The purpose of the trust is to own gold transferred to
the trust in exchange for shares issued by the trust (“iShares”). Each iShare represents a fractional undivided beneficial interest in the net assets of the trust. The assets of the trust consist primarily of gold held by the custodian on
behalf of the trust. However, there may be situations where the trust will unexpectedly hold cash. For example, a claim may arise against a third party, which is settled in cash. In situations where the trust unexpectedly receives cash or other
assets, no new iShares will be issued until after the record date for the distribution of such cash or other property has passed.
The trust was formed on
January 21, 2005 when an initial deposit of gold was made in exchange for the issuance of three Baskets (a “Basket” consists of 50,000 iShares).
The sponsor of the trust is Barclays Global Investors International, Inc. The trustee of the trust is The Bank of New York and the custodian is The Bank of Nova Scotia.
The trust’s net assets grew from $907,668,832 at December 31, 2006 to $1,481,289,446 by December 31, 2007, the trust’s fiscal year-end. Outstanding shares in the trust grew from 14,400,000 shares
at December 31, 2006 to 17,950,000 shares outstanding at December 31, 2007.
The activities of the trust are limited to (1) issuing Baskets
of iShares in exchange for the gold deposited with the custodian as consideration, (2) selling gold as necessary to cover the sponsor’s fee, trust expenses not assumed by the sponsor and other liabilities and (3) delivering gold in
exchange for Baskets of iShares surrendered for redemption. The trust is not actively managed. It does not engage in any activities designed to obtain a profit from, or to ameliorate losses caused by, changes in the price of gold.
The sponsor of the registrant maintains an Internet website at www.ishares.com, through which the registrant’s annual reports on Form 10-K, quarterly reports on
Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, are made available free of charge after they have been filed or
furnished to the Securities and Exchange Commission. Additional information regarding the trust may also be found on the SEC’s EDGAR database at www.SEC.gov.
Trust Objective
The objective of the trust is for the value of the iShares to reflect, at any given time, the price of gold owned by the
trust at that time less the trust’s expenses and liabilities. The iShares are intended to constitute a simple and cost-effective means of making an investment similar to an investment in gold. An investment in physical gold requires expensive
and sometimes complicated arrangements in connection with the assay, transportation, warehousing and insurance of the metal. Traditionally, such expense and complications have resulted in investments in physical gold being efficient only in amounts
beyond the reach of many investors. The iShares have been designed to remove the obstacles represented by the expense and complications involved in an investment in physical gold, while at the same time having an intrinsic value that reflects, at
any given time, the price of the gold owned by the trust at such time less the trust expenses and liabilities. Although the iShares are not the exact equivalent of an investment in gold, they provide investors with an alternative that allows a level
of participation in the gold market through the securities market.
An investment in iShares is:
Backed by gold held by the custodian on behalf of the trust.
The iShares are backed by the assets of the trust. The trustee’s arrangements with the custodian contemplate that at the end of each business day there can be in the trust account no more than 430 ounces of gold
in an unallocated form. Accordingly, the bulk of the trust’s gold holdings is represented by physical gold, identified on the custodian’s books as the property of the trust and held by the custodian in the vicinity of New York, Toronto,
Montreal, London and other locations that may be authorized in the future.
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As accessible and easy to handle as any other investment in shares.
Retail investors may purchase and sell iShares through traditional brokerage accounts. Because the intrinsic value of each iShare is a function of the
price of only a fraction of an ounce of gold held by the trust, the cash outlay necessary for an investment in iShares should be less than the amount required for currently existing means of investing in physical gold. iShares are eligible for
margin accounts.
Listed.
The iShares are listed and trade on the AMEX under the symbol “IAU.”
Relatively cost efficient.
Because the expenses involved in an investment in physical gold are dispersed among all holders of iShares, an investment in iShares may represent a
cost-efficient alternative to investments in gold for investors not otherwise in a position to participate directly in the market for physical gold.
Secondary Market Trading
While the objective of the trust is for the value of the iShares to reflect, at any given time, the price of gold
owned by the trust at that time less the trust’s expenses and liabilities, iShares may trade at, above or below their net asset value per iShare or NAV. The NAV of iShares will fluctuate with changes in the market value of the trust’s
assets. The trading prices of iShares will fluctuate in accordance with changes in their NAV as well as market supply and demand. The amount of the discount or premium in the trading price relative to the NAV may be influenced by non-concurrent
trading hours between the major gold markets and the AMEX. While the iShares trade on the AMEX until 4:15 P.M. New York time, liquidity in the market for gold may be reduced after the close of the major world gold markets, including London, Zurich
and COMEX (which usually closes from 1:30 P.M. until 2:00 P.M. New York time). As a result, during this time, trading spreads, and the resulting premium or discount, on iShares may widen. However, given that Baskets of iShares can be created and
redeemed in exchange for the underlying amount of gold, the sponsor believes that the arbitrage opportunities may provide a mechanism to mitigate the effect of such premium or discount.
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. For purposes of making these calculations, a business day means any day other than a day when the AMEX is closed for regular trading.
The trustee values the trust’s gold on the basis of that day’s announced COMEX settlement price for the spot month gold futures contract. At any
point in time, the spot month contract is the futures contract then closest to maturity. If there is no announced COMEX settlement price for spot month gold futures on a business day, the trustee is authorized to use the most recently announced
COMEX settlement price for spot month gold futures contracts unless the trustee, in consultation with the sponsor, determines that such price is inappropriate as a basis for evaluation.
The COMEX daily settlement price for each gold futures contract is established by a subcommittee of COMEX members shortly after the close of trading in New York. The daily settlement price for each contract (delivery
month) is derived from the daily settlement price for the most active futures contract month, which is not necessarily the spot month. That settlement price for the most active futures contract month is the average, rounded off to the nearest
multiple of ten cents, of the highest and lowest price of the trades for that contract month reported during the last one minute of trading prior to the close of the market.
For all other gold futures contract months, which may include the spot month, the settlement prices are determined by COMEX based upon the differentials reflected in spread trades between adjacent months, such
differentials being directly or indirectly related to the most active month. These differentials are determined by the average of the
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highest and lowest spread trades (trades based upon the differential between the price for two contract months) reported
during the last fifteen minutes of trading prior to the close of the market. In the case that there were no such spread trades, the average of the bids and offers for spread transactions during that last fifteen-minute period are used. In the case
that there were no such bids and offers during that time, the contracts are settled at prices consistent with the differentials for other contract months that were settled by the first or second method. If the third method is used, the subcommittee
of the COMEX members establishing those settlement prices provides a record of the differentials from other contract months which formed the basis for those settlements.
If the COMEX establishes, with the approval of, or after regulatory notification to, the Commodity Futures Trading Commission (“CFTC”), rules for regularly determining a gold price that is different from
that described above, the trustee, in consultation with the sponsor, may decide to evaluate the gold held by the trust using such other COMEX gold price, and the new price will become effective 60 days after notice of the trustee’s decision is
sent to the holders of iShares.
Once the value of the gold has been determined, the trustee 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 total value of the gold and all other assets of the trust. The resulting figure is the adjusted net asset value of the trust, which is used
to compute all fees (including the trustee’s and the sponsor’s fees) which are calculated from the value of the trust’s 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 trust’s assets. The trustee also determines the NAV by dividing the net
asset value of the trust by the number of the iShares outstanding at the time the computation is made.
Trust Expenses
The trust’s only ordinary recurring expense is expected to be the sponsor’s fee. In exchange for the sponsor’s fee the sponsor has agreed to assume the
following administrative and marketing expenses incurred by the trust: the trustee’s monthly fee, the custodian’s fee, AMEX 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.
The sponsor’s fee is accrued daily at an annualized rate equal to 0.40% of the adjusted net asset value of the
trust and is payable monthly in arrears. The trustee, at the direction of the sponsor, and, in the absence of such direction, in its discretion, sells gold in such quantity and at such times as is necessary to permit payment of the sponsor’s
fee and of trust expenses or liabilities not assumed by the sponsor. The trustee is authorized to sell gold at such times and in the smallest amounts required to permit such payments as they become due, it being the intention to avoid or minimize
the trust’s holdings of assets other than gold. Accordingly, the amount of gold sold may vary from time to time depending on the level of the trust’s expenses and the market price of gold. The custodian has agreed to purchase from the
trust, at the request of the trustee, gold needed to cover trust expenses at a price equal to the price used by the trustee to determine the value of the gold held by the trust on the date of the sale.
The sponsor was paid $4,276,778 for acting as the sponsor during the year ended December 31, 2007.
Deposit of Gold; Issuance of Baskets of iShares
The trust creates and redeems iShares on a continuous basis but only
in Baskets of 50,000 iShares. Only registered broker-dealers who have entered into written agreements with the sponsor and the trustee (each, an “Authorized Participant”) can deposit gold and receive Baskets of iShares in exchange. Upon
the deposit of the corresponding amount of gold with the custodian, and the payment of the trustee’s applicable fee and of any expenses, taxes or charges (such as stamp taxes or stock transfer taxes or fees), the trustee delivers the
appropriate number of Baskets to the DTC account of the depositing Authorized Participant. The sponsor and the trustee maintain a current list of Authorized Participants. Gold deposited with the custodian must either (a) meet the requirements
to be delivered in settlement of a COMEX gold futures contract pursuant to rules adopted by COMEX, or (b) meet the London Good Delivery Standards of the London Bullion Market Association.
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Before making a deposit, the Authorized Participant must deliver to the trustee a written purchase order indicating the
number of Baskets it intends to acquire and the location or locations where it expects to make the corresponding deposit of gold with the custodian. The date the trustee receives that order determines the amount of gold the Authorized Participant
needs to deposit (such amount, the “Basket Gold Amount”). However, orders received by the trustee after 4:00 p.m. (New York time) on a business day are treated as received on the next following business day. Gold can be delivered to the
custodian in the vicinity of New York, Toronto, Canada, Montreal, Canada, London, England, or at other locations that may be authorized in the future.
The
Basket Gold Amount necessary for the creation of a Basket changes from day to day. The initial Basket Gold Amount (in effect at the time of the creation of the trust) was 5,000 fine ounces of gold. On each day that the AMEX is open for regular
trading, the trustee adjusts the quantity of gold constituting the Basket Gold Amount as appropriate to reflect sales of gold, any loss of gold that may occur, and accrued expenses. The computation is made by the trustee as promptly as practicable
after 4:00 p.m. (New York time). See “Valuation of Gold; Computation of Net Asset Value” for a description of how the COMEX determines settlement prices, including the settlement price for the spot month gold futures contract and how the
trustee determines the NAV. The trustee determines the Basket Gold Amount for a given business day by multiplying the NAV by the number of iShares in each Basket (50,0000) and dividing the resulting product by that day’s COMEX settlement
price for the spot month gold futures contract. Fractions of a fine ounce of gold smaller than 0.001 fine ounce are disregarded for purposes of the computation of the Basket Gold Amount. The Basket Gold Amount so determined is communicated by the
sponsor to the market via its website for the iShares. The AMEX also publishes the Basket Gold Amount determined by the trustee as indicated above.
Because the sponsor has assumed what are expected to be most of the trust’s expenses, and the sponsor’s
fee accrues daily at the same rate (
i.e.
,
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/365th of the net asset value of the trust multiplied by 0.40%), in the absence of any
extraordinary expenses or liabilities the amount of gold by which the Basket Gold Amount decreases each day is predictable. The sponsor makes available on each business day, through the same website used to disseminate the actual Basket Gold Amount
determined by the trustee as indicated above, an indicative Basket Gold Amount for the next business day. Authorized Participants may use that indicative Basket Gold Amount as guidance regarding the amount of gold that they may expect to have to
deposit with the custodian in respect of purchase orders placed by them on such next business day and accepted by the trustee. The agreement entered with each Authorized Participant provides, however, that once a purchase order has been accepted by
the trustee, the Authorized Participant will be required to deposit with the custodian the Basket Gold Amount determined by the trustee on the effective date of the purchase order.
No iShares are issued unless and until the custodian has informed the trustee that it has allocated to the trust’s account (except that any amounts of less than 430 ounces may be held in the trust account on an
unallocated basis) the corresponding amount of gold. In accordance with the procedures that the custodian has agreed to follow in connection with the creation of iShares, gold received by the custodian no later than 11:30 a.m. (local time at the
place of delivery) is required to be allocated to the trust’s account no later than 9:00 a.m. (New York time) on
(a) the same day, if
it is delivered to the custodian’s account at The Bank of England;
(b) the second business day thereafter, if it does not exceed
(i) 500,000 fine ounces, in the case of gold that, prior to the transaction, was already in the possession of the custodian
(
e.g.
if the custodian held it for the account of the Authorized Participant party to the transaction), or
(ii) 50,000 fine
ounces, in the case of gold which, prior to the transaction, was not in the possession of the custodian (
i.e.
, gold that is first delivered in physical form to the custodian in connection with the transaction); or
(c) the fourth business day thereafter, in the case of more than 50,000 fine ounces but less than 100,000 fine ounces of gold that, prior to the
transaction, was not in the possession of the custodian.
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In all other cases, the custodian’s obligation is to allocate gold to the trust’s account as soon as
practicable after its receipt at the custodian’s facilities.
Redemption of Baskets of iShares; Withdrawal of Gold
Authorized Participants, acting on authority of the registered holder of iShares, may surrender Baskets of iShares in exchange for the corresponding Basket Gold Amount
announced by the trustee. Upon the surrender of such iShares and the payment of the trustee’s applicable fee and of any expenses, taxes or charges (such as stamp taxes or stock transfer taxes or fees), the trustee will deliver to the order of
the redeeming Authorized Participant the amount of gold corresponding to the redeemed Baskets. iShares can only be surrendered for redemption in Baskets of 50,000 iShares each.
Before surrendering Baskets of iShares for redemption, an Authorized Participant must deliver to the trustee a written request indicating the number of Baskets it intends to redeem and the location where it would like
to take delivery of the gold represented by such Baskets. The date the trustee receives that order determines the Basket Gold Amount to be received in exchange. However, orders received by the trustee after 4:00 p.m. (New York time) on a business
day are treated as received on the next following business day.
The custodian may make the gold available for collection at its office or at the office of
a sub-custodian if the gold is being held by a sub-custodian. Gold is delivered at the locations designated by the trustee, in consultation with the custodian. Redeeming Authorized Participants are entitled to express a preference as to where they
would like to have gold delivered, but have no right to receive delivery at a specified location.
Unless otherwise agreed to by the Custodian, gold is
delivered to the redeeming Authorized Participants in the form of physical bars only (except that any amount of less than 430 ounces may be transferred to an unallocated account of or as ordered by, the redeeming Authorized Participant).
Redemptions may be suspended only (i) during any period in which regular trading on the AMEX or the COMEX is suspended or restricted or one or both exchanges are
closed (other than scheduled holiday or weekend closings), or (ii) during an emergency as a result of which delivery, disposal or evaluation of gold is not reasonably practicable.
Fees and Expenses of the Trustee
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Each deposit of gold for the creation of Baskets of iShares and each surrender of Baskets of iShares for the purpose of withdrawing trust property (including if the
Trust Agreement terminates) must be accompanied by a payment to the trustee of a fee of $2,000.
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The trustee will be entitled to reimburse itself from the assets of the trust for all expenses and disbursements incurred by it for extraordinary services it may
provide to the trust or in connection with any discretionary action the trustee may take to protect the trust or the interests of the holders.
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Trust Expenses and Gold Sales
In addition to the fee payable to the sponsor, the following expenses are paid out of the assets of the
trust:
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any expenses or liabilities of the trust that are not assumed by the sponsor;
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any taxes and other governmental charges that may fall on the trust or its property;
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expenses and costs of any action taken by the trustee or the sponsor to protect the trust and the rights and interests of holders of iShares; and
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any indemnification of the sponsor as described below.
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The trustee sells the trust’s gold from time to time as necessary to permit payment of the fees and expenses that the trust is required to pay. See “Trust Expenses.”
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The trustee is not responsible for any depreciation or loss incurred by reason of sales of gold made in compliance with
the Trust Agreement.
Payment of Taxes
The trustee may
deduct the amount of any taxes owed from any distributions it makes. It may also sell trust assets, by public or private sale, to pay any taxes owed. Registered holders of iShares will remain liable if the proceeds of the sale are not enough to pay
the taxes.
Because the iShares are created to reflect the
price of the gold held by the trust, the market price of the iShares will be unpredictable. This creates the potential for losses, regardless of whether you hold iShares for a short-, mid-or long-term.
iShares are created to reflect, at any given time, the market price of gold owned by the trust at that time less the trust’s expenses and liabilities. Because the
value of iShares depends on the price of gold, it is subject to fluctuations similar to those affecting gold prices. The price of gold has fluctuated widely over the past several years. If gold markets continue to be characterized by the wide
fluctuations that they have shown in the past several years, the price of the iShares will change suddenly and in an unpredictable manner. This exposes your investment in iShares to potential losses if you need to sell your iShares at a time when
the price of gold is lower than it was when you made your investment in iShares. Even if you are able to hold iShares for the mid- or long-term you may never have a profit, because gold markets have historically experienced extended periods of flat
or declining prices.
Following an investment in iShares, several factors may have the effect of causing a decline in the prices of gold and a
corresponding decline in the price of iShares. Among them:
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Large sales including those by the official sector. A significant portion of the aggregate world gold holdings is owned by governments, central banks and related
institutions. If one or more of these institutions or other sellers decides to sell in amounts large enough to cause a decline in world gold prices, the price of the iShares will be adversely affected.
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A significant increase in gold hedging activity by gold producers. Should there be an increase in the level of hedge activity of gold producing companies, it could
cause a decline in world gold prices, adversely affecting the price of the iShares.
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A significant change in the attitude of speculators and investors towards gold. Should the speculative community take a negative view towards gold, it could cause a
decline in world gold prices, negatively impacting the price of the iShares.
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Conversely, several factors may trigger a temporary
increase in the price of gold prior to your investment in the iShares. If that is the case, you will be buying iShares at prices affected by the temporarily high prices of gold, and you may incur losses when the causes for the temporary increase
disappear.
The amount of gold represented by the iShares will continue to be reduced during the life of the trust due to the sales necessary to pay the
sponsor’s fee and trust expenses. Without increases in the price of gold sufficient to compensate for such reduction, the price of the iShares will also decline and you will lose money on your investment in iShares.
Although the sponsor has agreed to assume all organizational and certain ordinary administrative and marketing expenses incurred by the trust, not all trust expenses
have been assumed by the sponsor. For example, any taxes and other governmental charges that may be imposed on the trust’s property will not be paid by the sponsor. As part of its agreement to assume some of the trust’s ordinary
administrative expenses, the sponsor has agreed to pay legal fees and expenses of the trust not in excess of $100,000 per annum. Any legal fees and expenses in excess of that amount will be the responsibility of the trust.
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Because the trust does not have any income, it needs to sell gold to cover the sponsor’s fee and expenses not
assumed by the sponsor. The trust may also be subject to other liabilities (for example, as a result of litigation) which have also not been assumed by the sponsor. The only source of funds to cover those liabilities will be sales of gold held by
the trust. Even if there are no expenses other than those assumed by the sponsor, and there are no other liabilities of the trust, the trustee will still need to sell gold to pay the sponsor’s monthly fee. The result of these periodic sales is
that the amount of gold represented by each iShare will decrease. New deposits of gold, received in exchange for new iShares issued by the trust, do not reverse this trend.
A decrease in the amount of gold represented by each iShare results in a decrease in its price even if the price of gold has not changed. To retain the iShare’s original price, the price of gold has to increase.
Without that increase, the lower amount of gold represented by the iShare will have a correspondingly lower price. If these increases do not occur, or are not sufficient to counter the lower amount of gold represented by each iShare, you will
sustain losses on your investment in iShares.
An increase in the trust expenses not assumed by the sponsor, or the existence of unexpected liabilities
affecting the trust, will force the trustee to sell larger amounts of gold, and will result in a more rapid decrease of the amount of gold represented by each iShare and a corresponding decrease in its value.
The trust is a passive investment vehicle. This means that the value of your iShares may be adversely affected by trust losses that, if the trust had been actively
managed, it might have been possible to avoid.
The trustee does not actively manage the gold held by the trust. This means that the trustee does not
sell gold at times when its price is high, or acquire gold at low prices in the expectation of future price increases. It also means that the trustee does not make use of any of the hedging techniques available to professional gold investors to
attempt to reduce the risks of losses resulting from price decreases. Any losses sustained by the trust will adversely affect the value of your iShares.
The price received upon the sale of iShares may be less than the value of the gold represented by them.
The result obtained by subtracting
the trust’s expenses and liabilities on any day from the price of the gold owned by the trust on that day is the net asset value of the trust which, when divided by the number of iShares outstanding on that date, results in the net asset value
per iShare (“ NAV”).
iShares may trade at, above or below their NAV. The NAV of iShares will fluctuate with changes in the market value of the
trust’s assets. The trading prices of iShares will fluctuate in accordance with changes in their NAVs as well as market supply and demand. The amount of the discount or premium in the trading price relative to the NAV per iShare may be
influenced by non-concurrent trading hours between the major gold markets and the AMEX. While the iShares will trade on the AMEX until 4:15 P.M. New York time, liquidity in the market for gold will be reduced after the close of the major world gold
markets, including London, Zurich and COMEX (which usually closes from 1:30 P.M. until 2:00 P.M. New York time). As a result, during this time, trading spreads, and the resulting premium or discount on iShares, may widen.
The liquidation of the trust may occur at a time when the disposition of the trust’s gold will result in losses to investors in iShares.
The trust will have limited duration. If certain events occur, at any time, the trustee will have to terminate the trust. Otherwise, the trust will terminate
automatically after forty years.
Upon termination of the trust, the trustee will sell gold in the amount necessary to cover all expenses of liquidation,
and to pay any outstanding liabilities of the trust. The remaining gold will be distributed among investors surrendering iShares. Any gold remaining in the possession of the trustee after 90 days may be sold by the trustee and the proceeds of the
sale will be held by the trustee until claimed by any remaining holders of iShares. Sales of gold in connection with the liquidation of the trust at a time of low prices will likely result in losses, or adversely affect your gains, on your
investment in iShares.
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There may be situations where an Authorized Participant is unable to redeem a basket of shares. To the extent the
value of gold decreases, these delays may result in a decrease in the value of the gold the Authorized Participant will receive when the redemption occurs, as well as a reduction in liquidity for all shareholders in the secondary market.
Although iShares surrendered by Authorized Participants in basket-size aggregations are redeemable in exchange for the underlying amount of gold,
redemptions may be suspended during any period while regular trading on the AMEX or COMEX is suspended or restricted, or in which an emergency exists that makes it reasonably impracticable to deliver, dispose of, or evaluate gold. If any of these
events occurs at a time when an Authorized Participant intends to redeem iShares, and the price of gold decreases before such Authorized Participant is able again to surrender for redemption baskets of iShares, such Authorized Participant will
sustain a loss with respect to the amount that it would have been able to obtain in exchange for the gold received from the trust upon the redemption of its iShares, had the redemption taken place when such Authorized Participant originally intended
it to occur. As a consequence, Authorized Participants may reduce their trading in iShares during periods of suspension, decreasing the number of potential buyers of iShares in the secondary market and, therefore, the price a shareholder may receive
upon sale.
The liquidity of the iShares may also be affected by the withdrawal from participation of Authorized Participants.
In the event that one of more Authorized Participants which have substantial interests in iShares withdraw from participation, the liquidity of the iShares will likely
decrease, which could adversely affect the market price of the iShares and result in your incurring a loss on your investment.
Authorized Participants
with large holdings may choose to terminate the trust.
Holders of 75% of the iShares have the power to terminate the trust. This power may be
exercised by a relatively small number of holders. If it is so exercised, investors who wished to continue to invest in gold through the vehicle of the trust will have to find another vehicle, and may not be able to find another vehicle that offers
the same features as the trust.
The lack of an active trading market for the iShares may result in losses on your investment at the time of disposition
of your iShares.
Although iShares are listed for trading on the AMEX, you should not assume that an active trading market for the iShares will develop
or be maintained. If you need to sell your iShares at a time when no active market for them exists, such lack of an active market will most likely adversely affect the price you receive for your iShares (assuming you are able to sell them).
If the process of creation and redemption of Baskets of iShares encounters any unanticipated difficulties, the possibility for arbitrage transactions
intended to keep the price of the iShares closely linked to the price of gold may not exist and, as a result, the price of the iShares may fall.
If
the processes of creation and redemption of shares (which depend on timely transfers of gold to and by the custodian) encounter any unanticipated difficulties, potential market participants who would otherwise be willing to purchase or redeem
Baskets of iShares to take advantage of any arbitrage opportunity arising from discrepancies between the price of the iShares and the price of the underlying gold may not be able to realize the profit they expect. If this is the case, the liquidity
of the iShares may decline and the price of the iShares may fluctuate independently of the price of gold and may fall.
As an owner of iShares, you will
not have the rights normally associated with ownership of other types of shares.
iShares are not entitled to the same rights as shares issued by a
corporation. By acquiring iShares, you are not acquiring the right to elect directors, to receive dividends, to vote on certain matters regarding the issuer of your iShares or to take other actions normally associated with the ownership of shares.
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As an owner of iShares, you will not have the protections normally associated with ownership of shares in an
investment company registered under the Investment Company Act of 1940, or the protections afforded by the Commodity Exchange Act of 1936.
The trust
is not registered as an investment company for purposes of United States federal securities laws, and is not subject to regulation by the SEC as an investment company. Consequently, the owners of iShares do not have the regulatory protections
provided to investors in investment companies. For example, the provisions of the Investment Company Act that limit transactions with affiliates, prohibit the suspension of redemptions (except under certain limited circumstances) or limit sales
loads do not apply to the trust.
The trust does not hold or trade in commodity futures contracts regulated by the Commodity Exchange Act
(“CEA”), as administered by the Commodity Futures Trading Commission (“CFTC”). Furthermore, the trust is not a commodity pool for purposes of the CEA, and its sponsor is not subject to regulation by the CFTC as a commodity pool
operator, or a commodity trading advisor. Consequently, the owner of iShares does not have the regulatory protections provided to investors in CEA-regulated instruments or commodity pools. Consequently, the trustee is not subject to registration as
a commodity pool operator and the owners of iShares do not receive the disclosure document and certified annual report required to be delivered by a commodity pool operator.
The value of the iShares will be adversely affected if gold owned by the trust is lost or damaged in circumstances in which the trust is not in a position to recover the corresponding loss.
The responsibility of the custodian for loss or damage to the trust’s gold is not unlimited. The agreement with the custodian contemplates that under certain
circumstances the custodian will not be responsible for loss or damage to the trust’s gold in the custodian’s possession. For example, losses due to nuclear accidents, terrorism, riots, acts of God, insurrections, strikes and similar
causes beyond the control of the custodian will be sustained by the trust. Any loss of gold owned by the trust will result in a corresponding loss in the NAV and it is reasonable to expect that such loss will also result in a decrease in the value
at which the iShares are traded on the AMEX.
Gold transferred to the trust in connection with the creation of Baskets of iShares may not be of the
quality required under the Trust Agreement. The trust will sustain a loss if the trustee issues iShares in exchange for gold of inferior quality and that loss will adversely affect the value of all existing iShares.
The procedures agreed to with the custodian contemplate that the custodian must undertake certain tasks in connection with the inspection of gold delivered by Authorized
Participants in exchange for Baskets of iShares. The custodian’s inspection includes review of the corresponding bar list to ensure that it accurately describes the weight, fineness, refiner marks and bar numbers appearing on the gold bars, but
does not include any chemical or other tests designed to verify that the gold received does, in fact, meet the purity requirements referred to in the Trust Agreement. Accordingly, such inspection procedures may not prevent the deposit of gold that
fails to meet these purity standards. Each person that deposits gold in the trust is liable to the trust if that gold does not meet the requirements of the Trust Agreement. The custodian will not be responsible or liable to the trust or to any
investor in the event any gold otherwise properly inspected by it does not meet the purity requirements contained in the Trust Agreement. To the extent that Baskets of iShares are issued in exchange for gold of inferior quality and the trust is not
able to recover damages from the person that deposited that gold, the total value of the assets of the trust will be adversely affected and, with it, the NAV. In these circumstances, it is reasonable to expect that the value at which the iShares
trade on the AMEX will also be adversely affected.
The value of the iShares will be adversely affected if the trust is required to indemnify the
sponsor or the custodian as contemplated in the Trust Agreement and the custodian agreement.
Under the Trust Agreement, the sponsor has a right to be
indemnified from the trust for any liability or expense it incurs without negligence, bad faith or willful misconduct on its part. That means the sponsor may require the assets of the trust to be sold in order to cover losses or liability suffered
by the sponsor. Any sale of that kind would reduce the net asset value of the trust and the value of the iShares.
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