. The Trusts 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.
6 - Concentration Risk
Substantially all of the Trusts assets are holdings of gold bullion, which creates a concentration risk associated with fluctuations in the price of gold. Accordingly, a decline in the price of gold will have an adverse effect on the value of the Shares of the Trust. Factors that may have the effect of causing a decline in the price of gold include large sales by the official sector (governments, central banks and related institutions), an increase in the hedging activities of gold producers, and changes in the attitude towards gold of speculators, investors and other market participants.
7 - Subsequent Events
In connection with the preparation of the financial statements of the Trust as of and for the period ended March 31, 2012, management has evaluated the impact of all subsequent events through the date the financial statements were issued and has determined that there were no subsequent events requiring adjustment or disclosure in the financial statements.
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
This information should be read in conjunction with the financial statements and notes to financial statements included in Item 1 of Part I of this Form 10-Q. The discussion and analysis that follows may contain statements that relate to future events or future performance. In some cases, such forward-looking statements can be identified by terminology such as may, should, expect, plan, anticipate, believe, estimate, predict, potential or the negative of these terms or other comparable terminology. Neither the Sponsor, nor any other person assumes responsibility for the accuracy or completeness of any forward-looking statements. Neither the Trust nor the Sponsor is under a duty to update any of the forward-looking statements to conform such statements to actual results or to a change in the Sponsors expectations or predictions.
The iShares® Gold Trust (the Trust) is a grantor trust formed under the laws of the State of New York. The Trust does not have any officers, directors, or employees, and is administered by The Bank of New York Mellon (the Trustee) acting as trustee pursuant to the Second Amended and Restated Depositary Trust Agreement (as amended, the Trust Agreement) between the Trustee and BlackRock Asset Management International Inc., the sponsor of the Trust (the Sponsor). The Trust issues units of beneficial interest (or Shares) representing fractional undivided beneficial interests in its net assets. The assets of the Trust consist primarily of gold bullion held by a custodian as an agent of the Trust responsible only to the Trustee.
The Trust is a passive investment vehicle and the objective of the Trust is for the value of each Share to approximately reflect, at any given time, the price of gold owned by the Trust less the Trusts liabilities (anticipated to be principally for accrued operating expenses) divided by the number of outstanding Shares. The Trust does not engage in any activities designed to obtain a profit from, or ameliorate losses caused by, changes in the price of gold.
The Trust issues and redeems Shares only in exchange for gold, only in aggregations of 50,000 Shares or integral multiples thereof (each, a Basket), and only in transactions with registered broker-dealers that have previously entered into an agreement with the Trust governing the terms and conditions of such issuance (such broker-dealers, the Authorized Participants). A list of current Authorized Participants is available from the Sponsor or the Trustee.
Shares of the Trust trade on NYSE Arca, Inc. under the symbol IAU.
Valuation of Gold; Computation of Net Asset Value
On each business day, as soon as practicable after 4:00 p.m. (New York time), the Trustee evaluates the gold held by the Trust and determines the net asset value of the Trust and the net asset value per Share. The Trustee values the gold held by the Trust using the price fixed by the London Gold Market Fixing Ltd. in the afternoon (London time) of the day the valuation takes place (such price, the London PM Fix). Having valued the gold held by the Trust, the Trustee then subtracts all accrued fees (other than the fees to be computed by reference to the value of the Trust or its assets), expenses and other liabilities of the Trust from the value of the gold and other assets of the Trust. The result is the adjusted net asset value of the Trust, which is used to compute all fees (including the Sponsors fee), which are calculated from the value of the Trusts assets. To determine the net asset value of the Trust, the Trustee subtracts from the adjusted net asset value of the Trust the amount of accrued fees computed from the value of the Trusts assets. The Trustee also computes the net asset value per Share, by dividing the net asset value of the Trust by the number of Shares outstanding on the date the computation is made.
The Trust is not aware of any trends, demands, conditions or events that are reasonably likely to result in material changes to its liquidity needs. In exchange for a fee, the Sponsor has agreed to assume 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 Sponsors fee. The Trusts only source of liquidity is its sales of gold.
Critical Accounting Policies
The financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements relies on estimates and assumptions that impact the Trusts financial position and results of operations. These estimates and assumptions affect the Trusts application of accounting policies. Below we describe the valuation of gold bullion, a critical accounting policy that we believe is important to understanding our results of operations and financial position. In addition, please refer to Note 2 to the financial statements for further discussion of our accounting policies.
Valuation of Gold Bullion
Gold bullion held by the Trust is recorded at the lower of cost or market. For purposes of this calculation, market values are based on the London PM Fix. Should the market value of the gold bullion held be lower than its average cost during the interim periods, an adjustment (market value reserve) to cost may be recorded by the Trust to reflect market value. At the end of the Trusts fiscal year, management will make a determination on whether the reserve is recovered or whether the cost basis of gold should be written down. As indicated above, the London PM Fix is also used to value gold bullion held for purposes of calculating the net asset value of the Trust, which in turn is used for the calculation of the redemption value of outstanding Trust Shares.
There are other indicators of the value of gold bullion that are available that could be different than that chosen by the Trust. The London PM Fix is used by the Trust because it is commonly used by the U.S. gold market as an indicator of the value of gold, and is permitted to be used under the Trust Agreement. The use of an indicator of the value of gold bullion other than the London PM Fix could result in materially different fair value pricing of the gold in the Trust, and as such, could result in different lower of cost or market adjustments or in different redemption value adjustments of the outstanding redeemable capital Shares.
Results of Operations
The Quarter Ended March 31, 2012
The Trusts net asset value grew from $8,416,800,552 at December 31, 2011 to $9,662,320,950 at March 31, 2012, a 14.80% increase. The increase in the Trusts net asset value resulted primarily from an increase in the London PM Fix price, which rose 8.59% from $1,531.00 at December 31, 2011 to $1,662.50 at March 31, 2012 and an increase in outstanding Shares, which rose from 563,850,000 Shares at December 31, 2011 to 596,450,000 Shares at March 31, 2012, a consequence of 37,700,000 Shares (754 Baskets) being created and 5,100,000 Shares (102 Baskets) being redeemed during the quarter.
The 8.51% increase in the Trusts net asset value per Share from $14.93 at December 31, 2011 to $16.20 at March 31, 2012 is directly related to the 8.59% increase in the London PM Fix price.
The Trusts net asset value per Share increased slightly less than the price of gold on a percentage basis due to Sponsors fees, which were $5,992,347 for the quarter, or 0.06% of the Trusts average weighted assets of $9,653,901,069 during the quarter. The net asset value per Share of $17.36 on February 28, 2012 was the highest during the quarter, compared with a low during the quarter of $15.58 on January 3, 2012. The net asset value of the Trust is obtained by subtracting the Trusts expenses and liabilities on any day from the value of the gold owned by the Trust on that day; the net asset value per Share is obtained by dividing the net asset value of the Trust on a given day by the number of Shares outstanding on that day.
Net income for the quarter ended March 31, 2012 was $16,991,964, resulting from a net gain of $1,636,056 on the sales of gold to pay expenses, and a net gain of $21,348,255 on gold distributed for the redemption of Shares, offset by the Sponsors fees of $5,992,347. Other than the Sponsors fees, the Trust had no expenses during the quarter.
Item 4. Controls and Procedures
The duly authorized officers of the Sponsor performing functions equivalent to those a principal executive officer and principal financial officer of the Trust would perform if the Trust had any officers, and with the participation of the Trustee, have evaluated the effectiveness of the Trusts disclosure controls and procedures, and have concluded that the disclosure controls and procedures of the Trust have been effective as of the end of the period covered by this report to provide reasonable assurance that information required to be disclosed in the reports that the Trust files or submits under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported, within the time periods specified in the applicable rules and forms, and that it is accumulated and communicated to the duly authorized officers of the Sponsor performing functions equivalent to those a principal executive officer and principal financial officer of the Trust would perform if the Trust had any officers, as appropriate to allow timely decisions regarding required disclosure.
There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures.
There were no changes in the Trusts internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Trusts internal control over financial reporting.
PART II OTHER INFORMATION
Item 1A. Risk Factors
There have been no material changes to the Risk Factors last reported under Part I, Item 1A of the registrants Annual Report on Form 10-K for the year ended December 31, 2011, filed with the Securities and Exchange Commission on February 29, 2012.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
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 in the capacities* indicated thereunto duly authorized.
Date: May 9, 2012
Date: May 9, 2012