UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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☒ |
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
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For the quarterly period ended March 31, 2014 |
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☐ |
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
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For the transition period from _______ to _______ |
Commission file number: 001-32418
iShares® Gold Trust
(Exact name of registrant as specified in its charter)
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New York |
81-6124036 |
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(State or other jurisdiction of |
(I.R.S. Employer |
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incorporation or organization) |
Identification No.) |
c/o iShares® Delaware Trust Sponsor LLC
400 Howard Street
San Francisco, California 94105
Attn: Product Management Team
iShares® Product Research & Development
(Address of principal executive offices)
(415) 670-2000
(Registrant’s telephone number, including area code)
N/A
(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 ☒ 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 ☒ 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.
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Large accelerated filer ☒ |
Accelerated filer ☐ |
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Non-accelerated filer ☐ |
Smaller reporting company ☐ |
(Do not check if a 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 ☒
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Item 1. |
1 | |
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1 | ||
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Income Statements for the three months ended March 31, 2014 and 2013 |
2 | |
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3 | ||
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Statements of Cash Flows for the three months ended March 31, 2014 and 2013 |
4 | |
| Schedule of Investments at March 31, 2014 | 5 | |
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6 | ||
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
11 |
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Item 3. |
12 | |
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Item 4. |
12 | |
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Item 1. |
13 | |
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Item 1A. |
13 | |
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Item 2. |
13 | |
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Item 3. |
13 | |
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Item 4. |
13 | |
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Item 5. |
13 | |
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Item 6. |
14 | |
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15 | ||
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets (Unaudited)
At March 31, 2014 and December 31, 2013
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(Dollar amounts in $000’s, except for per Share amounts) |
March 31, 2014 |
December 31, 2013 |
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ASSETS |
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Current assets |
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Investment in gold bullion |
$ | 6,860,967 | (a) | $ | — | |||
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Gold bullion inventory |
— | 6,329,194 | (b) | |||||
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Payable for capital Shares redeemed |
— | (56,772 | ) | |||||
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TOTAL ASSETS |
$ | 6,860,967 | $ | 6,272,422 | ||||
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LIABILITIES, REDEEMABLE CAPITAL SHARES AND SHAREHOLDERS’ EQUITY (DEFICIT) |
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Current liabilities |
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Sponsor’s fees payable |
$ | 1,510 | $ | 1,393 | ||||
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Total liabilities |
1,510 | 1,393 | ||||||
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Commitments and contingent liabilities (Note 6) |
— | — | ||||||
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Redeemable capital Shares (at redemption value) |
— | 6,271,029 | ||||||
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Shareholders’ equity (deficit) |
6,859,457 | (c) | — | |||||
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TOTAL LIABILITIES, REDEEMABLE CAPITAL SHARES AND SHAREHOLDERS’ EQUITY (DEFICIT) |
$ | 6,860,967 | $ | 6,272,422 | ||||
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Shares issued and outstanding(d) |
547,700,000 | 538,000,000 | ||||||
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Net asset value per Share(e) |
$ | 12.52 | ||||||
(a) Presented at fair value at March 31, 2014 (cost: $6,397,523).
(b) Presented at the lower of cost or market value at December 31, 2013 (fair value: $6,272,422). Please refer to Note 2C.
(c) Represents net asset value. Please refer to Note 2D.
(d) No par value, unlimited amount authorized.
(e) Effective January 1, 2014, the Trust qualifies as an investment company for accounting purposes. Disclosure of net asset value per Share is required for investment companies. Please refer to Note 2B.
See notes to financial statements.
Income Statements (Unaudited)
For the three months ended March 31, 2014 and 2013
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Three Months Ended March 31, |
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(Dollar amounts in $000’s, except for per Share amounts) |
2014 |
2013 |
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Revenue |
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Proceeds from sales of gold bullion inventory to pay expenses |
$ | — | $ | 7,189 | ||||
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Cost of gold bullion inventory sold to pay expenses |
— | (5,819 | ) | |||||
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Gain on sales of gold bullion inventory to pay expenses |
— | 1,370 | ||||||
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Gain on gold bullion distributed for the redemption of Shares |
— | 150,642 | ||||||
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Total gain on sales and distributions of gold bullion |
— | 152,012 | ||||||
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Expenses |
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Sponsor’s fees |
4,184 | 7,018 | ||||||
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Total expenses |
4,184 | 7,018 | ||||||
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Net investment loss(a) |
(4,184 | ) | ||||||
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Net Realized and Unrealized Gain (Loss) |
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Net realized gain from investment in gold bullion sold to pay expenses |
234 | — | ||||||
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Net realized gain from gold bullion distributed for the redemption of Shares |
3,828 | — | ||||||
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Net change in unrealized appreciation/depreciation on investment in gold bullion |
463,444 | — | ||||||
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Net realized and unrealized gain |
467,506 | — | ||||||
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NET INCOME |
$ | 463,322 | $ | 144,994 | ||||
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Net income per Share |
$ | 0.85 | $ | 0.20 | ||||
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Weighted-average Shares outstanding |
542,006,667 | 717,346,111 | ||||||
(a) Effective January 1, 2014, the Trust qualifies as an investment company for accounting purposes. Net investment loss is applicable to investment companies. Please refer to Note 2B.
See notes to financial statements.
Statements of Changes in Shareholders’ Equity (Deficit) (Unaudited)
For the three months ended March 31, 2014 and the year ended December 31, 2013
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(Dollar amounts in $000’s) |
Three Months Ended March 31, 2014 |
Year Ended December 31, 2013 |
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Shareholders’ equity (deficit) – beginning of period(a) |
$ | 6,271,029 | (b) | $ | (2,332,728 | ) | ||
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Subscriptions |
202,435 | — | ||||||
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Redemptions |
(77,329 | ) | — | |||||
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Net investment loss |
(4,184 | ) | — | |||||
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Net realized gain from investment in gold bullion sold to pay expenses |
234 | — | ||||||
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Net realized gain from gold bullion distributed for the redemption of Shares |
3,828 | — | ||||||
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Net change in unrealized appreciation/depreciation on investment in gold bullion |
463,444 | — | ||||||
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Net loss |
— | (628,066 | ) | |||||
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Adjustment of redeemable capital Shares to redemption value |
— | 2,960,794 | ||||||
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Shareholders’ equity (deficit) – end of period |
$ | 6,859,457 | (b) | $ | — | |||
(a) The Trust reclassified redeemable capital Shares as of December 31, 2013 into shareholders’ equity as part of its transition to investment company accounting effective January 1, 2014. Please refer to Note 2B.
(b) Represents net asset value. Please refer to Note 2D.
See notes to financial statements.
Statements of Cash Flows (Unaudited)
For the three months ended March 31, 2014 and 2013
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Three Months Ended March 31, |
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(Dollar amounts in $000’s) |
2014 |
2013 |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
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Proceeds from sales of gold bullion inventory to pay expenses |
$ | 4,067 | $ | 7,189 | ||||
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Expenses – Sponsor’s fees paid |
(4,067 | ) | (7,189 | ) | ||||
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Net cash provided by operating activities |
— | — | ||||||
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Increase (decrease) in cash |
— | — | ||||||
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Cash, beginning of period |
— | — | ||||||
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Cash, end of period |
$ | — | $ | — | ||||
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RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES: |
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Net income |
$ | 463,322 | $ | 144,994 | ||||
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Proceeds from sales of investment in gold bullion sold to pay expenses |
4,067 | — | ||||||
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Net realized gain from investment in gold bullion sold to pay expenses |
(234 | ) | — | |||||
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Cost of gold bullion inventory sold to pay expenses |
— | 5,819 | ||||||
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Net realized gain from gold bullion distributed for the redemption of Shares |
(3,828 | ) | (150,642 | ) | ||||
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Net change in unrealized appreciation/depreciation on investment in gold bullion |
(463,444 | ) | — | |||||
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Change in operating assets and liabilities: |
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Sponsor’s fees payable |
117 | (171 | ) | |||||
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Net cash provided by operating activities |
$ | — | $ | — | ||||
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Supplemental disclosure of non-cash information: |
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Gold bullion contributed for subscription of Shares(a) |
$ | 202,435 | $ | 672,521 | ||||
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Gold bullion distributed for redemption of Shares(a) |
$ | (77,329 | ) | $ | (790,973 | ) | ||
(a) Presented at fair value for the three months ended March 31, 2014 and at cost for the three months ended March 31, 2013.
See notes to financial statements.
Schedule of Investments(a) (Unaudited)
At March 31, 2014
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(All balances in 000’s) Description |
Ounces |
Cost |
Fair Value |
Percentage of Net Asset Value |
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Gold bullion |
5,311.4 | $ | 6,397,523 | $ | 6,860,967 | 100.02 | % | |||||||||
(a) Effective January 1, 2014, the Trust qualifies as an investment company for accounting purposes. Disclosure of a schedule of investments is required for investment companies. Please refer to Note 2B.
See notes to financial statements.
Notes to Financial Statements (Unaudited)
March 31, 2014
1 - Organization
The iShares® Gold Trust (the “Trust”) was organized on January 21, 2005 as a New York 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 Trust’s sponsor is iShares® Delaware Trust Sponsor LLC, a Delaware limited liability company (the “Sponsor”). The Trust is governed by the Third Amended and Restated Depositary Trust Agreement (the “Trust Agreement”) executed by the Trustee and the Sponsor as of February 28, 2013. The Trust issues units of beneficial interest (or “Shares”) representing fractional undivided beneficial interests in its net assets.
The Trust seeks to reflect generally the performance of the price of gold. The Trust seeks to reflect such performance before payment of the Trust’s 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 Trust’s financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2013, as filed with the SEC on February 28, 2014.
Effective January 1, 2014, the Trust qualifies as an investment company for accounting purposes and follows the accounting and reporting guidance under the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 946, Financial Services – Investment Companies (“Topic 946”), but is not registered, and is not required to be registered, under the Investment Company Act of 1940, as amended (the “Investment Company Act”). Please refer to Note 2B Investment Company Status.
2 - Summary of Significant Accounting Policies
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A. |
Basis of Accounting |
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.
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B. |
Investment Company Status |
In June 2013, the FASB issued Accounting Standards Update 2013-08, Investment Companies – Amendments to the Scope, Measurement, and Disclosure Requirements (“ASU 2013-08”). ASU 2013-08 is an update to Topic 946 that provides guidance to assess whether an entity is an investment company, and gives additional measurement and disclosure requirements for an investment company. ASU 2013-08 is effective for interim and annual periods beginning after December 15, 2013 and is required to be applied prospectively. Assessment of the Trust’s status as an investment company under ASU 2013-08 determined that the Trust meets all of the fundamental characteristics of an investment company for accounting purposes. As a result, effective January 1, 2014, the Trust qualifies as an investment company solely for accounting purposes pursuant to the accounting and reporting guidance under Topic 946, but is not registered, and is not required to be registered, under the Investment Company Act.
As a result of the prospective application at ASU 2013-08, certain disclosures required of Topic 946 are only presented for periods beginning January 1, 2014. Financial statements and disclosures for periods prior to January 1, 2014 will continue to be presented in their previously reported form, however certain captions have been changed. The primary changes to the financial statements resulting from the adoption of ASU 2013-08 and application of Topic 946 include:
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reporting of gold bullion at fair value on the Balance Sheet, which was previously reported at the lower of cost or market; |
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● |
recognition of the change in unrealized appreciation or depreciation on investments in gold bullion is reported on the Income Statement, which was previously reported as an “Adjustment to redeemable capital Shares to redemption value” on the Statement of Changes in Shareholders’ Equity (Deficit); |
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● |
Shares of the Trust are classified as “Shareholders’ equity,” representing the net asset value on the Balance Sheet, which was previously classified as “Redeemable capital Shares.” An adjustment was recorded at January 1, 2014 to reclassify the balance of redeemable capital Shares at December 31, 2013 into shareholders’ equity as follows (all balances in 000’s): |
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Balance at |
ASU 2013-08 Transition Adjustment |
Balance at |
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Redeemable capital Shares |
$ | 6,271,029 | $ | (6,271,029 | ) | $ | — | ||||||
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Shareholders’ equity |
— | 6,271,029 | 6,271,029 | ||||||||||
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● |
the addition of a Schedule of Investments and a Financial Highlights note to the financial statements. |
ASU 2013-08 prescribes that an entity that qualifies as an investment company as a result of an assessment of its status shall account for the effect of the change in status prospectively from the date of the change in status and shall recognize any impact as a cumulative effect adjustment to the net asset value at the beginning of the period. No cumulative effect adjustment to net asset value was required to be recorded as a result of adopting ASU 2013-08 because the fair value of gold bullion held by the Trust equaled the cost of gold bullion held by Trust at December 31, 2013 and therefore there was no accumulated shareholders’ equity (deficit).
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C. |
Gold Bullion |
JPMorgan Chase Bank N.A., London branch (the “Custodian”), is responsible for the safekeeping of gold bullion owned by the Trust.
Beginning January 1, 2014, the gold bullion held by the Trust is valued at fair value. Prior to January 1, 2014, the gold bullion held by the Trust was valued at the lower of cost or market, using the average cost method. In applying the lower of cost or market valuation, if the fair value of the gold bullion held was lower than its average cost during the interim periods, an adjustment (“market value reserve”) to cost was recorded by the Trust to reflect fair value. If the fair value of the gold bullion held increased subsequent to the market value reserve being recorded, a “market value recovery” was recorded during an interim period in the same fiscal year that the market value reserve had been recorded by the Trust. The market value recovery recorded at an interim period could not exceed the previously recognized market value reserve. At the end of the Trust’s fiscal year, management made a determination as to whether the reserve was recovered or whether the cost basis of gold bullion was written down. The market value reserve, market value recovery and inventory write down each were reported as a component of “Adjustment to gold bullion inventory.”
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”). If there is no announced London PM Fix on a business day, the Trustee is authorized to use the most recently announced price fixed by the London Gold Market Fixing Ltd. in the morning (London time) of the day the valuation takes place (such price, the “London AM Fix”).
Gain or loss on sales of gold bullion is calculated on a trade date basis using the average cost method.
The following table summarizes activity in gold bullion for the three months ended March 31, 2014 (all balances in 000’s):
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Ounces |
Average |
Fair |
Net Realized |
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Beginning balance |
5,220.5 | $ | 6,272,422 | $ | 6,272,422 | $ | — | |||||||||
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Gold bullion contributed |
155.2 | 202,435 | 202,435 | — | ||||||||||||
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Gold bullion distributed |
(61.1 | ) | (73,501 | ) | (77,329 | ) | 3,828 | |||||||||
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Gold bullion sold |
(3.2 | ) | (3,833 | ) | (4,067 | ) | 234 | |||||||||
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Net realized gain on gold bullion |
— | — | 4,062 | — | ||||||||||||
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Net change in unrealized appreciation/depreciation on investment in gold bullion |
— | — | 463,444 | — | ||||||||||||
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Ending balance |
5,311.4 | $ | 6,397,523 | $ | 6,860,967 | $ | 4,062 | |||||||||
The following table summarizes activity in gold bullion for the year ended December 31, 2013 (all balances in 000’s):
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Ounces |
Average |
Fair |
Realized |
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Beginning balance |
6,999.9 | $ | 9,315,055 | $ | 11,647,783 | $ | — | |||||||||
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Gold bullion contributed |
614.6 | 928,370 | 928,370 | — | ||||||||||||
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Gold bullion distributed |
(2,378.2 | ) | (3,199,151 | ) | (3,341,845 | ) | 142,694 | |||||||||
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Gold bullion sold |
(15.8 | ) | (21,261 | ) | (22,834 | ) | 1,573 | |||||||||
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Adjustment to gold bullion inventory(a) |
— | (750,591 | ) | — | — | |||||||||||
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Adjustment for realized gain on gold bullion |
— | — | 144,267 | — | ||||||||||||
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Adjustment for unrealized loss on gold bullion |
— | — | (3,083,319 | ) | — | |||||||||||
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Ending balance |
5,220.5 | $ | 6,272,422 | $ | 6,272,422 | $ | 144,267 | |||||||||
(a) At December 31, 2013, the market value of the gold bullion was below the average cost of the Trust’s gold bullion inventory held. As a result, the Trust recorded a permanent write down against the average cost of the gold bullion inventory of $750,590,665.
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D. |
Calculation of Net Asset Value |
On each business day, as soon as practicable after 4:00 p.m. (New York time), the net asset value of the Trust is obtained by subtracting all accrued fees, expenses and other liabilities of the Trust from the fair value of the gold held by the Trust and other assets of the Trust. The result is the net asset value of the Trust. The Trustee 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.
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E. |
Offering of the Shares |
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 that are eligible to settle securities transactions through the book-entry facilities of the Depository Trust Company and that 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. If there is no announced London PM Fix on a business day, the Trustee is authorized to use the most recently announced London AM Fix.
When gold bullion is exchanged in settlement of a redemption, it is considered a sale of gold bullion for accounting purposes.
As noted in Note 2B above, beginning January 1, 2014, Shares of the Trust are classified as shareholders’ equity. The Trust reflects Shares issued and Shares redeemed within shareholders’ equity on trade date.
Share activity was as follows (all balances in 000’s):
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Three Months Ended |
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Shares |
Amount |
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Shares issued |
16,000 | $ | 202,435 | |||||
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Shares redeemed |
(6,300 | ) | (77,329 | ) | ||||
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Net increase |
9,700 | $ | 125,106 | |||||
Prior to January 1, 2014, Shares of the Trust were classified as “redeemable” for balance sheet purposes. Due to the expected continuing sales and redemption of capital stock and the three-day period for Share settlement, the Trust reflected redeemable capital Shares sold as a receivable, rather than as contra equity. Shares redeemed were reflected as a contra asset on the trade date. Outstanding Trust Shares were reflected at redemption value, which was the net asset value per Share at the period end date. Adjustments to redemption value were reflected in shareholders’ equity (deficit).
Activity in redeemable capital Shares was as follows (all balances in 000’s):
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Year Ended |
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Shares |
Amount |
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Beginning balance |
719,550 | $ | 11,645,298 | |||||
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Shares issued |
63,250 | 928,370 | ||||||
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Shares redeemed |
(244,800 | ) | (3,341,845 | ) | ||||
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Redemption value adjustment |
— | (2,960,794 | ) | |||||
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Ending balance |
538,000 | $ | 6,271,029 | |||||
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F. |
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. Any interest, expenses, gains and losses are “passed through” to the holders of Shares of the Trust.
The Sponsor has reviewed the tax positions as of March 31, 2014 and has determined that no provision for income tax is required in the Trust’s financial statements.
3 - Trust Expenses
The Trust pays to the Sponsor a Sponsor’s fee that accrues daily at an annualized rate equal to 0.25% of the 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 Trustee’s fee, the Custodian’s 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 Trustee’s fee is paid by the Sponsor and is not a separate expense of the Trust.
5 - Indemnification
The Trust Agreement provides that the Sponsor and its shareholders, directors, officers, employees, affiliates (as such term is defined under the Securities Act of 1933, as amended) and subsidiaries shall be indemnified from the Trust and held harmless against any loss, liability, or expense arising out of or in connection with the performance of their obligations under the Trust Agreement or any actions taken in accordance with the provisions of the Trust Agreement and incurred without their (1) negligence, bad faith or willful misconduct or (2) reckless disregard of their obligations and duties under the Trust Agreement.
The Trust has agreed to indemnify the Custodian for any loss incurred in connection with the Custodian Agreement, other than losses due to the Custodian’s negligence, fraud or willful default.
6 - Commitments and Contingent Liabilities
In the normal course of business, the Trust may enter into contracts with service providers that contain general indemnification clauses. The Trust’s 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.
7 - Concentration Risk
Substantially all of the Trust’s 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.
8 - Financial Highlights
Effective January 1, 2014, the Trust qualifies as an investment company for accounting purposes. Disclosure of financial highlights is required for investment companies. Please refer to Note 2B. The following financial highlights relate to investment performance and operations for a Share outstanding for the period from January 1, 2014 to March 31, 2014.
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Three Months Ended March 31, 2014 |
||||
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Net asset value per Share, beginning of period |
$ | 11.66 | ||
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Net investment loss(a) |
(0.01 | ) | ||
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Net realized and unrealized gain(a) |
0.87 | |||
|
Net increase in net assets from operations |
0.86 | |||
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Net asset value per Share, end of period |
$ | 12.52 | ||
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Total return, at net asset value(b) |
7.38 | % | ||
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Ratio to average net assets: |
||||
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Net investment loss(c) |
(0.25 | )% | ||
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Expenses(c) |
0.25 | % | ||
(a) Based on average Shares outstanding during the period.
(b) Based on the change in net asset value of a Share during the period. Percentage is not annualized.
(c) Percentage is annualized.
9 - Investment Valuation
FASB Codification Topic 820, Fair Value Measurements and Disclosures, defines fair value as the price the Trust would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. Beginning January 1, 2014, the Trust’s policy is to value its investments at fair value.
Various inputs are used in determining the fair value of assets and liabilities. Inputs may be based on independent market data (“observable inputs”) or they may be internally developed (“unobservable inputs”). These inputs are categorized into a disclosure hierarchy consisting of three broad levels for financial reporting purposes. The level of a value determined for an asset or liability within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement in its entirety. The three levels of the fair value hierarchy are as follows:
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Level 1 – |
Unadjusted quoted prices in active markets for identical assets or liabilities; |
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Level 2 – |
Inputs other than quoted prices included within Level 1 that are observable for the asset or liability either directly or indirectly, including quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not considered to be active, inputs other than quoted prices that are observable for the asset or liability, and inputs that are derived principally from or corroborated by observable market data by correlation or other means; and |
| Level 3 – | Unobservable inputs that are unobservable for the asset or liability, including the Trust’s assumptions used in determining the fair value of investments. |
At March 31, 2014, the value of the gold bullion held by the Trust is categorized as Level 1.
Item 2. Management’s 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,” “could,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential” or the negative of these terms or other comparable terminology. Except as required by applicable disclosure laws, 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 Sponsor’s expectations or predictions.
Introduction
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 Third Amended and Restated Depositary Trust Agreement (the “Trust Agreement”) between the Trustee and iShares® Delaware Trust Sponsor LLC, 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 seeks to reflect generally the performance of the price of gold. The Trust seeks to reflect such performance before payment of the Trust’s expenses and liabilities. 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”). If there is no announced London PM Fix on a business day, the Trustee is authorized to use the most recently announced price fixed by the London Gold Market Fixing Ltd. in the morning (London time) of the day the valuation takes place (such price, the “London AM Fix”). Having valued the gold held by the Trust, the Trustee then subtracts all accrued fees, expenses and other liabilities of the Trust from the value of the gold and other assets of the Trust. The result is the net asset value of the Trust. The Trustee 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.
Liquidity
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 Sponsor’s fee. The Trust’s 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 Trust’s financial position and results of operations. These estimates and assumptions affect the Trust’s 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 the Trust’s accounting policies.
Valuation of Gold Bullion
Beginning January 1, 2014, the gold bullion held by the Trust is valued at fair value. Prior to January 1, 2014, gold bullion held by the Trust was recorded at the lower of cost or market. In applying the lower of cost or market valuation, if the fair value of the gold bullion held was lower than its average cost during the interim periods, an adjustment (“market value reserve”) to cost was recorded by the Trust to reflect fair value. If the fair value of the gold bullion held increased subsequent to the market value reserve being recorded, a “market value recovery” was recorded during an interim period in the same fiscal year that the market value reserve had been recorded by the Trust. The market value recovery recorded at an interim period could not exceed the previously recognized market value reserve. At the end of the Trust’s fiscal year, management made a determination as to whether the reserve was recovered or whether the cost basis of gold bullion was written down. The market value reserve, market value recovery and inventory write down each were reported as a component of “Adjustment to gold bullion inventory.”
Fair value of the gold bullion is based on the London PM Fix. If there is no announced London PM Fix on a business day, the Trustee is authorized to use the most recently announced London AM Fix.
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 Shares.
Results of Operations
The Quarter Ended March 31, 2014
The Trust’s net asset value grew from $6,271,029,069 at December 31, 2013 to $6,859,456,971 at March 31, 2014, a 9.38% increase. The increase in the Trust’s net asset value resulted primarily from an increase in the London fix price, which rose 7.51% from $1,201.50 at December 31, 2013 to $1,291.75 at March 31, 2014. The Trust’s net asset value also benefited from an increase in outstanding Shares, which rose from 538,000,000 Shares at December 31, 2013 to 547,700,000 Shares at March 31, 2014, a consequence of 16,000,000 Shares (320 Baskets) being created and 6,300,000 Shares (126 Baskets) being redeemed during the quarter.
The 7.38% rise in the Trust’s net asset value per Share from $11.66 at December 31, 2013 to $12.52 at March 31, 2014 is directly related to the 7.51% increase in the London fix price.
The Trust’s net asset value per Share increased slightly less than the price of gold on a percentage basis due to the Sponsor’s fees, which were $4,183,876 for the quarter, or 0.06% of the Trust’s average weighted assets of $6,793,711,557 during the quarter. The net asset value per Share of $13.43 on March 14, 2014 was the highest during the quarter, compared with a low during the quarter of $11.84 on January 8, 2014. The net asset value of the Trust is obtained by subtracting the Trust’s 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, 2014 was $463,321,693, resulting from a net investment loss of $4,183,876, a net gain of $234,018 from investment in gold bullion sold to pay expenses, a net gain of $3,827,855 on gold bullion distributed for the redemption of Shares and unrealized appreciation on investment in gold bullion of $463,443,696. Other than the Sponsor’s fees of $4,183,876, the Trust had no expenses during the quarter.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
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, with the participation of the Trustee, have evaluated the effectiveness of the Trust’s 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 Trust’s 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 Trust’s internal control over financial reporting.
None.
There have been no material changes to the Risk Factors last reported under Part I, Item 1A of the registrant’s Annual Report on Form 10-K for the year ended December 31, 2013, filed with the Securities and Exchange Commission on February 28, 2014.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
a) None.
b) Not applicable.
c) 6,300,000 Shares (126 Baskets) were redeemed during the quarter ended March 31, 2014.
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Period |
Total Number of Shares |
Average Ounces of |
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01/01/14 to 01/31/14 |
3,200,000 | 0.0097 | ||||||
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02/01/14 to 02/28/14 |
— | — | ||||||
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03/01/14 to 03/31/14 |
3,100,000 | 0.0097 | ||||||
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Total |
6,300,000 | 0.0097 | ||||||
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
None.
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Exhibit No. |
Description | |
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4.1 |
Third Amended and Restated Depositary Trust Agreement is incorporated by reference to Exhibit 4.1 filed with Annual Report on Form 10-K on February 28, 2013 | |
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4.2 |
Standard Terms for Authorized Participant Agreements is incorporated by reference to Exhibit 4.2 filed with Amendment No. 1 to Annual Report on Form 10-K filed by the registrant on November 12, 2008 | |
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10.1 |
First Amended and Restated Custodian Agreement between The Bank of New York Mellon and JPMorgan Chase Bank N.A., London branch, is incorporated by reference to Exhibit 10.1 filed with Current Report on Form 8-K on September 2, 2010 | |
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10.2 |
Sub-license Agreement is incorporated by reference to Exhibit 10.2 filed with Amendment No. 1 to Annual Report on Form 10-K filed by the registrant on November 12, 2008 | |
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10.3 |
First Amendment to First Amended and Restated Custodian Agreement between The Bank of New York Mellon and JPMorgan Chase Bank N.A., London branch, is incorporated by reference to Exhibit 10.1 filed with Current Report on Form 8-K on February 14, 2012 | |
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10.4 |
Assignment, Delegation and Assumption Agreement between BlackRock Asset Management International Inc. and iShares® Delaware Trust Sponsor LLC is incorporated by reference to Exhibit 10.4 filed with Post-Effective Amendment No. 1 to Registration Statement No. 333-184325 on November 16, 2012 | |
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31.1 |
Certification by Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
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31.2 |
Certification by Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
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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 | |
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32.2 |
Certification by Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
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101.INS |
XBRL Instance Document | |
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101.SCH |
XBRL Taxonomy Extension Schema Document | |
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101.CAL |
XBRL Taxonomy Extension Calculation Linkbase Document | |
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101.DEF |
XBRL Taxonomy Extension Definition Linkbase Document | |
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101.LAB |
XBRL Taxonomy Extension Label Linkbase Document | |
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101.PRE |
XBRL Taxonomy Extension Presentation Linkbase Document |
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.
iShares® Delaware Trust Sponsor LLC
Sponsor of the iShares® Gold Trust (registrant)
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/s/ Patrick J. Dunne |
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Patrick J. Dunne
President and Chief Executive Officer
(Principal executive officer)
Date: May 12, 2014
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/s/ Jack Gee |
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Jack Gee
Chief Financial Officer
(Principal financial and accounting officer)
Date: May 12, 2014
* The registrant is a trust and the persons are signing in their capacities as officers of iShares® Delaware Trust Sponsor LLC, the Sponsor of the registrant.
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